Carl Icahn's AIG Analysis Makes One Giant Assumption

• American International Group Inc (NYSE: AIG) shares are up 14.48 percent year-to-date, almost touching their 52 week high on December 1.
• Janney’s Larry Greenberg has maintained a Neutral rating on the company.
• Greenberg disagreed with Carl Icahn’s initial letter to AIG’s management, which indicated that Icahn believed that the stock could trade over $100 per share if broken up.

Analyst Larry Greenberg stated, “The world of AIG has ascended to new heights in the last month with the addition of activist investor Carl Icahn’s letters, statements and disclosure of his 42M ownership stake.”

However, management is clearly against breaking the company up into three pieces, although they acknowledged that “there could be opportunities to divest certain business units.”

Icahn had quoted John Paulson in his initial letter to management, asserting that the stock could trade at more than $100 per share if AIG was broken up, expenses were brought down and returns were close to the industry average.

Related Link: Credit Suisse Believes 'Carl Icahn Benefit' Already Priced Into AIG

Greenberg, however, believes that “the key piece of this statement relates to producing returns in-line with the industry, which would represent a substantial improvement from today’s performance.”

According to the Janney report, the company’s problem started when Hank Greenberg was forced to leave. This was followed by a financial crisis where “AIG had little choice but to make accommodations to retain business at a time when large corporate clients were unbundling their insurance risks.”

Although the company has worked to overcome these challenges, with efforts such as shifting the product mix to a higher mix of property oriented risks and updating systems after several years of underinvestment.

However, Greenberg expressed concerns regarding AIG’s recent tendency to over-rely on technology to deal with underwriting issues, as well as the challenge of “turning around an underwriting organization when loss reserves are deficient more often than not.”