AIG (AIG): UGC Sale Provides A Steady Income Strem, Raising PT - BMO

BMO Capital analyst, Charles Sebaski, reiterated his Market Perform rating on shares of American International Group (NYSE: AIG) and sees the sale of United Guaranty Corp. (UGC) to Arch as helping to improve AIG's earnings profile in 2017. This is on account of selling the business whole as opposed to the 19% IPO, as well as in structuring the transaction to keep a material interest in accident years 2014 through 2016, which are expected to be very profitable.

The analyst estimates that the quota share arrangement will generate nearly $300 million of pre-tax income to AIG over the four years following the close of the UGC sale, of which $130 million should hit in 2017. This means despite selling the business for 1.25x book value, AIG will reap 20% of the model return in 2017.

These actions have made the analyst more comfortable recommending the stock at current levels and he increased his price target to $64.00.

For an analyst ratings summary and ratings history on American International Group click here. For more ratings news on American International Group click here.

Shares of American International Group closed at $58.86 yesterday.

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