Earnings Diagnosis: AIG Is Back from the Brink

(MoneyWatch)  American International Group is due to report fourth quarter results February 26 before the opening bell, the last major public insurance company to do so. Judging by the drumbeat of positive publicity, the world's worst-kept secret--that AIG is alive and getting well --is out.

An insurance blog had the headline, "American International Group May Be on the Road to Recovery." It quotes Nomura Securities International's Managing Director David Havens, as saying that, "AIG has pulled out of what could have been a death spiral."

Not previously known as a big fan of AIG, Bloomberg News reversed course when Bloomberg BusinessWeek ran a favorable article that Barron's, with a note of jealousy, headlined "BusinessWeek Trumpets AIG's Revival." Bloomberg News then followed up with a second story, "AIG: There's a Pulse." The piece reinforced its positive view of the insurer's core businesses: property casualty, life and commercial insurance. And in a third article, Bloomberg News said, "AIG is showing stable revenue for insurance units."

Of course, the core businesses were never the problem, at least not until AIG got in trouble because of the portfolio of toxic mortgage-backed securities at its Financial Products unit. But even these seem to be doing better, according to recent reports, and AIG isn't in a hurry to dump them anymore.

There are two wild cards that could cream what looks like a pretty good hand. One is AIG's investment portfolio. Some insurers have done exceptionally well in the most recent quarter, based on their "alternative investments" with hedge funds and private equity, which have outperformed the market of late. No one knows how AIG has fared. The other is its property-casualty portfolio. Competing P-C insurers, such as Chubb, say that AIG is buying clients, even bad ones, for ridiculously low prices in an effort to raise revenue. That could ultimately prove costly if the insurer has to pay excessive future claims.

AIG will also have losses due to restructuring charges involved in getting rid of some of its unwanted foreign life insurance units, according to CNN Money. But that doesn't generally worry investors, who look at ongoing operations rather than those a company is sloughing off.

AIG's earnings report will, as usual, be complicated and difficult to understand. Only three analysts cover the troubled empire, and AIG doesn't appear to be holding the usual conference call with investors (unless you consider the one it obviously had with Bloomberg). But the broad outlines are evident: The company is climbing out of the shadow of the valley of death.

That said, its stock is still only half the $56 a share it traded at last August when investors were excited about new CEO Robert Benmosche.