AIG: Sale of Travel Insurance Business Makes Strategic Sense

AIG announced that it will sell its personal travel insurance business to Zurich Insurance Group for $600 million, plus an earn-out provision. While we don’t hold a negative view of the travel insurance business, we think AIG’s P&C operations are overly diversified and view efforts to focus the business positively. AIG has made major strides in improving its underwriting performance in recent years and has largely closed the gap between its peers. But as currently constructed, we think it would be difficult for AIG to develop a moat. We believe the best chance of this would be to focus on specialty commercial lines, and reducing the size of personal line operations would be a step in this direction. The deal is too small to have a material impact on our $72 fair value estimate, which we will maintain. We see shares as roughly fairly valued at the moment.