New York’s fiery Attorney General has landed another blow -- this time against the insurance industry. In a lawsuit announced last Thursday, Spitzer accused insurance broker Marsh & McLennan of rigging bids to inflate its own commission income at the expense of customers.
Unfortunately, Marsh needed accomplices inside the insurance companies -- and two of the bad apples, it turns out, were employees of a subsidiary of American International Group (NYSE: AIG). The two have pleaded guilty to criminal charges.
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What effect will this latest brouhaha have on AIG’s long-term business prospects? Little to none. In a conference call this morning, AIG Chairman Hank Greenberg said it wouldn’t make much difference financially whether the company paid straight commissions to brokers or so-called “contingent” commissions (the type of deal that gave rise to the scandal).
In addition, Greenberg sees “no material impact” on premiums industry-wide if contingent-commission arrangements are eliminated (as now seems likely). Hurricanes, earthquakes and other disasters influence the cost of insurance far more than brokerage fees do.
Now trading at only 11X my estimate of 2005 earnings, AIG is rub-your-eyes, almost unbelievably cheap. Remember, this is a triple-A-quality insurer, the strongest and safest in the world.
I expect the company to mount a major stock buyback within the next few days. Don’t let Hank get there before you do! AIG rates a buy all the way up to $71. From today’s level, I think you’ll double your money over the next three to four years.
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