Is AIG's Impressive 5-Year Shareholder Return and Recent Valuation Gains Justified Amid a Transformation-Driven Outlook?

American International Group (AIG) has emerged as a focal point for investors seeking value in the insurance sector, with its 5-year shareholder return and recent valuation gains sparking debates about whether the company's transformation justifies its current multiples. This analysis examines AIG's financial performance, strategic shifts, and valuation metrics to determine if optimism about its future is warranted or overextended.

AIG's 5-Year Shareholder Return: A Tale of Strategic Reinvention

AIG's 5-year total shareholder return (TSR) from 2020 to 2025 has outperformed many peers in the insurance sector, driven by a combination of capital discipline, operational restructuring, and a pivot toward core businesses. The deconsolidation of Corebridge Financial in June 2024 marked a pivotal moment, allowing AIG to streamline operations and focus on its General Insurance and Life Insurance segments. This strategic shift has translated into improved underwriting performance, with the General Insurance segment reporting an 81% year-over-year increase in underwriting income for Q3 2025.

The company's capital return initiatives have also bolstered shareholder value. In Q3 2025 alone, AIG returned $1.5 billion to shareholders through share repurchases and dividends according to Q3 2025 results. Such actions align with a broader trend of post-pandemic deleveraging and capital optimization, which have historically rewarded insurers that balance growth with prudence.

Valuation Realism: P/E and P/B Ratios in Context

To assess whether AIG's valuation gains are justified, we turn to its price-to-earnings (P/E) and price-to-book (P/B) ratios. As of September 30, 2025, AIG's stock closed at a price of $78.13, while its book value per share stood at $75.45 according to Q3 2025 results. This yields a P/B ratio of approximately 1.03, a modest premium to book value. For insurance companies, where book value is a critical metric, this suggests the market is valuing AIG conservatively, reflecting its risk-averse capital structure and regulatory constraints.

The P/E ratio, however, tells a different story. Using the reported net income per diluted share of $0.93, AIG's trailing P/E is roughly 84.01. This high multiple implies significant growth expectations, particularly given the sector's average P/E of around 12–15. While AIG's adjusted after-tax income (AATI) of $2.20 per share according to Q3 2025 results suggests stronger earnings power, the disparity between reported net income and adjusted metrics raises questions about the sustainability of its current valuation.

Growth Optimism: Can AIG Deliver?

AIG's recent performance offers some justification for optimism. Its core operating return on equity of 13.6%-well above the 5.0% overall ROE-indicates that its strategic focus on core businesses is paying off. The General Insurance segment's combined ratio of 86.8% (a 580 basis point improvement year-over-year) further underscores improved underwriting discipline. Additionally, AIG's strategic investments in Convex Group and Onex Corporation according to Q3 2025 results signal a willingness to innovate in a competitive market.

However, risks remain. The deconsolidation of Corebridge, while beneficial for clarity, has also removed a significant revenue stream. AIG's adjusted book value per share rose to $77.04, but this metric excludes intangible assets and goodwill, which could limit upside potential. Moreover, the company's leadership transition-marked by the withdrawal of John Neal as president-introduces uncertainty about long-term strategic direction.

Valuation vs. Growth: A Delicate Balance

The key question is whether AIG's current valuation reflects realistic expectations for its transformation. A P/B ratio near 1.03 is typical for insurers, but the elevated P/E of 84.01 demands exceptional growth to justify. AIG's Q3 results, including a 77% year-over-year increase in adjusted earnings per share, suggest momentum, but sustaining such growth will require navigating macroeconomic headwinds, including rising interest rates and inflationary pressures on claims costs.

Furthermore, the recent speculation about a potential Chubb acquisition-now deemed "very unlikely" by analysts-highlights the volatility of investor sentiment. While M&A could unlock value, AIG's current strategy appears focused on organic growth and capital efficiency rather than transformative deals.

Conclusion: A Cautionary Bull Case

AIG's 5-year shareholder return and recent valuation gains are rooted in a credible transformation narrative, with improved underwriting performance and disciplined capital returns supporting its case. However, the high P/E ratio suggests the market is pricing in aggressive growth assumptions that may not materialize without further operational execution. For investors, the key is to monitor AIG's ability to maintain its core ROE above 10% and sustain underwriting margins in a challenging environment. If it can do so, the current valuation may prove justified. If not, the premium embedded in its P/E could erode.

In the end, AIG's story is one of cautious optimism-a company that has restructured itself for long-term resilience but must now prove it can deliver consistent growth to match its lofty multiples.