AIG's Strong Q4 2025 Earnings Highlight Growth, but DeepValue Report Questions Sustainability Amid Transition

What happened

AIG reported Q4 2025 earnings with adjusted after-tax income per diluted share rising 51% year-over-year to $1.96 and underwriting income increasing 48% to $670 million, emphasizing record underwriting success. However, the DeepValue master report cautions that recent earnings beats have been heavily reliant on benign catastrophe experience, favorable prior-year reserve releases, and aggressive buybacks funded by finite Corebridge proceeds. Critical examination reveals that without these transient boosts, underlying accident-year combined ratios—ex-cats and prior-year development—may not show sustainable improvement, as seen in Q3 2025 where they held flat at 88.3%. The report further underscores risks from AIG's increasing exposure to alternative assets via partnerships like CVC and the impending CEO transition to Eric Andersen in mid-2026, which could disrupt underwriting discipline. Thus, while the headline numbers are positive, they may overstate the durability of operational gains amid ongoing strategic complexity.

Implication

The robust earnings growth reinforces AIG's turnaround narrative but does not alleviate concerns about earnings quality, as highlighted in the DeepValue report's focus on transient benefits like low catastrophes and reserve releases. Investors must scrutinize Q4 details for signs of normalized performance versus temporary boosts, especially as the company faces a CEO transition that introduces execution risk to underwriting discipline. Increased allocations to alternative assets through CVC and other partnerships add complexity and potential volatility, making future earnings less predictable. With the stock trading near fair value at ~1.0x book, the upside remains limited until evidence of sustainable sub-90% combined ratios emerges. Therefore, maintaining a wait-and-see approach is prudent until 2026 results under new leadership confirm durable improvement.

Thesis delta

The positive Q4 2025 earnings align with AIG's recent momentum but do not shift the core investment thesis, which remains a 'WAIT' due to unresolved concerns about earnings sustainability and leadership transition. Investors should await full-year 2025 results and 2026 guidance for proof that accident-year combined ratios can stay below 90% with normalized catastrophes and stable alternative asset performance. An upgrade to a 'BUY' would require consistent evidence of these factors, while any deterioration in underwriting margins or capital returns could trigger a downgrade.