AIG shares tumble 15%
Shares fall after Bernstein Research says AIG's loss reserve is $11 billion short and cuts the insurance giant's price target by 40%.
NEW YORK (CNNMoney.com) -- Shares of AIG plunged nearly 15% Monday after an analyst hacked the insurance giant' price target 40% in a research note on worries about the company's loss reserves.
In a research note, Bernstein Research analyst Todd Bault told investors he cut AIG's price target to $12 from $20 and said the insurer's "loss reserves are significantly deficient again, much sooner than we would have forecast two years ago."
Bault projected that AIG's loss reserves are short $11 billion, with $10 billion concentrated in "long-tailed" casualty lines: $1.8 billion in workers compensation, $5.6 billion in general liability and $2.6 billion in professional liability.
The $11 billion deficiency equates to about $10 per share and was a "big surprise" to Bault, who said the implications are "significant."
"AIG shareholders and the Federal government face considerably more uncertainty than they may have anticipated: recall that AIG's insurance units were not generally considered to be part of its problem. In fact, early in AIG's downfall, borrowing surplus from AIG's insurance units was considered a possibility for saving the holding company," the Bernstein Research note said.
After having received $82 billion in taxpayer-funded bailout funds, the insurance company is now essentially owned by the government.