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NEW YORK (TheStreet) -- American International Group (AIG) - Get American International Group, Inc. Report has lagged other major property and casualty insurance carriers in improving its underwriting results, but the shares are a bargain, according to Bank of America Merrill Lynch analyst Jay Cohen.

AIG was up over 3% in early trading. 

The insurer's shares closed at $47.29 Monday and traded for just 0.75 times their reported Sept. 30 tangible book value, excluding other comprehensive income, of $62.68. The shares are also cheap on a forward P/E basis, trading for 9.4 times the consensus 2015 earnings estimate of $5.02 a share, among analysts polled by Thomson Reuters.

AIG will announce its fourth-quarter results on Feb. 13, with analysts expecting earnings of $1.402 billion, or 95 cents a share, on revenue of $8.563 billion. This compares to earnings of $1.421 billion, or 96 cents a share, on revenue of $8.427 billion in the third quarter, and net income of $290 million, or 20 cents a share, on revenue of $8.613 billion, during the fourth quarter of 2012. The results for the fourth quarter of 2012 reflected a $4.4 billion write-down on AIG's planned sale of its International Lease Finance Corp. (ILFC) subsidiary.

Cohen in a note to clients on Tuesday wrote, "AIG is our top long pick for 2014 among the property/casualty insurance group... We believe concerns following 3Q results were overdone and see several catalysts for the stock over the next year."

The analyst moved AIG to his firm's "US 1" list, since the shares at Tuesday's close had "pulled back to levels last seen following the 3Q earnings announcement."

AIG's stock valuation looks very low when compared to an average price-to-book ratio of 1.17 for non-life insurance companies covered by Bank of America Merrill Lynch.

The major concern for investors following the third quarter was AIG's P&C underwriting results. The company's P&C insurance unit had an underwriting loss of $135 million during the third quarter, compared to an underwriting loss of $441 million during the third quarter of 2012. The P&C combined ratio improved to 101.6% during the third quarter from 105.0% a year earlier.

The combined ratio is an insurer's claims and expenses divided by its earned premiums. A ratio below 100% indicates an underwriting profit.

For the first three quarters of 2013, AIG's P&C unit showed an underwriting loss of $129 million, improving considerably from an underwriting loss of $838 million a year earlier. The P&C combined ratio for the first three quarters was 100.5%, improving from 103.2% a year earlier.

In contrast, many of AIG's P&C competitors have been showing P&C underwriting profits, as the company has adopted more rational premium pricing over the past few years and has benefitted from a decline in overall catastrophe losses this year.

Allstate (ALL) - Get Allstate Corporation Report, for example, reported underwriting income in its Property-Liability unit of $1.424 billion for the first three quarters of 2013, increasing from $1.316 billion during the first three quarters of 2012. The unit's combined ratio was 93.1% for the first three quarters, improving from 93.4% a year earlier.

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"In our view, the underlying earnings miss in [AIG's] P/C unit was due to normal volatility in catastrophe and severe losses rather than any underlying issues at the company," Cohen wrote.

Looking ahead, the analyst expects AIG to build on its eight-quarter streak of improved P&C underwriting results.

"While market pricing may be less supporting of margin improvement, we do expect commercial lines price increases to remain ahead of underlying claims inflation through much of 2014 and other actions the company is taking should continue to drive better loss ratios."

Cohen also expects AIG's expenses to decline, following two years of heavy investments in underwriting and financial reporting systems.

Another positive catalyst for AIG's shares may spring from the company's second attempt to sell ILFC, this time to AerCap Holdings (AER) - Get AerCap Holdings NV Report, which is expected to be completed during the second quarter.

"We expect AIG to buy back $10 billion of stock over the next two years funded in part with $5.8 billion coming from ILFC proceeds," Cohen wrote.

AIG's shares were up 3.3% in morning trading Tuesday, to $48.85.

The following chart shows the performance of AIGs stock against the S&P 500 ^GSPC since the end of 2012:

data by YCharts

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.