Could it be time to start kicking the tires on AIG?

It hardly seems like an auspicious moment. Shares have lost half their value this year, including a 3% walloping Wednesday, making the New York-based insurer the worst-performing big stock in the market. The supposedly smart money is having second thoughts, and AIG’s aig accounting, never exactly a strong suit, is being questioned again in an unwelcome blast from the past.

How low can it go?


Even when the government manages to claw back some of the $182 billion it offered up to bail the insurer out, there’s a hitch. An offering that was supposed to bring taxpayers a nice bonus for all their support the past three years turned into a bit of a white-knuckle ride Tuesday. Treasury did cut its stake to 74%, but it sold less stock than initially expected at a barely break-even price.

Yet if you look close enough you see signs that AIG may have turned a corner on the road to recovery. AIG’s No. 2 executive, Peter Hancock, told analysts on a conference call this month that the company was done writing new policies for the sake of puffing up its revenue numbers.

“To some extent we are moving away from any kind of top-line targeting,” Hancock said. “We think that leads you to do business at the margin which is unattractive, so the top line will be what it will be. We think it will grow at about 6% based on our best estimates, but we are really instead targeting risk-adjusted profitability.”

Deciding to target risk-adjusted profitability rather than revenue is not exactly rocket science. But remember, this is AIG we’re talking about. It is the outfit that infamously blew up by writing credit default swaps without ever considering it might have to pay out on them.

David Merkel, an investor who is the principal at Aleph Investments in Baltimore and a leading chronicler of the AIG saga, says he hasn’t bought any AIG stock but may start taking another look at the company if it shows further signs of having returned to the straight and narrow.

“The best insurance companies focus on underwriting, and I find it encouraging that that’s what you are starting to hear out of AIG,” says Merkel.

Questionable underwriting hasn’t been AIG’s only problem by a long shot. It has long had a reputation of making its reported numbers look better by underreserving for future claims – a history Merkel has tracked in some depth.

The impression that the company has spent years cutting corners wasn’t dispelled when AIG said in February it would take a $4 billion hit to profits to strengthen its property-casualty claims-paying resources.

The question now is “whether $4 billion fills the hole – or does it just fill this year’s hole?” asks Merkel. “The book of business is so complex at AIG that I just can’t tell.”

So it’s early yet to dive into this murky water, which stands to be choppy as the government tries to extricate itself from its biggest, most widely criticized bailout. Holding three-quarters of a struggling company at a time when people are shouting every day that the stock market is vastly overvalued cannot be a totally reassuring feeling.

But if the books turn out to be sound and Hancock, a longtime veteran of JPMorgan Chase jpm , keeps sending the right message, the government’s breakeven sale of its first round of AIG stock needn’t be an albatross.

“I’m going to look at some more bread crumbs,” Merkel says, “but if they lead in the right direction it might be time” to buy the world’s most hated stock.