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American International Group (AIG) Up 10.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for American International Group (AIG). Shares have added about 10.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American International Group due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AIG Q3 Earnings Beat Estimates on General Insurance Strength

American International Group reported third-quarter 2022 adjusted operating earnings of 66 cents per share, which beat the Zacks Consensus Estimate by 11.9%. The bottom line of AIG slumped 32% year over year in the third quarter.

Operating revenues of $11.3 billion declined from $11.7 billion a year ago and lagged the consensus estimate of $11.5 billion and our estimate of $11.6 billion.

The better-than-expected earnings were supported by the solid performance in the General Insurance despite the negative impacts of Hurricane Ian, and increased Life and Retirement premiums. However, the positives were partially offset by reduced alternative investment income and higher expenses.

Quarterly Operational Update

Total net investment income (NII) tumbled 28.2% year over year to $2,668 million due to a decline in alternative investment returns, and reduced call and tender income. Nevertheless, the downside was partly offset by higher interest rates. The figure was lower than our estimate of $3,400 million.

AIG’s total benefits, losses and expenses of $10,755 million increased 0.9% year over year primarily due to higher policyholder benefits and losses incurred. The figure was higher than our estimate of $10,106.1 million.

Adjusted return on common equity deteriorated 280 basis points (bps) year over year to 3.7% in the third quarter.

Segmental Performances

General Insurance

The segment reported net premiums written of $6,403 million, which declined 3% year over year but grew 3% on a constant-dollar basis. The metric was lower than our estimate of $6,990 million. A decline in production in Warranty within North America Personal Insurance and International Personal Insurance affected the results. However, the downside was partly offset by improvements on the back of continuous rate hikes, strong renewal retentions and solid new business production.

Underwriting income of $168 million soared from $20 million in the third quarter. The same comprised catastrophe losses (CATs) of $600 million, which included around $450 million for Hurricane Ian, comparing favorably with CATs of $628 million in the prior-year quarter.

The segment’s combined ratio improved 240 bps year over year to 97.3% in the quarter under review. It surpassed the Zacks Consensus Estimate of 94.2%.

Life and Retirement

AIG closed the IPO of Corebridge Financial in September, the holding company of its Life and Retirement unit. Following the move, AIG has 77.7% of Corebridge and is expected to combine CRBG’s results of operations in its Condensed Consolidated Financial Statements.

Premiums of the segment increased 34.9% year over year to $1,404 million in the third quarter. The figure was higher than our estimate of $1,080.3 million.

Meanwhile, premiums and deposits of $8,894 million jumped from $7,234 million a year ago. Adjusted revenues of the segment amounted to $4,336 million, down from $4,444 million due to lower alternative investments. The figure was lower than our estimate of $4,352.9 million.

The segment’s adjusted pre-tax income of $589 million fell from $877 million in the third quarter, primarily due to lower NII. The metric was significantly lower than the Zacks Consensus Estimate of $997.4 million.

Financial Position (as of Sep 30, 2022)

American International exited the third quarter with a cash balance of $2,294 million, which increased from $2,198 million at 2021-end. Total assets of $522.9 billion decreased from $596.1 billion at 2021-end.

Short- and long-term debt of $24.5 billion rose from $23.7 billion at the prior-year end.

Total equity slumped to $41 billion from $68.9 billion at the prior-year end. Total debt to capital was at 35.7% at the third-quarter end.

Adjusted book value per share was $73.28, up from $61.80 a year ago.

Share Repurchase & Dividend Update

American International rewarded $1.5 billion to shareholders, which included $1.3 billion of share buybacks and dividends worth $247 million.

Concurrent with announcing the third-quarter results, the board of directors approved a quarterly cash dividend of 32 cents per common share. The dividend will be paid out on Dec 29, 2022, to shareholders of record as of Dec 15.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -13.55% due to these changes.

VGM Scores

At this time, American International Group has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American International Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

American International Group belongs to the Zacks Insurance - Multi line industry. Another stock from the same industry, The Hartford (HIG), has gained 5.5% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

The Hartford reported revenues of $3.83 billion in the last reported quarter, representing a year-over-year change of +3.6%. EPS of $1.44 for the same period compares with $1.26 a year ago.

The Hartford is expected to post earnings of $1.84 per share for the current quarter, representing a year-over-year change of -8.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for The Hartford. Also, the stock has a VGM Score of A.

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