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American International Group (AIG) Down 19.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for American International Group (AIG). Shares have lost about 19.3% in that time frame, underperforming the S&P 500.

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

AIG Q4 Earnings Beat Estimates, Winter Storm Costs Hurt

American International Group, Inc. reported fourth-quarter 2022 adjusted operating earnings of $1.36 per share, which beat the Zacks Consensus Estimate by 14.3%. However, the bottom line slumped 13.9% year over year in the fourth quarter.

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Operating revenues of $12.2 billion declined from $13.7 billion a year ago but beat the consensus estimate of $11.8 billion and our estimate of $11.7 billion.

The better-than-expected results were supported by solid North America Commercial Lines growth and improved underwriting income in General Insurance. However, the positives were partially offset by reduced alternative investment income, higher expenses and losses due to the winter storm.

Quarterly Operational Update

Total net investment income tumbled 8.6% year over year to $3,258 million due to a decline in alternative investment income, and reduced call and tender income. The figure was higher than our estimate of $2,968.1 million.

American International’s total benefits, losses and expenses of $11,307 million increased 25.1% year over year primarily due to higher general operating and other expenses, and a net loss on divesture against a gain in the year-ago period. The figure was much higher than our estimate.

Adjusted return on common equity deteriorated 240 basis points (bps) year over year to 7.5% in the fourth quarter.

Segmental Performances

General Insurance

The segment reported net premiums written of $5,610 million, which declined 6% year over year but grew 1% on a constant-dollar basis. The metric was lower than our estimate of $5,834.9 million. Lower capital market activities affected Financial Lines’ performance, while a fall in warranty and underwriting actions taken in Private Client Group negatively impacted Personal Insurance’s figures. The negatives were partially offset by strong North America Commercial Lines growth.

Underwriting income of $635 million jumped 27% year over year in the fourth quarter. The same comprised catastrophe losses (CATs) of $235 million, primarily due to Winter Storm Elliott, comparing unfavorably with CATs of $189 million in the year-ago quarter.

The segment’s combined ratio improved 250 bps year over year to 89.9% in the quarter under review.

Life and Retirement

American International closed the IPO of Corebridge Financial, the holding company of its Life and Retirement unit, in September 2022. Following the move, American International has 77.7% of Corebridge and combines its results of operations in its Condensed Consolidated Financial Statements.

Premiums of the segment decreased to $2,145 million in the fourth quarter from $2,743 million a year ago. The figure missed our estimate of 0.4% year-over-year growth.

Meanwhile, premiums and deposits of $8,800 million jumped 2% from a year ago. Adjusted revenues of the segment amounted to $5,298 million, down from $6,124 million due to lower alternative investments and premiums. The figure was lower than our estimate of $5,635.4 million. The segment’s adjusted pre-tax income of $781 million fell from $969 million in the fourth quarter.

Financial Position (as of Dec 31, 2022)

American International exited the fourth quarter with a cash balance of $2,043 million, which decreased from $2,198 million at 2021-end. Total assets of $526.6 billion decreased from $596.1 billion at 2021-end.

Short and long-term debt of $21.3 billion fell from $23.7 billion at the prior-year end.

Total equity slumped to $42.2 billion from $68.9 billion at the prior-year end. Total debt and preferred stock to total capital was at 34.1% at the fourth-quarter end.

Adjusted book value per share was $73.87, up from $68.83 a year ago.

Share Repurchase & Dividend Update

American International rewarded shareholders with $779 million in repurchases and dividends worth $243 million.

Concurrent with announcing the fourth-quarter results, the board of directors approved a quarterly cash dividend of 32 cents per common share. The dividend will be paid out on Mar 31, 2023, to shareholders of record as of Mar 17.

Full-Year Update

American International’s 2022 total revenues of $56.4 billion increased from $52.1 billion in 2021. However, adjusted earnings of $4.55 per share declined from $5.12 a year ago. Total benefits, losses and expenses increased to $42.2 billion in 2022 from $40 billion in 2021. Net income increased to $11.3 billion from $9.9 billion a year ago.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, American International Group has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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

American International Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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