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Why Is American International Group (AIG) Up 2.3% Since Last Earnings Report?

It has been about a month since the last earnings report for American International Group (AIG). Shares have added about 2.3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

AIG Beats Q3 Earnings on Commercial Lines Strength & Lower Costs

American International Group reported third-quarter 2023 adjusted earnings per share (EPS) of $1.61, which outpaced the Zacks Consensus Estimate by 3.9%. The bottom line jumped 92% year over year.

Operating revenues inched up 0.3% year over year to $11.4 billion in the quarter under review. The top line fell short of the consensus mark by 10%.

The quarterly results were aided by strong underwriting results in the Commercial Lines business of the General Insurance unit, a declining expense level and higher net investment income. However, the upside was partly offset by continued incidence of catastrophe losses as well as reduced sales of Variable Annuities and pension risk transfer deals in the Life and Retirement unit.

Quarterly Operational Update

Premiums fell 7.5% year over year to $7,244 million in the third quarter. Total net investment income of $3,556 million climbed 33% year over year and beat the consensus mark of $3,236 million as well as our estimate of $3,056.9 million. The metric benefited on the back of improved reinvestment rates and higher alternative investment income.

Total benefits, losses and expenses of American International declined 8.8% year over year to $9,206 million. The decrease was due to a decline in policyholder benefits and losses incurred.

Adjusted return on common equity of 8.5% improved 390 basis points (bps) year over year in the quarter under review.

Segmental Performances

General Insurance

Net premiums written of the segment amounted to $6,462 million in the third quarter, which grew 1% year over year. The metric was aided by rate increases, strong retention rates and new business growth in Lexington and Retail Property. However, the metric lagged the Zacks Consensus Estimate of $7,376 million and our estimate of $6,919.9 million.

Underwriting income increased nearly four-fold year over year to $611 million in the quarter under review, attributable to strength in North America Commercial Lines business. Catastrophe losses totaled $462 million, which stemmed from Lahaina Wildfire and Hurricane Idalia. The unit’s combined ratio of 90.5% improved 680 bps year over year due to an improvement in the loss ratio.

Adjusted pre-tax income was $1,367 million, which soared 82% year over year and surpassed the consensus mark of $1,127 million and our estimate of $916.4 million. The metric was driven by improved underwriting income, increased favorable prior-year development and higher net investment income.

Life and Retirement

The segment’s premiums and fees were recorded at $1,512 million in the third quarter, which decreased 29% year over year. Premiums declined due to reduced pension risk transfer volumes. Premiums and deposits advanced 4% year over year to $9,248 million.

Adjusted revenues of the unit were $4,180 million, which slid 3.5% year over year in the quarter under review and fell short of the Zacks Consensus Estimate of $5,327 million.

The unit reported an adjusted pre-tax income of $971 million, which rose 24% year over year on the back of higher base portfolio yields, improved alternative investment income and solid Fixed Index Annuities sales. Yet, the metric missed the consensus mark of $1,003 million and our estimate of $1,087.6 million.

Financial Position (as of Sep 30, 2023)

American International exited the third quarter with a cash balance of $1,994 million, which slipped 2.4% from the 2022-end level. Total assets of $521.5 billion dipped 0.1% from the figure at 2022 end.

Short and long-term debt amounted to $21.3 billion, up 0.2% from the figure as of Dec 31, 2022.

Total equity of $43.2 billion dipped 0.6% from the 2022-end level. Total debt and preferred stock to total capital was 33.7% at the third-quarter end.

Adjusted book value per share was $78.17, which grew 4.4% year over year in the quarter under review.

Capital Deployment Update

American International rewarded its shareholders with share buybacks of $785 million and paid common dividends worth $254 million.

Business Update

On Nov 1, 2023, American International completed the divestiture of Validus Re to RenaissanceRe and received a cash consideration of $3.3 billion as well as around $275 million in RNR stock. The divestiture deal was announced in May 2023 and as expected, the transaction was closed in the fourth quarter of 2023.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -6.31% due to these changes.

VGM Scores

At this time, American International Group has a nice Growth Score of B, 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 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

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 is part of the Zacks Insurance - Multi line industry. Over the past month, Everest Group (EG), a stock from the same industry, has gained 7.5%. The company reported its results for the quarter ended September 2023 more than a month ago.

Everest Group reported revenues of $4.02 billion in the last reported quarter, representing a year-over-year change of +25.6%. EPS of $14.14 for the same period compares with -$5.28 a year ago.

Everest Group is expected to post earnings of $14.86 per share for the current quarter, representing a year-over-year change of +21.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.8%.

Everest Group has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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