American International Group (AIG) Suffers a 0.4% Decline Since Last Earnings Report: Can a Rebound Be Expected?

It has been a month since American International Group (AIG) released its latest earnings report. During this period, AIG's shares have experienced a slight decline of about 0.4%, which is below the performance of the S&P 500 index.

As we look ahead to AIG's upcoming earnings report, one might wonder if the recent downward trend will persist or if the stock is poised for a rebound. To better understand the situation, we will review the most recent earnings report and explore how investors and analysts have been reacting since.

AIG Reports Positive Earnings Despite Revenue Declines

In the third quarter of 2024, American International Group reported adjusted earnings per share (EPS) of $1.23, surpassing the Zacks Consensus Estimate by 8.9%. This marks an improvement of 18.3% compared to the same period last year.

While the adjusted operating revenues stood at $6.84 billion, reflecting a 5.9% year-over-year decline, they still exceeded the consensus estimate by 3.3%. The better-than-expected results can be attributed to increased investment income and reduced costs, though these positives were partially countered by lower premium collections.

Operational Highlights

AIG's premiums amounted to $5.9 billion, down 9.1% from the previous year but exceeding the Zacks Consensus Estimate by 3.9%. Additionally, the total net investment income rose significantly by 13.7% year over year, reaching $973 million. This increase was driven by enhanced returns from fixed maturity securities, alternative investments, and dividends from Corebridge Financial, of which AIG holds a 48.6% stake.

Total benefits, losses, and expenses decreased by 1.1% year over year, landing at $6.1 billion, due mainly to lower policyholder benefits and losses. However, this decrease was offset somewhat by higher operating expenses.

Return on Equity and Segment Performance

The adjusted return on equity improved to 6.8%, reflecting an increase of 150 basis points compared to last year.

General Insurance Segment

In the General Insurance segment, AIG recorded net premiums written of $6.38 billion, which is a slight decline of 1% year over year but a 6% increase on a comparable basis. The growth was fueled by positive performance in Global Commercial Lines and Global Personal Insurance, although tempered by the recent divestiture of Validus Re.

Underwriting income fell by 28% on a reported basis but lowered to $437 million, as a result of increased catastrophe charges and reduced favorable prior-year developments. The combined ratio moved to 92.6%, reflecting a 240 basis point deterioration.

Other Business Operations

Net investment income rose dramatically, increasing 178% year over year to $125 million, bolstered by dividends from Corebridge and improved performance from the parent company's short-term investments. Interest expenses also decreased by 17% due to debt reduction.

Financial Position as of September 30, 2024

AIG's cash balance stood at $1.47 billion, a decrease from $1.54 billion at the end of 2023. Total assets were recorded at $169.45 billion, down from $539.31 billion at the end of the previous year. Furthermore, long-term debt declined to $9.89 billion from $10.38 billion at the end of 2023.

Shareholders benefited from capital deployment, with AIG repurchasing shares worth $1.5 billion and distributing dividends totaling $254 million.

Recent Estimate Trends

Since the earnings report, estimates for AIG have trended downward, with the consensus estimate seeing a decline of 6.12% due to these adjustments.

Valuation Scores

AIG currently holds an average Growth Score of C, while its Momentum Score is much stronger at A. The stock also received a B grade in the value category, placing it within the second quintile for this investment strategy.

Overall, AIG maintains an aggregate VGM Score of B, an important metric for investors who are considering various strategies.

Future Outlook

Given the recent downward trend in estimates and the overall sentiment, AIG holds a Zacks Rank of #3 (Hold). Investors can expect an in-line performance from the stock in the coming months.

Comparative Performance with Industry Peers

AIG is part of the Zacks Insurance - Multi-line industry. A notable peer, The Hartford, has seen a gain of 8.3% in the last month. The Hartford's most recent quarter revealed revenues of $4.67 billion, representing a 10.9% increase year-over-year, while its EPS rose from $2.29 to $2.53.

Looking ahead, The Hartford is projected to report earnings of $2.69 per share for the current quarter, which indicates a decline of 12.1% from the previous year. Despite this, the Zacks Consensus Estimate for The Hartford has remained unchanged over the past month.

Both AIG and The Hartford share the Zacks Rank #3 (Hold) and The Hartford currently holds a VGM Score of A, indicating a favorable position in comparison.

AIG, Earnings, Stock, Insurance, Estimates