American International Group (AIG) Sees 0.4% Decline Since Last Earnings Report: Is a Rebound Possible?

It's been a month since the latest earnings report for American International Group (AIG - Free Report). In that time, the stock has dipped by 0.4%, falling short of the S&P 500's performance.

The pressing question for investors is whether this recent downward trend will persist as the next earnings report approaches or if AIG is poised for a recovery. Before we explore how analysts and investors have reacted recently, let's review the highlights from AIG's most recent earnings report to understand the key elements at play.

AIG Reports Q3 Earnings Surprise Fueled by Investment Income Growth

American International Group released its third-quarter 2024 results a month ago, reporting adjusted earnings per share of $1.23. This figure exceeded the Zacks Consensus Estimate by 8.9% and marked an 18.3% increase year over year.

However, adjusted operating revenues stood at $6.84 billion, representing a 5.9% decline from the previous year. Nonetheless, this revenue also surpassed the consensus estimate by 3.3%.

The strong quarterly results were driven by robust investment returns and reduced expenses, although these positives were somewhat mitigated by lower premiums.

Operational Performance Review

AIG reported premium income of $5.9 billion for the quarter, which was down 9.1% from the previous year but still outperformed the Zacks Consensus Estimate by 3.9%. The company's total net investment income climbed 13.7% year over year to reach $973 million, a rise credited to enhanced income from fixed maturity securities, alternative investments, and dividends from Corebridge Financial, in which AIG holds a 48.6% stake.

Additionally, AIG's total benefits, losses, and expenses decreased by 1.1% year over year, totaling $6.1 billion; this decline was attributed to reduced policyholder benefits and lower losses incurred, alongside amortization of deferred policy acquisition costs. However, increases in general operational and other expenses partially offset these savings.

Adjusted return on equity for AIG rose to 6.8%, reflecting a 150 basis points improvement from the prior year.

Segment Performance Insights

General Insurance

In the General Insurance segment, net premiums written totaled $6.38 billion, demonstrating a 1% decrease on a reported basis but a 6% rise when adjusted for comparability. This growth was bolstered by strong performances in Global Commercial Lines and Global Personal Insurance during the quarter, although the Validus Re divestiture had some negative impact.

Underwriting income for this segment fell by 28% on a reported basis and by 21% on a comparable basis, influenced by increased catastrophe charges and reduced favorable development from prior years. Catastrophe-related charges dropped by 9.7% year over year, amounting to $417 million, while the combined ratio worsened to 92.6%, up 240 basis points year over year.

Despite these challenges, adjusted pre-tax income for General Insurance saw an 11% decline year over year, resting at $1.21 billion, though it still surpassed the Zacks Consensus Estimate by 6%.

Performance of Other Operations

Within other operations, net investment income soared year over year by 178% to $125 million, thanks to dividends from Corebridge and improved returns from short-term investments managed by the parent company.

Moreover, interest expenses shrank by 17% due to effective debt management, leading to a reduction in adjusted pre-tax losses from $278 million to $143 million.

Financial Position Overview (as of September 30, 2024)

At the conclusion of the third quarter, AIG reported a cash balance of $1.47 billion, a decrease from $1.54 billion at the end of 2023. The company's total assets reached $169.45 billion, down from $539.31 billion at the end of 2023.

Long-term debt was recorded at $9.89 billion, down from $10.38 billion at the end of 2023. Total equity fell from $51.3 billion to $45.1 billion during the same period. The debt-to-capital ratio was at 17.9% at the end of the third quarter, which is an increase from 16.8% at the end of 2023.

Adjusted book value per share also saw a year-over-year decline of 9.1%, reaching $73.90.

Capital Deployment Update

AIG actively returned cash to its shareholders, repurchasing shares worth $1.5 billion and paying out dividends totaling $254 million.

Shift in Analyst Estimates Post-Earnings

Since the earnings report, there has been a noticeable downward trend in earnings estimates for AIG.

The consensus estimate has been reduced by 6.12%, reflecting the impact of these revisions.

VGM Scores and Overall Outlook

Currently, AIG holds an average Growth Score of C, while its Momentum Score is rated an impressive A. When evaluated on the value front, the stock achieved a grade of B, positioning it in the second quintile for this investment strategy.

Overall, AIG's composite VGM Score stands at B. For investors who are not focused on a single strategy, this composite score may be of particular interest.

Future Performance Expectations

Despite the overall downward trend in estimates, the extent of these revisions suggests a significant shift in sentiment. At present, AIG holds a Zacks Rank of #3 (Hold), indicating that an in-line return is anticipated for the stock over the coming months.

Comparative Industry Performance

AIG is part of the Zacks Insurance - Multi line sector. In comparison, The Hartford (HIG - Free Report), another player in this industry, has appreciated by 8.3% over the past month. Over a month has elapsed since The Hartford reported its results for the quarter ending September 2024.

The Hartford reported revenues of $4.67 billion for their last quarter, reflecting an impressive year-over-year growth of 10.9%. EPS during the same period rose to $2.53, compared to $2.29 the previous year.

For the upcoming quarter, The Hartford is projected to post earnings of $2.69 per share, representing a year-over-year decline of 12.1%. The Zacks Consensus Estimate for this has remained stable over the last 30 days. Similar to AIG, The Hartford also holds a Zacks Rank of #3 (Hold) and boasts a VGM Score of A.

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