American International Group (AIG) Experiences a Slight Decline: What Lies Ahead?

A month has passed since the last earnings announcement made by American International Group (AIG). During this period, the company's shares have decreased by around 0.4%, which is less than the performance of the S&P 500 index.

The question now is whether this downward trend will continue as the next earnings report approaches, or if AIG is poised for a rebound. To better understand the situation, we will first review the recent earnings report to identify key factors that could influence the stock's movement.

AIG Reports a Surprise in Q3 Earnings Driven by Investment Income Growth

In its third-quarter report for 2024, American International Group disclosed adjusted earnings per share of $1.23, surpassing the Zacks Consensus Estimate by 8.9%. This figure represents an 18.3% year-over-year increase.

While adjusted operating revenues stood at $6.84 billion, marking a decline of 5.9% from the previous year, this number still exceeded the consensus estimate by 3.3%.

The positive earnings results were largely supported by increased investment returns and cost reductions, although these gains were somewhat balanced out by lower premium earnings.

Quarterly Operational Highlights

AIG's premium intake totaled $5.9 billion, reflecting a 9.1% decline year-over-year but still beating the Zacks Consensus Estimate by 3.9%. The total net investment income increased by 13.7% compared to the previous year, reaching $973 million. This growth is attributable to enhanced income from fixed maturity securities, alternative investments, and dividends from Corebridge Financial, in which AIG holds a 48.6% stake. This figure was 11.2% higher than market expectations.

Costs, including benefits, losses, and expenses, fell by 1.1% year-over-year to $6.1 billion, due to reduced policyholder benefits and losses along with lower amortization of deferred policy acquisition costs. However, higher general operating expenses partially offset these positive developments.

AIG's adjusted return on equity increased to 6.8%, up 150 basis points from the previous year.

Performance by Segment

General Insurance

The General Insurance segment recorded net premiums written of $6.38 billion, with a reported decline of 1% year-over-year, but a growth of 6% on a comparable basis. This performance was aided by growth in Global Commercial Lines and Global Personal Insurance, even as the Validus Re divestiture had a negative impact.

Underwriting income dropped by 28% on a reported basis and 21% on a comparable basis, affected by increased catastrophe charges and a reduction in favorable prior-year developments. Catastrophe-related charges totaled $417 million, down 9.7% year-over-year. The combined ratio worsened by 240 basis points to 92.6%.

Adjusted pre-tax income for the segment fell by 11% year-over-year to $1.21 billion, but still surpassed the Zacks Consensus Estimate by 6%.

Other Operations

In other areas, net investment income surged by 178% year-over-year to $125 million, boosted by dividends from Corebridge and enhanced income from the parent company's short-term investments.

Interest expenses decreased by 17% due to a reduction in debt levels, with adjusted pre-tax losses improving from $278 million to $143 million.

Financial Position as of September 30, 2024

As of the end of the third quarter, AIG had a cash balance of $1.47 billion, down slightly from $1.54 billion at the end of 2023. The company reported total assets of $169.45 billion, a decrease from $539.31 billion at the end of the previous year.

The long-term debt stood at $9.89 billion, down from $10.38 billion at the end of 2023, while total equity fell to $45.1 billion from $51.3 billion over the same period. The total debt to total capital ratio increased to 17.9% from 16.8% at the end of the last year.

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

Capital Deployment Efforts

AIG returned value to its shareholders by repurchasing shares worth $1.5 billion and distributing $254 million in dividends.

Shifts in Earnings Estimates

Over the past month, fresh estimates for AIG have generally trended downward.

As a result, the consensus estimate has adjusted by -6.12% due to these revisions.

VGM Scores Analysis

Currently, AIG has an average Growth Score of C and a much stronger Momentum Score of A. In terms of value, the stock has been rated B, which places it in the second quintile of this investment strategy.

Overall, AIG holds an aggregate VGM Score of B, which is worth considering for investors not focused solely on one strategy.

Outlook for AIG

The downward trend in earnings estimates paints a somewhat cautious picture for the stock. With a Zacks Rank of #3, which indicates a Hold rating, investors can anticipate an average performance from the stock in the months to come.

Comparison with Industry Peers

AIG operates within the Zacks Insurance - Multi-line industry. In contrast, another competitor, The Hartford, has experienced an 8.3% increase in its stock over the past month, following its quarterly earnings results for September 2024.

The Hartford reported revenues of $4.67 billion for the quarter, representing a year-over-year increase of 10.9%. Its earnings per share for this period was $2.53, compared to $2.29 a year earlier.

Looking ahead, The Hartford is projected to report earnings of $2.69 per share for the current quarter, reflecting a 12.1% decrease from the same period a year ago. The consensus estimate for The Hartford has remained stable over the past month.

Similar to AIG, The Hartford currently holds a Zacks Rank of #3, indicating a Hold, and boasts a VGM Score of A.

AIG, earnings, investment