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AIG Q3 Earnings Beat Estimates on General Insurance Strength

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American International Group, Inc. (AIG - Free Report) reported third-quarter 2022 adjusted operating earnings of 66 cents per share, which beat the Zacks Consensus Estimate by 11.9%. The bottom line of AIG slumped 32% year over year in the third quarter.

Operating revenues of $11.3 billion declined from $11.7 billion a year ago and lagged the consensus estimate of $11.5 billion and our estimate of $11.6 billion.

The better-than-expected earnings were supported by the solid performance in the General Insurance despite the negative impacts of Hurricane Ian, and increased Life and Retirement premiums. However, the positives were partially offset by reduced alternative investment income and higher expenses.

Quarterly Operational Update

Total net investment income (NII) tumbled 28.2% year over year to $2,668 million due to a decline in alternative investment returns, and reduced call and tender income. Nevertheless, the downside was partly offset by higher interest rates. The figure was lower than our estimate of $3,400 million.

AIG’s total benefits, losses and expenses of $10,755 million increased 0.9% year over year primarily due to higher policyholder benefits and losses incurred. The figure was higher than our estimate of $10,106.1 million.

Adjusted return on common equity deteriorated 280 basis points (bps) year over year to 3.7% in the third quarter.

Segmental Performances

General Insurance

The segment reported net premiums written of $6,403 million, which declined 3% year over year but grew 3% on a constant-dollar basis. The metric was lower than our estimate of $6,990 million. A decline in production in Warranty within North America Personal Insurance and International Personal Insurance affected the results. However, the downside was partly offset by improvements on the back of continuous rate hikes, strong renewal retentions and solid new business production.

Underwriting income of $168 million soared from $20 million in the third quarter. The same comprised catastrophe losses (CATs) of $600 million, which included around $450 million for Hurricane Ian, comparing favorably with CATs of $628 million in the prior-year quarter.

The segment’s combined ratio improved 240 bps year over year to 97.3% in the quarter under review. It surpassed the Zacks Consensus Estimate of 94.2%.

Life and Retirement

AIG closed the IPO of Corebridge Financial, Inc. (CRBG - Free Report) in September, the holding company of its Life and Retirement unit. Following the move, AIG has 77.7% of Corebridge and is expected to combine CRBG’s results of operations in its Condensed Consolidated Financial Statements.

Premiums of the segment increased 34.9% year over year to $1,404 million in the third quarter. The figure was higher than our estimate of $1,080.3 million.

Meanwhile, premiums and deposits of $8,894 million jumped from $7,234 million a year ago. Adjusted revenues of the segment amounted to $4,336 million, down from $4,444 million due to lower alternative investments. The figure was lower than our estimate of $4,352.9 million.

The segment’s adjusted pre-tax income of $589 million fell from $877 million in the third quarter, primarily due to lower NII. The metric was significantly lower than the Zacks Consensus Estimate of $997.4 million.

Financial Position (as of Sep 30, 2022)

American International exited the third quarter with a cash balance of $2,294 million, which increased from $2,198 million at 2021-end. Total assets of $522.9 billion decreased from $596.1 billion at 2021-end.

Short- and long-term debt of $24.5 billion rose from $23.7 billion at the prior-year end.

Total equity slumped to $41 billion from $68.9 billion at the prior-year end. Total debt to capital was at 35.7% at the third-quarter end.

Adjusted book value per share was $73.28, up from $61.80 a year ago.

Share Repurchase & Dividend Update

American International rewarded $1.5 billion to shareholders, which included $1.3 billion of share buybacks and dividends worth $247 million.

Concurrent with announcing the third-quarter results, the board of directors approved a quarterly cash dividend of 32 cents per common share. The dividend will be paid out on Dec 29, 2022, to shareholders of record as of Dec 15.

Zacks Rank & Key Picks

American International currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader finance space are StoneX Group Inc. (SNEX - Free Report) and FlexShopper, Inc. (FPAY - Free Report) . While StoneX Groupsportsa Zacks Rank #1 (Strong Buy), FlexShopper has a Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

New York-based StoneX Group works as a global financial services network. The Zacks Consensus Estimate for SNEX’s 2022 bottom line indicates 54.8% year-over-year growth.

Based in Boca Raton, FL, FlexShopper is a leading e-commerce marketplace operator. The Zacks Consensus Estimate for FPAY’s 2022 earnings is pegged at 70 cents per share, signaling a massive jump from 4 cents reported a year ago.

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