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AIG Q1 Earnings Miss Estimates & Fall Y/Y, Shares Decline

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American International Group Inc. (AIG - Free Report) reported first-quarter 2018 operating earnings of $1.04 per share that missed the Zacks Consensus Estimate by 16%. In the year-ago quarter, the company had reported earnings of $1.36 per share.

The underperformance stemmed from the impact of huge catastrophe losses and low premium in the General Insurance as well as Life and Retirement segments.

Shares of the company were down 2.6% after the dismal results.

American International Group, Inc. Price, Consensus and EPS Surprise

Weak Segment Performance

General Insurance Suffers From Catastrophe Loss

The segment was saddled with $376 million of losses primarily related to the California mudslides, U.S. winter storms and the Papua New Guinea earthquake, as well as $135 million of severe losses that led to an underwriting loss of $251 million compared with $12 million of underwriting income in the year-ago quarter.

Net premium written of $6.2 billion was also down 2% year over year due to the net impact of the company’s reinsurance program and the strategic portfolio actions in U.S. Casualty and Property.

Combined ratio of 103.8% deteriorated a massive 400 basis points year over year, primarily due to an increase in loss ratio, which was due to huge catastrophe losses.

Disappointing Life and Retirement Unit Results

Premium and fees of $1.18 billion decreased 23% year over year, led by an 80% decline in contribution from the Institutional Market sub segment.
Pre-tax income, was also down 1% from the prior-year quarter to $892 million.

Share Repurchase

In the first quarter, AIG repurchased 5.4 million common shares for $298 million and warrants for $2 million. As of May 2, 2018, approximately $2.0 billion remained under the share repurchase authorization.

Financial Position

At the end of the first quarter, the insurer’s adjusted book value per share (excluding AOCI) was $56.10, up 2.5% from year the Dec 31, 2017 level.
Core adjusted return on equity (ROE) was 8.6%, down 160 basis points year over year.

Our Take

The company’s dismal results reflect its continuing pain, which is reflected in declining revenues for the past many years. The company has been suffering from declining premium due to disciplined underwriting, competitive market conditions and reduction in business due to numerous divestitures taken. Challenges in the property and casualty market, and continued business dispositions will continue to keep the top line under pressure in the coming quarters.

Zacks Rank and Stocks to Consider

AIG carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.

Among other insurers that have reported their first-quarter earnings so far, the bottom line at Torchmark Corp. , Aflac Inc. (AFL - Free Report) and Genworth Financial Inc. (GNW - Free Report) beat their respective first-quarter estimates by 2.05%, 8.25% and 8.7%.

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