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American International (AIG) to Post Q4 Earnings: What to Expect?

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American International Group, Inc. (AIG - Free Report) is scheduled to report fourth-quarter 2020 results on Feb 16, after the market closes.

In the third quarter, the company’s earnings of 81 cents per share outpaced the Zacks Consensus Estimate by 30.7%. Moreover, the bottom line improved 44.6% year over year, primarily driven by premium rate hikes, and underwriting and reinsurance actions implemented to enhance business mix across the company’s Commercial Lines business.

Q4 Estimates

The Zacks Consensus Estimate for the company’s earnings in the to-be-reported quarter is pegged at 98 cents per share, which indicates a decline of 4.9% from the year-ago quarter.

The consensus mark for quarterly revenues stands at $11.04 billion, suggesting a slump of 8.6% from the year-ago reported number.

Factors to Note

Lower net investment income and incidence of catastrophe losses might have impacted the General Insurance segment’s performance in the quarter to be reported. Further, the COVID-19 pandemic-induced adversities inflicted on travel, contingency and Validus Re are likely to have acted as a drag on the segment’s underwriting profit. The Zacks Consensus Estimate for the General Insurance segment’s adjusted pre-tax income is pegged at $652 million, which indicates a decline of 16.2% from the year-ago reported figure.

Within the General Insurance segment, the personal insurance business is likely to reflect the impact of the pandemic, which has resulted in a substantial fall in the travel business. Further, the business mix of North America personal insurance might have been dampened in the fourth quarter due to reinsurance sessions linked with Syndicate 2019. The Zacks Consensus Estimate for net premiums written from North America stands at $2.4 billion, which suggests a slump of 13.3% from the year-earlier reported number. Nevertheless, a strong rate increase in the company’s commercial business is expected to have partly driven the segment's top line.

The International business comprising part of the General Insurance segment is likely to have been impacted by reduced travel premiums. The Zacks Consensus Estimate for net premiums written from International business is pegged at $2.9 billion, indicating a decline of 2.5% from the prior-year reported figure. Nevertheless, international commercial rate increases buoyed by financial lines and specialty are likely to have partly benefited the segment’s performance in the to-be-reported quarter.

The lower interest rate environment may have put a pressure on the company’s net investment income in the fourth quarter. Its Life and Retirement business, for which the company has announced plans to separate from AIG in October 2020, is likely to have suffered a blow due to softer premiums and deposits. This might have been partially offset by the company’s risk management efforts.

Lastly, the company’s cost-cutting efforts are likely to have provided a boost to its bottom line in the to-be-reported quarter.

Earnings Surprise

The company’s bottom line surpassed estimates in two of the trailing four quarters, and missed the other two. It has a trailing four-quarter negative earnings surprise of 14.15%, on average. This is depicted in the graph below:

What Our Quantitative Model Unveils

Our proven model predicts an earnings beat for American International this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: American International has an Earnings ESP of +4.62%. This is because the Most Accurate Estimate of $1.02 is pegged higher than the Zacks Consensus Estimate of 98 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American International carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider

Some other stocks worth considering from the finance space with a perfect mix of elements to surpass estimates in the upcoming quarterly releases are as follows:

MGIC Investment Corporation (MTG - Free Report) has an Earnings ESP of +3.85% and a Zacks Rank of 2 at present.

Ashford Hospitality Trust, Inc. (AHT - Free Report) has an Earnings ESP of +36.76% and a Zacks Rank #3.

CBRE Group, Inc. (CBRE - Free Report) has an Earnings ESP of +10.42% and a Zacks Rank #3, currently.

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