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AIG Rises 9.6% in Three Months: What Lies Ahead for Investors?
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American International Group, Inc. (AIG - Free Report) shares have gained 9.6% in the past three months compared with 8.2% growth of the industry it belongs to, thanks to the improving underwriting performance and growth in the General Insurance unit. AIG's strategic portfolio streamlining, aimed at enhancing capital and efficiency, has created prudent investment opportunities.
Based in New York, AIG is a leading global insurance organization. It has a market capitalization of $47 billion now. The high interest rate environment is significantly benefiting its investment income.
Image Source: Zacks Investment Research
Can It Retain Momentum?
The answer is yes and before we get into the details, let us show you how its estimates for 2023 stand.
The Zacks Consensus Estimate for AIG’s 2023 earnings is pegged at $6.59 per share, indicating a 44.8% jump from $4.55 a year ago. The estimate remained stable over the past week. The company beat earnings estimates in each of the last four quarters, with an average surprise of 11.5%.
Furthermore, the consensus estimate for 2023 revenues is pegged at $48.7 billion, signaling a 7.4% year-over-year rise. Now let’s delve into what’s aiding this Zacks Rank #3 (Hold) stock.
Strong pricing will likely help AIG to increase its premium income. We expect premium income for 2023 to increase by almost 10% year over year. Furthermore, the high interest rate environment will keep boosting its investment returns. Improving reinvestment rates and higher alternative investment income are major tailwinds. Our estimate for 2023 net investment income indicates more than 21% year-over-year growth.
AIG continues to streamline its operations by axing non-core businesses and products, focusing on core insurance to improve profitability. AIG closed the IPO of Corebridge Financial, Inc. (CRBG - Free Report) , the holding company of its Life and Retirement unit, in September 2022. Since then, AIG has reduced its stake in the company through secondary offerings.
More such moves are expected in the coming days, which will likely enhance liquidity, optimize AIG’s portfolio and increase profitability. Its ROIC of 2.6% is higher than the industry average of 1.7%, reflecting the company's ability to generate more efficient returns on its invested capital compared with its industry peers.
The firm has managed to improve its loss ratio over the past couple of years. In its General Insurance business, AIG reduced the metric from 71% in 2020 to 64.2% in 2021 and 60.8% in 2022. Our estimate for 2023 and 2024 for the metric is pegged at 59.5% and 58.7%, respectively, indicating more premiums to remain with the company after claims. This provides a positive outlook for enhanced underwriting profitability.
Risks
Despite the upside potential, there are a few factors that investors should keep an eye on.
Its debt-laden balance sheet is concerning. AIG exited the third quarter with a cash balance of $2 billion, which slipped 2.4% from the 2022-end level, while short and long-term debt amounted to $21.3 billion. Its net debt-to-capital of 48% is significantly higher than the industry average.
Also, AIG is generating lower policy fees for the last few quarters. We expect the metric to decline 4.6% year over year in 2023. Nevertheless, we believe that a systematic and strategic plan of action will drive the company’s long-term growth.
The consensus mark for Chubb’s current-year earnings indicates a 25.9% year-over-year increase. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 6.5%. Furthermore, the consensus estimate for CB’s 2023 revenues suggests 10.6% year-over-year growth.
The Zacks Consensus Estimate for Brown & Brown’s current-year earnings is pegged at $2.76 per share, which indicates 21.1% year-over-year growth. It has witnessed one upward estimate revision against none in the opposite direction during the past 60 days. BRO beat earnings estimates in each of the past four quarters, with an average surprise of 12.3%.
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AIG Rises 9.6% in Three Months: What Lies Ahead for Investors?
American International Group, Inc. (AIG - Free Report) shares have gained 9.6% in the past three months compared with 8.2% growth of the industry it belongs to, thanks to the improving underwriting performance and growth in the General Insurance unit. AIG's strategic portfolio streamlining, aimed at enhancing capital and efficiency, has created prudent investment opportunities.
Based in New York, AIG is a leading global insurance organization. It has a market capitalization of $47 billion now. The high interest rate environment is significantly benefiting its investment income.
Image Source: Zacks Investment Research
Can It Retain Momentum?
The answer is yes and before we get into the details, let us show you how its estimates for 2023 stand.
The Zacks Consensus Estimate for AIG’s 2023 earnings is pegged at $6.59 per share, indicating a 44.8% jump from $4.55 a year ago. The estimate remained stable over the past week. The company beat earnings estimates in each of the last four quarters, with an average surprise of 11.5%.
Furthermore, the consensus estimate for 2023 revenues is pegged at $48.7 billion, signaling a 7.4% year-over-year rise. Now let’s delve into what’s aiding this Zacks Rank #3 (Hold) stock.
Strong pricing will likely help AIG to increase its premium income. We expect premium income for 2023 to increase by almost 10% year over year. Furthermore, the high interest rate environment will keep boosting its investment returns. Improving reinvestment rates and higher alternative investment income are major tailwinds. Our estimate for 2023 net investment income indicates more than 21% year-over-year growth.
AIG continues to streamline its operations by axing non-core businesses and products, focusing on core insurance to improve profitability. AIG closed the IPO of Corebridge Financial, Inc. (CRBG - Free Report) , the holding company of its Life and Retirement unit, in September 2022. Since then, AIG has reduced its stake in the company through secondary offerings.
More such moves are expected in the coming days, which will likely enhance liquidity, optimize AIG’s portfolio and increase profitability. Its ROIC of 2.6% is higher than the industry average of 1.7%, reflecting the company's ability to generate more efficient returns on its invested capital compared with its industry peers.
The firm has managed to improve its loss ratio over the past couple of years. In its General Insurance business, AIG reduced the metric from 71% in 2020 to 64.2% in 2021 and 60.8% in 2022. Our estimate for 2023 and 2024 for the metric is pegged at 59.5% and 58.7%, respectively, indicating more premiums to remain with the company after claims. This provides a positive outlook for enhanced underwriting profitability.
Risks
Despite the upside potential, there are a few factors that investors should keep an eye on.
Its debt-laden balance sheet is concerning. AIG exited the third quarter with a cash balance of $2 billion, which slipped 2.4% from the 2022-end level, while short and long-term debt amounted to $21.3 billion. Its net debt-to-capital of 48% is significantly higher than the industry average.
Also, AIG is generating lower policy fees for the last few quarters. We expect the metric to decline 4.6% year over year in 2023. Nevertheless, we believe that a systematic and strategic plan of action will drive the company’s long-term growth.
Key Picks
Some better-ranked stocks in the broader finance space are Chubb Limited (CB - Free Report) and Brown & Brown, Inc. (BRO - Free Report) , carrying a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus mark for Chubb’s current-year earnings indicates a 25.9% year-over-year increase. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 6.5%. Furthermore, the consensus estimate for CB’s 2023 revenues suggests 10.6% year-over-year growth.
The Zacks Consensus Estimate for Brown & Brown’s current-year earnings is pegged at $2.76 per share, which indicates 21.1% year-over-year growth. It has witnessed one upward estimate revision against none in the opposite direction during the past 60 days. BRO beat earnings estimates in each of the past four quarters, with an average surprise of 12.3%.