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AIG to Report Q2 Earnings: Is Disappointment in Store?

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American International Group Inc.’s (AIG - Free Report) second-quarter 2018 results scheduled on Aug 2, are expected to witness catastrophe loss, which occurred in and around the United States, in its General Insurance business. Premium in the North America business should be affcted by the net impact of its reinsurance program and the strategic portfolio actions in U.S. Casualty and Property. Driven by the company’s 2018 North America property catastrophe reinsurance program and strategic actions within U.S. Casualty and Property, the company expects that 2018 net premiums written will be relatively flat with 2017 for the segment.

Within its Life Insurance business, the Individual Retirement and Group Retirement subsegments should see higher policy fees primarily from growth in assets under management. The Life Insurance subsegment should see higher policyholder benefits from aging of the policyholder population base. In the Institutional Markets subsegment, lower premiums and fee income should be offset by higher net investment income due to higher assets under management.

We, however, expect to see an underwriting loss in the to-be reported quarter as the company continues to take decisive actions and make investments to position itself for long-term profitable growth. In the last quarter, the company announced that it does not expect to see an underwriting profit through 2018.

Management has made a significant shift in its capital utilization strategy in a bid to turn the stock around and achieve greater profitability. Now, management expects to utilize capital for possible acquisitions in international markets, boosting the company’s personal and life lines segments plus investing in the domestic middle market as opposed to its usage of capital resource for share repurchases. Thus a lower amount of share buyback will somewhat be less accretive to the bottom line.

Earnings Surprise History

The company doesn’t have an attractive earnings surprise history. It missed estimates in three of the last four reported quarters, with an average negative surprise of 15.6%. This is depicted in the chart below:

American International Group, Inc. Price and EPS Surprise

Here is what our quantitative model predicts:

Our proven model does not conclusively show that AIG is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.

Earnings ESP: AIG has an Earning ESP of -1.52%. You can uncover the best stocks to buy or sell before they’re reported with our   Earnings ESP Filter.

Zacks Rank: AIG carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the insurance sector that you may want to consider as these have the right combination of elements to beat on earnings this quarter:

Prudential Financial, Inc. (PRU - Free Report) is expected to report second-quarter 2018 earnings results on Aug 1. The company has an Earnings ESP of +0.06% and a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amerisafe, Inc. (AMSF - Free Report) is expected to report second-quarter 2018 earnings results on Aug 5. The company has an Earnings ESP of +5.00% and a Zacks Rank #3.

Berkshire Hathaway, Inc. (BRK.B - Free Report) has an Earnings ESP of +3.75% and a Zacks Rank #2. The company is expected to report second-quarter earnings results on Aug 3.

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