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What Awaits American International (AIG) in Q4 Earnings?

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American International Group, Inc. (AIG - Free Report) is scheduled to report fourth-quarter 2019 results on Feb 13, before market open.

The Zacks Consensus Estimate for the company’s earnings per share is pegged at $1.02, indicating an increase of 261.9% from the year-ago quarter reported figure.

Factors at Play

AIG’s General Insurance segment is likely to have benefited from an increase in insurance pricing in its different business lines, strong results from the acquisition of Glatfelter and Validus as well as changes in business mix. Net income is expected to have been aided by lower catastrophe, continued underwriting actions, reinsurance and expense discipline.

Loss ratio at the General Insurance segment is likely to have declined due to the change in business mix and continued reduction in lines which are less profitable, and reduced volatility stemming from the company’s underwriting actions. Improved property reinsurance program and better loss experience in certain areas such as Japan Personal Auto and Commercial Properties are also expected to have aided loss ratio.

Life and Retirement segment is likely to have benefited from continued discipline and execution of its growth strategy as well as strong private equity returns and favorable market performance. This segment is expected to have seen decline in Life sales in the United States as the company is de-emphasizing guaranteed universal life sales in the current low interest rate environment and indexed universal life sales remain under pressure.

The company is likely to have witnessed a decline in sales of Fixed Annuities products in the to-be-reported quarter, due to low interest rates.  

The company’s debt levels are expected to have declined in the quarter under review given that it has been prioritizing on reducing its leverage and reinvesting in business. There is likely to have been no share buyback in the fourth quarter with the company remaining focused on the above-mentioned goals.

Business Update

In November, the company announced that it will sell a majority stake in its legacy specialist run-off company, Fortitude Group Holdings, LLC (Fortitude RE). The transaction is expected to close in mid-2020. AIG will be selling 76.6% of its stake for $1.8 billion to Carlyle Group and T&D United Capital Co.

By selling stake in Fortitude Group Holdings, AIG will let go of its legacy liability related to insurance portfolio, which includes run-off management solutions for long-dated, complex risks policies. These were non-core business for AIG with lower return and high risk characteristics.  

Earnings Surprise History and Q3 Performance

AIG has an unimpressive earnings surprise history. The company surpassed the Zacks Consensus Estimate in two of the last four quarters and missed the same in the other two with the negative surprise being 187.47%, on average. This is depicted in the chart below:

American International Group, Inc. Price and EPS Surprise

In third-quarter 2019, the company reported operating income of 56 cents per share, missing the Zacks Consensus Estimate by 43.43%. Earnings, however, compared favorably with a loss of 34 cents per share reported in the year-ago quarter.

What Our Model Says

Our proven model predicts an earnings beat for AIG this season. 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: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +4.69%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter..

Zacks Rank: Currently, the company carries a Zacks Rank #3.
Other Stocks That Warrant a Look

Some other stocks from the finance sector with the apt combination of elements to surpass estimates this reporting cycle are as follows:

Moody's Corporation (MCO - Free Report) is slated to report fourth-quarter earnings on Feb 12. It has a Zacks Rank of 2 and an Earnings ESP of +0.57%. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

 

Sun Life Financial Inc. (SLF - Free Report) is set to report fourth-quarter earnings on Feb 12. The company is Zacks #2 Ranked and has an Earnings ESP of +1.27%.

AXA Equitable Holdings, Inc. (EQH - Free Report) is slated to announce fourth-quarter earnings on Feb 27. The stock has an Earnings ESP of +0.18% and is a #2 Ranked player.

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