AIG Beats Q3 Earnings on Commercial Lines Strength & Lower Costs
American International Group, Inc. AIG reported third-quarter 2023 adjusted earnings per share (EPS) of $1.61, which outpaced the Zacks Consensus Estimate by 3.9%. The bottom line jumped 92% year over year.
Operating revenues inched up 0.3% year over year to $11.4 billion in the quarter under review. The top line fell short of the consensus mark by 10%.
The quarterly results were aided by strong underwriting results in the Commercial Lines business of the General Insurance unit, a declining expense level and higher net investment income. However, the upside was partly offset by continued incidence of catastrophe losses as well as reduced sales of Variable Annuities and pension risk transfer deals in the Life and Retirement unit.
American International Group, Inc. Price, Consensus and EPS Surprise
American International Group, Inc. price-consensus-eps-surprise-chart | American International Group, Inc. Quote
Quarterly Operational Update
Premiums fell 7.5% year over year to $7,244 million in the third quarter. Total net investment income of $3,556 million climbed 33% year over year and beat the consensus mark of $3,236 million as well as our estimate of $3,056.9 million. The metric benefited on the back of improved reinvestment rates and higher alternative investment income.
Total benefits, losses and expenses of American International declined 8.8% year over year to $9,206 million. The decrease was due to a decline in policyholder benefits and losses incurred.
Adjusted return on common equity of 8.5% improved 390 basis points (bps) year over year in the quarter under review.
Segmental Performances
General Insurance
Net premiums written of the segment amounted to $6,462 million in the third quarter, which grew 1% year over year. The metric was aided by rate increases, strong retention rates and new business growth in Lexington and Retail Property. However, the metric lagged the Zacks Consensus Estimate of $7,376 million and our estimate of $6,919.9 million.
Underwriting income increased nearly four-fold year over year to $611 million in the quarter under review, attributable to strength in North America Commercial Lines business. Catastrophe losses totaled $462 million, which stemmed from Lahaina Wildfire and Hurricane Idalia. The unit’s combined ratio of 90.5% improved 680 bps year over year due to an improvement in the loss ratio.
Adjusted pre-tax income was $1,367 million, which soared 82% year over year and surpassed the consensus mark of $1,127 million and our estimate of $916.4 million. The metric was driven by improved underwriting income, increased favorable prior-year development and higher net investment income.
Life and Retirement
The segment’s premiums and fees were recorded at $1,512 million in the third quarter, which decreased 29% year over year. Premiums declined due to reduced pension risk transfer volumes. Premiums and deposits advanced 4% year over year to $9,248 million.
Adjusted revenues of the unit were $4,180 million, which slid 3.5% year over year in the quarter under review and fell short of the Zacks Consensus Estimate of $5,327 million.
The unit reported an adjusted pre-tax income of $971 million, which rose 24% year over year on the back of higher base portfolio yields, improved alternative investment income and solid Fixed Index Annuities sales. Yet, the metric missed the consensus mark of $1,003 million and our estimate of $1,087.6 million.
Financial Position (as of Sep 30, 2023)
American International exited the third quarter with a cash balance of $1,994 million, which slipped 2.4% from the 2022-end level. Total assets of $521.5 billion dipped 0.1% from the figure at 2022 end.
Short and long-term debt amounted to $21.3 billion, up 0.2% from the figure as of Dec 31, 2022.
Total equity of $43.2 billion dipped 0.6% from the 2022-end level. Total debt and preferred stock to total capital was 33.7% at the third-quarter end.
Adjusted book value per share was $78.17, which grew 4.4% year over year in the quarter under review.
Capital Deployment Update
American International rewarded its shareholders with share buybacks of $785 million and paid common dividends worth $254 million.
Business Update
On Nov 1, 2023, AIG completed the divestiture of Validus Re to RenaissanceRe RNR and received a cash consideration of $3.3 billion as well as around $275 million in RNR stock. The divestiture deal was announced in May 2023 and as expected, the transaction was closed in the fourth quarter of 2023.
Zacks Rank
American International presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performances of Some Other Insurers
Of the insurance industry players that have reported third-quarter results so far, W.R. Berkley Corporation WRB and CNA Financial Corporation CNA beat the respective Zacks Consensus Estimate for earnings.
W.R. Berkley reported third-quarter 2023 operating income of $1.35 per share, which beat the Zacks Consensus Estimate by 18.4%. The bottom line increased 33.7% year over year. Net premiums written were a record $2.8 billion, up 10.5% year over year. Operating revenues of WRB were $3.1 billion, up 3.4% year over year. The top line, however, beat the consensus estimate by 1.4%. Net investment income surged 33.6% to a record $271 million. The consolidated combined ratio (a measure of underwriting profitability) improved 190 bps to 90.2. Net premiums written at the Insurance segment increased 12.1% year over year to $2.5 billion in the quarter under review.
CNA Financial’s third-quarter 2023 core earnings of $1.06 per share beat the Zacks Consensus Estimate by 15.2%. The bottom line increased 35.9% year over year. Total operating revenues were $3 billion, up 11.8% year over year. The top line beat the consensus estimate by 3.1%. Net written premiums of CNA's Property & Casualty Operations increased 6% year over year to $2.2 billion. Net investment income increased 31% to $553 million pretax. Underwriting income increased 56% year over year to $131 million. The combined ratio improved 150 bps year over year to 94.3. Commercial segment’s net written premiums increased 11% year over year to $1.1 billion. The unit’s combined ratio improved 300 bps to 98.9.
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American International Group, Inc. (AIG) : Free Stock Analysis Report
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