American International Group, Inc. AIG seems to have garnered investors’ attention with its improving profitability led by numerous turnaround actions over the past two years.
Prior to the first quarter, which beat estimates, AIG had disappointed investors by missing estimates in six straight quarters, arousing skepticism over its ability to turn around the underperforming business.
This also led to a 34% decline in the company’s share price in 2018 and 8.8% fall in 2017. However, in 2019, the stock has gained 37% year to date, compared with its industry’s rise of 15%.
Since the beginning of 2018, the company has been undertaking significant foundational work in General Insurance around organizational structure, talent recruitment and improving underwriting capabilities, while at the same time rapidly evolving reinsurance program and exercising expense discipline. These initiatives seem to be paying off now.
The company has achieved quite a bit in its largest segment, General Insurance (contributing nearly 67% of total revenues in 2018), by posting an underwriting profit and a favorable combined ratio. This underwriting profit represents a significant milestone for AIG, and reflects the tremendous work undertaken by management recently to improve underwriting fundamentals.
The company’s approach to reinsurance, which has dramatically reduced risk and volatility, onboard acquisitions and continuous expense discipline across General Insurance, is expected to drive the segment’s results. Management remains confident that the segment will continue to improve its financial performance and deliver underwriting profit for the full year 2019.
Along with growing its top line, the company has tightened its grip on expenses which has aided its margins. The company has also witnessed a decline in expense ratio, despite making investments in talent, business process and infrastructure to support its long-term profitable growth objectives.
AIG’s continuous focus on strengthening its underwriting fundamentals, the changing mix of business and the acquisitions of Validus and Glatfelter will improve its operating profitability.
AIG carries a Zacks Rank #2 (Buy). Other stocks worth considering are James River Group Holdings, Ltd. JRVR, Kemper Corp., KMPR, and Radian Group, Inc. RDN, each carrying a Zacks Rank #2. James River beat estimates in three of the four reported quarters with an average positive surprise of 4.7%, Kemper Corp. and Radian beat estimates in each of the four reported quarters with an average positive surprise of 14.13% and 10.28%, respectively. You can see the complete list of today’s Zacks #1 Rank (stocks) here.
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