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What Awaits American International (AIG) in Q1 Earnings?

Zacks Equity Research

American International Group Inc.'s AIG first-quarter 2019 results are scheduled on May 6. Per the Zacks Consensus Estimate, the company is expected to post earnings per share of $1.07 up 2.9% year over year.

While the company faced many issues and challenges in 2018, it has taken steps to reduce risk and volatility and implement strategies which will accelerate its progress in 2019. Notably, first-quarter results indicate gains from the company’s strategic initiatives.

Led by improvement in pricing conditions in the second half of the year 2018, the company significantly increased sales at indexed and fixed annuities. With growth in individual retirement, group retirement and life insurance, the company increased total premiums and deposits for the year. We expect this growth to have continued in the first quarter of 2019.

The company’s earnings in Life and Retirement segment should reflect attractive new business margins, solid growth in premiums and deposits in Individual Retirement, Group Retirement, and Life Insurance. Per the Zacks Consensus Estimate, total revenues in the segment are expected to be $3.97 billion.

The company’s General Insurance business in North America is likely to gain from increase in premium written from the acquisitions of Validus and Glatfelter, and lower ceded premiums due to changes in 2018 reinsurance programs. Commercial Lines business from North America is expected to see a reduction in business due to ongoing underwriting actions to improve performance. General Insurance business in International segment should see an increase in premium written due to inclusion of the Talbot acquisition and increased accident and health business in Asia Pacific.

Another revenue driver is the company’s net investment income, which declined in 2018. The interest rates are expected to remain at low levels due to Fed’s dovish stance, which would keep investment yields under pressure. We expect net investment income to remain under pressure in the first quarter of 2019.

Shares bought back by the company will accrue to its bottom line in the first quarter.

Earnings Surprise History

The company has a dismal earnings surprise history with estimate missed in each of the last four reported quarters, the average negative surprise being 211.9%. This is depicted in the chart below:

American International Group, Inc. Price and EPS Surprise

American International Group, Inc. Price and EPS Surprise | American International Group, Inc. Quote

What Our Model Says

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

Earnings ESP: AIG has an Earning ESP of -9.93%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: Though AIG carries a Zacks Rank #3 (Hold), its Earning ESP of -9.93% makes our surprise prediction difficult.

Other Stocks That Warrant a Look

Here are some other companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

RenaissanceRe Holdings Ltd. RNR has an Earnings ESP of +3.29% and a Zacks Rank #2.

Sun Life Financial Inc. SLF has an Earnings ESP of +1.11% and a Zacks Rank #3.

Everest Re Group, Ltd. RE set to report first-quarter earnings on May 6. The company has an Earnings ESP of +3.27% and a Zacks Rank #3.

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

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