A month has gone by since the last earnings report for American International Group (AIG). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American International Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
AIG Miss Earnings Estimates in Q2
American International Group's second-quarter 2020 operating earnings of 66 cents per share missed the Zacks Consensus Estimate by 1.5%. The bottom line also declined 53.8% year over year, primarily due to higher catastrophe losses incurred on account of the COVID-19 pandemic, lower revenues and elevated costs.
Total revenues of $11.7 billion declined 3.5% year over year. The top line also missed the Zacks Consensus Estimate by 1.4% owing to reduced premiums and softer net investment income.
Total net investment income of $3.4 billion plunged 10.1% year over year.
Total benefit, losses and expenses of $19.1 billion escalated 77.7% year over year due to higher policyholder benefits and losses incurred, and interest expense.
The company incurred catastrophe losses, net of reinsurance of $674 million, which soared 287.4% year over year. The reported quarter’s catastrophe losses include $458 million of estimated COVID-19 losses, $126 million due to civil unrest and the balance $90 million was related to weather-related loss.
Adjusted return on equity was 4.6% compared with 10.4% in the year-ago quarter.
As of Jun 30, 2020, the insurer’s adjusted book value per share (excluding AOCI) was $55.90, down 5.1% from the level as of Dec 31, 2019.
Strong Segmental Results
Net premiums written of $5.5 billion were down 16% year over year due to lower premiums in the company’s North American and International business.
The segment reported an underwriting loss of $343 million against an underwriting income of $147 million in the prior-year quarter. Combined ratio of 106 deteriorated 820 basis points (bps) due to intensified catastrophe losses.
Life and Retirement
Premium and fees surged 72% year over year to $2.3 billion, led by solid contribution from Individual Retirement, Life Insurance and Institutional Markets, partly offset by lower contribution from Group Retirement.
The segment reported adjusted pre-tax income of $881 million, down 16% year over year due to sluggish contribution from Individual Retirement, Group Retirement and Life Insurance sub-segments.
AIG exited the second quarter with cash of $3.4 billion, up 19.3% from 2019 end. As of Jun 30, 2020, the company had long-term debt of $29.2 billion, up 14.8% year from 2019-end level.
Total assets of $569.4 billion increased 8.4% from the level at 2019 end. Shareholder equity was $62.2 billion, down 5.2% from 2019-end level.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, American International Group has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American International Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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