A month has gone by since the last earnings report for American International Group (AIG). Shares have lost about 0.7% 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 drivers.
AIG Q4 Earnings Beat on Solid General Insurance Performance
American International Group reported fourth-quarter 2021 adjusted operating earnings of $1.58 per share, which surpassed the Zacks Consensus Estimate of $1.14. The bottom line also increased from 94 cents per share a year ago.
Total revenues of $14,087 million grew from $9,676 million a year ago. The top line beat the consensus mark of $11,555 million.
The strong fourth-quarter results were driven by a solid underwriting performance and lower catastrophe losses (CATs) from its General Insurance business. Further, lower total benefits, losses and expenses aided the results.
Adjusted operating earnings for 2021 were $5.12 per share, up from $2.52 in 2020. Total revenues of $52,057 million jumped from the 2020 level of $43,736 million. Total benefits, losses and expenses declined to $39,958 million from $51,029 million in 2020.
Q4 Operating Highlights
Total net investment income declined to $3,565 million for the quarter from $3,957 million in the year-ago period due to lower returns from fair value option equity and fixed-income securities. This was partially offset by higher income from alternative investments from private equity.
AIG witnessed total benefits, losses and expenses of $9,039 million, which declined from $10,234 million a year ago, primarily due to lower interest expense and higher net gain on divestitures. Benefits from the AIG 200 program aided the metric.
Adjusted return on common equity expanded 320 basis points (bps) year over year to 9.9% for the quarter under review.
Q4 Segmental Performances
Net premiums written of $5,961 million rose from $5,565 million in fourth-quarter 2020, attributable to constant rate increases, high retention rates and solid new business volumes, resulting in growth of 11% and 15% in North America Commercial Lines and International Commercial Lines, respectively. A rebound in travel activity and lower reinsurance cessions boosted North America Personal Insurance performance.
The segment reported an underwriting income of $499 million against the prior-year quarter’s underwriting loss of $171 million. In the reported quarter, underwriting income comprised $189 million worth CATs compared with the year-ago figure of $545 million. Fourth-quarter CATs stemmed from tornadoes in the southern United States and wildfires. The combined ratio contracted 1,040 bps year over year to 92.4%.
Life and Retirement
Premiums of $2.7 billion surged from $1 billion a year ago on account of an improved pension risk transfer activity. Premiums and deposits climbed 19% year over year to $8.6 billion. Total adjusted revenues for the fourth quarter were $6,124 million, up from $4,338 million a year ago, primarily on higher premiums and policy fees.
The segment reported an adjusted pre-tax income of $969 million, which declined from $1,027 million a year ago. The downside was due to unfavorable mortality in Life Insurance, higher expenses, and a hike in deferred policy buyout cost amortization and reserves in the Individual Retirement and Group Retirement.
AIG intends to separate its Life and Retirement unit from the business. Last November, the company closed the sale of a 9.9% equity stake in the unit to Blackstonefor $2.2 billion. AIG might opt for an initial public offering in the future to separate the Life and Retirement business. Cash proceeds received from Blackstone helped in boosting AIG’s liquidity.
Financial Position (as of Dec 31, 2021)
American International exited the fourth quarter with cash of $2,198 million, which decreased 22.2% from the figure at 2020-end. Total assets amounted to $596.1 billion, up from the 2020-end level of $586.5 billion.
Long-term debt of $23,741 million declined 15.5% from the figure as of Dec 31, 2020. Total equity increased 2.5% from the 2020-end level to $68,912 million. Long-term debt to capitalization at fourth quarter-end was at 25.6%.
Adjusted book value per share of $68.83 grew 20.7% from the figure at 2020-end.
Share Repurchase & Dividend Update
American International bought back shares worth $2.6 billion in 2021 and paid $1.1 billion in dividends. The board of directors approved a quarterly cash dividend of 32 cents per common share. The dividend will be paid out on Mar 31, 2022 to the company’s shareholders of record as of Mar 17.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, American International Group has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 upward for the stock, and the magnitude of these revisions looks promising. 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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