On Dec 9, we downgraded life property-casualty (P&C)
American International Group Inc.
) to Neutral based on its moderated growth momentum alongside a
deteriorating top line. Yet, improved financial leverage and
capital position is driving efficient capital deployment.
Why the Downgrade?
AIG has witnessed very minor corrections since its
third-quarter 2013 results on Oct 31. Both operating earnings of
96 cents per share and total revenue of $14.83 billion topped the
Zacks Consensus Estimate of 93 cents and $10.1 billion,
respectively, during the quarter.
However, both earnings and revenues lagged the year-ago
results by 3.0% and 11.3%, respectively. Overall, AIG delivered
positive earnings surprises in all the last 4 quarters with an
average beat of 102.4%.
Operating growth was driven by improved assets under
management (AUM), lower claims and higher premiums within the
Life & Retirement segment. This was partially offset by lower
claims and investment income in the P&C segment, although
combined ratio improved due to lower expenses.
Additionally, loss of income from AIA and Maiden III led to
underwriting loss and reduced bottom line. Consequently, book
value per share and return on equity (ROE) also witnessed
Following the release of the third quarter results, the Zacks
Consensus Estimate for 2013 inched up 1.6% to $4.33 per share in
the last 60 days. The same for 2014 remained intact at $4.22 a
Meanwhile, the Most Accurate Estimate for AIG's 2013 earnings
stands at $4.39 a share, resulting in an
Moreover, the current estimates reflect 10.2% year-over-year
growth in 2013, while a drop of 2.7% is projected in 2014. With
the Zacks Consensus Estimate for both 2013 and 2014 being sticky,
the company now has a Zacks Rank #3 (Hold).
AIG enjoys a strong position in its markets of operation.
Fundamentals have also been benefiting from improved product
pricing, claims management, diversified insurance products
portfolio, risk management and a strong distribution network.
However, deteriorated investment portfolio amid intense
competition and low interest rate environment increase operating
and financial risks. Nonetheless, AIG's debt reduction and
effective capital deployment score well with the long-term
Other Insurers That Warrant a Look
While we remain on the sidelines regarding AIG, some
better-ranked insurers are
Old Republic International Corp.
First American Financial Corp.
Hallmark Financial Services Inc.
). All these stockssport a Zacks Rank #1 (Strong Buy).
AMER INTL GRP (AIG): Free Stock Analysis
FIRST AMER FINL (FAF): Free Stock Analysis
HALLMARK FINL (HALL): Free Stock Analysis
OLD REP INTL (ORI): Free Stock Analysis
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