On Apr 16, we reiterated our Neutral recommendation on
American international Group Inc. ( AIG ) based on its
newly attained capital independence and improved core operating
structure. However, this is partly offset by higher operating and
other expenses along with macro-economic challenges.
Why the Retention?
Estimates for this global life and property-casualty insurer
witnessed minor corrections since the company reported its
fourth-quarter 2012 results on Feb 21. AIG's fourth-quarter
earnings per share of 20 cents topped the Zacks Consensus Estimate
of a loss of 9 cents. However, earnings were significantly lower
than 77 cents recorded in the year-ago quarter.
The year-over-year decline reflected a 3.2% fall in revenue
driven by lower premiums and deposits. Alongside, pre-tax
catastrophe losses of $2 billion raised benefits and claims,
leading to a deteriorated combined ratio.
Yet, higher value business, improvement in pricing trends,
strong underwriting margins, higher profitability in Direct
Investment Book (DIB) and higher investment income became the
earnings growth drivers. Overall, AIG delivered positive earnings
surprises in all of the last 4 quarters with an average beat of
Going ahead, stable ratings, improved operating cash flow, book
value, return on equity and capital position bode well for
long-term growth. The complete repayment of government bailout loan
along with AIG's efforts to de-risk business by focusing on core
operations appear conducive for dealing prudently with the
Following the release of the fourth-quarter results, the Zacks
Consensus Estimate for 2013 inched up 1.2% to $3.39 per share in
the last 30 days. Conversely, the Zacks Consensus Estimate for 2014
edged down 0.5% to $3.95 per share in the last 30 days. With the
Zacks Consensus Estimates for both 2013 and 2014 exhibiting no
clear directional pressure in the near term, AIG now has a Zacks
Rank #3 (Hold).
Other Financial Stocks That Warrant a Look
While AIG tends to stay in the neutral lane in the near term,
other stocks in the insurance sector that are outperforming include
Markel Corp. ( MKL ), Everest
Re Ltd. ( RE
) and CNO Financial Group Inc. (
CNO ).All these
stocks carry a Zacks Rank #1 (Strong Buy).AMER INTL GRP (AIG): Free Stock Analysis ReportCNO FINL GRP (CNO): Free Stock Analysis ReportMARKEL CORP (MKL): Free Stock Analysis ReportEVEREST RE LTD (RE): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment