AIG Q2 Earnings: Strong Underwriting, Demand For Retirement Products Drive Growth

American International Group, Inc. ( AIG ) reported earnings for the second quarter of 2014 on August 5, beating market expectations. AIG reported net income of $3.1 billion for the quarter, a 14% year-over-year increase on the back of strong performance in the property and casualty (P&C) and life and retirement businesses.(( SEC 8-K Filing , August 4 2014)) The net income also included a $1.4 billion after-tax gain from the sale of AIG's non-core International Lease Finance Corporation (ILFC) to AerCap Ireland Limited.

We have a price estimate of $50 for AIG's stock, which is about in line with the current market price.

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Property And Casualty Premiums Flat

AIG is the eighth largest insurer with a market share of 3.29% in terms of premiums earned in the U.S. P&C market. AIG offers both commercial and consumer insurance products in the P&C segment.

Net premiums written remained almost flat at $9.2 billion in the second quarter, compared to the second quarter in 2013. Pre-tax operating income grew by 25% year-over-year to $1.4 billion in the second quarter. This was due to an improvement in underwriting performance as evidenced by the 98.8% combined ratio compared to 102.6% in second quarter of 2013.

Life And Retirement - Growth Continues

AIG holds a share of 2.4% of the life insurance market in the U.S. in terms of premiums earned. Premiums and deposits for the division rose by 9% year-over-year to $7.4 billion in the second quarter. Pre-tax operating income for the division increased 3% year-over-year to about $1.2 billion, as both the retail and institutional segments grew by 2% and 3% (compared to Q2 2013), respectively. This growth was driven largely by increasing demand for retirement products with guaranteed income returns. The company continued to register strong growth in its annuities business in the second quarter, as fixed annuity premiums and deposits rose by 35% to $1.1 billion, largely driven by improving interest rates.

A 13% year-over-year surge in assets under management (AUM) to $332.8 billion helped the company earn higher asset management fees. The aging U.S. population bodes well for AIG in terms of market opportunity, and we expect the company to continue to witness growth in its retirement solution business in the coming years.

We are in the process of updating our model to account for the second quarter results.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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