American International Group, Inc. AIG is well-poised to grow due to strong Global Commercial business, improving underwriting performance and new business growth.
AIG continues to benefit from strong performance in its General Insurance business and the strengthening of insurance rates. Moreover, divestitures are helping the company to streamline its business and enhance capital allocation.
AIG is a leading global insurance organization providing a wide range of property casualty insurance, life insurance, retirement solutions and other financial services.
Zacks Rank & Price Performance
American International currently sports a Zacks Rank #1 (Strong Buy). In the quarter-to-date period, the stock has gained 9.6% compared with the industry’s growth of 2.2%.
Image Source: Zacks Investment Research
Optimistic Growth Projections
The Zacks Consensus Estimate for AIG’s 2023 earnings is pegged at $6.58 per share, indicating a 44.6% increase from the year-ago reported figure of $4.55. The same for AIG’s 2023 sales is pegged at $49.3 billion, indicating an 8.5% increase from the year-ago reported figure of $45.4 billion.
Decent Surprise History
The company beat earnings estimates in three of the last four quarters, while it missed on the other occasion, the average surprise being 9.2%.
In the first quarter, a significant portion of AIG’s total revenues came from premiums, which improved 19.1% year over year. The figures are expected to grow further in the future due to strong performance in commercial lines and rate increases contributing to higher pricing.
The General Insurance segment accounted for 56.3% of total revenues in the first quarter. This segment delivered strong results in the first quarter due to the improving performance of Lexington and Global Commercial businesses. North America Commercial is expected to aid the results of this business segments due to strong growth in net premiums thanks to Validus Re. Strong retention, rate increases and new businesses have been the key drivers for the Lexington business.
Total net investment income increased 9.1% year over year to $3,533 million. The current rising interest rate environment should provide an impetus to growth in net investment income. In order to take advantage of higher interest rates, AIG has repositioned its General Insurance portfolio to gain higher yields but remains careful about maintaining credit quality and duration. This is likely to result in higher net investment income in 2023.
AIG’s underwriting income increased 13% in the first quarter owing to its underwriting excellence. The General Insurance accident year combined ratio improved 100 basis points, highlighting improved underwriting profitability.
American International is delivering well on its AIG 200 savings objective. This has helped the company streamline and modernize its technology infrastructure and operations. Moreover, with Corebridge’s deconsolidation, AIG plans to reduce its expenses by $300 million.
The company rewarded its shareholders with $603 million in repurchases and dividends worth $241 million, reflecting its balanced capital management strategy. This implies that the company’s shares are a good buy for investors looking for returns in the form of dividends.
AIG has a high leverage ratio which is a concern. Its net debt-to-capital of 48% at the first-quarter end was significantly higher than the industry’s average of 3.1%. Also, American International’s return on equity of 8.6% is lower than the industry’s average of 9.8%. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.
Other Stocks to Consider
Some other top-ranked stocks from the Multi-line Insurance space are Assurant, Inc. AIZ, Enact Holdings, Inc. ACT and Old Republic International Corporation ORI. Each of these companies currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Assurant’s bottom line outpaced estimates in three of the trailing four quarters and missed once. The average earnings surprise is 18.2%.
The Zacks Consensus Estimate for AIZ’s 2023 earnings indicates a 25.1% rise, while the same for revenues suggests 2.7% growth from the prior-year reported figures.
The bottom line of Enact Holdings outpaced the Zacks Consensus Estimate inthree of the last four quarters and missed on the other occasion, the average surprise being 28.6%.
The consensus mark for ACT’s 2023 earnings has moved 8.9% north in the past 30 days.
Old Republic’s bottom line outpaced estimates in each of the trailing four quarters. The average earnings surprise is 29.9%.
The consensus mark for ORI’s 2023 earnings has moved 9.1% north in the past 60 days.
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