AIG ( AIG ) announced its third quarter earnings on Monday, November 3, reporting net income of $2.2 billion, an increase of 1% over the previous year. Revenues increased by 4% year-over-year to $16.6 billion in the third quarter.The company reported strong growth in its life and retirement business line, whereas the property and casualty (P&C) division was largely flat.
We have a price estimate of $52 for AIG's stock, which is in line with the current market price.
Property And Casualty
The P&C division's after-tax operating income rose marginally by 1.5% year-over-year to about $1.1 billion. This also included an adverse prior-year development of $227 million. Net premiums written in the P&C division during the quarter were close to $9 billion, an increase of about 3.5% over the previous year. Net premiums written in the consumer P&C product line remained flat compared to the previous year, net commercial products premiums written increased 5% during the same period.
An increase of about 4% in net investment income for the division also had a positive impact on earnings.
However, underwriting losses also increased by 25% year-over-year to $169 million. As a result, the global combined ratio for the quarter was 102% compared to 101.6% in the third quarter of 2013. The consumer P&C combined ratio improved by about a percentage point to 98.8% in the third quarter, while the combined ratio for commercial line was 101.1%.
Life And Retirement
Growth in the Life and Retirement division continued from the previous quarter, when the company recorded a solid performance. The company reported a year-over-year increase of around 15% in premiums and deposits for the third quarter on the back of higher variable and index annuity sales, plus a $2.5 billion deposit from a funding agreement.
Net investment income for the division also rose by over 5% year-over-year as assets grew and returns on alternative investments were higher during the quarter.Positive growth in sales and investment income offset the decline in sales of fixed annuities and retail mutual funds, resulting in approximately 18% year-over-year net growth in pre-tax operating income for the life and retirement division. In the coming quarters, we expect the company to benefit from rising demand for retirement products driven by the aging population in the U.S.
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