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AIG to Report Q3 Earnings: Will Cat Loss be a Dampener?
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American International Group Inc. (AIG - Free Report) estimates to incur catastrophe losses of $1.5 billion to $1.7 billion from multiple events in Japan, including Typhoons Jebi and Trami, as well as Hurricane Florence and revisions to its estimates on the California mudslides, when it reports third-quarter earnings on Oct 31.
As a result, AIG expects pre-tax catastrophe losses, net of reinsurance, resulting from multiple events in Japan and Asia to be approximately $900 million to $1 billion and pre-tax catastrophe losses, net of reinsurance, resulting from events in North America to be approximately $600 to $700 million, respectively.
In the last earnings release, the company announced restructuring charge to focus on cost reductions in General Insurance and at AIG headquarters, which will continue over the balance of the year. These cost reduction efforts will contribute approximately two points of decline in the combined ratio (a decline in combines ratio improves profitability).
Moreover, the Validus acquisition should contribute approximately one point to the decline in combined ratio. Also, the company’s underwriting actions and reinsurance strategies should lead to a decline in combined ratio.
The company’s General Insurance segment is continuing to execute on its other strategic priorities such as improving core performance by refining the portfolio, adding highly respected industry executives to its leadership team, strengthening the underwriting organization by recruiting seasoned underwriters and continuing to build out end-to-end business units in North America and International. Though these should yield results in the coming quarters, we expect underwriting income to remain under pressure in the to-be-reported quarter.
For the General Insurance segment, the company mentioned that 2018 net premiums written will be relatively flat with 2017 due to the mix of business shifts led by a change in underwriting and reinsurance strategies.
Management has made a significant shift in its capital utilization strategy in a bid to turn the stock around and achieve greater profitability. Now, management expects to utilize capital for possible acquisitions in international markets, boosting the company’s Personal and Life Lines segments plus investing in the domestic middle market as opposed to its usage of capital resource for share repurchases. Thus a lower amount of share buyback will somewhat be less accretive to the bottom line.
Earnings Surprise History
The company doesn’t have an attractive earnings surprise history. It missed estimates in three of the last four reported quarters, with an average negative surprise of 15.6%. This is depicted in the chart below:
American International Group, Inc. Price and EPS Surprise
Our proven model does not conclusively show that AIG is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.
Earnings ESP: AIG has an Earning ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter
Zacks Rank: AIG carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies from the insurance sector that you may want to consider as these have the right combination of elements to beat on earnings this quarter:
Prudential Financial, Inc. (PRU - Free Report) is expected to report third-quarter 2018 earnings results on Nov 7. The company has an Earnings ESP of +0.13% and a Zacks Rank #2 (Buy).
CNA Financial Corporation (CNA - Free Report) is expected to report third-quarter 2018 earnings results on Nov 5. The company has an Earnings ESP of +4.19% and a Zacks Rank #2.
Willis Tower Watson Public Limited Company has an Earnings ESP of +3.91% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Nov 2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
AIG to Report Q3 Earnings: Will Cat Loss be a Dampener?
American International Group Inc. (AIG - Free Report) estimates to incur catastrophe losses of $1.5 billion to $1.7 billion from multiple events in Japan, including Typhoons Jebi and Trami, as well as Hurricane Florence and revisions to its estimates on the California mudslides, when it reports third-quarter earnings on Oct 31.
As a result, AIG expects pre-tax catastrophe losses, net of reinsurance, resulting from multiple events in Japan and Asia to be approximately $900 million to $1 billion and pre-tax catastrophe losses, net of reinsurance, resulting from events in North America to be approximately $600 to $700 million, respectively.
In the last earnings release, the company announced restructuring charge to focus on cost reductions in General Insurance and at AIG headquarters, which will continue over the balance of the year. These cost reduction efforts will contribute approximately two points of decline in the combined ratio (a decline in combines ratio improves profitability).
Moreover, the Validus acquisition should contribute approximately one point to the decline in combined ratio. Also, the company’s underwriting actions and reinsurance strategies should lead to a decline in combined ratio.
The company’s General Insurance segment is continuing to execute on its other strategic priorities such as improving core performance by refining the portfolio, adding highly respected industry executives to its leadership team, strengthening the underwriting organization by recruiting seasoned underwriters and continuing to build out end-to-end business units in North America and International. Though these should yield results in the coming quarters, we expect underwriting income to remain under pressure in the to-be-reported quarter.
For the General Insurance segment, the company mentioned that 2018 net premiums written will be relatively flat with 2017 due to the mix of business shifts led by a change in underwriting and reinsurance strategies.
Management has made a significant shift in its capital utilization strategy in a bid to turn the stock around and achieve greater profitability. Now, management expects to utilize capital for possible acquisitions in international markets, boosting the company’s Personal and Life Lines segments plus investing in the domestic middle market as opposed to its usage of capital resource for share repurchases. Thus a lower amount of share buyback will somewhat be less accretive to the bottom line.
Earnings Surprise History
The company doesn’t have an attractive earnings surprise history. It missed estimates in three of the last four reported quarters, with an average negative surprise of 15.6%. This is depicted in the chart below:
American International Group, Inc. Price and EPS Surprise
American International Group, Inc. Price and EPS Surprise | American International Group, Inc. Quote
What the Quantitative Model States
Our proven model does not conclusively show that AIG is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.
Earnings ESP: AIG has an Earning ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter
Zacks Rank: AIG carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies from the insurance sector that you may want to consider as these have the right combination of elements to beat on earnings this quarter:
Prudential Financial, Inc. (PRU - Free Report) is expected to report third-quarter 2018 earnings results on Nov 7. The company has an Earnings ESP of +0.13% and a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CNA Financial Corporation (CNA - Free Report) is expected to report third-quarter 2018 earnings results on Nov 5. The company has an Earnings ESP of +4.19% and a Zacks Rank #2.
Willis Tower Watson Public Limited Company has an Earnings ESP of +3.91% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Nov 2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>