American International Group, Inc. (AIG) Earnings & Analysis

Latest quarter

AIG reported third-quarter revenue of $7.4 billion, up from $6.4 billion a year earlier. Its consensus-counted adjusted earnings were $2.06 per share, above the $1.85 consensus estimate. Diluted earnings per share were $1.60, compared with $0.93 a year earlier.

The filing shows growth in premiums earned across General Insurance, while underwriting income fell to $564.0 million. AIG attributed the decline in underwriting income primarily to higher catastrophe losses and less favorable development of reserves for prior-year claims. Its combined ratio, which measures claims and expenses against premiums, increased from the year-earlier quarter.

AIG said North America Commercial premium growth came mainly from retail casualty and financial lines, partly offset by lower production in some property lines. International Commercial benefited from broad-based geographic growth, while Global Personal grew in U.S. high-net-worth and accident and health insurance.

Free cash flow was $2.7 billion, compared with $1.3 billion a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Eric Andersen said insurance market conditions vary by business line and geography, giving AIG opportunities to grow in some areas while reducing exposure where pricing and terms do not adequately reflect risk. He said new entrants and excess capacity had intensified competition in Lexington, particularly in property and increasingly in casualty. AIG is directing growth toward middle-market and smaller accounts while reducing participation in large property and casualty accounts.

Andersen said North American financial-lines pricing was essentially flat, while energy loss costs were rising as new capacity pushed market rates lower. In international property, he said AIG was expanding its portfolio. He also said construction business tied to data-center projects was growing and that accident and health was reaching more clients through existing commercial relationships.

On underwriting margins, CFO Keith Francis Walsh said North America Commercial’s underlying loss ratio reflected a shift away from some property exposures toward casualty, as well as pricing pressure, mainly in property. Walsh said the General Insurance expense ratio improved as the company benefited from operating leverage and expense discipline, although a shift toward businesses with higher acquisition costs increased the acquisition ratio.

Walsh said reinvestment at higher yields remained the largest contributor to growth in investment income. He also said AIG was growing its invested assets and had increased its allocation to core fixed income while reducing legacy asset classes such as real estate.

Asked about the withdrawal of the premium-growth expectation, Andersen said parts of the market had deteriorated since AIG set it and that the company chose to prioritize profitable growth over a specific percentage. He said fourth-quarter conditions looked similar to the third quarter. Asked about reinsurance, Andersen said AIG liked its existing program but would consider adjustments for market pricing or opportunities to retain more risk.

Guidance

CEO Eric Andersen said AIG was stepping back from the full-year net premiums written growth expectation it shared in February. He said the decision reflected pressure in parts of the market and AIG’s choice to prioritize underwriting standards over pursuing a specific growth rate.