What To Expect From AIG’s Q3 Results

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American International Group

AIG (NYSE:AIG) is scheduled to report earnings for the third quarter of 2016 on Wednesday, November 2. The company has struggled somewhat over the last couple of quarters, with declining profitability in its Property and Casualty (P&C) business and deteriorating investment income. In the first half of 2016, the company’s top line declined by over 16% year-over-year (y-o-y) owing to a 13% decline in P&C revenue and 70% decline in corporate income. Total realized investment gains, reported as an adjustment figure in the financial results, declined by 104% y-o-y to a loss of $64 million in the first six months of the year.

Interest rates have remained low since then, and economic uncertainty due to the U.K.’s Brexit vote has pushed government bond yields to extremely low levels, with German and Japanese bond yields hovering around zero%. This is likely to have adversely impacted AIG’s investment income in the third quarter as well. In the upcoming earnings, we expect AIG’s revenue to report marginal gains over the prior year quarter to around $12.9 billion. aig-9
See our complete analysis of AIG here

How Will The P&C Business Perform?

The P&C division has played a key role in the turnaround of AIG’s fortunes after its bailout by the U.S. government. AIG ranks among the top ten P&C insurers in the U.S., with a market share of 3.23% in terms of premiums earned.

In the first half of 2016, the P&C division’s overall revenues declined by 13% y-o-y to $12.7 billion and pre-tax segment operating income declined by 33% to almost $2 billion. The accident year combined ratio – the ratio of claims and expenses paid to premiums earned – improved marginally from 93.9% in H1 2015 to 91.4% in H1 2016, as higher catastrophic losses (due to windstorms and hailstorms in the Americas) were offset by a lower expense ratio. For the third quarter, we expect catastrophe losses to have come down due to a decline in the intensity of catastrophes impacting North America in that period.

 

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