AIG (NYSE:AIG) is scheduled to report earnings for the fourth quarter of 2016 on Tuesday, February 14th. The company has struggled somewhat over the last few quarters, with declining profitability in its Property and Casualty (P&C) business and deteriorating investment income. In the first nine months of 2016, the company’s top line declined by over 8% year-over-year (y-o-y) owing to a 9% decline in P&C revenue and 26% decline in corporate income. Total realized investment gains, reported as an adjustment figure in the financial results, declined by 174% y-o-y to a loss of $829 million in the first nine months of last year.
Interest rates have witnessed a gradual rise following the low touched after the U.K.’s Brexit vote in June last year. This is likely to positively impact AIG’s investment income in the fourth quarter. In the upcoming earnings, we expect AIG’s revenue to see a single digit decline over the prior year quarter to around $12.6 billion.
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 nine months of 2016, the P&C division’s overall revenues declined by 18% y-o-y to $13.2 billion and pre-tax segment operating income declined by 23% to $2.3 billion, owing to weak performance in North America. The accident year combined ratio – the ratio of claims and expenses paid to premiums earned – improved from 94.6% in the first nine months of 2015 to 91.2% in the same period last year, driven by an improved accident year loss ratio in the Casualty business, reflecting the non-renewal of certain under-performing classes of business and lower severe losses in the Property business.
For the fourth quarter, we expect catastrophe losses to have negatively impacted AIG’s results, especially as a result of Hurricane Matthew.
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