Key Takeaways From AIG’s Q2 Earnings
AIG (NYSE: AIG) reported its second quarter earnings on August 2, and its EPS beat consensus estimates by 33 cents. However, net income declined by nearly 40% to $1.13 billion on higher property losses and the impact of the second half 2016 increase in loss estimates, partially offset by alternative investment returns. The company’s revenues also declined by nearly 15% to $12.5 billion on lower premiums written in the commercial Property & Casualty (P&C) business and a marginal decline in net investment income.
AIG’s pre-tax operating income increased by 11% to about $2.1 billion, driven by about a 33% rise in operating income in the consumer insurance segment, partially offset by a 28% decline in the liability and financial lines business. The company reported net income of $1.13 billion in Q2 2017 versus net income of $1.9 billion in the prior year quarter.
AIG repurchased 74 million shares for about $4.7 billion in the first six months of 2017. AIG’s board also authorized a new plan to repurchase $2.5 billion worth of shares, resulting in an aggregate remaining authorization of approximately $3.8 billion, and bringing the company closer to its goal of returning $25 billion of capital to investors by the end of 2017.
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Property And Casualty Insurance
AIG ranks among the top ten Property & Casualty (P&C) insurers in the U.S., with a market share of 3.23% in terms of premiums earned. In Q2 2017, the P&C division’s net premiums declined 21% year-over-year (y-o-y) to $4.5 billion and the net investment income declined 5% to $814 million. These resulted in the decline of 24% in pre-tax operating income of this division.
The accident year combined ratio – the ratio of claims and expenses paid to premiums earned – worsened by 4.4 percentage points to 102.7% in Q2 2017, owing to a higher loss ratio.
Life and Retirement Insurance
The Life and Retirement division’s revenue declined 2% to $5.98 billion, but pre-tax operating income increased by 33% owing to lower operating expenses.
The Personal Insurance accident year combined ratio improved by 590 basis points y-o-y to 91.1% in Q2 2017, owing to a higher acquisition ratio, which increased from 25.9% in Q2 2016 to 26.6% in Q2 2017.
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