What To Expect From AIG’s Q3 Earnings

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AIG
American International Group

AIG (NYSE: AIG) is scheduled to report earnings for the third quarter on Thursday, November 2. The company has struggled somewhat over the last few quarters due to high catastrophe losses in the Property and Casualty business partially offset by investment returns. AIG’s earnings this quarter are likely to have been impacted negatively by property damages caused by hurricanes and other catastrophes. We expect the company’s total catastrophe losses to remain around $3 billion this quarter. Interest rates have increased gradually, which is likely to have boosted AIG’s investment income in the quarter and may partially offset the catastrophe losses.

Our price estimate for AIG stands at $74, which is nearly 15% ahead of the current market price.

P&C Business To Be Impacted By The Atlantic Hurricane Season

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The P&C division has played a key role in the turnaround of AIG’s fortunes after its bailout by the U.S. government last decade. 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. However, this year has been mixed so far for AIG’s P&C division, due to huge catastrophe losses during the year. In the first half of 2017, the P&C division’s overall revenues declined by 15% y-o-y to $9.2 billion and pre-tax segment operating income declined by 2% to almost $1.5 billion. The accident year combined ratio – the ratio of claims and expenses paid to premiums earned – also worsened by 4.4 percentage points to 102.7% in Q2, owing to a higher loss ratio.

The 2017 Atlantic hurricane season has been devastating, as Hurricanes Harvey, Irma, and Maria caused property damages of over $180 billion. AIG estimated the total catastrophe losses from these hurricanes and other catastrophes in the quarter to remain between $2.9 billion to $3.1 billion. Overall, we expect AIG’s profits to remain under pressure, and the magnitude of decline should increase this quarter.

Have more questions about AIG? Please refer to our complete analysis for AIG

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