How Will AIG Perform In Its First Quarter?

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AIG: American International Group logo
AIG
American International Group

AIG (NYSE: AIG) had a turbulent 2017. The company saw its revenue decline by 5.4% in 2017, mainly due to the soft performance of the General Insurance segment. Divestitures and strategic actions on underperforming business lines also drove down segment premiums by 10%. However, these actions are steps in the right direction. The company is scheduled to announce first-quarter earnings on May 2, after the market closes. While the company’s strategic decisions such as the acquisition of Validus seem to be sound, the result of such decisions will likely be realized later in the year. We expect to see a decline in top line for the first quarter. However, AIG’s effort to optimize technical underwriting should yield better margins. Below we take a look at some of the key trends that we will be watching when the company reports earnings. You can also use our interactive dashboard to see our expectations for the quarter, and see how changes in our forecasts can impact the company’s earnings and valuation.

Revenues Will Likely Decline; Margins Will Slightly Improve

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The Validus acquisition looks like a sound decision for the company. The deal expands the company’s general insurance portfolio. With commercial property insurance potentially set to rise in 2018, largely due to catastrophes in 2017, AIG will benefit from having a partner that has deep expertise in this area. Also, with the deal, AIG will enter the crop insurance business, which should generate additional premiums. Further, Talbot, an operator in Lloyd’s insurance market, will re-introduce AIG to complex, but profitable underwriting areas. That said, it will take some time to create synergies. Meanwhile, strategic actions to divest underperforming businesses, although a step forward, will likely result in a lower premium generation that will offset the growth from other segments.

The Institutional Markets business has delivered strong results in the past. With plan sponsors getting increasingly interested in PRT transactions, we expect that AIG’s expertise in such transactions will drive the result in the upcoming quarter. Moreover, a diversified product mix should continue to generate high-level premiums in the Life Insurance business.

Furthermore, we expect AIG’s earnings margin to improve in the near term. During the Q4’17 earnings podcast, the CEO of the company pledged that the company would focus more on technical underwriting and we expect to see a positive outcome from this.

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