Can AIG Arrest The Steady Decline In Its Top Line?

by Trefis Team
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American International Group, Inc. (NYSE:AIG) is a leading provider of Property & Casualty Insurance, Life Insurance, Group & Individual Retirement products, bank-owned life products and Mutual Fund services to retail customers, small to medium businesses, corporations and other institutions. The company reported a 10% decline in revenues over the last two years, from $52.4 billion in 2016 to $47.4 billion in 2018.

Trefis details the key components of AIG’s Revenues in an interactive dashboard along with our forecast for the next two years. While we expect revenues to increase 5% to $49.7 billion for full-year 2019 thanks to a sizable increase in Life & Retirement segment revenues, headwinds for its General Insurance business and planned reductions in its Legacy Portfolio will result in total revenues shrinking again in 2020. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for the company’s revenues.

What to expect from AIG’s Revenues?

  • AIG’s Total Revenue has reduced 10% from $52.4 billion in 2016 to almost $47.4 billion in 2018, however it is expected to grow 5% and cross $49.7 billion this year before nudging lower to $49.3 billion in 2020.
  • Revenue growth of about $1.9 billion over 2019-20 to be driven by Life & Retirement segment ($2.2 billion) and General Insurance ($200 million), partially offset by drop in Legacy Portfolio & Other division.
  • The growth in Life & Retirement segment would be due to 60% jump in Institutional Markets subdivision.

Details about how trends in AIG revenues compare with peers Prudential Financial, Hartford Financial and MetLife are available in our interactive dashboard.

 

[A] Although General Insurance Revenues have struggled over the last two years, we expect the revenues to increase by $700 million in 2019.

  • This business segment provides personal and commercial Property & Casualty insurance to individuals and institutions across the globe. The different product lines offered are General Liability, Financial Liability, Property Insurance, Personal Lines, Accident & Health, and Special Risk Liability.
  • General Insurance revenues have decreased from $33.1 billion in 2016 to $30.2 billion in 2018, mainly driven by 12% drop in North America Net Premiums and 25% decline in Net Investment income from the segment.
  • We expect the segment revenues to increase to $30.9 billion in 2019 – driven by a $1.4-billion increase in North America premiums and a $400-million growth in net investment income, partially offset by a $900-million drop in International Premiums.

Our interactive dashboard for AIG details what is driving changes in revenues of AIG’s General Insurance segment.

 

[B] Life & Retirement segment is expected to jump $2.2 billion over 2019-20

  • This segment could be divided into four businesses:
    1. Individual Retirement (provides fixed annuities, mutual funds, index annuities etc.),
    2. Group Retirement (covers group mutual funds, group annuities, advisory services, and investment products),
    3. Life Insurance (provides term life and universal life insurance products),
    4. Institutional Market (offers pension risk transfer annuities, guaranteed investment contracts, and bank-owned life products etc.).
  • Although the segment revenues have fluctuated over the last three years from $13.8 billion in 2016 to $15.6 billion in 2017 and then reducing to $14.1 billion in 2018, we expect it to grow 16% and cross $16.4 billion by 2020.
  • This growth would mainly be driven by a 60%-jump in Institutional Markets revenues from $1.9 billion in 2018 to $3 billion by 2020.
  • Similarly, Individual Retirement revenues are expected to grow 5% in 2019, mainly driven by sharp growth in segment premiums. Further, the division is expected to grow by 8% y-o-y from $5.3 billion in 2018 to $5.8 billion by 2020.
  • Group Retirement revenues should see small growth of ~$100 million over 2019-20
  • Life Insurance premiums are expected to show a consistent growth in the near future, enabling the division to grow from $4 billion in 2018 to $4.5 billion by 2020.

 

[C] Legacy Portfolio & Other revenues are on a downward trajectory and are expected to reduce from $3.1 billion in 2018 to $2.6 billion by 2020.

  • This segment consists of products and solutions that have either been exited or discontinued and are no longer marketed.

 

Trefis estimates AIG’s stock (shows cash and valuation analysis) to have a fair value of $57, which is roughly 5% higher than the current market price (Our price estimate takes into account AIG’s earnings release for the third quarter last month).

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