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. Trefis has a price estimate of $57 for AIG’s stock which is roughly 5% higher than its current market price. Our price estimate takes into account AIG’s earnings release for the third quarter earlier this month. For Q3, AIG reported total revenues of $12.9 billion, up 12% y-o-y primarily due to a sharp increase in net realized capital gains. However, the net income figure of $646 million for the quarter was below market expectation.
AIG’s business model faces stiff challenges and competition from offerings by its competitors such as Travelers, Prudential Financial, New York Life and Hartford Financial Group (HIG) among others. We have compared trends across revenue streams for AIG vs The Hartford over the last 4 years in an interactive dashboard, and also include our forecast for 2019. AIG has higher revenues and a much more diversified business model compared to its peer. Further, it has maintained its lead primarily due to notably higher General Insurance revenues.
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AIG has higher revenues and a more diversified business model, but it is growing at a slower rate than HIG
- AIG reported total revenues of $58.3 billion in 2015, which were 3.7x HIG’s figure.
- However, this difference gradually reduced to 2.5x in 2018 due to HIG’s strong growth rate even as AIG’s revenues slid lower.
- Both banks are heavily dependent on their General Insurance operations, as it has contributed more than 53% of the total revenues for both companies over the last 4 years.
- We expect AIG’s revenues to grow by 5% to $49.7 billion in 2019, whereas HIG’s revenues would increase by 7% to $20.3 billion.
Our interactive dashboard for AIG’s revenues details what is driving changes in revenues of AIG’s individual revenue streams, along with our forecast for the full year 2019
AIG earns notably higher General Insurance Premiums, although this revenue stream is also much more volatile for the company compared to the Hartford
- AIG’s General Insurance premiums decreased 16% from $30.9 billion in 2015 to $26 billion in 2017 before increasing 5.7% in 2018. On the other hand, HIG’s General Insurance premiums have remained largely constant around $10.5 billion over the last 4 years.
- Notably, as General Insurance premiums are the single largest revenue stream for both the companies, small fluctuations in these revenues can have a sizable impact on yearly performance.
- This segment’s share of total revenues fluctuated around 55% over the last 4 years for AIG, whereas the segment’s contribution to HIG’s top line has gradually fallen from over 65% in 2015 to almost 55% in 2018.
AIG’s investment income is almost 7x HIG’s figure.
- Both companies invest insurance premiums collected across their insurance products in assets such as bonds, equities, and mortgages.
- Notably, AIG reported $10.6 billion in investment income in 2018, which was 6.5x the $1.6-billion figure for HIG.
- In 2018, revenue share of Investment Income declined for both the companies due to lower asset valuations.
Additional details about how Life Insurance Premiums and Operating Margin for AIG compare with that for the Hartford are available in our interactive dashboard.
- AIG has higher revenues and a more diversified business model than HIG.
- AIG has significantly higher General Insurance premiums driven by it stronger presence in the U.S.
- Further, there is a stark difference between net investment income of both the companies with AIG’s net investment income being nearly 7x that for HIG – primarily due to its significantly larger asset base.
Per Trefis, AIG’s Revenues (shows key revenue components) are expected to cross $49.7 billion in 2019 – leading to an EPS of $4.70 for the year. This EPS figure coupled with a P/E multiple of 12.2x, works out to a price estimate of $57 for AIG’s stock (shows cash and valuation analysis), which is 5% higher than the current market price.
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