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AIG’s Q4 Earnings Miss Estimates Due to Cat Loss, Fall Y/Y


American International Group Inc. AIG reported fourth-quarter 2017 operating earnings of 57 cents per share that missed the Zacks Consensus Estimate by 27%. In the year-ago quarter, the company had reported earnings of $2.72 per share.

Including a charge of $6.7 billion, related to the enactment of the Tax Cuts and Jobs Act (the Tax Act), the company reported net loss of $7.33 per share compared with net loss of $2.96 per share in the year-ago quarter.

The underperformance stemmed from the impact of huge catastrophe losses and low premium in the General Insurance segment.

American International Group, Inc. Price, Consensus and EPS Surprise

Quarterly Segment Highlights

General Insurance Suffers From Catastrophe Loss

The segment was saddled with $762 million of catastrophe losses that led to an underwriting loss of $846 million, compared with $5.85 billion in the year-ago quarter.

Net premium written of $5.89 billion was also down 10% year over year due to continued execution of strategic portfolio actions in North America Commercial Lines Casualty and Property lines of business, and divestitures and risk selection strategy in Europe, in International Commercial Lines and strategic country exits for Personal Insurance.

Combined ratio of 113.3% deteriorated a massive 6920 basis points year over year, primarily due to an increase in loss ratio, which was due to huge catastrophe losses.

Strong Life and Retirement Unit Results

Premium and fees of $2.12 billion increased 79% year over year, led by strong contribution from Institutional Market sub segment.

Pre-tax income, however, was down 10% from the prior-year quarter to $782 million.

Financial Position

At the end of the fourth quarter, the insurer’s adjusted book value per share (excluding AOCI) was $66.41, down 9.5% year over year.

Core adjusted return on equity (ROE) was 2.6% compared with negative 22.9% in the year-ago quarter.

Business Update

Last month, the company entered into a $5.6 billion deal to acquire Validus Holdings Ltd., a leading provider of reinsurance, primary insurance and asset management services. The acquisition will broaden the company’s product portfolio, expand its distribution team and strengthen the company’s global General Insurance business.

Zacks Rank and Other Players

AIG carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Among other insurers that have reported their fourth-quarter earnings so far, American Financial Group Inc. AFG, RLI Corp. RLI and W.R. Berkley Corp. WRB beat their respective Zacks Consensus Estimate by 33.3%, 6.25% and 4.11%, respectively.

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