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Why AIG Rose 14% in a Quarter despite Missing Estimates

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Expected performance

American International Group (AIG) stock has risen 14% over the past three months on the expectation of improved investment performance and underwriting gains. As the Fed has raised interest rates in 4Q16, investment performance for insurance companies is expected to improve in the upcoming quarters. AIG is also expected to see higher growth in property and casualty and retirement plans.

In 3Q16, AIG posted adjusted operating income of $1.00 per share, missing analysts’ income per share estimates of $1.21. The company posted operating income of $1.1 billion, or $1.00 per share, compared to its operating profit of $691 million, or $0.52 per share, in the prior year. The results also included a $404 million after-tax loss recognition expense in institutional markets. This was partially offset by a $154 million after-tax gain of actuarial assumptions for the consumer life and retirement business.

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In a press release on November 2, 2016, AIG’s president and CEO, Peter Hancock, stated, “We continue to execute on the strategic initiatives announced in January. The strategic divestitures that we announced this quarter, our portfolio management decisions, actions to run-off the legacy portfolio and capital allocation all exemplify our guiding principle of building economic value.”

The company is in restructuring mode to improve operating efficiency and profitability to bring it in line with its major peers. In the US, AIG’s peers include MetLife (MET), Allstate (ALL), and Chubb (CB). Together, they form 1.2% of the Vanguard Dividend Appreciation ETF (VIG).

Expanding business

AIG (AIG) is one of the largest insurers in the US. The company’s annual revenue stood at $65 billion and is operating around the world in multiple product lines. The North American region remains the major contributor toward AIG’s top line, providing approximately half of its property and casualty premiums and 96% of its life insurance revenues. AIG’s Hancock took charge in September 2014 in order to integrate the company for long-term sustainable performance.

In this series, we’ll study AIG’s expected performance, investment profitability, operating divisions, expansion, balance sheet, dividends, and valuations.

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