On Dec 3, Zacks Investment Research downgraded American International Group Inc. (AIG) to a Zacks Rank #3 (Hold) from a Zacks Rank #2 (Buy).
Why the Downgrade?
Earnings estimates for AIG have not witnessed any momentum owing to mixed third-quarter 2013 results. Additionally, this life and property-casualty (P&C) insurer underperformed the 3-month S&P 500 index, which posted growth of 8.4% against 1.4% clocked by AIG.
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On Oct 31, AIG reported third-quarter operating earnings per share of 96 cents. Results deteriorated from the year-ago quarter earnings of 99 cents, although it breezed past the Zacks Consensus Estimate of 93 cents.
Lower premiums and net investment income in the P&C segment pulled down the top line, which plunged 11.3% from the prior-year quarter. Although benefits, claims and expenses declined, loss of income from AIA, and Maiden III led to underwriting loss as well as lower bottom line, book value per share and ROE. However, higher assets under management (AUM) and improved financial leverage were other positives.
Following the earnings release, the Zacks Consensus Estimate for 2013 edged up 1.6% to $4.33 per share in the last 60 days.However, the estimate for 2014 remained intact at $4.22 a share during the same period.
Meanwhile, the Most Accurate Estimate for AIG’s 2014 earnings stands at $4.12 a share, resulting in a negative Earnings ESP of 2.4%.
AIG’s growth appears to be stagnating due to the absence of any fundamental growth catalyst, thereby inducing the rank downgrade. Moreover, consistent increase in adverse reserve development poses additional risk on the company’s underwriting capabilities.
Other Insurers Worth a Look
We prefer to remain on the sidelines for AIG for the time being. However, investors interested in the insurance industry may consider stocks like Kemper Corp. (KMPR), Old Republic International Corp. (ORI) and Hallmark Financial Services Inc. (HALL). All these stocks carry a Zacks Rank #2 (Buy).