AIG Swings To Non-GAAP Net Profit In 4Q17

AIG Wildfire Response truck - photo - February 2018Global insurer American International Group, Inc. (NYSE: AIG) reported a fourth-quarter GAAP net loss that widened from the comparable period last year. The fourth-quarter results were significantly impacted by catastrophe losses. Following the declaration of the results, the stock fell to $58.28. However, it bounced back to close at $60.20 on Friday. We expect the stock rally further due to the details provided below.

For the fourth-quarter of 2017, the New York-based company reported a net loss that widened to $6.7 billion, or $7.33 per share, from $3.0 billion, or $2.96 per share, in the year-ago quarter.

The fourth-quarter net loss included a charge of $6.70 billion related to the recent tax laws. Excluding charges, adjusted income for 4Q17 was $526 million, or $0.57 per share, compared to a net loss of $2.80 billion, or $2.72 per share in the similar period of 2016. Analysts polled by Thomson Reuters had expected earnings of $0.75 per share in the recent quarter.

The General Insurance division posted adjusted pre-tax income of $13million, which includes catastrophic losses of $762 million. Nearly $572 million of those losses were related to wildfires in California. The 4Q17 loss ratio was 78.3 and adjusted accident year loss ratio was 65.2 (reflecting an improvement of 2.3 points on y-o-y basis).

Life and Retirement division recorded adjusted pre-tax income of $782 million, including a charge of $90 million. Legacy division reported adjusted pre-tax income of $411 million, down from $1.10 billion in the year-ago period. During 4Q16, Legacy division realized a pre-tax gain of $1.10 billion from the sale of commercial real estate in South Korea. Since its establishment, Legacy division has returned approximately $10 billion of capital, and surpassed the original goal of $9 billion.

During Q4 2017, AIG Parent received approximately $290 million in dividends in the form of cash and fixed maturity securities from its Life and Retirement companies. At the end of fiscal 2017, AIG’s liquidity stood at $7.30 billion. On January 21, 2018, the company entered into an agreement to acquire Validus Holdings Ltd., a reinsurance, primary insurance and asset management service provider, for $5.60 billion in cash. The acquisition is expected to expand the product portfolio of AIG’s global General Insurance business, while advancing the tools available for underwriting. Therefore, a swing to non-GAAP profit, decent performance of both General Insurance, and Life Insurance & Retirement division, and successful acquisition of Validus Holdings is expected to keep AIG bullish.

The stock remains range bound between 58 and 64. Furthermore, the stochastic indicator is in the oversold region. Therefore, we are expecting the stock of AIG to move up again to $64 levels in the days to come.

AIG - Technical Analysis - 12th February 2018

A call option may be bought through the platform of an honest binary broker to gain from the anticipated reversal in the share price. The option should be active for a period of one week and the stock should be trading near $59 in the NYSE. Only then, we will consider investing in the option contract.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.