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American International Group Inc (AIG) Earnings: What To Love

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It’s been a long time coming, but American International Group Inc (NYSE:AIG) is finally showing that it’s back on track to once again becoming the insurance king it was before the financial crisis. With its first-quarter earnings release Thursday after the bell, the insurer has given investors some good news to head into trading on Friday — a good start to the weekend.

Though there are sure to be some that still doubt AIG’s resurgence, below is a list of three reasons to be excited about the company’s most recent earnings report — as well as one reason why you may hear it was disappointing.

No. 1: Income
American International Group Inc (AIG)While most headlines will note that net income dropped by $1 billion compared to 2012, the underlying facts about American International Group Inc (NYSE:AIG)’s $2.2 billion earnings for the first quarter suggest that the company is really moving in the right direction. Last year’s results included investment income generated by assets that were sold or liquidated during the year — so comparing 2013 to that time period is an inaccurate way to determine if the insurer is making progress.

Insurance operating income jumped 28% compared to 2012, while investment income was relatively flat. The company has been working on both its underwriting practices and risk selection. And though the flat nature of its investment income may seem disappointing, all of the players in the insurance market have been dealing with pressure from the low interest rates. So the investment income generated by American International Group Inc (NYSE:AIG) is sign of strength in a difficult environment, with both positive returns from higher securities values and alternative investments. Competitor The Allstate Corporation (NYSE:ALL) noted in its earnings report Wednesday that it was moving into more cash-generating investments that would ultimately lead to lower investment income in the future. AIG hasn’t made the same move, and may end up benefiting from the decision to hold firm.

No. 2: Combined ratio
In the insurance industry, a company’s ability to generate revenue from its insurance operations is usually measured by its combined ratio. As a tally of the company’s costs and losses to its premiums, the combined ratio will give you the dollar amount of the money the company keeps per $100 of premiums. American International Group Inc (NYSE:AIG) had a good quarter, with the company’s overall combined ratio dropping 4.8 points. Compared to its closest competitors, AIG had the best improvement of the group:

Insurer 2013 Combined Ratio Improvement Over 2012
AIG 97.3 4.8 points
The Allstate Corporation (NYSE:ALL) 87.7 0.4 points
The Progressive Corporation (NYSE:PGR) 91.9 2.3 points
Travelers Companies Inc (NYSE:TRV) 88.5 3.7 points

Source: Insurers’ first-quarter earnings press releases.

Though American International Group Inc (NYSE:AIG) may have had the best reduction, it still has the highest combined ratio of the players. The company’s consumer insurance segment did have an increase in its combined ratio due to increased expenditures on new direct marketing as well as some increases in personnel expenses. If the insurer can continue to bring down its combined ratio, it stands to make a bigger impact on its bottom line.

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