American International (AIG): Earnings Preview for Q4

American International Group, Inc. AIG is set to report fourth-quarter 2015 results on Feb 11. Last quarter, it posted a negative earnings surprise of 49.51%. The company posted a negative surprise in two out of the last four reported quarters, with the average surprise being -10.39%.

Let's see how things are shaping up for this announcement.

Factors Influencing This Past Quarter

AIG's fourth-quarter earnings are expected to see a $3.6 billion drag from the strengthening of loss reserves in the non-life business, primarily reflecting an adverse development on prior accident years in its longer-tailed lines of business.

Though the company's underwriting and expense initiatives are expected to boost its property and casualty profits, these efforts will be constrained by increasingly difficult market conditions.

Additionally, we expect continued pressure on the top-line growth of the commercial lines, given the still low rate environment.

Nevertheless, share buyback will continue to be a major earnings driver. Also, the company's initiatives on cost saving will likely reduce operating costs thus drive the bottom line.  

Earnings Whispers

Our proven model does not conclusively show that AIG is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: AIG has an ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 85 cents per share.

Zacks Rank: AIG has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Stocks to Consider

Here are some companies from the insurance sector that you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

CNO Financial Group, Inc. CNO with an Earnings ESP of +2.70% and a Zacks Rank #3. The company will release fourth-quarter earnings results on Feb 10.

Prudential Financial, Inc. PRU with an Earnings ESP of +0.44% and a Zacks Rank #3. The company will release fourth-quarter earnings results on Feb 10.

American Capital, Ltd. ACAS with an Earnings ESP of +12.5% and a Zacks Rank #1. The company will release fourth-quarter earnings results on Feb 23.

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