American International Group Inc.'s shares fell after the company reported fourth-quarter 2019 earnings, despite achieving what the CEO called a "turnaround on a scale and timeline never before seen in [the] industry."
The broader markets moved up for the week ending Feb. 14, with the S&P 500 rising 1.58% to a record high 3,380.16. The SNL U.S. Insurance Index gained 1.81% to 1,217.16.
AIG logged a fourth-quarter 2019 after-tax adjusted income attributable to common shareholders of $919 million, or $1.03 per share, a sharp reversal from the same period in 2018, which saw a loss of $559 million, or a loss of 63 cents per share. The general insurance segment recorded adjusted pretax income of $778 million, a drastic improvement from the $722 million loss it recorded in the prior year.
"It's hard to say given all the issues at AIG over the last decade-plus, but I honestly can't remember the last time AIG had a full-year underwriting profit," CEO Brian Duperreault said during an earnings call.
The insurer had "another quarter of good execution," according to Wells Fargo analyst Elyse Greenspan, who said its management team's main goal has been to get back to a profitable margin.
"You've seen that throughout all four quarters of 2019," Greenspan said. "I think that's a good sign, especially as we think about a better pricing environment here that should provide a tailwind for them to see some greater margin improvement in 2020."
AIG President and Global Chief Operating Officer Peter Zaffino said the last quarter of 2019 was the "strongest quarter of rate improvement" over the last decade with "meaningful acceleration" in rate increases throughout the period.
Greenspan said AIG has helped propel pricing momentum in the market, reworked its book of business and got out of a lot of underpriced business.
"It also confirms that there is a tailwind to their margins in 2020 by the fact that there's a good amount of price running through their portfolio," she said.
Yet despite the positive feelings about AIG's financial results, the insurer's shares tumbled as the earnings call went on. Piper Sandler analyst Paul Newsome called the movement an "overreaction" by the stock and attributed it to the 2020 guidance AIG disclosed, which he described as "negative."
Newsome said AIG is now projecting slower improvement in underwriting property and casualty and lower life insurance earnings. It also provided negative guidance on operating costs for the parent company and a reduction in earnings for its legacy business, he said.
"Essentially they're pushing back what we expected them to achieve in 2021 to 2022," Newsome added.
Wells Fargo's Greenspan added that life and retirement earnings guidance, in particular, is "baselining" back to the level that AIG saw in 2018 because alternative investment returns and equity markets did better than first predicted in baseline expectations in 2019.
The company did not share many details about the AIG 200 plan, which it has referred to previously as a "multiyear, enterprise-wide program to improve core processes and infrastructure," but said it plans to give more clarity during AIG's first-quarter earnings call.
AIG's stock was one of the week's worst performers, tumbling 9.32%.
Also among the biggest losers was Argo Group Ltd. During a time when the insurance industry is faced with growing claims severity across multiple business lines, the company preannounced that it plans to record an underwriting loss of approximately $114 million for the fourth quarter of 2019.
Argo said its results from the period included prior accident year losses of about $77 million, current accident year losses of approximately $30 million, catastrophe losses and related reinstatement premiums of approximately $3 million and additional operating expenses of about $12 million.
Boenning & Scattergood analyst Bob Farnam in a note said he expected Argo's shares to be "weak" on the news, and cautioned against buying while the shares are down until more is known about "what's going on under the hood." Argo shares slumped after the announcement and although they later recovered slightly, the company still notched a decline of 5.39% on the week.
Elsewhere in the P&C space, United Fire Group Inc. preannounced a fourth-quarter 2019 net loss that Newsome said is another data point that shows the commercial auto business is having "ongoing troubles." Newsome said it makes him more cautious of any of those companies exposed to that business.
United Fire shares lost 2.57%.
Genworth Financial Inc. shares were down last week after the company signaled it may not be able to complete its long-delayed deal with China Oceanwide Holdings Ltd. This week, its situation reversed as it found itself among the biggest winners. However, CFRA analyst Cathy Seifert in an email said she viewed the recovery in share price as a reflection of "general market conditions rather than a vote of confidence" for either Genworth or its pending merger with China Oceanwide.
Genworth's stock added 12.30% on the week.