AIG (AIG)

Global insurance giant AIG (NYSE:AIG) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 6.3% year on year to $7.18 billion. Its non-GAAP profit of $2.20 per share was 28.5% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1919 when it began as a small insurance agency in Shanghai, China, AIG (NYSE:AIG) is a global insurance organization that provides commercial and personal insurance solutions to businesses and individuals across more than 200 countries.

Multi-line insurance companies operate a diversified business model, offering a broad suite of products that span both Property & Casualty (P&C) and Life & Health (L&H) insurance. This diversification allows them to generate revenue from multiple, often uncorrelated, underwriting pools while also earning investment income on their combined float. Interest rates matter for the sector (and make it cyclical), with higher rates allowing insurers to reinvest their fixed-income portfolios at more attractive yields and vice versa. The market environment also matters for P&C operations specifically, with a 'hard market' characterized by pricing increases that outstrip claim costs, resulting in higher profits while a 'soft market' is the opposite. On the other hand, a key headwind is increasing volatility and severity of catastrophe losses, driven by climate change, which poses a significant threat to P&C underwriting results.

AIG competes with other global insurance and financial services companies including Chubb Limited (NYSE:CB), The Travelers Companies (NYSE:TRV), Allianz SE (ETR:ALV), and Zurich Insurance Group (SWX:ZURN).

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Over the last five years, AIG’s demand was weak and its revenue declined by 9.7% per year. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. AIG’s annualized revenue declines of 10.4% over the last two years align with its five-year trend, suggesting its demand has consistently shrunk. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, AIG reported year-on-year revenue growth of 6.3%, and its $7.18 billion of revenue exceeded Wall Street’s estimates by 5.1%.

Net premiums earned made up 78.7% of the company’s total revenue during the last five years, meaning insurance operations are AIG’s largest source of revenue.

Our experience and research show the market cares primarily about an insurer’s net premiums earned growth as investment and fee income are considered more susceptible to market volatility and economic cycles.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

AIG’s net premiums earned has declined by 5.5% annually over the last five years, much worse than the broader insurance industry. A silver lining is that policy underwriting outperformed its other business lines.

When analyzing AIG’s net premiums earned over the last two years, we can see its woes have continued as income dropped by 10.3% annually. This performance was similar to its total revenue.

AIG produced $6.23 billion of net premiums earned in Q3, up 4.8% year on year and topping Wall Street Consensus estimates by 5.1%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

This is because insurers are balance sheet businesses, where assets and liabilities define the core economics. This means that interest income and expense should be factored into the definition of profit but taxes - which are largely out of a company’s control - should not.

Over the last four years, AIG’s pre-tax profit margin has fallen by 4 percentage points, going from 13.9% to 17.9%. It has also expanded by 8.7 percentage points on a two-year basis, showing its expenses have consistently grown at a slower rate than revenue. This typically signals prudent management.

In Q3, AIG’s pre-tax profit margin was 11.2%. This result was 1.6 percentage points better than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

AIG’s EPS grew at a remarkable 19.9% compounded annual growth rate over the last five years, higher than its 9.7% annualized revenue declines. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For AIG, its two-year annual EPS growth of 1% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, AIG reported adjusted EPS of $2.20, up from $1.23 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects AIG’s full-year EPS of $6.48 to grow 16.3%.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float–premiums collected but not yet paid out–are invested, creating an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

AIG’s BVPS was flat over the last five years. However, BVPS growth has accelerated recently, growing by 16% annually over the last two years from $56.06 to $75.45 per share.

Over the next 12 months, Consensus estimates call for AIG’s BVPS to grow by 19.6% to $79.21, elite growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

AIG currently has $9.05 billion of debt and $41.09 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.2×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity, or ROE, represents the ultimate measure of an insurer's effectiveness, quantifying how well it transforms shareholder investments into profits. Over the long term, insurance companies with robust ROE metrics typically deliver superior shareholder returns through a balanced approach to capital management.

Over the last five years, AIG has averaged an ROE of 10.1%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.

It was good to see AIG beat analysts’ EPS expectations this quarter. We were also excited its net premiums earned outperformed Wall Street’s estimates by a wide margin. On the other hand, its book value per share missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $81 immediately after reporting.

Updated: December 3, 2025 at 11:15 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in AIG.

AIG doesn’t pass our quality test. First off, its revenue has declined over the last five years. And while its expanding pre-tax profit margin shows the business has become more efficient, the downside is its net premiums earned has declined over the last five years. On top of that, its BVPS growth was weak over the last five years.

AIG’s P/B ratio based on the next 12 months is 1x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $88.05 on the company (compared to the current share price of $77.05).