Board of Directors Authorizes Repurchase of $3.0 Billion of
Additional Shares of AIG Common Stock
American International Group, Inc. (NYSE:AIG) today reported net
income of $462 million, or $0.42 per diluted share, for the third
quarter of 2016, compared to a net loss of $231 million, or $0.18
per diluted share, in the prior-year quarter.
Net income during the quarter included after-tax net realized
capital losses of $526 million, or $0.48 per diluted share, which
largely reflected higher foreign exchange losses related to the
British pound weakening following the Brexit vote. The impact to
reported book value was immaterial as these losses were largely
offset by a corresponding impact on other comprehensive income.
After-tax operating income was $1.1 billion, or $1.00 per
diluted share, for the third quarter of 2016, up from $691 million,
or $0.52 per diluted share, in the prior-year quarter. Operating
income for the third quarter of 2016 included a $622 million ($404
million after-tax or $0.37 per diluted share) loss recognition
expense in Institutional Markets related to updated mortality
assumptions for legacy structured settlements. The assets and
liabilities associated with these structured settlements will be
reported as part of our Legacy portfolio as presented in our
January 26th Strategy Update. The loss recognition expense was
partially offset by a pre-tax benefit associated with the third
quarter review of actuarial assumptions for the Consumer Life and
Retirement businesses of $238 million ($154 million after-tax or
$0.14 per diluted share).
“We continue to execute on the strategic initiatives announced
in January,” said Peter D. Hancock, AIG President and Chief
Executive Officer. “The strategic divestitures that we announced
this quarter, our portfolio management decisions, actions to
run-off the legacy portfolio and capital allocation all exemplify
our guiding principle of building economic value. We are
successfully shaping and sculpting our company to be a leaner and
more focused insurer. We remain committed to our 2017 financial
targets, are ahead of plan in expense management, and continue to
target a 6 point reduction in our Commercial accident year loss
ratio, as adjusted, despite volatile quarterly results.”
Noteworthy Items
Expanding ROE - Return on Equity (ROE) was 2.1%, up 300
bps from the prior-year quarter. ROE reflects the elevated net
realized capital losses discussed above. Normalized ROE improved to
7.1% from 5.9% in the prior-year quarter. Both metrics benefited
from the active return of capital to shareholders and operating
margin improvement. ROE benefited from higher returns on
alternative investments which exceeded return expectations.
Normalized ROE also reflected the seasonally higher third quarter
expected catastrophe losses.
Reducing expenses - For the first nine months of
2016, general operating and other expenses declined 12% from the
prior-year period. General operating expenses, operating basis,
excluding the impact of foreign exchange and the reduction in
general operating expenses associated with the sale of the Advisor
Group, declined 10% from the prior-year nine month period. Lower
employee-related expenses, rationalized employee benefits and
professional fee reductions drove the improvement in our Commercial
and Consumer businesses. Pre-tax restructuring charges during the
quarter of $210 million primarily related to our ongoing efficiency
program.
Executing strategic transactions - AIG continued to move
forward on its action plan for managing its Legacy portfolio, a key
contributor to AIG’s capital return target. AIG entered into a
reinsurance agreement involving certain whole life and universal
life businesses of one of its domestic life insurance subsidiaries
which resulted in a $1.0 billion distribution of excess statutory
capital to AIG Parent. In addition, monetizations of Legacy assets
totaled $900 million in the quarter and $5.2 billion for the last
four quarters, consistent with AIG’s continuing strategy to focus
capital on core operations while optimizing the value realized from
the transfer or sale of assets and liabilities.
Value based divestitures - AIG continued to move
forward on its strategic plan to further focus and streamline AIG’s
global insurance operations by agreeing to sell its 100% interest
in United Guaranty Corporation and certain related affiliates
(collectively, UGC or United Guaranty) and its 20% interest in
Ascot Underwriting Holdings Ltd. and all of its interest in the
related syndicate-funding subsidiary Ascot Corporate Name Ltd. In
August, AIG sold its 95.3% controlling interest in NSM Insurance
Group. Subsequent to the end of the quarter, AIG entered into an
agreement with Fairfax Financial Holdings Limited to sell certain
Latin American subsidiary operations, insurance operations in
Turkey and the renewal rights for the portfolio of local business
written by AIG’s operations in Eastern Europe.
Actively returning capital to shareholders - Total
capital returned to shareholders was $2.6 billion in the third
quarter of 2016 and included $2.3 billion of repurchases of AIG
Common Stock and $338 million in shareholder dividends. From the
end of the third quarter through November 2, 2016, AIG repurchased
an additional $946 million of AIG Common Stock resulting in a total
year to date capital return of $10.8 billion. On November 2, 2016,
AIG’s Board of Directors authorized an additional increase to its
previous repurchase authorization of AIG Common Stock of $3.0
billion, resulting in an aggregate remaining authorization on such
date of approximately $4.4 billion. On November 2, 2016, AIG’s
Board of Directors declared a cash dividend on AIG Common Stock of
$0.32 per share, payable on December 22, 2016 to shareholders of
record on December 8, 2016.
Quarterly Commercial Insurance loss trends impacted by
program business and property volatility – The
Commercial Insurance loss ratio of 77.7 reflected higher
catastrophe losses and unfavorable prior year loss reserve
development net of premium adjustments, which contributed 12.6
points. Unfavorable prior year loss development of $306 million was
primarily driven by the U.S. program business which writes both
casualty and property lines via MGAs and for which the third party
administrators handle over half of the claims activity. Notably we
experienced higher than expected loss emergence in the most recent
calendar year from a small subset of these programs. The Commercial
accident year loss ratio, as adjusted, improved 1.9 points from the
same period last year largely due to continued remediation efforts,
pricing strategy and reinsurance in Casualty.
Book value per share growth - Benefiting from the
impact of lower interest rates on Accumulated Other Comprehensive
Income (AOCI), earnings growth and accretive share repurchases,
book value per share grew 2% during the quarter to $85.02. Book
value per share, excluding AOCI and Deferred Tax Assets (DTA),
including dividend growth grew approximately 1% to $62.39.
THIRD QUARTER FINANCIAL
SUMMARY*
Three Months Ended
September 30,
($ in millions, except per share amounts)
2016 2015
Change Net income $ 462 $ (231) NM %
Earnings per diluted share $ 0.42 $ (0.18) NM After-tax
operating income $ 1,097 $ 691 59 After-tax operating income per
diluted common share $ 1.00 $ 0.52 92 ROE 2.1 % (0.9) % ROE
– after tax operating income, ex AOCI & DTA 6.7 % 3.5 %
Normalized ROE, ex AOCI & DTA 7.1 % 5.9 %
September 30, June 30,
December 31, 2016
2016 Change 2015
Change Period end: Book value per common share $
85.02 $ 83.08 2 % $ 75.10 13 % Book value per common share, ex AOCI
& DTA 61.41 61.03 1 58.94 4 Book value per common share, ex
AOCI & DTA, including dividend growth 62.39
61.78 1 59.26 5
*Refer to the Comments on Regulation G and the tables that follow
for a discussion of non-GAAP and other financial measures and the
reconciliations of the non-GAAP financial measures to GAAP
measures.
SEGMENT RESULTS
All operating segment comparisons that follow are to the third
quarter of 2015 unless otherwise noted.
Beginning in the third quarter of 2016, in order to align our
financial reporting with the manner in which our chief operating
decision makers review the businesses to assess performance and
make decisions about resources to be allocated, United Guaranty and
Institutional Markets are presented in the Corporate and Other
category for all periods presented. As a result, Commercial
Insurance operations now consist of our commercial property and
casualty business.
As a result of the transaction agreement to sell 100% of AIG’s
interest in UGC, the associated assets and liabilities of UGC have
been classified as held-for sale at September 30, 2016.
In the second quarter of 2015, a United Guaranty subsidiary and
certain of AIG’s property casualty companies entered into a 50%
quota share arrangement whereby the United Guaranty subsidiary (1)
ceded 50 % of the risk relating to policies written in 2014 that
were current as of January 1, 2015 and (2) ceded 50% of the risk
relating to all policies written in 2015 and 2016, each in exchange
for a 30% ceding commission and reimbursements of 50% of the losses
and loss adjustment expenses incurred on covered policies.
Beginning in the third quarter of 2016, the effects of these
intercompany reinsurance arrangements are included in the results
of Commercial Insurance and Corporate and Other for all periods
presented. Previously, these arrangements were eliminated for
purposes of segment reporting.
Prior periods have been revised to conform to the current period
presentation.
COMMERCIAL INSURANCE
Three Months Ended
September 30,
($ in millions)
2016
2015 Change
Net premiums written $ 4,357 $ 5,275 (17 ) % Net premiums
earned 4,495 5,040 (11 ) Underwriting loss (236 ) (118 ) (100 ) Net
investment income 965 710
36 Pre-tax operating income $ 729
$ 592 23 Underwriting
ratios: Loss ratio 77.7 72.8 4.9 pts Catastrophe losses and
reinstatement premiums (5.7 ) (1.8 ) (3.9 ) Prior year development
net of premium adjustments (6.9 ) (3.5 ) (3.4 ) Net reserve
discount charge (0.3 ) (0.8 )
0.5 Accident year loss ratio, as adjusted
64.8 66.7 (1.9 )
Acquisition ratio 15.5 16.5 (1.0 ) General operating expense ratio
12.1 13.0 (0.9 )
Expense ratio 27.6 29.5
(1.9 ) Combined ratio 105.3 102.3 3.0
Catastrophe losses and reinstatement premiums (5.7 ) (1.8 ) (3.9 )
Prior year development net of premium adjustments (6.9 ) (3.5 )
(3.4 ) Net reserve discount benefit (charge) (0.3 )
(0.8 ) 0.5 Accident year
combined ratio, as adjusted 92.4
96.2 (3.8 ) Catastrophe-related losses $ 253 $
88 188 % Severe losses 95 209 (55 ) Prior year unfavorable reserve
development, net of reinsurance and premium adjustments 306 186 65
Net reserve discount charge 17
41 (59 )
Commercial Insurance pre-tax operating income increased to $729
million, primarily reflecting the higher returns on alternative
investment income, and an increase in the fair market value of
assets accounted for under the fair value option, partially offset
by an increase in underwriting loss in the current quarter driven
by higher catastrophe losses and higher net adverse prior year loss
reserve development. The current quarter loss ratio included net
adverse prior year loss reserve development, net of return premiums
of $306 million primarily from program business within Specialty,
partially offset by favorable Property development. In addition,
catastrophe losses increased to $253 million from $88 million in
the prior-year quarter. Pre-tax operating income also benefited
from an improvement in accident year losses, a lower net loss
reserve discount charge and lower expenses.
The improvement in the accident year loss ratio, as adjusted,
reflected the continued execution of our strategy to enhance risk
selection, improve underwriting discipline and manage exposures,
including the use of reinsurance, and lower overall severe losses.
The accident year loss ratio, as adjusted, improved in Casualty,
reflecting the non-renewal of certain underperforming classes of
business, as well as the effect of reinsurance. Property improved
due to lower severe losses. These declines in the accident year
losses were partially offset by an increase in Specialty and
competitive market conditions.
The expense ratio declined 1.9 points driven by decreases in
both acquisition ratio and the general operating expense ratio. The
acquisition ratio declined by 1.0 points, particularly in Casualty,
primarily driven by lower net commission expenses reflecting the
effect of reinsurance arrangements. The General operating expense
ratio declined 0.9 points due to lower employee-related costs
resulting from ongoing actions to streamline our management
structure and general cost containment measures commenced in
2015.
In line with our planned portfolio optimization efforts, net
premiums written decreased 17%. This decrease was primarily due to
the continued execution of our strategy to enhance risk selection
in our Casualty and Property product portfolios, the non-renewal of
certain underperforming classes of business, the increased use of
reinsurance, and adherence to our underwriting discipline in
competitive market conditions.
CONSUMER INSURANCE
RETIREMENT
Three Months Ended
September 30,
($ in millions)
2016
2015 Change
Operating revenues: Premiums $ 45 $ 37 22 % Policy fees 282
261 8 Net investment income 1,552 1,396 11 Advisory fee and other
income 205 509 (60 )
Total operating revenues 2,084
2,203 (5 ) Benefits and expenses
976 1,568 (38 ) Pre-tax
operating income $ 1,108 $ 635 74
Premiums and deposits(1): Premiums $ 45 $ 37 22
Deposits 5,128 6,542 (22 ) Other (1 )
46 NM Total premiums and deposits(1) $
5,172 $ 6,625 (22 ) (1) Excludes
activity related to closed blocks of fixed and variable annuities.
Retirement pre-tax operating income increased to $1.1 billion,
primarily due to a higher net positive adjustment from the review
and update of actuarial assumptions and improved performance from
alternative investments in hedge funds. The update of actuarial
assumptions resulted in a net positive adjustment to pre-tax
operating income of $322 million, primarily due to lower surrender
assumptions in Fixed Annuities, compared to a $140 million net
positive adjustment in the prior-year quarter. The increase in
pre-tax operating income compared to the prior-year quarter also
reflected the impact of better equity market performance on
policyholder benefit expense and DAC amortization, and higher
policy fees from growth in assets under management.
Premiums grew due to higher immediate annuity premiums in the
Fixed Annuities product line. Premiums and deposits declined to
$5.2 billion, which reflected an industry-wide decline in variable
annuities as well as our continued focus on disciplined pricing,
resulting in lower sales in both Retirement Income Solutions and
Fixed Annuities. These declines, which drove a decrease in net
flows from the prior-year quarter, were partially offset by higher
sales of Retail Mutual Funds and lower Group Retirement
surrenders.
LIFE
Three Months Ended
September 30,
($ in millions)
2016
2015 Change Operating
revenues: Premiums $ 791 $ 675 17 % Policy fees 314 392 (20)
Net investment income 544 496 10 Other income 13
15 (13) Total operating revenues
1,662 1,578 5 Benefits and
expenses 1,564 1,618 (3)
Pre-tax operating income (loss) $ 98 $ (40) NM
Premiums and deposits: Premiums $ 791 $ 675 17 Deposits 375
369 2 Other 197 179 10
Total premiums and deposits $ 1,363 $ 1,223 11
Gross life insurance in force, end of period
1,038,846 1,021,149 2
Life pre-tax operating income increased to $98 million,
primarily due to a lower net negative adjustment from the review
and update of actuarial assumptions, higher net investment income
from alternative investments in hedge funds and yield enhancements
and lower domestic general operating expenses. Excluding the effect
of foreign exchange, growth in premiums and in premiums and
deposits was 14% and 10%, respectively, both of which were
principally driven by growth in international life and health
sales. The update of actuarial assumptions resulted in a net
negative adjustment to pre-tax operating income of $84 million,
primarily due to a refinement to reserves for universal life
insurance with secondary guarantees due to lower assumed surrender
rates, compared to a similar charge of $157 million in the
prior-year quarter.
PERSONAL INSURANCE
Three Months Ended
September 30,
($ in millions)
2016
2015 Change Net premiums
written $ 2,919 $ 3,016 (3) % Net premiums earned 2,915
2,819 3 Underwriting income 111 10 NM Net investment income
67 52 29 Pre-tax operating
income $ 178 $ 62 187 Underwriting
ratios: Loss ratio 56.3 53.4 2.9 pts Catastrophe losses and
reinstatement premiums (0.9) (2.0) 1.1 Prior year development net
of premium adjustments 1.1 1.6
(0.5) Accident year loss ratio, as adjusted
56.5 53.0 3.5 Acquisition ratio
26.2 28.4 (2.2) General
operating expense ratio 13.8 17.8
(4.0) Expense ratio 40.0
46.2 (6.2) Combined ratio 96.3 99.6 (3.3) Catastrophe
losses and reinstatement premiums (0.9) (2.0) 1.1 Prior year
development net of premium adjustments 1.1
1.6 (0.5) Accident year combined ratio, as
adjusted 96.5 99.2 (2.7)
Catastrophe-related losses $ 26 $ 58 (55) % Severe losses - - NM
Prior year loss reserve development (favorable), net of reinsurance
and premium adjustments (34) (46)
26
Personal Insurance pre-tax operating income grew to $178
million, reflecting improved underwriting results. The lower
combined ratio was principally driven by an improvement in the
expense ratio.
The increase in the loss ratio reflected higher accident year
losses and lower net favorable prior year loss reserve development,
partially offset by reduced catastrophe losses. The increase in the
accident year loss ratio, as adjusted, was primarily driven by a
higher number of large but not severe losses particularly in the
U.S. business.
The improvement in the acquisition ratio reflected lower direct
marketing expenses. The decrease in the general operating expense
ratio primarily reflected lower employee-related expenses arising
from organizational realignment activities together with lower
strategic investment expenditures.
Net premiums written decreased compared to the prior-year
quarter. Excluding the effects of foreign exchange, net premiums
written decreased by 6% primarily in Accident and Health,
reflecting underwriting actions to strengthen our portfolio and
maintain pricing discipline.
CORPORATE AND OTHER
Three Months Ended
September 30,
($ in millions)
2016
2015 Change Pre-tax operating income
(loss): Fair value of PICC investments $ 28 $ (195) NM %
Income from other assets, net 363 15 NM Corporate general operating
expenses (276) (133) (108) Interest expense (261) (266) 2
Institutional Markets (526) 84 NM Run-off insurance lines 22 (54)
NM United Guaranty 130 133 (2) Consolidation and elimination
(2) 20 NM Pre-tax operating loss
$ (522) $ (396) (32)
Corporate and Other reported a pre-tax operating loss of $522
million primarily due to a $622 million loss recognition expense in
Institutional Markets based on mortality experience studies that
indicated increased longevity, particularly on disabled lives
representing a legacy block of structured settlements underwritten
pre-2010. This legacy block accounted for over 80% of this loss
recognition expense and will be included as part of our Legacy
portfolio at year-end. Corporate and Other results also reflected
fair value gains on our People’s Insurance Company (Group) of China
Limited investment and an increase in Income from other assets,
net. In addition, the prior-year quarter included a pension
curtailment credit of $175 million in Corporate general operating
expenses.
CONFERENCE CALL
AIG will host a conference call tomorrow, Thursday, November 3,
2016, at 8:00 a.m. ET to review these results. The call is open to
the public and can be accessed via a live listen-only webcast in
the Investor Relations section of www.aig.com. A replay will be
available after the call at the same location.
Additional supplementary financial data is available in the
Investor Relations section at www.aig.com.
The conference call (including the conference call presentation
material), the earnings release and the financial supplement may
include, and officers and representatives of AIG may from time to
time make, projections, goals, assumptions and statements that may
constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. These
projections, goals, assumptions and statements are not historical
facts but instead represent only AIG’s belief regarding future
events, many of which, by their nature, are inherently uncertain
and outside AIG’s control. These projections, goals, assumptions
and statements include statements preceded by, followed by or
including words such as “will,” “believe,” “anticipate,” “expect,”
“intend,” “plan,” “focused on achieving,” “view,” “target,” “goal”
or “estimate.” These projections, goals, assumptions and statements
may address, among other things, AIG’s: exposures to subprime
mortgages, monoline insurers, the residential and commercial real
estate markets, state and municipal bond issuers, sovereign bond
issuers, the energy sector and currency exchange rates; exposure to
European governments and European financial institutions; strategy
for risk management; sales of businesses; restructuring of business
operations; generation of deployable capital; anticipated business
or asset divestitures or monetizations; anticipated organizational
and business changes; strategies to increase return on equity and
earnings per common share; strategies to grow net investment
income, efficiently manage capital, grow book value per common
share, and reduce expenses; anticipated restructuring charges and
annual cost savings; strategies for customer retention, growth,
product development, market position, financial results and
reserves; and subsidiaries’ revenues and combined ratios. It is
possible that AIG’s actual results and financial condition will
differ, possibly materially, from the results and financial
condition indicated in these projections, goals, assumptions and
statements. Factors that could cause AIG’s actual results to
differ, possibly materially, from those in the specific
projections, goals, assumptions and statements include: changes in
market conditions; negative impacts on customers, business partners
and other stakeholders; the occurrence of catastrophic events, both
natural and man-made; significant legal proceedings; the timing and
applicable requirements of any new regulatory framework to which
AIG is subject as a nonbank systemically important financial
institution and as a global systemically important insurer;
concentrations in AIG’s investment portfolios; actions by credit
rating agencies; judgments concerning casualty insurance
underwriting and insurance liabilities; AIG’s ability to
successfully manage run-off insurance portfolios; AIG’s ability to
successfully reduce costs and expenses and make business and
organizational changes without negatively impacting client
relationships or AIG’s competitive position; AIG’s ability to
successfully dispose of or monetize, businesses or assets,
including its ability to successfully consummate the sale of United
Guaranty Corporation (UGC or United Guaranty) and certain related
affiliates to Arch Capital Group Ltd. (Arch); judgments concerning
the recognition of deferred tax assets; judgments concerning
estimated restructuring charges and estimated cost savings; and
such other factors discussed in Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) in AIG’s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2016 (which will be filed
with the SEC), Part I, Item 2. MD&A and Part II, Item 1A. Risk
Factors in AIG’s Quarterly Report on Form 10-Q for the quarterly
periods ended June 30, 2016 and March 31, 2016, and Part II, Item
7. MD&A and Part I, Item 1A. Risk Factors in AIG’s Annual
Report on Form 10-K for the year ended December 31, 2015. AIG is
not under any obligation (and expressly disclaims any obligation)
to update or alter any projections, goals, assumptions, or other
statements, whether written or oral, that may be made from time to
time, whether as a result of new information, future events or
otherwise.
Nothing in this press release or in any oral statements made in
connection with this press release is intended to constitute, nor
shall it be deemed to constitute, an offer of any securities for
sale or the solicitation of an offer to purchase any securities in
any jurisdiction.
COMMENT ON REGULATION G
Throughout this press release, including the financial
highlights, AIG presents its financial condition and results of
operations in the way it believes will be most meaningful and
representative of its business results. Some of the measurements
AIG uses are “non-GAAP financial measures” under Securities and
Exchange Commission rules and regulations. GAAP is the acronym for
“accounting principles generally accepted in the United States.”
The non-GAAP financial measures AIG presents may not be comparable
to similarly-named measures reported by other companies. The
reconciliations of such measures to the most comparable GAAP
measures in accordance with Regulation G are included within the
relevant tables or in the Third Quarter 2016 Financial Supplement
available in the Investor Information section of AIG’s website,
www.aig.com.
Book Value Per Common Share Excluding Accumulated Other
Comprehensive Income (AOCI), Book Value Per Common Share Excluding
AOCI and Deferred Tax Assets (DTA) and Book Value Per Common Share
Excluding AOCI and DTA and Including Dividend Growth are used to
show the amount of AIG’s net worth on a per-share basis. AIG
believes these measures are useful to investors because they
eliminate items that can fluctuate significantly from period to
period, including changes in fair value of AIG’s available for sale
securities portfolio, foreign currency translation adjustments and
U.S. tax attribute deferred tax assets. These measures also
eliminate the asymmetrical impact resulting from changes in fair
value of AIG’s available for sale securities portfolio wherein
there is largely no offsetting impact for certain related insurance
liabilities. AIG excludes deferred tax assets representing U.S. tax
attributes related to net operating loss carryforwards and foreign
tax credits as they have not yet been utilized. Amounts for interim
periods are estimates based on projections of full year attribute
utilization. As net operating loss carryforwards and foreign tax
credits are utilized, the portion of the DTA utilized is included
in Book Value Per Common Share. Book Value Per Common Share
Excluding AOCI is derived by dividing Total AIG shareholders’
equity, excluding AOCI, by Total common shares outstanding. Book
Value Per Common Share Excluding AOCI and DTA is derived by
dividing Total AIG shareholders’ equity, excluding AOCI and DTA, by
Total common shares outstanding. Book Value Per Common Share
Excluding AOCI and DTA and including dividend growth is derived by
dividing Total AIG shareholders’ equity, excluding AOCI and DTA,
and including growth in quarterly dividends above $0.125 per share
to shareholders, by Total common shares outstanding.
Return on Equity – After-tax Operating Income Excluding AOCI and
Return on Equity – After-tax Operating Income Excluding AOCI and
DTA are used to show the rate of return on shareholders’ equity.
AIG believes these measures are useful to investors because they
eliminate items that can fluctuate significantly from period to
period, including changes in fair value of its available for sale
securities portfolio, foreign currency translation adjustments and
U.S. tax attribute deferred tax assets. These measures also
eliminate the asymmetrical impact resulting from changes in fair
value of AIG’s available for sale securities portfolio wherein
there is largely no offsetting impact for certain related insurance
liabilities. AIG excludes deferred tax assets representing U.S. tax
attributes related to net operating loss carryforwards and foreign
tax credits as they have not yet been utilized. Amounts for interim
periods are estimates based on projections of full-year attribute
utilization. As net operating loss carryforwards and foreign tax
credits are utilized, the portion of the DTA utilized is included
in Return on Equity. Return on Equity – After-tax Operating Income
Excluding AOCI is derived by dividing actual or annualized
after-tax operating income attributable to AIG by average AIG
shareholders’ equity, excluding average AOCI. Return on Equity –
After-tax Operating Income Excluding AOCI and DTA is derived by
dividing actual or annualized after-tax operating income
attributable to AIG by average AIG shareholders’ equity, excluding
average AOCI and DTA.
Normalized Return on Equity, Excluding AOCI and DTA (Normalized
ROE) further adjusts Return on Equity – After-tax Operating Income,
Excluding AOCI and DTA for the effects of certain volatile or
market-related items. AIG believes this measure is useful to
investors because it presents the trends in AIG’s consolidated
return on equity without the impact of certain items that can
experience volatility in AIG’s short-term results. Normalized
Return on Equity, Excluding AOCI and DTA is derived by excluding
the following tax adjusted effects from Return on Equity –
After-tax Operating Income, Excluding AOCI and DTA: the difference
between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) Direct Investment book
(DIB) and Global Capital Markets (GCM) returns; fair value changes
on PICC investments; update of actuarial assumptions; net reserve
discount change; Life insurance incurred but not reported death
claim charge; and prior year loss reserve development.
AIG uses the following operating performance measures because it
believes they enhance the understanding of the underlying
profitability of continuing operations and trends of AIG’s business
segments. AIG believes they also allow for more meaningful
comparisons with AIG’s insurance competitors. When AIG uses these
measures, reconciliations to the most comparable GAAP measure are
provided on a consolidated basis.
After-tax operating income attributable to AIG is derived by
excluding the following items from net income attributable to AIG.
These items generally fall into one or more of the following broad
categories: legacy matters having no relevance to AIG’s current
businesses or operating performance; adjustments to enhance
transparency to the underlying economics of transactions; and
measures that AIG believes to be common to the industry. For
example, certain ratios and other metrics described below exclude:
income or loss from discontinued operations; income and loss from
divested businesses (including gain on the sale of International
Lease Finance Corporation (ILFC) and certain post-acquisition
transaction expenses incurred by AerCap Holdings N.V. (AerCap) in
connection with its acquisition of ILFC and the difference between
expensing AerCap’s maintenance rights assets over the remaining
lease term as compared to the remaining economic life of the
related aircraft and related tax effects); gain on sale of NSM
Insurance Group (NSM) and AIG Advisor Group; legacy tax adjustments
primarily related to certain changes in uncertain tax positions and
other tax adjustments; non-operating litigation reserves and
settlements; reserve development related to non-operating run-off
insurance business; restructuring and other costs related to
initiatives designed to reduce operating expenses, improve
efficiency and simplify AIG’s organization; deferred income tax
valuation allowance releases and charges; changes in fair value of
securities used to hedge guaranteed living benefits; changes in
benefit reserves and deferred policy acquisition costs (DAC), value
of business acquired (VOBA), and sales inducement assets (SIA)
related to net realized capital gains and losses; other income and
expense — net, related to Corporate and Other runoff insurance
lines; loss on extinguishment of debt; net realized capital gains
and losses; and non-qualifying derivative hedging activities,
excluding net realized capital gains and losses. See page 15 for
the reconciliation of Net income attributable to AIG to After-tax
operating income attributable to AIG.
Operating revenue excludes Net realized capital gains (losses),
income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities
used to hedge guaranteed living benefits (included in Net
investment income for GAAP purposes).
General operating expenses, operating basis (GOE), is derived by
making the following adjustments to general operating and other
expenses: include (i) certain loss adjustment expenses, reported as
policyholder benefits and losses incurred and (ii) certain
investment and other expenses reported as net investment income,
and exclude (i) advisory fee expenses, (ii) non-deferrable
insurance commissions, (iii) direct marketing and acquisition
expenses, net of deferrals, (iv) non-operating litigation reserves
and (v) other expense related to a retroactive reinsurance
agreement. AIG also derives General operating expense savings on a
gross basis, which represents changes during the period in General
operating expenses, operating basis, before the effect of
additional investments made during the period. AIG uses general
operating expenses, operating basis, because it believes it
provides a more meaningful indication of its ordinary course of
business operating costs.
AIG uses the following operating performance measures within its
Commercial Insurance and Consumer Insurance reportable segments as
well as Corporate and Other.
Commercial Insurance; Consumer Insurance: Personal Insurance;
Corporate and Other: United Guaranty
Pre-tax operating income: includes both underwriting income and
loss and net investment income, but excludes net realized capital
gains and losses, other income and expense — net, gain on the sale
of NSM and non-operating litigation reserves and settlements.
Underwriting income and loss is derived by reducing net premiums
earned by losses and loss adjustment expenses incurred, acquisition
expenses and general operating expenses.
Ratios: AIG, along with most property and casualty insurance
companies, uses the loss ratio, the expense ratio and the combined
ratio as measures of underwriting performance. These ratios are
relative measurements that describe, for every $100 of net premiums
earned, the amount of losses and loss adjustment expenses, and the
amount of other underwriting expenses that would be incurred. A
combined ratio of less than 100 indicates underwriting income and a
combined ratio of over 100 indicates an underwriting loss. AIG’s
ratios are calculated using the relevant information calculated
under GAAP, and thus may not be comparable to similar ratios
calculated for regulatory reporting purposes. The underwriting
environment varies across countries and products, as does the
degree of litigation activity, all of which affect such ratios. In
addition, investment returns, local taxes, cost of capital,
regulation, product type and competition can have an effect on
pricing and consequently on profitability as reflected in
underwriting income and associated ratios.
Accident year loss and combined ratios, as adjusted: both the
accident year loss and combined ratios, as adjusted, exclude
catastrophe losses and related reinstatement premiums, prior year
development, net of premium adjustments, and the impact of reserve
discounting. Natural catastrophe losses are generally weather or
seismic events having a net impact in excess of $10 million each.
Catastrophes also include certain man-made events, such as
terrorism and civil disorders that meet the $10 million threshold.
AIG believes the as adjusted ratios are meaningful measures of its
underwriting results on an on-going basis as they exclude
catastrophes and the impact of reserve discounting which are
outside of management’s control. AIG also excludes prior year
development to provide transparency related to current accident
year results.
Consumer Insurance: Retirement and Life; Corporate and Other:
Institutional Markets
Pre-tax operating income is derived by excluding the following
items from pre-tax income: changes in fair value of securities used
to hedge guaranteed living benefits; net realized capital gains and
losses; gain on the sale of AIG Advisor Group; changes in benefit
reserves and DAC, VOBA and SIA related to net realized capital
gains and losses; and non-operating litigation reserves and
settlements.
Premiums and deposits includes direct and assumed amounts
received and earned on traditional life insurance policies, group
benefit policies and life-contingent payout annuities, as well as
deposits received on universal life, investment-type annuity
contracts and mutual funds.
Corporate and Other
Pre-tax operating income and loss is derived by excluding the
following items from pre-tax income and loss: loss on
extinguishment of debt; net realized capital gains and losses;
changes in benefit reserves and DAC, VOBA and SIA related to net
realized capital gains and losses; income and loss from divested
businesses, including Aircraft Leasing; net gain or loss on sale of
divested businesses (including gain on the sale of ILFC, and
certain post-acquisition transaction expenses incurred by AerCap in
connection with its acquisition of ILFC and the difference between
expensing AerCap’s maintenance rights assets over the remaining
lease term as compared to the remaining economic life of the
related aircraft and AIG’s share of AerCap’s income taxes);
non-operating litigation reserves and settlements; reserve
development related to non-operating run-off insurance business;
and restructuring and other costs related to initiatives designed
to reduce operating expenses, improve efficiency and simplify AIG’s
organization.
Results from discontinued operations are excluded from all of
these measures.
American International Group, Inc. (AIG) is a leading global
insurance organization. Founded in 1919, today we provide a wide
range of property casualty insurance, life insurance, retirement
products, mortgage insurance and other financial services to
customers in more than 100 countries and jurisdictions. Our diverse
offerings include products and services that help businesses and
individuals protect their assets, manage risks and provide for
retirement security. AIG common stock is listed on the New York
Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com and
www.aig.com/strategyupdate | YouTube: www.youtube.com/aig |
Twitter: @AIGinsurance | LinkedIn:
http://www.linkedin.com/company/aig. These references with
additional information about AIG have been provided as a
convenience, and the information contained on such websites is not
incorporated by reference into this press release.
AIG is the marketing name for the worldwide property-casualty,
life and retirement, and general insurance operations of American
International Group, Inc. For additional information, please visit
our website at www.aig.com. All products and services are written
or provided by subsidiaries or affiliates of American International
Group, Inc. Products or services may not be available in all
countries, and coverage is subject to actual policy language.
Non-insurance products and services may be provided by independent
third parties. Certain property-casualty coverages may be provided
by a surplus lines insurer. Surplus lines insurers do not generally
participate in state guaranty funds, and insureds are therefore not
protected by such funds.
American International Group, Inc. Selected
Financial Data and Non-GAAP Reconciliation ($ in millions,
except per share data)
Reconciliations of Pre-tax and After-tax Operating Income
(Loss) Three Months Ended September 30, 2016
2015 Pre-tax Tax Effect After-tax
Pre-tax Tax Effect After-tax Operating
income, including noncontrolling interests $ 1,612 $ 512 $
1,100 $ 848 $ 164 $ 684 Noncontrolling interest - - (3) - - 7
Operating income, net of noncontrolling interests 1,612 512
1,097 848 164 691
Adjustments: Uncertain tax positions and
other tax adjustments - 42 (42) - 233 (233) Deferred income tax
valuation allowance releases (charges) - (2) 2 - 8 (8) Changes in
fair value of securities used to hedge guaranteed living benefits
17 6 11 4 1 3 Changes in benefit reserves and DAC, VOBA and SIA
related to net realized capital gains (losses) (67) (24) (43) (2) -
(2) Other (income) expense - net 3 1 2 - - - Gain (loss) on
extinguishment of debt 14 5 9 (346) (121) (225) Net realized
capital losses (765) (210) (555) (342) (121) (221) Noncontrolling
interest on net realized capital losses - - 29 - - (41) Income
(loss) from discontinued operations - - 3 - - (17) Net gain (loss)
from divested businesses 128 45 83 (3) (2) (1) Non-operating
litigation reserves and settlements 5 2 3 30 10 20 Reserve
development related to non-operating run-off insurance business - -
- (30) (10) (20) Restructuring and other costs (210) (73) (137)
(274) (97) (177)
Pre-tax income/net income (loss) attributable
to AIG $ 737 $ 304 $ 462 $ (115) $ 65 $ (231)
Nine
Months Ended September 30, 2016 2015
Pre-tax Tax Effect After-tax Pre-tax
Tax Effect After-tax Operating income, including
noncontrolling interests $ 4,186 $ 1,198 $ 2,988 $ 6,243 $
1,974 $ 4,269 Noncontrolling interest - - (5) - - 6
Operating
income, net of noncontrolling interests 4,186 1,198 2,983 6,243
1,974 4,275
Adjustments: Uncertain tax positions and other
tax adjustments - 184 (184) - 142 (142) Deferred income tax
valuation allowance releases (charges) - (4) 4 - 61 (61) Changes in
fair value of securities used to hedge guaranteed living benefits
270 95 175 (39) (14) (25) Changes in benefit reserves and DAC, VOBA
and SIA related to net realized capital gains (losses) (91) (32)
(59) (84) (29) (55) Other (income) expense - net 15 5 10 - - - Gain
(loss) on extinguishment of debt (76) (26) (50) (756) (265) (491)
Net realized capital gains (losses) (829) (217) (612) 1,125 394 731
Noncontrolling interest on net realized capital gains (losses) - -
40 - - (40) Loss from discontinued operations - - (54) - - - Net
gain (loss) from divested businesses 351 123 228 (58) (44) (14)
Non-operating litigation reserves and settlements 43 15 28 86 30 56
Reserve development related to non-operating run-off insurance
business - - - (30) (10) (20) Restructuring and other costs (488)
(171) (317) (274) (97) (177)
Pre-tax income/net income
attributable to AIG $ 3,381 $ 1,170 $ 2,192 $ 6,213 $ 2,142 $
4,037
American International Group, Inc.
Selected Financial Data and Non-GAAP Reconciliation
(continued) ($ in millions, except per share data)
Summary of Key Financial Metrics Three
Months Ended September 30, Nine Months Ended September
30, % Inc. % Inc. 2016
2015 (Dec.) 2016
2015 (Dec.)
Income (loss) per
common share:
Basic Income (loss) from continuing operations $ 0.43 $
(0.17) NM % $ 2.02 $ 3.05 (33.8) % Loss from discontinued
operations - (0.01) NM (0.05) - NM
Net income (loss)
attributable to AIG $ 0.43 $ (0.18) NM $ 1.97 $ 3.05 (35.4)
Diluted Income (loss) from continuing operations $
0.42 $ (0.17) NM $ 1.97 $ 2.97 (33.7) Loss from discontinued
operations - (0.01) NM (0.05) - NM
Net income (loss)
attributable to AIG $ 0.42 $ (0.18) NM $ 1.92 $ 2.97 (35.4)
After-tax operating income attributable to AIG per diluted share
(a) $ 1.00 $ 0.52 92.3 % $ 2.61 $ 3.15 (17.1) %
Weighted average shares outstanding: Basic 1,071.3 1,279.1
1,113.7 1,324.4 Diluted (b) 1,102.4 1,279.1 1,142.7 1,357.1
Return on equity (c) 2.1 % (0.9) % 3.3 % 5.1 %
Return on
equity - after-tax operating income, excluding AOCI (d) 5.4 %
2.9 % 4.8 % 6.0 %
Return on equity - after-tax operating income,
excluding AOCI and DTA (e) 6.7 % 3.5 % 6.0 % 7.1 %
As of period
end:
September 30, 2016 June 30, 2016
December 31, 2015 Total AIG shareholders' equity $
88,663 $ 89,946 $ 89,658 Accumulated other comprehensive income
9,057 8,259 2,537
Total AIG shareholders' equity, excluding
AOCI 79,606 81,687 87,121 Deferred tax assets 15,567
15,614 16,751
Total AIG shareholders' equity, excluding AOCI and
DTA 64,039 66,073 70,370 Add: Cumulative quarterly
common stock dividends above $0.125 per share 1,020 814 378
Total AIG shareholders' equity,
excluding AOCI and DTA, including dividend growth
$ 65,059 $ 66,887 $ 70,748
As of period
end:
September 30, 2016 June 30, 2016
% Inc. (Dec.) December 31, 2015 %
Inc. (Dec.) Book value per common share (f) $ 85.02
$ 83.08 2.3 % $ 75.10 13.2 %
Book value per common share excluding AOCI (g) $ 76.33 $
75.45 1.2 $ 72.97 4.6
Book value per common share excluding AOCI
and DTA (h) $ 61.41 $ 61.03 0.6 $ 58.94 4.2
Book value per common share excluding
AOCI and DTA, including
dividend growth (i)
$ 62.39 $ 61.78 1.0 % $ 59.26 5.3 %
Total common shares
outstanding 1,042.9 1,082.7 1,193.9
Financial highlights -
notes (a) For the quarter ended September 30, 2015, because we
reported a net loss, all common stock equivalents are anti-dilutive
and are therefore excluded from the calculation of diluted shares
and diluted per share amounts. However, because we reported
after-tax operating income, the calculation of after-tax operating
income per diluted share includes 40,356,170 dilutive shares. (b)
Diluted shares in the diluted EPS calculation represent basic
shares for the three-months ended September 30, 2015 due to the net
loss in that period. (c) Computed as Annualized net income (loss)
attributable to AIG divided by average AIG shareholders' equity.
Equity includes AOCI and DTA. (d) Computed as Annualized after-tax
operating income attributable to AIG divided by average AIG
shareholders' equity, excluding AOCI. Equity includes DTA. (e)
Computed as Annualized after-tax operating income attributable to
AIG divided by average AIG shareholders' equity, excluding AOCI and
DTA. (f) Represents total AIG shareholders' equity divided by Total
common shares outstanding. (g) Represents total AIG shareholders'
equity, excluding AOCI, divided by Total common shares outstanding.
(h) Represents total AIG shareholders' equity, excluding AOCI and
DTA, divided by Total common shares outstanding. (i) Represents
total AIG shareholders' equity, excluding AOCI and DTA, and
including growth in quarterly dividends above $0.125 per share to
shareholders, divided by Total common shares outstanding.
American International Group, Inc. Selected Financial
Data and Non-GAAP Reconciliation (continued) ($ in millions,
except per share amounts)
Reconciliations of General Operating Expenses, Operating
basis to General Operating and Other Expenses, GAAP basis
Three Months Ended Nine Months Ended
September 30, September 30, % Inc. %
Inc. 2016 2015 (Dec.)
2016 2015 (Dec.)
Total general operating expenses, Operating
basis $ 2,444 $ 2,675 (8.6) % $ 7,475 $ 8,401 (11.0) % Loss
adjustment expenses, reported as policyholder benefits and losses
incurred (340) (389) 12.6 (1,031) (1,240) 16.9 Advisory fee
expenses 76 339 (77.6) 566 1,012 (44.1) Non-deferrable insurance
commissions 107 123 (13.0) 350 377 (7.2) Direct marketing and
acquisition expenses, net of deferrals 52 200 (74.0) 329 441 (25.4)
Investment expenses reported as net investment income and other
(15) (17) 11.8 (45) (56) 19.6
Total general operating and other
expenses included in pre-tax operating income 2,324 2,931
(20.7) 7,644 8,935 (14.4) Restructuring and other costs 210 274
(23.4) 488 274 78.1 Other expense related to retroactive
reinsurance agreement 4 - NM (8) - NM Non-operating litigation
reserves (2) (30) 93.3 1 5 (80.0)
Total general operating and
other expenses, GAAP basis $ 2,536 $ 3,175 (20.1) % $ 8,125 $
9,214 (11.8) %
Reconciliations of General Operating
Expenses, Operating basis, Excluding Foreign Exchange and General
Operating Expenses of AIG Advisor Group to General Operating
and Other Expenses, GAAP basis
Nine Months Ended September 30, % Inc.
2016 2015 (Dec.)
Total general operating expenses, Operating basis,
Ex. FX & GOE of AIG Advisor Group $ 7,407 $ 8,213 (9.8) %
Add: FX impact - 27 NM Add: GOE of Advisor Group 68 161 (57.8)
Total general operating expenses, operating basis 7,475
8,401 (11.0) Loss adjustment expenses, reported as policyholder
benefits and losses incurred (1,031) (1,240) 16.9 Advisory fee
expenses 566 1,012 (44.1) Non-deferrable insurance commissions 350
377 (7.2) Direct marketing and acquisition expenses, net of
deferrals 329 441 (25.4) Investment expenses reported as net
investment income (45) (56) 19.6
Total general operating and
other expenses, included in pre-tax operating income 7,644
8,935 (14.4) Restructuring and other costs 488 274 78.1 Other
expense related to retroactive reinsurance agreement (8) - NM
Non-operating litigation reserves 1 5 (80.0)
Total general
operating and other expenses, GAAP basis $ 8,125 $ 9,214 (11.8)
%
American International Group, Inc. Selected
Financial Data and Non-GAAP Reconciliation (continued) ($ in
millions, except per share amounts)
Reconciliations of Normalized and After-tax Operating
Income Return on Equity, Excluding AOCI and DTA Three
Months Ended Three Months Ended September 30,
2016 September 30, 2015 Tax Tax
Pre-tax Effect
After-tax ROE
Pre-tax Effect
After-tax ROE Return on
Equity $ 462 2.1 % $ (231) (0.9) %
Return on equity -
after-tax operating income, excluding AOCI and DTA (a) $ 1,612
$ 512 $ 1,097 6.7 % $ 848 $ 164 $ 691 3.5 %
Adjustments to
arrive at Normalized Return on Equity, Excluding AOCI and DTA:
Catastrophe losses above (below) expectations (358) (125) (233)
(1.4) (513) (180) (333) (1.7) (Better) worse than expected
alternative returns (70) (25) (45) (0.2) 458 160 298 1.5 (Better)
worse than expected DIB & GCM returns (104) (36) (68) (0.4) 254
89 165 0.8 Fair value changes on PICC investments (47) (16) (31)
(0.2) 257 90 167 0.8 Update of actuarial assumptions 384 134 250
1.5 17 6 11 0.1 Net reserve discount change 32 11 21 0.1 78 28 50
0.3 Life Insurance - IBNR death claims - - - - - - - - Unfavorable
prior year loss reserve development 262 92 170 1.0
191 67 124 0.6
Normalized Return on Equity, excluding AOCI and
DTA $ 1,711 $ 547 $ 1,161 7.1 % $ 1,590 $ 424 $
1,173 5.9 %
Average AIG Shareholders' equity $ 89,305
$ 101,629 Less: Average AOCI 8,658 7,089 Less: Average DTA 15,591
15,271 Effect of normalization on equity 381 (296)
Normalized
Average AIG Shareholders' equity, excluding average AOCI and
DTA $ 65,437 $ 78,973
Nine Months Ended
Nine Months Ended September 30, 2016
September 30, 2015 Tax
Tax Pre-tax
Effect After-tax
ROE Pre-tax Effect
After-tax ROE
Return on Equity $ 2,192 3.3 % $ 4,037 5.1 %
Return on equity - after-tax operating income, excluding AOCI
and DTA (a) $ 4,186 $ 1,198 $ 2,983 6.0 % $ 6,243 $ 1,974 $
4,275 7.1 %
Adjustments to arrive at Normalized Return on
Equity, Excluding AOCI and DTA: Catastrophe losses above
(below) expectations (175) (61) (114) (0.2) (668) (236) (432) (0.7)
(Better) worse than expected alternative returns 650 227 423 0.8
138 48 90 0.2 (Better) worse than expected DIB & GCM returns
248 87 161 0.3 (117) (40) (77) (0.1) Fair value changes on PICC
investments 140 49 91 0.2 (23) (9) (14) - Update of actuarial
assumptions 384 134 250 0.5 17 6 11 - Net reserve discount change
323 114 209 0.4 (157) (54) (103) (0.2) Life Insurance - IBNR death
claims (25) (9) (16) - - - - - Unfavorable (favorable) prior year
loss reserve development 231 81 150 0.3 555 194 361 0.6
Normalized Return on Equity, excluding AOCI and DTA $ 5,962
$ 1,820 $ 4,137 8.3 % $ 5,988 $ 1,883 $ 4,111 6.9 %
Average AIG Shareholders' equity $ 89,196 $ 104,534 Less:
Average AOCI 6,344 8,863 Less: Average DTA 16,189 15,567 Effect of
normalization on equity 190 (148)
Normalized Average AIG
Shareholders' equity, excluding average AOCI and DTA $ 66,853 $
79,956 (a) After-tax operating income excludes Net income (loss)
attributable to non-controlling interest of $3 million and $(7)
million for the three months ended September 30, 2016 and 2015,
respectively. After-tax operating income is excludes Net income
(loss) attributable to non-controlling interest of $5 million and
$(6) million for the nine months ended September 30, 2016 and 2015,
respectively.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161102006640/en/
AIGInvestors:Liz Werner,
212-770-7074elizabeth.werner@aig.comorFernando Melon,
212-770-4630fernando.melon@aig.comorMedia:Jennifer Hendricks
Sullivan, 212-770-3141jennifer.sullivan@aig.com
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