American International Group, Inc. (NYSE:AIG) today reported net
income of $1.1 billion, or $1.19 per diluted share, for the second
quarter 2017, compared to $1.9 billion, or $1.68 per diluted share,
in the prior-year quarter, primarily reflecting net realized
capital losses of $69 million compared to net realized capital
gains of $1.0 billion a year ago.
After-tax operating income was $1.4 billion, or $1.53 per
diluted share, for the second quarter 2017 compared to $1.3
billion, or $1.15 per diluted share.
“Our second quarter results show the value of AIG’s diverse
businesses and the opportunities we have to grow profitably,” said
Brian Duperreault, President and Chief Executive Officer. “We will
build on AIG’s strong franchise by maximizing the value of our
international footprint, which distinguishes us from many of our
competitors. While market conditions remain challenging, we are
committed to disciplined underwriting and are focused on investing
in profitable growth.”
SECOND QUARTER FINANCIAL
SUMMARY*
Three Months Ended
June 30,
($ in millions, except per share amounts)
2017 2016 Net income $ 1,130 $ 1,913
Net income per diluted share $ 1.19 $ 1.68 After-tax operating
income $ 1,449 $ 1,313 After-tax operating income per diluted share
$ 1.53 $ 1.15 Return on equity 6.1
%
8.6 % AIG Consolidated: Adjusted return on equity 10.5
%
7.9 % Normalized return on equity 9.1
%
8.3 % Core: Adjusted return on attributed equity - Core 10.5
%
9.6 % Normalized return on attributed equity - Core (a) 9.9
%
10.1 % Book value per common share $ 81.62 $ 83.08 Book value per
common share, excluding accumulated other comprehensive income
$ 76.12 $ 75.45
*Refer to the Comments on Regulation G and the tables that
follow for a discussion of non-GAAP financial measures and the
reconciliations of the non-GAAP financial measures to GAAP
measures.
(a) The declines in Core Normalized ROE are largely due to the
increase in second half 2016 U.S. Casualty loss estimates, which
contributed 100 basis pts to the decline.
All comparisons are against the second quarter of 2016, unless
otherwise indicated. Refer to the AIG Second Quarter 2017 Financial
Supplement which is posted on AIG's website in the Investor
Information section for further information.
FINANCIAL HIGHLIGHTS
ROE Trends – ROE and Adjusted ROE were 6.1% and 10.5%,
respectively, in the second quarter. After normalizing our results,
including for strong alternative investment returns and lower than
expected catastrophe losses, Core Normalized ROE was 9.9%. Core
Normalized ROE benefited from active capital management, expense
efficiencies, and the performance of our Consumer business, offset
by the increased Commercial loss estimates in the second half of
2016.
Continued Focus on Expenses – General operating and other
expenses (GOE) declined $404 million or 15.6% to $2.2 billion. GOE,
operating basis, declined 4% on a constant dollar basis excluding
the GOE reductions due to the sales of United Guaranty Corporation
and AIG Advisor Group, due to organizational simplification and
better use of technology.
Underwriting Discipline – Continued execution of strategic
portfolio actions resulted in a 15% decrease in net premiums
written for Commercial Insurance, or 9% on a constant dollar basis
excluding divestitures. Personal Insurance combined ratio of 91.1
benefited from favorable loss experience and lower catastrophe
losses.
Strong Capital and Liquidity – In the second quarter, AIG
repurchased 39.1 million common shares for $2.4 billion with a
remaining authorization of approximately $2.5 billion, as of August
2, 2017.
AIG Parent liquidity stood at $7.8 billion. In the second
quarter, AIG Parent received $1.7 billion of distributions from
insurance subsidiaries in the form of cash and fixed maturity
securities including tax sharing payments. During the quarter,
Legacy Investments also returned $775 million of capital to Parent
from asset monetizations and Parent received $391 million from the
sale of Arch Capital Group Ltd. Common stock. After the sale, the
Property Casualty Insurance Companies own 567,420 shares of Arch
Capital Group Ltd. preferred stock.
CORE
Commercial Insurance Highlights – In the second quarter,
Commercial Insurance pre-tax operating income declined reflecting
higher Property losses and the impact of the second half 2016
increase in loss estimates. This was partially offset by lower
catastrophe losses and higher alternative investment returns.
Continued remediation in the U.S. Casualty and Global Property
businesses accounted for a large majority of the decline in net
premiums written which is consistent with AIG’s focus on risk
selection.
- Pre-tax operating income included $21
million of adverse prior year reserve development, net of
reinsurance in Liability and Financial Lines and $41 million of
unfavorable prior year reserve development, net of reinsurance in
Property and Special Risks. Prior year reserve development is net
of the losses ceded to the NICO adverse development coverage (ADC)
reinsurance agreement and the amortization of the deferred gain of
the ADC cover.
- The loss ratio of 73.8 increased by 3.6
points in the second quarter 2017. The accident year loss ratio, as
adjusted, of 66.1 increased by 4.4 points. Approximately 4.0 points
of this increase related to the increase in second half 2016 loss
estimates, which were primarily in the U.S. Casualty business.
Taking into account the increased loss estimates, the remaining
increase was primarily driven by higher Property losses.
- The expense ratio was 28.9 in the
second quarter, slightly higher than that in the prior year quarter
as improvements in GOE, ceding commissions received from reinsurers
and a decline in commission expenses associated with the sale of
Ascot Underwriting Holdings Ltd. were offset by the decline in
premiums earned associated with our strategic portfolio
actions.
- Commercial Insurance net premiums
written decreased by 15% or 9% on a constant dollar basis excluding
divestitures. The decrease was related to continued execution on
our strategic portfolio actions throughout the second quarter of
2017 and challenging market conditions.
Three Months
Ended June 30, ($ in millions)
2017 2016
Change Total Commercial Insurance Net
premiums written $ 3,826 $ 4,497 (15) % Pre-tax operating income $
716 $ 941 (24) Underwriting ratios: Loss ratio 73.8 70.2 3.6 pts
Expense ratio 28.9
28.1 0.8 Combined ratio
102.7 98.3
4.4
Liability and Financial Lines Net premiums
written $ 2,085 $ 2,321 (10) % Pre-tax operating income $ 586 $ 815
(28) Underwriting ratios: Loss ratio 76.1 70.4 5.7 pts Expense
ratio 26.3 25.4
0.9 Combined ratio
102.4 95.8 6.6
Property and Special Risks Net premiums
written $ 1,741 $ 2,176 (20) % Pre-tax operating income $ 130 $ 126
3 Underwriting ratios: Loss ratio 70.8 69.7 1.1 pts Expense ratio
32.1 31.7
0.4 Combined ratio
102.9 101.4 1.5
Consumer Insurance Highlights – In the second quarter,
Consumer Insurance pre-tax operating income increased 33%
reflecting improvements across all Consumer modules. Consumer
Insurance benefited from improved underwriting results, expense
reduction and stable earnings from our Retirement businesses.
- In Individual Retirement, improved base
net investment spreads from disciplined pricing and active credit
rate management, and lower DAC amortization and higher policy fee
income related to better equity market performance were partially
offset by lower alternative investment income. Net flows declined
to negative $691 million for Individual Retirement primarily
reflecting the uncertainties surrounding the impact and
implementation of the DOL Fiduciary Rule.
- In Group Retirement, higher policy fee
income reflecting improved equity markets and lower GOE were
partially offset by lower base net investment income spreads and
lower alternative investment income. Group Retirement net flows
declined slightly to negative $181 million, primarily driven by
slightly lower sales, and surrenders within expectations but higher
than the prior-year quarter.
- In Life Insurance, higher pre-tax
operating income reflected lower domestic GOE, lower DAC
amortization on international business, and higher policy fee
income from growth in universal life, partially offset by lower net
investment income.
- Personal Insurance delivered strong
results. Favorable loss experience and lower catastrophe losses, an
improved expense ratio that reflected strategic and portfolio
actions, together with growth in net investment income from
alternative investments were partially offset by a lower earned
premium base and lower net favorable prior year loss reserve
development.
Three
Months Ended June 30, ($ in
millions)
2017
2016 Change Total Consumer
Insurance Premiums & Fees $ 3,873 $ 3,888 - % Net
Investment Income 1,882 1,912 (2) Operating Revenue 5,980 6,132 (2)
Benefits & Expenses 4,720 5,184 (9) Pre-tax operating income
1,260 948 33
Individual Retirement Premiums &
Fees $ 223 $ 223 - % Net Investment Income 1,003 1,020 (2)
Operating Revenue 1,383 1,509 (8) Benefits & Expenses 825 1,004
(18) Pre-tax operating income 558 505 10
Three Months Ended June 30, ($
in millions)
2017
2016 Change Group Retirement
Premiums & Fees $ 105 $ 100 5 % Net Investment Income 535 555
(4) Operating Revenue 696 707 (2) Benefits & Expenses 430 442
(3) Pre-tax operating income 266 265 -
Life Insurance
Premiums & Fees $ 757 $ 703 8 % Net Investment Income 261 271
(4) Operating Revenue 1,030 988 4 Benefits & Expenses 924 962
(4) Pre-tax operating income 106 26 308
Personal
Insurance Net premiums written $ 2,846 $ 2,924 (3) % Pre-tax
operating income $ 330 $ 152 117 Underwriting ratios: Loss ratio
50.7 55.6 (4.9) pts Expense ratio 40.4
41.4 (1.0) Combined ratio
91.1 97.0
(5.9)
CONFERENCE CALL
AIG will host a conference call tomorrow, Thursday, August 3,
2017, at 9:00 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; actual and anticipated sales of businesses or
asset divestitures or monetizations; restructuring of business
operations, including anticipated restructuring charges and annual
cost savings; generation of deployable capital; strategies to
increase return on equity and earnings per share; strategies to
grow net investment income, efficiently manage capital, grow book
value per common share, and reduce expenses; anticipated
organizational and business changes; strategies for customer
retention, growth, product development, market position, financial
results and reserves; management of the impact that innovation and
technology changes may have on customer preferences, the frequency
or severity of losses and/or the way AIG distributes and
underwrites its products; segments’ revenues and combined ratios;
and management retention plans. 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 Legacy
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; 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 June 30, 2017 (which will
be filed with the SEC), Part I, Item 2. MD&A in AIG’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2017
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,
2016. 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.
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
“generally accepted accounting principles” 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 Second Quarter 2017 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) and Book Value per Common Share,
Excluding AOCI and Deferred Tax Assets (DTA) (Adjusted Book Value
per Common Share) 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 these book value per
common share metrics. Book value per common share, excluding AOCI,
is derived by dividing Total AIG Shareholders’ equity, excluding
AOCI, by total common shares outstanding. Adjusted Book Value per
Common Share is derived by dividing Total AIG shareholders’ equity,
excluding AOCI and DTA (Adjusted Shareholders’ Equity), by
total common shares outstanding.
AIG Return on Equity – After-tax Operating Income Excluding
AOCI and DTA (Adjusted Return on Equity) is used to show the
rate of return on shareholders’ equity. AIG believes this measure
is useful to investors because it eliminates 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. This measure also eliminates 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 Adjusted Return on
Equity. Adjusted Return on Equity is derived by dividing actual or
annualized after-tax operating income attributable to AIG by
average Adjusted Shareholders’ Equity.
AIG Normalized Return on Equity further adjusts Adjusted
Return on Equity 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
is derived by excluding the following tax adjusted effects from
Adjusted Return on Equity: 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; Life insurance incurred but not
reported (IBNR) death claim charge; and prior year loss reserve
development.
Core Attributed Equity is an attribution of total AIG
Adjusted Shareholders’ Equity to each of AIG’s modules within Core
based on AIG’s internal capital model, which incorporates the
respective risk profiles. Attributed equity represents AIG’s best
estimates based on current facts and circumstances and will change
over time.
Core Return on Equity – After-tax Operating Income
(Adjusted Return on Attributed Equity) is used to show the rate
of return on attributed equity. Return on Attributed Equity is
derived by dividing actual or annualized After-tax Operating Income
by Average Attributed Equity.
Core Normalized Return on Attributed Equity (Normalized
Return on Attributed Equity) further adjusts Adjusted Return on
Attributed Equity 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 Return on
Attributed Equity without the impact of certain items that can
experience volatility in our short-term results. Normalized Return
on Attributed Equity is derived by excluding the following tax
adjusted effects from Return on Attributed Equity: the difference
between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) DIB and GCM returns; fair
value changes on PICC investments; update of actuarial assumptions;
Life insurance IBNR death claim charge; and prior year loss reserve
development.
After-tax Operating Income Attributable to Core is
derived by subtracting attributed interest expense and income tax
expense from pre-tax operating income. Attributed debt and the
related interest expense is calculated based on AIG’s internal
capital model. Tax expense or benefit is calculated based on an
internal attribution methodology that considers among other things
the taxing jurisdiction in which the operating segments conduct
business, as well as the deductibility of expenses in those
jurisdictions.
Normalized After-tax Operating Income Attributable to
Core further adjusts After-tax Operating Income attributable to
Core for the effects of certain volatile or market related items.
AIG believes this measure is useful to investors because it
presents the trends in after tax operating income without the
impact of certain items that can experience volatility in AIG’s
short-term results. Normalized After-tax Operating Income
attributable to Core is derived by excluding the following tax
adjusted effects from After-tax Operating Income: the difference
between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) DIB and GCM returns; fair
value changes on PICC investments; update of actuarial assumptions;
Life insurance IBNR death claim charge; and prior year loss reserve
development (PYD), net of reinsurance premium adjustments.
Operating Revenues exclude 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). Operating
revenues is a GAAP measure for our operating segments.
General Operating Expenses, Operating Basis (Operating
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 an asbestos
retroactive reinsurance agreement. AIG uses General operating
expenses, operating basis, because AIG believes it provides a more
meaningful indication of AIG’s ordinary course of business
operating costs, regardless of within which financial statement
line item these expenses are reported externally within AIG’s
segment results. The majority of these expenses are
employee-related costs. For example, Other acquisition expenses and
losses and loss adjustment expenses primarily represent
employee-related costs in the underwriting and claims functions,
respectively. Excluded from this measure are non-operating expenses
(such as restructuring costs and litigation reserves), direct
marketing expenses, insurance company assessments and
non-deferrable commissions. AIG also excludes the impact of foreign
exchange and the expenses of AIG Advisor Group and UGC, which have
been divested, when measuring period-over-period fluctuations in
General Operating Expenses, Operating basis.
AIG uses the following operating performance measures because
AIG 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.
Pre-tax Operating Income (PTOI) is derived by excluding
the following items from income from continuing operations before
income tax. This definition is consistent across AIG’s modules
(including geography). 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. PTOI is a GAAP measure for our operating segments.
- 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;
- loss (gain) on extinguishment of debt;
- net realized capital gains and losses;
- non-qualifying derivative hedging activities, excluding net
realized capital gains and losses;
- income or loss from discontinued operations;
- net loss reserve discount benefit (charge);
- pension expense related to a one-time lump sum payment to
former employees;
- income and loss from divested businesses;
- 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 our
organization; and
- the portion of favorable or unfavorable prior year reserve
development for which we have ceded the risk under retroactive
reinsurance agreements and related changes in amortization of the
deferred gain.
After-tax Operating Income Attributable to AIG (ATOI) is
derived by excluding the tax effected PTOI adjustments described
above and the following tax items from net income attributable to
AIG:
- deferred income tax valuation allowance
releases and charges; and
- uncertain tax positions and other tax
items related to legacy matters having no relevance to our current
businesses or operating performance.
See page 12 for the reconciliation of Net income attributable to
AIG to After-tax Operating Income Attributable to AIG.
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 (which for Commercial Insurance excludes net loss reserve
discount), 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
segment 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 on AIG 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 AIG’s 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
exclude prior year development to provide transparency related to
current accident year results.
Underwriting ratios are computed as
follows:
- Loss ratio = Loss and loss adjustment
expenses incurred ÷ Net premiums earned (NPE)
- Acquisition ratio = Total acquisition
expenses ÷ NPE
- General operating expense ratio =
General operating expenses ÷ NPE
- Expense ratio = Acquisition ratio +
General operating expense ratio
- Combined ratio = Loss ratio + Expense
ratio
- Accident year loss ratio, as adjusted
(AYLR) = [Loss and loss adjustment expenses incurred – CATs – PYD]
÷ [NPE +/(-) Reinstatement premiums (RIPs) related to catastrophes
+/(-) RIPs related to prior year catastrophes + (Additional)
returned premium related to PYD on loss sensitive business +
Adjustment for ceded premiums under reinsurance contracts related
to prior accident years]
- Accident year combined ratio = AYLR +
Expense ratio
- Catastrophe losses (CATs) and
reinstatement premiums = [Loss and loss adjustment expenses
incurred – (CATs)] ÷ [NPE +/(-) RIPs related to catastrophes] –
Loss ratio
- Prior year development net of
(additional) return premium related to PYD on loss sensitive
business = [Loss and loss adjustment expenses incurred – Prior year
loss reserve development unfavorable (favorable) (PYD), net of
reinsurance] ÷ [NPE +/(-) RIPs related to prior year catastrophes +
(Additional) returned premium related to PYD on loss sensitive
business] – Loss ratio
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 AIG member companies
provide a wide range of property casualty insurance, life
insurance, retirement products, and other financial services to
customers in more than 80 countries and jurisdictions. These
diverse offerings include products and services that help
businesses and individuals protect their assets, manage risks and
provide for retirement security. AIG’s core businesses include
Commercial Insurance and Consumer Insurance, as well as Other
Operations. Commercial Insurance comprises two modules – Liability
and Financial Lines, and Property and Special Risks. Consumer
Insurance comprises four modules – Individual Retirement, Group
Retirement, Life Insurance and Personal Insurance. 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 |
YouTube: www.youtube.com/aig | Twitter: @AIGinsurance
www.twitter.com/AIGinsurance | LinkedIn:
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 June 30, 2017
2016 Pre-tax Tax Effect After-tax
Pre-tax Tax Effect After-tax Pre-tax income
(loss)/net income, including noncontrolling interests $ 1,667 $
557 $ 1,118 $ 2,858 $ 924 $ 1,917 Noncontrolling interest - - 12 -
- (4)
Pre-tax income (loss)/net income attributable to AIG
1,667 557 1,130 2,858 924 1,913
Adjustments: Uncertain tax
positions and other tax adjustments - (66) 66 - 63 (63) Deferred
income tax valuation allowance (releases) charges - 8 (8) - (35) 35
Changes in fair value of securities used to hedge guaranteed living
benefits (80) (28) (52) (120) (42) (78) Changes in benefit reserves
and DAC, VOBA and SIA related to net realized capital gains
(losses) (58) (20) (38) 64 22 42 Unfavorable (favorable) prior year
development and related amortization changes ceded under
retroactive reinsurance agreements 251 89 162 (5) (2) (3) (Gain)
loss on extinguishment of debt (4) (2) (2) 7 2 5 Net realized
capital (gains) losses 69 38 31 (1,042) (380) (662) Noncontrolling
interest on net realized capital (gains) losses - - - - - 7
(Income) loss from discontinued operations - - (8) - - 10 (Income)
loss from divested businesses 60 40 20 (225) (79) (146)
Non-operating litigation reserves and settlements (80) (28) (52)
(7) (2) (5) Net loss reserve discount (benefit) charge 260 90 170
300 100 200 Pension expense related to a one-time lump sum payment
to former employees 1 1 - - - - Restructuring and other costs 47 17
30 90 32 58
Pre-tax operating income/After-tax operating
income $ 2,133 $ 696 $ 1,449 $ 1,920 $ 603 $ 1,313
Six Months Ended June 30, 2017 2016
Pre-tax Tax Effect After-tax Pre-tax
Tax Effect After-tax Pre-tax income (loss)/net
income, including noncontrolling interests $ 3,394 $ 1,073 $
2,324 $ 2,644 $ 866 $ 1,732 Noncontrolling interest - - (9) - - (2)
Pre-tax income (loss)/net income attributable to AIG 3,394
1,073 2,315 2,644 866 1,730
Adjustments: Uncertain tax
positions and other tax adjustments - (16) 16 - (142) 142 Deferred
income tax valuation allowance releases - 21 (21) - 2 (2) Changes
in fair value of securities used to hedge guaranteed living
benefits (91) (32) (59) (253) (89) (164) Changes in benefit
reserves and DAC, VOBA and SIA related to net realized capital
gains (losses) (111) (39) (72) 24 8 16 Unfavorable (favorable)
prior year development and related amortization changes ceded under
retroactive reinsurance agreements 265 93 172 (12) (4) (8) (Gain)
loss on extinguishment of debt (5) (2) (3) 90 31 59 Net realized
capital losses 184 85 99 64 7 57 Noncontrolling interest on net
realized capital losses - - 5 - - (11) (Income) loss from
discontinued operations - - (8) - - 57 (Income) loss from divested
businesses 160 34 126 (223) (78) (145) Non-operating litigation
reserves and settlements (86) (30) (56) (38) (13) (25) Net loss
reserve discount (benefit) charge 235 81 154 291 99 192 Pension
expense related to a one-time lump sum payment to former employees
1 1 - - - - Restructuring and other costs 228 80 148 278 98 180
Pre-tax operating income/After-tax operating income $ 4,174
$ 1,349 $ 2,816 $ 2,865 $ 785 $ 2,078
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 June 30, Six Months Ended June
30, % Inc. % Inc. 2017 2016
(Dec.) 2017 2016 (Dec.)
Income (loss) per
common share:
Basic Income from continuing operations $ 1.21 $ 1.73 (30.1)
% $ 2.42 $ 1.57 54.1 % Income (loss) from discontinued operations
0.01 (0.01) NM 0.01 (0.05) NM
Net income attributable to AIG
$ 1.22 $ 1.72 (29.1) $ 2.43 $ 1.52 59.9
Diluted
Income from continuing operations $ 1.18 $ 1.69 (30.2) $ 2.36 $
1.54 53.2 Income (loss) from discontinued operations 0.01 (0.01) NM
0.01 (0.05) NM
Net income attributable to AIG $ 1.19 $ 1.68
(29.2) $ 2.37 $ 1.49 59.1
After-tax operating income
attributable to AIG per diluted share (a) $ 1.53 $ 1.15 33.0 %
$ 2.88 $ 1.79 60.9 %
Weighted average shares
outstanding: Basic 925.8 1,113.6 953.1 1,135.1 Diluted 948.2
1,140.0 976.6 1,163.1
Return on equity (a) 6.1 % 8.6
% 6.2 % 3.9 %
Adjusted return on equity (b) 10.5 % 7.9 %
10.0 % 6.2 %
As of period
end:
June 30, 2017 June 30, 2016 Total
AIG shareholders' equity $ 73,732 $ 89,946 Accumulated other
comprehensive income (AOCI) 4,962 8,259
Total AIG shareholders'
equity, excluding AOCI 68,770 81,687 Deferred tax assets
14,287 15,614
Total adjusted AIG shareholders' equity $
54,483 $ 66,073
As of period
end:
June 30, 2017 June 30, 2016
% Inc. (Dec.) Book value per common share (c)
$ 81.62 $ 83.08 (1.8) %
Book value per common share, excluding
AOCI (d) $ 76.12 $ 75.45 0.9
Adjusted book value per common
share (e) $ 60.31 $ 61.03 (1.2)
Total common shares
outstanding 903.4 1,082.7
Financial highlights -
notes (a) Computed as Annualized net income (loss)
attributable to AIG divided by average AIG shareholders' equity.
Equity includes AOCI and DTA. (b) Computed as Annualized After-tax
Operating Income attributable to AIG divided by Adjusted
Shareholders' Equity. (c) Represents total AIG shareholders' equity
divided by Total common shares outstanding. (d) Represents total
AIG shareholders' equity, excluding AOCI, divided by Total common
shares outstanding. (e) Represents Adjusted Shareholders' Equity,
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 and Other Expenses Three Months
Ended Six Months Ended June 30, June 30,
% Inc. % Inc. 2017 2016
(Dec.) 2017
2016 (Dec.) General operating
and other expenses, GAAP basis $ 2,182 $ 2,586 (15.6) % $ 4,625
$ 5,589 (17.2) % Restructuring and other costs (47) (90) 47.8 (228)
(278) 18.0 Other expense related to retroactive reinsurance
agreement - 5 NM - 12 NM Pension expense related to a one-time lump
sum payment to former employees (1) - NM (1) - NM Non-operating
litigation reserves 74 - NM 70 (3) NM
Total general operating
and other expenses included in pre-tax operating income 2,208
2,501 (11.7) 4,466 5,320 (16.1) Loss adjustment expenses, reported
as policyholder benefits and losses incurred 296 350 (15.4) 600 691
(13.2) Advisory fee expenses (77) (173) 55.5 (154) (490) 68.6
Non-deferrable insurance commissions and other (130) (121) (7.4)
(262) (243) (7.8) Direct marketing and acquisition expenses, net of
deferrals, and other (58) (133) 56.4 (170) (277) 38.6 Investment
expenses reported as net investment income and other 9 15 (40.0) 17
30 (43.3)
Total general operating expenses, operating basis
2,248 2,439 (7.8) 4,497 5,031 (10.6) Less: FX impact 12 NM - NM
Less: GOE of Advisor Group 25 NM 70 NM Less: GOE of UGC 55
NM 105 NM
Total general operating expenses,
Operating basis, Ex. FX & GOE of AIG AdvisorGroup and
UGC
$ 2,248 $ 2,347 (4.2) % $ 4,497 $ 4,856 (7.4) %
American
International Group, Inc. Selected Financial Data and
Non-GAAP Reconciliation (continued) ($ in millions, except
per share amounts) Reconciliations of Normalized and
Adjusted Return on Equity Three Months Ended
Three Months Ended June 30, 2017 June 30, 2016
Tax Tax Pre-tax Effect
After-tax ROE
Pre-tax Effect
After-tax ROE Return on
Equity $ 1,130 6.1 % $ 1,913 8.6 %
Adjusted Return on equity
(a) $ 2,133 $ 696 $ 1,449 10.5 % $ 1,920 $ 603 $ 1,313 7.9 %
Adjustments to arrive at Normalized Return on Equity:
Catastrophe losses above (below) expectations (157) (56) (101)
(0.7) 26 9 17 0.1 (Better) worse than expected alternative returns
(b) (111) (38) (73) (0.6) 5 1 4 - (Better) worse than expected DIB
& GCM returns (142) (49) (93) (0.7) (42) (14) (28) (0.1) Fair
value changes on PICC investments (6) (2) (4) - 85 30 55 0.3 Life
Insurance - IBNR death claims - - - - - - - - Unfavorable
(favorable) prior year loss reserve development 126 44 82 0.6 29 10
19 0.1
Normalized Return on Equity $ 1,843 $ 595
$
1,260 9.1 % $ 2,023 $ 639 $ 1,380 8.3 %
Average AIG
Shareholders' equity $ 73,901 $ 89,232 Less: Average AOCI 4,372
6,892 Less: Average DTA 14,436 16,220
Average adjusted
shareholders' equity $ 55,093 $ 66,120 (a) After-tax
operating income excludes Net income (loss) attributable to
non-controlling interest of $(12) million and $4 million for the
three months ended June 30, 2017 and 2016, respectively. (b) The
expected rate of return on alternative investments used was 8% for
all periods presented.
Six Months Ended
Six Months Ended June 30, 2017
June 30, 2016 Tax
Tax
Pre-tax Effect
After-tax ROE
Pre-tax Effect
After-tax ROE Return on
Equity $ 2,315 6.2 % $ 1,730 3.9 %
Adjusted Return on equity
(a) $ 4,174 $ 1,349 $ 2,816 10.0 % $ 2,865 $ 785 $ 2,078 6.2 %
Adjustments to arrive at Normalized Return on Equity:
Catastrophe losses above (below) expectations (268) (95) (173)
(0.6) (111) (39) (72) (0.2) (Better) worse than expected
alternative returns (b) (294) (102) (192) (0.7) 719 251 468 1.4
(Better) worse than expected DIB & GCM returns (187) (65) (122)
(0.4) 353 124 229 0.7 Fair value changes on PICC investments (28)
(10) (18) (0.1) 188 66 122 0.4 Life Insurance - IBNR death claims -
- - - (25) (9) (16) (0.1) Unfavorable (favorable) prior year loss
reserve development 158 55 103 0.4 (31) (11) (20) (0.1)
Normalized Return on Equity $ 3,555 $ 1,132 $ 2,414 8.6 % $
3,958 $ 1,167 $ 2,789 8.3 %
Average AIG Shareholders'
equity $ 74,700 $ 89,374 Less: Average AOCI 3,991 5,440 Less:
Average DTA 14,547 16,397
Average adjusted shareholders'
equity $ 56,162 $ 67,537 (a) After-tax operating income
also excludes Net income (loss) attributable to non-controlling
interest of $9 million and $2 million for the six months ended June
30, 2017 and 2016, respectively. (b) The expected rate of return on
alternative investments used was 8% for all periods presented.
American International Group, Inc. Selected
Financial Data and Non-GAAP Reconciliation ($ in millions,
except per share amounts) Reconciliations of Core
Normalized and Adjusted Return on Equity Three Months
Ended Six Months Ended June 30, June 30,
2017 2016 2017
2016 Pre-tax operating income $ 1,702 $ 1,713
$ 3,401 $ 2,860 Interest expense (benefit) on attributed financial
debt (43) (22) (86) (45)
Operating income before taxes 1,745
1,735 3,487 2,905 Income tax expense (benefit) 561 507 1,117 786
After-tax operating income 1,184 1,228 2,370 2,119
Adjustments to arrive at Normalized Return on Equity:
Catastrophe losses above (below) expectations (100) 18 (170) (69)
(Better) worse than expected alternative returns(a) (54) 10 (177)
402 (Better) worse than expected DIB & GCM returns (3) 1 (4) 3
Fair value changes on PICC investments (4) 34 (18) 52 Unfavorable
(favorable) prior year loss reserve development 83 5 114 (36)
Normalized after-tax operating income $ 1,106 $ 1,296 $
2,115 $ 2,471
Ending attributed equity $ 44,571 $
51,331 $ 44,571 $ 51,331
Average attributed equity $ 44,898
$ 51,236 $ 45,816 $ 51,997
Adjusted return on attributed
equity 10.5 % 9.6 % 10.3 % 8.2 %
Normalized return on
attributed equity(b) 9.9 % 10.1 % 9.2 % 9.5 % (a) The
expected rate of return on alternative investments used was 8% for
all periods presented. (b) Normalizing adjustments are tax effected
using a 35% tax rate and computed based on average attributed
equity for the respective periods.
American International
Group, Inc. Selected Financial Data and Non-GAAP
Reconciliation (continued) Reconciliations of
Accident Year Loss Ratio, as Adjusted and Combined Ratio, as
Adjusted Three Months Ended Six Months
Ended June 30, June 30, 2017 2016
2017 2016
Commercial
Insurance - Liability and Financial Lines
Loss ratio 76.1 70.4 76.0 69.7 Catastrophe losses and reinstatement
premiums - - - - Prior year development, net of (additional) return
premium on loss sensitive business (1.8) (3.3) (2.6) (1.7)
Adjustment for ceded premiums under reinsurance contracts related
to prior accident years (1.6) - (0.8) -
Accident year loss
ratio, as adjusted 72.7 67.1 72.6 68.0 Combined ratio
102.4 95.8 103.9 96.3 Catastrophe losses and reinstatement premiums
- - - - Prior year development, net of (additional) return premium
on loss sensitive business (1.8) (3.3) (2.6) (1.7) Adjustment for
ceded premiums under reinsurance contracts related to prior
accident years (1.6) - (0.8) -
Accident year combined ratio, as
adjusted 99.0 92.5 100.5 94.6
Commercial
Insurance - Property and Special Risks
Loss ratio 70.8 69.7 68.6 67.9 Catastrophe losses and reinstatement
premiums (11.1) (18.0) (11.9) (14.9) Prior year development (2.5)
2.3 (0.1) 1.7
Accident year loss ratio, as adjusted 57.2
54.0 56.6 54.7 Combined ratio 102.9 101.4 100.4 100.4
Catastrophe losses and reinstatement premiums (11.1) (18.0) (11.9)
(14.9) Prior year development (2.5) 2.3 (0.1) 1.7
Accident year
combined ratio, as adjusted 89.3 85.7 88.4 87.2
Total Commercial
Insurance
Loss ratio 73.8 70.2 72.8 68.9 Catastrophe losses and reinstatement
premiums (4.8) (7.5) (5.0) (6.1) Prior year development, net of
(additional) return premium on loss sensitive business (2.1) (1.0)
(1.6) (0.2) Adjustment for ceded premiums under reinsurance
contracts related to prior accident years (0.8) - (0.4) -
Accident year loss ratio, as adjusted 66.1 61.7 65.8 62.6
Combined ratio 102.7 98.3 102.4 97.9 Catastrophe losses and
reinstatement premiums (4.8) (7.5) (5.0) (6.1) Prior year
development, net of (additional) return premium on loss sensitive
business (2.1) (1.0) (1.6) (0.2) Adjustment for ceded premiums
under reinsurance contracts related to prior accident years (0.8) -
(0.4) -
Accident year combined ratio, as adjusted 95.0 89.8
95.4 91.6
Consumer
Insurance - Personal Insurance
Loss ratio 50.7 55.6 53.3 54.2 Catastrophe losses and reinstatement
premiums (0.1) (2.1) (0.5) (1.6) Prior year development 0.2 1.4 -
1.5
Accident year loss ratio, as adjusted 50.8 54.9 52.8
54.1 Combined ratio 91.1 97.0 93.8 95.9 Catastrophe losses
and reinstatement premiums (0.1) (2.1) (0.5) (1.6) Prior year
development 0.2 1.4 - 1.5
Accident year combined ratio, as
adjusted 91.2 96.3 93.3 95.8
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170802006476/en/
American International Group, Inc.InvestorsLiz Werner,
212-770-7074elizabeth.werner@aig.comorFernando Melon,
212-770-4630fernando.melon@aig.comorMediaClaire Talcott,
212-458-6343claire.talcott@aig.com
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