- Returning at Least $25 Billion of
Capital to Shareholders over Next Two Years
- Executing IPO of up to 19.9% of United
Guaranty Corporation as a First Step Towards a Full Separation
- Streamlining the Business through
Divestitures and Exits, including Sale of AIG Advisor Group
- Reorganizing Operating Model into
Separate Business Units to Enhance Transparency and Accountability,
Driving Performance Improvement and Strategic Flexibility over
Time
- Separating Legacy Assets in New
Portfolio to Provide Greater Transparency and Highlight Progress on
ROE from Operating Portfolio
- Reducing $1.6 Billion in Expenses
within Two Years
- Improving Commercial P&C Accident
Year Loss Ratio by Six Points by 2017
- Targeting ~9% Consolidated ROE by 2017,
over 10% ROE in the Operating Portfolio
American International Group, Inc. (NYSE:AIG) today announced a
series of strategic actions, organizational changes, and operating
improvements to create a leaner, more profitable and focused
insurer.
The Board of Directors has committed to return at least $25
billion of capital to shareholders over the next two years via
buybacks and dividends without compromising the utilization of the
Company’s deferred tax assets (DTA); approved the IPO of up to
19.9% of United Guaranty Corporation (UGC) as a first step towards
a full separation; and approved the sale of AIG Advisor Group to
Lightyear Capital LLC and PSP Investments.
In addition, the Board approved a number of organizational
changes, including the creation of nine “modular” business units
with greater end-to-end accountability, each with its own specific
financial metrics. AIG will create a new “legacy” portfolio to hold
non-strategic assets and has appointed Charlie Shamieh as Legacy
CEO.
In related operational actions, AIG also announced targeted
expense reductions of $1.6 billion within two years, representing
14% of 2015 gross general operating expenses; a target of improving
the Commercial P&C accident year loss ratio by six percentage
points; and a consolidated ROE target of ~9% by 2017, reflecting
10.3% to 10.7% in the operating portfolio.
“With these actions, AIG has taken another major step in
simplifying our organization to be a leaner, more profitable
insurer, while continuing to return capital to shareholders and
improve shareholder returns,” said President and CEO Peter Hancock.
“The creation of more nimble, standalone business units that can
grow within AIG or be spun out or sold allows us to do what is in
our shareholders’ best interests.”
Douglas M. Steenland, AIG’s Non-Executive Chairman, said, “The
Board’s actions reflect its full support for the plans that Peter
Hancock and his management team have put forward, and we are
aligned that these steps will deliver strong results while creating
more options for shareholder value creation in subsequent
years.
“AIG is committed to serving all its stakeholders by delivering
first quartile total shareholder returns to its shareholders;
providing risk expertise and dependable long-term balance sheet
strength for its customers; having a culture of strict adherence to
both the letter and spirit of regulatory requirements; and
maintaining an environment that attracts and retains world-class
employees.
“After careful consideration, AIG believes that a full breakup
in the near term would detract from, not enhance, shareholder
value. A lack of diversification benefits would reduce capital
available for distribution, and there would be a loss of tax
benefits. Being a non-bank SIFI is not currently a binding
constraint on return of capital,” said Mr. Steenland.
Strategic Actions
Capital Return
AIG is committed to returning at least $25 billion of capital to
shareholders over the next two years (via buybacks and dividends),
on top of the $12 billion returned in 2015. The capital return is
expected to be sourced from a combination of improved operating
performance, divestitures, reinsurance transactions, a shift in
asset allocation, a modest increase in leverage, and the release of
capital over time from low-earning legacy assets. This commitment
to returning $25 billion of capital can be achieved notwithstanding
the strengthening of reserves and associated capital contribution
announced today.
IPO of up to 19.9% of United Guaranty Corporation (UGC)
AIG will pursue an initial public offering of United Guaranty
Corporation (UGC) in mid-2016 to sell up to 19.9% of the
outstanding shares, subject to regulatory and GSE approval, as a
first step towards a full separation.
Divestiture of AIG Advisor Group
AIG has announced the sale of AIG Advisor Group to Lightyear
Capital LLC, a New York private equity firm focused on financial
services, and PSP Investments, one of Canada’s largest pension
investment managers. The transaction is expected to close in second
quarter 2016.
Organizational Changes
“Modular” Business Units
AIG is overhauling its management model to improve transparency,
accountability and operating performance improvement throughout the
organization. The new structure, composed initially of nine
“modular” business units within AIG’s Commercial and Consumer
segments, will decentralize decision-making, provide more
accountability to business leaders, and allow for migration to a
more variable cost structure. The reorganization will give AIG
options to retain and grow the businesses, or take public or sell
the units if they don’t adequately contribute to financial targets,
or if it becomes apparent that they are worth more outside of AIG
than within, or if they represent an efficient means of returning
capital to shareholders. The Company could consider the separation
of even the larger modular units of its Commercial and Consumer
segments over time with utilization of the DTA, contingent on
improvements in the credit risk profile and operating performance.
Within AIG’s Commercial segment, the modular business units will be
Liability and Financial Lines; Property and Special Risks; U.S.
Commercial; and Europe Commercial. Inside the Consumer segment, the
modular units will be U.S. Individual Retirement; U.S. Group
Retirement; Life, Health and Disability; Personal Insurance
(P&C); and Japan.
New “Legacy” Portfolio Management
The Company will create a new “legacy” portfolio composed of
non-strategic assets and businesses that it intends to exit or run
off. This portfolio will be managed in a way to monetize assets in
a timely manner in order to return capital to shareholders. The
Company will also introduce new disclosures later in 2016 to
clarify sources of financial returns and enhance focus on a goal of
releasing $9 billion of capital by 2017.
Operating Improvements
Expense Reductions
AIG is also undertaking further substantial expense reductions
of $1.6 billion within two years, representing 14% of 2015 gross
general operating expenses. The savings will be driven by an
acceleration of our current initiatives to rationalize the
Company’s global structure, including consolidation of activities
and de-layering, increased utilization of shared services and
outsourcing, continued movement of operations to lower-cost
locations, and further increased automation.
Underwriting Improvements
Aggressive actions will be taken to improve the Commercial
P&C accident year loss ratio by addressing unprofitable clients
purchasing one or two products, expanding and optimizing the use of
reinsurance, and exiting or remediating targeted segments of
underperforming portfolios. These actions are expected to result in
accident year loss ratio improvement of six percentage points by
2017. In addition, we will undertake actions to sharpen our
consumer focus and improve profitability, including narrowing our
footprint in Personal Insurance, expanding reinsurance utilization
for inefficient segments of the U.S. life business, achieving
maximum benefits from investments in Japan, and growing our U.S.
Retirement business.
ROE Improvement
AIG has set a consolidated normalized ROE target of ~9% by 2017,
reflecting 10.3% to 10.7% in the operating portfolio. The increase
will be driven by the operating improvements, capital actions and
profitable growth outlined in the strategic plan. At the same time,
legacy assets and liabilities will release low-earning capital over
time.
Mr. Hancock concluded, “We have set substantial financial goals
for AIG and will continue to improve shareholder return by
thoughtfully managing the trade-off between book value per share
growth and improving ROE. By overhauling the way the company is
organized and creating modular, self-sufficient businesses, we will
drive substantial operating performance improvements and maximize
value for shareholders.”
The presentation of the strategic plan will be made at the
investor update scheduled for 8:00 a.m. ET today, January 26, 2016.
AIG’s presentation materials will be available in the Investors
section of AIG’s website at http://www.aig.com. The live,
listen-only webcast is open to the public and can be accessed via
http://www.aig.com. A replay of the webcast will be available
shortly after the call at the same location.
For a video interview with Peter Hancock and other important
information related to this announcement, please visit
http://www.aig.com/strategy-update.
Cautionary Statement Regarding Forward Looking Information
and Other Matters
This press release includes 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,” “view,” “target,” "goal" or “estimate.”
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; 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; judgments concerning the
recognition of deferred tax assets; judgments concerning estimated
restructuring charges and estimated cost savings; completion of the
year end audit process; and such other factors discussed in Part I,
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) and Part II, Item 1A. Risk
Factors in AIG’s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2015, Part I, Item 2. MD&A in AIG’s
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2015, Part I, Item 2. MD&A in AIG’s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2015 and Part I,
Item 1A. Risk Factors and Part II, Item 7. MD&A in AIG’s Annual
Report on Form 10-K for the year ended December 31, 2014.
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. This document may also contain certain non-GAAP
financial measures. The reconciliation of such measures to the most
comparable GAAP measures in accordance with Regulation G is
included in the Appendix to this press release.
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
Appendix to this press release.
Book Value Per Share Excluding Accumulated Other Comprehensive
Income (AOCI) and Book Value Per Share Excluding AOCI and Deferred
Tax Assets (DTA) 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 the effect of non-cash 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. Deferred tax assets represent U.S.
tax attributes related to net operating loss carryforwards and
foreign tax credits. Amounts are estimates based on projections of
full-year attribute utilization. Book Value Per Share Excluding
AOCI is derived by dividing Total AIG shareholders' equity,
excluding AOCI, by Total common shares outstanding. Book Value Per
Share Excluding AOCI and DTA is derived by dividing Total AIG
shareholders' equity, excluding AOCI and DTA, 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 the effect of non-cash items that can fluctuate
significantly from period to period, including changes in fair
value of available for sale securities portfolio, foreign currency
translation adjustments and U.S. tax attribute deferred tax assets.
Deferred tax assets represent U.S. tax attributes related to net
operating loss carryforwards and foreign tax credits. Amounts are
estimates based on projections of full-year attribute utilization.
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 further
adjusts Return on Equity – After-tax Operating Income, Excluding
AOCI and DTA for the effects of certain volatile or market-related
items. 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:
catastrophe losses compared to expectations; alternative investment
returns compared to expectations; DIB/GCM returns compared to
expectations; fair value changes on PICC investments; update of
actuarial assumptions; net reserve discount change; Life insurance
IBNR death claim charge; and prior year loss reserve
development.
Normalized Return on Equity, Excluding AOCI and DTA – Operating
and Legacy Portfolios further adjust Normalized Return on Equity,
Excluding AOCI and DTA for the allocation to the operating
businesses of Corporate GOE, Parent Financial Debt and the related
Interest Expense.
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:
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); 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 our organization; deferred income tax
valuation allowance releases and charges; changes in fair value of
fixed maturity securities designated to hedge living benefit
liabilities (net of interest expense); 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; and net realized capital gains and losses;
non-qualifying derivative hedging activities, excluding net
realized capital gains and losses.
Operating revenue excludes Net realized capital gains (losses),
Aircraft leasing revenues, income from non-operating litigation
settlements (included in Other income for GAAP purposes) and
changes in fair values of fixed maturity securities designated to
hedge living benefit liabilities, net of interest expense (included
in Net investment income for GAAP purposes).
General operating expenses, operating basis, is derived by
making the following adjustments to general operating and other
expenses: include (i) 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 uses general operating expenses, operating basis,
because it believes it provides a more meaningful indication of
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: Property Casualty and Mortgage Guaranty;
Consumer Insurance: Personal Insurance
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, 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. 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. Catastrophe losses are generally weather or seismic
events having a net impact in excess of $10 million each.
Commercial Insurance: Institutional Markets; Consumer Insurance:
Retirement and Life
Pre-tax operating income is derived by excluding the following
items from pre-tax income: non-operating litigation reserves and
settlements; changes in fair values of fixed maturity securities
designated to hedge living benefit liabilities (net of interest
expense); net realized capital gains and losses; and changes in
benefit reserves and DAC, VOBA and SIA related to net realized
capital gains and losses.
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: non-operating
litigation reserves and settlements; reserve development related to
non-operating run-off insurance business; 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); and
restructuring and other costs related to initiatives designed to
reduce operating expenses, improve efficiency and simplify our
organization.
Results from discontinued operations are excluded from all of
these measures.
# # #
American International Group, Inc. (AIG) is a leading global
insurance organization serving customers in more than 100 countries
and jurisdictions. AIG companies serve commercial, institutional,
and individual customers through one of the most extensive
worldwide property-casualty networks of any insurer. In addition,
AIG companies are leading providers of life insurance and
retirement services in the United States. 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 | LinkedIn:
http://www.linkedin.com/company/aig
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.Non-GAAP Reconciliation
Reconciliation of AIG
Shareholders'
Equity, Ex. AOCI and DTA
Life Non-Life
Total Life and
($ in Billions) Insurance
Insurance Non-Life Insurance Corporate As
of September 30, 2015 Companies Companies
Companies and Other AIG Inc. Total AIG
shareholders' equity $35.3 $48.8 $84.1 $14.9 $99.0 Less:
Accumulated other comprehensive income (AOCI) (4.4)
(2.3) (6.7)
0.2 (6.6) Total AIG shareholders' equity,
excluding AOCI 30.9 46.5 77.4 15.1 92.4 Less: Deferred tax assets
(DTA)3 0.0 0.0 0.0
(15.3) (15.3)
Total
AIG shareholders' equity, excluding AOCI and DTA
$30.9 $46.5
$77.4 ($0.2)
$77.2
Reconciliation to Operating and Legacy
PortfolioShareholders' Equity, Ex. AOCI and DTA:
Operating
Portfolio
Legacy
Portfolio
AIG Inc. Total AIG shareholders'
equity, excluding AOCI and DTA $77.4
($0.2) $77.2 Transfer equity of legacy portfolio1 (6.2) 6.2 0.0
Push down of Parent debt2
(15.6) 15.6 0.0
Total AIG shareholders' equity, excluding AOCI and DTA
$55.6
$21.5 $77.2
(1) Represents transfer of the equity associated with
discontinued/run-off businesses (primarily Eaglestone and Life
run-off portfolios) and pre-2012 structured settlements to the
legacy portfolio. (2) Represents the allocation of financial
debt to the operating portfolio at leverage of 20% for Non-life and
25% for Life (calculated as Financial Debt + Hybrid Debt / Total
Capital) by transferring in a portion of parent financial debt.
(3) Represents U.S. tax attributes related to net operating
loss carryforwards and foreign tax credits. Amounts are estimates
based on projections of full year attribute utilization.
($ in Billions) 2014
2015 Total general operating expenses, Operating
basis $ 11.9 $ 11.2 Loss adjustment expenses,
reported as policyholder benefits and losses incurred (1.7) (1.6)
Advisory fee expenses 1.3 1.3 Non-deferrable insurance commissions
0.5 0.5 Direct marketing and acquisition expenses, net of deferrals
0.6 0.7 Investment expenses reported as net investment income
(0.1) (0.1)
Total general
operating and other expenses included in pre-tax operating
income 12.6 12.0 Restructuring and other costs -
0.5 Other expense related to retroactive reinsurance agreement -
0.2 Non-operating litigation reserves 0.5
0.0
Total general operating and other expenses,
GAAP basis $ 13.1
$ 12.8
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160126005528/en/
American International Group, Inc.Liz Werner (Investors),
212-770-7074elizabeth.werner@aig.comorJon Diat (Media),
212-770-3505jon.diat@aig.comorJennifer Hendricks Sullivan (Media),
212-770-3141jennifer.sullivan@aig.com
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