Transformative Actions Taken During 2016
American International Group, Inc. (NYSE:AIG) today announced
results for the quarter and fiscal year ended December 31,
2016.
"We took decisive actions in 2016 to dramatically reduce
uncertainty and deliver higher quality, more sustainable earnings
in the future," said Peter D. Hancock, AIG President and Chief
Executive Officer. "The comprehensive adverse reserve development
cover significantly reduces the risk of further reserve additions
in some of the most volatile lines, and we responded definitively
to emerging severity trends that we believe are materially
impacting the overall U.S. Casualty market. Going forward, we
expect to see the results from our improved underwriting platform,
reduced expense base, and the strong improvement in our business
mix. We remain committed to continuing to execute our clearly
defined transformation plan, as well as achieving our financial
goals, including the return of the remainder of the $25 billion to
shareholders we announced in January of last year subject to
regulatory and rating agency considerations and future
profitability improvements."
FOURTH QUARTER AND FULL YEAR FINANCIAL
SUMMARY*
Three Months Ended
December 31,
Twelve Months Ended
December 31,
($ in millions, except per share amounts)
2016 2015 2016
2015 Net income (loss) $ (3,041) $ (1,841) $ (849) $
2,196 Net Income (loss) per diluted share (a) $ (2.96) $ (1.50) $
(0.78) $ 1.65 After-tax operating income (loss) $ (2,787) $ (1,318)
$ 406 $ 2,872 After-tax operating income (loss) per diluted share
(a) $ (2.72) $ (1.07) $ 0.36 $ 2.15 ROE (14.7) % (7.8) % (1.0) %
2.2 % Normalized ROE 4.8 % 6.6 % 7.5 % 6.9 %
*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) - For periods reporting a loss, basic average
common shares outstanding are used to calculate net income (loss)
per diluted share.
The Operating Portfolio is now referred to as Core to provide
clarity and distinguish the name of this portfolio from the
operating income metric, which is used across the businesses.
All comparisons are against either fourth quarter or full year
2015, unless otherwise indicated.
Refer to the AIG Fourth Quarter 2016 Financial Supplement and
our modular disclosures, which are posted on AIG's website in the
Investor Information section for further information.
FINANCIAL HIGHLIGHTS
Transforming Reinsurance Strategy – During the first quarter of
2017, AIG entered into an adverse development reinsurance agreement
with National Indemnity Company, a Berkshire Hathaway subsidiary.
The agreement retroactively covers the majority of U.S. long tail
lines reserves for accident years 2015 and prior. Please refer to
our press release regarding this agreement:
http://phx.corporate-ir.net/phoenix.zhtml?c=76115&p=irol-newsArticle&ID=2238739
Substantial Strengthening of Reserves – The fourth quarter
included a $5.6 billion or ($3.56) per share impact from prior year
adverse reserve development. Total full-year 2016 adverse
development on subject lines of $5.3 billion is included under, and
will be 80%, or $4.2 billion, covered by the adverse development
reinsurance agreement with National Indemnity Company. This
agreement covers roughly half of total Commercial Insurance loss
reserves at the company and should generate a deferred pre-tax gain
before discounting of approximately $2.6 billion in the first
quarter of 2017.
Expense Reduction Ahead of Target – For the full-year, general
operating and other expenses (GOE) declined $1.7 billion, or 13.4%
to $11.0 billion from the prior year. On a constant dollar basis
and excluding AIG Advisor Group, which was sold in 2016, operating
GOE was down 9.7%.
Definitive Progress on Sculpting the Portfolio – AIG completed
or announced over 10 transactions which in the aggregate will
generate approximately $10 billion of liquidity, most of which was
received in 2016. Included in that amount was the sale of United
Guaranty Corporation to Arch Capital Group Ltd. that closed on
December 31, 2016.
Capital and Liquidity Plan Actions – For the full-year 2016, AIG
returned a total of $13.1 billion of capital to shareholders. AIG
repurchased 47.5 million common shares for $3.0 billion and 2.4
million warrants for $46.0 million during the fourth quarter.
Through February 14, 2017, AIG has repurchased an additional 18.4
million common shares for $1.2 billion. On February 14, 2017, AIG’s
Board of Directors authorized an additional increase to its
previous repurchase authorization of AIG Common Stock of $3.5
billion, resulting in an aggregate remaining authorization of
approximately $4.7 billion. The company continues to maintain
strong capital and liquidity ratios at year-end to meet the
expectations of key stakeholders including clients and rating
agencies.
Improving Transparency Through Module Disclosure – AIG presented
its new modular segmentation designed to provide greater
transparency into each business and greater accountability across
the firm to increase focus on profitability.
CORE
Commercial Insurance Highlights – In 2016, the Commercial
Insurance business demonstrated clear underwriting conviction to
improve its overall mix of business and utilize more rigorous
pricing tools in U.S. casualty lines, which has been the primary
driver of recent adverse development. Our experience in U.S.
Casualty reflects aggregate exposures that have accumulated over
AIG’s decades of underwriting long-tail business. The net premiums
written associated with those lines have declined approximately 39%
since the end of 2015, and the adverse development reinsurance
agreement covers the majority of the U.S. Casualty reserves.
- Commercial Insurance net premiums
written decreased by 20.2% in the fourth quarter as a result of
strategic portfolio actions and premiums ceded under the previously
announced Swiss Re quota share transaction. For the full-year 2016,
net premiums written declined 17.9% driven by the strategic
remediation of certain underperforming casualty lines as well as
greater use of reinsurance.
- The loss ratio was 211.5 in the quarter
and included 125.2 points attributable to prior-year adverse
reserve development and 8.1 points attributable to catastrophe
losses. The accident year loss ratio, as adjusted, was 78.2, and
included a 10.8 point increase arising from the impact of the
reserve studies on premiums earned in the first three quarters of
2016. The full-year 2016 loss ratio was 104.0 which included 30.8
points of adverse reserve development. The accident year loss
ratio, as adjusted, for 2016 following the fourth quarter reserve
strengthening was 66.7, representing a 4.1 point improvement
compared to the 2015 ratio inclusive of the impact of the 2016
reserve strengthening on 2015 results.
- The expense ratio was 30.1 in the
fourth quarter, flat compared to the prior year quarter as
improvements in general operating expenses and ceding commissions
received from reinsurers were offset by the strategic decline in
premiums. For the full-year 2016, the expense ratio improved by 0.9
points driven by lower general operating expenses and higher ceding
commissions received from reinsurers.
Commercial Insurance Three Months Ended December 31, 2016 $
in millions Net Premiums Written Loss Ratio
Expense Ratio Combined Ratio
PTOI Liability and Financial Lines $2,160 312.0 26.7 338.7 $(4,981)
Property and Special Risks $1,542 77.0 34.7 111.7 $(42)
Total Commercial Insurance $3,702 211.5
30.1 241.6 $(5,023) Three Months Ended
December 31, 2015 Net Premiums Written Loss Ratio
Expense Ratio Combined Ratio
PTOI Liability and Financial Lines $2,808 174.6 28.5 203.1
$(2,479) Property and Special Risks $1,831 69.8 32.7 102.5
$53
Total Commercial Insurance $4,639
133.1 30.2 163.3 $(2,426)
Consumer Insurance Highlights – In 2016, the Consumer
Insurance business made significant strategic progress by narrowing
its focus and enhancing operating performance. Consumer Insurance
executed the sale of AIG Advisor Group and announced agreements to
sell Fuji Life as well as certain businesses in Latin America and
Europe. In Japan, our largest market outside the U.S., the business
continued its improvement in overall underwriting results and took
significant actions to prepare for the legal entity merger. The
announcement on February 13, 2017, setting the merger completion
date of January 1, 2018 and pre-merger operations status to
commence April 1, 2017, was a major milestone for the
transformation of the business in Japan. The Personal Insurance
business continued to see strong growth in the high-net worth space
as well as improved profitability across all business lines. Group
Retirement generated improved net flows due in part to investments
in its client-focused technology platform, and AIG remained a top
tier writer across Individual Retirement annuity product lines.
- Pre-tax operating income increased
55.8% in the fourth quarter, driven by significantly improved
underwriting results in Personal Insurance and higher income from
alternative investments in hedge funds across all Consumer
Insurance operating segments.
- In Individual Retirement, net flows for
retail mutual funds and index annuities were positive in the fourth
quarter, and sales of index annuities have slowed but continue to
outpace the industry. Net flows for fixed annuities continued to be
negative, reflecting disciplined pricing in the low interest rate
environment. Variable annuity industry sales were negatively
affected by a strategic decision to scale back living benefits in
the low interest rate environment and uncertainty regarding the new
Department of Labor fiduciary rule.
- In Group Retirement, premiums were
unchanged but premiums and deposits were up 5.8% in the fourth
quarter while net flows were negative in the quarter primarily due
to modestly higher seasonal surrenders. Spread compression
year-over-year was due to reinvestment in the current low interest
rate environment, but was more than offset by higher income from
alternative investments.
- In Life Insurance, lower general
operating expenses and higher income from alternative investments
were more than offset by reserve increases, related in part to
administrative system conversions, resulting in a pre-tax operating
loss in the quarter.
- Personal Insurance had a strong quarter
reflecting improved current accident year loss and expense ratio
performance, together with favorable prior year loss reserve
development, partially offset by higher catastrophe losses.
Consumer Insurance Three Months
Ended December 31, 2016 $ in millions
OperatingRevenue
Premiums& Fees
InvestmentIncome
Benefits& Expenses
PTOI Individual Retirement $1,376 $215 $1,010 $834 $542
Group Retirement $716 $104 $558 $455 $261 Life
Insurance $956 $679 $263 $966 $(10)
Net PremiumsWritten
Loss Ratio Expense Ratio Combined Ratio
PTOI Personal Insurance $2,810 52.7 44.2 96.9 $176
OperatingRevenue
Premiums &Fees
InvestmentIncome
Benefits &Expenses
PTOI
Total Consumer Insurance $6,017
$3,880 $1,918 $5,048 $969 Three
Months Ended December 31, 2015
OperatingRevenue
Premiums& Fees
InvestmentIncome
Benefits& Expenses
PTOI Individual Retirement $1,570 $206 $904 $1,173 $397
Group Retirement $679 $104 $520 $451 $228 Life
Insurance $923 $658 $248 $899 $24
Net PremiumsWritten
Loss Ratio Expense Ratio Combined Ratio
PTOI Personal Insurance $2,729 55.4 47.7 103.1 $(27)
OperatingRevenue
Premiums &Fees
InvestmentIncome
Benefits &Expenses
PTOI
Total Consumer Insurance $5,978
$3,713 $1,733 $5,356 $622
LEGACY & OTHER
Legacy Segment Highlights – In 2016, the Legacy segment
monetized an additional $3.9 billion of assets resulting in a total
of $7.1 billion of its goal to reach $9.0 billion of capital return
by the end of 2017. Legacy attributed equity as a percentage of AIG
adjusted shareholders’ equity decreased from 24% as of year-end
2015 to 18% as of year-end 2016.
- During the quarter, an AIG sponsored
Fund (the Korea Fund) completed the sale of commercial real estate
in South Korea for total consideration of $2.5 billion and reported
a pre-tax gain of $1.1 billion included in Other income, of which
$464 million was attributable to AIG’s controlling interest. Legacy
also sold approximately 30% of the face value of its life
settlement portfolio, reducing the company’s risk profile.
- During the year, AIG closed the
majority of its life reinsurance transactions and, subject to
regulatory and rating agency considerations remains on track to
deliver on the associated capital return target by the end of
2017.
CONFERENCE CALL
AIG will host a conference call tomorrow, Wednesday, February
15, 2017, 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; generation of deployable capital; actual and
anticipated sales of businesses or asset divestitures or
monetizations; restructuring of business operations, including
anticipated restructuring charges and annual cost savings;
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; and segments’ 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 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 September 30, 2016, 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, 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 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 (which will be filed with the
SEC). 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
“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 Fourth 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) and Book Value per Common Share
Excluding AOCI and Deferred Tax Assets (DTA) (Adjusted Book Value
per Common Share) and Adjusted Book Value per Common Share
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 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. Adjusted Book Value per Common
Share including dividend growth is derived by dividing Adjusted
Shareholders’ Equity including growth in quarterly dividends above
$0.125 per share to shareholders, 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.
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 (ATOI) is
derived by excluding the tax affected PTOI adjustments described
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.
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 are 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 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, which has 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;
- other income and expense — net, related to Legacy Portfolio
run-off insurance lines;
- 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; and
- restructuring and other costs related to initiatives designed
to reduce operating expenses, improve efficiency and simplify our
organization.
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 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]
- 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 premium
adjustments = [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 prior year development] –
Loss ratio
Accident year loss ratio, as adjusted (Adjusted for Prior
Year Development) further adjusts the Accident Year Loss Ratio,
as adjusted to include the impact of the prior year reserve
development into each respective accident year.
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.
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, and other financial services to customers in more than 80
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 December 31, 2016
2015 Pre-tax Tax Effect After-tax
Pre-tax Tax Effect After-tax Pre-tax income
(loss)/net income (loss), including noncontrolling interests $
(3,455) $ (985) $ (2,485) $ (2,932) $ (1,083) $ (1,838)
Noncontrolling interest - - (556) - - (3)
Pre-tax income
(loss)/net income (loss) attributable to AIG (3,455) (985)
(3,041) (2,932) (1,083) (1,841)
Adjustments: Uncertain tax
positions and other tax adjustments - 247 (247) - 30 (30) Deferred
income tax valuation allowance charges - (87) 87 - (49) 49 Changes
in fair value of securities used to hedge guaranteed living
benefits 150 53 97 4 1 3 Changes in benefit reserves and DAC, VOBA
and SIA related to net realized capital gains (losses) (286) (100)
(186) (69) (24) (45) Other (income) expense - net (27) (10) (17)
233 82 151 Loss on extinguishment of debt (2) - (2) - - - Net
realized capital losses 1,115 344 771 349 123 226 Noncontrolling
interest on net realized capital losses - - (21) - - (11) Loss from
discontinued operations - - 36 - - - (Income) loss from divested
businesses (194) (186) (8) 1 (1) 2 Non-operating litigation
reserves and settlements 2 1 1 4 1 3 Reserve development related to
non-operating run-off insurance business - - - - - - Net loss
reserve discount benefit (charge) (750) (263) (487) 86 56 30
Pension expense related to a one-time lump sum payment to former
employees 147 51 96 - - - Restructuring and other costs 206 72 134
222 77 145
Pre-tax operating loss/After-tax operating loss $
(3,094) $ (863) $ (2,787) $ (2,102) $ (787) $ (1,318)
Twelve Months Ended December 31, 2016 2015
Pre-tax Tax Effect After-tax Pre-tax
Tax Effect After-tax Pre-tax income (loss)/net
income (loss), including noncontrolling interests $ (74) $ 185
$ (288) $ 3,281 $ 1,059 $ 2,193 Noncontrolling interest - - (561) -
- 3
Pre-tax income (loss)/net income (loss) attributable to
AIG (74) 185 (849) 3,281 1,059 2,196
Adjustments:
Uncertain tax positions and other tax adjustments - 63 (63) - (112)
112 Deferred income tax valuation allowance charges - (83) 83 -
(110) 110 Changes in fair value of securities used to hedge
guaranteed living benefits (120) (42) (78) 43 15 28 Changes in
benefit reserves and DAC, VOBA and SIA related to net realized
capital gains (losses) (195) (68) (127) 15 5 10 Other (income)
expense - net (42) (15) (27) 233 82 151 Loss on extinguishment of
debt 74 26 48 756 265 491 Net realized capital (gains) losses 1,944
561 1,383 (776) (271) (505) Noncontrolling interest on net realized
capital (gains) losses - - (61) - - 29 Loss from discontinued
operations - - 90 - - - (Income) loss from divested businesses
(545) (309) (236) 59 43 16 Non-operating litigation reserves and
settlements (41) (14) (27) (82) (29) (53) Reserve development
related to non-operating run-off insurance business - - - 30 10 20
Net loss reserve discount benefit (charge) (427) (150) (277) (71)
(16) (55) Pension expense related to a one-time lump sum payment to
former employees 147 51 96 - - - Restructuring and other costs 694
243 451 496 174 322
Pre-tax operating income/After-tax operating
income $ 1,415 $ 448 $ 406 $ 3,984 $ 1,115 $ 2,872
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 December 31,
Twelve Months Ended December 31, % Inc. % Inc.
2016 2015 (Dec.)
2016 2015 (Dec.)
Income (loss) per
common share:
Basic Income (loss) from continuing operations $ (2.93) $
(1.50) (95.3) % $ (0.70) $ 1.69 NM % Loss from discontinued
operations (0.03) - NM (0.08) - NM
Net income (loss)
attributable to AIG $ (2.96) $ (1.50) (97.3) $ (0.78) $ 1.69 NM
Diluted Income (loss) from continuing operations $
(2.93) $ (1.50) (95.3) $ (0.70) $ 1.65 NM Loss from discontinued
operations (0.03) - NM (0.08) - NM
Net income (loss)
attributable to AIG $ (2.96) $ (1.50) (97.3) $ (0.78) $ 1.65 NM
After-tax operating income attributable to AIG per diluted share
(a) $ (2.72) $ (1.07) (154.2) % $ 0.36 $ 2.15 (83.3) %
Weighted average shares outstanding: Basic 1,023.9 1,226.9
1,091.1 1,299.8 Diluted (a)(b) 1,023.9 1,226.9 1,091.1 1,334.5
Return on equity (c) (14.7) % (7.8)
%
(1.0) % 2.2
%
Adjusted return on equity (d) (18.2) % (7.1)
%
0.6 % 3.7
%
As of period
end:
December 31, 2016 September 30, 2016
December 31, 2015 Total AIG shareholders' equity $
76,300 $ 88,663 $ 89,658 Accumulated other
comprehensive income 3,230 9,057 2,537
Total AIG shareholders'
equity, excluding AOCI 73,070 79,606 87,121 Deferred tax
assets 14,770 15,567 16,751
Total adjusted AIG shareholders'
equity 58,300 64,039 70,370 Add: Cumulative quarterly
common stock dividends above $0.125 per share 1,216 1,020 378
Total adjusted AIG shareholders' equity, including dividend
growth $ 59,516 $ 65,059 $ 70,748
As of period
end:
December 31, 2016 September 30, 2016
% Inc. (Dec.) December 31, 2015 %
Inc. (Dec.) Book value per common share (e) $ 76.66
$ 85.02 (9.8) % $ 75.10 2.1 %
Book value per common share excluding AOCI (f) $ 73.41 $
76.33 (3.8) $ 72.97 0.6
Adjusted book value per common share
(g) $ 58.57 $ 61.41 (4.6) $ 58.94 (0.6)
Adjusted book value
per common share, including dividend growth (h) $ 59.79 $ 62.39
(4.2) % $ 59.26 0.9 %
Total common shares outstanding
995.3 1,042.9 1,193.9
Financial highlights - notes
(a) For the quarters ended December 31, 2016 and 2015, because we
reported net losses and after-tax operating losses, and for the
twelve months ended December, 31, 2016, 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. We reported an after-tax income for the
year ended December 31, 2016; therefore, we reported earnings per
share on diluted basis. For the year ended December 31, 2016, the
weighted average outstanding shares - diluted includes 30, 326,772
dilutive shares. (b) Diluted shares in the diluted EPS calculation
represent basic shares for the three-months ended December 31, 2016
and 2015 and twelve months ended December 31, 2016 due to the net
losses in those periods. (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 Adjusted
Shareholders' Equity. (e) Represents total AIG shareholders' equity
divided by Total common shares outstanding. (f) Represents total
AIG shareholders' equity, excluding AOCI, divided by Total common
shares outstanding. (g) Represents Adjusted Shareholders' Equity,
divided by Total common shares outstanding. (h) Represents Adjusted
Shareholders' Equity, 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 Twelve
Months Ended December 31, December 31, %
Inc. % Inc. 2016 2015
(Dec.) 2016
2015 (Dec.) General operating
and other expenses, GAAP basis $ 2,864 $ 3,472 (17.5) % $
10,989 $ 12,686 (13.4) % Restructuring and other costs (206) (222)
7.2 (694) (496) (39.9) Other expense related to retroactive
reinsurance agreement 10 (233) NM 18 (233) NM Pension expense
related to a one-time lump sum payment to former employees (147) -
NM (147) - NM Non-operating litigation reserves (2) (7) 71.4 (3)
(12) 75.0
Total general operating and other expenses included in
pre-tax operating income 2,519 3,010 (16.3) 10,163 11,945
(14.9) Loss adjustment expenses, reported as policyholder benefits
and losses incurred 314 392 (19.9) 1,345 1,632 (17.6) Advisory fee
expenses (79) (337) 76.6 (645) (1,349) 52.2 Non-deferrable
insurance commissions (117) (127) 7.9 (467) (504) 7.3 Direct
marketing and acquisition expenses, net of deferrals (172) (218)
21.1 (501) (659) 24.0 Investment expenses reported as net
investment income and other 12 20 (40.0) 57 76 (25.0)
Total
general operating expenses, operating basis $ 2,477 $ 2,740
(9.6) % $ 9,952 $ 11,141 (10.7) %
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
Twelve Months Ended December 31,
% Inc. 2016 2015
(Dec.) General operating and other
expenses, GAAP basis $ 10,989 $ 12,686 (13.4) % Restructuring
and other costs (694) (496) (39.9) Other expense related to
retroactive reinsurance agreement 18 (233) NM Pension expense
related to a one-time lump sum payment to former employees (147) -
NM Non-operating litigation reserves (3) (12) 75.0
Total general
operating and other expenses included in pre-tax operating
income 10,163 11,945 (14.9) Loss adjustment expenses, reported
as policyholder benefits and losses incurred 1,345 1,632 (17.6)
Advisory fee expenses (645) (1,349) 52.2 Non-deferrable insurance
commissions (467) (504) 7.3 Direct marketing and acquisition
expenses, net of deferrals (501) (659) 24.0 Investment expenses
reported as net investment income and other 57 76 (25.0)
Total
general operating expenses, operating basis 9,952 11,141 (10.7)
Less: FX impact - (15) NM Less: GOE of Advisor Group 68 206 (67.0)
Total general operating expenses, Operating basis, Ex. FX &
GOE of AIG Advisor Group $ 9,884 $ 10,950 (9.7) %
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 December 31, 2016 December 31,
2015 Tax Tax Pre-tax
Effect After-tax
ROE Pre-tax
Effect After-tax
ROE Return on Equity $ (3,041) (14.7) %
$ (1,841) (7.8) %
Adjusted Return on equity (a) $
(3,094) $ (863) $ (2,787) (18.2) % $ (2,102) $ (787) $ (1,318)
(7.1) %
Adjustments to arrive at Normalized Return on
Equity: Catastrophe losses above (below) expectations (2) (1)
(1) - (159) (56) (103) (0.6) (Better) worse than expected
alternative returns (103) (36) (67) (0.4) 529 185 344 1.9 (Better)
worse than expected DIB & GCM returns (75) (26) (49) (0.3) (5)
(2) (3) - Fair value changes on PICC investments 11 4 7 - (18) (6)
(12) (0.1) Update of actuarial assumptions - - - - (11) (4) (7) -
Life Insurance - IBNR death claims - - - - (20) (7) (13) (0.1)
Unfavorable (favorable) prior year loss reserve development 5,588
1,956 3,632 23.7 3,583 1,254 2,329 12.6
Normalized Return on
Equity $ 2,325 $ 1,034 $ 735 4.8 % $ 1,797 $ 577 $ 1,217 6.6 %
Average AIG Shareholders' equity $ 82,482 $ 94,329
Less: Average AOCI 6,144 4,547 Less: Average DTA 15,169 16,002
Average adjusted shareholders' equity $ 61,169 $ 73,780
Twelve Months Ended Twelve Months Ended
December 31, 2016 December 31, 2015 Tax
Tax Pre-tax Effect
After-tax ROE
Pre-tax Effect
After-tax ROE Return on
Equity $ (849) (1.0) % $ 2,196 2.2 %
Adjusted Return
on equity (a) $ 1,415 $ 448 $ 406 0.6 % $ 3,984 $ 1,115 $ 2,872
3.7 %
Adjustments to arrive at Normalized Return on
Equity: Catastrophe losses above (below) expectations (220)
(77) (143) (0.2) (800) (280) (520) (0.7) (Better) worse than
expected alternative returns 548 192 356 0.5 668 234 434 0.6
(Better) worse than expected DIB & GCM returns 172 60 112 0.2
(123) (43) (80) (0.1) Fair value changes on PICC investments 151 53
98 0.2 (40) (14) (26) - Update of actuarial assumptions 385 135 250
0.4 6 2 4 - Life Insurance - IBNR death claims (25) (9) (16) - (20)
(7) (13) - Unfavorable (favorable) prior year loss reserve
development 5,818 2,036 3,782 5.8 4,138 1,448 2,690 3.4
Normalized Return on Equity $ 8,244 $ 2,838 $ 4,845 7.5 % $
7,813 $ 2,455 $ 5,361 6.9 %
Average AIG Shareholders'
equity $ 86,617 $ 101,558 Less: Average AOCI 5,722 7,598 Less:
Average DTA 15,905 15,803
Average adjusted shareholders'
equity $ 64,990 $ 78,157
(a) After-tax operating income excludes Net income (loss)
attributable to non-controlling interest of $556 million and $3
million for the three months ended December 31, 2016 and 2015,
respectively. After-tax operating income also excludes Net income
(loss) attributable to non-controlling interest of $561 million and
$(3) million for the twelve months ended December 31, 2016 and
2015, respectively.
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 December 31,
2016 2015
Commercial
Insurance - Liability and Financial Lines
Loss ratio 312.0 174.6 Catastrophe losses and reinstatement
premiums - (0.1 ) Prior year development net of premium adjustments
(220.6 ) (103.9 )
Accident year loss ratio, as adjusted 91.4
70.6 Combined ratio 338.7 203.1 Catastrophe
losses and reinstatement premiums - (0.1 ) Prior year development
net of premium adjustments (220.6 ) (103.9 )
Accident year
combined ratio, as adjusted 118.1 99.1
Commercial
Insurance - Property and Special Risks
Loss ratio 77.0 69.8 Catastrophe losses and reinstatement premiums
(18.9 ) (10.8 ) Prior year development net of premium adjustments
2.4 (0.9 )
Accident year loss ratio, as adjusted 60.5
58.1 Combined ratio 111.7 102.5 Catastrophe
losses and reinstatement premiums (18.9 ) (10.8 ) Prior year
development net of premium adjustments 2.4 (0.9 )
Accident year combined ratio, as adjusted 95.2 90.8
Total Commercial
Insurance
Loss ratio 211.5 133.1 Catastrophe losses and reinstatement
premiums (8.1 ) (4.3 ) Prior year development net of premium
adjustments (125.2 ) (63.2 )
Accident year loss ratio, as
adjusted 78.2 65.6 Combined ratio 241.6
163.3 Catastrophe losses and reinstatement premiums (8.1 ) (4.3 )
Prior year development net of premium adjustments (125.2 ) (63.2 )
Accident year combined ratio, as adjusted 108.3 95.8
Consumer
Insurance - Personal Insurance
Loss ratio 52.7 55.4 Catastrophe losses and reinstatement premiums
(1.6 ) (0.3 ) Prior year development net of premium adjustments 0.6
(1.5 )
Accident year loss ratio, as adjusted 51.7
53.6 Combined ratio 96.9 103.1 Catastrophe
losses and reinstatement premiums (1.6 ) (0.3 ) Prior year
development net of premium adjustments 0.6 (1.5 )
Accident year combined ratio, as adjusted 95.9 101.3
American International Group, Inc.
Selected Financial Data and Non-GAAP Reconciliation
(continued)
Reconciliations of Accident Year Loss
Ratio, as Adjusted and Accident Year Loss Ratio, as Adjusted (incl.
PYD)
Twelve Months Ended December 31,
2016 2015
Total Commercial
Insurance
Loss ratio 104.0 84.5 Catastrophe losses and reinstatement premiums
(6.5 ) (3.0 ) Prior year development net of premium adjustments
(30.8 ) (16.8 )
Accident year loss ratio, as adjusted 66.7
64.7
Commercial
Insurance Accident Year Loss Ratio, as Adjusted (incl.
PYD)
Accident year loss ratio, as adjusted 66.7 64.7
Effect of 2016 Prior Year Development By
Accident Year on 2015
6.1
Accident year loss ratio, as adjusted
(incl. PYD)
66.7 70.8
American International
Group, Inc. Selected Financial Data and Non-GAAP
Reconciliation (continued) ($ in millions, except per share
amounts) Reconciliations of Premiums
and Deposits Three Months
Ended December 31, 2016 2015
Consumer
Insurance - Individual Retirement:
Premiums $ 34 $ 34 Deposits 3,044 5,077 Other - (2)
Total
premiums and deposits $ 3,078 $ 5,109
Consumer
Insurance - Individual Retirement (Fixed Annuities):
Premiums $ 36 $ 35 Deposits 512 1,228 Other (2) (4)
Total
premiums and deposits $ 546 $ 1,259
Consumer
Insurance - Individual Retirement (Variable
Annuities):
Premiums $ (1) $ (2) Deposits 923 1,814 Other 1 2
Total premiums
and deposits $ 923 $ 1,814
Consumer
Insurance - Individual Retirement (Index Annuities):
Premiums $ (1) $ - Deposits 687 867 Other 1 -
Total premiums and
deposits $ 687 $ 867
Consumer
Insurance - Individual Retirement (Retail Mutual
Funds):
Premiums $ - $ - Deposits 1,061 1,169 Other - -
Total premiums
and deposits $ 1,061 $ 1,169
Consumer
Insurance - Group Retirement:
Premiums $ 6 $ 6 Deposits 2,050 1,938 Other - -
Total premiums
and deposits $ 2,056 $ 1,944
Consumer
Insurance - Life Insurance:
Premiums $ 339 $ 315 Deposits 369 388 Other 203 176
Total
premiums and deposits $ 911 $ 879
Consumer
Insurance:
Premiums $ 380 $ 355 Deposits 5,463 7,403 Other 202 174
Total
premiums and deposits $ 6,045 $ 7,932
Legacy Life
Insurance Run-off Lines:
Premiums $ 118 $ 134 Deposits 27 47 Other 14 9
Total premiums
and deposits $ 159 $ 190
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170214006404/en/
American International Group, Inc.Investors: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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