Return on Equity Increases to 8.6% from
6.8%
Board of Directors Authorizes Repurchase of
$3.0 Billion of Additional Shares of AIG Common Stock
American International Group, Inc. (NYSE:AIG) today reported net
income of $1.9 billion, or $1.68 per diluted share, for the second
quarter of 2016, compared to $1.8 billion, or $1.32 per diluted
share, in the prior-year quarter.
After-tax operating income was $1.1 billion, or $0.98 per
diluted share, for the second quarter of 2016, compared to $1.9
billion, or $1.39 per diluted share, in the prior-year quarter.
“AIG’s second quarter results show strong improvement towards
all the goals the Board and I announced in January,” said Peter D.
Hancock, AIG President and Chief Executive Officer. “We have
executed more quickly and smoothly than expected and our confidence
in reaching our 2017 financial targets is high as our earnings
become more sustainable.”
Year-over-year comparisons of net income and after-tax operating
income were impacted by an adverse change in net loss reserve
discount on workers’ compensation reserves of $455 million after
tax, or $0.36 per diluted share. Year-over-year comparisons of net
income and after-tax operating income also were impacted by a
decline in earnings from market sensitive assets of $631 million
after tax, or $0.44 per diluted share. This decline reflects the
strong returns on market sensitive assets in the second quarter of
2015, as well as the impact of sales of assets as part of the plan
to return capital to shareholders. The year-over-year comparison
for net income was also favorably impacted by an increase in net
realized capital gains of $576 million after tax, or $0.52 per
diluted share.
Second Quarter Operating Highlights
ROE expansion - Return on Equity (ROE) was 8.6%, up from
6.8% in the prior-year quarter. Normalized ROE improved to 8.8%
from 6.7% in the prior-year quarter. Both metrics benefited from
operating margin improvement and a lower capital base from the
active return of capital to shareholders.
Continued Commercial underwriting improvements -
While higher catastrophe losses and the use of a lower discount
rate for reserves contributed 11.6 points to the Commercial
Property Casualty loss ratio of 75.0, our strategic actions
improved the Accident Year Loss ratio, as adjusted, by 4.2 points
from the prior-year quarter to 62.4, which is a 3.8 point
improvement from the full year of 2015.
Consumer expense discipline - Strategic actions to
reduce expenses in Consumer, particularly in Personal Insurance,
drove improved operating margins. The Personal Insurance expense
ratio declined by 7.0 points to 40.0 from the prior-year
quarter.
Ongoing firm-wide focus on efficiency – For the
first six months of 2016, general operating and other expenses
declined 7% from the prior year. General operating expenses,
operating basis, excluding the impact of foreign exchange, declined
11% from the prior year. The improvement was largely driven by
lower employee-related expenses, benefits rationalization and
professional fee declines.
Legacy actions underway - AIG continued to move
forward on its action plan for managing its Legacy portfolio, a key
contributor to AIG’s capital return target. Monetizations of Legacy
assets totaled $4.3 billion over the last three quarters consistent
with our continuing strategy to focus capital on core operations
while optimizing the value realized from the transfer or sale of
assets and liabilities.
Book value per share growth - Benefiting from the impact
of lower interest rates on AOCI, earnings growth and accretive
share repurchases, book value per share of $83.08 grew 6% during
the quarter. Book value per share, excluding AOCI and DTA,
including dividend growth grew 5% to $61.78, during the
quarter.
Second Quarter Capital & Other Highlights
Total capital returned to shareholders was $3.2 billion and
included $2.8 billion of repurchases of AIG Common Stock, $90
million of warrant repurchases and $350 million in shareholder
dividends. From the end of the second quarter through August 2,
2016, AIG repurchased an additional $698 million of AIG Common
Stock resulting in a total year to date capital return of $7.9
billion.
On August 2, 2016, the Board of Directors authorized the
repurchase of additional shares of AIG Common Stock with an
aggregate purchase price of up to $3.0 billion, which increased
AIG’s remaining share repurchase authorization on such date to
approximately $4.0 billion. On August 2, 2016, AIG’s Board of
Directors declared a quarterly dividend of $0.32 per share. AIG
Parent liquidity was $6.7 billion at June 30, 2016.
Pre-tax realized capital gains in the second quarter were $1.0
billion and included $928 million of gains from the sale of shares
in PICC Property and Casualty Company Limited. Gross proceeds
received by the Non-Life Insurance Companies from the sale were
approximately $1.25 billion, of which $448 million was remitted to
AIG Parent in the form of dividends and tax sharing payments.
"I want to thank our employees for their hard work and client
focus while embracing widespread change in our management
structure, asset and liability mix and operating workflow. Together
we are reshaping AIG, investing in talent and technology to become
our clients’ most valued insurer,” said Mr. Hancock.
SECOND QUARTER FINANCIAL
SUMMARY*
Three Months Ended
June 30,
($ in millions, except per share amounts)
2016 2015 Change Net income $
1,913
$
1,800
6 % Earnings per diluted share $
1.68
$
1.32
27 After-tax operating income $
1,113
$
1,893
(41 ) After-tax operating income per diluted common share $
0.98
$
1.39
(29 ) ROE 8.6 % 6.8 % ROE – after tax operating income, ex
AOCI 5.4 % 7.8 % ROE – after tax operating income, ex AOCI &
DTA 6.7 % 9.3 % Normalized ROE, ex AOCI & DTA 8.8
% 6.7 %
June 30,
March 31, December 31,
2016 2016 Change
2015 Change Period end: Book value per
common share $ 83.08 $ 78.28 6 % $ 75.10 11 % Book value per common
share, ex AOCI 75.45 73.40 3 72.97 3 Book value per common share,
ex AOCI & DTA 61.03 58.52 4 58.94 4
Book value per common share, ex AOCI &
DTA, including dividend growth
61.78 59.05 5
59.26 4 *Refer to the Comments on Regulation G
and the tables that follow for a discussion of non-GAAP and other
financial measures and the reconciliations of the non-GAAP
financial measures to GAAP measures.
SEGMENT RESULTS
All operating segment comparisons that follow are to the second
quarter of 2015 unless otherwise noted.
COMMERCIAL INSURANCE
PROPERTY CASUALTY
Three Months Ended
June 30,
($ in millions)
2016
2015 Change Net premiums written $
4,424 $ 5,583 (21 )% Net premiums earned 4,649 5,102 (9 )
Underwriting income (loss) (100 ) 61 NM Net investment income
891 1,131 (21 )
Pre-tax operating income $ 791 $ 1,192
(34 ) Underwriting ratios: Loss ratio 75.0 70.8
4.2
pts
Catastrophe losses and reinstatement premiums (7.5 ) (4.1 ) (3.4 )
Prior year development net of premium adjustments (1.0 ) (5.3 ) 4.3
Net reserve discount benefit (charge) (4.1 )
5.2 (9.3 ) Accident year loss ratio, as
adjusted 62.4 66.6
(4.2 ) Acquisition ratio 15.4 15.1 0.3 General operating expense
ratio 11.7 12.9
(1.2 ) Expense ratio 27.1 28.0
(0.9 ) Combined ratio 102.1 98.8 3.3 Catastrophe
losses and reinstatement premiums (7.5 ) (4.1 ) (3.4 ) Prior year
development net of premium adjustments (1.0 ) (5.3 ) 4.3 Net
reserve discount benefit (charge) (4.1 )
5.2 (9.3 ) Accident year combined ratio, as
adjusted 89.5 94.6
(5.1 ) Catastrophe-related losses $ 353 $ 209 69 % Severe losses
130 184 (29 )
Prior year loss reserve development
(favorable) unfavorable, net of reinsurance and premium
adjustments
58 279 (79 ) Net reserve discount charge (benefit)
191 (270 ) NM
Property Casualty pre-tax operating income declined to $791
million, primarily reflecting the strong level of alternative
investment income in the second quarter of 2015, as well as an
underwriting loss in the current quarter driven by the effect of
net loss reserve discount and higher catastrophe losses. The higher
loss ratio was partially offset by a lower expense ratio. The
current quarter loss ratio included a net loss reserve discount
charge of $191 million compared to a net loss reserve discount
benefit of $270 million in the prior-year quarter. In addition,
catastrophe losses were $353 million, up from $209 million in the
prior-year quarter. Pre-tax operating income benefited from an
improvement in accident year losses and lower net adverse prior
year loss reserve development.
Property Casualty net adverse prior year loss reserve
development, including premium adjustments, was $58 million and
included a $100 million reserve charge associated with
industry-wide rulings in Florida courts during the quarter that
have increased the potential liability for workers’ compensation
claims in that state by reversing certain aspects of regulations in
place since 2003. Excluding this charge, Property Casualty reserves
developed favorably during the quarter.
The improvement in the accident year loss ratio, as adjusted,
reflected the continued execution of our strategy to enhance risk
selection, improve underwriting discipline and manage exposures,
including the use of reinsurance, and lower overall severe losses.
The accident year loss ratio, as adjusted, improved in Casualty,
reflecting the non-renewal of certain underperforming classes of
business, as well as the effect of reinsurance. Financial Lines
improved across all regions due to our pricing discipline and
Specialty benefited from lower severe and attritional losses. These
declines in the accident year losses were partially offset by an
increase in Property severe and attritional losses.
The expense ratio declined 0.9 points largely driven by a
reduction in the general operating expense ratio of 1.2 points due
to lower employee-related costs resulting from ongoing actions to
streamline our management structure and general cost containment
measures.
In line with our planned portfolio optimization efforts, net
premiums written decreased 21%, or 20% excluding the impact of
foreign exchange. This decrease was primarily due to the continued
execution of our strategy to enhance risk selection in our Casualty
and Property product portfolios, the non-renewal of certain
underperforming classes of business, the increased use of
reinsurance, and adherence to our underwriting discipline in
competitive market conditions.
MORTGAGE GUARANTY
Three Months Ended
June 30,
($ in millions)
2016
2015 Change Net premiums written $ 244
$ 277 (12 )% Net premiums earned 239 226 6 Underwriting income 151
122 24 Net investment income 36
35 3 Pre-tax operating income $ 187
$ 157 19 Underwriting ratios:
Loss ratio 10.5 19.5
(9.0
)pts
Prior year loss development 5.0
7.5 (2.5 ) Accident year loss ratio, as adjusted
15.5 27.0 (11.5 )
Acquisition ratio 8.8 8.8 - General operating expense ratio
17.6 17.7 (0.1 ) Expense
ratio 26.4 26.5
(0.1 ) Combined ratio 36.9 46.0 (9.1 ) Prior year loss development
5.0 7.5 (2.5 )
Accident year combined ratio, as adjusted 41.9
53.5 (11.6 ) Prior year loss reserve
development (favorable) $ (12 ) $ (17 ) 29 % New insurance written,
domestic first-lien $ 12,985 $ 15,190 (15 ) Primary delinquency
ratio 2.9 % 3.6 % (19 )
Select Balance Sheet
& other data:
Shareholders' equity (at period end) $ 3,468 $ 3,247 7 First-lien
primary insurance in force $ 186,406 $ 174,250 7 In-force count
914,646 879,045 4
Mortgage Guaranty is primarily composed of the operations of
United Guaranty Corporation. Mortgage Guaranty’s pre-tax operating
income increased to $187 million, primarily due to the decline in
incurred losses from lower delinquency rates, higher cure rates and
an increase in premiums earned from the growth in policies
in-force.
Domestic first-lien new insurance written decreased 15% to
approximately $13.0 billion, largely due to strong refinancing
activity in early 2015. New business written in the second quarter
of 2016 had an average FICO score of 742 and an average
loan-to-value ratio of 92%, compared to an average FICO score of
752 and an average loan-to-value ratio of 91% in the prior-year
quarter.
As of June 30, 2016, Mortgage Guaranty had estimated available
assets under the Private Mortgage Insurer Eligibility Requirements
of $3.3 billion compared to minimum required assets of $2.9
billion.
INSTITUTIONAL MARKETS
Three Months Ended
June 30,
($ in millions)
2016 2015
Change Operating revenues: Premiums $ 215 $ 643 (67
)% Policy fees 50 50 0 Net investment income 430
479 (10 ) Total operating revenues
695 1,172 (41 ) Benefits and expenses
585 1,021 (43 ) Pre-tax
operating income $ 110 $ 151 (27 ) Premiums
and deposits: Premiums $ 215 $ 643 (67 ) Deposits 288 26 NM Other
3 11 (73 ) Total premiums and
deposits $ 506 $ 680 (26 )
Institutional Markets pre-tax operating income declined to $110
million, primarily due to lower net investment income, reflecting
lower income on alternative investments. The decreases in premiums,
and benefits and expenses were primarily due to a large terminal
funding annuity issued in the prior-year quarter. The decrease in
premiums and deposits was partially offset by a $254 million
funding agreement issued in the current quarter.
CONSUMER INSURANCE
RETIREMENT
Three Months Ended
June 30,
($ in millions)
2016 2015
Change Operating revenues: Premiums $ 52 $ 44
18 % Policy fees 272 277 (2 ) Net investment income 1,567 1,618 (3
) Advisory fee and other income 318 526
(40 ) Total operating revenues 2,209
2,465 (10 ) Benefits and expenses
1,468 1,661 (12 ) Pre-tax
operating income $ 741 $ 804 (8 )
Premiums and deposits(1): Premiums $ 52 $ 44 18 Deposits 6,377
6,046 5 Other 2 (20 ) NM
Total premiums and deposits(1) $ 6,431 $ 6,070
6 (1) Excludes activity related to closed blocks of
fixed and variable annuities.
Retirement pre-tax operating income declined to $741 million,
primarily due to lower net investment income on alternative
investments, partially offset by a decrease in employee-related
expenses. Premiums grew due to higher immediate annuity premiums in
the Fixed Annuities product line. Premiums and deposits grew to
$6.4 billion, primarily due to higher sales in Fixed Annuities,
Retail Mutual Funds and Group Retirement. The growth in sales and
lower Group Retirement surrenders were the primary drivers of an
improvement in net flows, which were up $422 million from the
prior-year quarter.
LIFE
Three Months Ended
June 30,
($ in millions)
2016 2015
Change Operating revenues: Premiums $ 762 $
702 9 % Policy fees 371 362 2 Net investment income 542 551 (2 )
Other income 15 17 (12 ) Total
operating revenues 1,690 1,632 4
Benefits and expenses 1,506
1,483 2 Pre-tax operating income $ 184
$ 149 23 Premiums and deposits: Premiums $ 762 $ 702
9 Deposits 372 380 (2 ) Other 183 167
10 Total premiums and deposits $ 1,317
$ 1,249 5 Gross life insurance in force, end of
period 1,033,691 1,016,632 2
Life pre-tax operating income increased to $184 million,
primarily due to more favorable mortality experience and lower
domestic employee-related expenses, partially offset by lower net
investment income on alternative investments. Growth in premiums,
and in premiums and deposits, excluding the effect of foreign
exchange, was 8% and 5%, respectively, which was principally driven
by growth in international life and health.
PERSONAL INSURANCE
Three Months Ended
June 30,
($ in millions)
2016
2015 Change Net premiums written $ 2,922
$ 2,930 - % Net premiums earned 2,862 2,806 2 Underwriting
income 126 7 NM Net investment income 53
63 (16 ) Pre-tax operating income
(loss) $ 179 $ 70 156
Underwriting ratios: Loss ratio 55.7 52.7
3.0
pts
Catastrophe losses and reinstatement premiums (2.1 ) (0.5 ) (1.6 )
Prior year development net of premium adjustments 1.4
0.6 0.8 Accident year
loss ratio, as adjusted 55.0
52.8 2.2 Acquisition ratio 25.9 27.9 (2.0 )
General operating expense ratio 14.1
19.1 (5.0 ) Expense ratio 40.0
47.0 (7.0 ) Combined ratio 95.7
99.7 (4.0 ) Catastrophe losses and reinstatement premiums (2.1 )
(0.5 ) (1.6 ) Prior year development net of premium adjustments
1.4 0.6 0.8
Accident year combined ratio, as adjusted 95.0
99.8 (4.8 ) Catastrophe-related losses
$ 59 $ 16 269 % Severe losses 16 - NM
Prior year loss reserve development
(favorable) unfavorable, net of reinsurance and premium
adjustments
(39 ) (17 ) (129 )
Personal Insurance pre-tax operating income grew to $179
million, reflecting improved underwriting results. The lower
combined ratio was driven by an improvement in the expense ratio,
partially offset by an increase in the loss ratio.
The increase in the loss ratio reflected higher catastrophe
losses, partially offset by increased net favorable prior year loss
reserve development. The increase in the accident year loss ratio,
as adjusted, was primarily driven by a single large loss event
impacting the personal property business in the U.S.
The improvement in the acquisition ratio reflected lower direct
marketing expenses. The decrease in the general operating expense
ratio primarily reflected lower employee-related expenses arising
from organizational realignment activities together with lower
strategic investment expenditures.
Net premiums written were broadly flat. Excluding the effects of
foreign exchange, net premiums written decreased slightly due to a
decline in automobile and personal property, partially offset by an
increase in warranty service programs.
CORPORATE AND OTHER
Three Months Ended
June 30,
($ in millions)
2016
2015 Change Pre-tax operating income
(loss): Equity in pre-tax operating earnings of AerCap $ - $
127
NM
%
Fair value of PICC investments (44 ) 170 NM Income from other
assets, net 215 509 (58 ) Corporate general operating expenses (289
) (268 ) (8 ) Interest expense (261 ) (278 ) 6 Run-off insurance
lines (164 ) 110 NM Consolidation and elimination (1
) 2 NM Pre-tax operating income
(loss) $ (544 ) $ 372 NM
Corporate and Other reported a pre-tax operating loss of $544
million compared to pre-tax operating income of $372 million in the
prior-year quarter, primarily due to lower earnings on Legacy
investments at AIG Parent, for which the fair value option was
elected, as well as the absence of equity earnings from shares in
AerCap Holdings N.V., which was divested in 2015. Additionally, a
net loss reserve discount charge associated with run-off insurance
lines was recorded in the current quarter compared to a net loss
reserve discount benefit in the prior-year quarter.
CONFERENCE CALL
AIG will host a conference call tomorrow, Wednesday, August 3,
2016, at 8:00 a.m. ET to review these results. The call is open to
the public and can be accessed via a live listen-only webcast at
www.aig.com. A replay will be available after the call at the same
location.
Additional supplementary financial data is available in the
Investor Relations section at www.aig.com.
The conference call (including the conference call presentation
material), the earnings release and the financial supplement may
include, and officers and representatives of AIG may from time to
time make, projections, goals, assumptions and statements that may
constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. These
projections, goals, assumptions and statements are not historical
facts but instead represent only AIG’s belief regarding future
events, many of which, by their nature, are inherently uncertain
and outside AIG’s control. These projections, goals, assumptions
and statements include statements preceded by, followed by or
including words such as “will,” “believe,” “anticipate,” “expect,”
“intend,” “plan,” “focused on achieving,” “view,” “target,” “goal”
or “estimate.” These projections, goals, assumptions and statements
may address, among other things, AIG’s: exposures to subprime
mortgages, monoline insurers, the residential and commercial real
estate markets, state and municipal bond issuers, sovereign bond
issuers, the energy sector and currency exchange rates; exposure to
European governments and European financial institutions; strategy
for risk management; sales of businesses; restructuring of business
operations; generation of deployable capital; anticipated business
or asset divestitures or monetizations; anticipated organizational
and business changes; strategies to increase return on equity and
earnings per common share; strategies to grow net investment
income, efficiently manage capital, grow book value per share, and
reduce expenses; anticipated restructuring charges and annual cost
savings; strategies for customer retention, growth, product
development, market position, financial results and reserves; and
subsidiaries’ revenues and combined ratios. It is possible that
AIG’s actual results and financial condition will differ, possibly
materially, from the results and financial condition indicated in
these projections, goals, assumptions and statements. Factors that
could cause AIG’s actual results to differ, possibly materially,
from those in the specific projections, goals, assumptions and
statements include: changes in market conditions; negative impacts
on customers, business partners and other stakeholders; the
occurrence of catastrophic events, both natural and man-made;
significant legal proceedings; the timing and applicable
requirements of any new regulatory framework to which AIG is
subject as a nonbank systemically important financial institution
and as a global systemically important insurer; concentrations in
AIG’s investment portfolios; actions by credit rating agencies;
judgments concerning casualty insurance underwriting and insurance
liabilities; AIG’s ability to successfully manage run-off insurance
portfolios; AIG’s ability to successfully reduce costs and expenses
and make business and organizational changes without negatively
impacting client relationships or AIG’s competitive position; AIG’s
ability to successfully dispose of or monetize, businesses or
assets; 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) and Part II, Item 1A. Risk
Factors in AIG’s Quarterly Report on Form 10-Q for the quarterly
period ended June 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 period ended March 31, 2016, and Part II, Item 7.
MD&A and Part I, Item 1A. Risk Factors in AIG’s Annual Report
on Form 10-K for the year ended December 31, 2015. AIG is not under
any obligation (and expressly disclaims any obligation) to update
or alter any projections, goals, assumptions, or other statements,
whether written or oral, that may be made from time to time,
whether as a result of new information, future events or
otherwise.
Nothing in this press release or in any oral statements made in
connection with this press release is intended to constitute, nor
shall it be deemed to constitute, an offer of any securities for
sale or the solicitation of an offer to purchase any securities in
any jurisdiction.
COMMENT ON REGULATION G
Throughout this press release, including the financial
highlights, AIG presents its financial condition and results of
operations in the way it believes will be most meaningful and
representative of its business results. Some of the measurements
AIG uses are “non-GAAP financial measures” under Securities and
Exchange Commission rules and regulations. GAAP is the acronym for
“accounting principles generally accepted in the United States.”
The non-GAAP financial measures AIG presents may not be comparable
to similarly-named measures reported by other companies. The
reconciliations of such measures to the most comparable GAAP
measures in accordance with Regulation G are included within the
relevant tables or in the Second Quarter 2016 Financial Supplement
available in the Investor Information section of AIG’s website,
www.aig.com.
Book Value Per Common Share Excluding Accumulated Other
Comprehensive Income (AOCI), Book Value Per Common Share Excluding
AOCI and Deferred Tax Assets (DTA) and Book Value Per Common Share
Excluding AOCI and DTA and Including Dividend Growth are used to
show the amount of AIG’s net worth on a per-share basis. AIG
believes these measures are useful to investors because they
eliminate items that can fluctuate significantly from period to
period, including changes in fair value of AIG’s available for sale
securities portfolio, foreign currency translation adjustments and
U.S. tax attribute deferred tax assets. These measures also
eliminate the asymmetrical impact resulting from changes in fair
value of AIG’s available for sale securities portfolio wherein
there is largely no offsetting impact for certain related insurance
liabilities. AIG excludes deferred tax assets representing U.S. tax
attributes related to net operating loss carryforwards and foreign
tax credits as they have not yet been utilized. Amounts for interim
periods are estimates based on projections of full year attribute
utilization. As net operating loss carryforwards and foreign tax
credits are utilized, the portion of the DTA utilized is included
in Book Value Per Common Share. Book Value Per Common Share
Excluding AOCI is derived by dividing Total AIG shareholders’
equity, excluding AOCI, by Total common shares outstanding. Book
Value Per Common Share Excluding AOCI and DTA is derived by
dividing Total AIG shareholders’ equity, excluding AOCI and DTA, by
Total common shares outstanding. Book Value Per Common Share
Excluding AOCI and DTA and including dividend growth is derived by
dividing Total AIG shareholders’ equity, excluding AOCI and DTA,
and including growth in quarterly dividends above $0.125 per share
to shareholders, by Total common shares outstanding.
Return on Equity – After-tax Operating Income Excluding AOCI and
Return on Equity – After-tax Operating Income Excluding AOCI and
DTA are used to show the rate of return on shareholders’ equity.
AIG believes these measures are useful to investors because they
eliminate items that can fluctuate significantly from period to
period, including changes in fair value of its available for sale
securities portfolio, foreign currency translation adjustments and
U.S. tax attribute deferred tax assets. These measures also
eliminate the asymmetrical impact resulting from changes in fair
value of AIG’s available for sale securities portfolio wherein
there is largely no offsetting impact for certain related insurance
liabilities. AIG excludes deferred tax assets representing U.S. tax
attributes related to net operating loss carryforwards and foreign
tax credits as they have not yet been utilized. Amounts for interim
periods are estimates based on projections of full-year attribute
utilization. As net operating loss carryforwards and foreign tax
credits are utilized, the portion of the DTA utilized is included
in Return on Equity. Return on Equity – After-tax Operating Income
Excluding AOCI is derived by dividing actual or annualized
after-tax operating income attributable to AIG by average AIG
shareholders’ equity, excluding average AOCI. Return on Equity –
After-tax Operating Income Excluding AOCI and DTA is derived by
dividing actual or annualized after-tax operating income
attributable to AIG by average AIG shareholders’ equity, excluding
average AOCI and DTA.
Normalized Return on Equity, Excluding AOCI and DTA (Normalized
ROE) further adjusts Return on Equity – After-tax Operating Income,
Excluding AOCI and DTA for the effects of certain volatile or
market-related items. AIG believes this measure is useful to
investors because it presents the trends in AIG’s consolidated
return on equity without the impact of certain items that can
experience volatility in AIG’s short-term results. Normalized
Return on Equity, Excluding AOCI and DTA is derived by excluding
the following tax adjusted effects from Return on Equity –
After-tax Operating Income, Excluding AOCI and DTA: the difference
between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) Direct Investment Book
(DIB) and Global Capital Markets (GCM) returns; fair value changes
on PICC investments; update of actuarial assumptions; net reserve
discount change; Life insurance incurred but not reported death
claim charge; and prior year loss reserve development.
AIG uses the following operating performance measures because it
believes they enhance the understanding of the underlying
profitability of continuing operations and trends of AIG’s business
segments. AIG believes they also allow for more meaningful
comparisons with AIG’s insurance competitors. When AIG uses these
measures, reconciliations to the most comparable GAAP measure are
provided on a consolidated basis.
After-tax operating income attributable to AIG is derived by
excluding the following items from net income attributable to AIG.
These items generally fall into one or more of the following broad
categories: legacy matters having no relevance to AIG’s current
businesses or operating performance; adjustments to enhance
transparency to the underlying economics of transactions; and
measures that AIG believes to be common to the industry. For
example, certain ratios and other metrics described below: 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 AIG’s organization; deferred income tax valuation
allowance releases and charges; changes in fair value of securities
used to hedge guaranteed living benefits; changes in benefit
reserves and deferred policy acquisition costs (DAC), value of
business acquired (VOBA), and sales inducement assets (SIA) related
to net realized capital gains and losses; other income and expense
— net, related to Corporate and Other runoff insurance lines; loss
on extinguishment of debt; net realized capital gains and losses;
and non-qualifying derivative hedging activities, excluding net
realized capital gains and losses. See page 17 for the
reconciliation of Net income attributable to AIG to After-tax
operating income attributable to AIG.
Operating revenue excludes Net realized capital gains (losses),
income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities
used to hedge guaranteed living benefits (included in Net
investment income for GAAP purposes).
General operating expenses, operating basis (GOE), is derived by
making the following adjustments to general operating and other
expenses: include (i) loss adjustment expenses, reported as
policyholder benefits and losses incurred and (ii) certain
investment and other expenses reported as net investment income,
and exclude (i) advisory fee expenses, (ii) non-deferrable
insurance commissions, (iii) direct marketing and acquisition
expenses, net of deferrals, (iv) non-operating litigation reserves
and (v) other expense related to a retroactive reinsurance
agreement. AIG also derive General operating expense savings on a
gross basis, which represents changes during the period in General
operating expenses, operating basis, before the effect of
additional investments made during the period. AIG uses general
operating expenses, operating basis, because it believes it
provides a more meaningful indication of its ordinary course of
business operating costs.
AIG uses the following operating performance measures within its
Commercial Insurance and Consumer Insurance reportable segments as
well as Corporate and Other.
Commercial Insurance: 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. AIG’s
ratios are calculated using the relevant information calculated
under GAAP, and thus may not be comparable to similar ratios
calculated for regulatory reporting purposes. The underwriting
environment varies across countries and products, as does the
degree of litigation activity, all of which affect such ratios. In
addition, investment returns, local taxes, cost of capital,
regulation, product type and competition can have an effect on
pricing and consequently on profitability as reflected in
underwriting income and associated ratios.
Accident year loss and combined ratios, as adjusted: both the
accident year loss and combined ratios, as adjusted, exclude
catastrophe losses and related reinstatement premiums, prior year
development, net of premium adjustments, and the impact of reserve
discounting. Natural catastrophe losses are generally weather or
seismic events having a net impact in excess of $10 million each.
Catastrophes also include certain man-made events, such as
terrorism and civil disorders that meet the $10 million threshold.
AIG believes the as adjusted ratios are meaningful measures of its
underwriting results on an on-going basis as they exclude
catastrophes and the impact of reserve discounting which are
outside of management’s control. AIG also excludes prior year
development to provide transparency related to current accident
year results.
Commercial Insurance: Institutional Markets; Consumer Insurance:
Retirement and Life
Pre-tax operating income is derived by excluding the following
items from pre-tax income: changes in fair value of securities used
to hedge guaranteed living benefits; net realized capital gains and
losses; changes in benefit reserves and DAC, VOBA and SIA related
to net realized capital gains and losses; and non-operating
litigation reserves and settlements.
Premiums and deposits includes direct and assumed amounts
received and earned on traditional life insurance policies, group
benefit policies and life-contingent payout annuities, as well as
deposits received on universal life, investment-type annuity
contracts and mutual funds.
Corporate and Other
Pre-tax operating income and loss is derived by excluding the
following items from pre-tax income and loss: loss on
extinguishment of debt; net realized capital gains and losses;
changes in benefit reserves and DAC, VOBA and SIA related to net
realized capital gains and losses; income and loss from divested
businesses, including Aircraft Leasing; net gain or loss on sale of
divested businesses (including gain on the sale of ILFC and certain
post-acquisition transaction expenses incurred by AerCap in
connection with its acquisition of ILFC and the difference between
expensing AerCap’s maintenance rights assets over the remaining
lease term as compared to the remaining economic life of the
related aircraft and AIG’s share of AerCap’s income taxes);
non-operating litigation reserves and settlements; reserve
development related to non-operating run-off insurance business;
and restructuring and other costs related to initiatives designed
to reduce operating expenses, improve efficiency and simplify AIG’s
organization.
Results from discontinued operations are excluded from all of
these measures.
American International Group, Inc. (AIG) is a leading global
insurance organization. Founded in 1919, today we provide a wide
range of property casualty insurance, life insurance, retirement
products, mortgage insurance and other financial services to
customers in more than 100 countries and jurisdictions. Our diverse
offerings include products and services that help businesses and
individuals protect their assets, manage risks and provide for
retirement security. AIG common stock is listed on the New York
Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com and
www.aig.com/strategyupdate | YouTube: www.youtube.com/aig |
Twitter: @AIGinsurance | LinkedIn:
http://www.linkedin.com/company/aig. These references with
additional information about AIG have been provided as a
convenience, and the information contained on such websites is not
incorporated by reference into this press release.
AIG is the marketing name for the worldwide property-casualty,
life and retirement, and general insurance operations of American
International Group, Inc. For additional information, please visit
our website at www.aig.com. All products and services are written
or provided by subsidiaries or affiliates of American International
Group, Inc. Products or services may not be available in all
countries, and coverage is subject to actual policy language.
Non-insurance products and services may be provided by independent
third parties. Certain property-casualty coverages may be provided
by a surplus lines insurer. Surplus lines insurers do not generally
participate in state guaranty funds, and insureds are therefore not
protected by such funds.
American International Group, Inc. Selected Financial
Data and Non-GAAP Reconciliation ($ in millions, except per
share data) Reconciliations of Pre-tax and After-tax
Operating Income (Loss) Three Months Ended June
30, 2016 2015 Pre-tax Tax
Effect After-tax Pre-tax Tax
Effect After-tax Operating income, including
noncontrolling interests $ 1,620 $ 503 $ 1,117 $ 2,868 $ 985 $
1,883 Noncontrolling interest - - (4 ) - -
10
Operating income, net of noncontrolling
interests 1,620 503 1,113 2,868 985 1,893
Adjustments:
Uncertain tax positions and other tax adjustments - (63 ) 63 - (49
) 49 Deferred income tax valuation allowance releases (charges) -
35 (35 ) - (40 ) 40
Changes in fair value of securities used
to hedge guaranteed living benefits
120 42 78 (87 ) (30 ) (57 )
Changes in benefit reserves and DAC, VOBA
and SIA related to net realized capital gains (losses)
(64 ) (22 ) (42 ) (28 ) (10 ) (18 ) Other (income) expense - net 5
2 3 - - - Loss on extinguishment of debt (7 ) (2 ) (5 ) (342 ) (120
) (222 ) Net realized capital gains 1,042 380 662 126 46 80
Noncontrolling interest on net realized capital gains - - (7 ) - -
(1 ) Income (loss) from discontinued operations - - (10 ) - - 16
Income (loss) from divested businesses 225 79 146 (34 ) (23 ) (11 )
Non-operating litigation reserves and settlements 7 2 5 49 18 31
Restructuring and other costs (90 ) (32 ) (58 ) - - -
Pre-tax income/net income attributable to AIG $ 2,858
$ 924 $ 1,913 $ 2,552 $ 777 $
1,800
Six Months Ended June 30, 2016
2015 Pre-tax Tax Effect After-tax
Pre-tax Tax Effect After-tax Operating
income, including noncontrolling interests $ 2,574 $ 686 $
1,888 $ 5,395 $ 1,810 $ 3,585 Noncontrolling interest - -
(2 ) - - (1 )
Operating income, net of
noncontrolling interests 2,574 686 1,886 5,395 1,810 3,584
Adjustments: Uncertain tax positions and other tax
adjustments - 142 (142 ) - (91 ) 91 Deferred income tax valuation
allowance releases (charges) - (2 ) 2 - 53 (53 )
Changes in fair value of securities used
to hedge guaranteed living benefits
253 89 164 (43 ) (15 ) (28 )
Changes in benefit reserves and DAC, VOBA
and SIA related to net realized capital gains (losses)
(24 ) (8 ) (16 ) (82 ) (29 ) (53 ) Other (income) expense - net 12
4 8 - - - Loss on extinguishment of debt (90 ) (32 ) (58 ) (410 )
(144 ) (266 ) Net realized capital gains (losses) (64 ) (7 ) (57 )
1,467 515 952 Noncontrolling interest on net realized capital gains
(losses) - - 11 - - 1 Income (loss) from discontinued operations -
- (57 ) - - 17 Income (loss) from divested businesses 223 78 145
(55 ) (42 ) (13 ) Non-operating litigation reserves and settlements
38 13 25 56 20 36 Restructuring and other costs (278 ) (97 ) (181 )
- - -
Pre-tax income/net income
attributable to AIG $ 2,644 $ 866 $ 1,730
$ 6,328 $ 2,077 $ 4,268
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. 2016
2015 (Dec.)
2016 2015 (Dec.)
Income (loss) per
common share:
Basic Income from continuing operations $ 1.73 $ 1.34 29.1 %
$ 1.57 $ 3.16 (50.3) % Income (loss) from discontinued operations
(0.01) 0.01 NM (0.05) 0.01 NM
Net income attributable to AIG
$ 1.72 $ 1.35 27.4 $ 1.52 $ 3.17 (52.1)
Diluted
Income from continuing operations $ 1.69 $ 1.31 29.0 $ 1.54 $ 3.09
(50.2) Income (loss) from discontinued operations (0.01) 0.01 NM
(0.05) 0.01 NM
Net income attributable to AIG $ 1.68 $ 1.32
27.3 $ 1.49 $ 3.10 (51.9)
After-tax operating income
attributable to AIG per diluted share $ 0.98 $ 1.39 (29.5) % $
1.62 $ 2.60 (37.7) %
Weighted average shares
outstanding: Basic 1,113.6 1,329.2 1,135.1 1,347.5 Diluted
1,140.0 1,365.4 1,163.1 1,376.3
Return on equity (a)
8.6
%
6.8
%
3.9 % 8.0
%
Return on equity - after-tax operating income, excluding AOCI
(b) 5.4
%
7.8
%
4.5 % 7.4
%
Return on equity - after-tax operating income, excluding AOCI
and DTA (c) 6.7
%
9.3
%
5.6 % 8.8
%
As of period
end:
June 30, 2016 March 31, 2016
December 31, 2015 Total AIG shareholders' equity $
89,946 $ 88,518 $ 89,658 Accumulated other
comprehensive income 8,259 5,525 2,537
Total AIG shareholders'
equity, excluding AOCI 81,687 82,993 87,121 Deferred tax
assets 15,614 16,825 16,751
Total AIG shareholders' equity,
excluding AOCI and DTA 66,073 66,168 70,370 Add:
Cumulative quarterly common stock dividends above $0.125 per share
814 599 378
Total AIG shareholders' equity,
excluding AOCI and DTA, including dividend growth
$ 66,887 $ 66,767 $ 70,748
As of period
end:
June 30, 2016 March 31, 2016
% Inc. (Dec.) December 31, 2015 %
Inc. (Dec.) Book value per common share (d) $ 83.08
$ 78.28 6.1 % $ 75.10 10.6 %
Book
value per common share excluding AOCI (e) $ 75.45 $ 73.40 2.8 $
72.97 3.4
Book value per common share excluding AOCI and DTA
(f) $ 61.03 $ 58.52 4.3 $ 58.94 3.5
Book value per common share excluding
AOCI and DTA, including dividend growth (g)
$ 61.78 $ 59.05 4.6 % $ 59.26 4.3 %
Total common shares
outstanding 1,082.7 1,130.7 1,193.9
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 average AIG shareholders' equity,
excluding AOCI. Equity includes DTA. (c) Computed as Annualized
after-tax operating income attributable to AIG divided by average
AIG shareholders' equity, excluding AOCI and DTA. (d) Represents
total AIG shareholders' equity divided by Total common shares
outstanding. (e) Represents total AIG shareholders' equity,
excluding AOCI, divided by Total common shares outstanding. (f)
Represents total AIG shareholders' equity, excluding AOCI and DTA,
divided by Total common shares outstanding. (g) Represents total
AIG shareholders' equity, excluding AOCI and DTA, and including
growth in quarterly dividends above $0.125 per share to
shareholders, divided by Total common shares outstanding.
American International Group, Inc. Selected Financial
Data and Non-GAAP Reconciliation (continued) ($ in millions,
except per share amounts) Reconciliations of General
Operating Expenses, Operating basis to General Operating and Other
Expenses, GAAP basis Three Months Ended June 30,
Six Months Ended June 30, % Inc.
% Inc. 2016
2015 (Dec.) 2016
2015 (Dec.) Total
general operating expenses, Operating basis $ 2,439 $ 2,942
(17.1) % $ 5,031 $ 5,726 (12.1) % Loss adjustment expenses,
reported as policyholder benefits and losses incurred (350) (428)
18.2 (691) (851) 18.8 Advisory fee expenses 173 341 (49.3) 490 673
(27.2) Non-deferrable insurance commissions 121 126 (4.0) 243 254
(4.3) Direct marketing and acquisition expenses, net of deferrals
133 101 31.7 277 241 14.9 Investment expenses reported as net
investment income and other (15) (19) 21.1 (30) (39) 23.1
Total
general operating and other expenses included in pre-tax operating
income 2,501 3,063 (18.3) 5,320 6,004 (11.4) Restructuring and
other costs 90 - NM 278 - NM Other expense related to retroactive
reinsurance agreement (5) - NM (12) - NM Non-operating litigation
reserves - 27 NM 3 35 (91.4)
Total general operating and other
expenses, GAAP basis $ 2,586 $ 3,090 (16.3) % $ 5,589 $ 6,039
(7.5) %
Reconciliations of Normalized and
After-tax Operating Income Return on Equity, Excluding AOCI and
DTA Three Months Ended Three Months
Ended June 30, 2016 June 30, 2015
Tax Tax
Pre-tax Effect
After-tax ROE
Pre-tax Effect
After-tax ROE Return
on Equity $ 1,913 8.6 % $ 1,800 6.8 %
Return on equity -
after-tax operating income, excluding AOCI and DTA (a) $ 1,620
$ 503 $ 1,113 6.7 % $ 2,868 $ 985 $ 1,893 9.3 %
Adjustments to
arrive at Normalized Return on Equity, Excluding AOCI and DTA:
Catastrophe losses above (below) expectations 160 56 104 0.6 (39)
(14) (25) (0.1) (Better) worse than expected alternative returns 5
1 4 - (179) (63) (116) (0.6) (Better) worse than expected DIB &
GCM returns (42) (14) (28) (0.1) (312) (109) (203) (1.0) Fair value
changes on PICC investments 85 30 55 0.3 (224) (78) (146) (0.7) Net
reserve discount change 300 105 195 1.2 (400) (140) (260) (1.3)
Life Insurance - IBNR death claims - - - - - - - - Unfavorable
prior year loss reserve development 29 10 19 0.1 329 115 214 1.1
Normalized Return on Equity, excluding AOCI and DTA $ 2,157
$ 691 $ 1,462 8.8 % $ 2,043 $ 696 $ 1,357 6.7 %
Average
AIG Shareholders' equity $ 89,232 $ 106,119 Less: Average AOCI
6,892 9,139 Less: Average DTA 16,220 15,428 Effect of normalization
on equity 175 (269)
Normalized Average AIG Shareholders' equity,
excluding average AOCI and DTA $ 66,295 $ 81,283 (a) After-tax
operating income excludes Net income (loss) attributable to
non-controlling interest of $4 million and $(10) million for the
three months ended June 30, 2016 and 2015, respectively.
American International Group, Inc. Selected Financial
Data and Non-GAAP Reconciliation (continued) ($ in millions,
except per share amounts) Reconciliations of
Normalized and After-tax Operating Income Return on Equity,
Excluding AOCI and DTA (continued) Six Months
Ended Six Months Ended June 30, 2016
June 30, 2015 Tax
Tax Pre-tax
Effect After-tax
ROE Pre-tax Effect
After-tax ROE
Return on Equity $ 1,730 3.9 % $ 4,268 8.0 %
Return on equity - after-tax operating income, excluding AOCI
and DTA (a) $ 2,574 $ 686 $ 1,886 5.6 % $ 5,395 $ 1,810 $ 3,584
8.8 %
Adjustments to arrive at Normalized Return on Equity,
Excluding AOCI and DTA: Catastrophe losses above (below)
expectations 183 64 119 0.3 (153) (54) (99) (0.2) (Better) worse
than expected alternative returns 719 251 468 1.4 (320) (112) (208)
(0.5) (Better) worse than expected DIB & GCM returns 353 124
229 0.7 (372) (130) (242) (0.6) Fair value changes on PICC
investments 188 66 122 0.4 (278) (97) (181) (0.4) Net reserve
discount change 290 102 188 0.6 (235) (82) (153) (0.4) Life
Insurance - IBNR death claims (25) (9) (16) (0.1) - - - -
Unfavorable (favorable) prior year loss reserve development (31)
(11) (20) (0.1) 365 128 237 0.6
Normalized Return on Equity,
excluding AOCI and DTA $ 4,251 $ 1,273 $ 2,976 8.8 % $ 4,402 $
1,463 $ 2,938 7.3 %
Average AIG Shareholders' equity
$ 89,374 $ 106,378 Less: Average AOCI 5,440 9,631 Less: Average DTA
16,397 15,671 Effect of normalization on equity 116 (179)
Normalized Average AIG Shareholders' equity, excluding average
AOCI and DTA $ 67,653 $ 80,897 (a) After-tax operating income
is excludes Net income (loss) attributable to non-controlling
interest of $2 million and $1 million for the six months ended June
30, 2016 and 2015, respectively.
Reconciliation of
Property Casualty Accident Year Combined Ratio, as Adjusted
Twelve
Months Ended
December 31, 2015 Underwriting ratios: Loss ratio
86.2 Catastrophe losses and reinstatement premiums (2.9 ) Prior
year development net of premium adjustments (17.5 ) Net reserve
discount benefit
0.4 Accident year loss ratio, as adjusted
66.2 Acquisition ratio
16.1 General operating expense ratio
12.7 Expense ratio
28.8 Combined ratio 115.0
Catastrophe losses and reinstatement premiums (2.9 ) Prior year
development net of premium adjustments (17.5 ) Net reserve discount
benefit 0.4
Accident year combined ratio, as adjusted
95.0
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160802006750/en/
American International Group, Inc.InvestorsLiz Werner,
212-770-7074elizabeth.werner@aig.comorFernando Melon,
212-770-4630fernando.melon@aig.comorMediaJennifer Hendricks
Sullivan, 212-770-3141jennifer.sullivan@aig.com
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