American International Group, Inc. (NYSE:AIG) today reported a
net loss of $1.7 billion, or $1.91 per share, for the third quarter
of 2017, compared to net income of $462 million, or $0.42 per
diluted share, in the prior-year quarter. After-tax operating loss
was $1.1 billion, or $1.22 per share, for the third quarter of
2017, compared to after-tax operating income of $1.1 billion, or
$1.01 per diluted share, in the prior-year quarter.
“In the third quarter, the insurance industry witnessed
unprecedented catastrophic events. AIG’s resilience in the wake of
these events reflects the strength of our balance sheet and capital
position. I am extremely proud of our response and commitment to
our customers, as well as the assistance our colleagues provided to
the communities most affected by these events,” said Brian
Duperreault, President and Chief Executive Officer. “We also
strengthened reserves based on additional information that became
available in the third quarter through our quarterly reserve
review, which primarily related to the 2016 accident year. We are
laser focused on commercial underwriting and taking actions to
enhance underwriting tools and, more importantly, our talent base –
so much so that I have declared 2018 the ‘Year of the Underwriter.’
With this increased focus on underwriting, and our recently
announced changes to AIG’s operating structure and executive
leadership, we will continue to execute on our strategy to better
position AIG for long term profitable growth.”
NOTEWORTHY ITEMS
Catastrophe Losses – Third quarter results included aggregate
pre-tax catastrophe losses of $3.0 billion primarily from
Hurricanes Harvey, Irma and Maria, which are in line with our
previously disclosed preliminary loss estimates.
Loss Reserve Development, Primarily in Accident Year 2016 –
Prior accident year loss reserves were strengthened by $836
million, pre-tax (net of $62 million for the amortization of the
deferred gain attributable to the NICO reinsurance agreement) of
which $705 million related to accident year 2016 in reaction to
early unfavorable loss emergence, primarily in Commercial long-tail
lines. There was no overall development on the reserves subject to
our reinsurance agreement with NICO. Additionally, the current year
Commercial Insurance accident year loss ratio was increased by 4.9
points of which 3.3 points related to earlier quarters.
Consistent Consumer Insurance Results – Consumer pre-tax
operating income was $1.0 billion despite significant third quarter
Personal Insurance catastrophe losses. The annual actuarial
assumption review in the third quarter resulted in a benefit of
$284 million compared to $230 million in the prior year quarter.
The third quarter largely reflected lower assumed lapses and strong
equity market performance, partially offset by a reduction in our
long-term separate account return assumption in the Individual
Retirement business.
Expense Reduction – General operating and other expenses (GOE)
declined $387 million or 15.3% to $2.1 billion. GOE, operating
basis, declined 11% on a constant dollar basis and excluding the
GOE reductions from the 2016 sale of United Guaranty Corporation,
due to organizational simplification.
Legacy Strategy Execution – On November 1, 2017 AIG closed on
the sale of our remaining life settlements portfolio resulting in
the remittance of $1.1 billion of cash proceeds to AIG Parent in
fourth quarter 2017 and fulfilling the $9 billion return of Legacy
capital.
Capital and Liquidity – In the third quarter, AIG repurchased
4.6 million common shares for $275 million and an additional $3
million of warrants. Approximately $2.2 billion remains under our
share repurchase authorization as of November 2, 2017. AIG Parent
liquidity stood at $6.7 billion. In the third quarter, AIG Parent
received approximately $500 million of distributions, including tax
sharing payments, from insurance subsidiaries in the form of cash
and fixed maturity securities.
Removal of Nonbank SIFI Designation – In September, the
Financial Stability Oversight Council rescinded AIG’s designation
as a nonbank Systemically Important Financial Institution.
THIRD QUARTER FINANCIAL
SUMMARY*
Three Months Ended September 30, ($ in
millions, except per share amounts)
2017
2016 Net income (loss) $ (1,739)
$
462
Net income (loss) per diluted share (a) $ (1.91)
$
0.42
After-tax operating income (loss) $ (1,111)
$
1,115
After-tax operating income (loss) per diluted share (a) $ (1.22)
$
1.01
Return on equity (9.5) % 2.1 % AIG Consolidated: Adjusted return on
equity (8.4) % 6.9 % Normalized return on equity 6.6 % 8.1 % Core:
Adjusted return on attributed equity - Core (11.6) % 9.0 %
Normalized return on attributed equity - Core 7.2 % 8.1 % Book
value per common share $ 80.62
$
85.02
Book value per common share, excluding accumulated other
comprehensive income $ 74.01
$
76.33
*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.
All comparisons are against the third quarter of 2016, unless
otherwise indicated. Refer to the AIG Third Quarter 2017 Financial
Supplement which is posted on AIG's website in the Investor
Information section for further information. In the fourth quarter
of 2017, AIG expects to transition its Commercial Insurance and
Consumer Insurance segments to General Insurance and Life and
Retirement, respectively.
CORE INSURANCE
Commercial Insurance – In the third quarter, Commercial
Insurance pre-tax operating income reflected an elevated loss ratio
which included higher catastrophe-related losses, higher
unfavorable prior year loss reserve development, and an elevated
current accident year loss ratio, as adjusted, primarily in
Property and U.S. Casualty, and lower net investment income as a
result of funding the NICO reinsurance agreement. This was
partially offset by lower expenses.
- The pre-tax operating loss included
$2.7 billion of catastrophe-related losses, net of reinsurance and
$837 million of unfavorable prior year loss reserve development of
which $697 million related to accident year 2016. The prior year
loss development was largely in reaction to early unfavorable loss
emergence in U.S. Casualty and Financial Lines in accident year
2016, and an increased number of large claims in European Casualty
and Financial Lines primarily in accident year 2016. This was
partially offset by favorable development in Commercial
Property.
- The loss ratio of 168.4 increased by
91.1 points in the third quarter of 2017. Approximately 65.6 points
of this increase relate to catastrophe-related losses. The accident
year loss ratio, as adjusted, of 75.1 increased by 10.4 points.
This increase reflected higher Property severe and attritional
losses and higher U.S. Casualty current accident year losses in
certain lines as a result of our detailed reserve valuation
reviews.
- The expense ratio declined 1.5 points
to 27.0 in the third quarter of 2017 primarily due to continued
execution on our strategic actions to reduce operating
expenses.
- Commercial Insurance net premiums
written decreased by 13% on both a reported and constant dollar
basis. About 4% of the decrease was related to divestitures. The
remaining decrease was related to continued execution on our
strategic portfolio actions throughout the third quarter of
2017.
Three Months Ended September 30,
($ in millions)
2017 2016
Change Total Commercial Insurance Net
premiums written $ 3,770 $ 4,354 (13 ) % Pre-tax operating income
(loss) $ (2,862 ) $ 685 NM Underwriting ratios: Loss ratio 168.4
77.3 91.1 pts Expense ratio 27.0
28.5 (1.5 ) Combined ratio 195.4
105.8 89.6
Three
Months Ended September 30, ($ in millions)
2017 2016 Change
Liability and Financial Lines Net premiums written $ 2,175 $
2,389 (9 ) % Pre-tax operating income (loss) $ (257 ) $ 948 NM
Underwriting ratios: Loss ratio 113.1 67.7 45.4 pts Expense ratio
25.2 25.4 (0.2 )
Combined ratio 138.3 93.1
45.2
Property and Special
Risks Net premiums written $ 1,595 $ 1,965 (19 ) % Pre-tax
operating loss $ (2,605 ) $ (263 ) NM Underwriting ratios: Loss
ratio 247.6 90.5 157.1 pts Expense ratio 29.4
32.8 (3.4 ) Combined ratio
277.0 123.3 153.7
Consumer Insurance – In the third quarter, Consumer
Insurance continued to provide consistent underlying operating
results across all segments as discussed below and delivered $1.0
billion of pre-tax operating income.
- In Individual Retirement, a lower net
positive adjustment from the actuarial assumptions review and a
decline in alternative investment income, was partially offset by
higher policy fee income from growth in assets under administration
driven by improvements in equity markets and higher base net
investment income spreads. Net flows declined to a negative $718
million for Individual Retirement, primarily reflecting the
uncertainties surrounding the impact and implementation of the DOL
Fiduciary Rule.
- In Group Retirement, a net positive
adjustment compared to a net negative adjustment in the prior year
quarter from the actuarial assumptions review and higher policy fee
income from growth in assets under administration, was partially
offset by lower base net investment income spreads and a decline in
alternative investment income. Group Retirement net flows continued
to be negative but improved due to lower surrenders and higher
premiums and deposits.
- In Life Insurance, a net positive
adjustment compared to a net negative adjustment in the prior year
quarter from the actuarial assumptions review, higher policy fee
income from growth in universal life and lower general operating
expenses, was partially offset by lower net investment income. Life
Insurance premiums and premiums and deposits increased primarily
due to growth in term life, universal life, and international life
and health.
- In Personal Insurance, higher
catastrophe losses and lower net favorable prior year loss reserve
development as compared to the prior year quarter was partially
offset by improved current accident year losses and higher
alternative investment income.
Three Months Ended September
30, ($ in millions)
2017 2016 Change Total
Consumer Insurance Premiums & Fees $ 3,883 $
3,886 - % Net Investment Income 1,843 1,903 (3 ) Operating Revenue
5,954 6,009 (1 ) Benefits & Expenses 4,946 4,781 3 Pre-tax
operating income 1,008 1,228 (18 )
Individual
Retirement Premiums & Fees $ 212 $ 220 (4 ) % Net
Investment Income 973 1,009 (4 ) Operating Revenue 1,343 1,380 (3 )
Benefits & Expenses 625 460 36 Pre-tax operating income 718 920
(22 )
Group Retirement Premiums & Fees $ 121 $
108 12 % Net Investment Income 524 554 (5 ) Operating Revenue 702
717 (2 ) Benefits & Expenses 453 503 (10 ) Pre-tax operating
income 249 214 16
Life Insurance Premiums & Fees
$ 727 $ 640 14 % Net Investment Income 260 267 (3 ) Operating
Revenue 1,000 921 9 Benefits & Expenses 888 975 (9 ) Pre-tax
operating income (loss) 112 (54 ) NM
Personal
Insurance Net premiums written $ 2,807 $ 2,922 (4 ) % Pre-tax
operating income (loss) $ (71 ) $ 148 NM Underwriting ratios: Loss
ratio 64.3 56.3 8.0 pts Expense ratio 41.3
41.2 0.1 Combined ratio
105.6 97.5 8.1
CONFERENCE CALL
AIG will host a conference call tomorrow, Friday, November 3,
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;
- actual and anticipated sales,
monetizations and/or acquisitions of businesses or assets;
- restructuring of business operations,
including anticipated restructuring charges and annual cost
savings;
- generation of deployable capital;
- strategies to increase return on equity
and earnings per share;
- strategies to grow net investment
income, efficiently manage capital, grow book value per common
share, and reduce expenses;
- anticipated organizational, business
and regulatory changes;
- strategies for customer retention,
growth, product development, market position, financial results and
reserves;
- management of the impact that
innovation and technology changes may have on customer preferences,
the frequency or severity of losses and/or the way AIG distributes
and underwrites its products;
- segments’ revenues and combined ratios;
and
- management succession and retention
plans.
It is possible that AIG’s actual results and financial condition
will differ, possibly materially, from the results and financial
condition indicated in these projections, goals, assumptions and
statements.
Factors that could cause AIG’s actual results to differ,
possibly materially, from those in the specific projections, goals,
assumptions and statements include:
- changes in market conditions;
- negative impacts on customers, business
partners and other stakeholders;
- the occurrence of catastrophic events,
both natural and man-made;
- significant legal proceedings;
- the timing and applicable requirements
of any regulatory framework to which AIG is subject, including 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, monetize and/or acquire 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, 2017 (which
will be filed with the SEC), Part I, Item 2. MD&A in AIG’s
Quarterly Reports on Form 10-Q for the quarterly periods ended June
30, 2017 and March 31, 2017 and Part II, Item 7. MD&A and Part
I, Item 1A. Risk Factors in AIG’s Annual Report on Form 10-K for
the year ended December 31, 2016.
AIG is not under any obligation (and expressly disclaims any
obligation) to update or alter any projections, goals, assumptions,
or other statements, whether written or oral, that may be made from
time to time, whether as a result of new information, future events
or otherwise.
COMMENT ON REGULATION G
Throughout this press release, including the financial
highlights, AIG presents its financial condition and results of
operations in the way it believes will be most meaningful and
representative of its business results. Some of the measurements
AIG uses are “non-GAAP financial measures” under Securities and
Exchange Commission rules and regulations. GAAP is the acronym for
“generally accepted accounting principles” in the United States.
The non-GAAP financial measures AIG presents may not be comparable
to similarly-named measures reported by other companies. The
reconciliations of such measures to the most comparable GAAP
measures in accordance with Regulation G are included within the
relevant tables or in the Third Quarter 2017 Financial Supplement
available in the Investor Information section of AIG’s website,
www.aig.com.
Book Value per Common Share, Excluding Accumulated Other
Comprehensive Income (AOCI) and Book Value per Common Share,
Excluding AOCI and Deferred Tax Assets (DTA) (Adjusted Book Value
per Common Share) are used to show the amount of AIG’s net
worth on a per-share basis. AIG believes these measures are useful
to investors because they eliminate items that can fluctuate
significantly from period to period, including changes in fair
value of AIG’s available for sale securities portfolio, foreign
currency translation adjustments and U.S. tax attribute deferred
tax assets. These measures also eliminate the asymmetrical impact
resulting from changes in fair value of AIG’s available for sale
securities portfolio wherein there is largely no offsetting impact
for certain related insurance liabilities. AIG excludes deferred
tax assets representing U.S. tax attributes related to net
operating loss carryforwards and foreign tax credits as they have
not yet been utilized. Amounts for interim periods are estimates
based on projections of full-year attribute utilization. As net
operating loss carryforwards and foreign tax credits are utilized,
the portion of the DTA utilized is included in these book value per
common share metrics. Book value per common share, excluding AOCI,
is derived by dividing Total AIG Shareholders’ equity, excluding
AOCI, by total common shares outstanding. Adjusted Book Value per
Common Share is derived by dividing Total AIG shareholders’ equity,
excluding AOCI and DTA (Adjusted Shareholders’ Equity), by
total common shares outstanding.
AIG Return on Equity – After-tax Operating Income Excluding
AOCI and DTA (Adjusted Return on Equity) is used to show the
rate of return on shareholders’ equity. AIG believes this measure
is useful to investors because it eliminates items that can
fluctuate significantly from period to period, including changes in
fair value of AIG’s available for sale securities portfolio,
foreign currency translation adjustments and U.S. tax attribute
deferred tax assets. This measure also eliminates the asymmetrical
impact resulting from changes in fair value of AIG’s available for
sale securities portfolio wherein there is largely no offsetting
impact for certain related insurance liabilities. AIG excludes
deferred tax assets representing U.S. tax attributes related to net
operating loss carryforwards and foreign tax credits as they have
not yet been utilized. Amounts for interim periods are estimates
based on projections of full-year attribute utilization. As net
operating loss carryforwards and foreign tax credits are utilized,
the portion of the DTA utilized is included in Adjusted Return on
Equity. Adjusted Return on Equity is derived by dividing actual or
annualized after-tax operating income attributable to AIG by
average Adjusted Shareholders’ Equity.
AIG Normalized Return on Equity further adjusts Adjusted
Return on Equity for the effects of certain volatile or market
related items. AIG believes this measure is useful to investors
because it presents the trends in AIG’s consolidated return on
equity without the impact of certain items that can experience
volatility in AIG’s short-term results. Normalized Return on Equity
is derived by excluding the following tax adjusted effects from
Adjusted Return on Equity: the difference between actual and
expected (i) catastrophe losses, (ii) alternative investment
returns, and (iii) Direct Investment book (DIB) and Global Capital
Markets (GCM) returns; fair value changes on PICC investments;
update of actuarial assumptions; Life insurance incurred but not
reported (IBNR) death claim charge; and prior year loss reserve
development.
Core Attributed Equity is an attribution of total AIG
Adjusted Shareholders’ Equity to each of AIG’s modules within Core
based on AIG’s internal capital model, which incorporates the
respective risk profiles. Attributed equity represents AIG’s best
estimates based on current facts and circumstances and will change
over time.
Core Return on Equity – After-tax Operating Income
(Adjusted Return on Attributed Equity) is used to show the rate
of return on attributed equity. Return on Attributed Equity is
derived by dividing actual or annualized After-tax Operating Income
by Average Attributed Equity.
Core Normalized Return on Attributed Equity (Normalized
Return on Attributed Equity) further adjusts Adjusted Return on
Attributed Equity for the effects of certain volatile or
market-related items. AIG believes this measure is useful to
investors because it presents the trends in AIG’s Return on
Attributed Equity without the impact of certain items that can
experience volatility in our short-term results. Normalized Return
on Attributed Equity is derived by excluding the following tax
adjusted effects from Return on Attributed Equity: the difference
between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) DIB and GCM returns; fair
value changes on PICC investments; update of actuarial assumptions;
Life insurance IBNR death claim charge; and prior year loss reserve
development.
After-tax Operating Income Attributable to Core is
derived by subtracting attributed interest expense and income tax
expense from pre-tax operating income. Attributed debt and the
related interest expense is calculated based on AIG’s internal
capital model. Tax expense or benefit is calculated based on an
internal attribution methodology that considers among other things
the taxing jurisdiction in which the operating segments conduct
business, as well as the deductibility of expenses in those
jurisdictions.
Normalized After-tax Operating Income Attributable to
Core further adjusts After-tax Operating Income attributable to
Core for the effects of certain volatile or market related items.
AIG believes this measure is useful to investors because it
presents the trends in after tax operating income without the
impact of certain items that can experience volatility in AIG’s
short-term results. Normalized After-tax Operating Income
attributable to Core is derived by excluding the following tax
adjusted effects from After-tax Operating Income: the difference
between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) DIB and GCM returns; fair
value changes on PICC investments; update of actuarial assumptions;
Life insurance IBNR death claim charge; and prior year loss reserve
development (PYD), net of reinsurance premium adjustments.
Operating Revenues exclude Net realized capital gains
(losses), income from non-operating litigation settlements
(included in Other income for GAAP purposes) and changes in fair
value of securities used to hedge guaranteed living benefits
(included in Net investment income for GAAP purposes). Operating
revenues is a GAAP measure for our operating segments.
General Operating Expenses, Operating Basis (Operating
GOE), is derived by making the following adjustments to general
operating and other expenses: include (i) certain loss adjustment
expenses, reported as policyholder benefits and losses incurred and
(ii) certain investment and other expenses reported as net
investment income, and exclude (i) advisory fee expenses, (ii)
non-deferrable insurance commissions, (iii) direct marketing and
acquisition expenses, net of deferrals, (iv) non-operating
litigation reserves and (v) other expense related to an asbestos
retroactive reinsurance agreement. AIG uses General operating
expenses, operating basis, because AIG believes it provides a more
meaningful indication of AIG’s ordinary course of business
operating costs, regardless of within which financial statement
line item these expenses are reported externally within AIG’s
segment results. The majority of these expenses are
employee-related costs. For example, Other acquisition expenses and
losses and loss adjustment expenses primarily represent
employee-related costs in the underwriting and claims functions,
respectively. Excluded from this measure are non-operating expenses
(such as restructuring costs and litigation reserves), direct
marketing expenses, insurance company assessments and
non-deferrable commissions. AIG also excludes the impact of foreign
exchange and the expenses of AIG Advisor Group and UGC, which have
been divested, when measuring period-over-period fluctuations in
General Operating Expenses, Operating basis.
AIG uses the following operating performance measures because
AIG believes they enhance the understanding of the underlying
profitability of continuing operations and trends of AIG’s business
segments. AIG believes they also allow for more meaningful
comparisons with AIG’s insurance competitors. When AIG uses these
measures, reconciliations to the most comparable GAAP measure are
provided on a consolidated basis.
Pre-tax Operating Income (PTOI) is derived by excluding
the following items from income from continuing operations before
income tax. This definition is consistent across AIG’s modules
(including geography). These items generally fall into one or more
of the following broad categories: legacy matters having no
relevance to AIG’s current businesses or operating performance;
adjustments to enhance transparency to the underlying economics of
transactions; and measures that AIG believes to be common to the
industry. PTOI is a GAAP measure for our operating segments.
- changes in fair value of securities used to hedge guaranteed
living benefits;
- changes in benefit reserves and deferred policy acquisition
costs (DAC), value of business acquired (VOBA), and sales
inducement assets (SIA) related to net realized capital gains and
losses;
- loss (gain) on extinguishment of debt;
- net realized capital gains and losses;
- non-qualifying derivative hedging activities, excluding net
realized capital gains and losses;
- income or loss from discontinued operations;
- net loss reserve discount benefit (charge);
- pension expense related to a one-time lump sum payment to
former employees;
- income and loss from divested businesses;
- non-operating litigation reserves and settlements;
- reserve development related to non-operating run-off insurance
business;
- restructuring and other costs related to initiatives designed
to reduce operating expenses, improve efficiency and simplify our
organization; and
- the portion of favorable or unfavorable prior year reserve
development for which we have ceded the risk under retroactive
reinsurance agreements and related changes in amortization of the
deferred gain.
After-tax Operating Income Attributable to AIG (ATOI) is
derived by excluding the tax effected PTOI adjustments described
above and the following tax items from net income attributable to
AIG:
- deferred income tax valuation allowance
releases and charges; and
- uncertain tax positions and other tax
items related to legacy matters having no relevance to our current
businesses or operating performance.
See page 12 for the reconciliation of Net income attributable to
AIG to After-tax Operating Income Attributable to AIG.
Ratios: AIG, along with most property and casualty
insurance companies, uses the loss ratio, the expense ratio and the
combined ratio as measures of underwriting performance. These
ratios are relative measurements that describe, for every $100 of
net premiums earned, the amount of losses and loss adjustment
expenses (which for Commercial Insurance excludes net loss reserve
discount), and the amount of other underwriting expenses that would
be incurred. A combined ratio of less than 100 indicates
underwriting income and a combined ratio of over 100 indicates an
underwriting loss. AIG’s ratios are calculated using the relevant
segment information calculated under GAAP, and thus may not be
comparable to similar ratios calculated for regulatory reporting
purposes. The underwriting environment varies across countries and
products, as does the degree of litigation activity, all of which
affect such ratios. In addition, investment returns, local taxes,
cost of capital, regulation, product type and competition can have
an effect on pricing and consequently on profitability as reflected
in underwriting income and associated ratios.
Accident year loss and combined ratios, as adjusted: both
the accident year loss and combined ratios, as adjusted, exclude
catastrophe losses and related reinstatement premiums, prior year
development, net of premium adjustments, and the impact of reserve
discounting. Natural catastrophe losses are generally weather or
seismic events having a net impact on AIG in excess of
$10 million each. Catastrophes also include certain man-made
events, such as terrorism and civil disorders that meet the $10
million threshold. AIG believes the as adjusted ratios are
meaningful measures of AIG’s underwriting results on an on-going
basis as they exclude catastrophes and the impact of reserve
discounting which are outside of management’s control. AIG also
exclude prior year development to provide transparency related to
current accident year results.
Underwriting ratios
are computed as follows:
a) Loss ratio = Loss and loss adjustment expenses incurred ÷
Net premiums earned (NPE) b) Acquisition ratio = Total acquisition
expenses ÷ NPE c) General operating expense ratio = General
operating expenses ÷ NPE d) Expense ratio = Acquisition ratio +
General operating expense ratio e) Combined ratio = Loss ratio +
Expense ratio f) Accident year loss ratio, as adjusted (AYLR) =
[Loss and loss adjustment expenses incurred – CATs – PYD] ÷ [NPE
+/(-) Reinstatement premiums (RIPs) related to catastrophes +/(-)
RIPs related to prior year catastrophes + (Additional) returned
premium related to PYD on loss sensitive business + Adjustment for
ceded premiums under reinsurance contracts related to prior
accident years] g) Accident year combined ratio = AYLR + Expense
ratio h) Catastrophe losses (CATs) and reinstatement premiums =
[Loss and loss adjustment expenses incurred – (CATs)] ÷ [NPE +/(-)
RIPs related to catastrophes] – Loss ratio i) Prior year
development net of (additional) return premium related to PYD on
loss sensitive business = [Loss and loss adjustment expenses
incurred – Prior year loss reserve development unfavorable
(favorable) (PYD), net of reinsurance] ÷ [NPE +/(-) RIPs related to
prior year catastrophes + (Additional) returned premium related to
PYD on loss sensitive business] – Loss ratio
Results from discontinued operations are excluded from all of
these measures.
American International Group, Inc. (AIG) is a leading global
insurance organization. Founded in 1919, today AIG member companies
provide a wide range of property casualty insurance, life
insurance, retirement products, and other financial services to
customers in more than 80 countries and jurisdictions. These
diverse offerings include products and services that help
businesses and individuals protect their assets, manage risks and
provide for retirement security. AIG common stock is listed on the
New York Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com |
YouTube: www.youtube.com/aig | Twitter: @AIGinsurance
www.twitter.com/AIGinsurance | LinkedIn:
www.linkedin.com/company/aig. These references with additional
information about AIG have been provided as a convenience, and the
information contained on such websites is not incorporated by
reference into this press release.
AIG is the marketing name for the worldwide property-casualty,
life and retirement, and general insurance operations of American
International Group, Inc. For additional information, please visit
our website at www.aig.com. All products and services are written
or provided by subsidiaries or affiliates of American International
Group, Inc. Products or services may not be available in all
countries, and coverage is subject to actual policy language.
Non-insurance products and services may be provided by independent
third parties. Certain property-casualty coverages may be provided
by a surplus lines insurer. Surplus lines insurers do not generally
participate in state guaranty funds, and insureds are therefore not
protected by such funds.
American International Group, Inc. Selected Financial
Data and Non-GAAP Reconciliation ($ in millions, except per
share data)
Reconciliations of Pre-tax and After-tax Operating Income
(Loss) Three Months Ended September 30, 2017
2016 Pre-tax Tax Effect After-tax
Pre-tax Tax Effect After-tax Pre-tax income
(loss)/net income (loss), including noncontrolling interests $
(2,803 ) $ (1,091 ) $ (1,714 ) $ 737 $ 304 $ 465 Noncontrolling
interest - - (25 ) - - (3 )
Pre-tax
income (loss)/net income (loss) attributable to AIG (2,803 )
(1,091 ) (1,739 ) 737 304 462
Adjustments: Uncertain tax
positions and other tax adjustments - (11 ) 11 - (42 ) 42 Deferred
income tax valuation allowance releases - 2 (2 ) - 2 (2 ) Changes
in fair value of securities used to hedge guaranteed living
benefits (26 ) (9 ) (17 ) (17 ) (6 ) (11 ) Changes in benefit
reserves and DAC, VOBA and SIA related to net realized capital
gains (losses) (84 ) (29 ) (55 ) 67 24 43 Unfavorable (favorable)
prior year development and related amortization changes ceded under
retroactive reinsurance agreements (7 ) (2 ) (5 ) (3 ) (1 ) (2 )
(Gain) loss on extinguishment of debt 1 1 - (14 ) (5 ) (9 ) Net
realized capital losses 922 316 606 765 210 555 Noncontrolling
interest on net realized capital losses - - 1 - - (29 ) (Income)
loss from discontinued operations - - 1 - - (3 ) (Income) loss from
divested businesses 13 7 6 (128 ) (45 ) (83 ) Non-operating
litigation reserves and settlements - - - (5 ) (2 ) (3 ) Net loss
reserve discount (benefit) charge 48 20 28 32 14 18 Pension expense
related to a one-time lump sum payment to former employees 49 16 33
- - - Restructuring and other costs 31 10 21
210 73 137
Pre-tax operating income
(loss)/After-tax operating income (loss) $ (1,856 ) $ (770 ) $
(1,111 ) $ 1,644 $ 526 $ 1,115
Nine
Months Ended September 30, 2017 2016
Pre-tax Tax Effect After-tax Pre-tax
Tax Effect After-tax Pre-tax income (loss)/net
income (loss), including noncontrolling interests $ 591 $ (18 )
$ 610 $ 3,381 $ 1,170 $ 2,197 Noncontrolling interest - -
(34 ) - - (5 )
Pre-tax income (loss)/net
income (loss) attributable to AIG 591 (18 ) 576 3,381 1,170
2,192
Adjustments: Uncertain tax positions and other tax
adjustments - (27 ) 27 - (184 ) 184 Deferred income tax valuation
allowance releases - 23 (23 ) - 4 (4 ) Changes in fair value of
securities used to hedge guaranteed living benefits (117 ) (41 )
(76 ) (270 ) (95 ) (175 ) Changes in benefit reserves and DAC, VOBA
and SIA related to net realized capital gains (losses) (195 ) (68 )
(127 ) 91 32 59 Unfavorable (favorable) prior year development and
related amortization changes ceded under retroactive reinsurance
agreements 258 91 167 (15 ) (5 ) (10 ) (Gain) loss on
extinguishment of debt (4 ) (1 ) (3 ) 76 26 50 Net realized capital
losses 1,106 401 705 829 217 612 Noncontrolling interest on net
realized capital losses - - 6 - - (40 ) (Income) loss from
discontinued operations - - (7 ) - - 54 (Income) loss from divested
businesses 173 41 132 (351 ) (123 ) (228 ) Non-operating litigation
reserves and settlements (86 ) (30 ) (56 ) (43 ) (15 ) (28 ) Net
loss reserve discount (benefit) charge 283 101 182 323 113 210
Pension expense related to a one-time lump sum payment to former
employees 50 17 33 - - - Restructuring and other costs 259
90 169 488 171 317
Pre-tax
operating income/After-tax operating income $ 2,318 $
579 $ 1,705 $ 4,509 $ 1,311 $ 3,193
American International Group, Inc. Selected
Financial Data and Non-GAAP Reconciliation (continued) ($ in
millions, except per share data)
Summary of Key Financial Metrics Three Months
Ended September 30, Nine Months Ended September 30, %
Inc. % Inc. 2017 2016
(Dec.) 2017 2016
(Dec.)
Income (loss) per
common share:
Basic Income (loss) from continuing operations $ (1.91 ) $
0.43 NM % $ 0.60 $ 2.02 (70.3 ) % Income (loss) from discontinued
operations - - NM 0.01 (0.05 ) NM
Net income (loss)
attributable to AIG $ (1.91 ) $ 0.43 NM $ 0.61 $ 1.97
(69.0 )
Diluted Income (loss) from continuing
operations $ (1.91 ) $ 0.42 NM $ 0.59 $ 1.97 (70.1 ) Income (loss)
from discontinued operations - - NM 0.01 (0.05 ) NM
Net
income (loss) attributable to AIG $ (1.91 ) $ 0.42 NM $ 0.60 $
1.92 (68.8 )
After-tax operating income (loss)
attributable to AIG per diluted share (a) $ (1.22 ) $ 1.01 NM %
$ 1.77 $ 2.79 (36.6 ) %
Weighted average shares
outstanding: Basic 908.7 1,071.3 938.1 1,113.7 Diluted (a)(b)
908.7 1,102.4 961.3 1,142.7
Return on equity (c) (9.5
)
%
2.1
%
1.0
%
3.3
%
Adjusted return on equity (d) (8.4 )
%
6.9
%
4.1
%
6.4
%
As of period
end:
September 30, 2017 September 30,
2016 Total AIG shareholders' equity $ 72,468 $
88,663 Accumulated other comprehensive income (AOCI) 5,939
9,057
Total AIG shareholders' equity, excluding AOCI
66,529 79,606 Deferred tax assets 14,897
15,567
Total adjusted AIG shareholders' equity $ 51,632 $
64,039
As of period
end:
September 30, 2017 September 30,
2016 % Inc. (Dec.) Book value per common share
(e) $ 80.62 $ 85.02 (5.2) %
Book value per
common share, excluding AOCI (f) $ 74.01 $ 76.33 (3.0)
Adjusted book value per common share (g) $ 57.44 $ 61.41
(6.5)
Total common shares outstanding 898.9 1,042.9
Financial highlights - notes
(a)
For the quarter ended September 30, 2017,
because we reported a net loss and an after-tax operating loss, all
common stock equivalents are anti-dilutive and are therefore
excluded from the calculation of diluted shares and diluted per
share amounts. The shares excluded from these calculations were
22,459,868 shares.
(b)
Diluted shares in the diluted EPS
calculation represent basic shares for the three months ended
September 30, 2017 due to the net loss in that period.
(c)
Computed as Annualized net income (loss)
attributable to AIG divided by average AIG shareholders' equity.
Equity includes AOCI and DTA.
(d)
Computed as Annualized After-tax Operating
Income attributable to AIG divided by 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.
American International Group, Inc. Selected
Financial Data and Non-GAAP Reconciliation (continued) ($ in
millions, except per share amounts)
Reconciliations of General Operating
and Other Expenses
Three Months Ended Nine Months Ended
September 30, September 30, % Inc. %
Inc. 2017 2016 (Dec.)
2017 2016 (Dec.)
General operating and other expenses, GAAP basis
$
2,149 $ 2,536 (15.3 ) % $ 6,774 $ 8,125 (16.6 ) % Restructuring and
other costs (31 ) (210 ) 85.2 (259 ) (488 ) 46.9 Other expense
related to retroactive reinsurance agreement - (4 ) NM - 8 NM
Pension expense related to a one-time lump sum payment to former
employees (49 ) - NM (50 ) - NM Non-operating litigation reserves -
2 NM 70 (1 ) NM
Total general operating and
other expenses included in pre-tax operating income 2,069 2,324
(11.0 ) 6,535 7,644 (14.5 ) Loss adjustment expenses, reported as
policyholder benefits and losses incurred 289 340 (15.0 ) 889 1,031
(13.8 ) Advisory fee expenses (84 ) (76 ) (10.5 ) (238 ) (566 )
58.0 Non-deferrable insurance commissions and other (148 ) (107 )
(38.3 ) (410 ) (350 ) (17.1 ) Direct marketing and acquisition
expenses, net of deferrals, and other (56 ) (52 ) (7.7 ) (226 )
(329 ) 31.3 Investment expenses reported as net investment income
and other 32 15 113.3 49 45 8.9
Total general operating expenses, operating basis 2,102
2,444 (14.0 ) 6,599 7,475 (11.7 ) Less:
FX impact 19 NM 19 NM Less: GOE of Advisor Group - NM 70 NM Less:
GOE of UGC 61 NM 166 NM
Total
general operating expenses, Operating basis, Ex. FX & GOE of
AIG Advisor Group and UGC
$
2,102 $ 2,364 (11.1 ) % $ 6,599 $ 7,220
(8.6 ) %
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
September 30, 2017 September 30, 2016
Tax
Tax Pre-tax
Effect
After-tax ROE Pre-tax
Effect After-tax ROE
Return on Equity $ (1,739 ) (9.5 ) % $ 462 2.1 %
Adjusted Return on equity (a) $ (1,856 )
$
(770
) $ (1,111 ) (8.4 ) % $ 1,644 $ 526 $ 1,115 6.9 %
Adjustments to
arrive at Normalized Return on Equity: Catastrophe losses above
(below) expectations 2,654
928
1,726 13.0 (108 ) (38 ) (70 ) (0.4 ) (Better) worse than expected
alternative returns (b) (103 )
(35
) (68 ) (0.5 ) (70 ) (25 ) (45 ) (0.3 ) (Better) worse than
expected DIB & GCM returns (42 )
(15
) (27 ) (0.2 ) (104 ) (36 ) (68 ) (0.4 ) Fair value changes on PICC
investments (30 )
(10
) (20 ) (0.1 ) (47 ) (16 ) (31 ) (0.2 ) Update of actuarial
assumptions (270 )
(94
) (176 ) (1.3 ) 384 134 250 1.5 Life Insurance - IBNR death claims
-
-
- - - - - - Unfavorable (favorable) prior year loss reserve
development 845
296
549 4.1 262 92 170 1.0
Normalized Return on Equity $
1,198
$
300
$ 873 6.6 % $ 1,961 $ 637 $
1,321 8.1 %
Average AIG Shareholders'
equity $ 73,100 $ 89,305 Less: Average AOCI 5,451 8,658 Less:
Average DTA 14,592 15,591
Average adjusted
shareholders' equity $ 53,057 $ 65,056 (a)
After-tax operating income excludes Net income (loss) attributable
to non-controlling interest of $25 million and $3 million for the
three months ended September 30, 2017 and 2016, respectively. (b)
The expected rate of return on alternative investments used was 8%
for all periods presented.
Nine Months Ended Nine
Months Ended September 30, 2017 September 30,
2016 Tax Tax Pre-tax Effect
After-tax ROE Pre-tax
Effect After-tax ROE
Return on Equity
$
576
1.0 % $ 2,192 3.3 %
Adjusted Return on equity (a) $
2,318 $
579
$
1,705
4.1 % $ 4,509 $ 1,311 $ 3,193 6.4 %
Adjustments to arrive at
Normalized Return on Equity: Catastrophe losses above (below)
expectations 2,386 833 1,553 3.8 (218 ) (76 ) (142 ) (0.3 )
(Better) worse than expected alternative returns (b) (397 ) (137 )
(260 ) (0.6 ) 650 227 423 0.8 (Better) worse than expected DIB
& GCM returns (229 ) (80 ) (149 ) (0.4 ) 248 87 161 0.3 Fair
value changes on PICC investments (58 ) (20 ) (38 ) (0.1 ) 140 49
91 0.2 Update of actuarial assumptions (270 ) (94 ) (176 ) (0.4 )
384 134 250 0.5 Life Insurance - IBNR death claims - - - - (25 ) (9
) (16 ) - Unfavorable (favorable) prior year loss reserve
development 1,003 351 652 1.6 231
81 150 0.3
Normalized Return on
Equity $ 4,753 $
1,432
$
3,287
8.0 % $ 5,919 $ 1,804 $ 4,110
8.2 %
Average AIG Shareholders' equity $
74,142 $ 89,196 Less: Average AOCI 4,477 6,344 Less: Average DTA
14,635 16,189
Average adjusted shareholders'
equity $ 55,030 $ 66,663 (a) After-tax
operating income also excludes Net income (loss) attributable to
non-controlling interest of $34 million and $5 million for the nine
months ended September 30, 2017 and 2016, respectively. (b) The
expected rate of return on alternative investments used was 8% for
all periods presented.
American International Group,
Inc. Selected Financial Data and Non-GAAP Reconciliation
($ in millions, except per share amounts)
Reconciliations of Core Normalized and Adjusted Return on
Equity Three Months Ended Nine
Months Ended September 30, September 30,
2017 2016 2017 2016
Pre-tax operating income (loss) $ (2,142) $ 1,743 $
1,259 $ 4,603 Interest expense (benefit) on attributed financial
debt (42) (32) (128) (77)
Operating income (loss) before
taxes (2,100) 1,775 1,387 4,680 Income tax expense (benefit)
(849) 599 268 1,385
After-tax operating income (loss)
(1,251) 1,176 1,119 3,295
Adjustments to arrive at Normalized
Return on Equity: Catastrophe losses above (below) expectations
1,727 (69) 1,557 (138) (Better) worse than expected alternative
returns(a) (49) (33) (226) 369 (Better) worse than expected DIB
& GCM returns - 1 (4) 4 Fair value changes on PICC investments
(20) (31) (38) 21 Update of actuarial assumptions (185) (149) (185)
(149) Unfavorable (favorable) prior year loss reserve development
550 166 664 130
Normalized after-tax operating income $ 772
$ 1,061 $ 2,887 $ 3,532
Ending attributed equity $
41,751 $ 52,953 $ 41,751 $ 52,953
Average attributed equity
$ 43,161 $ 52,142 $ 44,800 $ 52,237
Adjusted return on
attributed equity (11.6) % 9.0 % 3.3 % 8.4 %
Normalized
return on attributed equity(b) 7.2 % 8.1 % 8.6 % 9.0 %
(a) The expected rate of return on alternative investments used was
8% for all periods presented. (b) Normalizing adjustments are tax
effected using a 35% tax rate and computed based on average
attributed equity for the respective periods.
American
International Group, Inc. Selected Financial Data and
Non-GAAP Reconciliation (continued)
Reconciliations of Accident Year Loss Ratio, as Adjusted
and Combined Ratio, as Adjusted Three Months
Ended Nine Months Ended September 30,
September 30, 2017 2016 2017
2016
Commercial
Insurance - Liability and Financial Lines
Loss ratio 113.1 67.7 88.8 69.1 Catastrophe losses and
reinstatement premiums (0.9 ) (0.2 ) (0.3 ) (0.1 ) Prior year
development, net of (additional) return premium on loss sensitive
business (34.1 ) 0.5 (13.5 ) (1.0 ) Adjustment for ceded premiums
under reinsurance contracts related to prior accident years -
- (0.5 ) -
Accident year loss ratio, as
adjusted 78.1 68.0 74.5 68.0
Combined ratio 138.3 93.1 115.7 95.3 Catastrophe losses and
reinstatement premiums (0.9 ) (0.2 ) (0.3 ) (0.1 ) Prior year
development, net of (additional) return premium on loss sensitive
business (34.1 ) 0.5 (13.5 ) (1.0 ) Adjustment for ceded premiums
under reinsurance contracts related to prior accident years -
- (0.5 ) -
Accident year combined ratio, as
adjusted 103.3 93.4 101.4 94.2
Commercial
Insurance - Property and Special Risks
Loss ratio 247.6 90.5 127.5 75.2 Catastrophe losses and
reinstatement premiums (172.0 ) (13.3 ) (64.6 ) (14.3 ) Prior year
development (4.9 ) (17.3 ) (1.7 ) (4.5 )
Accident year loss
ratio, as adjusted 70.7 59.9 61.2 56.4
Combined ratio 277.0 123.3 158.5 107.7 Catastrophe
losses and reinstatement premiums (172.0 ) (13.3 ) (64.6 ) (14.3 )
Prior year development (4.9 ) (17.3 ) (1.7 ) (4.5 )
Accident
year combined ratio, as adjusted 100.1 92.7 92.2
88.9
Total Commercial
Insurance
Loss ratio 168.4 77.3 105.2 71.5 Catastrophe losses and
reinstatement premiums (71.2 ) (5.6 ) (27.5 ) (5.9 ) Prior year
development, net of (additional) return premium on loss sensitive
business (22.1 ) (7.0 ) (8.5 ) (2.4 ) Adjustment for ceded premiums
under reinsurance contracts related to prior accident years -
- (0.3 ) -
Accident year loss ratio, as
adjusted 75.1 64.7 68.9 63.2
Combined ratio 195.4 105.8 133.9 100.3 Catastrophe losses and
reinstatement premiums (71.2 ) (5.6 ) (27.5 ) (5.9 ) Prior year
development, net of (additional) return premium on loss sensitive
business (22.1 ) (7.0 ) (8.5 ) (2.4 ) Adjustment for ceded premiums
under reinsurance contracts related to prior accident years -
- (0.3 ) -
Accident year combined ratio, as
adjusted 102.1 93.2 97.6 92.0
Consumer
Insurance - Personal Insurance
Loss ratio 64.3 56.3 57.0 54.9 Catastrophe losses and reinstatement
premiums (10.6 ) (0.9 ) (3.9 ) (1.4 ) Prior year development -
1.1 - 1.5
Accident year loss ratio,
as adjusted 53.7 56.5 53.1 55.0
Combined ratio 105.6 97.5 97.8 96.3 Catastrophe losses and
reinstatement premiums (10.6 ) (0.9 ) (3.9 ) (1.4 ) Prior year
development - 1.1 - 1.5
Accident
year combined ratio, as adjusted 95.0 97.7 93.9
96.4
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171102006634/en/
American International Group, Inc.Investors:Liz Werner,
212-770-7074elizabeth.werner@aig.comorFernando Melon,
212-770-4630fernando.melon@aig.comorMedia:Claire Talcott,
212-458-6343claire.talcott@aig.com
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