Net loss of $183 million, or $0.16 per diluted share, on a
reported basis for the first quarter of 2016
First Quarter 2016 Highlights:
- Normalized ROE increased by 110 basis
points to 8.9% from the first quarter of 2015, and includes a
benefit of 50 basis points due to the lower effective tax rate
- GOE reduction of 5% from the first
quarter of 2015, excluding the impact of foreign exchange
- Commercial Property Casualty accident
year loss ratio, as adjusted, of 64.5, 1.7 points lower than
full-year 2015 and 0.1 point higher than the prior-year
quarter
- Strong growth in Personal Insurance
underwriting results
- Returned $4.0 billion to
shareholders
American International Group, Inc. (NYSE: AIG) today reported
after-tax operating income of $773 million, or $0.65 per diluted
share, for the first quarter of 2016, compared to $1.7 billion, or
$1.22 per diluted share, in the prior-year quarter, reflecting the
negative impact of market volatility on investments that totaled
$0.48 per diluted share.
On a reported basis, AIG recognized a net loss of $183 million,
or $0.16 per diluted share, for the first quarter of 2016, compared
to net income of $2.5 billion, or $1.78 per diluted share, in the
prior-year quarter, reflecting the impact of market volatility on
the items mentioned above, as well as net realized capital losses,
restructuring costs, and other items.
“Although our first quarter results were impacted by market
volatility on investments, the underlying operating results
demonstrate progress on our strategic objectives,” said Peter D.
Hancock, AIG President and Chief Executive Officer. “We’ve made
some ambitious commitments through 2017, and our first quarter
operating results show that we’re executing on our plan. We
returned $4.0 billion of capital to shareholders during the
quarter, and repurchased an additional $870 million of our common
stock through May 2, 2016. Expenses declined 5% year-over-year,
excluding the impact of foreign exchange, as we continued to drive
for efficiency and narrow our focus on the products, geographies
and demographics that provide the greatest opportunities for
profitability.
“Our goal is for AIG to become our client’s most valued insurer,
and that means developing tailored insurance solutions that combine
our risk expertise, insights from data science, the power of
technology, and best-in-class service from our talented employees,
to protect our 90 million clients around the world. While part of
our current strategy is to streamline our business, we’re still
making targeted investments in our future, including our recently
announced plans to form a joint venture with Hamilton Insurance
Group and Two Sigma to develop insurance solutions informed by data
and technology for the small to medium-sized enterprise market.
“By transforming AIG into a leaner, more profitable and focused
insurer, we can leverage our risk expertise, scale and scope to
provide value for our clients, and generate returns for our
shareholders. Our strategy for today will position us to achieve
our vision for tomorrow.”
Capital, Liquidity & Other Highlights:
- In the first quarter of 2016, AIG
repurchased $3.5 billion of shares of its common stock and $173
million of warrants to purchase shares of its common stock, and
paid $363 million in shareholder dividends. From the end of the
first quarter through May 2, 2016, AIG repurchased an additional
$870 million of its common stock
- On May 2, 2016, AIG’s Board of
Directors declared a quarterly dividend of $0.32 per share
- During the first quarter of 2016, AIG
repurchased, through a cash tender offer, approximately $0.7
billion aggregate principal amount of certain debt issued or
guaranteed by AIG for an aggregate purchase price of approximately
$0.8 billion
- In the first quarter of 2016, AIG
issued $1.5 billion aggregate principal amount of 3.300% Notes due
2021 and $1.5 billion aggregate principal amount of 3.900% Notes
due 2026
- AIG Parent liquidity was $7.1 billion
at March 31, 2016
- On April 30, 2016, AIG priced the sale
of 740 million shares of PICC Property and Casualty Company Limited
(PICC P&C) by means of a placing to institutional investors
and, subject to customary closing conditions, will receive gross
proceeds of $1.25 billion
- AIG filed a registration statement on
Form S-1 for a planned IPO of up to 19.9% of United Guaranty Corp.,
subject to regulatory approval and the approval of the Federal
National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as a first step towards a full separation
- For the first quarter of 2016, AIG’s
tax rate was 27.1% on a reported basis, and 19.2% on an operating
basis, reflecting the favorable resolution of certain tax audit
items in the quarter
- AIG recorded pre-tax non-operating
restructuring costs of $188 million in the first quarter of 2016,
which are primarily related to previously announced actions
AFTER-TAX OPERATING INCOME
Three Months Ended
March 31,
($ in millions, except per share amounts)
2016 2015
Change Pre-tax operating income (loss) Insurance
Operations Commercial Insurance Property Casualty $ 720 $ 1,170 (38
)%
Mortgage Guaranty 163 145 12 Institutional Markets 6
147 (96 ) Total
Commercial Insurance 889 1,462 (39 ) Consumer Insurance Retirement
461 800 (42 ) Life 105 171 (39 ) Personal Insurance
222 (26 ) NM Total
Consumer Insurance 788 945
(17 ) Total Insurance Operations 1,677 2,407
(30 ) Corporate and Other (733 ) 162 NM Consolidations,
eliminations and other adjustments 10
(42 ) NM Pre-tax operating income
(loss) 954 2,527 (62 ) Income tax expense (183 ) (825 ) 78 Net
income (loss) attributable to noncontrolling interests
2 (11 ) NM
After-tax operating income (loss) $ 773 $ 1,691 (54 )
After-tax operating income (loss) per diluted common share
0.65 1.22 (47 )
Effective tax rate on Pre-tax operating
income 19.2 % 32.6 %
(41 )
All operating segment comparisons that follow are to the first
quarter of 2015 unless otherwise noted.
COMMERCIAL INSURANCE
PROPERTY CASUALTY
Three Months Ended
March 31,
($ in millions)
2016
2015 Change
Net premiums written $ 4,307 $ 5,047 (15
)%
Net premiums earned 4,701 4,931 (5 ) Underwriting income 143 145 (1
) Net investment income 577
1,025 (44 ) Pre-tax operating income $
720 $ 1,170 (38 ) Underwriting
ratios: Loss ratio 68.2 68.1 0.1
pts
Catastrophe losses and reinstatement premiums (4.7 ) (1.4 ) (3.3 )
Prior year development net of premium adjustments 0.4 (0.4 ) 0.8
Net reserve discount benefit (charge) 0.6
(1.9 ) 2.5 Accident year loss
ratio, as adjusted 64.5 64.4
0.1 Acquisition ratio 16.3 16.2 0.1
General operating expense ratio 12.4
12.8 (0.4 ) Combined ratio
96.9 97.1 (0.2 )
Catastrophe losses and reinstatement premiums (4.7 ) (1.4 ) (3.3 )
Prior year development net of premium adjustments 0.4 (0.4 ) 0.8
Net reserve discount benefit (charge) 0.6
(1.9 ) 2.5 Accident year
combined ratio, as adjusted 93.2
93.4 (0.2 ) Catastrophe-related losses $ 222 $
71 213
%
Severe losses 109 134 (19 ) Prior year loss reserve development
(favorable) unfavorable, net of reinsurance and premium adjustments
(10 ) 28 NM Net reserve discount charge (benefit) (26
) 93 NM
During the first quarter of 2016, AIG entered into a two-year
reinsurance arrangement with the Swiss Re Group, under which a
proportional share of our new and renewal U.S. Casualty portfolio
is being ceded. This arrangement will reduce the impact of the U.S.
Casualty loss ratio on our overall loss ratio, in accordance with
our strategic plan.
Property Casualty pre-tax operating income declined to $720
million, primarily due to lower net investment income (reflecting
lower income on alternative investments). The accident year loss
ratio, as adjusted, increased slightly primarily due to higher
current accident year loss ratios, as adjusted, in certain lines of
business in Casualty and Specialty, particularly in the U.S., and
higher attritional losses in Property. These increases were largely
offset by an improvement in Financial lines and lower severe losses
in Property. Compared to full year 2015, the accident year loss
ratio, as adjusted, decreased 1.7 points, reflecting an improvement
in Financial lines, lower severe loss ratios in Property and
Specialty, particularly in the U.S., partially offset by an
increase in attritional losses in Property, particularly in
EMEA.
The general operating expense ratio benefited from lower
employee-related costs resulting from ongoing actions to streamline
our management structure and general cost containment measures.
The loss ratio increased slightly due to higher catastrophe
losses and an increase in the accident year loss ratio, as
adjusted. These increases were largely offset by net favorable
prior year loss reserve development and a net loss reserve discount
benefit in the first quarter of 2016, compared to net adverse prior
year loss reserve development and net loss reserve discount charge
in the prior-year quarter.
Net premiums written decreased 15%, or 12% excluding the impact
of foreign exchange. Growth in EMEA Financial lines and Casualty
was more than offset by the effect of the reinsurance arrangement
with the Swiss Re Group discussed above and the continued execution
of our strategy to optimize our product portfolio in the U.S.
Casualty business. Additionally, net premiums written in the first
quarter of 2015 benefited from a renewal of a multi-year policy in
U.S. Financial lines.
MORTGAGE GUARANTY
Three Months Ended
March 31,
($ in millions)
2016
2015 Change
Net premiums written $ 231 $ 258 (10
)%
Net premiums earned 225 230 (2 ) Underwriting income 127 111 14 Net
investment income 36 34
6 Pre-tax operating income $ 163
$ 145 12 Underwriting ratios:
Loss ratio 18.7 25.2 (6.5
) pts
Acquisition ratio 8.9 9.6 (0.7 ) General operating expense ratio
16.0 16.9
(0.9 )
Combined ratio
43.6 51.7
(8.1 ) Accident year loss ratio, as adjusted 20.9 25.2 (4.3 )
Accident year combined ratio, as adjusted 45.8 51.7 (5.9 ) Prior
year loss reserve development (favorable) $ (5 ) $ - NM
%
New insurance written, domestic first-lien $ 8,827 $ 10,542 (16
)
Primary delinquency ratio 3.1 % 3.9 %
(21 )
Select Balance Sheet
& other data:
Shareholders' equity (at period end) $ 3,275 $ 3,178 3 First-lien
insurance in force $ 187,016 $ 169,880 10 In-force count
923,412 872,978 6
Mortgage Guaranty is primarily composed of the operations of
United Guaranty Corporation. As of March 31, 2016, Mortgage
Guaranty had estimated available assets under the Private Mortgage
Insurer Eligibility Requirements of $3.3 billion compared to
estimated required assets of $3.0 billion.
Mortgage Guaranty’s pre-tax operating income increased to $163
million, primarily due to the decline in incurred losses from lower
delinquency rates and higher cure rates. The acquisition ratio
benefited from lower expenses related to sales activities
supporting new insurance written. The general operating expense
ratio decreased, primarily due to lower employee costs.
Domestic first-lien new insurance written decreased 16% to $8.8
billion, largely due to strong refinancing activity in early 2015.
New business written in the first quarter of 2016 had an average
FICO score of 746 and an average loan-to-value ratio of 92%,
compared to an average FICO score of 752 and an average
loan-to-value ratio of 91% in the prior-year quarter.
INSTITUTIONAL MARKETS
Three Months Ended
March 31,
($ in millions)
2016 2015
Change Operating revenues: Premiums $
235 $ 96 145
%
Policy fees 51 49 4 Net investment income 333
479 (30 ) Total operating revenues
619 624 (1 ) Benefits and
expenses 613 477 29
Pre-tax operating income $ 6 $ 147
(96 ) Premiums and deposits 304
146 108
Institutional Markets pre-tax operating income declined to $6
million, primarily due to lower income on alternative investments.
The decrease in alternative investment income was partially offset
by an increase in base net investment income compared to the
prior-year quarter, due in part to commercial mortgage loan
prepayment income and growth in average base invested assets. The
increases in premiums and benefits and expenses were primarily due
to higher premiums received and future policy benefit reserves
established from the sale of terminal funding annuities and
structured settlements.
CONSUMER INSURANCE
RETIREMENT
Three Months Ended
March 31,
($ in millions)
2016
2015 Change Operating revenues: Premiums $ 54
$ 46 17
%
Policy fees 259 264 (2 ) Net investment income 1,309 1,570 (17 )
Advisory fee and other income 492 508
(3 ) Total operating revenues 2,114 2,388
(11 ) Benefits and expenses 1,653 1,588
4 Pre-tax operating income $ 461 $ 800
(42 ) Premiums and deposits(1) 6,853 5,509
24 (1) Excludes activity related to closed blocks of
fixed and variable annuities.
Retirement pre-tax operating income declined to $461 million,
primarily due to lower net investment income (reflecting lower
income on alternative investments from negative performance in
hedge funds) and higher DAC amortization. Premiums and deposits
grew to $6.9 billion, primarily due to higher sales in Fixed
Annuities, Retail Mutual Funds and Group Retirement. The growth in
Fixed Annuities sales and lower Group Retirement surrenders were
the primary drivers of the improvement in net flows of $1.7
billion. All lines of business delivered positive net flows during
the first quarter of 2016.
LIFE
Three Months Ended
March 31,
($ in millions)
2016
2015 Change Operating
revenues: Premiums $ 736 $ 708 4
%
Policy fees 378 363 4 Net investment income 468 542 (14 ) Other
income 15 - NM
Total operating revenues 1,597 1,613
(1 ) Benefits and expenses 1,492
1,442 3 Pre-tax operating income
$ 105 $ 171 (39 ) Premiums and deposits 1,251
1,223 2 Gross life insurance in force, end of period
1,033,301 1,003,022 3
Life pre-tax operating income declined to $105 million,
primarily due to lower net investment income (reflecting lower
income on alternative investments from negative performance in
hedge funds) and higher DAC amortization. Pre-tax operating income
in the first quarter of 2016 benefited from a $25 million reduction
in the reserve for IBNR death claims related to enhanced claims
practices. Premiums and deposits grew 4%, excluding the effect of
foreign exchange, principally driven by growth in international
life and health.
PERSONAL INSURANCE
Three Months Ended
March 31,
($ in millions)
2016
2015 Change Net premiums written
$ 2,812 $ 2,915 (4
)%
Net premiums earned 2,770 2,799 (1 ) Underwriting income (loss) 171
(89 ) NM Net investment income 51 63
(19 ) Pre-tax operating income (loss) $ 222
$ (26 ) NM Underwriting ratios: Loss ratio
52.5 58.8 (6.3
) pts
Catastrophe losses and reinstatement premiums (1.1 ) (2.2 ) 1.1
Prior year development net of premium adjustments 1.8
(0.2 ) 2.0 Accident year loss ratio, as
adjusted 53.2 56.4 (3.2 )
Acquisition ratio 26.1 27.3 (1.2 ) General operating expense ratio
15.3 17.1 (1.8 ) Combined
ratio 93.9 103.2 (9.3 )
Catastrophe losses and reinstatement premiums (1.1 ) (2.2 ) 1.1
Prior year development net of premium adjustments 1.8
(0.2 ) 2.0 Accident year combined
ratio, as adjusted 94.6 100.8
(6.2 ) Catastrophe-related losses $ 29 $ 61 (52
)%
Severe losses - 12 NM Prior year loss reserve development
(favorable) unfavorable, net of reinsurance and premium adjustments
(48 ) 4 NM
Personal Insurance pre-tax operating income grew to $222
million, compared to a loss in the prior-year quarter, due to
improved underwriting results, partially offset by lower net
investment income (reflecting lower income on alternative
investments from negative performance in hedge funds). The combined
ratio decreased, reflecting improvements in the loss ratio and
expense ratio.
The improvement in the accident year loss ratio, as adjusted,
was driven by lower accident year losses primarily in the U.S.
personal property business. In addition, the loss ratio benefited
from net favorable prior year loss reserve development and lower
catastrophe losses.
The improvement in the acquisition ratio reflected lower
acquisition costs primarily in the direct marketing expenses as we
refocus our activities. The decrease in the general operating
expense ratio primarily reflected lower employee-related expenses
arising from organizational realignment activities together with
lower strategic investment expenditures.
Net premiums written, excluding the effects of foreign exchange,
increased approximately 1% driven by growth in personal property,
partially offset by a decrease in warranty service programs.
CORPORATE AND OTHER
Three Months Ended
March 31,
($ in millions)
2016
2015 Change Pre-tax operating income
(loss): Equity in pre-tax operating earnings of AerCap $ - $
128 NM
%
Fair value of PICC investments (75 ) 47 NM Income from other
assets, net (138 ) 564 NM Corporate general operating expenses (294
) (252 ) (17 ) Interest expense (257 ) (305 ) 16 Run-off insurance
lines 31 (19 ) NM Consolidation and elimination -
(1 ) NM Pre-tax operating
income (loss) $ (733 ) $ 162 NM
Corporate and Other reported a pre-tax operating loss of $733
million compared to pre-tax operating income of $162 million in the
prior-year quarter, primarily due to fair value losses on assets
for which the fair value option was elected, including ABS CDOs and
part of our holdings in People’s Insurance Company (Group) of China
Limited (PICC Group), and the absence of equity earnings from
shares in AerCap Holdings N.V. (AerCap), which was divested. These
items were partially offset by lower interest expense from ongoing
liability management activities.
CONFERENCE CALL
AIG will host a conference call tomorrow, Tuesday, May 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 Information 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 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 First Quarter 2016 Financial Supplement
available in the Investor Information section of AIG’s website,
www.aig.com.
Book Value Per Common Share Excluding Accumulated Other
Comprehensive Income (AOCI) and Book Value Per Common Share
Excluding AOCI and Deferred Tax Assets (DTA) are used to show the
amount of AIG's net worth on a per-share basis. AIG believes these
measures are useful to investors because they eliminate the effect
of non-cash items that can fluctuate significantly from period to
period, including changes in fair value of AIG’s available for sale
securities portfolio, foreign currency translation adjustments and
U.S. tax attribute deferred tax assets. Deferred tax assets
represent U.S. tax attributes related to net operating loss
carryforwards and foreign tax credits. Amounts for interim periods
are estimates based on projections of full-year attribute
utilization. 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.
Return on Equity – After-tax Operating Income Excluding AOCI and
Return on Equity – After-tax Operating Income Excluding AOCI and
DTA are used to show the rate of return on shareholders’ equity.
AIG believes these measures are useful to investors because they
eliminate the effect of non-cash items that can fluctuate
significantly from period to period, including changes in fair
value of its available for sale securities portfolio, foreign
currency translation adjustments and U.S. tax attribute deferred
tax assets. Deferred tax assets represent U.S. tax attributes
related to net operating loss carryforwards and foreign tax
credits. Amounts for interim periods are estimates based on
projections of full-year attribute utilization. Return on Equity –
After-tax Operating Income Excluding AOCI is derived by dividing
actual or annualized after-tax operating income attributable to AIG
by average AIG shareholders’ equity, excluding average AOCI. Return
on Equity – After-tax Operating Income Excluding AOCI and DTA is
derived by dividing actual or annualized after-tax operating income
attributable to AIG by average AIG shareholders’ equity, excluding
average AOCI and DTA.
Normalized Return on Equity, Excluding AOCI and DTA (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. 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 of reserve discount change; Life insurance IBNR
death claim charge and prior year loss reserve development.
AIG uses the following operating performance measures because it
believes they enhance the understanding of the underlying
profitability of continuing operations and trends of AIG’s business
segments. AIG believes they also allow for more meaningful
comparisons with AIG’s insurance competitors. When AIG uses these
measures, reconciliations to the most comparable GAAP measure are
provided on a consolidated basis.
After-tax operating income attributable to AIG is derived by
excluding the following items from net income attributable to AIG:
income or loss from discontinued operations; income and loss from
divested businesses (including gain on the sale of International
Lease Finance Corporation (ILFC) and certain post-acquisition
transaction expenses incurred by AerCap Holdings N.V. (AerCap) in
connection with its acquisition of ILFC and the difference between
expensing AerCap’s maintenance rights assets over the remaining
lease term as compared to the remaining economic life of the
related aircraft and related tax effects); legacy tax adjustments
primarily related to certain changes in uncertain tax positions and
other tax adjustments; non-operating litigation reserves and
settlements; reserve development related to non-operating run-off
insurance business; restructuring and other costs related to
initiatives designed to reduce operating expenses, improve
efficiency and simplify 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 15 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. We 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. 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.
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 serving customers in more than 100 countries
and jurisdictions. 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) Three
Months Ended March 31, % Inc. 2016
2015 (Dec.)
Reconciliations
of Pre-tax and After-tax Operating Income (Loss):
Pre-tax income (loss) from continuing operations $ (214 ) $
3,776 NM
%
Adjustments to arrive at Pre-tax operating income: Changes
in fair value of securities used to hedge guaranteed living
benefits (133 ) (44 ) (202.3 ) Changes in benefit reserves and DAC,
VOBA and SIA related to net realized capital gains (losses) (40 )
54 NM Loss on extinguishment of debt 83 68 22.1 Net realized
capital (gains) losses 1,106 (1,341 ) NM Loss from divested
businesses 2 21 (90.5 ) Non-operating litigation reserves and
settlements (31 ) (7 ) (342.9 ) Other (income) expense - net (7 ) -
NM Restructuring and other costs 188 - NM
Pre-tax
operating income (loss) $ 954 $ 2,527 (62.2 )
Net income (loss) attributable to AIG $ (183 ) $
2,468 NM
Adjustments to arrive at after-tax operating income
(amounts net of tax): Uncertain tax positions and other tax
adjustments 205 (42 ) NM Deferred income tax valuation allowance
(releases) charges (37 ) 93 NM Changes in fair value of securities
used to hedge guaranteed living benefits (86 ) (29 ) (196.6 )
Changes in benefit reserves and DAC, VOBA and SIA related to net
realized capital gains (losses) (26 ) 35 NM Loss on extinguishment
of debt 54 44 22.7 Net realized capital (gains) losses 701 (874 )
NM (Income) loss from discontinued operations 47 (1 ) NM Loss from
divested businesses 1 2 (50.0 ) Non-operating litigation reserves
and settlements (20 ) (5 ) (300.0 ) Other (income) expense - net (5
) - NM Restructuring and other costs 122 - NM
After-tax operating income (loss) attributable to AIG $ 773
$ 1,691 (54.3 )
Income (loss) per
common share:
Basic Income (loss) from continuing operations $ (0.12 ) $
1.81 NM Loss from discontinued operations (0.04 ) - NM
Net income (loss) attributable to AIG $ (0.16 ) $ 1.81
NM
Diluted Income (loss) from continuing
operations $ (0.12 ) $ 1.78 NM Loss from discontinued operations
(0.04 ) - NM
Net income (loss) attributable to AIG $
(0.16 ) $ 1.78 NM
After-tax operating income attributable
to AIG per diluted share (a) $ 0.65 $ 1.22 (46.7 )
Weighted average shares outstanding: Basic 1,156.5 1,366.0
Diluted (b) 1,156.5 1,386.3
Return on equity (c) (0.8
)%
9.2
%
Return on equity - after-tax operating income, excluding AOCI
(d) 3.6
%
7.0
%
Return on equity - after-tax operating income, excluding AOCI
and DTA (e) 4.5
%
8.4
%
As of period
end:
Book value per common share (f) $ 78.28 $ 80.16 (2.3 )
Book value per common share excluding accumulated other
comprehensive income (g) $ 73.40 $ 72.25 1.6
Book value per
common share excluding accumulated other comprehensive income and
DTA (h) $ 58.52 $ 60.69 (3.6
)%
Total common shares outstanding 1,130.7 1,347.1
Financial highlights - notes (a) For the quarter
ended March 31, 2016, because we reported a net loss, all common
stock equivalents are anti-dilutive and are therefore excluded from
the calculation of diluted shares and diluted per share amounts.
However, because we reported after-tax operating income, the
calculation of after-tax operating income per diluted share
includes 29,585,064 dilutive shares. (b) Diluted shares in the
diluted EPS calculation represent basic shares for the three-months
ended March 31, 2016 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 average AIG shareholders' equity,
excluding AOCI. Equity includes DTA. (e) Computed as Annualized
after-tax operating income attributable to AIG divided by average
AIG shareholders' equity, excluding AOCI and DTA. (f) Represents
total AIG shareholders' equity divided by common shares
outstanding. (g) Represents total AIG shareholders' equity,
excluding AOCI, divided by common shares outstanding. (h)
Represents total AIG shareholders' equity, excluding AOCI and DTA,
divided by 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
March 31, % Inc. 2016 2015
(Dec.) Total general operating expenses, Operating
basis $ 2,592 $ 2,784 (6.9
)%
Loss adjustment expenses, reported as policyholder benefits and
losses incurred (341 ) (423 ) 19.4 Advisory fee expenses 317 332
(4.5 ) Non-deferrable insurance commissions 122 128 (4.7 ) Direct
marketing and acquisition expenses, net of deferrals 144 140 2.9
Investment expenses reported as net investment income and other (15
) (20 ) 25.0
Total general operating and other expenses included
in pre-tax operating income 2,819 2,941 (4.1 ) Restructuring
and other costs 188 - NM Other expense related to retroactive
reinsurance agreement (7 ) - NM Non-operating litigation reserves 3
8 (62.5 )
Total general operating and other
expenses, GAAP basis $ 3,003 $ 2,949 1.8
%
Reconciliations of Normalized and After-tax Operating
Income Return on Equity, Excluding AOCI and DTA
Three Months Ended
Three Months Ended March 31, 2016 March 31,
2015 Pre-tax After-tax
ROE Pre-tax After-tax
ROE Return on equity - after-tax operating income,
excluding AOCI and DTA $ 954 $ 773
4.5
%
$ 2,527 $ 1,691
8.4
%
Adjustments to arrive at Normalized Return on Equity, Excluding
AOCI and DTA: Catastrophe losses above (below) expectations 23
15 0.1 (113 ) (74 ) (0.4 )
(Better) worse than expected alternative
returns
714 464 2.7 (141 ) (92 ) (0.4 ) (Better) worse than expected DIB
& GCM returns 395 257 1.5 (60 ) (39 ) (0.2 ) Fair value changes
on PICC investments 103 67 0.4 (54 ) (35 ) (0.2 ) Net reserve
discount change (10 ) (7 ) - 165 107 0.5 Life Insurance - IBNR
death claims (25 ) (16 ) (0.1 ) - - - Unfavorable (favorable) prior
year loss reserve development (60 ) (39 ) (0.2 ) 35 23
0.1
Normalized Return on Equity, excluding AOCI
and DTA $ 2,094 $ 1,514
8.9
%
$ 2,359 $ 1,581
7.8
%
Impact of Market Volatility on After-tax Operating Income
Per Diluted Share Three Months Ended March 31,
2016 Pre-tax After-tax After-tax Operating
Income operating operating (Loss) Per Diluted
Share income (loss) income
(loss) (a) (a) / (b) Private Equity
$ 114 $ 74 $ 0.06 Hedge Funds (537 ) (349 ) (0.29 ) PICC Group and
PICC Property & Casualty (103 ) (67 ) (0.06 ) DIB & GCM
(341 ) (222 ) (0.19 )
Market volatility on investments (867
) (564 ) (0.48 ) Other operating earnings 1,821 1,337
1.13
Total $ 954 $ 773 $ 0.65
Weighted average shares outstanding - diluted for
operating EPS (b) 1,186.1
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160502006115/en/
American International Group, Inc.Liz Werner (Investors),
212-770-7074elizabeth.werner@aig.comorFernando Melon (Investors),
212-770-4630fernando.melon@aig.comorJennifer Hendricks Sullivan
(Media), 212-770-3141jennifer.sullivan@aig.com
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