UNITED STATES

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2014

Commission File Number 1-8787

 

 

 

American International Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

13-2592361

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

175 Water Street, New York, New York

10038

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 770-7000

________________

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑ 

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

 

(Do not check if a

smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No  

 

As of April 29, 2014, there were 1,446,648,914 shares outstanding of the registrant’s common stock.

 

 


 

 

AMERICAN INTERNATIONAL GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

March 31, 2014

Table of Contents

FORM 10-Q

 

Item Number
Description
Page
PART I — FINANCIAL INFORMATION
 

Item 1

Condensed Consolidated Financial Statements

2

 

Note 1.

Basis of Presentation

7

 

Note 2.

Summary of Significant Accounting Policies

8

 

Note 3.

Segment Information

10

 

Note 4.  

Held-For-Sale Classification and Discontinued Operations

11

 

Note 5.

Fair Value Measurements

12

 

Note 6.

Investments

26

 

Note 7.

Lending Activities

32

 

Note 8.

Variable Interest Entities

33

 

Note 9.

Derivatives and Hedge Accounting

35

 

Note 10.

Contingencies, Commitments and Guarantees

41

 

Note 11.

Equity

49

 

Note 12.

Noncontrolling Interests

51

 

Note 13.

Earnings Per Share

52

 

Note 14.  

Employee Benefits

53

 

Note 15.

Income Taxes

53

 

Note 16.

Information Provided in Connection with Outstanding Debt

56

 

Note 17.

Subsequent Events

60

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of

  

 

Operations

61

 

·       Cautionary Statement Regarding Forward-Looking Information

61

 

·       Use of Non-GAAP Measures

64

 

·       Executive Overview

65

 

·       Results of Operations

76

 

·       Liquidity and Capital Resources

117

 

·       Investments

131

 

·       Enterprise Risk Management

145

 

·       Critical Accounting Estimates

150

 

·       Regulatory Environment

151

 

·       Glossary

152

 

·       Acronyms

156

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

157  

Item 4

Controls and Procedures

157  

PART II — OTHER INFORMATION
 

Item 1

Legal Proceedings

158  

Item 1A

Risk Factors

158

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

158

Item 4

Mine Safety Disclosures

158

Item 6

Exhibits

158  

SIGNATURES
159  

  

 

 

1


 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

  

American International Group, Inc.

Condensed Consolidated Balance Sheets (unaudited)

 

March 31,

December 31,

(in millions, except for share data)

 

2014

 

2013

Assets:

 

 

 

 

   Investments:

 

 

 

 

      Fixed maturity securities:

 

 

 

 

         Bonds available for sale, at fair value (amortized cost: 2014 – $249,200; 2013 – $248,531)

$

 262,937 

$

 258,274 

         Other bond securities, at fair value (See Note 6)

 

 21,718 

 

 22,623 

      Equity Securities:

 

 

 

 

         Common and preferred stock available for sale, at fair value (cost: 2014 – $2,076; 2013 – $1,726)

 

 3,878 

 

 3,656 

         Other common and preferred stock, at fair value (See Note 6)

 

 725 

 

 834 

      Mortgage and other loans receivable, net of allowance

 

 21,569 

 

 20,765 

      Other invested assets (portion measured at fair value: 2014 – $8,867; 2013 – $8,598)

 

 29,050 

 

 28,659 

      Short-term investments (portion measured at fair value: 2014 – $3,753; 2013 – $6,313)

 

 17,658 

 

 21,617 

         Total investments

 

 357,535 

 

 356,428 

 

 

 

 

 

   Cash

 

 2,490 

 

 2,241 

   Accrued investment income

 

 2,924 

 

 2,905 

   Premiums and other receivables, net of allowance

 

 14,269 

 

 12,939 

   Reinsurance assets, net of allowance

 

 25,346 

 

 23,829 

   Deferred income taxes

 

 21,631 

 

 21,925 

   Deferred policy acquisition costs

 

 9,217 

 

 9,436 

   Derivative assets, at fair value

 

 1,601 

 

 1,665 

   Other assets, including restricted cash of $862 in 2014 and $865 in 2013 (portion measured at fair value:

 

 

 

 

      2014 – $0; 2013 – $418)

 

 8,738 

 

 9,366 

   Separate account assets, at fair value

 

 72,593 

 

 71,059 

   Assets held-for-sale

 

 30,767 

 

 29,536 

Total assets

$

 547,111 

$

 541,329 

Liabilities:

 

 

 

 

   Liability for unpaid claims and claims adjustment expense

$

 81,155 

$

 81,547 

   Unearned premiums

 

 23,383 

 

 21,953 

   Future policy benefits for life and accident and health insurance contracts

 

 41,419 

 

 40,653 

   Policyholder contract deposits (portion measured at fair value: 2014 – $831; 2013 – $384)

 

 122,839 

 

 122,016 

   Other policyholder funds

 

 4,802 

 

 5,083 

   Derivative liabilities, at fair value

 

 3,039 

 

 2,511 

   Other liabilities (portion measured at fair value: 2014 – $538; 2013 – $933)

 

 28,138 

 

 29,155 

   Long-term debt (portion measured at fair value: 2014 – $6,019; 2013 – $6,747)

 

 39,508 

 

 41,693 

   Separate account liabilities

 

 72,593 

 

 71,059 

   Liabilities held-for-sale

 

 25,815 

 

 24,548 

Total liabilities

 

 442,691 

 

 440,218 

Contingencies, commitments and guarantees (see Note 10)

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests (see Note 12)

 

 27 

 

 30 

 

 

 

 

 

AIG shareholders’ equity:

 

 

 

 

   Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2014 – 1,906,655,640 and

 

 

 

 

      2013 – 1,906,645,689

 

 4,766 

 

 4,766 

   Treasury stock, at cost; 2014 – 460,007,853; 2013 – 442,582,366 shares of common stock

 

 (15,386) 

 

 (14,520) 

   Additional paid-in capital

 

 80,975 

 

 80,899 

   Retained earnings

 

 24,393 

 

 22,965 

   Accumulated other comprehensive income

 

 9,085 

 

 6,360 

Total AIG shareholders’ equity

 

 103,833 

 

 100,470 

Non-redeemable noncontrolling interests (including $100 associated with businesses held for sale)

 

 560 

 

 611 

Total equity

 

 104,393 

 

 101,081 

Total liabilities and equity

$

 547,111 

$

 541,329 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

2


 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (unaudited)

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

2014

 

 

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Premiums

 

 

 

 

 

 

 

 

 

$

 9,038 

 

$

 9,372 

   Policy fees

 

 

 

 

 

 

 

 

 

 

 692 

 

 

 615 

   Net investment income

 

 

 

 

 

 

 

 

 

 

 4,196 

 

 

 4,164 

   Net realized capital gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Total other-than-temporary impairments on available for sale securities

 

 

 

 

 

 

 

 

 

 

 (50) 

 

 

 (40) 

      Portion of other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         fixed maturity securities recognized in Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 (4) 

 

 

 (1) 

      Net other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         securities recognized in net income

 

 

 

 

 

 

 

 

 

 

 (54) 

 

 

 (41) 

      Other realized capital gains (losses)

 

 

 

 

 

 

 

 

 

 

 (159) 

 

 

 341 

         Total net realized capital gains (losses)

 

 

 

 

 

 

 

 

 

 

 (213) 

 

 

 300 

   Aircraft leasing revenue

 

 

 

 

 

 

 

 

 

 

 1,113 

 

 

 1,074 

   Other income

 

 

 

 

 

 

 

 

 

 

 1,286 

 

 

 1,437 

Total revenues

 

 

 

 

 

 

 

 

 

 

 16,112 

 

 

 16,962 

Benefits, claims and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Policyholder benefits and claims incurred

 

 

 

 

 

 

 

 

 

 

 6,797 

 

 

 6,728 

   Interest credited to policyholder account balances

 

 

 

 

 

 

 

 

 

 

 955 

 

 

 1,017 

   Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

 

 

 1,305 

 

 

 1,286 

   Other acquisition and insurance expenses

 

 

 

 

 

 

 

 

 

 

 2,117 

 

 

 2,238 

   Interest expense

 

 

 

 

 

 

 

 

 

 

 479 

 

 

 577 

   Aircraft leasing expenses

 

 

 

 

 

 

 

 

 

 

 1,096 

 

 

 1,031 

   Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 238 

 

 

 340 

   Net (gain) loss on sale of properties and divested businesses

 

 

 

 

 

 

 

 

 

 

 (4) 

 

 

 - 

   Other expenses

 

 

 

 

 

 

 

 

 

 

 856 

 

 

 870 

Total benefits, claims and expenses

 

 

 

 

 

 

 

 

 

 

 13,839 

 

 

 14,087 

Income from continuing operations before income tax expense

 

 

 

 

 

 

 

 2,273 

 

 

 2,875 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 614 

 

 

 717 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 1,659 

 

 

 2,158 

Income (loss) from discontinued operations, net of income tax expense

 

 

 

 

 

 

 

 

 

 

 (47) 

 

 

 73 

Net income

 

 

 

 

 

 

 

 

 

 

 1,612 

 

 

 2,231 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 3 

 

 

 25 

Net income attributable to AIG

 

 

 

 

 

 

 

 

 

$

 1,609 

 

$

 2,206 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share attributable to AIG:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Income from continuing operations

 

 

 

 

 

 

 

 

 

$

 1.13 

 

$

 1.44 

      Income (loss) from discontinued operations

 

 

 

 

 

 

 

 

 

$

 (0.03) 

 

$

 0.05 

      Net income attributable to AIG

 

 

 

 

 

 

 

 

 

$

 1.10 

 

$

 1.49 

   Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Income from continuing operations

 

 

 

 

 

 

 

 

 

$

 1.12 

 

$

 1.44 

      Income (loss) from discontinued operations

 

 

 

 

 

 

 

 

 

$

 (0.03) 

 

$

 0.05 

      Net income attributable to AIG

 

 

 

 

 

 

 

 

 

$

 1.09 

 

$

 1.49 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

 

 

 

 

 

 

 

 

 

 

 1,459,249,393 

 

 

 1,476,471,097 

   Diluted

 

 

 

 

 

 

 

 

 

 

 1,472,510,813 

 

 

 1,476,678,931 

Dividends declared per common share

 

 

 

 

 

 

 

 

 

$

 0.125 

 

$

 - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

 

Item 1 / Financial statements

 

American International Group, Inc.

cONDENSED Consolidated Statements of Comprehensive Income (unaudited)

Three Months Ended March 31,

 

 

 

 

 

 

 

(in millions)

 

 

 

2014

 

 

2013

Net income

 

 

$

 1,612 

 

$

 2,231 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

   Change in unrealized appreciation of fixed maturity investments on

 

 

 

 

 

 

 

      which other-than-temporary credit impairments were taken

 

 

 

 89 

 

 

 282 

   Change in unrealized appreciation (depreciation) of all other investments

 

 

 

 2,785 

 

 

 (788) 

   Change in foreign currency translation adjustments

 

 

 

 (158) 

 

 

 (273) 

   Change in retirement plan liabilities adjustment

 

 

 

 9 

 

 

 44 

Other comprehensive income (loss)

 

 

 

 2,725 

 

 

 (735) 

Comprehensive income

 

 

 

 4,337 

 

 

 1,496 

Comprehensive income attributable to noncontrolling interests

 

 

 

 3 

 

 

 25 

Comprehensive income attributable to AIG

 

 

$

 4,334 

 

$

 1,471 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

4


 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED Consolidated Statement of Equity  (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total AIG

 

redeemable

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Share-

 

Non-

 

 

 

 

Common

 

Treasury

 

Paid-in

 

Retained

Comprehensive

 

holders'

 

controlling

 

Total

(in millions)

 

Stock

 

Stock

 

Capital

 

Earnings

 

Income

 

Equity

 

Interests

 

Equity

Three Months Ended March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

 4,766 

$

 (14,520) 

$

 80,899 

$

 22,965 

$

 6,360 

$

 100,470 

$

 611 

$

 101,081 

Purchase of common stock

 

 - 

 

 (867) 

 

 - 

 

 - 

 

 - 

 

 (867) 

 

 - 

 

 (867) 

Net income attributable to AIG or other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 1,609 

 

 - 

 

 1,609 

 

 3 

 

 1,612 

Dividends

 

 - 

 

 - 

 

 - 

 

 (182) 

 

 - 

 

 (182) 

 

 - 

 

 (182) 

Other comprehensive income (loss)

 

 - 

 

 - 

 

 - 

 

 - 

 

 2,725 

 

 2,725 

 

 - 

 

 2,725 

Net decrease due to consolidation

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 (34) 

 

 (34) 

Contributions from noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 5 

 

 5 

Distributions to noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 (22) 

 

 (22) 

Other

 

 - 

 

 1 

 

 76 

 

 1 

 

 - 

 

 78 

 

 (3) 

 

 75 

Balance, end of period

$

 4,766 

$

 (15,386) 

$

 80,975 

$

 24,393 

$

 9,085 

$

 103,833 

$

 560 

$

 104,393 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

 4,766 

$

 (13,924) 

$

 80,410 

$

 14,176 

$

 12,574 

$

 98,002 

$

 667 

$

 98,669 

Net income attributable to AIG or other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 2,206 

 

 - 

 

 2,206 

 

 10 

 

 2,216 

Other comprehensive loss

 

 - 

 

 - 

 

 - 

 

 - 

 

 (735) 

 

 (735) 

 

 (1) 

 

 (736) 

Contributions from noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 8 

 

 8 

Distributions to noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 (19) 

 

 (19) 

Other

 

 - 

 

 1 

 

 46 

 

 - 

 

 - 

 

 47 

 

 (2) 

 

 45 

Balance, end of period

$

 4,766 

$

 (13,923) 

$

 80,456 

$

 16,382 

$

 11,839 

$

 99,520 

$

 663 

$

 100,183 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

5


 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED Consolidated Statements of Cash Flows (unaudited)

Three Months Ended March 31,

 

 

 

 

(in millions)

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

   Net income

$

 1,612 

$

 2,231 

   (Income) loss from discontinued operations

 

 47 

 

 (73) 

   Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

   Noncash revenues, expenses, gains and losses included in income:

 

 

 

 

      Net gains on sales of securities available for sale and other assets

 

 (246) 

 

 (339) 

      Net (gains) losses on sales of divested businesses

 

 (4) 

 

 - 

      Net losses on extinguishment of debt

 

 238 

 

 340 

      Unrealized (gains) losses in earnings – net

 

 585 

 

 (765) 

      Equity in income from equity method investments, net of dividends or distributions

 

 (441) 

 

 (442) 

      Depreciation and other amortization

 

 1,121 

 

 1,203 

      Impairments of assets

 

 138 

 

 139 

   Changes in operating assets and liabilities:

 

 

 

 

      Property casualty and life insurance reserves

 

 1,495 

 

 643 

      Premiums and other receivables and payables – net

 

 (701) 

 

 (458) 

      Reinsurance assets and funds held under reinsurance treaties

 

 (1,532) 

 

 (2,035) 

      Capitalization of deferred policy acquisition costs

 

 (1,462) 

 

 (1,422) 

      Current and deferred income taxes – net

 

 450 

 

 613 

      Other, net

 

 (537) 

 

 216 

      Total adjustments

 

 (896) 

 

 (2,307) 

Net cash provided by (used in) operating activities

 

 763 

 

 (149) 

Cash flows from investing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

   Sales or distribution of:

 

 

 

 

      Available for sale investments

 

 6,365 

 

 7,346 

      Other securities

 

 1,725 

 

 1,728 

      Other invested assets

 

 1,041 

 

 1,741 

   Maturities of fixed maturity securities available for sale

 

 5,347 

 

 5,617 

   Principal payments received on and sales of mortgage and other loans receivable

 

 765 

 

 712 

   Purchases of:

 

 

 

 

      Available for sale investments

 

 (11,592) 

 

 (15,290) 

      Other securities

 

 (181) 

 

 (822) 

      Other invested assets

 

 (1,218) 

 

 (1,762) 

      Mortgage and other loans receivable

 

 (1,307) 

 

 (788) 

   Net change in restricted cash

 

 (667) 

 

 296 

   Net change in short-term investments

 

 3,588 

 

 5,479 

   Other, net

 

 (83) 

 

 (293) 

Net cash provided by investing activities

 

 3,783 

 

 3,964 

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

   Policyholder contract deposits

 

 4,008 

 

 3,262 

   Policyholder contract withdrawals

 

 (3,548) 

 

 (4,458) 

   Issuance of long-term debt

 

 1,583 

 

 1,395 

   Repayments of long-term debt

 

 (3,281) 

 

 (4,337) 

   Purchase of Common Stock

 

 (867) 

 

 - 

   Dividends paid

 

 (182) 

 

 - 

   Other, net

 

 (2,002) 

 

 420 

Net cash used in financing activities

 

 (4,289) 

 

 (3,718) 

Effect of exchange rate changes on cash

 

 (11) 

 

 (36) 

Net increase in cash

 

 246 

 

 61 

Cash at beginning of year

 

 2,241 

 

 1,151 

Change in cash of businesses held-for-sale

 

 3 

 

 15 

Cash at end of period

$

 2,490 

$

 1,227 

 

Supplementary Disclosure of Condensed Consolidated Cash Flow Information

 

 

 

 

Cash paid during the period for:

 

 

 

 

   Interest

$

 840 

$

 983 

   Taxes

$

 165 

$

 103 

Non-cash investing/financing activities:

 

 

 

 

   Interest credited to policyholder contract deposits included in financing activities

$

 1,052 

$

 1,005 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

6


 

 

Item 1 / NOTE 1. BASIS OF PRESENTATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1. BASIS OF PRESENTATION

 

American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional and individual customers through one of the most extensive worldwide property‑casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG Common Stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange (NYSE: AIG) and the Tokyo Stock Exchange. Unless the context indicates otherwise, the terms “AIG,” “we,” “us” or “our” mean American International Group, Inc. and its consolidated subsidiaries and the term “AIG Parent” means American International Group, Inc. and not any of its consolidated subsidiaries.

These unaudited condensed consolidated financial statements do not include all disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) and should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Annual Report). The condensed consolidated financial information as of December 31, 2013 included herein has been derived from audited consolidated financial statements in the 2013 Annual Report.

Certain of our foreign subsidiaries included in the condensed consolidated financial statements report on different fiscal-period bases. The effect on our condensed consolidated financial condition and results of operations of all material events occurring at these subsidiaries through the date of each of the periods presented in these condensed consolidated financial statements has been recorded. In the opinion of management, these condensed consolidated financial statements contain normal recurring adjustments, including eliminations of material intercompany accounts and transactions, necessary for a fair statement of the results presented herein.

Interim period operating results may not be indicative of the operating results for a full year. We evaluated the need to recognize or disclose events that occurred subsequent to March 31, 2014 and prior to the issuance of these condensed consolidated financial statements.

Sale of ILFC

 

On December 16, 2013, we entered into a definitive agreement with AerCap Holdings N.V. (AerCap) and AerCap Ireland Limited (Purchaser), a wholly‑owned subsidiary of AerCap, for the sale of 100 percent of the common stock of International Lease Finance Corporation (ILFC) (the AerCap Transaction) for consideration consisting of $3.0 billion in cash, a portion of which will be funded by a special dividend of $600 million to be paid by ILFC to AIG upon consummation of the AerCap Transaction, and approximately 97.6 million newly-issued AerCap common shares. The disposition of the AerCap common shares by AIG will be subject to certain restrictions as to the amount and timing of potential sales in accordance with the definitive agreement. ILFC’s results are reflected in Aircraft leasing revenue and Aircraft leasing expenses in the Condensed Consolidated Statements of Income. The assets and liabilities of ILFC are classified as held‑for‑sale at March 31, 2014 and December 31, 2013 in the Condensed Consolidated Balance Sheets. See Note 4 herein for further discussion.

Use of Estimates

 

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. Accounting policies that we believe are most dependent on the application of estimates and assumptions are considered our critical accounting estimates and are related to the determination of:

·          classification of ILFC as held-for-sale and related fair value measurement;

 

7


 

 

Item 1 / NOTE 1. BASIS OF PRESENTATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

·          income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset;

·          liability for unpaid claims and claims adjustment expense;

·          reinsurance assets;

·          valuation of future policy benefit liabilities and timing and extent of loss recognition;

·          valuation of liabilities for guaranteed benefit features of variable annuity products;

·          estimated gross profits to value deferred acquisition costs for investment‑oriented products;

·          impairment charges, including other‑than‑temporary impairments on available for sale securities, impairments on investments in life settlements and goodwill impairment;

·          liability for legal contingencies; and

·          fair value measurements of certain financial assets and liabilities.

These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of operations and cash flows could be materially affected.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Standards Adopted During 2014

 

Certain Obligations Resulting from Joint and Several Liability Arrangements

 

In February 2013, the Financial Accounting Standards Board (FASB) issued an accounting standard that requires us to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount we agreed to pay on the basis of our arrangement among our co‑obligors and (ii) any additional amount we expect to pay on behalf of our co‑obligors.

We adopted the standard on its required effective date of January 1, 2014. The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.

Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of an Investment within a Foreign Entity or of an Investment in a Foreign Entity

 

In March 2013, the FASB issued an accounting standard addressing whether consolidation guidance or foreign currency guidance applies to the release of the cumulative translation adjustment into net income when a parent sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or net assets that are a business (other than a sale of in‑substance real estate) within a foreign entity. The standard also resolves the diversity in practice for the cumulative translation adjustment treatment in business combinations achieved in stages involving foreign entities.

Under this standard, the entire amount of the cumulative translation adjustment associated with the foreign entity should be released into earnings when there has been: (i) a sale of a subsidiary or group of net assets within a foreign entity and the sale represents a complete or substantially complete liquidation of the foreign entity in which the subsidiary or the net assets had

 

8


 

 

Item 1 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

resided; (ii) a loss of a controlling financial interest in an investment in a foreign entity; or (iii) a change in accounting method from applying the equity method to an investment in a foreign entity to consolidating the foreign entity.

We adopted the standard on its required effective date of January 1, 2014 on a prospective basis.  The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.

Investment Company Guidance

 

In June 2013, the FASB issued an accounting standard that amends the criteria a company must meet to qualify as an investment company, clarifies the measurement guidance, and requires new disclosures for investment companies. An entity that is regulated by the Securities and Exchange Commission under the Investment Company Act of 1940 (the 1940 Act) qualifies as an investment company. Entities that are not regulated under the 1940 Act must have certain fundamental characteristics and must consider other characteristics to determine whether they qualify as investment companies. An entity’s purpose and design must be considered when making the assessment.

An entity that no longer meets the requirements to be an investment company as a result of this standard should present the change in its status as a cumulative‑effect adjustment to retained earnings as of the beginning of the period of adoption. An entity that is an investment company should apply the standard prospectively as an adjustment to opening net assets as of the effective date. The adjustment to net assets represents both the difference between the fair value and the carrying amount of the entity’s investments and any amount previously recognized in Accumulated other comprehensive income.

We adopted the standard on its required effective date of January 1, 2014 on a prospective basis.  The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.

Presentation of Unrecognized Tax Benefits

 

In July 2013, the FASB issued an accounting standard that requires a liability related to unrecognized tax benefits to be presented as a reduction to the related deferred tax asset for a net operating loss carryforward or a tax credit carryforward. When the carryforwards are not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the applicable jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with the related deferred tax asset.

We adopted the standard on its required effective date of January 1, 2014 on a prospective basis.   The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.  

Future Application of Accounting Standards

 

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure

 

In January 2014, the FASB issued an accounting standard that clarifies when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, so that the loan is derecognized and the real estate property is recognized. 

We plan to adopt the standard on its required effective date of January 1, 2015 and do not expect the adoption of the standard to have a material effect on our consolidated financial condition, results of operations or cash flows

 

9


 

 

Item 1 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Reporting Discontinued Operations

 

In April 2014, the FASB issued an accounting standard that changes the requirements for presenting a component or group of components of an entity as a discontinued operation and requires new disclosures. Under the standard, the disposal of a component or group of components of an entity should be reported as a discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Disposals of equity method investments, or those reported as held-for-sale, will be eligible for presentation as a discontinued operation if they meet the new definition. The standard also requires entities to provide specified disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation. 

The standard is effective prospectively for all disposals of components (or classification of components as held-for-sale) of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications of components as held-for-sale) that have not been reported in financial statements previously issued. We plan to adopt the standard on its required effective date of January 1, 2015 and do not expect the adoption of the standard to have a material effect on our consolidated financial condition, results of operations or cash flows.

3. SEGMENT INFORMATION

 

 

We report the results of our operations consistent with the manner in which our chief operating decision makers review the business to assess performance and to allocate resources through two reportable segments: AIG Property Casualty and AIG Life and Retirement. We evaluate performance based on revenues and pre‑tax income (loss), excluding results from discontinued operations, because we believe this provides more meaningful information on how our operations are performing.

The following table presents our operations by reportable segment:

 

2014

 

 

2013

Three Months Ended March 31,

 

 

 

Pre-tax Income (Loss)

 

 

 

 

 

Pre-tax Income (Loss)

(in millions)

 

Total Revenues

 

from continuing operations

 

 

Total Revenues

 

 

from continuing operations

AIG Property Casualty

 

 

 

 

 

 

 

 

 

 

 

    Commercial Insurance

$

 5,642 

 

$

 713 

 

$

 5,773 

 

$

 1,041 

    Consumer Insurance

 

 3,258 

 

 

 27 

 

 

 3,506 

 

 

 153 

    Other

 

 766 

 

 

 569 

 

 

 689 

 

 

 420 

      Total AIG Property Casualty

 

 9,666 

 

 

 1,309 

 

 

 9,968 

 

 

 1,614 

AIG Life and Retirement

 

 

 

 

 

 

 

 

 

 

 

    Retail

 

 2,766 

 

 

 665 

 

 

 3,003 

 

 

 996 

    Institutional

 

 1,585 

 

 

 567 

 

 

 1,737 

 

 

 574 

      Total AIG Life and Retirement

 

 4,351 

 

 

 1,232 

 

 

 4,740 

 

 

 1,570 

Other Operations

 

 

 

 

 

 

 

 

 

 

 

    Mortgage Guaranty

 

 249 

 

 

 77 

 

 

 231 

 

 

 44 

    Global Capital Markets

 

 59 

 

 

 29 

 

 

 273 

 

 

 227 

    Direct Investment book

 

 465 

 

 

 355 

 

 

 411 

 

 

 312 

    Corporate & Other

 

 382 

 

 

 (824) 

 

 

 461 

 

 

 (1,008) 

    Aircraft Leasing

 

 1,113 

 

 

 17 

 

 

 1,074 

 

 

 43 

    Consolidation and elimination

 

 (8) 

 

 

 1 

 

 

 (9) 

 

 

 1 

      Total Other Operations

 

 2,260 

 

 

 (345) 

 

 

 2,441 

 

 

 (381) 

AIG Consolidation and elimination

 

 (165) 

 

 

 77 

 

 

 (187) 

 

 

 72 

Total AIG Consolidated

$

 16,112 

 

$

 2,273 

 

$

 16,962 

 

$

 2,875 

 

10


 

 

Item 1 / NOTE 4. HELD-FOR-SALE CLASSIFICATION AND DISCONTINUED OPERATIONS

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

4. HELD-FOR-SALE CLASSIFICATION AND DISCONTINUED OPERATIONS

 

Held-For-Sale Classification

 

On December 16, 2013, we entered into a definitive agreement with AerCap and Purchaser, a wholly‑owned subsidiary of AerCap, for the sale of 100 percent of the common stock of ILFC (the AerCap Transaction) for consideration consisting of $3.0 billion in cash, a portion of which will be funded by a special dividend of $600 million to be paid by ILFC to AIG upon consummation of the transaction, and approximately 97.6 million newly‑issued AerCap common shares. The consideration had a value of approximately $5.4 billion based on AerCap’s pre‑announcement closing price per share of $24.93 on December 13, 2013.  The disposition of the AerCap common shares by AIG will be subject to certain restrictions as to the amount and timing of potential sales in accordance with the definitive agreement.   In  connection with the AerCap Transaction, we entered into a credit agreement for a senior unsecured revolving credit facility between the Purchaser as borrower and AIG as lender (the Revolving Credit Facility). The Revolving Credit Facility provides for an aggregate commitment of $1 billion and permits loans for general corporate purposes after the closing of the AerCap Transaction. The AerCap Transaction was approved by AerCap shareholders on February 13, 2014 and we expect it to close in the second quarter of 2014. We determined ILFC continued to meet the criteria for held‑for‑sale accounting at March 31, 2014. Because we expect to hold approximately 46 percent of the common stock of the combined company upon closing of the transaction, ILFC’s results are presented in continuing operations for all periods presented.

The following table summarizes the components of ILFC assets and liabilities held-for-sale:

 

 

March 31,

 

December 31,

(in millions)

 

2014

 

2013

Assets:

 

 

 

 

   Equity securities

$

 4 

$

 3 

   Mortgage and other loans receivable, net

 

 262 

 

 229 

   Flight equipment primarily under operating leases, net of accumulated depreciation

 

 35,612 

 

 35,508 

   Short-term investments

 

 1,626 

 

 658 

   Cash

 

 84 

 

 88 

   Premiums and other receivables, net of allowance

 

 343 

 

 318 

   Other assets

 

 2,798 

 

 2,066 

Assets held-for-sale

 

 40,729 

 

 38,870 

Less: Loss accrual

 

 (9,962) 

 

 (9,334) 

Total assets held-for-sale

$

 30,767 

$

 29,536 

Liabilities:

 

 

 

 

   Other liabilities

$

 3,082 

$

 3,127 

   Long-term debt

 

 22,733 

 

 21,421 

Total liabilities held-for-sale

$

 25,815 

$

 24,548 

Discontinued Operations

 

In connection with the 2010 sale of American Life Insurance Company (ALICO) to MetLife, Inc. (MetLife), we recognized the following income (loss) from discontinued operations:

Three Months Ended March 31,

 

 

 

 

 

 

(in millions)

 

 

 

2014

 

2013

Revenues:

 

 

 

 

 

 

Gain (loss) on sale

 

 

$

 (1) 

$

 117 

Income from discontinued operations, before income tax expense

 

 

 

 (1) 

 

 117 

Income tax expense

 

 

 

 46 

 

 44 

Income (loss) from discontinued operations, net of income tax expense

 

 

$

 (47) 

$

 73 

 

11


 

 

Item 1 / NOTE 5. FAIR VALUE MEASUREMENTS

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

5. FAIR VALUE MEASUREMENTS

 

  

Fair Value Measurements on a Recurring Basis

 

Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three “levels” based on the observability of valuation inputs:

·     Level 1:  Fair value measurements based on quoted prices in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.

·     Level 2:  Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

·     Level 3:  Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

12


 

 

Item 1 / NOTE 5. FAIR VALUE MEASUREMENTS

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used:

March 31, 2014

 

  

 

  

 

  

Counterparty

Cash

 

(in millions)

 

 Level 1

 

Level 2

 

Level 3

 

Netting*

Collateral

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

      U.S. government and government sponsored entities

$

 3 

$

 2,919 

$

 - 

$

 - 

$

 - 

$

 2,922 

      Obligations of states, municipalities and political subdivisions

 

 - 

 

 28,547 

 

 2,042 

 

 - 

 

 - 

 

 30,589 

      Non-U.S. governments

 

 629 

 

 21,238 

 

 17 

 

 - 

 

 - 

 

 21,884 

      Corporate debt

 

 - 

 

 145,176 

 

 1,815 

 

 - 

 

 - 

 

 146,991 

      RMBS 

 

 - 

 

 21,540 

 

 15,764 

 

 - 

 

 - 

 

 37,304 

      CMBS

 

 - 

 

 6,354 

 

 5,741 

 

 - 

 

 - 

 

 12,095 

      CDO/ABS

 

 - 

 

 4,542 

 

 6,610 

 

 - 

 

 - 

 

 11,152 

Total bonds available for sale

 

 632 

 

 230,316 

 

 31,989 

 

 - 

 

 - 

 

 262,937 

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

      U.S. government and government sponsored entities

 

 28 

 

 5,366 

 

 - 

 

 - 

 

 - 

 

 5,394 

      Obligations of states, municipalities and political subdivisions

 

 - 

 

 122 

 

 - 

 

 - 

 

 - 

 

 122 

      Non-U.S. governments

 

 - 

 

 2 

 

 - 

 

 - 

 

 - 

 

 2 

      Corporate debt

 

 - 

 

 1,108 

 

 - 

 

 - 

 

 - 

 

 1,108 

      RMBS

 

 - 

 

 1,282 

 

 1,069 

 

 - 

 

 - 

 

 2,351 

      CMBS

 

 - 

 

 508 

 

 770 

 

 - 

 

 - 

 

 1,278 

      CDO/ABS

 

 - 

 

 2,965 

 

 8,498 

 

 - 

 

 - 

 

 11,463 

Total other bond securities

 

 28 

 

 11,353 

 

 10,337 

 

 - 

 

 - 

 

 21,718 

Equity securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

      Common stock

 

 3,078 

 

 1 

 

 - 

 

 - 

 

 - 

 

 3,079 

      Preferred stock

 

 - 

 

 28 

 

 - 

 

 - 

 

 - 

 

 28 

      Mutual funds

 

 767 

 

 4 

 

 - 

 

 - 

 

 - 

 

 771 

Total equity securities available for sale

 

 3,845 

 

 33 

 

 - 

 

 - 

 

 - 

 

 3,878 

Other equity securities

 

 653 

 

 72 

 

 - 

 

 - 

 

 - 

 

 725 

Other invested assets

 

 24 

 

 2,853 

 

 5,990 

 

 - 

 

 - 

 

 8,867 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

      Interest rate contracts

 

 12 

 

 3,750 

 

 35 

 

 -