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 September 30, 2017

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑ 

Accelerated filer ☐ 

Non-accelerated filer ☐ 

Smaller reporting company ☐ 

Emerging growth company ☐ 

 

 

(Do not check if a

smaller reporting company)

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 

 

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 October 30, 2017, there were 898,959,371 shares outstanding of the registrant’s common stock.

  

 

 


 

AMERICAN INTERNATIONAL GROUP, INC.

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

September 30, 2017

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

11

 

Note 4.

Held-for-Sale Classification

13

 

Note 5.

Fair Value Measurements

14

 

Note 6.

Investments

32

 

Note 7.

Lending Activities

41

 

Note 8.

Variable Interest Entities

43

 

Note 9.

Derivatives and Hedge Accounting

44

 

Note 10.

Insurance Liabilities

49

 

Note 11.

Contingencies, Commitments and Guarantees

52

 

Note 12.

Equity

55

 

Note 13.

Earnings Per Share

59

 

Note 14.  

Employee Benefits

60

 

Note 15.

Income Taxes

61

 

Note 16.

Information Provided in Connection with Outstanding Debt

64

 

Note 17.

Subsequent Events

69

ITEM 2

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

  

 

Operations

70

 

     Cautionary Statement Regarding Forward-Looking Information

70

 

     Use of Non-GAAP Measures

73

 

     Critical Accounting Estimates

75

 

     Executive Summary

76

 

     Consolidated Results of Operations

87

 

     Business Segment Operations

92

 

     Investments

131

 

     Insurance Reserves

144

 

     Liquidity and Capital Resources

156

 

     Enterprise Risk Management

168

 

     Regulatory Environment

173

 

     Glossary

180

 

     Acronyms

183

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

184  

ITEM 4

Controls and Procedures

184  

Part II — Other Information
 

ITEM 1

Legal Proceedings

185  

ITEM 1A

Risk Factors

185

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

185

ITEM 4

Mine Safety Disclosures

185

ITEM 6

Exhibits

186  

Signatures
187  

AIG | Third Quarter 2017 Form 10-Q                1 


TABLE OF CONTENTS 

 

 

 

Part I – Financial Information

Item 1. | Financial Statements

American International Group, Inc.

Condensed Consolidated Balance Sheets (unaudited)

 

September 30,

December 31,

(in millions, except for share data)

 

2017

 

2016

Assets:

 

 

 

 

Investments:

 

 

 

 

Fixed maturity securities:

 

 

 

 

Bonds available for sale, at fair value (amortized cost: 2017 - $224,143; 2016 - $232,241)

$

237,771

$

241,537

Other bond securities, at fair value (See  Note 6

 

12,653

 

13,998

Equity Securities:

 

 

 

 

Common and preferred stock available for sale, at fair value (cost: 2017 - $1,274; 2016 - $1,697)

 

1,707

 

2,078

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

 

538

 

482

Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2017 - $5; 2016 - $11)

 

36,089

 

33,240

Other invested assets (portion measured at fair value: 2017 - $6,503; 2016 - $6,946)

 

22,590

 

24,538

Short-term investments (portion measured at fair value: 2017 - $2,603; 2016 - $3,341)

 

9,775

 

12,302

Total investments

 

321,123

 

328,175

 

 

 

 

 

Cash

 

2,433

 

1,868

Accrued investment income

 

2,416

 

2,495

Premiums and other receivables, net of allowance

 

11,156

 

10,465

Reinsurance assets, net of allowance

 

34,429

 

21,901

Deferred income taxes

 

20,954

 

21,332

Deferred policy acquisition costs

 

10,938

 

11,042

Other assets, including restricted cash of $219 in 2017 and $193 in 2016

 

 

 

 

(portion measured at fair value: 2017 - $900; 2016 - $1,809)

 

10,324

 

10,815

Separate account assets, at fair value

 

89,300

 

82,972

Assets held for sale

 

-

 

7,199

Total assets

$

503,073

$

498,264

Liabilities:

 

 

 

 

Liability for unpaid losses and loss adjustment expenses

$

80,087

$

77,077

Unearned premiums

 

20,135

 

19,634

Future policy benefits for life and accident and health insurance contracts

 

44,055

 

42,204

Policyholder contract deposits (portion measured at fair value: 2017 - $3,988; 2016 - $3,058)

 

134,514

 

132,216

Other policyholder funds (portion measured at fair value: 2017 - $0; 2016 - $5)

 

3,678

 

3,989

Other liabilities (portion measured at fair value: 2017 - $1,220; 2016 - $2,016)

 

27,253

 

26,296

Long-term debt (portion measured at fair value: 2017 - $2,998; 2016 - $3,428)

 

31,039

 

30,912

Separate account liabilities

 

89,300

 

82,972

Liabilities held for sale

 

-

 

6,106

Total liabilities

 

430,061

 

421,406

Contingencies, commitments and guarantees (See Note 11

 

 

 

 

 

 

 

 

 

AIG shareholders’ equity:

 

 

 

 

Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2017 - 1,906,671,492 and

 

 

 

 

2016 - 1,906,671,492

 

4,766

 

4,766

Treasury stock, at cost; 2017 - 1,007,791,405 shares; 2016 - 911,335,651 shares of common stock

 

(47,602)

 

(41,471)

Additional paid-in capital

 

80,976

 

81,064

Retained earnings

 

28,389

 

28,711

Accumulated other comprehensive income

 

5,939

 

3,230

Total AIG shareholders’ equity

 

72,468

 

76,300

Non-redeemable noncontrolling interests

 

544

 

558

Total equity

 

73,012

 

76,858

Total liabilities and equity

$

503,073

$

498,264

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | Third Quarter 2017 Form 10-Q                2 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Income (Loss) (unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(dollars in millions, except per share data)

 

 

2017

 

 

2016

 

 

2017

 

 

2016

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Premiums

 

$

8,063

 

$

8,581

 

$

23,459

 

$

26,138

Policy fees

 

 

728

 

 

646

 

 

2,177

 

 

2,029

Net investment income

 

 

3,416

 

 

3,783

 

 

10,715

 

 

10,479

Net realized capital losses:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(66)

 

 

(58)

 

 

(138)

 

 

(332)

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

 

 

 

 

 

 

 

 

 

 

 

 

fixed maturity securities recognized in Other comprehensive income

 

 

(8)

 

 

(14)

 

 

(57)

 

 

(36)

Net other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

securities recognized in net income (loss)

 

 

(74)

 

 

(72)

 

 

(195)

 

 

(368)

Other realized capital losses

 

 

(848)

 

 

(693)

 

 

(911)

 

 

(461)

Total net realized capital losses

 

 

(922)

 

 

(765)

 

 

(1,106)

 

 

(829)

Other income

 

 

466

 

 

609

 

 

1,640

 

 

1,540

Total revenues

 

 

11,751

 

 

12,854

 

 

36,885

 

 

39,357

Benefits, losses and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder benefits and losses incurred

 

 

10,322

 

 

7,489

 

 

22,653

 

 

20,748

Interest credited to policyholder account balances

 

 

867

 

 

887

 

 

2,683

 

 

2,798

Amortization of deferred policy acquisition costs

 

 

912

 

 

1,018

 

 

3,135

 

 

3,625

General operating and other expenses

 

 

2,149

 

 

2,536

 

 

6,774

 

 

8,125

Interest expense

 

 

290

 

 

329

 

 

880

 

 

955

(Gain) loss on extinguishment of debt

 

 

1

 

 

(14)

 

 

(4)

 

 

76

Net (gain) loss on sale of divested businesses

 

 

13

 

 

(128)

 

 

173

 

 

(351)

Total benefits, losses and expenses

 

 

14,554

 

 

12,117

 

 

36,294

 

 

35,976

Income (loss) from continuing operations before

 

 

 

 

 

 

 

 

 

 

 

 

income tax expense (benefit)

 

 

(2,803)

 

 

737

 

 

591

 

 

3,381

Income tax expense (benefit)

 

 

(1,091)

 

 

304

 

 

(18)

 

 

1,170

Income (loss) from continuing operations

 

 

(1,712)

 

 

433

 

 

609

 

 

2,211

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

 

 

(1)

 

 

3

 

 

7

 

 

(54)

Net income (loss)

 

 

(1,713)

 

 

436

 

 

616

 

 

2,157

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 

26

 

 

(26)

 

 

40

 

 

(35)

Net income (loss) attributable to AIG

 

$

(1,739)

 

$

462

 

$

576

 

$

2,192

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share attributable to AIG:

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(1.91)

 

$

0.43

 

$

0.60

 

$

2.02

Income (loss) from discontinued operations

 

$

-

 

$

-

 

$

0.01

 

$

(0.05)

Net income (loss) attributable to AIG

 

$

(1.91)

 

$

0.43

 

$

0.61

 

$

1.97

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(1.91)

 

$

0.42

 

$

0.59

 

$

1.97

Income (loss) from discontinued operations

 

$

-

 

$

-

 

$

0.01

 

$

(0.05)

Net income (loss) attributable to AIG

 

$

(1.91)

 

$

0.42

 

$

0.60

 

$

1.92

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

908,667,044

 

 

1,071,295,892

 

 

938,130,832

 

 

1,113,650,878

Diluted

 

 

908,667,044

 

 

1,102,400,770

 

 

961,295,946

 

 

1,142,700,207

Dividends declared per common share

 

$

0.32

 

$

0.32

 

$

0.96

 

$

0.96

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

AIG | Third Quarter 2017 Form 10-Q                3 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(in millions)

 

 

2017

 

 

2016

 

 

2017

 

 

2016

Net income (loss)

 

$

(1,713)

 

$

436

 

$

616

 

$

2,157

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized appreciation (depreciation) of fixed maturity securities on

 

 

 

 

 

 

 

 

 

 

 

 

which other-than-temporary credit impairments were taken

 

 

97

 

 

217

 

 

330

 

 

(110)

Change in unrealized appreciation of all other investments

 

 

492

 

 

466

 

 

1,840

 

 

6,302

Change in foreign currency translation adjustments

 

 

325

 

 

111

 

 

447

 

 

332

Change in retirement plan liabilities adjustment

 

 

63

 

 

4

 

 

92

 

 

(4)

Other comprehensive income

 

 

977

 

 

798

 

 

2,709

 

 

6,520

Comprehensive income (loss)

 

 

(736)

 

 

1,234

 

 

3,325

 

 

8,677

Comprehensive income (loss) attributable to noncontrolling interests

 

 

26

 

 

(26)

 

 

40

 

 

(35)

Comprehensive income (loss) attributable to AIG

 

$

(762)

 

$

1,260

 

$

3,285

 

$

8,712

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | Third Quarter 2017 Form 10-Q                4 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements 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

Nine Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

4,766

$

(41,471)

$

81,064

$

28,711

$

3,230

$

76,300

$

558

$

76,858

Common stock issued under stock plans

 

-

 

140

 

(304)

 

-

 

-

 

(164)

 

-

 

(164)

Purchase of common stock

 

-

 

(6,275)

 

-

 

-

 

-

 

(6,275)

 

-

 

(6,275)

Net income attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

576

 

-

 

576

 

40

 

616

Dividends

 

-

 

-

 

-

 

(884)

 

-

 

(884)

 

-

 

(884)

Other comprehensive income

 

-

 

-

 

-

 

-

 

2,709

 

2,709

 

-

 

2,709

Current and deferred income taxes

 

-

 

-

 

(4)

 

-

 

-

 

(4)

 

-

 

(4)

Net increase due to acquisitions and consolidations

 

-

 

-

 

-

 

-

 

-

 

-

 

78

 

78

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

13

 

13

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

(131)

 

(131)

Other

 

-

 

4

 

220

 

(14)

 

-

 

210

 

(14)

 

196

Balance, end of period

$

4,766

$

(47,602)

$

80,976

$

28,389

$

5,939

$

72,468

$

544

$

73,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

4,766

$

(30,098)

$

81,510

$

30,943

$

2,537

$

89,658

$

552

$

90,210

Common stock issued under stock plans

 

-

 

86

 

(173)

 

-

 

-

 

(87)

 

-

 

(87)

Purchase of common stock

 

-

 

(8,506)

 

-

 

-

 

-

 

(8,506)

 

-

 

(8,506)

Net income (loss) attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

2,192

 

-

 

2,192

 

(35)

 

2,157

Dividends

 

-

 

-

 

-

 

(1,051)

 

-

 

(1,051)

 

-

 

(1,051)

Other comprehensive income (loss)

 

-

 

-

 

-

 

-

 

6,520

 

6,520

 

-

 

6,520

Current and deferred income taxes

 

-

 

-

 

19

 

-

 

-

 

19

 

-

 

19

Net increase due to acquisitions and consolidations

 

-

 

-

 

-

 

-

 

-

 

-

 

9

 

9

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

4

 

4

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

(31)

 

(31)

Other

 

-

 

-

 

(75)

 

(7)

 

-

 

(82)

 

3

 

(79)

Balance, end of period

$

4,766

$

(38,518)

$

81,281

$

32,077

$

9,057

$

88,663

$

502

$

89,165

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | Third Quarter 2017 Form 10-Q                5 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

Nine Months Ended September 30,

(in millions)

 

2017

 

2016

Cash flows from operating activities:

 

 

 

 

Net income

$

616

$

2,157

(Income) loss from discontinued operations

 

(7)

 

54

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

 

 

 

 

Noncash revenues, expenses, gains and losses included in income (loss):

 

 

 

 

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

 

(404)

 

(1,125)

Net (gain) loss on sale of divested businesses

 

173

 

(351)

(Gains) losses on extinguishment of debt

 

(4)

 

76

Unrealized losses in earnings - net

 

251

 

1,396

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

 

(338)

 

50

Depreciation and other amortization

 

2,806

 

2,814

Impairments of assets

 

669

 

872

Changes in operating assets and liabilities:

 

 

 

 

Insurance reserves

 

4,448

 

700

Premiums and other receivables and payables - net

 

300

 

347

Reinsurance assets and funds held under reinsurance treaties

 

(12,705)

 

(1,234)

Capitalization of deferred policy acquisition costs

 

(3,593)

 

(3,598)

Current and deferred income taxes - net

 

(508)

 

962

Other, net

 

(899)

 

(1,367)

Total adjustments

 

(9,804)

 

(458)

Net cash provided by (used in) operating activities

 

(9,195)

 

1,753

Cash flows from investing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Sales or distributions of:

 

 

 

 

Available for sale securities

 

27,733

 

22,077

Other securities

 

2,647

 

3,367

Other invested assets

 

4,396

 

5,255

Divested businesses, net

 

605

 

-

Maturities of fixed maturity securities available for sale

 

22,126

 

18,210

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

 

3,932

 

4,435

Purchases of:

 

 

 

 

Available for sale securities

 

(38,717)

 

(42,572)

Other securities

 

(355)

 

(557)

Other invested assets

 

(2,359)

 

(2,472)

Mortgage and other loans receivable

 

(6,517)

 

(7,784)

Net change in restricted cash

 

(23)

 

(49)

Net change in short-term investments

 

2,815

 

(855)

Other, net

 

(1,509)

 

1,270

Net cash provided by investing activities

 

14,774

 

325

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Policyholder contract deposits

 

13,164

 

13,584

Policyholder contract withdrawals

 

(11,363)

 

(9,986)

Issuance of long-term debt

 

2,405

 

11,430

Repayments of long-term debt

 

(2,751)

 

(7,683)

Purchase of common stock

 

(6,275)

 

(8,506)

Dividends paid

 

(884)

 

(1,051)

Other, net

 

578

 

915

Net cash used in financing activities

 

(5,126)

 

(1,297)

Effect of exchange rate changes on cash

 

(21)

 

88

Net increase in cash

 

432

 

869

Cash at beginning of year

 

1,868

 

1,629

Change in cash of businesses held for sale

 

133

 

-

Cash at end of period

$

2,433

$

2,498

 

 

 

 

 

Supplementary Disclosure of Condensed Consolidated Cash Flow Information

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

1,046

$

1,009

Taxes

$

490

$

208

Non-cash investing/financing activities:

 

 

 

 

Interest credited to policyholder contract deposits included in financing activities

$

2,494

$

2,691

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

AIG | Third Quarter 2017 Form 10-Q                6 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  1. Basis of Presentation

 

1. Basis of Presentation

American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 80 countries and jurisdictions. AIG companies serve commercial 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, 2016 (the 2016 Annual Report). The condensed consolidated financial information as of December 31, 2016 included herein has been derived from the audited Consolidated Financial Statements in the 2016 Annual Report.

Certain of our foreign subsidiaries included in the Condensed Consolidated Financial Statements report on different fiscal-period bases. The effect on our 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 considered for adjustment and/or disclosure. 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 September 30, 2017 and prior to the issuance of these Condensed Consolidated Financial Statements.

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:

     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 losses and loss adjustment expenses (loss reserves);

     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 policy acquisition costs for investment-oriented products;

     impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested assets, including 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.

AIG | Third Quarter 2017 Form 10-Q                7 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  2. Summary of Significant Accounting Policies 

 

2. Summary of Significant Accounting Policies

Accounting Standards Adopted During 2017

Derivative Contract Novations

In March 2016, the Financial Accounting Standards Board (FASB) issued an accounting standard that clarifies that a change in the counterparty (novation) to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. 

We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.

Contingent Put and Call Options in Debt Instruments

In March 2016, the FASB issued an accounting standard that clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The standard requires an evaluation of embedded call (put) options solely on a four-step decision sequence that requires an entity to consider whether (1) the amount paid upon settlement is adjusted based on changes in an index, (2) the amount paid upon settlement is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount and (4) the put or call option is contingently exercisable.

We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.

Simplifying the Transition to the Equity Method of Accounting

In March 2016, the FASB issued an accounting standard that eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods during which the investment had been held.

We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.

Interest Held through Related Parties that are under Common Control

In October 2016, the FASB issued an accounting standard that amends the consolidation analysis for a reporting entity that is the single decision maker of a variable interest entity (VIE).  The new guidance will require the decision maker’s evaluation of its interests held through related parties that are under common control on a proportionate basis (rather than in their entirety) when determining whether it is the primary beneficiary of that VIE.  The amendment does not change the characteristics of a primary beneficiary.

We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.

Future Application of Accounting Standards

Revenue Recognition

In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our other activities.

We have developed an implementation plan to adopt this standard using the modified retrospective approach on its required effective date of January 1, 2018.  Our analysis of revenues indicates that substantially all of our revenues are from sources excluded from the scope of the standard.  For those revenue sources within the scope of the standard, we do not expect material changes in the timing or measurement of revenues based upon our current interpretation of the guidance. We continue to refine our assessment of the impacts this standard is expected to have on our applicable revenue sources, financial statements and related disclosures.  However, as substantially all of our revenue sources are excluded from the scope of the standard, we do not expect the adoption of the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures

AIG | Third Quarter 2017 Form 10-Q                8 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  2. Summary of Significant Accounting Policies 

 

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued an accounting standard that will require equity investments that do not follow the equity method of accounting or are not subject to consolidation to be measured at fair value with changes in fair value recognized in earnings, while financial liabilities for which fair value option accounting has been elected, changes in fair value due to instrument-specific credit risk will be presented separately in other comprehensive income. The standard allows the election to record equity investments without readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes with changes in the carrying value of the equity investments recorded in earnings. The standard also updates certain fair value disclosure requirements for financial instruments carried at amortized cost.

We will adopt this standard on its effective date of January 1, 2018.  Based on our initial review, substantially all of our assets and liabilities are not within the scope of the standard. We do not expect the adoption of the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

Leases

In February 2016, the FASB issued an accounting standard that will require lessees with lease terms of more than 12 months to recognize a right of use asset and a corresponding lease liability on their balance sheets. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating leases or finance leases.

We plan to adopt the standard on its effective date of January 1, 2019 using a modified retrospective approach upon adoption. We are currently quantifying the expected recognition on our balance sheet for a right to use asset and a lease liability as required by the standard. We do not expect the impact of the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

Financial Instruments - Credit Losses

In June 2016, the FASB issued an accounting standard that will change how entities account for credit losses for most financial assets, trade receivables and reinsurance receivables.  The standard will replace the existing incurred loss impairment model with a new “current expected credit loss model” that generally will result in earlier recognition of credit losses.  The standard will apply to financial assets subject to credit losses, including loans measured at amortized cost, reinsurance receivables and certain off-balance sheet credit exposures.  Additionally, the impairment of available-for-sale debt securities, including purchased credit deteriorated securities, are subject to the new guidance and will be measured in a similar manner, except that losses will be recognized as allowances rather than reductions in the amortized cost of the securities.  The standard will also require additional information to be disclosed in the footnotes.

The standard is effective on January 1, 2020, with early adoption permitted on January 1, 2019.  We are continuing to develop our implementation plan to adopt the standard and are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.  While we expect an increase in our allowances for credit losses for the financial instruments within scope of the standard, given the objective of the new standard, the amount of any change will be dependent on our portfolios’ composition and quality at the adoption date as well as economic conditions and forecasts at that time.

Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued an accounting standard that addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide clarity on the treatment of eight specifically defined types of cash inflows and outflows. The standard is effective on January 1, 2018 using a retrospective transition method to each period presented or prospectively if adoption of an issue is impracticable.   

We continue to refine our analysis of certain cash flow types and intend to adopt this standard on its required effective date of January 1, 2018.  The standard addresses presentation in the statement of cash flows only and will have no effect on our reported consolidated financial condition, results of operations or required disclosures.  

Intra-Entity Transfers of Assets Other than Inventory

In October 2016, the FASB issued an accounting standard that will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to a third party.

We plan to adopt the standard on its effective date of January 1, 2018 using a modified retrospective approach upon adoption.  We are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.

 

 

AIG | Third Quarter 2017 Form 10-Q                9 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  2. Summary of Significant Accounting Policies 

 

Restricted Cash

In November 2016, the FASB issued an accounting standard that provides guidance on the presentation of restricted cash in the Statement of Cash Flows.  Entities will be required to explain the changes during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows. 

We plan to adopt the standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation of restricted cash in the Statement of Cash Flows only and will have no effect on our reported consolidated financial condition, results of operations or required disclosures.

Clarifying the Definition of a Business

In January 2017, the FASB issued an accounting standard that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The new standard will require an entity to evaluate if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar assets; if so, the set of transferred assets and activities is not a business.  At a minimum, a set must include an input and a substantive process that together significantly contribute to the ability to create output. 

The standard is effective on January 1, 2018, with early adoption permitted.  We are evaluating the timing of adoption and are assessing the impact of the standard on our reported consolidated financial condition, results of operations and cash flows.  Because the standard requires prospective adoption, the impact is dependent on future acquisitions, dispositions and those entities that we consolidate due to obtaining a controlling financial interest.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued an accounting standard that eliminates the requirement to calculate the implied fair value of goodwill, through a hypothetical purchase price allocation, to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value not to exceed the total amount of goodwill allocated to that reporting unit.  An entity should also consider income tax effects from tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.  

The standard is effective on January 1, 2020, with early adoption permitted on testing dates after January 1, 2017.  We are evaluating the timing of our adoption. The impact of the standard will be dependent on the market conditions of the reporting units at the time of adoption.

Gains and Losses from the Derecognition of Nonfinancial Assets

In February 2017, the FASB issued an accounting standard that clarifies the scope and application of Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, to the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. The standard clarifies that a parent transferring its ownership interest in a consolidated subsidiary is within the scope of the accounting standard if substantially all of the fair value of the assets within that subsidiary are nonfinancial assets. The standard also clarifies that the derecognition of all businesses and nonprofit activities should be accounted for in accordance with the derecognition and deconsolidation guidance. The standard also eliminates the exception in the financial asset guidance for transfers of investments (including equity method investments) in real estate entities. An entity is required to apply the amendments in this update at the same time that it applies the amendments in revenues from contracts with customers. 

The standard is effective on January 1, 2018 and may be applied retrospectively to each period presented or through a cumulative effect adjustment to retained earnings at the date of adoption (modified retrospective approach). We are evaluating the timing of adoption and are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.

Improving the Presentation of Net Periodic Pension and Postretirement Benefit Cost

In March 2017, the FASB issued an accounting standard that requires entities to report the service cost component of net periodic pension and postretirement benefit costs in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit costs are required to be separately presented in the income statement. The amendments also allow only the service cost component to be eligible for capitalization when applicable.

We will adopt this standard on its effective date of January 1, 2018 by retrospectively presenting the service cost and other components, and prospectively capitalizing the service cost component. The standard addresses presentation of net periodic benefit costs in the income statement and will have no effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

AIG | Third Quarter 2017 Form 10-Q                10 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  2. Summary of Significant Accounting Policies 

 

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued an accounting standard that shortens the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date.  The standard does not require an accounting change for securities held at a discount, which continue to be amortized to maturity. 

We plan to adopt the standard retrospectively on its effective date, January 1, 2019. We do not expect the standard to have a material impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

Modification of Share-Based Payment Awards

In May 2017, the FASB issued an accounting standard that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.  

We will prospectively adopt this standard on its effective date of January 1, 2018 and do not expect the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.         

Derivatives and Hedging

In August 2017, the FASB issued an accounting standard that improves and expands hedge accounting for both financial and commodity risks. The provisions of the amendment are intended to better align the accounting with an entity’s risk management activities, enhance the transparency on how the economic results are presented in the financial statements and the footnote, and simplify the application of hedge accounting treatment.

The standard is effective on January 1, 2019, with early adoption permitted. We are evaluating the timing of adoption and are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.  

 

3. Segment Information

We report our results of operations consistent with the manner in which our chief operating decision makers review the business to assess performance and allocate resources.

We report our results of operations as follows:

·      Commercial Insurance business is presented as two operating segments:

-   Liability and Financial Lines

-    Property and Special Risks

·      Consumer Insurance business is presented as four operating segments:

-    Individual Retirement

-    Group Retirement

-    Life Insurance

-    Personal Insurance

·      The Other Operations category consists of:

-    Institutional Markets

-    Income from assets held by AIG Parent and other corporate subsidiaries

-    General operating expenses not attributable to specific reporting segments

-    Interest expense

-    United Guaranty Corporation (United Guaranty) — The sale of this business was completed on December 31, 2016 

-    AIG Fuji Life Insurance Company, Ltd. (Fuji Life) — The sale of this business was completed on April 30, 2017

·      The Legacy Portfolio segment consists of:

-    Legacy Property and Casualty Run-Off Insurance Lines

-    Legacy Life Insurance Run-Off Lines

-    Legacy Investments

AIG | Third Quarter 2017 Form 10-Q                11 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  3. Segment Information 

 

We evaluate segment performance based on operating revenues and pre-tax operating income (loss). Operating revenues and pre-tax operating income (loss) are derived by excluding certain items from total revenues and net income (loss) attributable to AIG, respectively. See the table below for the items excluded from operating revenues and pre-tax operating income (loss).

The following table presents AIG’s continuing operations by operating segment:

Three Months Ended September 30,

2017

 

2016

 

 

 

 

Pre-Tax

 

 

 

 

Pre-Tax

 

 

Total

 

Operating

 

 

Total

 

Operating

(in millions)

 

 Revenues 

 

Income (Loss)

 

 

 Revenues 

 

Income (Loss)

Commercial Insurance

 

 

 

 

 

 

 

 

 

Liability and Financial Lines

$

2,848

$

(257)

 

$

3,379

$

948

Property and Special Risks

 

1,744

 

(2,605)

 

 

2,037

 

(263)

      Total Commercial Insurance

 

4,592

 

(2,862)

 

 

5,416

 

685

Consumer Insurance

 

 

 

 

 

 

 

 

 

Individual Retirement

 

1,343

 

718

 

 

1,380

 

920

Group Retirement

 

702

 

249

 

 

717

 

214

Life Insurance

 

1,000

 

112

 

 

921

 

(54)

Personal Insurance

 

2,909

 

(71)

 

 

2,991

 

148

      Total Consumer Insurance

 

5,954

 

1,008

 

 

6,009

 

1,228

Other Operations

 

1,218

 

(287)

 

 

1,003

 

(164)

Legacy Portfolio

 

1,013

 

286

 

 

1,312

 

(99)

AIG Consolidation and elimination

 

(119)

 

(1)

 

 

(144)

 

(6)

Total AIG Consolidated revenues and pre-tax operating income

 

12,658

 

(1,856)

 

 

13,596

 

1,644

Reconciling Items from revenues and pre-tax operating income to

 

 

 

 

 

 

 

 

 

revenues and pre-tax income (loss):

 

 

 

 

 

 

 

 

 

Changes in fair value of securities used to hedge guaranteed

 

 

 

 

 

 

 

 

 

living benefits

 

26

 

26

 

 

17

 

17

Changes in benefit reserves and DAC, VOBA and SIA related to

 

 

 

 

 

 

 

 

 

net realized capital gains

 

-

 

84

 

 

-

 

(67)

(Unfavorable) favorable prior year development and related amortization

 

 

 

 

 

 

 

 

 

changes ceded under retroactive reinsurance agreements

 

-

 

7

 

 

-

 

3

Gain (Loss) on extinguishment of debt

 

-

 

(1)

 

 

-

 

14

Net realized capital losses

 

(922)

 

(922)

 

 

(765)

 

(765)

Gain (loss) from divested businesses

 

-

 

(13)

 

 

-

 

128

Non-operating litigation reserves and settlements

 

1

 

-

 

 

1

 

5

Net loss reserve discount (benefit) charge

 

-

 

(48)

 

 

-

 

(32)

Pension expense related to a one-time lump sum payment to former employees

 

-

 

(49)

 

 

-

 

-

Restructuring and other costs

 

-

 

(31)

 

 

-

 

(210)

Other

 

(12)

 

-

 

 

5

 

-

Revenues and Pre-tax income (loss)

$

11,751

$

(2,803)

 

$

12,854

$

737

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

2017

 

2016

 

 

 

 

Pre-Tax

 

 

 

 

Pre-Tax

 

 

Total

 

Operating

 

 

Total

 

Operating

(in millions)

 

 Revenues 

 

Income (Loss)

 

 

 Revenues 

 

Income (Loss)

Commercial Insurance

 

 

 

 

 

 

 

 

 

Liability and Financial Lines

$

8,443

$

903

 

$

10,118

$

2,332

Property and Special Risks

 

5,365

 

(2,200)

 

 

6,140

 

(44)

      Total Commercial Insurance

 

13,808

 

(1,297)

 

 

16,258

 

2,288

 

AIG | Third Quarter 2017 Form 10-Q                12 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  3. Segment Information 

 

Consumer Insurance

 

 

 

 

 

 

 

 

 

Individual Retirement

 

4,099

 

1,815

 

 

4,382

 

1,727

Group Retirement

 

2,116

 

758

 

 

2,053

 

670

Life Insurance

 

3,043

 

272

 

 

2,862

 

(27)

Personal Insurance

 

8,618

 

471

 

 

8,735

 

510

      Total Consumer Insurance

 

17,876

 

3,316

 

 

18,032

 

2,880

Other Operations

 

3,207

 

(835)

 

 

3,015

 

(565)

Legacy Portfolio

 

3,235

 

1,059

 

 

3,003

 

(94)

AIG Consolidation and elimination

 

(237)

 

75

 

 

(406)

 

-

Total AIG Consolidated revenues and pre-tax operating income

 

37,889

 

2,318

 

 

39,902

 

4,509

Reconciling Items from revenues and pre-tax operating income to

 

 

 

 

 

 

 

 

 

revenues and pre-tax income:

 

 

 

 

 

 

 

 

 

Changes in fair value of securities used to hedge guaranteed

 

 

 

 

 

 

 

 

 

living benefits

 

117

 

117

 

 

270

 

270

Changes in benefit reserves and DAC, VOBA and SIA related to

 

 

 

 

 

 

 

 

 

net realized capital gains

 

-

 

195

 

 

-

 

(91)

(Unfavorable) favorable prior year development and related amortization

 

 

 

 

 

 

 

 

 

changes ceded under retroactive reinsurance agreements

 

-

 

(258)

 

 

-

 

15

Gain (Loss) on extinguishment of debt

 

-

 

4

 

 

-

 

(76)

Net realized capital losses

 

(1,106)

 

(1,106)

 

 

(829)

 

(829)

Gain (loss) from divested businesses

 

-

 

(173)

 

 

-

 

351

Non-operating litigation reserves and settlements

 

17

 

86

 

 

42

 

43

Net loss reserve discount (benefit) charge

 

-

 

(283)

 

 

-

 

(323)

Pension expense related to a one-time lump sum payment to former employees

 

-

 

(50)

 

 

-

 

-

Restructuring and other costs

 

-

 

(259)

 

 

-

 

(488)

Other

 

(32)

 

-

 

 

(28)

 

-

Revenues and Pre-tax income

$

36,885

$

591

 

$

39,357

$

3,381

 

4. Held-For-Sale Classification

Held-For-Sale Classification

We report a business as held-for-sale when management has approved the sale or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A business classified as held-for-sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized.

Assets and liabilities related to the businesses classified as held-for-sale are separately reported in our Consolidated Balance Sheets beginning in the period in which the business is classified as held-for-sale.

Fuji Life and AIG United Guaranty Insurance (Asia) Limited, both previously classified as held-for-sale, were sold on April 30, 2017 and July 1, 2017, respectively. At September 30, 2017, we had no businesses classified as held-for-sale.

On October 18, 2016, we entered into agreements to sell certain insurance operations to Fairfax Financial Holdings Limited (Fairfax). The agreements include the sale of our subsidiary operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey. Fairfax will also acquire renewal rights for the portfolios of local business written by our operations in Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia, and assume certain of our operating assets and employees. Total cash consideration to us is expected to be approximately $234 million. The transaction is closing on a country-by-country basis as the regulatory approvals are obtained.  In the second quarter of 2017, the sale of operations in Turkey as well as the renewal rights in Bulgaria, the Czech Republic, Hungary, Poland and Slovakia were completed, which resulted in total cash proceeds of $48 million. In the third quarter of 2017, the sale of the operations in Colombia, Chile and Argentina were completed, which resulted in cash proceeds of $168 million. Substantially all of the operations and renewal rights that we agreed to sell Fairfax were sold at September 30, 2017.

AIG | Third Quarter 2017 Form 10-Q                13 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  4. Held-For-Sale Classification

 

The following table summarizes the components of assets and liabilities held-for-sale on the Condensed Consolidated Balance Sheets at December 31, 2016*:

 

December 31,

(in millions)

 

2016

Assets:

 

 

   Fixed maturity securities

$

6,045

   Equity securities

 

149

   Mortgage and other loans receivable, net

 

137

   Other invested assets

 

2

   Short-term investments

 

130

   Cash

 

133

Accrued investment income

 

21

   Premiums and other receivables, net of allowance

 

351

Reinsurance assets, net of allowance

 

8

   Deferred policy acquisition costs

 

471

   Other assets

 

273

Assets of businesses held for sale

 

7,720

Less: Loss Accrual

 

(521)

Total assets held for sale

$

7,199

Liabilities:

 

 

   Liability for unpaid losses and loss adjustment expenses

$

402

   Unearned premiums

 

297

Future policy benefits for life and accident and health insurance contracts

 

4,579

Other policyholder funds

 

378

   Other liabilities

 

450

Total liabilities held for sale

$

6,106

*    Excludes net intercompany assets of $384 million at December 31, 2016, that are eliminated in consolidation.

 

 

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 (unadjusted) 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.

AIG | Third Quarter 2017 Form 10-Q                14 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  5. Fair Value Measurements

 

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:

September 30, 2017

 

  

 

  

 

  

Counterparty

Cash

 

(in millions)

 

 Level 1

 

Level 2

 

Level 3

 

Netting(b)

Collateral

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale: