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, 2019

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 every Interactive Data File required to be submitted 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 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

 

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 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, Par Value $2.50 Per Share

AIG

New York Stock Exchange

Warrants (expiring January 19, 2021)

AIG WS

New York Stock Exchange

5.75% Series A-2 Junior Subordinated Debentures

AIG 67BP

New York Stock Exchange

4.875% Series A-3 Junior Subordinated Debentures

AIG 67EU

New York Stock Exchange

Stock Purchase Rights

 

New York Stock Exchange

Depository Shares Each Representing a 1/1,000th Interest in a Share of Series A 5.85% Non-Cumulative Perpetual Preferred Stock

AIG PRA

New York Stock Exchange

 

As of May 2, 2019, there were 869,753,584 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, 2019

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

8

 

Note 2.

Summary of Significant Accounting Policies

9

 

Note 3.

Segment Information

11

 

Note 4

Business Combination

13

 

Note 5.

Fair Value Measurements

13

 

Note 6.

Investments

27

 

Note 7.

Lending Activities

36

 

Note 8.

Variable Interest Entities

38

 

Note 9.

Derivatives and Hedge Accounting

39

 

Note 10.

Insurance Liabilities

43

 

Note 11.

Contingencies, Commitments and Guarantees

45

 

Note 12.

Equity

47

 

Note 13.

Earnings Per Share

51

 

Note 14.  

Employee Benefits

52

 

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

63

 

·        Critical Accounting Estimates

65

 

·        Executive Summary

65

 

·        Consolidated Results of Operations

72

 

·        Business Segment Operations

76

 

·        Investments

102

 

·        Insurance Reserves

114

 

·        Liquidity and Capital Resources

122

 

·        Enterprise Risk Management

134

 

·        Regulatory Environment

134

 

·        Glossary

135

 

·        Acronyms

138

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

139

ITEM 4

Controls and Procedures

139

Part II — Other Information
 

ITEM 1

Legal Proceedings

140

ITEM 1A

Risk Factors

140

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

140

ITEM 4

Mine Safety Disclosures

140

ITEM 6

Exhibits

141

Signatures
142

  

 

AIG | First Quarter 2019 Form 10-Q          1

 


TABLE OF CONTENTS 

 

 

 

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)

 

2019

 

2018

Assets:

 

 

 

 

Investments:

 

 

 

 

Fixed maturity securities:

 

 

 

 

Bonds available for sale, at fair value (amortized cost: 2019 - $228,608; 2018 - $225,780)

$

238,201

$

229,391

Other bond securities, at fair value (See  Note 6

 

11,511

 

11,415

Equity Securities, at fair value (See Note 6)

 

841

 

1,253

Mortgage and other loans receivable, net of allowance

 

43,834

 

43,135

Other invested assets (portion measured at fair value: 2019 - $5,759; 2018 - $5,894)

 

19,343

 

19,341

Short-term investments, including restricted cash of $251 in 2019 and $142 in 2018

 

 

 

 

(portion measured at fair value: 2019 - $4,040; 2018 - $3,015)

 

11,133

 

9,674

Total investments

 

324,863

 

314,209

 

 

 

 

 

Cash

 

2,565

 

2,873

Accrued investment income

 

2,482

 

2,389

Premiums and other receivables, net of allowance

 

12,655

 

11,011

Reinsurance assets, net of allowance

 

40,558

 

38,172

Deferred income taxes

 

14,545

 

15,221

Deferred policy acquisition costs

 

12,128

 

12,694

Other assets, including restricted cash of $363 in 2019 and $343 in 2018

 

 

 

 

(portion measured at fair value: 2019 - $951; 2018 - $973)

 

14,308

 

13,568

Separate account assets, at fair value

 

88,818

 

81,847

Total assets

$

512,922

$

491,984

Liabilities:

 

 

 

 

Liability for unpaid losses and loss adjustment expenses

$

82,496

$

83,639

Unearned premiums

 

20,812

 

19,248

Future policy benefits for life and accident and health insurance contracts

 

46,508

 

44,935

Policyholder contract deposits (portion measured at fair value: 2019 - $4,878; 2018 - $4,116)

 

145,380

 

142,262

Other policyholder funds

 

3,493

 

3,568

Other liabilities (portion measured at fair value: 2019 - $1,421; 2018 - $1,265)

 

27,546

 

24,636

Long-term debt (portion measured at fair value: 2019 - $2,263; 2018 - $2,213)

 

35,776

 

34,540

Separate account liabilities

 

88,818

 

81,847

Total liabilities

 

450,829

 

434,675

Contingencies, commitments and guarantees (See Note 11

 

 

 

 

 

 

 

 

 

AIG shareholders’ equity:

 

 

 

 

Series A Non-cumulative preferred stock and additional paid in capital, $5.00 par value; 100,000,000 shares

 

 

 

 

authorized; shares issued: 2019 - 20,000 and 2018 - 0; liquidation preference $500

 

485

 

-

Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2019 - 1,906,671,492 and

 

 

 

 

2018 - 1,906,671,492

 

4,766

 

4,766

Treasury stock, at cost; 2019 - 1,036,934,591 shares; 2018 - 1,040,062,063 shares of common stock

 

(48,999)

 

(49,144)

Additional paid-in capital

 

81,148

 

81,268

Retained earnings

 

21,259

 

20,884

Accumulated other comprehensive income (loss)

 

2,128

 

(1,413)

Total AIG shareholders’ equity

 

60,787

 

56,361

Non-redeemable noncontrolling interests

 

1,306

 

948

Total equity

 

62,093

 

57,309

Total liabilities and equity

$

512,922

$

491,984

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

2          AIG | First Quarter 2019 Form 10-Q 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Income (unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

(dollars in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Premiums

 

 

 

 

 

 

 

 

 

$

8,070

 

$

7,275

   Policy fees

 

 

 

 

 

 

 

 

 

 

735

 

 

764

   Net investment income

 

 

 

 

 

 

 

 

 

 

3,879

 

 

3,261

   Net realized capital losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

(80)

 

 

(75)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         fixed maturity securities recognized in Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

(3)

 

 

(12)

      Net other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         securities recognized in net income

 

 

 

 

 

 

 

 

 

 

(83)

 

 

(87)

      Other realized capital gains (losses)

 

 

 

 

 

 

 

 

 

 

(363)

 

 

68

         Total net realized capital losses

 

 

 

 

 

 

 

 

 

 

(446)

 

 

(19)

   Other income

 

 

 

 

 

 

 

 

 

 

218

 

 

431

Total revenues

 

 

 

 

 

 

 

 

 

 

12,456

 

 

11,712

Benefits, losses and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Policyholder benefits and losses incurred

 

 

 

 

 

 

 

 

 

 

6,679

 

 

5,667

   Interest credited to policyholder account balances

 

 

 

 

 

 

 

 

 

 

940

 

 

916

   Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

 

 

1,289

 

 

1,358

   General operating and other expenses

 

 

 

 

 

 

 

 

 

 

2,053

 

 

2,271

   Interest expense

 

 

 

 

 

 

 

 

 

 

349

 

 

277

   (Gain) loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

(2)

 

 

4

   Net gain on sale of divested businesses

 

 

 

 

 

 

 

 

 

 

(6)

 

 

(8)

Total benefits, losses and expenses

 

 

 

 

 

 

 

 

 

 

11,302

 

 

10,485

Income from continuing operations before income tax expense

 

 

 

 

 

 

 

1,154

 

 

1,227

Income tax expense

 

 

 

 

 

 

 

 

 

 

217

 

 

277

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

937

 

 

950

Loss from discontinued operations, net of income tax expense

 

 

 

 

 

 

 

 

 

 

-

 

 

(1)

Net income

 

 

 

 

 

 

 

 

 

 

937

 

 

949

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   noncontrolling interests

 

 

 

 

 

 

 

 

 

 

283

 

 

11

Net income attributable to AIG

 

 

 

 

 

 

 

 

 

$

654

 

$

938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share attributable to AIG:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Income from continuing operations

 

 

 

 

 

 

 

 

 

$

0.75

 

$

1.03

      Income from discontinued operations

 

 

 

 

 

 

 

 

 

$

-

 

$

-

      Net income attributable to AIG

 

 

 

 

 

 

 

 

 

$

0.75

 

$

1.03

   Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Income from continuing operations

 

 

 

 

 

 

 

 

 

$

0.75

 

$

1.01

      Income from discontinued operations

 

 

 

 

 

 

 

 

 

$

-

 

$

-

      Net income attributable to AIG

 

 

 

 

 

 

 

 

 

$

0.75

 

$

1.01

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

 

 

 

 

 

 

 

 

 

 

875,383,084

 

 

907,951,597

   Diluted

 

 

 

 

 

 

 

 

 

 

877,512,244

 

 

925,266,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

AIG | First Quarter 2019 Form 10-Q          3

 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

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

 

Three Months Ended March 31,

(in millions)

 

2019

 

 

2018

Net income

$

937

 

$

949

Other comprehensive income (loss), net of tax

 

 

 

 

 

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

 

 

 

 

 

other-than-temporary credit impairments were taken

 

676

 

 

(150)

   Change in unrealized appreciation (depreciation) of all other investments

 

2,708

 

 

(2,708)

   Change in foreign currency translation adjustments

 

164

 

 

158

   Change in retirement plan liabilities adjustment

 

(1)

 

 

29

Change in fair value of liabilities under fair value option attributable to changes in own credit risk

 

-

 

 

2

Other comprehensive income (loss)

 

3,547

 

 

(2,669)

Comprehensive income (loss)

 

4,484

 

 

(1,720)

Comprehensive income attributable to noncontrolling interests

 

289

 

 

11

Comprehensive income (loss) attributable to AIG

$

4,195

 

$

(1,731)

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

4          AIG | First Quarter 2019 Form 10-Q 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Equity (unaudited)

 

 

Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

Accumulated

 

Total AIG

 

redeemable

 

 

 

Additional

 

 

 

 

 

Additional

 

 

 

Other

 

Share-

 

Non-

 

 

 

 

Paid-in

 

Common

 

Treasury

 

Paid-in

 

Retained

Comprehensive

 

holders'

 

controlling

 

Total

(in millions)

 

Capital

 

Stock

 

Stock

 

Capital

 

Earnings

Income (Loss)

 

Equity

 

Interests

 

Equity

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

-

$

4,766

$

(49,144)

$

81,268

$

20,884

$

(1,413)

$

56,361

$

948

$

57,309

Preferred stock issued

 

485

 

-

 

-

 

-

 

-

 

-

 

485

 

-

 

485

Common stock issued under stock plans

 

-

 

-

 

145

 

(222)

 

-

 

-

 

(77)

 

-

 

(77)

Purchase of common stock

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Net income attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

654

 

-

 

654

 

283

 

937

Dividends

 

-

 

-

 

-

 

-

 

(278)

 

-

 

(278)

 

-

 

(278)

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

3,541

 

3,541

 

6

 

3,547

Current and deferred income taxes

 

-

 

-

 

-

 

(1)

 

-

 

-

 

(1)

 

-

 

(1)

Net increase due to acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and consolidations

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

108

 

108

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

12

 

12

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(59)

 

(59)

Other

 

-

 

-

 

-

 

103

 

(1)

 

-

 

102

 

8

 

110

Balance, end of period

$

485

$

4,766

$

(48,999)

$

81,148

$

21,259

$

2,128

$

60,787

$

1,306

$

62,093

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

-

$

4,766

$

(47,595)

$

81,078

$

21,457

$

5,465

$

65,171

$

537

$

65,708

Cumulative effect of change in accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

principle, net of tax

 

-

 

-

 

-

 

-

 

568

 

(576)

 

(8)

 

-

 

(8)

Common stock issued under stock plans

 

-

 

-

 

186

 

(336)

 

-

 

-

 

(150)

 

-

 

(150)

Purchase of common stock

 

-

 

-

 

(298)

 

-

 

-

 

-

 

(298)

 

-

 

(298)

Net income attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

938

 

-

 

938

 

11

 

949

Dividends

 

-

 

-

 

-

 

-

 

(289)

 

-

 

(289)

 

-

 

(289)

Other comprehensive income (loss)

 

-

 

-

 

-

 

-

 

-

 

(2,669)

 

(2,669)

 

-

 

(2,669)

Net increase due to acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and consolidations

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

36

 

36

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

10

 

10

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(25)

 

(25)

Other

 

-

 

-

 

1

 

99

 

(3)

 

-

 

97

 

(4)

 

93

Balance, end of period

$

-

$

4,766

$

(47,706)

$

80,841

$

22,671

$

2,220

$

62,792

$

565

$

63,357

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | First Quarter 2019 Form 10-Q          5

 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

Three Months Ended March 31,

(in millions)

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

Net income

$

937

$

949

Loss from discontinued operations

 

-

 

1

Adjustments to reconcile net income to net cash 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

 

(22)

 

(120)

Net gain on sale of divested businesses

 

(6)

 

(8)

(Gains) losses on extinguishment of debt

 

(2)

 

4

Unrealized losses in earnings - net

 

367

 

268

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

 

(83)

 

(86)

Depreciation and other amortization

 

1,299

 

1,382

Impairments of assets

 

125

 

105

Changes in operating assets and liabilities:

 

 

 

 

Insurance reserves

 

596

 

137

Premiums and other receivables and payables - net

 

315

 

400

Reinsurance assets and funds held under reinsurance treaties

 

(2,495)

 

(1,706)

Capitalization of deferred policy acquisition costs

 

(1,420)

 

(1,397)

Current and deferred income taxes - net

 

167

 

250

Other, net

 

(754)

 

(1,117)

Total adjustments

 

(1,913)

 

(1,888)

Net cash used in operating activities

 

(976)

 

(938)

Cash flows from investing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Sales or distributions of:

 

 

 

 

Available for sale securities

 

6,370

 

5,638

Other securities

 

1,034

 

1,385

Other invested assets

 

1,118

 

1,064

Divested businesses, net

 

-

 

6

Maturities of fixed maturity securities available for sale

 

4,957

 

5,347

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

 

861

 

1,037

Purchases of:

 

 

 

 

Available for sale securities

 

(12,757)

 

(9,042)

Other securities

 

(287)

 

(384)

Other invested assets

 

(567)

 

(847)

Mortgage and other loans receivable

 

(1,504)

 

(2,490)

Net change in short-term investments

 

(1,221)

 

(3,040)

Other, net

 

17

 

(646)

Net cash used in investing activities

 

(1,979)

 

(1,972)

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Policyholder contract deposits

 

5,629

 

7,069

Policyholder contract withdrawals

 

(4,195)

 

(4,160)

Issuance of long-term debt

 

1,449

 

3,039

Repayments of long-term debt

 

(589)

 

(1,327)

Issuance of preferred stock

 

485

 

-

Purchase of common stock

 

-

 

(298)

Dividends paid

 

(278)

 

(289)

Other, net

 

263

 

(1,548)

Net cash provided by financing activities

 

2,764

 

2,486

Effect of exchange rate changes on cash and restricted cash

 

12

 

58

Net decrease in cash and restricted cash

 

(179)

 

(366)

Cash and restricted cash at beginning of year

 

3,358

 

2,737

Cash and restricted cash at end of period

$

3,179

$

2,371

6          AIG | First Quarter 2019 Form 10-Q 


TABLE OF CONTENTS 

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)(continued)

Supplementary Disclosure of Condensed Consolidated Cash Flow Information

 

Three Months Ended March 31,

(in millions)

 

2019

 

2018

Cash

$

2,565

$

2,103

Restricted cash included in Short-term investments*

 

251

 

47

Restricted cash included in Other assets*

 

363

 

221

Total cash and restricted cash shown in the Condensed Consolidated Statements of Cash Flows

$

3,179

$

2,371

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

315

$

357

Taxes

$

50

$

28

Non-cash investing/financing activities:

 

 

 

 

Interest credited to policyholder contract deposits included in financing activities

$

878

$

825

 

 

 

 

 

*    Includes funds held for tax sharing payments to AIG Parent, security deposits, and replacement reserve deposits related to our affordable housing investments. 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

AIG | First Quarter 2019 Form 10-Q          7

 


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). 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, 2018 (the 2018 Annual Report). The condensed consolidated financial information as of December 31, 2018 included herein has been derived from the audited Consolidated Financial Statements in the 2018 Annual Report.

Certain of our foreign subsidiaries included in the Condensed Consolidated Financial Statements report on the basis of fiscal period ending November 30. 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 March 31, 2019 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:

      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;

      valuation of embedded derivatives for fixed index annuity and life 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;

      allowances for loan losses;

      liability for legal contingencies;

      fair value measurements of certain financial assets and liabilities; and

      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 and estimates associated with the Tax Act.

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.

 

8          AIG | First Quarter 2019 Form 10-Q 


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 2019

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued an accounting standard that requires 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. Lessor accounting remained largely the same, with the exception of certain specified changes.

We adopted the standard on its effective date of January 1, 2019, using a modified retrospective approach and did not adjust prior comparative periods in accordance with the standard’s transition guidance. The majority of the Company’s lease obligations pertain to real estate utilized in the operation of our businesses. Consequently, the primary impact of adoption resulted in the recognition of discounted lease liabilities of $823 million and corresponding right-of-use assets of $724 million for operating leases pertaining to our real estate portfolio, which are reflected in Other Liabilities and Other Assets, respectively. The standard did not have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

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 adopted the standard using a modified retrospective approach on its effective date of January 1, 2019. The standard did not have a material impact 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 standard 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 disclosures, and simplify the application of hedge accounting treatment.

We adopted the standard on its effective date of January 1, 2019. The standard did not have a material impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

Future Application of Accounting Standards

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.

We plan to adopt the standard on its effective date of January 1, 2020. 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.

AIG | First Quarter 2019 Form 10-Q          9

 


TABLE OF CONTENTS 

 

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

 

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. We are evaluating the timing of our adoption. Any impact of the standard will be dependent on the market conditions of the reporting units at the time of adoption.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued an accounting standard update with the objective of making targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The standard prescribes significant and comprehensive changes to recognition, measurement, presentation and disclosure as summarized below:

·        Requires the review and if necessary update of future policy benefit assumptions at least annually for traditional and limited pay long duration contracts, with the recognition and separate presentation of any resulting re-measurement gain or loss (except for discount rate changes as noted below) in the income statement.

·        Requires the discount rate assumption to be updated at the end of each reporting period using an upper medium grade (low-credit risk) fixed income instrument yield that maximizes the use of observable market inputs and recognizes the impact of changes to discount rates in other comprehensive income.

·        Simplifies the amortization of deferred acquisition costs (DAC) to a constant level basis over the expected term of the related contracts with adjustments for unexpected terminations, but no longer requires an impairment test.

·        Requires the measurement of all market risk benefits associated with deposit (or account balance) contracts at fair value through the income statement with the exception of instrument-specific credit risk changes, which will be recognized in other comprehensive income.

·        Increased disclosures of disaggregated roll-forwards of policy benefits, account balances, market risk benefits, separate account liabilities and information about significant inputs, judgments and methods used in measurement and changes thereto and impact of those changes.

We plan to adopt the standard on its effective date of January 1, 2021. We are evaluating the method of adoption and impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.  The adoption of this standard is expected to have a significant impact on our consolidated financial condition, results of operations, cash flows and required disclosures, as well as systems, processes and controls.

RECLASSIFICATIONS

In the first quarter of 2019, we began reporting investment income from our non-insurance subsidiaries in Net investment income instead of Other income on a prospective basis to be consistent with how we report investment income from our General Insurance and Life and Retirement reporting segments. This reclassification has no impact to our consolidated statement of operations.  

 

10          AIG | First Quarter 2019 Form 10-Q 


TABLE OF CONTENTS 

 

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

 

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, as follows:

General Insurance

General Insurance business is presented as two operating segments:

·       North America  — consists of insurance businesses in the United States, Canada and Bermuda. This also includes the results of Validus Reinsurance, Ltd., Western World Insurance Group, Inc. and Glatfelter Insurance Group. as of their respective acquisition dates.

·       International  — consists of insurance businesses in Japan, the United Kingdom, Europe, Asia Pacific, Latin America, Puerto Rico, Australia, the Middle East and Africa. This also includes the results of Talbot Holdings, Ltd. as of its acquisition date.

Results are presented before internal reinsurance transactions.  North America and International operating segments consist of the following products:

–     Commercial Lines — consists of Liability, Financial Lines, Property and Special Risks.

–     Personal Insurance — consists of Personal Lines and Accident and Health.

Life and Retirement

Life and Retirement business is presented as four operating segments:

·       Individual Retirement — consists of fixed annuities, fixed index annuities, variable annuities and retail mutual funds.

·       Group Retirement — consists of group mutual funds, group annuities, individual annuity and investment products, and financial planning and advisory services.

·       Life Insurance — primary products in the U.S. include term life and universal life insurance. International operations include distribution of life and health products in the UK and Ireland.

·       Institutional Markets — consists of stable value wrap products, structured settlement and pension risk transfer annuities, corporate- and bank-owned life insurance and guaranteed investment contracts (GICs).

Other Operations

Other Operations category consists of:

·       Income from assets held by AIG Parent and other corporate subsidiaries.

·       General operating expenses not attributable to specific reporting segments.

·       Interest expense.

·       Blackboard  — a subsidiary focused on delivering commercial insurance solutions using digital technology, data analytics and automation.

Legacy Portfolio

Legacy Portfolio represents exited or discontinued product lines, policy forms or distribution channels. Effective February 2018, our Bermuda domiciled composite reinsurer, Fortitude Reinsurance Company Ltd. (Fortitude Re), is included in our Legacy Portfolio.

·       Legacy Life and Retirement Run-Off Lines Reserves consist of certain structured settlements, pension risk transfer annuities and single premium immediate annuities written prior to April 2012.  Also includes exposures to whole life, long-term care and exited accident & health product lines.

·       Legacy General Insurance Run-Off Lines Reserves consist of excess workers’ compensation, environmental exposures and exposures to other products within General Insurance that are no longer actively marketed.  Also includes the remaining reserves in Eaglestone Reinsurance Company (Eaglestone). 

·       Legacy Investments Includes investment classes that we have placed into run-off including holdings in direct investments as well as investments in global capital markets and global real estate.

AIG | First Quarter 2019 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 adjusted revenues and adjusted pre-tax income (loss). Adjusted revenues and adjusted pre-tax income (loss) are derived by excluding certain items from total revenues and net income (loss) attributable to AIG, respectively. Beginning in the first quarter of 2019, on a prospective basis, the changes in the fair value of equity securities are excluded from adjusted pre-tax income (loss). For the items excluded from adjusted revenues and adjusted pre-tax income (loss) see the table below.

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

Three Months Ended March 31,

2019

 

2018

 

 

 

 

Adjusted

 

 

 

 

Adjusted

 

 

Total

 

Pre-tax

 

 

Total

 

Pre-tax

(in millions)

 

 Revenues 

 

Income (Loss)

 

 

 Revenues 

 

Income (Loss)

General Insurance

 

 

 

 

 

 

 

 

 

North America

$

4,098

$

934

 

$

3,340

$

320

International

 

3,704

 

334

 

 

4,104

 

190

      Total General Insurance

 

7,802

 

1,268

 

 

7,444

 

510

Life and Retirement

 

 

 

 

 

 

 

 

 

Individual Retirement

 

1,351

 

508

 

 

1,361

 

499

Group Retirement

 

709

 

232

 

 

761

 

282

Life Insurance

 

1,073

 

116

 

 

1,061

 

52

Institutional Markets

 

1,071

 

68

 

 

277

 

59

      Total Life and Retirement

 

4,204

 

924

 

 

3,460

 

892

Other Operations

 

203

 

(387)

 

 

150

 

(342)

Legacy Portfolio

 

706

 

112

 

 

836

 

145

AIG Consolidation and elimination

 

(161)

 

(70)

 

 

(62)

 

11

Total AIG Consolidated adjusted revenues and adjusted pre-tax income

 

12,754

 

1,847

 

 

11,828

 

1,216

Reconciling Items from adjusted pre-tax income to pre-tax income:

 

 

 

 

 

 

 

 

 

Changes in fair value of securities used to hedge guaranteed

 

 

 

 

 

 

 

 

 

living benefits

 

105

 

96

 

 

(77)

 

(77)

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

 

 

 

 

 

 

 

 

 

net realized capital gains

 

-

 

99

 

 

-

 

(31)

Changes in the fair value of equity securities

 

79

 

79

 

 

-

 

-

Other income (expense) - net

 

7

 

-

 

 

(11)

 

-

Gain (Loss) on extinguishment of debt

 

-

 

2

 

 

-

 

(4)

Net realized capital losses*

 

(489)

 

(474)

 

 

(29)

 

(19)

Income (loss) from divested businesses

 

-

 

6

 

 

-

 

8

Non-operating litigation reserves and settlements

 

-

 

(1)

 

 

1

 

(13)

(Unfavorable) favorable prior year development and related amortization

 

 

 

 

 

 

 

 

 

changes ceded under retroactive reinsurance agreements

 

-

 

27

 

 

-

 

(34)

Net loss reserve discount benefit (charge)

 

-

 

(473)

 

 

-

 

205

Integration and transaction costs associated with acquired businesses

 

-

 

(7)

 

 

-

 

-

Restructuring and other costs

 

-

 

(47)

 

 

-

 

(24)

Revenues and Pre-tax income

$

12,456

$

1,154

 

$

11,712

$

1,227

*   Includes all net realized capital gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication.

 

12          AIG | First Quarter 2019 Form 10-Q 


TABLE OF CONTENTS 

 

ITEM 1 |  Notes to Condensed Consolidated Financial Statements (unaudited) |  4. Business Combination

 

4. Business Combination

On July 18, 2018, we completed the purchase of a 100 percent voting interest in Validus Holdings, Ltd. (Validus), a leading provider of reinsurance, primary insurance, and asset management services, for $5.5 billion in cash.

The purchase was accounted for under the acquisition method. Accordingly, the total purchase price was allocated to the estimated fair values of assets acquired and liabilities assumed. This allocation resulted in the purchase price exceeding the fair value of net assets acquired, which results in a difference recorded as goodwill. Goodwill generated from the acquisition is attributable to expected synergies from future growth and potential future monetization opportunities. Goodwill related to the purchase of Validus assigned to our General Insurance operating segments was $1.8 billion for North America and $157 million for International.

In addition, Validus participates in the market for insurance-linked securities (ILS) primarily through AlphaCat Managers, Ltd (AlphaCat Manager). AlphaCat Manager is an asset manager primarily for third party investors and in connection with the issuance of ILS invests in AlphaCat funds which are considered variable interest entities (VIEs). ILS are financial instruments for which the values are determined based on insurance losses caused primarily by natural catastrophes such as major earthquakes and hurricanes. We report the investment in AlphaCat funds, which is approximately $124 million at March 31, 2019, in Other Invested Assets in the Condensed Consolidated Balance Sheet.       

The following unaudited summarized pro forma consolidated income statement information assumes that the acquisition of Validus occurred as of January 1, 2018. The pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable period and may not be indicative of the results that will be attained in the future.

 

Three Months Ended March 31,

(in millions)

 

2019

 

2018*

Total revenues

$

12,456

$

12,242

Net income

 

937

 

951

Net income attributable to AIG

 

654

 

940

 

 

 

 

 

Income per common share attributable to AIG:

 

 

 

 

Basic:

 

 

 

 

Net income attributable to AIG

 

0.75

 

1.04

Diluted:

 

 

 

 

Net income attributable to AIG

 

0.75

 

1.02

* Pro forma adjustments were made to Validus external reporting results prior to the acquisition date for the deconsolidation of certain asset management entities consistent with AIG’s post acquisition accounting, which had no impact on Net income attributable to Validus.

 

 

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.

AIG | First Quarter 2019 Form 10-Q          13

 


TABLE OF CONTENTS 

 

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

 

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.

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, 2019

 

  

 

  

 

  

Counterparty

Cash

 

(in millions)

 

 Level 1

 

Level 2

 

Level 3

 

Netting(a)

Collateral

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government sponsored entities

$

-

$

3,401

$

-

$

-

$

-

$

3,401

Obligations of states, municipalities and political subdivisions

 

-

 

13,786

 

2,136

 

-

 

-

 

15,922

Non-U.S. governments

 

15

 

15,256

 

3

 

-

 

-

 

15,274

Corporate debt

 

-

 

137,141

 

1,532

 

-

 

-

 

138,673

RMBS

 

-

 

19,959

 

14,045

 

-

 

-

 

34,004

CMBS

 

-

 

12,269

 

892

 

-

 

-

 

13,161

CDO/ABS

 

-

 

8,926

 

8,840

 

-

 

-

 

17,766

Total bonds available for sale

 

15

 

210,738

 

27,448

 

-

 

-

 

238,201

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government sponsored entities

 

84

 

2,696

 

-

 

-

 

-

 

2,780

Non-U.S. governments

 

-

 

51

 

-

 

-

 

-

 

51

Corporate debt

 

-

 

1,745

 

-

 

-

 

-

 

1,745

RMBS

 

-

 

491

 

1,266

 

-

 

-

 

1,757

CMBS

 

-

 

315

 

84

 

-

 

-

 

399

CDO/ABS

 

-

 

530

 

4,249

 

-

 

-

 

4,779