Market Overview

AIG Reports Second Quarter 2018 Results

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American International Group, Inc. (NYSE:AIG) today reported net income
of $937 million, or $1.02 per diluted share, for the second quarter of
2018, compared to net income of $1.1 billion, or $1.19 per diluted
share, in the prior-year quarter. Adjusted after-tax income was $961
million, or $1.05 per diluted share, for the second quarter of 2018,
compared to adjusted after-tax income of $1.4 billion, or $1.53 per
diluted share, in the prior-year quarter.

 

SECOND QUARTER FINANCIAL SUMMARY*

   
Three Months Ended

June 30,

 
($ in millions, except per share amounts)     2018     2017  
Net income $ 937 $ 1,130
Net income per diluted share $ 1.02 $ 1.19
Adjusted after-tax income $ 961 $ 1,449
Adjusted after-tax income per diluted share $ 1.05 $ 1.53
 
Return on equity 6.0

%

 

6.1 %
Adjusted return on equity 7.6

%

 

10.5 %
Adjusted return on attributed equity - Core 8.2

%

 

10.5 %
 
Book value per common share $ 68.65 $ 81.62
Book value per common share, excluding accumulated other
comprehensive income
68.40 76.12
Adjusted book value per common share     57.34     60.31  
*Refer to the Comments on Regulation G and the tables that follow
for a discussion of non-GAAP financial measures and the
reconciliations of the non-GAAP financial measures to GAAP measures.
 

"We remain diligently focused on pursuing long-term, sustainable and
profitable growth across AIG, and our diversified businesses provide
flexibility and strength to execute on our strategy," said Brian
Duperreault, President and Chief Executive Officer. "In the second
quarter, we continued to take actions across General Insurance to
establish a culture of underwriting excellence and added stellar talent.
Our efforts are taking hold and we remain committed to achieving an
underwriting profit as we exit 2018. Solid results in Life & Retirement
reflect an ongoing strategy to leverage our broad product expertise and
distribution strengths." Mr. Duperreault continued, "With the closing of
the Validus acquisition in July, we have further enhanced our
underwriting expertise and expanded our offerings. We also took actions
to efficiently manage our Legacy liabilities with the partial sale of
DSA Re, providing a path towards a standalone platform for managing
run-off business. Moving forward, we will continue to look for
opportunities to grow AIG and create long-term shareholder value."

SECOND QUARTER 2018 HIGHLIGHTS

General Insurance Results – General Insurance has continued to
execute its strategy to improve core underwriting performance. Second
quarter adjusted pre-tax income of $568 million reflected lower net
investment income, primarily driven by lower income from alternative
investments. Underwriting results included catastrophe losses that were
lower than expected and slightly favorable prior year loss reserve
development. The loss ratio included a high frequency of severe losses
that totaled $293 million (4.5 pts) which is more than double the
long-term average, resulting in a second quarter loss ratio of 65.7, and
an accident year loss ratio, as adjusted, of 65.4. Excluding the
increase in severe losses, the second quarter accident year loss ratio,
as adjusted, was in line with full year 2017 results. The second quarter
expense ratio of 35.6 primarily reflected an increase in the North
America acquisition ratio due to changes in Personal Insurance business
mix towards lower loss ratio and higher commission businesses and an
increase in general operating expenses related to strategic initiatives.

Life and Retirement Results – Life and Retirement produced solid
results, reporting second quarter adjusted pre-tax income of $962
million. High levels of assets under administration in Individual
Retirement and Group Retirement, due to strong equity market
performance, drove growth in fee income. Growth of assets under
management for Institutional Markets reflected the execution of
opportunistic transactions over the last twelve months. Total net
investment income increased due to higher invested assets, partially
offset by lower alternative and other yield enhancement income. Total
Individual Retirement net flows improved, excluding Retail Mutual Funds.
Adjusted pre-tax income benefited from net actuarial adjustments of $51
million in Life and Individual Retirement.

Legacy – Second quarter adjusted pre-tax income of $134 million,
compared to $431 million in the prior-year quarter reflected lower net
investment income and lower income from fair value option assets, as
well as the sale of the Life Settlement portfolio in 2017. On August 1,
2018 AIG announced the sale of 19.9% of DSA Re, which positions DSA Re
to be a platform to provide solutions for insurance liabilities globally.

Net Investment Income –Second quarter net investment income from
our insurance companies, including the Legacy insurance portfolios,
decreased 12% from the prior-year quarter to $3.1 billion. The decline
was primarily driven by lower investment returns on alternative
investments, primarily driven by less robust private equity and hedge
fund performance compared to last year, and a decline in income from
securities for which the fair value option was elected as a result of
credit spread widening and rising interest rates. Net investment income
from our insurance companies including the Legacy insurance portfolios
totaled $6.5 billion for the first six months of 2018, and is on track
with our $13 billion full year guidance previously provided.

Restructuring Charge – In the second quarter, AIG recorded
pre-tax non-operating restructuring costs of $200 million, primarily
related to efficiency initiatives.

Liquidity and Capital – As of June 30, 2018, AIG Parent liquidity
stood at approximately $9.3 billion. In the second quarter, AIG Parent
received approximately $1.8 billion of distributions from insurance
subsidiaries in the form of cash and fixed maturity securities,
including tax sharing payments.

On July 18, 2018 AIG completed its acquisition of Validus Holdings, Ltd.
for approximately $5.5 billion in cash.

In the second quarter, AIG repurchased 6.5 million common shares for
$348 million and warrants for $2 million. From July 1 through August 2,
2018 AIG repurchased $149 million of additional common shares and $1
million of additional warrants. As of August 2, 2018, approximately $1.5
billion remained under the share repurchase authorization.

Book Value per Common Share – As of June 30, 2018, book value per
common share was $68.65 compared to $72.49 at December 31, 2017. Book
value per common share excluding accumulated other comprehensive income
and deferred tax assets (Adjusted book value per common share) increased
2.2% to $57.34 in the second quarter.

 

GENERAL INSURANCE

   
Three Months Ended June 30,      
($ in millions)     2018       2017     Change  
Total General Insurance    
Gross premiums written $ 8,653 $ 8,311 4 %
Net premiums written $ 6,977 $ 6,672 5
Underwriting income (loss) $ (89 ) $ 149 NM
Adjusted pre-tax income $ 568 $ 1,046 (46 )
 
Underwriting ratios:
Loss ratio 65.7 64.0 1.7 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (2.3 ) (2.8 ) 0.5
Prior year development 0.8 (1.1 ) 1.9
Adjustments for ceded premium under reinsurance
contracts and other 1.2 (0.4 ) 1.6
Accident year loss ratio, as adjusted 65.4 59.7 5.7
Expense ratio 35.6 33.7 1.9
Combined ratio 101.3 97.7 3.6
Accident year combined ratio, as adjusted     101.0       93.4     7.6    
 
 

General Insurance - North America

   
Three Months Ended June 30,      
($ in millions)     2018       2017     Change  
North America    
Net premiums written $ 3,236 $ 3,125 4 %
Commercial Lines 2,321 2,312 -
Personal Insurance 915 813 13
 
Underwriting income (loss) $ (127 ) $ (58 ) (119 )
Commercial Lines (91 ) (159 ) 43
Personal Insurance (36 ) 101 NM
 
Adjusted pre-tax income $ 407 $ 721 (44 )
 

Underwriting ratios:

North America
Loss ratio 73.1 74.9 (1.8 ) pts

Impact on loss ratio:

Catastrophe losses and reinstatement premiums (3.7 ) (6.1 ) 2.4
Prior year development 1.6 (0.7 ) 2.3
Adjustments for ceded premium under reinsurance
contracts and other 3.0 (1.1 ) 4.1
Accident year loss ratio, as adjusted 74.0 67.0 7.0
Expense ratio 31.3 27.1 4.2
Combined ratio 104.4 102.0 2.4
Accident year combined ratio, as adjusted 105.3 94.1 11.2
 
North America Commercial Lines
Loss ratio 78.1 83.9 (5.8 ) pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (4.6 ) (8.3 ) 3.7
Prior year development 4.2 (1.5 ) 5.7
Adjustments for ceded premium under reinsurance
contracts and other 4.5 (1.6 ) 6.1
Accident year loss ratio, as adjusted 82.2 72.5 9.7
Expense ratio 26.3 23.6 2.7
Combined ratio 104.4 107.5 (3.1 )
Accident year combined ratio, as adjusted 108.5 96.1 12.4
 
North America Personal Insurance
Loss ratio 60.6 50.8 9.8 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (1.4 ) (0.2 ) (1.2 )
Prior year development (5.0 ) 1.4 (6.4 )
Accident year loss ratio, as adjusted 54.2 52.0 2.2
Expense ratio 43.7 36.4 7.3
Combined ratio 104.3 87.2 17.1
Accident year combined ratio, as adjusted     97.9       88.4     9.5    
 

All comparisons are against the second quarter of 2017, unless otherwise
indicated. Refer to the AIG Second Quarter 2018 Financial Supplement,
which is posted on AIG's website in the Investors section, for further
information.

  • Adjusted pre-tax income of $407 million included $160 million of
    severe losses and $107 million of catastrophe-related losses. Net
    favorable prior year loss reserve development of $54 million included
    $95 million of favorable prior year loss development from Commercial
    Lines which included the amortization of the deferred gain from the
    adverse development reinsurance coverage with National Indemnity
    Company, partially offset by $41 million of unfavorable prior year
    loss development in Personal Insurance primarily related to
    development from 2017 catastrophe losses. Net investment income
    decreased by $245 million primarily driven by lower alternative
    investment income.
  • Net premiums written increased by 4%, largely due to lower ceded
    premiums driven by changes in the 2018 reinsurance programs and growth
    in the Travel business in Personal Insurance. Net premiums earned
    included a favorable adjustment of $115 million for multi-year
    policies related to earlier accident years.
  • The decrease in the North America loss ratio was driven by lower
    catastrophe losses and favorable prior year loss reserve development.
    The accident year loss ratio, as adjusted, increased 7.0 points,
    reflecting the impact of higher severe losses (3.4 pts) and the impact
    of changes in our reinsurance program. Also, the second quarter of
    2017 did not reflect the increased loss estimates which occurred in
    the second half of 2017.
  • The increase in the expense ratio reflected a higher acquisition
    expense ratio driven by changes in Personal Insurance's portfolio mix
    and an increase in general operating expenses related to strategic
    initiatives.
 

General Insurance - International

   
Three Months Ended June 30,      
($ in millions)     2018       2017     Change  
International    
Net premiums written $ 3,741 $ 3,547 5 %
Commercial Lines 1,590 1,514 5
Personal Insurance 2,151 2,033 6
 
Underwriting income (loss) $ 38 $ 207 (82 )
Commercial Lines (76 ) 61 NM
Personal Insurance 114 146 (22 )
 
Adjusted pre-tax income   $ 161     $ 325     (50 )  
 
               
Three Months Ended June 30,      
($ in millions)     2018       2017     Change  

Underwriting ratios:

International
Loss ratio 59.9 55.3 4.6 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (1.2 ) (0.1 ) (1.1 )
Prior year development 0.2 (1.5 ) 1.7
Accident year loss ratio, as adjusted 58.9 53.7 5.2
Expense ratio 39.1 39.0 0.1
Combined ratio 99.0 94.3 4.7
Accident year combined ratio, as adjusted 98.0 92.7 5.3
 
International Commercial Lines
Loss ratio 68.2 61.1 7.1 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (1.6 ) (0.3 ) (1.3 )
Prior year development 0.5 (2.9 ) 3.4
Accident year loss ratio, as adjusted 67.1 57.9 9.2
Expense ratio 36.3 35.2 1.1
Combined ratio 104.5 96.3 8.2
Accident year combined ratio, as adjusted 103.4 93.1 10.3
 
International Personal Insurance
Loss ratio 52.9 50.6 2.3 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (0.8 ) - (0.8 )
Prior year development - (0.3 ) 0.3
Accident year loss ratio, as adjusted 52.1 50.3 1.8
Expense ratio 41.4 42.1 (0.7 )
Combined ratio 94.3 92.7 1.6
Accident year combined ratio, as adjusted     93.5       92.4     1.1    
 

All comparisons are against the second quarter of 2017, unless otherwise
indicated. Refer to the AIG Second Quarter 2018 Financial Supplement,
which is posted on AIG's website in the Investors section, for further
information.

  • Adjusted pre-tax income of $161 million included severe losses of $133
    million and catastrophe-related losses of $43 million, partially
    offset by favorable prior year loss reserve development of $7 million
    compared to unfavorable loss reserve development of $54 million in the
    prior-year quarter.
  • Net premiums written increased 5% on a reported basis and slightly
    increased on a constant dollar basis. The increase in net premiums
    written was primarily driven by growth in our Accident & Health
    business in Asia Pacific and growth in our European Financial Lines
    business, partially offset by the impact of divested businesses.
  • The second quarter loss ratio was 59.9. The accident year loss ratio,
    as adjusted, increased 5.2 points to 58.9, driven by higher severe
    losses (1.8 pts) compared to the prior-year quarter and higher
    attritional losses in Commercial Lines.
  • The expense ratio was relatively flat compared to the prior-year
    quarter.
 

LIFE AND RETIREMENT

   
Three Months Ended June 30,      
($ in millions)     2018       2017     Change  
Life and Retirement    
Premiums & Fees $ 1,221 $ 1,196 2 %
Net Investment Income 1,995 1,944 3
Adjusted Revenue 3,465 3,365 3
Benefits, losses and expenses 2,503 2,372 6
Adjusted pre-tax income 962 993 (3 )
Premiums and deposits 7,399 5,791 28
 
Individual Retirement
Premiums & Fees $ 218 $ 223 (2 ) %
Net Investment Income 975 1,003 (3 )
Adjusted Revenue 1,366 1,383 (1 )
Benefits, losses and expenses 904 825 10
Adjusted pre-tax income 462 558 (17 )
Premiums and deposits 3,422 2,892 18
Net flows (1,049 ) (691 ) (52 )
 
Group Retirement
Premiums & Fees $ 127 $ 105 21 %
Net Investment Income 542 535 1
Adjusted Revenue 730 696 5
Benefits, losses and expenses 480 430 12
Adjusted pre-tax income 250 266 (6 )
Premiums and deposits 2,345 1,802 30
Net flows (459 ) (181 ) (154 )
 
Life Insurance
Premiums & Fees $ 795 $ 757 5 %
Net Investment Income 282 261 8
Adjusted Revenue 1,092 1,030 6
Benefits, losses and expenses 917 924 (1 )
Adjusted pre-tax income 175 106 65
Premiums and deposits 980 947 3
 
Institutional Markets
Premiums & Fees $ 81 $ 111 (27 ) %
Net Investment Income 196 145 35
Adjusted Revenue 277 256 8
Benefits, losses and expenses 202 193 5
Adjusted pre-tax income 75 63 19
Premiums and deposits     652       150     335    
 

All comparisons are against the second quarter of 2017, unless otherwise
indicated. Refer to the AIG Second Quarter 2018 Financial Supplement,
which is posted on AIG's website in the Investors section, for further
information.

  • In Individual Retirement, adjusted pre-tax income reflected
    unfavorable actuarial adjustments to Variable Annuities of $47 million
    compared to favorable adjustments to immediate annuities in the
    prior-year quarter. Fee income increased primarily from growth in
    assets under management. Net investment income decreased due to lower
    alternative and other yield enhancement income. Base portfolio income
    increased primarily due to growth in Index Annuities invested assets.
    Base yields, excluding accretion and other investment income, declined
    consistent with expectations, while related base spreads increased
    slightly for Variable and Index Annuities and declined for Fixed
    Annuities. Overall net flows reflected improvement from the prior-year
    quarter in Fixed Annuities and Index Annuities sales, which was more
    than offset by increases in Retail Mutual Funds outflows.
  • In Group Retirement, fee income increased primarily from growth in
    assets under administration. Base portfolio income increased primarily
    due to accretion and other investment income. Base spreads, excluding
    accretion and other investment income, were in line with the
    prior-year quarter. Group Retirement net flows reflect outflows due to
    higher surrenders, partially offset by increased deposits primarily
    from new group plan acquisitions.
  • In Life Insurance, adjusted pre-tax income reflected favorable
    actuarial adjustments of $98 million and higher net investment income
    driven by growth in invested assets. Mortality was within pricing
    expectations.
  • In Institutional Markets, adjusted pre-tax income was driven by
    continued growth in the in-force business and higher net investment
    income.

CONFERENCE CALL

AIG will host a conference call tomorrow, Friday, August 3, 2018 at 8:00
a.m. ET to review these results. The call is open to the public and can
be accessed via a live listen-only webcast in the Investors section of www.aig.com.
A replay will be available after the call at the same location.

Additional supplementary financial data is available in the Investors
section at www.aig.com.

The conference call (including the conference call presentation
material), the earnings release and the financial supplement may
include, and officers and representatives of AIG may from time to time
make and discuss, projections, goals, assumptions and statements that
may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These projections,
goals, assumptions and statements are not historical facts but instead
represent only a belief regarding future events, many of which, by their
nature, are inherently uncertain and outside AIG's control. These
projections, goals, assumptions and statements include statements
preceded by, followed by or including words such as "will," "believe,"
"anticipate," "expect," "intend," "plan," "focused on achieving,"
"view," "target," "goal" or "estimate." These projections, goals,
assumptions and statements may relate to future actions, prospective
services or products, future performance or results of current and
anticipated services or products, sales efforts, expenses, the outcome
of contingencies such as legal proceedings, anticipated organizational,
business or regulatory changes, anticipated sales, monetization and/or
acquisitions of businesses or assets, or successful integration of
acquired businesses, management succession and retention plans, exposure
to risk, trends in operations and financial results.

It is possible that AIG's actual results and financial condition will
differ, possibly materially, from the results and financial condition
indicated in these projections, goals, assumptions and statements.

Factors that could cause AIG's actual results to differ, possibly
materially, from those in the specific projections, goals, assumptions
and statements include:

  • changes in market and industry conditions;
  • negative impacts on customers, business partners and other
    stakeholders;
  • the occurrence of catastrophic events, both natural and man-made;
  • AIG's ability to successfully reorganize its businesses, as well as
    improve profitability, without negatively impacting client
    relationships or its competitive position;
  • AIG's ability to successfully dispose of, monetize and/or acquire
    businesses or assets, or successfully integrate acquired businesses;
  • changes in judgments concerning insurance underwriting and insurance
    liabilities;
  • changes in judgments concerning potential cost saving opportunities;
  • the impact of potential information technology, cybersecurity or data
    security breaches, including as a result of cyber-attacks or security
    vulnerabilities;
  • disruptions in the availability of AIG's electronic data systems or
    those of third parties;
  • AIG's ability to successfully manage Legacy portfolios;
  • concentrations in AIG's investment portfolios;
  • actions by credit rating agencies;
  • the requirements, which may change from time to time, of the global
    regulatory framework to which AIG is subject, including as a global
    systemically important insurer;
  • significant legal, regulatory or governmental proceedings;
  • changes in judgments concerning the recognition of deferred tax
    assets; and
  • such other factors discussed in Part I, Item 2. Management's
    Discussion and Analysis of Financial Condition and Results of
    Operations (MD&A) and Part II, Item 1A. Risk Factors in AIG's
    Quarterly Report on Form 10-Q for the quarterly period ended June 30,
    2018 (which will be filed with the SEC), Part I, Item 2. MD&A in AIG's
    Quarterly Report on Form 10-Q for the quarterly period ended March 31,
    2018 and Part II, Item 7. MD&A and Part I, Item 1A. Risk Factors in
    AIG's Annual Report on Form 10-K for the year ended December 31, 2017.

AIG is not under any obligation (and expressly disclaims any obligation)
to update or alter any projections, goals, assumptions or other
statements, whether written or oral, that may be made from time to time,
whether as a result of new information, future events or otherwise.

COMMENT ON REGULATION G

Throughout this press release, including the financial highlights, AIG
presents its financial condition and results of operations in the way it
believes will be most meaningful and representative of its business
results. Some of the measurements AIG uses are "non-GAAP financial
measures" under Securities and Exchange Commission rules and
regulations. GAAP is the acronym for "generally accepted accounting
principles" in the United States. The non-GAAP financial measures AIG
presents may not be comparable to similarly-named measures reported by
other companies. The reconciliations of such measures to the most
comparable GAAP measures in accordance with Regulation G are included
within the relevant tables or in the Second Quarter 2018 Financial
Supplement available in the Investor Information section of AIG's
website, www.aig.com.

Book Value per Common Share, Excluding Accumulated Other
Comprehensive Income (AOCI) and Book Value per Common Share, Excluding
AOCI and Deferred Tax Assets (DTA) (Adjusted Book Value per Common
Share)
are used to show the amount of AIG's net worth on a per-share
basis. AIG believes these measures are useful to investors because they
eliminate items that can fluctuate significantly from period to period,
including changes in fair value of AIG's available for sale securities
portfolio, foreign currency translation adjustments and U.S. tax
attribute deferred tax assets. These measures also eliminate the
asymmetrical impact resulting from changes in fair value of AIG's
available for sale securities portfolio wherein there is largely no
offsetting impact for certain related insurance liabilities. AIG
excludes deferred tax assets representing U.S. tax attributes related to
net operating loss carryforwards and foreign tax credits as they have
not yet been utilized. Amounts for interim periods are estimates based
on projections of full-year attribute utilization. As net operating loss
carryforwards and foreign tax credits are utilized, the portion of the
DTA utilized is included in these book value per common share metrics.
Book value per common share, excluding AOCI, is derived by dividing
Total AIG Shareholders' equity, excluding AOCI, by total common shares
outstanding. Adjusted Book Value per Common Share is derived by dividing
Total AIG shareholders' equity, excluding AOCI and DTA (Adjusted
Shareholders' Equity
), by total common shares outstanding.

AIG Return on Equity – Adjusted After-tax Income Excluding AOCI and
DTA (Adjusted Return on Equity)
is used to show the rate of return
on shareholders' equity. AIG believes this measure is useful to
investors because it eliminates items that can fluctuate significantly
from period to period, including changes in fair value of AIG's
available for sale securities portfolio, foreign currency translation
adjustments and U.S. tax attribute deferred tax assets. This measure
also eliminates the asymmetrical impact resulting from changes in fair
value of AIG's available for sale securities portfolio wherein there is
largely no offsetting impact for certain related insurance liabilities.
AIG excludes deferred tax assets representing U.S. tax attributes
related to net operating loss carryforwards and foreign tax credits as
they have not yet been utilized. Amounts for interim periods are
estimates based on projections of full-year attribute utilization. As
net operating loss carryforwards and foreign tax credits are utilized,
the portion of the DTA utilized is included in Adjusted Return on
Equity. Adjusted Return on Equity is derived by dividing actual or
annualized adjusted after-tax income attributable to AIG by average
Adjusted Shareholders' Equity.

Core Adjusted Attributed Equity is an attribution of total AIG
Adjusted Shareholders' Equity to these segments based on AIG's internal
capital model, which incorporates the segments' respective risk
profiles. Adjusted attributed equity represents AIG's best estimates
based on current facts and circumstances and will change over time.

Core Return on Equity – Adjusted After-tax Income (Adjusted
Return on Attributed Equity)
is used to show the rate of return on
Adjusted Attributed Equity. Adjusted Return on Attributed Equity is
derived by dividing actual or annualized Adjusted After-tax Income by
Average Adjusted Attributed Equity.

Adjusted After-tax Income Attributable to Core is derived by
subtracting attributed interest expense and income tax expense from
adjusted pre-tax income. Attributed debt and the related interest
expense is calculated based on AIG's internal capital model. Tax expense
or benefit is calculated based on an internal attribution methodology
that considers among other things the taxing jurisdiction in which the
segments conduct business, as well as the deductibility of expenses in
those jurisdictions.

Adjusted Revenues exclude Net realized capital gains (losses),
income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities used
to hedge guaranteed living benefits (included in Net investment income
for GAAP purposes). Adjusted revenues is a GAAP measure for AIG's
operating segments.

AIG uses the following operating performance measures because AIG
believes they enhance the understanding of the underlying profitability
of continuing operations and trends of AIG's business segments. AIG
believes they also allow for more meaningful comparisons with AIG's
insurance competitors. When AIG uses these measures, reconciliations to
the most comparable GAAP measure are provided on a consolidated basis.

Adjusted Pre-tax Income (APTI) is derived by excluding the items
set forth below from income from continuing operations before income
tax. This definition is consistent across AIG's segments. These items
generally fall into one or more of the following broad categories:
legacy matters having no relevance to AIG's current businesses or
operating performance; adjustments to enhance transparency to the
underlying economics of transactions; and measures that AIG believes to
be common to the industry. APTI is a GAAP measure for AIG's segments.
Excluded items include the following:

 
  • changes in fair value of securities used to hedge guaranteed
    living benefits;
  • changes in benefit reserves and deferred policy acquisition
    costs (DAC), value of business acquired (VOBA), and sales
    inducement assets (SIA) related to net realized capital gains
    and losses;
  • loss (gain) on extinguishment of debt;
  • 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. Earned income on such economic
    hedges is reclassified from net realized capital gains and
    losses to specific APTI line items based on the economic risk
    being hedged (e.g. net investment income and interest credited
    to policyholder account balances);
  • income or loss from discontinued operations;
  • pension expense related to a one-time lump sum payment to former
    employees;
  • income and loss from divested businesses;
  • non-operating litigation reserves and settlements;
  • restructuring and other costs related to initiatives designed to
    reduce operating expenses, improve efficiency and simplify AIG's
    organization;
  • the portion of favorable or unfavorable prior year reserve
    development for which AIG has ceded the risk under retroactive
    reinsurance agreements and related changes in amortization of
    the deferred gain; and
  • net loss reserve discount benefit (charge).
 

Adjusted After-tax Income attributable to AIG (AATI) is derived
by excluding the tax effected APTI adjustments described above and the
following tax items from net income attributable to AIG:

  • deferred income tax valuation allowance releases and charges;
  • changes in uncertain tax positions and other tax items related to
    legacy matters having no relevance to AIG's current businesses or
    operating performance; and
  • net tax charge related to the enactment of the Tax Cuts and Jobs Act
    (Tax Act).

See page 15 for the reconciliation of Net income attributable to AIG to
Adjusted After-tax Income Attributable to AIG.

Ratios: AIG, along with most property and casualty insurance
companies, uses the loss ratio, the expense ratio and the combined ratio
as measures of underwriting performance. These ratios are relative
measurements that describe, for every $100 of net premiums earned, the
amount of losses and loss adjustment expenses (which for General
Insurance excludes net loss reserve discount), and the amount of other
underwriting expenses that would be incurred. A combined ratio of less
than 100 indicates underwriting income and a combined ratio of over 100
indicates an underwriting loss. AIG's ratios are calculated using the
relevant segment information calculated under GAAP, and thus may not be
comparable to similar ratios calculated for regulatory reporting
purposes. The underwriting environment varies across countries and
products, as does the degree of litigation activity, all of which affect
such ratios. In addition, investment returns, local taxes, cost of
capital, regulation, product type and competition can have an effect on
pricing and consequently on profitability as reflected in underwriting
income and associated ratios.

Accident year loss and combined ratios, as adjusted: both the
accident year loss and combined ratios, as adjusted, exclude catastrophe
losses and related reinstatement premiums, prior year development, net
of premium adjustments, and the impact of reserve discounting. Natural
and man-made catastrophe losses are generally weather or seismic events
having a net impact on AIG in excess of $10 million each and also
include certain man-made events, such as terrorism and civil disorders
that meet the $10 million threshold. AIG believes the as adjusted ratios
are meaningful measures of AIG's underwriting results on an ongoing
basis as they exclude catastrophes and the impact of reserve discounting
which are outside of management's control. AIG also excludes prior year
development to provide transparency related to current accident year
results.

 

Underwriting ratios are computed as follows:

a)   Loss ratio = Loss and loss adjustment expenses incurred ÷ Net
premiums earned (NPE)
b) Acquisition ratio = Total acquisition expenses ÷ NPE
c) General operating expense ratio = General operating expenses ÷ NPE
d) Expense ratio = Acquisition ratio + General operating expense ratio
e) Combined ratio = Loss ratio + Expense ratio
f) Accident year loss ratio, as adjusted (AYLR) = [Loss and loss
adjustment expenses incurred – CATs – PYD] ÷ [NPE +/(-)
Reinstatement premiums (RIPs) related to catastrophes +/(-) RIPs
related to prior year catastrophes + (Additional) returned premium
related to PYD on loss sensitive business + Adjustment for ceded
premiums under reinsurance contracts related to prior accident years]
g) Accident year combined ratio = AYLR + Expense ratio
h) Catastrophe losses (CATs) and reinstatement premiums = [Loss and
loss adjustment expenses incurred – (CATs)] ÷ [NPE +/(-) RIPs
related to catastrophes] – Loss ratio
i) Prior year development net of (additional) return premium related to
PYD on loss sensitive business = [Loss and loss adjustment expenses
incurred – Prior year loss reserve development unfavorable
(favorable) (PYD), net of reinsurance] ÷ [NPE +/(-) RIPs related to
prior year catastrophes + (Additional) returned premium related to
PYD on loss sensitive business] – Loss ratio
 

Premiums and deposits: includes direct and assumed amounts
received and earned on traditional life insurance policies, group
benefit policies and life-contingent payout annuities, as well as
deposits received on universal life, investment-type annuity contracts,
Federal Home Loan Bank (FHLB) funding agreements and mutual funds.

Results from discontinued operations are excluded from all of these
measures.

American International Group, Inc. (AIG) is a leading global insurance
organization. Founded in 1919, today AIG member companies provide a wide
range of property casualty insurance, life insurance, retirement
products, and other financial services to customers in more than 80
countries and jurisdictions. These diverse offerings include products
and services that help businesses and individuals protect their assets,
manage risks and provide for retirement security. AIG common stock is
listed on the New York Stock Exchange and the Tokyo Stock Exchange.

Additional information about AIG can be found at www.aig.com
| YouTube: www.youtube.com/aig
| Twitter: @AIGinsurance www.twitter.com/AIGinsurance
| LinkedIn: www.linkedin.com/company/aig.
These references with additional information about AIG have been
provided as a convenience, and the information contained on such
websites is not incorporated by reference into this press release.

AIG is the marketing name for the worldwide property-casualty, life and
retirement, and general insurance operations of American International
Group, Inc. For additional information, please visit our website at www.aig.com.
All products and services are written or provided by subsidiaries or
affiliates of American International Group, Inc. Products or services
may not be available in all countries, and coverage is subject to actual
policy language. Non-insurance products and services may be provided by
independent third parties. Certain property-casualty coverages may be
provided by a surplus lines insurer. Surplus lines insurers do not
generally participate in state guaranty funds, and insureds are
therefore not protected by such funds.

 
American International Group, Inc.
Selected Financial Data and Non-GAAP Reconciliation
($ in millions, except per share data)
 
Reconciliations of Adjusted Pre-tax and After-tax Income (Loss)
  Three Months Ended June 30,
2018   2017
Pre-tax   Tax Effect   After-tax Pre-tax   Tax Effect   After-tax
Pre-tax income/net income, including noncontrolling interests $ 1,252 $ 321 $ 933 $ 1,667 $ 557 $ 1,118
Noncontrolling interest -   -   4   -   -   12  
Pre-tax income/net income attributable to AIG 1,252 321 937 1,667 557 1,130
Adjustments:
Changes in uncertain tax positions and other tax adjustments - (3 ) 3 - (66 ) 66
Deferred income tax valuation allowance (releases) charges - (7 ) 7 - 8 (8 )
Changes in fair value of securities used to hedge
guaranteed living benefits 36 8 28 (80 ) (28 ) (52 )
Changes in benefit reserves and DAC, VOBA and
SIA related to net realized capital gains (losses) (1 ) - (1 ) (58 ) (20 ) (38 )
Unfavorable (favorable) prior year development and related
amortization changes ceded under retroactive reinsurance agreements (32 ) (7 ) (25 ) 251 89 162
(Gain) loss on extinguishment of debt 5 1 4 (4 ) (2 ) (2 )
Net realized capital (gains) losses* (155 ) (29 ) (126 ) 69 38 31
Noncontrolling interest on net realized capital (gains) losses - - (2 ) - - -
Income from discontinued operations - - - - - (8 )
(Income) loss from divested businesses (25 ) (5 ) (20 ) 60 40 20
Non-operating litigation reserves and settlements 12 2 10 (80 ) (28 ) (52 )
Net loss reserve discount (benefit) charge (14 ) (3 ) (11 ) 260 90 170
Pension expense related to a one-time lump sum payment
to former employees - - - 1 1 -
Restructuring and other costs 200   43   157   47   17   30  
Adjusted pre-tax income/Adjusted after-tax income $ 1,278   $ 321   $ 961   $ 2,133   $ 696   $ 1,449  
 
Six Months Ended June 30,
2018 2017
Pre-tax Tax Effect After-tax Pre-tax Tax Effect After-tax
Pre-tax income/net income, including noncontrolling interests $ 2,479 $ 598 $ 1,881 $ 3,394 $ 1,073 $ 2,324
Noncontrolling interest -   -   (6 ) -   -   (9 )
Pre-tax income/net income attributable to AIG 2,479 598 1,875 3,394 1,073 2,315
Adjustments:
Changes in uncertain tax positions and other tax adjustments - 1 (1 ) - (16 ) 16
Deferred income tax valuation allowance (releases) charges - (37 ) 37 - 21 (21 )
Changes in fair value of securities used to hedge
guaranteed living benefits 113 24 89 (91 ) (32 ) (59 )
Changes in benefit reserves and DAC, VOBA and
SIA related to net realized capital gains (losses) 30 6 24 (111 ) (39 ) (72 )
Unfavorable (favorable) prior year development and related
amortization changes ceded under retroactive reinsurance agreements 2 - 2 265 93 172
(Gain) loss on extinguishment of debt 9 2 7 (5 ) (2 ) (3 )
Net realized capital (gains) losses* (136 ) (30 ) (106 ) 184 85 99
Noncontrolling interest on net realized capital (gains) losses - - (1 ) - - 5
(Income) loss from discontinued operations - - 1 - - (8 )
(Income) loss from divested businesses (33 ) (7 ) (26 ) 160 34 126
Non-operating litigation reserves and settlements 25 5 20 (86 ) (30 ) (56 )
Net loss reserve discount (benefit) charge (219 ) (46 ) (173 ) 235 81 154
Pension expense related to a one-time lump sum payment
to former employees - - - 1 1 -
Restructuring and other costs 224   48   176   228   80   148  
Adjusted pre-tax income/Adjusted after-tax income $ 2,494   $ 564   $ 1,924   $ 4,174   $ 1,349   $ 2,816  
 
* 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.
 
 
American International Group, Inc.
Selected Financial Data and Non-GAAP Reconciliation (continued)
($ in millions, except per share data)
 
Summary of Key Financial Metrics
 
  Three Months Ended June 30,   Six Months Ended June 30,
% Inc. % Inc.
  2018   2017 (Dec.)       2018   2017 (Dec.)  

Earnings per common share:

Basic
Income from continuing operations $ 1.04 $ 1.21 (14.0 ) % $ 2.07 $ 2.42 (14.5 ) %
Income from discontinued operations - 0.01 NM - 0.01 NM
Net income attributable to AIG $ 1.04 $ 1.22 (14.8 ) $ 2.07 $ 2.43 (14.8 )
 
Diluted
Income from continuing operations $ 1.02 $ 1.18 (13.6 ) $ 2.04 $ 2.36 (13.6 )
Income from discontinued operations - 0.01 NM - 0.01 NM
Net income attributable to AIG $ 1.02 $ 1.19 (14.3 ) $ 2.04 $ 2.37 (13.9 )
Adjusted after-tax income attributable to AIG per diluted share $ 1.05 $ 1.53 (31.4 ) % $ 2.09 $ 2.88 (27.4 ) %
 
Weighted average shares outstanding:
Basic 903.2 925.8 905.6 953.1
Diluted 916.6 948.2 920.9 976.6
 
Return on equity (a) 6.0 % 6.1 % 5.9 % 6.2 %
Adjusted return on equity (b) 7.6 % 10.5 % 7.7 % 10.0 %
 
       

As of period end:

June 30, 2018   March 31, 2018   June 30, 2017   December 31, 2017
Total AIG shareholders' equity $ 61,186 $ 62,792 $ 73,732 $ 65,171
Accumulated other comprehensive income (AOCI) 230 2,220 4,962 5,465
Total AIG shareholders' equity, excluding AOCI 60,956 60,572 68,770 59,706
 
Deferred tax assets (c) 9,853 10,214 14,287 10,492
Total adjusted AIG shareholders' equity $ 51,103 $ 50,358 $ 54,483 $ 49,214
 

As of period end:

  June 30, 2018   March 31, 2018   % Inc. (Dec.)   June 30, 2017   % Inc. (Dec.)   December 31, 2017   % Inc. (Dec.)
           
Book value per common share (d) $ 68.65 $ 69.95 (1.9 ) % $ 81.62 (15.9 ) % $ 72.49 (5.3 ) %
Book value per common share, excluding AOCI (e) $ 68.40 $ 67.48 1.4 $ 76.12 (10.1 ) $ 66.41 3.0
Adjusted book value per common share (f) $ 57.34 $ 56.10 2.2 $ 60.31 (4.9 ) $ 54.74 4.7
 
Total common shares outstanding 891.2 897.7 903.4 899.0
 

Financial highlights - notes

(a)

 

Computed as Annualized net income (loss) attributable to AIG
divided by average AIG shareholders' equity. Equity includes AOCI
and DTA.

(b)

Computed as Annualized Adjusted after-tax income attributable to
AIG divided by Adjusted Shareholders' Equity.

(c)

Represents deferred tax assets only related to U.S. net operating
loss and foreign tax credit carryforwards on a U.S. GAAP basis and
excludes other balance sheet deferred tax assets and liabilities.

(d)

Represents total AIG shareholders' equity divided by Total common
shares outstanding.

(e)

Represents total AIG shareholders' equity, excluding AOCI, divided
by Total common shares outstanding.

(f)

Represents Adjusted Shareholders' Equity, divided by Total common
shares outstanding.

 
 
American International Group, Inc.
Selected Financial Data and Non-GAAP Reconciliation
($ in millions, except per share amounts)
 
Reconciliations of Core Adjusted Return on Equity
 
  Three Months Ended
June 30,
2018     2017
 
Adjusted pre-tax income $ 1,144 $ 1,702
Interest expense (benefit) on attributed financial debt - (43 )
Adjusted pre-tax income including attributed interest expenses 1,144 1,745
Income tax expense 294 561  
Adjusted after-tax income 850 1,184
 
Ending adjusted attributed equity $ 41,836 $ 44,571
Average adjusted attributed equity $ 41,474 $ 44,898
Adjusted return on attributed equity 8.2 % 10.5 %
 
 
Net Premiums Written - Change in Constant Dollar
 
Three Months Ended
General Insurance - International June 30, 2018
Foreign exchange effect on worldwide premiums:
Change in net premiums written
Increase (decrease) in original currency 0.4 %
Foreign exchange effect 5.1  
Increase (decrease) as reported in U.S. dollars 5.5 %
 
 
Reconciliation of Insurance Company Net Investment Income
 
  Three Months Ended   Six Months Ended
June 30, June 30,
2018   2017 2018   2017
Net investment income per Consolidated Statement of Operations $ 3,065 $ 3,613 $ 6,326 $ 7,299
Changes in fair value of securities used to hedge guaranteed living
benefits
27 (80 ) 104 (91 )
Net realized capital gains related to non-qualifying hedges 28 -   38 -  
Total Insurance Company Net investment income $ 3,120 $ 3,533   $ 6,468 $ 7,208  
 
 
American International Group, Inc.
Selected Financial Data and Non-GAAP Reconciliation (continued)
($ in millions, except per share amounts)
 
Reconciliations of Premiums and Deposits
 
  Three Months Ended
June 30,
2018   2017

Individual Retirement:

Premiums $ 16 $ 31
Deposits 3,408 2,862
Other (2 ) (1 )
Total premiums and deposits $ 3,422   $ 2,892  
 

Group Retirement:

Premiums $ 15 $ 4
Deposits 2,330 1,798
Other -   -  
Total premiums and deposits $ 2,345   $ 1,802  
 

Life Insurance:

Premiums $ 418 $ 400
Deposits 410 381
Other 152   166  
Total premiums and deposits $ 980   $ 947  
 

Institutional Markets:

Premiums $ 41 $ 67
Deposits 565 76
Other 46   7  
Total premiums and deposits $ 652   $ 150  
 

Total Life and Retirement:

Premiums $ 490 $ 502
Deposits 6,713 5,117
Other 196   172  
Total premiums and deposits $ 7,399   $ 5,791  

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