AIG Reports Fourth Quarter 2018 Results

  • Net loss of $622 million, or $0.70 per share, for the fourth quarter
    of 2018, compared to net loss of $6.7 billion, or $7.33 per share, in
    the prior-year quarter.
  • Adjusted after-tax loss of $559 million, or $0.63 per share, for the
    fourth quarter of 2018, compared to adjusted after-tax income of $526
    million, or $0.57 per diluted share, in the prior-year quarter.
  • Total net investment income of $2.8 billion in the fourth quarter of
    2018, compared to $3.5 billion in the prior-year-quarter was
    significantly impacted by market performance. Full year 2018 net
    investment income of $12.5 billion compared to $14.2 billion in the
    prior year.
  • Net pre-tax catastrophe losses in the fourth quarter of 2018 of $798
    million ($630 million after-tax or $0.71 per share, at the statutory
    tax rate of 21%) consistent with the previously disclosed range. Full
    year 2018 net pre-tax catastrophe losses of $2.9 billion compared to
    $4.2 billion in the prior year.
  • Net unfavorable prior year loss reserve development of $365 million in
    the fourth quarter of 2018. For the full year 2018, net unfavorable
    prior year loss reserve development of $362 million compared to $978
    million for the prior year.
  • Share and warrant repurchases of $750 million for the fourth quarter
    of 2018 and $1.8 billion for full year 2018.
  • AIG Board of Directors increased the share repurchase authorization to
    $2.0 billion, including approximately $512 million that remained under
    the previous authorization.

NEW YORK–(BUSINESS WIRE)–American International Group, Inc. (NYSE: AIG) today reported a net loss
of $622 million, or $0.70 per share, for the fourth quarter of 2018,
compared to a net loss of $6.7 billion, or $7.33 per share, in the
prior-year quarter. Adjusted after-tax loss was $559 million, or $0.63
per share, for the fourth quarter of 2018, compared to adjusted
after-tax income of $526 million, or $0.57 per diluted share, in the
prior-year quarter.

Brian Duperreault, AIG’s President and Chief Executive Officer, said:
“Throughout 2018, significant foundational work was undertaken to
remediate AIG’s core underwriting capabilities. While many issues and
challenges were uncovered, we moved quickly to reduce risk and
volatility, as well as implement strategies that we believe will
accelerate our progress in 2019. The world class talent that joined AIG
throughout 2018 was a highlight, and our team is not taking short cuts
in building a top performing enterprise nor are we settling for easy
fixes. Our work continues to restore AIG as the leading insurance
company in the world and I remain confident we are on the right path to
achieve long-term, sustainable and profitable growth.

“Our fourth quarter 2018 results showed positive improvements in General
Insurance, reflecting actions we took throughout the year to re-position
and strengthen the business, and Life and Retirement remains a stable
source of earnings with attractive returns. Results were negatively
impacted by performance in both equity and credit markets, catastrophe
losses that came within our previously disclosed guidance, as well as
modest net unfavorable prior year loss reserve development driven
largely by underwriting decisions from 2016 and prior years. We continue
to expect to achieve an underwriting profit entering 2019 in General
Insurance and to reach double digit returns for consolidated AIG in
three years.”

FOURTH QUARTER FINANCIAL SUMMARY*

   
Three Months Ended

December 31,

($ in millions, except per share amounts)       2018         2017  
Net loss $ (622 )    

$

(6,660

)

Net loss per diluted share (a) $ (0.70 )

$

(7.33

)

Adjusted after-tax income (loss) $ (559 )

$

526

Adjusted after-tax income (loss) per diluted share (a) $ (0.63 )

$

0.57

 
Return on equity (4.3 )% (38.7 )%
Adjusted return on equity (4.6 )% 4.2 %
Adjusted return on attributed equity – Core (4.3 )% 2.6 %
 
Book value per common share $

65.04

$

72.49

Book value per common share, excluding accumulated other
comprehensive income
66.67 66.41
Adjusted book value per common share       54.95         54.74  

*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.

(a)

  For periods reporting a loss, basic average common shares
outstanding are used to calculate net income (loss) per diluted
share.
 

FOURTH QUARTER 2018 HIGHLIGHTS

All comparisons are against the fourth quarter of 2017, unless otherwise
indicated.

Net Investment Income Impacted by Alternative Returns and Equity
Market Declines –
Fourth quarter net investment income from our
insurance companies, including the Legacy insurance portfolios,
decreased 18.1% from the prior-year quarter to $2.8 billion. The fourth
quarter was impacted by net losses on alternative investments as well as
investments in equity securities resulting from elevated volatility in
the credit markets and unfavorable performance in the equity markets.
For the full year, net investment income from our insurance companies,
including the Legacy insurance portfolios, totaled $12.7 billion.

General Insurance – The fourth quarter of 2018 combined ratio of
115.0 was impacted by 11.3 points related to catastrophe losses net of
reinstatement premiums and 5.3 points of net unfavorable loss reserve
development. The accident year combined ratio, as adjusted, was 98.8
comprised of a 63.9 loss ratio, as adjusted, down 130 basis points from
the prior-year quarter, and an expense ratio of 34.9, down 10 basis
points over the prior-year quarter. Pre-tax catastrophe losses, net of
reinsurance, included $826 million for General Insurance, primarily
related to Hurricane Michael and the California Wildfires and a $28
million decrease in the loss estimates for Typhoon Jebi reported in the
Legacy segment. Net prior year loss reserve development was unfavorable
by $363 million for the quarter. North America and International
Commercial Lines had unfavorable prior year loss reserve development of
$326 million and $74 million, respectively, for the quarter driven
largely by Financial Lines. International Personal Insurance recorded
favorable prior year loss development of $37 million primarily from
Japan.

Fourth quarter expense ratio of 34.9 primarily reflected improvement in
the General operating expense (GOE) ratio as a result of expense
reduction actions taken in the second half of the year, partially offset
by an increase in the North America acquisition ratio due to changes in
portfolio mix.

Life and Retirement Earnings – Fourth quarter adjusted pre-tax
income of $623 million reflected the impact of declining equity markets
and widening credit spreads in all businesses, against a backdrop of
attractive new business margins, and solid growth in premiums and
deposits in Individual Retirement, Group Retirement and Life Insurance
as well as several opportunistic Institutional Markets transactions. GOE
increased primarily due to new business acquisition, international
expansion, and investments in core businesses. The fourth quarter of
2018 Adjusted Return on Equity was 9.8%.

Legacy Results – Fourth quarter adjusted pre-tax loss of $150
million, compared to adjusted pre-tax income of $411 million in the
prior-year quarter, reflect lower net investment income and losses from
fair value option assets, as well as a $105 million pre-tax charge
resulting from loss recognition testing on certain Accident & Health
cancer and disability blocks. AIG completed the sale of 19.9% of AIG’s
ownership interest in Fortitude Holdings, the parent of Fortitude Re
(formerly DSA Re), to The Carlyle Group L.P.

Liquidity and Capital – As of December 31, 2018, AIG Parent
liquidity stood at approximately $3.8 billion. In the fourth quarter,
AIG Parent received approximately $350 million of distributions from the
insurance subsidiaries in the form of cash and fixed maturity
securities, including tax sharing payments. In the fourth quarter, AIG
repurchased 18.0 million shares of common stock for $745 million and
warrants for $5 million. AIG’s Board of Directors has approved an
increase in our share repurchase authorization to $2.0 billion,
including approximately $512 million that was remaining under the
previous authorization.

Book Value per Common Share – As of December 31, 2018, book value
per common share was $65.04 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)
was $54.95, up slightly from prior-year end.

GENERAL INSURANCE

               
Three Months Ended December 31,          
($ in millions)       2018       2017       Change  
Total General Insurance          
Gross premiums written $ 7,699 $ 7,278 6 %
Net premiums written $ 6,424 $ 5,892 9
Underwriting loss $ (1,071) $ (846) (27)
Adjusted pre-tax income (loss) $ (722) $ 13 NM
 
Underwriting ratios:
Loss ratio 80.1 78.3 1.8 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (11.3) (11.7) 0.4
Prior year development (5.3) (1.4) (3.9)
Adjustments for ceded premium under reinsurance

contracts and other

0.4 0.4
Accident year loss ratio, as adjusted 63.9 65.2 (1.3)
Expense ratio 34.9 35.0 (0.1)
Combined ratio 115.0 113.3 1.7
Accident year combined ratio, as adjusted       98.8       100.2       (1.4)  
 

General Insurance – North America

             
Three Months Ended December 31,        
($ in millions)       2018     2017     Change
North America      
Net premiums written $ 2,944 $ 2,583 14 %
Commercial Lines 2,161 1,808 20
Personal Insurance 783 775 1
 
Underwriting income (loss) $ (871) $ (316) (176)
Commercial Lines (541) 16 NM
Personal Insurance (330) (332) 1
 
Adjusted pre-tax income (loss) $ (575) $ 412 NM
 

Underwriting ratios:

North America
Loss ratio 94.6 83.0 11.6 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (19.6) (24.5) 4.9
Prior year development (10.0) 3.3 (13.3)
Adjustments for ceded premium under reinsurance

contracts and other

0.9 0.9
Accident year loss ratio, as adjusted 65.9 61.8 4.1
Expense ratio 30.7 28.5 2.2
Combined ratio 125.3 111.5 13.8
Accident year combined ratio, as adjusted 96.6 90.3 6.3
 
North America Commercial Lines
Loss ratio 93.6 73.9 19.7 pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (9.8) (12.0) 2.2
Prior year development (13.3) 4.9 (18.2)
Adjustments for ceded premium under reinsurance

contracts and other

1.2 1.2
Accident year loss ratio, as adjusted 71.7 66.8 4.9
Expense ratio 27.3 25.3 2.0
Combined ratio 120.9 99.2 21.7
Accident year combined ratio, as adjusted 99.0 92.1 6.9
 
North America Personal Insurance
Loss ratio 98.0 108.0 (10.0) pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (49.8) (58.6) 8.8
Prior year development (1.1) 1.1
Accident year loss ratio, as adjusted 48.2 48.3 (0.1)
Expense ratio 41.6 37.5 4.1
Combined ratio 139.6 145.5 (5.9)
Accident year combined ratio, as adjusted       89.8     85.8     4.0  

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

General Insurance North America – Commentary

  • Adjusted pre-tax loss of $575 million compared to adjusted pre-tax
    income of $412 million in the prior-year quarter.
  • Net investment income of $296 million for the quarter compared to $728
    million in the prior-year quarter. The decline in net investment
    income was largely the result of net losses on alternative and equity
    investments in the current quarter.
  • Net premiums written increased by 14.0%, largely due to the
    acquisitions of Validus and Glatfelter, and lower ceded premiums due
    to changes in the 2018 reinsurance programs. This was slightly offset
    by some underlying reduction in the North America Commercial Lines
    business due to ongoing underwriting actions to improve performance.
  • The North America combined ratio of 125.3 included 19.6 points of
    catastrophe losses net of reinstatement premiums and 10.0 points of
    net unfavorable prior year loss reserve development. The accident year
    combined ratio, as adjusted, was 96.6 for the quarter comprised of a
    65.9 loss ratio, as adjusted, and a 30.7 expense ratio. The pre-tax
    underwriting loss of $871 million includes $689 million of catastrophe
    losses, net of reinsurance, of which $414 million related to North
    America Personal Insurance and $275 million related to Commercial
    Lines. Net unfavorable prior year loss reserve development of $326
    million was primarily related to Financial Lines in Commercial Lines.
  • The increase in the expense ratio reflected a higher acquisition
    expense ratio driven by changes in portfolio mix, especially in
    Personal Insurance, and a decrease in GOE resulting from actions taken
    in the second half of 2018 to control expenses.

General Insurance – International

             
Three Months Ended December 31,        
($ in millions)       2018     2017     Change  
International      
Net premiums written $ 3,480 $ 3,309 5 %
Commercial Lines 1,561 1,422 10
Personal Insurance 1,919 1,887 2
 
Underwriting income (loss) $ (200) $ (530) 62
Commercial Lines (251) (603) 58
Personal Insurance 51 73 (30)
 
Adjusted pre-tax loss $ (147) $ (399) 63
 

Underwriting ratios:

International
Loss ratio 66.8 74.7 (7.9) pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (3.7) (2.2) (1.5)
Prior year development (1.0) (4.8) 3.8
Accident year loss ratio, as adjusted 62.1 67.7 (5.6)
Expense ratio 38.6 39.8 (1.2)
Combined ratio 105.4 114.5 (9.1)
Accident year combined ratio, as adjusted 100.7 107.5 (6.8)
 
International Commercial Lines
Loss ratio 80.5 98.0 (17.5) pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (7.2) (2.7) (4.5)
Prior year development (4.1) (11.4) 7.3
Accident year loss ratio, as adjusted 69.2 83.9 (14.7)
Expense ratio 33.1 37.7 (4.6)
Combined ratio 113.6 135.7 (22.1)
Accident year combined ratio, as adjusted 102.3 121.6 (19.3)
 
International Personal Insurance
Loss ratio 53.4 54.6 (1.2) pts
Impact on loss ratio:
Catastrophe losses and reinstatement premiums (0.2) (1.8) 1.6
Prior year development 2.0 0.8 1.2
Accident year loss ratio, as adjusted 55.2 53.6 1.6
Expense ratio 43.9 41.7 2.2
Combined ratio 97.3 96.3 1.0
Accident year combined ratio, as adjusted       99.1     95.3     3.8  

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

General Insurance International – Commentary

  • Adjusted pre-tax loss of $147 million compared to adjusted pre-tax
    loss of $399 million in the prior-year quarter.
  • Net investment income of $53 million for the quarter compared to $131
    million in the prior-year quarter. The decline in net investment
    income was largely the result of net losses on equity investments in
    the current quarter.
  • Net premiums written increased 5.2% on a reported and 7.6% on a
    constant dollar basis. The increase in net premiums written was due to
    the inclusion of the Talbot acquisition and increased accident &
    health business in Asia Pacific.
  • The International combined ratio of 105.4 included 3.7 points of
    catastrophe losses net of reinstatement premiums and 1.0 points of net
    unfavorable loss reserve development. The accident year combined
    ratio, as adjusted, of 100.7 was comprised of a 62.1 loss ratio, as
    adjusted, and a 38.6 expense ratio. The catastrophe losses and net
    unfavorable loss reserve development was largely a result of the
    Commercial portfolio. The pre-tax underwriting loss of $200 million
    included $137 million of catastrophe losses, net of reinsurance,
    severe losses of $79 million, net of reinsurance, and net unfavorable
    prior year loss reserve development of $37 million.
  • The expense ratio decrease was driven by a reduction in GOE given
    actions in the second half of the year, partially offset by higher
    acquisition expense ratio primarily due to increased costs in Japan
    and changes to the portfolio mix.

LIFE AND RETIREMENT

    Three Months Ended December 31,        
($ in millions)       2018     2017     Change
Life and Retirement      
Premiums & Fees $ 1,917 $ 2,123 (10) %
Net Investment Income 1,921 2,003 (4)
Adjusted Revenue 4,065 4,382 (7)
Benefits, losses and expenses 3,442 3,600 (4)
Adjusted pre-tax income 623 782 (20)
Premiums and deposits 8,166 7,965 3
 
Individual Retirement
Premiums & Fees $ 209 $ 210 %
Net Investment Income 912 1,030 (11)
Adjusted Revenue 1,276 1,415 (10)
Benefits, losses and expenses 949 941 1
Adjusted pre-tax income 327 474 (31)
Premiums and deposits 4,225 3,106 36
Net flows       (510)     (422)     (21)  
               
Three Months Ended December 31,        
($ in millions)       2018     2017     Change
Group Retirement
Premiums & Fees $ 111 $ 120 (8) %
Net Investment Income 517 550 (6)
Adjusted Revenue 682 732 (7)
Benefits, losses and expenses 523 486 8
Adjusted pre-tax income 159 246 (35)
Premiums and deposits 2,106 1,848 14
Net flows (628) (453) (39)
 
Life Insurance
Premiums & Fees $ 741 $ 732 1 %
Net Investment Income 287 263 9
Adjusted Revenue 1,045 1,013 3
Benefits, losses and expenses 958 1,011 (5)
Adjusted pre-tax income 87 2 NM
Premiums and deposits 987 963 2
 
Institutional Markets
Premiums & Fees $ 856 $ 1,061 (19) %
Net Investment Income 205 160 28
Adjusted Revenue 1,062 1,222 (13)
Benefits, losses and expenses 1,012 1,162 (13)
Adjusted pre-tax income 50 60 (17)
Premiums and deposits       848     2,048     (59)  
 

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

Life and Retirement – Commentary

  • In Individual Retirement, adjusted pre-tax income reflected lower net
    investment income due to lower base spreads and yield enhancements and
    lower fee income driven by unfavorable credit and equity market
    performance. Net flows excluding Retail Mutual Funds were positive and
    reflected strong sales.
  • In Group Retirement, adjusted pre-tax income reflected lower fee
    income, lower base spread and yield enhancements driven by unfavorable
    credit and equity market performance and continued investments made in
    the business. Group Retirement net flows reflected higher sales offset
    by higher surrenders due to the loss of large plan accounts, as well
    as higher individual surrenders.
  • In Life Insurance, adjusted pre-tax income reflected higher net
    investment income due to business growth and higher alternative
    investments returns. Mortality was favorable to pricing expectations.
  • In Institutional Markets, adjusted pre-tax income reflected
    investments in technology and infrastructure and reserve refinements,
    partially offset by growth in the portfolio which drove higher net
    investment income.

CONFERENCE CALL

AIG will host a conference call tomorrow, Thursday, February 14, 2019 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;
  • the occurrence of catastrophic events, both natural and man-made;
  • AIG’s ability to successfully reorganize its businesses and execute on
    its initiatives to improve its underwriting capabilities and
    reinsurance programs, 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;
  • actions by credit rating agencies;
  • 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;
  • the effectiveness of AIG’s strategies to recruit and retain key
    personnel and its ability to implement effective succession plans;
  • negative impacts on customers, business partners and other
    stakeholders;
  • AIG’s ability to successfully manage Legacy portfolios;
  • concentrations in AIG’s investment portfolios;
  • the requirements, which may change from time to time, of the global
    regulatory framework to which AIG is subject;
  • significant legal, regulatory or governmental proceedings;
  • changes in judgments concerning the recognition of deferred tax assets
    and goodwill impairment; and
  • such other factors discussed in Part I, Item 2. Management’s
    Discussion and Analysis of Financial Condition and Results of
    Operations (MD&A) in AIG’s Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2018, Part I, Item 2. 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, 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 and Part II, Item7. MD&A and Part I, Item 1A. Risk
    Factors in AIG’s Annual Report on Form 10-K for the year ended
    December 31, 2018 (which will be filed with the SEC).

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.

Contacts

Liz Werner (Investors): 212-770-7074; elizabeth.werner@aig.com
Daniel
O’Donnell (Media): 212-770-3141; daniel.odonnell@aig.com
Claire
Talcott (Media): 212-458-6343; claire.talcott@aig.com

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