AMERICAN INTERNATIONAL GROUP, INC. - Quarter Report: 2019 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019 |
OR |
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
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
________________
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 |
Depositary 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 |
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.
☑ |
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| Accelerated filer ☐ |
Non-accelerated filer ☐ |
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| Smaller reporting company ☐ |
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| 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 ☑
As of October 25, 2019, there were 869,951,606 shares outstanding of the registrant’s common stock.
AMERICAN INTERNATIONAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
September 30, 2019
Table of Contents
FORM 10-Q |
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Item Number | Description | Page | |
Part I — Financial Information |
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Management’s Discussion and Analysis of Financial Condition and Results of |
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Part II — Other Information |
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AIG | Third Quarter 2019 Form 10-Q 1
Part I – Financial Information
Item 1. | Financial Statements
American International Group, Inc.
Condensed Consolidated Balance Sheets (unaudited)
| September 30, | December 31, | ||
(in millions, except for share data) |
| 2019 |
| 2018 |
Assets: |
|
|
|
|
Investments: |
|
|
|
|
Fixed maturity securities: |
|
|
|
|
Bonds available for sale, at fair value (amortized cost: 2019 - $233,345; 2018 - $225,780) | $ | 253,221 | $ | 229,391 |
Other bond securities, at fair value (See Note 6) |
| 8,327 |
| 11,415 |
Equity securities, at fair value (See Note 6) |
| 771 |
| 1,253 |
Mortgage and other loans receivable, net of allowance |
| 45,075 |
| 43,135 |
Other invested assets (portion measured at fair value: 2019 - $6,060; 2018 - $5,894) |
| 19,486 |
| 19,341 |
Short-term investments, including restricted cash of $64 in 2019 and $142 in 2018 |
|
|
|
|
(portion measured at fair value: 2019 - $5,577; 2018 - $3,015) |
| 14,113 |
| 9,674 |
Total investments |
| 340,993 |
| 314,209 |
|
|
|
|
|
Cash |
| 3,361 |
| 2,873 |
Accrued investment income |
| 2,391 |
| 2,389 |
Premiums and other receivables, net of allowance |
| 11,786 |
| 11,011 |
Reinsurance assets, net of allowance |
| 39,483 |
| 38,172 |
Deferred income taxes |
| 13,054 |
| 15,221 |
Deferred policy acquisition costs |
| 11,000 |
| 12,694 |
Other assets, including restricted cash of $345 in 2019 and $343 in 2018 |
|
|
|
|
(portion measured at fair value: 2019 - $1,185; 2018 - $973) |
| 13,929 |
| 13,568 |
Separate account assets, at fair value |
| 89,125 |
| 81,847 |
Total assets | $ | 525,122 | $ | 491,984 |
Liabilities: |
|
|
|
|
Liability for unpaid losses and loss adjustment expenses | $ | 79,883 | $ | 83,639 |
Unearned premiums |
| 19,959 |
| 19,248 |
Future policy benefits for life and accident and health insurance contracts |
| 50,747 |
| 44,935 |
Policyholder contract deposits (portion measured at fair value: 2019 - $7,166; 2018 - $4,116) |
| 151,964 |
| 142,262 |
Other policyholder funds |
| 3,440 |
| 3,568 |
Other liabilities (portion measured at fair value: 2019 - $1,140; 2018 - $1,265) |
| 27,297 |
| 24,636 |
Long-term debt (portion measured at fair value: 2019 - $2,287; 2018 - $2,213) |
| 35,262 |
| 34,540 |
Separate account liabilities |
| 89,125 |
| 81,847 |
Total liabilities |
| 457,677 |
| 434,675 |
Contingencies, commitments and guarantees (See Note 11) |
|
| ||
|
|
|
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|
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 - 1,036,722,246 shares; 2018 - 1,040,062,063 shares of common stock |
| (48,989) |
| (49,144) |
Additional paid-in capital |
| 81,287 |
| 81,268 |
Retained earnings |
| 22,439 |
| 20,884 |
Accumulated other comprehensive income (loss) |
| 5,615 |
| (1,413) |
Total AIG shareholders’ equity |
| 65,603 |
| 56,361 |
Non-redeemable noncontrolling interests |
| 1,842 |
| 948 |
Total equity |
| 67,445 |
| 57,309 |
Total liabilities and equity | $ | 525,122 | $ | 491,984 |
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements. | ||||
2 AIG | Third Quarter 2019 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Income (Loss) (unaudited)
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(dollars in millions, except per common share data) |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums |
| $ | 7,617 |
| $ | 7,668 |
| $ | 23,117 |
| $ | 22,150 |
Policy fees |
|
| 733 |
|
| 530 |
|
| 2,237 |
|
| 2,057 |
Net investment income |
|
| 3,408 |
|
| 3,396 |
|
| 11,032 |
|
| 9,722 |
Net realized capital gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairments on available for sale securities |
|
| (15) |
|
| (13) |
|
| (119) |
|
| (116) |
Portion of other-than-temporary impairments on available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
fixed maturity securities recognized in Other comprehensive income (loss) |
|
| (9) |
|
| (22) |
|
| (18) |
|
| (42) |
Net other-than-temporary impairments on available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
securities recognized in net income (loss) |
|
| (24) |
|
| (35) |
|
| (137) |
|
| (158) |
Other realized capital gains (losses) |
|
| 953 |
|
| (476) |
|
| 1,024 |
|
| (207) |
Total net realized capital gains (losses) |
|
| 929 |
|
| (511) |
|
| 887 |
|
| (365) |
Other income |
|
| 227 |
|
| 403 |
|
| 658 |
|
| 1,265 |
Total revenues |
|
| 12,914 |
|
| 11,486 |
|
| 37,931 |
|
| 34,829 |
Benefits, losses and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and losses incurred |
|
| 6,892 |
|
| 8,312 |
|
| 19,373 |
|
| 19,484 |
Interest credited to policyholder account balances |
|
| 966 |
|
| 933 |
|
| 2,873 |
|
| 2,784 |
Amortization of deferred policy acquisition costs |
|
| 1,252 |
|
| 1,118 |
|
| 3,980 |
|
| 3,813 |
General operating and other expenses |
|
| 2,187 |
|
| 2,325 |
|
| 6,380 |
|
| 6,919 |
Interest expense |
|
| 348 |
|
| 326 |
|
| 1,057 |
|
| 902 |
(Gain) loss on extinguishment of debt |
|
| - |
|
| 1 |
|
| 13 |
|
| 10 |
Net (gain) loss on sale of divested businesses |
|
| 9 |
|
| (2) |
|
| 4 |
|
| (35) |
Total benefits, losses and expenses |
|
| 11,654 |
|
| 13,013 |
|
| 33,680 |
|
| 33,877 |
Income (loss) from continuing operations before income tax expense (benefit) |
|
| 1,260 |
|
| (1,527) |
|
| 4,251 |
|
| 952 |
Income tax expense (benefit) |
|
| 287 |
|
| (307) |
|
| 950 |
|
| 291 |
Income (loss) from continuing operations |
|
| 973 |
|
| (1,220) |
|
| 3,301 |
|
| 661 |
Loss from discontinued operations, net of income tax expense |
|
| - |
|
| (39) |
|
| (1) |
|
| (40) |
Net income (loss) |
|
| 973 |
|
| (1,259) |
|
| 3,300 |
|
| 621 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
|
| 317 |
|
| - |
|
| 881 |
|
| 5 |
Net income (loss) attributable to AIG |
|
| 656 |
|
| (1,259) |
|
| 2,419 |
|
| 616 |
Less: Dividends on preferred stock |
|
| 8 |
|
| - |
|
| 15 |
|
| - |
Net income (loss) attributable to AIG common shareholders |
| $ | 648 |
| $ | (1,259) |
| $ | 2,404 |
| $ | 616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share attributable to AIG common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
| $ | 0.74 |
| $ | (1.37) |
| $ | 2.74 |
| $ | 0.72 |
Loss from discontinued operations |
| $ | - |
| $ | (0.04) |
| $ | - |
| $ | (0.04) |
Net income (loss) attributable to AIG common shareholders |
| $ | 0.74 |
| $ | (1.41) |
| $ | 2.74 |
| $ | 0.68 |
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
| $ | 0.72 |
| $ | (1.37) |
| $ | 2.71 |
| $ | 0.71 |
Loss from discontinued operations |
| $ | - |
| $ | (0.04) |
| $ | - |
| $ | (0.04) |
Net income (loss) attributable to AIG common shareholders |
| $ | 0.72 |
| $ | (1.41) |
| $ | 2.71 |
| $ | 0.67 |
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 877,009,495 |
|
| 895,237,359 |
|
| 876,262,372 |
|
| 902,081,555 |
Diluted |
|
| 895,814,410 |
|
| 895,237,359 |
|
| 887,221,116 |
|
| 916,818,269 |
|
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See accompanying Notes to Condensed Consolidated Financial Statements. |
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AIG | Third Quarter 2019 Form 10-Q 3
American International Group, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(in millions) |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
Net income (loss) |
| $ | 973 |
| $ | (1,259) |
| $ | 3,300 |
| $ | 621 |
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 |
|
| (2) |
|
| 107 |
|
| 756 |
|
| (1,089) |
Change in unrealized appreciation (depreciation) of all other investments |
|
| 656 |
|
| (758) |
|
| 6,278 |
|
| (4,222) |
Change in foreign currency translation adjustments |
|
| (34) |
|
| (129) |
|
| 1 |
|
| (181) |
Change in retirement plan liabilities adjustment |
|
| 7 |
|
| 14 |
|
| 14 |
|
| 66 |
Change in fair value of liabilities under fair value option attributable to changes in |
|
|
|
|
|
|
|
|
|
|
|
|
own credit risk |
|
| 1 |
|
| - |
|
| (1) |
|
| 1 |
Other comprehensive income (loss) |
|
| 628 |
|
| (766) |
|
| 7,048 |
|
| (5,425) |
Comprehensive income (loss) |
|
| 1,601 |
|
| (2,025) |
|
| 10,348 |
|
| (4,804) |
Comprehensive income (loss) attributable to noncontrolling interests |
|
| 321 |
|
| - |
|
| 901 |
|
| 5 |
Comprehensive income (loss) attributable to AIG |
| $ | 1,280 |
| $ | (2,025) |
| $ | 9,447 |
| $ | (4,809) |
|
|
|
|
|
|
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See accompanying Notes to Condensed Consolidated Financial Statements. | ||||||||||||
4 AIG | Third Quarter 2019 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Equity (unaudited)
|
| Preferred |
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|
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|
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|
| Non- |
|
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| Stock and |
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| 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 September 30, 2019 |
|
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Balance, beginning of period | $ | 485 | $ | 4,766 | $ | (48,991) | $ | 81,211 | $ | 22,077 | $ | 4,991 | $ | 64,539 | $ | 1,566 | $ | 66,105 |
Preferred stock issued |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Common stock issued under stock plans |
| - |
| - |
| 1 |
| - |
| - |
| - |
| 1 |
| - |
| 1 |
Purchase of common stock |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| 656 |
| - |
| 656 |
| 317 |
| 973 |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (8) |
| - |
| (8) |
| - |
| (8) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (278) |
| - |
| (278) |
| - |
| (278) |
Other comprehensive income |
| - |
| - |
| - |
| - |
| - |
| 624 |
| 624 |
| 4 |
| 628 |
Current and deferred income taxes |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net decrease due to acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and consolidations |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (18) |
| (18) |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 11 |
| 11 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (37) |
| (37) |
Other |
| - |
| - |
| 1 |
| 76 |
| (8) |
| - |
| 69 |
| (1) |
| 68 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (48,989) | $ | 81,287 | $ | 22,439 | $ | 5,615 | $ | 65,603 | $ | 1,842 | $ | 67,445 |
|
|
|
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|
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|
|
|
|
|
|
|
|
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|
|
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
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|
|
|
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|
|
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 |
| - |
| - |
| 154 |
| (231) |
| - |
| - |
| (77) |
| - |
| (77) |
Purchase of common stock |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| 2,419 |
| - |
| 2,419 |
| 881 |
| 3,300 |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (15) |
| - |
| (15) |
| - |
| (15) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (835) |
| - |
| (835) |
| - |
| (835) |
Other comprehensive income |
| - |
| - |
| - |
| - |
| - |
| 7,028 |
| 7,028 |
| 20 |
| 7,048 |
Current and deferred income taxes |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net increase due to acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and consolidations |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 78 |
| 78 |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 13 |
| 13 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (106) |
| (106) |
Other |
| - |
| - |
| 1 |
| 250 |
| (14) |
| - |
| 237 |
| 8 |
| 245 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (48,989) | $ | 81,287 | $ | 22,439 | $ | 5,615 | $ | 65,603 | $ | 1,842 | $ | 67,445 |
AIG | Third Quarter 2019 Form 10-Q 5
American International Group, Inc.
Condensed Consolidated Statements of Equity (unaudited)(continued)
|
| 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 September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period | $ | - | $ | 4,766 | $ | (48,052) | $ | 80,924 | $ | 23,318 | $ | 230 | $ | 61,186 | $ | 611 | $ | 61,797 |
Cumulative effect of change in accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle, net of tax |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Common stock issued under stock plans |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Purchase of common stock |
| - |
| - |
| (348) |
| - |
| - |
| - |
| (348) |
| - |
| (348) |
Net loss attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| (1,259) |
| - |
| (1,259) |
| - |
| (1,259) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (283) |
| - |
| (283) |
| - |
| (283) |
Other comprehensive loss |
| - |
| - |
| - |
| - |
| - |
| (766) |
| (766) |
| - |
| (766) |
Net increase due to acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and consolidations |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 1 |
| 1 |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 18 |
| 18 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (38) |
| (38) |
Other |
| - |
| - |
| (1) |
| 84 |
| (27) |
| - |
| 56 |
| (1) |
| 55 |
Balance, end of period | $ | - | $ | 4,766 | $ | (48,401) | $ | 81,008 | $ | 21,749 | $ | (536) | $ | 58,586 | $ | 591 | $ | 59,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 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 |
| - |
| - |
| 187 |
| (337) |
| - |
| - |
| (150) |
| - |
| (150) |
Purchase of common stock |
| - |
| - |
| (994) |
| - |
| - |
| - |
| (994) |
| - |
| (994) |
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| 616 |
| - |
| 616 |
| 5 |
| 621 |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (858) |
| - |
| (858) |
| - |
| (858) |
Other comprehensive loss |
| - |
| - |
| - |
| - |
| - |
| (5,425) |
| (5,425) |
| - |
| (5,425) |
Net increase due to acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and consolidations |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 99 |
| 99 |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 21 |
| 21 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (65) |
| (65) |
Other |
| - |
| - |
| 1 |
| 267 |
| (34) |
| - |
| 234 |
| (6) |
| 228 |
Balance, end of period | $ | - | $ | 4,766 | $ | (48,401) | $ | 81,008 | $ | 21,749 | $ | (536) | $ | 58,586 | $ | 591 | $ | 59,177 |
See accompanying Notes to Condensed Consolidated Financial Statements.
6 AIG | Third Quarter 2019 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
| Nine Months Ended September 30, | |||
(in millions) |
| 2019 |
| 2018 |
Cash flows from operating activities: |
|
|
|
|
Net income | $ | 3,300 | $ | 621 |
Loss from discontinued operations |
| 1 |
| 40 |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
Noncash revenues, expenses, gains and losses included in income (loss): |
|
|
|
|
Net gains on sales of securities available for sale and other assets |
| (600) |
| (71) |
Net (gain) loss on sale of divested businesses |
| 4 |
| (35) |
Losses on extinguishment of debt |
| 13 |
| 10 |
Unrealized (gains) losses in earnings - net |
| (273) |
| 601 |
Equity in loss from equity method investments, net of dividends or distributions |
| 90 |
| 141 |
Depreciation and other amortization |
| 3,833 |
| 3,813 |
Impairments of assets |
| 237 |
| 269 |
Changes in operating assets and liabilities: |
|
|
|
|
Insurance reserves |
| (2,146) |
| 96 |
Premiums and other receivables and payables - net |
| (42) |
| 968 |
Reinsurance assets and funds held under reinsurance treaties |
| (1,200) |
| (2,057) |
Capitalization of deferred policy acquisition costs |
| (4,181) |
| (4,366) |
Current and deferred income taxes - net |
| 757 |
| 224 |
Other, net |
| (582) |
| (292) |
Total adjustments |
| (4,090) |
| (699) |
Net cash used in operating activities |
| (789) |
| (38) |
Cash flows from investing activities: |
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
Sales or distributions of: |
|
|
|
|
Available for sale securities |
| 17,498 |
| 18,103 |
Other securities |
| 5,230 |
| 3,258 |
Other invested assets |
| 3,345 |
| 3,799 |
Divested businesses, net |
| 2 |
| 10 |
Maturities of fixed maturity securities available for sale |
| 18,165 |
| 18,305 |
Principal payments received on and sales of mortgage and other loans receivable |
| 4,233 |
| 3,068 |
Purchases of: |
|
|
|
|
Available for sale securities |
| (41,612) |
| (32,807) |
Other securities |
| (723) |
| (940) |
Other invested assets |
| (2,662) |
| (2,263) |
Mortgage and other loans receivable |
| (6,512) |
| (7,918) |
Acquisition of businesses, net of cash and restricted cash acquired |
| - |
| (5,052) |
Net change in short-term investments |
| (4,586) |
| 2,411 |
Other, net |
| 2,829 |
| (891) |
Net cash used in investing activities |
| (4,793) |
| (917) |
Cash flows from financing activities: |
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
Policyholder contract deposits |
| 17,297 |
| 18,150 |
Policyholder contract withdrawals |
| (12,474) |
| (13,004) |
Issuance of long-term debt |
| 2,564 |
| 4,059 |
Repayments of long-term debt |
| (2,421) |
| (2,788) |
Issuance of preferred stock |
| 485 |
| - |
Purchase of common stock |
| - |
| (994) |
Dividends paid on preferred stock |
| (15) |
| - |
Dividends paid on common stock |
| (835) |
| (858) |
Other, net |
| 1,354 |
| (3,232) |
Net cash provided by financing activities |
| 5,955 |
| 1,333 |
Effect of exchange rate changes on cash and restricted cash |
| 39 |
| 8 |
Net increase in cash and restricted cash |
| 412 |
| 386 |
Cash and restricted cash at beginning of year |
| 3,358 |
| 2,737 |
Cash and restricted cash at end of period | $ | 3,770 | $ | 3,123 |
AIG | Third Quarter 2019 Form 10-Q 7
American International Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)(continued)
Supplementary Disclosure of Condensed Consolidated Cash Flow Information
| Nine Months Ended September 30, | |||
(in millions) |
| 2019 |
| 2018 |
Cash | $ | 3,361 | $ | 2,741 |
Restricted cash included in Short-term investments* |
| 64 |
| 28 |
Restricted cash included in Other assets* |
| 345 |
| 354 |
Total cash and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 3,770 | $ | 3,123 |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest | $ | 1,012 | $ | 1,018 |
Taxes | $ | 193 | $ | 67 |
Non-cash investing/financing activities: |
|
|
|
|
Interest credited to policyholder contract deposits included in financing activities | $ | 2,507 | $ | 2,525 |
|
|
|
|
|
*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.
8 AIG | Third Quarter 2019 Form 10-Q
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 September 30, 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.
AIG | Third Quarter 2019 Form 10-Q 9
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 1. Basis of Presentation
OUT OF PERIOD ADJUSTMENTS
For the three- and nine-month periods ended September 30, 2019, our results include out of period adjustments relating to prior periods that decreased net income attributable to AIG common shareholders by $134 million and $138 million, respectively, and decreased Income from continuing operations before income tax expense by $169 million and $170 million, respectively. The out of period adjustments for the three-month period are primarily related to increases in policyholder benefits and losses incurred reflecting updated actuarial assumptions.
We determined that these adjustments were not material to the current quarter or to any previously reported quarterly or annual financial statements.
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 current expected credit losses (CECL) for most financial assets, trade receivables, off-balance sheet exposures and reinsurance receivables. The standard requires an allowance for credit losses based on the expectation of lifetime credit losses related to such 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, is 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 allow for reversals of credit impairments in the event that the credit of an issuer improves. The standard also requires additional disclosures.
10 AIG | Third Quarter 2019 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
We plan to adopt the standard on its effective date of January 1, 2020 using a modified retrospective method, which requires a cumulative effect adjustment to retained earnings. We are finalizing the development of the credit loss models and related systems, processes and controls. As of September 30, 2019, we currently estimate the CECL allowance to be a reduction in opening retained earnings of approximately $625 million (pre-tax) primarily driven by commercial mortgage loans, and, to a lesser extent, reinsurance receivables and recoverables. This estimate will change, perhaps materially, as it is subject to further adjustments based upon ongoing reviews of models, methodologies and judgments. Moreover, the ultimate impact will be dependent on, among other things, our portfolios’ composition at the adoption date, as well as macroeconomic conditions and forecasts, and other management judgments at that time.
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 plan to adopt the standard on its effective date of January 1, 2020. 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.
In October 2019, the FASB affirmed its decision to defer the effective date of the standard to January 1, 2022. We plan to adopt the standard on its updated effective date. We have started our implementation efforts and 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 statements of operations.
goodwill
Effective July 1, 2019, we changed the date of our annual goodwill impairment testing from December 31 to July 1. This change does not represent a material change to our method of applying current accounting guidance and is preferable as it better aligns with our strategic planning and forecasting process. This change will not delay, accelerate or avoid any impairment charge and was applied prospectively. We performed our annual goodwill impairment tests of all reporting units using a combination of both qualitative and
AIG | Third Quarter 2019 Form 10-Q 11
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
quantitative assessments and concluded that our goodwill was not impaired. Our goodwill balance was $4.1 billion at September 30, 2019. For further information on goodwill see Note 12 to the Consolidated Financial Statements in the 2018 Annual Report.
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).
12 AIG | Third Quarter 2019 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information
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.
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 September 30, | 2019 |
| 2018 | ||||||
|
|
|
| Adjusted |
|
|
|
| Adjusted |
|
| Total |
| Pre-tax |
|
| Total |
| Pre-tax |
(in millions) |
| Revenues |
| Income (Loss) |
|
| Revenues |
| Income (Loss) |
General Insurance |
|
|
|
|
|
|
|
|
|
North America | $ | 3,878 | $ | 435 |
| $ | 4,129 | $ | (160) |
International |
| 3,537 |
| 72 |
|
| 3,853 |
| (665) |
Total General Insurance |
| 7,415 |
| 507 |
|
| 7,982 |
| (825) |
Life and Retirement |
|
|
|
|
|
|
|
|
|
Individual Retirement |
| 1,416 |
| 387 |
|
| 1,335 |
| 393 |
Group Retirement |
| 726 |
| 203 |
|
| 718 |
| 242 |
Life Insurance |
| 1,037 |
| (7) |
|
| 809 |
| 16 |
Institutional Markets |
| 654 |
| 63 |
|
| 284 |
| 62 |
Total Life and Retirement |
| 3,833 |
| 646 |
|
| 3,146 |
| 713 |
Other Operations |
| 211 |
| (454) |
|
| 135 |
| (417) |
Legacy Portfolio |
| 751 |
| 93 |
|
| 814 |
| 84 |
AIG Consolidation and elimination |
| (153) |
| (46) |
|
| (42) |
| 29 |
Total AIG Consolidated adjusted revenues and adjusted pre-tax income (loss) |
| 12,057 |
| 746 |
|
| 12,035 |
| (416) |
Reconciling items from adjusted pre-tax income to pre-tax income (loss): |
|
|
|
|
|
|
|
|
|
Changes in fair value of securities used to hedge guaranteed |
|
|
|
|
|
|
|
|
|
living benefits |
| 25 |
| 12 |
|
| (5) |
| (14) |
Changes in benefit reserves and DAC, VOBA and SIA related to |
|
|
|
|
|
|
|
|
|
net realized capital gains (losses) |
| - |
| (65) |
|
| - |
| 76 |
Changes in the fair value of equity securities |
| (51) |
| (51) |
|
| - |
| - |
Professional fees related to regulatory or accounting changes |
| - |
| (3) |
|
| - |
| - |
Other income (expense) - net |
| 16 |
| - |
|
| (4) |
| - |
Gain (loss) on extinguishment of debt |
| - |
| - |
|
| - |
| (1) |
Net realized capital gains (losses)* |
| 867 |
| 881 |
|
| (540) |
| (524) |
Income (loss) from divested businesses |
| - |
| (9) |
|
| - |
| 2 |
Non-operating litigation reserves and settlements |
| - |
| (5) |
|
| - |
| (5) |
(Unfavorable) favorable prior year development and related amortization |
|
|
|
|
|
|
|
|
|
changes ceded under retroactive reinsurance agreements |
| - |
| 59 |
|
| - |
| (605) |
Net loss reserve discount benefit (charge) |
| - |
| (235) |
|
| - |
| 86 |
Integration and transaction costs associated with acquired businesses |
| - |
| (3) |
|
| - |
| (91) |
Restructuring and other costs |
| - |
| (67) |
|
| - |
| (35) |
Revenues and Pre-tax income (loss) | $ | 12,914 | $ | 1,260 |
| $ | 11,486 | $ | (1,527) |
AIG | Third Quarter 2019 Form 10-Q 13
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information
Nine Months Ended September 30, | 2019 |
| 2018 | ||||||
|
|
|
| Adjusted |
|
|
|
| Adjusted |
|
| Total |
| Pre-Tax |
|
| Total |
| Pre-Tax |
(in millions) |
| Revenues |
| Income (Loss) |
|
| Revenues |
| Income (Loss) |
General Insurance |
|
|
|
|
|
|
|
|
|
North America | $ | 12,001 | $ | 2,087 |
| $ | 10,895 | $ | 567 |
International |
| 10,743 |
| 668 |
|
| 11,758 |
| (314) |
Total General Insurance |
| 22,744 |
| 2,755 |
|
| 22,653 |
| 253 |
Life and Retirement |
|
|
|
|
|
|
|
|
|
Individual Retirement |
| 4,233 |
| ||||||