Annual Statements Open main menu

AMERICAN INTERNATIONAL GROUP, INC. - Quarter Report: 2020 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, 2020

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

 

Picture 2

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.

 

Large accelerated filer

 

 

 

Accelerated filer

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

 

As of November 2, 2020, there were 861,525,734 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, 2020

Table of Contents

FORM 10-Q

 

Item Number

Description

Page

Part I — Financial Information

 

ITEM 1

Condensed Consolidated Financial Statements

2

 

Note 1.

Basis of Presentation

9

 

Note 2.

Summary of Significant Accounting Policies

11

 

Note 3.

Segment Information

15

 

Note 4.

Fair Value Measurements

19

 

Note 5.

Investments

36

 

Note 6.

Lending Activities

49

 

Note 7.

Reinsurance

53

 

Note 8.

Variable Interest Entities

56

 

Note 9.

Derivatives and Hedge Accounting

58

 

Note 10.

Insurance Liabilities

62

 

Note 11.

Contingencies, Commitments and Guarantees

65

 

Note 12.

Equity

67

 

Note 13.

Earnings Per Common Share (EPS)

73

 

Note 14.

Employee Benefits

74

 

Note 15.

Income Taxes

75

 

Note 16.

Subsequent Events

78

ITEM 2

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

79

 

Cautionary Statement Regarding Forward-Looking Information

79

 

Use of Non-GAAP Measures

82

 

Critical Accounting Estimates

85

 

Executive Summary

88

 

Consolidated Results of Operations

99

 

Business Segment Operations

105

 

Investments

142

 

Insurance Reserves

154

 

Liquidity and Capital Resources

168

 

Enterprise Risk Management

180

 

Regulatory Environment

180

 

Glossary

183

 

Acronyms

186

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

187

ITEM 4

Controls and Procedures

187

Part II — Other Information

 

ITEM 1

Legal Proceedings

188

ITEM 1A

Risk Factors

188

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

190

ITEM 4

Mine Safety Disclosures

190

ITEM 6

Exhibits

191

Signatures

192

AIG | Third Quarter 2020 Form 10-Q 1

 


TABLE OF CONTENTS

 

 

 

Part I – Financial Information

Item 1. | Financial Statements

American International Group, Inc.

Condensed Consolidated Balance Sheets (unaudited)

 

September 30,

December 31,

(in millions, except for share data)

 

2020

 

2019

Assets:

 

 

 

 

Investments:

 

 

 

 

Fixed maturity securities:

 

 

 

 

Bonds available for sale, at fair value, net of allowance for credit losses of $236 in 2020

 

 

 

 

(amortized cost: 2020 - $242,470; 2019 - $233,230)

$

265,965

$

251,086

Other bond securities, at fair value (See Note 5)

 

5,415

 

6,682

Equity securities, at fair value (See Note 5)

 

871

 

841

Mortgage and other loans receivable, net of allowance for credit losses of $797 in 2020 and $438 in 2019

 

45,590

 

46,984

Other invested assets (portion measured at fair value: 2020 - $7,064; 2019 - $6,827)

 

17,915

 

18,792

Short-term investments, including restricted cash of $214 in 2020 and $188 in 2019

 

 

 

 

(portion measured at fair value: 2020 - $7,214; 2019 - $5,343)

 

20,648

 

13,230

Total investments

 

356,404

 

337,615

 

 

 

 

 

Cash

 

3,191

 

2,856

Accrued investment income

 

2,324

 

2,334

Premiums and other receivables, net of allowance for credit losses and disputes of $215 in 2020 and $178 in 2019

 

11,827

 

10,274

Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes of $0 in 2020

 

34,707

 

-

Reinsurance assets - other, net of allowance for credit losses and disputes of $318 in 2020 and $151 in 2019

 

40,337

 

37,977

Deferred income taxes

 

12,958

 

13,146

Deferred policy acquisition costs

 

10,176

 

11,207

Other assets, net of allowance for credit losses of $52 in 2020, including restricted cash of $202 in 2020 and $243 in 2019

 

 

 

 

(portion measured at fair value: 2020 - $901; 2019 - $3,151)

 

13,270

 

16,383

Separate account assets, at fair value

 

92,036

 

93,272

Total assets

$

577,230

$

525,064

Liabilities:

 

 

 

 

Liability for unpaid losses and loss adjustment expenses, net of allowance for credit losses of $14 in 2020

$

78,584

$

78,328

Unearned premiums

 

20,093

 

18,269

Future policy benefits for life and accident and health insurance contracts

 

51,090

 

50,512

Policyholder contract deposits (portion measured at fair value: 2020 - $9,322; 2019 - $6,910)

 

158,205

 

151,869

Other policyholder funds

 

3,571

 

3,428

Fortitude Re funds withheld payable (portion measured at fair value: 2020 - $5,136)

 

42,543

 

-

Other liabilities (portion measured at fair value: 2020 - $600; 2019 - $1,100)

 

28,264

 

26,609

Long-term debt (portion measured at fair value: 2020 - $2,169; 2019 - $2,062)

 

28,731

 

25,479

Debt of consolidated investment entities

 

9,506

 

9,871

Separate account liabilities

 

92,036

 

93,272

Total liabilities

 

512,623

 

457,637

Contingencies, commitments and guarantees (See Note 11)

 

nil

 

nil

 

 

 

 

 

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: 2020 - 20,000 and 2019 - 20,000; liquidation preference $500

 

485

 

485

Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2020 - 1,906,671,492 and

 

 

 

 

2019 - 1,906,671,492

 

4,766

 

4,766

Treasury stock, at cost; 2020 - 1,045,222,917 shares; 2019 - 1,036,672,461 shares of common stock

 

(49,327)

 

(48,987)

Additional paid-in capital

 

81,368

 

81,345

Retained earnings

 

15,838

 

23,084

Accumulated other comprehensive income

 

10,978

 

4,982

Total AIG shareholders’ equity

 

64,108

 

65,675

Non-redeemable noncontrolling interests

 

499

 

1,752

Total equity

 

64,607

 

67,427

Total liabilities and equity

$

577,230

$

525,064

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

2 AIG | Third Quarter 2020 Form 10-Q


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Income (Loss) (unaudited)

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

(dollars in millions, except per common share data)

 

2020

 

 

2019

 

 

2020

 

 

2019

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Premiums

$

6,677

 

$

7,617

 

$

21,527

 

$

23,117

Policy fees

 

648

 

 

733

 

 

2,152

 

 

2,237

Net investment income:

 

 

 

 

 

 

 

 

 

 

 

Net investment income - excluding Fortitude Re funds withheld assets

 

3,342

 

 

3,408

 

 

9,100

 

 

11,032

Net investment income - Fortitude Re funds withheld assets*

 

458

 

 

-

 

 

574

 

 

-

Total net investment income

 

3,800

 

 

3,408

 

 

9,674

 

 

11,032

Net realized capital gains (losses):

 

 

 

 

 

 

 

 

 

 

 

Net realized capital gains (losses) - excluding Fortitude Re funds withheld assets

 

(498)

 

 

929

 

 

1,430

 

 

887

Net realized capital gains (losses) on Fortitude Re funds withheld assets*

 

32

 

 

-

 

 

128

 

 

-

Net realized capital gains (losses) on Fortitude Re funds withheld embedded

 

 

 

 

 

 

 

 

 

 

 

derivative*

 

(656)

 

 

-

 

 

(1,493)

 

 

-

Total net realized capital gains (losses)

 

(1,122)

 

 

929

 

 

65

 

 

887

Other income

 

218

 

 

227

 

 

642

 

 

658

Total revenues

 

10,221

 

 

12,914

 

 

34,060

 

 

37,931

Benefits, losses and expenses:

 

 

 

 

 

 

 

 

 

 

 

Policyholder benefits and losses incurred

 

5,872

 

 

6,892

 

 

18,718

 

 

19,373

Interest credited to policyholder account balances

 

882

 

 

966

 

 

2,757

 

 

2,873

Amortization of deferred policy acquisition costs

 

707

 

 

1,252

 

 

3,323

 

 

3,980

General operating and other expenses

 

1,991

 

 

2,187

 

 

6,231

 

 

6,380

Interest expense

 

379

 

 

348

 

 

1,099

 

 

1,057

(Gain) loss on extinguishment of debt

 

(2)

 

 

-

 

 

15

 

 

13

Net loss on sale or disposal of divested businesses

 

24

 

 

9

 

 

8,652

 

 

4

Total benefits, losses and expenses

 

9,853

 

 

11,654

 

 

40,795

 

 

33,680

Income (loss) from continuing operations before income tax expense (benefit)

 

368

 

 

1,260

 

 

(6,735)

 

 

4,251

Income tax expense (benefit)

 

74

 

 

287

 

 

(918)

 

 

950

Income (loss) from continuing operations

 

294

 

 

973

 

 

(5,817)

 

 

3,301

Income (loss) from discontinued operations, net of income taxes

 

5

 

 

-

 

 

4

 

 

(1)

Net income (loss)

 

299

 

 

973

 

 

(5,813)

 

 

3,300

Less:

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

11

 

 

317

 

 

78

 

 

881

Net income (loss) attributable to AIG

 

288

 

 

656

 

 

(5,891)

 

 

2,419

Less: Dividends on preferred stock

 

7

 

 

8

 

 

22

 

 

15

Net income (loss) attributable to AIG common shareholders

$

281

 

$

648

 

$

(5,913)

 

$

2,404

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share attributable to AIG common shareholders:

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

0.31

 

$

0.74

 

$

(6.80)

 

$

2.74

Income (loss) from discontinued operations

$

0.01

 

$

-

 

$

-

 

$

-

Net income (loss) attributable to AIG common shareholders

$

0.32

 

$

0.74

 

$

(6.80)

 

$

2.74

Diluted:

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

0.31

 

$

0.72

 

$

(6.80)

 

$

2.71

Income (loss) from discontinued operations

$

0.01

 

$

-

 

$

-

 

$

-

Net income (loss) attributable to AIG common shareholders

$

0.32

 

$

0.72

 

$

(6.80)

 

$

2.71

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

867,713,308

 

 

877,009,495

 

 

869,627,926

 

 

876,262,372

Diluted

 

873,130,950

 

 

895,814,410

 

 

869,627,926

 

 

887,221,116

* Represents activity subsequent to the deconsolidation of Fortitude Re on June 2, 2020.

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | Third Quarter 2020 Form 10-Q 3

 


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(in millions)

 

 

2020

 

 

2019

 

 

2020

 

 

2019

Net income (loss)

 

$

299

 

$

973

 

$

(5,813)

 

$

3,300

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

which allowance for credit losses was taken

 

 

79

 

 

-

 

 

(154)

 

 

-

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

 

 

 

 

 

 

 

 

 

 

 

 

which other-than-temporary credit impairments were taken

 

 

-

 

 

(2)

 

 

-

 

 

756

Change in unrealized appreciation of all other investments

 

 

1,385

 

 

656

 

 

5,925

 

 

6,278

Change in foreign currency translation adjustments

 

 

352

 

 

(34)

 

 

206

 

 

1

Change in retirement plan liabilities adjustment

 

 

(1)

 

 

7

 

 

1

 

 

14

Change in fair value of liabilities under fair value option attributable to changes in

 

 

 

 

 

 

 

 

 

 

 

 

own credit risk

 

 

1

 

 

1

 

 

2

 

 

(1)

Other comprehensive income

 

 

1,816

 

 

628

 

 

5,980

 

 

7,048

Comprehensive income

 

 

2,115

 

 

1,601

 

 

167

 

 

10,348

Comprehensive income attributable to noncontrolling interests

 

 

18

 

 

321

 

 

62

 

 

901

Comprehensive income attributable to AIG

 

$

2,097

 

$

1,280

 

$

105

 

$

9,447

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4 AIG | Third Quarter 2020 Form 10-Q


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Equity (unaudited)

 

 

Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

Accumulated

 

Total AIG

 

redeemable

 

 

 

Additional

 

 

 

 

 

Additional

 

 

 

Other

 

Share-

 

Non-

 

 

 

 

Paid-in

 

Common

 

Treasury

 

Paid-in

 

Retained

Comprehensive

 

holders'

 

controlling

 

Total

(in millions)

 

Capital

 

Stock

 

Stock

 

Capital

 

Earnings

Income

 

Equity

 

Interests

 

Equity

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

$

485

$

4,766

$

(49,327)

$

81,294

$

15,847

$

9,169

$

62,234

$

584

$

62,818

Cumulative effect of change in accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

principle, net of tax

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Preferred stock issued

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Common stock issued under stock plans

 

-

 

-

 

-

 

(1)

 

-

 

-

 

(1)

 

-

 

(1)

Purchase of common stock

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Net income attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

288

 

-

 

288

 

11

 

299

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

(7)

 

-

 

(7)

 

-

 

(7)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(276)

 

-

 

(276)

 

-

 

(276)

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

1,809

 

1,809

 

7

 

1,816

Net decrease due to deconsolidation

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(28)

 

(28)

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(71)

 

(71)

Other

 

-

 

-

 

-

 

75

 

(14)

 

-

 

61

 

(4)

 

57

Balance, end of period

$

485

$

4,766

$

(49,327)

$

81,368

$

15,838

$

10,978

$

64,108

$

499

$

64,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

485

$

4,766

$

(48,987)

$

81,345

$

23,084

$

4,982

$

65,675

$

1,752

$

67,427

Cumulative effect of change in accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

principle, net of tax

 

-

 

-

 

-

 

-

 

(487)

 

-

 

(487)

 

-

 

(487)

Preferred stock issued

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Common stock issued under stock plans

 

-

 

-

 

167

 

(265)

 

-

 

-

 

(98)

 

-

 

(98)

Purchase of common stock

 

-

 

-

 

(500)

 

-

 

-

 

-

 

(500)

 

-

 

(500)

Net income (loss) attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

(5,891)

 

-

 

(5,891)

 

78

 

(5,813)

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

(22)

 

-

 

(22)

 

-

 

(22)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(827)

 

-

 

(827)

 

-

 

(827)

Other comprehensive income (loss)

 

-

 

-

 

-

 

-

 

-

 

5,996

 

5,996

 

(16)

 

5,980

Net decrease due to deconsolidation

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,199)

 

(1,199)

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

4

 

4

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(113)

 

(113)

Other

 

-

 

-

 

(7)

 

288

 

(19)

 

-

 

262

 

(7)

 

255

Balance, end of period

$

485

$

4,766

$

(49,327)

$

81,368

$

15,838

$

10,978

$

64,108

$

499

$

64,607

AIG | Third Quarter 2020 Form 10-Q 5

 


TABLE OF CONTENTS

 

 

 

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, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

-

$

4,766

$

(49,144)

$

81,268

$

20,884

$

(1,413)

$

56,361

$

948

$

57,309

Preferred stock issued

 

485

 

-

 

-

 

-

 

-

 

-

 

485

 

-

 

485

Common stock issued under stock plans

 

-

 

-

 

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

See accompanying Notes to Condensed Consolidated Financial Statements.

6 AIG | Third Quarter 2020 Form 10-Q


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

Nine Months Ended September 30,

(in millions)

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

Net income (loss)

$

(5,813)

$

3,300

(Income) loss from discontinued operations

 

(4)

 

1

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

 

 

 

 

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

 

 

 

 

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

 

(675)

 

(600)

Net loss on sale or disposal of divested businesses

 

8,652

 

4

Losses on extinguishment of debt

 

15

 

13

Unrealized (gains) losses in earnings - net

 

72

 

(273)

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

 

210

 

90

Depreciation and other amortization

 

3,223

 

3,833

Impairments of assets

 

79

 

237

Changes in operating assets and liabilities:

 

 

 

 

Insurance reserves

 

1,818

 

(2,146)

Premiums and other receivables and payables - net

 

2,152

 

(42)

Reinsurance assets and funds held under reinsurance contracts

 

(2,148)

 

(1,200)

Capitalization of deferred policy acquisition costs

 

(3,256)

 

(4,181)

Current and deferred income taxes - net

 

(1,793)

 

757

Other, net

 

(300)

 

(582)

Total adjustments

 

8,049

 

(4,090)

Net cash provided by (used in) operating activities

 

2,232

 

(789)

Cash flows from investing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Sales or distributions of:

 

 

 

 

Available for sale securities

 

17,303

 

17,498

Other securities

 

2,256

 

5,230

Other invested assets

 

3,159

 

3,345

Divested businesses, net

 

2,119

 

2

Maturities of fixed maturity securities available for sale

 

19,441

 

18,165

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

 

5,177

 

4,233

Purchases of:

 

 

 

 

Available for sale securities

 

(43,228)

 

(41,612)

Other securities

 

(562)

 

(723)

Other invested assets

 

(2,197)

 

(2,662)

Mortgage and other loans receivable

 

(4,072)

 

(6,512)

Net change in short-term investments

 

(7,368)

 

(4,586)

Other, net

 

2,751

 

2,829

Net cash used in investing activities

 

(5,221)

 

(4,793)

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Policyholder contract deposits

 

14,014

 

17,297

Policyholder contract withdrawals

 

(12,184)

 

(12,474)

Issuance of long-term debt and debt of consolidated investment entities

 

5,625

 

2,564

Repayments of long-term debt and debt of consolidated investment entities

 

(3,249)

 

(2,421)

Issuance of preferred stock, net of issuance costs

 

-

 

485

Purchase of common stock

 

(500)

 

-

Dividends paid on preferred stock

 

(22)

 

(15)

Dividends paid on common stock

 

(827)

 

(835)

Other, net

 

425

 

1,354

Net cash provided by financing activities

 

3,282

 

5,955

Effect of exchange rate changes on cash and restricted cash

 

27

 

39

Net increase in cash and restricted cash

 

320

 

412

Cash and restricted cash at beginning of year

 

3,287

 

3,358

Cash and restricted cash at end of period

$

3,607

$

3,770

AIG | Third Quarter 2020 Form 10-Q 7

 


TABLE OF CONTENTS

 

 

 

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)

 

2020

 

2019

Cash

$

3,191

$

3,361

Restricted cash included in Short-term investments*

 

214

 

64

Restricted cash included in Other assets*

 

202

 

345

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

$

3,607

$

3,770

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

829

$

1,012

Taxes

$

875

$

193

Non-cash investing activities:

 

 

 

 

Fixed maturity securities available for sale received in connection with pension risk transfer transactions

$

1,008

$

-

Fixed maturity securities received in connection with reinsurance transactions

$

336

$

-

Non-cash financing activities:

 

 

 

 

Interest credited to policyholder contract deposits included in financing activities

$

2,425

$

2,507

 

 

 

 

 

* 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 2020 Form 10-Q


TABLE OF CONTENTS

 

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

 

 

1. Basis of Presentation

American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 80 countries and jurisdictions. AIG companies serve commercial and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG Common Stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange (NYSE: AIG). Unless the context indicates otherwise, the terms “AIG,” “we,” “us” or “our” mean American International Group, Inc. and its consolidated subsidiaries and the term “AIG Parent” means American International Group, Inc. and not any of its consolidated subsidiaries.

These unaudited Condensed Consolidated Financial Statements do not include all disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) and should be read in conjunction with the audited Consolidated Financial Statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Annual Report). The condensed consolidated financial information as of December 31, 2019 included herein has been derived from the audited Consolidated Financial Statements in the 2019 Annual Report.

Certain of our foreign subsidiaries included in the Condensed Consolidated Financial Statements report on the basis of a 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. Operating results for the nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for the year ended December 31, 2020, especially when considering the risks and uncertainties associated with COVID-19 and the impact it may have on our business, results of operations and financial condition.

We evaluated the need to recognize or disclose events that occurred subsequent to September 30, 2020 and prior to the issuance of these Condensed Consolidated Financial Statements.

Sales/disposals of Businesses

Fortitude Holdings

On June 2, 2020, we completed the sale of a majority of the interests in Fortitude Group Holdings, LLC (Fortitude Holdings) to Carlyle FRL, L.P. (Carlyle FRL), an investment fund advised by an affiliate of The Carlyle Group Inc. (Carlyle), and T&D United Capital Co., Ltd. (T&D), a subsidiary of T&D Holdings, Inc., under the terms of a membership interest purchase agreement entered into on November 25, 2019 by and among AIG, Fortitude Holdings, Carlyle FRL, Carlyle, T&D and T&D Holdings, Inc. (the Majority Interest Fortitude Sale). AIG established Fortitude Reinsurance Company Ltd. (Fortitude Re), a wholly owned subsidiary of Fortitude Holdings, in 2018 in a series of reinsurance transactions related to AIG’s Legacy Portfolio. As of September 30, 2020, approximately $30.6 billion of reserves from AIG’s Legacy Life and Retirement Run-Off Lines and approximately $4.1 billion of reserves from AIG’s Legacy General Insurance Run-Off Lines, related to business written by multiple wholly-owned AIG subsidiaries, had been ceded to Fortitude Re under these reinsurance transactions. As of closing of the Majority Interest Fortitude Sale, these reinsurance transactions are no longer considered affiliated transactions and Fortitude Re is the reinsurer of the majority of AIG’s Legacy Portfolio. As these reinsurance transactions are structured as modified coinsurance and loss portfolio transfers with funds withheld, following the closing of the Majority Interest Fortitude Sale, AIG continues to reflect the invested assets, which consist mostly of available for sale securities, supporting Fortitude Re’s obligations, in AIG’s financial statements.

 

AIG | Third Quarter 2020 Form 10-Q 9

 


TABLE OF CONTENTS

 

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

 

AIG sold a 19.9 percent ownership interest in Fortitude Holdings to TC Group Cayman Investments Holdings, L.P. (TCG), an affiliate of Carlyle, in November 2018 (the 2018 Fortitude Sale). As a result of completion of the Majority Interest Fortitude Sale, Carlyle FRL purchased from AIG a 51.6 percent ownership interest in Fortitude Holdings and T&D purchased from AIG a 25 percent ownership interest in Fortitude Holdings; AIG retained a 3.5 percent ownership interest in Fortitude Holdings and one seat on its Board of Managers. The $2.2 billion of proceeds received by AIG at closing include (i) the $1.8 billion under the Majority Interest Fortitude Sale, which is subject to a post-closing purchase price adjustment pursuant to which AIG will pay Fortitude Re for certain adverse development in property casualty related reserves, based on an agreed methodology, that may occur on or prior to December 31, 2023, up to a maximum payment of $500 million; and (ii) a $383 million purchase price adjustment from Carlyle FRL and T&D, corresponding to their respective portions of a proposed $500 million non-pro rata distribution from Fortitude Holdings that was not received by AIG prior to the closing.

AIG recorded a total after-tax reduction to total AIG shareholders’ equity of $4.3 billion related to the sale of the majority interest in and deconsolidation of Fortitude Holdings in the second quarter of 2020. The impact to equity was primarily due to a $6.7 billion after-tax loss partially offset by a $2.4 billion increase in accumulated other comprehensive income (AOCI) due to the release of shadow adjustments primarily related to future policy benefits. The $6.7 billion after-tax loss was comprised of (i) a $2.7 billion loss related to the write-off of prepaid insurance assets and deferred policy acquisition costs (DAC) upon deconsolidation of Fortitude Holdings and (ii) $4.0 billion related to the loss on the sale primarily as a result of increases in Fortitude Holdings’ equity principally related to mark to market movements from the December 31, 2018 date as of which Fortitude Holdings’ equity was calculated for purposes of the purchase price determination, through the June 2, 2020 closing date.

In connection with the Majority Interest Fortitude Sale, AIG, Fortitude Holdings, and TCG agreed that, effective as of the closing, (i) AIG’s investment commitment targets under the 2018 Fortitude Sale (whereby AIG had agreed to invest certain amounts into various Carlyle strategies and to make certain minimum investment management fee payments by November 2021) were assumed by Fortitude Holdings and AIG was released therefrom, (ii) the purchase price adjustment that AIG had agreed to provide TCG in the 2018 Fortitude Sale (whereby AIG had agreed to reimburse TCG for adverse development in property casualty related reserves, based on an agreed methodology, that may occur on or prior to December 31, 2023, up to the value of TCG’s investment in Fortitude Holdings) has been terminated, and (iii) TCG remains obligated to pay AIG $115 million of deferred consideration upon settlement of the post-closing purchase price adjustment referred to above. This latter amount is composed of $95 million of deferred consideration contemplated as part of the 2018 Fortitude Sale, together with $19.9 million in respect of TCG’s 19.9 percent share of the unpaid portion of the $500 million non-pro rata dividend to be paid to AIG under the 2018 Fortitude Sale (TCG paid $79.6 million to AIG on May 26, 2020). In addition, the 2018 capital maintenance agreement between AIG and Fortitude Re and the letters of credit issued in support of Fortitude Re and subject to reimbursement by AIG in the event of a drawdown were terminated as of the closing of the Majority Interest Fortitude Sale. Upon closing of the Majority Interest Fortitude Sale, AIG entered into a transition services agreement with Fortitude Holdings for the provision of transition services for a period after closing, and letter of credit agreements with certain financial institutions, which issued letters of credit in support of certain General Insurance subsidiaries that have reinsurance agreements in place with Fortitude Re in the amount of $600 million. These letters of credit are subject to reimbursement by AIG in the event of a drawdown by these insurance subsidiaries.

Following closing, in the second quarter of 2020, AIG contributed $700 million of the proceeds of the Majority Interest Fortitude Sale to certain of its General Insurance subsidiaries and $135 million of the proceeds of the Majority Interest Fortitude Sale to certain of its Life and Retirement subsidiaries.

For further discussion on the sale of Fortitude Holdings see Note 7 to the Condensed Consolidated Financial Statements.

Blackboard

At the end of March 2020, Blackboard U.S. Holdings, Inc. (Blackboard), AIG’s technology-driven subsidiary, was placed into run-off. As a result of this decision, during the three months ended March 31, 2020 and the nine months ended September 30, 2020, AIG recognized a pre-tax loss of $210 million, primarily consisting of asset impairment charges.

Life and Retirement

On October 26, 2020, AIG announced its intention to separate its Life and Retirement business from AIG. For further discussion see Note 16 to the Condensed Consolidated Financial Statements.

 

10 AIG | Third Quarter 2020 Form 10-Q


TABLE OF CONTENTS

 

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

 

 

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);

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;

reinsurance assets;

impairment charges, including impairments on other invested assets and goodwill;

allowances for credit losses primarily on loans, available for sale fixed maturity securities, reinsurance assets and premiums and other receivables;

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 Cuts and Jobs Act (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.

 

2. Summary of Significant Accounting Policies

Accounting Standards Adopted During 2020

Financial Instruments - Credit Losses

In June 2016, the FASB issued an accounting standard that changed how entities account for current expected credit losses (CECL) for most financial assets, premiums receivable, trade receivables, off-balance sheet exposures and reinsurance receivables (the Financial Instruments Credit Losses Standard). 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 (PCD) securities, is subject to the new guidance and is measured in a similar manner, except that losses are recognized as allowances rather than reductions in the amortized cost of the securities. The standard allows for reversals of credit impairments in the event that the credit of an issuer improves. The standard also requires additional disclosures.

We adopted the standard on its effective date of January 1, 2020 using a modified retrospective method, which requires a cumulative effect adjustment to retained earnings. As of January 1, 2020, the impact of the adoption of the standard was a reduction in opening retained earnings of $487 million (after-tax) primarily driven by commercial mortgage loans, and, to a lesser extent, reinsurance receivables and recoverables.

AIG | Third Quarter 2020 Form 10-Q 11

 


TABLE OF CONTENTS

 

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

 

The following table provides a rollforward of our allowance, including credit losses, in connection with the adoption of the Financial Instruments Credit Losses Standard as well as cross references to the applicable notes herein for additional information:

Three Months Ended September 30, 2020

 

Balance,

 

Cumulative Effect

 

Purchased Credit

 

Incremental Increase

 

Write-offs and

 

Balance,

 

 

Beginning

 

Adjustment as of

 

Deteriorated Initial

 

(Decrease) Recognized

 

Other Changes

 

End of

(in millions)

 

of Period

 

January 1, 2020

 

Allowance

 

in Income

 

in the Allowance(h)

 

Period

Securities available for sale(a)

$

198

$

-

$

-

$

81

$

(43)

$

236

Mortgage and other loan receivables(b)

 

794

 

-

 

-

 

3

 

-

 

797

Reinsurance recoverables (inclusive of

 

 

 

 

 

 

 

 

 

 

 

 

deposit accounted assets)(c)

 

364

 

-

 

-

 

-

 

6

 

370

Premiums and other receivables(d)

 

212

 

-

 

-

 

7

 

(4)

 

215

Contractual deductible recoverables(e)

 

14

 

-

 

-

 

-

 

-

 

14

Commercial mortgage loan commitments(f)

 

58

 

-

 

-

 

8

 

-

 

66

Total

$

1,640

$

-

$

-

$

99

$

(41)

$

1,698

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale(a)

$

-

$

-

$

33

$

310

$

(107)

$

236

Mortgage and other loan receivables(b)

 

438

 

318

 

-

 

53

 

(12)

 

797

Reinsurance recoverables (inclusive of

 

 

 

 

 

 

 

 

 

 

 

 

deposit accounted assets)(c)

 

151

 

224

 

-

 

5

 

(10)

 

370

Premiums and other receivables(d)

 

178

 

34

 

-

 

9

 

(6)

 

215

Contractual deductible recoverables(e)

 

-

 

14

 

-

 

-

 

-

 

14

Commercial mortgage loan commitments(f)

 

-

 

51

 

-

 

14

 

1

 

66

Total

$

767

$

641

$

33

$

391

$

(134)

$

1,698

Secondary impacts to certain long-duration