AMERICAN INTERNATIONAL GROUP, INC. - Quarter Report: 2020 June (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 June 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 |
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 July 29, 2020, there were 861,433,900 shares outstanding of the registrant’s common stock.
AMERICAN INTERNATIONAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
June 30, 2020
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 Operations | |||
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Part II — Other Information |
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ITEM 5 | |||
AIG | Second Quarter 2020 Form 10-Q 1
Part I – Financial Information
Item 1. | Financial Statements
American International Group, Inc.
Condensed Consolidated Balance Sheets (unaudited)
| June 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 $198 in 2020 |
|
|
|
|
(amortized cost: 2020 - $237,345; 2019 - $233,230) | $ | 258,505 | $ | 251,086 |
Other bond securities, at fair value (See Note 5) |
| 5,437 |
| 6,682 |
Equity securities, at fair value (See Note 5) |
| 679 |
| 841 |
Mortgage and other loans receivable, net of allowance for credit losses of $794 in 2020 and $438 in 2019 |
| 46,522 |
| 46,984 |
Other invested assets (portion measured at fair value: 2020 - $6,561; 2019 - $6,827) |
| 17,692 |
| 18,792 |
Short-term investments, including restricted cash of $197 in 2020 and $188 in 2019 |
|
|
|
|
(portion measured at fair value: 2020 - $6,388; 2019 - $5,343) |
| 21,316 |
| 13,230 |
Total investments |
| 350,151 |
| 337,615 |
|
|
|
|
|
Cash |
| 3,408 |
| 2,856 |
Accrued investment income |
| 2,294 |
| 2,334 |
Premiums and other receivables, net of allowance for credit losses and disputes of $212 in 2020 and $178 in 2019 |
| 12,829 |
| 10,274 |
Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes of $0 in 2020 |
| 34,556 |
| - |
Reinsurance assets - other, net of allowance for credit losses and disputes of $312 in 2020 and $151 in 2019 |
| 40,656 |
| 37,977 |
Deferred income taxes |
| 13,294 |
| 13,146 |
Deferred policy acquisition costs |
| 10,003 |
| 11,207 |
Other assets, net of allowance for credit losses of $52 in 2020, including restricted cash of $247 in 2020 and $243 in 2019 |
|
|
|
|
(portion measured at fair value: 2020 - $899; 2019 - $3,151) |
| 13,455 |
| 16,383 |
Separate account assets, at fair value |
| 88,742 |
| 93,272 |
Total assets | $ | 569,388 | $ | 525,064 |
Liabilities: |
|
|
|
|
Liability for unpaid losses and loss adjustment expenses, net of allowance for credit losses of $14 in 2020 | $ | 77,853 | $ | 78,328 |
Unearned premiums |
| 20,103 |
| 18,269 |
Future policy benefits for life and accident and health insurance contracts |
| 50,636 |
| 50,512 |
Policyholder contract deposits (portion measured at fair value: 2020 - $9,233; 2019 - $6,910) |
| 155,852 |
| 151,869 |
Other policyholder funds |
| 3,447 |
| 3,428 |
Fortitude Re funds withheld payable (portion measured at fair value: 2020 - $4,510) |
| 42,033 |
| - |
Other liabilities (portion measured at fair value: 2020 - $581; 2019 - $1,100) |
| 28,624 |
| 26,609 |
Long-term debt (portion measured at fair value: 2020 - $2,181; 2019 - $2,062) |
| 29,248 |
| 25,479 |
Debt of consolidated investment entities |
| 10,032 |
| 9,871 |
Separate account liabilities |
| 88,742 |
| 93,272 |
Total liabilities |
| 506,570 |
| 457,637 |
Contingencies, commitments and guarantees (See Note 11) |
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AIG shareholders’ equity: |
|
|
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Series A Non-cumulative preferred stock and additional paid in capital, $5.00 par value; 100,000,000 shares |
|
|
|
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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 - 1,045,237,650 shares; 2019 - 1,036,672,461 shares of common stock |
| (49,327) |
| (48,987) |
Additional paid-in capital |
| 81,294 |
| 81,345 |
Retained earnings |
| 15,847 |
| 23,084 |
Accumulated other comprehensive income |
| 9,169 |
| 4,982 |
Total AIG shareholders’ equity |
| 62,234 |
| 65,675 |
Non-redeemable noncontrolling interests |
| 584 |
| 1,752 |
Total equity |
| 62,818 |
| 67,427 |
Total liabilities and equity | $ | 569,388 | $ | 525,064 |
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See accompanying Notes to Condensed Consolidated Financial Statements. | ||||
2 AIG | Second Quarter 2020 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Income (Loss) (unaudited)
| Three Months Ended |
| Six Months Ended | ||||||||
| June 30, |
| June 30, | ||||||||
(dollars in millions, except per common share data) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
Revenues: |
|
|
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|
|
|
|
Premiums | $ | 7,407 |
| $ | 7,430 |
| $ | 14,850 |
| $ | 15,500 |
Policy fees |
| 749 |
|
| 769 |
|
| 1,504 |
|
| 1,504 |
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
Net investment income - excluding Fortitude Re funds withheld assets |
| 3,250 |
|
| 3,745 |
|
| 5,758 |
|
| 7,624 |
Net investment income - Fortitude Re funds withheld assets* |
| 116 |
|
| - |
|
| 116 |
|
| - |
Total net investment income |
| 3,366 |
|
| 3,745 |
|
| 5,874 |
|
| 7,624 |
Net realized capital gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
Net realized capital gains (losses) - excluding Fortitude Re funds withheld assets |
| (1,591) |
|
| 404 |
|
| 1,928 |
|
| (42) |
Net realized capital gains (losses) on Fortitude Re funds withheld assets* |
| 96 |
|
| - |
|
| 96 |
|
| - |
Net realized capital gains (losses) on Fortitude Re funds withheld embedded |
|
|
|
|
|
|
|
|
|
|
|
derivative* |
| (837) |
|
| - |
|
| (837) |
|
| - |
Total net realized capital gains (losses) |
| (2,332) |
|
| 404 |
|
| 1,187 |
|
| (42) |
Other income |
| 206 |
|
| 213 |
|
| 424 |
|
| 431 |
Total revenues |
| 9,396 |
|
| 12,561 |
|
| 23,839 |
|
| 25,017 |
Benefits, losses and expenses: |
|
|
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|
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Policyholder benefits and losses incurred |
| 6,521 |
|
| 5,802 |
|
| 12,846 |
|
| 12,481 |
Interest credited to policyholder account balances |
| 918 |
|
| 967 |
|
| 1,875 |
|
| 1,907 |
Amortization of deferred policy acquisition costs |
| 754 |
|
| 1,439 |
|
| 2,616 |
|
| 2,728 |
General operating and other expenses |
| 2,087 |
|
| 2,140 |
|
| 4,240 |
|
| 4,193 |
Interest expense |
| 365 |
|
| 360 |
|
| 720 |
|
| 709 |
(Gain) loss on extinguishment of debt |
| - |
|
| 15 |
|
| 17 |
|
| 13 |
Net (gain) loss on sale or disposal of divested businesses |
| 8,412 |
|
| 1 |
|
| 8,628 |
|
| (5) |
Total benefits, losses and expenses |
| 19,057 |
|
| 10,724 |
|
| 30,942 |
|
| 22,026 |
Income (loss) from continuing operations before income tax expense (benefit) |
| (9,661) |
|
| 1,837 |
|
| (7,103) |
|
| 2,991 |
Income tax expense (benefit) |
| (1,896) |
|
| 446 |
|
| (992) |
|
| 663 |
Income (loss) from continuing operations |
| (7,765) |
|
| 1,391 |
|
| (6,111) |
|
| 2,328 |
Loss from discontinued operations, net of income taxes |
| (1) |
|
| (1) |
|
| (1) |
|
| (1) |
Net income (loss) |
| (7,766) |
|
| 1,390 |
|
| (6,112) |
|
| 2,327 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to |
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| 162 |
|
| 281 |
|
| 67 |
|
| 564 |
Net income (loss) attributable to AIG |
| (7,928) |
|
| 1,109 |
|
| (6,179) |
|
| 1,763 |
Less: Dividends on preferred stock |
| 8 |
|
| 7 |
|
| 15 |
|
| 7 |
Net income (loss) attributable to AIG common shareholders | $ | (7,936) |
| $ | 1,102 |
| $ | (6,194) |
| $ | 1,756 |
|
|
|
|
|
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|
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|
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Income (loss) per common share attributable to AIG common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
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Income (loss) from continuing operations | $ | (9.15) |
| $ | 1.26 |
| $ | (7.11) |
| $ | 2.00 |
Income (loss) from discontinued operations | $ | - |
| $ | - |
| $ | - |
| $ | - |
Net income (loss) attributable to AIG common shareholders | $ | (9.15) |
| $ | 1.26 |
| $ | (7.11) |
| $ | 2.00 |
Diluted: |
|
|
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|
|
|
|
|
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|
|
Income (loss) from continuing operations | $ | (9.15) |
| $ | 1.24 |
| $ | (7.11) |
| $ | 1.99 |
Income (loss) from discontinued operations | $ | - |
| $ | - |
| $ | - |
| $ | - |
Net income (loss) attributable to AIG common shareholders | $ | (9.15) |
| $ | 1.24 |
| $ | (7.11) |
| $ | 1.99 |
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 866,968,305 |
|
| 876,382,884 |
|
| 870,590,968 |
|
| 875,885,588 |
Diluted |
| 866,968,305 |
|
| 888,325,042 |
|
| 870,590,968 |
|
| 882,921,247 |
*Represents activity subsequent to the deconsolidation of Fortitude Re on June 2, 2020.
See accompanying Notes to Condensed Consolidated Financial Statements.
AIG | Second Quarter 2020 Form 10-Q 3
American International Group, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
(in millions) |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
Net income (loss) |
| $ | (7,766) |
| $ | 1,390 |
| $ | (6,112) |
| $ | 2,327 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
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|
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Change in unrealized appreciation (depreciation) of fixed maturity securities on |
|
|
|
|
|
|
|
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|
|
|
which allowance for credit losses was taken |
|
| 126 |
|
| - |
|
| (233) |
|
| - |
Change in unrealized appreciation of fixed maturity securities on |
|
|
|
|
|
|
|
|
|
|
|
|
which other-than-temporary credit impairments were taken |
|
| - |
|
| 82 |
|
| - |
|
| 758 |
Change in unrealized appreciation of all other investments |
|
| 10,082 |
|
| 2,914 |
|
| 4,540 |
|
| 5,622 |
Change in foreign currency translation adjustments |
|
| (61) |
|
| (129) |
|
| (146) |
|
| 35 |
Change in retirement plan liabilities adjustment |
|
| 9 |
|
| 8 |
|
| 2 |
|
| 7 |
Change in fair value of liabilities under fair value option attributable to changes in |
|
|
|
|
|
|
|
|
|
|
|
|
own credit risk |
|
| (2) |
|
| (2) |
|
| 1 |
|
| (2) |
Other comprehensive income |
|
| 10,154 |
|
| 2,873 |
|
| 4,164 |
|
| 6,420 |
Comprehensive income (loss) |
|
| 2,388 |
|
| 4,263 |
|
| (1,948) |
|
| 8,747 |
Comprehensive income attributable to noncontrolling interests |
|
| 153 |
|
| 291 |
|
| 44 |
|
| 580 |
Comprehensive income (loss) attributable to AIG |
| $ | 2,235 |
| $ | 3,972 |
| $ | (1,992) |
| $ | 8,167 |
|
|
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See accompanying Notes to Condensed Consolidated Financial Statements. | ||||||||||||
4 AIG | Second Quarter 2020 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Equity (unaudited)
|
| Preferred |
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| Non- |
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| Stock and |
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| Accumulated |
| Total AIG |
| redeemable |
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| |
| Additional |
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| Additional |
|
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| Other |
| Share- |
| Non- |
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| |
|
| 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 June 30, 2020 |
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Balance, beginning of period | $ | 485 | $ | 4,766 | $ | (49,334) | $ | 81,188 | $ | 24,062 | $ | (994) | $ | 60,173 | $ | 1,670 | $ | 61,843 |
Cumulative effect of change in accounting |
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|
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|
|
principle, net of tax |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Preferred stock issued |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Common stock issued under stock plans |
| - |
| - |
| 7 |
| (9) |
| - |
| - |
| (2) |
| - |
| (2) |
Purchase of common stock |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net income (loss) attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
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noncontrolling interests |
| - |
| - |
| - |
| - |
| (7,928) |
| - |
| (7,928) |
| 162 |
| (7,766) |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (8) |
| - |
| (8) |
| - |
| (8) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (275) |
| - |
| (275) |
| - |
| (275) |
Other comprehensive income (loss) |
| - |
| - |
| - |
| - |
| - |
| 10,163 |
| 10,163 |
| (9) |
| 10,154 |
Net decrease due to deconsolidation |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (1,219) |
| (1,219) |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 3 |
| 3 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (20) |
| (20) |
Other |
| - |
| - |
| - |
| 115 |
| (4) |
| - |
| 111 |
| (3) |
| 108 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (49,327) | $ | 81,294 | $ | 15,847 | $ | 9,169 | $ | 62,234 | $ | 584 | $ | 62,818 |
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Six Months Ended June 30, 2020 |
|
|
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|
|
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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 |
| (264) |
| - |
| - |
| (97) |
| - |
| (97) |
Purchase of common stock |
| - |
| - |
| (500) |
| - |
| - |
| - |
| (500) |
| - |
| (500) |
Net income (loss) attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| (6,179) |
| - |
| (6,179) |
| 67 |
| (6,112) |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (15) |
| - |
| (15) |
| - |
| (15) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (551) |
| - |
| (551) |
| - |
| (551) |
Other comprehensive income (loss) |
| - |
| - |
| - |
| - |
| - |
| 4,187 |
| 4,187 |
| (23) |
| 4,164 |
Net decrease due to deconsolidation |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (1,171) |
| (1,171) |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 4 |
| 4 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (42) |
| (42) |
Other |
| - |
| - |
| (7) |
| 213 |
| (5) |
| - |
| 201 |
| (3) |
| 198 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (49,327) | $ | 81,294 | $ | 15,847 | $ | 9,169 | $ | 62,234 | $ | 584 | $ | 62,818 |
AIG | Second Quarter 2020 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 June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period | $ | 485 | $ | 4,766 | $ | (48,999) | $ | 81,148 | $ | 21,259 | $ | 2,128 | $ | 60,787 | $ | 1,306 | $ | 62,093 |
Preferred stock issued |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Common stock issued under stock plans |
| - |
| - |
| 8 |
| (9) |
| - |
| - |
| (1) |
| - |
| (1) |
Purchase of common stock |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| 1,109 |
| - |
| 1,109 |
| 281 |
| 1,390 |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (7) |
| - |
| (7) |
| - |
| (7) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (279) |
| - |
| (279) |
| - |
| (279) |
Other comprehensive income |
| - |
| - |
| - |
| - |
| - |
| 2,863 |
| 2,863 |
| 10 |
| 2,873 |
Current and deferred income taxes |
| - |
| - |
| - |
| 1 |
| - |
| - |
| 1 |
| - |
| 1 |
Net decrease due to acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and consolidations |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (12) |
| (12) |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (10) |
| (10) |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (10) |
| (10) |
Other |
| - |
| - |
| - |
| 71 |
| (5) |
| - |
| 66 |
| 1 |
| 67 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (48,991) | $ | 81,211 | $ | 22,077 | $ | 4,991 | $ | 64,539 | $ | 1,566 | $ | 66,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 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 |
| - |
| - |
| 153 |
| (231) |
| - |
| - |
| (78) |
| - |
| (78) |
Purchase of common stock |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| 1,763 |
| - |
| 1,763 |
| 564 |
| 2,327 |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (7) |
| - |
| (7) |
| - |
| (7) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (557) |
| - |
| (557) |
| - |
| (557) |
Other comprehensive income |
| - |
| - |
| - |
| - |
| - |
| 6,404 |
| 6,404 |
| 16 |
| 6,420 |
Current and deferred income taxes |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net increase due to acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and consolidations |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 96 |
| 96 |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 2 |
| 2 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (69) |
| (69) |
Other |
| - |
| - |
| - |
| 174 |
| (6) |
| - |
| 168 |
| 9 |
| 177 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (48,991) | $ | 81,211 | $ | 22,077 | $ | 4,991 | $ | 64,539 | $ | 1,566 | $ | 66,105 |
See accompanying Notes to Condensed Consolidated Financial Statements.
6 AIG | Second Quarter 2020 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
| Six Months Ended June 30, | |||
(in millions) |
| 2020 |
| 2019 |
Cash flows from operating activities: |
|
|
|
|
Net income (loss) | $ | (6,112) | $ | 2,327 |
Loss from discontinued operations |
| 1 |
| 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 |
| (418) |
| (141) |
Net (gain) loss on sale or disposal of divested businesses |
| 8,628 |
| (5) |
Losses on extinguishment of debt |
| 17 |
| 13 |
Unrealized losses in earnings - net |
| 36 |
| 369 |
Equity in (income) loss from equity method investments, net of dividends or distributions |
| 232 |
| (62) |
Depreciation and other amortization |
| 2,560 |
| 2,657 |
Impairments of assets |
| 66 |
| 167 |
Changes in operating assets and liabilities: |
|
|
|
|
Insurance reserves |
| 1,857 |
| (1,057) |
Premiums and other receivables and payables - net |
| 1,778 |
| 22 |
Reinsurance assets and funds held under reinsurance contracts |
| (2,295) |
| (2,334) |
Capitalization of deferred policy acquisition costs |
| (2,224) |
| (2,843) |
Current and deferred income taxes - net |
| (1,732) |
| 523 |
Other, net |
| (1,069) |
| (909) |
Total adjustments |
| 7,436 |
| (3,600) |
Net cash provided by (used in) operating activities |
| 1,325 |
| (1,272) |
Cash flows from investing activities: |
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
Sales or distributions of: |
|
|
|
|
Available for sale securities |
| 13,858 |
| 12,765 |
Other securities |
| 2,037 |
| 2,609 |
Other invested assets |
| 2,134 |
| 1,931 |
Divested businesses, net |
| 2,119 |
| - |
Maturities of fixed maturity securities available for sale |
| 12,761 |
| 11,888 |
Principal payments received on and sales of mortgage and other loans receivable |
| 2,359 |
| 2,474 |
Purchases of: |
|
|
|
|
Available for sale securities |
| (29,804) |
| (27,219) |
Other securities |
| (519) |
| (405) |
Other invested assets |
| (1,385) |
| (1,423) |
Mortgage and other loans receivable |
| (2,653) |
| (2,919) |
Net change in short-term investments |
| (7,857) |
| (4,837) |
Other, net |
| 4,047 |
| 989 |
Net cash used in investing activities |
| (2,903) |
| (4,147) |
Cash flows from financing activities: |
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
Policyholder contract deposits |
| 8,410 |
| 11,474 |
Policyholder contract withdrawals |
| (8,567) |
| (8,362) |
Issuance of long-term debt and debt of consolidated investment entities |
| 5,509 |
| 2,199 |
Repayments of long-term debt and debt of consolidated investment entities |
| (1,877) |
| (910) |
Issuance of preferred stock, net of issuance costs |
| - |
| 485 |
Purchase of common stock |
| (500) |
| - |
Dividends paid on preferred stock |
| (15) |
| (7) |
Dividends paid on common stock |
| (551) |
| (557) |
Other, net |
| (269) |
| 896 |
Net cash provided by financing activities |
| 2,140 |
| 5,218 |
Effect of exchange rate changes on cash and restricted cash |
| 3 |
| 28 |
Net increase (decrease) in cash and restricted cash |
| 565 |
| (173) |
Cash and restricted cash at beginning of year |
| 3,287 |
| 3,358 |
Cash and restricted cash at end of period | $ | 3,852 | $ | 3,185 |
AIG | Second Quarter 2020 Form 10-Q 7
American International Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)(continued)
Supplementary Disclosure of Condensed Consolidated Cash Flow Information
| Six Months Ended June 30, | |||
(in millions) |
| 2020 |
| 2019 |
Cash | $ | 3,408 | $ | 2,935 |
Restricted cash included in Short-term investments* |
| 197 |
| 18 |
Restricted cash included in Other assets* |
| 247 |
| 232 |
Total cash and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 3,852 | $ | 3,185 |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest | $ | 581 | $ | 684 |
Taxes | $ | 741 | $ | 140 |
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 | $ | 325 | $ | - |
Non-cash financing activities: |
|
|
|
|
Interest credited to policyholder contract deposits included in financing activities | $ | 1,646 | $ | 1,791 |
|
|
|
|
|
*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 | Second Quarter 2020 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, 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 six months ended June 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 June 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 June 30, 2020, approximately $30.5 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 | Second Quarter 2020 Form 10-Q 9
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. The impact to equity is 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 is 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 since the December 31, 2018 date as of which Fortitude Holdings’ equity was calculated for purposes of the purchase price determination.
In connection with the Majority Interest Fortitude Sale, AIG, Fortitude Holdings, and TCG have 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) have been assumed by Fortitude Holdings and AIG has been 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, 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, AIG recognized a pre-tax loss of $210 million, primarily consisting of asset impairment charges.
10 AIG | Second Quarter 2020 Form 10-Q
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 impairment;
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 | Second Quarter 2020 Form 10-Q 11
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 June 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) | $ | 211 | $ | - | $ | 20 | $ | 29 | $ | (62) | $ | 198 |
Mortgage and other loan receivables(b) |
| 787 |
| - |
| - |
| 19 |
| (12) |
| 794 |
Reinsurance recoverables (inclusive of |
|
|
|
|
|
|
|
|
|
|
|
|
deposit accounted assets)(c) |
| 362 |
| - |
| - |
| 7 |
| (5) |
| 364 |
Premiums and other receivables(d) |
| 210 |
| - |
| - |
| 2 |
| - |
| 212 |
Contractual deductible recoverables(e) |
| 14 |
| - |
| - |
| - |
| - |
| 14 |
Commercial mortgage loan commitments(f) |
| 58 |
| - |
| - |
| - |
| - |
| 58 |
Total | $ | 1,642 | $ | - | $ | 20 | $ | 57 | $ | (79) | $ | 1,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale(a) | $ | - | $ | - | $ | 33 | $ | 227 | $ | (62) | $ | 198 |
Mortgage and other loan receivables(b) |
| 438 |
| 318 |
| - |
| 50 |
| (12) |
| 794 |
Reinsurance recoverables (inclusive of |
|
|
|
|
|
|
|
|
|
|
|
|
deposit accounted assets)(c) |
| 151 |
| 224 |
| - |
| 5 |
| (16) |
| 364 |
Premiums and other receivables(d) |
| 178 |
| 34 |
| - |
| 2 |
| (2) |
| 212 |
Contractual deductible recoverables(e) |
| - |
| 14 |
| - |
| - |
| - |
| 14 |
Commercial mortgage loan commitments(f) |
| - |
| 51 |
| - |
| 7 |
| - |
| 58 |
Total | $ | 767 | $ | 641 | $ | 33 | $ | 291 | $ | (92) | $ | 1,640 |
Secondary impacts to certain long-duration |
|
|
|
|
|
|
|
|
|
|
|
|
insurance contracts(g) |
|
|
| (27) |
|
|
|
|
|
|
|
|
Tax impact |
|
|
| (127) |
|
|
|
|
|
|
|
|
Total cumulative effect adjustment |
|
| $ | 487 |
|
|
|
|
|
|
|
|
(a)The allowance for credit losses is reported in Bonds available for sale in the Condensed Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in Net realized capital gains (losses) in the Condensed Consolidated Statements of Income. Refer to Note 5 for additional information.
(b)The allowance for credit losses is reported in Mortgage and other loans receivable in the Condensed Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in Net realized capital gains (losses) in the Condensed Consolidated Statements of Income. Refer to Note 6 for additional information.
(c)The allowance for credit losses is reported in Reinsurance assets – other and Reinsurance assets – Fortitude Re for reinsurance contracts that contain sufficient insurance risk, and reported in Other assets for insurance and reinsurance contracts that do not contain sufficient insurance risk in the Condensed Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in Policyholder benefits and losses incurred for reinsurance contracts that do contain sufficient insurance risk and premiums for contracts that do not contain sufficient insurance risk in the Condensed Consolidated Statements of Income. Refer to Note 7 for additional information.
(d)The allowance for credit losses is reported in Premiums and other receivables in the Condensed Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in General operating and other expenses in the Condensed Consolidated Statements of Income. Refer to Note 2 for additional information.
(e)The allowance for credit losses is reported in Liability for unpaid losses and loss adjustment expenses in the Condensed Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in Policyholder benefits and losses incurred in the Condensed Consolidated Statements of Income. Refer to Note 10 for additional information.
(f)The allowance for credit losses is reported in Other liabilities in the Condensed Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in Net realized capital gains (losses) in the Condensed Consolidated Statements of Income. Refer to Note 6 for additional information.
(g)This reflects adjustments to the amortization of DAC, unearned revenue reserve and sales inducement assets as well as impacts on the future policy benefits for certain universal life and variable annuity contracts.
(h) A write-off does not generally result in an incremental loss to AIG. Prior to a write-off occurring, the allowance for the credit loss is increased or decreased to reflect AIG’s expectation of the credit loss to be incurred. Accordingly, when a write-off occurs, the allowance is reversed for the same amount, resulting in no incremental loss to AIG.
12 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
The following presents the impact of the adoption of the standard on premiums and other receivables.
Premiums and other receivables — Credit Losses
Premiums and other receivables, net of allowance for credit losses include premium balances receivable, amounts due from agents and brokers and policyholders, trade receivables for the Direct Investment book and Global Capital Markets (GCM) and other receivables. Trade receivables for GCM include cash collateral posted to derivative counterparties that is not eligible to be netted against derivative liabilities. The allowance for credit losses and disputes for premiums and other receivables was $212 million at June 30, 2020. Our allowance for credit losses for premium receivables considers a combination of internal and external information relating to past events, current conditions and reasonable and supportable forecasts. Our allowance contemplates our contractual provisions. Upon default or delinquency of the policyholder we may be able to cease coverage for the remaining period. In certain jurisdictions we are unable to cancel coverage even in the event of delinquency or default by the policyholder. We consider premium and other receivable balances to be past due if the payment is not received after 90 days from the contractual obligation due date and record an allowance for disputes when there is reasonable uncertainty of the collectability of a disputed amount during the reporting period.
For further information regarding the impacts of the adoption of this standard see Notes 4, 5, 6, 10 and 12 to the Condensed Consolidated Financial Statements.
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.
We adopted the standard on its effective date of January 1, 2020. The adoption of the standard did not have a material impact on our financial position, results of operations or cash flows.
Cloud Computing Arrangements
In August 2018, the FASB issued an accounting standard that aligns the requirements for capitalizing implementation costs incurred in a cloud computing (or hosting) arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Capitalized implementation costs must be amortized over the term of the hosting arrangement. The accounting for the service element is not affected by the amendments in this update.
We adopted the standard prospectively on its effective date of January 1, 2020. The adoption of the standard did not have a material impact on our consolidated financial position, results of operations or cash flows.
Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates
In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to simplify and streamline the disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered, and issuers’ affiliates whose securities collateralize securities registered or being registered. Currently, the SEC permits the omission of separate financial statements of subsidiary issuers and guarantors when certain conditions are met and the parent company provides summarized financial information of the subsidiary issuers and guarantors. The amendments, among other things, allow companies to cease providing summarized financial information if the subsidiary issuer’s or guarantor’s reporting obligation has been suspended.
The amendments are effective January 4, 2021, with early adoption permitted. Effective March 31, 2020, AIG early adopted the amendment and ceased providing the summarized information for the subsidiary issuers and guarantors because the subsidiaries issuer’s reporting obligations have been suspended.
Future Application of Accounting Standards
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:
AIG | Second Quarter 2020 Form 10-Q 13
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
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 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 July 2020, the FASB released an exposure draft which would defer the effective date of the standard to January 1, 2023. We are currently evaluating the FASB’s exposure draft. 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.
Income Tax
On December 18, 2019, the FASB issued an accounting standard that simplifies the accounting for income taxes by eliminating certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendments also simplified other areas including the accounting for franchise taxes and enacted tax laws or rates, and clarified the accounting for transactions that result in the step-up in the tax basis of goodwill. The standard is effective on January 1, 2021, with early adoption permitted. We are assessing the impact of the standard on our consolidated financial condition, results of operations and cash flows.
Reference Rate Reform
On March 12, 2020, the FASB issued an accounting standard that provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The standard allows us to account for certain contract modifications that result from the discontinuation of the London Inter-Bank Offered Rate (LIBOR) or another reference rate as a continuation of the existing contract without additional analysis.
This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. 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.
Clarification of Accounting for Certain Equity Method Investments
On January 16, 2020, the FASB issued an accounting standard to clarify how a previously issued standard regarding a company’s ability to measure the fair value of certain equity securities without a readily determinable fair value should interact with equity method investments standards. The previously issued standard provides that such equity securities could be measured at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs (measurement alternative). The new standard clarifies that a company should consider observable transactions that require the company to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with the equity method immediately before applying or upon discontinuing the equity method.
The standard further clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
The standard is effective for interim and annual reporting periods beginning after December 15, 2020. We are evaluating the impact adoption of this standard will have on our consolidated financial condition, results of operations, cash flows and required disclosures.
14 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information
3. Segment Information
We report our results of operations consistent with the manner in which our chief operating decision makers review the business to assess performance and allocate resources, as follows:
General Insurance
General Insurance business is presented as two operating segments:
North America — consists of insurance businesses in the United States, Canada and Bermuda. This also includes the results of Validus Reinsurance, Ltd. (Validus), Western World Insurance Group, Inc. and Glatfelter Insurance Group (Glatfelter).
International — consists of regional insurance businesses in Japan, the UK, Europe, Asia Pacific, Latin America and Caribbean, Middle East and Africa, and China. This also includes the results of Talbot Holdings, Ltd.
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 consists primarily of:
Income from assets held by AIG Parent and other corporate subsidiaries.
General operating expenses not attributable to AIG reporting segments.
Certain compensation expenses attributable to Other Operations and reporting segments.
Amortization of value of distribution network acquired related to the Validus and Glatfelter acquisitions.
Interest expense attributable to AIG long-term debt as well as debt associated with consolidated investment entities.
Results also include Blackboard and its subsidiaries which are focused on delivering commercial insurance solutions using digital technology, data analytics and automation. At the end of March 2020, Blackboard was placed into run-off.
Legacy Portfolio
Legacy Portfolio represents exited or discontinued product lines, policy forms or distribution channels. Effective February 2018, the Bermuda domiciled composite reinsurer, Fortitude Re, is included in our Legacy Portfolio. The sale of Fortitude Re was completed on June 2, 2020, and Fortitude Re is only included in the Legacy Portfolio through such date. As of closing of the Majority Interest Fortitude Sale, these reinsurance transactions between AIG and Fortitude Re are no longer considered affiliated transactions and Fortitude Re is the reinsurer of the majority of AIG’s 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.
AIG | Second Quarter 2020 Form 10-Q 15
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information
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.
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. These items generally fall into one or more of the following broad categories: legacy matters having no relevance to our current businesses or operating performance; adjustments to enhance transparency to the underlying economics of transactions; and measures that we believe to be common to the industry. 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 June 30, | 2020 |
| 2019 | ||||||
|
|
|
| Adjusted |
|
|
|
| Adjusted |
|
| Total |
| Pre-tax |
|
| Total |
| Pre-tax |
(in millions) |
| Revenues |
| Income (Loss) |
|
| Revenues |
| Income (Loss) |
General Insurance |
|
|
|
|
|
|
|
|
|
North America | $ | 3,077 | $ | 5 |
| $ | 4,025 | $ | 718 |
International |
| 3,178 |
| 170 |
|
| 3,502 |
| 262 |
Total General Insurance |
| 6,255 |
| 175 |
|
| 7,527 |
| 980 |
Life and Retirement |
|
|
|
|
|
|
|
|
|
Individual Retirement |
| 1,333 |
| 550 |
|
| 1,466 |
| 588 |
Group Retirement |
| 712 |
| 214 |
|
| 790 |
| 293 |
Life Insurance |
| 1,113 |
| (9) |
|
| 1,154 |
| 86 |
Institutional Markets |
| 1,391 |
| 126 |
|
| 418 |
| 82 |
Total Life and Retirement |
| 4,549 |
| 881 |
|
| 3,828 |
| 1,049 |
Other Operations |
| 15 |
| (559) |
|
| 144 |
| (415) |
Legacy Portfolio |
| 719 |
| 257 |
|
| 740 |
| 119 |
AIG Consolidation and elimination |
| 31 |
| 49 |
|
| (79) |
| (56) |
Total AIG Consolidated adjusted revenues and adjusted pre-tax income |
| 11,569 |
| 803 |
|
| 12,160 |
| 1,677 |
Reconciling items from adjusted pre-tax income to pre-tax income (loss): |
|
|
|
|
|
|
|
|
|
Changes in fair value of securities used to hedge guaranteed |
|
|
|
|
|
|
|
|
|
living benefits |
| 14 |
| 16 |
|
| 84 |
| 75 |
Changes in benefit reserves and DAC, VOBA and SIA related to net |
|
|
|
|
|
|
|
|
|
realized capital gains (losses) |
| - |
| 255 |
|
| - |
| (73) |
Changes in the fair value of equity securities |
| 56 |
| 56 |
|
| (22) |
| (22) |
Other income (expense) - net |
| 14 |
| - |
|
| 4 |
| - |
Loss on extinguishment of debt |
| - |
| - |
|
| - |
| (15) |
Net investment income on Fortitude Re funds withheld assets(a) |
| 116 |
| 116 |
|
| - |
| - |
Net realized capital gains (losses) on Fortitude Re funds withheld assets(a) |
| 96 |
| 96 |
|
| - |
| - |
Net realized capital gains (losses) on Fortitude Re funds withheld embedded |
|
|
|
|
|
|
|
|
|
derivative(a) |
| (837) |
| (837) |
|
| - |
| - |
Net realized capital gains (losses)(b) |
| (1,632) |
| (1,619) |
|
| 335 |
| 351 |
Loss from divested businesses |
| - |
| (8,412) |
|
| - |
| (1) |
Non-operating litigation reserves and settlements |
| - |
| - |
|
| - |
| - |
Favorable prior year development and related amortization |
|
|
|
|
|
|
|
|
|
changes ceded under retroactive reinsurance agreements |
| - |
| 33 |
|
| - |
| 125 |
Net loss reserve discount charge |
| - |
| (16) |
|
| - |
| (212) |
Integration and transaction costs associated with acquired businesses |
| - |
| (4) |
|
| - |
| (6) |
Restructuring and other costs |
| - |
| (134) |
|
| - |
| (60) |
Non-recurring costs related to regulatory or accounting changes |
| - |
| (14) |
|
| - |
| (2) |
Revenues and Pre-tax income (loss) | $ | 9,396 | $ | (9,661) |
| $ | 12,561 | $ | 1,837 |
16 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information
Six Months Ended June 30, | 2020 |
| 2019 | ||||||
|
|
|
| Adjusted |
|
|
|
| Adjusted |
|
| Total |
| Pre-Tax |
|
| Total |
| Pre-Tax |
(in millions) |
| Revenues |
| Income (Loss) |
|
| Revenues |
| Income (Loss) |
General Insurance |
|
|
|
|
|
|
|
|
|
North America | $ | 6,491 | $ | 414 |
| $ | 8,123 | $ | 1,652 |
International |
| 6,431 |
| 262 |
|
| 7,206 |
| 596 |
Total General Insurance |
| 12,922 |
| 676 |
|
| 15,329 |
| 2,248 |
Life and Retirement |
|
|
|
|
|
|
|
|
|
Individual Retirement |
| 2,703 |
| 856 |
|
| 2,817 |
| 1,096 |
Group Retirement |
| 1,406 |
| 357 |
|
| 1,499 |
| 525 |
Life Insurance |
| 2,204 |
| 46 |
|
| 2,227 |
| 202 |
Institutional Markets |
| 2,408 |
| 196 |
|
| 1,489 |
| 150 |
Total Life and Retirement |
| 8,721 |
| 1,455 |
|
| 8,032 |
| 1,973 |
Other Operations |
| 177 |
| (1,010) |
|
| 283 |
| (802) |
Legacy Portfolio |
| 983 |
| (111) |
|
| 1,446 |
| 231 |
AIG Consolidation and elimination |
| (114) |
| (35) |
|
| (176) |
| (126) |
Total AIG Consolidated adjusted revenues and adjusted pre-tax income |
| 22,689 |
| 975 |
|
| 24,914 |
| 3,524 |
Reconciling items from adjusted pre-tax income to pre-tax income (loss): |
|
|
|
|
|
|
|
|
|
Changes in fair value of securities used to hedge guaranteed |
|
|
|
|
|
|
|
|
|
living benefits |
| 28 |
| 9 |
|
| 189 |
| 171 |
Changes in benefit reserves and DAC, VOBA and SIA related to net |
|
|
|
|
|
|
|
|
|
realized capital gains (losses) |
| - |
| (283) |
|
| - |
| 26 |
Changes in the fair value of equity securities |
| (135) |
| (135) |
|
| 57 |
| 57 |
Other income (expense) - net |
| 23 |
| - |
|
| 11 |
| - |
Loss on extinguishment of debt |
| - |
| (17) |
|
| - |
| (13) |
Net investment income on Fortitude Re funds withheld assets(a) |
| 116 |
| 116 |
|
| - |
| - |
Net realized capital gains (losses) on Fortitude Re funds withheld assets(a) |
| 96 |
| 96 |
|
| - |
| - |
Net realized capital gains (losses) on Fortitude Re funds withheld embedded |
|
|
|
|
|
|
|
|
|
derivative(a) |
| (837) |
| (837) |
|
| - |
| - |
Net realized capital gains (losses)(b) |
| 1,853 |
| 1,883 |
|
| (154) |
| (123) |
Income (loss) from divested businesses |
| - |
| (8,628) |
|
| - |
| 5 |
Non-operating litigation reserves and settlements |
| 6 |
| 6 |
|
| - |
| (1) |
Favorable prior year development and related amortization |
|
|
|
|
|
|
|
|
|
changes ceded under retroactive reinsurance agreements |
| - |
| 41 |
|
| - |
| 152 |
Net loss reserve discount charge |
| - |
| (72) |
|
| - |
| (685) |
Integration and transaction costs associated with acquired businesses |
| - |
| (6) |
|
| - |
| (13) |
Restructuring and other costs |
| - |
| (224) |
|
| - |
| (107) |
Non-recurring costs related to regulatory or accounting changes |
| - |
| (27) |
|
| - |
| (2) |
Revenues and Pre-tax income (loss) | $ | 23,839 | $ | (7,103) |
| $ | 25,017 | $ | 2,991 |
(a)Represents activity subsequent to the deconsolidation of Fortitude Re on June 2, 2020.
(b)Includes all net realized capital gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets held by AIG in support of Fortitude Re’s reinsurance obligations to AIG (Fortitude Re funds withheld assets).
AIG | Second Quarter 2020 Form 10-Q 17
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
4. Fair Value Measurements
Fair Value Measurements on a Recurring Basis
Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three “levels” based on the observability of valuation inputs:
Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
18 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used:
June 30, 2020 |
|
|
|
|
|
| Counterparty | Cash |
| |||
(in millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Netting(a) | Collateral |
| Total | |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities | $ | 5 | $ | 4,797 | $ | - | $ | - | $ | - | $ | 4,802 |
Obligations of states, municipalities and political subdivisions |
| - |
| 13,717 |
| 2,279 |
| - |
| - |
| 15,996 |
Non-U.S. governments |
| 39 |
| 14,564 |
| 5 |
| - |
| - |
| 14,608 |
Corporate debt |
| - |
| 154,865 |
| 1,900 |
| - |
| - |
| 156,765 |
RMBS |
| - |
| 20,434 |
| 12,678 |
| - |
| - |
| 33,112 |
CMBS |
| - |
| 13,850 |
| 1,149 |
| - |
| - |
| 14,999 |
CDO/ABS |
| - |
| 8,762 |
| 9,461 |
| - |
| - |
| 18,223 |
Total bonds available for sale |
| 44 |
| 230,989 |
| 27,472 |
| - |
| - |
| 258,505 |
Other bond securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities |
| - |
| 1,912 |
| - |
| - |
| - |
| 1,912 |
Non-U.S. governments |
| - |
| - |
| - |
| - |
| - |
| - |
Corporate debt |
| - |
| 11 |
| - |
| - |
| - |
| 11 |
RMBS |
| - |
| 342 |
| 168 |
| - |
| - |
| 510 |
CMBS |
| - |
| 256 |
| 47 |
| - |
| - |
| 303 |
CDO/ABS |
| - |
| 170 |
| 2,531 |
| - |
| - |
| 2,701 |
Total other bond securities |
| - |
| 2,691 |
| 2,746 |
| - |
| - |
| 5,437 |
Equity securities |
| 624 |
| 12 |
| 43 |
| - |
| - |
| 679 |
Other invested assets(b) |
| - |
| 86 |
| 1,486 |
| - |
| - |
| 1,572 |
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 2 |
| 5,678 |
| - |
| - |
| - |
| 5,680 |
Foreign exchange contracts |
| - |
| 1,968 |
| 1 |
| - |
| - |
| 1,969 |
Equity contracts |
| 8 |
| 939 |
| 86 |
| - |
| - |
| 1,033 |
Credit contracts |
| - |
| - |
| 3 |
| - |
| - |
| 3 |
Other contracts |
| - |
| - |
| 13 |
| - |
| - |
| 13 |
Counterparty netting and cash collateral |
| - |
| - |
| - |
| (3,977) |
| (3,933) |
| (7,910) |
Total derivative assets |
| 10 |
| 8,585 |
| 103 |
| (3,977) |
| (3,933) |
| 788 |
Short-term investments |
| 2,458 |
| 3,930 |
| - |
| - |
| - |
| 6,388 |
Other assets |
| - |
| - |
| 111 |
| - |
| - |
| 111 |
Separate account assets |
| 84,629 |
| 4,113 |
| - |
| - |
| - |
| 88,742 |
Total | $ | 87,765 | $ | 250,406 | $ | 31,961 | $ | (3,977) | $ | (3,933) | $ | 362,222 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | - | $ | 9,233 | $ | - | $ | - | $ | 9,233 |
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 3 |
| 4,612 |
| - |
| - |
| - |
| 4,615 |
Foreign exchange contracts |
| - |
| 663 |
| - |
| - |
| - |
| 663 |
Equity contracts |
| 30 |
| 149 |
| 33 |
| - |
| - |
| 212 |
Credit contracts |
| - |
| 26 |
| 48 |
| - |
| - |
| 74 |
Other contracts |
| - |
| - |
| 10 |
| - |
| - |
| 10 |
Counterparty netting and cash collateral |
| - |
| - |
| - |
| (3,977) |
| (1,016) |
| (4,993) |
Total derivative liabilities |
| 33 |
| 5,450 |
| 91 |
| (3,977) |
| (1,016) |
| 581 |
Fortitude Re funds withheld payable |
| - |
| - |
| 4,510 |
| - |
| - |
| 4,510 |
Other liabilities |
| - |
| - |
| - |
| - |
| - |
| - |
Long-term debt |
| - |
| 2,181 |
| - |
| - |
| - |
| 2,181 |
Total | $ | 33 | $ | 7,631 | $ | 13,834 | $ | (3,977) | $ | (1,016) | $ | 16,505 |
AIG | Second Quarter 2020 Form 10-Q 19
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
December 31, 2019 |
|
|
|
|
|
| Counterparty | Cash |
| |||
(in millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Netting(a) |
| Collateral |
| Total |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities | $ | 135 | $ | 5,245 | $ | - | $ | - | $ | - | $ | 5,380 |
Obligations of states, municipalities and political subdivisions |
| - |
| 13,197 |
| 2,121 |
| - |
| - |
| 15,318 |
Non-U.S. governments |
| 60 |
| 14,809 |
| - |
| - |
| - |
| 14,869 |
Corporate debt |
| - |
| 147,973 |
| 1,663 |
| - |
| - |
| 149,636 |
RMBS |
| - |
| 19,397 |
| 13,408 |
| - |
| - |
| 32,805 |
CMBS |
| - |
| 13,377 |
| 1,053 |
| - |
| - |
| 14,430 |
CDO/ABS |
| - |
| 10,962 |
| 7,686 |
| - |
| - |
| 18,648 |
Total bonds available for sale |
| 195 |
| 224,960 |
| 25,931 |
| - |
| - |
| 251,086 |
Other bond securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities |
| - |
| 2,121 |
| - |
| - |
| - |
| 2,121 |
Non-U.S. governments |
| - |
| - |
| - |
| - |
| - |
| - |
Corporate debt |
| - |
| 18 |
| - |
| - |
| - |
| 18 |
RMBS |
| - |
| 346 |
| 143 |
| - |
| - |
| 489 |
CMBS |
| - |
| 272 |
| 50 |
| - |
| - |
| 322 |
CDO/ABS |
| - |
| 187 |
| 3,545 |
| - |
| - |
| 3,732 |
Total other bond securities |
| - |
| 2,944 |
| 3,738 |
| - |
| - |
| 6,682 |
Equity securities |
| 756 |
| 77 |
| 8 |
| - |
| - |
| 841 |
Other invested assets(b) |
| - |
| 86 |
| 1,192 |
| - |
| - |
| 1,278 |
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 1 |
| 3,199 |
| - |
| - |
| - |
| 3,200 |
Foreign exchange contracts |
| - |
| 1,034 |
| 6 |
| - |
| - |
| 1,040 |
Equity contracts |
| 5 |
| 593 |
| 171 |
| - |
| - |
| 769 |
Credit contracts |
| - |
| - |
| 3 |
| - |
| - |
| 3 |
Other contracts |
| - |
| - |
| 14 |
| - |
| - |
| 14 |
Counterparty netting and cash collateral |
| - |
| - |
| - |
| (2,427) |
| (1,806) |
| (4,233) |
Total derivative assets |
| 6 |
| 4,826 |
| 194 |
| (2,427) |
| (1,806) |
| 793 |
Short-term investments |
| 2,299 |
| 3,044 |
| - |
| - |
| - |
| 5,343 |
Other assets |
| 57 |
| 2,212 |
| 89 |
| - |
| - |
| 2,358 |
Separate account assets |
| 89,069 |
| 4,203 |
| - |
| - |
| - |
| 93,272 |
Total | $ | 92,382 | $ | 242,352 | $ | 31,152 | $ | (2,427) | $ | (1,806) | $ | 361,653 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | - | $ | 6,910 | $ | - | $ | - | $ | 6,910 |
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 4 |
| 2,745 |
| - |
| - |
| - |
| 2,749 |
Foreign exchange contracts |
| - |
| 1,025 |
| - |
| - |
| - |
| 1,025 |
Equity contracts |
| 8 |
| 111 |
| 20 |
| - |
| - |
| 139 |
Credit contracts |
| - |
| 24 |
| 65 |
| - |
| - |
| 89 |
Other contracts |
| - |
| - |
| 7 |
| - |
| - |
| 7 |
Counterparty netting and cash collateral |
| - |
| - |
| - |
| (2,427) |
| (527) |
| (2,954) |
Total derivative liabilities |
| 12 |
| 3,905 |
| 92 |
| (2,427) |
| (527) |
| 1,055 |
Other liabilities |
| - |
| 45 |
| - |
| - |
| - |
| 45 |
Long-term debt |
| - |
| 2,062 |
| - |
| - |
| - |
| 2,062 |
Total | $ | 12 | $ | 6,012 | $ | 7,002 | $ | (2,427) | $ | (527) | $ | 10,072 |
(a)Represents netting of derivative exposures covered by qualifying master netting agreements.
(b)Excludes investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent), which totaled $5.0 billion and $5.5 billion as of June 30, 2020 and December 31, 2019, respectively.
20 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
Changes in Level 3 Recurring Fair Value Measurements
The following tables present changes during the three- and six-month periods ended June 30, 2020 and 2019 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and liabilities in the Condensed Consolidated Balance Sheets at June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
| (Losses) Included in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
| Other Comprehensive |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
| Income (Loss) for |
|
| Fair Value | Gains (Losses) |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on |
| Recurring Level 3 | |
|
| Beginning |
| Included | Comprehensive |
| Issuances and | Transfers | Transfers |
| Divested |
| End |
| Instruments Held |
| Instruments Held | |||
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period |
| at End of Period | |
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
municipalities and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political subdivisions | $ | 2,102 | $ | - | $ | 254 | $ | 20 | $ | - | $ | (97) | $ | - | $ | 2,279 | $ | - | $ | 244 |
Non-U.S. governments |
| 6 |
| - |
| - |
| 5 |
| - |
| (6) |
| - |
| 5 |
| - |
| - |
Corporate debt |
| 1,215 |
| (1) |
| 72 |
| 113 |
| 519 |
| (18) |
| - |
| 1,900 |
| - |
| 50 |
RMBS |
| 11,687 |
| 208 |
| 947 |
| (171) |
| 7 |
| - |
| - |
| 12,678 |
| - |
| 957 |
CMBS |
| 1,146 |
| 4 |
| 15 |
| (16) |
| - |
| - |
| - |
| 1,149 |
| - |
| 18 |
CDO/ABS |
| 8,768 |
| 3 |
| 432 |
| 108 |
| 334 |
| (184) |
| - |
| 9,461 |
| - |
| 403 |
Total bonds available for sale(a) |
| 24,924 |
| 214 |
| 1,720 |
| 59 |
| 860 |
| (305) |
| - |
| 27,472 |
| - |
| 1,672 |
Other bond securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
| 149 |
| 14 |
| - |
| 5 |
| - |
| - |
| - |
| 168 |
| 13 |
| - |
CMBS |
| 42 |
| 6 |
| - |
| (1) |
| - |
| - |
| - |
| 47 |
| 6 |
| - |
CDO/ABS |
| 2,378 |
| 274 |
| - |
| (121) |
| - |
| - |
| - |
| 2,531 |
| 253 |
| - |
Total other bond securities |
| 2,569 |
| 294 |
| - |
| (117) |
| - |
| - |
| - |
| 2,746 |
| 272 |
| - |
Equity securities |
| 19 |
| - |
| - |
| - |
| 25 |
| (1) |
| - |
| 43 |
| - |
| - |
Other invested assets |
| 1,467 |
| (59) |
| - |
| 78 |
| - |
| - |
| - |
| 1,486 |
| - |
| - |
Other assets |
| 91 |
| - |
| - |
| 54 |
| - |
| - |
| (34) |
| 111 |
| - |
| - |
Total | $ | 29,070 | $ | 449 | $ | 1,720 | $ | 74 | $ | 885 | $ | (306) | $ | (34) | $ | 31,858 | $ | 272 | $ | 1,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
| (Losses) Included in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
| Other Comprehensive |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
| Income (Loss) for |
|
| Fair Value | (Gains) Losses |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on |
| Recurring Level 3 | |
|
| Beginning |
| Included | Comprehensive |
| Issuances and | Transfers | Transfers |
| Divested |
| End |
| Instruments Held |
| Instruments Held | |||
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period |
| at End of Period | |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | 8,153 | $ | 1,060 | $ | - | $ | 20 | $ | - | $ | - | $ | - | $ | 9,233 | $ | (825) | $ | - |
Derivative liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| - |
| (1) |
| - |
| 1 |
| - |
| - |
| - |
| - |
| - |
| - |
Foreign exchange contracts |
| 3 |
| 1 |
| - |
| (5) |
| - |
| - |
| - |
| (1) |
| - |
| - |
Equity contracts |
| (143) |
| 36 |
| - |
| 54 |
| - |
| - |
| - |
| (53) |
| (15) |
| - |
Credit contracts |
| (76) |
| 64 |
| - |
| 57 |
| - |
| - |
| - |
| 45 |
| 9 |
| - |
Other contracts |
| (2) |
| (17) |
| - |
| 16 |
| - |
| - |
| - |
| (3) |
| 17 |
| - |
Total derivative liabilities, net(b) |
| (218) |
| 83 |
| - |
| 123 |
| - |
| - |
| - |
| (12) |
| 11 |
| - |
Fortitude Re funds withheld |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable |
| - |
| 837 |
| - |
| - |
| - |
| - |
| 3,673 |
| 4,510 |
| 663 |
| - |
Total | $ | 7,935 | $ | 1,980 | $ | - | $ | 143 | $ | - | $ | - | $ | 3,673 | $ | 13,731 | $ | (151) | $ | - |
AIG | Second Quarter 2020 Form 10-Q 21
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
| (Losses) Included in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
| Other Comprehensive |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
| Income (Loss) for |
|
| Fair Value | Gains (Losses) |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on |
| Recurring Level 3 | |
|
| Beginning |
| Included | Comprehensive |
| Issuances and | Transfers | Transfers |
| Divested |
| End |
| Instruments Held |
| Instruments Held | |||
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period |
| at End of Period | |
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
municipalities and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political subdivisions | $ | 2,121 | $ | 5 | $ | 199 | $ | 157 | $ | 27 | $ | (230) | $ | - | $ | 2,279 | $ | - | $ | 193 |
Non-U.S. governments |
| - |
| - |
| - |
| 5 |
| 6 |
| (6) |
| - |
| 5 |
| - |
| - |
Corporate debt |
| 1,663 |
| (68) |
| (9) |
| 120 |
| 622 |
| (428) |
| - |
| 1,900 |
| - |
| 21 |
RMBS |
| 13,408 |
| 340 |
| (676) |
| (394) |
| 26 |
| (26) |
| - |
| 12,678 |
| - |
| (548) |
CMBS |
| 1,053 |
| 11 |
| 34 |
| 28 |
| 23 |
| - |
| - |
| 1,149 |
| - |
| 39 |
CDO/ABS |
| 7,686 |
| 20 |
| (125) |
| 155 |
| 1,937 |
| (212) |
| - |
| 9,461 |
| - |
| (134) |
Total bonds available for sale(a) |
| 25,931 |
| 308 |
| (577) |
| 71 |
| 2,641 |
| (902) |
| - |
| 27,472 |
| - |
| (429) |
Other bond securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
| 143 |
| - |
| - |
| 25 |
| - |
| - |
| - |
| 168 |
| (1) |
| - |
CMBS |
| 50 |
| (1) |
| - |
| (2) |
| - |
| - |
| - |
| 47 |
| (2) |
| - |
CDO/ABS |
| 3,545 |
| 101 |
| - |
| (1,115) |
| - |
| - |
| - |
| 2,531 |
| (9) |
| - |
Total other bond securities |
| 3,738 |
| 100 |
| - |
| (1,092) |
| - |
| - |
| - |
| 2,746 |
| (12) |
| - |
Equity securities |
| 8 |
| (1) |
| 1 |
| 10 |
| 26 |
| (1) |
| - |
| 43 |
| - |
| - |
Other invested assets |
| 1,192 |
| (63) |
| - |
| 207 |
| 150 |
| - |
| - |
| 1,486 |
| (48) |
| - |
Other assets |
| 89 |
| - |
| - |
| 59 |
| - |
| - |
| (37) |
| 111 |
| - |
| - |
Total | $ | 30,958 | $ | 344 | $ | (576) | $ | (745) | $ | 2,817 | $ | (903) | $ | (37) | $ | 31,858 | $ | (60) | $ | (429) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
| (Losses) Included in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
| Other Comprehensive |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
| Income (Loss) for |
|
| Fair Value | (Gains) Losses |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on |
| Recurring Level 3 | |
|
| Beginning |
| Included | Comprehensive |
| Issuances and | Transfers | Transfers |
| Divested |
| End |
| Instruments Held |
| Instruments Held | |||
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period |
| at End of Period | |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | 6,910 | $ | 2,231 | $ | - | $ | 92 | $ | - | $ | - | $ | - | $ | 9,233 | $ | (1,709) | $ | - |
Derivative liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| - |
| (1) |
| - |
| 1 |
| - |
| - |
| - |
| - |
| 1 |
| - |
Foreign exchange contracts |
| (6) |
| 4 |
| - |
| 1 |
| - |
| - |
| - |
| (1) |
| 1 |
| - |
Equity contracts |
| (151) |
| 10 |
| - |
| 88 |
| - |
| - |
| - |
| (53) |
| (64) |
| - |
Credit contracts |
| 62 |
| (60) |
| - |
| 43 |
| - |
| - |
| - |
| 45 |
| 6 |
| - |
Other contracts |
| (7) |
| (27) |
| - |
| 31 |
| - |
| - |
| - |
| (3) |
| 27 |
| - |
Total derivative liabilities, net(b) |
| (102) |
| (74) |
| - |
| 164 |
| - |
| - |
| - |
| (12) |
| (29) |
| - |
Fortitude Re funds withheld |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable |
| - |
| 837 |
| - |
| - |
| - |
| - |
| 3,673 |
| 4,510 |
| 663 |
| - |
Total | $ | 6,808 | $ | 2,994 | $ | - | $ | 256 | $ | - | $ | - | $ | 3,673 | $ | 13,731 | $ | (1,075) | $ | - |
22 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
|
| Fair Value | Gains (Losses) |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on | |
|
| Beginning |
| Included |
| Comprehensive |
| Issuances and |
| Transfers |
| Transfers |
| Divested |
| End |
| Instruments Held |
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period | |
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, municipalities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and political subdivisions | $ | 2,136 | $ | - | $ | 105 | $ | 62 | $ | 6 | $ | (147) | $ | - | $ | 2,162 | $ | - |
Non-U.S. governments |
| 3 |
| (1) |
| - |
| - |
| - |
| - |
| - |
| 2 |
| - |
Corporate debt |
| 1,532 |
| 29 |
| 43 |
| (99) |
| 389 |
| (73) |
| - |
| 1,821 |
| - |
RMBS |
| 14,045 |
| 182 |
| 137 |
| (404) |
| 44 |
| (141) |
| - |
| 13,863 |
| - |
CMBS |
| 892 |
| 5 |
| 13 |
| 150 |
| 58 |
| (15) |
| - |
| 1,103 |
| - |
CDO/ABS |
| 8,840 |
| 8 |
| 113 |
| 104 |
| 4 |
| (7) |
| - |
| 9,062 |
| - |
Total bonds available for sale |
| 27,448 |
| 223 |
| 411 |
| (187) |
| 501 |
| (383) |
| - |
| 28,013 |
| - |
Other bond securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
| 1,266 |
| 43 |
| - |
| (479) |
| - |
| - |
| - |
| 830 |
| (19) |
CMBS |
| 84 |
| - |
| - |
| 14 |
| - |
| (10) |
| - |
| 88 |
| 1 |
CDO/ABS |
| 4,249 |
| 116 |
| - |
| (214) |
| - |
| (1) |
| - |
| 4,150 |
| 76 |
Total other bond securities |
| 5,599 |
| 159 |
| - |
| (679) |
| - |
| (11) |
| - |
| 5,068 |
| 58 |
Equity securities |
| 26 |
| - |
| - |
| 9 |
| - |
| - |
| - |
| 35 |
| 3 |
Other invested assets |
| 591 |
| 18 |
| 1 |
| (5) |
| - |
| - |
| - |
| 605 |
| 18 |
Other assets |
| 59 |
| - |
| - |
| 2 |
| - |
| - |
| - |
| 61 |
| - |
Total | $ | 33,723 | $ | 400 | $ | 412 | $ | (860) | $ | 501 | $ | (394) | $ | - | $ | 33,782 | $ | 79 |
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
|
| Fair Value | (Gains) Losses |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on | |
|
| Beginning |
| Included |
| Comprehensive |
| Issuances and |
| Transfers |
| Transfers |
| Divested |
| End |
| Instruments Held |
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period | |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | 4,878 | $ | 970 | $ | - | $ | 217 | $ | - | $ | - | $ | - | $ | 6,065 | $ | (832) |
Derivative liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 15 |
| 2 |
| - |
| (1) |
| - |
| - |
| - |
| 16 |
| (2) |
Foreign exchange contracts |
| (1) |
| (5) |
| - |
| 2 |
| - |
| - |
| - |
| (4) |
| 4 |
Equity contracts |
| (96) |
| (4) |
| - |
| (13) |
| - |
| - |
| - |
| (113) |
| 4 |
Credit contracts |
| 222 |
| (24) |
| - |
| (25) |
| - |
| - |
| - |
| 173 |
| 23 |
Other contracts |
| (8) |
| (16) |
| - |
| 17 |
| - |
| - |
| - |
| (7) |
| 18 |
Total derivative liabilities, net(b) |
| 132 |
| (47) |
| - |
| (20) |
| - |
| - |
| - |
| 65 |
| 47 |
Total | $ | 5,010 | $ | 923 | $ | - | $ | 197 | $ | - | $ | - | $ | - | $ | 6,130 | $ | (785) |
AIG | Second Quarter 2020 Form 10-Q 23
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
|
| Fair Value | Gains (Losses) |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on | |
|
| Beginning |
| Included | Comprehensive |
| Issuances and |
| Transfers |
| Transfers |
| Divested |
| End |
| Instruments Held | |
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period | |
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, municipalities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and political subdivisions | $ | 2,000 | $ | (1) | $ | 202 | $ | 86 | $ | 35 | $ | (160) | $ | - | $ | 2,162 | $ | - |
Non-U.S. governments |
| 11 |
| (1) |
| - |
| (4) |
| - |
| (4) |
| - |
| 2 |
| - |
Corporate debt |
| 864 |
| 26 |
| 81 |
| (65) |
| 1,043 |
| (128) |
| - |
| 1,821 |
| - |
RMBS |
| 14,199 |
| 409 |
| 161 |
| (816) |
| 67 |
| (157) |
| - |
| 13,863 |
| - |
CMBS |
| 917 |
| 6 |
| 30 |
| 296 |
| 58 |
| (204) |
| - |
| 1,103 |
| - |
CDO/ABS |
| 9,102 |
| 12 |
| 167 |
| 59 |
| 96 |
| (374) |
| - |
| 9,062 |
| - |
Total bonds available for sale |
| 27,093 |
| 451 |
| 641 |
| (444) |
| 1,299 |
| (1,027) |
| - |
| 28,013 |
| - |
Other bond securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
| 1,290 |
| 60 |
| - |
| (520) |
| - |
| - |
| - |
| 830 |
| (19) |
CMBS |
| 77 |
| 4 |
| - |
| 17 |
| - |
| (10) |
| - |
| 88 |
| 4 |
CDO/ABS |
| 4,478 |
| 184 |
| - |
| (415) |
| - |
| (97) |
| - |
| 4,150 |
| 100 |
Total other bond securities |
| 5,845 |
| 248 |
| - |
| (918) |
| - |
| (107) |
| - |
| 5,068 |
| 85 |
Equity securities |
| 27 |
| - |
| - |
| 9 |
| - |
| (1) |
| - |
| 35 |
| 3 |
Other invested assets |
| 587 |
| 18 |
| 1 |
| (1) |
| - |
| - |
| - |
| 605 |
| 19 |
Other assets |
| 58 |
| - |
| - |
| 3 |
| - |
| - |
| - |
| 61 |
| - |
Total | $ | 33,610 | $ | 717 | $ | 642 | $ | (1,351) | $ | 1,299 | $ | (1,135) | $ | - | $ | 33,782 | $ | 107 |
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
| Realized and |
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains |
|
|
|
| Unrealized |
|
|
| Purchases, |
|
|
|
|
|
|
|
|
| (Losses) Included |
|
| Fair Value | (Gains) Losses |
| Other |
| Sales, |
| Gross |
| Gross |
|
|
| Fair Value |
| in Income on | |
|
| Beginning |
| Included | Comprehensive |
| Issuances and |
| Transfers |
| Transfers |
| Divested |
| End |
| Instruments Held | |
(in millions) |
| of Period |
| in Income |
| Income (Loss) | Settlements, Net |
| In |
| Out |
| Businesses |
| of Period |
| at End of Period | |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | 4,116 | $ | 1,539 | $ | - | $ | 410 | $ | - | $ | - | $ | - | $ | 6,065 | $ | (1,352) |
Derivative liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 15 |
| 3 |
| - |
| (2) |
| - |
| - |
| - |
| 16 |
| (3) |
Foreign exchange contracts |
| (5) |
| (10) |
| - |
| 11 |
| - |
| - |
| - |
| (4) |
| 4 |
Equity contracts |
| (75) |
| (20) |
| - |
| (18) |
| - |
| - |
| - |
| (113) |
| 32 |
Credit contracts |
| 227 |
| (27) |
| - |
| (27) |
| - |
| - |
| - |
| 173 |
| 27 |
Other contracts |
| (9) |
| (33) |
| - |
| 35 |
| - |
| - |
| - |
| (7) |
| 35 |
Total derivative liabilities, net(b) |
| 153 |
| (87) |
| - |
| (1) |
| - |
| - |
| - |
| 65 |
| 95 |
Total | $ | 4,269 | $ | 1,452 | $ | - | $ | 409 | $ | - | $ | - | $ | - | $ | 6,130 | $ | (1,257) |
(a)As a result of the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020, credit losses are included in net realized and unrealized (gains) losses included in income.
(b)Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.
24 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above are reported in the Condensed Consolidated Statements of Income as follows:
|
| Net |
| Net Realized |
|
|
|
|
|
| Investment |
| Capital |
| Other |
|
|
(in millions) |
| Income | Gains (Losses) |
| Income |
| Total | |
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale* | $ | 182 | $ | 32 | $ | - | $ | 214 |
Other bond securities |
| 294 |
| - |
| - |
| 294 |
Equity securities |
| - |
| - |
| - |
| - |
Other invested assets |
| (59) |
| - |
| - |
| (59) |
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale* | $ | 380 | $ | (72) | $ | - | $ | 308 |
Other bond securities |
| (168) |
| 268 |
| - |
| 100 |
Equity securities |
| - |
| (1) |
| - |
| (1) |
Other invested assets |
| (63) |
| - |
| - |
| (63) |
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale | $ | 245 | $ | (22) | $ | - | $ | 223 |
Other bond securities |
| 109 |
| 50 |
| - |
| 159 |
Other invested assets |
| 18 |
| - |
| - |
| 18 |
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale | $ | 487 | $ | (36) | $ | - | $ | 451 |
Other bond securities |
| 196 |
| 52 |
| - |
| 248 |
Other invested assets |
| 18 |
| - |
| - |
| 18 |
|
|
|
|
|
|
|
|
|
|
| Net |
| Net Realized |
|
|
|
|
|
| Investment |
| Capital |
| Other |
|
|
(in millions) |
| Income | (Gains) Losses |
| Income |
| Total | |
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 1,060 | $ | - | $ | 1,060 |
Derivative liabilities, net |
| - |
| 97 |
| (14) |
| 83 |
Fortitude Re funds withheld payable |
| - |
| 837 |
| - |
| 837 |
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 2,231 | $ | - | $ | 2,231 |
Derivative liabilities, net |
| - |
| (46) |
| (28) |
| (74) |
Fortitude Re funds withheld payable |
| - |
| 837 |
| - |
| 837 |
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 970 | $ | - | $ | 970 |
Derivative liabilities, net |
| - |
| (29) |
| (18) |
| (47) |
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 1,539 | $ | - | $ | 1,539 |
Derivative liabilities, net |
| - |
| (53) |
| (34) |
| (87) |
*As a result of the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020, credit losses are included in net realized capital gains (losses).
AIG | Second Quarter 2020 Form 10-Q 25
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
The following table presents the gross components of purchases, sales, issuances and settlements, net, shown above, for the three- and six-month periods ended June 30, 2020 and 2019 related to Level 3 assets and liabilities in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
| Issuances |
| Purchases, Sales, |
|
|
|
|
|
| and |
| Issuances and |
(in millions) |
| Purchases |
| Sales |
| Settlements(a) |
| Settlements, Net(a) |
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
Obligations of states, municipalities and political subdivisions | $ | 22 | $ | - | $ | (2) | $ | 20 |
Non-U.S. governments |
| 5 |
| - |
| - |
| 5 |
Corporate debt |
| 121 |
| - |
| (8) |
| 113 |
RMBS |
| 365 |
| - |
| (536) |
| (171) |
CMBS |
| 1 |
| (5) |
| (12) |
| (16) |
CDO/ABS |
| 256 |
| (3) |
| (145) |
| 108 |
Total bonds available for sale |
| 770 |
| (8) |
| (703) |
| 59 |
Other bond securities: |
|
|
|
|
|
|
|
|
RMBS |
| 12 |
| - |
| (7) |
| 5 |
CMBS |
| - |
| - |
| (1) |
| (1) |
CDO/ABS |
| - |
| - |
| (121) |
| (121) |
Total other bond securities |
| 12 |
| - |
| (129) |
| (117) |
Equity securities |
| - |
| - |
| - |
| - |
Other invested assets |
| 78 |
| - |
| - |
| 78 |
Other assets |
| 55 |
| - |
| (1) |
| 54 |
Total assets | $ | 915 | $ | (8) | $ | (833) | $ | 74 |
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 122 | $ | (102) | $ | 20 |
Derivative liabilities, net |
| (9) |
| - |
| 132 |
| 123 |
Other liabilities |
| - |
| - |
| - |
| - |
Total liabilities | $ | (9) | $ | 122 | $ | 30 | $ | 143 |
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
Obligations of states, municipalities and political subdivisions | $ | 87 | $ | (1) | $ | (24) | $ | 62 |
Non-U.S. governments |
| - |
| - |
| - |
| - |
Corporate debt |
| 8 |
| (1) |
| (106) |
| (99) |
RMBS |
| 300 |
| - |
| (704) |
| (404) |
CMBS |
| 179 |
| - |
| (29) |
| 150 |
CDO/ABS |
| 972 |
| (154) |
| (714) |
| 104 |
Total bonds available for sale |
| 1,546 |
| (156) |
| (1,577) |
| (187) |
Other bond securities: |
|
|
|
|
|
|
|
|
RMBS |
| - |
| (437) |
| (42) |
| (479) |
CMBS |
| 14 |
| - |
| - |
| 14 |
CDO/ABS |
| - |
| - |
| (214) |
| (214) |
Total other bond securities |
| 14 |
| (437) |
| (256) |
| (679) |
Equity securities |
| 9 |
| - |
| - |
| 9 |
Other invested assets |
| 39 |
| - |
| (44) |
| (5) |
Other assets |
| - |
| - |
| 2 |
| 2 |
Total assets | $ | 1,608 | $ | (593) | $ | (1,875) | $ | (860) |
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 203 | $ | 14 | $ | 217 |
Derivative liabilities, net |
| (9) |
| - |
| (11) |
| (20) |
Total liabilities | $ | (9) | $ | 203 | $ | 3 | $ | 197 |
26 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
|
|
|
|
|
| Issuances |
| Purchases, Sales, |
|
|
|
|
|
| and |
| Issuances and |
(in millions) |
| Purchases |
| Sales |
| Settlements(a) |
| Settlements, Net(a) |
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
Obligations of states, municipalities and political subdivisions | $ | 167 | $ | (2) | $ | (8) | $ | 157 |
Non-U.S. governments |
| 5 |
| - |
| - |
| 5 |
Corporate debt |
| 233 |
| (5) |
| (108) |
| 120 |
RMBS |
| 701 |
| - |
| (1,095) |
| (394) |
CMBS |
| 54 |
| (7) |
| (19) |
| 28 |
CDO/ABS |
| 481 |
| (25) |
| (301) |
| 155 |
Total bonds available for sale |
| 1,641 |
| (39) |
| (1,531) |
| 71 |
Other bond securities: |
|
|
|
|
|
|
|
|
RMBS |
| 37 |
| - |
| (12) |
| 25 |
CMBS |
| - |
| - |
| (2) |
| (2) |
CDO/ABS |
| 35 |
| (579) |
| (571) |
| (1,115) |
Total other bond securities |
| 72 |
| (579) |
| (585) |
| (1,092) |
Equity securities |
| 10 |
| - |
| - |
| 10 |
Other invested assets |
| 252 |
| - |
| (45) |
| 207 |
Other assets |
| 55 |
| - |
| 4 |
| 59 |
Total assets | $ | 2,030 | $ | (618) | $ | (2,157) | $ | (745) |
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 344 | $ | (252) | $ | 92 |
Derivative liabilities, net |
| (24) |
| 8 |
| 180 |
| 164 |
Other liabilities |
| - |
| - |
| - |
| - |
Total liabilities | $ | (24) | $ | 352 | $ | (72) | $ | 256 |
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
Obligations of states, municipalities and political subdivisions | $ | 134 | $ | (16) | $ | (32) | $ | 86 |
Non-U.S. governments |
| - |
| - |
| (4) |
| (4) |
Corporate debt |
| 57 |
| (1) |
| (121) |
| (65) |
RMBS |
| 607 |
| (26) |
| (1,397) |
| (816) |
CMBS |
| 363 |
| - |
| (67) |
| 296 |
CDO/ABS |
| 1,170 |
| (310) |
| (801) |
| 59 |
Total bonds available for sale |
| 2,331 |
| (353) |
| (2,422) |
| (444) |
Other bond securities: |
|
|
|
|
|
|
|
|
RMBS |
| - |
| (437) |
| (83) |
| (520) |
CMBS |
| 18 |
| - |
| (1) |
| 17 |
CDO/ABS |
| - |
| - |
| (415) |
| (415) |
Total other bond securities |
| 18 |
| (437) |
| (499) |
| (918) |
Equity securities |
| 9 |
| - |
| - |
| 9 |
Other invested assets |
| 43 |
| - |
| (44) |
| (1) |
Other assets |
| - |
| - |
| 3 |
| 3 |
Total assets | $ | 2,401 | $ | (790) | $ | (2,962) | $ | (1,351) |
Liabilities: |
|
|
|
|
|
|
|
|
Policyholder contract deposits | $ | - | $ | 376 | $ | 34 | $ | 410 |
Derivative liabilities, net |
| (22) |
| - |
| 21 |
| (1) |
Total liabilities | $ | (22) | $ | 376 | $ | 55 | $ | 409 |
(a)There were no issuances during the three- and six-month periods ended June 30, 2020 and 2019.
AIG | Second Quarter 2020 Form 10-Q 27
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at June 30, 2020 and 2019 may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in unobservable long-dated volatilities).
Transfers of Level 3 Assets and Liabilities
The Net realized and unrealized gains (losses) included in income (loss) or Other comprehensive income (loss) as shown in the table above excludes $28 million and $(128) million of net gains (losses) related to assets and liabilities transferred into Level 3 during the three- and six-month periods ended June 30, 2020, respectively, and includes $24 million and $(31) million of net gains (losses) related to assets and liabilities transferred out of Level 3 during the three- and six-month periods ended June 30, 2020, respectively.
The Net realized and unrealized gains (losses) included in income (loss) or Other comprehensive income (loss) as shown in the table above excludes $15 million and $(40) million of net gains (losses) related to assets and liabilities transferred into Level 3 during the three- and six-month periods ended June 30, 2019, respectively, and includes $5 million and $4 million of net gains related to assets and liabilities transferred out of Level 3 during the three- and six-month periods ended June 30, 2019, respectively.
Transfers of Level 3 Assets
During the three- and six-month periods ended June 30, 2020 and 2019, transfers into Level 3 assets primarily included certain investments in private placement corporate debt, RMBS, CMBS and CDO/ABS. Transfers of private placement corporate debt and certain ABS into Level 3 assets were primarily the result of limited market pricing information that required us to determine fair value for these securities based on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated market liquidity. The transfers of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to diminished market transparency and liquidity for individual security types.
During the three- and six-month periods ended June 30, 2020 and 2019, transfers out of Level 3 assets primarily included private placement and other corporate debt, CMBS, RMBS, CDO/ABS and certain investments in municipal securities. Transfers of certain investments in municipal securities, corporate debt, RMBS, CMBS and CDO/ABS out of Level 3 assets were based on consideration of market liquidity as well as related transparency of pricing and associated observable inputs for these investments. Transfers of certain investments in private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of using observable pricing information that reflects the fair value of those securities without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market.
Transfers of Level 3 Liabilities
There were no significant transfers of derivative or other liabilities into or out of Level 3 for the three- and six-month periods ended June 30, 2020 and 2019.
28 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS
The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably available to us, such as data from independent third-party valuation service providers and from internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments (primarily CDO/ABS) may not be reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and liabilities:
| Fair Value at |
|
|
| |
| June 30, | Valuation |
| Range | |
(in millions) | 2020 | Technique | Unobservable Input(b) | (Weighted Average)(c) | |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, municipalities |
|
|
|
|
|
and political subdivisions | $ | 1,781 | Discounted cash flow | Yield | 2.80% - 3.43% (3.11%) |
|
|
|
|
|
|
Corporate debt |
| 1,374 | Discounted cash flow | Yield | 2.53% - 6.74% (4.64%) |
|
|
|
|
|
|
RMBS(a) |
| 11,777 | Discounted cash flow | Constant prepayment rate | 3.75% - 11.92% (7.84%) |
|
|
|
| Loss severity | 29.12% - 76.16% (52.64%) |
|
|
|
| Constant default rate | 1.27% - 6.11% (3.69%) |
|
|
|
| Yield | 2.17% - 5.13% (3.65%) |
|
|
|
|
|
|
CDO/ABS(a) |
| 8,926 | Discounted cash flow | Yield | 2.30% - 6.49% (4.40%) |
|
|
|
|
|
|
CMBS |
| 576 | Discounted cash flow | Yield | 1.34% - 4.92% (3.13%) |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Embedded derivatives within |
|
|
|
|
|
Policyholder contract deposits: |
|
|
|
|
|
|
|
|
|
|
|
Guaranteed minimum withdrawal benefits (GMWB) |
| 4,257 | Discounted cash flow | Equity volatility | 6.35% - 50.45% |
|
|
|
| Base lapse rate | 0.16% - 12.60% |
|
|
|
| Dynamic lapse multiplier | 50.00% - 143.00% |
|
|
|
| Mortality multiplier(d) | 38.00% - 147.00% |
|
|
|
| Utilization | 90.00% - 100.00% |
|
|
|
| Equity / interest rate correlation | 20.00% - 40.00% |
|
|
|
| NPA(e) | 0.19% - 2.34% |
|
|
|
|
|
|
Index annuities |
| 4,396 | Discounted cash flow | Lapse rate | 0.31% - 50.00% |
|
|
|
| Mortality multiplier(d) | 24.00% - 180.00% |
|
|
|
| Option budget | 0.00% - 4.00% |
|
|
|
| NPA(e) | 0.19% - 2.34% |
|
|
|
|
|
|
Indexed life |
| 552 | Discounted cash flow | Base lapse rate | 0.00% - 37.97% |
|
|
|
| Mortality rate | 0.00% - 100.00% |
|
|
|
| NPA(e) | 0.19% - 2.34% |
AIG | Second Quarter 2020 Form 10-Q 29
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
|
| Fair Value at |
|
|
|
|
| December 31, | Valuation |
| Range |
(in millions) |
| 2019 | Technique | Unobservable Input(b) | (Weighted Average)(c) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, municipalities |
|
|
|
|
|
and political subdivisions | $ | 1,633 | Discounted cash flow | Yield | 3.35% - 3.95% (3.65%) |
|
|
|
|
|
|
Corporate debt |
| 1,087 | Discounted cash flow | Yield | 3.48% - 6.22% (4.85%) |
|
|
|
|
|
|
RMBS(a) |
| 11,746 | Discounted cash flow | Constant prepayment rate | 4.00% - 12.89% (8.44%) |
|
|
|
| Loss severity | 33.68% - 76.91% (55.29%) |
|
|
|
| Constant default rate | 1.68% - 6.17% (3.93%) |
|
|
|
| Yield | 2.52% - 4.53% (3.52%) |
|
|
|
|
|
|
CDO/ABS(a) |
| 6,025 | Discounted cash flow | Yield | 2.92% - 4.91% (3.91%) |
|
|
|
|
|
|
CMBS |
| 476 | Discounted cash flow | Yield | 2.77% - 5.18% (3.97%) |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Embedded derivatives within |
|
|
|
|
|
Policyholder contract deposits: |
|
|
|
|
|
|
|
|
|
|
|
GMWB |
| 2,474 | Discounted cash flow | Equity volatility | 6.15% - 48.85% |
|
|
|
| Base lapse rate | 0.16% - 12.60% |
|
|
|
| Dynamic lapse multiplier | 50.00% - 143.00% |
|
|
|
| Mortality multiplier(d) | 38.00% - 147.00% |
|
|
|
| Utilization | 90.00% - 100.00% |
|
|
|
| Equity / interest rate correlation | 20.00% - 40.00% |
|
|
|
| NPA(e) | 0.12% - 1.53% |
|
|
|
|
|
|
Index annuities |
| 3,895 | Discounted cash flow | Lapse rate | 0.31% - 50.00% |
|
|
|
| Mortality multiplier(d) | 24.00% - 180.00% |
|
|
|
| Option budget | 1.00% - 4.00% |
|
|
|
| NPA(e) | 0.12% - 1.53% |
|
|
|
|
|
|
Indexed life |
| 510 | Discounted cash flow | Base lapse rate | 0.00% - 37.97% |
|
|
|
| Mortality rate | 0.00% - 100.00% |
|
|
|
| NPA(e) | 0.12% - 1.53% |
(a)Information received from third-party valuation service providers. The ranges of the unobservable inputs for constant prepayment rate, loss severity and constant default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the tranches purchased by us, because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to, purchase price, position in the waterfall, senior versus subordinated position and attachment points.
(b)Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities.
(c)The weighted averaging for fixed maturity securities is based on the estimated fair value of the securities. Because the valuation methodology for embedded derivatives within Policyholder contract deposits uses a range of inputs that vary at the contract level over the cash flow projection period, management believes that presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.
(d)Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table.
(e)The non-performance risk adjustment (NPA) applied as a spread over risk-free curve for discounting.
The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flow technique consist of one standard deviation in either direction from the value-weighted average. The preceding table does not give effect to our risk management practices that might offset risks inherent in these Level 3 assets and liabilities.
30 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
Interrelationships between Unobservable Inputs
We consider unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset or liability. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following paragraphs provide a general description of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply.
Fixed Maturity Securities
The significant unobservable input used in the fair value measurement of fixed maturity securities is yield. The yield is affected by the market movements in credit spreads and U.S. Treasury yields. The yield may be affected by other factors including constant prepayment rates, loss severity, and constant default rates. In general, increases in the yield would decrease the fair value of investments, and conversely, decreases in the yield would increase the fair value of investments.
Embedded derivatives within Policyholder contract deposits
Embedded derivatives reported within Policyholder contract deposits include interest crediting rates based on market indices within index annuities, indexed life, and GICs as well as GMWB within variable annuity and certain index annuity products. For any given contract, assumptions for unobservable inputs vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. The following unobservable inputs are used for valuing embedded derivatives measured at fair value:
Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. Increases in assumed volatility will generally increase the fair value of both the projected cash flows from rider fees as well as the projected cash flows related to benefit payments. Therefore, the net change in the fair value of the liability may be either a decrease or an increase, depending on the relative changes in projected rider fees and projected benefit payments.
Equity / interest rate correlation estimates the relationship between changes in equity returns and interest rates in the economic scenario generator used to value our GMWB embedded derivatives. In general, a higher positive correlation assumes that equity markets and interest rates move in a more correlated fashion, which generally increases the fair value of the liability.
Base lapse rate assumptions are determined by company experience and are adjusted at the contract level using a dynamic lapse function, which reduces the base lapse rate when the contract is in-the-money (when the contract holder’s guaranteed value, as estimated by the company, is worth more than their underlying account value). Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. Increases in assumed lapse rates will generally decrease the fair value of the liability, as fewer policyholders would persist to collect guaranteed withdrawal amounts.
Mortality rate assumptions, which vary by age and gender, are based on company experience and include a mortality improvement assumption. Increases in assumed mortality rates will decrease the fair value of the liability, while lower mortality rate assumptions will generally increase the fair value of the liability, because guaranteed payments will be made for a longer period of time.
Utilization assumptions estimate the timing when policyholders with a GMWB will elect to utilize their benefit and begin taking withdrawals. The assumptions may vary by the type of guarantee, tax-qualified status, the contract’s withdrawal history and the age of the policyholder. Utilization assumptions are based on company experience, which includes partial withdrawal behavior. Increases in assumed utilization rates will generally increase the fair value of the liability.
Option budget estimates the expected long-term cost of options used to hedge exposures associated with equity price changes. The level of option budgets determines future costs of the options, which impacts the growth in account value and the valuation of embedded derivatives.
Embedded derivatives within reinsurance contracts
The fair value of embedded derivatives associated with funds withheld reinsurance contracts is determined based upon a total return swap technique with reference to the fair value of the investments held by AIG related to AIG’s funds withheld payable. The fair value of the underlying assets is generally based on market observable inputs using industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy.
AIG | Second Quarter 2020 Form 10-Q 31
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
Investments in Certain Entities Carried at Fair Value Using Net Asset Value Per Share
The following table includes information related to our investments in certain other invested assets, including private equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring basis, we use the net asset value per share to measure fair value.
|
| June 30, 2020 |
| December 31, 2019 | ||||||
|
|
| Fair Value |
|
|
| Fair Value |
|
| |
|
|
| Using NAV |
|
|
| Using NAV |
|
| |
|
|
| Per Share (or |
| Unfunded |
| Per Share (or |
| Unfunded | |
(in millions) | Investment Category Includes |
| its equivalent) |
| Commitments |
| its equivalent) |
| Commitments | |
Investment Category |
|
|
|
|
|
|
|
|
|
|
Private equity funds: |
|
|
|
|
|
|
|
|
|
|
Leveraged buyout | Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired from the current shareholders, typically with the use of financial leverage | $ | 1,209 | $ | 1,489 |
| $ | 1,189 | $ | 1,543 |
|
|
|
|
|
|
|
|
|
|
|
Real Estate / Infrastructure | Investments in real estate properties and infrastructure positions, including power plants and other energy generating facilities |
| 395 |
| 445 |
|
| 400 |
| 290 |
|
|
|
|
|
|
|
|
|
|
|
Venture capital | Early-stage, high-potential, growth companies expected to generate a return through an eventual realization event, such as an initial public offering or sale of the company |
| 129 |
| 161 |
|
| 111 |
| 155 |
|
|
|
|
|
|
|
|
|
|
|
Growth Equity | Funds that make investments in established companies for the purpose of growing their businesses |
| 450 |
| 82 |
|
| 422 |
| 57 |
|
|
|
|
|
|
|
|
|
|
|
Mezzanine | Funds that make investments in the junior debt and equity securities of leveraged companies |
| 412 |
| 302 |
|
| 325 |
| 414 |
|
|
|
|
|
|
|
|
|
|
|
Other | Includes distressed funds that invest in securities of companies that are in default or under bankruptcy protection, as well as funds that have multi-strategy, and other strategies |
| 785 |
| 174 |
|
| 773 |
| 206 |
Total private equity funds |
| 3,380 |
| 2,653 |
|
| 3,220 |
| 2,665 | |
Hedge funds: |
|
|
|
|
|
|
|
|
|
|
Event-driven | Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations |
| 304 |
| - |
|
| 727 |
| - |
|
|
|
|
|
|
|
|
|
|
|
Long-short | Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk |
| 414 |
| - |
|
| 539 |
| - |
|
|
|
|
|
|
|
|
|
|
|
Macro | Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions |
| 737 |
| - |
|
| 894 |
| - |
|
|
|
|
|
|
|
|
|
|
|
Other | Includes investments held in funds that are less liquid, as well as other strategies which allow for broader allocation between public and private investments |
| 154 |
| 1 |
|
| 169 |
| 1 |
Total hedge funds |
|
| 1,609 |
| 1 |
|
| 2,329 |
| 1 |
Total |
| $ | 4,989 | $ | 2,654 |
| $ | 5,549 | $ | 2,666 |
Private equity fund investments included above are not redeemable, because distributions from the funds will be received when underlying investments of the funds are liquidated. Private equity funds are generally expected to have lives at their inception, but these lives may be extended at the fund manager’s discretion, typically in or increments.
The hedge fund investments included above, which are carried at fair value, are generally redeemable subject to the redemption notices period. The majority of our hedge fund investments are redeemable monthly or quarterly.
32 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
Fair Value Option
The following table presents the gains or losses recorded related to the eligible instruments for which we elected the fair value option:
| Gain (Loss) Three Months Ended June 30, | Gain (Loss) Six Months Ended June 30, | ||||||
| ||||||||
(in millions) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
Assets: |
|
|
|
|
|
|
|
|
Bonds | $ | 374 | $ | 283 | $ | 314 | $ | 638 |
Alternative investments(a) |
| (26) |
| 151 |
| (165) |
| 381 |
Liabilities: |
|
|
|
|
|
|
|
|
Long-term debt(b) |
| (18) |
| (93) |
| (221) |
| (153) |
Total gain (loss) | $ | 330 | $ | 341 | $ | (72) | $ | 866 |
(a)Includes certain hedge funds, private equity funds and other investment partnerships.
(b)Includes GIAs, notes, bonds and mortgages payable.
We calculate the effect of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, our observable credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted.
The following table presents the difference between fair value and the aggregate contractual principal amount of long-term debt for which the fair value option was elected:
| June 30, 2020 |
| December 31, 2019 | ||||||||||
|
|
| Outstanding |
|
|
|
|
| Outstanding |
|
| ||
(in millions) | Fair Value | Principal Amount | Difference |
| Fair Value | Principal Amount | Difference | ||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt* | $ | 2,181 | $ | 1,445 | $ | 736 |
| $ | 2,062 | $ | 1,502 | $ | 560 |
*Includes GIAs, notes, bonds, loans and mortgages payable.
FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS
The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the related impairment charges recorded during the periods presented:
| Assets at Fair Value |
| Impairment Charges | |||||||||||||||
| Non-Recurring Basis |
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 |
| Total |
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 | |||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments | $ | - | $ | - | $ | 160 | $ | 160 |
| $ | 37 | $ | 17 |
| $ | 48 | $ | 58 |
Other assets |
| - |
| - |
| - |
| - |
|
| - |
| 9 |
|
| 12 |
| 17 |
Total | $ | - | $ | - | $ | 160 | $ | 160 |
| $ | 37 | $ | 26 |
| $ | 60 | $ | 75 |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments | $ | - | $ | - | $ | 329 | $ | 329 |
|
|
|
|
|
|
|
|
|
|
Other assets |
| - |
| - |
| 1 |
| 1 |
|
|
|
|
|
|
|
|
|
|
Total | $ | - | $ | - | $ | 330 | $ | 330 |
|
|
|
|
|
|
|
|
|
|
AIG | Second Quarter 2020 Form 10-Q 33
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements
FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE
The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
| Estimated Fair Value |
| Carrying | |||||||
(in millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Value |
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Mortgage and other loans receivable | $ | - | $ | 100 | $ | 48,696 | $ | 48,796 | $ | 46,522 |
Other invested assets |
| - |
| 761 |
| 125 |
| 886 |
| 886 |
Short-term investments |
| - |
| 14,928 |
| - |
| 14,928 |
| 14,928 |
Cash |
| 3,408 |
| - |
| - |
| 3,408 |
| 3,408 |
Other assets |
| 188 |
| 59 |
| - |
| 247 |
| 247 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits associated |
|
|
|
|
|
|
|
|
|
|
with investment-type contracts |
| - |
| 234 |
| 139,805 |
| 140,039 |
| 127,344 |
Fortitude Re funds withheld payable |
| - |
| - |
| 37,523 |
| 37,523 |
| 37,523 |
Other liabilities |
| - |
| 3,086 |
| - |
| 3,086 |
| 3,086 |
Long-term debt and debt of consolidated investment entities |
| - |
| 31,467 |
| 9,045 |
| 40,512 |
| 37,099 |
Separate account liabilities - investment contracts |
| - |
| 84,443 |
| - |
| 84,443 |
| 84,443 |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Mortgage and other loans receivable | $ | - | $ | 101 | $ | 48,904 | $ | 49,005 | $ | 46,984 |
Other invested assets |
| - |
| 735 |
| 6 |
| 741 |
| 742 |
Short-term investments |
| - |
| 7,887 |
| - |
| 7,887 |
| 7,887 |
Cash |
| 2,856 |
| - |
| - |
| 2,856 |
| 2,856 |
Other assets |
| 291 |
| 20 |
| - |
| 311 |
| 311 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits associated |
|
|
|
|
|
|
|
|
|
|
with investment-type contracts |
| - |
| 255 |
| 132,991 |
| 133,246 |
| 126,137 |
Other liabilities |
| 15 |
| 3,048 |
| - |
| 3,063 |
| 3,063 |
Long-term debt and debt of consolidated investment entities |
| - |
| 27,024 |
| 8,883 |
| 35,907 |
| 33,288 |
Separate account liabilities - investment contracts |
| - |
| 88,770 |
| - |
| 88,770 |
| 88,770 |
34 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
5. Investments
Fixed Maturity Securities
Subsequent to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
Bonds held to maturity are carried at amortized cost when we have the ability and positive intent to hold these securities until maturity. When we do not have the ability or positive intent to hold bonds until maturity, these securities are classified as available for sale or are measured at fair value at our election.
Unrealized gains and losses from available for sale investments in fixed maturity securities carried at fair value were reported as a separate component of AOCI, net of policy related amounts and deferred income taxes, in shareholders’ equity. Realized and unrealized gains and losses from fixed maturity securities measured at fair value at our election are reflected in Net investment income. Investments in fixed maturity securities are recorded on a trade-date basis.
Interest income is recognized using the effective yield method and reflects amortization of premium and accretion of discount. Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield adjustments over their estimated holding periods, until maturity, or call date, if applicable. For investments in certain structured securities, recognized yields are updated based on current information regarding the timing and amount of expected undiscounted future cash flows. For high credit quality structured securities, effective yields are recalculated based on actual payments received and updated prepayment expectations, and the amortized cost is adjusted to the amount that would have existed had the new effective yield been applied since acquisition with a corresponding charge or credit to net investment income. For structured securities that are not high credit quality, the structured securities yields are based on expected cash flows which take into account both expected credit losses and prepayments.
An allowance for credit losses is not established upon initial recognition of the asset (unless the security is determined to be a PCD asset which is discussed in more detail below). Subsequently, differences between actual and expected cash flows and changes in expected cash flows are recognized as adjustments to the allowance for credit losses. Changes that cannot be reflected as adjustments to the allowance for credit losses are accounted for as prospective adjustments to yield.
Prior to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield adjustments over their estimated holding periods, until maturity, or call date, if applicable. For investments in certain RMBS, CMBS and CDO/ABS, (collectively, structured securities), recognized yields are updated based on current information regarding the timing and amount of expected undiscounted future cash flows. For high credit quality structured securities, effective yields are recalculated based on actual payments received and updated prepayment expectations, and the amortized cost is adjusted to the amount that would have existed had the new effective yield been applied since acquisition with a corresponding charge or credit to net investment income. For structured securities that are not high credit quality, effective yields are recalculated and adjusted prospectively based on changes in expected undiscounted future cash flows. For purchased credit impaired (PCI) securities, at acquisition, the difference between the undiscounted expected future cash flows and the recorded investment in the securities represents the initial accretable yield, which is to be accreted into net investment income over the securities’ remaining lives on an effective level-yield basis. Subsequently, effective yields recognized on PCI securities are recalculated and adjusted prospectively to reflect changes in the contractual benchmark interest rates on variable rate securities and any significant increases in undiscounted expected future cash flows arising due to reasons other than interest rate changes.
AIG | Second Quarter 2020 Form 10-Q 35
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Securities Available for Sale
The following table presents the amortized cost or cost and fair value of our available for sale securities:
|
| Amortized |
| Allowance |
| Gross |
| Gross |
|
|
|
| Cost or |
| for Credit |
| Unrealized |
| Unrealized |
| Fair |
(in millions) |
| Cost |
| Losses(a) |
| Gains |
| Losses |
| Value |
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities | $ | 3,940 | $ | - | $ | 878 | $ | (16) | $ | 4,802 |
Obligations of states, municipalities and political subdivisions |
| 13,934 |
| - |
| 2,082 |
| (20) |
| 15,996 |
Non-U.S. governments |
| 13,757 |
| (17) |
| 971 |
| (103) |
| 14,608 |
Corporate debt |
| 142,616 |
| (145) |
| 15,872 |
| (1,578) |
| 156,765 |
Mortgage-backed, asset-backed and collateralized: |
|
|
|
|
|
|
|
|
|
|
RMBS |
| 30,453 |
| (36) |
| 2,846 |
| (151) |
| 33,112 |
CMBS |
| 14,294 |
| - |
| 841 |
| (136) |
| 14,999 |
CDO/ABS |
| 18,351 |
| - |
| 296 |
| (424) |
| 18,223 |
Total mortgage-backed, asset-backed and collateralized |
| 63,098 |
| (36) |
| 3,983 |
| (711) |
| 66,334 |
Total bonds available for sale(c) | $ | 237,345 | $ | (198) | $ | 23,786 | $ | (2,428) | $ | 258,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other-Than- |
|
| Amortized |
| Gross |
| Gross |
|
|
| Temporary |
|
| Cost or |
| Unrealized |
| Unrealized |
| Fair |
| Impairments |
(in millions) |
| Cost |
| Gains |
| Losses |
| Value |
| in AOCI(b) |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities | $ | 5,108 | $ | 316 | $ | (44) | $ | 5,380 | $ | - |
Obligations of states, municipalities and political subdivisions |
| 13,960 |
| 1,390 |
| (32) |
| 15,318 |
| - |
Non-U.S. governments |
| 14,042 |
| 884 |
| (57) |
| 14,869 |
| (18) |
Corporate debt |
| 138,046 |
| 12,090 |
| (500) |
| 149,636 |
| 7 |
Mortgage-backed, asset-backed and collateralized: |
|
|
|
|
|
|
|
|
|
|
RMBS |
| 29,802 |
| 3,067 |
| (64) |
| 32,805 |
| 1,149 |
CMBS |
| 13,879 |
| 576 |
| (25) |
| 14,430 |
| 34 |
CDO/ABS |
| 18,393 |
| 348 |
| (93) |
| 18,648 |
| 14 |
Total mortgage-backed, asset-backed and collateralized |
| 62,074 |
| 3,991 |
| (182) |
| 65,883 |
| 1,197 |
Total bonds available for sale(c) | $ | 233,230 | $ | 18,671 | $ | (815) | $ | 251,086 | $ | 1,186 |
(a)Represents the allowance for credit losses that has been recognized. Changes in the allowance for credit losses are recorded through the statements of income and are not recognized in other comprehensive income.
(b)Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income (AOCI). Amount includes unrealized gains and losses on impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.
(c)At June 30, 2020 and December 31, 2019, bonds available for sale held by us that were below investment grade or not rated totaled $27.0 billion and $27.8 billion, respectively.
36 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Securities Available for Sale in a Loss Position for Which No Allowance for Credit Loss Has Been Recorded
The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position for which no allowance for credit loss has been recorded:
| Less than 12 Months |
| 12 Months or More |
| Total | |||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross |
|
| Fair |
| Unrealized |
|
| Fair |
| Unrealized |
|
| Fair |
| Unrealized |
(in millions) |
| Value |
| Losses |
|
| Value |
| Losses |
|
| Value |
| Losses |
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities | $ | 129 | $ | 16 |
| $ | - | $ | - |
| $ | 129 | $ | 16 |
Obligations of states, municipalities and political |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions |
| 337 |
| 14 |
|
| 112 |
| 6 |
|
| 449 |
| 20 |
Non-U.S. governments |
| 1,649 |
| 52 |
|
| 207 |
| 47 |
|
| 1,856 |
| 99 |
Corporate debt |
| 22,363 |
| 1,109 |
|
| 1,083 |
| 222 |
|
| 23,446 |
| 1,331 |
RMBS |
| 3,927 |
| 77 |
|
| 256 |
| 26 |
|
| 4,183 |
| 103 |
CMBS |
| 2,588 |
| 128 |
|
| 98 |
| 8 |
|
| 2,686 |
| 136 |
CDO/ABS |
| 8,171 |
| 288 |
|
| 3,086 |
| 136 |
|
| 11,257 |
| 424 |
Total bonds available for sale | $ | 39,164 | $ | 1,684 |
| $ | 4,842 | $ | 445 |
| $ | 44,006 | $ | 2,129 |
Securities Available for Sale in a Loss Position
The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position:
| Less than 12 Months |
| 12 Months or More |
| Total | |||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross |
|
| Fair |
| Unrealized |
|
| Fair |
| Unrealized |
|
| Fair |
| Unrealized |
(in millions) |
| Value |
| Losses |
|
| Value |
| Losses |
|
| Value |
| Losses |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities | $ | 1,461 | $ | 44 |
| $ | 63 | $ | - |
| $ | 1,524 | $ | 44 |
Obligations of states, municipalities and political |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions |
| 672 |
| 21 |
|
| 246 |
| 11 |
|
| 918 |
| 32 |
Non-U.S. governments |
| 1,105 |
| 12 |
|
| 343 |
| 45 |
|
| 1,448 |
| 57 |
Corporate debt |
| 11,868 |
| 319 |
|
| 2,405 |
| 181 |
|
| 14,273 |
| 500 |
RMBS |
| 3,428 |
| 28 |
|
| 1,367 |
| 36 |
|
| 4,795 |
| 64 |
CMBS |
| 1,877 |
| 16 |
|
| 367 |
| 9 |
|
| 2,244 |
| 25 |
CDO/ABS |
| 3,920 |
| 53 |
|
| 2,571 |
| 40 |
|
| 6,491 |
| 93 |
Total bonds available for sale | $ | 24,331 | $ | 493 |
| $ | 7,362 | $ | 322 |
| $ | 31,693 | $ | 815 |
At June 30, 2020, we held 8,189 individual fixed maturity securities that were in an unrealized loss position and for which no allowance for credit losses has been recorded (including 967 individual fixed maturity securities that were in a continuous unrealized loss position for 12 months or more). At December 31, 2019, we held 5,695 individual fixed maturity securities that were in an unrealized loss position, of which 1,254 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more. We did not recognize the unrealized losses in earnings on these fixed maturity securities at June 30, 2020 because it was determined that such losses were due to non-credit factors. Additionally, we neither intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, liquidity position, expected defaults, industry and sector analysis, forecasts and available market data.
AIG | Second Quarter 2020 Form 10-Q 37
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Contractual Maturities of Fixed Maturity Securities Available for Sale
The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual maturity:
| Total Fixed Maturity Securities | |||
| Available for Sale | |||
|
| Amortized Cost, |
|
|
(in millions) |
| Net of Allowance |
| Fair Value |
June 30, 2020 |
|
|
|
|
Due in one year or less | $ | 10,776 | $ | 10,903 |
Due after one year through five years |
| 41,602 |
| 42,617 |
Due after five years through ten years |
| 40,483 |
| 43,482 |
Due after ten years |
| 81,224 |
| 95,169 |
Mortgage-backed, asset-backed and collateralized |
| 63,062 |
| 66,334 |
Total | $ | 237,147 | $ | 258,505 |
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.
The following table presents the gross realized gains and gross realized losses from sales or maturities of our available for sale securities:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
|
| 2020 |
| 2019 | 2020 |
| 2019 | |||||||||
|
| Gross |
| Gross |
| Gross |
| Gross |
| Gross |
| Gross |
| Gross |
| Gross |
| Realized | Realized | Realized | Realized | Realized | Realized | Realized | Realized | ||||||||
(in millions) |
| Gains |
| Losses |
| Gains |
| Losses |
| Gains |
| Losses |
| Gains |
| Losses |
Fixed maturity securities | $ | 541 | $ | 392 | $ | 173 | $ | 86 | $ | 921 | $ | 558 | $ | 266 | $ | 210 |
For the three- and six-month periods ended June 30, 2020, the aggregate fair value of available for sale securities sold was $6.7 billion and $13.9 billion, respectively, which resulted in net realized capital gains (losses) of $149 million and $363 million, respectively. Included within the net realized capital gains (losses) are $122 million of realized capital gains for the three- and six-month periods ended June 30, 2020, which relate to the Fortitude Re funds withheld assets held by AIG in support of Fortitude Re’s reinsurance obligations to AIG (Fortitude Re funds withheld assets) for the period after deconsolidation of Fortitude Re. These realized capital gains are included in Net realized capital gains (losses) on Fortitude Re funds withheld assets.
For the three- and six-month periods ended June 30, 2019, the aggregate fair value of available for sale securities sold was $6.4 billion and $12.8 billion, respectively, which resulted in net realized capital gains of $87 million and $56 million, respectively.
Other Securities Measured at Fair Value
The following table presents the fair value of fixed maturity securities measured at fair value based on our election of the fair value option and equity securities measured at fair value:
|
| June 30, 2020 |
|
|
| December 31, 2019 |
| ||
|
| Fair | Percent |
|
|
| Fair | Percent |
|
(in millions) |
| Value | of Total |
|
|
| Value | of Total |
|
Fixed maturity securities: |
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities | $ | 1,912 | 31 | % |
| $ | 2,121 | 28 | % |
Corporate debt |
| 11 | - |
|
|
| 18 | - |
|
Mortgage-backed, asset-backed and collateralized: |
|
|
|
|
|
|
|
|
|
RMBS |
| 510 | 9 |
|
|
| 489 | 7 |
|
CMBS |
| 303 | 5 |
|
|
| 322 | 4 |
|
CDO/ABS and other collateralized |
| 2,701 | 44 |
|
|
| 3,732 | 50 |
|
Total mortgage-backed, asset-backed and collateralized |
| 3,514 | 58 |
|
|
| 4,543 | 61 |
|
Total fixed maturity securities |
| 5,437 | 89 |
|
|
| 6,682 | 89 |
|
Equity securities |
| 679 | 11 |
|
|
| 841 | 11 |
|
Total | $ | 6,116 | 100 | % |
| $ | 7,523 | 100 | % |
38 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Other Invested Assets
The following table summarizes the carrying amounts of other invested assets:
|
| June 30, |
| December 31, |
(in millions) |
| 2020 |
| 2019 |
Alternative investments(a) (b) | $ | 7,987 | $ | 8,845 |
Investment real estate(c) |
| 8,164 |
| 8,491 |
All other investments(d) |
| 1,541 |
| 1,456 |
Total | $ | 17,692 | $ | 18,792 |
(a)At June 30, 2020, included hedge funds of $2.2 billion, private equity funds of $5.5 billion and affordable housing partnerships of $279 million. At December 31, 2019, included hedge funds of $3.3 billion, private equity funds of $5.2 billion and affordable housing partnerships of $331 million.
(b)At June 30, 2020, approximately 77 percent of our hedge fund portfolio is available for redemption in 2020. The remaining 23 percent will be available for redemption between 2021 and 2027.
(c)Net of accumulated depreciation of $749 million and $703 million at June 30, 2020 and December 31, 2019, respectively.
(d)Includes AIG’s 3.5 percent ownership interest in Fortitude Holdings which is recorded using the measurement alternative for equity securities and is carried at cost, which was $100 million as of June 30, 2020.
Net Investment Income
The following table presents the components of Net investment income:
| Three Months Ended |
| Six Months Ended | ||||||
| June 30, |
| June 30, | ||||||
(in millions) |
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
Available for sale fixed maturity securities, including short-term investments | $ | 2,588 | $ | 2,701 |
| $ | 5,197 | $ | 5,354 |
Other fixed maturity securities(a) |
| 374 |
| 281 |
|
| 314 |
| 608 |
Equity securities |
| 56 |
| (22) |
|
| (135) |
| 57 |
Interest on mortgage and other loans |
| 498 |
| 518 |
|
| 1,011 |
| 1,016 |
Alternative investments(b) |
| (73) |
| 345 |
|
| (132) |
| 764 |
Real estate |
| 61 |
| 62 |
|
| 120 |
| 131 |
Other investments(c) |
| 1 |
| (8) |
|
| (214) |
| (60) |
Total investment income |
| 3,505 |
| 3,877 |
|
| 6,161 |
| 7,870 |
Investment expenses |
| 139 |
| 132 |
|
| 287 |
| 246 |
Net investment income(d) | $ | 3,366 | $ | 3,745 |
| $ | 5,874 | $ | 7,624 |
(a)Included in the three- and six-month periods ended June 30, 2020 were income of $29 million and $198 million, respectively, related to fixed maturity securities measured at fair value that economically hedge liabilities described in (c) below. Included in the three- and six-month periods ended June 30, 2019 were income of $21 million and $49 million, respectively, for fixed maturity securities measured at fair value through income that economically hedge liabilities as described in (c) below.
(b)Included income from hedge funds, private equity funds and affordable housing partnerships. Hedge funds are recorded as of the balance sheet date. Private equity funds are generally reported on a one-quarter lag.
(c)Included in the three- and six-month periods ended June 30, 2020 were losses of $13 million and $215 million, respectively, related to liabilities measured at fair value that are economically hedged with fixed maturity securities as described in (a) above. Included in the three- and six-month periods ended June 30, 2019 were losses of $31 million and $46 million, respectively, related to liabilities measured at fair value that are economically hedged with fixed maturity securities as described in (a) above.
(d)Included in both the three- and six-month periods ended June 30, 2020 was $116 million of Net investment income from Fortitude Re funds withheld assets. For additional information on the Fortitude Re transaction, see Note 7 to the Condensed Consolidated Financial Statements
AIG | Second Quarter 2020 Form 10-Q 39
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Net Realized Capital Gains and Losses
Net realized capital gains and losses are determined by specific identification. The net realized capital gains and losses are generated primarily from the following sources:
Sales or full redemptions of available for sale fixed maturity securities, real estate and other alternative investments.
Reductions to the amortized cost basis of available for sale fixed maturity securities that have been written down due to our intent to sell them or it being more likely than not that we will be required to sell them.
Changes in the allowance for credit losses on bonds available for sale, mortgage and other loans receivable, and loans commitments.
Changes in fair value of derivatives except for those instruments that are designated as hedging instruments when the change in the fair value of the hedged item is not reported in Net realized capital gains (losses).
Foreign exchange gains and losses resulting from foreign currency transactions.
Changes in fair value of the embedded derivative related to the Fortitude Re funds withheld assets.
The following table presents the components of Net realized capital gains (losses):
| Three Months Ended |
| Six Months Ended | |||||||
| June 30, |
| June 30, | |||||||
(in millions) |
| 2020 |
| 2019 |
|
| 2020 |
|
| 2019 |
Sales of fixed maturity securities | $ | 27 | $ | 87 |
| $ | 241 |
| $ | 56 |
Other-than-temporary impairments |
| - |
| (30) |
|
| - |
|
| (113) |
Change in intent(a) |
| (3) |
| - |
|
| (3) |
|
| - |
Change in allowance for credit losses on fixed maturity securities(b) |
| (24) |
| - |
|
| (222) |
|
| - |
Change in allowance for credit losses on loans(b) |
| (22) |
| 14 |
|
| (60) |
|
| (10) |
Foreign exchange transactions |
| 44 |
| (2) |
|
| (210) |
|
| (39) |
Variable annuity embedded derivatives, net of related hedges |
| (1,010) |
| (40) |
|
| 1,182 |
|
| (301) |
All other derivatives and hedge accounting |
| (568) |
| 207 |
|
| 991 |
|
| 135 |
Fortitude Re funds withheld assets(b) |
| (741) |
| - |
|
| (741) |
|
| - |
Other |
| (35) |
| 168 |
|
| 9 |
|
| 230 |
Net realized capital gains (losses) | $ | (2,332) | $ | 404 |
| $ | 1,187 |
| $ | (42) |
(a)For the three- and six-month periods ended June 30, 2019, the change in intent was included in Other-than-temporary impairments.
(b)The change in allowance for credit losses on fixed maturity securities excludes increases in the allowance of $5 million for the three- and six-month periods ended June 30, 2020, and the change in allowance for credit losses on loans excludes decreases in the allowance of $3 million for the three- and six-month periods ended June 30, 2020, which are reported in the Fortitude Re funds withheld assets line as these changes in the allowance relate to Fortitude Re funds withheld assets. For additional information on the Fortitude Re transaction, see Note 7 to the Condensed Consolidated Financial Statements.
40 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Change in Unrealized Appreciation (Depreciation) of Investments
The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale securities and other investments:
| Three Months Ended |
| Six Months Ended | ||||||
| June 30, |
| June 30, | ||||||
(in millions) |
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
Increase (decrease) in unrealized appreciation (depreciation) of investments: |
|
|
|
|
|
|
|
|
|
Fixed maturity securities | $ | 13,957 | $ | 5,906 |
| $ | 3,502 | $ | 11,888 |
Other investments |
| - |
| 1 |
|
| - |
| (68) |
Total increase (decrease) in unrealized appreciation (depreciation) of investments | $ | 13,957 | $ | 5,907 |
| $ | 3,502 | $ | 11,820 |
The following table summarizes the unrealized gains and losses recognized in Net Investment Income during the reporting period on equity securities still held at the reporting date:
Three Months Ended June 30, | 2020 |
| 2019 | ||||||||||
|
|
|
| Other |
|
|
|
|
|
| Other |
|
|
|
|
| Invested |
|
|
|
|
| Invested |
|
| ||
(in millions) |
| Equities |
| Assets |
| Total |
|
| Equities |
| Assets |
| Total |
Net gains and losses recognized during the period on equity securities | $ | 56 | $ | (71) | $ | (15) |
| $ | (22) | $ | 271 | $ | 249 |
Less: Net gains and losses recognized during the period on equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
securities sold during the period |
| 5 |
| 13 |
| 18 |
|
| (7) |
| 146 |
| 139 |
Unrealized gains and losses recognized during the reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
period on equity securities still held at the reporting date | $ | 51 | $ | (84) | $ | (33) |
| $ | (15) | $ | 125 | $ | 110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | 2020 |
| 2019 | ||||||||||
|
|
|
| Other |
|
|
|
|
|
| Other |
|
|
|
|
| Invested |
|
|
|
|
| Invested |
|
| ||
(in millions) |
| Equities |
| Assets |
| Total |
|
| Equities |
| Assets |
| Total |
Net gains and losses recognized during the period on equity securities | $ | (135) | $ | (200) | $ | (335) |
| $ | 57 | $ | 510 | $ | 567 |
Less: Net gains and losses recognized during the period on equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
securities sold during the period |
| 17 |
| 15 |
| 32 |
|
| 12 |
| 156 |
| 168 |
Unrealized gains and losses recognized during the reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
period on equity securities still held at the reporting date | $ | (152) | $ | (215) | $ | (367) |
| $ | 45 | $ | 354 | $ | 399 |
AIG | Second Quarter 2020 Form 10-Q 41
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Evaluating Investments for AN ALLOWANCE FOR CREDIT LOSSES/OTHER-than-TEMPORARY IMPAIRMENTS
Fixed Maturity Securities
Subsequent to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized capital losses. No allowance is established in these situations and any previously recorded allowance is reversed. The new cost basis is not adjusted for subsequent increases in estimated fair value. When assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing.
For fixed maturity securities for which a decline in the fair value below the amortized cost is due to credit related factors, an allowance is established for the difference between the estimated recoverable value and amortized cost with a corresponding charge to realized capital losses. The allowance for credit losses is limited to the difference between amortized cost and fair value. The estimated recoverable value is the present value of cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost that is not associated with credit related factors is presented in unrealized appreciation (depreciation) of fixed maturity securities on which an allowance for credit losses were recognized (a separate component of accumulated other comprehensive income). Accrued interest is excluded from the measurement of the allowance for credit losses.
When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS) management considers the historical performance of underlying assets and available market information as well as bond-specific structural considerations, such as credit enhancement and the priority of payment structure of the security. In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs, which vary by asset class:
Current delinquency rates;
Expected default rates and the timing of such defaults;
Loss severity and the timing of any recovery; and
Expected prepayment speeds.
When estimating future cash flows for corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers:
Expected default rates and the timing of such defaults;
Loss severity and the timing of any recovery; and
Scenarios specific to the issuer and the security, which may also include estimates of outcomes of corporate restructurings, political and macroeconomic factors, stability and financial strength of the issuer, the value of any secondary sources of repayment and the disposition of assets.
We consider severe price declines in our assessment of potential credit impairments. We may also modify our model inputs when we determine that price movements in certain sectors are indicative of factors not captured by the cash flow models.
Credit losses are reassessed each period. The allowance for credit losses and the corresponding charge to realized capital losses can be reversed if conditions change, however, the allowance for credit losses will never be reduced below zero. When we determine that all or a portion of a fixed maturity security is uncollectable, the uncollectable amortized cost amount is written off with a corresponding reduction to the allowance for credit losses. If we collect cash flows that were previously written off the recovery is recognized by decreasing realized capital losses.
42 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Prior to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an other-than-temporary impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized capital losses. When assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing.
For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the estimated recoverable value with a corresponding charge to realized capital losses. The estimated recoverable value is the present value of cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost that is not related to a credit impairment is presented in unrealized appreciation (depreciation) of fixed maturity securities on which other-than-temporary credit impairments were recognized (a separate component of accumulated other comprehensive income).
We consider severe price declines in our assessment of potential credit impairments. We may also modify our model inputs when we determine that price movements in certain sectors are indicative of factors not captured by the cash flow models.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities that is not foreign exchange related, we prospectively accrete into earnings the difference between the new amortized cost and the expected undiscounted recoverable value over the remaining expected holding period of the security.
Credit Impairments
The following table presents a rollforward of the changes in allowance for credit losses on available for sale fixed maturity securities by major investment category:
| Three Months Ended June 30, 2020 |
| Six Months Ended June 30, 2020 | ||||||||||
|
|
|
| Non- |
|
|
|
|
|
| Non- |
|
|
(in millions) | Structured | Structured |
| Total |
| Structured | Structured |
| Total | ||||
Balance, beginning of period* | $ | 37 | $ | 174 | $ | 211 |
| $ | 7 | $ | - | $ | 7 |
Additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities for which allowance for credit losses were not |
|
|
|
|
|
|
|
|
|
|
|
|
|
previously recorded |
| 11 |
| 82 |
| 93 |
|
| 35 |
| 256 |
| 291 |
Purchases of available for sale debt securities accounted for |
|
|
|
|
|
|
|
|
|
|
|
|
|
as purchased credit deteriorated assets |
| 20 |
| - |
| 20 |
|
| 26 |
| - |
| 26 |
Accretion of available for sale debt securities accounted for |
|
|
|
|
|
|
|
|
|
|
|
|
|
as purchased credit deteriorated assets |
| 1 |
| - |
| 1 |
|
| 1 |
| - |
| 1 |
Reductions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold during the period |
| (1) |
| (5) |
| (6) |
|
| (1) |
| (5) |
| (6) |
Intent to sell security or more likely than not will be required to |
|
|
|
|
|
|
|
|
|
|
|
|
|
sell the security before recovery of its amortized cost basis |
| - |
| - |
| - |
|
| - |
| - |
| - |
Additional net increases or decreases to the allowance for |
|
|
|
|
|
|
|
|
|
|
|
|
|
credit losses on securities that had an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
in a previous period, for which there was no intent to sell |
|
|
|
|
|
|
|
|
|
|
|
|
|
before recovery amortized cost basis |
| (31) |
| (33) |
| (64) |
|
| (31) |
| (33) |
| (64) |
Write-offs charged against the allowance |
| - |
| (57) |
| (57) |
|
| - |
| (57) |
| (57) |
Recoveries of amounts previously written off |
| - |
| - |
| - |
|
| - |
| - |
| - |
Other |
| - |
| - |
| - |
|
| - |
| - |
| - |
Balance, end of period | $ | 37 | $ | 161 | $ | 198 |
| $ | 37 | $ | 161 | $ | 198 |
* The beginning balance incorporates the Day 1 gross up on PCD assets held as of January 1, 2020.
AIG | Second Quarter 2020 Form 10-Q 43
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in earnings for available for sale fixed maturity securities:
| Three Months Ended |
| Six Months Ended | ||
(in millions) | June 30, 2019 |
| June 30, 2019 | ||
Balance, beginning of period | $ | 53 |
| $ | - |
Increases due to: |
|
|
|
|
|
Credit impairments on new securities subject to impairment losses |
| 27 |
|
| 95 |
Additional credit impairments on previously impaired securities |
| - |
|
| 6 |
Reductions due to: |
|
|
|
|
|
Credit impaired securities fully disposed for which there was no |
|
|
|
|
|
prior intent or requirement to sell |
| (38) |
|
| (59) |
Accretion on securities previously impaired due to credit* |
| (8) |
|
| (8) |
Balance, end of period | $ | 34 |
| $ | 34 |
*Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time.
Purchased Credit Deteriorated/Impaired Securities
Subsequent to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
We purchase certain RMBS securities that have experienced more-than-insignificant deterioration in credit quality since origination. Subsequent to the adoption of the Financial Instruments Credit Losses Standard these are referred to as PCD assets. At the time of purchase an allowance is recognized for these PCD assets by adding it to the purchase price to arrive at the initial amortized cost. There is no credit loss expense recognized upon acquisition of a PCD asset. When determining the initial allowance for credit losses, management considers the historical performance of underlying assets and available market information as well as bond-specific structural considerations, such as credit enhancement and the priority of payment structure of the security. In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs:
Current delinquency rates;
Expected default rates and the timing of such defaults;
Loss severity and the timing of any recovery; and
Expected prepayment speeds.
Subsequent to the acquisition date, the PCD assets follow the same accounting as other structured securities that are not high credit quality.
During the three- and six-month periods ended June 30, 2020, we purchased certain securities which had more than insignificant credit deterioration since their origination. These PCD securities are held in the portfolio of bonds available for sale in their natural classes at June 30, 2020.
The following table presents a reconciliation of the purchase price to the unpaid principal balance at the acquisition date of the PCD securities that were purchased with credit deterioration during the six-month period ended June 30, 2020:
(in millions) | June 30, 2020 | |
Unpaid principal balance | $ | 644 |
Allowance for expected credit losses at acquisition |
| (26) |
Purchase (discount) premium |
| (149) |
Purchase price | $ | 469 |
44 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Prior to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both principal and interest. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining lives on an effective yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected future cash flows, which are discussed further below.
On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are recognized prospectively as adjustments to the accretable yield.
The following tables present information on our PCI securities, which are included in bonds available for sale as of December 31, 2019:
(in millions) | At Date of Acquisition | |
Contractually required payments (principal and interest) | $ | 35,139 |
Cash flows expected to be collected* |
| 28,720 |
Recorded investment in acquired securities |
| 19,382 |
*Represents undiscounted expected cash flows, including both principal and interest.
(in millions) |
| December 31, 2019 | ||
Outstanding principal balance |
|
| $ | 10,476 |
Amortized cost |
|
|
| 6,970 |
Fair value |
|
|
| 8,664 |
The following table presents activity for the accretable yield on PCI securities:
| Three Months Ended | Six Months Ended | |||
(in millions) | June 30, 2019 | June 30, 2019 | |||
Balance, beginning of period | $ | 6,801 |
| $ | 7,210 |
Newly purchased PCI securities |
| 1 |
|
| 13 |
Accretion |
| (151) |
|
| (323) |
Effect of changes in interest rate indices |
| (266) |
|
| (400) |
Net reclassification from (to) non-accretable difference, |
|
|
|
|
|
including effects of prepayments |
| 17 |
|
| (98) |
Balance, end of period | $ | 6,402 |
| $ | 6,402 |
AIG | Second Quarter 2020 Form 10-Q 45
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Pledged Investments
Secured Financing and Similar Arrangements
We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially similar securities. Our secured financing transactions also include those that involve the transfer of securities to financial institutions in exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us (pledged collateral) may be sold or repledged by the counterparties. These agreements are recorded at their contracted amounts plus accrued interest, other than those that are accounted for at fair value.
Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the securities transferred, respectively.
The following table presents the fair value of securities pledged to counterparties under secured financing transactions, including repurchase and securities lending agreements:
(in millions) |
| June 30, 2020 |
| December 31, 2019 |
Fixed maturity securities available for sale | $ | 3,019 | $ | 3,030 |
At June 30, 2020 and December 31, 2019, amounts borrowed under repurchase and securities lending agreements totaled $3.0 billion and $3.1 billion, respectively.
The following table presents the fair value of securities pledged under our repurchase agreements by collateral type and by remaining contractual maturity:
| Remaining Contractual Maturity of the Agreements | |||||||||||
(in millions) | Overnight and Continuous |
| up to 30 days |
| 31 - 90 days |
| 91 - 364 days |
| 365 days or greater |
| Total | |
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. governments | $ | 9 | $ | 16 | $ | - | $ | - | $ | - | $ | 25 |
Corporate debt |
| 57 |
| 110 |
| - |
| - |
| - |
| 167 |
Total | $ | 66 | $ | 126 | $ | - | $ | - | $ | - | $ | 192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. governments | $ | 2 | $ | 71 | $ | - | $ | - | $ | - | $ | 73 |
Corporate debt |
| 22 |
| 55 |
| 82 |
| - |
| - |
| 159 |
Total | $ | 24 | $ | 126 | $ | 82 | $ | - | $ | - | $ | 232 |
46 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
The following table presents the fair value of securities pledged under our securities lending agreements by collateral type and by remaining contractual maturity:
| Remaining Contractual Maturity of the Agreements | |||||||||||
(in millions) |
| Overnight and Continuous |
| up to 30 days |
| 31 - 90 days |
| 91 - 364 days |
| 365 days or greater |
| Total |
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, municipalities and political |
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions | $ | - | $ | 102 | $ | - | $ | - | $ | - | $ | 102 |
Corporate debt |
| - |
| 814 |
| 1,102 |
| 436 |
| - |
| 2,352 |
RMBS |
| - |
| 277 |
| - |
| 96 |
| - |
| 373 |
Total | $ | - | $ | 1,193 | $ | 1,102 | $ | 532 | $ | - | $ | 2,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, municipalities and political |
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions | $ | - | $ | - | $ | 386 | $ | - | $ | - | $ | 386 |
Corporate debt |
| - |
| 1,071 |
| 947 |
| - |
| - |
| 2,018 |
RMBS |
| - |
| - |
| - |
| 394 |
| - |
| 394 |
Total | $ | - | $ | 1,071 | $ | 1,333 | $ | 394 | $ | - | $ | 2,798 |
We also enter into agreements in which securities are purchased by us under agreements to resell (reverse repurchase agreements), which are accounted for as secured financing transactions and reported as short-term investments or other assets, depending on their terms. These agreements are recorded at their contracted resale amounts plus accrued interest, other than those that are accounted for at fair value. In all reverse repurchase transactions, we take possession of or obtain a security interest in the related securities, and we have the right to sell or repledge this collateral received.
The following table presents information on the fair value of securities pledged to us under reverse repurchase agreements:
(in millions) |
| June 30, 2020 |
| December 31, 2019 |
Securities collateral pledged to us | $ | 5,560 | $ | 2,567 |
Amount sold or repledged by us |
| - |
| 121 |
At June 30, 2020 and December 31, 2019, amounts loaned under reverse repurchase agreements totaled $5.5 billion and $2.6 billion, respectively.
We do not currently offset any secured financing transactions. All such transactions are collateralized and margined daily consistent with market standards and subject to enforceable master netting arrangements with rights of set off.
Insurance – Statutory and Other Deposits
The total carrying value of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities or other insurance-related arrangements, including certain annuity-related obligations and certain reinsurance contracts, was $10.8 billion and $8.7 billion at June 30, 2020 and December 31, 2019, respectively.
Other Pledges and Restrictions
Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the members to own stock in these FHLBs. We owned an aggregate of $198 million and $194 million of stock in FHLBs at June 30, 2020 and December 31, 2019, respectively. In addition, our subsidiaries have pledged securities available for sale and residential loans associated with borrowings and funding agreements from FHLBs, with a fair value of $5.9 billion and $1.9 billion, respectively, at June 30, 2020 and $4.3 billion and $1.8 billion, respectively, at December 31, 2019.
AIG | Second Quarter 2020 Form 10-Q 47
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments
Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade of our long-term debt ratings. The actual amount of collateral required to be posted to the counterparties in the event of such downgrades, and the aggregate amount of payments that we could be required to make, depend on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade. The fair value of securities pledged as collateral with respect to these obligations was approximately $1.5 billion at both June 30, 2020 and December 31, 2019. This collateral primarily consists of securities of the U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties.
Investments held in escrow accounts or otherwise subject to restriction as to their use were $460 million and $330 million, comprised of bonds available for sale and short term investments at June 30, 2020 and December 31, 2019, respectively.
Reinsurance transactions between AIG and Fortitude Re were structured as modified coinsurance (modco) and loss portfolio transfer arrangements with funds withheld. Following closing of the Majority Interest Fortitude Sale, a portion of the proceeds were contributed to AIG subsidiaries.
For further discussion on the sale of Fortitude Holdings see Note 1 and Note 7 to the Condensed Consolidated Financial Statements.
6. Lending Activities
Mortgage and other loans receivable include commercial mortgages, residential mortgages, life insurance policy loans, commercial loans, and other loans and notes receivable. Commercial mortgages, residential mortgages, commercial loans, and other loans and notes receivable are carried at unpaid principal balances less allowance for credit losses and plus or minus adjustments for the accretion or amortization of discount or premium. Interest income on such loans is accrued as earned.
Direct costs of originating commercial mortgages, commercial loans, and other loans and notes receivable, net of nonrefundable points and fees, are deferred and included in the carrying amount of the related receivables. The amount deferred is amortized to income as an adjustment to earnings using the interest method. Premiums and discounts on purchased residential mortgages are also amortized to income as an adjustment to earnings using the interest method.
Life insurance policy loans are carried at unpaid principal balances. There is no allowance for policy loans because these loans serve to reduce the death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender value of the policy.
Interest income is not accrued when payment of contractual principal and interest is not expected. Any cash received on impaired loans is generally recorded as a reduction of the current carrying amount of the loan. Accrual of interest income is generally resumed when delinquent contractual principal and interest is repaid or when a portion of the delinquent contractual payments are made and the ongoing required contractual payments have been made for an appropriate period. As of June 30, 2020, $9 million and $342 million of residential mortgage loans and commercial mortgage loans, respectively, were placed on nonaccrual status.
Accrued interest is presented separately and is included in on the Condensed Consolidated Balance Sheets. As of June 30, 2020, accrued interest receivable was $18 million and $137 million associated with residential mortgage loans and commercial mortgage loans, respectively.
A significant majority of commercial mortgages in the portfolio are non-recourse loans and, accordingly, the only guarantees are for specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for us to have cause to enforce the provisions of a guarantee on a commercial real estate or mortgage loan.
48 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6. Lending Activities
The following table presents the composition of Mortgage and other loans receivable, net:
| June 30, |
| December 31, | |
(in millions) |
| 2020 |
| 2019 |
Commercial mortgages(a) | $ | 36,535 | $ | 36,170 |
Residential mortgages |
| 6,046 |
| 6,683 |
Life insurance policy loans |
| 2,091 |
| 2,065 |
Commercial loans, other loans and notes receivable |
| 2,644 |
| 2,504 |
Total mortgage and other loans receivable |
| 47,316 |
| 47,422 |
Allowance for credit losses(b) |
| (794) |
| (438) |
Mortgage and other loans receivable, net | $ | 46,522 | $ | 46,984 |
(a)Commercial mortgages primarily represent loans for apartments, offices and retail properties, with exposures in New York and California representing the largest geographic concentrations (aggregating approximately 24 percent and 10 percent, respectively, at June 30, 2020 and 23 percent and 10 percent, respectively, at December 31, 2019).
(b)Does not include $58 million of expected credit loss liability at June 30, 2020 in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.
Nonperforming loans are generally those loans where payment of contractual principal or interest is more than 90 days past due. Nonperforming loans were not significant for any of the periods presented.
Credit Quality of Commercial Mortgages
The following table presents debt service coverage ratios(a) for commercial mortgages by year of vintage:
June 30, 2020 |
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|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Total |
>1.2X | $ | 933 | $ | 5,593 | $ | 6,051 | $ | 4,275 | $ | 5,172 | $ | 11,171 | $ | 33,195 |
1.00 - 1.20X |
| 116 |
| 331 |
| 511 |
| 372 |
| 161 |
| 1,419 |
| 2,910 |
<1.00X |
| - |
| 75 |
| - |
| 51 |
| - |
| 304 |
| 430 |
Total commercial mortgages | $ | 1,049 | $ | 5,999 | $ | 6,562 | $ | 4,698 | $ | 5,333 | $ | 12,894 | $ | 36,535 |
The following table presents loan-to-value ratios(b) for commercial mortgages by year of vintage:
June 30, 2020 |
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|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Total |
Less than 65% | $ | 923 | $ | 4,461 | $ | 4,615 | $ | 3,549 | $ | 4,067 | $ | 10,527 | $ | 28,142 |
65% to 75% |
| 126 |
| 1,493 |
| 1,947 |
| 1,012 |
| 932 |
| 1,806 |
| 7,316 |
76% to 80% |
| - |
| 45 |
| - |
| - |
| 26 |
| 305 |
| 376 |
Greater than 80% |
| - |
| - |
| - |
| 137 |
| 308 |
| 256 |
| 701 |
Total commercial mortgages | $ | 1,049 | $ | 5,999 | $ | 6,562 | $ | 4,698 | $ | 5,333 | $ | 12,894 | $ | 36,535 |
The following table presents debt service coverage ratios and loan-to-value ratios for commercial mortgages:
December 31, 2019 | Debt Service Coverage Ratios(a) | |||||||
(in millions) |
| >1.20X |
| 1.00X - 1.20X |
| <1.00X |
| Total |
Loan-to-Value Ratios(b) |
|
|
|
|
|
|
|
|
Less than 65% | $ | 23,013 | $ | 2,440 | $ | 245 | $ | 25,698 |
65% to 75% |
| 9,007 |
| 899 |
| 40 |
| 9,946 |
76% to 80% |
| 200 |
| 6 |
| - |
| 206 |
Greater than 80% |
| 184 |
| 2 |
| 134 |
| 320 |
Total commercial mortgages | $ | 32,404 | $ | 3,347 | $ | 419 | $ | 36,170 |
(a)The debt service coverage ratio compares a property’s net operating income to its debt service payments, including principal and interest. Our weighted average debt service coverage ratio was 2.1X at June 30, 2020 and 2.0X at December 31, 2019. The debt service coverage ratios have been updated within the last six months.
(b)The loan-to-value ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. Our weighted average loan-to-value ratio was 56 percent at both June 30, 2020 and December 31, 2019. The loan-to-value ratios have been updated within the last six months.
AIG | Second Quarter 2020 Form 10-Q 49
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6. Lending Activities
The following table presents the credit quality performance indicators for commercial mortgages:
| Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percent |
|
| of |
| Class |
|
| of |
| |||||||||||
(dollars in millions) | Loans |
| Apartments |
| Offices |
| Retail | Industrial |
| Hotel |
| Others |
| Total(c) | Total |
| ||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing | 699 |
| $ | 14,262 | $ | 10,484 | $ | 5,106 | $ | 3,578 | $ | 2,145 | $ | 435 | $ | 36,010 | 98 | % |
Restructured(a) | 5 |
|
| 1 |
| 85 |
| 50 |
| - |
| 86 |
| - |
| 222 | 1 |
|
90 days or less delinquent | 7 |
|
| 1 |
| 152 |
| 57 |
| - |
| 18 |
| - |
| 228 | 1 |
|
>90 days delinquent or in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
process of foreclosure | 3 |
|
| - |
| 75 |
| - |
| - |
| - |
| - |
| 75 | - |
|
Total(b) | 714 |
| $ | 14,264 | $ | 10,796 | $ | 5,213 | $ | 3,578 | $ | 2,249 | $ | 435 | $ | 36,535 | 100 | % |
Allowance for credit losses |
|
| $ | 134 | $ | 292 | $ | 154 | $ | 56 | $ | 25 | $ | 6 | $ | 667 | 2 | % |
December 31, 2019 |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Credit Quality Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In good standing | 736 |
| $ | 13,698 | $ | 10,553 | $ | 5,332 | $ | 3,663 | $ | 2,211 | $ | 522 | $ | 35,979 | 99 | % |
Restructured(a) | 3 |
|
| - |
| 89 |
| - |
| - |
| 101 |
| - |
| 190 | 1 |
|
90 days or less delinquent | 1 |
|
| 1 |
| - |
| - |
| - |
| - |
| - |
| 1 | - |
|
>90 days delinquent or in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
process of foreclosure | - |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - | - |
|
Total(b) | 740 |
| $ | 13,699 | $ | 10,642 | $ | 5,332 | $ | 3,663 | $ | 2,312 | $ | 522 | $ | 36,170 | 100 | % |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific |
|
| $ | - | $ | 2 | $ | 1 | $ | - | $ | 6 | $ | - | $ | 9 | - | % |
General |
|
|
| 81 |
| 153 |
| 44 |
| 30 |
| 14 |
| 5 |
| 327 | 1 |
|
Total allowance for credit losses |
|
| $ | 81 | $ | 155 | $ | 45 | $ | 30 | $ | 20 | $ | 5 | $ | 336 | 1 | % |
(a)Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. For additional discussion of troubled debt restructurings see Note 8 to the Consolidated Financial Statements in the 2019 Annual Report.
(b)Does not reflect allowance for credit losses.
(c)Our commercial mortgage loan portfolio is current as to payments of principal and interest, for both periods presented. There were no significant amounts of nonperforming commercial mortgages (defined as those loans where payment of contractual principal or interest is more than 90 days past due) during any of the periods presented.
The following table presents credit quality performance indicators for residential mortgages by year of vintage:
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Total |
FICO*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
780 and greater | $ | 233 | $ | 879 | $ | 477 | $ | 796 | $ | 865 | $ | 811 | $ | 4,061 |
720 - 779 |
| 283 |
| 458 |
| 148 |
| 224 |
| 257 |
| 240 |
| 1,610 |
660 - 719 |
| 8 |
| 71 |
| 39 |
| 53 |
| 63 |
| 81 |
| 315 |
600 - 659 |
| 1 |
| 7 |
| 7 |
| 8 |
| 6 |
| 15 |
| 44 |
Less than 600 |
| - |
| - |
| 1 |
| 2 |
| 3 |
| 10 |
| 16 |
Total residential mortgages | $ | 525 | $ | 1,415 | $ | 672 | $ | 1,083 | $ | 1,194 | $ | 1,157 | $ | 6,046 |
*Fair Isaac Corporation (FICO) is the credit quality indicator used to evaluate consumer credit risk for residential mortgage loan borrowers and have been updated within the last three months.
Methodology Used to Estimate the Allowance for Credit Losses
Subsequent to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
At the time of origination or purchase, an allowance for credit losses is established for mortgage and other loan receivables and is updated each reporting period. Changes in the allowance for credit losses are recorded in realized capital losses. This allowance reflects the risk of loss, even when that risk is remote, and reflects losses expected over the remaining contractual life of the loan. The allowance for credit losses considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts of future economic conditions. We revert to historical information when we determine that we can no longer reliably forecast future economic assumptions.
50 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6. Lending Activities
The allowances for the commercial mortgage loans and residential mortgage loans are estimated utilizing a probability of default and loss given default model. Loss rate factors are determined based on historical data and adjusted for current and forecasted information. The loss rates are applied based on individual loan attributes and considering such data points as loan-to-value ratios, FICO scores, and debt service coverage.
The estimate of credit losses also reflects management’s assumptions on certain macroeconomic factors that include, but are not limited to, gross domestic product growth, employment, inflation, housing price index, interest rates and credit spreads.
Accrued interest is excluded from the measurement of the allowance for credit losses and accrued interest is reversed through interest income once a loan is placed on nonaccrual.
When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance.
We also have off-balance sheet commitments related to our commercial mortgage loans. The liability for expected credit losses related to these commercial mortgage loan commitments is reported in Other liabilities in the Condensed Consolidated Balance Sheets. When a commitment is funded, we record a loan receivable and reclassify the liability for expected credit losses related to the commitment into loan allowance for expected credit losses. Other changes in the liability for expected credit losses on loan commitments are recorded in Net realized capital gains (losses) in the Condensed Consolidated Statements of Income.
Prior to the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020
Mortgage and other loans receivable are considered impaired when collection of all amounts due under contractual terms is not probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loan’s effective interest rate, ii) the loan’s observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent. Impairment of commercial mortgages is typically determined using the fair value of collateral while impairment of other loans is typically determined using the present value of cash flows or the loan’s observable market price. An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are established for incurred but not specifically identified impairments, based on statistical models primarily driven by past-due status, debt service coverage, loan-to-value ratio, property type and location, loan term, profile of the borrower and of the major property tenants, and loan seasoning. When all or a portion of a loan is deemed uncollectable, the uncollectable portion of the carrying amount of the loan is charged off against the allowance.
The following table presents a rollforward of the changes in the allowance for losses on Mortgage and other loans receivable(a):
Three Months Ended June 30, | 2020 |
| 2019 | |||||||||||
|
| Commercial |
| Other |
|
|
|
| Commercial |
|
| Other |
|
|
(in millions) |
| Mortgages |
| Loans |
| Total |
|
| Mortgages |
|
| Loans |
| Total |
Allowance, beginning of period | $ | 689 | $ | 98 | $ | 787 |
| $ | 323 |
| $ | 99 | $ | 422 |
Initial allowance upon CECL adoption |
| - |
| - |
| - |
|
| - |
|
| - |
| - |
Loans charged off |
| (12) |
| - |
| (12) |
|
| - |
|
| - |
| - |
Recoveries of loans previously charged off |
| - |
| - |
| - |
|
| - |
|
| - |
| - |
Net charge-offs |
| (12) |
| - |
| (12) |
|
| - |
|
| - |
| - |
Provision for loan losses |
| (10) |
| 29 |
| 19 |
|
| (13) |
|
| (2) |
| (15) |
Allowance, end of period | $ | 667 | $ | 127 | $ | 794 |
| $ | 310 | (b) | $ | 97 | $ | 407 |
Six Months Ended June 30, | 2020 |
| 2019 | |||||||||||
|
| Commercial |
| Other |
|
|
|
| Commercial |
|
| Other |
|
|
(in millions) |
| Mortgages |
| Loans |
| Total |
|
| Mortgages |
|
| Loans |
| Total |
Allowance, beginning of year | $ | 336 | $ | 102 | $ | 438 |
| $ | 318 |
| $ | 79 | $ | 397 |
Initial allowance upon CECL adoption |
| 311 |
| 7 |
| 318 |
|
| - |
|
| - |
| - |
Loans charged off |
| (12) |
| - |
| (12) |
|
| - |
|
| - |
| - |
Recoveries of loans previously charged off |
| - |
| - |
| - |
|
| - |
|
| - |
| - |
Net charge-offs |
| (12) |
| - |
| (12) |
|
| - |
|
| - |
| - |
Provision for loan losses |
| 32 |
| 18 |
| 50 |
|
| (8) |
|
| 18 |
| 10 |
Allowance, end of period | $ | 667 | $ | 127 | $ | 794 |
| $ | 310 | (b) | $ | 97 | $ | 407 |
(a)Does not include $58 million of expected credit loss liability at June 30, 2020 in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.
(b)The June 30, 2019 total allowance was calculated prior to the adoption of ASC 326 on January 1, 2020. Of the total allowance, $8 million relates to individually assessed credit losses on $173 million of commercial mortgages at June 30, 2019.
AIG | Second Quarter 2020 Form 10-Q 51
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6. Lending Activities
As a result of the COVID-19 crisis, including the significant global economic slowdown and general market decline, our expectations and models used to estimate the allowance for losses on commercial and residential mortgage loans have been updated to reflect the current economic environment. The full impact of COVID-19 on real estate valuations remains uncertain and we will continue to review our valuations as further information becomes available.
TROUBLED DEBT RESTRUCTURINGS
We modify loans to optimize their returns and improve their collectability, among other things. When we undertake such a modification with a borrower that is experiencing financial difficulty and the modification involves us granting a concession to the troubled debtor, the modification is a troubled debt restructuring (TDR). We assess whether a borrower is experiencing financial difficulty based on a variety of factors, including the borrower’s current default on any of its outstanding debt, the probability of a default on any of its debt in the foreseeable future without the modification, the insufficiency of the borrower’s forecasted cash flows to service any of its outstanding debt (including both principal and interest), and the borrower’s inability to access alternative third-party financing at an interest rate that would be reflective of current market conditions for a non-troubled debtor. Concessions granted may include extended maturity dates, interest rate changes, principal or interest forgiveness, payment deferrals and easing of loan covenants.
In response to the COVID-19 pandemic, there was an increase in the volume of loan modifications in our commercial mortgage, residential mortgage and leveraged loan portfolios. The COVID-19 related modifications were primarily in the form of short term payment deferrals (one to six months). Short-term payment deferrals are not considered a concession and therefore these modifications are not considered a TDR.
During the six-month period ended June 30, 2020, loans with a carrying value of $50 million were modified in TDRs. There were loans modified in TDRs during the six-month period ended June 30, 2019.
7. Reinsurance
In the ordinary course of business, our insurance companies may use both treaty and facultative reinsurance to minimize their net loss exposure to any single catastrophic loss event or to an accumulation of losses from a number of smaller events or to provide greater diversification of our businesses. In addition, our general insurance subsidiaries assume reinsurance from other insurance companies. We determine the portion of the incurred but not reported (IBNR) loss that will be recoverable under our reinsurance contracts by reference to the terms of the reinsurance protection purchased. This determination is necessarily based on the estimate of IBNR and accordingly, is subject to the same uncertainties as that estimate. Reinsurance assets include the balances due from reinsurance and insurance companies under the terms of our reinsurance agreements for paid and unpaid losses and loss adjustment expenses incurred, ceded unearned premiums and ceded future policy benefits for life and accident and health insurance contracts and benefits paid and unpaid. Amounts related to paid and unpaid losses and benefits and loss expenses with respect to these reinsurance agreements are substantially collateralized. We remain liable to the extent that our reinsurers do not meet their obligation under the reinsurance contracts, and as such, we regularly evaluate the financial condition of our reinsurers and monitor concentration of our credit risk. The estimation of the allowance for doubtful accounts requires judgment for which key inputs typically include historical trends regarding uncollectible balances, disputes and credit events as well as specific reviews of balances in dispute or subject to credit impairment.
Sale of Fortitude Holdings
On June 2, 2020, we completed the Majority Interest Fortitude Sale. AIG established 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 June 30, 2020, approximately $30.5 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.
52 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 7. Reinsurance
These reinsurance transactions between AIG and Fortitude Re were structured as modco and loss portfolio transfer arrangements with funds withheld (funds withheld). In modco and funds withheld arrangements, the investments supporting the reinsurance agreements, and which reflect the majority of the consideration that would be paid to the reinsurer for entering into the transaction, are withheld by, and therefore continue to reside on the balance sheet of, the ceding company (i.e., AIG) thereby creating an obligation for the ceding company to pay the reinsurer (i.e., Fortitude Re) at a later date. Additionally, as AIG maintains ownership of these investments, AIG will maintain its existing accounting for these assets (e.g., the changes in fair value of available for sale securities will be recognized within other comprehensive income). As a result of the deconsolidation resulting from the Majority Interest Fortitude Sale, AIG has established a funds withheld payable to Fortitude Re while simultaneously establishing a reinsurance asset representing reserves for the insurance coverage that Fortitude Re has assumed. The funds withheld payable contains an embedded derivative and changes in fair value of the embedded derivative related to the funds withheld payable are recognized in earnings through realized capital gains (losses). This embedded derivative is considered a total return swap with contractual returns that are attributable to various assets and liabilities associated with these reinsurance agreements.
There is a diverse pool of assets supporting the funds withheld arrangements with Fortitude Re. The following summarizes the composition of the pool of assets as of June 30, 2020:
June 30, 2020 |
| Carrying |
| Fair |
|
|
(in millions) |
| Value |
| Value |
| Corresponding Accounting Policy |
Fixed maturity securities - available for sale(a) | $ | 35,380 | $ | 35,380 |
| Fair value through other comprehensive income |
Fixed maturity securities - fair value option |
| 190 |
| 190 |
| Fair value through net investment income |
Commercial mortgage loans |
| 3,537 |
| 3,781 |
| Amortized cost |
Real estate investments |
| 385 |
| 600 |
| Amortized cost |
Private equity funds / hedge funds |
| 978 |
| 978 |
| Fair value through net investment income |
Policy loans |
| 431 |
| 431 |
| Amortized cost |
Derivative assets, net(b) |
| - |
| - |
| Fair value through realized capital gains (losses) |
Other |
| 640 |
| 640 |
| Amortized cost |
Total | $ | 41,541 | $ | 42,000 |
|
|
(a)The change in the net unrealized gains (losses) on available for sale securities related to the Fortitude Re funds withheld assets was $555 million ($438 million after-tax) during the post deconsolidation period (June 2, 2020-June 30, 2020).
(b)The derivative assets have been presented net of collateral. The derivative assets supporting the Fortitude Re funds withheld arrangements had a fair market value of $650 million as of June 30, 2020. These derivative assets are fully collateralized.
The impact of the funds withheld arrangements with Fortitude Re for the period post deconsolidation was as follows:
(in millions) |
|
|
Net underwriting income | $ | - |
Net investment income - Fortitude Re funds withheld assets |
| 116 |
Net realized capital losses on Fortitude Re funds withheld assets: |
|
|
Net realized capital gains - Fortitude Re funds withheld assets |
| 96 |
Net realized capital losses - Fortitude Re embedded derivatives |
| (837) |
Net realized capital losses on Fortitude Re funds withheld assets |
| (741) |
Loss from continuing operations before income tax benefit |
| (625) |
Income tax benefit(a) |
| (131) |
Net loss |
| (494) |
Change in unrealized appreciation of all other investments(a) |
| 438 |
Comprehensive loss | $ | (56) |
(a) The income tax expense (benefit) and the tax impact in accumulated other comprehensive income was computed using AIG’s U.S. statutory tax rate of 21 percent.
Various assets supporting the Fortitude Re funds withheld arrangements are reported at amortized cost, and as such, changes in the fair value of these assets are not reflected in the financial statements. However, changes in the fair value of these assets are included in the embedded derivative in the Fortitude Re funds withheld arrangements. During the period from June 2, 2020 to June 30, 2020, these assets appreciated by $56 million on a after-tax basis.
AIG | Second Quarter 2020 Form 10-Q 53
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 7. Reinsurance
Reinsurance — Credit Losses
The estimation of reinsurance recoverables involves a significant amount of judgment, particularly for latent exposures, such as asbestos, due to their long-tail nature. Reinsurance assets include reinsurance recoverables on unpaid losses and loss adjustment expenses that are estimated as part of our loss reserving process and, consequently, are subject to similar judgments and uncertainties as the estimation of gross loss reserves. Similarly, Other assets include reinsurance recoverables for contracts which are accounted for as deposits.
We assess the collectability of reinsurance recoverable balances in each reporting period, through either historical trends of disputes and credit events or financial analysis of the credit quality of the reinsurer. We record adjustments to reflect the results of these assessments through an allowance for credit losses and disputes on uncollectable reinsurance that reduces the carrying amount of reinsurance and other assets on the consolidated balance sheets (collectively, the reinsurance recoverable balances). This estimate requires significant judgment for which key considerations include:
paid and unpaid amounts recoverable;
whether the balance is in dispute or subject to legal collection;
the relative financial health of the reinsurer as determined by the Obligor Risk Ratings (ORRs) we assign to each reinsurer based upon our financial reviews; insurers that are financially troubled (i.e., in run-off, have voluntarily or involuntarily been placed in receivership, are insolvent, are in the process of liquidation or otherwise subject to formal or informal regulatory restriction) are assigned ORRs that will generate a significant allowance; and
whether collateral and collateral arrangements exist.
An estimate of the reinsurance recoverable’s lifetime expected credit losses is established utilizing a probability of default and loss given default method, which reflects the reinsurer’s ORR rating. The allowance for credit losses excludes disputed amounts. An allowance for disputes is established for a reinsurance recoverable using the losses incurred model for contingencies.
The total reinsurance recoverables as of June 30, 2020 were $77.6 billion. As of that date, utilizing AIG’s ORRs, (i) approximately 87 percent of the reinsurance recoverables were investment grade, of which 82 percent related to General Insurance and 5 percent related to Life and Retirement; (ii) approximately 12 percent of the reinsurance recoverables were non-investment grade, the majority of which related to General Insurance; (iii) less than percent of the non-investment grade reinsurance recoverables related to Life and Retirement and (iv) approximately percent of the reinsurance recoverables related to entities that were not rated by AIG.
As of June 30, 2020, approximately 74 percent of our non-investment grade reinsurance exposure related to captive insurers. These arrangements are typically collateralized by letters of credit, funds held or trust agreements.
Reinsurance Recoverable Allowance
The following table presents a rollforward of the reinsurance recoverable allowance:
| Three Months Ended |
| Six Months Ended | ||||||||||
| June 30, 2020 |
| June 30, 2020 | ||||||||||
|
| General |
| Life and |
|
|
|
| General |
| Life and |
|
|
(in millions) | Insurance | Retirement |
| Total |
| Insurance | Retirement |
| Total | ||||
Balance, beginning of period | $ | 302 | $ | 60 | $ | 362 |
| $ | 111 | $ | 40 | $ | 151 |
Initial allowance upon CECL adoption |
| - |
| - |
| - |
|
| 202 |
| 22 |
| 224 |
Current period provision for expected credit losses and disputes |
| 6 |
| 1 |
| 7 |
|
| 2 |
| 3 |
| 5 |
Write-offs charged against the allowance for credit losses and |
|
|
|
|
|
|
|
|
|
|
|
|
|
disputes |
| (2) |
| (1) |
| (3) |
|
| (5) |
| (5) |
| (10) |
Other changes |
| (1) |
| (1) |
| (2) |
|
| (5) |
| (1) |
| (6) |
Balance, end of period | $ | 305 | $ | 59 | $ | 364 |
| $ | 305 | $ | 59 | $ | 364 |
There were recoveries of credit losses previously written off for either of the three- and six-month periods ended June 30, 2020.
Past-Due Status
We consider a reinsurance asset to be past due when it is 90 days past due and record an allowance for disputes when there is reasonable uncertainty of the collectability of a disputed amount during the reporting period. Past due balances were not significant for any of the periods presented.
54 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 8. Variable Interest Entities
8. Variable Interest Entities
We enter into various arrangements with variable interest entities (VIEs) in the normal course of business and consolidate the VIEs when we determine we are the primary beneficiary. This analysis includes a review of the VIE’s capital structure, related contractual relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and our involvement with the entity. When assessing the need to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed to expose the variable interest holders to.
The primary beneficiary is the entity that has both (i) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of our decision-making ability and our ability to influence activities that significantly affect the economic performance of the VIE.
Balance Sheet Classification and Exposure to Loss
The following table presents the total assets and total liabilities associated with our variable interests in consolidated VIEs, as classified in the Condensed Consolidated Balance Sheets:
|
| Real Estate and |
|
|
| Affordable |
|
|
|
|
|
| Investment |
| Securitization |
| Housing |
|
|
|
|
(in millions) |
| Entities(d) |
| Vehicles(e) |
| Partnerships |
| Other |
| Total |
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Bonds available for sale | $ | - | $ | 6,313 | $ | - | $ | - | $ | 6,313 |
Other bond securities |
| - |
| 2,417 |
| - |
| 1 |
| 2,418 |
Mortgage and other loans receivable |
| - |
| 3,783 |
| - |
| - |
| 3,783 |
Other invested assets |
| 5,101 |
| - |
| 3,510 |
| 43 |
| 8,654 |
Other(a) |
| 560 |
| 1,645 |
| 509 |
| 41 |
| 2,755 |
Total assets(b) | $ | 5,661 | $ | 14,158 | $ | 4,019 | $ | 85 | $ | 23,923 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Long-term debt | $ | 2,558 | $ | 4,592 | $ | 2,251 | $ | 4 | $ | 9,405 |
Other(c) |
| 161 |
| 137 |
| 192 |
| 23 |
| 513 |
Total liabilities | $ | 2,719 | $ | 4,729 | $ | 2,443 | $ | 27 | $ | 9,918 |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Bonds available for sale | $ | 177 | $ | 7,239 | $ | - | $ | - | $ | 7,416 |
Other bond securities |
| - |
| 3,324 |
| - |
| 1 |
| 3,325 |
Mortgage and other loans receivable |
| - |
| 3,860 |
| - |
| - |
| 3,860 |
Other invested assets |
| 5,231 |
| - |
| 3,464 |
| 42 |
| 8,737 |
Other(a) |
| 615 |
| 1,996 |
| 469 |
| 42 |
| 3,122 |
Total assets(b) | $ | 6,023 | $ | 16,419 | $ | 3,933 | $ | 85 | $ | 26,460 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Long-term debt | $ | 2,810 | $ | 4,356 | $ | 2,074 | $ | 4 | $ | 9,244 |
Other(c) |
| 236 |
| 359 |
| 195 |
| 24 |
| 814 |
Total liabilities | $ | 3,046 | $ | 4,715 | $ | 2,269 | $ | 28 | $ | 10,058 |
(a)Comprised primarily of Short-term investments and Other assets at June 30, 2020 and December 31, 2019.
(b)The assets of each VIE can be used only to settle specific obligations of that VIE.
(c)Comprised primarily of Other liabilities at June 30, 2020 and December 31, 2019.
(d)At June 30, 2020 and December 31, 2019, off-balance sheet exposure primarily consisting of commitments to real estate and investment entities was $2.3 billion and $2.6 billion, respectively.
(e)At June 30, 2020 and December 31, 2019, the company had contributed total assets of $13.4 billion and $15.6 billion, respectively, into consolidated securitization vehicles.
AIG | Second Quarter 2020 Form 10-Q 55
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 8. Variable Interest Entities
We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as the referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by us generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to us, except in limited circumstances when we have provided a guarantee to the VIE’s interest holders.
The following table presents total assets of unconsolidated VIEs in which we hold a variable interest, as well as our maximum exposure to loss associated with these VIEs:
|
|
| Maximum Exposure to Loss | ||||||
|
| Total VIE |
| On-Balance |
| Off-Balance |
|
|
|
(in millions) |
| Assets |
| Sheet(b) |
| Sheet |
|
| Total |
June 30, 2020 |
|
|
|
|
|
|
|
|
|
Real estate and investment entities(a) | $ | 290,205 | $ | 5,625 | $ | 3,388 |
| $ | 9,013 |
Affordable housing partnerships |
| 3,094 |
| 396 |
| - |
|
| 396 |
Other |
| 6,483 |
| 346 |
| 562 | (c) |
| 908 |
Total | $ | 299,782 | $ | 6,367 | $ | 3,950 |
| $ | 10,317 |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
Real estate and investment entities(a) | $ | 283,349 | $ | 6,519 | $ | 3,286 |
| $ | 9,805 |
Affordable housing partnerships |
| 3,351 |
| 453 |
| - |
|
| 453 |
Other |
| 5,320 |
| 310 |
| 561 | (c) |
| 871 |
Total | $ | 292,020 | $ | 7,282 | $ | 3,847 |
| $ | 11,129 |
(a)Comprised primarily of hedge funds and private equity funds.
(b)At June 30, 2020 and December 31, 2019, $6.1 billion and $7.0 billion, respectively, of our total unconsolidated VIE assets were recorded as Other invested assets.
(c)These amounts represent our estimate of the maximum exposure to loss under certain insurance policies issued to VIEs if a hypothetical loss occurred to the extent of the full amount of the insured value. Our insurance policies cover defined risks and our estimate of liability is included in our insurance reserves on the balance sheet.
For additional information on VIEs see Note 11 to the Consolidated Financial Statements in the 2019 Annual Report.
56 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 9. Derivatives and Hedge Accounting
9. Derivatives and Hedge Accounting
We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment operations.
For a discussion of our accounting policies and procedures regarding derivatives and hedge accounting see Note 12 to the Consolidated Financial Statements in the 2019 Annual Report.
Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated with embedded derivatives contained in insurance contract liabilities, fixed maturity securities, outstanding medium- and long-term notes as well as other interest rate sensitive assets and liabilities. Foreign exchange derivatives (principally foreign exchange forwards and swaps) are used to economically mitigate risk associated with non-U.S. dollar denominated debt, net capital exposures, foreign currency transactions, and foreign denominated investments. Equity derivatives are used to mitigate financial risk embedded in certain insurance liabilities and economically hedge certain investments. We use credit derivatives to manage our credit exposures. The derivatives are effective economic hedges of the exposures that they are meant to offset.
In addition to hedging activities, we also enter into derivative instruments with respect to investment operations, which may include, among other things, credit default swaps (CDSs) and purchases of investments with embedded derivatives, such as equity-linked notes and convertible bonds.
The following table presents the notional amounts of our derivatives and the fair value of derivative assets and liabilities in the Condensed Consolidated Balance Sheets:
| June 30, 2020 |
| December 31, 2019 | ||||||||||||||||
| Gross Derivative Assets |
| Gross Derivative Liabilities |
| Gross Derivative Assets |
| Gross Derivative Liabilities | ||||||||||||
|
| Notional |
| Fair |
|
| Notional |
| Fair |
|
| Notional |
| Fair |
|
| Notional |
| Fair |
(in millions) |
| Amount |
| Value |
|
| Amount |
| Value |
|
| Amount |
| Value |
|
| Amount |
| Value |
Derivatives designated as |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
hedging instruments:(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts | $ | 735 | $ | 19 |
| $ | 294 | $ | 13 |
| $ | 495 | $ | 3 |
| $ | 410 | $ | 7 |
Foreign exchange contracts |
| 5,996 |
| 656 |
|
| 3,733 |
| 134 |
|
| 4,328 |
| 342 |
|
| 5,230 |
| 162 |
Derivatives not designated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as hedging instruments:(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| 67,839 |
| 5,661 |
|
| 39,796 |
| 4,602 |
|
| 52,437 |
| 3,197 |
|
| 35,231 |
| 2,742 |
Foreign exchange contracts |
| 11,100 |
| 1,313 |
|
| 10,290 |
| 529 |
|
| 8,133 |
| 698 |
|
| 12,093 |
| 863 |
Equity contracts |
| 21,898 |
| 1,033 |
|
| 7,229 |
| 212 |
|
| 18,533 |
| 769 |
|
| 7,539 |
| 139 |
Credit contracts(b) |
| 1,765 |
| 3 |
|
| 1,007 |
| 74 |
|
| 8,457 |
| 3 |
|
| 923 |
| 89 |
Other contracts(c) |
| 41,928 |
| 13 |
|
| 55 |
| 10 |
|
| 40,582 |
| 14 |
|
| 56 |
| 7 |
Total derivatives, gross | $ | 151,261 | $ | 8,698 |
| $ | 62,404 | $ | 5,574 |
| $ | 132,965 | $ | 5,026 |
| $ | 61,482 | $ | 4,009 |
Counterparty netting(d) |
|
|
| (3,977) |
|
|
|
| (3,977) |
|
|
|
| (2,427) |
|
|
|
| (2,427) |
Cash collateral(e) |
|
|
| (3,933) |
|
|
|
| (1,016) |
|
|
|
| (1,806) |
|
|
|
| (527) |
Total derivatives on condensed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated balance sheets(f) |
|
| $ | 788 |
|
|
| $ | 581 |
|
|
| $ | 793 |
|
|
| $ | 1,055 |
(a)Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(b)As of June 30, 2020 and December 31, 2019, included CDSs on super senior multi-sector CDOs with a net notional amount of $139 million and $152 million (fair value liability of $47 million and $48 million), respectively. The net notional amount represents the maximum exposure to loss on the portfolio.
(c)Consists primarily of stable value wraps and contracts with multiple underlying exposures.
(d)Represents netting of derivative exposures covered by a qualifying master netting agreement.
(e)Represents cash collateral posted and received that is eligible for netting.
(f)Freestanding derivatives only, excludes embedded derivatives. Derivative instrument assets and liabilities are recorded in Other assets and Other liabilities, respectively. Fair value of assets related to bifurcated embedded derivatives was at both June 30, 2020 and December 31, 2019. Fair value of liabilities related to bifurcated embedded derivatives was $13.7 billion and $6.9 billion, respectively, at June 30, 2020 and December 31, 2019. A bifurcated embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in variable annuity products, which include equity and interest rate components, and the funds withheld arrangement with Fortitude Re. For additional information see Note 7 herein.
AIG | Second Quarter 2020 Form 10-Q 57
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 9. Derivatives and Hedge Accounting
Collateral
We engage in derivative transactions that are not subject to a clearing requirement directly with unaffiliated third parties, in most cases, under International Swaps and Derivatives Association, Inc. (ISDA) Master Agreements. Many of the ISDA Master Agreements also include Credit Support Annex provisions, which provide for collateral postings that may vary at various ratings and threshold levels. We attempt to reduce our risk with certain counterparties by entering into agreements that enable collateral to be obtained from a counterparty on an upfront or contingent basis. We minimize the risk that counterparties might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value and generally requiring additional collateral to be posted upon the occurrence of certain events or circumstances. In addition, certain derivative transactions have provisions that require collateral to be posted upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate the transaction. In the case of some of the derivative transactions, upon a downgrade of our long-term debt ratings, as an alternative to posting collateral and subject to certain conditions, we may assign the transaction to an obligor with higher debt ratings or arrange for a substitute guarantee of our obligations by an obligor with higher debt ratings or take other similar action. The actual amount of collateral required to be posted to counterparties in the event of such downgrades, or the aggregate amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade.
Collateral posted by us to third parties for derivative transactions was $2.6 billion at June 30, 2020 and $2.2 billion at December 31, 2019. In the case of collateral posted under derivative transactions that are not subject to clearing, this collateral can generally be repledged or resold by the counterparties. Collateral provided to us from third parties for derivative transactions was $4.1 billion and $2.2 billion at June 30, 2020 and December 31, 2019, respectively. In the case of collateral provided to us under derivative transactions that are not subject to clearing, we generally can repledge or resell collateral.
Offsetting
We have elected to present all derivative receivables and derivative payables, and the related cash collateral received and paid, on a net basis on our Condensed Consolidated Balance Sheets when a legally enforceable ISDA Master Agreement exists between us and our derivative counterparty. An ISDA Master Agreement is an agreement governing multiple derivative transactions between two counterparties. The ISDA Master Agreement generally provides for the net settlement of all, or a specified group, of these derivative transactions, as well as transferred collateral, through a single payment, and in a single currency, as applicable. The net settlement provisions apply in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions governed by the ISDA Master Agreement.
Hedge Accounting
We designated certain derivatives entered into with third parties as fair value hedges of available for sale investment securities held by our insurance subsidiaries. The fair value hedges include foreign currency forwards and cross currency swaps designated as hedges of the change in fair value of foreign currency denominated available for sale securities attributable to changes in foreign exchange rates. We also designated certain interest rate swaps entered into with third parties as fair value hedges of fixed rate GICs attributable to changes in benchmark interest rates.
We use foreign currency denominated debt and cross-currency swaps as hedging instruments in net investment hedge relationships to mitigate the foreign exchange risk associated with our non-U.S. dollar functional currency foreign subsidiaries. For net investment hedge relationships where issued debt is used as a hedging instrument, we assess the hedge effectiveness and measure the amount of ineffectiveness based on changes in spot rates. For net investment hedge relationships that use derivatives as hedging instruments, we assess hedge effectiveness and measure hedge ineffectiveness using changes in forward rates. For the three- and six-month periods ended June 30, 2020, we recognized gains of $3 million and $102 million, respectively, and for the three- and six-month periods ended June 30, 2019, we recognized gains (losses) of $(7) million and $57 million, respectively, included in Change in foreign currency translation adjustment in Other comprehensive income related to the net investment hedge relationships.
A qualitative methodology is utilized to assess hedge effectiveness for net investment hedges, while regression analysis is employed for all other hedges.
58 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 9. Derivatives and Hedge Accounting
The following table presents the gain (loss) recognized in earnings on our derivative instruments in fair value hedging relationships in the Condensed Consolidated Statements of Income:
| Gains/(Losses) Recognized in Earnings for: |
|
|
| |||||
| Hedging | Excluded | Hedged |
|
|
| |||
(in millions) | Derivatives(a) | Components(b) | Items |
| Net Impact | ||||
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
| |
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances | $ | 1 | $ | - | $ | (3) |
| $ | (2) |
Net investment income |
| (4) |
| - |
| 3 |
|
| (1) |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
Realized capital gains/(losses) |
| (132) |
| (76) |
| 132 |
|
| (76) |
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
| |
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances | $ | 9 | $ | - | $ | (9) |
| $ | - |
Net investment income |
| - |
| - |
| - |
|
| - |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
Realized capital gains/(losses) |
| 58 |
| 57 |
| (58) |
|
| 57 |
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
| |
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances | $ | 18 | $ | - | $ | (20) |
| $ | (2) |
Net investment income |
| (7) |
| - |
| 6 |
|
| (1) |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
Realized capital gains/(losses) |
| 173 |
| 205 |
| (173) |
|
| 205 |
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
| |
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances | $ | 14 | $ | - | $ | (14) |
| $ | - |
Net investment income |
| (1) |
| - |
| 1 |
|
| - |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
Realized capital gains/(losses) |
| 50 |
| 43 |
| (50) |
|
| 43 |
(a)Gains and losses on derivative instruments designated and qualifying in fair value hedges that are included in the assessment of hedge effectiveness.
(b)Gains and losses on derivative instruments designated and qualifying in fair value hedges that are excluded from the assessment of hedge effectiveness and recognized in earnings on a mark-to-market basis.
AIG | Second Quarter 2020 Form 10-Q 59
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 9. Derivatives and Hedge Accounting
Derivatives Not Designated as Hedging Instruments
The following table presents the effect of derivative instruments not designated as hedging instruments in the Condensed Consolidated Statements of Income:
| Gains (Losses) Recognized in Earnings | ||||||||
| Three Months Ended |
| Six Months Ended | ||||||
| June 30, |
| June 30, | ||||||
(in millions) |
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
By Derivative Type: |
|
|
|
|
|
|
|
|
|
Interest rate contracts | $ | (7) | $ | 615 |
| $ | 2,566 | $ | 974 |
Foreign exchange contracts |
| (124) |
| 231 |
|
| 901 |
| 203 |
Equity contracts |
| (471) |
| 89 |
|
| 632 |
| (119) |
Credit contracts |
| (66) |
| 17 |
|
| 56 |
| 9 |
Other contracts |
| 16 |
| 18 |
|
| 26 |
| 34 |
Embedded derivatives |
| (1,774) |
| (832) |
|
| (2,826) |
| (1,281) |
Total | $ | (2,426) | $ | 138 |
| $ | 1,355 | $ | (180) |
By Classification: |
|
|
|
|
|
|
|
|
|
Policy fees | $ | 15 | $ | 18 |
| $ | 30 | $ | 35 |
Net investment income |
| (1) |
| (50) |
|
| (3) |
| (55) |
Net realized capital gains (losses) - excluding |
|
|
|
|
|
|
|
|
|
Fortitude Re funds withheld assets |
| (1,579) |
| 165 |
|
| 2,173 |
| (169) |
Net realized capital gains (losses) on Fortitude Re |
|
|
|
|
|
|
|
|
|
funds withheld assets |
| (863) |
| - |
|
| (863) |
| - |
Policyholder benefits and claims incurred |
| 2 |
| 5 |
|
| 18 |
| 9 |
Total | $ | (2,426) | $ | 138 |
| $ | 1,355 | $ | (180) |
CREDIT RISK-RELATED CONTINGENT FEATURES
We estimate that at June 30, 2020, based on our outstanding financial derivative transactions, a downgrade of our long-term senior debt ratings to BBB or BBB– by Standard & Poor’s Financial Services LLC, a subsidiary of S&P Global Inc., and/or a downgrade to Baa2 or Baa3 by Moody’s Investors’ Service, Inc. would permit counterparties to make additional collateral calls and permit certain counterparties to elect early termination of contracts, resulting in corresponding collateral postings and termination payments in the total amount of up to approximately $46 million. The aggregate fair value of our derivatives that were in a net liability position and that contain such credit risk-related contingencies which can be triggered below our long-term senior debt ratings of BBB+ or Baa1 was approximately $261 million and $336 million at June 30, 2020 and December 31, 2019, respectively. The aggregate fair value of assets posted as collateral under these contracts at June 30, 2020 and December 31, 2019, was approximately $308 million and $381 million, respectively.
Hybrid Securities with Embedded Credit Derivatives
We invest in hybrid securities (such as credit-linked notes) with the intent of generating income, and not specifically to acquire exposure to embedded derivative risk. As is the case with our other investments in RMBS, CMBS, CDOs and ABS, our investments in these hybrid securities are exposed to losses only up to the amount of our initial investment in the hybrid security. Other than our initial investment in the hybrid securities, we have no further obligation to make payments on the embedded credit derivatives in the related hybrid securities.
We elect to account for our investments in these hybrid securities with embedded written credit derivatives at fair value, with changes in fair value recognized in Net investment income and Other income. Our investments in these hybrid securities are reported as Other bond securities in the Condensed Consolidated Balance Sheets. The fair values of these hybrid securities were $2.4 billion and $3.3 billion at June 30, 2020 and December 31, 2019, respectively. These securities have par amounts of $5.2 billion and $7.4 billion at June 30, 2020 and December 31, 2019, respectively, and have remaining stated maturity dates that extend to 2052.
60 AIG | Second Quarter 2020 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 10. Insurance Liabilities
10. Insurance Liabilities
Liability for Unpaid Losses and Loss Adjustment Expenses (Loss Reserves)
Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses, less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Any adjustments resulting from this review are reflected currently in pre-tax income, except to the extent such adjustment impacts a deferred gain under a retroactive reinsurance agreement, in which case the ceded portion would be amortized into pre-tax income in subsequent periods. Because these estimates are subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed. Given the uncertainties around the impact from the COVID-19 crisis, including the significant global economic slowdown and general market decline, the full impact of COVID-19 and how it may ultimately impact the results of our insurance operations remains uncertain. In addition, in response to the crisis, new governmental, legislative and regulatory initiatives have been put in place and continue to be developed that could result in additional restrictions and requirements relating to our policies that may have a negative impact on our business operations. However, we have recorded our estimate of the ultimate liability for claims that have occurred as of the balance sheet date associated with COVID-19 which reflects our expectations given the current facts and circumstances. We will continue to monitor and review the impact. Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are referred to as favorable development.
Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from policyholders of approximately $12.3 billion and $12.2 billion at June 30, 2020 and December 31, 2019, respectively. These recoverable amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through self-insured retentions, deductibles, retrospective programs, or captive arrangements, each referred to generically as “deductibles”), primarily for U.S. commercial casualty business. With respect to the deductible portion of the claim, we manage and pay the entire claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. Thus, these recoverable amounts represent a credit exposure to us. At June 30, 2020 and December 31, 2019, we held collateral of approximately $9.1 billion and $8.9 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust agreements. Allowance for credit losses for the unsecured portion of these recoverable amounts was $14 million at June 30, 2020.
AIG | Second Quarter 2020 Form 10-Q 61
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 10. Insurance Liabilities
The following table presents the roll-forward of activity in Loss Reserves:
| Three Months Ended |
| Six Months Ended | ||||||
| June 30, |
| June 30, | ||||||
(in millions) |
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
Liability for unpaid loss and loss adjustment expenses, beginning of period | $ | 77,747 | $ | 82,496 |
| $ | 78,328 | $ | 83,639 |
Reinsurance recoverable |
| (31,114) |
| (31,784) |
|
| (31,069) |
| (31,690) |
Initial allowance upon CECL adoption |
| - |
| - |
|
| 164 |
| - |
Net Liability for unpaid loss and loss adjustment expenses, beginning of period |
| 46,633 |
| 50,712 |
|
| 47,423 |
| 51,949 |
Losses and loss adjustment expenses incurred: |
|
|
|
|
|
|
|
|
|
Current year |
| 4,248 |
| 4,272 |
|
| 8,359 |
| 8,569 |
Prior years, excluding discount and amortization of deferred gain |
| (25) |
| (132) |
|
| (26) |
| (147) |
Prior years, discount charge (benefit) |
| 34 |
| 244 |
|
| 110 |
| 741 |
Prior years, amortization of deferred gain on retroactive reinsurance(a) |
| (76) |
| (56) |
|
| (151) |
| (142) |
Total losses and loss adjustment expenses incurred |
| 4,181 |
| 4,328 |
|
| 8,292 |
| 9,021 |
Losses and loss adjustment expenses paid: |
|
|
|
|
|
|
|
|
|
Current year |
| (910) |
| (1,060) |
|
| (1,252) |
| (1,377) |
Prior years |
| (3,790) |
| (4,127) |
|
| (8,141) |
| (9,766) |
Total losses and loss adjustment expenses paid |
| (4,700) |
| (5,187) |
|
| (9,393) |
| (11,143) |
Other changes: |
|
|
|
|
|
|
|
|
|
Foreign exchange effect |
| (39) |
| (209) |
|
| (269) |
| 7 |
Allowance for credit losses |
| - |
| - |
|
| - |
| - |
Retroactive reinsurance adjustment (net of discount)(b) |
| 138 |
| 80 |
|
| 160 |
| (110) |
Fortitude sale and reinsurance adjustment(c) |
| (3,818) |
| - |
|
| (3,818) |
| - |
Total other changes |
| (3,719) |
| (129) |
|
| (3,927) |
| (103) |
Liability for unpaid loss and loss adjustment expenses, end of period: |
|
|
|
|
|
|
|
|
|
Net liability for unpaid losses and loss adjustment expenses |
| 42,395 |
| 49,724 |
|
| 42,395 |
| 49,724 |
Reinsurance recoverable |
| 35,458 |
| 31,333 |
|
| 35,458 |
| 31,333 |
Total | $ | 77,853 | $ | 81,057 |
| $ | 77,853 | $ | 81,057 |