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AMERICAN INTERNATIONAL GROUP, INC. - Quarter Report: 2021 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

 

Commission File Number 1-8787

 

Picture 2

American International Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

13-2592361

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1271 Avenue of the Americas, New York, New York

10020

(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

5.75% Series A-2 Junior Subordinated Debentures

AIG 67BP

New York Stock Exchange

4.875% Series A-3 Junior Subordinated Debentures

AIG 67EU

New York Stock Exchange

Stock Purchase Rights

 

New York Stock Exchange

Depositary Shares Each Representing a 1/1,000th Interest in a Share of Series A 5.85% Non-Cumulative Perpetual Preferred Stock

AIG PRA

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

 

Accelerated filer

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

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

 

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

 

As of November 1, 2021, there were 830,297,608 shares outstanding of the registrant’s common stock.

 

 

 


 

AMERICAN INTERNATIONAL GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

September 30, 2021

Table of Contents

FORM 10-Q

 

Item Number

Description

Page

Part I – Financial Information

 

ITEM 1

Financial Statements

2

 

Note 1.

Basis of Presentation

9

 

Note 2.

Summary of Significant Accounting Policies

12

 

Note 3.

Segment Information

14

 

Note 4.

Fair Value Measurements

17

 

Note 5.

Investments

34

 

Note 6.

Lending Activities

44

 

Note 7.

Reinsurance

48

 

Note 8.

Variable Interest Entities

51

 

Note 9.

Derivatives and Hedge Accounting

53

 

Note 10.

Insurance Liabilities

57

 

Note 11.

Contingencies, Commitments and Guarantees

61

 

Note 12.

Equity

63

 

Note 13.

Earnings Per Common Share (EPS)

69

 

Note 14.

Employee Benefits

70

 

Note 15.

Income Taxes

71

 

Note 16.

Subsequent Events

74

ITEM 2

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

75

 

Cautionary Statement Regarding Forward-Looking Information

75

 

Use of Non-GAAP Measures

78

 

Critical Accounting Estimates

80

 

Executive Summary

81

 

Consolidated Results of Operations

93

 

Business Segment Operations

99

 

Investments

134

 

Insurance Reserves

145

 

Liquidity and Capital Resources

160

 

Enterprise Risk Management

170

 

Regulatory Environment

171

 

Glossary

172

 

Acronyms

175

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

176

ITEM 4

Controls and Procedures

176

Part II – Other Information

 

ITEM 1

Legal Proceedings

177

ITEM 1A

Risk Factors

177

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

177

ITEM 4

Mine Safety Disclosures

177

ITEM 6

Exhibits

178

Signatures

179

AIG | Third Quarter 2021 Form 10-Q 1

 


TABLE OF CONTENTS

 

 

 

Part I – Financial Information

Item 1. | Financial Statements

American International Group, Inc.

Condensed Consolidated Balance Sheets (unaudited)

 

September 30,

December 31,

(in millions, except for share data)

 

2021

 

2020

Assets:

 

 

 

 

Investments:

 

 

 

 

Fixed maturity securities:

 

 

 

 

Bonds available for sale, at fair value, net of allowance for credit losses of $66 in 2021 and $186 in 2020

 

 

 

 

(amortized cost: 2021 - $254,925; 2020 - $244,337)*

$

274,341

$

271,496

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

 

4,651

 

5,291

Equity securities, at fair value (See Note 5)*

 

1,035

 

1,056

Mortgage and other loans receivable, net of allowance for credit losses of $641 in 2021 and $814 in 2020*

 

45,821

 

45,562

Other invested assets (portion measured at fair value: 2021 - $10,037; 2020 - $8,422)*

 

15,977

 

19,060

Short-term investments, including restricted cash of $77 in 2021 and $180 in 2020

 

 

 

 

(portion measured at fair value: 2021 - $5,640; 2020 - $5,968)*

 

13,771

 

18,203

Total investments

 

355,596

 

360,668

 

 

 

 

 

Cash*

 

2,699

 

2,827

Accrued investment income*

 

2,312

 

2,271

Premiums and other receivables, net of allowance for credit losses and disputes of $194 in 2021 and $205 in 2020

 

13,593

 

11,333

Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes of $0 in 2021 and $0 in 2020

 

33,694

 

34,578

Reinsurance assets - other, net of allowance for credit losses and disputes of $339 in 2021 and $326 in 2020

 

41,062

 

38,963

Deferred income taxes

 

12,385

 

12,624

Deferred policy acquisition costs

 

10,607

 

9,805

Other assets, net of allowance for credit losses of $49 in 2021 and $49 in 2020, including restricted cash of $58 in 2021

 

 

 

 

and $223 in 2020 (portion measured at fair value: 2021 - $998; 2020 - $887)*

 

17,429

 

13,122

Separate account assets, at fair value

 

105,423

 

100,290

Total assets

$

594,800

$

586,481

Liabilities:

 

 

 

 

Liability for unpaid losses and loss adjustment expenses, including allowance for credit losses of $14 in 2021 and $14 in 2020

$

79,274

$

77,720

Unearned premiums

 

21,245

 

18,660

Future policy benefits for life and accident and health insurance contracts

 

57,777

 

56,878

Policyholder contract deposits (portion measured at fair value: 2021 - $9,273; 2020 - $9,798)

 

156,623

 

154,470

Other policyholder funds

 

3,542

 

3,548

Fortitude Re funds withheld payable (portion measured at fair value: 2021 - $5,433; 2020 - $6,042)

 

40,888

 

43,060

Other liabilities (portion measured at fair value: 2021 - $703; 2020 - $570)*

 

32,819

 

27,122

Long-term debt (portion measured at fair value: 2021 - $1,964; 2020 - $2,097)

 

24,582

 

28,103

Debt of consolidated investment entities*

 

6,968

 

9,431

Separate account liabilities

 

105,423

 

100,290

Total liabilities

 

529,141

 

519,282

Contingencies, commitments and guarantees (See Note 11)

 

nil

 

nil

 

 

 

 

 

AIG shareholders’ equity:

 

 

 

 

Series A non-cumulative preferred stock and additional paid in capital, $5.00 par value; 100,000,000 shares

 

 

 

 

authorized; shares issued: 2021 - 20,000 and 2020 - 20,000; liquidation preference $500

 

485

 

485

Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2021 - 1,906,671,492 and

 

 

 

 

2020 - 1,906,671,492

 

4,766

 

4,766

Treasury stock, at cost; 2021 - 1,070,875,441 shares; 2020 - 1,045,113,443 shares of common stock

 

(50,641)

 

(49,322)

Additional paid-in capital

 

81,327

 

81,418

Retained earnings

 

20,320

 

15,504

Accumulated other comprehensive income

 

8,606

 

13,511

Total AIG shareholders’ equity

 

64,863

 

66,362

Non-redeemable noncontrolling interests

 

796

 

837

Total equity

 

65,659

 

67,199

Total liabilities and equity

$

594,800

$

586,481

* See Note 8 for details of balances associated with variable interest entities.

See accompanying Notes to Condensed Consolidated Financial Statements.

2 AIG | Third Quarter 2021 Form 10-Q


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Income (Loss) (unaudited)

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

(dollars in millions, except per common share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Premiums

$

7,504

 

$

6,677

 

$

21,925

 

$

21,527

Policy fees

 

714

 

 

648

 

 

2,269

 

 

2,152

Net investment income:

 

 

 

 

 

 

 

 

 

 

 

Net investment income - excluding Fortitude Re funds withheld assets

 

3,220

 

 

3,342

 

 

9,559

 

 

9,100

Net investment income - Fortitude Re funds withheld assets

 

495

 

 

458

 

 

1,488

 

 

574

Total net investment income

 

3,715

 

 

3,800

 

 

11,047

 

 

9,674

Net realized gains (losses):

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

assets and embedded derivative

 

679

 

 

(498)

 

 

1,331

 

 

1,430

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

 

190

 

 

32

 

 

536

 

 

128

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

 

 

 

 

 

 

 

 

 

 

 

derivative

 

(209)

 

 

(656)

 

 

117

 

 

(1,493)

Total net realized gains (losses)

 

660

 

 

(1,122)

 

 

1,984

 

 

65

Other income

 

242

 

 

218

 

 

745

 

 

642

Total revenues

 

12,835

 

 

10,221

 

 

37,970

 

 

34,060

Benefits, losses and expenses:

 

 

 

 

 

 

 

 

 

 

 

Policyholder benefits and losses incurred

 

5,959

 

 

5,872

 

 

17,182

 

 

18,718

Interest credited to policyholder account balances

 

923

 

 

882

 

 

2,663

 

 

2,757

Amortization of deferred policy acquisition costs

 

1,260

 

 

707

 

 

3,479

 

 

3,323

General operating and other expenses

 

2,240

 

 

1,991

 

 

6,546

 

 

6,231

Interest expense

 

328

 

 

379

 

 

1,008

 

 

1,099

(Gain) loss on extinguishment of debt

 

51

 

 

(2)

 

 

149

 

 

15

Net (gain) loss on divestitures

 

(102)

 

 

24

 

 

(108)

 

 

8,652

Total benefits, losses and expenses

 

10,659

 

 

9,853

 

 

30,919

 

 

40,795

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

 

2,176

 

 

368

 

 

7,051

 

 

(6,735)

Income tax expense (benefit)

 

439

 

 

74

 

 

1,234

 

 

(918)

Income (loss) from continuing operations

 

1,737

 

 

294

 

 

5,817

 

 

(5,817)

Income from discontinued operations, net of income taxes

 

-

 

 

5

 

 

-

 

 

4

Net income (loss)

 

1,737

 

 

299

 

 

5,817

 

 

(5,813)

Less:

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

70

 

 

11

 

 

175

 

 

78

Net income (loss) attributable to AIG

 

1,667

 

 

288

 

 

5,642

 

 

(5,891)

Less: Dividends on preferred stock

 

7

 

 

7

 

 

22

 

 

22

Net income (loss) attributable to AIG common shareholders

$

1,660

 

$

281

 

$

5,620

 

$

(5,913)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

1.95

 

$

0.31

 

$

6.53

 

$

(6.80)

Income (loss) from discontinued operations

$

-

 

$

0.01

 

$

-

 

$

-

Net income (loss) attributable to AIG common shareholders

$

1.95

 

$

0.32

 

$

6.53

 

$

(6.80)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

1.92

 

$

0.31

 

$

6.45

 

$

(6.80)

Income (loss) from discontinued operations

$

-

 

$

0.01

 

$

-

 

$

-

Net income (loss) attributable to AIG common shareholders

$

1.92

 

$

0.32

 

$

6.45

 

$

(6.80)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

852,765,263

 

 

867,713,308

 

 

861,211,983

 

 

869,627,926

Diluted

 

864,019,494

 

 

873,130,950

 

 

871,002,018

 

 

869,627,926

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | Third Quarter 2021 Form 10-Q 3

 


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(in millions)

 

 

2021

 

 

2020

 

 

2021

 

 

2020

Net income (loss)

 

$

1,737

 

$

299

 

$

5,817

 

$

(5,813)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

which allowance for credit losses was taken

 

 

12

 

 

79

 

 

49

 

 

(154)

Change in unrealized appreciation (depreciation) of all other investments

 

 

(1,510)

 

 

1,385

 

 

(4,999)

 

 

5,925

Change in foreign currency translation adjustments

 

 

(135)

 

 

352

 

 

4

 

 

206

Change in retirement plan liabilities adjustment

 

 

31

 

 

(1)

 

 

42

 

 

1

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

 

 

 

 

 

 

 

 

 

 

 

 

own credit risk

 

 

-

 

 

1

 

 

(1)

 

 

2

Other comprehensive income (loss)

 

 

(1,602)

 

 

1,816

 

 

(4,905)

 

 

5,980

Comprehensive income

 

 

135

 

 

2,115

 

 

912

 

 

167

Comprehensive income attributable to noncontrolling interests

 

 

71

 

 

18

 

 

175

 

 

62

Comprehensive income attributable to AIG

 

$

64

 

$

2,097

 

$

737

 

$

105

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4 AIG | Third Quarter 2021 Form 10-Q


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Equity (unaudited)

 

 

Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

Accumulated

 

Total AIG

 

redeemable

 

 

 

Additional

 

 

 

 

 

Additional

 

 

 

Other

 

Share-

 

Non-

 

 

 

 

Paid-in

 

Common

 

Treasury

 

Paid-in

 

Retained

Comprehensive

 

holders'

 

controlling

 

Total

(in millions)

 

Capital

 

Stock

 

Stock

 

Capital

 

Earnings

Income (Loss)

 

Equity

 

Interests

 

Equity

Three Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

$

485

$

4,766

$

(49,634)

$

81,322

$

18,935

$

10,209

$

66,083

$

825

$

66,908

Common stock issued under stock plans

 

-

 

-

 

24

 

(19)

 

-

 

-

 

5

 

-

 

5

Purchase of common stock

 

-

 

-

 

(1,030)

 

(29)

 

-

 

-

 

(1,059)

 

-

 

(1,059)

Net income attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

1,667

 

-

 

1,667

 

70

 

1,737

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

(7)

 

-

 

(7)

 

-

 

(7)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(269)

 

-

 

(269)

 

-

 

(269)

Other comprehensive income (loss)

 

-

 

-

 

-

 

-

 

-

 

(1,603)

 

(1,603)

 

1

 

(1,602)

Net decrease due to divestitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and acquisitions

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(8)

 

(8)

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1

 

1

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(98)

 

(98)

Other

 

-

 

-

 

(1)

 

53

 

(6)

 

-

 

46

 

5

 

51

Balance, end of period

$

485

$

4,766

$

(50,641)

$

81,327

$

20,320

$

8,606

$

64,863

$

796

$

65,659

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

$

485

$

4,766

$

(49,327)

$

81,294

$

15,847

$

9,169

$

62,234

$

584

$

62,818

Common stock issued under stock plans

 

-

 

-

 

-

 

(1)

 

-

 

-

 

(1)

 

-

 

(1)

Purchase of common stock

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Net income attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

288

 

-

 

288

 

11

 

299

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

(7)

 

-

 

(7)

 

-

 

(7)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(276)

 

-

 

(276)

 

-

 

(276)

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

1,809

 

1,809

 

7

 

1,816

Net decrease due to divestitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and acquisitions

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(28)

 

(28)

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(71)

 

(71)

Other

 

-

 

-

 

-

 

75

 

(14)

 

-

 

61

 

(4)

 

57

Balance, end of period

$

485

$

4,766

$

(49,327)

$

81,368

$

15,838

$

10,978

$

64,108

$

499

$

64,607

AIG | Third Quarter 2021 Form 10-Q 5

 


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Equity (unaudited)(continued)

 

 

Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

Accumulated

 

Total AIG

 

redeemable

 

 

 

Additional

 

 

 

 

 

Additional

 

 

 

Other

 

Share-

 

Non-

 

 

 

 

Paid-in

 

Common

 

Treasury

 

Paid-in

 

Retained

Comprehensive

 

holders'

 

controlling

 

Total

(in millions)

 

Capital

 

Stock

 

Stock

 

Capital

 

Earnings

Income

 

Equity

 

Interests

 

Equity

Nine Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

485

$

4,766

$

(49,322)

$

81,418

$

15,504

$

13,511

$

66,362

$

837

$

67,199

Common stock issued under stock plans

 

-

 

-

 

202

 

(279)

 

-

 

-

 

(77)

 

-

 

(77)

Purchase of common stock

 

-

 

-

 

(1,622)

 

(29)

 

-

 

-

 

(1,651)

 

-

 

(1,651)

Net income attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

5,642

 

-

 

5,642

 

175

 

5,817

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

(22)

 

-

 

(22)

 

-

 

(22)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(819)

 

-

 

(819)

 

-

 

(819)

Other comprehensive loss

 

-

 

-

 

-

 

-

 

-

 

(4,905)

 

(4,905)

 

-

 

(4,905)

Net increase due to divestitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and acquisitions

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

50

 

50

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

8

 

8

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(279)

 

(279)

Other

 

-

 

-

 

101

 

217

 

15

 

-

 

333

 

5

 

338

Balance, end of period

$

485

$

4,766

$

(50,641)

$

81,327

$

20,320

$

8,606

$

64,863

$

796

$

65,659

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

485

$

4,766

$

(48,987)

$

81,345

$

23,084

$

4,982

$

65,675

$

1,752

$

67,427

Cumulative effect of change in accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

principle, net of tax

 

-

 

-

 

-

 

-

 

(487)

 

-

 

(487)

 

-

 

(487)

Common stock issued under stock plans

 

-

 

-

 

167

 

(265)

 

-

 

-

 

(98)

 

-

 

(98)

Purchase of common stock

 

-

 

-

 

(500)

 

-

 

-

 

-

 

(500)

 

-

 

(500)

Net income (loss) attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

-

 

(5,891)

 

-

 

(5,891)

 

78

 

(5,813)

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

(22)

 

-

 

(22)

 

-

 

(22)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(827)

 

-

 

(827)

 

-

 

(827)

Other comprehensive income (loss)

 

-

 

-

 

-

 

-

 

-

 

5,996

 

5,996

 

(16)

 

5,980

Net decrease due to divestitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and acquisitions

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,199)

 

(1,199)

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

4

 

4

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(113)

 

(113)

Other

 

-

 

-

 

(7)

 

288

 

(19)

 

-

 

262

 

(7)

 

255

Balance, end of period

$

485

$

4,766

$

(49,327)

$

81,368

$

15,838

$

10,978

$

64,108

$

499

$

64,607

See accompanying Notes to Condensed Consolidated Financial Statements.

6 AIG | Third Quarter 2021 Form 10-Q


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

Nine Months Ended September 30,

(in millions)

 

2021

 

2020

Cash flows from operating activities:

 

 

 

 

Net income (loss)

$

5,817

$

(5,813)

Income from discontinued operations

 

-

 

(4)

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

 

 

 

 

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

 

 

 

 

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

 

(1,141)

 

(675)

Net (gains) losses on divestitures

 

(108)

 

8,652

Losses on extinguishment of debt

 

149

 

15

Unrealized gains in earnings - net

 

(1,295)

 

(1,971)

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

 

14

 

210

Depreciation and other amortization

 

3,590

 

3,223

Impairments of assets

 

19

 

79

Changes in operating assets and liabilities:

 

 

 

 

Insurance reserves

 

5,829

 

2,238

Premiums and other receivables and payables - net

 

(1,387)

 

2,152

Reinsurance assets and funds held under reinsurance contracts

 

(1,739)

 

(2,148)

Capitalization of deferred policy acquisition costs

 

(3,858)

 

(3,256)

Current and deferred income taxes - net

 

497

 

(1,793)

Other, net

 

(623)

 

(300)

Total adjustments

 

(53)

 

6,426

Net cash provided by operating activities

 

5,764

 

609

Cash flows from investing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Sales or distributions of:

 

 

 

 

Available for sale securities

 

19,211

 

17,303

Other securities

 

703

 

2,256

Other invested assets

 

3,298

 

3,159

Divestitures, net

 

137

 

2,119

Maturities of fixed maturity securities available for sale

 

26,424

 

19,441

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

 

5,684

 

5,177

Purchases of:

 

 

 

 

Available for sale securities

 

(53,220)

 

(43,228)

Other securities

 

(128)

 

(562)

Other invested assets

 

(2,134)

 

(2,197)

Mortgage and other loans receivable

 

(6,156)

 

(4,072)

Net change in short-term investments

 

4,569

 

(7,368)

Other, net

 

(1,312)

 

2,751

Net cash used in investing activities

 

(2,924)

 

(5,221)

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Policyholder contract deposits

 

19,522

 

16,255

Policyholder contract withdrawals

 

(16,208)

 

(12,802)

Issuance of long-term debt

 

79

 

4,166

Issuance of debt of consolidated investment entities

 

3,458

 

1,459

Repayments of long-term debt

 

(3,451)

 

(1,207)

Repayments of debt of consolidated investment entities

 

(3,210)

 

(2,042)

Purchase of common stock

 

(1,651)

 

(500)

Dividends paid on preferred stock

 

(22)

 

(22)

Dividends paid on common stock

 

(819)

 

(827)

Other, net

 

(458)

 

425

Net cash provided by (used in) financing activities

 

(2,760)

 

4,905

Effect of exchange rate changes on cash and restricted cash

 

(40)

 

27

Net increase in cash and restricted cash

 

40

 

320

Cash and restricted cash at beginning of year

 

3,230

 

3,287

Change in cash of held for sale assets

 

(436)

 

-

Cash and restricted cash at end of period

$

2,834

$

3,607

AIG | Third Quarter 2021 Form 10-Q 7

 


TABLE OF CONTENTS

 

 

 

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)(continued)

Supplementary Disclosure of Condensed Consolidated Cash Flow Information

 

Nine Months Ended September 30,

(in millions)

 

2021

 

2020

Cash

$

2,699

$

3,191

Restricted cash included in Short-term investments*

 

77

 

214

Restricted cash included in Other assets*

 

58

 

202

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

$

2,834

$

3,607

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

781

$

829

Taxes

$

737

$

875

Non-cash investing activities:

 

 

 

 

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

$

797

$

1,008

Fixed maturity securities received in connection with reinsurance transactions

$

58

$

336

Fixed maturity securities transferred in connection with reinsurance transactions

$

(734)

$

-

Non-cash financing activities:

 

 

 

 

Interest credited to policyholder contract deposits included in financing activities

$

2,691

$

2,826

Fee income debited to policyholder contract deposits included in financing activities

$

(1,267)

$

(1,278)

 

 

 

 

 

* Includes funds held for tax sharing payments to AIG Parent, security deposits, and replacement reserve deposits related to our affordable housing investments.

See accompanying Notes to Condensed Consolidated Financial Statements.

8 AIG | Third Quarter 2021 Form 10-Q


TABLE OF CONTENTS

 

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

 

 

1. Basis of Presentation

American International Group, Inc. (AIG) is a leading global insurance organization serving customers in approximately 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, 2020 (the 2020 Annual Report). The condensed consolidated financial information as of December 31, 2020 included herein has been derived from the audited Consolidated Financial Statements in the 2020 Annual Report.

Certain of our foreign subsidiaries included in the Condensed Consolidated Financial Statements report on the basis of a fiscal year ending November 30. The effect on our consolidated financial condition and results of operations of all material events occurring at these subsidiaries through the date of each of the periods presented in these Condensed Consolidated Financial Statements has been considered for adjustment and/or disclosure. In the opinion of management, these Condensed Consolidated Financial Statements contain normal recurring adjustments, including eliminations of material intercompany accounts and transactions, necessary for a fair statement of the results presented herein. Operating results for the nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, especially when considering the risks and uncertainties associated with COVID-19 and the impact it may have on our business, results of operations and financial condition.

We evaluated the need to recognize or disclose events that occurred subsequent to September 30, 2021 and prior to the issuance of these Condensed Consolidated Financial Statements.

Sales/disposals of ASSETS AND Businesses

Separation of Life and Retirement Business and Relationship with Blackstone Inc.

On October 26, 2020, AIG announced its intention to separate its Life and Retirement business from AIG. On July 14, 2021, AIG and Blackstone Inc. (Blackstone) announced that they have reached a definitive agreement for Blackstone to acquire a 9.9 percent equity stake in SAFG Retirement Services, Inc. (SAFG), which is the holding company for AIG’s Life and Retirement business, for $2.2 billion in an all cash transaction, subject to adjustment if the final pro forma adjusted book value is greater or lesser than the target pro forma adjusted book value. The transaction contemplates that most of AIG’s investment operations would be transferred to SAFG or its subsidiaries as part of the separation. As part of this agreement, AIG also agreed to enter into a long-term asset management relationship with Blackstone to manage an initial $50 billion of Life and Retirement’s existing investment portfolio upon closing of the equity investment, with that amount increasing by increments of $8.5 billion per year for the next five years beginning in the fourth quarter of 2022, for an aggregate of $92.5 billion. Following the closing of the transaction, Blackstone will be entitled to designate one member of the board of directors of SAFG, which will consist of 11 directors. Pursuant to the definitive agreement, Blackstone will be required to hold its ownership interest in SAFG following the completion of the separation of the Life and Retirement business, subject to exceptions permitting Blackstone to sell 25%, 67% and 75% of its shares after the first, second and third anniversaries, respectively, of the initial public offering of SAFG (the IPO), with the transfer restrictions terminating in full on the fifth anniversary of the IPO. In the event that the IPO of SAFG is not completed prior to the second anniversary of the closing of the transaction, Blackstone will have the right to require AIG to undertake the IPO, and in the event that the IPO has not been completed prior to the third anniversary of the closing, Blackstone will have the right to exchange all or a portion of its ownership interest in SAFG for shares of AIG’s common stock on the terms set forth in the definitive agreement. These transactions closed on November 2, 2021. While we currently believe the IPO is the next step in the separation of the Life and Retirement business from AIG, no assurance can be given regarding the form that future separation transactions may take or the specific terms or timing thereof, or that a separation will in fact occur. Any separation transaction will be subject to the satisfaction of various conditions and approvals, including approval by the AIG Board of Directors, receipt of insurance and other required regulatory approvals, and satisfaction of any applicable requirements of the Securities and Exchange Commission (SEC).

AIG | Third Quarter 2021 Form 10-Q 9

 


TABLE OF CONTENTS

 

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

 

On July 14, 2021, AIG and Blackstone Real Estate Income Trust (BREIT), a long-term, perpetual capital vehicle affiliated with Blackstone, announced that they have reached a definitive agreement for BREIT to acquire AIG’s interests in a U.S. affordable housing portfolio for approximately $5.1 billion, subject to certain adjustments, in an all cash transaction. As of September 30, 2021, the assets, primarily Other invested assets (Investment real estate) and liabilities, primarily Debt of consolidated investment entities, related to the Affordable Housing portfolio, $4.3 billion and $2.7 billion, respectively, are classified as held for sale and are reported in Other assets and Other liabilities within our Condensed Consolidated Balance Sheets. This transaction is subject to customary closing conditions and is expected to close in the fourth quarter of 2021.

Sale of Certain AIG Life and Retirement Retail Mutual Funds Business

On February 8, 2021, AIG announced the execution of a definitive agreement with Touchstone Investments (Touchstone), an indirect wholly-owned subsidiary of Western & Southern Financial Group, to sell certain assets of AIG Life and Retirement’s Retail Mutual Funds business. The transaction closed on July 16, 2021 at which time we received initial proceeds, and twelve retail mutual funds managed by SunAmerica Asset Management, LLC (SAAMCo), a member of AIG Life and Retirement, with $6.8 billion in assets, were reorganized into Touchstone funds. Additional proceeds may be earned over a three-year period based on asset levels in certain reorganized funds. Six retail mutual funds managed by SAAMCo and not included in the transaction were liquidated. AIG Life and Retirement will retain its fund management platform and capabilities dedicated to its variable annuity insurance products.

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 Run-Off operations. As of September 30, 2021, approximately $29.9 billion of reserves from AIG’s Life and Retirement Run-Off Lines and approximately $3.8 billion of reserves from AIG’s 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 Run-Off operations. 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 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 included (i) the $1.8 billion under the Majority Interest Fortitude Sale, subject to a post-closing purchase price adjustment pursuant to which AIG would pay Fortitude Re for certain adverse development in property casualty related reserves, based on an agreed methodology, that may occur through 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. Effective in the second quarter of 2021, AIG, Fortitude Holdings, Carlyle FRL, T&D and Carlyle amended the purchase agreement to finalize the post-closing purchase price adjustment for adverse reserve development. As a result of this amendment, during the nine months ended September 30, 2021, AIG recorded a $21 million benefit through Policyholder benefits and losses incurred and eliminated further net exposure to adverse development on the reserves ceded to Fortitude Re.

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

10 AIG | Third Quarter 2021 Form 10-Q


TABLE OF CONTENTS

 

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

 

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

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

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

Blackboard

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

Use of Estimates

The preparation of financial statements in accordance with U.S. 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, for example universal life, variable and fixed annuities, and fixed indexed annuities;

reinsurance assets, including the allowance for credit losses;

goodwill impairment;

allowances for credit losses primarily on loans and available for sale fixed maturity securities;

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.

These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of operations and cash flows could be materially affected.

AIG | Third Quarter 2021 Form 10-Q 11

 


TABLE OF CONTENTS

 

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

 

REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS

During the fourth quarter of 2020, we identified certain cash flows that had been incorrectly classified in our Consolidated Statements of Cash Flows. Specifically, misclassifications were identified related to policyholder contract deposits that impacted several line items within the previously issued Consolidated Statements of Cash Flows. While these items affect the cash flows from operating and financing activities, they had no impact on the net increase (decrease) in cash and restricted cash for the previously reported periods. For the nine months ended September 30, 2020, the unrealized (gains) losses in earnings – net and Insurance reserves line items in the Condensed Consolidated Statements of Cash Flows were adjusted by $(2,043) million and $420 million, respectively. The total net cash provided by (used in) operating activities was adjusted by $(1,623) million. Additionally, the Policyholder contract deposits and Policyholder contract withdrawals line items in the Condensed Consolidated Statements of Cash Flows were adjusted by $2,241 million and $(618) million, respectively. The total net cash provided by financing activities was adjusted by $1,623 million.

In the third quarter of 2021, we identified misclassifications related to the balance sheet presentation of certain of our universal life and variable annuity products which resulted in an overstatement of Policyholder contract deposits and an understatement of Future policyholder benefits for life and accident and health insurance contracts. These balance sheet-only items had no impact to total liabilities reported, the Condensed Consolidated Statements of Income (Loss) or the Condensed Consolidated Statements of Cash Flows in any prior period. Accordingly, the Policyholder contract deposits, and Future policy benefits for life and accident and health insurance contracts included within the Condensed Consolidated Balance Sheets were decreased and increased, respectively, by $5.8 billion on December 31, 2020 to $154.5 billion and $56.9 billion, respectively.

We assessed the materiality of the misclassifications described above on prior period financial statements in accordance with SEC Staff Accounting Bulletin Number 99, Materiality, as codified in ASC 250-10, Accounting Changes and Error Corrections. We have determined that these misclassifications were not material to the financial statements of any prior annual or interim period. Accordingly, the nine-month period ended September 30, 2020 has been corrected in the comparative Condensed Consolidated Statements of Cash Flows to account for the misclassification of the policyholder contract deposits and the Condensed Consolidated Balance Sheets as of December 31, 2020 has been corrected to account for the misclassification of certain universal life and variable annuity products. Additionally, impacted prior periods will be revised within the Annual Report on Form 10-K to be filed for the period ending December 31, 2021.

DEBT CASH TENDER OFFERS

In the nine months ended September 30, 2021, we repurchased, through cash tender offers, and canceled approximately $262 million aggregate principal amount of certain notes and debentures issued or guaranteed by AIG for an aggregate purchase price of approximately $369 million and wrote off $4 million of unamortized debt issuance costs, resulting in a total loss on extinguishment of debt of approximately $111 million.

 

2. Summary of Significant Accounting Policies

Accounting Standards Adopted During 2021

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 incremental 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. We adopted the standard on its effective date of January 1, 2021. The impact of adoption was not material to our consolidated financial condition, results of operations and cash flows.

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.

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

 

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.

We adopted the standard prospectively on its effective date of January 1, 2021. The adoption of the standard did not have a material impact on our consolidated financial condition, results of operations or cash flows.

 

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:

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 (loss).

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 (loss).

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 November 2020, the FASB issued ASU 2020-11, which deferred the effective date of the standard for all entities. Our implementation efforts are underway for the standard’s revised effective date of January 1, 2023; we continue to evaluate 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.

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.

Where permitted by the guidance, we would account for the modification due to the discontinuation of LIBOR or another reference rate as a continuation of the existing contract. As part of our implementation efforts, we will continue to assess our operational readiness and current and alternative reference rates’ merits, limitations, risks and suitability for our investment and insurance processes.

This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. The adoption of the standard is not expected to have a material impact on our reported consolidated financial condition, results of operations, cash flows and required disclosures.

AIG | Third Quarter 2021 Form 10-Q 13

 


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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, and our global reinsurance business, AIG Re. This also includes the results of Western World Insurance Group, Inc. and Glatfelter Insurance Group.

International – consists of regional insurance businesses in Japan, the United Kingdom, Europe, Middle East and Africa (EMEA region), Asia Pacific, Latin America and Caribbean, and China. International also includes the results of Talbot Holdings, Ltd. as well as AIG’s Global Specialty business.

North America and International operating segments consist of the following products:

Commercial Lines – consists of Liability, Financial Lines, Property, Global Specialty and Crop Risk Services.

Personal Insurance – consists of Personal Lines and Accident & 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, financial planning and advisory services, and plan administrative and compliance services.

Life Insurance primary products in the U.S. include term life and universal life insurance. International operations primarily 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, high net worth products and guaranteed investment contracts (GICs).

For further discussion on the Life and Retirement business, see Note 1 to the Condensed Consolidated Financial Statements.

Other Operations

Other Operations primarily consists of income from assets held by AIG Parent and other corporate subsidiaries, deferred tax assets related to tax attributes, corporate expenses and intercompany eliminations, our institutional asset management business and results of our consolidated investment entities, General Insurance portfolios in run-off as well as the historical results of our legacy insurance lines ceded to Fortitude Re.

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. Legal entities are attributed to each segment based upon the predominance of activity in that legal entity. For the items excluded from adjusted revenues and adjusted pre-tax income (loss) see the table below.

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information

 

The following table presents AIG’s continuing operations by operating segment:

Three Months Ended September 30,

2021

 

2020

 

 

 

 

 

Adjusted

 

 

 

 

Adjusted

 

 

 

Adjusted

 

Pre-tax

 

 

Adjusted

 

Pre-tax

 

(in millions)

 

Revenues

 

Income (Loss)

 

 

Revenues

 

Income (Loss)

 

General Insurance

 

 

 

 

 

 

 

 

 

 

North America

$

2,907

$

(166)

(a)

$

2,494

$

(370)

(a)

International

 

3,516

 

186

(a)

 

3,359

 

(53)

(a)

Net investment income

 

791

 

791

 

 

839

 

839

 

Total General Insurance

 

7,214

 

811

 

 

6,692

 

416

 

Life and Retirement

 

 

 

 

 

 

 

 

 

 

Individual Retirement

 

1,560

 

292

 

 

1,479

 

532

 

Group Retirement

 

832

 

316

 

 

758

 

338

 

Life Insurance

 

1,211

 

134

 

 

1,189

 

32

 

Institutional Markets

 

841

 

135

 

 

564

 

106

 

Total Life and Retirement

 

4,444

 

877

 

 

3,990

 

1,008

 

Other Operations

 

 

 

 

 

 

 

 

 

 

Other Operations before consolidation and eliminations

 

301

 

(370)

 

 

223

 

(368)

 

AIG consolidation and eliminations

 

(206)

 

(192)

 

 

(149)

 

(140)

 

Total Other Operations

 

95

 

(562)

 

 

74

 

(508)

 

Total

 

11,753

 

1,126

 

 

10,756

 

916

 

Reconciling items to pre-tax income:

 

 

 

 

 

 

 

 

 

 

Changes in fair value of securities used to hedge guaranteed living benefits

 

14

 

26

 

 

14

 

15

 

Changes in benefit reserves and DAC, VOBA and SIA related to net

 

 

 

 

 

 

 

 

 

 

realized gains (losses)

 

-

 

9

 

 

-

 

78

 

Changes in the fair value of equity securities

 

(45)

 

(45)

 

 

119

 

119

 

Other income (expense) - net

 

(6)

 

-

 

 

22

 

-

 

Gain (loss) on extinguishment of debt

 

-

 

(51)

 

 

-

 

2

 

Net investment income on Fortitude Re funds withheld assets

 

495

 

495

 

 

458