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

☐ 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.)

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

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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

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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

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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

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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

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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

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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

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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

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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.

12 AIG | Third Quarter 2021 Form 10-Q

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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.

14 AIG | Third Quarter 2021 Form 10-Q

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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		458
Net realized gains on Fortitude Re funds withheld assets		190		190			32		32
Net realized losses on Fortitude Re funds withheld
embedded derivative		(209)		(209)			(656)		(656)
Net realized gains (losses)^(b)		643		652			(524)		(512)
Income (loss) from divestitures		-		102			-		(24)
Non-operating litigation reserves and settlements		-		(3)			-		(1)
Favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements		-		115			-		30
Net loss reserve discount benefit (charge)		-		(72)			-		31
Pension expense related to a one-time lump sum payment to former employees		-		(27)			-		-
Integration and transaction costs associated with acquiring or divesting
businesses		-		(11)			-		(1)
Restructuring and other costs		-		(104)			-		(100)
Non-recurring costs related to regulatory or accounting changes		-		(17)			-		(19)
Revenues and pre-tax income	$	12,835	$	2,176		$	10,221	$	368

AIG | Third Quarter 2021 Form 10-Q 15

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

Nine 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	$	7,980	$	(199)	^(a)	$	7,699	$	(912)	^(a)
International		10,524		755	^(a)		9,970		59	^(a)
Net investment income		2,294		2,294			1,945		1,945
Total General Insurance		20,798		2,850			19,614		1,092
Life and Retirement
Individual Retirement		4,556		1,441			4,178		1,386
Group Retirement		2,458		970			2,164		695
Life Insurance		3,839		114			3,608		112
Institutional Markets		2,617		417			2,987		311
Total Life and Retirement		13,470		2,942			12,937		2,504
Other Operations
Other Operations before consolidation and eliminations		884		(1,240)			1,145		(1,535)
AIG consolidation and eliminations		(511)		(462)			(255)		(174)
Total Other Operations		373		(1,702)			890		(1,709)
Total		34,641		4,090			33,441		1,887
Reconciling items to pre-tax income (loss):
Changes in fair value of securities used to hedge guaranteed living benefits		46		61			42		24
Changes in benefit reserves and DAC, VOBA and SIA related to net
realized gains (losses)		-		(74)			-		(205)
Changes in the fair value of equity securities		(36)		(36)			(16)		(16)
Other income (expense) - net		(14)		-			46		-
Loss on extinguishment of debt		-		(149)			-		(15)
Net investment income on Fortitude Re funds withheld assets		1,488		1,488			574		574
Net realized gains on Fortitude Re funds withheld assets		536		536			128		128
Net realized gains (losses) on Fortitude Re funds withheld
embedded derivative		117		117			(1,493)		(1,493)
Net realized gains^(b)		1,192		1,220			1,332		1,375
Income (loss) from divestitures		-		108			-		(8,652)
Non-operating litigation reserves and settlements		-		(3)			6		5
Favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements		-		199			-		71
Net loss reserve discount charge		-		(62)			-		(41)
Pension expense related to a one-time lump sum payment to former employees		-		(27)			-		-
Integration and transaction costs associated with acquiring or divesting
businesses		-		(55)			-		(7)
Restructuring and other costs		-		(304)			-		(324)
Non-recurring costs related to regulatory or accounting changes		-		(58)			-		(46)
Revenues and pre-tax income (loss)	$	37,970	$	7,051		$	34,060	$	(6,735)

(a) General Insurance North America’s and General Insurance International’s Adjusted pre-tax income does not include Net investment income as the investment portfolio results are managed at the General Insurance level. Net investment income is shown separately as a component of General Insurance’s total Adjusted pre-tax income results.

(b) Includes all net realized 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).

16 AIG | Third Quarter 2021 Form 10-Q

TABLE OF CONTENTS

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.

AIG | Third Quarter 2021 Form 10-Q 17

TABLE OF CONTENTS

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:

September 30, 2021							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	$	4	$	4,452	$	-	$	-	$	-	$	4,456
Obligations of states, municipalities and political subdivisions		-		13,089		1,806		-		-		14,895
Non-U.S. governments		34		16,158		7		-		-		16,199
Corporate debt		-		174,291		2,646		-		-		176,937
RMBS		-		17,354		11,098		-		-		28,452
CMBS		-		14,287		1,025		-		-		15,312
CDO/ABS		-		8,903		9,187		-		-		18,090
Total bonds available for sale		38		248,534		25,769		-		-		274,341
Other bond securities:
U.S. government and government sponsored entities		-		1,761		-		-		-		1,761
Non-U.S. governments		-		-		-		-		-		-
Corporate debt		-		12		-		-		-		12
RMBS		-		208		107		-		-		315
CMBS		-		238		36		-		-		274
CDO/ABS		-		104		2,185		-		-		2,289
Total other bond securities		-		2,323		2,328		-		-		4,651
Equity securities		1,002		28		5		-		-		1,035
Other invested assets^(b)		-		145		1,906		-		-		2,051
Derivative assets^(c):
Interest rate contracts		-		3,682		1		-		-		3,683
Foreign exchange contracts		-		1,347		1		-		-		1,348
Equity contracts		26		251		310		-		-		587
Commodity contracts		-		8		-		-		-		8
Credit contracts		-		-		2		-		-		2
Other contracts		-		-		12		-		-		12
Counterparty netting and cash collateral		-		-		-		(2,698)		(2,058)		(4,756)
Total derivative assets		26		5,288		326		(2,698)		(2,058)		884
Short-term investments		3,635		2,005		-		-		-		5,640
Other assets		-		-		114		-		-		114
Separate account assets		101,533		3,890		-		-		-		105,423
Total	$	106,234	$	262,213	$	30,448	$	(2,698)	$	(2,058)	$	394,139
Liabilities:
Policyholder contract deposits	$	-	$	-	$	9,273	$	-	$	-	$	9,273
Derivative liabilities^(c):
Interest rate contracts		1		3,889		-		-		-		3,890
Foreign exchange contracts		-		621		-		-		-		621
Equity contracts		4		52		3		-		-		59
Credit contracts		-		18		43		-		-		61
Other contracts		-		-		1		-		-		1
Counterparty netting and cash collateral		-		-		-		(2,698)		(1,231)		(3,929)
Total derivative liabilities		5		4,580		47		(2,698)		(1,231)		703
Fortitude Re funds withheld payable		-		-		5,433		-		-		5,433
Other liabilities		-		-		-		-		-		-
Long-term debt		-		1,964		-		-		-		1,964
Total	$	5	$	6,544	$	14,753	$	(2,698)	$	(1,231)	$	17,373

18 AIG | Third Quarter 2021 Form 10-Q

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements

December 31, 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	$	73	$	4,053	$	-	$	-	$	-	$	4,126
Obligations of states, municipalities and political subdivisions		-		14,019		2,105		-		-		16,124
Non-U.S. governments		28		15,312		5		-		-		15,345
Corporate debt		-		166,949		2,349		-		-		169,298
RMBS		-		19,771		11,694		-		-		31,465
CMBS		-		15,211		922		-		-		16,133
CDO/ABS		-		9,191		9,814		-		-		19,005
Total bonds available for sale		101		244,506		26,889		-		-		271,496
Other bond securities:
U.S. government and government sponsored entities		-		1,845		-		-		-		1,845
Non-U.S. governments		-		-		-		-		-		-
Corporate debt		-		12		-		-		-		12
RMBS		-		290		139		-		-		429
CMBS		-		273		47		-		-		320
CDO/ABS		-		173		2,512		-		-		2,685
Total other bond securities		-		2,593		2,698		-		-		5,291
Equity securities		929		76		51		-		-		1,056
Other invested assets^(b)		-		102		1,827		-		-		1,929
Derivative assets^(c):
Interest rate contracts		-		4,637		-		-		-		4,637
Foreign exchange contracts		-		1,020		2		-		-		1,022
Equity contracts		9		923		198		-		-		1,130
Credit contracts		-		-		2		-		-		2
Other contracts		-		-		14		-		-		14
Counterparty netting and cash collateral		-		-		-		(3,812)		(2,219)		(6,031)
Total derivative assets		9		6,580		216		(3,812)		(2,219)		774
Short-term investments		2,379		3,589		-		-		-		5,968
Other assets		-		-		113		-		-		113
Separate account assets		96,560		3,730		-		-		-		100,290
Total	$	99,978	$	261,176	$	31,794	$	(3,812)	$	(2,219)	$	386,917
Liabilities:
Policyholder contract deposits	$	-	$	-	$	9,798	$	-	$	-	$	9,798
Derivative liabilities^(c):
Interest rate contracts		1		4,435		-		-		-		4,436
Foreign exchange contracts		-		1,090		-		-		-		1,090
Equity contracts		14		162		47		-		-		223
Credit contracts		-		23		44		-		-		67
Other contracts		-		-		6		-		-		6
Counterparty netting and cash collateral		-		-		-		(3,812)		(1,441)		(5,253)
Total derivative liabilities		15		5,710		97		(3,812)		(1,441)		569
Fortitude Re funds withheld payable		-		-		6,042		-		-		6,042
Other liabilities		-		1		-		-		-		1
Long-term debt		-		2,097		-		-		-		2,097
Total	$	15	$	7,808	$	15,937	$	(3,812)	$	(1,441)	$	18,507

(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 $8.0 billion and $6.5 billion as of September 30, 2021 and December 31, 2020, respectively.

AIG | Third Quarter 2021 Form 10-Q 19

TABLE OF CONTENTS

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 nine-month periods ended September 30, 2021 and 2020 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 September 30, 2021 and 2020:

				Net																Changes in
				Realized																Unrealized Gains
				and				Purchases,										Changes in		(Losses) Included in
				Unrealized				Sales,										Unrealized Gains		Other Comprehensive
				Gains				Issuances										(Losses) Included		Income (Loss) for
		Fair Value		(Losses)		Other		and		Gross		Gross			Fair Value			in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers					End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out	Other		of Period			at End of Period		at End of Period
Three Months Ended September 30, 2021
Assets:
Bonds available for sale:
Obligations of states, municipalities
and political subdivisions	$	1,939	$	6	$	(9)	$	(7)	$	-	$	(61)	$	(62)	$	1,806	$	-	$	-
Non-U.S. governments		10		-		-		-		-		(3)		-		7		-		-
Corporate debt		2,773		(1)		2		(173)		57		(12)		-		2,646		-		-
RMBS		11,085		118		(8)		(86)		8		(19)		-		11,098		-		-
CMBS		1,082		4		(6)		(13)		-		(42)		-		1,025		-		-
CDO/ABS		9,318		22		(41)		180		64		(356)		-		9,187		-		-
Total bonds available for sale		26,207		149		(62)		(99)		129		(493)		(62)		25,769		-		-
Other bond securities:
RMBS		113		2		-		(8)		-		-		-		107		-		-
CMBS		46		(1)		-		(9)		-		-		-		36		-		-
CDO/ABS		2,279		40		-		(134)		-		-		-		2,185		-		-
Total other bond securities		2,438		41		-		(151)		-		-		-		2,328		-		-
Equity securities		4		-		1		(1)		1		-		-		5		-		-
Other invested assets		2,099		161		(3)		(351)		-		-		-		1,906		141		-
Other assets		113		-		-		1		-		-		-		114		-		-
Total	$	30,861	$	351	$	(64)	$	(601)	$	130	$	(493)	$	(62)	$	30,122	$	141	$	-
				Net																Changes in
				Realized																Unrealized Gains
				and				Purchases,										Changes in		(Losses) Included in
				Unrealized				Sales,										Unrealized Gains		Other Comprehensive
				(Gains)				Issuances										(Losses) Included		Income (Loss) for
		Fair Value	Losses			Other		and		Gross		Gross			Fair Value			in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers					End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out	Other		of Period			at End of Period		at End of Period
Liabilities:
Policyholder contract deposits	$	9,020	$	(26)	$	-	$	279	$	-	$	-	$	-	$	9,273	$	362	$	-
Derivative liabilities, net:
Interest rate contracts		(1)		(2)		-		2		-		-		-		(1)		2		-
Foreign exchange contracts		(1)		(1)		-		1		-		-		-		(1)		1		-
Equity contracts		(357)		99		-		(50)		-		1		-		(307)		(90)		-
Credit contracts		43		-		-		(2)		-		-		-		41		1		-
Other contracts		(10)		(17)		-		16		-		-		-		(11)		16		-
Total derivative liabilities, net^(a)		(326)		79		-		(33)		-		1		-		(279)		(70)		-
Fortitude Re funds withheld
payable		5,317		209		-		(93)		-		-		-		5,433		414		-
Total	$	14,011	$	262	$	-	$	153	$	-	$	1	$	-	$	14,427	$	706	$	-

20 AIG | Third Quarter 2021 Form 10-Q

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements

				Net																Changes in
				Realized																Unrealized Gains
				and				Purchases,										Changes in		(Losses) Included in
				Unrealized				Sales,										Unrealized Gains		Other Comprehensive
				Gains				Issuances										(Losses) Included		Income (Loss) for
		Fair Value		(Losses)		Other		and		Gross		Gross				Fair Value		in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers			Divested		End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out	Businesses			of Period		at End of Period		at End of Period
Three Months Ended September 30, 2020
Assets:
Bonds available for sale:
Obligations of states, municipalities
and political subdivisions	$	2,279	$	3	$	(4)	$	(30)	$	-	$	(65)	$	-	$	2,183	$	-	$	-
Non-U.S. governments		5		-		1		-		1		-		-		7		-		-
Corporate debt		1,900		(33)		52		(25)		452		(231)		-		2,115		-		38
RMBS		12,678		192		301		(412)		3		(107)		-		12,655		-		335
CMBS		1,149		3		36		(11)		-		(196)		-		981		-		27
CDO/ABS		9,461		5		180		(174)		125		(244)		-		9,353		-		172
Total bonds available for sale		27,472		170		566		(652)		581		(843)		-		27,294		-		572
Other bond securities:
RMBS		168		16		-		(16)		-		-		-		168		4		-
CMBS		47		1		-		-		-		-		-		48		1		-
CDO/ABS		2,531		124		-		(100)		-		-		-		2,555		34		-
Total other bond securities		2,746		141		-		(116)		-		-		-		2,771		39		-
Equity securities		43		-		2		1		7		(27)		-		26		1		-
Other invested assets		1,486		74		(2)		25		-		-		-		1,583		-		-
Other assets		111		-		-		2		-		-		(1)		112		-		-
Total	$	31,858	$	385	$	566	$	(740)	$	588	$	(870)	$	(1)	$	31,786	$	40	$	572
				Net																Changes in
				Realized																Unrealized Gains
				and				Purchases,										Changes in		(Losses) Included in
				Unrealized				Sales,										Unrealized Gains		Other Comprehensive
				(Gains)				Issuances										(Losses) Included		Income (Loss) for
		Fair Value		Losses		Other		and		Gross		Gross				Fair Value		in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers			Divested		End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out		Businesses		of Period		at End of Period		at End of Period
Liabilities:
Policyholder contract deposits	$	9,233	$	19	$	-	$	70	$	-	$	-	$	-	$	9,322	$	273	$	-
Derivative liabilities, net:
Interest rate contracts		-		-		-		-		-		-		-		-		-		-
Foreign exchange contracts		(1)		(2)		-		-		-		-		-		(3)		2		-
Equity contracts		(53)		9		-		(65)		(1)		5		-		(105)		-		-
Credit contracts		45		1		-		(2)		-		-		-		44		(7)		-
Other contracts		(3)		(19)		-		16		-		-		-		(6)		18		-
Total derivative liabilities, net^(a)		(12)		(11)		-		(51)		(1)		5		-		(70)		13		-
Fortitude Re funds withheld
payable		4,510		656		-		(30)		-		-		-		5,136		(256)		-
Total	$	13,731	$	664	$	-	$	(11)	$	(1)	$	5	$	-	$	14,388	$	30	$	-

AIG | Third Quarter 2021 Form 10-Q 21

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements

				Net																Changes in
				Realized																Unrealized Gains
				and				Purchases,										Changes in		(Losses) Included in
				Unrealized				Sales,										Unrealized Gains		Other Comprehensive
				Gains				Issuances										(Losses) Included		Income (Loss) for
		Fair Value		(Losses)		Other		and		Gross		Gross			Fair Value			in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers					End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out	Other		of Period			at End of Period		at End of Period
Nine Months Ended September 30, 2021
Assets:
Bonds available for sale:
Obligations of states, municipalities
and political subdivisions	$	2,105	$	14	$	(40)	$	(125)	$	-	$	(86)	$	(62)	$	1,806	$	-	$	225
Non-U.S. governments		5		-		(1)		1		5		(3)		-		7		-		-
Corporate debt		2,349		12		9		35		452		(211)		-		2,646		-		(106)
RMBS		11,694		435		17		(977)		8		(79)		-		11,098		-		934
CMBS		922		20		(39)		245		56		(179)		-		1,025		-		(45)
CDO/ABS		9,814		37		(11)		(358)		902		(1,197)		-		9,187		-		425
Total bonds available for sale		26,889		518		(65)		(1,179)		1,423		(1,755)		(62)		25,769		-		1,433
Other bond securities:
RMBS		139		6		-		(38)		-		-		-		107		(86)		-
CMBS		47		(2)		-		(15)		6		-		-		36		2		-
CDO/ABS		2,512		74		-		(401)		-		-		-		2,185		235		-
Total other bond securities		2,698		78		-		(454)		6		-		-		2,328		151		-
Equity securities		51		11		1		(124)		77		(11)		-		5		3		-
Other invested assets		1,827		417		(10)		(328)		-		-		-		1,906		386		-
Other assets		113		-		-		1		-		-		-		114		-		-
Total	$	31,578	$	1,024	$	(74)	$	(2,084)	$	1,506	$	(1,766)	$	(62)	$	30,122	$	540	$	1,433
				Net																Changes in
				Realized																Unrealized Gains
				and				Purchases,										Changes in		(Losses) Included in
				Unrealized				Sales,										Unrealized Gains		Other Comprehensive
				(Gains)				Issuances										(Losses) Included		Income (Loss) for
		Fair Value		Losses		Other		and		Gross		Gross				Fair Value		in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers					End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out	Other			of Period		at End of Period		at End of Period
Liabilities:
Policyholder contract deposits	$	9,798	$	(923)	$	-	$	398	$	-	$	-	$	-	$	9,273	$	1,914	$	-
Derivative liabilities, net:
Interest rate contracts		-		(4)		-		3		-		-		-		(1)		4		-
Foreign exchange contracts		(2)		-		-		1		-		-		-		(1)		-		-
Equity contracts		(151)		2		-		(204)		-		46		-		(307)		(58)		-
Credit contracts		42		7		-		(8)		-		-		-		41		2		-
Other contracts		(8)		(50)		-		47		-		-		-		(11)		50		-
Total derivative liabilities, net^(a)		(119)		(45)		-		(161)		-		46		-		(279)		(2)		-
Fortitude Re funds withheld
payable		6,042		(117)		-		(492)		-		-		-		5,433		1,917		-
Total	$	15,721	$	(1,085)	$	-	$	(255)	$	-	$	46	$	-	$	14,427	$	3,829	$	-

22 AIG | Third Quarter 2021 Form 10-Q

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements

				Net																Changes in
				Realized															Unrealized Gains
				and				Purchases,										Changes in	(Losses) Included in
				Unrealized				Sales,										Unrealized Gains	Other Comprehensive
				Gains				Issuances										(Losses) Included		Income (Loss) for
		Fair Value		(Losses)		Other		and		Gross		Gross			Fair Value			in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers			Divested		End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out	Businesses			of Period		at End of Period		at End of Period
Nine Months Ended September 30, 2020
Assets:
Bonds available for sale:
Obligations of states, municipalities
and political subdivisions	$	2,121	$	8	$	195	$	127	$	27	$	(295)	$	-	$	2,183	$	-	$	193
Non-U.S. governments		-		-		1		5		7		(6)		-		7		-		-
Corporate debt		1,663		(101)		43		95		1,074		(659)		-		2,115		-		59
RMBS		13,408		532		(375)		(806)		29		(133)		-		12,655		-		(213)
CMBS		1,053		14		70		17		23		(196)		-		981		-		66
CDO/ABS		7,686		25		55		(19)		2,062		(456)		-		9,353		-		38
Total bonds available for sale		25,931		478		(11)		(581)		3,222		(1,745)		-		27,294		-		143
Other bond securities:
RMBS		143		16		-		9		-		-		-		168		3		-
CMBS		50		-		-		(2)		-		-		-		48		(1)		-
CDO/ABS		3,545		225		-		(1,215)		-		-		-		2,555		25		-
Total other bond securities		3,738		241		-		(1,208)		-		-		-		2,771		27		-
Equity securities		8		(1)		3		11		33		(28)		-		26		1		-
Other invested assets		1,192		11		(2)		232		150		-		-		1,583		(13)		-
Other assets		89		-		-		61		-		-		(38)		112		-		-
Total	$	30,958	$	729	$	(10)	$	(1,485)	$	3,405	$	(1,773)	$	(38)	$	31,786	$	15	$	143

				Net																Changes in
				Realized															Unrealized Gains
				and				Purchases,										Changes in	(Losses) Included in
				Unrealized				Sales,										Unrealized Gains	Other Comprehensive
				(Gains)				Issuances										(Losses) Included		Income (Loss) for
		Fair Value		Losses		Other		and		Gross		Gross			Fair Value			in Income on		Recurring Level 3
		Beginning		Included	Comprehensive		Settlements,		Transfers		Transfers			Divested		End		Instruments Held		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		In		Out	Businesses			of Period		at End of Period		at End of Period
Liabilities:
Policyholder contract deposits	$	6,910	$	2,250	$	-	$	162	$	-	$	-	$	-	$	9,322	$	(1,436)	$	-
Derivative liabilities, net:
Interest rate contracts		-		(1)		-		1		-		-		-		-		1		-
Foreign exchange contracts		(6)		2		-		1		-		-		-		(3)		2		-
Equity contracts		(151)		19		-		23		(1)		5		-		(105)		(62)		-
Credit contracts		62		(59)		-		41		-		-		-		44		8		-
Other contracts		(7)		(46)		-		47		-		-		-		(6)		45		-
Total derivative liabilities, net^(a)		(102)		(85)		-		113		(1)		5		-		(70)		(6)		-
Fortitude Re funds withheld
payable		-		1,493		-		(30)		-		-		3,673		5,136		(919)		-
Total	$	6,808	$	3,658	$	-	$	245	$	(1)	$	5	$	3,673	$	14,388	$	(2,361)	$	-

(a)Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.

AIG | Third Quarter 2021 Form 10-Q 23

TABLE OF CONTENTS

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 (Loss) as follows:

		Net
		Investment		Net Realized		Other
(in millions)		Income	Gains (Losses)			Income		Total
Three Months Ended September 30, 2021
Assets:
Bonds available for sale	$	155	$	(6)	$	-	$	149
Other bond securities		41		-		-		41
Equity securities		-		-		-		-
Other invested assets		165		(4)		-		161
Three Months Ended September 30, 2020
Assets:
Bonds available for sale	$	177	$	(7)	$	-	$	170
Other bond securities		143		(2)		-		141
Equity securities		-		-		-		-
Other invested assets		74		-		-		74
Nine Months Ended September 30, 2021
Assets:
Bonds available for sale	$	503	$	15	$	-	$	518
Other bond securities		78		-		-		78
Equity securities		11		-		-		11
Other invested assets		406		11		-		417
Nine Months Ended September 30, 2020
Assets:
Bonds available for sale	$	557	$	(79)	$	-	$	478
Other bond securities		(25)		266		-		241
Equity securities		-		(1)		-		(1)
Other invested assets		11		-		-		11

		Net
		Investment		Net Realized		Other
(in millions)		Income	(Gains) Losses			Income		Total
Three Months Ended September 30, 2021
Liabilities:
Policyholder contract deposits^*	$	-	$	(26)	$	-	$	(26)
Derivative liabilities, net		-		93		(14)		79
Fortitude Re funds withheld payable		-		209		-		209
Three Months Ended September 30, 2020
Liabilities:
Policyholder contract deposits^*	$	-	$	19	$	-	$	19
Derivative liabilities, net		-		5		(16)		(11)
Fortitude Re funds withheld payable		-		656		-		656
Nine Months Ended September 30, 2021
Liabilities:
Policyholder contract deposits^*	$	-	$	(923)	$	-	$	(923)
Derivative liabilities, net		-		(2)		(43)		(45)
Fortitude Re funds withheld payable		-		(117)		-		(117)
Nine Months Ended September 30, 2020
Liabilities:
Policyholder contract deposits^*	$	-	$	2,250	$	-	$	2,250
Derivative liabilities, net		-		(41)		(44)		(85)
Fortitude Re funds withheld payable		-		1,493		-		1,493

*Primarily embedded derivatives.

24 AIG | Third Quarter 2021 Form 10-Q

TABLE OF CONTENTS

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 nine-month periods ended September 30, 2021 and 2020 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 September 30, 2021
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	40	$	(16)	$	(31)	$	(7)
Non-U.S. governments		-		-		-		-
Corporate debt		23		(61)		(135)		(173)
RMBS		704		(164)		(626)		(86)
CMBS		7		(3)		(17)		(13)
CDO/ABS		849		-		(669)		180
Total bonds available for sale		1,623		(244)		(1,478)		(99)
Other bond securities:
RMBS		-		(2)		(6)		(8)
CMBS		-		(9)		-		(9)
CDO/ABS		-		-		(134)		(134)
Total other bond securities		-		(11)		(140)		(151)
Equity securities		-		-		(1)		(1)
Other invested assets		32		-		(383)		(351)
Other assets		-		-		1		1
Total	$	1,655	$	(255)	$	(2,001)	$	(601)
Liabilities:
Policyholder contract deposits	$	-	$	214	$	65	$	279
Derivative liabilities, net		(75)		2		40		(33)
Fortitude Re funds withheld payable		-		-		(93)		(93)
Total	$	(75)	$	216	$	12	$	153
Three Months Ended September 30, 2020
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	34	$	(18)	$	(46)	$	(30)
Non-U.S. governments		-		-		-		-
Corporate debt		23		(2)		(46)		(25)
RMBS		182		-		(594)		(412)
CMBS		2		(10)		(3)		(11)
CDO/ABS		234		(78)		(330)		(174)
Total bonds available for sale		475		(108)		(1,019)		(652)
Other bond securities:
RMBS		-		-		(16)		(16)
CMBS		-		-		-		-
CDO/ABS		-		-		(100)		(100)
Total other bond securities		-		-		(116)		(116)
Equity securities		1		-		-		1
Other invested assets		25		-		-		25
Other assets		-		-		2		2
Total	$	501	$	(108)	$	(1,133)	$	(740)
Liabilities:
Policyholder contract deposits	$	-	$	170	$	(100)	$	70
Derivative liabilities, net		(19)		-		(32)		(51)
Fortitude Re funds withheld payable		-		-		(30)		(30)
Total	$	(19)	$	170	$	(162)	$	(11)

AIG | Third Quarter 2021 Form 10-Q 25

TABLE OF CONTENTS

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)
Nine Months Ended September 30, 2021
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	51	$	(59)	$	(117)	$	(125)
Non-U.S. governments		1		-		-		1
Corporate debt		976		(94)		(847)		35
RMBS		1,186		(279)		(1,884)		(977)
CMBS		297		(3)		(49)		245
CDO/ABS		2,005		70		(2,433)		(358)
Total bonds available for sale		4,516		(365)		(5,330)		(1,179)
Other bond securities:
RMBS		1		(11)		(28)		(38)
CMBS		-		(15)		-		(15)
CDO/ABS		-		(39)		(362)		(401)
Total other bond securities		1		(65)		(390)		(454)
Equity securities		-		(3)		(121)		(124)
Other invested assets		424		-		(752)		(328)
Other assets		-		-		1		1
Total	$	4,941	$	(433)	$	(6,592)	$	(2,084)
Liabilities:
Policyholder contract deposits	$	-	$	607	$	(209)	$	398
Derivative liabilities, net		(198)		4		33		(161)
Fortitude Re funds withheld payable		-		-		(492)		(492)
Total	$	(198)	$	611	$	(668)	$	(255)
Nine Months Ended September 30, 2020
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	201	$	(20)	$	(54)	$	127
Non-U.S. governments		5		-		-		5
Corporate debt		256		(7)		(154)		95
RMBS		883		-		(1,689)		(806)
CMBS		56		(17)		(22)		17
CDO/ABS		715		(103)		(631)		(19)
Total bonds available for sale		2,116		(147)		(2,550)		(581)
Other bond securities:
RMBS		37		-		(28)		9
CMBS		-		-		(2)		(2)
CDO/ABS		35		(579)		(671)		(1,215)
Total other bond securities		72		(579)		(701)		(1,208)
Equity securities		11		-		-		11
Other invested assets		277		-		(45)		232
Other assets		55		-		6		61
Total	$	2,531	$	(726)	$	(3,290)	$	(1,485)
Liabilities:
Policyholder contract deposits	$	-	$	514	$	(352)	$	162
Derivative liabilities, net		(43)		8		148		113
Fortitude Re funds withheld payable		-		-		(30)		(30)
Total	$	(43)	$	522	$	(234)	$	245

(a)There were no issuances during the three- and nine-month periods ended September 30, 2021 and 2020.

26 AIG | Third Quarter 2021 Form 10-Q

TABLE OF CONTENTS

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 September 30, 2021 and 2020 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 $1 million and $28 million of net gains (losses) related to assets and liabilities transferred into Level 3 during the three- and nine-month periods ended September 30, 2021, respectively, and includes $10 million and $7 million of net gains (losses) related to assets and liabilities transferred out of Level 3 during the three- and nine-month periods ended September 30, 2021, respectively.

The Net realized and unrealized gains (losses) included in income (loss) or Other comprehensive income (loss) as shown in the table above excludes $(79) million and $(207) million of net gains (losses) related to assets and liabilities transferred into Level 3 during the three- and nine-month periods ended September 30, 2020, respectively, and includes $18 million and $(13) million of net gains (losses) related to assets and liabilities transferred out of Level 3 during the three- and nine-month periods ended September 30, 2020, respectively.

Transfers of Level 3 Assets

During the three- and nine-month periods ended September 30, 2021 and 2020, 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 nine-month periods ended September 30, 2021 and 2020, 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 corporate debt, RMBS, CMBS, CDO/ABS and certain investments in municipal securities 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 nine-month periods ended September 30, 2021 and 2020.

AIG | Third Quarter 2021 Form 10-Q 27

TABLE OF CONTENTS

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. 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
	September 30,		Valuation		Range
(in millions)	2021		Technique	Unobservable Input^(b)	(Weighted Average)^(c)
Assets:

Obligations of states, municipalities
and political subdivisions	$	1,548	Discounted cash flow	Yield	2.83% - 3.46% (3.15%)

Corporate debt		1,607	Discounted cash flow	Yield	2.31% - 6.97% (4.64%)

RMBS^(a)		10,058	Discounted cash flow	Constant prepayment rate	4.95% - 17.76% (11.36%)
				Loss severity	28.09% - 73.42% (50.76%)
				Constant default rate	1.31% - 6.11% (3.71%)
				Yield	1.51% - 3.93% (2.72%)

CDO/ABS^(a)		8,306	Discounted cash flow	Yield	1.51% - 4.50% (3.01%)

CMBS		550	Discounted cash flow	Yield	1.37% - 5.52% (3.33%)
Liabilities^(d):

Embedded derivatives within
Policyholder contract deposits:

Variable annuity guaranteed minimum withdrawal benefits (GMWB)		2,551	Discounted cash flow	Equity volatility	6.45% - 51.15%
				Base lapse rate	0.16% - 12.60%
				Dynamic lapse multiplier	50.00% - 143.00%
				Mortality multiplier^(e)	38.00% - 147.00%
				Utilization	90.00% - 100.00%
				Equity / interest rate correlation	20.00% - 40.00%
				NPA^(f)	0.07% - 1.37%

Index annuities including certain GMWB		5,973	Discounted cash flow	Base lapse rate	0.38% - 50.00%
				Dynamic lapse multiplier	19.00% - 178.00%
				Mortality multiplier^(e)	24.00% - 180.00%
				Utilization^(g)	80.00% - 95.00%
				Option budget	0.00% - 4.00%
				NPA^(f)	0.07% - 1.37%

Indexed life		701	Discounted cash flow	Base lapse rate	0.00% - 37.97%
				Mortality rate	0.00% - 100.00%
				NPA^(f)	0.07% - 1.37%

28 AIG | Third Quarter 2021 Form 10-Q

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements

		Fair Value at
		December 31,	Valuation		Range
(in millions)		2020	Technique	Unobservable Input^(b)	(Weighted Average)^(c)
Assets:

Obligations of states, municipalities
and political subdivisions	$	1,670	Discounted cash flow	Yield	2.82% - 3.39% (3.11%)

Corporate debt		1,591	Discounted cash flow	Yield	2.13% - 7.82% (4.97%)

RMBS^(a)		11,297	Discounted cash flow	Constant prepayment rate	3.90% - 11.99% (7.94%)
				Loss severity	30.08% - 78.49% (54.29%)
				Constant default rate	1.45% - 6.19% (3.82%)
				Yield	1.69% - 4.25% (2.97%)

CDO/ABS^(a)		8,324	Discounted cash flow	Yield	1.93% - 4.85% (3.39%)

CMBS		541	Discounted cash flow	Yield	0.92% - 5.89% (3.40%)
Liabilities^(d):

Embedded derivatives within
Policyholder contract deposits:

GMWB		3,572	Discounted cash flow	Equity volatility	6.45% - 50.85%
				Base lapse rate	0.16% - 12.60%
				Dynamic lapse multiplier	50.00% - 143.00%
				Mortality multiplier^(e)	38.00% - 147.00%
				Utilization	90.00% - 100.00%
				Equity / interest rate correlation	20.00% - 40.00%
				NPA^(f)	0.06% - 1.48%

Index annuities including certain
GMWB		5,538	Discounted cash flow	Base lapse rate	0.38% - 50.00%
				Dynamic lapse multiplier	19.00% - 178.00%
				Mortality multiplier^(e)	24.00% - 180.00%
				Utilization^(g)	80.00% - 100.00%
				Option budget	0.00% - 4.00%
				NPA^(f)	0.06% - 1.48%

Indexed life		649	Discounted cash flow	Base lapse rate	0.00% - 37.97%
				Mortality rate	0.00% - 100.00%
				NPA^(f)	0.06% - 1.48%

(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) The Fortitude Re funds withheld payable has been excluded from the above table. As discussed in Note 7, the Fortitude Re funds withheld payable is created through modified coinsurance (modco) and funds withheld reinsurance arrangements where the investments supporting the reinsurance agreements are withheld by, and continue to reside on AIG’s balance sheet. This embedded derivative is valued as a total return swap with reference to the fair value of the invested assets held by AIG. Accordingly, the unobservable inputs utilized in the valuation of the embedded derivative are a component of the invested assets supporting the reinsurance agreements that are held on AIG’s balance sheet.

(e) Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table.

(f) The non-performance risk adjustment (NPA) applied as a spread over risk-free curve for discounting.

(g) The partial withdrawal utilization unobservable input range shown applies only to policies with guaranteed minimum withdrawal benefit riders that are accounted for as an embedded derivative. The total embedded derivative liability at September 30, 2021 and December 31, 2020 was approximately $1.0 billion and $726 million, respectively. The remaining guaranteed minimum riders on the index annuities are valued under the accounting guidance for certain nontraditional long-duration contracts.

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

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements

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.

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 and other factors, 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.

 Non-performance or “own credit” risk adjustment used in the GAAP valuation of embedded derivatives, which reflects a market participant’s view of our claims-paying ability by incorporating a different spread (the NPA spread) to the curve used to discount projected benefit cash flows. When corporate credit spreads widen, the change in the NPA spread generally reduces the fair value of the embedded derivative liabilities, resulting in a gain, and when corporate credit spreads narrow or tighten, the change in the NPA spread generally increases the fair value of the embedded derivative liabilities, resulting in a loss. In addition to changes driven by credit market-related movements in the NPA spread, the NPA balance also reflects changes in business activity and in the net amount at risk from the underlying guaranteed living benefits offered by variable and certain fixed index annuities.

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Fair Value Measurements

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.

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.

		September 30, 2021				December 31, 2020
			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	$	2,517	$	1,670	$	1,752	$	1,960

Real assets	Investments in real estate properties, agricultural and infrastructure assets, including power plants and other energy producing assets		1,020		528		908		445

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		257		200		167		171

Growth equity	Funds that make investments in established companies for the purpose of growing their businesses		913		128		703		55

Mezzanine	Funds that make investments in the junior debt and equity securities of leveraged companies		526		357		400		155

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		923		431		683		365
Total private equity funds			6,156		3,314		4,613		3,151
Hedge funds:
Event-driven	Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations		412		-		411		-

Long-short	Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk		383		-		361		-

Macro	Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions		680		-		807		-

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		355		-		301		1
Total hedge funds			1,830		-		1,880		1
Total		$	7,986	$	3,314	$	6,493	$	3,152

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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 10-year lives at their inception, but these lives may be extended at the fund manager’s discretion, typically in one or two-year 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.

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 September 30,				Gain (Loss) Nine Months Ended September 30,
	Gain (Loss) Three Months Ended September 30,				Gain (Loss) Nine Months Ended September 30,
(in millions)		2021		2020		2021		2020
Assets:
Bond and equity securities	$	35	$	171	$	32	$	485
Alternative investments^(a)		403		407		1,248		242
Liabilities:
Long-term debt^(b)		6		18		39		(203)
Total gain	$	444	$	596	$	1,319	$	524

(a) Includes certain hedge funds, private equity funds and other investment partnerships.

(b) Includes guaranteed investment agreements (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:

	September 30, 2021						December 31, 2020
			Outstanding						Outstanding
(in millions)	Fair Value		Principal Amount		Difference		Fair Value		Principal Amount		Difference
Liabilities:
Long-term debt^*	$	1,964	$	1,365	$	599	$	2,097	$	1,479	$	618

*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 September 30,				Nine Months Ended September 30,
(in millions)	Level 1		Level 2		Level 3			Total		2021		2020		2021		2020
September 30, 2021
Other investments	$	-	$	-	$	89	$	89	$	-	$	12	$	6	$	60
Other assets		-		-		-		-		13		2		13		14
Total	$	-	$	-	$	89	$	89	$	13	$	14	$	19	$	74
December 31, 2020
Other investments	$	-	$	-	$	376	$	376
Other assets		-		-		28		28
Total	$	-	$	-	$	404	$	404

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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
September 30, 2021
Assets:
Mortgage and other loans receivable	$	-	$	87	$	47,880	$	47,967	$	45,821
Other invested assets		-		810		6		816		816
Short-term investments		-		8,131		-		8,131		8,131
Cash		2,699		-		-		2,699		2,699
Other assets		47		11		-		58		58
Liabilities:
Policyholder contract deposits associated
with investment-type contracts		-		181		146,110		146,291		133,395
Fortitude Re funds withheld payable		-		-		35,455		35,455		35,455
Other liabilities		-		3,702		-		3,702		3,702
Long-term debt		-		25,851		345		26,196		22,618
Debt of consolidated investment entities		-		2,655		4,476		7,131		6,968
Separate account liabilities - investment contracts		-		100,515		-		100,515		100,515
December 31, 2020
Assets:
Mortgage and other loans receivable	$	-	$	95	$	48,541	$	48,636	$	45,562
Other invested assets		-		837		6		843		843
Short-term investments		-		12,235		-		12,235		12,235
Cash		2,827		-		-		2,827		2,827
Other assets		209		14		-		223		223
Liabilities:
Policyholder contract deposits associated
with investment-type contracts		-		214		144,357		144,571		130,435
Fortitude Re funds withheld payable		-		-		37,018		37,018		37,018
Other liabilities		-		3,695		-		3,695		3,695
Long-term debt		-		30,310		365		30,675		26,006
Debt of consolidated investment entities		-		1,746		7,965		9,711		9,431
Separate account liabilities - investment contracts		-		95,610		-		95,610		95,610

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

5. Investments

Securities Available for Sale

The following table presents the amortized cost and fair value of our available for sale securities:

				Allowance		Gross		Gross
		Amortized		for Credit		Unrealized		Unrealized		Fair
(in millions)		Cost		Losses^(a)		Gains		Losses		Value
September 30, 2021
Bonds available for sale:
U.S. government and government sponsored entities	$	4,169	$	-	$	304	$	(17)	$	4,456
Obligations of states, municipalities and political subdivisions		13,084		-		1,826		(15)		14,895
Non-U.S. governments		15,677		(3)		753		(228)		16,199
Corporate debt		163,614		(55)		14,665		(1,287)		176,937
Mortgage-backed, asset-backed and collateralized:
RMBS		25,965		(8)		2,612		(117)		28,452
CMBS		14,630		-		727		(45)		15,312
CDO/ABS		17,786		-		360		(56)		18,090
Total mortgage-backed, asset-backed and collateralized		58,381		(8)		3,699		(218)		61,854
Total bonds available for sale^(b)	$	254,925	$	(66)	$	21,247	$	(1,765)	$	274,341
December 31, 2020
Bonds available for sale:
U.S. government and government sponsored entities	$	3,640	$	-	$	503	$	(17)	$	4,126
Obligations of states, municipalities and political subdivisions		13,915		-		2,216		(7)		16,124
Non-U.S. governments		14,231		(4)		1,181		(63)		15,345
Corporate debt		150,111		(164)		19,905		(554)		169,298
Mortgage-backed, asset-backed and collateralized:
RMBS		28,551		(16)		3,000		(70)		31,465
CMBS		15,182		(1)		1,023		(71)		16,133
CDO/ABS		18,707		(1)		425		(126)		19,005
Total mortgage-backed, asset-backed and collateralized		62,440		(18)		4,448		(267)		66,603
Total bonds available for sale^(b)	$	244,337	$	(186)	$	28,253	$	(908)	$	271,496

(a) Represents the allowance for credit losses that has been recognized. Changes in the allowance for credit losses are recorded through Net realized gains (losses) and are not recognized in Other comprehensive income (loss).

(b) At September 30, 2021 and December 31, 2020, bonds available for sale held by us that were below investment grade or not rated totaled $27.5 billion and $28.2 billion, respectively.

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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
September 30, 2021
Bonds available for sale:
U.S. government and government sponsored entities	$	1,340	$	10	$	287	$	7	$	1,627	$	17
Obligations of states, municipalities and political
subdivisions		702		11		84		4		786		15
Non-U.S. governments		4,250		123		604		100		4,854		223
Corporate debt		30,283		915		5,058		317		35,341		1,232
RMBS		5,605		74		1,041		37		6,646		111
CMBS		1,739		29		294		16		2,033		45
CDO/ABS		4,501		35		834		21		5,335		56
Total bonds available for sale	$	48,420	$	1,197	$	8,202	$	502	$	56,622	$	1,699

December 31, 2020
Bonds available for sale:
U.S. government and government sponsored entities	$	649	$	17	$	-	$	-	$	649	$	17
Obligations of states, municipalities and political
subdivisions		267		4		78		3		345		7
Non-U.S. governments		1,287		28		262		33		1,549		61
Corporate debt		11,715		348		1,283		81		12,998		429
RMBS		3,486		40		282		18		3,768		58
CMBS		1,644		58		346		12		1,990		70
CDO/ABS		5,456		81		3,063		45		8,519		126
Total bonds available for sale	$	24,504	$	576	$	5,314	$	192	$	29,818	$	768

At September 30, 2021 we held 11,524 individual fixed maturity securities that were in an unrealized loss position and for which no allowance for credit losses has been recorded (including 1,591 individual fixed maturity securities that were in a continuous unrealized loss position for 12 months or more). At December 31, 2020, we held 5,105 individual fixed maturity securities that were in an unrealized loss position and for which no allowance for credit losses has been recorded (including 949 individual fixed maturity securities that 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 September 30, 2021 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.

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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
September 30, 2021
Due in one year or less	$	7,788	$	7,853
Due after one year through five years		44,190		45,730
Due after five years through ten years		46,916		49,930
Due after ten years		97,592		108,974
Mortgage-backed, asset-backed and collateralized		58,373		61,854
Total	$	254,859	$	274,341

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 September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
		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	$	348	$	123	$	258	$	83	$	1,098	$	349	$	1,179	$	641

For the three- and nine-month periods ended September 30, 2021, the aggregate fair value of available for sale securities sold was $13.1 billion and $19.1 billion, respectively, which resulted in net realized gains of $225 million and $749 million, respectively. Included within the net realized gains are $159 million and $549 million of net realized gains for the three- and nine-month periods ended September 30, 2021, respectively, which relate to Fortitude Re funds withheld assets. These net realized gains are included in Net realized gains (losses) on Fortitude Re funds withheld assets.

For the three- and nine-month periods ended September 30, 2020, the aggregate fair value of available for sale securities sold was $3.1 billion and $17.0 billion, respectively, which resulted in net realized gains of $175 million and $538 million, respectively. Included within the net realized gains (losses) are $147 million and $269 million of net realized gains for the three- and nine-month periods ended September 30, 2020, respectively, which relate to the Fortitude Re funds withheld assets for the period after deconsolidation of Fortitude Re. These net realized gains are included in Net realized gains (losses) on Fortitude Re funds withheld assets.

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

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, which are reported in the other bond securities caption in the financial statements, and equity securities measured at fair value:

		September 30, 2021				December 31, 2020
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	1,761	31	%	$	1,845	29	%
Corporate debt		12	-			12	-
Mortgage-backed, asset-backed and collateralized:
RMBS		315	6			429	7
CMBS		274	5			320	5
CDO/ABS and other collateralized		2,289	40			2,685	42
Total mortgage-backed, asset-backed and collateralized		2,878	51			3,434	54
Total fixed maturity securities		4,651	82			5,291	83
Equity securities		1,035	18			1,056	17
Total	$	5,686	100	%	$	6,347	100	%

Other Invested Assets

The following table summarizes the carrying amounts of other invested assets:

		September 30,		December 31,
(in millions)		2021		2020
Alternative investments^{(a) (b)}	$	10,708	$	9,572
Investment real estate^(c)		3,492		7,930
All other investments^(d)		1,777		1,558
Total	$	15,977	$	19,060

(a) At September 30, 2021, included hedge funds of $2.0 billion and private equity funds of $8.7 billion. At December 31, 2020, included hedge funds of $2.3 billion, private equity funds of $7.0 billion and unconsolidated affordable housing partnerships of $257 million.

(b) At September 30, 2021, approximately 58 percent of our hedge fund portfolio is available for redemption in 2021. The remaining 42 percent will be available for redemption between 2022 and 2027.

(c) Represents values net of accumulated depreciation. At September 30, 2021 and December 31, 2020, the accumulated depreciation was $701 million and $756 million, respectively, excluding depreciation related to our affordable housing portfolio.

(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 September 30, 2021 and December 31, 2020.

Net Investment Income

The following table presents the components of Net investment income:

Three Months Ended September 30,	2021						2020
	Excluding Fortitude		Fortitude Re				Excluding Fortitude		Fortitude Re
	Re Funds		Funds Withheld				Re Funds		Funds Withheld
(in millions)	Withheld Assets		Assets		Total		Withheld Assets		Assets		Total
Available for sale fixed maturity securities,
including short-term investments	$	2,173	$	374	$	2,547	$	2,209	$	373	$	2,582
Other fixed maturity securities^(a)		32		3		35		164		7		171
Equity securities		(45)		-		(45)		119		-		119
Interest on mortgage and other loans		435		50		485		443		46		489
Alternative investments^(b)		616		77		693		455		40		495
Real estate		99		-		99		22		-		22
Other investments^(c)		41		1		42		55		-		55
Total investment income		3,351		505		3,856		3,467		466		3,933
Investment expenses		131		10		141		125		8		133
Net investment income	$	3,220	$	495	$	3,715	$	3,342	$	458	$	3,800

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

Nine Months Ended September 30,	2021						2020
	Excluding Fortitude		Fortitude Re				Excluding Fortitude		Fortitude Re
	Re Funds		Funds Withheld				Re Funds		Funds Withheld
(in millions)	Withheld Assets		Assets		Total		Withheld Assets		Assets		Total
Available for sale fixed maturity securities,
including short-term investments	$	6,481	$	1,112	$	7,593	$	7,320	$	459	$	7,779
Other fixed maturity securities^(a)		23		9		32		475		10		485
Equity securities		(36)		-		(36)		(16)		-		(16)
Interest on mortgage and other loans		1,295		154		1,449		1,441		59		1,500
Alternative investments^(b)		1,767		238		2,005		309		54		363
Real estate		215		-		215		142		-		142
Other investments^(c)		162		3		165		(159)		-		(159)
Total investment income		9,907		1,516		11,423		9,512		582		10,094
Investment expenses		348		28		376		412		8		420
Net investment income	$	9,559	$	1,488	$	11,047	$	9,100	$	574	$	9,674

(a) Included in the three- and nine-month periods ended September 30, 2021 were losses of $3 million and $49 million, respectively, related to fixed maturity securities measured at fair value that economically hedge liabilities described in (c) below. Included in the three- and nine-month periods ended September 30, 2020 were income of $8 million and $206 million, respectively, related to fixed maturity securities measured at fair value that economically hedge liabilities 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 nine-month periods ended September 30, 2021 were income of $9 million and $52 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 nine-month periods ended September 30, 2020 were income of $21 million and losses of $195 million, respectively, related to liabilities measured at fair value that are economically hedged with fixed maturity securities as described in (a) above.

Net Realized Gains and Losses

The following table presents the components of Net realized gains (losses):

Three Months Ended September 30,	2021						2020
	Excluding		Fortitude Re				Excluding		Fortitude Re
	Fortitude Re			Funds			Fortitude Re			Funds
	Funds		Withheld				Funds		Withheld
(in millions)	Withheld Assets		Assets			Total	Withheld Assets			Assets		Total
Sales of fixed maturity securities	$	66	$	159	$	225	$	28	$	147	$	175
Intent to sell		-		-		-		-		-		-
Change in allowance for credit losses on fixed maturity
securities		3		1		4		(77)		(4)		(81)
Change in allowance for credit losses on loans		22		3		25		(13)		2		(11)
Foreign exchange transactions		(127)		(9)		(136)		250		7		257
Variable annuity embedded derivatives, net of related
hedges		(39)		-		(39)		(148)		-		(148)
All other derivatives and hedge accounting		317		(15)		302		(626)		(120)		(746)
Other^*		437		51		488		88		-		88
Net realized gains (losses) – excluding Fortitude Re
funds withheld embedded derivative		679		190		869		(498)		32		(466)
Net realized losses on Fortitude Re
funds withheld embedded derivative		-		(209)		(209)		-		(656)		(656)
Net realized gains (losses)	$	679	$	(19)	$	660	$	(498)	$	(624)	$	(1,122)

38 AIG | Third Quarter 2021 Form 10-Q

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

Nine Months Ended September 30,	2021						2020
	Excluding		Fortitude Re				Excluding		Fortitude Re
	Fortitude Re			Funds			Fortitude Re			Funds
	Funds		Withheld				Funds		Withheld
(in millions)	Withheld Assets		Assets			Total	Withheld Assets			Assets		Total
Sales of fixed maturity securities	$	200	$	549	$	749	$	269	$	269	$	538
Intent to sell		-		-		-		(3)		-		(3)
Change in allowance for credit losses on fixed maturity
securities		64		7		71		(299)		(11)		(310)
Change in allowance for credit losses on loans		130		6		136		(73)		6		(67)
Foreign exchange transactions		(37)		(6)		(43)		40		10		50
Variable annuity embedded derivatives, net of related
hedges		(3)		-		(3)		1,034		-		1,034
All other derivatives and hedge accounting		332		(72)		260		365		(146)		219
Other*		645		52		697		97		-		97
Net realized gains – excluding Fortitude Re
funds withheld embedded derivative		1,331		536		1,867		1,430		128		1,558
Net realized gains (losses) on Fortitude Re
funds withheld embedded derivative		-		117		117		-		(1,493)		(1,493)
Net realized gains (losses)	$	1,331	$	653	$	1,984	$	1,430	$	(1,365)	$	65

*In the three- and nine-month periods ended September 30, 2021, primarily includes gains from sale of global real estate investments of $292 million and $341 million, respectively, and gains from affordable housing partnerships of $80 million and $210 million, respectively.

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				Nine Months Ended
	September 30,				September 30,
(in millions)		2021		2020		2021		2020
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	(2,065)	$	2,373	$	(7,863)	$	5,875
Other investments		-		1		(5)		1
Total increase (decrease) in unrealized appreciation (depreciation) of investments	$	(2,065)	$	2,374	$	(7,868)	$	5,876

The following table summarizes the unrealized gains and losses recognized in Net investment income during the reporting period on equity securities and other investments still held at the reporting date:

Three Months Ended September 30,	2021						2020
				Other						Other
			Invested						Invested
(in millions)		Equities		Assets		Total		Equities		Assets		Total
Net gains (losses) recognized during the period on equity securities and
other investments	$	(45)	$	471	$	426	$	119	$	464	$	583
Less: Net gains (losses) recognized during the period on equity
securities and other investment sold during the period		8		23		31		(3)		(5)		(8)
Unrealized gains (losses) recognized during the reporting period
on equity securities and other investments still held at the reporting date	$	(53)	$	448	$	395	$	122	$	469	$	591

Nine Months Ended September 30,	2021						2020
				Other						Other
			Invested						Invested
(in millions)		Equities		Assets		Total		Equities		Assets		Total
Net gains (losses) recognized during the period on equity securities and
other investments	$	(36)	$	1,484	$	1,448	$	(16)	$	264	$	248
Less: Net gains (losses) recognized during the period on equity
securities and other investment sold during the period		(192)		38		(154)		14		10		24
Unrealized gains (losses) recognized during the reporting period
on equity securities and other investments still held at the reporting date	$	156	$	1,446	$	1,602	$	(30)	$	254	$	224

AIG | Third Quarter 2021 Form 10-Q 39

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

Evaluating Investments for AN ALLOWANCE FOR CREDIT LOSSES

Fixed Maturity Securities

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 if 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 Net realized gains (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 Net realized gains (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 was previously recognized (a separate component of AOCI). 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.

Under the current expected credit loss (CECL) model, credit losses are reassessed each period. The allowance for credit losses and the corresponding charge to Net realized gains (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 recording a gain in Net realized gains (losses).

40 AIG | Third Quarter 2021 Form 10-Q

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

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 September 30,	2021						2020
				Non-						Non-
(in millions)	Structured		Structured			Total	Structured		Structured			Total
Balance, beginning of period	$	10	$	87	$	97	$	37	$	161	$	198
Additions:
Securities for which allowance for credit losses were not
previously recorded		-		20		20		1		30		31
Purchases of available for sale debt securities accounted for
as purchased credit deteriorated assets		-		-		-		-		-		-
Accretion of available for sale debt securities accounted for
as purchased credit deteriorated assets		-		-		-		-		-		-
Reductions:
Securities sold during the period		-		(21)		(21)		(2)		(5)		(7)
Addition to (release of) 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 of amortized cost basis		(3)		(21)		(24)		(10)		67		57
Write-offs charged against the allowance		-		(6)		(6)		-		(43)		(43)
Balance, end of period	$	7	$	59	$	66	$	26	$	210	$	236

Nine Months Ended September 30,	2021						2020
				Non-						Non-
(in millions)	Structured		Structured			Total	Structured		Structured			Total
Balance, beginning of period*	$	17	$	169	$	186	$	7	$	-	$	7
Additions:
Securities for which allowance for credit losses were not
previously recorded		8		48		56		36		294		330
Purchases of available for sale debt securities accounted for
as purchased credit deteriorated assets		-		-		-		26		-		26
Accretion of available for sale debt securities accounted for
as purchased credit deteriorated assets		-		-		-		1		-		1
Reductions:
Securities sold during the period		(3)		(28)		(31)		(3)		(10)		(13)
Addition to (release of) 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 of amortized cost basis		(15)		(112)		(127)		(41)		34		(7)
Write-offs charged against the allowance		-		(18)		(18)		-		(108)		(108)
Balance, end of period	$	7	$	59	$	66	$	26	$	210	$	236

* The beginning balance incorporates the Day 1 gross up on purchased credit deteriorated (PCD) assets held as of January 1, 2020.

AIG | Third Quarter 2021 Form 10-Q 41

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

Purchased Credit Deteriorated Securities

We purchase certain RMBS securities that have experienced more-than-insignificant deterioration in credit quality since origination. 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.

We did not purchase securities with more than insignificant credit deterioration since their origination during the nine-month period ended September 30, 2021.

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)		September 30, 2021		December 31, 2020
Fixed maturity securities available for sale	$	3,546	$	3,636

At both September 30, 2021 and December 31, 2020, amounts borrowed under repurchase and securities lending agreements totaled $3.7 billion.

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
September 30, 2021
Bonds available for sale:
Non-U.S. governments	$	39	$	-	$	-	$	-	$	-	$	39
Corporate debt		147		78		8		-		3		236
Total	$	186	$	78	$	8	$	-	$	3	$	275

42 AIG | Third Quarter 2021 Form 10-Q

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Investments

December 31, 2020
Bonds available for sale:
Non-U.S. governments	$	63	$	-	$	-	$	-	$	-	$	63
Corporate debt		96		97		-		-		-		193
Total	$	159	$	97	$	-	$	-	$	-	$	256

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
September 30, 2021
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	-	$	93	$	-	$	-	$	93
Non-U.S. governments		-		-		-		-		-		-
Corporate debt		-		495		2,492		191		-		3,178
Total	$	-	$	495	$	2,585	$	191	$	-	$	3,271

December 31, 2020
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	-	$	103	$	-	$	-	$	103
Non-U.S. governments		-		-		-		-		-		-
Corporate debt		-		982		2,295		-		-		3,277
Total	$	-	$	982	$	2,398	$	-	$	-	$	3,380

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)		September 30, 2021		December 31, 2020
Securities collateral pledged to us	$	977	$	5,359

At September 30, 2021 and December 31, 2020, the carrying value of reverse repurchase agreements totaled $1.0 billion and $5.4 billion, respectively.

We do not currently offset any secured financing transactions. All such transactions are collateralized and margined on a daily basis 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 $11.6 billion and $11.2 billion at September 30, 2021 and December 31, 2020, 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 $210 million and $191 million of stock in FHLBs at September 30, 2021 and December 31, 2020, 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 $5.3 billion and $0.9 billion, respectively, at September 30, 2021 and $5.7 billion and $1.2 billion, respectively, at December 31, 2020.

AIG | Third Quarter 2021 Form 10-Q 43

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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 $1.4 billion and $1.5 billion, at September 30, 2021 and December 31, 2020, respectively. 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 $582 million and $494 million, comprised of bonds available for sale and short-term investments at September 30, 2021 and December 31, 2020, respectively.

Reinsurance transactions between AIG and Fortitude Re were structured as 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

The following table presents the composition of Mortgage and other loans receivable, net:

	September 30,			December 31,
(in millions)		2021		2020
Commercial mortgages^(a)	$	35,980	$	36,424
Residential mortgages		4,808		4,645
Life insurance policy loans		1,876		1,986
Commercial loans, other loans and notes receivable		3,798		3,321
Total mortgage and other loans receivable		46,462		46,376
Allowance for credit losses^(b)		(641)		(814)
Mortgage and other loans receivable, net	$	45,821	$	45,562

(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 22 percent and 10 percent, respectively, at September 30, 2021 and 24 percent and 10 percent, respectively, at December 31, 2020).

(b)Does not include allowance for credit losses of $83 million and $79 million, respectively, at September 30, 2021 and December 31, 2020, in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.

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 September 30, 2021, $8 million and $251 million of residential mortgage loans and commercial mortgage loans, respectively, were placed on nonaccrual status. As of December 31, 2020, $14 million and $238 million of residential mortgage loans and commercial mortgage loans, respectively, were placed on nonaccrual status.

Accrued interest is presented separately and is included in Other assets on the Condensed Consolidated Balance Sheets. As of September 30, 2021, accrued interest receivable was $11 million and $131 million associated with residential mortgage loans and commercial mortgage loans, respectively. As of December 31, 2020, accrued interest receivable was $14 million and $129 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.

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.

44 AIG | Third Quarter 2021 Form 10-Q

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6. Lending Activities

Credit Quality of Commercial Mortgages

The following table presents debt service coverage ratios^(a) for commercial mortgages by year of vintage:

September 30, 2021
(in millions)		2021		2020		2019		2018		2017		Prior		Total
>1.2X	$	1,466	$	1,827	$	5,082	$	4,592	$	3,709	$	12,977	$	29,653
1.00 - 1.20X		526		868		752		667		181		1,219		4,213
<1.00X		1		27		-		957		88		1,041		2,114
Total commercial mortgages	$	1,993	$	2,722	$	5,834	$	6,216	$	3,978	$	15,237	$	35,980

December 31, 2020
(in millions)		2020		2019		2018		2017		2016		Prior		Total
>1.2X	$	1,914	$	5,596	$	5,649	$	3,941	$	4,592	$	10,730	$	32,422
1.00 - 1.20X		770		467		456		144		161		1,106		3,104
<1.00X		4		86		343		87		96		282		898
Total commercial mortgages	$	2,688	$	6,149	$	6,448	$	4,172	$	4,849	$	12,118	$	36,424

The following table presents loan-to-value ratios^(b) for commercial mortgages by year of vintage:

September 30, 2021
(in millions)		2021		2020		2019		2018		2017		Prior		Total
Less than 65%	$	1,304	$	2,365	$	3,484	$	4,232	$	2,641	$	10,780	$	24,806
65% to 75%		355		331		2,331		1,984		1,010		3,346		9,357
76% to 80%		-		-		19		-		153		531		703
Greater than 80%		334		26		-		-		174		580		1,114
Total commercial mortgages	$	1,993	$	2,722	$	5,834	$	6,216	$	3,978	$	15,237	$	35,980

December 31, 2020
(in millions)		2020		2019		2018		2017		2016		Prior		Total
Less than 65%	$	2,382	$	3,755	$	3,855	$	2,565	$	2,852	$	8,145	$	23,554
65% to 75%		274		2,330		2,363		1,306		1,200		2,551		10,024
76% to 80%		28		45		30		-		70		515		688
Greater than 80%		4		19		200		301		727		907		2,158
Total commercial mortgages	$	2,688	$	6,149	$	6,448	$	4,172	$	4,849	$	12,118	$	36,424

(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 2.0X at September 30, 2021 and 2.2X at December 31, 2020. The debt service coverage ratios have been updated within the last 12 months. The debt service coverage ratios are updated when additional relevant information becomes available.

(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 58 percent at September 30, 2021 and was 60 percent at December 31, 2020. The loan-to-value ratios have been updated within the last three to nine months.

AIG | Third Quarter 2021 Form 10-Q 45

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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	Total
September 30, 2021
Credit Quality Performance
Indicator:
In good standing	646	$	14,084	$	10,405	$	4,872	$	3,774	$	1,932	$	451	$	35,518	99	%
Restructured^(a)	9		-		141		49		-		136		-		326	1
90 days or less delinquent	-		-		-		-		-		-		-		-	-
>90 days delinquent or in
process of foreclosure	5		-		81		55		-		-		-		136	-
Total^(b)	660	$	14,084	$	10,627	$	4,976	$	3,774	$	2,068	$	451	$	35,980	100	%
Allowance for credit losses		$	104	$	262	$	114	$	42	$	29	$	6	$	557	2	%

December 31, 2020
Credit Quality Performance
Indicator:
In good standing	688	$	13,969	$	10,506	$	5,144	$	3,766	$	2,064	$	460	$	35,909	99	%
Restructured^(a)	5		-		52		50		-		4		-		106	-
90 days or less delinquent	3		-		87		-		-		114		-		201	-
>90 days delinquent or in
process of foreclosure	4		-		67		55		-		86		-		208	1
Total^(b)	700	$	13,969	$	10,712	$	5,249	$	3,766	$	2,268	$	460	$	36,424	100	%
Allowance for credit losses		$	145	$	267	$	145	$	53	$	65	$	10	$	685	2	%

(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 7 to the Consolidated Financial Statements in the 2020 Annual Report.

(b) Does not reflect allowance for credit losses.

The following table presents credit quality performance indicators for residential mortgages by year of vintage:

September 30, 2021
(in millions)		2021		2020		2019		2018		2017		Prior		Total
FICO*:
780 and greater	$	1,066	$	752	$	355	$	133	$	227	$	570	$	3,103
720 - 779		830		255		102		51		69		177		1,484
660 - 719		29		44		25		13		21		55		187
600 - 659		-		1		2		3		2		13		21
Less than 600		-		-		1		1		2		9		13
Total residential mortgages	$	1,925	$	1,052	$	485	$	201	$	321	$	824	$	4,808

December 31, 2020
(in millions)		2020		2019		2018		2017		2016		Prior		Total
FICO*:
780 and greater	$	522	$	619	$	283	$	469	$	539	$	484	$	2,916
720 - 779		478		349		103		155		180		156		1,421
660 - 719		19		61		28		42		51		58		259
600 - 659		1		5		6		7		4		12		35
Less than 600		-		-		1		2		2		9		14
Total residential mortgages	$	1,020	$	1,034	$	421	$	675	$	776	$	719	$	4,645

*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 twelve months.

46 AIG | Third Quarter 2021 Form 10-Q

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6. Lending Activities

Methodology Used to Estimate the Allowance for Credit Losses

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 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.

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 gains (losses) in the Condensed Consolidated Statements of Income (Loss).

The following table presents a rollforward of the changes in the allowance for credit losses on Mortgage and other loans receivable^(a):

Three Months Ended September 30,	2021						2020
		Commercial		Other				Commercial		Other
(in millions)		Mortgages		Loans		Total		Mortgages		Loans		Total
Allowance, beginning of period	$	587	$	114	$	701	$	667	$	127	$	794
Loans charged off		(2)		-		(2)		-		-		-
Recoveries of loans previously charged off		-		-		-		-		-		-
Net charge-offs		(2)		-		(2)		-		-		-
Addition to (release of) allowance for loan losses		(28)		1		(27)		(8)		11		3
Reclassified to held for sale^(b)		-		(31)		(31)		-		-		-
Allowance, end of period	$	557	$	84	$	641	$	659	$	138	$	797
Nine Months Ended September 30,	2021						2020
		Commercial		Other				Commercial		Other
(in millions)		Mortgages		Loans		Total		Mortgages		Loans		Total
Allowance, beginning of year	$	685	$	129	$	814	$	336	$	102	$	438
Initial allowance upon CECL adoption		-		-		-		311		7		318
Loans charged off		(2)		-		(2)		(12)		-		(12)
Recoveries of loans previously charged off		-		-		-		-		-		-
Net charge-offs		(2)		-		(2)		(12)		-		(12)
Addition to (release of) allowance for loan losses		(126)		(14)		(140)		24		29		53
Reclassified to held for sale^(b)		-		(31)		(31)		-		-		-
Allowance, end of period	$	557	$	84	$	641	$	659	$	138	$	797

(a)Does not include allowance for credit losses of $83 million and $66 million, respectively, at September 30, 2021 and 2020 in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.

(b)Reported in Other assets in the Condensed Consolidated Balance Sheets.

AIG | Third Quarter 2021 Form 10-Q 47

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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, 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 in 2020. 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. As of September 30, 2021, the number of loans in deferral or in the process of being modified have returned to pre-COVID-19 levels.

During the nine-month periods ended September 30, 2021 and 2020, loans with a carrying value of $45 million and $50 million, respectively, were modified in TDRs.

7. Reinsurance

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 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. Additionally, the Majority Interest Fortitude Sale was 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. 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.

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 (loss)). 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 Net realized 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.

48 AIG | Third Quarter 2021 Form 10-Q

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 7. Reinsurance

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:

	September 30, 2021				December 31, 2020
	Carrying			Fair	Carrying			Fair
(in millions)		Value		Value		Value		Value	Corresponding Accounting Policy
Fixed maturity securities - available for sale^(a)	$	33,457	$	33,457	$	36,047	$	36,047	Fair value through other comprehensive income (loss)
Fixed maturity securities - fair value option		158		158		200		200	Fair value through net investment income
Commercial mortgage loans		3,732		3,968		3,679		4,010	Amortized cost
Real estate investments		245		508		358		585	Amortized cost
Private equity funds / hedge funds		1,465		1,465		1,168		1,168	Fair value through net investment income
Policy loans		384		384		413		413	Amortized cost
Short-term investments		55		55		34		34	Fair value through net investment income
Funds withheld investment assets		39,496		39,995		41,899		42,457
Derivative assets, net^(b)		47		47		(1)		(1)	Fair value through net realized gains (losses)
Other^(c)		846		846		604		604	Amortized cost
Total	$	40,389	$	40,888	$	42,502	$	43,060

(a)The change in the net unrealized gains (losses) on available for sale securities related to the Fortitude Re funds withheld assets was $(2.1) billion ($(1.6) billion after-tax) for the nine months ended September 30, 2021 and $1.0 billion ($812 million after-tax) during the post deconsolidation period (June 2, 2020 - December 31, 2020).

(b) The derivative assets and liabilities have been presented net of cash collateral. The derivative assets and liabilities supporting the Fortitude Re funds withheld arrangements had a fair market value of $304 million and $12 million, respectively, as of September 30, 2021. The derivative assets supporting the Fortitude Re funds withheld arrangements had a fair market value of $357 million as of December 31, 2020. These derivative assets and liabilities are fully collateralized either by cash or securities.

The impact of the funds withheld arrangements with Fortitude Re was as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2021		2020		2021		2020
Net underwriting income^(a)	$	-	$	-	$	-	$	-
Net investment income - Fortitude Re funds withheld assets		495		458		1,488		574
Net realized gains (losses) on Fortitude Re funds withheld assets:
Net realized gains - Fortitude Re funds withheld assets		190		32		536		128
Net realized gains (losses) - Fortitude Re embedded derivatives		(209)		(656)		117		(1,493)
Net realized gains (losses) on Fortitude Re funds withheld assets		(19)		(624)		653		(1,365)
Income (loss) from continuing operations before income tax expense (benefit)		476		(166)		2,141		(791)
Income tax expense (benefit)^(b)		99		(35)		449		(166)
Net income (loss)		377		(131)		1,692		(625)
Change in unrealized appreciation (depreciation) of all other investments^(b)		(360)		132		(1,645)		570
Comprehensive income (loss)	$	17	$	1	$	47	$	(55)

(a) Effective in the second quarter of 2021, an amendment was made to the purchase agreement to finalize the post-closing purchase price adjustment for adverse reserve development and as a result, during the nine months ended September 30, 2021, AIG recognized a $21 million benefit through Policyholder benefits and losses incurred.

(b) The income tax expense (benefit) and the tax impact in AOCI 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 and the appreciation of these assets is the primary driver of the comprehensive income (loss) reflected above.

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.

AIG | Third Quarter 2021 Form 10-Q 49

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 7. Reinsurance

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, reinsurance recoverables). 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 September 30, 2021 were $76.8 billion. As of that date, utilizing AIG’s ORRs, (i) approximately 92 percent of the reinsurance recoverables were investment grade, of which 52 percent related to General Insurance and 40 percent related to Life and Retirement; (ii) approximately 6 percent of the reinsurance recoverables were non-investment grade, the majority of which related to General Insurance; (iii) less than one percent of the non-investment grade reinsurance recoverables related to Life and Retirement and (iv) approximately one percent of the reinsurance recoverables related to entities that were not rated by AIG.

As of September 30, 2021, approximately 74 percent of our non-investment grade reinsurance exposure related to captive insurers. These arrangements are typically collateralized by letters of credit, funds withheld or trust agreements.

Reinsurance Recoverable Allowance

The following table presents a rollforward of the reinsurance recoverable allowance:

Three Months Ended September 30,	2021						2020
		General		Life and				General		Life and
(in millions)	Insurance		Retirement			Total	Insurance		Retirement			Total
Balance, beginning of period	$	287	$	87	$	374	$	305	$	59	$	364
Addition to (release of) allowance for expected credit losses and disputes, net		5		15		20		(2)		2		-
Write-offs charged against the allowance for credit losses and disputes		(8)		-		(8)		-		-		-
Other changes		2		-		2		5		1		6
Balance, end of period	$	286	$	102	$	388	$	308	$	62	$	370

Nine Months Ended September 30,	2021						2020
		General		Life and				General		Life and
(in millions)	Insurance		Retirement			Total	Insurance		Retirement			Total
Balance, beginning of year	$	292	$	83	$	375	$	111	$	40	$	151
Initial allowance upon CECL adoption		-		-		-		202		22		224
Addition to (release of) allowance for expected credit losses and disputes, net		5		19		24		-		5		5
Write-offs charged against the allowance for credit losses and disputes		(15)		-		(15)		(5)		(5)		(10)
Other changes		4		-		4		-		-		-
Balance, end of period	$	286	$	102	$	388	$	308	$	62	$	370

There were no material recoveries of credit losses previously written off for either of the three- or nine-month periods ended September 30, 2021. There were no recoveries of credit losses previously written off for either of the three- or nine-month periods ended September 30, 2020.

Past-Due Status

We consider a reinsurance asset to be past due when it is 90 days past due. The allowance for credit losses is estimated excluding disputed amounts. An allowance for disputes is established using the losses incurred method for contingencies. Past due balances on claims that are not in dispute were not material for any of the periods presented.

50 AIG | Third Quarter 2021 Form 10-Q

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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 to which the entity was designed to expose the variable interest holders.

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

Creditors or beneficial interest holders of VIEs for which AIG is the primary beneficiary generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to AIG, except in limited circumstances when AIG has provided a guarantee to the VIE’s interest holders. 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		Partnerships^(e)		Other		Total
September 30, 2021
Assets:
Bonds available for sale	$	-	$	5,104	$	-	$	-	$	5,104
Other bond securities		-		1,985		-		-		1,985
Equity securities		449		-		-		-		449
Mortgage and other loans receivable		-		2,875		-		-		2,875
Other invested assets
Alternative investments^(a)		3,167		-		-		-		3,167
Investment real estate		3,026		-		-		-		3,026
Short-term investments		388		176		-		20		584
Cash		137		-		-		-		137
Accrued investment income		-		20		-		-		20
Other assets^(e)		152		70		3,898		-		4,120
Other		28		-		-		2		30
Total^(b)	$	7,347	$	10,230	$	3,898	$	22	$	21,497
Liabilities:
Debt of consolidated investment entities	$	2,285	$	4,519	$	-	$	-	$	6,804
Other^(c)(e)		166		317		2,570		9		3,062
Total	$	2,451	$	4,836	$	2,570	$	9	$	9,866

December 31, 2020
Assets:
Bonds available for sale	$	-	$	6,089	$	-	$	-	$	6,089
Other bond securities		-		2,367		-		-		2,367
Equity securities		507		-		-		-		507
Mortgage and other loans receivable		-		3,135		-		-		3,135
Other invested assets
Alternative investments^(a)		2,689		-		-		-		2,689
Investment real estate		3,378		-		3,558		-		6,936
Short-term investments		365		1,534		-		27		1,926
Cash		129		-		203		-		332
Accrued investment income		-		38		-		-		38
Other assets		166		120		243		-		529
Other		3		-		-		2		5
Total^(b)	$	7,237	$	13,283	$	4,004	$	29	$	24,553

AIG | Third Quarter 2021 Form 10-Q 51

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 8. Variable Interest Entities

Liabilities:
Debt of consolidated investment entities	$	2,559	$	3,961	$	2,287	$	2	$	8,809
Other^(c)		180		187		187		10		564
Total	$	2,739	$	4,148	$	2,474	$	12	$	9,373

(a)Comprised primarily of investments in real estate joint ventures at September 30, 2021 and December 31, 2020.

(b) The assets of each VIE can be used only to settle specific obligations of that VIE.

(d) At September 30, 2021 and December 31, 2020, off-balance sheet exposure primarily consisting of our insurance companies’ commitments to real estate and investment entities were $2.7 billion and $2.4 billion, respectively, of which commitments to external parties were $0.8 billion and $0.7 billion, respectively.

(e) Includes Affordable Housing portfolio classified as held for sale and reported in Other assets and Other liabilities.

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.

Under the terms of six transactions entered into between 2012 and 2014, securitized portfolios of certain debt securities previously owned by AIG and its affiliates, an indirectly wholly-owned subsidiary of AIG was obligated to make certain capital contributions to such a securitization VIE in the event that the VIE was unable to redeem any rated notes it had in issue on the relevant redemption date. AIG had provided a guarantee to the six securitization VIEs of the obligations of its indirectly wholly-owned subsidiary to make such capital contributions when due. At or prior to September 30, 2021, all six transactions had been terminated. In aggregate, the termination of these six transactions resulted in a reduction of debt of consolidated investment entities of $175 million. There were no amounts paid related to the guarantees provided.

SunAmerica Affordable Housing Partners, Inc. (SAAHP) provides a Base Internal Rate of Return (Base IRR) guarantee to its third party investors, so that on a specified date if the investor has not received distributions of cash and allocations of certain tax benefits required to achieve their Base IRR as provided for in the partnership agreement, SAAHP shall distribute cash to effectively generate the Base IRR to the investor. In addition, SAAHP has from time to time guaranteed certain debt issued by third parties related to its business activities. As of September 30, 2021, the off-balance sheet amount of that guarantee was approximately $1 million.

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