AMERICAN INTERNATIONAL GROUP, INC. - Quarter Report: 2021 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021 |
OR |
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number 1-8787 |
American International Group, Inc. (Exact name of registrant as specified in its charter) |
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.
☑ |
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| Accelerated filer ☐ |
Non-accelerated filer ☐ |
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| Smaller reporting company ☐ |
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|
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of August 2, 2021, there were 855,202,437 shares outstanding of the registrant’s common stock.
AMERICAN INTERNATIONAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
June 30, 2021
Table of Contents
FORM 10-Q |
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Item Number | Description | Page | |
Part I – Financial Information |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
| Cautionary Statement Regarding Forward-Looking Information | ||
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| Glossary | ||
| Acronyms | ||
Part II – Other Information |
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AIG | Second Quarter 2021 Form 10-Q 1
Part I – Financial Information
Item 1. | Financial Statements
American International Group, Inc.
Condensed Consolidated Balance Sheets (unaudited)
| June 30, | December 31, | ||
(in millions, except for share data) |
| 2021 |
| 2020 |
Assets: |
|
|
|
|
Investments: |
|
|
|
|
Fixed maturity securities: |
|
|
|
|
Bonds available for sale, at fair value, net of allowance for credit losses of $97 in 2021 and $186 in 2020 |
|
|
|
|
(amortized cost: 2021 - $251,620; 2020 - $244,337)* | $ | 273,070 | $ | 271,496 |
Other bond securities, at fair value (See Note 5)* |
| 4,866 |
| 5,291 |
Equity securities, at fair value (See Note 5)* |
| 1,079 |
| 1,056 |
Mortgage and other loans receivable, net of allowance for credit losses of $701 in 2021 and $814 in 2020* |
| 45,216 |
| 45,562 |
Other invested assets (portion measured at fair value: 2021 - $9,580; 2020 - $8,422)* |
| 20,139 |
| 19,060 |
Short-term investments, including restricted cash of $59 in 2021 and $180 in 2020 |
|
|
|
|
(portion measured at fair value: 2021 - $5,523; 2020 - $5,968)* |
| 15,169 |
| 18,203 |
Total investments |
| 359,539 |
| 360,668 |
|
|
|
|
|
Cash* |
| 2,760 |
| 2,827 |
Accrued investment income* |
| 2,288 |
| 2,271 |
Premiums and other receivables, net of allowance for credit losses and disputes of $198 in 2021 and $205 in 2020 |
| 14,303 |
| 11,333 |
Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes of $0 in 2021 and $0 in 2020 |
| 34,092 |
| 34,578 |
Reinsurance assets - other, net of allowance for credit losses and disputes of $325 in 2021 and $326 in 2020 |
| 41,344 |
| 38,963 |
Deferred income taxes |
| 12,628 |
| 12,624 |
Deferred policy acquisition costs |
| 10,723 |
| 9,805 |
Other assets, net of allowance for credit losses of $49 in 2021 and $49 in 2020, including restricted cash of $242 in 2021 |
|
|
|
|
and $223 in 2020 (portion measured at fair value: 2021 - $1,145; 2020 - $887)* |
| 13,267 |
| 13,122 |
Separate account assets, at fair value |
| 107,306 |
| 100,290 |
Total assets | $ | 598,250 | $ | 586,481 |
Liabilities: |
|
|
|
|
Liability for unpaid losses and loss adjustment expenses, including allowance for credit losses of $14 in 2021 and $14 in 2020 | $ | 78,981 | $ | 77,720 |
Unearned premiums |
| 21,487 |
| 18,660 |
Future policy benefits for life and accident and health insurance contracts |
| 51,771 |
| 51,097 |
Policyholder contract deposits (portion measured at fair value: 2021 - $9,020; 2020 - $9,798) |
| 161,112 |
| 160,251 |
Other policyholder funds |
| 3,516 |
| 3,548 |
Fortitude Re funds withheld payable (portion measured at fair value: 2021 - $5,317; 2020 - $6,042) |
| 41,403 |
| 43,060 |
Other liabilities (portion measured at fair value: 2021 - $741; 2020 - $570)* |
| 30,039 |
| 27,122 |
Long-term debt (portion measured at fair value: 2021 - $1,974; 2020 - $2,097) |
| 26,161 |
| 28,103 |
Debt of consolidated investment entities* |
| 9,566 |
| 9,431 |
Separate account liabilities |
| 107,306 |
| 100,290 |
Total liabilities |
| 531,342 |
| 519,282 |
Contingencies, commitments and guarantees (See Note 11) |
|
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|
|
|
|
|
AIG shareholders’ equity: |
|
|
|
|
Series A non-cumulative preferred stock and additional paid in capital, $5.00 par value; 100,000,000 shares |
|
|
|
|
authorized; shares issued: 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 - 1,051,743,562 shares; 2020 - 1,045,113,443 shares of common stock |
| (49,634) |
| (49,322) |
Additional paid-in capital |
| 81,322 |
| 81,418 |
Retained earnings |
| 18,935 |
| 15,504 |
Accumulated other comprehensive income |
| 10,209 |
| 13,511 |
Total AIG shareholders’ equity |
| 66,083 |
| 66,362 |
Non-redeemable noncontrolling interests |
| 825 |
| 837 |
Total equity |
| 66,908 |
| 67,199 |
Total liabilities and equity | $ | 598,250 | $ | 586,481 |
* See Note 8 for details of balances associated with variable interest entities.
See accompanying Notes to Condensed Consolidated Financial Statements.
2 AIG | Second Quarter 2021 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Income (Loss) (unaudited)
| Three Months Ended |
| Six Months Ended | ||||||||
| June 30, |
| June 30, | ||||||||
(dollars in millions, except per common share data) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
Revenues: |
|
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|
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|
|
|
|
|
|
|
Premiums | $ | 7,914 |
| $ | 7,407 |
| $ | 14,421 |
| $ | 14,850 |
Policy fees |
| 771 |
|
| 749 |
|
| 1,555 |
|
| 1,504 |
Net investment income: |
|
|
|
|
|
|
|
|
|
|
|
Net investment income - excluding Fortitude Re funds withheld assets |
| 3,168 |
|
| 3,250 |
|
| 6,339 |
|
| 5,758 |
Net investment income - Fortitude Re funds withheld assets |
| 507 |
|
| 116 |
|
| 993 |
|
| 116 |
Total net investment income |
| 3,675 |
|
| 3,366 |
|
| 7,332 |
|
| 5,874 |
Net realized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) - excluding Fortitude Re funds withheld |
|
|
|
|
|
|
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assets and embedded derivative |
| (43) |
|
| (1,591) |
|
| 652 |
|
| 1,928 |
Net realized gains (losses) on Fortitude Re funds withheld assets |
| 173 |
|
| 96 |
|
| 346 |
|
| 96 |
Net realized gains (losses) on Fortitude Re funds withheld embedded |
|
|
|
|
|
|
|
|
|
|
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derivative |
| (2,056) |
|
| (837) |
|
| 326 |
|
| (837) |
Total net realized gains (losses) |
| (1,926) |
|
| (2,332) |
|
| 1,324 |
|
| 1,187 |
Other income |
| 247 |
|
| 206 |
|
| 503 |
|
| 424 |
Total revenues |
| 10,681 |
|
| 9,396 |
|
| 25,135 |
|
| 23,839 |
Benefits, losses and expenses: |
|
|
|
|
|
|
|
|
|
|
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Policyholder benefits and losses incurred |
| 6,084 |
|
| 6,521 |
|
| 11,223 |
|
| 12,846 |
Interest credited to policyholder account balances |
| 872 |
|
| 918 |
|
| 1,740 |
|
| 1,875 |
Amortization of deferred policy acquisition costs |
| 915 |
|
| 754 |
|
| 2,219 |
|
| 2,616 |
General operating and other expenses |
| 2,218 |
|
| 2,087 |
|
| 4,306 |
|
| 4,240 |
Interest expense |
| 338 |
|
| 365 |
|
| 680 |
|
| 720 |
(Gain) loss on extinguishment of debt |
| 106 |
|
| - |
|
| 98 |
|
| 17 |
Net (gain) loss on sale or disposal of divested businesses |
| 1 |
|
| 8,412 |
|
| (6) |
|
| 8,628 |
Total benefits, losses and expenses |
| 10,534 |
|
| 19,057 |
|
| 20,260 |
|
| 30,942 |
Income (loss) from continuing operations before income tax expense (benefit) |
| 147 |
|
| (9,661) |
|
| 4,875 |
|
| (7,103) |
Income tax expense (benefit) |
| (3) |
|
| (1,896) |
|
| 795 |
|
| (992) |
Income (loss) from continuing operations |
| 150 |
|
| (7,765) |
|
| 4,080 |
|
| (6,111) |
Loss from discontinued operations, net of income taxes |
| - |
|
| (1) |
|
| - |
|
| (1) |
Net income (loss) |
| 150 |
|
| (7,766) |
|
| 4,080 |
|
| (6,112) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to |
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| 51 |
|
| 162 |
|
| 105 |
|
| 67 |
Net income (loss) attributable to AIG |
| 99 |
|
| (7,928) |
|
| 3,975 |
|
| (6,179) |
Less: Dividends on preferred stock |
| 8 |
|
| 8 |
|
| 15 |
|
| 15 |
Net income (loss) attributable to AIG common shareholders | $ | 91 |
| $ | (7,936) |
| $ | 3,960 |
| $ | (6,194) |
|
|
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|
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|
|
Income (loss) per common share attributable to AIG common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
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|
|
|
|
Income (loss) from continuing operations | $ | 0.11 |
| $ | (9.15) |
| $ | 4.58 |
| $ | (7.11) |
Income (loss) from discontinued operations | $ | - |
| $ | - |
| $ | - |
| $ | - |
Net income (loss) attributable to AIG common shareholders | $ | 0.11 |
| $ | (9.15) |
| $ | 4.58 |
| $ | (7.11) |
Diluted: |
|
|
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|
|
|
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|
|
Income (loss) from continuing operations | $ | 0.11 |
| $ | (9.15) |
| $ | 4.53 |
| $ | (7.11) |
Income (loss) from discontinued operations | $ | - |
| $ | - |
| $ | - |
| $ | - |
Net income (loss) attributable to AIG common shareholders | $ | 0.11 |
| $ | (9.15) |
| $ | 4.53 |
| $ | (7.11) |
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 862,930,931 |
|
| 866,968,305 |
|
| 865,508,343 |
|
| 870,590,968 |
Diluted |
| 872,877,303 |
|
| 866,968,305 |
|
| 874,566,280 |
|
| 870,590,968 |
See accompanying Notes to Condensed Consolidated Financial Statements.
AIG | Second Quarter 2021 Form 10-Q 3
American International Group, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
(in millions) |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
Net income (loss) |
| $ | 150 |
| $ | (7,766) |
| $ | 4,080 |
| $ | (6,112) |
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
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|
|
|
Change in unrealized appreciation (depreciation) of fixed maturity securities on |
|
|
|
|
|
|
|
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|
|
|
|
which allowance for credit losses was taken |
|
| 4 |
|
| 126 |
|
| 37 |
|
| (233) |
Change in unrealized appreciation (depreciation) of all other investments |
|
| 3,710 |
|
| 10,082 |
|
| (3,489) |
|
| 4,540 |
Change in foreign currency translation adjustments |
|
| 14 |
|
| (61) |
|
| 139 |
|
| (146) |
Change in retirement plan liabilities adjustment |
|
| 14 |
|
| 9 |
|
| 11 |
|
| 2 |
Change in fair value of liabilities under fair value option attributable to changes in |
|
|
|
|
|
|
|
|
|
|
|
|
own credit risk |
|
| - |
|
| (2) |
|
| (1) |
|
| 1 |
Other comprehensive income (loss) |
|
| 3,742 |
|
| 10,154 |
|
| (3,303) |
|
| 4,164 |
Comprehensive income (loss) |
|
| 3,892 |
|
| 2,388 |
|
| 777 |
|
| (1,948) |
Comprehensive income attributable to noncontrolling interests |
|
| 50 |
|
| 153 |
|
| 104 |
|
| 44 |
Comprehensive income (loss) attributable to AIG |
| $ | 3,842 |
| $ | 2,235 |
| $ | 673 |
| $ | (1,992) |
|
|
|
|
|
|
|
|
|
|
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|
|
See accompanying Notes to Condensed Consolidated Financial Statements. |
4 AIG | Second Quarter 2021 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Equity (unaudited)
|
| Preferred |
|
|
|
|
|
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|
|
|
|
|
| Non- |
|
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| Stock and |
|
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| Accumulated |
| Total AIG |
| redeemable |
|
| |
| Additional |
|
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|
|
| Additional |
|
|
| Other |
| Share- |
| Non- |
|
| |
|
| Paid-in |
| Common |
| Treasury |
| Paid-in |
| Retained | Comprehensive |
| holders' |
| controlling |
| Total | |
(in millions) |
| Capital |
| Stock |
| Stock |
| Capital |
| Earnings | Income |
| Equity |
| Interests |
| Equity | |
Three Months Ended June 30, 2021 |
|
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Balance, beginning of period | $ | 485 | $ | 4,766 | $ | (49,412) | $ | 81,253 | $ | 19,121 | $ | 6,466 | $ | 62,679 | $ | 881 | $ | 63,560 |
Common stock issued under stock plans |
| - |
| - |
| 7 |
| (5) |
| - |
| - |
| 2 |
| - |
| 2 |
Purchase of common stock |
| - |
| - |
| (230) |
| - |
| - |
| - |
| (230) |
| - |
| (230) |
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| 99 |
| - |
| 99 |
| 51 |
| 150 |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (8) |
| - |
| (8) |
| - |
| (8) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (274) |
| - |
| (274) |
| - |
| (274) |
Other comprehensive income (loss) |
| - |
| - |
| - |
| - |
| - |
| 3,743 |
| 3,743 |
| (1) |
| 3,742 |
Net decrease due to divestitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and acquisitions |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (17) |
| (17) |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 2 |
| 2 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (91) |
| (91) |
Other |
| - |
| - |
| 1 |
| 74 |
| (3) |
| - |
| 72 |
| - |
| 72 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (49,634) | $ | 81,322 | $ | 18,935 | $ | 10,209 | $ | 66,083 | $ | 825 | $ | 66,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 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 |
| - |
| - |
| 178 |
| (260) |
| - |
| - |
| (82) |
| - |
| (82) |
Purchase of common stock |
| - |
| - |
| (592) |
| - |
| - |
| - |
| (592) |
| - |
| (592) |
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| 3,975 |
| - |
| 3,975 |
| 105 |
| 4,080 |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (15) |
| - |
| (15) |
| - |
| (15) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (550) |
| - |
| (550) |
| - |
| (550) |
Other comprehensive loss |
| - |
| - |
| - |
| - |
| - |
| (3,302) |
| (3,302) |
| (1) |
| (3,303) |
Net increase due to divestitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and acquisitions |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 58 |
| 58 |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 7 |
| 7 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (181) |
| (181) |
Other |
| - |
| - |
| 102 |
| 164 |
| 21 |
| - |
| 287 |
| - |
| 287 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (49,634) | $ | 81,322 | $ | 18,935 | $ | 10,209 | $ | 66,083 | $ | 825 | $ | 66,908 |
AIG | Second Quarter 2021 Form 10-Q 5
American International Group, Inc.
Condensed Consolidated Statements of Equity (unaudited)(continued)
|
| Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
| Stock and |
|
|
|
|
|
|
|
|
| Accumulated |
| Total AIG |
| redeemable |
|
| |
| Additional |
|
|
|
|
| Additional |
|
|
| Other |
| Share- |
| Non- |
|
| |
|
| Paid-in |
| Common |
| Treasury |
| Paid-in |
| Retained | Comprehensive |
| holders' |
| controlling |
| Total | |
(in millions) |
| Capital |
| Stock |
| Stock |
| Capital |
| Earnings | Income (Loss) |
| Equity |
| Interests |
| Equity | |
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period | $ | 485 | $ | 4,766 | $ | (49,334) | $ | 81,188 | $ | 24,062 | $ | (994) | $ | 60,173 | $ | 1,670 | $ | 61,843 |
Common stock issued under stock plans |
| - |
| - |
| 7 |
| (9) |
| - |
| - |
| (2) |
| - |
| (2) |
Purchase of common stock |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Net income (loss) attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| (7,928) |
| - |
| (7,928) |
| 162 |
| (7,766) |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (8) |
| - |
| (8) |
| - |
| (8) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (275) |
| - |
| (275) |
| - |
| (275) |
Other comprehensive income (loss) |
| - |
| - |
| - |
| - |
| - |
| 10,163 |
| 10,163 |
| (9) |
| 10,154 |
Net decrease due to divestitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and acquisitions |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (1,219) |
| (1,219) |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 3 |
| 3 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (20) |
| (20) |
Other |
| - |
| - |
| - |
| 115 |
| (4) |
| - |
| 111 |
| (3) |
| 108 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (49,327) | $ | 81,294 | $ | 15,847 | $ | 9,169 | $ | 62,234 | $ | 584 | $ | 62,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 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 |
| (264) |
| - |
| - |
| (97) |
| - |
| (97) |
Purchase of common stock |
| - |
| - |
| (500) |
| - |
| - |
| - |
| (500) |
| - |
| (500) |
Net income (loss) attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
| - |
| - |
| - |
| - |
| (6,179) |
| - |
| (6,179) |
| 67 |
| (6,112) |
Dividends on preferred stock |
| - |
| - |
| - |
| - |
| (15) |
| - |
| (15) |
| - |
| (15) |
Dividends on common stock |
| - |
| - |
| - |
| - |
| (551) |
| - |
| (551) |
| - |
| (551) |
Other comprehensive income (loss) |
| - |
| - |
| - |
| - |
| - |
| 4,187 |
| 4,187 |
| (23) |
| 4,164 |
Net decrease due to divestitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and acquisitions |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (1,171) |
| (1,171) |
Contributions from noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 4 |
| 4 |
Distributions to noncontrolling interests |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (42) |
| (42) |
Other |
| - |
| - |
| (7) |
| 213 |
| (5) |
| - |
| 201 |
| (3) |
| 198 |
Balance, end of period | $ | 485 | $ | 4,766 | $ | (49,327) | $ | 81,294 | $ | 15,847 | $ | 9,169 | $ | 62,234 | $ | 584 | $ | 62,818 |
See accompanying Notes to Condensed Consolidated Financial Statements.
6 AIG | Second Quarter 2021 Form 10-Q
American International Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
| Six Months Ended June 30, | |||
(in millions) |
| 2021 |
| 2020 |
Cash flows from operating activities: |
|
|
|
|
Net income (loss) | $ | 4,080 | $ | (6,112) |
Loss from discontinued operations |
| - |
| 1 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
Noncash revenues, expenses, gains and losses included in income (loss): |
|
|
|
|
Net gains on sales of securities available for sale and other assets |
| (579) |
| (418) |
Net (gains) losses on sale or disposal of divested businesses |
| (6) |
| 8,628 |
Losses on extinguishment of debt |
| 98 |
| 17 |
Unrealized gains in earnings - net |
| (1,267) |
| (1,704) |
Equity in loss from equity method investments, net of dividends or distributions |
| 31 |
| 232 |
Depreciation and other amortization |
| 2,370 |
| 2,560 |
Impairments of assets |
| 25 |
| 66 |
Changes in operating assets and liabilities: |
|
|
|
|
Insurance reserves |
| 4,889 |
| 2,033 |
Premiums and other receivables and payables - net |
| (1,381) |
| 1,778 |
Reinsurance assets and funds held under reinsurance contracts |
| (1,928) |
| (2,295) |
Capitalization of deferred policy acquisition costs |
| (2,688) |
| (2,224) |
Current and deferred income taxes - net |
| 199 |
| (1,732) |
Other, net |
| (1,033) |
| (1,069) |
Total adjustments |
| (1,270) |
| 5,872 |
Net cash provided by (used in) operating activities |
| 2,810 |
| (239) |
Cash flows from investing activities: |
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
Sales or distributions of: |
|
|
|
|
Available for sale securities |
| 12,559 |
| 13,858 |
Other securities |
| 465 |
| 2,037 |
Other invested assets |
| 1,807 |
| 2,134 |
Divested businesses, net |
| - |
| 2,119 |
Maturities of fixed maturity securities available for sale |
| 17,749 |
| 12,761 |
Principal payments received on and sales of mortgage and other loans receivable |
| 4,115 |
| 2,359 |
Purchases of: |
|
|
|
|
Available for sale securities |
| (34,667) |
| (29,804) |
Other securities |
| (95) |
| (519) |
Other invested assets |
| (1,558) |
| (1,385) |
Mortgage and other loans receivable |
| (3,719) |
| (2,653) |
Net change in short-term investments |
| 3,065 |
| (7,857) |
Other, net |
| (1,366) |
| 4,047 |
Net cash used in investing activities |
| (1,645) |
| (2,903) |
Cash flows from financing activities: |
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
Policyholder contract deposits |
| 13,172 |
| 9,912 |
Policyholder contract withdrawals |
| (11,214) |
| (8,505) |
Issuance of long-term debt |
| 54 |
| 4,139 |
Issuance of debt of consolidated investment entities |
| 2,542 |
| 1,370 |
Repayments of long-term debt |
| (1,839) |
| (513) |
Repayments of debt of consolidated investment entities |
| (2,560) |
| (1,364) |
Purchase of common stock |
| (592) |
| (500) |
Dividends paid on preferred stock |
| (15) |
| (15) |
Dividends paid on common stock |
| (550) |
| (551) |
Other, net |
| (298) |
| (269) |
Net cash provided by (used in) financing activities |
| (1,300) |
| 3,704 |
Effect of exchange rate changes on cash and restricted cash |
| (34) |
| 3 |
Net increase (decrease) in cash and restricted cash |
| (169) |
| 565 |
Cash and restricted cash at beginning of year |
| 3,230 |
| 3,287 |
Cash and restricted cash at end of period | $ | 3,061 | $ | 3,852 |
AIG | Second Quarter 2021 Form 10-Q 7
American International Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)(continued)
Supplementary Disclosure of Condensed Consolidated Cash Flow Information
| Six Months Ended June 30, | |||
(in millions) |
| 2021 |
| 2020 |
Cash | $ | 2,760 | $ | 3,408 |
Restricted cash included in Short-term investments* |
| 59 |
| 197 |
Restricted cash included in Other assets* |
| 242 |
| 247 |
Total cash and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 3,061 | $ | 3,852 |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest | $ | 592 | $ | 581 |
Taxes | $ | 596 | $ | 741 |
Non-cash investing activities: |
|
|
|
|
Fixed maturity securities available for sale received in connection with pension risk transfer transactions | $ | 477 | $ | 1,008 |
Fixed maturity securities received in connection with reinsurance transactions | $ | 161 | $ | 325 |
Fixed maturity securities transferred in connection with reinsurance transactions | $ | (695) | $ | - |
Non-cash financing activities: |
|
|
|
|
Interest credited to policyholder contract deposits included in financing activities | $ | 1,783 | $ | 1,916 |
Fee income debited to policyholder contract deposits included in financing activities | $ | (847) | $ | (853) |
|
|
|
|
|
* Includes funds held for tax sharing payments to AIG Parent, security deposits, and replacement reserve deposits related to our affordable housing investments.
See accompanying Notes to Condensed Consolidated Financial Statements.
8 AIG | Second Quarter 2021 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 1. Basis of Presentation
1. Basis of Presentation
American International Group, Inc. (AIG) is a leading global insurance organization serving customers in 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 six months ended June 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 June 30, 2021 and prior to the issuance of these Condensed Consolidated Financial Statements.
Sales/disposals of Businesses
Separation of Life and Retirement Business and Strategic Partnership with the Blackstone Group
On October 26, 2020, AIG announced its intention to separate its Life and Retirement business from AIG. On July 14, 2021, AIG and The Blackstone Group 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 strategic 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 third or 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 the Life and Retirement holding company, 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 are subject to customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act), and are expected to close in the third quarter of 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,
AIG | Second Quarter 2021 Form 10-Q 9
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 1. Basis of Presentation
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).
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. 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. As of June 30, 2021, AIG Life and Retirement’s Retail Mutual Funds business managed $7.1 billion in assets across eighteen funds. 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 insurance products.
For further discussion on the sale of certain AIG Life and Retirement Retail Mutual Funds business see Note 16 to the Condensed Consolidated Financial Statements.
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 June 30, 2021, approximately $30.1 billion of reserves from AIG’s Life and Retirement Run-Off Lines and approximately $4.0 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 three months ended June 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 | Second Quarter 2021 Form 10-Q
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 | Second Quarter 2021 Form 10-Q 11
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.
We assessed the materiality of the misclassification 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 six-month period ended June 30, 2020 has been corrected in the comparative Condensed Consolidated Statements of Cash Flows. Additionally, impacted prior interim periods will be revised within the Quarterly Reports on Form 10-Q to be filed for the period ending September 30, 2021.
For the six months ended June 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 $(1,740) million and $176 million, respectively. The total net cash provided by (used in) operating activities was adjusted by $(1,564) million. Additionally, the Policyholder contract deposits and Policyholder contract withdrawals line items in the Condensed Consolidated Statements of Cash Flows were adjusted by $1,502 million and $62 million, respectively. The total net cash provided by financing activities was adjusted by $1,564 million.
DEBT CASH TENDER OFFERS
In the second quarter of 2021, we repurchased, through cash tender offers, and canceled approximately $254 million aggregate principal amount of certain notes and debentures issued or guaranteed by AIG for an aggregate purchase price of approximately $359 million and wrote off $4 million of unamortized debt issuance costs, resulting in a total loss on extinguishment of debt of approximately $109 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.
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.
12 AIG | Second Quarter 2021 Form 10-Q
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
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.
Simplifies the amortization of DAC to a constant level basis over the expected term of the related contracts with adjustments for unexpected terminations, but no longer requires an impairment test.
Requires the measurement of all market risk benefits associated with deposit (or account balance) contracts at fair value through the income statement with the exception of instrument-specific credit risk changes, which will be recognized in other comprehensive income.
Increased disclosures of disaggregated roll-forwards of policy benefits, account balances, market risk benefits, separate account liabilities and information about significant inputs, judgments and methods used in measurement and changes thereto and impact of those changes.
In 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 | Second Quarter 2021 Form 10-Q 13
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 and Global Specialty.
–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 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 | Second Quarter 2021 Form 10-Q
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 June 30, | 2021 |
| 2020 |
| ||||||
|
|
|
| Adjusted |
|
|
|
| Adjusted |
|
|
| Adjusted |
| Pre-tax |
|
| Adjusted |
| Pre-tax |
|
(in millions) |
| Revenues |
| Income (Loss) |
|
| Revenues |
| Income (Loss) |
|
General Insurance |
|
|
|
|
|
|
|
|
|
|
North America | $ | 2,685 | $ | 169 | (a) | $ | 2,474 | $ | (439) | (a) |
International |
| 3,530 |
| 294 | (a) |
| 3,263 |
| 96 | (a) |
Net investment income |
| 731 |
| 731 |
|
| 518 |
| 518 |
|
Total General Insurance |
| 6,946 |
| 1,194 |
|
| 6,255 |
| 175 |
|
Life and Retirement |
|
|
|
|
|
|
|
|
|
|
Individual Retirement |
| 1,519 |
| 617 |
|
| 1,331 |
| 549 |
|
Group Retirement |
| 820 |
| 347 |
|
| 712 |
| 214 |
|
Life Insurance |
| 1,295 |
| 20 |
|
| 1,219 |
| 2 |
|
Institutional Markets |
| 1,412 |
| 140 |
|
| 1,399 |
| 130 |
|
Total Life and Retirement |
| 5,046 |
| 1,124 |
|
| 4,661 |
| 895 |
|
Other Operations |
|
|
|
|
|
|
|
|
|
|
Other Operations before consolidation and eliminations |
| 259 |
| (516) |
|
| 607 |
| (332) |
|
AIG consolidation and eliminations |
| (125) |
| (94) |
|
| 35 |
| 53 |
|
Total Other Operations |
| 134 |
| (610) |
|
| 642 |
| (279) |
|
Total |
| 12,126 |
| 1,708 |
|
| 11,558 |
| 791 |
|
Reconciling items to pre-tax income (loss): |
|
|
|
|
|
|
|
|
|
|
Changes in fair value of securities used to hedge guaranteed living benefits |
| 14 |
| 13 |
|
| 14 |
| 16 |
|
Changes in benefit reserves and DAC, VOBA and SIA related to net |
|
|
|
|
|
|
|
|
|
|
realized gains (losses) |
| - |
| 120 |
|
| - |
| 255 |
|
Changes in the fair value of equity securities |
| (13) |
| (13) |
|
| 56 |
|