AIG Reports Second Quarter 2019 Results

• Net income attributable to AIG common shareholders was $1.1 billion, or $1.24 per diluted common share, for the second quarter of 2019, compared to net income attributable to AIG common shareholders of $937 million, or $1.02 per diluted common share, in the prior-year quarter.
• Adjusted after-tax income attributable to AIG common shareholders was $1.3 billion, or $1.43 per diluted common share, for the second quarter of 2019, compared to adjusted after-tax income attributable to AIG common shareholders of $961 million, or $1.05 per diluted common share, in the prior-year quarter.
• General Insurance delivered a second consecutive quarter of underwriting profitability, achieving a combined ratio of 97.8 and an accident year combined ratio, as adjusted, of 96.1, driven by continued underwriting, reinsurance and expense discipline.
• Life and Retirement posted a 17.3% adjusted return on common equity (ROCE), reflecting strong private equity returns, investment gains resulting from lower interest rates and solid in force profitability.
• Total consolidated net investment income was $3.7 billion in the second quarter of 2019, compared to $3.1 billion in the prior-year quarter, reflecting favorable market performance and noteworthy income within the private equity portfolio.

NEW YORK–(BUSINESS WIRE)–American International Group, Inc. (NYSE:AIG) today reported net income attributable to AIG common shareholders of $1.1 billion, or $1.24 per diluted common share, for the second quarter of 2019, compared to net income attributable to AIG common shareholders of $937 million, or $1.02 per diluted common share, in the prior-year quarter. Adjusted after-tax income attributable to AIG common shareholders was $1.3 billion, or $1.43 per diluted common share, for the second quarter of 2019, compared to adjusted after-tax income attributable to AIG common shareholders of $961 million, or $1.05 per diluted common share, in the prior-year quarter.

Brian Duperreault, AIG’s President and Chief Executive Officer, said: “Our strong second quarter performance demonstrated continued positive momentum throughout the first half of 2019. The additional progress on our path to long-term sustainable and profitable growth reflected in this quarter’s results was driven by the foundational changes we implemented across AIG last year. General Insurance achieved its second consecutive quarter of underwriting profitability resulting from underwriting and expense discipline, and reinsurance actions, and remains on track to deliver an underwriting profit for the full year. Life and Retirement delivered another quarter of solid in force profitability and double-digit adjusted ROCE, and Life and Retirement expects to deliver full year adjusted ROCE in the low- to mid-teens range, as we stated previously.”

“Looking ahead, we remain diligently focused on executing against our strategy to reposition AIG as the leading insurance company in the world, and we continue to expect to achieve double-digit ROCE for consolidated AIG by year-end 2021,” Mr. Duperreault added.

SECOND QUARTER FINANCIAL SUMMARY*

SECOND QUARTER 2019 HIGHLIGHTS

All comparisons are against the second quarter of 2018, unless otherwise indicated.

General Insurance – Second quarter adjusted pre-tax income of $980 million included underwriting income of $147 million and net investment income of $833 million. Results reflected the second consecutive quarter of underwriting profitability, with a combined ratio of 97.8 inclusive of 2.6 points of catastrophe losses net of reinstatement premiums and (0.9) points of net favorable loss reserve development. The accident year combined ratio, as adjusted, was 96.1, comprised of a 61.3 accident year loss ratio, as adjusted, down 410 basis points from the prior-year quarter, and an expense ratio of 34.8, down 80 basis points from the prior-year quarter. The decrease in accident year loss ratio, as adjusted, reflected the change in business mix including the acquisitions of Validus and Glatfelter, improved new business and renewal terms and reduced volatility due to the increased use of reinsurance. The second quarter expense ratio of 34.8 primarily reflected improvement in the General operating expense (GOE) ratio as a result of continued expense discipline. Catastrophe-related losses, net of reinsurance, of $174 million pre-tax were primarily due to North American weather events.

Life and Retirement – Second quarter adjusted pre-tax income of $1.0 billion reflected strong private equity returns including income of $138 million from an initial public offering of a holding in the private equity portfolio and favorable market performance impacts which benefited net investment income and Deferred Acquisition Costs (DAC) amortization. Attractive new business margins and solid growth in premiums and deposits in Individual Retirement and Life Insurance over the last year also benefited the results for the quarter. Although negative, net flows improved, resulting from higher Fixed and Index Annuities new business, as well as lower Group Retirement surrenders and withdrawals.

Net Investment Income – Second quarter net investment income from our insurance companies, including the Legacy insurance portfolios, increased 19.4% from the prior-year quarter to $3.7 billion. The second quarter reflected strong performance in the equity markets and tightening spreads in the credit markets and included income of $142 million from an initial public offering of a holding in the private equity portfolio.

Legacy – Second quarter adjusted pre-tax income of $119 million declined from $134 million in the prior-year quarter resulting from lower Legacy Life and Retirement earnings due to an increase in structured settlements reserves and lower premiums.

Liquidity and Capital – As of June 30, 2019, AIG Parent liquidity stood at approximately $6.0 billion. In the second quarter, AIG Parent received approximately $1.4 billion of distributions from the insurance subsidiaries in the form of cash, fixed maturity securities and loan repayments including tax sharing payments.

Book Value per Common Share – As of June 30, 2019, book value per common share was $73.63 compared to $65.04 at December 31, 2018. Book value per common share excluding accumulated other comprehensive income and deferred tax assets (Adjusted book value per common share) increased 3.5% to $56.89 compared to the prior-year end.

All comparisons are against the second quarter of 2018, unless otherwise indicated. Refer to the AIG Second Quarter 2019 Financial Supplement, which is posted on AIG’s website in the Investors section, for further information.

General Insurance North America – Commentary

• Adjusted pre-tax income was $718 million compared to adjusted pre-tax income of $407 million in the prior-year quarter.
• Net premiums written increased by 2.2% to $3.3 billion, largely due to the inclusion of the Validus and Glatfelter acquisitions, partially offset by underwriting actions to strengthen the portfolio while maintaining pricing discipline, and higher ceded premiums due to changes in 2019 reinsurance programs.
• The North America combined ratio of 100.1 included 5.0 points of catastrophe losses net of reinstatement premiums and (1.7) points of net favorable prior year loss reserve development. The accident year combined ratio, as adjusted, was 96.8, comprised of a 65.9 accident year loss ratio, as adjusted, and a 30.9 expense ratio. The lower accident year loss ratio, as adjusted was primarily driven by a change in business mix including the Validus and Glatfelter acquisitions, improved new business and renewal terms, lower net severity of losses in North America Personal Insurance and changes in 2019 reinsurance programs which have reduced volatility. The pre-tax underwriting loss of $5 million includes $170 million of catastrophe losses, net of reinsurance, of which $137 million related to North America Commercial Lines and $33 million related to Personal Insurance. Net favorable prior year loss reserve development of $61 million was primarily driven by net favorable prior year loss reserve development in North America Commercial Lines partially offset by net adverse prior year loss reserve development in North America Personal Insurance.
• The decrease in the expense ratio reflected a lower GOE ratio resulting from ongoing expense reduction initiatives, partially offset by a higher acquisition ratio due to changes in business mix.
• Net investment income was $723 million compared to $534 million in the prior-year quarter. The increase in net investment income was primarily driven by higher income from fixed income securities and strong alternative investment returns.

All comparisons are against the second quarter of 2018, unless otherwise indicated. Refer to the AIG Second Quarter 2019 Financial Supplement, which is posted on AIG’s website in the Investors section, for further information.

General Insurance International – Commentary

• Adjusted pre-tax income was $262 million compared to adjusted pre-tax income of $161 million in the prior-year quarter.
• Net premiums written decreased 12.5% on a reported basis and 8.2% on a constant dollar basis. The decrease in net premiums written was due to underwriting actions taken to strengthen the portfolio and to maintain pricing discipline, partially offset by the Validus acquisition.
• The International combined ratio was 95.5. The accident year combined ratio, as adjusted, of 95.5 was comprised of a 56.9 accident year loss ratio, as adjusted, and a 38.6 expense ratio. The lower accident year loss ratio, as adjusted, was primarily driven by a change in business mix and lower net severity of losses in Commercial Property. Pre-tax underwriting income of $152 million included $4 million of catastrophe losses, net of reinsurance, and net favorable prior year loss reserve development of $5 million.
• The slight decrease in the expense ratio was primarily due to a reduction in the GOE ratio, as a result of ongoing expense reduction initiatives, partially offset by a higher acquisition ratio mainly due to changes in business mix.
• Net investment income was $110 million for the quarter compared to $123 million in the prior-year quarter. The decrease in net investment income was largely the result of lower income from fixed income securities.

All comparisons are against the second quarter of 2018, unless otherwise indicated. Refer to the AIG Second Quarter 2019 Financial Supplement, which is posted on AIG’s website in the Investors section, for further information.

Life and Retirement – Commentary

• Individual Retirement adjusted pre-tax income primarily reflected strong private equity returns, stronger market performance which favorably impacted net investment income and amortization of DAC. This was partially offset by lower fee income and advisory fees primarily driven by lower average Variable Annuity assets under administration. The prior-year quarter included unfavorable actuarial adjustments to Variable Annuities of $47 million. Total net flows excluding Retail Mutual Funds were positive and reflected stronger Fixed and Index Annuities sales.
• Group Retirement adjusted pre-tax income reflected strong private equity returns. Net flows remain negative but improved primarily due to lower surrenders, partially offset by decreased deposits as the prior-year quarter included the acquisition of two large plans.
• Life Insurance adjusted pre-tax income declined. The prior-year quarter included favorable actuarial adjustments of $98 million. The second quarter of 2019 adjusted pre-tax income decreased as higher net investment income on a growing asset base, strong private equity returns and the impact from lower interest rates driving higher yield enhancements was offset by an allowance for reinsurance recoveries. Mortality was within pricing expectations.
• Institutional Markets adjusted pre-tax income increased due to higher net investment income on a growing asset base, strong private equity returns and favorable mortality.

CONFERENCE CALL

AIG will host a conference call tomorrow, Thursday, August 8, 2019 at 8:00 a.m. ET to review these results. The call is open to the public and can be accessed via a live listen-only webcast in the Investors section of www.aig.com. A replay will be available after the call at the same location.

Additional supplementary financial data is available in the Investors section at www.aig.com.

The conference call (including the conference call presentation material), the earnings release and the financial supplement may include, and officers and representatives of AIG may from time to time make and discuss, projections, goals, assumptions and statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These projections, goals, assumptions and statements are not historical facts but instead represent only a belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG’s control. These projections, goals, assumptions and statements include statements preceded by, followed by or including words such as “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “focused on achieving,” “view,” “target,” “goal” or “estimate.” These projections, goals, assumptions and statements may relate to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, anticipated organizational, business or regulatory changes, anticipated sales, monetization and/or acquisitions of businesses or assets, or successful integration of acquired businesses, management succession and retention plans, exposure to risk, trends in operations and financial results.

It is possible that AIG’s actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG’s actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include:

• changes in market and industry conditions;
• the occurrence of catastrophic events, both natural and man-made;
• AIG’s ability to successfully reorganize its businesses and execute on our initiatives to improve our underwriting capabilities and reinsurance programs, as well as improve profitability, without negatively impacting client relationships or its competitive position;
• AIG’s ability to successfully dispose of, monetize and/or acquire businesses or assets or successfully integrate acquired businesses;
• actions by credit rating agencies;
• changes in judgments concerning insurance underwriting and insurance liabilities;
• changes in judgments concerning potential cost saving opportunities;
• the impact of potential information technology, cybersecurity or data security breaches, including as a result of cyber-attacks or security vulnerabilities;
• disruptions in the availability of AIG’s electronic data systems or those of third parties;
• the effectiveness of our strategies to recruit and retain key personnel and our ability to implement effective succession plans;
• negative impacts on customers, business partners and other stakeholders;
• AIG’s ability to successfully manage Legacy portfolios;
• concentrations in AIG’s investment portfolios;
• the requirements, which may change from time to time, of the global regulatory framework to which AIG is subject;
• significant legal, regulatory or governmental proceedings;
• changes in judgments concerning the recognition of deferred tax assets and goodwill impairment; and
• such other factors discussed in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in AIG’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 (which will be filed with the Securities and Exchange Commission), Part I, Item 2. MD&A in AIG’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019, and Part II, Item 7. MD&A and Part I, Item 1A. Risk Factors in AIG’s Annual Report on Form 10-K for the year ended December 31, 2018.

AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

Contacts

Liz Werner (Investors): 212-770-7074; [email protected]

Daniel O’Donnell (Media): 212-770-3141; [email protected]

Claire Talcott (Media): 212-458-6343; [email protected]

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