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AIG Reports Fourth Quarter 2018 Results

  • Net loss of $622 million, or $0.70 per share, for the fourth quarter of 2018, compared to net loss of $6.7 billion, or $7.33 per share, in the prior-year quarter.
  • Adjusted after-tax loss of $559 million, or $0.63 per share, for the fourth quarter of 2018, compared to adjusted after-tax income of $526 million, or $0.57 per diluted share, in the prior-year quarter.
  • Total net investment income of $2.8 billion in the fourth quarter of 2018, compared to $3.5 billion in the prior-year-quarter was significantly impacted by market performance. Full year 2018 net investment income of $12.5 billion compared to $14.2 billion in the prior year.
  • Net pre-tax catastrophe losses in the fourth quarter of 2018 of $798 million ($630 million after-tax or $0.71 per share, at the statutory tax rate of 21%) consistent with the previously disclosed range. Full year 2018 net pre-tax catastrophe losses of $2.9 billion compared to $4.2 billion in the prior year.
  • Net unfavorable prior year loss reserve development of $365 million in the fourth quarter of 2018. For the full year 2018, net unfavorable prior year loss reserve development of $362 million compared to $978 million for the prior year.
  • Share and warrant repurchases of $750 million for the fourth quarter of 2018 and $1.8 billion for full year 2018.
  • AIG Board of Directors increased the share repurchase authorization to $2.0 billion, including approximately $512 million that remained under the previous authorization.

American International Group, Inc. (NYSE: AIG) has reported a net loss of $622 million, or $0.70 per share, for the fourth quarter of 2018, compared to a net loss of $6.7 billion, or $7.33 per share, in the prior-year quarter. Adjusted after-tax loss was $559 million, or $0.63 per share, for the fourth quarter of 2018, compared to adjusted after-tax income of $526 million, or $0.57 per diluted share, in the prior-year quarter.

Brian Duperreault, AIG’s President and Chief Executive Officer, said: “Throughout 2018, significant foundational work was undertaken to remediate AIG’s core underwriting capabilities. While many issues and challenges were uncovered, we moved quickly to reduce risk and volatility, as well as implement strategies that we believe will accelerate our progress in 2019. The world class talent that joined AIG throughout 2018 was a highlight, and our team is not taking short cuts in building a top performing enterprise nor are we settling for easy fixes. Our work continues to restore AIG as the leading insurance company in the world and I remain confident we are on the right path to achieve long-term, sustainable and profitable growth.

“Our fourth quarter 2018 results showed positive improvements in General Insurance, reflecting actions we took throughout the year to re-position and strengthen the business, and Life and Retirement remains a stable source of earnings with attractive returns. Results were negatively impacted by performance in both equity and credit markets, catastrophe losses that came within our previously disclosed guidance, as well as modest net unfavorable prior year loss reserve development driven largely by underwriting decisions from 2016 and prior years. We continue to expect to achieve an underwriting profit entering 2019 in General Insurance and to reach double digit returns for consolidated AIG in three years.”

FOURTH QUARTER FINANCIAL SUMMARY*

       
      Three Months Ended

December 31,

($ in millions, except per share amounts)       2018         2017  
Net loss     $ (622 )    

$

(6,660

)

Net loss per diluted share (a)     $ (0.70 )    

$

(7.33

)

Adjusted after-tax income (loss)     $ (559 )    

$

526

 
Adjusted after-tax income (loss) per diluted share (a)     $ (0.63 )    

$

0.57

 
             
Return on equity       (4.3 )%       (38.7 )%
Adjusted return on equity       (4.6 )%       4.2 %
Adjusted return on attributed equity - Core       (4.3 )%       2.6 %
             
Book value per common share     $

65.04

     

$

72.49

 
Book value per common share, excluding accumulated other comprehensive income       66.67         66.41  
Adjusted book value per common share       54.95         54.74  

*Refer to the Comments on Regulation G and the tables that follow for a discussion of non-GAAP financial measures and the reconciliations of the non-GAAP financial measures to GAAP measures.

(a)

  For periods reporting a loss, basic average common shares outstanding are used to calculate net income (loss) per diluted share.
     

FOURTH QUARTER 2018 HIGHLIGHTS

All comparisons are against the fourth quarter of 2017, unless otherwise indicated.

Net Investment Income Impacted by Alternative Returns and Equity Market Declines – Fourth quarter net investment income from our insurance companies, including the Legacy insurance portfolios, decreased 18.1% from the prior-year quarter to $2.8 billion. The fourth quarter was impacted by net losses on alternative investments as well as investments in equity securities resulting from elevated volatility in the credit markets and unfavorable performance in the equity markets. For the full year, net investment income from our insurance companies, including the Legacy insurance portfolios, totaled $12.7 billion.

General Insurance – The fourth quarter of 2018 combined ratio of 115.0 was impacted by 11.3 points related to catastrophe losses net of reinstatement premiums and 5.3 points of net unfavorable loss reserve development. The accident year combined ratio, as adjusted, was 98.8 comprised of a 63.9 loss ratio, as adjusted, down 130 basis points from the prior-year quarter, and an expense ratio of 34.9, down 10 basis points over the prior-year quarter. Pre-tax catastrophe losses, net of reinsurance, included $826 million for General Insurance, primarily related to Hurricane Michael and the California Wildfires and a $28 million decrease in the loss estimates for Typhoon Jebi reported in the Legacy segment. Net prior year loss reserve development was unfavorable by $363 million for the quarter. North America and International Commercial Lines had unfavorable prior year loss reserve development of $326 million and $74 million, respectively, for the quarter driven largely by Financial Lines. International Personal Insurance recorded favorable prior year loss development of $37 million primarily from Japan.

Fourth quarter expense ratio of 34.9 primarily reflected improvement in the General operating expense (GOE) ratio as a result of expense reduction actions taken in the second half of the year, partially offset by an increase in the North America acquisition ratio due to changes in portfolio mix.

Life and Retirement Earnings – Fourth quarter adjusted pre-tax income of $623 million reflected the impact of declining equity markets and widening credit spreads in all businesses, against a backdrop of attractive new business margins, and solid growth in premiums and deposits in Individual Retirement, Group Retirement and Life Insurance as well as several opportunistic Institutional Markets transactions. GOE increased primarily due to new business acquisition, international expansion, and investments in core businesses. The fourth quarter of 2018 Adjusted Return on Equity was 9.8%.

Legacy Results – Fourth quarter adjusted pre-tax loss of $150 million, compared to adjusted pre-tax income of $411 million in the prior-year quarter, reflect lower net investment income and losses from fair value option assets, as well as a $105 million pre-tax charge resulting from loss recognition testing on certain Accident & Health cancer and disability blocks. AIG completed the sale of 19.9% of AIG’s ownership interest in Fortitude Holdings, the parent of Fortitude Re (formerly DSA Re), to The Carlyle Group L.P.

Liquidity and Capital – As of December 31, 2018, AIG Parent liquidity stood at approximately $3.8 billion. In the fourth quarter, AIG Parent received approximately $350 million of distributions from the insurance subsidiaries in the form of cash and fixed maturity securities, including tax sharing payments. In the fourth quarter, AIG repurchased 18.0 million shares of common stock for $745 million and warrants for $5 million. AIG’s Board of Directors has approved an increase in our share repurchase authorization to $2.0 billion, including approximately $512 million that was remaining under the previous authorization.

Book Value per Common Share – As of December 31, 2018, book value per common share was $65.04 compared to $72.49 at December 31, 2017. Book value per common share excluding accumulated other comprehensive income and deferred tax assets (Adjusted book value per common share) was $54.95, up slightly from prior-year end.

GENERAL INSURANCE

                 
      Three Months Ended December 31,          
($ in millions)       2018       2017       Change  
Total General Insurance                          
Gross premiums written     $ 7,699     $ 7,278       6 %
Net premiums written     $ 6,424     $ 5,892       9  
Underwriting loss     $ (1,071)     $ (846)       (27)  
Adjusted pre-tax income (loss)     $ (722)     $ 13       NM  
                           
Underwriting ratios:                          
Loss ratio       80.1       78.3       1.8 pts
Impact on loss ratio:                          
Catastrophe losses and reinstatement premiums       (11.3)       (11.7)       0.4  
Prior year development       (5.3)       (1.4)       (3.9)  
Adjustments for ceded premium under reinsurance                          

contracts and other

      0.4       -       0.4  
Accident year loss ratio, as adjusted       63.9       65.2       (1.3)  
Expense ratio       34.9       35.0       (0.1)  
Combined ratio       115.0       113.3       1.7  
Accident year combined ratio, as adjusted       98.8       100.2       (1.4)  
                           

General Insurance - North America

               
      Three Months Ended December 31,        
($ in millions)       2018     2017     Change
North America                      
Net premiums written     $ 2,944   $ 2,583     14 %
Commercial Lines       2,161     1,808     20  
Personal Insurance       783     775     1  
                       
Underwriting income (loss)     $ (871)   $ (316)     (176)  
Commercial Lines       (541)     16     NM  
Personal Insurance       (330)     (332)     1  
                       
Adjusted pre-tax income (loss)     $ (575)   $ 412     NM  
                       

Underwriting ratios:

                     
North America                      
Loss ratio       94.6     83.0     11.6 pts
Impact on loss ratio:                      
Catastrophe losses and reinstatement premiums       (19.6)     (24.5)     4.9  
Prior year development       (10.0)     3.3     (13.3)  
Adjustments for ceded premium under reinsurance                      

contracts and other

      0.9     -     0.9  
Accident year loss ratio, as adjusted       65.9     61.8     4.1  
Expense ratio       30.7     28.5     2.2  
Combined ratio       125.3     111.5     13.8  
Accident year combined ratio, as adjusted       96.6     90.3     6.3  
                       
North America Commercial Lines                      
Loss ratio       93.6     73.9     19.7 pts
Impact on loss ratio:                      
Catastrophe losses and reinstatement premiums       (9.8)     (12.0)     2.2  
Prior year development       (13.3)     4.9     (18.2)  
Adjustments for ceded premium under reinsurance                      

contracts and other

      1.2     -     1.2  
Accident year loss ratio, as adjusted       71.7     66.8     4.9  
Expense ratio       27.3     25.3     2.0  
Combined ratio       120.9     99.2     21.7  
Accident year combined ratio, as adjusted       99.0     92.1     6.9  
                       
North America Personal Insurance                      
Loss ratio       98.0     108.0     (10.0) pts
Impact on loss ratio:                      
Catastrophe losses and reinstatement premiums       (49.8)     (58.6)     8.8  
Prior year development       -     (1.1)     1.1  
Accident year loss ratio, as adjusted       48.2     48.3     (0.1)  
Expense ratio       41.6     37.5     4.1  
Combined ratio       139.6     145.5     (5.9)  
Accident year combined ratio, as adjusted       89.8     85.8     4.0  

All comparisons are against the fourth quarter of 2017, unless otherwise indicated. Refer to the AIG Fourth Quarter 2018 Financial Supplement, which is posted on AIG's website in the Investors section, for further information.

General Insurance North America – Commentary

  • Adjusted pre-tax loss of $575 million compared to adjusted pre-tax income of $412 million in the prior-year quarter.
  • Net investment income of $296 million for the quarter compared to $728 million in the prior-year quarter. The decline in net investment income was largely the result of net losses on alternative and equity investments in the current quarter.
  • Net premiums written increased by 14.0%, largely due to the acquisitions of Validus and Glatfelter, and lower ceded premiums due to changes in the 2018 reinsurance programs. This was slightly offset by some underlying reduction in the North America Commercial Lines business due to ongoing underwriting actions to improve performance.
  • The North America combined ratio of 125.3 included 19.6 points of catastrophe losses net of reinstatement premiums and 10.0 points of net unfavorable prior year loss reserve development. The accident year combined ratio, as adjusted, was 96.6 for the quarter comprised of a 65.9 loss ratio, as adjusted, and a 30.7 expense ratio. The pre-tax underwriting loss of $871 million includes $689 million of catastrophe losses, net of reinsurance, of which $414 million related to North America Personal Insurance and $275 million related to Commercial Lines. Net unfavorable prior year loss reserve development of $326 million was primarily related to Financial Lines in Commercial Lines.
  • The increase in the expense ratio reflected a higher acquisition expense ratio driven by changes in portfolio mix, especially in Personal Insurance, and a decrease in GOE resulting from actions taken in the second half of 2018 to control expenses.

General Insurance - International

               
      Three Months Ended December 31,        
($ in millions)       2018     2017     Change  
International                      
Net premiums written     $ 3,480   $ 3,309     5 %
Commercial Lines       1,561     1,422     10  
Personal Insurance       1,919     1,887     2  
                       
Underwriting income (loss)     $ (200)   $ (530)     62  
Commercial Lines       (251)     (603)     58  
Personal Insurance       51     73     (30)  
                       
Adjusted pre-tax loss     $ (147)   $ (399)     63  
                       

Underwriting ratios:

                     
International                      
Loss ratio       66.8     74.7     (7.9) pts
Impact on loss ratio:                      
Catastrophe losses and reinstatement premiums       (3.7)     (2.2)     (1.5)  
Prior year development       (1.0)     (4.8)     3.8  
Accident year loss ratio, as adjusted       62.1     67.7     (5.6)  
Expense ratio       38.6     39.8     (1.2)  
Combined ratio       105.4     114.5     (9.1)  
Accident year combined ratio, as adjusted       100.7     107.5     (6.8)  
                       
International Commercial Lines                      
Loss ratio       80.5     98.0     (17.5) pts
Impact on loss ratio:                      
Catastrophe losses and reinstatement premiums       (7.2)     (2.7)     (4.5)  
Prior year development       (4.1)     (11.4)     7.3  
Accident year loss ratio, as adjusted       69.2     83.9     (14.7)  
Expense ratio       33.1     37.7     (4.6)  
Combined ratio       113.6     135.7     (22.1)  
Accident year combined ratio, as adjusted       102.3     121.6     (19.3)  
                       
International Personal Insurance                      
Loss ratio       53.4     54.6     (1.2) pts
Impact on loss ratio:                      
Catastrophe losses and reinstatement premiums       (0.2)     (1.8)     1.6  
Prior year development       2.0     0.8     1.2  
Accident year loss ratio, as adjusted       55.2     53.6     1.6  
Expense ratio       43.9     41.7     2.2  
Combined ratio       97.3     96.3     1.0  
Accident year combined ratio, as adjusted       99.1     95.3     3.8  

All comparisons are against the fourth quarter of 2017, unless otherwise indicated. Refer to the AIG Fourth Quarter 2018 Financial Supplement, which is posted on AIG's website in the Investors section, for further information.

General Insurance International – Commentary

  • Adjusted pre-tax loss of $147 million compared to adjusted pre-tax loss of $399 million in the prior-year quarter.
  • Net investment income of $53 million for the quarter compared to $131 million in the prior-year quarter. The decline in net investment income was largely the result of net losses on equity investments in the current quarter.
  • Net premiums written increased 5.2% on a reported and 7.6% on a constant dollar basis. The increase in net premiums written was due to the inclusion of the Talbot acquisition and increased accident & health business in Asia Pacific.
  • The International combined ratio of 105.4 included 3.7 points of catastrophe losses net of reinstatement premiums and 1.0 points of net unfavorable loss reserve development. The accident year combined ratio, as adjusted, of 100.7 was comprised of a 62.1 loss ratio, as adjusted, and a 38.6 expense ratio. The catastrophe losses and net unfavorable loss reserve development was largely a result of the Commercial portfolio. The pre-tax underwriting loss of $200 million included $137 million of catastrophe losses, net of reinsurance, severe losses of $79 million, net of reinsurance, and net unfavorable prior year loss reserve development of $37 million.
  • The expense ratio decrease was driven by a reduction in GOE given actions in the second half of the year, partially offset by higher acquisition expense ratio primarily due to increased costs in Japan and changes to the portfolio mix.

LIFE AND RETIREMENT

        Three Months Ended December 31,        
($ in millions)       2018     2017     Change
Life and Retirement                      
Premiums & Fees     $ 1,917   $ 2,123     (10) %
Net Investment Income       1,921     2,003     (4)  
Adjusted Revenue       4,065     4,382     (7)  
Benefits, losses and expenses       3,442     3,600     (4)  
Adjusted pre-tax income       623     782     (20)  
Premiums and deposits       8,166     7,965     3  
                       
Individual Retirement                      
Premiums & Fees     $ 209   $ 210     - %
Net Investment Income       912     1,030     (11)  
Adjusted Revenue       1,276     1,415     (10)  
Benefits, losses and expenses       949     941     1  
Adjusted pre-tax income       327     474     (31)  
Premiums and deposits       4,225     3,106     36  
Net flows       (510)     (422)     (21)  
                       
        Three Months Ended December 31,        
($ in millions)       2018     2017     Change
Group Retirement                      
Premiums & Fees     $ 111   $ 120     (8) %
Net Investment Income       517     550     (6)  
Adjusted Revenue       682     732     (7)  
Benefits, losses and expenses       523     486     8  
Adjusted pre-tax income       159     246     (35)  
Premiums and deposits       2,106     1,848     14  
Net flows       (628)     (453)     (39)  
                       
Life Insurance                      
Premiums & Fees     $ 741   $ 732     1 %
Net Investment Income       287     263     9  
Adjusted Revenue       1,045     1,013     3  
Benefits, losses and expenses       958     1,011     (5)  
Adjusted pre-tax income       87     2     NM  
Premiums and deposits       987     963     2  
                       
Institutional Markets                      
Premiums & Fees     $ 856   $ 1,061     (19) %
Net Investment Income       205     160     28  
Adjusted Revenue       1,062     1,222     (13)  
Benefits, losses and expenses       1,012     1,162     (13)  
Adjusted pre-tax income       50     60     (17)  
Premiums and deposits       848     2,048     (59)  
                       

All comparisons are against the fourth quarter of 2017, unless otherwise indicated. Refer to the AIG Fourth Quarter 2018 Financial Supplement, which is posted on AIG's website in the Investors section, for further information.

Life and Retirement – Commentary

  • In Individual Retirement, adjusted pre-tax income reflected lower net investment income due to lower base spreads and yield enhancements and lower fee income driven by unfavorable credit and equity market performance. Net flows excluding Retail Mutual Funds were positive and reflected strong sales.
  • In Group Retirement, adjusted pre-tax income reflected lower fee income, lower base spread and yield enhancements driven by unfavorable credit and equity market performance and continued investments made in the business. Group Retirement net flows reflected higher sales offset by higher surrenders due to the loss of large plan accounts, as well as higher individual surrenders.
  • In Life Insurance, adjusted pre-tax income reflected higher net investment income due to business growth and higher alternative investments returns. Mortality was favorable to pricing expectations.
  • In Institutional Markets, adjusted pre-tax income reflected investments in technology and infrastructure and reserve refinements, partially offset by growth in the portfolio which drove higher net investment income.
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