Conference Call Presentation
Third Quarter 2017
NOVEMBER 3, 2017
©
2
Cautionary Statement Regarding
Forward Looking Information
This document and the remarks made within this presentation may include, and officers and representatives of American International Group, Inc. (AIG)
may from time to time make, 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 AIG’s 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 address, among other
things, AIG’s: exposures to subprime mortgages, monoline insurers, the residential and commercial real estate markets, state and municipal bond
issuers, sovereign bond issuers, the energy sector and currency exchange rates; exposure to European governments and European financial
institutions; strategy for risk management; actual and anticipated sales, monetizations and/or acquisitions of businesses or assets; restructuring of
business operations, including anticipated restructuring charges and annual cost savings; generation of deployable capital; strategies to increase return
on equity and earnings per share; strategies to grow net investment income, efficiently manage capital, grow book value per common share, and
reduce expenses; anticipated organizational, business and regulatory changes; strategies for customer retention, growth, product development, market
position, financial results and reserves; management of the impact that innovation and technology changes may have on customer preferences, the
frequency or severity of losses and/or the way AIG distributes and underwrites its products; segments’ revenues and combined ratios; and
management succession and retention plans. 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 conditions; negative impacts
on customers, business partners and other stakeholders; the occurrence of catastrophic events, both natural and man-made; significant legal
proceedings; the timing and applicable requirements of any regulatory framework to which AIG is subject, including as a global systemically important
insurer; concentrations in AIG’s investment portfolios; actions by credit rating agencies; judgments concerning casualty insurance underwriting and
insurance liabilities; AIG’s ability to successfully manage Legacy portfolios; AIG’s ability to successfully reduce costs and expenses and make business
and organizational changes without negatively impacting client relationships or AIG’s competitive position; AIG’s ability to successfully dispose of,
monetize and/or acquire businesses or assets; judgments concerning the recognition of deferred tax assets; judgments concerning estimated
restructuring charges and estimated cost savings; 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 September 30, 2017
(which will be filed with the Securities and Exchange Commission), Part I, Item 2. MD&A in AIG’s Quarterly Reports on Form 10-Q for the quarterly
periods ended June 30, 2017 and March 31, 2017 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, 2016.
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. This document and the
remarks made orally may also contain certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP
measures in accordance with Regulation G is included in the Third Quarter 2017 Financial Supplement available in the Investor Information section of
AIG's corporate website, www.aig.com, as well as in the Appendix to this presentation.
Note: Amounts presented may not foot due to rounding.
3
Consolidated
3Q17 Key Themes
Consumer
Legacy & Capital
Solid PTOI despite higher Catastrophe losses
Personal Insurance pre-tax catastrophe losses of $297M; ongoing benefits from strategic repositioning and
focus on target markets
Actuarial assumption updates of $284M positively benefit operating earnings
Ongoing growth in Life sales, greater expense control and portfolio optimization
Continued pressure on Individual Retirement net flows; Assets Under Administration (AUA) at historical
highs driven by equity market performance and positive Index Annuity net flows
Group Retirement digital transformation contributed to strong new group acquisition year-to-date results;
AUA at historical highs driven by equity market performance
After-tax operating loss of $1.1B ($1.22 per share)
Core Normalized ROE of 7.2% (8.6% YTD)
Book Value Per Share of $80.62
Balance sheet strength and capital management
Continue to maintain strong capital ratios and AIG Parent liquidity
AIG Parent liquidity of $6.7B at September 30, 2017
Share and warrant repurchases of $278 million
Sold remaining life settlements portfolio in November 2017 fulfilling $9B capital return target for Legacy
Commercial
Significant catastrophe losses, non-CAT Property losses and reserve strengthening drives results
Pre-tax catastrophe losses of $2.7B largely from Hurricanes Harvey, Irma and Maria
Lower production driven by continued execution of risk selection strategy and divestitures
AYLR, as adjusted, increased by 10.4 pts from 3Q16 reflecting elevated Property losses and increased
current accident year loss estimates in Liability & Financial Lines
Unfavorable PYD of $0.8B largely related to 2016 accident year
Expense ratio improvement reflects continued strategic actions to reduce operating expenses
4
Consolidated Operating Financial Highlights
($ in millions, except per share amounts)
3Q16 3Q17
Pre-tax operating income (loss):
Commercial Insurance
Liability and Financial Lines
$948 ($257)
Property and Special Risks
(263) (2,605)
Total Commercial Insurance
685 (2,862)
Consumer Insurance
Individual Retirement
920 718
Group Retirement
214 249
Life Insurance
(54) 112
Personal Insurance
148 (71)
Total Consumer Insurance
1,228 1,008
Other Operations
(170) (288)
Total Core
1,743 (2,142)
Legacy Portfolio
(99) 286
Total pre-tax operating income (loss)
$1,644 ($1,856)
After-tax operating income (loss) attributable to AIG
$1,115 ($1,111)
After-tax operating income (loss) attributable to AIG per diluted share
$1.01 ($1.22)
Normalized Return On Equity:
Consolidated
8.1% 6.6%
Core
8.1% 7.2%
Legacy Portfolio
8.1% 5.1%
Book Value Per Common Share (BVPS):
Dec. 31, 2016 Sep. 30, 2017
BVPS
$76.66 $80.62
BVPS – Ex. AOCI
$73.41 $74.01
Adjusted BVPS
1
$58.57 $57.44
1) Book value per common share, ex. AOCI & DTA.
$1.1
$0.8
$0.6
$0.1
$0.1
$0.2
<$0.1
<$0.1
$1.2
$1.0
$0.7
$0.1
Harvey Irma Maria Other
Commercial Insurance
Personal Insurance
5
Catastrophe Losses
3Q17 Catastrophe (CAT) Losses
Corporate CAT Reinsurance Program
Retained:
$1.5B / event
Original
Cover: $3.0B
xs $1.5B
Add'l Cover:
$1.3B xs
$4.5B
Effective: 9/8/2017 – 12/31/2017
(Post Irma)
Effective: 1/1/2017 – 12/31/2017
1
($ in billions)
Total
CATs:
$3.0
Personal
Insurance
$0.3
Commercial
$2.7
1) In addition, we have a full year cover of (1) $125M part of $500M xs $4.5B and (2) $100M part of $1B xs $4.5B via Catastrophe Bonds.
6
3Q17 Reserve Review
Aggregate Reserves Assessed Through Q3’17 Prior Year Development (Favorable) Unfavorable ($M)
Commercial Insurance
Liability and Financial Lines
$818
Property and Special Risks
81
Total Commercial Insurance
899
Legacy Portfolio
(1)
ADC Deferred Gain Amortization
(62)
Total
pre-tax operating impact
1
$836
Reserve Results:
$705 million relates to accident year 2016 due to early unfavorable loss emergence
Commercial Auto businesses, including certain terminated programs, continue to experience elevated loss emergence
U.S. Financial Lines action driven by increased private company bankruptcies in 2016
Increase in number of large claims in European Casualty and Financial Lines
Loss Estimates Impacted by Reserve Studies
Strengthened the current accident year loss estimates for 2017 by 4.9 points year to date, of which 3.3 points relates to the first 6 months of 2017
1) Consistent with our definition of PTOI, excludes the portion of favorable or unfavorable prior year reserve development for which we have ceded the risk under
retroactive reinsurance agreements and related changes in amortization of the deferred gain. Additionally, amount excludes return premium on loss sensitive
business.
81%
19%
Completed first
9M'17
To be reviewed
in 4Q'17
2017 Total:
$53.4B
7
Commercial Insurance AYLR, As Adjusted, Trend
Ultimate Accident Year Loss Ratio, As Adjusted Trend
1
78.4%
72.0%
69.5%
71.6%
71.1%
70.8%
68.9%
2011 2012 2013 2014 2015 2016 9M'17
1) Amounts presented reflect the impact of prior year development for 2016 and prior years in each accident year.
8
Parent Liquidity
Changes in Parent Liquidity ($B)
Balance at
6/30/17
Insurance
Company
Distributions
Debt Repurchases &
Interest Paid
Share and Warrant
Repurchases
and Dividends
Balance at
9/30/17
$7.8
Includes:
Life Dividends - $0.2B
Tax Pmts - $0.3B
Cash &
S/T Inv.
$3.5
Unencumbered
Securities
$4.3
$0.5
Cash &
S/T Inv.
$2.2
Unencumbered
Securities
$4.5
$6.7
($1.0)
($0.6)
Commercial
Insurance
Peter Zaffino
Executive Vice President &
Chief Executive Officer of General Insurance
©
64.7%
75.1%
28.5%
27.0%
3Q16 3Q17
AYLR, As Adjusted Expense Ratio
8.6%
3.8%
3Q16 3Q17
Normalized ROE
Commercial Insurance – Select Metrics
Accident Year Combined Ratio, As Adjusted
1
1) The change in loss estimates in 2H’16 results in a pro forma decrease of 208 bps on the Normalized ROE in 3Q16 and a pro forma increase of 1.8 pts on the AYLR, as adjusted.
2) The change in loss estimates in 3Q’17 that related to 1H’17, results in a pro forma increase of 148 bps on the Normalized ROE in 3Q17 and a pro forma decrease of 3.3 pts on the AYLR,
as adjusted.
10
2
1
2
(0.1)
(0.5)
(1.4)
30%
30%
24%
28%
27%
23%
3%
16%
19%
3Q16 YTD FX
Impact
Divestitures Risk
Selection
3Q17 YTD
Net Premiums Written ($B)
Property Special Risks Financial Lines Casualty
Property
& Special
Risks
46%
Liability &
Financial
Lines
54%
13.2
Ascot
11.2
93.2%
102.1%
67.7%
113.1%
68.0%
78.1%
12.2%
13.0%
12.2%
13.0%
13.2%
12.2%
13.2%
12.2%
3Q16 3Q17 3Q16 3Q17
Loss Ratio Acquisition Ratio GOE Ratio
Commercial Insurance – Liability and Financial Lines
Net Premiums Written ($B) Combined Ratio
Key Takeaways
Normalized ROE lower driven by increase in AYLR, as adjusted, from
3Q17 detailed valuation reviews, including the impact from the first six
months of 2017.
NPW decline driven by continued execution of risk selection strategy
within US Casualty.
Higher AYLR, as adjusted, driven by increase in loss estimates resulting
from detailed valuation reviews.
Decrease in Expense Ratio due to reduced operating expenses partially
offset by higher acquisition ratio.
PYD of $0.8B driven primarily by Excess Casualty and Financial Lines,
partially offset by amortization of ADC deferred gain of ~$60M.
($ in millions) 3Q16 3Q17
Net premiums written $2,389 $2,175
Net premiums earned 2,610 2,245
Underwriting income (loss) 179 (860)
Net investment income 769 603
Pre-tax operating income (loss) $948 ($257)
Normalized After-tax
operating income
$645 $321
Avg. attributed equity
$19,365 $14,128
Normalized ROE 13.3% 9.1%
39%
37%
16%
15%
45%
48%
3Q16 3Q17
U.S. Casualty Int'l Casualty Financial Lines
$2.4
1) Includes reinsurance assumptions from International Casualty related to non-US casualty exposures.
1
11
$2.2
93.4%
103.3%
93.1%
138.3%
Calendar Year
Accident Year,
As Adjusted
PYD Loss Ratio CAT Loss Ratio
0.2
(0.5)
0.9
34.1
90.5%
247.6%
59.9%
70.7%
19.6%
16.6%
19.6%
16.6%
13.2%
12.8%
13.2%
12.8%
3Q16 3Q17 3Q16 3Q17
Loss Ratio Acquisition Ratio GOE Ratio
12
Commercial Insurance – Property and Special Risks
Net Premiums Written ($B)
Key Takeaways
Normalized ROE results from increased severe losses and higher
attritional losses
NPW decline driven primarily by remediation efforts in commercial
property & US Programs and the Ascot divestiture ($161M)
Higher AYLR, as adjusted, driven by elevated attritional losses especially
in Commercial Property and high severe losses ($232M)
CAT losses were primarily driven by Hurricanes Harvey, Irma, and Maria
GOE ratio benefits from continued strategic actions to reduce operating
expenses
($ in millions) 3Q16 3Q17
Net premiums written $1,965 $1,595
Net premiums earned 1,865 1,570
Underwriting loss (435) (2,779)
Net investment income 172 174
Pre-tax operating loss ($263) ($2,605)
AAL
1
320 291
Normalized After-tax
operating loss
($40) ($111)
Avg. attributed equity $8,796 $8,037
Normalized ROE (1.8%) (5.5%)
59%
58%
41%
42%
3Q16 3Q17
Property Special Risks
$2.0
1) Represents one quarter of the average annual loss expectation.
$1.6
Combined Ratio
92.7%
100.1%
277.0%
123.3%
Calendar Year
Accident Year,
As Adjusted
Severe Loss Ratio
PYD Loss Ratio CAT Loss Ratio
13.3
17.3
5.1
172.0
4.9
14.8
5.1
14.8
Consumer
Insurance
Kevin Hogan
Chief Executive Officer of Life & Retirement
©
14
Consumer Insurance – Select Metrics
Pre-tax Operating Income ($M)
Normalized ROE Premiums and Deposits (P&D) and NPW ($B)
General Operating Expenses ($M)
$920
$718
$214
$249
($54)
$112
$148
($71)
3Q16 3Q17
Individual Retirement Group Retirement Life Insurance Personal Insurance
$99
$103
$92
$88
$152
$135
$431
$441
3Q16 3Q17
Individual Retirement Group Retirement Life Insurance Personal Insurance
10.4%
10.6%
3Q16 3Q17
$3.4
$2.5
$1.8
$1.9
$0.9
$0.9
$2.9
$2.8
P&D NPW P&D NPW
Individual Retirement Group Retirement Life Insurance Personal Insurance
$1,228
$774
$6.1
3Q16 3Q17
$1,008
$767
$5.3
$0.6
$0.6
$1.1
$0.7
$0.6
$0.6
$1.1
$0.6
3Q16 3Q17
15
Consumer Insurance – Individual Retirement
($ in millions) 3Q16 3Q17
Premiums and deposits $3,363 $2,526
Premiums 37 22
Policy fees 183 190
Net investment income 1,009 973
Advisory fee and other income 151 158
Total operating revenues 1,380 1,343
Benefits and expenses 460 625
Pre-tax operating income $920 $718
Normalized after-tax operating
income
$346 $318
Avg. attributed equity $11,330 $11,110
Normalized ROE 12.2% 11.4%
Noteworthy Items:
Update of actuarial assumptions $369 $242
3.02%
3.42%
2.21%
2.04%
3Q16 3Q17
Variable and Index Annuities Fixed Annuities
Net Flows ($B) Base Net Investment Spread
Key Takeaways
Assets Under Administration at historical highs driven by
equity market performance and positive Index Annuity net
flows.
Net flows impacted by lower premiums and deposits
reflecting slowdown of annuity industry sales.
Enhanced product design and features attracting new sales.
Continued active spread management with expected
compression from the run-off of higher yielding assets and
the low yield environment. Commercial mortgage loan
(CML) and unexpected accretion income impacted results,
benefiting Variable and Index Annuities in 3Q17 and Fixed
Annuities in 3Q16.
Assets Under Administration
56% 32%
12%
General accounts
Separate accounts
Retail Mutual Funds
As of September 30, 2017 = $147.8B
Premiums and Deposits ($B)
$3.4
Fixed Annuities Variable Annuities
Index Annuities
Retail Mutual Funds
($0.9)
($0.7)
$0.2
($0.3)
$0.5
$0.5
$0.4
($0.2)
3Q16 3Q17
$0.2
$2.5
($0.7)
16
Consumer Insurance – Group Retirement
1.85%
1.74%
3Q16 3Q17
Base Net Investment Spread
Key Takeaways
Digital transformation contributed to strong new group
acquisition year-to-date results.
Assets Under Administration at historical highs driven by
equity market performance.
Net Flows reflect strong sales and improved group retention.
Actively managing spreads, prior period benefited from CML
income, but experiencing compression due to the run-off of
higher yielding assets and the low yield environment.
Normalized operating income decline largely reflects spread
compression.
Assets Under Administration
46%
35%
19%
General accounts
Separate accounts
Group Retirement mutual funds
As of September 30, 2017 = $101.3B
Net Flows ($M)
3Q16 3Q17
Premiums and Deposits ($B)
$1.8
($ in millions) 3Q16 3Q17
Premiums and deposits $1,821 $1,860
Premiums 9 8
Policy fees 99 113
Net investment income 554 524
Advisory fee and other income 55 57
Total operating revenues 717 702
Benefits and expenses 503 453
Pre-tax operating income $214 $249
Normalized after-tax
operating income
$178 $156
Avg. attributed equity $6,193 $6,092
Normalized ROE 11.5% 10.2%
Noteworthy Items:
Update of actuarial assumptions ($47) $13
3Q16 3Q17
($97)
$1.9
($15)
17
Consumer Insurance – Life Insurance
Key Takeaways
Continued growth in new business sales for both Term
and Universal life insurance.
Administrative platform consolidation, distribution
simplification, and narrowed product focus supporting
growth.
Normalized operating income reflects favorable impact of
lower operating expenses.
Mortality experience consistent with prior year and within
pricing expectations.
New Business Sales
1) Other income primarily related to commission and profit sharing revenues received by Laya Healthcare from the distribution of insurance products.
64%
47%
27%
39%
9%
14%
3Q16 3Q17
By Product
Term Universal Life Health & Other
$75
83%
84%
17%
16%
3Q16 3Q17
By Geography
U.S. U.K.
$75
($ in millions)
($ in millions) 3Q16 3Q17
Premiums and deposits $880 $935
Premiums 349 384
Policy fees 291 343
Net investment income 267 260
Other income
1
14 13
Total operating revenues 921 1,000
Benefits and expenses 975 888
Pre-tax operating income (loss) ($54) $112
Normalized after-tax
operating income
$33 $49
Avg. attributed equity $2,676 $2,591
Normalized ROE 4.9% 7.6%
Noteworthy Items:
Update of actuarial assumptions ($92) $29
$110
$110
56.3
64.3
56.5
53.7
26.4
25.7
26.4
25.7
14.8
15.6
14.8
15.6
3Q16 3Q17 3Q16 3Q17
Loss Ratio Acquisition Ratio GOE Ratio
18
Consumer Insurance – Personal Insurance
Net Premiums Written ($B) Combined Ratios
Key Takeaways
Normalized operating income improvement demonstrates
strategic repositioning and focus on target markets.
Underwriting loss in 3Q17 reflects catastrophe losses of
$297 million and a lower level of favorable prior year
development.
AY Combined ratio, as adjusted, improvement primarily
reflects lower loss experience.
($ in millions) 3Q16 3Q17
Net premiums written $2,922 $2,807
Net premiums earned 2,918 2,823
Underwriting income (loss) 75 (157)
Net investment income 73 86
Pre-tax operating income (loss) $148 ($71)
Normalized After-tax
operating income
$41 $87
Avg. attributed equity $2,828 $3,256
Normalized ROE 5.8% 10.7%
Calendar Year
Accident Year,
As Adjusted
97.5
97.7
59%
58%
41%
42%
3Q16 3Q17
Personal Lines Accident and Health
$2.9
105.6
95.0
$2.8
Severe Loss Ratio
PYD Loss Ratio CAT Loss Ratio
0.4 -
-
0.9
(1.1)
10.6
0.4 -
Q&A and
Closing Remarks
©
Appendix
©
1) Includes AIG notes, bonds, loans and mortgages payable, and AIG Life Holdings, Inc. (AIGLH) notes and bonds payable, and junior subordinated debt.
2) The inclusion of RBC measures is intended solely for the information of investors and is not intended for the purpose of ranking any insurance company or for use in connection with any marketing,
advertising or promotional activities. ACL is defined as Authorized Control Level and CAL is defined as Company Action Level. RBC ratio for Domestic Life Insurance Companies excludes holding
company, AGC Life Insurance Company.
3) As of the date of this presentation, Moody’s and A.M. Best have Stable outlooks; S&P and Fitch have Negative outlooks. For property Casualty Insurance Companies FSR and Life Insurance
Companies FSR, ratings only reflect those of the core insurance companies.
Strong Capital Position
21
$58.3
$51.6
$14.8
$14.9
$3.2
$5.9
$0.6
$0.5
$20.4
$21.1
$0.8
$0.8
December 31, 2016 September 30, 2017
Hybrids
Financial Debt
NCI
AOCI
Tax attribute DTA
Adjusted S/E
Ratios:
Dec.
31,
2016
Sep. 30,
2017
Hybrids / Total capital
0.9% 0.9%
Financial debt / Total capital
20.8% 22.2%
Total Hybrids & Financial debt / Total capital
21.7% 23.1%
Capital Structure ($ in Billions)
$98.1
$94.9
Year-end
Domestic Life
Insurance Companies
Domestic Property
Casualty
Insurance Companies
2015 502% (CAL) 403% (ACL)
2016 509% (CAL) 411% (ACL)
Risk Based Capital Ratios
2
Credit Ratings
3
S&P Moody’s
Fitch
A.M. Best
AIG
– Senior Debt BBB+ Baa1
BBB+ NR
AIG Property
Casualty
– FSR
A+
A2 A A
AIG Life
– FSR A+
A2 A+ A
9M’17 3Q17
Share repurchases
$6,275 $275
Warrant
repurchases 3 3
Dividends declared
884 287
Total
$7,162 $565
Capital Return ($ in Millions)
1
Total Equity:
$76.9
Total Equity:
$73.0
Glossary of Non-GAAP
Financial Measures and
Non-GAAP Reconciliations
©
23
Glossary of Non-GAAP Financial Measures
Throughout this presentation, we present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business
results. Some of the measurements we use are “non-GAAP financial measures” under Securities and Exchange Commission rules and regulations. GAAP is the acronym for
“generally accepted accounting principles” in the United States. The non-GAAP financial measures we present may not be comparable to similarly-named measures reported by
other companies. The reconciliations of such measures to the most comparable GAAP measures in accordance with Regulation G are included within the relevant tables or in the
Third Quarter 2017 Financial Supplement available in the Investor Information section of AIG’s website, www.aig.com.
We may use certain non-GAAP operating performance measures as forward-looking financial targets or projections. These financial targets or projections are provided
based on management’s estimates. The most directly comparable GAAP financial targets or projections would be heavily dependent upon results that are beyond management’s
control and the outcome of these items could be significantly different than management’s estimates. Therefore, we do not provide quantitative reconciliations for these financial
targets or projections as we cannot predict with accuracy future actual events (e.g., catastrophe losses) and impacts from changes in macro-economic market conditions,
including the interest rate environment (e.g. estimate for DIB & GCM returns, fair value changes on PICC Investments, net reserve discount change and returns on alternative
investments).
Book Value per Common Share, Excluding Accumulated Other Comprehensive Income (AOCI) and Book Value per Common Share, Excluding AOCI and Deferred Tax
Assets (DTA) (Adjusted Book Value per Common Share) are used to show the amount of our net worth on a per-share basis. We believe these measures are useful to
investors because they eliminate items that can fluctuate significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign
currency translation adjustments and U.S. tax attribute deferred tax assets. These measures also eliminate the asymmetrical impact resulting from changes in fair value of our
available for sale securities portfolio wherein there is largely no offsetting impact for certain related insurance liabilities. We exclude deferred tax assets representing U.S. tax
attributes related to net operating loss carryforwards and foreign tax credits as they have not yet been utilized. Amounts for interim periods are estimates based on projections of
full-year attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the DTA utilized is included in these book value per common
share metrics. Book value per common share, excluding AOCI, is derived by dividing Total AIG Shareholders’ equity, excluding AOCI, by total common shares outstanding.
Adjusted Book Value per Common Share, is derived by dividing Total AIG shareholders’ equity, excluding AOCI and DTA (Adjusted Shareholders’ Equity), by total common
shares outstanding.
AIG Return on Equity – After-tax Operating Income Excluding AOCI and DTA (Adjusted Return on Equity) is used to show the rate of return on shareholders’ equity. We
believe this measure is useful to investors because it eliminates items that can fluctuate significantly from period to period, including changes in fair value of our available for sale
securities portfolio, foreign currency translation adjustments and U.S. tax attribute deferred tax assets. This measure also eliminates the asymmetrical impact resulting from
changes in fair value of our available for sale securities portfolio wherein there is largely no offsetting impact for certain related insurance liabilities. We exclude deferred tax
assets representing U.S. tax attributes related to net operating loss carryforwards and foreign tax credits as they have not yet been utilized. Amounts for interim periods are
estimates based on projections of full-year attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the DTA utilized is included in
Adjusted Return on Equity. Adjusted Return on Equity is derived by dividing actual or annualized after-tax operating income attributable to AIG by average Adjusted Shareholders’
Equity.
AIG Normalized Return on Equity further adjusts Adjusted Return on Equity for the effects of certain volatile or market related items. We believe this measure is useful to
investors because it presents the trends in our consolidated return on equity without the impact of certain items that can experience volatility in our short-term results. Normalized
Return on Equity is derived by excluding the following tax adjusted effects from Adjusted Return on Equity: the difference between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) Direct Investment book (DIB) and Global Capital Markets (GCM) returns; fair value changes on PICC investments; update of actuarial
assumptions; Life insurance incurred but not reported (IBNR) death claim charge; and prior year loss reserve development.
Core and Legacy Portfolio Attributed Equity – is an attribution of total AIG Adjusted Shareholders’ Equity to each of our modules within Core and Legacy Portfolio based on
our internal capital model, which incorporates the respective risk profiles. Attributed equity represents our best estimates based on current facts and circumstances and will
change over time.
Core and Legacy Portfolio Return on Equity – After-tax Operating Income (Adjusted Return on Attributed Equity) is used to show the rate of return on attributed equity.
Return on Attributed Equity is derived by dividing actual or annualized After-tax Operating Income by Average Attributed Equity.
Core and Legacy Portfolio Normalized Return on Attributed Equity (Normalized Return on Attributed Equity) further adjusts Adjusted Return on Attributed Equity for the
effects of certain volatile or market-related items. We believe this measure is useful to investors because it presents the trends in our Return on Attributed Equity without the
impact of certain items that can experience volatility in our short-term results. Normalized Return on Attributed Equity is derived by excluding the following tax adjusted effects
from Return on Attributed Equity: the difference between actual and expected (i) catastrophe losses, (ii) alternative investment returns, and (iii) DIB and GCM returns; fair value
changes on PICC investments; update of actuarial assumptions; Life insurance IBNR death claim charge; and prior year loss reserve development.
Glossary of Non-GAAP
24
Glossary of Non-GAAP Financial Measures
After-tax Operating Income Attributable to Core and Legacy Portfolio is derived by subtracting attributed interest expense and income tax expense from pre-tax operating
income. Attributed debt and the related interest expense is calculated based on our internal capital model. Tax expense or benefit is calculated based on an internal attribution
methodology that considers among other things the taxing jurisdiction in which the operating segments and geographies conduct business, as well as the deductibility of
expenses in those jurisdictions.
Normalized After-tax Operating Income Attributable to Core and Legacy Portfolio further adjusts After-tax Operating Income attributable to Core and Legacy Portfolio for the
effects of certain volatile or market related items. We believe this measure is useful to investors because it presents the trends in after tax operating income without the impact of
certain items that can experience volatility in our short-term results. Normalized After-tax Operating Income attributable to Core and Legacy Portfolio is derived by excluding the
following tax adjusted effects from After-tax Operating Income: the difference between actual and expected (i) catastrophe losses, (ii) alternative investment returns, and (iii) DIB
and GCM returns; fair value changes on PICC investments; update of actuarial assumptions; Life insurance IBNR death claim charge; and prior year loss reserve development
(PYD), net of reinsurance premium adjustments.
Normalized after-tax operating income (loss) per share is derived by dividing normalized after-tax operating income(loss) by diluted weighted average shares outstanding. We
believe that the use of this measure is useful to investors because it presents our after-tax operating income on a per share basis without the impact of certain items that can
experience volatility in our short-term results.
Operating Revenues exclude Net realized capital gains (losses), income from non-operating litigation settlements (included in Other income for GAAP purposes) and changes in
fair value of securities used to hedge guaranteed living benefits (included in Net investment income for GAAP purposes). Operating revenues is a GAAP measure for our
operating segments.
General Operating Expenses, Operating Basis (Operating GOE), is derived by making the following adjustments to general operating and other expenses: include (i) certain
loss adjustment expenses, reported as policyholder benefits and losses incurred and (ii) certain investment and other expenses reported as net investment income, and exclude
(i) advisory fee expenses, (ii) non-deferrable insurance commissions, (iii) direct marketing and acquisition expenses, net of deferrals, (iv) non-operating litigation reserves and (v)
other expense related to an asbestos retroactive reinsurance agreement. We use General operating expenses, operating basis, because we believe it provides a more
meaningful indication of our ordinary course of business operating costs, regardless of within which financial statement line item these expenses are reported externally within our
segment results. The majority of these expenses are employee-related costs. For example, Other acquisition expenses and losses and loss adjustment expenses primarily
represent employee-related costs in the underwriting and claims functions, respectively. Excluded from this measure are non-operating expenses (such as restructuring costs and
litigation reserves), direct marketing expenses, insurance company assessments and non-deferrable commissions. We also exclude the impact of foreign exchange and the
expenses of AIG Advisor Group and UGC, which have been divested, when measuring period-over-period fluctuations in General operating expenses, Operating basis.
We use the following operating performance measures because we believe they enhance the understanding of the underlying profitability of continuing operations and trends of our
business segments. We believe they also allow for more meaningful comparisons with our insurance competitors. When we use these measures, reconciliations to the most
comparable GAAP measure are provided on a consolidated basis.
Pre-tax Operating Income (PTOI) is derived by excluding the following items from income from continuing operations before income tax. This definition is consistent across our
modules (including geography). 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. PTOI is
a GAAP measure for our operating segments.
Glossary of Non-GAAP
• changes in fair value of securities used to hedge guaranteed living benefits;
• changes in benefit reserves and deferred policy acquisition costs (DAC), value of
business acquired (VOBA), and sales inducement assets (SIA) related to net realized
capital gains and losses;
• loss (gain) on extinguishment of debt;
• net realized capital gains and losses;
• non-qualifying derivative hedging activities, excluding net realized capital gains and
losses;
• income or loss from discontinued operations;
• net loss reserve discount benefit (charge);
• pension expense related to a one-time lump sum payment to former
employees;
• income and loss from divested businesses;
• non-operating litigation reserves and settlements;
• reserve development related to non-operating run-off insurance business;
• restructuring and other costs related to initiatives designed to reduce
operating expenses, improve efficiency and simplify our organization; and
• the portion of favorable or unfavorable prior year reserve development for
which we have ceded the risk under retroactive reinsurance agreements and
related changes in amortization of the deferred gain.
25
Glossary of Non-GAAP Financial Measures
After-tax Operating Income Attributable to AIG (ATOI) is derived by excluding the tax effected PTOI adjustments described above and the following tax items from net income
attributable to AIG:
– deferred income tax valuation allowance releases and charges; and
– uncertain tax positions and other tax items related to legacy matters having no relevance to our current businesses or operating performance.
Ratios: We, along with most property and casualty insurance companies, use the loss ratio, the expense ratio and the combined ratio as measures of underwriting performance.
These ratios are relative measurements that describe, for every $100 of net premiums earned, the amount of losses and loss adjustment expenses (which for Commercial
Insurance excludes net loss reserve discount), and the amount of other underwriting expenses that would be incurred. A combined ratio of less than 100 indicates underwriting
income and a combined ratio of over 100 indicates an underwriting loss. Our ratios are calculated using the relevant segment information calculated under GAAP, and thus may
not be comparable to similar ratios calculated for regulatory reporting purposes. The underwriting environment varies across countries and products, as does the degree of
litigation activity, all of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product type and competition can have an effect on pricing
and consequently on profitability as reflected in underwriting income and associated ratios.
Accident year loss and combined ratios, as adjusted: both the accident year loss and combined ratios, as adjusted, exclude catastrophe losses and related reinstatement
premiums, prior year development, net of premium adjustments, and the impact of reserve discounting. Natural catastrophe losses are generally weather or seismic events having
a net impact on AIG in excess of $10 million each. Catastrophes also include certain man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
We believe the as adjusted ratios are meaningful measures of our underwriting results on an ongoing basis as they exclude catastrophes and the impact of reserve discounting
which are outside of management’s control. We also exclude prior year development to provide transparency related to current accident year results.
Accident year loss ratio, as adjusted (Adjusted for Prior Year Development): further adjusts the Accident Year Loss Ratio, as adjusted, to include the impact of the prior year
reserve development into each respective accident year.
Underwriting ratios are computed as follows:
a) Loss ratio = Loss and loss adjustment expenses incurred ÷ Net premiums earned (NPE)
b) Acquisition ratio = Total acquisition expenses ÷ NPE
c) General operating expense ratio = General operating expenses ÷ NPE
d) Expense ratio = Acquisition ratio + General operating expense ratio
e) Combined ratio = Loss ratio + Expense ratio
f) Accident year loss ratio, as adjusted (AYLR) = [Loss and loss adjustment expenses incurred – CATs – PYD] ÷ [NPE +/(-) Reinstatement premiums (RIPs) related to
catastrophes +/(-) RIPs related to prior year catastrophes + (Additional) returned premium related to PYD on loss sensitive business + Adjustment for ceded premiums
under reinsurance contracts related to prior accident years]
g) Accident year combined ratio = AYLR + Expense ratio
h) Catastrophe losses (CATs) and reinstatement premiums = [Loss and loss adjustment expenses incurred – (CATs)] ÷ [NPE +/(-) RIPs related to catastrophes] – Loss ratio
i) Prior year development net of (additional) return premium related to PYD on loss sensitive business = [Loss and loss adjustment expenses incurred – Prior year loss
reserve development unfavorable (favorable) (PYD), net of reinsurance] ÷ [NPE +/(-) RIPs related to prior year catastrophes + (Additional) returned premium related to
PYD on loss sensitive business] – Loss ratio
Premiums and deposits: includes direct and assumed amounts received and earned on traditional life insurance policies, group benefit policies and life-contingent payout
annuities, as well as deposits received on universal life, investment-type annuity contracts and mutual funds.
Results from discontinued operations are excluded from all of these measures.
Glossary of Non-GAAP
26
Non-GAAP Reconciliations
Book Value Per Share and Return on Equity
(in millions, except per share data)
Book Value Per Share
4Q16 3Q17
Total AIG shareholders' equity (a)
$
76,300
$
72,468
Less: Accumulated other comprehensive income (AOCI)
3,230
5,939
Total AIG shareholders' equity, excluding AOCI (b)
73,070
66,529
Less: Deferred tax assets (DTA)
14,770
14,897
Total adjusted shareholders' equity (c)
$
58,300
$
51,632
Total common shares outstanding (d)
995.3
898.9
Book value per common share (
a÷d)
$
76.66
$
80.62
Book value per common share, excluding AOCI (b
÷d) 73.41
74.01
Adjusted book value per common share (c
÷d) 58.57
57.44
(in millions, except per share data)
3Q16 3Q17
Return On Equity (ROE) Computations
Actual or Annualized net income (loss) attributable to AIG (a)
$
1,848
$
(6,956)
Actual or Annualized after
-tax operating income (loss) attributable to AIG (b)
$
4,460
$
(4,444)
Average AIG Shareholders' equity (c)
$
89,305
$
73,100
Less: Average AOCI
8,658
5,451
Less: Average DTA
15,591
14,592
Average adjusted shareholders' equity (d)
65,056
53,057
ROE (a
÷c)
2.1%
(9.5%)
After
-tax operating income (loss) as reported (e)
$
1,115
$
(1,111)
Adjustments to arrive at Normalized after
-tax operating income (loss):
Catastrophe losses above (below) expectations
(70)
1,726
(Better) worse than expected alternative returns (1)
(45)
(68)
(Better) worse than expected DIB & GCM returns
(68)
(27)
Fair value changes on PICC investments
(31)
(20)
Update of actuarial assumptions 250
(176)
Unfavorable (favorable) prior year loss reserve development 170
549
Normalized after
-tax operating income (loss) (f)
$
1,321
$
873
Adjusted return on equity (b
÷d)
6.9%
(8.4%)
Normalized return on equity (f
÷d) (2)
8.1%
6.6%
Normalized after
-tax operating income(loss) per share:
Weighted average shares outstanding
- diluted
1,102.4
931.2
Normalized after
-tax operating income (loss) per share
$
1.20
$
0.94
(1) The expected rate of return on alternative investments used was 8% for all periods presented.
(2) Normalizing adjustments are tax effected using a 35% tax rate and computed based on average attributed equity for the res
pective periods.
27
Non-GAAP Reconciliations
Pre-tax and After-tax Operating Income - Consolidated
(in millions)
3Q16 3Q17
Pre
-tax income (loss) from continuing operations
$
737
$
(2,803)
Adjustments to arrive at Pre
-tax operating income (loss)
Changes in fair value of securities used to hedge guaranteed living benefits
(17)
(26)
Changes in benefit reserves and DAC, VOBA and SIA related to
net realized capital gains (losses) 67
(84)
Loss (gain) on extinguishment of debt
(14)
1
Net realized capital (gains) losses
765
922
(Income) loss from divested businesses
(128)
13
Non
-operating litigation reserves and settlements
(5)
-
Unfavorable (favorable) prior year development and related amortization changes ceded
under retroactive reinsurance agreements
(3)
(7)
Net loss reserve discount (benefit) charge
32
48
Pension expense related to a one
-time lump sum payment to former employees -
49
Restructuring and other costs
210
31
Pre
-tax operating income (loss)
$
1,644
$
(1,856)
(a) Includes impact of tax only adjustments.
(b) The tax effect includes the impact of non
-U.S. tax rates lower than 35% applied to foreign exchange (gains) or losses attributable to those jurisdictions where foreign earnings are
considered to be indefinitely reinvested.
(c) The tax effect included the impact of non
-U.S. tax rates lower than 35% applied to (income) or losses on dispositions by foreign affiliates whose tax bases in divested subsidiaries
differed from U.S. GAAP carrying values.
(d) For the quarter ended September 30, 2017, because we reported an after
-tax operating loss, all common stock equivalents are anti-dilutive and are therefore excluded from the
calculation of diluted shares and diluted per share amounts.
Net income (loss) attributable to AIG
$
462
$
(1,739)
Adjustments to arrive at After
-tax operating income (loss)
(amounts net of tax, at a rate of 35%, except where noted):
Uncertain tax positions and other tax adjustments (a)
42
11
Deferred income tax valuation allowance (releases) charges (a)
(2)
(2)
Changes in fair value of securities used to hedge guaranteed living benefits
(11)
(17)
Changes in benefit reserves and DAC, VOBA and SIA related to
net realized capital gains (losses) 43
(55)
Loss (gain) on extinguishment of debt
(9)
-
Net realized capital (gains) losses (b)
526
607
(Income) loss from discontinued operations (a)
(3)
1
(Income) loss from divested businesses (c)
(83)
6
Non
-operating litigation reserves and settlements
(3)
-
Unfavorable (favorable) prior year development and related amortization changes ceded
under retroactive reinsurance agreements
(2)
(5)
Net loss reserve discount (benefit) charge
18
28
Pension expense related to a one
-time lump sum payment to former employees -
33
Restructuring and other costs
137
21
After
-tax operating income (loss)
$
1,115
$
(1,111)
Weighted average diluted shares outstanding (d)
1,102.4
908.7
Income (loss) per common share attributable to AIG (diluted)
$
0.42
$
(1.91)
After
-tax operating income (loss) per common share attributable to AIG (diluted)
$
1.01
$
(1.22)
28
Non-GAAP Reconciliations
General Operating and Other Expenses
(in millions)
Nine Months Ended
September 30,
3Q16 3Q17 2016 2017
General operating and other expenses, GAAP basis
$
2,536
$
2,149
$
8,125
$
6,774
Restructuring and other costs
(210)
(31)
(488)
(259)
Other expense related to retroactive reinsurance agreement
(4)
-
8
-
Pension expense related to a one-time lump sum payment to former employees -
(49)
-
(50)
Non-operating litigation reserves 2
-
(1)
70
Total general operating and other expenses included in pre-tax operating
income 2,324
2,069
7,644
6,535
Loss adjustment expenses, reported as policyholder benefits and losses incurred 340
289
1,031
889
Advisory fee expenses
(76)
(84)
(566)
(238)
Non-deferrable insurance commissions and other
(107)
(148)
(350)
(410)
Direct marketing and acquisition expenses, net of deferrals, and other
(52)
(56)
(329)
(226)
Investment expenses reported as net investment income and other 15
32
45
49
Total general operating expenses, operating basis
$
2,444
$
2,102
$
7,475
$
6,599
Less: FX Impact 19
19
Less: GOE of Advisor Group -
70
Less: GOE of UGC 61
166
Total general operating expenses, operating basis, Ex. FX & GOE of AIG
Advisor Group and UGC
$
2,364
$
2,102
$
7,220
$
6,599
Non-GAAP Reconciliations
PTOI, ATOI and Normalized ATOI
Commercial Insurance
- Liability and Financial Lines
(in millions)
3Q16 3Q17
Pre-tax operating income (loss)
$
948
$
(257)
Interest expense on attributed financial debt 55
64
Operating income (loss) before taxes: 893
(321)
Income tax expense (benefit) 214
(115)
After-tax operating income (loss) (a)
$
679
$
(206)
Adjustments to arrive at normalized after-tax
operating income (loss):
Catastrophe losses above (below) expectations 1
11
(Better) worse than expected alternative returns*
(17)
(16)
Fair value changes on PICC investments
(8)
-
Unfavorable (favorable) prior year loss reserve development
(10)
532
Normalized after-tax operating income (b)
$
645
$
321
Ending attributed equity 18,636
13,880
Average attributed equity (c) 19,365
14,128
Adjusted return on attributed equity (a÷c) 14.0
%
(5.8)
%
Normalized return on attributed equity** (b÷c) 13.3
%
9.1
%
Commercial Insurance
- Property and Special Risks
(in millions)
3Q16 3Q17
Pre-tax operating income (loss)
$
(263)
$
(2,605)
Interest expense on attributed financial debt 36
33
Operating income (loss) before taxes:
(299)
(2,638)
Income tax expense (benefit)
(107)
(900)
After-tax operating income (loss) (a)
$
(192)
$
(1,738)
Adjustments to arrive at normalized after-tax
operating income (loss):
Catastrophe losses above (below) expectations
(48)
1,584
(Better) worse than expected alternative returns*
(6)
(8)
Fair value changes on PICC investments
(3)
-
Unfavorable (favorable) prior year loss reserve development
209
51
Normalized after-tax operating income (b)
$
(40)
$
(111)
Ending attributed equity 8,615
$
7,884
Average attributed equity (c) 8,796
8,037
Adjusted return on attributed equity (a÷c)
(8.7)
%
(86.5)
%
Normalized return on attributed equity** (b÷c)
(1.8)
%
(5.5)
%
Total Commercial Insurance
(in millions)
3Q16 3Q17
Pre-tax operating income (loss)
$
685
$
(2,862)
Interest expense on attributed financial debt 91
97
Operating income (loss) before taxes: 594
(2,959)
Income tax expense (benefit) 107
(1,015)
After-tax operating income (loss) (a)
$
487
$
(1,944)
Adjustments to arrive at normalized after-tax
operating income (loss):
Catastrophe losses above (below) expectations
(47)
1,595
(Better) worse than expected alternative returns*
(23)
(24)
Fair value changes on PICC investments
(11)
-
Unfavorable (favorable) prior year loss reserve development 199
583
Normalized after-tax operating income (b)
$
605
$
210
Ending attributed equity 27,251
21,764
Average attributed equity (c) 28,161
22,165
Adjusted return on attributed equity (a÷c) 6.9
%
(35.1)
%
Normalized return on attributed equity** (b÷c) 8.6
%
3.8
%
* The expected rate of return on alternative investments used was 8% for all periods presented.
** Normalizing adjustments are tax effected including the impact of non
-U.S. tax rates (25% for Europe and 30% for Japan) applied to the normalizing adjustments attributable to the
respective geography. Normalized return on attributed equity is computed based on normalized after
-tax operating income divided by average attributed equity for the respective periods.
29
30
Non-GAAP Reconciliations
PTOI, ATOI and Normalized ATOI
Consumer Insurance
- Group Retirement
(in millions)
3Q16 3Q17
Pre
-tax operating income (loss)
$
214
$
249
Interest expense on attributed financial debt 4
-
Operating income (loss) before taxes: 210
249
Income tax expense (benefit) 57
79
After
-tax operating income (a)
$
153
$
170
Adjustments to arrive at normalized after
-tax
operating income (loss):
(Better) worse than expected alternative returns*
(5)
(6)
Update of actuarial assumptions 30
(8)
Normalized after
-tax operating income (b)
$
178
$
156
Ending attributed equity
6,144
6,105
Average attributed equity (c)
6,193
6,092
Adjusted return on attributed equity (a
÷c) 9.9
%
11.2
%
Normalized return on attributed equity** (b
÷c) 11.5
%
10.2
%
Consumer Insurance
- Individual Retirement
(in millions)
3Q16 3Q17
Pre
-tax operating income
$
920
$
718
Interest expense on attributed financial debt 7
-
Operating income (loss) before taxes: 913
718
Income tax expense (benefit) 317
231
After
-tax operating income (a)
$
596
$
487
Adjustments to arrive at normalized after
-tax
operating income (loss):
(Better) worse than expected alternative returns*
(10)
(11)
Update of actuarial assumptions
(240)
(158)
Normalized after
-tax operating income (b)
$
346
$
318
Ending attributed equity
11,205
11,134
Average attributed equity (c)
11,330
11,110
Adjusted return on attributed equity (a
÷c)
21.0
%
17.5
%
Normalized return on attributed equity** (b
÷c)
12.2
%
11.4
%
* The expected rate of return on alternative investments used was 8% for all periods presented.
** Normalizing adjustments are tax effected including the impact of non
-U.S. tax rates (25% for Europe and 30% for Japan) applied to the normalizing adjustments attributable to
the respective geography. Normalized return on attributed equity is computed based on normalized after
-tax operating income divided by average attributed equity for the
respective periods.
31
Non-GAAP Reconciliations
PTOI, ATOI and Normalized ATOI
Consumer Insurance
- Personal Insurance
(in millions)
3Q16 3Q17
Pre
-tax operating income (loss)
$
148
$
(71)
Interest expense on attributed financial debt 23
27
Operating income (loss) before taxes: 125
(98)
Income tax expense (benefit) 46
(39)
After
-tax operating income (loss) (a)
$
79
$
(59)
Adjustments to arrive at normalized after
-tax
operating income (loss):
Catastrophe losses above (below) expectations
(22)
150
(Better) worse than expected alternative returns* 6
(4)
Fair value changes on PICC investments
(1)
-
Unfavorable (favorable) prior year loss reserve development
(21)
-
Normalized after
-tax operating income (b)
$
41
$
87
Ending attributed equity
2,736
3,211
Average attributed equity (c)
2,828
3,256
Adjusted return on attributed equity (a
÷c) 11.2
%
(7.2)
%
Normalized return on attributed equity** (b
÷c) 5.8
%
10.7
%
Consumer Insurance
- Life Insurance
(in millions)
3Q16 3Q17
Pre
-tax operating income (loss)
$
(54)
$
112
Interest expense on attributed financial debt 8
5
Operating income (loss) before taxes:
(62)
107
Income tax expense (benefit)
(37)
36
After
-tax operating income (loss) (a)
$
(25)
$
71
Adjustments to arrive at normalized after
-tax
operating income (loss):
(Better) worse than expected alternative returns*
(2)
(3)
Update of actuarial assumptions 60
(19)
Normalized after
-tax operating income (b)
$
33
$
49
Ending attributed equity
2,610
2,600
Average Attributed equity (c)
2,676
2,591
Adjusted return on attributed equity (a
÷c)
(3.7)
%
11.0
%
Normalized return on attributed equity** (b
÷c) 4.9
%
7.6
%
* The expected rate of return on alternative investments used was 8% for all periods presented.
** Normalizing adjustments are tax effected including the impact of non
-U.S. tax rates (25% for Europe and 30% for Japan) applied to the normalizing adjustments attributable to
the respective geography. Normalized return on attributed equity is computed based on normalized after
-tax operating income divided by average attributed equity for the
respective periods.
32
Non-GAAP Reconciliations
PTOI, ATOI and Normalized ATOI
Other Operations (including consolidations and eliminations)
(in millions)
3Q16 3Q17
Pre
-tax operating income (loss)
$
(170)
$
(288)
Interest expense (benefit) on attributed financial debt
(165)
(171)
Operating income (loss) before taxes:
(5)
(117)
Income tax expense (benefit) 109
(141)
After
-tax operating income (loss) (a)
$
(114)
$
24
Adjustments to arrive at normalized after
-tax
operating income (loss):
Catastrophe losses above (below) expectations -
(18)
(Better) worse than expected alternative returns* 1
(1)
(Better) worse than expected DIB & GCM returns 1
-
Fair value changes on PICC investments
(19)
(20)
Update of actuarial assumptions 1
-
Unfavorable (favorable) prior year loss reserve
development
(12)
(33)
Normalized after
-tax operating income (loss) (b)
$
(142)
$
(48)
Ending attributed equity
3,007
(3,063)
Average attributed equity (c)
954
(2,053)
Total Consumer Insurance
(in millions)
3Q16 3Q17
Pre-tax operating income (loss)
$
1,228
$
1,008
Interest expense on attributed financial debt 42
32
Operating income (loss) before taxes: 1,186
976
Income tax expense (benefit) 383
307
After-tax operating income (loss) (a)
$
803
$
669
Adjustments to arrive at normalized after-tax
operating income (loss):
(Better) worse than expected alternative returns*
(11)
(24)
Update of actuarial assumptions
(150)
(185)
Catastrophe losses above (below) expectations
(22)
150
Fair value changes on PICC investments
(1)
-
Unfavorable (favorable) prior year loss reserve development
(21)
-
Normalized after-tax operating income (b)
$
598
$
610
Ending attributed equity
22,696
23,050
Average attributed equity (c)
23,027
23,049
Adjusted return on attributed equity (a÷c)
13.9
%
11.6
%
Normalized return on attributed equity** (b÷c)
10.4
%
10.6
%
* The expected rate of return on alternative investments used was 8% for all periods presented.
** Normalizing adjustments are tax effected including the impact of non
-U.S. tax rates (25% for Europe and 30% for Japan) applied to the normalizing adjustments attributable to
the respective geography. Normalized return on attributed equity is computed based on normalized after
-tax operating income divided by average attributed equity for the
respective periods.
33
Non-GAAP Reconciliations
PTOI, ATOI and Normalized ATOI
Legacy Portfolio
(in millions)
3Q16 3Q17
Pre
-tax operating income (loss)
$
(99)
$
286
Interest expense on attributed financial debt 32
42
Operating income (loss) before taxes:
(131)
244
Income tax expense (benefit)
(73)
79
After
-tax operating income (loss) (a)
$
(58)
$
165
Adjustments to arrive at normalized after
-tax
operating income (loss):
Catastrophe losses above (below) expectations
(1)
(1)
(Better) worse than expected alternative returns*
(12)
(19)
(Better) worse than expected DIB & GCM returns
(69)
(27)
Update of actuarial assumptions 399
9
Unfavorable (favorable) prior year loss reserve
development 4
(1)
Normalized after
-tax operating income (b)
$
263
$
126
Ending attributed equity
11,086
9,880
Average attributed equity (c)
12,914
9,896
Adjusted return on attributed equity (a
÷c)
(1.8)
%
6.7
%
Normalized return on attributed equity** (b
÷c) 8.1
%
5.1
%
Total Core
Nine Months Ended
(in millions)
September 30,
3Q16 3Q17 2016
2017
Pre
-tax operating income (loss)
$
1,743
$
(2,142)
$
4,603
$
1,259
Interest expense (benefit) on attributed financial
debt
(32)
(42)
(77)
(128)
Operating income (loss) before taxes: 1,775
(2,100)
4,680
1,387
Income tax expense (benefit) 599
(849)
1,385
268
After
-tax operating income (loss) (a)
$
1,176
$
(1,251)
$
3,295
$
1,119
Adjustments to arrive at normalized after
-tax
operating income (loss):
Catastrophe losses above (below) expectations
(69)
1,727
(138)
1,557
(Better) worse than expected alternative returns*
(33)
(49)
369
(226)
(Better) worse than expected DIB & GCM returns
1
-
4
(4)
Fair value changes on PICC investments
(31)
(20)
21
(38)
Update of actuarial assumptions
(149)
(185)
(149)
(185)
Unfavorable (favorable) prior year loss reserve
development 166
550
130
664
Normalized after
-tax operating income (b)
$
1,061
$
772
$
3,532
$
2,887
Ending attributed equity
52,953
41,751
52,953
41,751
Average attributed equity (c)
52,142
43,161
52,237
44,800
Adjusted return on attributed equity (a
÷c)
9.0
%
(11.6)
%
8.4
%
3.3
%
Normalized return on attributed equity** (b
÷c) 8.1
%
7.2
%
9.0
%
8.6
%
* The expected rate of return on alternative investments used was 8% for all periods presented.
** Normalizing adjustments are tax effected using a 35% tax rate and computed based on average attributed equity for the resp
ective periods.
34
Non-GAAP Reconciliations
Accident Year Loss Ratio, as adjusted, and Accident Year Combined Ratio, as adjusted
Commercial Insurance
- Property and Special Risks
3Q16
3Q17
Loss ratio 90.5
247.6
Catastrophe losses and reinstatement premiums
(13.3)
(172.0)
Prior year development net of premium adjustments
(17.3)
(4.9)
Accident year loss ratio, as adjusted 59.9
70.7
Combined ratio 123.3
277.0
Catastrophe losses and reinstatement premiums
(13.3)
(172.0)
Prior year development net of premium adjustments
(17.3)
(4.9)
Accident year combined ratio, as adjusted 92.7
100.1
Commercial Insurance
- Liability and Financial Lines
3Q16 3Q17
Loss ratio 67.7
113.1
Catastrophe losses and reinstatement premiums
(0.2)
(0.9)
Prior year development, net of (additional) return premium on loss
sensitive business 0.5
(34.1)
Accident year loss ratio, as adjusted 68.0
78.1
Combined ratio 93.1
138.3
Catastrophe losses and reinstatement premiums
(0.2)
(0.9)
Prior year development, net of (additional) return premium on loss
sensitive business 0.5
(34.1)
Accident year combined ratio, as adjusted 93.4
103.3
Consumer Personal Insurance
3Q16 3Q17
Loss ratio 56.3
64.3
Catastrophe losses and reinstatement premiums
(0.9)
(10.6)
Prior year development net of premium adjustments 1.1
-
Accident year loss ratio, as adjusted 56.5
53.7
Combined ratio 97.5
105.6
Catastrophe losses and reinstatement premiums
(0.9)
(10.6)
Prior year development net of premium adjustments 1.1
-
Accident year combined ratio, as adjusted 97.7
95.0
Total Commercial Insurance
3Q16 3Q17
Loss ratio 77.3
168.4
Catastrophe losses and reinstatement premiums
(5.6)
(71.2)
Prior year development, net of (additional) return premium on loss
sensitive business
(7.0)
(22.1)
Accident year loss ratio, as adjusted 64.7
75.1
Combined ratio 105.8
195.4
Catastrophe losses and reinstatement premiums
(5.6)
(71.2)
Prior year development, net of (additional) return premium on loss
sensitive business
(7.0)
(22.1)
Accident year combined ratio, as adjusted 93.2
102.1
35
Non-GAAP Reconciliations
Accident Year Loss and Combined Ratios, as adjusted (incl. PYD)
Total Commercial Insurance
Full Year
2011 2012 2013 2014 2015 2016 9M'17
Loss ratio 84.3
81.0
70.3
69.7
84.5
104.0
105.2
Catastrophe losses and reinstatement premiums
(11.9)
(10.9)
(3.4)
(3.0)
(3.0)
(6.5)
(27.5)
Prior year development net of premium adjustments 1.9
(1.2)
(1.5)
(2.1)
(16.8)
(30.8)
(8.5)
Adjustment for ceded premiums under reinsurance contracts related to prior accident years -
-
-
-
-
-
(0.3)
Accident year loss ratio, as adjusted 74.3
68.9
65.4
64.6
64.7
66.7
68.9
Commercial Insurance Accident Year Loss Ratio, as Adjusted (incl. PYD)
2011 2012 2013 2014 2015 2016 9M'17
Accident year loss ratio, as adjusted 74.3
68.9
65.4
64.6
64.7
66.7
68.9
Effect of 2015 Prior Year Development on 2011 - 2015 2.8
1.2
1.9
2.4
Accident year loss ratio, as adjusted (incl. 2015 PYD) 77.1
70.1
67.3
67.0
64.7
66.7
68.9
Effect of 2016 Prior Year Development on 2011 - 2015 0.9
2.1
2.4
4.2
6.1
Accident year loss ratio, as adjusted (incl. 2015 and 2016 PYD) 78.0
72.2
69.7
71.2
70.8
66.7
68.9
Effect of 2017 Prior Year Development on 2011 - 2016 0.4
(0.2)
(0.2)
0.4
0.3
4.1
Accident year loss ratio, as adjusted (incl. PYD) 78.4
72.0
69.5
71.6
71.1
70.8
68.9
36
Non-GAAP Reconciliations
Premiums
(in millions)
Consumer Insurance:
3Q16 3Q17
Premiums and deposits
$
6,064
$
5,321
Deposits
(5,495)
(4,726)
Other
(174)
(181)
Premiums
$
395
$
414
why
Consumer Insurance
- Individual Retirement:
Premiums and deposits
$
3,363
$
2,526
Deposits
(3,328)
(2,504)
Other
2
-
Premiums
$
37
$
22
a
Consumer Insurance
- Individual Retirement (Fixed Annuities):
Premiums and deposits
$
570
$
592
Deposits
(535)
(573)
Other
3
1
Premiums
$
38
$
20
a
Consumer Insurance
- Individual Retirement (Variable Annuities):
Premiums and deposits
$
1,092
$
736
Deposits
(1,092)
(733)
Other
(2)
(1)
1
Premiums
$
(2)
$
2
1
a
Consumer Insurance
- Individual Retirement (Index Annuities):
Premiums and deposits
$
611
$
601
Deposits
(611)
(601)
Other
-
-
1
Premiums
$
-
$
-
1
a
Consumer Insurance
- Individual Retirement (Retail Mutual Funds):
Premiums and deposits
$
1,090
$
597
Deposits
(1,090)
(597)
Other
-
-
1
Premiums
$
-
$
-
1
a
Consumer Insurance
- Group Retirement:
Premiums and deposits
$
1,821
$
1,860
Deposits
(1,812)
(1,852)
Other
-
-
1
Premiums
$
9
$
8
Consumer Insurance
- Life Insurance:
Premiums and deposits
$
880
$
935
Deposits
(355)
(371)
Other
(176)
(180)
Premiums
$
349
$
384
