AIG Reports First Quarter 2015 Net Income

American International Group reported net income attributable to AIG of $2.5 billion, or $1.78 per diluted share, for the quarter ended March 31, compared to $1.6 billion, or $1.09 per diluted share, for the first quarter of 2014.

In a release on April 30, the Company noted that net income included net realized capital gains of $874 million, net of tax, which included gains totaling $565 million, net of tax, associated with the sale of two large shareholdings.

After-tax operating income was $1.7 billion, or $1.22 per diluted share, for the first quarter of 2015, compared to $1.7 billion, or $1.18 per diluted share, in the prior-year quarter. Operating results in the first quarter of 2015 reflected improved underwriting results in Commercial Insurance, lower alternative investment returns compared to the strong level a year ago, as well as the continued effect of the low interest rate environment on net investment income. Additionally, after-tax operating income reflected an unfavorable year-over-year impact from changes in the discount on workers' compensation reserves.

"Our first quarter results showed progress on our financial objectives, and our commitment to balance sheet management," said Peter D. Hancock, AIG President and Chief Executive Officer. "Normalized ROE excluding AOCI and DTA of 7.8 percent increased approximately 40 basis points from the full-year 2014 baseline. GOE declined 3 percent from the prior-year quarter as we continued to simplify our processes and organizational structure. Book value per share excluding AOCI and DTA increased 14 percent from the prior- year quarter. We continued to proactively manage our capital resources through both common stock and debt repurchases. We further optimized our funding profile by replacing high-cost legacy debt with new issuances at lower yields. These actions reflect our improved risk profile, and combined with continued insurance company distributions, have contributed to the Board's approval of an additional $3.5 billion share buyback authorization."

"Our diversified business model and balance sheet deleveraging highlight how we have reduced our overall risk level," Hancock continued. "Our focus on value and long-term sustainability benefits our clients and our shareholders, and leverages our global scale to achieve the right balance between growth, profitability, and risk."

CAPITAL AND LIQUIDITY

-AIG shareholders' equity totaled $108.0 billion at March 31.

-In the first quarter of 2015, AIG issued $1.2 billion aggregate principal amount of 3.875 percent Notes due 2035, $800 million aggregate principal amount of 4.375 percent Notes due 2055, and $350 million aggregate principal amount of 4.35 percent Callable Notes due 2045.

-In the first quarter of 2015, AIG repurchased approximately 29 million shares of AIG Common Stock for an aggregate purchase price of $1.4 billion. The total number of shares repurchased includes (but the aggregate repurchase price does not include) approximately 3.5 million shares received in January 2015 upon the settlement of an accelerated share repurchase agreement executed in the fourth quarter of 2014.

-In the first quarter of 2015, AIG launched cash tender offers that resulted in the repurchase in April 2015 of approximately $915 million aggregate principal amount of high coupon AIG junior subordinated debentures for an aggregate purchase price of approximately $1.25 billion. These repurchases, which were not part of Direct Investment book (DIB) liability management, will result in annual interest savings of approximately $73 million. The economic value captured by these liability management activities totaled approximately $167 million.

-In the first quarter of 2015, AIG repurchased through cash tender offers approximately $1.0 billion aggregate principal amount of certain DIB senior notes for an aggregate purchase price of approximately $1.1 billion, using cash allocated to the DIB. In April 2015, AIG repurchased through cash tender offers and privately negotiated transactions an additional $61 million aggregate principal amount of certain DIB senior notes for an aggregate purchase price of approximately $66 million, using cash allocated to the DIB. In April 2015, AIG received gross proceeds of approximately $500 million from the settlement of the March 30, sale of 256 million ordinary H shares of PICC Property and Casualty Company Limited, by means of a placement to certain institutional investors.

-In the first quarter of 2015, AIG paid $332 million for acquisitions in both its Commercial Insurance and Consumer Insurance businesses, which is in addition to the $308 million paid for the acquisition of AIG Life Limited (formerly Ageas Protect Limited) at the end of 2014.

-AIG Parent liquidity sources increased to $15.8 billion at March 31, which included $11.3 billion of cash, short-term investments, and unencumbered fixed maturity securities, from $14.3 billion at December 31, 2014, which included $9.8 billion of cash, short-term investments, and unencumbered fixed maturity securities.

Pre-tax operating income increased to $1.5 billion in the first quarter of 2015 from $1.4 billion in the prior-year quarter, primarily due to improved underwriting results from Property Casualty and Mortgage Guaranty, partially offset by lower net investment income from Property Casualty and Institutional Markets.

Prior year loss reserve development unfavorable, net of reinsurance and premium adjustments 28 160 Net reserve discount charge (benefit) 93 (126 )

Property Casualty's increase in pre-tax operating income is attributable to an increase in underwriting income, partially offset by lower net investment income. The combined ratio decreased 1.8 points to 97.1 in the first quarter of 2015. The loss ratio decreased 1.3 points to 68.1 in the first quarter of 2015, primarily due to lower current accident year losses, lower catastrophe losses and lower net unfavorable prior year loss reserve development, partially offset by a net reserve discount charge for workers' compensation reserves compared to a net reserve discount benefit in the prior-year quarter.

Catastrophe losses were $71 million in the first quarter of 2015, compared to $184 million in the prior-year quarter. Net unfavorable prior year loss reserve development, including return premiums, was $28 million, compared to $160 million in the prior-year quarter, primarily due to net favorable prior year loss reserve development in the Americas and EMEA Property, partially offset by net unfavorable prior year loss reserve development in Casualty. In the first quarter 2015, the net reserve discount was a $93 million charge, primarily due to the update to the discount rates used on workers' compensation reserves, compared to a benefit of $126 million in the prior-year quarter, which was largely the result of changes in the U.S. pooling arrangements that occurred on January 1, 2014.

The first quarter 2015 accident year loss ratio, as adjusted, decreased 0.8 points to 64.4, primarily due to enhanced risk selection and pricing discipline in Specialty and Financial lines, particularly in the U.S., and lower attritional losses in U.S. Property. The acquisition ratio remained unchanged. The general operating expense ratio decreased slightly to 12.8, primarily due to efficiencies from organizational realignment initiatives, offset by investments in technology, engineering and analytics.

First quarter 2015 net premiums written increased 1 percent compared to the prior-year quarter. Excluding the effects of foreign exchange, net premiums written increased 6 percent compared to the prior-year quarter. This increase was primarily driven by new business growth in Financial lines and Property, as well as a renewal of a multi-year multinational policy in Financial lines which contributed approximately 40 percent of the growth. These increases were partially offset by the decreases in U.S. Casualty, reflecting rate pressure and the effect on renewals from continued discipline in certain classes of business in Specialty.

Mortgage Guaranty's pre-tax operating income increased to $145 million for the first quarter of 2015, compared to $76 million in the prior-year quarter, resulting from an increase in first-lien premiums earned due to growth in the in-force business and cancellations on non-refundable single premium business, and decreased losses and loss adjustment expenses incurred. The improvement in loss ratio reflected lower new delinquencies, lower loss severity, an increased cure rate, and the recording in the prior-year quarter of $27 million of net unfavorable prior year loss reserve development. The increase in the acquisition ratio was due to increased expenses of sales support activities resulting from the increase in new insurance written. The decrease in the general operating expense ratio was primarily due to an increase in earned premiums, as actual expenses were stable.

Net premiums written increased 12 percent to $258 million compared to the prior-year quarter. Domestic first-lien new insurance written of $10.5 billion in principal amount of loans insured increased 39 percent over the prior-year quarter, driven by an increase in mortgage originations primarily from refinance activity as a result of a reduction in mortgage interest rates. New business written during the first quarter of 2015 had an average FICO score of 752 and an average loan-to-value ratio of 91 percent.

Consumer Insurance pre-tax operating income decreased to $945 million in the first quarter of 2015 compared to $1.2 billion in the prior-year quarter, reflecting lower net investment income, primarily from lower returns on alternative investments and lower base yields, and higher general operating expenses and less favorable mortality gains in Life than in the prior-year quarter. These items were partially offset by growth in policy fees due to increased assets under management, primarily driven by growth in variable annuity separate accounts in Retirement from net flows and favorable separate account performance.

Retirement pre-tax operating income of $800 million for the first quarter of 2015 decreased from $915 million in the prior-year quarter, primarily due to lower net investment income, which reflected lower income from alternative investments compared to a particularly strong prior-year quarter, and lower base investment income, primarily due to declining yields from investment of cash flows in the sustained low interest rate environment. The decrease in net investment income was partially offset by higher variable annuity policy fees and other income compared to the prior-year quarter, from continued growth in assets under management, principally driven by sales in the Retirement Income Solutions product line, and separate account investment performance.

Premiums and deposits for Retirement were lower in the first quarter of 2015 compared to the prior-year quarter, due to lower deposits in the Fixed Annuities product line given the low interest rate environment, and lower deposits in Group Retirement and Retail Mutual Funds. Premiums and deposits benefited from strong sales of variable and index annuities in the Retirement Income Solutions product line, which increased 13 percent compared to the prior-year quarter, principally driven by index annuities.

Life pre-tax operating income of $171 million decreased compared to the prior-year quarter, primarily due to lower returns on alternative investments and lower investment yields on the base portfolio. In addition, the first quarter of 2015 included higher benefits and expenses compared to the prior-year quarter, primarily related to the expansion of the global Life business and strategic investment in technology and distribution platforms, as well as mortality gains that were less favorable than in the prior-year quarter.

Gross life insurance in force at March 31, increased 9 percent, and premiums and deposits increased 3 percent, compared to the prior- year quarter, primarily due to the December 31, 2014 acquisition of Ageas Protect Limited (now AIG Life Limited), a provider of life protection products in the United Kingdom. On March 31, AIG acquired Laya Healthcare, Ireland's second-largest primary health insurance provider. Laya Healthcare covers approximately 500,000 lives for primary healthcare, and also offers adjacent coverage including life, dental and travel insurance.

Personal Insurance reported a pre-tax operating loss in the first quarter of 2015 compared to pre-tax operating income in the prior- year quarter, primarily due to lower net investment income. The combined ratio increased slightly to 103.2 as the decrease in the loss ratio was offset by an increase in the acquisition ratio.

The loss ratio decreased 0.4 points to 58.8 in the first quarter of 2015, reflecting lower current accident year losses and lower catastrophe losses. The prior-year quarter also included favorable net loss reserve development compared to unfavorable net loss reserve development in the first quarter of 2015. All lines of business contributed to the improvement in the accident year loss ratio, as adjusted. Severe losses in the first quarter of 2015 were lower in frequency compared to the prior-year quarter. In addition, the lower losses associated with a warranty retail program were offset by an increase in acquisition costs for the related profit- sharing arrangement in the first quarter of 2015 compared to the prior-year quarter.

The acquisition ratio increased 0.6 points in the first quarter of 2015 compared to the prior-year quarter, primarily due to the profit-sharing arrangement for the warranty retail program described above. In addition, the general operating expense ratio remained unchanged compared to the prior-year quarter.

Excluding the effects of foreign exchange, first quarter 2015 net premiums written increased over 1 percent from the prior-year quarter, reflecting the continued execution of strategies to maintain underwriting discipline, and balance investment and growth. Growth in the A&H, automobile, and property businesses, primarily in Japan, was partially offset by declines in the U.S. warranty service programs.

DIB pre-tax operating income decreased in the first quarter of 2015 compared to the prior-year quarter, primarily due to lower asset appreciation and declines in net credit valuation adjustments on assets and liabilities for which the fair value option was elected.

GCM's pre-tax operating income increased in the first quarter of 2015 compared to the prior-year quarter, primarily due to gains realized upon unwinding certain positions, partially offset by declines in unrealized market valuation gains related to the super senior credit default swap portfolio.

Run-off insurance lines reported a pre-tax operating loss in the first quarter of 2015 compared to pre-tax operating income in the prior-year quarter, primarily due to higher net reserve discount expense, reflecting the update to the discount rates used on excess workers' compensation reserves.

Other businesses' pre-tax operating income improved in the first quarter of 2015 compared to the prior-year quarter, primarily due to $174 million of gains recognized on legacy real estate portfolio investments.

AIG Parent and Other's pre-tax operating results increased in the first quarter 2015 compared to the prior-year quarter, primarily due to AIG's share of AerCap's pre-tax operating income, which is accounted for under the equity method, fair value changes in PICC Group and lower interest expense from ongoing debt management activities, partially offset by an increase in general operating expenses.

American International Group, Inc. (AIG) is a global insurance organization serving customers in more than 100 countries and jurisdictions.

More Information:

http://www.aig.com

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