AMERICAN INTERNATIONAL GROUP, INC. – 10-K – | Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Information and Factors That May
Affect Future Results
This Annual Report on Form 10-K and other publicly available documents may include, and members of AIG management may from time to time make and discuss, statements which, to the extent they are not statements of historical or present fact, may constitute "forward-looking statements" within the meaning of theU.S. Private Securities Litigation Reform Act of 1995. These forwardlooking statements are intended to provide management's current expectations or plans for AIG's future operating and financial performance, based on assumptions currently believed to be valid and accurate. Forward-looking statements are often preceded by, followed by or include words such as "will," "believe," "anticipate," "expect," "expectations," "intend," "plan," "strategy," "prospects," "project," "anticipate," "should," "guidance," "outlook," "confident," "focused on achieving," "view," "target," "goal," "estimate," and other words of similar meaning in connection with a discussion of future operating or financial performance. These statements may include, among other things, projections, goals and assumptions that relate to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expense reduction efforts, the outcome of contingencies such as legal proceedings, anticipated organizational, business or regulatory changes, such as the separation of the Life and Retirement business from AIG, the effect of catastrophic events, both natural and man-made, and macroeconomic and/or geopolitical events, anticipated dispositions, monetization and/or acquisitions of businesses or assets, the successful integration of acquired businesses, management succession and retention plans, exposure to risk, trends in operations and financial results, and other statements that are not historical facts.
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All forward-looking statements involve risks, uncertainties and other factors that may cause AIG's actual results and financial condition to differ, possibly materially, from the results and financial condition expressed or implied in the forward-looking statements. Factors that could cause AIG's actual results to differ, possibly materially, from those in specific projections, goals, assumptions and forward-looking statements include, without limitation:
•the effects of economic conditions in the markets in which AIG and its
businesses operate in the
financial market conditions, macroeconomic trends, fluctuations in interest
rates and foreign currency exchange rates, inflationary pressures and an
economic slowdown or recession, each of which may also be affected by
geopolitical events or conflicts, including the conflict between
•the occurrence of catastrophic events, both natural and man-made, including
geopolitical events and conflicts, civil unrest and the effects of climate
change;
•availability of adequate reinsurance or access to reinsurance on acceptable
terms;
•disruptions in the availability of AIG's or a third party's information
technology infrastructure, including hardware and software, resulting from
cyberattacks, data security breaches, or infrastructure vulnerabilities;
•AIG's ability to realize expected strategic, financial, operational or other benefits from the separation of Corebridge Financial, Inc. (Corebridge) as well as AIG's equity market exposure to Corebridge;
•concentrations of AIG's insurance, reinsurance and other risk exposures;
•concentrations in AIG's investment portfolios;
•AIG's reliance on third-party investment managers;
•changes in the valuation of AIG's investments;
•AIG's reliance on third parties to provide certain business and administrative
services;
•nonperformance or defaults by counterparties, including
Company Ltd.
•changes in judgments concerning potential cost-saving opportunities;
•AIG's ability to effectively implement changes under AIG 200, including the
ability to realize cost savings;
•AIG's ability to adequately assess risk and estimate related losses as well as the effectiveness of AIG's enterprise risk management policies and procedures, including with respect to business continuity and disaster recovery plans;
•difficulty in marketing and distributing products through current and future
distribution channels;
•the effectiveness of strategies to retain and recruit key personnel and to
implement effective succession plans;
•actions by rating agencies with respect to AIG's credit and financial strength
ratings as well as those of its businesses and subsidiaries;
•changes to sources of or access to liquidity;
•changes in judgments concerning the recognition of deferred tax assets and the
impairment of goodwill;
•changes in judgments or assumptions concerning insurance underwriting and
insurance liabilities;
•changes in accounting principles and financial reporting requirements;
•AIG's ability to successfully dispose of, monetize and/or acquire businesses or
assets or successfully integrate acquired businesses;
•the effects of sanctions, including those related to the conflict between
•the effects of changes in laws and regulations, including those relating to the regulation of insurance, in theU.S. and other countries in which AIG and its businesses operate;
•changes to tax laws in the
businesses operate;
•the outcome of significant legal, regulatory or governmental proceedings;
•the impact of COVID-19 and its variants or other pandemics and responses
thereto;
•AIG's ability to effectively execute on environmental, social and governance
targets and standards; and
•such other factors discussed in:
-Part I, Item 1A. Risk Factors of this Annual Report; and
-this Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) of this Annual Report.
Forward-looking statements speak only as of the date of this report, or in the case of any document incorporated by reference, the date of that document. We are not under any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in any forward-looking statements is disclosed from time to time in other filings with theSecurities and Exchange Commission (SEC). AIG | 2022 Form
10-K 43
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TABLE OF CONTENTS
INDEX TO ITEM 7
Page
Use of Non-GAAP Measures 45
Critical Accounting Estimates 47
Executive Summary 60
Overview 60
AIG 's Outlook - Industry and Economic Factors 61
Consolidated Results of Operations 64
Business Segment Operations 68
General Insurance 69
Life and Retirement 75
Other Operations 85
Investments 87
Overview 87
Investment Highlights in 2022 87
Investment Strategies 87
Credit Ratings 89
Insurance Reserves 96
Loss Reserves 96
Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and
DAC
100 Liquidity and Capital Resources 108 Overview 108 Liquidity and Capital Resources Highlights 109 Analysis of Sources and Uses of Cash 110 Liquidity and Capital Resources of AIG Parent and Subsidiaries 110 Credit Facilities 111 Contractual Obligations 112 Off-Balance Sheet Arrangements and Commercial Commitments 113 Debt 114 Credit Ratings 115 Financial Strength Ratings 115 Regulation and Supervision 116 Dividends 116 Repurchases of AIG Common Stock 116 Dividend Restrictions 116 Enterprise Risk Management 117 Overview 117 Risk Governance Structure 117 Risk Appetite, Limits, Identification and Measurement 117 Credit Risk Management 118 Market Risk Management 119 Liquidity Risk Management 122 Operational Risk Management 123 Insurance Risks 123 Glossary 129 Acronyms 131
Throughout the MD&A, we use certain terms and abbreviations, which are
summarized in the Glossary and Acronyms.
We have incorporated into this discussion a number of cross-references to
additional information included throughout this Annual Report to assist readers
seeking additional information related to a particular subject.
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ITEM 7 | Use of Non-GAAP Measures
Use of Non-GAAP Measures
Throughout this MD&A, 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 SEC 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.
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 in the Consolidated Results of Operations section of this
MD&A.
Book value per common share, excluding accumulated other comprehensive income
(loss) (AOCI) adjusted for the cumulative unrealized gains and losses related to
Fortitude Re funds withheld assets and deferred tax assets (DTA) (Adjusted book
value per common share) is used to show the amount of our net worth on a
per-common share basis after eliminating items that can fluctuate significantly
from period to period including changes in fair value of AIG's 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. In addition, we adjust for the cumulative unrealized
gains and losses related to Fortitude Re funds withheld assets held by AIG in
support of Fortitude Re's reinsurance obligations to AIG post deconsolidation of
Fortitude Re (Fortitude Re funds withheld assets) since these fair value
movements are economically transferred to Fortitude Re. 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. Adjusted book value per common share is derived
by dividing total AIG common shareholders' equity, excluding AOCI adjusted for
the cumulative unrealized gains and losses related to Fortitude Re funds
withheld assets, and DTA (Adjusted common shareholders' equity), by total common
shares outstanding.
Return on common equity - Adjusted after-tax income excluding AOCI adjusted for
the cumulative unrealized gains and losses related to Fortitude Re funds
withheld assets and DTA (Adjusted return on common equity) is used to show the
rate of return on common 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. In addition, we adjust for the cumulative unrealized
gains and losses related to Fortitude Re funds withheld assets since these fair
value movements are economically transferred to Fortitude Re. 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 common equity. Adjusted return on common equity is derived by dividing
actual or annualized adjusted after-tax income attributable to AIG common
shareholders by average Adjusted common shareholders' equity.
Adjusted after-tax income attributable to AIG common shareholders is derived by
excluding the tax effected adjusted pre-tax income (APTI) adjustments described
below, dividends on preferred stock, noncontrolling interest on net realized
gains (losses), other non-operating expenses and the following tax items from
net income attributable to AIG:
•deferred income tax valuation allowance releases and charges;
•changes in uncertain tax positions and other tax items related to legacy
matters having no relevance to our current businesses or operating performance;
and
•net tax charge related to the enactment of the Tax Cuts and Jobs Act.
Adjusted revenues exclude Net realized gains (losses), income from non-operating
litigation settlements (included in Other income for GAAP purposes), changes in
fair value of securities used to hedge guaranteed living benefits (included in
Net investment income for GAAP purposes) and income from elimination of the
international reporting lag. Adjusted revenues is a GAAP measure for our
segments.
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ITEM 7 | Use of Non-GAAP Measures
Adjusted pre-tax income is derived by excluding the items set forth below from
income from continuing operations before income tax. This definition is
consistent across our segments. 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. APTI is a GAAP measure for our segments. Excluded items
include the following:
•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 deferred sales inducements (DSI) related to net realized gains and losses;
•changes in the fair value of equity securities;
•net investment income on Fortitude Re funds withheld assets;
•following deconsolidation of Fortitude Re, net realized gains and losses on
Fortitude Re funds withheld assets;
•loss (gain) on extinguishment of debt;
•all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non- qualifying (economic) hedging or for asset replication. Earned income on such economic hedges is reclassified from net realized gains and losses to specific APTI line items based on the economic risk being hedged (e.g. net investment income and interest credited to policyholder account balances);
•income or loss from discontinued operations;
•net loss reserve discount benefit (charge);
•pension expense related to lump sum payments to former employees;
•net gain or loss on divestitures and other;
•non-operating litigation reserves and settlements;
•restructuring and other costs related to initiatives designed to reduce
operating expenses, improve efficiency and simplify our organization;
•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;
•integration and transaction costs associated with acquiring or divesting
businesses;
•losses from the impairment of goodwill;
•non-recurring costs associated with the implementation of non-ordinary course
legal or regulatory changes or changes to accounting principles; and
•income from elimination of the international reporting lag.
•General Insurance
-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 forGeneral 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 accident year combined ratios, as adjusted (Accident year loss ratio, ex-CAT and Accident year combined ratio, ex-CAT): both the accident year loss and accident year 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, in each case, having a net impact on AIG in excess of$10 million and man-made catastrophe losses, such as terrorism and civil disorders that exceed the$10 million threshold. We believe that 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. •Life and Retirement -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,Federal Home Loan Bank (FHLB) funding agreements and mutual funds. We believe the measure of premiums and deposits is useful in understanding customer demand for our products, evolving product trends and our sales performance period over period.
Results from discontinued operations are excluded from all of these measures.
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ITEM 7 | Critical Accounting Estimates
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires the
application of accounting policies that often involve a significant degree of
judgment.
The accounting policies that we believe are most dependent on the application of estimates
and assumptions, which are critical accounting estimates, are related to the determination
of:
•loss reserves;
•future policy benefits for life and accident and health insurance contracts;
•guaranteed benefit features of variable annuity, fixed annuity and fixed index annuity
products;
•valuation of embedded derivative liabilities for fixed index annuity and life products;
•estimated gross profits to value deferred acquisition costs and unearned revenue for
investment-oriented products;
•reinsurance assets, including the allowance for credit losses and disputes;
•goodwill impairment;
•allowance for credit losses on certain investments, primarily on loans and available for
sale fixed maturity securities;
•fair value measurements of certain financial assets and financial liabilities; and
•income taxes, in particular the recoverability of our deferred tax asset and establishment
of provisions for uncertain tax positions.
These accounting estimates require the use of assumptions about matters, some of
which are highly uncertain at the time of estimation. To the extent actual
experience differs from the assumptions used, our consolidated financial
condition, results of operations and cash flows could be materially affected.
LOSS RESERVES
Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses, less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Because these estimates are subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed.
The estimate of loss reserves relies on several key judgments:
•the determination of the actuarial methods used as the basis for these
estimates;
•the relative weights given to these models by product line;
•the underlying assumptions used in these models; and
•the determination of the appropriate groupings of similar product lines and, in
some cases, the disaggregation of dissimilar losses within a product line.
Numerous assumptions are made in determining the best estimate of reserves for each line of business, in consideration of expected ultimate losses, loss cost trends and loss development factors, where appropriate. The importance of any one assumption can vary by both line of business and accident year. Because such assumptions may differ from actual experience, there is potential for significant variation in the development of loss reserves. This estimation uncertainty is particularly relevant for long-tail lines of business. All of our methods to calculate net reserves include assumptions about estimated reinsurance recoveries and their collectability. Reinsurance collectability is evaluated independently of the reserving process and appropriate allowances for uncollectible reinsurance are established.
Overview of Loss Reserving Process and Methods
Our loss reserves can generally be categorized into two distinct groups: short-tail reserves and long-tail reserves. Short-tail reserves consist principally ofU.S. Property and Special Risks, Europe Property and Special Risks,U.S. Personal Insurance , andEurope andJapan Personal Insurance . Long-tail reserves includeU.S. Workers' Compensation,U.S. Excess Casualty,U.S. Other Casualty,U.S. Financial Lines, andUK /Europe Casualty and Financial Lines. AIG | 2022 Form 10-K 47
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ITEM 7 | Critical Accounting Estimates
Short-Tail Reserves
In short-tail lines of business, such as property or personal insurance, where
the nature of these claims tends to be higher frequency with short reporting
periods, with volatility arising from occasional severe events, the actual
losses reported make up a greater proportion of the ultimate loss estimate.
During the first few development quarters of an accident year, the expected
ultimate losses generally reflect the average loss costs from a period of
preceding accident quarters that have been adjusted for changes in rate and loss
cost trends, mix of business, known exposure to unreported losses, or other
factors affecting the particular line of business. For more mature quarters,
specific loss development methods and/or frequency/severity methods may be used
to determine the incurred but not reported (IBNR). IBNR for claims arising from
catastrophic events or events of unusual severity would be determined in close
collaboration with the claims department's knowledge of known information, using
alternative techniques or expected percentages of ultimate loss emergence based
on historical emergence of similar events or claim types.
Long-Tail Reserves
Estimation of loss reserves for our long-tail business is a complex process and depends on a number of factors, including the product line and volume of business, as well as estimates of reinsurance recoveries. Experience in more recent accident years generally provides limited statistical credibility of reported net losses on long-tail business. That is because in the more recent accident years, a relatively low proportion of estimated ultimate net incurred losses are reported or paid. Therefore, IBNR reserves constitute a relatively high proportion of loss reserves.
For our long-tail lines, we generally make actuarial and other assumptions with
respect to the following:
•Loss cost trend factors, which are used to establish expected loss ratios for subsequent accident years based on the projected loss ratios for prior accident years. •Expected loss ratios, which are used for the latest accident year and, in some cases, for accident years prior to the latest accident year. The expected loss ratio also generally reflects the average loss ratio from prior accident years, adjusted for the loss cost trend and the effect of rate changes and other quantifiable factors on the loss ratio. •Loss development factors, which are used to project the reported losses for each accident year to an ultimate basis. Generally, the actual loss development factors observed from prior accident years would be used as a basis to determine the loss development factors for the subsequent accident years. •Tail factors, which are development factors used for certain long-tail lines of business to project future loss development for periods that extend beyond the available development data. The development of losses to the ultimate loss for a given accident year for these lines may take decades and the projection of ultimate losses for an accident year is very sensitive to the tail factors selected beyond a certain age. We record quarterly changes in loss reserves for each product line of business. The overall change in our loss reserves is based on the sum of the changes for all product lines of business. The quarterly loss reserve changes are based on the estimated current loss ratio for each subset of coverage less any amounts paid. Also, any change in estimated ultimate losses from prior accident years deemed to be necessary based on the results of our latest detailed valuation reviews, large loss analyses, or other analytical techniques, either positive or negative, is reflected in the loss reserve and incurred losses for the current quarter. Differences between actual loss emergence in a given period and our expectations based on prior loss reserve estimates are used to monitor reserve adequacy between detailed valuation reviews and may also influence our judgment with respect to adjusting reserve estimates.
Details of the Loss Reserving Process
The process of determining the current loss ratio for each product line of business is based on a variety of factors. These include considerations such as: prior accident year and policy year loss ratios; rate changes; and changes in coverage, reinsurance, or mix of business. Other considerations include actual and anticipated changes in external factors such as trends in loss costs, inflation, employment rates or unemployment duration or in the legal and claims environment. The current loss ratio for each product line of business is intended to represent our best estimate after reflecting all relevant factors. At the close of each quarter, the assumptions and data underlying the loss ratios are reviewed to determine whether they remain appropriate. This process includes a review of the actual loss experience in the quarter, actual rate changes achieved, actual changes in reinsurance, quantifiable changes in coverage or mix of business, and changes in other factors that may affect the loss ratio. The loss ratio is changed to reflect the revised estimate if this review suggests that the previously determined loss ratio is no longer appropriate and, generally, shorter tailed lines of business are more likely to experience changes than longer tailed lines for immature accident years unless the information is directionally unfavorable. We conduct a comprehensive loss reserve detailed valuation review at least annually for each product line of business in accordance with Actuarial Standards of Practice. These standards provide that the unpaid loss estimate may be presented in a variety of ways, such as a point estimate, a range of estimates, a point estimate based on the expected value of several reasonable estimates, or a probability distribution of the unpaid loss amount. Our actuarial best estimate for each product line of business represents an expected value generally considering a range of reasonably possible outcomes.
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ITEM 7 | Critical Accounting Estimates
The reserve analysis, globally, for each product line of business is performed
by a credentialed actuarial team in collaboration with claims, underwriting,
business unit management, risk management and senior management. Our actuaries
consider the ongoing applicability of prior data groupings and update numerous
assumptions, including the analysis and selection of loss development and loss
trend factors. They also determine and select the appropriate actuarial or other
methods used to develop our best estimate for each business product line, and
may employ multiple methods and assumptions for each product line. These data
groupings, accident year weights, method selections and assumptions necessarily
change over time as business mix changes, development factors mature and become
more credible and loss characteristics evolve. We consult with third-party
specialists to help inform our judgments as needed. Through the execution of
these detailed valuation reviews an actuarial best estimate of the loss reserve
is determined. The sum of these estimates for each product line of business
yields an overall actuarial best estimate for that line of business.
A critical component of our detailed valuation reviews is an internal peer
review of our reserving analyses and conclusions, where actuaries independent of
the initial review evaluate the reasonableness of assumptions used, methods
selected, and weightings given to different methods. In addition, each detailed
valuation review is subjected to a review and challenge process by specialists
in our Enterprise Risk Management (ERM) group.
For certain product lines, we measure sensitivities and determine explicit
ranges around the actuarial best estimate using multiple methodologies and
varying assumptions. Where we have ranges, we use them to inform our selection
of best estimates of loss reserves by product line of business. Our range of
reasonable estimates is not intended to cover all possibilities or extreme
values and is based on known data and facts at the time of estimation.
Actuarial and Other Methods for Our Lines of Business
Our actuaries determine the appropriate actuarial methods and segmentation. This determination is based on a variety of factors including the nature of the losses associated with the product line of business, such as the frequency or severity of the claims. In addition to determining the actuarial methods, the actuaries determine the appropriate loss reserve groupings of data. This determination is a judgmental, dynamic process and refinements to the groupings are made every year. The groupings may change to reflect observed or emerging patterns within and across product lines, or to differentiate risk characteristics (for example, size of deductibles and extent of third-party claims specialists used by our insureds). As an example of reserve segmentation, we write many unique subsets of professional liability insurance, which cover different products, industry segments, and coverage structures. While for pricing or other purposes, it may be appropriate to evaluate the profitability of each subset individually, we believe it is appropriate to combine the subsets into larger groups for reserving purposes to produce a greater degree of credibility in the loss experience. This determination of data segmentation and related actuarial methods is assessed, reviewed and updated at least annually. The actuarial methods we use most commonly include paid and incurred loss development methods, expected loss ratio methods, including "Bornhuetter Ferguson" and "Cape Cod ," and frequency/severity models. Loss development methods utilize the actual loss development patterns from prior accident years updated through the current year to project the reported losses to an ultimate basis for all accident years. We also use this information to update our current accident year loss selections. Loss development methods are generally most appropriate for lines of business that exhibit a stable pattern of loss development from one accident year to the next, and for which the components of the product line have similar development characteristics. Expected loss ratio methods rely on the application of an expected loss ratio to the earned premium for the product line of business to determine the liability for loss reserves and loss adjustment expenses. We generally use expected loss ratio methods in cases where the reported loss data lacked sufficient credibility to utilize loss development methods, such as for new product lines of business or for long-tail product lines at early stages of loss development. Frequency/severity models may be used where sufficient frequency counts are available to apply such approaches. A key advantage of loss development methods is that they respond more quickly to any actual changes in loss costs for the product line of business. Therefore, if loss experience is unexpectedly deteriorating or improving, the loss development method gives full credibility to the changing experience. Expected loss ratio methods would be slower to respond to the change, as they would continue to give more weight to a prior expected loss ratio, until enough evidence emerged to modify the expected loss ratio to reflect the changing loss experience. On the other hand, loss development methods have the disadvantage of overreacting to changes in reported losses if the loss experience is anomalous due to the various key factors described above and the inherent volatility in some of the lines. For example, the presence or absence of large losses at the early stages of loss development could cause the loss development method to overreact to the favorable or unfavorable experience by assuming it is a fundamental shift in the development pattern. In these instances, expected loss ratio methods such as Bornhuetter Ferguson have the advantage of recognizing large losses without extrapolating unusual large loss activity onto the unreported portion of the losses for the accident year. AIG | 2022 Form 10-K 49
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ITEM 7 | Critical Accounting Estimates
The
Ferguson methods, where the historic loss data and loss development factor
assumptions are used to determine the expected loss ratio estimate in the
Bornhuetter Ferguson method.
Where appropriate, supplemental analysis for the given line of business may be
performed in addition to the above described techniques such as Shareholder
Class Action (SCA) suit analysis for D&O coverages.
Frequency/severity methods generally rely on the determination of an ultimate number of claims and an average severity for each claim for each accident year. Multiplying the estimated ultimate number of claims for each accident year by the expected average severity of each claim produces the estimated ultimate loss for the accident year. Frequency/severity methods generally require a sufficient volume of claims in order for the average severity to be predictable. Average severity for subsequent accident years is generally determined by applying an estimated annual loss cost trend to the estimated average claim severity from prior accident years. In certain cases, a structural approach may also be used to predict the ultimate loss cost. Frequency/severity methods have the advantage that ultimate claim counts can generally be estimated more quickly and accurately than can ultimate losses. Thus, if the average claim severity can be accurately estimated, these methods can more quickly respond to changes in loss experience than other methods. However, for average severity to be predictable, the product line of business must consist of homogenous types of claims for which loss severity trends from one year to the next are reasonably consistent and where there are limited changes to deductible levels or limits. Generally these methods work best for high frequency, low severity product lines of business such as personal auto. However, frequency and severity metrics are also used to test the reasonability of results for other product lines of business and provide indications of underlying trends in the data. In addition, ultimate claim counts can be used as an alternative exposure measure to earned premiums in theCape Cod method. The estimation of liability for loss reserves and loss adjustment expenses relating to asbestos and environmental pollution losses on insurance policies written many years ago is typically subject to greater uncertainty than other types of losses. This is due to inconsistent court decisions, as well as judicial interpretations and legislative actions that in some cases have tended to broaden coverage beyond the original intent of such policies or have expanded theories of liability. In addition, reinsurance recoverable balances relating to asbestos and environmental loss reserves are subject to greater uncertainty due to the underlying age of the claim, underlying legal issues surrounding the nature of the coverage, and determination of proper policy period. For these reasons, these balances tend to be subject to increased levels of disputes and legal collection activity when actually billed. The insurance industry as a whole is engaged in extensive litigation over these coverage and liability issues and is thus confronted with a continuing uncertainty in its efforts to quantify these exposures. We continue to receive claims asserting injuries and damages from toxic waste, hazardous substances, and other environmental pollutants and alleged claims to cover the cleanup costs of hazardous waste dump sites, referred to collectively as environmental claims, and indemnity claims asserting injuries from asbestos. The vast majority of these asbestos and environmental losses emanate from policies written in 1984 and prior years. Commencing in 1985, standard policies contained absolute exclusions for pollution-related damage and asbestos. The current environmental policies that we specifically price and underwrite for environmental risks on a claims-made basis have been excluded from the analysis. Nevertheless, most of these legacy exposures have been heavily reinsured with very highly rated reinsurers. The majority of our remaining exposures for asbestos and environmental losses are related to excess casualty coverages, not primary coverages. The litigation costs are treated in the same manner as indemnity amounts, with litigation expenses included within the limits of the liability we incur. Individual significant loss reserves, where future litigation costs are reasonably determinable, are established on a case-by-case basis.
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ITEM 7 | Critical Accounting Estimates
Key Assumptions of our Actuarial Methods by Line of Business
Line of Business or Category Key AssumptionsU.S. Workers' We generally use a combination of loss development and expected loss Compensation ratio methods forU.S. Workers'
Compensation as this is a long-tail line
of business.
The tail factor is typically the most
critical assumption, and small
changes in the selected tail factor can
have a material effect on our
carried reserves. For example, the tail
factors beyond twenty years for
guaranteed cost business could vary by 1
percentage point below to 2.5
percentage points above those indicated in the 2022 detailed valuation
review. For excess of deductible business, in our judgment, it is
reasonably possible that tail factors
beyond twenty years could vary by
1.5 percentage points below to 3 percentage
points above those indicated
in the 2022 detailed valuation review.
U.S. Excess Casualty We utilize various loss cost trend
assumptions for different segments of
the portfolio. In our judgment, after
evaluating the historical loss cost
trends from prior accident years since the
early 1990s, it is reasonably
possible that actual loss cost trends
applicable to the year-end 2022
detailed valuation review for U.S. Excess
Casualty may range 5 percentage
points lower or higher than this estimated loss trend. The loss cost
trend assumption is critical for the U.S. Excess Casualty line of
business due to the long-tail nature of the losses, and it is applied
across many accident years. Thus, there is the potential for the loss
reserves with respect to a number of
accident years (the expected loss
ratio years) to be significantly affected
by changes in loss cost trends
that were initially relied upon in setting
the loss reserves. These
changes in loss trends could be
attributable to changes in inflation or
in the judicial environment, or in other social or economic conditions
affecting losses.
U.S. Excess Casualty is a long-tail line of business and any deviation in
loss development factors might not be
discernible for an extended period
of time subsequent to the recording of the
initial loss reserve estimates
for any accident year. Mass tort claims in
particular may develop over a
very extended period and impact multiple
accident years, so we usually
select a separate pattern for them. Thus,
there is the potential for the
loss reserves with respect to a number of
accident years to be
significantly affected by changes in loss
development factors that were
initially relied upon in setting the
reserves.
In our judgment, after evaluating the
historical loss development factors
from prior accident years since the early
1990s, it is reasonably
possible that the actual loss development
factors could vary by an amount
equivalent to a six month shift from those
actually utilized in the
year-end 2022 detailed valuation review.
This would impact projections
both for accident years where the
selections were directly based on loss
development methods as well as the a priori
loss ratio assumptions for
accident years with selections based on
Bornhuetter Ferguson or
methods. Similar to loss cost trends, these
changes in loss development
factors could be attributable to changes in
inflation or in the judicial
environment, or in other social or economic
conditions affecting losses.
Given the very long-tail nature of this business, the tail factor
selection can also have material impact on our carried reserves. The
sensitivity around tail selection may also
be a proxy for the sensitivity
of a calendar year impact of monetary
inflation on unpaid losses. It is
reasonably possible for the tail factors
for Excess Casualty could vary
by 2 percentage points below to 3.5
percentage points above those
indicated in the 2022 detailed valuation
review.
U.S. Other Casualty The key assumptions for other casualty
lines are similar to
Casualty, as the underlying business is
long-tailed and can be subject to
variability in loss cost trends and changes
in loss development factors.
These may differ significantly by line of
business as coverages such as
general liability, medical malpractice and
environmental may be subject
to different risk drivers.
U.S. Financial Lines The loss cost trends for U.S. Directors and
Officers (D&O) liability
business vary by year and subset. After
evaluating the historical loss
cost levels from prior accident years since the early 1990s, including
the potential effect of losses relating to the credit crisis, in our
judgment, it is reasonably possible that the actual variation in loss
cost levels for these subsets could vary by approximately 10 percentage
points lower or higher on a year-over-year basis than the assumptions
actually utilized in the year-end 2022
reserve review. Because the
D&O business has exhibited highly volatile loss trends from one accident
year to the next, there is the possibility of an exceptionally high
deviation. In our analysis, the effects of loss cost trend assumptions
affect the results through the a priori
loss ratio assumptions used for
the Bornhuetter Ferguson andCape Cod methods, which impact the projections for the more recent accident years. The selected loss development factors are
also an important assumption,
but are less critical than for U.S. Excess
Casualty. Because these lines
are written on a claims made basis, the
loss reporting and development
tail is much shorter than for U.S. Excess
Casualty. However, the high
severity nature of the losses does create
the potential for significant
deviations in loss development patterns
from one year to the next.
Similar to U.S. Excess Casualty, after
evaluating the historical loss
development factors from prior accident
years since the early 1990s, in
our judgment, it is reasonably possible
that actual loss development
factors could change by an amount
equivalent to a shift by six months
from those actually utilized in the year-end 2022 reserve review.
UK /Europe Casualty and Similar to U.S. business, UK /Europe Casualty and Financial Lines can be
Financial Lines significantly impacted by loss cost trends and changes in loss
development factors. The variation in such factors can differ
significantly by product and region,
however the range of potential
impacts is much lower than that of other
lines of business noted above.
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ITEM 7 | Critical Accounting Estimates
Line of Business
or Category Key Assumptions
U.S. and UK /Europe For shorter-tail lines such as Property and Special Risks, variance in
Property and Special outcomes for individual large claims or events typically has a greater
Risks impact on results than does changes in actuarial assumptions or
methodology. This is because a greater
proportion of the ultimate loss,
at any stage of development, is composed of
reported losses than IBNR
reserves. These outcomes generally relate to
unique characteristics of
events such as catastrophes or losses with
significant business
interruption claims.
Japan Personal Insurance Special Risks but less volatile. Variance in estimates can result from
unique events such as catastrophes. In addition,
some subsets of this
business, such as auto liability, can be
impacted by changes in loss
development factors and loss cost trends.
The following sensitivity analysis table summarizes the effect on the loss
reserve position of using certain alternative loss cost trend (for accident
years where we use expected loss ratio methods) or loss development factor
assumptions rather than the assumptions actually used in determining our
estimates in the year-end loss reserve analyses in 2022:
December 31, 2022 Increase Increase (Decrease) to (Decrease) to (in millions) Loss Reserves Loss Reserves Loss cost trends: Loss development factors: U.S. Excess Casualty: U.S. Excess Casualty: 5.0 percentage points increase $ 950 3.5
percentage points tail factor $ 1,150
increase
5.0 percentage points decrease (700) 2.0 percentage points tail factor (700)
decrease
U.S. Excess Casualty:
6-months slower 700
6-months faster (600)
U.S. Financial Lines (D&O) U.S. Financial Lines (D&O)
10.0 percentage points increase 1,000 6-months slower 650
10.0 percentage points decrease (700) 6-months faster (500)
U.S. Workers' Compensation:
Tail factor increase(a) 850
Tail factor decrease(b) (500)
(a)Tail factor increase of 2.5 percentage points for guaranteed cost business
and 3 percentage points for deductible business.
(b)Tail factor decrease of 1 percentage point for guaranteed cost business and
1.5 percentage points for deductible business.
For additional information on our reserving process and methodology, see Note 12
to the Consolidated Financial Statements.
FUTURE POLICY BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS
Long-duration traditional products primarily include whole life insurance, term life insurance, and certain payout annuities for which the payment period is life-contingent, which include certain of our single premium immediate annuities including pension risk transfer (PRT) business and structured settlements. In addition, these products also include accident and health, and long-term care (LTC) insurance. The LTC block is in run-off and has been fully reinsured with Fortitude Re. For long-duration traditional business, a "lock-in" principle applies. Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future benefits less the present value of future net premiums (portion of the gross premium required to provide for all benefits and expenses). The assumptions used to calculate the benefit liabilities and DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs. The assumptions include mortality, morbidity, persistency, maintenance expenses, and investment returns. These assumptions are typically consistent with pricing inputs. The assumptions also include margins for adverse deviation, principally for key assumptions such as mortality and interest rates used to discount cash flows, to reflect uncertainty given that actual experience might deviate from these assumptions. Establishing margins at contract inception requires management judgment. The extent of the margin for adverse deviation may vary depending on the uncertainty of the cash flows, which is affected by the volatility of the business and the extent of our experience with the product. 52 AIG | 2022 Form 10-K
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ITEM 7 | Critical Accounting Estimates
Loss recognition occurs if observed changes in actual experience or estimates
result in projected future losses under loss recognition testing. To determine
whether loss recognition exists, we determine whether a future loss is expected
based on updated current best estimate assumptions. If loss recognition exists,
the assumptions as of the loss recognition test date are locked-in and used in
subsequent valuations and the net reserves continue to be subject to loss
recognition testing. Because of the long-term nature of many of our liabilities
subject to the "lock-in" principle, small changes in certain assumptions may
cause large changes in the degree of reserve balances. In particular, changes in
estimates of future invested asset returns have a large effect on the degree of
reserve balances.
Groupings for loss recognition testing are consistent with our manner of
acquiring, servicing, and measuring the profitability of the business and are
applied by product groupings, that span across issuance years, including
traditional life, payout annuities and LTC insurance. Once loss recognition has
been recorded for a block of business, the old assumption set is replaced and
the assumption set used for the loss recognition would then be subject to the
lock-in principle. Our policy is to perform loss recognition testing net of
reinsurance. The business ceded to Fortitude Re, is grouped separately. Since
100 percent of the risk has been ceded, no additional loss recognition events
are expected to occur unless this business is recaptured.
Key judgments made in loss recognition testing include the following:
•To determine investment returns used in loss recognition tests, we project future cash flows on the assets supporting the liabilities. The duration of these assets is generally comparable to the duration of the liabilities and such assets are primarily comprised of diversified portfolio of high to medium quality fixed maturity securities, and may also include, to a lesser extent, alternative investments. Our projections include a reasonable allowance for investment expenses and expected credit losses over the projection horizon. A critical assumption in the projection of expected investment income is the assumed net rate of investment return at which excess cash flows are to be reinvested. •For mortality assumptions, base future assumptions take into account industry and our historical experience, as well as expected mortality changes in the future. The latter judgment is based on a combination of historical mortality trends and industry observations, public health and demography specialists that were consulted by AIG's actuaries and published industry information. •For surrender rates, key judgments involve the correlation between expected increases/decreases in interest rates and increases/decreases in surrender rates. To support this judgment, we compare crediting rates on our products to expected rates on competing products under different interest rate scenarios. •Significant unrealized appreciation on investments in a low interest rate environment may cause DAC to be adjusted and additional future policy benefit liabilities to be recorded through a charge directly to accumulated other comprehensive income (changes related to unrealized appreciation or depreciation of investments). These charges are included, net of tax, with the change in net unrealized appreciation of investments. In applying changes related to unrealized appreciation of investments, the Company overlays unrealized gains and other changes related to unrealized appreciation of investments onto loss recognition tests.
For additional information on impact of changes related to unrealized
appreciation (depreciation) to investments, see Note 8 to the Consolidated
Financial Statements.
For universal life policies with secondary guarantees, we recognize certain liabilities in addition to policyholder account balances. For universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are expected at contract inception, a liability is recognized based on a benefit ratio of (i) the present value of total expected payments, in excess of the account value, over the life of the contract, divided by (ii) the present value of total expected assessments over the life of the contract. Universal life account balances are reported in Policyholder contract deposits, while these additional liabilities related to universal life products are reported within Future Policy Benefits in the Consolidated Balance Sheets. These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale on accumulated assessments, with related changes recognized through Other comprehensive income (loss). The primary policyholder behavior assumptions for these liabilities include mortality, lapses and premium persistency. The primary capital market assumptions used for the liability for universal life secondary guarantees include discount rates and net earned rates.
For additional information on actuarial assumption updates, see Insurance
Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract
Deposits and DAC - Update of Actuarial Assumptions and Models -
Investment-Oriented Products.
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ITEM 7 | Critical Accounting Estimates
GUARANTEED BENEFIT FEATURES OF VARIABLE ANNUITY, FIXED ANNUITY AND FIXED INDEX
ANNUITY PRODUCTS
Variable annuity products offered by ourIndividual Retirement and Group Retirement segments offer guaranteed benefit features. These guaranteed features include guaranteed minimum death benefits (GMDB) that are payable in the event of death and living benefits that guarantee lifetime withdrawals regardless of fixed account and separate account value performance. Living benefit features primarily include guaranteed minimum withdrawal benefits (GMWB).
For additional information on these features, see Note 13 to the Consolidated
Financial Statements.
The liability for GMDB, which is recorded in future policy benefits, represents the expected value of benefits in excess of the projected account value, with the excess recognized ratably through Policyholder benefits over the accumulation period based on total expected assessments. The liabilities for variable annuity GMWB, which are recorded in Policyholder contract deposits, are accounted for as embedded derivatives measured at fair value, with changes in the fair value of the liabilities recorded in net realized gains (losses). Certain of our fixed annuity and fixed index annuity contracts, which are not offered through separate accounts, contain optional GMWB benefits. Different versions of these GMWB riders contain different guarantee provisions. The liability for GMWB benefits in fixed annuity and fixed index annuity contracts for which the rider guarantee is considered to be clearly and closely related to the host contract are recorded in future policy benefits. This GMWB liability represents the expected value of benefits in excess of the projected account value, with the excess recognized ratably over the accumulation period based on total expected assessments, through Policyholder benefits. For rider guarantees in certain fixed index annuity contracts that are linked to equity indices that are considered to be embedded derivatives that are not clearly and closely related to the host contract, the GMWB liability is recorded in Policyholder contract deposits and measured at fair value, with changes in the fair value of the liabilities recorded in net realized gains (losses). Our exposure to the guaranteed amounts is equal to the amount by which the contract holder's account balance is below the amount provided by the guaranteed feature. A deferred annuity contract may include more than one type of guaranteed benefit feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can generally only receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, i.e., the features are generally mutually exclusive (except a surviving spouse who has a rider to potentially collect both a GMDB upon their spouse's death and a GMWB during his or her lifetime). A policyholder cannot purchase more than one living benefit on one contract. Declines in the equity markets, increased volatility and a low interest rate environment increase our exposure to potential benefits under the guaranteed features, leading to an increase in the liabilities for those benefits. For sensitivity analysis which includes the sensitivity of reserves for guaranteed benefit features to changes in the assumptions for interest rates, equity returns, volatility, and mortality, see - Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products. For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies' Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.
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ITEM 7 | Critical Accounting Estimates
The reserving methodology and assumptions used to measure the liabilities of our
two largest guaranteed benefit features are presented in the following table:
Reserving Methodology &
Guaranteed Benefit Feature Key Assumptions
GMDB and Fixed We determine the GMDB liability at each balance sheet date by estimating the
Annuity and certain Fixed expected value of death benefits in excess of the projected account balance
Index Annuity and recognizing the excess ratably over the accumulation period based on total
GMWB expected fee assessments. For certain fixed
and fixed index annuity products,
we determine the GMWB liability at each
balance sheet date by estimating the
expected withdrawal benefits once the
projected account balance has been
exhausted ratably over the accumulation
period based on total expected
assessments. These GMWB features are deemed
to not be embedded derivatives as
the GMWB feature is determined to be
clearly and closely related to the host
contract. The present value of the total
expected excess payments (e.g.,
payments in excess of account value) over
the life of contract divided by the
present value of total expected assessments
is referred to as the benefit
ratio. The magnitude and direction of the
change in reserves may vary over
time based on the emergence of the benefit
ratio and the level of assessments.
For additional information on how we
reserve for variable and fixed index
annuity products with guaranteed benefit features, see Note 13 to the
Consolidated Financial Statements.
Key assumptions and projections include:
•Interest credited that varies by year of issuance and products
•Actuarially determined assumptions for
mortality rates that are based upon
industry and our historical experience
modified to allow for variations in
policy features and experience anomalies
•Actuarially determined assumptions for
lapse rates that are based upon
industry and our historical experience
modified to allow for variations in
policy features and experience anomalies
•Investment returns, based on
stochastically generated scenarios
•Asset returns that include a reversion
to the mean methodology, similar to
that applied for DAC
In applying separate account asset growth
assumptions for the variable annuity
GMDB liability, we use a reversion to the
mean methodology, the same as that
applied to DAC. For the fixed index annuity
GMWB liability, policyholder funds
are projected assuming growth equal to
current option values for the current
crediting period followed by option budgets
for all subsequent crediting
periods. For the fixed annuity liability,
policyholder fund growth projected
assuming credited rates are expected to be
maintained at a target pricing
spread, subject to guaranteed minimums.
Variable Annuity GMWB living benefits on variable annuities and GMWB living benefits linked to
and certain Fixed equity indices on fixed index annuities are embedded derivatives that are
Index Annuity required to be bifurcated from the host contract and carried at fair value
GMWB with changes in the fair value of the
liabilities recorded in realized gains
(losses). The fair value of these embedded
derivatives is based on assumptions
that a market participant would use in
valuing these embedded derivatives. For
additional information on how we reserve
for variable and fixed index annuity
products with guaranteed benefit features,
see Note 13 to the Consolidated
Financial Statements, and for information
on fair value measurement of these
embedded derivatives, including how we
incorporate our own non-performance
risk, see Note 4 to the Consolidated
Financial Statements.
The fair value of the embedded derivatives,
which are Level 3 liabilities, is
based on a risk-neutral framework and
incorporates actuarial and capital
market assumptions related to projected
cash flows over the expected lives of
the contracts. Key assumptions include:
•Interest rates
•Equity market returns
•Market volatility
•Credit spreads
•Equity / interest rate correlation
•Policyholder behavior, including
mortality, lapses, withdrawals and benefit
utilization. Estimates of future
policyholder behavior are subjective and
based primarily on our historical
experience
•In applying asset growth assumptions for
the valuation of GMWBs, we use
market-consistent assumptions calibrated to observable interest rate and
equity option prices
•Allocation of fees between the embedded derivative and host contract
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ITEM 7 | Critical Accounting Estimates
VALUATION OF EMBEDDED DERIVATIVES FOR FIXED INDEX ANNUITY AND LIFE PRODUCTS
Fixed index annuity and life products provide growth potential based in part on the performance of a market index. Certain fixed index annuity products offer optional guaranteed benefit features similar to those offered on variable annuity products. Policyholders may elect to rebalance among the various accounts within the product at specified renewal dates. At the end of each index term, we generally have the opportunity to re-price the indexed component by establishing different participation rates or caps on equity index credited rates. The index crediting feature of these products results in the recognition of an embedded derivative that is required to be bifurcated from the host contract and carried at fair value with changes in the fair value of the liabilities recorded in Net realized gains (losses). Option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and our ability to adjust the participation rate and the cap on equity index credited rates in light of market conditions and policyholder behavior assumptions. For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies' Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.
ESTIMATED GROSS PROFITS TO VALUE DEFERRED ACQUISITION COSTS AND UNEARNED REVENUE
FOR INVESTMENT-ORIENTED PRODUCTS
Policy acquisition costs and policy issuance costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts related to universal life insurance and investment-type products, for example, variable, fixed and fixed index annuities (collectively, investment-oriented products) are generally deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the expected lives of the contracts, except in instances where significant negative gross profits are expected in one or more periods. Investment oriented products have a long duration and a disclosed crediting interest rate. Total gross profits include both actual gross profits and estimates of gross profits for future periods. Estimated gross profits include current and projected interest rates, net investment income and spreads, net realized gains and losses, fees, surrender rates, mortality experience and equity market returns and volatility. In estimating future gross profits, lapse assumptions require judgment and can have a material impact on DAC amortization. For fixed index annuity contracts, the future spread between investment income and interest credited to policyholders is a significant judgment, particularly in a low interest rate environment. We regularly evaluate our assumptions used for estimated gross profits. If the assumptions used for estimated gross profits change, DAC and related reserves, including VOBA, DSI, guaranteed benefit reserves and unearned revenue reserve (URR), are recalculated using the new assumptions, and any resulting adjustment is included in income. Updating such assumptions may result in acceleration of amortization in some products and deceleration of amortization in other products. In estimating future gross profits for variable annuity products as ofDecember 31, 2022 and 2021, a long-term annual asset growth assumption of 7.0 percent (before expenses that reduce the asset base from which future fees are projected) was applied to estimate the future growth in assets and related asset-based fees. In determining the asset growth rate, the effect of short-term fluctuations in the equity markets is partially mitigated through the use of a reversion to the mean methodology, whereby short-term asset growth above or below the long-term annual rate assumption impacts the growth assumption applied to the five-year period subsequent to the current balance sheet date. The reversion to the mean methodology allows us to maintain our long-term growth assumptions, while also giving consideration to the effect of actual investment performance. When actual performance significantly deviates from the annual long-term growth assumption, as evidenced by growth assumptions for the five-year reversion to the mean period falling below a certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or "unlock" the growth rate assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual growth assumption applied to subsequent periods. For additional information, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - DAC - Reversion to the Mean. 56 AIG | 2022 Form 10-K
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ITEM 7 | Critical Accounting Estimates
The following table summarizes the sensitivity of changes in certain assumptions
for DAC and DSI, embedded derivatives and other reserves related to guaranteed
benefits and URR, measured as the related hypothetical impact on December 31,
2022 balances and the resulting hypothetical impact on pre-tax income, before
hedging.
Increase (Decrease) in
December 31, 2022 Other Reserves Unearned Embedded
(in millions) DAC/DSI Related to Revenue Derivatives Related to Pre-Tax
Asset Guaranteed Benefits Reserve Guaranteed Benefits Income
Assumptions:
Net Investment Spread
Effect of an increase by 10 basis $ 142 $ (54) $ (4) $ (98) $ 298
points
Effect of a decrease by 10 basis (151) 54 2 101 (308)
points
Equity Return(a)
Effect of an increase by 1% 98 (53) - (21) 172
Effect of a decrease by 1% (96) 62 - 30 (188)
Volatility(b)
Effect of an increase by 1% (3) 24 - (51) 24
Effect of a decrease by 1% 3 (23) - 55 (29)
Interest Rate(c)
Effect of an increase by 1% - - - (1,590) 1,590
Effect of a decrease by 1% - - - 2,070 (2,070)
Mortality
Effect of an increase by 1% (6) 43 - (34) (15)
Effect of a decrease by 1% 7 (43) - 34 16
Lapse
Effect of an increase by 10% (113) (116) (27) (80) 110
Effect of a decrease by 10% 117 120 27 73 (103)
(a)Represents the net impact of a one percent increase or decrease in long-term
equity returns for GMDB reserves and net impact of a one percent increase or
decrease in the S&P 500 index on the value of the GMWB embedded derivative.
(b)Represents the net impact of a one percentage point increase or decrease in
equity volatility.
(c)Represents the net impact of one percent parallel shift in the yield curve on
the value of the GMWB embedded derivative. Does not represent interest rate
spread compression on investment-oriented products.
The sensitivity ranges of 10 basis points, one percent and 10 percent are included for illustrative purposes only and do not reflect the changes in net investment spreads, equity return, volatility, interest rate, mortality or lapse used by AIG in its fair value analyses or estimates of future gross profits to value DAC and related reserves. Changes different from those illustrated may occur in any period and by different products. The analysis of DAC, embedded derivatives and other reserves related to guaranteed benefits, and unearned revenue reserve is a dynamic process that considers all relevant factors and assumptions described above. We estimate each of the above factors individually, without the effect of any correlation among the key assumptions. An assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results. The effects on pre-tax income in the sensitivity analysis table above do not reflect the related effects from our economic hedging program, which utilizes derivative and other financial instruments and is designed so that changes in value of those instruments move in the opposite direction of changes in the guaranteed benefit embedded derivative liabilities. For additional information on guaranteed benefit features of our variable annuities and the related hedging program, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies' Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs, Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Variable Annuity Guaranteed Benefits and Hedging Results, and Notes 4, 8 and 13 to the Consolidated Financial Statements.
For additional information on actuarial assumption updates, see Insurance
Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract
Deposits and DAC - Update of Actuarial Assumptions and Models -
Investment-Oriented Products.
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ITEM 7 | Critical Accounting Estimates
REINSURANCE ASSETS
In the ordinary course of business, our insurance companies may use both treaty
and facultative reinsurance to minimize their net loss exposure to any single
catastrophic loss event or to an accumulation of losses from a number of smaller
events or to provide greater diversification of our businesses. Reinsurance
assets include the balances due from reinsurance and insurance companies under
the terms of our reinsurance agreements for paid and unpaid losses and loss
adjustment expenses incurred, ceded unearned premiums and ceded future policy
benefits for life and accident and health insurance contracts and benefits paid
and unpaid. The estimation of reinsurance recoverables involves a significant
amount of judgment. Reinsurance assets include reinsurance recoverables on
unpaid losses and loss adjustment expenses that are estimated as part of our
loss reserving process and, consequently, are subject to similar judgments and
uncertainties as the estimation of gross loss reserves. For additional
information on reinsurance, see Note 7 to the Consolidated Financial Statements.
GOODWILL IMPAIRMENT
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized.Goodwill is tested for impairment annually, or more frequently if circumstances indicate an impairment may have occurred. A qualitative assessment may be performed, considering whether events or circumstances exist that lead to a determination that it is not more likely than not that the fair value of an operating segment is less than its carrying value. If management elects to perform a quantitative assessment to determine recoverability of carrying value or is compelled to do so based on the results of a qualitative assessment, the estimate of fair value involves applying one or a combination of common valuation approaches. These include discounted expected future cash flows, market-based earnings multiples and external appraisals, among other methods, all of which require management judgment and are subject to uncertainty, primarily as it relates to assumptions around business growth, earnings projections, and cost of capital. For additional information on goodwill impairment, see Part I, Item 1A. Risk Factors - Estimates and Assumptions and Note 11 to the Consolidated Financial Statements.
ALLOWANCE FOR CREDIT LOSSES ON CERTAIN INVESTMENTS
We maintain an allowance for the expected lifetime credit losses of commercial and residential mortgage loans and available for sale securities. The sufficiency of this allowance is reviewed quarterly using both quantitative and qualitative considerations, which are subject to risks and uncertainties. These considerations and the overall methodology used to estimate the allowance for credit losses are discussed in more detail in Note 5 and Note 6 to the Consolidated Financial Statements for Available for sale securities and Commercial and residential loans, respectively.
FAIR VALUE MEASUREMENTS OF CERTAIN FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs available in the marketplace used to measure the fair value. We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant unobservable inputs in their valuation. We consider unobservable inputs to be those for which market data is not available. Our assessment of the significance of a particular input to the fair value measurement of an asset or liability requires judgment.
For additional information about the valuation methodologies of financial
instruments measured at fair value, see Note 4 to the Consolidated Financial
Statements.
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ITEM 7 | Critical Accounting Estimates
INCOME TAXES
Deferred income taxes represent the tax effect of the differences between the
amounts recorded in our Consolidated Financial Statements and the tax basis of
assets and liabilities. Our assessment of net deferred income taxes represents
management's best estimate of the tax consequences of various events and
transactions, which can themselves be based on other accounting estimates,
resulting in incremental uncertainty in the estimation process.
Deferred Tax Asset Recoverability
The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. As such, changes in tax laws in countries where we transact business can impact our deferred tax asset valuation allowance. We consider multiple factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net operating losses, foreign tax credits, realized capital loss and other carryforwards. These factors include forecasts of future income for each of our businesses, which incorporate forecasts of future statutory income for our insurance companies, and actual and planned business and operational changes, both of which include assumptions about future macroeconomic and AIG-specific conditions and events. We subject the forecasts to stresses of key assumptions and evaluate the effect on tax attribute utilization. We also apply stresses to our assumptions about the effectiveness of relevant prudent and feasible tax planning strategies. In performing our assessment of recoverability, we consider tax laws governing the utilization of net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. These tax laws are subject to change, resulting in incremental uncertainty in our assessment of recoverability.
Uncertain Tax Positions
Uncertain tax positions represent AIG's liability for income taxes on tax years subject to review by the Internal Revenue Service (IRS) or other tax authorities. We determine whether it is more likely than not that a tax position will be sustained, based on technical merits, upon examination by the relevant taxing authorities before any part of the benefit can be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. The completion of review, or the expiration of federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes.
For a discussion of our framework for assessing the recoverability of our
deferred tax asset and other tax topics, see Note 21 to the Consolidated
Financial Statements.
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ITEM 7 | Executive Summary
Executive Summary
OVERVIEW
This overview of the MD&A highlights selected information and may not contain
all of the information that is important to current or potential investors in
our securities. You should read this Annual Report in its entirety for a more
detailed description of events, trends, uncertainties, risks and critical
accounting estimates affecting us.
For additional information, see Note 1 to the Consolidated Financial Statements.
Separation of Life and Retirement Business
OnSeptember 19, 2022 , AIG closed on the initial public offering (IPO) of 80 million shares of Corebridge Financial, Inc. (Corebridge) common stock at a public offering price of$21.00 per share, representing 12.4 percent of Corebridge's common stock. Corebridge is the holding company for AIG's Life and Retirement business. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately$1.7 billion . After consideration of underwriting discounts, commissions and other related expenses payable by AIG, AIG recorded$608 million as an increase in AIG's shareholder's equity.
Relationship with Blackstone Inc.
In
by
In 2021, AIG entered into a long-term asset management relationship withBlackstone , pursuant to whichBlackstone is initially managing$50 billion of Corebridge's existing investment portfolio, with that amount increasing to an aggregate of$92.5 billion over the next five years. OnDecember 15, 2021 ,AIG and Blackstone Real Estate Income Trust (BREIT), a long-term, perpetual capital vehicle affiliated withBlackstone , completed the acquisition by BREIT of AIG's interests in aU.S. affordable housing portfolio. The historical results of theU.S. affordable housing portfolio were reported in our Life and Retirement operating segments.
Our Investment Management Agreements with BlackRock
SinceApril 2022 , AIG and Corebridge insurance company subsidiaries have entered into separate investment management agreements with BlackRock. Certain additional insurance company subsidiaries will also enter into such investment management agreements over the coming months. We have since transferred the management of approximately$162 billion of our investments in liquid fixed income and certain private placement assets, including$98 billion of the Corebridge investment portfolio, to BlackRock under such investment management agreements as ofDecember 31, 2022 . The investment management agreements contain detailed investment guidelines and reporting requirements. These agreements also contain reasonable and customary representations and warranties, standard of care, expense reimbursement, liability, indemnity and other provisions. The investment management agreements continue unless terminated by either party on 45 days' notice or by us immediately for cause. We continue to be responsible for our overall investment portfolio, including decisions surrounding asset allocation, risk composition and investment strategy.
Sale of Certain AIG Life and Retirement Retail Mutual Funds Business
OnJuly 16, 2021 , AIG announced the closing of the sale of certain assets of Life and Retirement's Retail Mutual Funds business to Touchstone Investments (Touchstone), an indirect wholly-owned subsidiary ofWestern & Southern Financial Group . Upon closing, the twelve retail mutual funds managed bySunAmerica Asset Management, LLC (SAAMCo), with$6.8 billion in assets, were reorganized into Touchstone funds.
Sale of
OnJune 2, 2020 , we completed the sale of a majority of the interests inFortitude Group Holdings, LLC (Fortitude Holdings ) toCarlyle FRL, L.P. (Carlyle FRL), an investment fund advised by an affiliate of The Carlyle Group Inc. (Carlyle), andT&D United Capital Co., Ltd. (T&D), a subsidiary of T&D Holdings, Inc., under the terms of a membership interest purchase agreement entered into onNovember 25, 2019 by and among AIG,Fortitude Holdings , Carlyle FRL, Carlyle,T&D and T&D Holdings, Inc. (the Majority Interest Fortitude Sale). As a result of completion of the Majority Interest Fortitude Sale, AIG received$2.2 billion of proceeds and recorded a total after-tax reduction to total AIG shareholders' equity of$4.3 billion related to the sale of the majority interest in and deconsolidation ofFortitude Holdings in the second quarter of 2020.
60 AIG | 2022 Form 10-K
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ITEM 7 | Executive Summary
AIG'S OUTLOOK - INDUSTRY AND ECONOMIC FACTORS
Our business is affected by industry and economic factors such as interest rates, currency exchange rates, credit and equity market conditions, catastrophic claims events, regulation, tax policy, competition, and general economic, market and political conditions. We continued to operate under challenging market conditions in 2022, characterized by factors such as the impact of COVID-19 and the related governmental and societal responses, rising interest rates, inflationary pressures, an uneven global economic recovery and global trade tensions. Responses by central banks and monetary authorities with respect to inflation, growth concerns and other macroeconomic factors have also affected global exchange rates and volatility.
The
continue to have a significant impact on the global macroeconomic and
geopolitical environments, including increased volatility in capital and
commodity markets, rapid changes to regulatory conditions around the globe
including the use of sanctions, operational challenges for multinational
corporations, inflationary pressures and an increased risk of cybersecurity
incidents.
The conflict is evolving and has the potential to adversely affect our business and results of operations from an investment, underwriting and operational perspective. While we believe we have taken appropriate actions to minimize related risk, we continue to monitor potential exposure and operational impacts, as well as any actual and potential claims activity. The ultimate impact will depend on future developments that are uncertain and cannot be predicted, including scope, severity and duration, the governmental, legislative and regulatory actions taken (including the application of sanctions), and court decisions, if any, rendered in response to those actions.
Impact of Changes in the Interest Rate Environment and Equity Markets
KeyU.S. benchmark rates continued to rise during 2022 as markets reacted to heightened inflation measures, geopolitical risk, and theBoard of Governors of theFederal Reserve System implementing multiple increases to short term interest rates. As ofDecember 31, 2022 , due to increases in benchmark rates, combined with general widening of credit spreads, the yield on new investments has generally exceeded the yield on asset maturities and redemptions. The yield pick-up of new investments over the yields on asset maturities and redemptions averaged 70 basis points during 2022. This combined with resetting of coupon rates on floating rate securities and loans has steadily improved the overall portfolio yields. However, the key benchmark rates remain highly volatile. We actively manage our exposure to the interest rate environment through portfolio selection and asset-liability management, including spread management strategies for our investment-oriented products and economic hedging of interest rate risk from guarantee features in our variable and fixed index annuities, but we may not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities.
Equity Markets
Our financial results are impacted by the performance of equity markets, which impacts the performance of our alternative investment portfolio, fee income, net amount at risk, policyholder benefits and DAC. For instance, in our variable annuity separate accounts, mutual fund assets and brokerage and advisory assets, we generally earn fee income based on the account value, which fluctuates with the equity markets as a significant amount of these assets are invested in equity funds. The impact of equity market returns, both increases and decreases, is reflected in our results due to the impact on the account value and the fair values of equity-exposed securities in our Life and Retirement investment portfolio. In Life and Retirement, hedging costs could also be significantly impacted by changes in the level of equity markets as rebalancing and option costs are tied to the equity market volatility, and we may be required to post additional collateral when equity markets are higher. These hedging costs are mostly offset by our rider fees that are tied to the level of theChicago Board Options Exchange Volatility Index. As rebalancing and option costs increase or decrease, the rider fees will increase or decrease partially offsetting the hedging costs incurred.
Alternative investments include private equity funds which are generally
reported on a one-quarter lag. Accordingly, changes in valuations driven by
equity market conditions during the fourth quarter of 2022 may impact the
private equity investments in the alternative investments portfolio in the first
quarter of 2023.
Annuity Sales and Surrenders
The rising rate environment and our partnership withBlackstone have provided a strong tailwind for fixed annuity sales with sales in the three to fiveyear products significantly increasing. Continued rising interest rates could create the potential for increased sales, but also drives higher surrenders. Fixed annuities have surrender charge periods, generally in the three-to-seven year range. Fixed index annuities have surrender charge periods, generally in the five-to-ten year range, and within our Group Retirement segment, certain of our fixed investment options are subject to other withdrawal restrictions, which may help mitigate increased early surrenders in a rising rate environment. In addition, older contracts that have higher minimum interest rates and continue to be attractive to contract holders have driven better than expected persistency in fixed annuities, although the reserves for such contracts have AIG | 2022 Form 10-K 61
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ITEM 7 | Executive Summary
continued to decrease over time in amount and as a percentage of the total
annuity portfolio. We closely monitor surrenders of fixed annuities as contracts
with lower minimum interest rates come out of the surrender charge period.
Reinvestment and Spread Management
We actively monitor fixed income markets, including the level of interest rates, credit spreads and the shape of the yield curve. We also frequently review our interest rate assumptions and actively manage the crediting rates used for new and in-force business. Business strategies continue to evolve and we attempt to maintain profitability of the overall business in light of the interest rate environment. A rising interest rate environment results in improved yields on new investments and improves margins for our Life and Retirement business while also making certain products, such as fixed annuities, more attractive to potential customers. However, the rising rate environment has resulted in lower values on general and separate accounts assets, mutual fund assets and brokerage and advisory assets that hold investments in fixed income assets.
For additional information on our investment and asset-liability management
strategies, see Investments.
For investment-oriented products, including universal life insurance, and variable, fixed and fixed index annuities, in ourIndividual Retirement, Group Retirement, Life Insurance and Institutional Markets businesses, our spread management strategies include disciplined pricing and product design for new business, modifying or limiting the sale of products that do not achieve targeted spreads, using asset-liability management to match assets to liabilities to the extent practicable, and actively managing crediting rates to help mitigate some of the pressure on investment spreads. Renewal crediting rate management is done under contractual provisions that were designed to allow crediting rates to be reset at pre-established intervals in accordance with state and federal laws and subject to minimum crediting rate guarantees. We expect to continue to adjust crediting rates on in-force business, as appropriate, to be responsive to a rising rate environment. As interest rates rise, we may need to raise crediting rates on in-force business for competitive and other reasons, potentially offsetting a portion of the additional investment income resulting from investing in a higher interest rate environment. Of the aggregate fixed account values of ourIndividual Retirement and Group Retirement annuity products, 64 percent were crediting at the contractual minimum guaranteed interest rate as ofDecember 31, 2022 . The percentage of fixed account values of our annuity products that are currently crediting at rates above one percent were 55 percent and 58 percent as ofDecember 31, 2022 and 2021, respectively. In the universal life products in our Life Insurance business, 62 percent and 67 percent of the account values were crediting at the contractual minimum guaranteed interest rate as ofDecember 31, 2022 and 2021, respectively. These businesses continue to focus on pricing discipline and strategies to manage the minimum guaranteed interest crediting rates offered on new sales in the context of regulatory requirements and competitive positioning. The following table presents fixed annuity and universal life account values of our Individual Retirement, GroupRetirement and Life Insurance operating segments by contractual minimum guaranteed interest rate and current crediting rates, excluding balances ceded to Fortitude Re: Current Crediting Rates December 31, 2022 1-50 Basis More than 50 Contractual Minimum Guaranteed At Contractual Points Above Basis Points Interest Rate Minimum Minimum Above Minimum (in millions) Guarantee Guarantee Guarantee Total Individual Retirement* <=1% $ 8,766 $ 2,161 $ 21,702$ 32,629 > 1% - 2% 4,208 24 2,195 6,427 > 2% - 3% 9,502 - 17 9,519 > 3% - 4% 7,630 40 6 7,676 > 4% - 5% 456 - 5 461 > 5% - 5.5% 33 - 4 37 Total Individual Retirement$ 30,595 $ 2,225 $ 23,929$ 56,749 Group Retirement* <=1% $ 3,611 $ 1,427 $ 5,609$ 10,647 > 1% - 2% 5,628 727 150 6,505 > 2% - 3% 13,967 3 - 13,970 > 3% - 4% 666 - - 666 > 4% - 5% 6,843 - - 6,843 > 5% - 5.5% 154 - - 154 Total Group Retirement$ 30,869 $ 2,157 $ 5,759$ 38,785 62 AIG | 2022 Form 10-K
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ITEM 7 | Executive Summary
Current Crediting Rates
December 31, 2022 1-50 Basis More than 50
Contractual Minimum Guaranteed At Contractual Points Above Basis Points
Interest Rate Minimum Minimum Above Minimum
(in millions) Guarantee Guarantee Guarantee Total
Universal life insurance
<=1% $ - $ - $ - $ -
> 1% - 2% 1 129 352 482
> 2% - 3% 32 831 1,116 1,979
> 3% - 4% 1,368 180 195 1,743
> 4% - 5% 2,974 - - 2,974
> 5% - 5.5% 223 - - 223
Total universal life insurance $ 4,598 $ 1,140 $ 1,663 $ 7,401
Total $ 66,062 $ 5,522 $ 31,351 $ 102,935
Percentage of total 64 % 5 % 31 % 100 %
*Individual Retirement and Group Retirement amounts shown include fixed options
within variable annuity products.
Our net investment income is significantly impacted by market interest rates as well as the deployment of asset allocation strategies to manage duration, enhance yield and manage interest rate risk. As interest rates increase, so too does our ability to reinvest future cash inflows from premiums, as well as sales and maturities of existing investments, at more favorable rates. For additional information on our investment and asset-liability management strategies, see Investments. While the impact of rising interest rates on ourGeneral Insurance segment increases the benefit of investment income, the current and medium-term inflationary environment may also translate into higher loss cost trends. We monitor these trends closely, particularly loss cost trend uncertainty, to ensure that not only our pricing, but also our loss reserving assumptions are proactive to, and considerate of, current and future economic conditions.
For our
favorably impact the statutory net loss reserve discount for workers'
compensation and its associated amortization.
Impact of Currency Volatility
Currency volatility remains acute. Strengthening of theU.S. dollar against the Euro, British pound and the Japanese yen (the Major Currencies) impacts income for our businesses with substantial international operations. In particular, growth trends in net premiums written reported inU.S. dollars can differ significantly from those measured in original currencies. The net effect on underwriting results, however, is significantly mitigated, as both revenues and expenses are similarly affected. These currencies may continue to fluctuate, especially as a result of central bank responses to inflation, concerns regarding future economic growth and other macroeconomic factors, and such fluctuations will affect net premiums written growth trends reported inU.S. dollars, as well as financial statement line item comparability.General Insurance businesses are transacted in most major foreign currencies. The following table presents the average of the quarterly weighted average exchange rates of the Major Currencies, which have the most significant impact on our businesses: Years Ended December 31, Percentage Change Rate for1 USD 2022 2021 2020 2022 vs 2021 2021 vs 2020 Currency: GBP 0.81 0.73 0.78 11 % (6) % EUR 0.95 0.84 0.88 13 % (5) % JPY 129.67 108.92 107.23 19 % 2 %
Unless otherwise noted, references to the effects of foreign exchange in the
movements in the Major Currencies included in the preceding table.
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ITEM 7 | Consolidated Results of Operations
Consolidated Results of Operations
The following section provides a comparative discussion of our consolidated
results of operations on a reported basis for the twelve-month period ended
discussed in more detail within the business segment operations section.
For information regarding the Critical Accounting Estimates that affect our results of operations, see Critical Accounting Estimates. For information regarding AIG's results of operations for the year endedDecember 31, 2020 and the year endedDecember 31, 2021 compared with the year endedDecember 31, 2020 , see Part II, Item 7. MD&A - Consolidated Results of Operations of our 2021 Annual Report. The following table presents our consolidated results of operations and other key financial metrics: Years Ended December 31, Percentage Change (in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Revenues: Premiums$ 31,857 $ 31,259 $ 28,523 2 % 10 % Policy fees 2,972 3,051 2,917 (3) 5 Net investment income: Net investment income - excluding Fortitude Re funds withheld assets 10,824 12,641 12,578 (14) 1 Net investment income - Fortitude Re funds withheld assets 943 1,971 1,053 (52)
87
Total net investment income 11,767 14,612 13,631 (19) 7 Net realized gains (losses): Net realized gains (losses) - excluding Fortitude Re funds withheld assets and embedded derivative 1,996 1,751 (56) 14 NM Net realized gains (losses) on Fortitude Re funds withheld assets (486) 1,003 463 NM
117
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative 7,481 (603) (2,645) NM
77
Total net realized gains (losses) 8,991 2,151 (2,238) 318 NM Other income 850 984 903 (14) 9 Total revenues 56,437 52,057 43,736 8 19 Benefits, losses and expenses: Policyholder benefits and losses incurred 22,771 24,388 24,806 (7)
(2)
Interest credited to policyholder account balances 3,709 3,557 3,622 4
(2)
Amortization of deferred policy acquisition costs 4,970 4,573 4,211 9
9
General operating and other expenses 9,195 8,790 8,396 5 5 Interest expense 1,125 1,305 1,457 (14) (10) Loss on extinguishment of debt 303 389 12 (22) NM Net (gain) loss on divestitures and other 82 (3,044) 8,525 NM NM Total benefits, losses and expenses 42,155 39,958 51,029 5
(22)
Income (loss) from continuing operations before income tax expense (benefit) 14,282 12,099 (7,293) 18 NM Income tax expense (benefit): Current 517 (45) 217 NM NM Deferred 2,489 2,221 (1,677) 12 NM Income tax expense (benefit) 3,006 2,176 (1,460) 38 NM Income (loss) from continuing operations 11,276 9,923 (5,833) 14 NM Income (loss) from discontinued operations, net of income taxes (1) - 4 NM NM Net income (loss) 11,275 9,923 (5,829) 14 NM Less: Net income attributable to noncontrolling interests 999 535 115 87
365
Net income (loss) attributable to AIG 10,276 9,388 (5,944) 9 NM Less: Dividends on preferred stock 29 29 29 -
-
Net income (loss) attributable to AIG common shareholders$ 10,247 $ 9,359 $ (5,973) 9 % NM % 64 AIG | 2022 Form 10-K
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ITEM 7 | Consolidated Results of Operations
Years Ended December 31, 2022 2021 2020
Return on common equity 21.0 % 14.5 % (9.4) %
Adjusted return on common equity 6.5 % 8.6 % 4.4 %
(in millions, except per common share data) December 31, 2022 December 31, 2021 Balance sheet data: Total assets $ 526,634 $ 596,112 Short-term and long-term debt 21,299 23,741 Debt of consolidated investment entities 5,880 6,422 Total AIG shareholders' equity 40,002 65,956 Book value per common share 53.83 79.97 Adjusted book value per common share 73.87 68.83
NET INCOME (LOSS) ATTRIBUTABLE TO AIG COMMON SHAREHOLDERS COMPARISON FOR 2022
AND 2021
Net income attributable to AIG common shareholders increased
the following, on a pre-tax basis:
•an increase in Net realized gains on Fortitude Re funds withheld embedded derivative of$8.1 billion driven by interest rate movements, partially offset by losses on Fortitude Re funds withheld assets of$486 million in 2022 compared to a gain of$1.0 billion in 2021; •higher underwriting income inGeneral Insurance of$1.1 billion , including$86 million attributable to eliminating the international reporting lag, reflecting the continued earn-in of positive rate change, strong renewal retentions and new business production, as well as increased favorable prior year development and lower catastrophe losses. Underwriting income was negatively impacted by unfavorable movements in foreign exchange. For additional information on the elimination of the international reporting lag, see Note 1 to the to the Consolidated Financial Statements. •lower interest expense of$180 million primarily driven by interest savings of$225 million from$9.4 billion debt repurchases, through cash tender offers and debt redemptions in 2022 as well as$92 million from$3.6 billion of debt repurchases, through cash tender offers and debt redemptions in 2021, as well as interest savings of$100 million on debt borrowing due to the sale ofAffordable Housing in 2021. These decreases are partially offset by interest expense of$240 million on$6.5 billion Corebridge senior unsecured notes,$1.5 billion draw down on Corebridge DDTL facility and$1.0 billion junior subordinated debt issued by Corebridge in 2022.
The increase in Net income attributable to AIG common shareholders was partially
offset by the following, on a pre-tax basis:
•lower net gains on divestitures and other due to loss of$82 million in 2022 compared with net gains on divestitures and other in 2021 due to the recognition of$3.0 billion gain from the sale of theAffordable Housing portfolio and$102 million gain from the sale of certain assets of the Retail Mutual Funds business in 2021. •lower net investment income of$2.8 billion primarily driven by lower returns on our alternative investments of$1.9 billion and declines in fair value of fixed maturity securities where we elected the fair value option of$810 million as a result of the higher rate environment and negative equity market performance. •higher income attributable to noncontrolling interest of$464 million driven by the sale of 9.9 percent interest of Corebridge toBlackstone inDecember 2021 and the 12.4 percent IPO of Corebridge inSeptember 2022 . •a decrease in Net realized gains excluding Fortitude Re funds withheld assets and embedded derivative of$245 million , driven by a$2.9 billion increase in derivative and hedge activity and gains on variable annuity embedded derivatives, net of hedging, partially offset by losses on sales of securities of$1.1 billion and sales of alternative investments and real estate of$795 million , unfavorable movement in the allowance for credit losses on fixed maturity securities and loans of$421 million and absence of realized gains related toAffordable Housing portfolio sale in 2021 of$219 million .
The
higher income from continuing operations.
INCOME TAX EXPENSE ANALYSIS
For the years ended
(loss) from continuing operations was 21.0 percent and 18.0 percent,
respectively.
For additional information, see Note 21 to the Consolidated Financial
Statements.
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ITEM 7 | Consolidated Results of Operations
U.S. TAX LAW CHANGES
On August 16, 2022 , President Biden signed the Inflation Reduction Act (IRA) of
2022 (H.R. 5376), which finances climate and energy provisions and an extension
of enhanced subsidies under the Affordable Care Act. Key provisions include a 15
percent corporate alternative minimum tax (CAMT) on adjusted financial statement
income for corporations with average profits over $1 billion over a three-year
period, a 1 percent stock buyback tax, increased IRS enforcement funding, and
Medicare's new ability to negotiate prescription drug prices. CAMT and the stock
buyback tax are effective for tax years beginning after December 31, 2022 . The
tax provisions of IRA are not expected to have a material impact on AIG's
financial results. However, the CAMT may impact our U.S. cash tax liabilities.
For additional information, see Note 21 to the Consolidated Financial
Statements.
The following table presents a reconciliation of Book value per common share to
Adjusted book value per common share, which is a non-GAAP measure. For
additional information, see Use of Non-GAAP Measures.
At December 31,
(in millions, except per common share data) 2022 2021 2020
Total AIG shareholders' equity $ 40,002 $ 65,956 $ 66,362
Preferred equity 485 485 485
Total AIG common shareholders' equity 39,517 65,471 65,877
Less: Deferred tax assets 4,518 5,221 7,907
Less: Accumulated other comprehensive income (loss) (22,092) 6,687 13,511
Add: Cumulative unrealized gains and losses related to
Fortitude Re funds withheld assets
(2,862) 2,791 4,657
Subtotal: AOCI plus cumulative unrealized gains and
losses related to Fortitude Re funds withheld assets
(19,230) 3,896 8,854 Adjusted common shareholders' equity$ 54,229
Total common shares outstanding 734.1 818.7 861.6 Book value per common share$ 53.83 $ 79.97 $ 76.46 Adjusted book value per common share 73.87 68.83 57.01
The following table presents a reconciliation of Return on common equity to
Adjusted return on common equity, which is a non-GAAP measure. For additional
information, see Use of Non-GAAP Measures.
Years EndedDecember 31 , (dollars in millions) 2022 2021 2020
Actual or annualized net income (loss) attributable to
AIG common shareholders
Actual or annualized adjusted after-tax income
attributable to AIG common shareholders
3,586 4,430 2,201 Average AIG common shareholders' equity$ 48,769 $ 64,704 $ 63,225 Less: Average DTA 4,739 7,025 8,437 Less: Average AOCI (12,551) 9,096 7,529
Add: Average cumulative unrealized gains and losses
related to Fortitude Re funds withheld assets
(1,053) 3,200 2,653
Subtotal: AOCI plus cumulative unrealized gains and
losses related to Fortitude Re funds withheld assets
(11,498) 5,896 4,876 Average adjusted AIG common shareholders' equity
Return on common equity
21.0 % 14.5 % (9.4) % Adjusted return on common equity 6.5 % 8.6 % 4.4 % The following table presents a reconciliation of revenues to adjusted revenues: Years EndedDecember 31 , (in millions) 2022 2021 2020 Revenues
Changes in fair value of securities used to hedge
guaranteed living benefits
(55) (60) (56) Changes in the fair value of equity securities 53 237 (200) Other (income) expense - net 29 24 (49)
Net investment income on Fortitude Re funds withheld
assets
(943) (1,971) (1,053) Net realized (gains) losses on Fortitude Re funds withheld assets 486 (1,003) (463) Net realized (gains) losses on Fortitude Re funds withheld embedded derivative (7,481) 603 2,645 66 AIG | 2022 Form 10-K
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ITEM 7 | Consolidated Results of Operations
Net realized (gains) losses(a) (1,731) (1,585) 148
Non-operating litigation reserves and settlements (49) - (23)
Net impact from elimination of international reporting
lag(b) (978) - -
Adjusted revenues $ 45,768 $ 48,302 $ 44,685
(a)Includes all net realized gains and losses except earned income (periodic
settlements and changes in settlement accruals) on derivative instruments used
for non-qualifying (economic) hedging or for asset replication and net realized
gains and losses on Fortitude Re funds withheld assets.
(b)For additional information, see Note 1 to the Consolidated Financial
Statements.
The following table presents a reconciliation of pre-tax income (loss)/net
income (loss) attributable to AIG to adjusted pre-tax income (loss)/adjusted
after-tax income (loss) attributable to AIG:
Years EndedDecember 31, 2022 2021 2020 Total Tax Non- Total Tax Non- Total Tax Non- (Benefit) controlling After (Benefit) controlling After (Benefit) controlling After (in millions, except per common share data) Pre-tax Charge Interests(e) Tax Pre-tax Charge Interests(e) Tax Pre-tax Charge Interests(e) Tax Pre-tax income (loss)/net income (loss), including noncontrolling interests$ 14,282 $ 3,006 $ -$ 11,275 $ 12,099 $ 2,176 $ -$ 9,923 $ (7,293) $ (1,460) $ -$ (5,829) Noncontrolling interests (999) (999) (535) (535) (115) (115) Pre-tax income (loss)/net income (loss) attributable to AIG$ 14,282 $ 3,006 $ (999) $ 10,276 $ 12,099 $ 2,176 $ (535) $ 9,388 $ (7,293) $ (1,460) $ (115) $ (5,944) Dividends on preferred stock 29 29 29 Net income (loss) attributable to AIG common shareholders$ 10,247 $ 9,359 $ (5,973) Changes in uncertain tax positions and other tax adjustments(a) 22 - (22) 998 - (998) 132 - (132) Deferred income tax valuation allowance (releases) charges(b) 25 - (25) (718) - 718 65 - (65) Changes in fair value of securities used to hedge guaranteed living benefits (30) (6) - (24) (61) (13) - (48) (41) (9) -
(32)
Changes in benefit reserves and DAC, VOBA and DSI related to net realized gains (losses) 308 65 - 243 52 11 - 41 (12) (3) - (9) Changes in the fair value of equity securities 53 11 - 42 237 49 - 188 (200) (42) -
(158)
Loss on extinguishment of debt 303 64 - 239 389 82 - 307 12 2 - 10 Net investment income on Fortitude Re funds withheld assets (943) (198) - (745) (1,971) (414) - (1,557) (1,053) (221) - (832) Net realized (gains) losses on Fortitude Re funds withheld assets 486 102 - 384 (1,003) (211) - (792) (463) (98) - (365) Net realized (gains) losses on Fortitude Re funds withheld embedded derivative (7,481) (1,571) - (5,910) 603 126 - 477 2,645 555 -
2,090
Net realized (gains) losses(c) (1,750) (367) - (1,383) (1,623) (341) - (1,282) 97 22 - 75 (Income) loss from discontinued operations 1 - (4) Net loss (gain) on divestitures and other 82 17 - 65 (3,044) (650) - (2,394) 8,525 1,610 -
6,915
Non-operating litigation reserves and settlements (41) (9) - (32) 3 1 - 2 (21) (4) -
(17)
Favorable prior year development and related amortization changes ceded under retroactive reinsurance agreements (160) (34) - (126) (186) (39) - (147) (221) (46) -
(175)
Net loss reserve discount (benefit) charge (703) (148) - (555) (193) (40) - (153) 516 109 -
407
Pension expense related to a one-time lump sum payment to former employees 60 13 - 47 34 7 - 27 - - - - Integration and transaction costs associated with acquiring or divesting businesses 194 41 - 153 83 18 - 65 12 3 - 9 Restructuring and other costs 570 120 - 450 433 91 - 342 435 91 -
344
Non-recurring costs related to regulatory or accounting changes 37 8 - 29 68 15 - 53 65 14 - 51 Net impact from elimination of international reporting lag(d) (127) (27) - (100) - - - - - - - - Noncontrolling interests(e) 608 608 222 222 62 62 Adjusted pre-tax income/Adjusted after-tax income attributable to AIG common shareholders$ 5,140 $ 1,134 $ (391) $ 3,586 $ 5,920 $ 1,148 $ (313) $ 4,430 $ 3,003 $ 720 $ (53) $ 2,201 Weighted average diluted shares outstanding(f) 787.9 864.9
869.3
Income (loss) per common share attributable to AIG common shareholders (diluted)(f)$ 13.01 $ 10.82 $ (6.88) Adjusted after-tax income per common share attributable to AIG common shareholders (diluted)(f)$ 4.55 $ 5.12 $ 2.52
(a)The years ended
activity by the
write-down of net operating loss deferred tax assets in certain foreign
jurisdictions, which is offset by valuation allowance release.
AIG | 2022 Form
10-K 67
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ITEM 7 | Consolidated Results of Operations
(b)The years ended
established against a portion of certain tax attribute carryforwards of AIG's
changes in certain foreign jurisdictions.
(c)Includes all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets.
(d)For additional information, see Note 1 to the Consolidated Financial
Statements.
(e)Includes the portion of equity interest of non-operating income of Corebridge and consolidated investment entities that AIG does not own. Prior toJune 2, 2020 , noncontrolling interests was primarily due to the 19.9 percent investment inFortitude Holdings by an affiliate of Carlyle, which occurred in the fourth quarter of 2018. (f)For the year endedDecember 31, 2020 , because we reported a net loss attributable to AIG common shareholders, all common stock equivalents are anti-dilutive and are therefore excluded from the calculation of diluted shares and diluted per share amounts. However, because we reported adjusted after-tax income attributable to AIG common shareholders, the calculation of adjusted after-tax income per diluted share attributable to AIG common shareholders includes 5,401,597 dilutive shares for the year endedDecember 31, 2020 .
PRE-TAX INCOME (LOSS) COMPARISON FOR 2022 AND 2021
Pre-tax income was
For the main drivers impacting AIG's results of operations, see Net Income
(Loss) Attributable to AIG Common Shareholders above.
ADJUSTED PRE-TAX INCOME (LOSS) COMPARISON FOR 2022 AND 2021
Adjusted pre-tax income (loss) was
in 2021.
For the main drivers impacting AIG's adjusted pre-tax income (loss), see
Business Segment Operations -
Life and Retirement, and Business Segment Operations - Other Operations.
Business Segment Operations
Our business operations consist of
Other Operations.
International. Life and Retirement consists of four operating segments:
Individual Retirement, Group Retirement, Life Insurance and Institutional
Markets. Other Operations is primarily comprised of corporate, our institutional
asset management business and consolidation and eliminations.
For information regarding AIG's results of operations for the year ended
Item 7. MD&A - Business Segment Operations of our 2021 Annual Report.
The following table summarizes Adjusted pre-tax income (loss) from our business segment operations. See also Note 3 to the Consolidated Financial Statements. Years EndedDecember 31 , (in millions) 2022 2021 2020General Insurance North America - Underwriting income (loss)$ 648 $ (47) $ (1,301) International - Underwriting income 1,400 1,102 277 Net investment income 2,382 3,304 2,925 General Insurance 4,430 4,359 1,901 Life and Retirement Individual Retirement 1,222 1,939 1,938 Group Retirement 749 1,284 1,013 Life Insurance 337 106 142 Institutional Markets 349 582 438 Life and Retirement 2,657 3,911 3,531 Other Operations Other Operations before consolidation and eliminations (1,542) (1,418) (1,963) Consolidation and eliminations (405) (932) (466) Other Operations (1,947) (2,350) (2,429) Adjusted pre-tax income$ 5,140 $ 5,920 $ 3,003 68 AIG | 2022 Form 10-K
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ITEM 7 | Business Segment Operations | General Insurance
General Insurance
General Insurance is managed by our geographic markets of North America and International.
Our global presence is underpinned by our multinational capabilities to provide our
Commercial Lines and Personal Insurance products within these geographic markets.
PRODUCTS AND DISTRIBUTION
[[Image Removed: aig-20221231_g2.gif]]
[[Image Removed: aig-20221231_g3.gif]]
States,
AIG Re.
Asia
Pacific,
International also includes the results of
as well
as AIG's Global Specialty business.
Property: Products include commercial and industrial property, including
business interruption, as well as package insurance products and services that
cover exposures to man-made and natural disasters.
Liability: Products include general liability, environmental, commercial
automobile liability, workers' compensation, excess casualty and crisis
management insurance products. Casualty also includes risk-sharing and other
customized structured programs for large corporate and multinational customers.
Financial Lines: Products include professional liability insurance for a range of businesses and risks, including directors and officers, mergers and acquisitions, fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions insurance. Specialty: Products include marine, energy-related property insurance products, aviation, political risk, trade credit, trade finance and portfolio solutions, as well as our global reinsurance businessAIG Re andCrop Risk Services which includes multi-peril and hail coverages. Accident &Health: Products include voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations, as well as a broad range of travel insurance products and services for leisure and business travelers. Personal Lines: Products include personal auto and personal property in selected markets, comprehensive extended warranty, device protection insurance, home warranty and related services, and insurance for high net-worth individuals offered throughAIG's Private Client Group (PCG) in theU.S. that covers auto, homeowners, umbrella, yacht, fine art and collections.General Insurance products inNorth America and International markets are distributed through various channels, including captive and independent agents, brokers, affinity partners, airlines and travel agents, and retailers. Our global platform enables writing multinational and cross-border risks in bothCommercial Lines and Personal Insurance . AIG | 2022 Form
10-K 69
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ITEM 7 | Business Segment Operations | General Insurance
BUSINESS STRATEGY
Profitable Growth: Build on our high-quality portfolio by focusing on targeted
growth through continued underwriting discipline, improved retentions and new
business development. Deploy capital efficiently to act opportunistically and
achieve growth in profitable lines, geographies and customer segments, while
taking a disciplined underwriting approach to exposure management, terms and
conditions and rate change to achieve our risk/return hurdles. Continue to be
open to inorganic growth opportunities in profitable markets and segments to
expand our capabilities and footprint.
Reinsurance Optimization: Strategically partner with reinsurers to effectively
manage exposure to losses arising from frequency of large catastrophic events
and severity from individual risk losses. We strive to optimize our reinsurance
program to manage volatility and protect the balance sheet from tail events and
unpredictable net losses in support of our profitable growth objectives.
Underwriting Excellence: Continue to enhance portfolio optimization through
strength of underwriting framework and guidelines as well as clear communication
of risk appetite and rate adequacy. Empower and increase accountability of the
underwriter and continue to integrate underwriting, claims and actuarial to
enable better decision making. Focus on enhancing risk selection, driving
consistent underwriting best practices and building robust monitoring standards
to improve underwriting results.
COMPETITION AND CHALLENGES
General Insurance operates in a highly competitive industry against global, national and local insurers and reinsurers and underwriting syndicates in specific market areas and product types. Insurance companies compete through a combination of risk acceptance criteria, product pricing, service levels and terms and conditions. We serve our business and individual customers on a global basis - from the largest multinational corporations to local businesses and individuals.General Insurance seeks to differentiate itself in the markets where we participate by providing leading expertise and insight to clients, distribution partners and other stakeholders, delivering underwriting excellence and value-driven insurance solutions and providing high quality, tailored end-to-end support to stakeholders. In doing so, we leverage our world-class global franchise, multinational capabilities, balance sheet strength and financial flexibility.
Our challenges include:
•ensuring adequate business pricing given passage of time to reporting and
settlement for insurance business, particularly with respect to long-tail
Commercial Lines exposures;
•impact of social and economic inflation on claim frequency and severity; and
•volatility in claims arising from natural and man-made catastrophes and other
aggregations of risk exposure.
OUTLOOK - INDUSTRY AND ECONOMIC FACTORS
Below is a discussion of the industry and economic factors impacting our
operating segments:
The results ofGeneral Insurance for the twelve months endedDecember 31, 2022 reflect continued strong performance from our Commercial Lines portfolio and focused execution on our portfolio management strategies withinPersonal Insurance . Across ourNorth America and International Commercial Lines of business we have seen increased demand for our insurance products with continued positive rate change and improvement in terms and conditions. We continue to monitor inflationary impacts resulting from government stimulus in recent years, ongoing labor force and supply chain disruptions and rising commodity prices, among other factors, on rate adequacy and loss cost trends. Similarly, we are monitoring the responsive monetary policy actions taken or anticipated to be taken by central banks, to curb inflation and the corresponding impact on market interest rates.General Insurance -North America North America Commercial remains in a firm market amidst a backdrop of increasing claims severity due to elevated economic and social inflation, as well as a higher frequency and severity of natural catastrophe losses over recent years (which we believe to be in part connected to climate change). While market discipline continues to support price increases across most lines, we are seeing capacity move back into the market in certain segments given the improved pricing levels which is putting pressure on rates. We have focused on retaining our best accounts which has led to improving retention across the portfolio. These retention rates are often coupled with an exposure limit management strategy to reduce volatility within the portfolio. We continue to proactively identify segment growth areas as market conditions warrant through effective portfolio management, while non-renewing unprofitable business.
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ITEM 7 | Business Segment Operations | General Insurance
Personal Insurance growth prospects are supported by the need for full life
cycle products and coverage, increases in personal wealth accumulation, and
awareness of insurance protection and risk management. We compete in the high
net worth market, accident and health insurance, travel insurance, and warranty
services and will continue to expand our innovative products and services to
distribution partners and clients.
We are continuing to pursue growth in our most profitable lines of business and diversify our portfolio across all regions by expanding key business lines while remaining a market leader in key developed and developing markets. Overall, Commercial Lines continue to show positive rate change, particularly in our Financial Lines, Property, Energy and Marine portfolios and across international markets where market events or withdrawal of capability and capacity have favorably impacted pricing. We are maintaining our underwriting discipline, reducing gross and net limits where appropriate, utilizing reinsurance to reduce volatility, as well as continuing our risk selection strategy to improve profitability.Personal Insurance focuses on individual customers, as well as group and corporate clients. Although market competition withinPersonal Insurance has increased, we continue to benefit from the underwriting quality and portfolio diversity. GENERAL INSURANCE RESULTS Years Ended December 31, Change (in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Underwriting results: Net premiums written$ 25,512 $ 25,890 $ 22,959 (1) % 13 % (Increase) decrease in unearned premiums (172) (833) 703 79 NM Net premiums earned 25,340 25,057 23,662 1 6 Losses and loss adjustment expenses incurred(a) 15,407 16,097 16,803 (4)
(4)
Acquisition expenses: Amortization of deferred policy acquisition costs 3,533 3,530 3,538 - - Other acquisition expenses 1,365 1,373 1,283 (1) 7 Total acquisition expenses 4,898 4,903 4,821 - 2 General operating expenses 2,987 3,002 3,062 - (2) Underwriting income (loss) 2,048 1,055 (1,024) 94 NM Net investment income 2,382 3,304 2,925 (28) 13 Adjusted pre-tax income$ 4,430 $ 4,359 $ 1,901 2 % 129 % Loss ratio(a) 60.8 64.2 71.0 (3.4) (6.8) Acquisition ratio 19.3 19.6 20.4 (0.3) (0.8) General operating expense ratio 11.8 12.0 12.9 (0.2) (0.9) Expense ratio 31.1 31.6 33.3 (0.5) (1.7) Combined ratio(a) 91.9 95.8 104.3 (3.9) (8.5) Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted: Catastrophe losses and reinstatement premiums (5.0) (5.4) (10.3) 0.4
4.9
Prior year development, net of reinsurance and prior year premiums 1.8 0.6 0.1 1.2
0.5
Accident year loss ratio, as adjusted 57.6 59.4 60.8 (1.8)
(1.4)
Accident year combined ratio, as adjusted 88.7 91.0 94.1 (2.3)
(3.1)
(a)Consistent with our definition of APTI, excludes net loss reserve discount
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.
AIG | 2022 Form 10-K 71
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ITEM 7 | Business Segment Operations | General Insurance
The following table presents
segment, showing change on both reported and constant dollar basis:
Years Ended December 31, Percentage Change in Percentage Change in
U.S. dollars Original Currency
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 2022 vs 2021 2021 vs 2020
North America $ 12,364 $ 11,733 $ 9,784 5 % 20 % 6 % 20 %
International 13,148 14,157 13,175 (7) 7 2 5
Total net premiums written $ 25,512 $ 25,890 $ 22,959 (1) % 13 % 4 % 11 %
The following tables present
geography and number of events:
# of North
(in millions) Events America
International Total
Years EndedDecember 31, 2022 Flooding, rainstorms and other 3$ 53 $ 105 $ 158 Windstorms and hailstorms 18 531 206 737 Winter storms 5 154 53 207 Earthquakes 1 - 19 19 Russia / Ukraine N/A (b) 10 97 107 Reinstatement premiums 53 31 84 Total catastrophe-related charges 27$ 801 $ 511 $ 1,312 Years EndedDecember 31, 2021 Flooding, rainstorms and other 7$ 136 $ 136 $ 272 Windstorms and hailstorms 10 541 72 613 Winter storms 3 283 64 347 Wildfires 4 67 - 67 Earthquakes 1 - 19 19 Civil unrest 1 20 19 39 Reinstatement premiums 7 13 20 Total catastrophe-related charges 26$ 1,054 $ 323 $ 1,377 Years EndedDecember 31, 2020 Flooding, rainstorms and other 4$ 27 $ 64$ 91 Windstorms and hailstorms 14 759 195 954 Wildfires 5 145 2 147 Earthquakes 2 35 12 47 COVID-19 N/A (c) 703 390 1,093 Civil unrest 1 68 28 96 Reinstatement premiums (11) 25 14
Total catastrophe-related charges 26
(a)Natural catastrophe losses are generally weather or seismic events, in each
case, having a net impact on AIG in excess of
catastrophe losses, such as terrorism and civil unrest that exceed the
million
(b)As the
yet to be determined.
(c)As COVID-19 continues to evolve, impacting many lines of business, the number of events is yet to be determined. 72 AIG | 2022 Form 10-K --------------------------------------------------------------------------------
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ITEM 7 | Business Segment Operations | General Insurance
NORTH AMERICA RESULTS
Years Ended December 31, Change
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Underwriting results:
Net premiums written $ 12,364 $ 11,733 $ 9,784 5 % 20 %
(Increase) decrease in unearned premiums (293) (744) 518 61 NM
Net premiums earned 12,071 10,989 10,302 10 7
Losses and loss adjustment expenses
incurred(a) 8,096 8,134 8,720 -
(7)
Acquisition expenses: Amortization of deferred policy acquisition costs 1,585 1,333 1,365 19 (2) Other acquisition expenses 520 440 359 18 23 Total acquisition expenses 2,105 1,773 1,724 19 3 General operating expenses 1,222 1,129 1,159 8 (3) Underwriting income (loss)$ 648 $ (47) $ (1,301) NM % 96 % Loss ratio(a) 67.1 74.0 84.6 (6.9) (10.6) Acquisition ratio 17.4 16.1 16.7 1.3 (0.6) General operating expense ratio 10.1 10.3 11.3 (0.2) (1.0) Expense ratio 27.5 26.4 28.0 1.1 (1.6) Combined ratio(a) 94.6 100.4 112.6 (5.8) (12.2) Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted: Catastrophe losses and reinstatement premiums (6.5) (9.5) (16.7) 3.0
7.2
Prior year development, net of reinsurance and prior year premiums 1.0 1.2 1.2 (0.2)
-
Adjustment for ceded premiums under reinsurance contracts and other - - (0.1) - NM Accident year loss ratio, as adjusted 61.6 65.7 69.0 (4.1)
(3.3)
Accident year combined ratio, as adjusted 89.1 92.1 97.0 (3.0)
(4.9)
(a)Consistent with our definition of APTI, excludes net loss reserve discount 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.
Business and Financial Highlights
Net Premiums Written Comparison for 2022 and 2021
Net premiums written increased by$631 million primarily due to growth in Commercial Lines ($673 million ), particularly in Property, Casualty and AIG Re, driven by continued positive rate change, higher renewal retentions and strong new business production, as well as growth inCrop Risk Services driven by higher commodity prices, partially offset by a decrease in Financial Lines due to volatility in capital markets and uncertain economic conditions. This increase was partially offset by lower production inPersonal Insurance ($42 million ), particularly in Warranty as well as underwriting actions taken in PCG to improve profitability, partially offset by an increase in Travel.
Underwriting Income (Loss) Comparison for 2022 and 2021
Underwriting income of
•premium growth with improvement in the accident year loss ratio, as adjusted (4.1 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions; and
•lower catastrophe losses (3.0 points or
This improvement was partially offset by:
•higher expense ratio of 1.1 points reflecting a higher acquisition ratio
(1.3 points) primarily driven by changes in business mix and reinsurance,
partially offset by a lower general operating expense ratio (0.2 points)
resulting from continued general expense discipline as we grow the portfolio;
and
•lower net favorable prior year reserve development in 2022 compared 2021 (0.2 points or$34 million ), primarily due to lower favorable development in PCG and higher unfavorable development within Financial Lines, partially offset by higher favorable development in Property,Casualty andCrop Risk Services . AIG | 2022 Form
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ITEM 7 | Business Segment Operations | General Insurance
INTERNATIONAL RESULTS
Years Ended December 31, Change
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Underwriting results:
Net premiums written $ 13,148 $ 14,157 $ 13,175 (7) % 7 %
(Increase) decrease in unearned premiums 121 (89) 185 NM NM
Net premiums earned 13,269 14,068 13,360 (6) 5
Losses and loss adjustment expenses incurred 7,311 7,963 8,083 (8)
(1)
Acquisition expenses: Amortization of deferred policy acquisition costs 1,948 2,197 2,173 (11) 1 Other acquisition expenses 845 933 924 (9) 1 Total acquisition expenses 2,793 3,130 3,097 (11) 1 General operating expenses 1,765 1,873 1,903 (6) (2) Underwriting income$ 1,400 $ 1,102 $ 277 27 % 298 % Loss ratio 55.1 56.6 60.5 (1.5) (3.9) Acquisition ratio 21.0 22.2 23.2 (1.2) (1.0) General operating expense ratio 13.3 13.3 14.2 - (0.9) Expense ratio 34.3 35.5 37.4 (1.2) (1.9) Combined ratio 89.4 92.1 97.9 (2.7) (5.8) Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted: Catastrophe losses and reinstatement premiums (3.7) (2.3) (5.3) (1.4)
3.0
Prior year development, net of reinsurance and prior year premiums 2.5 0.1 (0.7) 2.4
0.8
Accident year loss ratio, as adjusted 53.9 54.4 54.5 (0.5)
(0.1)
Accident year combined ratio, as adjusted 88.2 89.9 91.9 (1.7)
(2.0)
Business and Financial Highlights
Net Premiums Written Comparison for 2022 and 2021
Net premiums written, excluding the impact of unfavorable foreign exchange ($1,287 million ), increased by$278 million due to growth in Commercial Lines ($417 million ), notably Specialty, Property and Casualty driven by continued positive rate change and strong new business production.
This increase was partially offset by lower production in
(
offset by growth in Travel and Accident & Health.
Underwriting Income (Loss) Comparison for 2022 and 2021
Underwriting income increased by
•higher net favorable prior year reserve development in 2022 compared to 2021 (2.4 points or$346 million ), primarily as a result of lower unfavorable development in Financial Lines and higher favorable development in Specialty, partially offset by lower favorable development in Accident & Health;
•a lower expense ratio (1.2 points) from a lower acquisition ratio (1.2 points)
primarily driven by changes in business mix, improved commission terms and
reinsurance program changes; and
•improvement in the accident year loss ratio, as adjusted (0.5 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions.
These increases were partially offset by higher catastrophe losses (1.4 points
or
74 AIG | 2022 Form 10-K
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ITEM 7 | Business Segment Operations | Life and Retirement
Life and Retirement
Life and Retirement consists of four operating segments: Individual Retirement, Group
Retirement, Life Insurance and Institutional Markets. We offer a broad portfolio of
products in the U.S. through a multichannel distribution network and life and health
products in the UK and Ireland .
PRODUCTS AND DISTRIBUTION
Variable Annuities: Products
include variable annuities that offer a
combination of growth potential,
death benefit features and income
protection features. Variable
annuities are distributed primarily through
banks, wirehouses, and regional
and independent broker-dealers.
Fixed Index Annuities: Products
include fixed index annuities that provide
growth potential based in part
on the performance of a market index as well
as optional living guaranteed
features that provide lifetime income
protection. Fixed index
annuities are distributed primarily through banks,
broker-dealers, independent
marketing organizations and independent
insurance agents.
[[Image Removed: aig-20221231_g4.gif]] Fixed Annuities: Products include single premium fixed annuities, immediate
annuities and deferred income
annuities. Certain fixed deferred annuity
products offer optional income
protection features. The fixed annuities
product line maintains an
industry-leading position in the
distribution channel by
designing products collaboratively with banks and
offering an efficient and
flexible administration platform.
Retail Mutual Funds: Included
our mutual fund offerings and related
administration and servicing
operations. Retail Mutual Funds were
distributed primarily through
broker-dealers. On
sold certain assets of the AIG
Retail Mutual Funds business or otherwise
liquidated.
Group Retirement: Products and
services consist of record-keeping, plan
administrative and compliance
services, financial planning and advisory
solutions offered to employer
defined contribution plans and their
participants, along with
proprietary and non-proprietary annuities and
advisory and brokerage products
offered outside of plans.
[[Image Removed: aig-20221231_g5.gif]]
Variable Annuity Life Insurance
Company and its subsidiaries, VALIC
Financial Advisors, Inc. and
AIG Retirement Services employee
financial advisors serve individual
clients, including in-plan
enrollment support and education, and
comprehensive financial planning services.
Life Insurance: In the U.S. ,
products primarily include term life and
universal life insurance
distributed through independent marketing
[[Image Removed: aig-20221231_g6.gif]] organizations, independent insurance agents, financial advisors and direct
marketing. International
operations primarily include the distribution of
life and health products in theUK andIreland . Institutional Markets: Products
primarily include stable value wrap
products, structured settlement
and pension risk transfer annuities
(direct and assumed
reinsurance), corporate- and bank-owned life
[[Image Removed: aig-20221231_g7.gif]] insurance, high net worth products and guaranteed investment contracts
(GICs). Institutional Markets
products are primarily distributed through
specialized marketing and
consulting firms and structured settlement
brokers. FHLB Funding Agreements: Funding agreements are issued by ourU.S. Life and Retirement companies to FHLBs in their respective districts at fixed or floating rates over specified periods, which can be prepaid at our discretion. Proceeds are generally invested in fixed income securities and other suitable investments to generate spread income. These investment contracts do not have mortality or morbidity risk and are similar to GICs. AIG | 2022 Form
10-K 75
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ITEM 7 | Business Segment Operations | Life and Retirement
BUSINESS STRATEGY
Deliver client-centric solutions through our unique franchise by bringing
together a broad portfolio of life insurance, retirement and institutional
products offered through an extensive, multichannel distribution network. Life
and Retirement focuses on ease of doing business, offering valuable solutions,
and expanding and deepening its distribution relationships across multiple
channels.
Position market leading businesses to serve growing needs by continually
enhancing product solutions, service delivery and digital capabilities while
using data and analytics in an innovative manner to improve customer experience.
Individual Retirement will continue to Group
Retirement continues to enhance its
capitalize on the opportunity to meet consumer technology
platform to improve the customer
demand for guaranteed income by maintaining experience
for plan sponsors and individual
innovative variable and fixed index annuity
participants.
products, while also managing risk from
self-service tools paired with its employee
guarantee features through risk-mitigating financial
advisors provide a compelling
product design and well-developed economic service
platform. Group Retirement's strategy
hedging capabilities. also
involves providing financial planning
Our fixed annuity products provide diversity services
for its clients and meeting their
in our annuity product suite by offering need for
income in retirement. In this
stable returns for retirement savings. advisory
role, Group Retirement's clients may
invest in assets in which AIG or a
third-party is custodian.
Life Insurance in the U.S. will continue to
Institutional Markets continues to grow its
position itself for growth and changing market assets
under management across multiple
dynamics while continuing to execute product
lines, including stable value wrap,
strategies to enhance returns. Our focus is on GICs and
pension risk transfer annuities. Our
materializing success from a multi-year effort growth
strategy is transactional and allows
of building state-of-the-art platforms and us to
pursue select transactions that meet
underwriting innovations, which are expected our
risk-adjusted return requirements.
to bring process improvements and cost
efficiencies.
In the UK , AIG Life Limited will continue to
focus on growing the business organically and
through potential acquisition opportunities.
Enhance Operational Effectiveness by simplifying processes and operating
environments to increase competitiveness, improve service and product
capabilities and facilitate delivery of our target customer experience. We
continue to invest in technology to improve operating efficiency and ease of
doing business for our distribution partners and customers. We believe that
simplifying our operating models will enhance productivity and support further
profitable growth.
Manage our Balance Sheet through a rigorous approach to our products and
portfolio. We match our product design and high-quality investments with our
asset and liability exposures to support our cash and liquidity needs under
various operating scenarios.
Deliver Value Creation and Manage Capital by striving to deliver solid earnings and returns on capital through disciplined pricing, sustainable underwriting improvements, expense efficiency, and diversification of risk, while optimizing capital allocation and efficiency within insurance entities to enhance return on common equity. COMPETITION AND CHALLENGES Life and Retirement operates in the highly competitive insurance and financial services industry in theU.S. and select international markets, competing against various financial services companies, including banks and other life insurance and mutual fund companies. Competition is primarily based on product pricing and design, distribution, financial strength, customer service and ease of doing business.
Our business remains competitive due to its long-standing market leading
positions, innovative products, distribution relationships across multiple
channels, customer-focused service and strong financial ratings.
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ITEM 7 | Business Segment Operations | Life and Retirement
Our primary challenges include:
•Managing a rising rate environment. While a rising rate environment improves yields on new investment, improves margins on our business, and increases sales in certain products such as fixed annuities, it may also result in increased competition for certain products resulting in a need to increase crediting rates, and has resulted in lower separate account asset values for investments in fixed income which has reduced fee income; •increased competition in our primary markets, including aggressive pricing of annuities by competitors, increased competition and consolidation of employer groups in the group retirement planning market, and competitors with different profitability targets in the pension risk transfer space as well as other product lines;
•increasingly complex new and proposed regulatory requirements, which have
affected industry growth and costs; and
•upgrading our technology and underwriting processes while managing general
operating expenses.
OUTLOOK-INDUSTRY AND ECONOMIC FACTORS
Below is a discussion of the industry and economic factors impacting our
specific operating segments:
The worldwide health and economic impact of COVID-19 continues to evolve,
influenced by the scope, severity and duration of the pandemic, including
resurgences and variants of the virus as well as the distribution and
effectiveness of vaccinations.
On
affiliated with
interests in a
operating segments.
For additional information on the separation of Life and Retirement please, see Note 1 to the Consolidated Financial Statements and Part I, Item 1A. Risk Factors - Business and Operations - "No assurances can be given that the separation of our Life and Retirement business will occur or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake."
Individual Retirement
Increasing life expectancy and reduced expectations for traditional retirement income from defined benefit programs and fixed income securities are leading Americans to seek additional financial security as they approach retirement. The strong demand for fixed index and fixed annuities with guaranteed living benefit features has attracted increased competition in this product space. In response to the low interest rate environment that prevailed over the past several years we have developed guaranteed living benefits for variable, fixed index and fixed annuities with margins that are less sensitive to the level of interest rates.
Changes in the capital markets (interest rate environment, credit spreads,
equity markets, volatility) can have a significant impact on sales, surrender
rates, investment returns, guaranteed income features, and net investment
spreads in the annuity industry.
Group Retirement
Group Retirement competes in the defined contribution market under the AIG Retirement Services brand.AIG Retirement Services is a leading retirement plan provider in theU.S. for K-12 schools and school districts, higher education, healthcare, government and other not-for-profit institutions. The defined contribution market is a highly efficient and competitive market that requires support for both plan sponsors and individual participants. To meet this challenge,AIG Retirement Services is investing in a client- focused technology platform to support improved compliance and self-service functionality.AIG Retirement Services' model pairs self-service tools with its employee financial advisors who provide individual plan participants with enrollment support and comprehensive financial planning services. Changes in the interest rates, credit spreads and equity market environment can have a significant impact on investment returns, fee income, advisory and other income, guaranteed income features, and net investment spreads, and a moderate impact on sales and surrender rates.
Life Insurance
Consumers have a significant need for life insurance, whether it is used for
income replacement for their surviving family, estate planning or wealth
transfer. Additionally, consumers use life insurance to provide living benefits
in case of chronic, critical or terminal illnesses, and to supplement retirement
income.
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ITEM 7 | Business Segment Operations | Life and Retirement
In response to consumer needs and a changing interest rate environment, our Life
Insurance product portfolio will continue to promote products with less
long-duration interest rate risk and mitigate exposure to products that have
long-duration interest rate risk through sales levels and hedging strategies.
As life insurance ownership remains at historical lows in the U.S. and the UK ,
efforts to expand the reach and increase the affordability of life insurance are
critical. The industry is investing in consumer-centric efforts to reduce
traditional barriers to securing life protection by simplifying the sales and
service experience. Digitally enabled processes and tools provide a fast,
friendly and simple path to life insurance protection.
Institutional Markets
Institutional Markets serves a variety of needs for corporate clients. Demand is driven by a number of factors including the macroeconomic and regulatory environment. We expect to see continued growth in the pension risk transfer market (direct and assumed reinsurance) as corporate plan sponsors look to transfer asset or liability, longevity, administrative and operational risks associated with their defined benefit plans.
Changes in interest rates and credit spreads can have a significant impact on
investment returns and net investment spreads, impacting organic growth
opportunities.
For additional information on the impact of market interest rate movement on our Life and Retirement business, see Executive Summary - AIG's Outlook - Industry and Economic Factors - Impact of Changes in the Interest Rate Environment and Equity Markets.
LIFE AND RETIREMENT RESULTS
Years Ended December 31, Percentage Change (in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Adjusted revenues: Premiums$ 5,508 $ 6,029 $ 4,624 (9) % 30 % Policy fees 2,972 3,051 2,874 (3) 6 Net investment income 8,347 9,521 8,881 (12) 7 Advisory fee and other income 827 993 896 (17) 11 Total adjusted revenues 17,654 19,594 17,275 (10) 13 Benefits, losses and expenses: Policyholder benefits and losses incurred 7,659 8,379 6,884 (9) 22 Interest credited to policyholder account balances 3,681 3,565 3,551 3 - Amortization of deferred policy acquisition costs 1,130 973 632 16 54 Non deferrable insurance commissions 640 672 590 (5) 14 Advisory fee expenses 266 322 316 (17) 2 General operating expenses 1,598 1,642 1,616 (3) 2 Interest expense 23 130 155 (82) (16) Total benefits, losses and expenses 14,997 15,683 13,744 (4) 14 Adjusted pre-tax income$ 2,657 $ 3,911 $ 3,531 (32) % 11 % For additional information including the impact of actuarial assumptions on our Life and Retirement results, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Update of Actuarial Assumptions by Business Segment Impact to Adjusted Pre-tax Income (Loss).
Our insurance companies generate significant revenues from investment
activities. As a result, the operating segments in Life and Retirement are
significantly impacted by variances in net investment income on the asset
portfolios that support insurance liabilities and surplus.
For additional information on our investment strategy, asset-liability
management process and invested asset composition, see Investments.
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ITEM 7 | Business Segment Operations | Life and Retirement
INDIVIDUAL RETIREMENT RESULTS
Years Ended December 31, Change (in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Adjusted revenues: Premiums$ 230 $ 191 $ 151 20 % 26 % Policy fees 836 962 861 (13) 12 Net investment income 3,898 4,338 4,131 (10) 5 Advisory fee and other income 451 592 571 (24) 4 Total adjusted revenues 5,415 6,083 5,714 (11) 6 Benefits and expenses: Policyholder benefits and losses incurred 626 536 397 17
35
Interest credited to policyholder account balances 1,877 1,787 1,751 5
2
Amortization of deferred policy acquisition costs 761 736 590 3
25
Non deferrable insurance commissions 351 397 334 (12) 19 Advisory fee expenses 141 189 205 (25) (8) General operating expenses 426 438 427 (3) 3 Interest expense 11 61 72 (82) (15) Total benefits, losses and expenses 4,193 4,144 3,776 1 10 Adjusted pre-tax income$ 1,222 $ 1,939 $ 1,938 (37) % - % Fixed annuities base net investment spread: Base yield* 4.03 % 3.94 % 4.16 % 9 bps (22) bps Cost of funds 2.60 2.58 2.63 2 (5) Fixed annuities base net investment spread 1.43 % 1.36 % 1.53 % 7 bps (17) bps Variable and fixed index annuities base net investment spread: Base yield* 3.89 % 3.83 % 3.94 % 6 bps (11) bps Cost of funds 1.46 1.32 1.31 14 1 Variable and fixed index annuities base net investment spread 2.43 % 2.51 % 2.63 % (8) bps (12) bps
*Includes returns from base portfolio including accretion and income (loss) from
certain other invested assets.
Business and Financial Highlights
Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021
Adjusted pre-tax income decreased
•lower net investment income, net of interest credited ($530 million ) primarily driven by lower alternative investment income ($401 million ), lower yield enhancement income ($285 million ), partially offset by higher base portfolio income, net of interest credited ($156 million ); •higher DAC amortization and policyholder benefits net of premiums, excluding the review and update of actuarial assumptions ($225 million ) primarily due to lower variable annuity separate account returns; and •lower policy and advisory fee income, net of advisory fee expenses ($219 million ), primarily due to a decrease in variable annuity separate account assets driven by negative equity market performance and sale of retail mutual funds to Touchstone. Partially offset by:
•net favorable impact from the review and update of actuarial assumptions
(
•lower interest expense on debt borrowings due to sale of
(
•lower non-deferred commissions (
annuity separate account assets;
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ITEM 7 | Business Segment Operations | Life and Retirement
INDIVIDUAL RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND
FLOWS
Premiums and deposits is a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits received on investment-type annuity contracts and mutual funds under administration.
Net flows for annuity products in Individual Retirement represent premiums and
deposits less death, surrender and other withdrawal benefits. Net flows for
mutual funds represent deposits less withdrawals.
The following table presents a reconciliation of Individual Retirement GAAP
premiums to premiums and deposits:
Years EndedDecember 31 , (in millions) 2022 2021 2020 Premiums$ 230 $ 191 $ 151 Deposits 14,900 13,732 10,228 Other (10) (7) (9) Premiums and deposits$ 15,120 $ 13,916 $ 10,370 The following table presents Individual Retirement premiums and deposits and net flows by product line: Years Ended December 31, Premiums and Deposits Net Flows (in millions) 2022 2021 2020 2022 2021 2020 Fixed Annuities$ 5,695 $ 3,011 $ 2,535 $ (441) $ (2,396) $ (2,504) Variable Annuities 3,109 5,025 3,003 (1,671) (864)
(1,554)
Fixed Index Annuities 6,316 5,621 4,096 4,522 4,072 2,991 Retail Mutual Funds - 259 736 - (1,402) (3,661) Total$ 15,120 $ 13,916 $ 10,370 $ 2,410 $ (590) $ (4,728)
Premiums and Deposits and Net Flow Comparison for 2022 and 2021
Fixed Annuities Net outflows decreased (
primarily due to higher premiums and deposits (
pricing and higher interest rates and lower death benefits (
partially offset by higher surrenders and withdrawals (
Variable Annuities Net outflows increased ($807 million ) primarily due to lower premiums and deposits ($1.9 billion ), due to market volatility; partially offset by lower surrenders and withdrawals ($993 million ) and lower death benefits ($116 million ).
Fixed Index Annuities Net inflows increased (
higher premiums and deposits (
higher interest rates; partially offset by higher surrenders and withdrawals
(
Retail Mutual Funds There were no flows in 2022 due to the Touchstone sale in the second quarter of 2021. For additional information regarding the sale of certain assets of theAIG Life and Retirement Retail Mutual Funds business, see Note 1 to the Consolidated Financial Statements.
The following table presents surrenders as a percentage of average reserves:
Years Ended December 31, 2022 2021 2020 Surrenders as a percentage of average reserves Fixed annuities 9.2 % 7.2 % 5.9 % Variable annuities 6.6 7.3 6.2 Fixed index annuities 4.7 4.6 4.0 80 AIG | 2022 Form 10-K
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ITEM 7 | Business Segment Operations | Life and Retirement
The following table presents reserves for fixed annuities and variable and fixed
index annuities by surrender charge category:
At December 31, 2022 2021
Fixed Fixed Index Variable Fixed Fixed Index Variable
(in millions) Annuities Annuities Annuities Annuities Annuities Annuities
No surrender charge$ 24,937 $ 2,274 $ 28,315 $ 26,419 $ 2,009 $ 34,030 Greater than 0% - 2% 1,786 1,355 7,272 2,091 1,681 10,926 Greater than 2% - 4% 2,260 4,539 5,268 2,424 4,195 9,884 Greater than 4% 18,941 25,238 12,623 16,443 22,489 13,219 Non-surrenderable 2,454 - - 2,373 - - Total reserves$ 50,378 $ 33,406 $ 53,478 $ 49,750 $ 30,374 $ 68,059 Individual Retirement annuities are typically subject to a three- to seven-year surrender charge period, depending on the product. For fixed annuities, the proportion of reserves subject to surrender charge atDecember 31, 2022 increased compared toDecember 31, 2021 primarily due to growth in business. For fixed index annuities, the proportion was slightly lower due to the aging of the business. The increase in the proportion of reserves with no surrender charge for variable annuities as ofDecember 31, 2022 compared toDecember 31, 2021 was principally due to normal aging of business. GROUP RETIREMENT RESULTS Years Ended December 31, Change (in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Adjusted revenues: Premiums$ 19 $ 22 $ 19 (14) % 16 % Policy fees 451 522 443 (14) 18 Net investment income 2,005 2,410 2,236 (17) 8 Advisory fee and other income 305 337 272 (9) 24 Total adjusted revenues 2,780 3,291 2,970 (16) 11 Benefits and expenses: Policyholder benefits and losses incurred 97 74 72 31
3
Interest credited to policyholder account balances 1,142 1,150 1,123 (1) 2 Amortization of deferred policy acquisition costs 96 61 7 57 NM Non deferrable insurance commissions 123 111 117 11 (5) Advisory fee expenses 124 133 111 (7) 20 General operating expenses 443 443 485 - (9) Interest expense 6 35 42 (83) (17) Total benefits, losses and expenses 2,031 2,007 1,957 1 3 Adjusted pre-tax income$ 749 $ 1,284 $ 1,013 (42) % 27 % Base net investment spread: Base yield* 4.04 % 4.11 % 4.26 % (7) bps (15) bps Cost of funds 2.59 2.61 2.65 (2) (4) Base net investment spread 1.45 % 1.50 % 1.61 % (5) bps (11) bps
*Includes returns from base portfolio including accretion and income (loss) from
certain other invested assets.
Business and Financial Highlights
Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021
Adjusted pre-tax income decreased
•lower net investment income, net of interest credited (
driven by lower alternative investment income (
enhancement income (
interest credited (
•lower policy and advisory fee income, net of advisory fee expenses of
(
lower equity market performance; and
•higher DAC and sales inducement amortization and higher policyholder benefits,
net of premiums mostly due to lower equity market performance (
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ITEM 7 | Business Segment Operations | Life and Retirement
These decreases were partially offset by lower interest expense on debt
borrowings due to sale of
GROUP RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND
Premiums and deposits are a non-GAAP financial measure that includes, in
addition to direct and assumed premiums, deposits received on investment-type
annuity contracts, FHLB funding agreements and mutual funds under
administration.
Net flows for annuity products included in Group Retirement represent premiums and deposits less death, surrender and other withdrawal benefits. Net flows for mutual funds represent deposits less withdrawals. Client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts, are not included in net flows, but do contribute to growth in assets under administration and advisory fee income.
The following table presents a reconciliation of Group Retirement GAAP premiums
to premiums and deposits and net flows:
Years EndedDecember 31 , (in millions) 2022 2021 2020 Premiums$ 19 $ 22 $ 19 Deposits 7,923 7,744 7,477 Premiums and deposits(a)$ 7,942 $ 7,766 $ 7,496 Net Flows$ (3,111) $ (3,208) $ (1,940)
(a)Excludes client deposits into advisory and brokerage accounts of
2022
Premiums and Deposits and Net Flow Comparison for 2022 and 2021
Net outflows decreased ($97 million ) primarily due to higher premiums and deposits ($176 million ), partially offset by higher death and payout annuity benefits of ($30 million ), and higher surrenders and withdrawals of ($49 million ). In general, net outflows are concentrated in fixed annuity products with higher contractual guaranteed minimum crediting rates. Large plan acquisitions and surrenders resulted in higher net flows of ($121 million ) compared to the prior year.
The following table presents Group Retirement surrenders as a percentage of
average reserves and mutual funds under administration:
Years Ended December 31, 2022 2021 2020 Surrenders as a percentage of average reserves and mutual funds
9.5 % 8.8 % 8.6 %
The following table presents reserves for Group Retirement annuities by surrender charge category: AtDecember 31 , (in millions) 2022(a) 2021(a) No surrender charge(b)$ 70,111 $ 81,132 Greater than 0% - 2% 456 716 Greater than 2% - 4% 436 857 Greater than 4% 6,316 6,197 Non-surrenderable 739 810 Total reserves$ 78,058 $ 89,712
(a)Excludes mutual fund assets under administration of
(b)Group Retirement amounts in this category include general account reserves of approximately$4.5 billion and$4.7 billion atDecember 31, 2022 and 2021, respectively, which are subject to 20 percent annual withdrawal limitations at the participant level and general account reserves of$5.8 billion and$5.7 billion atDecember 31, 2022 and 2021, respectively, which are subject to 20 percent annual withdrawal limitations at the plan level. Group Retirement annuity deposits are typically subject to a five- to seven-year surrender charge period, depending on the product. AtDecember 31, 2022 , Group Retirement annuity reserves with no surrender charge decreased compared toDecember 31, 2021 primarily due to decline in assets under management from lower equity markets. 82 AIG | 2022 Form 10-K
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ITEM 7 | Business Segment Operations | Life and Retirement
LIFE INSURANCE RESULTS
Years Ended December 31, Percentage Change
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Adjusted revenues:
Premiums $ 2,346 $ 2,051 $ 1,915 14 % 7 %
Policy fees 1,491 1,380 1,384 8 -
Net investment income 1,393 1,619 1,526 (14) 6
Other income 69 62 52 11 19
Total adjusted revenues 5,299 5,112 4,877 4 5
Benefits and expenses:
Policyholder benefits and losses
incurred 3,555 3,636 3,569 (2) 2
Interest credited to policyholder
account balances 342 354 373 (3)
(5)
Amortization of deferred policy acquisition costs 267 170 30 57
467
Non deferrable insurance commissions 137 137 108 - 27 Advisory fee expenses 1 - - NM NM General operating expenses 656
684 625 (4) 9 Interest expense 4 25 30 (84) (17) Total benefits, losses and expenses 4,962 5,006 4,735 (1) 6 Adjusted pre-tax income$ 337 $ 106 $ 142 218 % (25) %
Business and Financial Highlights
Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021
Adjusted pre-tax income increased
•higher premiums and policy fees, net of policyholder benefits, excluding
actuarial assumptions update (
mortality; and
•lower general operating expenses (
Partially offsetting this increase was:
•lower net investment income, net of interest credited ($214 million ), primarily driven by lower alternative investment and yield enhancement income ($262 million ) primarily due to lower equity partnership performance and reduced gains on calls, and higher base portfolio income, net of interest credited ($48 million ); and
•lower net favorable impact from the review and update of actuarial assumptions
(
LIFE INSURANCE GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Life Insurance represent amounts received on traditional life insurance policies, primarily term life and international life and health. Premiums, excluding the effect of foreign exchange, increased$391 million in 2022 compared to 2021. Premiums and deposits for Life Insurance is a non-GAAP financial measure that includes direct and assumed premiums as well as deposits received on universal life insurance.
Premiums and deposits, excluding the effect of foreign exchange, increased
life premiums.
The following table presents a reconciliation of Life Insurance GAAP premiums to premiums and deposits: Years EndedDecember 31 , (in millions) 2022 2021 2020 Premiums$ 2,346 $ 2,051 $ 1,915 Deposits 1,600 1,635 1,648 Other* 725 964 850 Premiums and deposits$ 4,671 $ 4,650 $ 4,413 *Other principally consists of adding back ceded premiums to reflect the gross premiums and deposits. AIG | 2022 Form 10-K 83
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ITEM 7 | Business Segment Operations | Life and Retirement
INSTITUTIONAL MARKETS RESULTS
Years Ended December 31, Percentage Change (in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Adjusted revenues: Premiums$ 2,913 $ 3,765 $ 2,539 (23) % 48 % Policy fees 194 187 186 4 1 Net investment income 1,051 1,154 988 (9) 17 Other income 2 2 1 - 100 Total adjusted revenues 4,160 5,108 3,714 (19) 38 Benefits and expenses: Policyholder benefits and losses incurred 3,381 4,133 2,846 (18)
45
Interest credited to policyholder account balances 320 274 304 17
(10)
Amortization of deferred policy acquisition costs 6 6 5 -
20
Non deferrable insurance commissions 29 27 31 7 (13) General operating expenses 73 77 79 (5) (3) Interest expense 2 9 11 (78) (18) Total benefits, losses and expenses 3,811 4,526 3,276 (16) 38 Adjusted pre-tax income$ 349 $ 582 $ 438 (40) % 33 %
Business and Financial Highlights
Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021
Adjusted pre-tax income decreased
•lower net investment income (
alternative investment income (
(
•lower premiums primarily on new pension risk transfer business (
and
•higher interest credited on policyholder account balances, primarily related to
the GIC business (
Partially offsetting these decreases was a reduction in policyholder benefits and losses incurred (including interest accretion) primarily on new pension risk transfer business ($752 million ).
INSTITUTIONAL MARKETS GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Institutional Markets primarily represent amounts received on
pension risk transfer or structured settlement annuities with life
contingencies. Premiums decreased
primarily driven by the transactional nature of the pension risk transfer
business (direct and assumed reinsurance).
Premiums and deposits for Institutional Markets is a non-GAAP financial measure that includes direct and assumed premiums as well as deposits received on investment-type annuity contracts. Deposits primarily include GICs, FHLB funding agreements and structured settlement annuities with no life contingencies. Premiums and deposits decreased$623 million in 2022 compared to 2021 primarily due to lower premiums on pension risk transfer business, partially offset by deposits of structured settlement annuities.
The following table presents a reconciliation of Institutional Markets GAAP
premiums to premiums and deposits:
Years EndedDecember 31 , (in millions) 2022 2021 2020 Premiums$ 2,913 $ 3,765 $ 2,539 Deposits 1,382 1,158 2,281 Other* 30 25 26 Premiums and deposits$ 4,325 $ 4,948 $ 4,846 *Other principally consists of adding back ceded premiums to reflect the gross premiums and deposits. 84 AIG | 2022 Form 10-K
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ITEM 7 | Business Segment Operations | Other Operations
Other Operations
Other Operations primarily consists of income from assets held by AIG Parent and
other corporate subsidiaries, deferred tax assets related to tax attributes,
corporate expenses and intercompany eliminations, our institutional asset
management business and results of our consolidated investment entities, General
Insurance portfolios in run-off as well as the historical results of our legacy
insurance lines ceded to Fortitude Re.
OTHER OPERATIONS RESULTS
Years Ended December 31, Percentage Change
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Adjusted revenues:
Premiums $ 85 $ 186 $ 233 (54) % (20) %
Policy fees - - 43 NM NM
Net investment income:
Interest and dividends 353 169 905 109 (81)
Alternative investments 516 919 82 (44) NM
Other investment income (loss) (129) 65 147 NM (56)
Investment expenses (26) (41) (47) 37 13
Total net investment income 714 1,112 1,087 (36) 2
Other income 28 40 22 (30) 82
Total adjusted revenues 827 1,338 1,385 (38) (3)
Benefits, losses and expenses:
Policyholder benefits and losses incurred 30 250 816 (88)
(69)
Interest credited to policyholder account balances - 1 89 NM
(99)
Acquisition expenses: Amortization of deferred policy acquisition costs 5 37 50 (86) (26) Other acquisition expenses (1) (1) 1 - NM Total acquisition expenses 4 36 51 (89) (29) General operating expenses: Corporate and Other 1,119 1,137 1,004 (2) 13 Asset Management 45 72 42 (38) 71 Amortization of intangible assets 40 40 40 -
-
Total General operating expenses 1,204 1,249 1,086 (4) 15 Interest expense: Corporate and Other 908 1,032 1,148 (12) (10) Asset Management* 223 188 158 19 19 Total interest expense 1,131 1,220 1,306 (7) (7) Total benefits, losses and expenses 2,369 2,756 3,348 (14)
(18)
Adjusted pre-tax loss before consolidation and eliminations (1,542) (1,418) (1,963) (9) 28 Consolidation and eliminations (405) (932) (466) 57 (100) Adjusted pre-tax loss $ (1,947) $ (2,350) $ (2,429) 17 % 3 % Adjusted pre-tax income (loss) by activities: Corporate and Other $ (2,053) $ (2,329) $ (2,041) 12 % (14) % Asset Management 511 911 78 (44) NM Consolidation and eliminations (405) (932) (466) 57 (100) Adjusted pre-tax loss $ (1,947) $ (2,350) $ (2,429) 17 % 3 %
*Interest - Asset Management primarily represents interest expense on
consolidated investment entities of $217 million, $182 million and $148 million
in 2022, 2021 and 2020, respectively.
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ITEM 7 | Business Segment Operations | Other Operations
2022 AND 2021 COMPARISON
Adjusted pre-tax loss before consolidation and eliminations of $1.5 billion in 2022 compared to $1.4 billion in 2021, decrease of $124 million was primarily due to: •lower net investment income associated with consolidated investment entities of $382 million partially offset by higher income on AIG Parent portfolio of $94 million due to higher yields and $56 million mark to market gain on the 2.46 percent equity interest in Fortitude Group Holdings, LLC; •lower underwriting loss attributable to lower catastrophe losses of $38 million and absence of unfavorable prior year development ($86 million in 2021) within Other Operations Run-Off, primarilyBlackboard U.S. Holdings, Inc. (Blackboard); •lower corporate interest expense primarily driven by interest savings of $225 million from $9.4 billion debt repurchases, through cash tender offers, and debt redemption in 2022 as well as $92 million from $3.6 billion of debt redemptions and debt repurchases, through cash tender offers in 2021, partially offset by interest expense of $240 million on $6.5 billion Corebridge senior unsecured notes, $1.5 billion draw down on Corebridge DDTL facility and $1.0 billion junior subordinated debt issued by Corebridge in 2022; and
•lower corporate and other general operating expenses of $45 million primarily
driven by decreases in employment costs of $254 million partially offset by
higher professional fees of $209 million.
Adjusted pre-tax loss on consolidation and eliminations of $405 million in 2022 compared to $932 million in 2021, a decrease of $527 million, was primarily due to the elimination of the insurance companies' net investment income from their investment in the consolidated investment entities of $520 million.
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ITEM 7 | Investments
Investments
OVERVIEW
Our investment strategies are tailored to the specific business needs of each
operating unit by targeting an asset allocation mix that supports estimated cash
flows of our outstanding liabilities and provides diversification from an asset
class, sector, issuer, and geographic perspective. The primary objectives are
generation of investment income, preservation of capital, liquidity management
and growth of surplus. The majority of assets backing our insurance liabilities
consist of fixed maturity securities.
Over the past several quarters inflation has continued to remain elevated, which
has led to the increases in interest rates by the Board of Governors of the
Federal Reserve System in several years. This has also led to a significant rise
in interest rates across the yield curve and a widening of credit spreads
reflecting ongoing recession concerns.
INVESTMENT HIGHLIGHTS IN 2022
•A significant rise in interest rates and widening of credit spreads resulted in net unrealized losses in our available for sale fixed security portfolio of $47.7 billion during 2022. Our Net unrealized gain of $18.1 billion as of December 31, 2021 decreased to a net unrealized loss of $29.7 billion on our available for sale portfolio as of December 31, 2022. •We continued to make investments in structured securities and other fixed maturity securities with favorable risk compared to return characteristics to improve yields and increase net investment income. •We experienced a decrease in net investment income in 2022 compared to the prior year due primarily to lower returns in our private equity and hedge funds compared to gains in the prior year, and lower income in our available for sale fixed security portfolio primarily driven by lower call and prepayment income, which was partially offset by higher income in base portfolio. •Blended investment yields on new investments are higher than blended rates on investments that were sold, matured or called.
INVESTMENT STRATEGIES
Investment strategies are assessed at the segment level and involve considerations that include local and general market and economic conditions, duration and cash flow management, risk appetite and volatility constraints, rating agency and regulatory capital considerations, tax, regulatory and legal investment limitations, and, as applicable, environmental, social and governance considerations.
Some of our key investment strategies are as follows:
•Our fundamental strategy across the portfolios is to seek investments with similar characteristics to the associated insurance liabilities to the extent practicable. •We seek to purchase investments that offer enhanced yield through illiquidity premiums, such as private placements and commercial mortgage loans, which also add portfolio diversification. These assets typically afford credit protections through covenants, ability to customize structures that meet our insurance liability needs, and deeper due diligence given information access. •Given our global presence, we seek investments that provide diversification from local markets. To the extent we purchase these investments, we generally hedge any currency risk using derivatives, which could provide opportunities to earn higher risk adjusted returns compared to investments in the functional currency. •AIG Parent, included in Other Operations, actively manages its assets and liabilities, counterparties and duration. AIG Parent's liquidity sources are held primarily in the form of cash and short-term investments. This strategy allows us to both diversify our sources of liquidity and reduce the cost of maintaining sufficient liquidity.
•Within the
generally split between reserve backing and surplus portfolios.
-Insurance reserves are backed mainly by investment grade fixed maturity
securities that meet our duration, risk-return, tax, liquidity, credit quality
and diversification objectives. We assess asset classes based on their
fundamental underlying risk factors, including credit (public and private),
commercial real estate and residential real estate, regardless of whether such
investments are bonds, loans, or structured products.
-Surplus investments seek to enhance portfolio returns and are generally
comprised of a mix of fixed maturity investment grade and below investment grade
securities and various alternative asset classes, including private equity, real
estate equity, and hedge funds. Over the past few years, hedge fund investments
have been reduced with more emphasis given to private equity, real estate and
below investment grade credit.
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ITEM 7 | Investments
•Outside of the U.S. , fixed maturity securities held by our insurance companies
consist primarily of investment-grade securities generally denominated in the
currencies of the countries in which we operate.
•We also utilize derivatives to manage our asset and liability duration as well
as currency exposures.
Asset-Liability Management The investment strategy within the General Insurance companies focuses on growth of surplus, maintenance of sufficient liquidity for unanticipated insurance claims, and preservation of capital. General Insurance invests primarily in fixed maturity securities issued by corporations, municipalities and other governmental agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and commercial mortgage loans. Fixed maturity securities of the General Insurance companies'North America operations have an average duration of 4.0 years. Fixed maturity securities of the General Insurance companies' International operations have an average duration of 3.2 years. While invested assets backing reserves of the General Insurance companies are primarily invested in conventional liquid fixed maturity securities, we have continued to allocate to asset classes that offer higher yields through structural and illiquidity premiums, particularly in ourNorth America operations. In addition, we continue to invest in both fixed rate and floating rate asset-backed investments to manage our exposure to potential changes in interest rates and inflation. We seek to diversify the portfolio across asset classes, sectors and issuers to mitigate idiosyncratic portfolio risks. In addition, a portion of the surplus of General Insurance is invested in a diversified portfolio of alternative investments that seek to balance liquidity, volatility and growth of surplus. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved yields in excess of the fixed maturity portfolio yields and have provided added diversification to the broader portfolio. The investment strategy of the Life and Retirement companies is to provide net investment income to back liabilities that result in stable distributable earnings and enhance portfolio value, subject to asset-liability management, capital, liquidity and regulatory constraints. The Life and Retirement companies use asset-liability management as a primary tool to monitor and manage risk in their businesses. The Life and Retirement companies maintain a diversified, high-to-medium quality portfolio of fixed maturity securities issued by corporations, municipalities and other governmental agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and commercial mortgage loans that, to the extent practicable, match the duration characteristics of the liabilities. We seek to diversify the portfolio across asset classes, sectors, and issuers to mitigate idiosyncratic portfolio risks. The investment portfolio of each product line is tailored to the specific characteristics of its insurance liabilities, and as a result, duration varies between distinct portfolios. The interest rate environment has a direct impact on the asset-liability management profile of the businesses, and changes in the interest rate environment may result in the need to lengthen or shorten the duration of the portfolio. In a rising rate environment, we may shorten the duration of the investment portfolio.
Fixed maturity securities of the Life and Retirement companies' domestic
operations have an average duration of 7.2 years.
In addition, the Life and Retirement companies seek to enhance surplus portfolio returns through investments in a diversified portfolio of alternative investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved returns in excess of the fixed maturity portfolio returns.
Maturity Securities
The Securities Valuation Office (SVO) of the NAIC evaluates the investments ofU.S. insurers for statutory reporting purposes and assigns fixed maturity securities to one of six categories called NAIC Designations. In general, NAIC Designations of '1' highest quality, or '2' high quality, include fixed maturity securities considered investment grade, while NAIC Designations of '3' through '6' generally include fixed maturity securities referred to as below investment grade. NAIC Designations for non-agency residential mortgage backed securities (RMBS) and commercial mortgage backed securities (CMBS) are calculated using third party modeling results provided through the NAIC. These methodologies result in an improved NAIC Designation for such securities compared to the rating typically assigned by the three major rating agencies. The following tables summarize the ratings distribution of AIG subsidiaries' fixed maturity security portfolio by NAIC Designation, and the distribution by composite AIG credit rating, which is generally based on ratings of the three major rating agencies. For fixed maturity securities where no NAIC Designation is assigned or able to be calculated using third-party data, the NAIC Designation category used in the first table below reflects an internal rating. The NAIC Designations presented below do not reflect the added granularity to the designation categories adopted by the NAIC in 2020, which further subdivide each category of fixed maturity securities by appending letter modifiers to the numerical designations.
For a full description of the composite AIG credit ratings, see - Credit Ratings
below.
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The following table presents the fixed maturity security portfolio categorized
by NAIC Designation, at fair value:
December 31, 2022
(in millions)
Total
Total Below
Investment Investment
NAIC Designation 1 2 Grade 3 4 5 6 Grade Total
Other fixed maturity securities $ 88,366 $ 67,549 $ 155,915 $ 7,494 $ 7,952 $ 855 $ 374 $ 16,675 $ 172,590
Mortgage-backed, asset-backed and 50,682 6,828 57,510 360 91 30 39 520 58,030
collateralized
Total* $ 139,048 $ 74,377 $ 213,425 $ 7,854 $ 8,043 $ 885 $ 413 $ 17,195 $ 230,620
*Excludes $21 million of fixed maturity securities for which no NAIC Designation
is available.
The following table presents the fixed maturity security portfolio categorized
by composite AIG credit rating, at fair value:
December 31, 2022
(in millions)
Total
Total Below
Investment Investment
Composite AIG Credit Rating AAA /AA/A BBB Grade BB B CCC and Lower Grade Total
Other fixed maturity securities $ 91,247 $ 64,215 $ 155,462 $ 7,669 $ 8,155 $ 1,304 $ 17,128 $ 172,590
Mortgage-backed, asset-backed and 44,823 7,435 52,258 537 428 4,807 5,772 58,030
collateralized
Total* $ 136,070 $ 71,650 $ 207,720 $ 8,206 $ 8,583 $ 6,111 $ 22,900 $ 230,620
*Excludes $21 million of fixed maturity securities for which no NAIC Designation
is available.
CREDIT RATINGS At December 31, 2022, approximately 88 percent of our fixed maturity securities were held by our domestic entities. Approximately 89 percent of these securities were rated investment grade by one or more of the principal rating agencies. Moody's Investors Service Inc. (Moody's),Standard & Poor's Financial Services LLC , a subsidiary of S&P Global Inc. (S&P), or similar foreign rating services rate a significant portion of our foreign entities' fixed maturity securities portfolio. Rating services are not available for some foreign-issued securities. Our Credit Risk Management department closely reviews the credit quality of the foreign portfolio's non-rated fixed maturity securities. At December 31, 2022, approximately 94 percent of such investments were either rated investment grade or, on the basis of our internal analysis, were equivalent from a credit standpoint to securities rated investment grade. Approximately 27 percent of the foreign entities' fixed maturity securities portfolio is comprised of sovereign fixed maturity securities supporting policy liabilities in the country of issuance.
Composite AIG Credit Ratings
With respect to our fixed maturity securities, the credit ratings in the table below and in subsequent tables reflect: (i) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the NAIC Designation assigned by the NAIC SVO (99 percent of total fixed maturity securities), or (ii) our internal ratings when these investments have not been rated by any of the major rating agencies or the NAIC. The "Non-rated" category in those tables consists of fixed maturity securities that have not been rated by any of the major rating agencies, the NAIC or us.
For information regarding credit risks associated with Investments, see
Enterprise Risk Management - Credit Risk Management.
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ITEM 7 | Investments
The following table presents the composite AIG credit ratings of our fixed
maturity securities calculated on the basis of their fair value:
Available for Sale Other Total
December 31, December 31, December 31, December 31, December 31, December 31,
(in millions) 2022 2021 2022 2021 2022 2021
Rating:
Other fixed maturity securities
AAA $ 13,477 $ 15,578 $ 36 $ 1,756 $ 13,513 $ 17,334
AA 31,061 39,110 810 282 31,871 39,392
A 45,618 57,346 244 160 45,862 57,506
BBB 63,173 83,192 1,043 461 64,216 83,653
Below investment grade 16,538 17,795 432 314 16,970 18,109
Non-rated 175 1,638 4 - 179 1,638
Total $ 170,042 $ 214,659 $ 2,569 $ 2,973 $ 172,611 $ 217,632
Mortgage-backed, asset-backed
and collateralized
AAA $ 20,729 $ 27,144 $ 253 $ 232 $ 20,982 $ 27,376
AA 15,706 15,688 659 485 16,365 16,173
A 7,186 6,685 289 197 7,475 6,882
BBB 6,857 5,492 578 725 7,435 6,217
Below investment grade 5,509 7,508 125 1,462 5,634 8,970
Non-rated 127 26 12 204 139 230
Total $ 56,114 $ 62,543 $ 1,916 $ 3,305 $ 58,030 $ 65,848
Total
AAA $ 34,206 $ 42,722 $ 289 $ 1,988 $ 34,495 $ 44,710
AA 46,767 54,798 1,469 767 48,236 55,565
A 52,804 64,031 533 357 53,337 64,388
BBB 70,030 88,684 1,621 1,186 71,651 89,870
Below investment grade 22,047 25,303 557 1,776 22,604 27,079
Non-rated 302 1,664 16 204 318 1,868
Total $ 226,156 $ 277,202 $ 4,485 $ 6,278 $ 230,641 $ 283,480
Available-for-Sale Investments
The following table presents the fair value of our available-for-sale securities: (in millions) December 31, 2022 December 31, 2021 Bonds available for sale: U.S. government and government sponsored entities $ 6,619 $ 8,194 Obligations of states, municipalities and political 12,099 14,527 subdivisions Non-U.S. governments 13,485 16,330 Corporate debt 137,839 175,608 Mortgage-backed, asset-backed and collateralized: RMBS 18,817 27,287 CMBS 14,193 15,809 CLO/ABS 23,104 19,447 Total mortgage-backed, asset-backed and collateralized 56,114 62,543 Total bonds available for sale* $ 226,156 $ 277,202 *At December 31, 2022 and 2021, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled $22.3 billion and $27.0 billion, respectively. 90 AIG | 2022 Form 10-K
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ITEM 7 | Investments
The following table presents the fair value of our aggregate credit exposures to
non-
(in millions) December 31, 2022 December 31, 2021 Canada $ 1,312 $ 1,233 Germany 856 702 Japan 812 1,230 France 636 731 Indonesia 514 634 United Kingdom 446 1,031 Australia 441 275 Chile 401 511 United Arab Emirates 380 484 Mexico 379 481 Other 7,374 9,094 Total $ 13,551 $ 16,406
The following table presents the fair value of our aggregate European credit
exposures by major sector for our fixed maturity securities:
December 31, 2022
Financial Non-Financial Structured December 31, 2021
(in millions) Sovereign Institution Corporates Products Total Total
Euro-Zone countries:
Germany $ 856 $ 223 $ 2,343 $ - $ 3,422 $ 3,610
France 636 1,276 1,007 - 2,919 3,870
Netherlands 193 833 999 35 2,060 2,652
Belgium 56 262 898 40 1,256 1,620
Ireland 9 12 357 789 1,167 1,958
Luxembourg 17 696 312 - 1,025 880
Spain 5 288 391 - 684 888
Italy 17 73 401 - 491 636
Denmark 175 69 130 - 374 518
Finland 31 30 36 - 97 150
Other Euro-Zone 253 - 23 - 276 379
Total Euro-Zone $ 2,248 $ 3,762 $ 6,897 $ 864 $ 13,771 $ 17,161
Remainder of Europe :
United Kingdom $ 446 $ 3,661 $ 7,607 $ 778 $ 12,492 $ 16,908
Switzerland 29 708 712 - 1,449 1,884
Norway 276 112 219 - 607 797
Sweden 181 150 102 - 433 537
Jersey (Channel Islands) 3 149 35 123 310 225
Russian Federation 2 1 31 - 34 359
Other - Remainder of Europe 55 27 78 - 160 261
Total - Remainder of Europe $ 992 $ 4,808 $ 8,784 $ 901 $ 15,485 $ 20,971
Total $ 3,240 $ 8,570 $ 15,681 $ 1,765 $ 29,256 $ 38,132
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Investments in Municipal Bonds
At December 31, 2022, theU.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality tax-exempt bonds with 97 percent of the portfolio rated A or higher.
The following table presents the fair values of our available for sale
municipal bond portfolio by state and municipal bond type:
December 31, 2022
State Local Total
General General Fair December 31, 2021
(in millions) Obligation Obligation Revenue Value Total Fair Value
California $ 528 $ 469 $ 1,602 $ 2,599 $ 3,108
New York 50 204 1,953 2,207 2,765
Texas 32 442 694 1,168 1,416
Illinois 76 66 690 832 1,009
Massachusetts 245 20 332 597 666
Pennsylvania 62 2 327 391 397
Georgia 91 58 205 354 474
Florida 5 - 332 337 403
Ohio 8 - 326 334 488
New Jersey 13 2 293 308 282
Washington 104 6 169 279 359
Virginia 9 - 268 277 380
Washington, D.C. 10 - 207 217 293
All other states(a) 358 173 1,668 2,199 2,487
Total(b)(c) $ 1,591 $ 1,442 $ 9,066 $ 12,099 $ 14,527
(a)We did not have material credit exposure to the government of
(b)Excludes certain university and not-for-profit entities that issue their
bonds in the corporate debt market. Includes industrial revenue bonds.
(c)Includes $327 million of pre-refunded municipal bonds.
Investments in Corporate Debt Securities
The following table presents the fair value of our available for sale corporate
debt securities by industry categories:
Industry Category (in millions) December 31, 2022 December 31, 2021 Financial institutions: Money center/Global bank groups $ 8,234 $ 10,053 Regional banks - other 418 434 Life insurance 2,207 3,094 Securities firms and other finance companies 354 350 Insurance non-life 5,067 6,795 Regional banks - North America 5,832 7,228 Other financial institutions 16,491 18,255 Utilities 18,863 24,180 Communications 8,676 11,510 Consumer noncyclical 17,973 24,411 Capital goods 6,745 8,668 Energy 10,357 13,506 Consumer cyclical 10,963 13,279 Basic 4,715 6,041 Other 20,944 27,804 Total* $ 137,839 $ 175,608
*At December 31, 2022 and 2021, approximately 89 percent and 90 percent,
respectively, of these investments were rated investment grade.
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ITEM 7 | Investments
Our investments in the energy category, as a percentage of total investments in
available-for-sale fixed maturities, was 4.6 percent and 4.9 percent, at
December 31, 2022 and 2021, respectively. While the energy investments are
primarily investment grade and are actively managed, the category continues to
experience volatility that could adversely affect credit quality and fair value.
Investments in RMBS
The following table presents the fair value of AIG's RMBS available for sale securities: (in millions) December 31, 2022 December 31, 2021 Agency RMBS $ 8,126 $ 13,778 Alt-A RMBS 4,400 5,936 Subprime RMBS 1,819 2,329 Prime non-agency 2,064 3,058 Other housing related 2,408 2,186 Total RMBS(a)(b) $ 18,817 $ 27,287 (a)Includes approximately $4.4 billion and $6.1 billion at December 31, 2022 and 2021, respectively, of certain RMBS that had experienced deterioration in credit quality since their origination. For additional information on Purchased Credit Deteriorated Securities, see Note 5 to the Consolidated Financial Statements.
(b)The weighted average expected life was seven years at December 31, 2022 and
five years at December 31, 2021.
Our underwriting practices for investing in RMBS, other asset-backed securities (ABS) and CLOs take into consideration the quality of the originator, the manager, the servicer, security credit ratings, underlying characteristics of the mortgages, borrower characteristics, and the level of credit enhancement in the transaction. Investments in CMBS The following table presents the fair value of our CMBS available for sale securities: (in millions) December 31, 2022 December 31, 2021 CMBS (traditional) $ 12,401 $ 13,091 Agency 1,219 1,627 Other 573 1,091 Total $ 14,193 $ 15,809 The fair value of CMBS holdings remained stable during 2022. The majority of our investments in CMBS are in tranches that contain substantial protection features through collateral subordination. The majority of CMBS holdings are traditional conduit transactions, broadly diversified across property types and geographical areas. Investments in ABS/CLOs
The following table presents the fair value of our ABS/CLOs available for sale
securities by collateral type:
(in millions) December 31, 2022 December 31, 2021
Collateral Type:
ABS $ 12,168 $ 10,532
Bank loans 10,818 8,899
Other 118 16
Total $ 23,104 $ 19,447
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ITEM 7 | Investments
Unrealized Losses of Fixed Maturity Securities
The following table shows the aging of the unrealized losses of fixed maturity
securities, the extent to which the fair value is less than amortized cost or
cost, and the number of respective items in each category:
December 31, 2022 Less Than or Equal Greater Than 20% Greater Than 50%
to 20% of Cost(b) to 50% of Cost(b) of Cost(b) Total
Aging(a) Unrealized Unrealized Unrealized Unrealized
(dollars in millions) Cost(c) Loss Items(e) Cost(c) Loss Items(e) Cost(c) Loss Items(e) Cost(c) Loss (d) Items(e)
Investment grade bonds
0-6 months $ 112,241 $ 9,459 19,888 $ 41,590 $ 12,117 4,326 $ 554 $ 299 30 $ 154,385 $ 21,875 24,244
7-11 months 28,548 2,548 3,358 3,779 1,002 221 20 12 1 32,347 3,562 3,580
12 months or more 12,413 1,294 1,406 11,638 3,360 921 195 109 12 24,246 4,763 2,339
Total $ 153,202 $ 13,301 24,652 $ 57,007 $ 16,479 5,468 $ 769 $ 420 43 $ 210,978 $ 30,200 30,163
Below investment grade bonds
0-6 months $ 8,542 $ 597 3,509 $ 1,303 $ 364 483 $ 71 $ 48 29 $ 9,916 $ 1,009 4,021
7-11 months 4,321 227 1,432 187 45 58 8 6 5 4,516 278 1,495
12 months or more 4,177 283 1,214 346 93 92 11 10 4 4,534 386 1,310
Total $ 17,040 $ 1,107 6,155 $ 1,836 $ 502 633 $ 90 $ 64 38 $ 18,966 $ 1,673 6,826
Total bonds
0-6 months $ 120,783 $ 10,056 23,397 $ 42,893 $ 12,481 4,809 $ 625 $ 347 59 $ 164,301 $ 22,884 28,265
7-11 months 32,869 2,775 4,790 3,966 1,047 279 28 18 6 36,863 3,840 5,075
12 months or more 16,590 1,577 2,620 11,984 3,453 1,013 206 119 16 28,780 5,149 3,649
Total(e) $ 170,242 $ 14,408 30,807 $ 58,843 $ 16,981 6,101 $ 859 $ 484 81 $ 229,944 $ 31,873 36,989
(a)Represents the number of consecutive months that fair value has been less
than cost by any amount.
(b)Represents the percentage by which fair value is less than cost.
(c)For bonds, represents amortized cost net of allowance.
(d)The effect on Net income of unrealized losses after taxes will be mitigated
upon realization because certain realized losses will result in current
decreases in the amortization of certain DAC.
(e)Item count is by CUSIP by subsidiary.
The allowance for credit losses was $11 million for investment grade bonds and
$175 million for below investment grade bonds as of December 31, 2022.
Commercial Mortgage Loans
At December 31, 2022, we had direct commercial mortgage loan exposure of $37.1
billion.
The following table presents the commercial mortgage loan exposure by location
and class of loan based on amortized cost:
Number Class Percent
(dollars in millions) of Loans Apartments Offices Retail Industrial Hotel Others Total of Total
December 31, 2022
State:
New York 81 $ 1,571 $ 4,502 $ 490 $ 404 $ 104 $ - $ 7,071 19 %
California 59 847 1,068 170 1,316 656 13 4,070 11
New Jersey 65 2,154 163 439 497 11 32 3,296 9
Texas 47 857 998 153 184 143 - 2,335 6
Massachusetts 16 576 443 521 23 - - 1,563 4
Florida 57 491 119 362 199 391 - 1,562 4
Illinois 22 584 623 3 46 - 21 1,277 4
Ohio 23 145 10 168 544 - - 867 2
Pennsylvania 18 75 133 255 223 23 - 709 2
Washington, D.C. 9 483 116 - - 17 - 616 2
Other states 139 2,239 494 842 961 278 19 4,833 13
Foreign 93 4,575 1,606 413 1,609 404 322 8,929 24
Total* 629 $ 14,597 $ 10,275 $ 3,816 $ 6,006 $ 2,027 $ 407 $ 37,128 100 %
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ITEM 7 | Investments
December 31, 2021
State:
New York 94 $ 2,217 $ 4,329 $ 450 $ 438 $ 103 $ - $ 7,537 21 %
California 62 817 1,293 239 553 761 13 3,676 10
New Jersey 48 2,092 30 462 225 11 33 2,853 8
Texas 49 630 1,133 167 187 144 - 2,261 6
Florida 60 469 152 368 214 281 - 1,484 4
Massachusetts 13 534 290 537 24 - - 1,385 4
Illinois 24 554 626 9 50 - 21 1,260 5
Pennsylvania 22 78 144 477 76 25 - 800 2
Washington, D.C. 11 455 184 - - 18 - 657 2
Ohio 25 167 10 175 289 - - 641 2
Other states 155 1,852 598 975 686 329 - 4,440 12
Foreign 86 4,402 1,341 998 1,116 449 365 8,671 24
Total* 649 $ 14,267 $ 10,130 $ 4,857 $ 3,858 $ 2,121 $ 432 $ 35,665 100 %
*Does not reflect allowance for credit losses.
For additional information on commercial mortgage loans, see Note 6 to the
Consolidated Financial Statements.
Net Realized Gains and Losses
The following table presents the components of Net realized gains (losses):
Years Ended December 31, 2022 2021 2020
Excluding Fortitude Excluding Fortitude Excluding Fortitude
Fortitude Re Fortitude Re Fortitude Re
Re Funds Funds Re Funds Funds Re Funds Funds
Withheld Withheld Withheld Withheld Withheld Withheld
(in millions) Assets Assets Total Assets Assets Total Assets Assets Total
Sales of fixed maturity securities $ (871) $ (311) $ (1,182) $ 211 $ 717 $ 928 $ 307 $ 707 $ 1,014
Intent to sell (66) - (66) - - - (3) - (3)
Change in allowance for credit losses on
fixed maturity securities (184) (32) (216) 19 7 26 (270) (10) (280)
Change in allowance for credit losses on
loans (55) (47) (102) 163 9 172 (105) 2 (103)
Foreign exchange transactions (17) (5) (22) 16 (5) 11 365 13 378
Variable annuity embedded derivatives,
net of related hedges 1,221 - 1,221 (39) - (39) 166 - 166
All other derivatives and hedge
accounting 1,814 (134) 1,680 179 28 207 (672) (249) (921)
Sales of alternative investments and real
estate investments 193 43 236 988 237 1,225 143 - 143
Other (39) - (39) 214 10 224 13 - 13
Net realized gains (losses) - excluding
Fortitude Re funds withheld embedded
derivative 1,996 (486) 1,510 1,751 1,003 2,754 (56) 463 407
Net realized gains (losses) on Fortitude
Re funds withheld embedded derivative - 7,481 7,481 - (603) (603) - (2,645) (2,645)
Net realized gains (losses) $ 1,996 $ 6,995 $ 8,991 $ 1,751 $ 400 $ 2,151 $ (56) $ (2,182) $ (2,238)
Higher Net realized capital gains excluding Fortitude Re funds withheld assets
in 2022 compared to the prior year were due primarily to higher derivative
gains, which was partially offset by losses in sales of securities versus gains
in the prior year.
Variable annuity embedded derivatives, net of related hedges, reflected higher
gains in 2022 compared to the prior year. Fair value gains or losses in the
hedging portfolio are typically not fully offset by increases or decreases in
liabilities due to the non-performance or "own credit" risk adjustment used in
the valuation of the variable annuities with GMWB embedded derivative, which are
not hedged as part of our economic hedging program, and other risk margins used
for valuation that cause the embedded derivatives to be less sensitive to
changes in market rates than the hedge portfolio.
Net realized gains (losses) on Fortitude Re funds withheld assets primarily
reflect changes in the valuation of the modified coinsurance and funds withheld
assets. Increases in the valuation of these assets result in losses to AIG as
the appreciation on the assets must under those reinsurance arrangements be
transferred to Fortitude Re. Decreases in valuation of the assets result in
gains to AIG as the depreciation on the assets under those reinsurance
arrangements must be transferred to Fortitude Re. For
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ITEM 7 | Investments
additional information on the impact of the funds withheld arrangements with
Fortitude Re, see Note 7 to the Consolidated Financial Statements.
For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies' Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs. For additional information on the economic hedging target and the impact to pre-tax income of this program, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Variable Annuity Guaranteed Benefits and Hedging Results in this MD&A.
For additional information on our investment portfolio, see Note 5 to the
Consolidated Financial Statements.
Change in Unrealized Gains and Losses on Investments
The change in net unrealized gains and losses on investments in 2022 was
primarily attributable to decrease in the fair value of fixed maturity
securities. For 2022, net unrealized losses related to fixed maturity securities
were $47.7 billion due to an increase in interest rates and spreads.
The change in net unrealized gains and losses on investments in 2021 was primarily attributable to movements in interest rates and spreads. For 2021, net unrealized losses related to fixed maturity securities were $9.3 billion due primarily to an increase in interest rates.
For additional information on our investment portfolio, see Note 5 to the
Consolidated Financial Statements.
Insurance Reserves
LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LOSS RESERVES)
The following table presents the components of our gross and net loss reserves
by segment and major lines of business(a):
December 31, 2022 December 31, 2021
Net liability for Reinsurance Net liability for Reinsurance
unpaid losses recoverable on Gross liability unpaid losses recoverable on Gross liability
and loss unpaid losses and for unpaid and loss unpaid losses and for unpaid
adjustment loss adjustment losses and loss adjustment loss adjustment losses and loss
(in millions) expenses expenses adjustment expenses expenses expenses adjustment expenses
General Insurance:
U.S. Workers' Compensation (net of $ 2,684 $ 4,319 $ 7,003 $ 3,282 $ 5,216 $ 8,498
discount)
U.S. Excess Casualty 3,638 3,701 7,339 3,850 4,195 8,045
U.S. Other Casualty 3,858 3,872 7,730 3,805 4,191 7,996
U.S. Financial Lines 5,899 1,773 7,672 5,356 1,893 7,249
U.S. Property and Special Risks 6,815 3,295 10,110 6,615 3,587 10,202
U.S. Personal Insurance 794 2,052 2,846 1,001 2,198 3,199
UK /Europe Casualty and Financial 6,984 1,538 8,522 7,175 1,603 8,778
Lines
UK /Europe Property and Special 2,717 1,464 4,181 2,631 1,492 4,123 RisksUK /Europe and Japan Personal 1,628 592 2,220 1,962 608 2,570 Insurance Other product lines(b) 5,999 4,834 10,833 5,815 5,468 11,283 Unallocated loss adjustment 1,418 927 2,345 1,654 1,015 2,669 expenses(b) Total General Insurance 42,434 28,367 70,801 43,146 31,466 74,612 Other Operations Run-Off:U.S. run-off long tail insurance lines (net of discount) 239 3,427 3,666 164 3,434 3,598 Other run-off product lines 245 59 304 264 61 325Blackboard U.S. Holdings, Inc. 134 135 269 217 138 355 Unallocated loss adjustment 13 114 127 22 114 136 expenses Total Other Operations Run-Off 631 3,735 4,366 667 3,747 4,414 Total $ 43,065 $ 32,102 $ 75,167 $ 43,813 $ 35,213 $ 79,026 (a)Includes net loss reserve discount of $1.3 billion and $876 million as of December 31, 2022 and 2021, respectively. For information regarding loss reserve discount, see Note 12 to the Consolidated Financial Statements. (b)Other product lines and Unallocated loss adjustment expenses includes Gross liability for unpaid losses and loss adjustment expense and Reinsurance recoverable on unpaid losses and loss adjustment expense for the Fortitude Re reinsurance of $2.9 billion and $3.5 billion as of December 31, 2022 and 2021, respectively. 96 AIG | 2022 Form 10-K
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ITEM 7 | Insurance Reserves
Prior Year Development
The following table summarizes incurred (favorable) unfavorable prior year
development net of reinsurance by segment:
Years Ended December 31, (in millions) 2022 2021 2020 General Insurance: North America $ (196) $ (194) $ (157) International (322) (7) 81 Total General Insurance* $ (518) $ (201) $ (76) Other Operations Run-Off (5) 86 2 Total prior year favorable development $ (523) $
(115) $ (74)
*Includes the amortization attributed to the deferred gain at inception from theNational Indemnity Company (NICO) adverse development reinsurance agreement of $167 million, $193 million and $211 million for the years ended December 31, 2022, 2021 and 2020, respectively. Consistent with our definition of APTI, the amount excludes the portion of (favorable)/unfavorable prior year reserve development for which we have ceded the risk under the NICO reinsurance agreements of $(174) million, $(249) million and $(228) million for the years ended December 31, 2022, 2021 and 2020, respectively. Also excludes the related changes in amortization of the deferred gain, which were $85 million, $(3) million and $25 million over those same periods.
Net Loss Development - 2022
During 2022, we recognized favorable prior year loss reserve development of $523
million. The key components of this development were:
•Favorable development in
favorable loss experience across most accident years particularly for excess and
guaranteed cost segments.
•Favorable development in
mid-excess retail segments.
•Favorable development in
Liability and Construction Wraps business.
•Amortization benefit related to the deferred gain on the adverse development
cover.
•Unfavorable development driven byU.S. Financial Lines driven by unfavorable severity trends in Excess and Primary D&O and Excess and Financial Institutions E&O, partially offset by favorable results in EPLI.
International
•Favorable development on Global Specialty across all products in all regions.
•Favorable development in International Personal Lines particularly with Auto and A&H coverages inJapan as well as favorable experience recognized inEurope and theUK .
•Unfavorable development in Casualty in Europe Excess Casualty and French Auto
as well as large loss experience in the
experience in APAC Casualty.
•Unfavorable development in Financial Lines primarily in the
Commercial PI and Commercial D&O.
Our analyses and conclusions about prior year reserves also help inform our
judgments about the current accident year loss and loss adjustment expense
ratios we selected.
For additional information on prior year development by line of business, see
Note 12 to the Consolidated Financial Statements. For information regarding
actuarial methods employed for major classes of business, see Critical
Accounting Estimates.
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The following tables summarize incurred (favorable) unfavorable prior year
development net of reinsurance, by segment and major lines of business, and by
accident year groupings:
Year Ended December 31, 2022
(in millions) Total 2021 2020 & Prior
General Insurance North America:
U.S. Workers' Compensation $ (419) $ (27) $ (392)
U.S. Excess Casualty (8) - (8)
U.S. Other Casualty (167) (2) (165)
U.S. Financial Lines 658 (22) 680
U.S. Property and Special Risks (106) (207) 101
U.S. Personal Insurance (33) 17 (50)
Other Product Lines (121) (45) (76)
Total General Insurance North America $ (196) $ (286) $ 90
General Insurance International:
UK/Europe Casualty and Financial Lines $ 82 $ (1) $ 83
UK/Europe Property and Special Risks (153) (29) (124)
UK/Europe and Japan Personal Insurance (111) (69) (42)
Other product lines (140) (85) (55)
Total General Insurance International $ (322) $ (184) $ (138)
Other Operations Run-Off (5) - (5)
Total Prior Year (Favorable) Unfavorable Development $ (523) $ (470) $ (53)
Net Loss Development - 2021
During 2021, we recognized favorable prior year loss reserve development of $115
million. The key components of this development were:
•Strong favorable development in Personal Insurance, primarily attributable to subrogation recovery related to the 2017 and 2018 California wildfires partially offset by the impact of dropping below the attachment point of our 2018 catastrophe aggregate treaty, which also adversely impacted ourU.S. Property and Special Risk Commercial Lines. •Favorable development onU.S. Workers Compensation and short-tailed commercial lines within Other Product Lines, reflecting lower frequency and severity in recent calendar years.
•Amortization benefit related to the deferred gain on the adverse development
cover.
•Reserve strengthening within
of claims in Directors & Officers, principally from accident years 2018 and
prior, and cyber risk from accident years 2019 and 2020.
International
•Favorable development on short-tailed International Commercial Lines and
Personal Insurance, reflecting lower frequency and severity of claims.
•Reserve strengthening on International Financial Lines, reflecting higher
severity of claims, the majority of which is from accident years 2018 and prior.
Other Operations
•Unfavorable development primarily attributed to the Blackboard insurance
portfolio due to increased severity on reported claims.
We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for reinsurance recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the date of occurrence becomes available to us.
For information regarding the 2020 net loss development, see Part II, Item 7.
MD&A - Insurance Reserves - Loss Reserves of our 2021 Annual Report.
Significant Reinsurance Agreements
In the first quarter of 2017, we entered into an adverse development reinsurance agreement with NICO, under which we transferred to NICO 80 percent of the reserve risk on substantially all of ourU.S. Commercial long-tail exposures for accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the losses on subject business paid on or after January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25 billion. We account for this transaction as retroactive reinsurance. This
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ITEM 7 | Insurance Reserves
transaction resulted in a gain, which under GAAP retroactive reinsurance
accounting is deferred and amortized into income over the settlement period.
NICO created a collateral trust account as security for their claim payment
obligations to us, into which they deposited the consideration paid under the
agreement, and Berkshire Hathaway Inc. has provided a parental guarantee to
secure NICO's obligations under the agreement.
For a description of AIG's catastrophe reinsurance protection for 2021, see
Enterprise Risk Management - Insurance Risks - General Insurance Companies' Key
Risks - Natural Catastrophe Risk.
The table below shows the calculation of the deferred gain on the adverse
development reinsurance agreement as of December 31, 2022, 2021 and 2020,
showing the effect of discounting of loss reserves and amortization of the
deferred gain.
December 31, December 31, December 31,
(in millions) 2022 2021 2020
Gross Covered Losses
Covered reserves before discount $ 12,537 $ 14,398 $ 16,534
Inception to date losses paid 28,667 27,023 25,198
Attachment point (25,000) (25,000) (25,000)
Covered losses above attachment point $ 16,204 $ 16,421 $ 16,732
Deferred Gain Development
Covered losses above attachment ceded to NICO
(80%) $ 12,963 $ 13,137 $ 13,386
Consideration paid including interest (10,188) (10,188) (10,188)
Pre-tax deferred gain before discount and
amortization 2,775 2,949 3,198
Discount on ceded losses(a) (1,254) (953) (911)
Pre-tax deferred gain before amortization 1,521 1,996 2,287
Inception to date amortization of deferred
gain at inception (1,264) (1,097) (904)
Inception to date amortization attributed to
changes in deferred gain(b) (52) (30) (86)
Deferred gain liability reflected in AIG's
balance sheet $ 205 $ 869 $ 1,297
(a)The accretion of discount and a reduction in effective interest rates is
offset by changes in estimates of the amount and timing of future recoveries.
(b)Excluded from APTI.
The following table presents the rollforward of activity in the deferred gain
from the adverse development reinsurance agreement:
Years Ended December 31,
(in millions) 2022 2021 2020 Balance at beginning of year, net of discount
$ 869 $ 1,297 $ 1,381
(Favorable) unfavorable prior year reserve development
ceded to NICO(a)
(174) (249) (228) Amortization attributed to deferred gain at inception(b) (167) (193) (211) Amortization attributed to changes in deferred gain(c) (22) 56 15 Changes in discount on ceded loss reserves (301) (42) 340 Balance at end of year, net of discount
$ 205 $ 869 $ 1,297
(a)Prior year reserve development ceded to NICO under the retroactive
reinsurance agreement is deferred under GAAP.
(b)Represents amortization of the deferred gain recognized in APTI.
(c)Excluded from APTI.
The lines of business subject to this agreement include those with longer tails, which carry a higher degree of uncertainty. Since inception, there have been periods of unfavorable prior year development, with more recent favorable development. This agreement will continue to reduce the impact of volatility in the development on our ultimate loss estimates over time. The agreement has resulted in lower capital charges for reserve risks at ourU.S. insurance subsidiaries. In addition, net investment income declined as a result of lower invested assets. Fortitude Re was established during the first quarter of 2018 in a series of reinsurance transactions related to our run-off operations. Those reinsurance transactions were designed to consolidate most of our insurance run-off lines into a single legal entity. As of December 31, 2022, approximately $29.0 billion of reserves from our Life and Retirement Run-Off Lines and approximately $3.2 billion of reserves from our General Insurance Run-Off Lines related to business written by multiple wholly-owned AIG subsidiaries, had been ceded to Fortitude Re under these reinsurance transactions. AIG | 2022 Form
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ITEM 7 | Insurance Reserves
Of the Fortitude Re reinsurance agreements, the largest is the Amended and
Restated Combination Coinsurance and Modified Coinsurance Agreement by and
between our subsidiary AGL and Fortitude Re. Under this treaty, approximately
$22.1 billion of AGL reserves as of December 31, 2022 were ceded to Fortitude Re
representing a mix of life and annuity risks. Fortitude Re provides 100 percent
reinsurance of the ceded risks. AGL retains the risk of collection of any third
party reinsurance covering the ceded business. At effectiveness of the treaty,
an amount equal to the aggregate ceded reserves was deposited by AGL into a
modified coinsurance account of AGL to secure the obligations of Fortitude Re.
Fortitude Re receives or makes quarterly payments that represent the net gain or
loss under the treaty for the relevant quarter, including any net investment
gain or loss on the assets in the modified coinsurance account. Since the
effectiveness of the treaty, an AIG affiliate has served as portfolio manager of
the vast majority of the assets in the modified coinsurance account. In December
2022, the management of most of the public fixed income securities in the
modified coinsurance account was transitioned to BlackRock. In accordance with
the terms of the treaty, following the third anniversary of the June 2, 2020
closing of the sale of our majority interest in Fortitude Group Holdings,
L.L.C., Fortitude Re has increased rights to direct the appointment of
investment managers to manage the assets in the modified coinsurance account.
LIFE AND ANNUITY FUTURE POLICY BENEFITS, POLICYHOLDER CONTRACT DEPOSITS AND DAC
The following section provides discussion of life and annuity future policy
benefits, policyholder contract deposits and deferred policy acquisition costs.
For information regarding 2020 life and annuity future policy benefits, policyholder contract deposits and deferred policy acquisition costs, see Part II, Item 7. MD&A - Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC of our 2021 Annual Report.
Update of Actuarial Assumptions and Models
The life insurance companies review and update actuarial assumptions at least
annually, generally in the third quarter.
Investment-Oriented Products
The life insurance companies review and update estimated gross profit assumptions used to amortize DAC and related items (which may include VOBA, DSI and unearned revenue reserves) as well as assessments used to accrue guaranteed benefit reserves at least annually. Estimated gross profit projections include assumptions for investment-related returns and spreads (including investment expenses), product-related fees and expenses, mortality gains and losses, policyholder behavior and other factors. In estimating future gross profits, lapse assumptions require judgment and can have a material impact on DAC amortization. If the assumptions used for estimated gross profits change significantly, DAC and related reserves are recalculated using the new projections, and any resulting adjustment is included in income. Updating such projections may result in acceleration of amortization in some products and deceleration of amortization in other products. The life insurance companies also review assumptions related to their respective GMWB living benefits that are accounted for as embedded derivatives and measured at fair value. The fair value of these embedded derivatives is based on actuarial assumptions, including policyholder behavior, as well as capital market assumptions. Various assumptions were updated, including the following effective September 30, 2022, which continued to be our best estimate assumptions as of December 31, 2022:
•Expected lapses increased primarily due to the impact of higher interest rates
for fixed annuities in Individual Retirement; and
•Interest rates and equity correlation used to generate risk neutral path for
variable annuities in Individual Retirement and Group Retirement decreased
resulting in a reduction of GMWB embedded derivatives.
For information regarding actuarial methods, see Critical Accounting Estimates - Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products.
Traditional long-duration products
For long-duration traditional products, which include whole life insurance, term life insurance, accident and health insurance, longterm care insurance, and life-contingent single premium immediate annuities and structured settlements, a "lock-in" principle applies. The assumptions used to calculate the benefit liabilities and DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs. A loss recognition event occurs when current liabilities together with expected future premiums are not sufficient to provide for all future benefits, expenses, and DAC amortization, net of reinsurance. A loss recognition event is driven by observed changes in actual experience or estimates differing significantly from "locked-in" assumptions. Underlying assumptions, including interest rates, are reviewed periodically and updated as appropriate for loss recognition testing purposes. As it relates to business ceded to Fortitude Re, as our accounting policy is to include reinsurance balances when performing loss recognition testing and as there will be no future profits recognized on this business, we will not incur any future loss recognition events related to business ceded to Fortitude Re, absent any decisions by us to recapture the business. The net increases (decreases) to pre-tax income and adjusted pre-tax income as a result of the update of actuarial assumptions for the years ended December 31, 2022, 2021 and 2020 are shown in the following tables.
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The following table presents the decrease in pre-tax income resulting from the
update of actuarial assumptions in the life insurance companies, by line item as
reported in Results of Operations:
Years Ended December 31,
(in millions) 2022 2021 2020
Premiums $ - $ (41) $ -
Policy fees (3) (74) (106)
Interest credited to policyholder account balances (15) (50) (6)
Amortization of deferred policy acquisition costs (56) (139) 225
Non deferrable insurance commissions - - 15
Policyholder benefits and losses incurred 17 138 (235)
Decrease in adjusted pre-tax income (57) (166) (107)
Change in DAC related to net realized gains and losses (19) 57 (44)
Net realized gains (losses) 70 (100) 142
Decrease in pre-tax income $ (6) $ (209) $ (9)
The following table presents the increase (decrease) in adjusted pre-tax income
resulting from the update of actuarial assumptions for the life insurance
companies, by segment and product line:
Years Ended December 31, (in millions) 2022 2021 2020 Life and Retirement: Individual Retirement Fixed annuities $ (83) $ (274) $ (77) Variable and indexed annuities (3) 4 2 Total Individual Retirement (86) (270) (75) Group Retirement 2 (2) 68 Life Insurance 24 106 (101) Institutional Markets 3 - 1
Total decrease in adjusted pre-tax income from update $ (57)
$ (166) $ (107) of assumptions
In 2022, adjusted pre-tax income included a net unfavorable update of
$57 million, primarily in fixed annuities driven by the impact of higher
interest rates on expected lapses.
In 2021, adjusted pre-tax income included a net unfavorable update of 166 million, primarily in fixed annuities driven by changes to earned rates causing spread compression partially offset by favorable updates to full surrender assumptions, and updates to the Life Insurance reserves for universal life with secondary guarantees and similar features (excluding base policy liabilities and embedded derivatives) model.
The updates related to the update of actuarial assumptions in each period are
discussed by business segment below.
Update of Actuarial Assumptions by Business Segment Impact to Adjusted Pre-tax
Income (Loss)
Individual Retirement The annual update of actuarial assumptions resulted in net unfavorable impact to adjusted pre-tax income of Individual Retirement of $86 million and $270 million in 2022 and 2021, respectively. In 2022, in fixed annuities, the impact of higher interest rates on expected lapses resulted in a net unfavorable impact of $83 million. In 2021, the update of estimated gross profit assumptions resulted in a net unfavorable impact of $274 million which reflected lower projected investment earnings. In 2022, in variable and index annuities, the update of assumptions resulted in a net unfavorable impact of $3 million due to a small model refinement. In 2021, the update of estimated gross profit assumptions resulted in a net favorable impact of $4 million, driven by lower assumed lapses. These updates were largely offset by lower projected investment earnings.
Group Retirement
In 2022, in Group Retirement, the update of assumptions resulted in a net
favorable impact of $2 million. In 2021, the update of estimated gross profit
assumptions resulted in a net unfavorable impact of $2 million, driven primarily
in the variable annuities line by lower projected investment earnings, largely
offset by resetting the reversion to the mean rate.
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Life Insurance
In 2022, in Life Insurance, the update of actuarial assumptions resulted in a
net favorable impact of $24 million, primarily driven by modeling refinements to
reflect actual vs expected asset data related to calls and capital gains. In
2021, for the update of actuarial assumptions resulted in a net favorable impact
of $106 million, primarily driven by updates to the reserves for universal life
with secondary guarantees and similar features (excluding base policy
liabilities and embedded derivatives), which was partially offset by lower
projected investment earnings and model updates involving reinsurance.
Institutional Markets
In 2022, in Institutional Markets, the update of actuarial assumptions resulted
in a net favorable impact of $3 million, primarily driven by updates to our
corporate- and bank-owned life insurance products.
Variable Annuity Guaranteed Benefits and Hedging Results
Our Individual Retirement and Group Retirement businesses offer variable annuity products with GMWB riders that provide guaranteed living benefit features. The liabilities for GMWBs are accounted for as embedded derivatives and measured at fair value. The fair value of the embedded derivatives may fluctuate significantly based on market interest rates, equity prices, credit spreads, market volatility, policyholder behavior and other factors. In addition to risk-mitigating features in our variable annuity product design, we have an economic hedging program designed to manage market risk from GMWB, including exposures to changes in interest rates, equity prices, credit spreads and volatility. The hedging program utilizes derivative instruments, including but not limited to equity options, futures contracts and interest rate swap and option contracts, as well as fixed maturity securities. For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies' Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.
Differences in Valuation of Embedded Derivatives and Economic Hedge Target
The variable annuity hedging program utilizes an economic hedge target, which represents an estimate of the underlying economic risks in our GMWB riders. The economic hedge target differs from the GAAP valuation of the GMWB embedded derivatives, creating volatility in our net income (loss) primarily due to the following:
•The economic hedge target includes 100 percent of rider fees in present value
calculations; the GAAP valuation reflects only those fees attributed to the
embedded derivative such that the initial value at contract issue equals zero;
•The economic hedge target uses best estimate actuarial assumptions and excludes explicit risk margins used for GAAP valuation, such as margins for policyholder behavior, mortality, and volatility; and •The economic hedge target excludes the non-performance or "own credit" risk adjustment used in the GAAP valuation, which reflects a market participant's view of our claims-paying ability by incorporating a different spread (the NPA spread) to the curve used to discount projected benefit cash flows. Because the GAAP valuation includes the NPA spread and other explicit risk margins, it has different sensitivities to movements in interest rates and other market factors, and to changes from actuarial assumption updates, than the economic hedge target. For additional information on our valuation methodology for embedded derivatives within policyholder contract deposits, see Note 4 to the Consolidated Financial Statements. The market value of the hedge portfolio compared to the economic hedge target at any point in time may be different and is not expected to be fully offsetting. In addition to the derivatives held in conjunction with the variable annuity hedging program, the Life and Retirement companies have cash and invested assets available to cover future claims payable under these guarantees. The primary sources of difference between the change in the fair value of the hedging portfolio and the economic hedge target include:
•Basis risk due to the variance between expected and actual fund returns, which
may be either positive or negative;
•Realized volatility versus implied volatility;
•Actual versus expected changes in the hedge target driven by assumptions not
subject to hedging, particularly policyholder behavior; and
•Risk exposures that we have elected not to explicitly or fully hedge.
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ITEM 7 | Insurance Reserves
The following table presents a reconciliation between the fair value of the GAAP
embedded derivatives and the value of our economic hedge target:
(in millions) December 31, 2022 December 31, 2021
Reconciliation of embedded derivatives and economic hedge
target:
Embedded derivative liability
$ 677 $ 2,472 Exclude non-performance risk adjustment (2,362) (2,508) Embedded derivative liability, excluding NPA 3,039 4,980 Adjustments for risk margins and differences in valuation (2,142) (2,172) Economic hedge target liability $ 897 $ 2,808
Impact on Pre-tax Income (Loss)
The impact on our pre-tax income (loss) of variable annuity guaranteed living benefits and related hedging results includes changes in the fair value of the GMWB embedded derivatives, and changes in the fair value of related derivative hedging instruments, both of which are recorded in Net realized gains (losses). Realized gains (losses), as well as net investment income from changes in the fair value of fixed maturity securities used in the hedging program, are excluded from adjusted pre-tax income of Individual Retirement and Group Retirement. The change in the fair value of the embedded derivatives and the change in the value of the hedging portfolio are not expected to be fully offsetting, primarily due to the differences in valuation between the economic hedge target, the GAAP embedded derivatives and the fair value of the hedging portfolio, as discussed above. When corporate credit spreads widen, the change in the NPA spread generally reduces the fair value of the embedded derivative liabilities, resulting in a gain, and when corporate credit spreads narrow or tighten, the change in the NPA spread generally increases the fair value of the embedded derivative liabilities, resulting in a loss. In addition to changes driven by credit market-related movements in the NPA spread, the NPA balance also reflects changes in business activity and in the net amount at risk from the underlying guaranteed living benefits. The following table presents the net increase (decrease) to consolidated pre-tax income (loss) from changes in the fair value of the GMWB embedded derivatives and related hedges, excluding related DAC amortization:
Years Ended December 31,
(in millions) 2022 2021 2020
Change in fair value of embedded derivatives, excluding
updated of actuarial assumptions and NPA
$ 2,671 $ 2,289 $ (1,145)
Change in fair value of variable annuity hedging portfolio:
Fixed maturity securities*
30 57 44 Interest rate derivative contracts (2,188) (600) 1,342 Equity derivative contracts 805 (1,217) (679) Change in fair value of variable annuity hedging portfolio (1,353) (1,760) 707
Change in fair value of embedded derivatives, excluding
updated of actuarial assumptions and NPA, net of hedging
portfolio
1,318 529 (438)
Change in fair value of embedded derivatives due to NPA
spread
915 (68) 50
Change in fair value of embedded derivatives due to change in
NPA volume
(1,061) (383) 404
Change in fair value of embedded derivatives due to update of
actuarial assumptions
79 (60) 194 Total change due to update of actuarial assumptions and NPA (67) (511) 648 Net impact on pre-tax income (loss) $ 1,251 $ 18 $ 210 Impact to Condensed Consolidated Income Statement Net investment income, net of related interest credited to policyholder account balances $ 30 $ 57 $ 44 Net realized gains (losses) 1,221 (39) 166 Net impact on pre-tax income (loss) $ 1,251 $ 18 $ 210 Net change in value of economic hedge target and related hedges Net impact on economic gains (losses)
$ 714 $ 109 $ 295
*The change in fair value of available-for-sale fixed maturity securities
recognized as a component of other comprehensive income (loss) were losses of
$527 million in 2022 due to higher interest rates and wider credit spreads. The
change in fair value of available-for-sale fixed maturity securities recognized
as a component of other comprehensive income (loss) were losses of $122 million
in 2021, due to higher interest rates. The change in fair value of
available-for-sale fixed maturity securities recognized as a component of other
comprehensive income (loss) were gains of $217 million in 2020.
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The twelve-month period ended December 31, 2022 net impact on pre-tax income
(loss) of $1.3 billion resulted from:
•$1.3 billion gain in the fair value of embedded derivatives excluding NPA, net of the hedging portfolio was driven by increases in interest rates, partially offset by lower equity markets. •$146 million loss due to NPA was driven by the impact of higher interest rates that resulted in NPA volume losses from lower expected GMWB payments, partially offset by a widening of the NPA credit spread.
•$79 million gain from the review and update of actuarial assumptions.
On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In the twelve months ended December 31, 2022, we had a net mark-to-market gain of approximately $714 million from our hedging activities related to our economic hedge target primarily driven by widening credit spreads and update of actuarial assumptions.
The twelve-month period ended December 31, 2021 net impact on pre-tax income
(loss) of $18 million resulted from:
•$529 million gain in the fair value of embedded derivatives excluding NPA, net of the hedging portfolio was driven by increases in interest rates and higher equity markets.
•$451 million loss due to NPA was driven by a tightening of the NPA credit
spread, and the impact of higher interest rates that resulted in NPA volume
losses from lower expected GMWB payments.
•$60 million loss from the review and update of actuarial assumptions
On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In the twelve months ended December 31, 2021, we had a net mark-to-market gain of approximately $109 million from our hedging activities related to our economic hedge target primarily driven by higher equity markets, partially offset by losses from the review and update of actuarial assumptions.
Change in Economic Hedge Target
The decrease in the economic hedge target liability in 2022 was primarily driven by higher interest rates and widening credit spreads, offset by lower equity markets. The decrease in the economic hedge target liability in 2021 was primarily driven higher interest rates and rising equity markets, partially offset by losses from the review and update of actuarial assumptions.
Change in Fair Value of the Hedging Portfolio
The changes in the fair value of the economic hedge target and, to a lesser
extent, the embedded derivative valuation under GAAP, were offset in part by the
following changes in the fair value of the variable annuity hedging portfolio:
•Changes in the fair value of interest rate derivative contracts, which included swaps, swaptions and futures, resulted in losses driven by higher interest rates in the years ended December 31, 2022 and 2021.
•Changes in the fair value of equity derivative contracts, which included
futures and options, resulted in gains in 2022 driven by the decline in the
equity market compared to losses in 2021, primarily due to gains in the equity
market.
•Changes in the fair value of fixed maturity securities, primarily corporate bonds, are used as a capital-efficient way to economically hedge interest rate and credit spread-related risk. The change in the fair value of the corporate bond hedging program in 2022 reflected losses due to increases in interest rates and widening credit spreads. The change in the fair value of the corporate bond hedging program in 2021 reflected losses due to higher interest rates.
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DAC
The following table summarizes the major components of the changes in DAC,
including VOBA, within the Life and Retirement companies:
Years Ended December 31, (in millions) 2022 2021 2020 Balance, beginning of year $ 8,086 $ 7,316 $ 8,119 Initial allowance upon the adoption of the current expected - - 15 credit loss accounting standard Acquisition costs deferred 1,001 1,010 910 Amortization expense: Update of assumptions included in adjusted pre-tax income (56) (139) 225 Related to realized gains and losses (302) (33) 8 All other operating amortization (1,074) (834) (856) Increase (decrease) in DAC due to foreign exchange (77) (10) 18 Change related to unrealized depreciation (appreciation) of 5,633 776 (1,123) investments Balance, end of year(a) $ 13,211 $ 8,086 $ 7,316
(a)DAC balance excluding the amount related to unrealized depreciation
(appreciation) of investments was $10.0 billion, $10.5 billion and $10.5 billion
at December 31, 2022, 2021 and 2020, respectively.
The net impact to DAC amortization from the update of actuarial assumptions for estimated gross profits, including those reported within change in DAC related to net realized gains (losses), represented one percent and one percent of the DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments as of December 31, 2022 and 2021, respectively.
Reversion to the Mean
The projected separate account returns on variable annuities use a reversion-to-the-mean (RTM) approach, under which we consider historical returns and adjust projected returns over an initial future period of five years so that returns converge to the long-term expected rate of return. As of December 31, 2022 and 2021, we assumed a 7% long-term expected rate of return. The criterion to review the five-year RTM anchor date is for the current RTM rate to be less than zero or more than double the long-term growth rate assumption for three consecutive months. When the anchor date is reset, the RTM rate is determined to be approximately one-half of the long-term rate. Should market returns be significantly out of line with our expectations there are caps and floors that if breached would trigger a reassessment of the long-term rate and the RTM rate. For additional discussion of assumptions related to our reversion to the mean methodology, see - Update of Actuarial Assumptions and Models and - Critical Accounting Estimates - Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products.
DAC and Reserves Related to Unrealized Appreciation of Investments
DAC and Reserves for universal life insurance and investment-oriented products
are adjusted at each balance sheet date to reflect the change in DAC, unearned
revenue, and benefit reserves with an offset to Other comprehensive income
(loss) (OCI) as if securities available for sale had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields (changes
related to unrealized appreciation (depreciation) of investments). Similarly,
for long-duration traditional products, significant unrealized appreciation of
investments in a sustained low interest rate environment may cause additional
future policy benefit liabilities with an offset to OCI to be recorded.
Changes related to unrealized appreciation (depreciation) of investments related
to DAC and unearned revenue generally move in the opposite direction of the
change in unrealized appreciation of the available for sale securities
portfolio, reducing the reported DAC and unearned revenue balance when market
interest rates decline. Conversely, changes related to unrealized appreciation
(depreciation) of investments related to benefit reserves generally move in the
same direction as the change in unrealized appreciation of the available for
sale securities portfolio, increasing reported future policy benefit liabilities
balance when market interest rates decline.
Market conditions in 2022 drove a $40.2 billion decrease in the unrealized
appreciation (depreciation) of the available for sale fixed maturity securities
portfolio held to support the Life and Retirement businesses at December 31,
2022 compared to December 31, 2021. At December 31, 2022, the changes related to
unrealized appreciation (depreciation) of investments reflected increases in
amortized balances including DAC and unearned revenue reserves, while accrued
liabilities such as policyholder benefit liabilities decreased $3.0 billion from
December 31, 2021. Market conditions in the year ended December 31, 2021 drove a
$7.4 billion decrease in the unrealized appreciation of available-for-sale fixed
maturity securities portfolios held to support our insurance liabilities at
December 31, 2021 compared to December 31, 2020. At December 31, 2021, the
changes related to unrealized appreciation (depreciation) of investments
reflected increases in amortized balances including DAC and unearned revenue
reserves, while accrued liabilities such as policyholder benefit liabilities
decreased $0.9 billion from December 31, 2020.
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ITEM 7 | Insurance Reserves
Reserves
The following table presents a rollforward of insurance reserves by operating
segments for Life and Retirement, including future policy benefits, policyholder
contract deposits, other policyholder funds, and separate account liabilities,
as well as Retail Mutual Funds and Group Retirement mutual fund assets under
administration:
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement
Balance at beginning of year, gross $ 148,492 $ 148,837 $ 144,753
Premiums and deposits 15,120 13,916 10,370
Surrenders and withdrawals (9,936) (11,368) (12,023)
Death and other contract benefits (2,774) (3,138) (3,075)
Subtotal 150,902 148,247 140,025
Change in fair value of underlying assets and reserve (14,085) 5,457 7,285
accretion, net of policy fees
Cost of funds(a) 1,804 1,683 1,675
Other reserve changes (1,054) 114 (148)
Less the sale of retail mutual fund assets - (7,009) -
Balance at end of year 137,567 148,492 148,837
Reinsurance ceded (305) (308) (313)
Total Individual Retirement insurance reserves and $ 137,262 $ 148,184 $ 148,524
mutual fund assets
Group Retirement
Balance at beginning of year, gross $ 118,492 $ 110,651 $ 102,049
Premiums and deposits 7,942 7,766 7,496
Surrenders and withdrawals (10,146) (10,097) (8,696)
Death and other contract benefits (907) (877) (740)
Subtotal 115,381 107,443 100,109
Change in fair value of underlying assets and reserve (14,530) 10,240 9,644
accretion, net of policy fees
Cost of funds(a) 1,129 1,138 1,125
Other reserve changes 112 (329) (227)
Balance at end of year 102,092 118,492 110,651
Total Group Retirement insurance reserves and mutual $ 102,092 $ 118,492 $ 110,651
fund assets
Life Insurance
Balance at beginning of year, gross $ 28,415 $ 27,998 $ 27,397
Premiums and deposits 4,236 4,229 4,046
Surrenders and withdrawals (552) (487) (484)
Death and other contract benefits (513) (592) (557)
Subtotal 31,586 31,148 30,402
Change in fair value of underlying assets and reserve (1,249) (808) (1,133)
accretion, net of policy fees
Cost of funds(a) 342 353 373
Other reserve changes (4,008) (2,278) (1,644)
Balance at end of year 26,671 28,415 27,998
Reinsurance ceded (1,566) (1,554) (1,437)
Total Life Insurance reserves $ 25,105 $ 26,861 $ 26,561
Institutional Markets
Balance at beginning of year, gross $ 30,264 $ 27,342 $ 23,673
Premiums and deposits 4,325 4,948 4,846
Surrenders and withdrawals (611) (1,821) (1,788)
Death and other contract benefits (1,134) (887) (886)
Subtotal 32,844 29,582 25,845
Change in fair value of underlying assets and reserve (79) 741 823
accretion, net of policy fees
Cost of funds(a) 320 274 304
Other reserve changes (431) (333) 370
Balance at end of year 32,654 30,264 27,342
Reinsurance ceded (44) (45) (45)
Total Institutional Markets reserves $ 32,610 $ 30,219 $ 27,297
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ITEM 7 | Insurance Reserves
(in millions) 2022 2021 2020
Total insurance reserves and mutual fund assets
Balance at beginning of year, gross $ 325,663 $ 314,828 $ 297,872
Premiums and deposits 31,623 30,859 26,758
Surrenders and withdrawals (21,245) (23,773) (22,991)
Death and other contract benefits (5,328) (5,494) (5,258)
Subtotal 330,713 316,420 296,381
Change in fair value of underlying assets and reserve (29,943) 15,630 16,619
accretion, net of policy fees
Cost of funds(a) 3,595 3,448 3,477
Other reserve changes (5,381) (2,826) (1,649)
Less the sale of retail mutual fund assets - (7,009) -
Balance at end of year, excluding Fortitude Re 298,984 325,663 314,828
reserves
Fortitude Re reserves(b) 27,150 27,654 28,505 Balance at end of year, including Fortitude Re 326,134 353,317 343,333
reserves
Fortitude Re reinsurance ceded(b) (27,150) (27,654) (28,505) Reinsurance ceded (1,915) (1,907) (1,795) Total insurance reserves and mutual fund assets $
297,069 $ 323,756 $ 313,033
(a)Excludes amortization of deferred sales inducements.
(b)Includes amounts related to policies where AIG has partially ceded to other
reinsurers and Fortitude Re.
Insurance reserves and Group Retirement mutual fund assets under administration,
were comprised of the following balances:
(in millions) December 31, 2022 December 31, 2021 Future policy benefits $ 57,266 $ 57,749 Policyholder contract deposits 158,966 156,844 Other policyholder funds(a) 1,015 833 Separate account liabilities 84,853 109,111 Total insurance reserves 302,100 324,537 Mutual fund assets 24,034 28,780 Total insurance reserves and mutual fund assets $ 326,134 $ 353,317
(a)Excludes unearned revenue liability.
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ITEM 7 | Liquidity and Capital Resources
Liquidity and Capital Resources
OVERVIEW
Liquidity refers to the ability to generate sufficient cash resources to meet
the cash requirements of our business operations and payment obligations.
Capital refers to the long-term financial resources available to support the operation of our businesses, fund business growth, and cover financial and operational needs that arise from adverse circumstances. Our primary source of ongoing capital generation is derived from the profitability of our insurance subsidiaries. We must comply with numerous constraints on our capital positions. These constraints drive the requirements for capital adequacy at AIG and the individual businesses and are based on internally defined risk tolerances, regulatory requirements, rating agency and creditor expectations and business needs.
For information regarding our liquidity risk framework, see Enterprise Risk
Management - Risk Appetite, Limits, Identification and Measurement and
Enterprise Risk Management - Liquidity Risk Management.
We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations to policyholders, customers, creditors and debt-holders, including those arising from reasonably foreseeable contingencies or events. Nevertheless, some circumstances may cause our cash or capital needs to exceed projected liquidity or readily deployable capital resources.
For information regarding risks associated with our liquidity and capital
resources, see Part I, Item 1A. - Risk Factors - Liquidity, Capital and Credit.
Depending on market conditions, regulatory and rating agency considerations and other factors, we may take various liability and capital management actions. Liability management actions may include, but are not limited to, repurchasing or redeeming outstanding debt, issuing new debt or engaging in debt exchange offers. Capital management actions may include, but are not limited to, issuing preferred stock, paying dividends to our shareholders on the AIG Common Stock, par value $2.50 per share (AIG Common Stock), paying dividends to the holders of our Series A 5.85% Non-Cumulative Perpetual Preferred Stock (Series A Preferred Stock), and repurchases of AIG Common Stock.
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ITEM 7 | Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCES HIGHLIGHTS
SOURCES
Liquidity to AIG Parent from Subsidiaries
During the twelve-month period ended December 31, 2022, our General Insurance
companies distributed dividends of $1.9 billion to AIG Parent or applicable
intermediate holding companies.
During the twelve-month period ended December 31, 2022, our Life and Retirement companies distributed $753 million of dividends to AIG Parent, of which $231 million were distributed to AIG Parent in its capacity as a public company shareholder of Corebridge after its IPO.
Senior Note Offering of Corebridge
On April 5, 2022, Corebridge issued senior unsecured notes in the aggregate principal amount of $6.5 billion, the proceeds of which were used to repay a portion of the $8.3 billion promissory note previously issued by Corebridge to AIG Parent in November 2021 (the Intercompany Note).
Hybrid Offering of Corebridge
On August 23, 2022, Corebridge issued $1.0 billion aggregate principal amount of
6.875% Fixed-to-Fixed Reset Rate Junior Subordinated Notes due 2052, the
proceeds of which were used to repay a portion of the Intercompany Note.
Delayed Draw Term Loan Facility of Corebridge
On September 15, 2022, Corebridge borrowed $1.5 billion under its $1.5 billion 3-Year Delayed Draw Term Loan Agreement, a portion of which were used to repay the remainder of the Intercompany Note.
Corebridge Initial Public Offering
On September 19, 2022, AIG closed on the initial public offering of 80 million shares of Corebridge common stock at a public offering price of $21.00 per share. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $1.7 billion. USES General Borrowings
During the twelve-month period ended December 31, 2022, $9.4 billion of debt
categorized as general borrowings matured, was repaid or redeemed as follows:
•Redeemed €750 million aggregate principal amount of our 1.500% Notes due 2023 for a redemption price of 101.494 percent of the principal amount, plus accrued and unpaid interest. •Repurchased, through cash tender offers, approximately $6.8 billion aggregate principal amount of certain notes and debentures issued or guaranteed by AIG for an aggregate purchase price of approximately $7.1 billion. •Redeemed $750 million aggregate principal amount of our 3.900% Notes Due 2026 for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest. •Redeemed approximately $522 million aggregate principal amount of our 3.750% Notes Due 2025 for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest. •Redeemed $500 million aggregate principal amount of our 2.500% Notes Due 2025 for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest. We made interest payments on our general borrowings totaling $729 million during the twelve-month period ended December 31, 2022 including interest payments made by AIG Parent on AIG Parent-issued debt instruments of $710 million.
Dividends
During the twelve-month period ended December 31, 2022:
•We made cash dividend payments of $365.625 per share on AIG's Series A
Preferred Stock totaling $29 million.
•We made cash dividend payments of $0.32 per share on AIG Common Stock totaling
$982 million.
•Corebridge made cash dividend payments of $124 million in the aggregate to its
shareholders other than AIG, of which $66 million was paid after its IPO.
Repurchases of Common Stock
During the twelve-month period ended December 31, 2022, AIG Parent repurchased
approximately 90 million shares of AIG Common Stock, for an aggregate purchase
price of approximately $5.1 billion.
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ITEM 7 | Liquidity and Capital Resources
ANALYSIS OF SOURCES AND USES OF CASH
Operating Cash Flow Activities
Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits. The ability of insurance companies to generate positive cash flow is affected by the frequency and severity of losses under their insurance policies, policy retention rates, effective management of our investment portfolio and operating expense discipline. Interest payments totaled $1.1 billion and $1.3 billion in the twelve-month periods ended December 31, 2022 and 2021. Excluding interest payments, AIG had operating cash inflows of $5.3 billion in the twelve-month period ended December 31, 2022 compared to operating cash inflows of $7.6 billion in the prior year.
Investing Cash Flow Activities
Net cash used in investing activities in the twelve-month period ended December 31, 2022 was $3.6 billion compared to net cash used in investing activities of $3.3 billion in the prior year. Net cash used in investing activities in 2021 included approximately $4.7 billion of proceeds from divestitures.
Financing Cash Flow Activities
Net cash used in financing activities in the twelve-month period ended December
31, 2022 totaled $676 million, reflecting:
•$982 million to pay a dividend of $0.32 per share per quarter on AIG Common
Stock;
•$29 million to pay a dividend of $365.625 per share per quarter on AIG's Series
A Preferred Stock;
•$124 million paid by Corebridge in the form of cash dividends to shareholders
other than AIG, of which $66 million paid after its IPO;
•$5.2 billion to repurchase approximately 90 million shares of AIG Common Stock;
•$1.5 billion inflow from drawdown by Corebridge on its 3-Year Delayed Draw Term
Loan Agreement;
•$2.0 billion in net outflows from the issuance and repayment of long-term debt;
and
•$318 million in net outflows from the issuance and repayment of debt of
consolidated investment entities.
Net cash used in financing activities in the twelve-month period ended December
31, 2021 totaled $3.7 billion reflecting:
•$1.1 billion to pay a dividend of $0.32 per share per quarter on AIG Common
Stock;
•$29 million to pay a dividend of $365.625 per share per quarter on AIG's Series
A Preferred Stock;
•$2.6 billion to repurchase approximately 50 million shares of AIG Common Stock;
•$4.0 billion in net outflows from the issuance, repayment and cash tender of
long-term debt;
•$156 million in net outflows from the issuance and repayment of debt of
consolidated investment entities; and
•$2.2 billion in net inflows from the sale of a 9.9 percent equity interest in
Corebridge to an affiliate of
For information regarding cash flow activities for the year ended December 31, 2020, see Part II, Item 7. MD&A - Liquidity and Capital Resources - Analysis of Sources and Uses of Cash of our 2021 Annual Report.
LIQUIDITY AND CAPITAL RESOURCES OF AIG PARENT AND SUBSIDIARIES
AIG Parent
As of December 31, 2022, AIG Parent and applicable intermediate holding companies had approximately $8.2 billion in liquidity sources held in the form of cash and short-term investments, and also includes AIG Parent's committed, revolving syndicated credit facility of $4.5 billion. As of December 31, 2021, AIG Parent and applicable intermediate holding companies had approximately $15.2 billion in liquidity sources held in the form of cash and short-term investments and publicly traded, investment grade rated fixed maturity securities, and also includes AIG Parent's committed, revolving syndicated credit facility of $4.5 billion. Following the initial public offering of Corebridge, Corebridge liquidity, including its loan facilities, is no longer reflected in AIG Parent's liquidity. As a public company shareholder of Corebridge, AIG receives its pro rata share of dividends paid by Corebridge on Corebridge common stock after its IPO. AIG Parent's primary sources of liquidity are dividends, distributions, loans and other payments from subsidiaries and credit facilities. AIG Parent's primary uses of liquidity are for debt service, capital and liability management, operating expenses and dividends on AIG Common Stock and Series A Preferred Stock.
We expect to access the debt and preferred equity markets from time to time to
meet funding requirements as needed.
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ITEM 7 | Liquidity and Capital Resources
We utilize our capital resources to support our businesses, with the majority of
capital allocated to our insurance operations. Should we have or generate more
capital than is needed to support our business strategies (including organic or
inorganic growth opportunities) or mitigate risks inherent to our business, we
may develop plans to distribute such capital to shareholders via dividends or
AIG Common Stock repurchase authorizations or deploy such capital towards
liability management.
Insurance Companies
We expect that our insurance companies will be able to continue to satisfy reasonably foreseeable future liquidity requirements and meet their obligations, including those arising from reasonably foreseeable contingencies or events, through cash from operations and, to the extent necessary, monetization of invested assets. Our insurance companies' liquidity resources are primarily held in the form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities. Each of our material insurance companies' liquidity is monitored through various internal liquidity risk measures. The primary sources of liquidity are premiums, fees, reinsurance recoverables and investment income and maturities. The primary uses of liquidity are paid losses, reinsurance payments, benefit claims, surrenders, withdrawals, interest payments, dividends, expenses, investment purchases and collateral requirements. Our insurance companies may require additional funding to meet capital or liquidity needs under certain circumstances. For example, large catastrophes may require us to provide additional support to the affected operations of our General Insurance companies, and a shift in interest rates may require us to provide support to the affected operations of our Life and Retirement companies. Certain of ourU.S. Life and Retirement insurance companies are members of the FHLBs in their respective districts. Our borrowings from FHLBs are non-puttable and are used to supplement liquidity or for other uses deemed appropriate by management. OurU.S. Life and Retirement companies had $4.6 billion and $3.6 billion which were due to FHLBs in their respective districts at December 31, 2022 and December 31, 2021, respectively, under funding agreements issued through our Individual Retirement, Group Retirement and Institutional Markets operating segments, which were reported in Policyholder contract deposits. Proceeds from funding agreements are generally invested in fixed income securities and other investments intended to generate spread income. Certain of ourU.S. Life and Retirement companies have securities lending programs that lend securities from their investment portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under these programs, these companies lend securities to financial institutions and receive cash as collateral equal to 102 percent of the fair value of the loaned securities. These companies had $3.3 billion of securities subject to these agreements at December 31, 2021 and $3.4 billion of liabilities to borrowers for collateral received at December 31, 2021. As of December 31, 2022 we had no loans outstanding under these programs. AIG Parent and/or certain subsidiaries are parties to several letter of credit agreements with various financial institutions, which issue letters of credit from time to time in support of our insurance companies. These letters of credit are subject to reimbursement by AIG Parent and/or certain subsidiaries in the event of a drawdown of these letters of credit. Letters of credit issued in support of the General Insurance companies totaled approximately $3.4 billion at December 31, 2022. Letters of credit issued in support of the Life and Retirement companies totaled approximately $272 million at December 31, 2022, which are subject to reimbursement by Corebridge with no recourse to AIG Parent. On November 1, 2021, Corebridge declared a dividend payable to AIG Parent in the amount of $8.3 billion. In connection with such dividend, Corebridge issued the Intercompany Note, which, as of September 15, 2022, was repaid in full by Corebridge. Following the initial public offering of Corebridge, AIG holds 77.7 percent of Corebridge common stock, resulting in the tax deconsolidation of Corebridge from AIG. As such, as of September 15, 2022, AIG is no longer receiving tax sharing payments from Corebridge for tax liabilities of subsequent periods. Pursuant to the Tax Matters Agreement entered into by Corebridge and AIG on September 14, 2022, the parties will make tax payments to each other in respect of historic tax periods and tax periods prior to the tax deconsolidation of Corebridge from AIG in a manner consistent with pre-existing tax sharing arrangements between the companies. CREDIT FACILITIES AIG Parent maintains a committed, revolving syndicated credit facility (the Facility) with aggregate commitments by the bank syndicate to provide AIG Parent with unsecured revolving loans and/or standby letters of credit of up to $4.5 billion without any limits on the type of borrowings. The Facility is scheduled to expire in November 2026. Our ability to utilize the Facility is conditioned on the satisfaction of certain legal, operating, administrative and financial covenants and other requirements contained in the Facility. These include covenants relating to our maintenance of a specified total consolidated net worth and total consolidated debt to total consolidated capitalization. Failure to satisfy these and other requirements contained in the Facility would restrict our access to the Facility and could have a material adverse effect on our financial condition, results of operations and liquidity. As of December 31, 2022, a total of $4.5 billion remained available under the Facility. AIG | 2022 Form 10-K 111
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ITEM 7 | Liquidity and Capital Resources
Corebridge maintains a revolving syndicated credit facility (the Corebridge
Facility) with aggregate commitments by the bank syndicate to provide Corebridge
with unsecured revolving loans and/or standby letters of credit of up to
$2.5 billion without any limits on the type of borrowings and with no recourse
to AIG Parent. The Corebridge Facility is scheduled to expire in May 2027.
As of December 31, 2022, a total of $2.5 billion remained available under the
Corebridge Facility.
Corebridge also maintains a 3-Year Delayed Draw Term Loan Agreement (the DDTL Facility) with aggregate commitments by the bank syndicate to provide Corebridge with delayed draw term loans of up to $1.5 billion, with no recourse to AIG Parent. On September 15, 2022, Corebridge borrowed $1.5 billion under the DDTL Facility, a portion of which was used to repay the remaining amount due to AIG Parent under the Intercompany Note. The DDTL Facility is scheduled to mature in February 2025.
As of December 31, 2022, a total of $1.5 billion of borrowings are outstanding
under the DDTL Facility.
CONTRACTUAL OBLIGATIONS
The following table summarizes material contractual obligations in total, and by
remaining maturity:
December 31, 2022 Payments due by Period (in millions) Total Payments 2023 2024 - 2025 Thereafter Loss reserves(a) $ 77,699 $ 21,439 $ 22,137 $ 34,123 Insurance and investment contract 294,416 25,101 44,953 224,362
liabilities
Short-term and Long-term debt(b) 21,299 2,143 2,657 16,499 Interest payments on Short-term and 13,703 869 1,668 11,166 Long-term debt Total $ 407,117 $ 49,552 $ 71,415 $ 286,150
(a)Represents loss reserves, undiscounted and gross of reinsurance.
(b)Does not reflect $5.9 billion of debt of consolidated investment entities, for which recourse is limited to the assets of the respective investment entities and for which there is no recourse to the general credit of AIG. In addition, on September 15, 2022, Corebridge borrowed an aggregate principal amount of $1.5 billion under the 3-Year DDTL Facility through October 20, 2022. Corebridge continued this borrowing through June 21, 2023 and has the ability to further continue this borrowing through the final maturity date of the DDTL Facility on February 25, 2025.
Loss Reserves
Loss reserves relate to our General Insurance companies and represent estimates of future loss and loss adjustment expense payments based on historical loss development payment patterns. The amounts presented in the above table are undiscounted and therefore exceed the liability for unpaid losses and loss adjustment expenses, including allowance for credit losses, as presented on the Consolidated Balance Sheets. Due to the significance of the assumptions used, the payments by period presented above could be materially different from actual required payments. We believe that our General Insurance companies maintain adequate financial resources to meet the actual required payments under these obligations.
For additional information on loss reserves, see Critical Accounting Estimates -
Loss Reserves and Note 12 to the Consolidated Financial Statements.
Insurance and Investment Contract Liabilities
Insurance and investment contract liabilities, including GIC liabilities, relate to our Life and Retirement companies. These liabilities include various investment-type products with contractually scheduled maturities, including periodic payments. These liabilities also include benefit and claim liabilities, of which a significant portion represents policies and contracts that do not have stated contractual maturity dates and may not result in any future payment obligations. For these policies and contracts (i) we are not currently making payments until the occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship or (iii) payment may occur due to a surrender or other non-scheduled event beyond our control. We have made significant assumptions to determine the estimated undiscounted cash flows of these contractual policy benefits. The amounts presented in the above table are undiscounted and therefore exceed the liabilities for future policy benefits for life and accident and health insurance contracts, and policyholder contract deposits included in the Consolidated Balance Sheets. Due to the significance of the assumptions used, the payments by period presented above could be materially different from actual required payments.
We believe that our Life and Retirement companies have adequate financial
resources to meet the payments actually required under these obligations.
For additional information on loss reserves, see Critical Accounting Estimates -
Loss Reserves and Notes 12 and 13 to the Consolidated Financial Statements.
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ITEM 7 | Liquidity and Capital Resources
Long-Term Debt and Interest Payments on Long-Term Debt
The amounts presented in the above table represent AIG's total long-term debt
outstanding and associated future interest payments due on such debt.
For additional information on outstanding debt, see - Debt.
OFF-BALANCE SHEET ARRANGEMENTS AND COMMERCIAL COMMITMENTS
In the normal course of business, AIG and our subsidiaries enter into
commitments under which we may be required to make payments in the future on a
contingent basis.
The following table summarizes Off-Balance Sheet Arrangements and Commercial
Commitments in total, and by remaining maturity:
December 31, 2022 Amount of Commitment Expiring (in millions) Total Amounts Committed 2023 2024 - 2025 Thereafter Commitments: Investment commitments $ 6,551 $ 2,535 $ 3,086 $ 930 Commitments to extend credit 6,927 2,399 3,315 1,213 Letters of credit 795 562 5 228 Total(a)(b) $ 14,273 $ 5,496 $ 6,406 $ 2,371
(a)Excludes guarantees, CMAs or other support arrangements between AIG
consolidated entities.
(b)Excludes commitments with respect to pension plans. The annual pension
contribution for 2023 is expected to be approximately $58 million.
Investment commitments
We enter into investment commitments in the normal course of business that are aligned with and support our investment strategies. These represent commitments to investment in private equity funds, hedge funds and other funds, as well as commitments to purchase and develop real estate inthe United States and abroad. The commitments to invest in private equity funds, hedge funds and other funds are called at the discretion of each fund, as needed for funding new investments or expenses of the fund. The expiration of these commitments is estimated based on the expected life cycle of the related funds, consistent with past trends of requirements for funding. These commitments are primarily made by insurance and real estate subsidiaries of the Company.
We also enter into arrangements with variable interest entities (VIEs) and
consolidate a VIE when we are the primary beneficiary of the entity.
For additional information on investment commitments and VIEs, see Note 9 to the
Consolidated Financial Statements.
Commitments to extend credit
As part of our normal course of business lending operations, we enter into commitments to fund mortgage loans at certain interest rates and various other terms, within a stated period of time. Such commitments are legally binding and generally made by insurance subsidiaries of the Company.
Letters of credit
AIG is party to several letter of credit agreements with various financial institutions, which issue letters of credit from time to time for the benefit of third parties in support of our businesses. These letters of credit are subject to reimbursement by AIG in the event of a drawdown.
Indemnification agreements
For information regarding our indemnification agreements, see Note 15 to the
Consolidated Financial Statements.
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ITEM 7 | Liquidity and Capital Resources
DEBT
AIG expects to service and repay general borrowings through maturing investments
and dispositions of invested assets, future cash flows from operations, cash
flows generated from invested assets, future debt or preferred stock issuances
and other financing arrangements. AIG borrowings supported by assets of AIG
include guaranteed investment agreements (GIAs) that are supported by cash and
investments held by AIG Parent, certain non-insurance subsidiaries and amounts
posted to third parties as collateral for the repayment of those obligations.
For additional information on GIAs and associated collateral posted, see Note 5
to the Consolidated Financial Statements.
The following table provides the rollforward of AIG's total debt outstanding:
Year Ended December 31, 2022 Balance, Maturities Effect of Balance,
Beginning and Foreign Other End of
(in millions) of Year Issuances Repayments Exchange Changes Year
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable $ 19,633 $ - $ (9,197) $ (192) $ (2) (d) $ 10,242
Junior subordinated debt 1,164 - (167) (7) 1 991
AIG Japan Holdings Kabushiki Kaisha 333 - - (60) - 273
Validus notes and bonds payable 293 - (14) - (10) 269
Total AIG general borrowings 21,423 - (9,378) (259) (11) 11,775
AIG borrowings supported by assets(a):
AIG notes and bonds payable - - - - 81 (d) 81
Series AIGFP matched notes and bonds
payable 18 - - - - 18
GIAs, at fair value 1,803 26 (78) - (1,695) (e) 56
Notes and bonds payable, at fair value 68 - (36) - (32) (e) -
Total AIG borrowings supported by assets 1,889 26 (114) - (1,646) 155
Total debt issued or guaranteed by AIG 23,312 26 (9,492) (259) (1,657)
11,930
Corebridge debt: AIGLH notes and bonds payable(b) 199 - - - 1 200 AIGLH junior subordinated debt(b) 227 - - - - 227 Corebridge senior unsecured notes - not guaranteed by AIG - 6,461 - - (9) 6,452 Corebridge junior subordinated debt - not guaranteed by AIG - 990 - - (1) 989 DDTL facility - not guaranteed by AIG - 1,500 - - - 1,500 Total Corebridge debt 426 8,951 - - (9) 9,368 Other subsidiaries' notes, bonds, loans and mortgages payable - not guaranteed by AIG 3 - (2) - - 1 Total Short-term and long-term debt $ 23,741 $
8,977 $ (9,494) $ (259) $ (1,666)
$ 21,299 Debt of consolidated investment entities - not guaranteed by AIG(c) $ 6,422 $ 933 $ (1,251) $ (70) $ (154) (f) $ 5,880 (a)AIG Parent guarantees all such debt, except for Series AIGFP matched notes and bonds payable and AIG notes and bonds payable, which are direct obligations of AIG Parent. Collateral posted to third parties was $63 million at December 31, 2022 and $1.4 billion at December 31, 2021. This collateral primarily consists of securities of theU.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties. (b)We have entered into a guarantee reimbursement agreement with Corebridge and AIG Life Holdings, Inc. (AIGLH) which provides that Corebridge and AIGLH will reimburse AIG for the full amount of any payment made by or on behalf of AIG pursuant to AIG's guarantee of the AIGLH notes and junior subordinated debt. We have also entered into a collateral agreement with Corebridge and AIGLH which provides that in the event of: (i) a ratings downgrade of Corebridge or AIGLH long-term unsecured indebtedness below specified levels or (ii) the failure by AIGLH to pay principal and interest on the AIGLH debt when due, Corebridge and AIGLH must collateralize an amount equal to the sum of: (i) 100 percent of the principal amount outstanding, (ii) accrued and unpaid interest and (iii) 100 percent of the net present value of scheduled interest payments. through the maturity dates of the AIGLH debt.
(c)At December 31, 2022, includes debt of consolidated investment entities
primarily related to real estate investments of $1.5 billion and other
securitization vehicles of $4.4 billion. At December 31, 2021, includes debt of
consolidated investment entities related to real estate investments of $1.9
billion and other securitization vehicles of $4.5 billion.
(d)Includes reclassifications of debt between AIG general borrowings and AIG
borrowings supported by assets.
(e)Represents debt for AIGFP and its subsidiaries that were previously
consolidated.
(f)Includes the effect of consolidating previously unconsolidated partnerships.
In the next four quarters, unless redeemed or purchased, no material long-term debt is due to mature. Corebridge has the ability to further continue the DDTL borrowing (currently due June 21, 2023) through the final maturity date of the DDTL Facility on February 25, 2025.
For additional information on debt outstanding, see Note 14 to the Consolidated
Financial Statements.
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ITEM 7 | Liquidity and Capital Resources
CREDIT RATINGS
Credit ratings estimate a company's ability to meet its obligations and may
directly affect the cost and availability of financing to that company. The
following table presents the credit ratings of AIG and certain of its
subsidiaries as of the date of this filing. Figures in parentheses indicate the
relative ranking of the ratings within the agency's rating categories; that
ranking refers only to the major rating category and not to the modifiers
assigned by the rating agencies.
Short-Term Debt Senior Long-Term Debt
Moody's S&P Moody's(a) S&P(b) Fitch(c)
American International Group, P-2 (2nd of 4) A-2 (2nd of 5) Baa 2 (4th of 9) / BBB+ (4th of 9) / BBB+ (4th of 9) /
Inc. Stable Negative Stable
Corebridge Financial, Inc. Baa 2 (4th of 9) / BBB+ (4th of 9) / BBB+ (4th of 9) /
Stable Stable Stable
(a)Moody's appends numerical modifiers 1, 2 and 3 to the generic rating
categories to show relative position within the rating categories.
(b)S&P ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
(c)
or minus sign to show relative standing within the major rating categories.
These credit ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances. Ratings may also be withdrawn at our request.
We are party to some agreements that contain "ratings triggers." Depending on
the ratings maintained by one or more rating agencies, these triggers could
result in (i) the termination or limitation of credit availability or a
requirement for accelerated repayment, (ii) the termination of business
contracts or (iii) a requirement to post collateral for the benefit of
counterparties.
In the event of a downgrade of AIG's long-term senior debt ratings, certain AIG
entities would be required to post additional collateral under some derivative
and other transactions, or certain of the counterparties of such AIG entities
would be permitted to terminate such transactions early.
The actual amount of collateral that we would be required to post to
counterparties in the event of such downgrades, or the aggregate amount of
payments that we could be required to make, depends on market conditions, the
fair value of outstanding affected transactions and other factors prevailing at
the time of the downgrade.
FINANCIAL STRENGTH RATINGS
Financial Strength ratings estimate an insurance company's ability to pay its
obligations under an insurance policy. The following table presents the ratings
of our significant insurance subsidiaries as of the date of this filing.
A.M. Best S&P Fitch Moody's
National Union Fire Insurance Company of
Pittsburgh, Pa. A A+ A A2
Lexington Insurance Company A A+ A A2
American Home Assurance Company A A+ A A2
American General Life Insurance Company A A+ A+ A2
The Variable Annuity Life Insurance Company A A+ A+ A2
United States Life Insurance Company in the City
of New York A A+ A+ A2
AIG Europe S.A. NR A+ NR A2
American International Group UK Ltd. A A+ NR A2
AIG General Insurance Co. Ltd. NR A+ NR NR
Validus Reinsurance, Ltd. A A+ NR NR
On December 16, 2022, A.M. Best revised the outlook to positive from stable for
the Long-Term Issuer Credit Ratings (Long-Term ICRs) and affirmed the Financial
Strength Rating (FSR) of 'A' and the Long-Term ICR of 'a' of AIG's General
Insurance subsidiaries. The outlook of the FSR is stable.
These financial strength ratings are current opinions of the rating agencies.
They may be changed, suspended or withdrawn at any time by the rating agencies
as a result of changes in, or unavailability of, information or based on other
circumstances.
For information regarding the effects of downgrades in our credit ratings and
financial strength ratings, see Note 10 to the Consolidated Financial Statements
and Part I, Item 1A. Risk Factors - Liquidity, Capital and Credit - "A downgrade
by one or more of the rating agencies in the Insurer Financial Strength ratings
of our insurance or reinsurance companies could limit their ability to write or
prevent them from writing new business and impair their retention of customers
and in-force business, and a downgrade in our credit ratings could adversely
affect our business, results of operations, financial condition and liquidity".
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ITEM 7 | Liquidity and Capital Resources
REGULATION AND SUPERVISION
For a discussion of our regulation and supervision by different regulatory
authorities in
liquidity and capital resources, see Part I, Item 1. Business - Regulation and
Part I, Item 1A. Risk Factors - Regulation.
DIVIDENDS
On February 15, 2023, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March 31, 2023 to shareholders of record on March 17, 2023. On February 15, 2023, our Board of Directors declared a cash dividend on AIG's Series A Preferred Stock of $365.625 per share, payable on March 15, 2023 to holders of record on February 28, 2023.
The payment of any future dividends will be at the discretion of our Board of
Directors and will depend on various factors. For further detail on our
dividends, see Note 16 to the Consolidated Financial Statements.
REPURCHASES OF AIG COMMON STOCK
Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and as of February 10, 2023 $3.8 billion remained under the share repurchase authorization. During the twelve-month period ended December 31, 2022, AIG Parent repurchased approximately 90 million shares of AIG Common Stock for an aggregate purchase price of $5.1 billion. The timing of any future share repurchases will depend on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and other factors, as discussed further in Note 16 to the Consolidated Financial Statements. DIVIDEND RESTRICTIONS
Payments of dividends to AIG by its insurance subsidiaries are subject to
certain restrictions imposed by regulatory authorities.
For information regarding restrictions on payments of dividends by our
subsidiaries, see Note 18 to the Consolidated Financial Statements.
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ITEM 7 | Enterprise Risk Management
Enterprise Risk Management
OVERVIEW
We consider risk management an integral part of our business strategy and a key
element of our approach to corporate governance. We have an integrated process
for managing risks throughout our organization in accordance with our firm-wide
risk appetite. Our Board of Directors has oversight responsibility for the
management of risk. Our Enterprise Risk Management Department supervises and
integrates the risk management functions in each of our business units,
providing senior management with a consolidated view of AIG's major risk
positions. ERM embeds risk management in our key day-to-day business processes
and in identifying, assessing, quantifying, monitoring, reporting, and
mitigating the risks taken by AIG. Nevertheless, our risk management efforts may
not always be successful and material adverse effects on our business, results
of operations, cash flows, liquidity or financial condition may occur. For
further information regarding the risks associated with our business and
operations, see Part I, Item 1A. Risk Factors.
AIG employs a Three Lines of Defense model. AIG's business leaders assume full
accountability for the risks and controls in their operating units, and ERM
performs a review, challenge and oversight function. The third line consists of
our Internal Audit Group that provides independent assurance to AIG's Board of
Directors.
RISK GOVERNANCE STRUCTURE
Our risk governance structure fosters the development and maintenance of a risk
and control culture that encompasses all significant risk categories impacting
our lines of business and functions. Accountability for the implementation and
oversight of risk policies is aligned with individual business leaders, with the
risk committees receiving regular reports regarding compliance with each policy
to support risk governance at our corporate level as well as in each business
unit. We review our governance and committee structure on a regular basis and
make changes as appropriate to continue to effectively manage and govern both
our risks and risk-taking activities.
Our Board of Directors oversees the management of risk through its Risk and
Capital Committee (RCC) and Audit Committee. These committees regularly interact
with other committees of the Board of Directors which are further described
below. Our Chief Risk Officer (CRO) reports to both the RCC and our Chairman and
Chief Executive Officer. Our CRO is also a member of the Executive Leadership
Team providing ERM the opportunity to contribute to, review, monitor and
consider the impact of changes in strategy.
The Group Risk Committee (GRC): The GRC is the senior management group
responsible for assessing all significant risk issues on a global basis to
protect our financial strength and reputation. The GRC is chaired by our CRO.
Our CRO reports periodically on behalf of the GRC to both the RCC and the Audit
Committee of the Board of Directors.
The GRC is supported by management committees including the Business Unit Risk
Committees and Legal Entity Risk Committees. These committees are comprised of
senior executives and experienced business representatives from a range of
functions and business units throughout AIG and its subsidiaries. These
committees are charged with identifying, analyzing and reviewing specific risk
matters within their respective mandates. In addition, various working groups
are in place in support of the GRC to manage and monitor the various risks
across the organization.
RISK APPETITE, LIMITS, IDENTIFICATION AND MEASUREMENT
Risk Appetite Framework
Our Risk Appetite Framework integrates stakeholder interests, strategic business
goals and available financial resources. We balance these by seeking to take
measured risks that are expected to generate repeatable, sustainable earnings
and create long-term value for our shareholders. The framework includes our risk
appetite statement approved by the Board of Directors and a set of supporting
tools, including risk tolerances, risk limits and policies, which we use to
manage our risk profile and financial resources.
These measures are set at the AIG Parent level as well as the legal entity level
and cover consolidated and insurance company capital and liquidity ratios. Our
risk tolerances take into consideration regulatory requirements, rating agency
expectations, and business needs. The GRC routinely reviews the level of risk
taken by the consolidated organization in relation to the established risk
tolerances. A consolidated risk report is also presented periodically to the RCC
by our CRO.
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ITEM 7 | Enterprise Risk Management
Risk Limits
A key component of our Risk Appetite Framework is having a process in place that
establishes and maintains appropriate tolerances and limits on the material
risks identified for our core businesses and facilitates the monitoring and
meeting of both internal and external stakeholder expectations.
To support the monitoring and management of AIG's and its business units'
material risks, ERM has an established limits framework that employs a
three-tiered hierarchy:
•Board-level risk tolerances are AIG's aggregate consolidated capital and
liquidity limits. They define the minimum level of consolidated capital and
liquidity that we should maintain. These board-level risk tolerances are
approved by the Board of Directors and monitored by the RCC.
•AIG management level limits are risk type specific limits at the AIG
consolidated level. These limits are approved by our CRO with consultation from
the GRC.
•Business unit and legal entity level limits are set to address key risks identified for the business unit and legal entities, protect capital and liquidity at legal entities and/or meet legal entity specific requirements of regulators and rating agencies. These limits are defined by the business unit and legal entity risk officers. All limits are reviewed by the GRC or relevant business unit risk committees on a periodic basis and revisions, if applicable, are approved by those committees. Limit breaches are required to be reported in a timely manner and are documented and escalated in accordance with their level of severity or materiality.
Risk Identification and Measurement
We conduct risk identification through multiple processes at the business unit and corporate level focused on capturing our material risks. A key initiative is our integrated bottom-up risk identification and assessment process which is conducted down to the product-line level. In addition, we perform an annual top-down risk assessment to identify top risks and assign owners to ensure these risks are appropriately addressed and managed. These processes are used as critical input to enhance and develop our analytics for measuring and assessing risks across the organization. We employ various approaches to measure, monitor and manage risk exposures, including the utilization of a variety of metrics and early warning indicators. We use a proprietary internal capital and stress testing framework to measure our quantifiable risks. The internal capital framework quantifies our aggregate economic risk at a given confidence interval, after taking into account diversification benefits between risk factors and business lines. We leverage the internal capital framework to help inform our consolidated risk consumption and profile as well as risk and capital allocation for our businesses. The stress testing framework assesses our aggregate exposure to our most significant financial and insurance risks, including the risks in each of our key insurance company subsidiaries in relation to its capital needs under stress, risks inherent in our non-insurance company subsidiaries, and risks to AIG consolidated capital. We use this information to support the assessment of resources needed at the AIG Parent level to support our subsidiaries and capital resources required to maintain consolidated company target capitalization levels.
We evaluate and manage risk in material topics as discussed below.
•Credit Risk Management •Liquidity Risk Management •Insurance Risks
•Market Risk Management •Operational Risk Management
CREDIT RISK MANAGEMENT
Credit risk is defined as the risk that our customers or counterparties are unable or unwilling to repay their contractual obligations when they become due. Credit risk may also result from a downgrade of a counterparty's credit ratings or a widening of its credit spreads. Direct and indirect credit exposures may arise from, but are not limited to, fixed income investments, equity securities, deposits, commercial paper investments, securities purchased under agreements to resell and repurchase agreements, corporate and consumer loans, leases, reinsurance and retrocessional insurance recoverables, counterparty risk arising from derivatives activities, collateral extended to counterparties, insurance risk cessions to third parties, financial guarantees, letters of credit, and certain General Insurance businesses. 118 AIG | 2022 Form 10-K
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ITEM 7 | Enterprise Risk Management
Our credit risks are managed by teams of credit professionals, subject to ERM
oversight and various control processes. ERM is primarily responsible for the
development, implementation and maintenance of a risk management framework. Our
credit risk framework incorporates risk identification and measurement, risk
limits, risk delegations to authorized credit professionals throughout the
company, and credit reserving. Credit reserving includes but is not limited to
the development of a proper framework, policies and procedures for establishing
accurate identification of (i) reserves for credit losses and (ii)
other-than-temporary impairments for securities portfolios.
We monitor and control our company-wide credit risk concentrations and attempt
to avoid unwanted or excessive risk accumulations, whether funded or unfunded.
To minimize the level of credit risk in some circumstances, we may require
mitigants, such as third-party guarantees, reinsurance or collateral, including
commercial bank-issued letters of credit and trust collateral accounts. We treat
these guarantees, reinsurance recoverables, and letters of credit as credit
exposure and include them in our risk concentration exposure data. We also
closely monitor the quality of any trust collateral accounts.
For additional information on our credit concentrations and credit exposures,
see Investments - Credit Ratings - Available-for-Sale Investments.
Derivative Transactions
We utilize derivatives principally to enable us to hedge exposure associated with changes in levels of interest rates, currencies, credit, commodities, equity prices and other risks. Credit risk associated with derivative counterparties exists for a derivative contract when that contract has a positive fair value to us. All derivative transactions must be transacted within counterparty limits that have been approved by ERM. We evaluate counterparty credit quality via an internal analysis that is consistent with the AIG Credit Policy. We require credit enhancements in connection with specific transactions based on, among other things, the creditworthiness of the counterparties, and transaction size and maturity. Furthermore, we enter into certain agreements that have the benefit of set-off and close-out netting provisions, such as ISDA Master Agreements. These provisions provide that, in the case of an early termination of a transaction, we can set off receivables from a counterparty against payables to the same counterparty arising out of all covered transactions. As a result, where a legally enforceable netting agreement exists, the fair value of the transaction with the counterparty represents the net sum of estimated fair values.
For additional information related to derivative transactions, see Note 10 to
the Consolidated Financial Statements.
MARKET RISK MANAGEMENT
Market risk is defined as the risk of adverse impact due to systemic movements in one or more of the following market risk drivers: equity and commodity prices, residential and commercial real estate values, interest rates, credit spreads, foreign exchange, inflation, and their respective levels of volatility. We are exposed to market risks primarily within our insurance and capital markets activities, on both the asset and the liability sides of our balance sheet through on- and off-balance sheet exposures. The scope and magnitude of our market risk exposures is managed in a manner consistent with our risk appetite statement. Our market risk management framework focuses on quantifying the financial repercussions of changes in the above mentioned market risk drivers. Many of our market risk exposures, including exposures to changes in levels of interest rates and equity prices, are associated with the asset and liability exposures of our Life and Retirement companies. These exposures are generally long-term in nature. Also, we have equity market risk sensitive surrenders in our variable annuity product portfolio. These interactive asset-liability types of risk exposures are regularly monitored in accordance with the risk governance framework noted above.
Market risk is overseen at the corporate level within ERM through the CRO.
Market risk is managed by our finance, treasury and investment management
corporate functions, collectively, and in partnership with ERM.
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ITEM 7 | Enterprise Risk Management
Market risk drivers:
Equity prices We are exposed to changes in equity market
prices affecting a variety of
equity-linked capital market instruments and
insurance products, including but
not limited to the valuation of publicly traded
equity shares, investments in
private equity, hedge funds, mutual funds,
exchange-traded funds, alternative
risk premia investment strategies, variable
annuities, indexed universal life
insurance and variable universal life
insurance.
Residential and commercial Our investment portfolios are exposed to the risk of changing values in a
real estate values variety of residential and commercial real estate investments. Changes in real
estate prices can affect the valuation of
mortgages, mortgage-backed securities
and other structured securities with underlying
assets that include real estate
mortgages, trusts that include real estate
and/or mortgages, residential
mortgage insurance and reinsurance contracts
and commercial real estate
investments.
Interest rates Interest rate risk can arise from a mismatch in
the interest rate exposure of
assets versus liabilities. Lower interest rates
generally result in lower
investment income and make some of our product
offerings less attractive to
investors. Conversely, higher interest rates
are typically beneficial for the
opposite reasons. When rates rise quickly,
there can be an asymmetric GAAP
accounting effect where the existing securities
lose market value and the
offsetting decrease in the value of certain
liabilities may not be recognized.
Changes in interest rates can affect the
valuation of fixed maturity
securities, financial liabilities, and
insurance contracts. Additionally, for
variable annuity, index annuity, and equity
indexed universal life products,
deviations in actual versus expected
policyholder behavior can be driven by
fluctuations in various market variables,
including interest rates. Policies
with guaranteed living benefit options or
riders are also subject to the risk
of actual benefit utilization being different than expected.
Credit spreads Credit spreads measure an instrument's risk
premium or yield relative to that
of a comparable duration, default-free
instrument. Changes in credit spreads
can affect the valuation of fixed maturity
securities, including but not
limited to corporate bonds, asset backed
securities, mortgage-backed
securities, AIG-issued debt obligations, credit
derivatives, derivative credit
valuation adjustments and economic valuation of
insurance liabilities. Wider
credit spreads paired with unchanged
expectations about default losses imply
higher investment income in the long term. In
the short term, quickly rising
spreads will cause a loss in the value of
existing fixed maturity securities. A
precipitous widening of credit spreads may also
signal a fundamental weakness
in the credit worthiness of bond obligors,
potentially resulting in default
losses.
Foreign exchange (FX) rates As a globally diversified enterprise, changes in FX rates can affect the
valuation of a broad range of balance sheet and
income statement items as well
as the settlement of cash flows exchanged in specific transactions.
Commodity prices Changes in commodity prices can affect the
valuation of publicly-traded
commodities and commodity indices, derivatives
on commodities and commodity
indices, and other commodity-linked investments
and insurance contracts. We are
exposed to commodity prices primarily through
their impact on the prices and
credit quality of commodity producers' debt and
equity securities in our
investment portfolio.
Inflation Changes in inflation can affect the valuation
of fixed maturity securities,
including AIG-issued debt obligations,
derivatives and other contracts
explicitly linked to inflation indices, and
insurance contracts where the
claims are linked to inflation either
explicitly, via indexing, or implicitly,
through medical costs or wage levels.
Our market risk measurement framework was developed with the main objective of
communicating the range and scale of our market risk exposures.
We monitor risks through multiple lenses that include economic, GAAP and statutory reporting frameworks at various levels of business consolidation. This process aims to establish a comprehensive coverage of potential implications from adverse market risk developments. We use a number of approaches to measure market risk exposure including sensitivity analysis, scenario analysis and stress testing. 120 AIG | 2022 Form 10-K
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ITEM 7 | Enterprise Risk Management
Market Risk Sensitivities
The following table provides estimates of sensitivity to changes in yield
curves, equity prices and FX rates on our financial instruments and excludes
approximately $172.3 billion and $178.1 billion of insurance liabilities as of
December 31, 2022 and December 31, 2021, respectively. AIG believes that the
interest rate sensitivities of these insurance and other liabilities serve as an
offset to the net interest rate risk of the financial assets presented in the
table below. In addition, the table excludes $27.1 billion of interest rate
sensitive assets and $2.0 billion of equity and alternative investments
supporting the Fortitude Re funds withheld arrangements as the contractual
returns related to the assets are transferred to Fortitude Re, as well as
$30.4 billion of related funds withheld payables.
Balance Sheet Exposure Economic Effect
December 31, December 31, December 31, December 31,
(dollars in millions) 2022 2021 2022 2021
100 bps parallel increase in all yield
Sensitivity factor
curves
Interest rate sensitive assets: Fixed maturity securities $ 205,860 $ 248,632 $ (11,728) $ (17,017) Mortgage and other loans receivable(a) 42,664 40,085 (1,718) (1,928) Derivatives: Interest rate contracts (1,116) 240 (631) (1,702) Equity contracts 402 628 (62) (228) Other contracts 720 439 (49) (2)
Total interest rate sensitive assets $ 248,530 $ 290,024
$ (14,188) $ (20,877) Interest rate sensitive liabilities: Policyholder contract deposits: Investment-type contracts(a) $ (136,040) $ (130,643) $ 6,552 $ 10,375 Variable annuity and other embedded derivatives (7,147) (9,736) 1,590 2,550 Short-term and long-term debt(a)(c) (20,329) (22,686) 1,316 2,183
Total interest rate sensitive liabilities $ (163,516) $ (163,065)
$ 9,458 $ 15,108 Sensitivity factor
20% decline in equity prices and
alternative investments
Derivatives:
Equity contracts(d) $ 402 $ 628 $ 552 $ 542
Equity and alternative investments:
Real estate investments 2,020 2,526 (404) (505)
Private equity 8,626 7,533 (1,725) (1,507)
Hedge funds 1,290 1,812 (258) (362)
Common equity 542 728 (108) (146)
Other investments 1,382 1,328 (276) (266)
Total derivatives, equity and alternative
investments $ 14,262 $ 14,555 $ (2,219) $ (2,244)
Policyholder contract deposits:
Variable annuity and other embedded
derivatives(d) $ (7,147) $ (9,736) $ (528) $ (269)
Total liabilities $ (7,147) $ (9,736) $ (528) $ (269)
Sensitivity factor
10% depreciation of all FX rates against
the U.S. dollar
Foreign currency-denominated net asset
position:
Japan Yen $ 978 $ (57) $ (98) $ 6
Canada dollar 654 758 (65) (76)
British pound 419 1,046 (42) (105)
All other foreign currencies 1,760 1,910 (176) (192)
Total foreign currency-denominated net
asset position(e) $ 3,811 $ 3,657 $ (381) $ (367)
(a)The economic effect is the difference between the estimated fair value and
the effect of a 100 bps parallel increase in all yield curves on the estimated
fair value. The estimated fair values for Mortgage and other loans receivable,
Policyholder contract deposits (Investment-type contracts) and Short-term and
long-term debt were $43.0 billion, $132.0 billion and $18.7 billion at December
31, 2022, respectively. The estimated fair values for Mortgage and other loans
receivable, Policyholder contract deposits (Investment-type contracts) and
Long-term debt were $45.7 billion, $143.1 billion and $25.7 billion at December
31, 2021, respectively.
(b)At December 31, 2022, the analysis covered $248.5 billion of $280.9 billion
interest-rate sensitive assets. As indicated above, excluded were $23.0 billion
and $4.1 billion of fixed maturity securities and loans, respectively,
supporting the Fortitude Re funds withheld arrangements. In addition, $3.0
billion of loans and $2.6 billion of assets across various asset categories were
excluded due to modeling limitations. At December 31, 2021, the analysis covered
$290.0 billion of $331.5 billion interest-rate sensitive assets. As indicated
above, excluded were $33.7 billion and $3.6 billion of fixed maturity securities
and loans, respectively, supporting the Fortitude Re funds withheld
arrangements. In addition, $2.3 billion of loans and $2.0 billion of assets
across various asset categories were excluded due to modeling limitations.
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ITEM 7 | Enterprise Risk Management
(c)At December 31, 2022 the analysis excluded $0.4 billion of AIGLH borrowings,
$0.3 billion of Validus borrowings, $1 million of borrowings from Glatfelter
Insurance Group (Glatfelter) and $0.3 billion of AIG Japan Holdings loans. At
December 31, 2021, the analysis excluded $0.4 billion of AIGLH borrowings,
$0.3 billion of Validus borrowings, $2 million of borrowings from Glatfelter and
$0.3 billion of AIG Japan Holdings loans.
(d)The balance sheet exposures for equity contracts and variable annuity and
other embedded derivatives are also reflected under "Interest rate sensitive
liabilities" above, and are not additive.
(e)The majority of the foreign currency exposure is reported on a one quarter
lag. Foreign currency-denominated net asset position reflects our aggregated
non-U.S. dollar assets less our aggregated non-U.S. dollar liabilities on a GAAP
basis, with certain adjustments.
Interest rate sensitivity is defined as the change in value with respect to a
100 basis point parallel shift up in the interest rate environment, calculated
as: scenario value minus base value, where base value is the value under the
yield curves as of the period end and scenario value is the value reflecting a
100 basis point parallel increase in all yield curves.
We evaluate our interest rate risk without considering effects of correlation of
changes in levels of interest rate with other key market risks or other
assumptions used for calculating the values of our financial assets and
liabilities.
We evaluate our equity price risk without considering effects of correlation of changes in equity prices with other key market risks or other assumptions used for calculating the values of our financial assets and liabilities, as the stress scenario does not reflect the impact of basis risk which we use in the development of our hedging strategy. The risk monitoring responsibilities, owned by the business units, include ensuring compliance with market risk limits and escalation and remediation of limit breaches. Such activities must be reported to the ERM Market Risk team by the relevant business unit. This monitoring approach is aligned with our overall risk limits framework.
For additional information on our three-tiered hierarchy of limits, see Risk
Appetite, Limits, Identification and Measurement - Risk Limits.
LIQUIDITY RISK MANAGEMENT
Liquidity risk is defined as the risk that our financial condition will be
adversely affected by the inability or perceived inability to meet our
short-term cash, collateral or other financial obligations as they come due.
AIG and its legal entities seek to maintain sufficient liquidity both during the normal course of business and under defined liquidity stress scenarios to ensure that sufficient cash will be available to meet the obligations as they come due. AIG Parent liquidity risk tolerance levels are designed to allow us to meet our financial obligations for a minimum of six months under a liquidity stress scenario. We maintain liquidity limits and minimum coverage ratios designed to ensure that funding needs are met under stress conditions. If we project that we could breach these tolerances, we assess and determine appropriate liquidity management actions. However, market or other conditions in effect at that time may not permit us to achieve an increase in liquidity sources or a reduction in liquidity requirements. Liquidity risk is overseen at the corporate level within ERM. The CRO has responsibility for the oversight of the Liquidity Risk Management Framework and delegates the day-to-day implementation of this framework to the AIG Treasurer. Our treasury function manages liquidity risk, subject to ERM oversight and various control processes. Our Liquidity Risk Management Framework includes liquidity and funding policies and monitoring tools to address AIG-specific, broader industry and market-related liquidity events.
Types of liquidity and funding risks:
Market/Monetization Risk Assets may not be readily transformed into cash due to unfavorable
market conditions. Market liquidity risk
may limit our ability to sell
assets at reasonable values or necessary
volumes to meet liquidity
needs.
Cash Flow Mismatch Risk Discrete and cumulative cash flow mismatches or gaps over short-term
horizons under both expected and adverse
business conditions may create
future liquidity shortfalls.
Event Funding Risk Event funding risk comes in many forms and may result from a downgrade
in credit ratings, a market event, or some other event that creates a
funding obligation or limits existing funding options.
Financing Risk We may be unable to raise additional cash on a secured or unsecured
basis due to unfavorable market conditions, AIG-specific issues, or any
other issue that impedes access to additional funding.
Comprehensive cash flow projections under normal conditions are the primary
component for identifying and measuring liquidity risk. We produce comprehensive
liquidity projections over varying time horizons that incorporate all relevant
liquidity sources and uses and include known and likely cash inflows and
outflows. In addition, we perform stress testing by identifying liquidity stress
scenarios and assessing the effects of these scenarios on our cash flow and
liquidity. We use a number of approaches to measure our liquidity risk exposure
including minimum liquidity limits, coverage ratios, coverage flow forecasts,
and stress testing.
Relevant liquidity reporting is produced and reported regularly to AIG Parent
and business unit risk committees. The frequency, content, and nature of
reporting will vary for each business unit and legal entity, based on its
complexity, risk profile, activities and size.
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ITEM 7 | Enterprise Risk Management
OPERATIONAL RISK MANAGEMENT
Operational risk is defined as the risk of loss, or other adverse consequences,
resulting from inadequate or failed internal processes, people, systems, or from
external events. Operational risk includes legal, regulatory, technology,
compliance, third-party and business continuity risks, but excludes business and
strategy risks.
Operational risk is inherent in each of our business units and functions and can
have many impacts, including but not limited to: unexpected economic losses or
gains, reputational harm due to negative publicity, regulatory action from
supervisory agencies and operational and business disruptions, and/or damage to
customer relationships.
The Operational Risk Management (ORM) function within ERM oversees adherence to
the operational risk policy and risk and control framework, which includes risk
identification, assessment, measurement, management and monitoring of
operational risk exposures. In line with the Three Lines of Defense Model, the
ORM program includes, but is not limited to, Issue/Risk event capture, analysis
and treatment, risk assessments, and key risk indicators.
ORM, working together with other control and assurance functions (e.g.,
Compliance, Financial Controls Unit, Enterprise Resiliency, and Internal Audit)
through the risk and control framework, provides an independent view of
operational risks for each business, and works with the business units,
corporate functions, and the first line Risk and Control Owners.
Cybersecurity Risk
AIG, like other global companies, continues to witness the increased sophistication and activities of unauthorized parties attempting cyber and other computer-related penetrations such as "denial of service" attacks, phishing, untargeted but sophisticated and automated attacks, and other disruptive software in an effort to compromise systems, networks and obtain sensitive information. Cybersecurity risks may also derive from unintentional human error or intentional malice on the part of AIG employees or third parties who have authorized access to AIG's systems or information. ERM works closely with and supports the risk management practices of Information Technology, the Information Security Office and the business units and functions that form the lines of defense against the cybersecurity risks that we face. AIG's Board of Directors is regularly briefed by management on AIG's cybersecurity matters, including threats, policies, practices and ongoing efforts to improve security. For additional information regarding the privacy data protection and cybersecurity regulations to which we are subject, see Part I, Item 1. Business - Regulation - Privacy, Data Protection and Cybersecurity. For additional discussion of cybersecurity risks, see Part I, Item 1A. Risk Factors - Business and Operations.
INSURANCE RISKS
Insurance risk is defined as the risk of actual claims experience and/or policyholder behavior being materially different than initially expected at the inception of an insurance contract. Uncertainties related to insurance risk can lead to deviations in magnitude and/or timing of prospective cash flows associated with our liabilities compared to what we expected.
We manage our business risk oversight activities through our insurance
operations. A primary goal in managing our insurance operations is to achieve an
acceptable risk-adjusted return on equity. To achieve this goal, we must be
disciplined in risk selection, premium adequacy, and appropriate terms and
conditions to cover the risk accepted.
We operate our insurance businesses on a global basis, and we are exposed to a wide variety of risks with different time horizons. We manage these risks throughout the organization, both centrally and locally, through a number of processes and procedures, including, but not limited to:
•pricing and risk selection models including regular monitoring;
•pricing approval processes;
•pre-launch approval of product design, development and distribution;
•underwriting approval processes and authorities;
•modeling and reporting of aggregations and limit concentrations at multiple
levels (policy, line of business, product group, country, individual/group,
correlation and catastrophic risk events);
•risk transfer tools such as reinsurance, both internal and third-party;
•review and challenge of reserves to ensure comprehensive analysis with
established escalation procedures to provide appropriate transparency in
reserving decisions and judgments made in the establishment of reserves;
•management of relationship between assets and liabilities, including hedging;
•model risk management framework and validation processes;
•actuarial profitability and reserve reviews; and
•experience monitoring and assumption updates.
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We closely manage insurance risk by monitoring and controlling the nature and
geographic location of the risks in each underwritten line of business,
concentrations in industries, the terms and conditions of the underwriting and
the premiums we charge for taking on the risk. We analyze concentrations of
risks using various modeling techniques, including both probability
distributions (stochastic) and/or single-point estimates (deterministic)
approaches.
Risk Measurement, Monitoring and Limits
We use a number of approaches to measure our insurance risk exposure including sensitivity and scenario analyses, stochastic methods, and experience studies. Additionally, there are risk-specific assessment tools, both internal and third-party, in place to better manage the variety of insurance risks to which we are exposed.
We monitor concentrations of exposure through insurance limits and thresholds
aggregated along dimensions such as geography, industry, or counterparty.
The risk monitoring responsibilities of the business units include ensuring compliance with insurance risk limits and escalation and remediation of limit breaches. Such activities are reported to management by all business units for informative decision-making on a regular basis. This monitoring approach is aligned with our overall risk limits framework.
For additional information on our three-tiered hierarchy of limits, see Risk
Appetite, Limits, Identification and Measurement - Risk Limits.
General Insurance Companies' Key Risks
We manage our risks through risk review and selection processes, exposure limitations, exclusions, deductibles, self-insured retentions, coverage limits, attachment points, and reinsurance. This management is supported by sound underwriting practices, pricing procedures and the use of actuarial analysis to help determine overall adequacy of provisions for insurance. Underwriting practices and pricing procedures incorporate historical experience, changes in underlying exposure, current regulation and judicial decisions as well as proposed or anticipated regulatory changes or societal trends.
For General Insurance companies, risks primarily include the following:
•Loss Reserves - The potential inadequacy of the liabilities we establish for unpaid losses and loss adjustment expenses is a key risk faced by the General Insurance companies. We manage this uncertainty through internal controls and oversight of the loss reserve setting process, as well as reviews by external experts. For further information, see Critical Accounting Estimates - Loss Reserves. •Underwriting - The potential inadequacy of premiums charged for future risk periods on risks underwritten in our portfolios can impact the General Insurance companies' ability to achieve an underwriting profit. We develop pricing based on our estimates of losses and expenses, but factors such as market pressures and the inherent uncertainty and complexity in estimating losses may result in premiums that are inadequate to generate underwriting profit. •Catastrophe Exposure - Our business is exposed to various catastrophic events in which multiple losses can occur and affect multiple lines of business in any calendar year. Natural disasters, man-made catastrophes or pandemic disease, could also adversely affect our business and operating results to the extent they are covered by our insurance products. Concentration of exposure in certain industries or geographies may cause us to suffer disproportionate losses. •Single Risk Loss Exposure - Our business is exposed to loss events that have the potential to generate losses from a single insured client. Events such as fires or explosions can result in loss activity for our clients. The net risk to us is managed to acceptable limits established by the Chief Underwriting Officer through a combination of internal underwriting standards and external reinsurance. •Reinsurance - Since we use reinsurance to limit our losses, we are exposed to risks associated with reinsurance including the recoverability of expected payments from reinsurers due to either an inability or unwillingness to pay, contracts that do not respond properly to the event or actual reinsurance coverage that is different than anticipated. The inability or unwillingness to pay is considered credit risk and is monitored through our credit risk management framework.
Natural Catastrophe Risk
We manage catastrophe exposure with multiple approaches such as setting risk limits based on aggregate Probable Maximum Loss (PML) modeling, monitoring overall exposures and risk accumulations, modifying our gross underwriting standards, and purchasing catastrophe reinsurance through both the traditional reinsurance and capital markets in addition to other reinsurance protections. We use third-party catastrophe risk models and other tools to evaluate and simulate frequency and severity of catastrophic events and associated losses to our portfolios of exposures. We apply adjustments to modeled losses to account for loss adjustment expenses, model biases, data quality and non-modeled risks. 124 AIG | 2022 Form 10-K
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ITEM 7 | Enterprise Risk Management
We recognize that climate change has implications for insurance industry
exposure to natural catastrophe risk. With multiple levels of risk management
processes in place, we actively analyze the latest climate science and policies
to anticipate potential changes to our risk profile, pricing models and
strategic planning. In addition, we provide insurance products and services to
help our clients be proactive against the threat of climate change. Our internal
product development, underwriting, and modeling, will continue to adapt to and
evolve with the developing risk exposures attributed to climate change.
The table below details our modeled estimates of PML, net of reinsurance, on an
annual aggregate basis. The 1-in-100 and 1-in-250 PMLs are the annual aggregate
probable maximum losses with probability of 1 percent and 0.4 percent in a year,
respectively. Estimates as of December 31, 2022 reflect our in-force portfolio
for exposures as of October 1, 2022, except for AIG Re with exposures as of
January 1, 2023, and all inuring reinsurance covers as of December 31, 2022,
except for the catastrophe reinsurance programs, which are as of January 1, 2023
and reflected as of such date.
The following table presents an overview of annual aggregate modeled losses for
world-wide all perils and exposures arising from our largest primarily modeled
perils:
At December 31, 2022
Percent of Total
(in millions) Net of Net of Reinsurance, Percent of Total Shareholders' Equity
Reinsurance After Tax(f) Shareholders' Equity Excluding AOCI
Exposures:
World-wide all peril $ 4,087 $ 3,229 8.1 % 5.2 %
(1-in-250)(a)
U.S. Hurricane (1-in-100)(b) 1,403 1,109 2.8 1.8 U.S. Earthquake (1-in-250)(c) 1,631 1,289 3.2 2.1 Japanese Typhoon (1-in-100)(d) 487 385 1.0 0.6 Japanese Earthquake (1-in-250)(e) 501 395 1.0 0.6
(a)The world-wide all peril loss estimate includes wildfire exposure.
(b)The U.S. hurricane loss estimate includes losses to Commercial and Personal
Property from hurricane hazards of wind and storm surge.
(c)The U.S. earthquake loss estimates represent exposure to Commercial and
Personal Property, Workers' Compensation (U.S.) and A&H business lines.
(d)Japan Typhoon loss estimate represents exposure to Commercial and Personal
Property.
(e)Japan Earthquake loss estimate represents exposure to Commercial and Personal
Property and A&H business lines.
(f)Taxed at the statutory tax rate of 21 percent for both the U.S. and Japanese
modeled losses. The majority of Japan exposures are ceded to our U.S. Pool.
AIG, along with other property casualty insurance and reinsurance companies, uses industry-recognized catastrophe models and applies proprietary modeling processes and assumptions to arrive at loss estimates. The use of different methodologies and assumptions could materially change the projected losses. Since there is no industry standard for assumptions and preparation of insured data for use in these models, our modeled losses may not be comparable to estimates made by other companies. Also, the modeled results are based on the assumption that all reinsurers fulfill their obligations to us under the terms of the reinsurance arrangements. However, reinsurance recoverables may not be fully collectible. Therefore, these estimates are inherently uncertain and may not accurately reflect our net exposure, inclusive of credit risk, to these events. Our 2023 property catastrophe reinsurance program is a worldwide program providing both aggregate and per occurrence protection, with differing per occurrence and aggregate retentions for North America, Japan, and Rest of World. In 2023, we made changes to our North America property catastrophe reinsurance program to reflect our improving portfolio with attachment points of $500 million for commercial portfolio and $300 million for Lexington and Programs business. Our property catastrophe treaty per occurrence structures largely stayed the same as 2022 for International, with Japan's retention unchanged from prior year at $200 million and Rest of World attachment point of $125 million. We have also purchased property per risk covers that provide protection against large losses globally, which include those emanating from non-critical catastrophe events (all events except for named windstorm and earthquake) globally as well as critical catastrophe events (named windstorm and earthquake) outside North America. Actual results in any period are likely to vary, perhaps materially, from the modeled scenarios. The occurrence of one or more severe events could have a material adverse effect on our financial condition, results of operations and liquidity.
For additional information, see also Part 1, Item 1A. Risk Factors - Reserves
and Exposures.
Terrorism Risk
We actively monitor terrorism risk and manage exposures to losses from terrorist
attacks. Terrorism risks are modeled using a third-party vendor model for
various terrorism attack modes and scenarios. Adjustments are made to account
for vendor model gaps and the nature of the General Insurance companies'
exposures.
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Our largest terrorism concentrations are in New York City, and estimated losses
are largely driven by the Property and Workers' Compensation lines of business.
Our exposure to terrorism risk in the U.S. is mitigated by the Terrorism Risk
Insurance Program Reauthorization Act (TRIPRA) in addition to limited private
reinsurance protections. TRIPRA covers certified terrorist attacks within the
U.S. or U.S. missions and against certain U.S. carriers or vessels and excludes
certain lines of business as specified by applicable law.
We offer terrorism coverage in many other countries through various insurance
products and participate in country terrorism pools when applicable.
International terrorism exposure is estimated using scenario-based modeling and
exposure concentration is monitored routinely. Targeted reinsurance purchases
are made for some lines of business to cover potential losses due to terrorist
attacks. We also rely on the government-sponsored and government-arranged
terrorism reinsurance programs, including pools, in force in applicable non-U.S.
jurisdictions.
Life and Retirement Companies' Key Risks
We manage risk through product design, experience monitoring, pricing and
underwriting discipline, risk limits and thresholds, reinsurance and active
monitoring and management of the alignment between risk and cash flow profiles
of assets and liabilities, and hedging instruments.
For Life and Retirement companies, risks include the following:
•Longevity risk - represents the risk of an increase in liabilities associated with an insurance product, e.g. an annuity policy or a payout benefit as a result of actual mortality experience being lower than the expected mortality experience. This risk exists in a number of our product lines but is most significant for our annuity products. •Morbidity risk - represents the risk arising from actual morbidity (e.g. illness, disability or disease) incidence rate being higher than expected or the length of the claims extending longer than expected resulting in a higher overall benefit payout. This risk exists in a number of our product lines such as individual and group accident and health and long-term care businesses which for the most part are in run-off, and ceded to Fortitude Re. •Mortality (including pandemic) risk - represents the risk of unexpected loss arising from current actual mortality experience being higher than expected mortality experience. This risk exists in a number of our product lines, but is most significant for our life insurance products. •Policyholder behavior risk (including full and partial surrender/lapses) - represents the risk that actual policyholder behavior differs from expected behavior in a manner that has an adverse effect on our operating results. There are many related assumptions made when products are sold, including how long the contracts will persist and other assumptions which impact the expected utilization of contract benefits, options and guarantees. Actual experience can vary significantly from these assumptions. This risk is impacted by a number of factors including changes in personal policyholder situations and market conditions, especially changes in the levels of yields, equity prices, tax law, regulations, competitive landscape and policyholder preferences. The emergence of significant adverse experience compared to the experience we expected and priced for could require an adjustment to benefit reserves and/or DAC, which could have a material adverse effect on our consolidated financial results of operations for a particular period. For additional information on the impact of actual and expected experience on DAC and benefit reserves, see Critical Accounting Estimates - Future Policy Benefits for Life and Accident and Health Insurance Contracts and Critical Accounting Estimates - Guaranteed Benefit Features of Variable Annuity, Fixed Annuity and Fixed Index Annuity Products. For additional information on business risks, see Part I, Item 1A. Risk Factors - Business and Operations.
Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management
and Hedging Programs
Our Individual and Group Retirement businesses offer variable and fixed index annuity products with guaranteed living benefit (GLB) riders that guarantee a certain level of lifetime benefits. Under current GAAP rules, variable and certain index annuity GLBs are accounted for as embedded derivatives measured at fair value, with changes in the fair value recorded in Other realized gains (losses). GLB features subject the Life and Retirement companies to market risk, including exposure to changes in levels of interest rates, equity prices, credit spreads and market volatility. Product design is the first step in managing our exposure to these market risks. Risk mitigation features of our variable annuity product designs include GLB rider fees indexed to a broad equity market volatility index, required minimum allocations to fixed accounts to reduce overall equity exposure, and for some of the variable annuity products, the utilization of volatility control funds. We utilize asset liability management and hedging programs to manage economic exposure to market risks that are not fully mitigated through product designs. Our hedging program is designed to offset certain changes in the economic value of embedded derivatives associated with our variable annuity, index annuity and index universal life liabilities, within established thresholds. The hedging program is designed to provide additional protection against large and combined movements in levels of interest rates, equity prices, credit spreads and market volatility under multiple scenarios.
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Our hedging program utilizes an economic hedge target, which represents our
estimate of the underlying economic risks in the embedded derivatives. The hedge
target is established via a stochastic projection. This stochastic projection
method uses best estimate assumptions for policyholder behavior in conjunction
with market scenarios calibrated to observable equity and interest rate option
prices. Policyholder behaviors are regularly evaluated to compare current
assumptions to actual experience and, if appropriate, changes are made to the
policyholder behavior assumptions. The risk of changes in policyholder behavior
is not explicitly hedged, and such differences between expected and actual
policyholder behaviors will result in hedge ineffectiveness.
Due to differences between the calculation of the value of the economic hedge
target and the U.S. GAAP valuation of the embedded derivative, we expect
relative movements in the economic hedge target and the U.S. GAAP embedded
derivative valuation will vary over time with changes in levels of equity
markets, interest rates, credit spreads and volatility.
For information on the impact on our consolidated pre-tax income from the change in fair value of the embedded derivatives and the hedging portfolio, as well as additional discussion of differences between the economic hedge target and the valuation of the embedded derivatives, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Variable Annuity Guaranteed Benefits and Hedging Results. In designing the hedging portfolio for our variable annuity hedging program, we make assumptions that are used in projections of future performance of the underlying mutual funds elected by the variable annuity policyholders. We use these assumptions to project future policy level account value changes. We map the mutual funds to a set of publicly traded indices that we believe best represent the liability to be hedged. Basis risk exists due to the variance between funds returns projected under these assumptions and actual fund returns, which may result in variances between changes in the value of the hedging portfolio and changes in the economic value of the hedge liability target. Net hedge results and the associated cost of hedging are also impacted by differences between realized volatility and implied volatility. Our hedging programs associated with index annuity and index universal life products, are designed to manage market risk associated with the index crediting strategies offered on these product platforms. Similarly, as with the variable annuities, there are differences between the calculation of the value of the economic liability hedge target and the U.S. GAAP valuation of the index annuity and index universal life embedded derivatives, which can lead to variances in their relative movements. To manage the capital market exposures embedded within the economic liability hedge targets, we identify and hedge market sensitivities to changes in equity markets, interest rates, volatility and for variable annuities, credit spreads. Each hedge program purchases derivative instruments or securities having sensitivities that offset corresponding sensitivities in the associated economic hedge targets, within internally defined threshold limits. Since the relative movements of the hedging portfolio and the economic hedge target vary over time or with market changes, the net exposure can be outside the threshold limits. As such, periodic adjustments are made to the hedging portfolio in order to return the net exposure to within the threshold limits. Our hedging programs utilize various derivative instruments, including but not limited to equity options, futures contracts, interest rate swaps and swaptions. In addition, within the variable annuities hedging program, we purchase certain fixed income securities classified as available for sale. To minimize counterparty credit risk, the majority of the derivative instruments utilized within the hedging programs are cleared through global exchanges. Over the counter derivatives utilized within the hedging programs are subject to two-way collateralization, managed under a net zero collateral threshold. The hedging programs are monitored on a daily basis to ensure that the economic liability hedge targets and the associated derivative portfolios stay within the threshold limits, pursuant to the approved hedging strategies. In addition, monthly stress tests are performed to determine the program's effectiveness relative to the applicable limits, under an array of combined severe market stresses in equity prices, interest rates, volatility and credit spreads. Finally, hedging strategies are reviewed regularly to gauge their effectiveness in managing our market exposures in the context of our overall risk appetite.
Reinsurance Activities
We purchase reinsurance for our insurance and reinsurance operations.
Reinsurance facilitates insurance risk management (retention, volatility,
concentrations) and capital planning. We may purchase reinsurance on a pooled
basis. Pooling of our reinsurance risks enables us to purchase reinsurance more
efficiently at a consolidated level, manage global counterparty risk and
relationships and manage global catastrophe risks.
Reinsurance is used primarily to manage overall capital adequacy and mitigate
the insurance loss (Life and Non-Life) exposure related to certain events, such
as natural and man-made catastrophes, death events, or single policy level
events. Our subsidiaries operate worldwide primarily by underwriting and
accepting risks for their direct account on a gross basis and reinsuring a
portion of the exposure on either an individual risk or an aggregate basis to
the extent those risks exceed the desired retention level. In addition, as a
condition of certain direct underwriting transactions, we may be required by
clients, agents or regulation to cede all or a portion of risks to specified
reinsurance entities, such as captives, other insurers, local reinsurers and
compulsory pools.
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Reinsurance markets include:
•Traditional local and global reinsurance markets including those in the United
States, Bermuda, London and Europe, accessed directly and through reinsurance
intermediaries;
•Capital markets through insurance-linked securities and collateralized
reinsurance transactions, such as catastrophe bonds, sidecars and similar
vehicles; and
•Other insurers that engage in both direct and assumed reinsurance.
The form of reinsurance we may choose from time to time will generally depend on
whether we are seeking:
•proportional reinsurance, whereby we cede a specified percentage of premiums
and losses to reinsurers;
•non-proportional or excess of loss reinsurance, whereby we cede all or a
specified portion of losses in excess of a specified amount on a per risk, per
occurrence (including catastrophe reinsurance) or aggregate basis; or
•facultative contracts that reinsure individual policies.
We continually evaluate the relative attractiveness of different forms of
reinsurance contracts and different markets that may be used to achieve our risk
and profitability objectives.
Reinsurance contracts do not relieve our subsidiaries from their direct
obligations to insureds. However, an effective reinsurance program substantially
mitigates our exposure to potentially significant losses.
In certain markets, we are required to participate on a proportional basis in reinsurance pools based on our relative share of direct writings in those markets. Such mandatory reinsurance generally covers higher-risk consumer exposures such as assigned-risk automobile and earthquake, as well as certain commercial exposures such as workers' compensation.
Reinsurance Recoverable
AIG's reinsurance recoverable assets are comprised of paid losses recoverable, ceded loss reserves, ceded reserves for unearned premiums, and Life and Annuity reinsurance recoverables (ceded policy and claim reserves and policyholder contract deposits). At December 31, 2022, total reinsurance recoverable assets were $71.6 billion. These assets include general reinsurance paid losses recoverable of $4.4 billion, ceded loss reserves of $32.2 billion including reserves for IBNR claims, and ceded reserves for unearned premiums of $4.3 billion, as well as life reinsurance recoverable of $30.7 billion. The methods used to estimate IBNR and to establish the resulting ultimate losses involve projecting the frequency and severity of losses over multiple years. These methods are continually reviewed and updated by management. Any adjustments are reflected in income. We believe that the amount recorded for ceded loss reserves at December 31, 2022 reflects a reasonable estimate of the ultimate losses recoverable. Actual losses may, however, differ from the reserves currently ceded. The Reinsurance Credit Department (RCD) conducts periodic detailed assessments of the financial strength and condition of current and potential reinsurers, both foreign and domestic. The RCD monitors both the financial condition of reinsurers as well as the total reinsurance recoverable ceded to reinsurers, and sets limits with regard to the amount and type of exposure we are willing to take with reinsurers. As part of these assessments, we attempt to identify whether a reinsurer is appropriately licensed, assess its financial capacity and liquidity, and evaluate the local economic and financial environment in which a foreign reinsurer operates. The RCD reviews the nature of the risks ceded and the need for measures, including collateral to mitigate credit risk. For example, in our treaty reinsurance contracts, we frequently include provisions that require a reinsurer to post collateral or use other measures to reduce exposure when a referenced event occurs. Furthermore, we limit our unsecured exposure to reinsurers through the use of credit triggers such as insurer financial strength rating downgrades, declines in regulatory capital, or relevant RBC ratios fall below certain levels. We also set maximum limits for reinsurance recoverable exposure, which in some cases is the recoverable amount plus an estimate of the maximum potential exposure from unexpected events for a reinsurer. In addition, credit executives within ERM review reinsurer exposures and credit limits and approve reinsurer credit limits above specified levels. Finally, even where we conclude that uncollateralized credit risk is acceptable, we require collateral from active reinsurance counterparties where it is necessary for our subsidiaries to recognize the reinsurance recoverable assets for statutory accounting purposes. At December 31, 2022, we held $74.3 billion of collateral, in the form of funds withheld, securities in reinsurance trust accounts and/or irrevocable letters of credit, in support of reinsurance recoverable assets from unaffiliated reinsurers. At December 31, 2022, we had no significant reinsurance recoverable due from any individual reinsurer that was financially troubled. Reduced profitability associated with lower interest rates, market volatility and catastrophe losses (including COVID-19), could potentially result in reduced capacity or rating downgrades for some reinsurers. The RCD, in conjunction with the credit executives within ERM, reviews these developments, monitors compliance with credit triggers that may require the reinsurer to post collateral, and seeks to use other appropriate means to mitigate any material risks arising from these developments.
For additional information on reinsurance recoverable, see Critical Accounting
Estimates - Reinsurance Assets.
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Glossary
Glossary
Accident year The annual calendar accounting period in which loss events
occurred, regardless of when the losses are actually reported, booked or paid.
Accident year combined ratio, as adjusted (Accident year combined ratio, ex-CAT) The combined ratio excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting. Accident year loss ratio, as adjusted (Accident year loss ratio, ex-CAT) The loss ratio excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting. Acquisition ratio Acquisition costs divided by net premiums earned. Acquisition costs are those costs incurred to acquire new and renewal insurance contracts and also include the amortization of VOBA and DAC. Acquisition costs vary with sales and include, but are not limited to, commissions, premium taxes, direct marketing costs and certain costs of personnel engaged in sales support activities such as underwriting. Adjusted revenues exclude Net realized gains (losses), income from non-operating litigation settlements (included in Other income for GAAP purposes), changes in fair value of securities used to hedge guaranteed living benefits (included in Net investment income for GAAP purposes) and income from elimination of the international reporting lag. Adjusted revenues is a GAAP measure for our segments.
Assets under administration include assets under management and Retail Mutual
Funds and Group Retirement mutual fund assets that we sell or administer.
Attritional losses are losses recorded in the current accident year, which are
not catastrophe losses.
AUM Assets under management include assets in the general and separate accounts of our subsidiaries that support liabilities and surplus related to our life and annuity insurance products and the notional value of stable value wrap contracts. Base yield Net investment income excluding income from alternative investments and other enhancements, as a percentage of average base invested asset portfolio, which excludes alternative investments, other bond securities and certain other investments for which the fair value option has been elected. Book value per common share, excluding accumulated other comprehensive income (loss) (AOCI) adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and deferred tax assets (DTA) (Adjusted book value per common share) is a non-GAAP measure and is used to show the amount of our net worth on a per-common share basis. Adjusted book value per common share is derived by dividing total AIG common shareholders' equity, excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and DTA (Adjusted common shareholders' equity), by total common shares outstanding. Casualty insurance Insurance that is primarily associated with the losses caused by injuries to third persons, i.e., not the insured, and the legal liability imposed on the insured as a result.
Combined ratio Sum of the loss ratio and the acquisition and general operating
expense ratios.
CSA Credit Support Annex A legal document generally associated with an ISDA
Master Agreement that provides for collateral postings which could vary
depending on ratings and threshold levels.
Credit Valuation Adjustment (CVA)/Non-Performance Risk Adjustment (NPA) The
CVA/NPA adjusts the valuation of derivatives to account for nonperformance risk
of our counterparty with respect to all net derivative assets positions. The
CVA/NPA also accounts for our own credit risk in the fair value measurement of
all derivative net liability positions and liabilities where AIG has elected the
fair value option, when appropriate.
DAC Deferred Policy Acquisition Costs Deferred costs that are incremental and
directly related to the successful acquisition of new business or renewal of
existing business.
DAC Related to Unrealized Appreciation (Depreciation) of Investments An
adjustment to DAC and Reserves for investment-oriented products, equal to the
change in DAC and unearned revenue amortization that would have been recorded if
fixed maturity securities available for sale at fair value had been sold at
their stated aggregate fair value and the proceeds reinvested at current yields.
An adjustment to benefit reserves for investment-oriented products is also
recognized to reflect the application of the benefit ratio to the accumulated
assessments that would have been recorded if fixed maturity securities available
for sale at fair value had been sold at their stated aggregate fair value and
the proceeds reinvested at current yields.
For long-duration traditional products, significant unrealized appreciation of
investments in a sustained low interest rate environment may cause additional
future policy benefit liabilities to be recorded.
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Glossary
Deferred gain on retroactive reinsurance Retroactive reinsurance is a
reinsurance contract in which an assuming entity agrees to reimburse a ceding
entity for liabilities incurred as a result of past insurable events. If the
amount of premium paid by the ceding reinsurer is less than the related ceded
loss reserves, the resulting gain is deferred and amortized over the settlement
period of the reserves. Any related development on the ceded loss reserves
recoverable under the contract would increase the deferred gain if unfavorable,
or decrease the deferred gain if favorable.
DSI Deferred Sales Inducements Represents enhanced crediting rates or bonus
payments to contract holders on certain annuity and investment contract products
that meet the criteria to be deferred and amortized over the life of the
contract.
Expense ratio Sum of acquisition expenses and general operating expenses,
divided by net premiums earned.
General operating expense ratio General operating expenses divided by net premiums earned. General operating expenses are those costs that are generally attributed to the support infrastructure of the organization and include but are not limited to personnel costs, projects and bad debt expenses. General operating expenses exclude losses and loss adjustment expenses incurred, acquisition expenses, and investment expenses.
GIC/GIA Guaranteed Investment Contract/Guaranteed Investment Agreement A
contract whereby the seller provides a guaranteed repayment of principal and a
fixed or floating interest rate for a predetermined period of time.
IBNR Incurred But Not Reported Estimates of claims that have been incurred but
not reported to us.
ISDA Master Agreement An agreement between two counterparties, which may have multiple derivative transactions with each other governed by such agreement, that generally provides for the net settlement of all or a specified group of these derivative transactions, as well as pledged collateral, through a single payment, in a single currency, in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions. Loss Adjustment Expenses The expenses directly attributed to settling and paying claims of insureds and include, but are not limited to, legal fees, adjuster's fees and the portion of general expenses allocated to claim settlement costs.
Loan-to-value ratio Principal amount of loan amount divided by appraised value
of collateral securing the loan.
Loss ratio Losses and loss adjustment expenses incurred divided by net premiums
earned.
Loss reserve development The increase or decrease in incurred losses and loss adjustment expenses related to prior years as a result of the re-estimation of loss reserves at successive valuation dates for a given group of claims. Loss reserves Liability for unpaid losses and loss adjustment expenses. The estimated ultimate cost of settling claims relating to insured events that have occurred on or before the balance sheet date, whether or not reported to the insurer at that date.
Master netting agreement An agreement between two counterparties who have
multiple derivative contracts with each other that provides for the net
settlement of all contracts covered by such agreement, as well as pledged
collateral, through a single payment, in a single currency, in the event of
default on or upon termination of any one such contract.
Natural catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and man-made catastrophe losses, such as terrorism and civil disorders that exceed the $10 million threshold. Net premiums written represent the sales of an insurer, adjusted for reinsurance premiums assumed and ceded, during a given period. Net premiums earned are the revenue of an insurer for covering risk during a given period. Net premiums written are a measure of performance for a sales period, while net premiums earned are a measure of performance for a coverage period.
Noncontrolling interests The portion of equity ownership in a consolidated
subsidiary not attributable to the controlling parent company.
Policy fees An amount added to a policy premium, or deducted from a policy cash value or contract holder account, to reflect the cost of issuing a policy, establishing the required records, sending premium notices and other related expenses. Pool A reinsurance arrangement whereby all of the underwriting results of the pool members are combined and then shared by each member in accordance with its pool participation percentage. Premiums and deposits - Life and Retirement 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, FHLB funding agreements and mutual funds.
Prior year development See Loss reserve development.
RBC Risk-Based Capital A formula designed to measure the adequacy of an
insurer's statutory surplus compared to the risks inherent in its business.
130 AIG | 2022 Form 10-K
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Glossary
Reinstatement premiums Premiums on an insurance policy over and above the
initial premium imposed at the beginning of the policy payable to reinsurers or
receivable from insurers to restore coverage limits that have been reduced or
exhausted as a result of reinsured losses under certain excess of loss
reinsurance contracts.
Reinsurance The practice whereby one insurer, the reinsurer, in consideration of
a premium paid to that insurer, agrees to indemnify another insurer, the ceding
company, for part or all of the liability of the ceding company under one or
more policies or contracts of insurance which it has issued.
Reinsurance recoverables are comprised of paid losses recoverable, ceded loss
reserves, ceded reserves for unearned premiums, and Life and Annuity reinsurance
recoverables (ceded policy and claim reserves and policyholder contract
deposits).
Retroactive reinsurance See Deferred gain on retroactive reinsurance.
Return on common equity - Adjusted after-tax income excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and DTA (Adjusted return on common equity) is a non-GAAP measure and is used to show the rate of return on common shareholders' equity. Adjusted return on common equity is derived by dividing actual or annualized adjusted after-tax income attributable to AIG common shareholders by average Adjusted common shareholders' equity.
Subrogation The amount of recovery for claims we have paid our policyholders,
generally from a negligent third party or such party's insurer.
Surrender charge A charge levied against an investor for the early withdrawal of funds from a life insurance or annuity contract, or for the cancellation of the agreement.
Surrender rate represents annualized surrenders and withdrawals as a percentage
of average reserves and Group Retirement mutual fund assets under
administration.
Unearned premium reserve Liabilities established by insurers and reinsurers to reflect unearned premiums, which are usually refundable to policyholders if an insurance or reinsurance contract is canceled prior to expiration of the contract term.
VOBA Value of Business Acquired Present value of projected future gross profits
from in-force policies of acquired businesses.
Acronyms A&H Accident and Health Insurance GMDB Guaranteed Minimum Death Benefits ABS Asset-Backed Securities GMWB Guaranteed Minimum Withdrawal Benefits APTI Adjusted pre-tax income ISDA
International Swaps and Derivatives
Association, Inc.
AUM Assets Under Management Moody's Moody's Investors' Service Inc.
CDS Credit Default Swap NAIC National
Association of Insurance
Commissioners
CLO Collateralized loan Obligations NM Not
Meaningful
CMA Capital Maintenance Agreement ORR Obligor Risk Ratings CMBS Commercial Mortgage-Backed Securities OTC Over-the-Counter EGPs Estimated Gross Profits RMBS Residential Mortgage-Backed Securities ERM Enterprise Risk Management S&P Standard & Poor's Financial Services LLC FASB Financial Accounting Standards Board SEC Securities and Exchange Commission GAAP Accounting Principles Generally Accepted URR Unearned
Revenue Reserve
in the
United States of America VIE Variable Interest Entity
GIA Guaranteed Investment Agreements
AIG | 2022 Form 10-K 131
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ITEM 7A | Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A | Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is set forth in the Enterprise Risk
Management section of Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and is incorporated herein by reference.
132 AIG | 2022 Form 10-K
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Part II
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