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AMERICAN INTERNATIONAL GROUP, INC. – 10-Q – | Management's Discussion and Analysis of Financial Condition and Results of Operations
Glossary and Acronyms of Selected Insurance Terms and References
Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), we use certain terms and abbreviations, which are summarized in the Glossary and Acronyms.American International Group, Inc. (AIG) has incorporated into this discussion a number of cross-references to additional information included throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the 2020 Annual Report) to assist readers seeking additional information related to a particular subject. In this Quarterly Report on Form 10-Q, unless otherwise mentioned or unless the context indicates otherwise, we use the terms "AIG," "we," "us" and "our" to refer toAmerican International Group, Inc. , aDelaware corporation, and its consolidated subsidiaries. We use the term "AIG Parent" to refer solely toAmerican International Group, Inc. , and not to any of its consolidated subsidiaries.
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q and other publicly available documents may
include, and officers and representatives of AIG may from time to time make and
discuss, projections, goals, assumptions and statements that may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These projections, goals, assumptions and
statements are not historical facts but instead represent only a belief
regarding future events, many of which, by their nature, are inherently
uncertain and outside AIG's control. These projections, goals, assumptions and
statements are often preceded by, followed by or include words such as "will,"
"believe," "anticipate," "expect," "intend," "plan," "focused on achieving,"
"view," "target," "goal" or "estimate." These projections, goals, assumptions
and statements may relate to future actions, prospective services or products,
future performance or results of current and anticipated services or products,
sales efforts, expense reduction efforts, the outcome of contingencies such as
legal proceedings, anticipated organizational, business or regulatory changes,
the effect of catastrophes, such as the COVID-19 crisis, and macroeconomic
events, anticipated dispositions, monetization and/or acquisitions of businesses
or assets, or successful integration of acquired businesses, management
succession and retention plans, exposure to risk, trends in operations and
financial results.
AIG | Third Quarter 2021 Form 10-Q 75
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TABLE OF CONTENTS It is possible that AIG's actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG's actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include: ?AIG's ability to successfully separate ?the effectiveness of AIG's enterprise the Life and Retirement business and the risk management policies and procedures, impact any separation may have on AIG, including with respect to business its businesses, employees, contracts and continuity and disaster recovery plans; customers; ?changes in judgments concerning
the
?AIG's ability to close the sale of its recognition of deferred tax assets and
affiliate of
?AIG's ability to successfully
dispose
?the occurrence of catastrophic events, of, monetize and/or acquire businesses both natural and man-made, including or assets or successfully integrate COVID-19, other pandemics, civil unrest acquired businesses; and the effects of climate change; ?nonperformance or defaults by ?changes in market and industry counterparties, including Fortitude conditions, including a prolonged globalReinsurance Company Ltd. (Fortitude Re); economic recovery, volatility in ?the effectiveness of strategies to financial and capital markets, recruit and retain key personnel and to fluctuations in interest rates, implement effective succession plans; inflationary pressures and disruptions ?changes in judgments concerning to AIG's operations driven by COVID-19 potential cost-saving opportunities; and responses thereto, including new or ?concentrations in AIG's investment changed governmental policy and portfolios; regulatory actions; ?changes to our sources of or access to ?AIG's ability to effectively execute on liquidity; the AIG 200 operational programs ?changes in judgments or assumptions designed to modernize AIG's operating concerning insurance underwriting and infrastructure and enhance user and insurance liabilities; customer experiences, and AIG's ability ?the requirements, which may change from to achieve anticipated cost savings from time to time, of the global regulatory AIG 200; framework to which AIG is subject;
?the impact of potential information ?significant legal, regulatory or
technology, cybersecurity or data governmental proceedings; and
security breaches, including as a result ?such other factors discussed in:
of cyber-attacks or security
-Part I, Item 2. MD&A of this
Quarterly
vulnerabilities, the likelihood of which Report on Form 10-Q; may increase due to extended remote -Part I, Item 2. MD&A of the Quarterly business operations as a result of Report on Form 10-Q for the quarterly COVID-19; period endedJune 30, 2021 ;
?availability and affordability of -Part I, Item 2. MD&A of the Quarterly
reinsurance;
Report on Form 10-Q for the
quarterly
?disruptions in the availability of period ended
AIG's electronic data systems or those -Part I, Item 1A. Risk Factors and Part
of third parties;
II, Item 7. MD&A of the 2020
Annual
?the impact of COVID-19 generally, Report. including with respect to AIG's business, financial condition and results of operations; ?changes to the valuation of AIG's investments; ?actions by rating agencies with respect to AIG's credit and financial strength ratings as well as those of its businesses and subsidiaries; We are not under any obligation (and expressly disclaim any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.
76 AIG | Third Quarter 2021 Form 10-Q
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TABLE OF CONTENTS
INDEX TO ITEM 2
Page
Use of Non-GAAP Measures 78
Critical Accounting Estimates 80
Executive Summary 81
Overview 81
AIG's Operating Structure 83
Financial Performance Summary
84
AIG's Outlook - Industry and Economic Factors
89
Consolidated Results of Operations
93
Business Segment Operations 99General Insurance 100 Life and Retirement 112 Other Operations 132 Investments 134 Overview 134 Investment Highlights in the Nine Months EndedSeptember 30, 2021 134 Investment Strategies 135 Credit Ratings 137 Insurance Reserves 145 Loss Reserves 145
Life and Annuity Future Policy Benefits, Policyholder Contract
Deposits and DAC
151
Liquidity and Capital Resources
160
Overview
160
Analysis of Sources and Uses of Cash
162
Liquidity and Capital Resources of AIG Parent and Subsidiaries 163
Credit Facilities 165
Contractual Obligations 165
Off-Balance Sheet Arrangements and Commercial Commitments 165
Debt 166
Credit Ratings 168
Financial Strength Ratings 168
Rating Agency Actions Related to the Announced Separation of Life
and Retirement 169
Regulation and Supervision 169
Dividends 169
Repurchases of AIG Common Stock 170
Dividend Restrictions 170
Enterprise Risk Management 170
Overview 170
Regulatory Environment 171
Overview 171
Glossary 172
Acronyms 175
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TABLE OF CONTENTS
ITEM 2 | 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 Securities and Exchange Commission (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.
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. The reconciliation to book value per common share, the most
comparable GAAP measure, is presented in the Executive Summary section of this
MD&A.
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. The reconciliation
to return on common equity, the most comparable GAAP measure, is presented in
the Executive Summary section of this MD&A.
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, 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 (the Tax
Act);
and by excluding the net realized gains (losses) and other charges from
noncontrolling interests.
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.
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TABLE OF CONTENTS
ITEM 2 | Use of Non-GAAP Measures
Adjusted revenues exclude Net realized gains (losses), income from non-operating
litigation settlements (included in Other income for GAAP purposes) and changes
in fair value of securities used to hedge guaranteed living benefits (included
in Net investment income for GAAP purposes). Adjusted revenues is a GAAP measure
for our segments.
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 ?income or loss from discontinued
used to hedge guaranteed living operations;
benefits;
?net loss reserve discount benefit ?changes in benefit reserves and (charge); deferred policy acquisition costs (DAC), ?pension expense related to a one-time value of business acquired (VOBA), and lump sum payment to former employees; sales inducement assets (SIA) related to ?income and loss from divestitures; net realized gains and losses; ?non-operating litigation reserves
and
?changes in the fair value of equity settlements;
securities;
?restructuring and other costs
related
?net investment income on Fortitude Re to initiatives designed to reduce
funds withheld assets;
operating expenses, improve
efficiency
?following deconsolidation of Fortitude and simplify our organization; Re, net realized gains and losses on ?the portion of favorable or unfavorable Fortitude Re funds withheld assets; prior year reserve development for which ?loss (gain) on extinguishment of debt; we have ceded the risk under retroactive ?all net realized gains and losses reinsurance agreements and related except earned income (periodic changes in amortization of the
deferred
settlements and changes in settlement gain; accruals) on derivative instruments used ?integration and transaction costs for non-qualifying (economic) hedging or associated with acquiring or divesting for asset replication. Earned income on businesses; such economic hedges is reclassified ?losses from the impairment of goodwill; from net realized gains and losses to and specific APTI line items based on the ?non-recurring costs associated with the economic risk being hedged (e.g. net implementation of non-ordinary course investment income and interest credited legal or regulatory changes or changes to policyholder account balances); to accounting principles.
?
-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: 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 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. 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. Results from discontinued operations are excluded from all of these measures. AIG | Third Quarter 2021 Form 10-Q 79
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TABLE OF CONTENTS
ITEM 2 | 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;
?valuation of future policy benefit liabilities and timing and extent of loss
recognition;
?valuation of liabilities for guaranteed benefit features of variable annuity
products;
?valuation of embedded derivatives for fixed index annuity and life products;
?estimated gross profits to value deferred acquisition costs for
investment-oriented products, for example universal life, variable and fixed
annuities, and fixed indexed annuities;
?reinsurance assets, including the allowance for credit losses;
?goodwill impairment;
?allowances for credit losses primarily on loans and available for sale fixed
maturity securities;
?liability for legal contingencies;
?fair value measurements of certain financial assets and liabilities; and
?income tax assets and liabilities, including recoverability of our net deferred
tax asset and the predictability of future tax operating profitability of the
character necessary to realize the net deferred tax asset.
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.
For a complete discussion of our critical accounting estimates, see Part II,
Item 7. MD&A - Critical Accounting Estimates in the 2020 Annual Report.
80 AIG | Third Quarter 2021 Form 10-Q
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TABLE OF CONTENTS
ITEM 2 | 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 Quarterly Report on Form 10-Q, together
with the 2020 Annual Report, in their entirety for a more detailed description
of events, trends, uncertainties, risks and critical accounting estimates
affecting us.
Separation of Life and Retirement Business and Relationship with Blackstone Inc.
OnOctober 26, 2020 , AIG announced its intention to separate its Life and Retirement business from AIG. OnJuly 14, 2021 ,AIG and Blackstone Inc. (Blackstone ) announced that they have reached a definitive agreement forBlackstone to acquire a 9.9 percent equity stake inSAFG Retirement Services, Inc. (SAFG), which is the holding company for AIG's Life and Retirement business, for$2.2 billion in an all cash transaction, subject to adjustment if the final pro forma adjusted book value is greater or lesser than the target pro forma adjusted book value. The transaction contemplates that most of AIG's investment operations would be transferred to SAFG or its subsidiaries as part of the separation. As part of this agreement, AIG also agreed to enter into a long-term asset management relationship withBlackstone to manage an initial$50 billion of Life and Retirement's existing investment portfolio upon closing of the equity investment, with that amount increasing by increments of$8.5 billion per year for the next five years beginning in the fourth quarter of 2022, for an aggregate of$92.5 billion . Following the closing of the transaction,Blackstone will be entitled to designate one member of the board of directors of SAFG, which will consist of 11 directors. Pursuant to the definitive agreement,Blackstone will be required to hold its ownership interest in SAFG following the completion of the separation of the Life and Retirement business, subject to exceptions permittingBlackstone to sell 25%, 67% and 75% of its shares after the first, second and third anniversaries, respectively, of the initial public offering of SAFG (the IPO), with the transfer restrictions terminating in full on the fifth anniversary of the IPO. In the event that the IPO of SAFG is not completed prior to the second anniversary of the closing of the transaction,Blackstone will have the right to require AIG to undertake the IPO, and in the event that the IPO has not been completed prior to the third anniversary of the closing,Blackstone will have the right to exchange all or a portion of its ownership interest in SAFG for shares of AIG's common stock on the terms set forth in the definitive agreement. These transactions closed onNovember 2, 2021 . While we currently believe the IPO is the next step in the separation of the Life and Retirement business from AIG, no assurance can be given regarding the form that future separation transactions may take or the specific terms or timing thereof, or that a separation will in fact occur. Any separation transaction will be subject to the satisfaction of various conditions and approvals, including approval by the AIG Board of Directors, receipt of insurance and other required regulatory approvals, and satisfaction of any applicable requirements of theSEC . OnJuly 14, 2021 ,AIG and Blackstone Real Estate Income Trust (BREIT), a long-term, perpetual capital vehicle affiliated withBlackstone , announced that they have reached a definitive agreement for BREIT to acquire AIG's interests in aU.S. affordable housing portfolio for approximately$5.1 billion , subject to certain adjustments, in an all cash transaction. As ofSeptember 30, 2021 , the assets, primarily Other invested assets (Investment real estate) and liabilities, primarily Debt of consolidated investment entities, related to theAffordable Housing portfolio,$4.3 billion and$2.7 billion , respectively, are classified as held for sale and are reported in Other assets and Other liabilities within our Condensed Consolidated Balance Sheets. This transaction is subject to customary closing conditions and is expected to close in the fourth quarter of 2021.
Debt Cash Tender Offers
In the nine months endedSeptember 30, 2021 , we repurchased, through cash tender offers, and canceled approximately$262 million aggregate principal amount of certain notes and debentures issued or guaranteed by AIG for an aggregate purchase price of approximately$369 million and wrote off$4 million of unamortized debt issuance costs, resulting in a total loss on extinguishment of debt of approximately$111 million .
Sale of Certain AIG Life and Retirement Retail Mutual Funds Business
OnFebruary 8, 2021 , AIG announced the execution of a definitive agreement with Touchstone Investments (Touchstone), an indirect wholly-owned subsidiary ofWestern & Southern Financial Group , to sell certain assets ofAIG Life and Retirement's Retail Mutual Funds business. The transaction closed onJuly 16, 2021 at which time we received initial proceeds, and twelve retail mutual funds managed bySunAmerica Asset Management, LLC (SAAMCo), a member ofAIG Life and Retirement, with$6.8 billion in assets, were reorganized into Touchstone funds. Additional proceeds may be earned over a three-year period based on asset levels in certain reorganized funds. Six retail mutual funds managed by SAAMCo and not included in the transaction were liquidated.AIG Life and Retirement will retain its fund management platform and capabilities dedicated to its variable annuity insurance products. AIG | Third Quarter 2021 Form 10-Q 81
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TABLE OF CONTENTS
ITEM 2 | Executive Summary
Sale of Fortitude Holdings
On June 2, 2020 , we completed the sale of a majority of the interests in
Fortitude Group Holdings, LLC (Fortitude Holdings ) to Carlyle FRL, L.P. (Carlyle
FRL), an investment fund advised by an affiliate of The Carlyle Group Inc.
(Carlyle), and T&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
on November 25, 2019 by and among AIG, Fortitude Holdings , Carlyle FRL, Carlyle,
T&D and T&D Holdings, Inc. (the Majority Interest Fortitude Sale). AIG
established Fortitude Re, a wholly owned subsidiary of Fortitude Holdings , in
2018 in a series of reinsurance transactions related to AIG's Run-Off portfolio.
As of September 30, 2021 , approximately $29.9 billion of reserves from AIG's
Life and Retirement Run-Off Lines and approximately $3.8 billion of reserves
from AIG's 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. As of closing of the Majority Interest Fortitude
Sale, these reinsurance transactions are no longer considered affiliated
transactions and Fortitude Re is the reinsurer of the majority of AIG's Run-Off
operations. As these reinsurance transactions are structured as modified
coinsurance and loss portfolio transfers with funds withheld, following the
closing of the Majority Interest Fortitude Sale, AIG continues to reflect the
invested assets, which consist mostly of available for sale securities,
supporting Fortitude Re's obligations, in AIG's financial statements.
AIG sold a 19.9 percent ownership interest in Fortitude Holdings to TC Group
Cayman Investments Holdings, L.P. , an affiliate of Carlyle, in November 2018 . As
a result of completion of the Majority Interest Fortitude Sale, Carlyle FRL
purchased from AIG a 51.6 percent ownership interest in Fortitude Holdings and
T&D purchased from AIG a 25 percent ownership interest in Fortitude Holdings ;
AIG retained a 3.5 percent ownership interest in Fortitude Holdings and one seat
on its Board of Managers . The $2.2 billion of proceeds received by AIG at
closing included (i) the $1.8 billion under the Majority Interest Fortitude
Sale, subject to a post-closing purchase price adjustment pursuant to which AIG
would pay Fortitude Re for certain adverse development in property casualty
related reserves, based on an agreed methodology, that may occur through
December 31, 2023 , up to a maximum payment of $500 million ; and (ii) a $383
million purchase price adjustment from Carlyle FRL and T&D, corresponding to
their respective portions of a proposed $500 million non-pro rata distribution
from Fortitude Holdings that was not received by AIG prior to the closing.
Effective in the second quarter of 2021, AIG, Fortitude Holdings , Carlyle FRL,
T&D and Carlyle amended the purchase agreement to finalize the post-closing
purchase price adjustment for adverse reserve development. As a result of this
amendment, during the nine months ended September 30, 2021 , AIG recorded a $21
million benefit through Policyholder benefits and losses incurred and eliminated
further net exposure to adverse development on the reserves ceded to Fortitude
Re.
For further discussion on the sale of
Condensed Consolidated Financial Statements.
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ITEM 2 | Executive Summary
AIG'S OPERATING STRUCTURE
AIG reports the results of its businesses through three segments - General
Insurance , Life and Retirement and Other Operations. General Insurance consists
of two operating segments - North America and 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. On October 26, 2020 , AIG announced its intention
to separate its Life and Retirement business from AIG.
Consistent with how we manage our business, our General Insurance North America
operating segment primarily includes insurance businesses in the United States ,
Canada and Bermuda , and our global reinsurance business, AIG Re. Our General
Insurance International operating segment includes regional insurance businesses
in Japan , the United Kingdom , Europe , Middle East and Africa (EMEA region), Asia
Pacific , Latin America and Caribbean , and China . International also includes the
results of Talbot Holdings, Ltd. as well as AIG's global specialty business.
For further discussion on our business segments see Note 3 to the Condensed
Consolidated Financial Statements, and for further discussion on the separation
of Life and Retirement see Note 1 to the Condensed Consolidated Financial
Statements.
Business SegmentsGeneral Insurance Life and Retirement
provider of insurance products and that brings together a broad portfolio of
services for commercial and life insurance, retirement and
personal insurance customers. It institutional products offered through an
includes one of the world's most extensive, multichannel distribution
far-reaching property casualty network. It holds long-standing, leading
networks.
a broad range of products to serves in the
customers through a diversified, position, customer-focused service, breadth
multichannel distribution network. of product expertise and deep distribution
Customers value
strong capital position, extensive Life and Retirement is well positioned to
risk management and claims serve growing market needs.
experience and its ability to be a
market leader in critical lines of
the insurance business.
[[Image Removed: Picture [[Image Removed: Picture
1]][[Image Removed: Picture 2]] 3]][[Image Removed: Picture
4]][[Image Removed: Picture
5]][[Image Removed: Picture 6]]
following major operating major operating companies: American
General
companies: National Union Fire
Pa. (
(Lexington);AIG General Insurance Company, Ltd. (AIG Sonpo);AIG Asia Pacific Insurance, Pte, Ltd. ;AIG Europe S.A. ;American International Group UK Ltd. ;Validus Reinsurance, Ltd. (Validus Re);Talbot Holdings Ltd. (Talbot );Western World Insurance Group, Inc. andGlatfelter Insurance Group (Glatfelter). 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,
our legacy insurance lines ceded to Fortitude Re.
AIG | Third Quarter 2021 Form 10-Q 83
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TABLE OF CONTENTS
ITEM 2 | Executive Summary
Financial Performance Summary
Net Income (Loss) Attributable to AIG Common Shareholders Three Months EndedSeptember 30 , (in millions) 2021 and 2020 Quarterly Comparison [[Image Removed: Chart 3]] Net income attributable to AIG common shareholders increased$1.4 billion due to the following, on a pre-tax basis: ?higher net realized gains excluding Fortitude Re funds withheld assets and embedded derivative of$1.2 billion , driven primarily by$943 million of gains on other derivative and hedge activity, gains on sales of real estate and other assets ($349 million ) and lower derivative losses on variable annuity embedded derivatives, net of related hedges ($109 million ), offset by adverse impact of foreign exchange ($377 million ); ?lower net realized loss on Fortitude Re funds withheld embedded derivative ($447 million ) and higher net realized gains on Fortitude Re funds withheld assets ($158 million ); and ?higher underwriting income in General Insurance ($443 million ) from higher net premium marked by strong rate improvement, higher renewal retentions and strong new business growth, with continued attritional loss ratio improvement as well as lower catastrophe losses, net of reinstatement premiums ($170 million ) and favorable prior year development as compared to unfavorable development ($63 million ). These pre-tax increases were partially offset by: ?Life and Retirement, which had higher DAC amortization ($495 million ) principally due to the impact of the annual assumption review which was partially offset by the gain from the sale of our retail mutual fund business; and ?$365 million higher income tax expense attributable primarily to higher income from continuing operations. For further discussion see Consolidated Results of Operations.
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ITEM 2 | Executive Summary
Net Income (Loss) Attributable to AIG Common Shareholders
Nine Months Ended September 30 ,
(in millions)
2021 and 2020 Year-to-Date Comparison
[[Image Removed: Chart 4]] Net income attributable to AIG common
shareholders increased $11.5 billion due to
the following, on a pre-tax basis:
?the recognition of an $8.4 billion loss on
the closing of the Majority Interest Fortitude
Sale in 2020;
?net realized gain on Fortitude Re funds
withheld embedded derivative as compared to a
loss ($1.6 billion ) and higher net realized
gains on Fortitude Re funds withheld assets
($408 million );
?$1.4 billion higher net investment income, of
which $459 million is excluding Fortitude Re
funds withheld assets, with higher returns in
our investment portfolio primarily due to
alternative investments, an increase which was
driven by positive returns achieved in equity
markets, partially offset by declines in fair
value option bonds;
?lower policyholder benefits ($1.6 billion )
due in part to the cession to Fortitude Re and
higher policy fees ($117 million ) in Life and
Retirement, partially offset by lower premiums
($490 million ) and higher DAC amortization
($212 million ) principally due to the impact
of the annual assumption review; and
?higher underwriting income in General
Insurance ($1.4 billion ) from higher net
premium marked by strong rate improvement,
higher renewal retentions and strong new
business growth, with continued attritional
loss ratio improvement as well as lower
catastrophe losses, net of reinstatement
premiums ($712 million ) and higher favorable
prior year development ($36 million ).
These pre-tax increases were partially offset
by:
?higher Corporate general operating expenses,
driven largely by increases in
performance-based employee costs ($93 million )
and transaction costs ($48 million );
?prior period having included the results of
Fortitude Re, a loss of $241 million , up
through the Majority Interest Fortitude Sale
on June 2, 2020 ;
?$2.2 billion higher income tax expense with
$1.7 billion attributable to the tax benefit
on the deconsolidation of Fortitude Holdings
in 2020; and
?lower net realized gains excluding Fortitude
Re funds withheld assets and embedded
derivative of $99 million , where a $1.0
billion decrease in gains on variable annuity
embedded derivatives, net of hedging was
largely offset by an increase in other
realized gains primarily driven by higher
gains on sales of real estate and other assets
($548 million ) as well as favorable movement
in the allowance for credit losses on fixed
maturity securities ($363 million ).
For further discussion see Consolidated
Results of Operations.
AIG | Third Quarter 2021 Form 10-Q 85
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TABLE OF CONTENTS
ITEM 2 | Executive Summary
Adjusted Pre-Tax Income*
Three Months Ended September 30 ,
(in millions)
2021 and 2020 Quarterly Comparison
[[Image Removed: Chart 4]] Adjusted pre-tax income increased $210 million
primarily due to:
?higher underwriting income in General Insurance
($443 million ) from higher net premium marked by
strong rate improvement, higher renewal
retentions and strong new business growth, with
continued attritional loss ratio improvement as
well as lower catastrophe losses, net of
reinstatement premiums ($170 million ) and
favorable prior year development as compared to
unfavorable development ($63 million ).
These adjusted pre-tax increases were partially
offset by:
?lower adjusted pre-tax income for Life and
Retirement ($131 million ) driven by unfavorable
mortality as well as an unfavorable impact from
the annual assumption review ($59 million ).
Adjusted Pre-Tax Income*
Nine Months Ended September 30 ,
(in millions)
2021 and 2020 Year-to-Date Comparison
[[Image Removed: Chart 4]] Adjusted pre-tax income increased $2.2 billion
primarily due to:
?returns in our investment portfolio were $554
million higher due primarily to alternative
investments, an increase which was driven by
positive returns achieved in equity markets,
partially offset by declines in available for
sale securities and fair value option bonds;
?higher underwriting income in General Insurance
($1.4 billion ) from higher net premium marked by
strong rate improvement, higher renewal
retentions and strong new business growth, with
continued attritional loss ratio improvement as
well as lower catastrophe losses, net of
reinstatement premiums ($712 million ) and higher
favorable prior year development ($36 million );
and
?investment portfolio returns at Life and
Retirement that more than offset the impact of
unfavorable mortality and unfavorable annual
assumption review ($59 million ).
*Non-GAAP measure - for reconciliation of Non-GAAP to GAAP measures see
Consolidated Results of Operations.
86 AIG | Third Quarter 2021 Form 10-Q
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ITEM 2 | Executive Summary
General Operating and Other Expenses
Three Months Ended September 30 ,
(in millions)
2021 and 2020 Quarterly Comparison
[[Image Removed: Chart 1]] General operating and other expenses
increased $249 million primarily due to
increases in expenses related to
business growth and professional fees.
General operating and other expenses in
the three-month periods ended September
30, 2021 and 2020 included approximately
$104 million and $100 million of pre-tax
restructuring and other costs,
respectively, which were primarily
comprised of employee severance charges
and other costs related to
organizational simplification,
operational efficiency, and business
rationalization.
General Operating and Other Expenses
Nine Months Ended September 30 ,
(in millions)
2021 and 2020 Year-to-Date Comparison
[[Image Removed: Chart 1]] General operating and other expenses
increased $315 million primarily due to
increases in professional fees and
transaction costs partially offset by
decreases in restructuring and other
costs.
General operating and other expenses in
the nine-month periods ended September
30, 2021 and 2020 included approximately
$304 million and $324 million of pre-tax
restructuring and other costs,
respectively, which were primarily
comprised of employee severance charges
and other costs related to
organizational simplification,
operational efficiency, and business
rationalization.
AIG | Third Quarter 2021 Form 10-Q 87
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ITEM 2 | Executive Summary
Return on Common Equity Return on Common Equity
[[Image Removed: Chart 1]] [[Image Removed: Chart 3]]
Adjusted Return on Common Equity* Adjusted Return on Common Equity*
[[Image Removed: Chart 1]] [[Image Removed: Chart 1]]
*Non-GAAP measure - for reconciliation of Non-GAAP to GAAP measures see
Consolidated Results of Operations.
Book Value Per Common Share Adjusted Book Value Per Common Share* [[Image Removed: Chart 1]] [[Image Removed: Chart 1]]
*Non-GAAP measure - for reconciliation of Non-GAAP to GAAP measures see
Consolidated Results of Operations.
88 AIG | Third Quarter 2021 Form 10-Q
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TABLE OF CONTENTS
ITEM 2 | 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 the first nine months of 2021, characterized by factors such as the impact of COVID-19 and the related governmental and societal responses, interest rate volatility, inflationary pressures, an uneven global economic recovery, global trade tensions and Brexit. Brexit has also affected theU.S. dollar/British pound exchange rate and increased the volatility of exchange rates among the Euro, British pound and the Japanese yen (the Major Currencies), which may continue for some time. OnOctober 26, 2020 , AIG announced its intention to separate its Life and Retirement business from AIG. OnJuly 14, 2021 , AIG andBlackstone announced that they have reached a definitive agreement forBlackstone to acquire a 9.9 percent equity stake in SAFG, which is the holding company for AIG's Life and Retirement business, for$2.2 billion in an all cash transaction, subject to adjustment if the final pro forma adjusted book value is greater or lesser than the target pro forma adjusted book value. The transaction contemplates that most of AIG's investment operations would be transferred to SAFG or its subsidiaries as part of the separation. As part of this agreement, AIG also agreed to enter into a long-term asset management relationship withBlackstone to manage an initial$50 billion of Life and Retirement's existing investment portfolio upon closing of the equity investment, with that amount increasing by increments of$8.5 billion per year for the next five years beginning in the fourth quarter of 2022, for an aggregate of$92.5 billion . These transactions closed onNovember 2, 2021 . While we currently believe an initial public offering is the next step in the separation of the Life and Retirement business from AIG, no assurance can be given regarding the form that a separation transaction may take or the specific terms or timing thereof, or that a separation will in fact occur. Any separation transaction will be subject to the satisfaction of various conditions and approvals, including approval by the AIG Board of Directors, receipt of insurance and other required regulatory approvals, and satisfaction of any applicable requirements of theSEC . OnJuly 14, 2021 , AIG and BREIT, a long-term, perpetual capital vehicle affiliated withBlackstone , announced that they have reached a definitive agreement for BREIT to acquire AIG's interests in aU.S. affordable housing portfolio for approximately$5.1 billion , subject to certain adjustments, in an all cash transaction. As ofSeptember 30, 2021 , the assets, primarily Other invested assets (Investment real estate) and liabilities, primarily Debt of consolidated investment entities, related to theAffordable Housing portfolio,$4.3 billion and$2.7 billion , respectively, are classified as held for sale and are reported in Other assets and Other liabilities within our Condensed Consolidated Balance Sheets. This transaction is subject to customary closing conditions and is expected to close in the fourth quarter of 2021. For additional information on the separation of AIG's Life and Retirement business, please see the 2020 Annual Report, 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, the separation could cause the emergence or exacerbate the effects of other risks to which AIG is exposed and - Overview above.
Impact of COVID-19
We are continually assessing the impact on our business, operations and investments of COVID-19 and the resulting ongoing economic and societal disruption. These impacts initially included a global economic contraction, disruptions in financial markets, increased market volatility and declines in certain equity and other asset prices that had negative effects on our investments, our access to liquidity, our ability to generate new sales and the costs associated with claims. While many of the major global economies continue to recover and global financial markets appear to have largely stabilized, there remains a risk that the disruptions previously experienced could return and new ones emerge as COVID-19 persists or new variants arise. In addition, in response to the crisis, new governmental, legislative and regulatory actions have been taken and continue to be developed that have resulted and could continue to result in additional restrictions and requirements, or court decisions rendered, relating to or otherwise affecting our policies that may have a negative impact on our business, operations and capital.General Insurance offers numerous products for which we are monitoring claims activity and assessing adverse impact on future new and renewal business in relation to the COVID-19 crisis. We are continually reassessing our exposures in light of unfolding developments in theU.S. and globally and evaluating coverage by our reinsurance arrangements. In our Life and Retirement business, the most significant impacts relating to COVID-19 have been the impact of interest rate and equity market levels on spread and fee income, deferred acquisition cost amortization and adverse mortality. We are actively monitoring the mortality rates and the potential direct and indirect impacts that COVID-19 may have across our portfolio of Life and Retirement businesses. AIG | Third Quarter 2021 Form 10-Q 89
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TABLE OF CONTENTS
ITEM 2 | Executive Summary
We have a diverse investment portfolio with material exposures to various forms
of credit risk. The far-reaching economic impacts of COVID-19 have been largely
offset, to date, by intervention taken by governments and monetary authorities
and equity market rebound resulting in a minimal impact on the value of the
portfolio. At this point in time, uncertainty surrounding the duration and
severity of the COVID-19 crisis makes the long-term financial impact difficult
to quantify.
For additional information please see the 2020 Annual Report, Part I, Item 1A.
Risk Factors - Market Conditions - COVID-19 is adversely affecting, and is
expected to continue to adversely affect, our global business, financial
condition and results of operations, and its ultimate impact will depend on
future developments that are uncertain and cannot be predicted, including the
scope, severity and duration of the crisis, and the governmental, legislative
and regulatory actions taken and court decisions rendered in response thereto.
Impact of Changes in the Interest Rate Environment
KeyU.S. benchmark rates have been volatile in 2021 as investors form opinions over recent elevated inflation measures and whether they will be transitory or not. While key rates have recently increased, they are still historically low. The low interest rate environment negatively affects sales of interest rate sensitive products in our industry and negatively impacts the profitability of our existing business as we reinvest cash flows from investments, including increased calls and prepayments of fixed maturity securities and mortgage loans, at rates below the average yield of our existing portfolios. 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. We may not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities. A low interest rate environment could also impair our ability to earn the returns assumed in the pricing and the reserving of our products at the time they were sold and issued.
Additionally, sustained low interest rates may result in higher pension expense
due to the impact on discounting of projected benefit cash flows.
Annuity Sales and Surrenders
The interest rate environment has a significant impact on the annuity industry. Low long-term interest rates put pressure on investment returns, which may negatively affect sales of interest rate sensitive products and reduce future profits on certain existing fixed rate products. However, our disciplined rate setting has helped to mitigate some of the pressure on investment spreads. Rapidly rising interest rates could create the potential for increased sales, but may also drive higher surrenders. Fixed annuities have surrender charge periods, generally in the three-to-five year range, 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 the contract holders have driven better than expected persistency in fixed annuities, although the reserves for such contracts have 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. Changes in interest rates significantly impact the valuation of our liabilities for annuities with guaranteed income features and the value of the related hedging portfolio.
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 to maintain profitability of the overall business in light of the interest rate environment. A low interest rate environment puts margin pressure on pricing of new business and on existing products, due to the challenge of investing new money or recurring premiums and deposits, and reinvesting investment portfolio cash flows, in the low interest rate environment. In addition, there is investment risk associated with future premium receipts from certain in-force business. Specifically, the investment of these future premium receipts may be at a yield below that required to meet future policy liabilities. The contractual provisions for renewal of crediting rates and guaranteed minimum crediting rates included in products may reduce spreads in a sustained low interest rate environment and thus reduce future profitability. Although this interest rate risk is partially mitigated through the asset-liability management process, product design elements and crediting rate strategies, a sustained low interest rate environment may negatively affect future profitability.
For additional information on our investment and asset-liability management
strategies see Investments.
90 AIG | Third Quarter 2021 Form 10-Q
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ITEM 2 | Executive Summary
For investment-oriented products, for example universal life, and variable,
fixed and fixed indexed annuities, in our Individual 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 will
continue to adjust crediting rates on in-force business to mitigate the pressure
on spreads from declining base yields, but our ability to lower crediting rates
may be limited by the competitive environment, contractual minimum crediting
rates, and provisions that allow rates to be reset only at pre-established
intervals. As interest rates begin to rise again, 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 our Individual Retirement and Group
Retirement annuity products, 68 percent were crediting at the contractual
minimum guaranteed interest rate as of September 30, 2021 . The percentage of
fixed account values of our annuity products that are currently crediting at
rates above one percent were 58 percent and 59 percent as of September 30, 2021
and December 31, 2020 , 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. In the universal life products in our Life
Insurance business, 67 percent of the account values were crediting at the
contractual minimum guaranteed interest rate as of September 30, 2021 .
The following table presents fixed annuity and universal life account values of
our Individual Retirement, Group Retirement and Life Insurance operating
segments by contractual minimum guaranteed interest rate and current crediting
rates, excluding balances ceded to Fortitude Re:
Current Crediting Rates
September 30, 2021 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% $ 9,970 $ 1,940 $ 17,877 $ 29,787
> 1% - 2% 4,661 29 1,683 6,373
> 2% - 3% 10,551 - 18 10,569
> 3% - 4% 8,282 41 6 8,329
> 4% - 5% 485 - 5 490
> 5% - 5.5% 34 - 5 39
Total Individual Retirement $ 33,983 $ 2,010 $ 19,594 $ 55,587
Group Retirement*
<=1% $ 2,120 $ 3,242 $ 4,673 $ 10,035
> 1% - 2% 6,094 658 101 6,853
> 2% - 3% 14,842 - - 14,842
> 3% - 4% 733 - - 733
> 4% - 5% 7,053 - - 7,053
> 5% - 5.5% 165 - - 165
Total Group Retirement $ 31,007 $ 3,900 $ 4,774 $ 39,681
Universal life insurance
<=1% $ - $ - $ - $ -
> 1% - 2% 102 25 356 483
> 2% - 3% 258 539 1,206 2,003
> 3% - 4% 1,424 179 209 1,812
> 4% - 5% 3,108 2 - 3,110
> 5% - 5.5% 239 - - 239
Total universal life insurance $ 5,131 $ 745 $ 1,771 $ 7,647
Total $ 70,121 $ 6,655 $ 26,139 $ 102,915
Percentage of total 68 % 7 % 25 % 100 %
*Individual Retirement and Group Retirement amounts shown include fixed options
within variable annuity products.
AIG | Third Quarter 2021 Form 10-Q 91
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ITEM 2 | Executive Summary
General Insurance
The impact of low interest rates on our General Insurance segment is primarily
on our long-tail casualty line of business. We currently expect limited impacts
on our existing long-tail casualty business as the duration of our assets is
slightly longer than that of our liabilities. Sustained low interest rates would
potentially impact new and renewal business for the long-tail casualty line as
we may not be able to adjust our future pricing consistent with our
profitability objectives to fully offset the impact of investing at lower rates.
However, we will continue to be disciplined in pricing and risk selection.
In addition, for our General Insurance segment, sustained low interest rates may
unfavorably affect the net loss reserve discount for workers' compensation, and
to a lesser extent could favorably impact assumptions about future medical
costs, the combined net effect of which could result in higher net loss
reserves.
Standard of Care Developments
In our Life and Retirement business, we and our distributors are subject to laws and regulations regarding the standard of care applicable to sales of our products and the provision of advice to our customers. In recent years, many of these laws and regulations have been revised or reexamined while others have been newly adopted. We continue to closely follow these legislative and regulatory activities. For additional information regarding these legislative and regulatory activities, see Item 1. Business - Regulation -U.S. Regulation - Standard of Care Developments in the 2020 Annual Report. Changes in standard of care requirements or new standards issued by governmental authorities, such as theDepartment of Labor , theSEC , theNational Association of Insurance Commissioners (NAIC) or state regulators and/or legislators, may affect our businesses, results of operations and financial condition. While we cannot predict the long-term impact of these legislative and regulatory developments on our Life and Retirement businesses, we believe our diverse product offerings and distribution relationships position us to compete effectively in this evolving marketplace. Impact of Currency Volatility Currency volatility remains acute. Such volatility affected line item components of income for those 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, in either direction, especially as a result of theUK's exit from theEuropean Union (EU), 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: Three Months Ended Nine Months Ended September 30, Percentage September 30, Percentage Rate for1 USD 2021 2020 Change 2021 2020 Change Currency: GBP 0.72 0.78 (8) % 0.72 0.79 (9) % EUR 0.84 0.87 (3) % 0.83 0.90 (8) % JPY 110.06 106.80 3 % 107.77 107.94 - %
Unless otherwise noted, references to the effects of foreign exchange in the
movements in the Major Currencies included in the preceding table.
92 AIG | Third Quarter 2021 Form 10-Q
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TABLE OF CONTENTS
ITEM 2 | 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 three- and nine-month periods endedSeptember 30, 2021 and 2020. Factors that relate primarily to a specific business are discussed in more detail within the business segment operations section. For a discussion of the Critical Accounting Estimates that affect our results of operations see Critical Accounting Estimates in this MD&A and Part II, Item 7. MD&A - Critical Accounting Estimates in the 2020 Annual Report. The following table presents our consolidated results of operations and other key financial metrics: Three Months Ended Nine Months Ended September 30, Percentage September 30, Percentage (in millions) 2021 2020 Change 2021 2020 Change Revenues: Premiums$ 7,504 $ 6,677 12 %$ 21,925 $ 21,527 2 % Policy fees 714 648 10 2,269 2,152 5 Net investment income: Net investment income - excluding Fortitude Re funds withheld assets 3,220 3,342 (4) 9,559 9,100 5 Net investment income - Fortitude Re funds withheld assets 495 458 8 1,488 574 159 Total net investment income 3,715 3,800 (2) 11,047 9,674 14 Net realized gains (losses): Net realized gains (losses) - excluding Fortitude Re funds withheld assets and embedded derivative 679 (498) NM 1,331 1,430 (7) Net realized gains on Fortitude Re funds withheld assets 190 32 494 536 128 319 Net realized gains (losses) on Fortitude Re funds withheld embedded derivative (209) (656) 68 117 (1,493) NM Total net realized gains (losses) 660 (1,122) NM 1,984 65 NM Other income 242 218 11 745 642 16 Total revenues 12,835 10,221 26 37,970 34,060 11 Benefits, losses and expenses: Policyholder benefits and losses incurred 5,959 5,872 1 17,182 18,718 (8) Interest credited to policyholder account balances 923 882 5 2,663 2,757 (3) Amortization of deferred policy acquisition costs 1,260 707 78 3,479 3,323 5 General operating and other expenses 2,240 1,991 13 6,546 6,231 5 Interest expense 328 379 (13) 1,008 1,099 (8) (Gain) loss on extinguishment of debt 51 (2) NM 149 15 NM Net (gain) loss on divestitures (102) 24 NM (108) 8,652 NM Total benefits, losses and expenses 10,659 9,853 8 30,919 40,795 (24) Income (loss) from continuing operations before income tax expense (benefit) 2,176 368 491 7,051 (6,735) NM Income tax expense (benefit) 439 74 493 1,234 (918) NM Income (loss) from continuing operations 1,737 294 491 5,817 (5,817) NM Income from discontinued operations, net of income taxes - 5 NM - 4 NM Net income (loss) 1,737 299 481 5,817 (5,813) NM Less: Net income attributable to noncontrolling interests 70 11 NM 175 78 124 Net income (loss) attributable to AIG 1,667 288 479 5,642 (5,891) NM Less: Dividends on preferred stock 7 7 - 22 22 - Net income (loss) attributable to AIG common shareholders$ 1,660 $ 281 491 %$ 5,620 $ (5,913) NM % AIG | Third Quarter 2021 Form 10-Q 93
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TABLE OF
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AM Best Revises Issuer Credit Rating Outlook to Positive for Starr International Company Inc.’s Insurance Subsidiaries
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS Nine Months Ended September 30, 2021 and 2020 ($ in Millions, Except Share Data) OVERVIEW
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