AMERICAN INTERNATIONAL GROUP, INC. quarterly report, Q3 FY2023

Business Context and Reporting Period

American International Group, Inc. (AIG) is a global insurance organization operating in approximately 70 countries and jurisdictions. Its principal segments are General Insurance, Life and Retirement, and Other Operations. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023, with comparative periods ended September 30, 2022.

Key Financial Metrics

Metric	Q3 2023	Q3 2022	9M 2023	9M 2022
Total revenues	$12.774 billion	$13.998 billion	$36.976 billion	$42.605 billion
Income from continuing operations	$2.747 billion	$3.087 billion	$4.351 billion	$10.727 billion
Net income attributable to AIG	$2.027 billion	$2.748 billion	$3.550 billion	$9.675 billion
Net income attributable to common shareholders	$2.020 billion	$2.741 billion	$3.528 billion	$9.653 billion
Diluted EPS	$2.81	$3.55	$4.83	$12.08
Pre-tax income	$3.568 billion	$3.904 billion	$5.204 billion	$13.543 billion
Adjusted pre-tax income	$1.873 billion	$0.920 billion	$5.406 billion	$4.187 billion

Reported pre-tax margins were approximately 27.9% for Q3 and 14.1% for the first nine months. Net income attributable to common shareholders represented approximately 15.8% of Q3 revenue and 9.5% of nine-month revenue. Adjusted return on common equity was 8.5% for Q3 and 8.8% for the first nine months, compared with 4.6% and 6.9%, respectively, in the prior-year periods.

General Insurance adjusted pre-tax income was $1.367 billion in Q3 and $3.934 billion for nine months, up 82% and 22%, respectively. The nine-month combined ratio improved to 91.1% from 92.6%.
Life and Retirement adjusted pre-tax income was $971 million in Q3 and $2.848 billion for nine months, up 24% and 16%, respectively, supported by higher investment spreads and base portfolio yields.
Net investment income increased 33% to $3.556 billion in Q3 and 25% to $10.660 billion for nine months, primarily reflecting higher yields and interest income.
Operating cash flow was $4.621 billion for the first nine months, compared with $3.967 billion in the prior-year period. Investing cash flow used $4.072 billion and financing cash flow used $239 million.
Cash and restricted cash totaled $2.034 billion at September 30, 2023. AIG Parent and applicable intermediate holding companies had approximately $8.1 billion of liquidity sources, including a $4.5 billion undrawn revolving credit facility.
Short- and long-term debt was $21.338 billion, compared with $21.299 billion at December 31, 2022. Debt of consolidated investment entities was $2.717 billion, down from $5.880 billion.
Total assets were $521.521 billion and total AIG shareholders’ equity was $39.984 billion. Book value per common share was $56.06; adjusted book value per common share was $78.17.

Material Changes Versus the Prior Comparable Period

Reported nine-month net income attributable to common shareholders declined 63%, primarily because 2022 included a $7.851 billion gain on the Fortitude Re funds-withheld embedded derivative, compared with $152 million in 2023, and because other derivative and hedge gains were lower.
Q3 reported earnings also declined, although higher investment income and improved General Insurance underwriting materially offset lower realized gains and increased noncontrolling interests following AIG’s reduced ownership of Corebridge.
General Insurance North America underwriting income improved to $886 million for nine months from $223 million, while International underwriting income declined to $821 million from $1.190 billion.
General Insurance catastrophe-related charges declined to $976 million for nine months from $1.064 billion. Favorable prior-year reserve development was $325 million, compared with $368 million in the prior-year period.
Life and Retirement benefited from higher investment spreads, but retirement businesses experienced materially higher surrenders and net outflows. Individual Retirement nine-month net flows were negative $439 million versus positive $2.198 billion, while Group Retirement net outflows increased to $4.753 billion from $2.155 billion.
AIG adopted the long-duration targeted improvements standard (LDTI) on January 1, 2023 with a January 1, 2021 transition date. The transition reduced beginning AOCI by $2.2 billion and increased beginning retained earnings by $933 million; prior periods were adjusted.
AIG classified Validus Re, AIG Life Limited, and Laya Healthcare and other assets as held for sale, resulting in $14.018 billion of assets and $10.117 billion of liabilities held for sale at September 30, 2023.
AIG completed the Crop Risk Services sale in July 2023 for gross proceeds of $234 million and recorded a $126 million pre-tax gain. The Validus Re sale closed on November 1, 2023 for $2.7 billion in cash and approximately 1.3 million RenaissanceRe shares valued at approximately $275 million at closing. Laya’s sale closed on October 31, 2023; the AIG Life sale was expected to close in the first half of 2024.
AIG repurchased approximately 35 million common shares for $1.9 billion during the first nine months and authorized $7.5 billion of repurchases. Approximately $7.1 billion remained available as of October 27, 2023.

Guidance, Outlook, Commentary, Risks and Unusual Items

The filing does not provide formal quantitative earnings guidance. Management expects higher reinvestment yields to support investment income and Life and Retirement margins, while noting that higher rates can increase crediting costs, competition, and policy surrenders. General Insurance management emphasized positive rate change, portfolio management, focused risk selection, and improved terms and conditions, while monitoring inflation and loss-cost trends.

Market sensitivity remains significant. Q3 unrealized losses on fixed maturity securities were approximately $7.0 billion, driven mainly by higher interest rates; nine-month unrealized losses were approximately $4.0 billion.
AIG reported $35.375 billion of gross unrealized losses on available-for-sale bonds for which no credit-loss allowance was recorded, concluding the losses were primarily non-credit related and that it did not intend or expect to be required to sell the securities before recovery.
Commercial mortgage exposure totaled $38.0 billion, with a weighted-average debt-service coverage ratio of 1.9x and weighted-average loan-to-value ratio of 59%. Management identifies commercial real estate, credit deterioration, widening spreads, and borrower defaults as key risks.
Reinsurance recoverables totaled $69.4 billion, with approximately 89% investment grade, 9% non-investment grade, and 2% unrated. AIG remains liable to policyholders if reinsurers fail to perform; Fortitude Re and other reinsurer counterparty exposure are material.
The Validus Re transaction includes an arrangement under which AIG retains 95% of specified adverse reserve development after closing. AIG also entered into an adverse development cover with up to $400 million of protection for specified Validus Re reserves, for an expected $80 million premium.
AIG faces litigation and regulatory risks, including the Moriarty and related California life-insurance cases. AIG has accrued its current estimate of probable loss, but the ultimate exposure remains uncertain.
Critical estimates include loss reserves, long-duration policy benefits, market risk benefits, embedded derivatives, reinsurance recoverables, investment valuations, credit-loss allowances, goodwill, and deferred tax assets.
AIG reported a total deferred tax asset valuation allowance of $858 million for tax attributes and an additional $2.4 billion allowance for certain unrealized tax capital-loss deferred tax assets as of September 30, 2023.
Credit ratings were generally investment grade: AIG was rated Baa2 by Moody’s, BBB+ by S&P, and BBB+ by Fitch for senior long-term debt. Downgrades could trigger collateral postings, early termination rights, or reduced access to financing.

Investor Verification Priorities

Reconcile reported earnings with adjusted pre-tax income and isolate the recurring contribution from General Insurance underwriting and Life and Retirement investment spreads.
Assess the sustainability and quality of earnings excluding volatile Fortitude Re embedded-derivative gains, realized investment gains and losses, derivative marks, and other non-operating items.
Review AIG’s fixed-income unrealized losses, commercial mortgage exposure, credit-loss allowances, and the effect of further interest-rate or credit-spread changes on AOCI and capital.
Monitor annuity surrenders, net flows, guaranteed-benefit exposures, hedging results, and policyholder behavior assumptions.
Track completion and proceeds from Validus Re and AIG Life dispositions, the related reserve-cover obligations, and AIG’s remaining ownership and exposure to Corebridge.
Confirm liquidity, debt maturities, rating-trigger collateral requirements, dividend capacity, and the pace of authorized share repurchases.
Review developments in the Moriarty litigation, tax examinations, deferred tax asset realizability, and other legal or regulatory contingencies.