AMERICAN INTERNATIONAL GROUP, INC. annual report, FY2023

American International Group, Inc. — 2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K, not a standalone fourth-quarter report, although it includes fourth-quarter and full-year disclosures.

Business context

AIG is a global insurance organization operating in approximately 190 countries and jurisdictions. Its principal segments are General Insurance, Life and Retirement, and Other Operations. General Insurance includes North America and International operations; Life and Retirement includes Individual Retirement, Group Retirement, Life Insurance and Institutional Markets.

Management characterized 2023 as a year of improved underwriting performance, portfolio repositioning, capital returns and continued separation of the Life and Retirement business through AIG’s ownership in Corebridge Financial.

Key financial metrics

Metric	2023	2022	Change
Total revenues	$46.8 billion	$54.5 billion	Down 14%
Income from continuing operations	$3.9 billion	$11.3 billion	Down 66%
Net income attributable to AIG common shareholders	$3.6 billion	$10.2 billion	Down 65%
Diluted earnings per common share	$4.98	$12.94	Down 61%
Adjusted pre-tax income	$7.4 billion	$5.8 billion	Up 28%
Adjusted after-tax income per diluted share	$6.79	$5.12	Up 33%
Return on common equity	8.6%	20.7%	Down 12.1 points
Adjusted return on common equity	9.0%	7.1%	Up 1.9 points
Total AIG shareholders’ equity	$45.4 billion	$41.0 billion	Up 11%
Adjusted book value per common share	$76.65	$75.90	Up 1%

The decline in GAAP earnings was driven primarily by a $9.5 billion year-over-year reduction in gains on the Fortitude Re funds-withheld embedded derivative and a $2.4 billion reduction in other net realized gains. These effects were partly offset by higher investment income, stronger General Insurance underwriting and a $643 million net gain on divestitures and other items.

Segment performance and margins

General Insurance: Adjusted pre-tax income was $5.4 billion, up 21%. Underwriting income was $2.3 billion, up 15%. Net premiums written increased 5% to $26.7 billion. The combined ratio improved to 90.6 from 91.9, while the adjusted accident-year combined ratio improved to 87.7 from 88.7.
North America General Insurance: Underwriting income rose to $1.2 billion from $648 million, and the combined ratio improved to 89.8 from 94.6.
International General Insurance: Underwriting income declined 18% to $1.1 billion, primarily because of unfavorable prior-year reserve development, despite an adjusted accident-year combined ratio improvement to 87.5 from 88.2.
Life and Retirement: Adjusted pre-tax income increased 15% to $3.8 billion. Higher investment income and stronger Individual Retirement results offset pressure in Life Insurance and Group Retirement.
Other Operations: Adjusted pre-tax loss improved to $1.8 billion from $1.9 billion, although lower alternative investment and consolidated investment-entity income remained a drag.

Cash flow, liquidity, debt and capital

Net cash provided by operating activities was $6.2 billion, compared with $4.1 billion in 2022.
Net cash used in investing activities was $7.0 billion, primarily reflecting investment purchases and changes in short-term investments.
AIG Parent liquidity sources were approximately $12.1 billion at December 31, 2023, including cash, short-term investments and a $4.5 billion revolving credit facility. The full $4.5 billion facility remained available.
Short-term and long-term debt declined to $19.8 billion from $21.3 billion. Debt of consolidated investment entities declined to $2.6 billion from $5.9 billion and is generally non-recourse to AIG.
AIG Parent received $3.4 billion of dividends from General Insurance companies and $1.1 billion from Corebridge during 2023.
AIG repurchased approximately 51 million common shares for $3.0 billion and paid approximately $997 million of common dividends. The common dividend was increased to $0.36 per share for the second through fourth quarters.
Insurance subsidiaries exceeded applicable minimum statutory capital and surplus requirements, and U.S. domestic insurance subsidiaries exceeded required RBC levels. Approximately $29.2 billion of statutory capital and surplus was restricted from transfer to AIG Parent without regulatory approval.

Material changes versus the prior comparable period

General Insurance underwriting materially improved, led by North America, favorable rate actions, portfolio management, lower catastrophe losses and better accident-year loss performance.
Investment income increased to $14.6 billion from $11.8 billion, benefiting from higher interest rates and improved yields on fixed-income investments. Alternative investment income was weaker.
Net realized gains changed to a $4.6 billion loss from a $7.1 billion gain, largely because of Fortitude Re embedded-derivative volatility and lower derivative and hedge gains.
Net unrealized gains on investments were $8.5 billion in 2023, compared with $47.7 billion of net unrealized losses in 2022, primarily reflecting narrower credit spreads.
General Insurance loss reserves declined to $70.4 billion from $75.2 billion, while net loss reserves declined to $40.1 billion from $43.1 billion.
AIG adopted the long-duration targeted improvements standard, or LDTI, with a transition date of January 1, 2021. The adoption reduced beginning total equity by $1.3 billion, increased beginning retained earnings by $933 million and reduced beginning AOCI by $2.2 billion.
AIG sold Validus Re for approximately $3.3 billion in cash, including a pre-closing dividend, and sold Crop Risk Services for gross proceeds of $234 million. Corebridge sold Laya Healthcare for $731 million and continued the planned sale of AIG Life.
AIG sold 159.75 million Corebridge shares in secondary offerings for approximately $2.9 billion of gross proceeds. AIG’s ownership of Corebridge declined to 52.2% at year-end.

Guidance, outlook, commentary and unusual items

The filing does not provide a specific quantitative 2024 earnings or revenue guidance range. Management’s outlook emphasizes profitable growth in General Insurance, continued underwriting discipline, expense and operating-model simplification, investment in technology, management of annuity spreads and guarantees, and continued monetization of AIG’s Corebridge stake.

Higher interest rates improved new-money yields and Life and Retirement investment spreads, but also increased surrender activity, particularly in fixed annuities and Group Retirement products.
Inflation, social inflation, labor and supply-chain disruptions and catastrophe activity remain important drivers of claims costs and reserve adequacy.
Fortitude Re-related accounting creates significant GAAP earnings volatility. Approximately $30.6 billion of AIG reserves were ceded to Fortitude Re at year-end, and the related balances were fully collateralized under the disclosed arrangements.
Catastrophe modeling estimated worldwide all-peril net probable maximum loss at $2.8 billion for a 1-in-250-year event. Actual results may differ materially from modeled estimates.
AIG reported no material cybersecurity incidents during the reporting period and concluded that disclosure controls and internal control over financial reporting were effective.
AIG announced the redemption of all Series A preferred stock on March 15, 2024. The filing also disclosed approximately $706 million of common-stock repurchases from January 1 through February 8, 2024.

Principal risks and contingencies

Insurance reserve estimates may prove inadequate, particularly for long-tail casualty, financial lines, asbestos, environmental and mass-tort exposures.
Catastrophes, climate-related events, pandemics, geopolitical conflicts, sanctions and social inflation may increase claims, impair assets or reduce reinsurance availability.
Interest-rate, credit-spread, equity-market and policyholder-behavior changes can materially affect investment values, annuity guarantees, surrender activity, hedging results and GAAP earnings.
Commercial real estate, mortgage, structured-security and other investment concentrations may produce credit losses or liquidity pressure.
AIG depends on dividends and other payments from regulated subsidiaries; regulatory restrictions may limit upstream liquidity.
Fortitude Re or other reinsurers may fail to perform, although AIG reported substantial collateral supporting reinsurance recoverables.
Completion, timing and economics of the remaining Corebridge separation and AIG’s eventual sale of its remaining Corebridge stake are uncertain.
Legal, regulatory, tax, cybersecurity, technology, third-party service-provider and distribution risks may increase expenses or constrain operations.
AIG reported $14.1 billion of net deferred tax assets after valuation allowance and approximately $22.0 billion of U.S. federal net operating loss carryforwards; realization depends on future taxable income and tax-law limitations.

Most important facts for investors to verify

Reconcile GAAP earnings with adjusted pre-tax income and assess the recurring versus non-recurring effects of Fortitude Re, hedging, divestitures, tax items and LDTI.
Review General Insurance reserve development, accident-year loss trends, catastrophe losses and sensitivity of long-tail reserves to inflation and loss-development assumptions.
Monitor fixed-annuity and Group Retirement surrender rates, net flows, guarantee liabilities and the effect of interest-rate changes on spreads.
Evaluate the quality, concentration, liquidity and unrealized-loss profile of AIG’s fixed-income, commercial mortgage and alternative investment portfolios.
Confirm AIG Parent liquidity, debt maturities, credit ratings, collateral requirements and restrictions on dividends from insurance subsidiaries.
Track the timing, valuation and tax consequences of further Corebridge share sales and the planned AIG Life transaction.
Review legal proceedings, tax examinations, deferred tax asset realizability, Fortitude Re collateral and potential reinsurance counterparty exposure.