Business Context and Reporting Period
American International Group, Inc. (AIG) is a global insurance organization operating in approximately 70 countries and jurisdictions through General Insurance, Life and Retirement, and Other Operations. This unaudited Form 10-Q covers the three months ended March 31, 2023, with comparative results for the three months ended March 31, 2022 and balance-sheet comparisons to December 31, 2022.
AIG continues to consolidate Corebridge Financial, although its ownership declined to 77.3% at March 31, 2023 following Corebridge employee stock-compensation settlements. AIG adopted the targeted improvements to long-duration contract accounting (LDTI) on January 1, 2023 and revised comparative information accordingly.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenues | $10.984 billion | $14.944 billion | Down 26% |
| Premiums | $8.481 billion | $7.120 billion | Up 19% |
| Net investment income | $3.533 billion | $3.237 billion | Up 9% |
| Net realized gains (losses) | $(1.909) billion | $3.579 billion | Unfavorable comparison |
| Income before tax | $(231) million | $5.714 billion | Turned to loss |
| Net income attributable to AIG | $30 million | $4.173 billion | Down 99% |
| Net income attributable to common shareholders | $23 million | $4.166 billion | Down 99% |
| Diluted EPS | $0.03 | $5.04 | Down materially |
| Operating cash flow | $497 million | $39 million | Improved |
GAAP income before tax margin was approximately negative 2.1% in Q1 2023, compared with approximately 38.2% in Q1 2022. Adjusted pre-tax income, a non-GAAP measure, was $1.643 billion versus $1.724 billion, and adjusted after-tax income attributable to common shareholders was $1.211 billion versus $1.228 billion. Adjusted after-tax income per diluted share was $1.63 versus $1.49.
- General Insurance adjusted pre-tax income increased to $1.248 billion from $1.211 billion. Underwriting income was $502 million, and the combined ratio improved to 91.9% from 92.9%.
- General Insurance net premiums written increased 5% to $6.965 billion. Catastrophe-related charges declined to $264 million from $288 million, while favorable prior-year development totaled $68 million.
- Life and Retirement adjusted pre-tax income declined 5% to $886 million. Individual Retirement income increased 14% to $533 million, while Group Retirement, Life Insurance, and Institutional Markets declined.
- Life and Retirement premiums increased to $2.201 billion from $849 million, primarily due to higher pension risk transfer activity in Institutional Markets. Policyholder benefits increased 108% to $2.600 billion.
- Total assets were $536.627 billion, up from $522.228 billion at December 31, 2022. AIG shareholders’ equity increased to $43.317 billion from $40.970 billion.
- Book value per common share increased to $58.87 from $55.15; adjusted book value per common share was $75.87 versus $75.90.
- Accumulated other comprehensive loss improved to $(19.329) billion from $(22.616) billion, principally reflecting $5.005 billion of net unrealized investment appreciation.
Liquidity, Debt and Capital
- Cash and restricted cash declined to $2.058 billion at March 31, 2023 from $2.216 billion at year-end 2022.
- Net cash used in investing activities was $1.474 billion, while financing activities provided $817 million.
- Short-term and long-term debt was $22.100 billion, up from $21.299 billion. Debt of consolidated investment entities was $3.944 billion, down from $5.880 billion.
- AIG Parent reported approximately $8.4 billion of liquidity sources, including a $4.5 billion committed revolving credit facility, which was fully available at quarter-end.
- Corebridge had a separate $2.5 billion revolving facility fully available and $1.5 billion outstanding under its delayed-draw term loan facility, with no recourse to AIG Parent.
- AIG issued $750 million of 5.125% notes due 2033 in March 2023.
- AIG repurchased approximately 11.2 million common shares for $603 million during the quarter. Approximately $3.2 billion remained under the authorization at March 31, 2023.
Material Changes Versus the Prior Comparable Period
- The principal year-over-year deterioration was the reversal of Fortitude Re funds-withheld embedded-derivative results: a $1.165 billion loss in Q1 2023 versus a $3.318 billion gain in Q1 2022.
- Net realized gains excluding Fortitude Re-related items changed to a $713 million loss from a $401 million gain, reflecting derivative and hedge losses and losses on security sales.
- Higher premiums, net investment income, and General Insurance underwriting results partially offset the market-related losses.
- General Insurance profitability improved despite higher catastrophe charges in North America and unfavorable prior-year development in International operations.
- Life and Retirement benefited from higher investment spreads and fixed-annuity demand but experienced lower fee income from reduced separate-account values, higher surrenders, and weaker alternative-investment returns.
- Available-for-sale fixed maturity securities generated $5.0 billion of unrealized appreciation in Q1 2023, compared with $20.2 billion of unrealized depreciation in Q1 2022, primarily due to lower medium- and long-term interest rates.
- LDTI adoption reduced beginning AOCI by $2.2 billion and increased beginning retained earnings by $933 million at the January 1, 2021 transition date; it also materially changed the presentation and volatility of insurance liabilities, market risk benefits, and deferred acquisition costs.
Outlook, Risks and Unusual Items
The filing does not provide formal quantitative earnings guidance. Management states that AIG expects sufficient liquidity and capital to meet reasonably foreseeable obligations, but cautions that actual results may vary materially with market conditions and other risks.
- Interest-rate, credit-spread, equity-market, foreign-exchange, inflation, commercial-real-estate, recession, and banking-sector conditions may materially affect investment valuations, insurance liabilities, fee income, surrenders, spreads, and capital.
- General Insurance remains exposed to catastrophe losses, social and economic inflation, claims severity, rate adequacy, and long-tail reserve uncertainty.
- Life and Retirement faces increased surrender activity in a rising-rate environment, higher crediting-rate requirements, competition, equity-market exposure, and volatility in market risk benefits and embedded derivatives.
- Reinsurance recoverables totaled approximately $75.2 billion, and AIG remains liable to policyholders if reinsurers fail to perform. Fortitude Re had approximately $31.2 billion of ceded reserves at March 31, 2023.
- AIG’s commercial mortgage portfolio totaled $37.8 billion. Management reported a weighted-average debt-service coverage ratio of 1.9x and loan-to-value ratio of 59%; commercial real-estate stress remains a relevant risk.
- AIGFP filed for Chapter 11 in December 2022 and was deconsolidated; AIG recognized a $112 million guarantee liability related to AIGFP obligations.
- AIG is subject to ongoing litigation, regulatory inquiries, and tax examinations. The Moriarty litigation concerning California life-insurance lapse-notice requirements remains unresolved, although AIG has accrued its current estimate of probable loss.
- The filing identifies an $880 million deferred-tax-asset valuation allowance at March 31, 2023 and approximately $1.3 billion of unrecognized tax benefits, excluding interest and penalties.
- Management expects the separation of Life and Retirement to continue exposing AIG to Corebridge equity-market risk until its remaining stake is fully divested; the filing does not specify a final divestiture timetable.
Investor Verification Checklist
- Reconcile GAAP results with adjusted pre-tax income and adjusted after-tax income, especially the exclusion of Fortitude Re, market-risk-benefit, derivative, restructuring, and other items.
- Evaluate the sustainability of General Insurance’s 91.9% combined ratio, including catastrophe losses, reserve development, pricing, and inflation effects.
- Assess Life and Retirement spread improvement against surrender trends, crediting-rate guarantees, fee-income pressure, and market-risk-benefit sensitivity.
- Review the valuation and credit quality of AIG’s $229.4 billion available-for-sale bond portfolio, including $27.4 billion of gross unrealized losses and $19.6 billion of below-investment-grade or unrated bonds.
- Monitor Fortitude Re performance, reinsurance collectability, funds-withheld embedded-derivative volatility, and the NICO adverse-development reinsurance agreement.
- Confirm liquidity, debt maturities, credit-rating triggers, collateral requirements, and the availability of AIG Parent’s $4.5 billion revolving facility.
- Track Corebridge ownership, dividends, debt, potential divestiture activity, and the continuing effects of tax deconsolidation.
- Review the impact of LDTI adoption and subsequent actuarial, discount-rate, policyholder-behavior, and market-assumption changes on reported earnings and equity.