American International Group, Inc. — 2021 Form 10-K Summary
Business context and reporting period
AIG is a global insurance organization serving customers in approximately 70 countries and jurisdictions through General Insurance, Life and Retirement, and Other Operations. The filing covers the fiscal year ended December 31, 2021, with comparative results for 2020 and 2019. The financial statements were audited by PricewaterhouseCoopers LLP, which reported effective internal control over financial reporting.
Key strategic developments included continued underwriting remediation and profitable growth, progress toward separating Life and Retirement from AIG, the Blackstone investment in Life and Retirement, debt reduction, and the multi-year AIG 200 modernization program.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenues | $52.1 billion | $43.7 billion | 19% increase |
| Income from continuing operations before tax | $12.1 billion | $(7.3) billion | Improved by $19.4 billion |
| Net income attributable to AIG common shareholders | $9.4 billion | $(6.0) billion | Improved by $15.3 billion |
| Adjusted pre-tax income | $5.9 billion | $3.0 billion | 96% increase |
| Adjusted return on common equity | 8.6% | 4.4% | Up 4.2 points |
| Book value per common share | $79.97 | $76.46 | 5% increase |
| Adjusted book value per common share | $68.83 | $57.01 | 21% increase |
| Net cash from operating activities | $6.3 billion | $1.0 billion | Improved by $5.2 billion |
| Long-term debt | $23.7 billion | $28.1 billion | Down $4.4 billion |
| Total AIG shareholders’ equity | $66.0 billion | $66.4 billion | Down $0.4 billion |
Adjusted results exclude, among other items, divestiture gains and losses, realized investment gains and losses, Fortitude Re-related fair-value effects, debt extinguishment costs, restructuring charges, and certain tax items. Adjusted measures are not directly comparable with similarly named measures used by other companies.
Segment performance and margins
- General Insurance: Adjusted pre-tax income increased to $4.4 billion from $1.9 billion. Net premiums written rose 13% to $25.9 billion, while net premiums earned increased 6% to $25.1 billion. The combined ratio improved to 95.8 from 104.3, and the accident-year combined ratio, as adjusted, improved to 91.0 from 94.1.
- North America General Insurance: Net premiums written increased 20% to $11.7 billion. The combined ratio improved to 100.4 from 112.6, but remained above breakeven; the adjusted accident-year combined ratio improved to 92.1.
- International General Insurance: Net premiums written increased 7% to $14.2 billion. The combined ratio improved to 92.1 from 97.9, producing $1.1 billion of underwriting income.
- Life and Retirement: Adjusted pre-tax income increased 11% to $3.9 billion. Premiums and deposits, excluding retail mutual funds, increased 18% to $31.0 billion. Assets under administration increased 4% to $409 billion. Results benefited from higher investment income but were affected by COVID-19 mortality and a $166 million unfavorable actuarial assumption update.
- Other Operations: Adjusted pre-tax loss improved modestly to $2.4 billion from $2.4 billion, including corporate expenses, consolidation effects, run-off operations, and asset management activities.
Cash flow, capital, debt and liquidity
- Net cash provided by operating activities was $6.3 billion. Management also reported $7.6 billion of operating cash inflows excluding interest payments, compared with $2.1 billion in 2020.
- AIG Parent and applicable intermediate holding companies had approximately $15.2 billion of liquidity sources at December 31, 2021, consisting of $10.7 billion of cash, short-term investments and unencumbered fixed-maturity securities plus $4.5 billion of available revolving credit capacity.
- Total long-term debt declined to $23.7 billion from $28.1 billion. Including debt of consolidated investment entities, total debt was $30.2 billion.
- AIG repurchased approximately 50 million common shares for $2.6 billion and paid $1.1 billion of common dividends and $29 million of preferred dividends. The debt-and-preferred-stock-to-total-capital ratio was 24.6% at year-end.
- Insurance subsidiaries distributed approximately $2.3 billion from General Insurance and approximately $2.8 billion from Life and Retirement to AIG Parent or intermediate holding companies, including cash, securities and tax-sharing payments.
- Approximately $43.3 billion of statutory capital and surplus at consolidated insurance subsidiaries was restricted from transfer to AIG Parent without prior regulatory approval.
Material changes versus the prior comparable period
- 2021 results benefited from a $3.0 billion pre-tax gain on the sale of the U.S. affordable housing portfolio and a $102 million gain from the Retail Mutual Funds transaction. By contrast, 2020 included an $8.3 billion loss on the majority-interest Fortitude sale.
- General Insurance underwriting income improved by approximately $2.1 billion, driven by premium growth, pricing, retention, improved loss experience, lower catastrophe losses and expense discipline.
- Pre-tax catastrophe losses declined to $1.4 billion from $2.4 billion, with 2020 including approximately $1.1 billion of COVID-19-related catastrophe losses.
- Net unrealized gains in the available-for-sale portfolio declined to approximately $18.1 billion from $27.4 billion, primarily because of higher interest rates. Net unrealized losses on fixed-maturity securities were approximately $9.3 billion.
- Adjusted Life and Retirement income increased despite COVID-19 mortality. Life Insurance adjusted pre-tax income declined 25% to $106 million, primarily due to higher mortality and unfavorable premiums and policy fees net of benefits.
- Blackstone acquired a 9.9% stake in SAFG, the Life and Retirement holding company, for $2.2 billion. The transaction reduced AIG shareholders’ equity by $629 million and initiated a long-term Blackstone asset-management relationship covering an initial $50 billion portfolio, expected to increase to $92.5 billion.
- SAFG declared an $8.3 billion dividend payable to AIG Parent and issued a promissory note. As of February 16, 2022, no amounts had been paid under the note.
- AIG amended the Fortitude purchase agreement and recorded a $21 million benefit, eliminating further exposure to the specified adverse-development adjustment on ceded reserves.
Guidance, outlook, risks and unusual items
Management did not provide quantified consolidated earnings guidance in the filing. Its 2022 priorities are underwriting excellence and profitable growth, continued separation of Life and Retirement, AIG 200 execution, debt reduction and capital returns, risk optimization, talent management and ESG-related initiatives.
- Separation risk: The planned Life and Retirement separation and potential IPO remain subject to board, regulatory and SEC approvals. If an IPO is not completed by November 2, 2024, Blackstone may have the right to exchange some or all of its SAFG interest for AIG common stock under the transaction agreement.
- COVID-19, inflation and catastrophes: COVID-19, mortality, supply-chain disruption, social inflation, elevated catastrophe activity and changing claim patterns could affect reserves, premiums, liquidity and investment values.
- Interest-rate and market risk: Low rates pressure investment spreads, while rapidly rising rates can reduce fixed-income valuations, increase surrenders and create volatility in annuity guarantees and hedging results.
- Reserve uncertainty: Loss reserves, long-duration policy benefits, guaranteed benefits, DAC, reinsurance recoverables and Level 3 valuations depend on actuarial and market assumptions. A 4.5% increase in U.S. Excess Casualty loss-cost trends would increase reserves by approximately $960 million; a 5.5% increase in U.S. Financial Lines trends would increase reserves by approximately $1.1 billion.
- Fortitude Re exposure: Approximately $29.6 billion of Life and Retirement run-off reserves and $3.8 billion of General Insurance run-off reserves were ceded to Fortitude Re. AIG remains primarily liable to policyholders and relies on Fortitude Re performance and collateral.
- Tax items: The 2021 effective tax rate was 18.0%, helped by $935 million of tax benefits from audit and settlement activity, partly offset by a $700 million valuation allowance charge. AIG reported approximately $27.6 billion of U.S. federal net operating loss carryforwards and $0.3 billion of foreign tax credits.
- Accounting change: AIG expects adoption of the long-duration insurance accounting standard on January 1, 2023 to reduce equity by approximately $1.0 billion to $3.0 billion at the estimated transition date, although the final impact remains subject to implementation and market conditions.
- Legal and regulatory matters: The filing discusses ongoing litigation, including the Moriarty life-insurance litigation, regulatory examinations, tax matters and evolving insurance, cybersecurity, privacy, climate and fiduciary-duty requirements.
Most important facts for an investor to verify
- Whether the Life and Retirement separation proceeds as planned, including the timing and structure of any IPO and the potential Blackstone exchange right.
- The collectability and collateralization of Fortitude Re recoverables, including the approximately $34.2 billion Fortitude Re reinsurance asset and related funds-withheld arrangements.
- Whether General Insurance’s improved combined ratios, pricing and retention trends persist after catastrophe losses, inflation and social-inflation effects.
- The sensitivity of reserves and earnings to U.S. Financial Lines, cyber, excess casualty, workers’ compensation and other long-tail assumptions.
- The effect of rising interest rates on investment valuations, AOCI, policyholder surrenders, annuity guarantees, DAC and hedging results.
- The realizability of deferred tax assets and tax attributes, particularly after any Life and Retirement tax deconsolidation.
- The final transition impact and post-adoption earnings volatility from the 2023 long-duration insurance accounting standard.
- Regulatory restrictions on subsidiary dividends, AIG Parent liquidity, credit ratings and collateral requirements under rating-triggered contracts.