Business Context and Reporting Period
American International Group, Inc. filed its annual report on Form 10-K for the fiscal year ended December 31, 2022. AIG is a global insurance organization operating in approximately 70 countries and jurisdictions through General Insurance, Life and Retirement, and Other Operations.
The filing reflects the September 2022 initial public offering of Corebridge Financial, Inc., which represented 12.4% of Corebridge. AIG retained approximately 77.7% ownership and continued to consolidate Corebridge. AIG also eliminated the reporting lag for certain foreign property-casualty subsidiaries, increasing 2022 net income by approximately $100 million.
Key Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenues | $56.4 billion | $52.1 billion | Up 8% |
| Income from continuing operations | $11.3 billion | $9.9 billion | Up 14% |
| Net income attributable to AIG common shareholders | $10.2 billion | $9.4 billion | Up 9% |
| Diluted earnings per common share | $13.01 | $10.82 | Up 20% |
| Adjusted after-tax income attributable to common shareholders | $3.6 billion | $4.4 billion | Down 19% |
| Adjusted return on common equity | 6.5% | 8.6% | Down 2.1 points |
| Total assets | $526.6 billion | $596.1 billion | Down 12% |
| Total AIG shareholders’ equity | $40.0 billion | $66.0 billion | Down 39% |
| Adjusted book value per common share | $73.87 | $68.83 | Up 7% |
| Short- and long-term debt | $21.3 billion | $23.7 billion | Down $2.4 billion |
Net income benefited materially from a $7.5 billion gain on the Fortitude Re funds withheld embedded derivative, primarily reflecting interest-rate movements. This gain is excluded from adjusted operating measures and makes reported earnings less representative of underlying operating performance.
Net cash provided by operating activities was $4.2 billion, compared with $6.3 billion in 2021. Net cash used in investing activities was $3.6 billion, and net cash used in financing activities was $676 million. Cash and restricted cash ended the year at $2.2 billion.
Segment Performance
- General Insurance: Adjusted pre-tax income was $4.4 billion versus $4.36 billion. Underwriting income rose 94% to $2.0 billion. The combined ratio improved to 91.9 from 95.8, and the adjusted accident-year combined ratio improved to 88.7 from 91.0.
- Life and Retirement: Adjusted pre-tax income declined 32% to $2.7 billion. Lower alternative-investment returns, lower fee income and weaker equity markets outweighed improved fixed-annuity spreads and favorable business effects.
- Other Operations: Adjusted pre-tax loss improved to $1.95 billion from $2.35 billion, primarily due to lower corporate interest expense and lower consolidation and elimination losses.
Material Changes Versus the Prior Comparable Period
- General Insurance underwriting improved substantially, supported by rate increases, improved retention, new business production, disciplined risk selection and lower catastrophe losses. Catastrophe-related charges were $1.3 billion in 2022 versus $1.4 billion in 2021.
- Total net investment income fell 19% to $11.8 billion, driven principally by lower alternative-investment returns and weaker performance in securities affected by rising rates and declining equity markets.
- Available-for-sale fixed-maturity securities recorded approximately $47.7 billion of net unrealized losses in 2022. The portfolio ended the year with a $29.7 billion net unrealized loss compared with an $18.1 billion net unrealized gain in 2021, materially reducing accumulated other comprehensive income and reported shareholders’ equity.
- AIG reduced general borrowings by approximately $9.4 billion and repurchased approximately 90 million common shares for $5.1 billion. It paid $982 million of common-stock dividends and $29 million of preferred-stock dividends.
- Corebridge issued $6.5 billion of senior unsecured notes, $1.0 billion of junior subordinated debt and borrowed $1.5 billion under a delayed-draw term loan facility, principally to repay the $8.3 billion intercompany note owed to AIG Parent.
- Life and Retirement reserves and mutual fund assets declined to $326.1 billion from $353.3 billion, mainly reflecting negative market performance and lower separate-account values.
- Net favorable prior-year loss reserve development was $523 million, compared with $115 million in 2021. Favorable development was concentrated in workers’ compensation, casualty and selected international portfolios, while U.S. Financial Lines experienced unfavorable development.
Liquidity, Capital and Debt
AIG Parent reported approximately $8.2 billion of liquidity sources at December 31, 2022, including cash and short-term investments, and had a fully available $4.5 billion committed revolving credit facility expiring in November 2026. Insurance subsidiaries distributed $1.9 billion from General Insurance and $753 million from Life and Retirement during 2022.
Total contractual obligations were $407.1 billion, including $77.7 billion of gross loss reserves, $294.4 billion of insurance and investment contract liabilities, $21.3 billion of debt and $13.7 billion of future interest payments. These amounts are undiscounted and rely on significant assumptions regarding claims, policyholder behavior and payment timing.
AIG stated that its insurance subsidiaries exceeded applicable statutory capital and surplus requirements and that domestic subsidiaries exceeded risk-based capital minimums. However, approximately $41.1 billion of consolidated insurance-subsidiary statutory capital and surplus was restricted from transfer to AIG Parent without regulatory approval.
Outlook, Risks and Unusual Items
- Management expects continued effects from interest rates, inflation, equity-market volatility, foreign-exchange movements, catastrophe losses, geopolitical tensions and regulatory developments. Rising rates improve reinvestment yields and fixed-annuity demand but may also increase surrenders, crediting-rate requirements and market-value losses.
- AIG’s 2023 outlook is not presented as formal earnings guidance in the filing. Management emphasizes underwriting discipline, profitable growth, capital efficiency, expense reduction and continued separation of Life and Retirement from AIG.
- AIG achieved its AIG 200 exit run-rate savings target of $1 billion six months ahead of schedule, but continued execution, technology implementation and realization of remaining benefits remain risks.
- AIG intends to sell down its remaining Corebridge ownership over time, but the timing, pricing and terms are uncertain. A decline in Corebridge’s market value could affect AIG’s results and financial condition.
- Approximately $29.0 billion of Life and Retirement run-off reserves and $3.2 billion of General Insurance run-off reserves were ceded to Fortitude Re. The arrangements are collateralized, but AIG remains primarily liable to policyholders and could face substantial liabilities and capital requirements if recapture triggers occur.
- Critical estimates include loss reserves, life-insurance liabilities, guaranteed benefits, embedded derivatives, deferred acquisition costs, reinsurance recoverables, investment valuations, goodwill and deferred tax assets. The filing identifies these estimates as subject to material volatility.
- AIG Financial Products Corp. filed for Chapter 11 bankruptcy in December 2022 and was deconsolidated, producing a $114 million pretax loss. AIG stated that the reorganization would not materially affect its consolidated balance sheet or businesses.
- The company faces extensive insurance, regulatory, tax and other litigation. The filing states that potential losses from unresolved matters may exceed recorded liabilities, although management does not currently expect a material adverse effect other than matters specifically discussed.
- AIG adopted the long-duration-targeted-improvements accounting standard on January 1, 2023. The filing estimated a material transition effect on equity and potential changes in reported earnings volatility, disclosures and insurance-liability measurements.
Facts an Investor Should Verify
- Reconcile reported net income with adjusted after-tax income, particularly the $7.5 billion Fortitude Re embedded-derivative gain.
- Assess the effect of the $47.7 billion decline in unrealized fixed-maturity gains on statutory capital, liquidity, deferred taxes and future investment income.
- Monitor General Insurance reserve development, especially unfavorable trends in U.S. Financial Lines and the sensitivity of long-tail reserves to inflation, loss trends and development factors.
- Review Corebridge’s operating performance, leverage, dividend capacity and AIG’s plans and ability to monetize its remaining 77.7% ownership stake.
- Evaluate AIG Parent liquidity after considering restricted subsidiary capital, dividend restrictions, debt maturities, collateral requirements and potential catastrophe or reinsurance needs.
- Review Fortitude Re collateral, counterparty performance and contractual recapture triggers.
- Consider the impact of LDTI adoption, deferred-tax-asset valuation allowances and the expiration of AIG’s Tax Asset Protection Plan and protective charter amendment.
- Compare catastrophe exposure models and reserve sensitivities with the company’s actual geographic, climate-related and reinsurance exposures.