American International Group, Inc. Second Quarter 2013 Results - - PowerPoint PPT Presentation

American International Group, Inc.

Second Quarter 2013 Results Conference Call Presentation August 2, 2013

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Cautionary Statement Regarding Projections and Other Information About Future Events

This document and the remarks made within this presentation may include, and officers and representatives of American International Group, Inc. (AIG) may from time to time make, projections, goals, assumptions and statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These projections, goals, assumptions and statements are not historical facts but instead represent only AIG’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG’s control. These projections, goals, assumptions and statements include statements preceded by, followed by or including words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “view,” “target” or “estimate”. It is possible that AIG’s actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG’s actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include: changes in market conditions; the occurrence of catastrophic events, both natural and man-made; significant legal proceedings; the timing and applicable requirements of any new regulatory framework to which AIG is subject as a savings and loan holding company, as a systemically important financial institution, and as a global systemically important insurer; concentrations in AIG’s investment portfolios; actions by credit rating agencies; judgments concerning casualty insurance underwriting and insurance liabilities; judgments concerning the recognition of deferred tax assets; and such other factors discussed in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Part II, Item 1A. Risk Factors in AIG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, in Part I, Item 2. MD&A in AIG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and in Part II, Item 7. MD&A and Part I, Item 1A. Risk Factors in AIG’s Annual Report on Form 10-K for the year ended December 31, 2012. AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. This document and the remarks made orally may also contain certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP measures in accordance with Regulation G is included in the Second Quarter 2013 Financial Supplement available in the Investor Information section of AIG's corporate website, www.aig.com.

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Second Quarter 2013 Key Themes

Highlights: Noteworthy Items Capital Management & Liquidity

• Declared cash dividend of $0.10/share; share repurchase authorization of $1 billion, both in Aug. 2013
• Reduced debt by $931 million through calls and tenders
• $1.3 billion of dividends and loan repayments
• As of August 1, 2013, the closing of the ILFC transaction has not occurred

AIG Property Casualty

• Accident year loss ratio, as adjusted, of 61.9 continues to improve
• Positive rate change in 2Q13, with Global Commercial rates up 3.8% (+7.3% in U.S.)
• NPW growth of 4.0% from 2Q12 excluding foreign exchange and timing of reinsurance agreements
• CAT losses total $316 million
• Net unfavorable development of $154 million, including $142 million from Storm Sandy

Mortgage Guaranty

• Earnings reflect new business growth (half of net premiums earned in 2Q13 was from business written

after 2008)

• Growth in new insurance written (up 63% from 2Q12) with consistently high quality risks
• Delinquency ratio declined 80 bps from 1Q13 to 7.1%

AIG Life and Retirement

• Strong variable annuity sales of $2.2 billion and retail mutual fund sales growth drove positive net flows;

fixed annuity sales increased late in the quarter

• AUM increased 10% from the year ago period resulting in higher fee income
• Ongoing active crediting rate management continued to enhance profitability
• Earnings benefited from higher net investment income

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Second Quarter ($ in millions, except per share amounts) 2012 2013 Inc. (Dec.) Revenues $16,221 $17,315 7% Net income attributable to AIG 2,332 2,731 17% After-tax operating income attributable to AIG $1,678 $1,655 (1%) Diluted earnings per common share: Income from continuing operations $1.23 $1.82 48% Income from discontinued operations $0.10 $0.02 (80%) After-tax operating income attributable to AIG $0.96 $1.12 17% Book value per common share $60.58 $66.02 9% Book value per common share - Ex. AOCI $55.30 $61.25 11% ROE – After-tax operating income(1) 7.0% 7.4%

Financial Highlights

1) Computed as Annualized After-tax operating income divided by Average AIG Shareholders' equity, excluding AOCI.

Net income in 2Q13 includes a deferred tax valuation allowance release of $752 million and litigation settlement income of $257 million, net of tax.

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After-tax Operating Income

Second Quarter ($ in millions, except per share amounts) 2012 2013 Insurance operations AIG Property Casualty $936 $1,085 AIG Life and Retirement 933 1,151 Mortgage Guaranty (reported in Other) 43 73 Total Insurance Operations 1,912 2,309 Direct Investment book 434 591 Global Capital Markets (25) 175 Change in fair value of AIA (including realized gain) (493)

• Change in fair value of Maiden Lane III

1,306

• Interest expense

(392) (353) Corporate expenses (224) (253) Other (54) (1) Pre-tax operating income attributable to AIG 2,464 2,468 Income tax expense (779) (786) Other noncontrolling interest (7) (27) After-tax operating income attributable to AIG $1,678 $1,655 After-tax operating income per diluted common share $0.96 $1.12

Improved insurance operating results and strong investment returns drive results.

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$57.87 $61.25 $8.51 $4.77 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0

• Dec. 31, 2012

June 30, 2013 AOCI BVPS, ex AOCI $98.0 $97.5 $9.4 $6.5 $16.1 $14.6 $0.7 $0.7

• Dec. 31, 2012

June 30, 2013 Non-redeemable noncontrolling interests Financial Debt Hybrids Common Equity

Strong Capital Position

Book Value Per Share Capital Structure

$66.38

1) Includes AIG Loans, Mortgages, Notes and Bonds Payable, AIGLH Notes and Bonds Payable, and Liabilities connected to the trust preferred stock. (1)

($ in billions, except per share data) $124.1 Leverage Ratios: 2012 2013 Financial Debt + Hybrids / Capitalization 20.5% 17.7% Financial Debt / Capitalization 12.9% 12.3% $66.02 $119.2

Outstanding borrowings reflect $2.9 billion notional amount of hybrid calls and tenders year-to-date.

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$75 $902 $792 $440 $1,349 $545 $0 $400 $800 $1,200 $1,600 3Q12 4Q12 1Q13 2Q13 AIG Property Casualty AIG Life and Retirement $12.6 $8.1 $2.9

• Dec. 31,

2012 June 30, 2013 Unencumbered Fixed Maturity Securities Cash & Short-term Investments

Financial Flexibility – A Source of Strength

Parent Cash, Short-Term Investments & Unencumbered Securities Insurance Company Distributions

($ in millions) ($ in billions) $1,342

• Year-to-date insurance company distributions of $2.7 billion. Annual distributions expected to be $4 – 5 billion.
• Parent cash, short-term investments and unencumbered securities of $11.0 billion includes $5.4 billion allocated toward future

maturities of liabilities and contingent liquidity stress needs of the Direct Investment book and Global Capital Markets as of June 30, 2013.

• AIG Parent also maintains available capacity of $3.6 billion under its syndicated credit facility and contingent liquidity facility.

$11.0 $1,337

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AIG Property Casualty – Financial Results

Global Combined Ratios

Calendar Year Accident Year, as adjusted(1)

1) The combined ratio, as adjusted, and loss ratio, as adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net

• f premium adjustments and the impact of reserve discounting.

($ in millions) 2Q12 2Q13 Net premiums written $9,095 $9,263 Net premiums earned 8,820 8,347 Underwriting income (loss) (217) (225) Net investment income 1,153 1,310 Operating income $936 $1,085

• Net premiums written grew 2% reflecting growth of new business and rate increases, the timing of the recognition of ceded premiums

written under excess of loss reinsurance agreements, partially offset by the negative effect of foreign exchange, which was largely driven by the strengthening of the U.S. dollar against the Japanese Yen. NPW growth was 4.0% excluding the excess of loss and foreign exchange effects.

• The accident year loss ratio, as adjusted, continued to improve, as a result of the shift to higher value business, enhanced risk

selection, loss mitigation initiatives and improved pricing.

• Net investment income benefited from the strong performance of alternative investments and gains on fair value option securities.

Operating results demonstrate continued execution of strategic initiatives.

68.9 68.0 64.8 61.9 19.6 20.0 19.6 20.0 13.9 14.6 13.9 14.6 20 40 60 80 100 120 2Q12 2Q13 2Q12 2Q13 Loss Ratio Acquisition Ratio GOE Ratio 102.4 98.3 102.6 96.5

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$2,181 $2,110 $1,447 $1,770 $864 $882 $1,076 $1,114 $0 $2,000 $4,000 $6,000 2Q12 2Q13 Casualty Property Specialty Financial lines 70.7 72.6 67.3 62.2 17.2 16.3 17.2 16.3 11.4 12.8 11.4 12.8 20 40 60 80 100 120 2Q12 2Q13 2Q12 2Q13 Loss Ratio Acquisition Ratio GOE Ratio

Commercial Insurance – Underwriting Results

Calendar Year Accident Year, as adjusted(1) 99.3

Combined Ratios Commercial results reflect business mix shift, enhanced risk selection, and price increases.

95.9

Accident Year Loss Ratio, as adjusted(1)

73.7 76.9 70.3 67.3 70.8 66.4 65.4 62.2 40 45 50 55 60 65 70 75 80 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13

Net Premiums Written

($ in millions) $5,568 $5,876

• Commercial Insurance continued to focus on growing higher

value, profitable lines of business and geographies.

• Commercial Insurance rates increased +3.8% (+7.3% for

the U.S.), led by U.S. Casualty at +9.4% and U.S. Property at +5.7%.

• Commercial NPW grew 5.5% from 2Q12. Excluding the

timing of the recognition of ceded premiums written under excess of loss reinsurance agreements and foreign exchange effects, Commercial NPW grew 3.6%. 101.7 91.3

1) The combined ratio, as adjusted, and loss ratio, as adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net

• f premium adjustments and the impact of reserve discounting.

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$1,696 $1,645 $1,832 $1,745 $0 $1,000 $2,000 $3,000 $4,000 2Q12 2Q13 Accident & Health Personal Lines

Consumer Insurance – Underwriting Results

Combined Ratios Consumer continues to implement global growth strategies across multiple distribution channels. Accident Year Loss Ratio, as adjusted(1)

59.2 58.9 59.1 60.2 23.5 25.9 23.5 25.9 15.0 15.3 15.0 15.3 20 40 60 80 100 120 2Q12 2Q13 2Q12 2Q13 Loss Ratio Acquisition Ratio GOE Ratio 58.9 57.7 58.4 59.1 57.7 58.0 58.8 60.2 40 45 50 55 60 65 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Calendar Year Accident Year, as adjusted(1) 97.7 97.6

Net Premiums Written

($ in millions) $3,528 $3,390

• Consumer NPW grew 4.7% from 2Q12 excluding foreign

exchange and the excess of loss reinsurance change and declined 3.9% on a reported basis.

• Direct Marketing NPW grew 5% from 2Q12 and represented

16% of total Consumer NPW in 2Q13.

• The accident year loss ratio, as adjusted, in 2Q13 includes

higher losses associated with a warranty retail program of 1.5 pts, which was largely offset by a decrease in amounts

• wed under a profit sharing arrangement for the same

program. 100.1 101.4

1) The combined ratio, as adjusted, and loss ratio, as adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net

• f premium adjustments and the impact of reserve discounting.

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AAA 22% AA 30% A 26% BBB 12% BB 2% B 2% <B 6%

AIG Property Casualty – Investments

Total Portfolio Composition

1) Includes income/loss from mutual funds, investment real estate, life settlement contracts and mark-to-market gains and losses, net of investment expenses. 2) Includes intercompany invested assets that are eliminated in consolidation.

Bond Portfolio - $102.1 billion - by Agency Credit Rating

Returns driven by strong alternative investment income and gains on fair value option securities.

Total Cash & Invested Assets as of June 30, 2013 - $125.9 billion(2) Net investment income:

($ in millions) 2012 2013 Inc./(Dec.) Interest and dividends $ 991 $ 939 (5%) Alternative investments 110 240 118% Other, net(1) 52 131 152% Net investment income $ 1,153 $ 1,310 14% 3.68% Yield 4.11% Second Quarter

States, municipalities, and political subdivisions 20% U.S. Governments 2% Non-U.S. governments 16% Corporate debt 26% RMBS 10% CMBS 2% CDO/ABS 5% Equities 3% Other invested assets 10% Loans 1% Cash and short-term investments 5%

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Mortgage Guaranty – Improving Trends

10.3% 9.6% 8.8% 7.9% 7.1% 6% 7% 8% 9% 10% 11% 2Q12 3Q12 4Q12 1Q13 2Q13

Primary Delinquency (DQ) Ratio (%)(2)

(in 000s) 2Q12 3Q12 4Q12 1Q13 2Q13 DQ Count(2) 71 67 63 57 53

Growth in New insurance written with high quality risk. $3.2 $8.6 $14.0 $0.0 $4.0 $8.0 $12.0 $16.0 2Q11 2Q12 2Q13

New Insurance Written (NIW)(1)

($ in billions)

Vintage Year(2) Average FICO Score LTV Ratio 2Q11 757 91 2Q12 759 91 2Q13 755 92

Operating income of $73 million included a positive contribution from commutations, settlements and related reserve releases totaling $49 million.

1) New insurance written – original principal balance of loans (First-lien). Includes $162 million, $50 million and $79 million of NIW from International business in 2Q13, 2Q12 and 2Q11, respectively 2) Domestic First-lien only.

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12% 24% 12% 3% 30% 18% 1% Life Insurance and A&H Fixed Annuities Retirement Income Solutions Retail Mutual Funds Group Retirement Institutional Markets Group Benefits

AIG Life and Retirement – Financial Results

• Strong 2Q13 operating results were driven by robust

sales of variable annuities, solid growth in fee income, effective spread management, and higher alternative investment income.

• Net investment income in 2Q13 included a fair value loss
• f $84 million in the PICC Group investment ($53 million

loss for the first six months of 2013).

Assets Under Management Results reflect strong sales, active spread management and higher investment income.

($ in millions) 2Q12 2Q13 Premiums and deposits $5,434 $6,765 Premiums 632 649 Policy fees 567 623 Net investment income 2,521 2,637 Advisory fee and other income 312 419 Total revenues(1) 4,032 4,328 Benefits and expenses 3,099 3,177 Operating income $933 $1,151

1) Excluding net realized capital gains (losses).

• AUM of $293.7 billion at June 30, 2013 increased 10%

from the year-ago period driven by strong sales generated by our realigned distribution system, equity market performance and Institutional business asset gathering strategies.

• Net inflows in 2Q13 of $417 million improved

substantially from the prior quarter and year-ago quarter due to variable annuity and retail mutual fund sales.

• Despite positive net flows in the quarter, AUM declined

slightly from 1Q13 due to increases in interest rates and the resulting impact on general account asset values.

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AIG Life and Retirement – Retail & Institutional Results

$265 $295 $123 $172 $0 $150 $300 $450 $600 2Q12 2Q13 Group Retirement Institutional Markets

• Retail operating income benefited from increased fee income from growth in account values, continued active spread management
• n interest rate-sensitive business and higher income on alternative investments.
• Institutional operating income was driven by active spread management and higher investment income.

Retail Operating Income* Institutional Operating Income*

$224 $196 $251 $343 $50 $130 $0 $175 $350 $525 $700 2Q12 2Q13 Life Insurance and A&H Fixed Annuities

• Ret. Inc. Solutions

$535 $670 ($ in millions) $398 $481 ($ in millions)

* Operating income is not separately presented for brokerage services and retail mutual funds included in the Retail operating segment and group benefits included in the Institutional operating segment.

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AIG Life and Retirement – Investments

1) Includes income/loss from mutual funds, real estate, equity method investments and mark-to-market gains and losses, net of investment expenses. 2) Includes the investment return on surplus other than alternative investment or yield enhancement activities. Quarterly results are annualized. 3) Represents the base yields and the incremental effect to base yield on investments in hedge funds, private equity funds, gains on Maiden Lane II (in 2012) and income from calls and prepayment fees. Quarterly results are annualized. 4) Includes intercompany invested assets that are eliminated in consolidation.

Total Portfolio Composition Bond Portfolio - $157.3 billion - by Agency Credit Rating Total Cash & Invested Assets as of June 30, 2013 - $196.8 billion(4)

AAA 12% AA 10% A 24% BBB 41% BB 4% B 2% <B 7%

Net investment income:

($ in millions) 2012 2013 Inc./(Dec.) $ 2,361 Interest and dividends $ 2,319 (2%) Alternative investments 170 436 156% 20 Call and tender income 54 170% Other, net(1) (30) (172) N/M $ 2,521 Net investment income 2,637 $ 5% Base Yield(2) 5.50% 5.35% Total Yield(3) 5.71% 5.83% Second Quarter

States, municipalities, and political subdivisions 2% U.S. Governments 1% Non-U.S. governments 2% Corporate debt 54% RMBS 12% CMBS 4% CDO/ABS 5% Other invested assets 6% Loans 10% Cash and short-term investments 4%

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5.50% 5.38% 5.33% 5.30% 5.35% 5.31% 5.12% 5.12% 5.10% 5.25% 5.23% 5.01% 4.95% 4.85% 5.14% 4.70% 4.90% 5.10% 5.30% 5.50% 5.70% 2Q12 3Q12 4Q12 1Q13 2Q13 3.13% 3.15% 3.14% 2.91% 2.89% 3.27% 3.26% 3.26% 3.10% 3.06% 2.60% 2.80% 3.00% 3.20% 3.40% 2Q12 3Q12 4Q12 1Q13 2Q13

Base Yields(1) Base Net Investment Spreads(1)

2.18% 1.97% 1.98% 2.19% 2.36% 1.96% 1.75% 1.69% 1.75% 2.08% 1.00% 1.50% 2.00% 2.50% 3.00% 2Q12 3Q12 4Q12 1Q13 2Q13 Total Base Yield Fixed Annuities Group Retirement

1) Includes the investment return on surplus other than alternative investment or yield enhancement activities. 2) Excludes the amortization of sales inducement assets.

Cost of Funds(2)

AIG Life and Retirement – Base Yields and Spreads

• Overall base yields benefited from mortgage loan prepayments and increased accretion income principally related to structured securities,

which were partially offset by the impact of investment purchases made at yields lower than the weighted average yield of the existing portfolio.

• Group retirement base yields also improved from 1Q13 due to an increase in allocated net investment income related to surplus assets.
• Active crediting rate management actions which included lowering renewal crediting rates and maintaining disciplined new business pricing also

contributed to the improvement in net spreads.

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Q&A

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Appendix

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Direct Investment Book (1) Global Capital Markets (1) Assets $25.7 $8.6 Liabilities 21.8 3.8 Net Asset Value $3.9 $4.8 Legacy Matched Assets & Liabilities AIG Hedging & Market Derivatives(2) Legacy AIGFP CDS Portfolio Stable Value Wraps Go Forward Hedging Platform Third-Party Derivatives Notional ($ bn)

• $92

Multi- Sector Corporate Arbitrage $8 $24 $4 $12 Weighted Average Life (Years)

• 6.5

6.0 2.7 5.0 7.9 Strategy

• Income generated through

realization of intrinsic value

• Assets managed to ensure

liabilities can be met as they come due, even under stress scenarios

• Primarily hedges of

DIB assets and liabilities

• Bulk of risk related

to interest rates, foreign exchange and equities has been hedged

• Income generated

through realization

• f intrinsic value
• Remaining credit

risk viewed as attractive risk- reward

• Since 4Q 2012,

notional value of $10 billion has been novated to AIG Life and Retirement

• Further novations

are expected to

• ccur over time
• “Clearing house” for
• perating company

hedging and risk management needs

Direct Investment Book and Global Capital Markets

Note: As of June 30, 2013. 1) The DIB consists of a portfolio of assets and liabilities held directly by AIG Parent in the Matched Investment Program (MIP) and certain non-derivative assets and liabilities of AIGFP. The DIB and GCM are included in AIG’s Other Operations. 2) The overall hedging activity for the assets and liabilities of the DIB is executed by GCM. The value of hedges related to the non-derivative assets and liabilities of AIGFP in the DIB is included within the assets and liabilities and operating results of GCM and is not included within the DIB operating results, assets or liabilities.

($ in billions)

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Direct Investment Book Long-Term Debt Maturities

($ in billions) $8.9 $8.2 $6.6 $5.6 $4.4 $0.4 $3.5 $3.5 $3.5 $3.5 $3.5 $3.5 $0.3 $5.8 $5.6 $5.0 $4.5 $4.1 $3.9 $3.2 $1.2 $1.1 $1.1 $0.8 $0.6 $0.5 $0.3 $19.4 $18.4 $16.2 $14.4 $12.6 $8.3 $3.8 0% 5% 16% 26% 35% 57% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% $0 $5 $10 $15 $20 $25 as of 6/30/2013 2013 2014 2015 2016 2017 2018 MIP notes payable Series AIGFP matched notes and bonds payable GIAs, at fair value Notes and bonds payable, at fair value % Maturing

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