* Refers to financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP); definitions of non-GAAP measures and reconciliations to their closest GAAP measures can be found in this news release under the heading Comment on Regulation G and Non-GAAP Financial Measures.
American International Group, Inc. has reported financial results for the quarter ended September 30, 2020.
Brian Duperreault, AIG’s Chief Executive Officer, said: “We are pleased to report AIG’s solid third quarter results as we embark on an important phase of our journey to become a top performing company. In General Insurance, the accident year combined ratio, as adjusted, improved for the ninth consecutive quarter, and the high frequency of natural catastrophes and COVID-19 had a limited impact on financial results. Life and Retirement’s results continue to demonstrate that it is a market-leading franchise, with a strong improvement in adjusted pre-tax income from last year. Our recent leadership transition and corporate structure announcements marked an important milestone for AIG made possible by the significant foundational work our colleagues have successfully executed on over the last three years.”
Three Months Ended
|($ in millions, except per common share amounts)||2020||2019|
|Net income attributable to AIG common shareholders||$||281||$||648|
|Net income per diluted share attributable to AIG common shareholders||$||0.32||$||0.72|
|Weighted average common shares outstanding - diluted||873.1||895.8|
|Adjusted pre-tax income (loss):|
|Life and Retirement||975||646|
|Adjusted after-tax income attributable to AIG common shareholders||$||709||$||505|
|Adjusted after-tax income per diluted share attributable to AIG common shareholders||$||0.81||$||0.56|
|Return on common equity||1.8||%||4.0||%|
|Return on tangible common equity*||1.9||%||4.4||%|
|Adjusted return on common equity*||5.8||%||4.1||%|
|Adjusted return on tangible common equity*||6.5||%||4.5||%|
|Adjusted return on attributed common equity - Core*||5.6||%||4.4||%|
|Common shares outstanding||861.4||869.9|
|Book value per common share||$||73.86||$||74.85|
|Tangible book value per common share*||$||68.08||$||68.77|
|Book value per common share, excluding AOCI adjusted for the cumulative unrealized|
|gains and losses related to Fortitude Re’s Funds Withheld Assets*||$||66.21||$||68.40|
|Adjusted book value per common share||$||56.78||$||57.60|
|Adjusted tangible book value per common share*||$||51.01||$||51.52|
|General Insurance Combined ratio||107.2||103.7|
|General Insurance Accident year combined ratio, as adjusted||93.3||95.9|
|Adjusted return on attributed common equity - Life and Retirement||14.5||%||10.1||%|
All comparisons are against the third quarter of 2019, unless otherwise indicated. Refer to the AIG Third Quarter 2020 Financial Supplement, which is posted on AIG's website in the Investors section, for further information.
THIRD QUARTER 2020 HIGHLIGHTS
General Insurance – Third quarter APTI of $416 million was comprised of an underwriting loss of $423 million and net investment income of $839 million compared to APTI of $507 million in the prior year quarter. The underwriting loss of $423 million included $790 million of CATs, net of reinsurance, including $605 million of non-COVID-19 CATs primarily relating to windstorms and tropical cyclones in North America and Japan, as well as wildfires on the U.S. West Coast, and $185 million of estimated COVID-19 losses, primarily related to Travel, Contingency and Validus Re compared to $497 million of CATs, net of reinsurance, in the prior year quarter. Unfavorable net prior year loss reserve development, net of reinsurance, totaled $13 million, and reflects $53 million of favorable amortization from the Adverse Development Cover (ADC) compared to favorable net prior year loss reserve development, net of reinsurance of $3 million in the prior year quarter which reflected $58 million of favorable amortization from the ADC.
The General Insurance combined ratio was 107.2, including 13.5 points of CATs and reinstatement premiums, of which 3.1 points related to COVID-19 losses. The accident year combined ratio, as adjusted, was 93.3, an improvement of 2.6 points from prior year quarter and comprised of a 60.7 accident year loss ratio, as adjusted* and an expense ratio of 32.6.
Commercial Lines continued to show strong improvement due to premium rate increases and underwriting and reinsurance actions taken to improve business mix and loss performance. The accident year combined ratio, as adjusted, for North America Commercial Lines improved 6.3 points to 93.1 and for International Commercial Lines improved 4.1 points to 89.9.
The North America Personal Insurance accident year combined ratio, as adjusted, which increased 23.1 points to 118.6 compared to the prior year quarter, was impacted by business mix driven by a series of quota share reinsurance agreements placed in the second quarter 2020, including participation by our recently formed Syndicate 2019, a Lloyd’s Syndicate managed by Talbot, to reinsure risks related to AIG’s Private Client Group, and also reflects the impact of COVID-19 on the Travel business.
The General Insurance expense ratio improved 1.8 points to 32.6 reflecting changes in the business mix. GOE decreased by 9% to $752 million compared to the prior year quarter.
Life and Retirement – Third quarter APTI was $975 million compared to $646 million in the prior year quarter. The current quarter includes a $120 million charge, on an APTI basis, for the annual actuarial assumption update compared to a $143 million charge for last year’s update. The APTI increase reflects higher private equity returns, which are reported on a one quarter lag, and strong equity market performance which resulted in lower deferred acquisition costs (DAC) and Sales Inducement (SI) amortization and lower Variable Annuity reserves; favorable short-term impacts from lower interest rates and tighter credit spreads which resulted in higher call and tender income; and lower GOE. These favorable impacts were partially offset by base spread compression and unfavorable impacts from COVID-19 mortality. Net flows were negative driven by lower Fixed, Variable and Index Annuity sales. Adjusted ROCE for Life and Retirement for the third quarter of 2020 was 14.5%.
The $120 million charge, on an APTI basis, for the annual actuarial assumption update was offset by a benefit of $98 million, pre-tax, reflected in net realized capital losses and DAC related to guaranteed minimum withdrawal benefits on Variable Annuities, resulting in a net charge of $22 million to pre-tax income compared to a net benefit of $20 million in the prior year quarter.
On October 26, 2020, AIG announced its intention to separate its Life and Retirement business from AIG. No decisions have yet been made regarding the structure of the proposed separation. In addition, any separation transaction will be subject to the satisfaction of various conditions and approvals, including approval by the AIG Board of Directors, receipt of insurance and other required regulatory approvals, and satisfaction of any applicable requirements of the Securities and Exchange Commission. No assurance can be given regarding the form that a separation transaction may take or the specific terms or timing thereof, or that a separation will in fact occur.
Other Operations – Third quarter adjusted pre-tax loss (APTL) was $562 million, including $136 million of reductions from consolidation, eliminations and other adjustments, compared to $500 million, including $46 million of reductions from consolidation, eliminations and other adjustments, in the prior year quarter. Before consolidation, eliminations and other adjustments, the decrease in the pre-tax loss was primarily due to lower GOE, partially offset by increased interest expense related to debt issuance in the second quarter of 2020 and lower net investment income associated with available for sale securities.
Legacy Results – Third quarter APTI was $89 million compared to $93 million in the prior year quarter, reflecting the completion of the sale of Fortitude, partially offset by higher Legacy Investments gains on fair value option portfolios compared to losses in the prior year quarter. Legacy Life and Retirement Run-off Lines includes a $13 million benefit for the annual actuarial assumption update compared to a $30 million charge in the prior year quarter.
Net Investment Income – Total consolidated net investment income increased to $3.8 billion compared to $3.4 billion in the prior year quarter. Net investment income on an APTI basis decreased 8% to $3.2 billion in the third quarter of 2020. Excluding the impact of Fortitude in the third quarter of 2019, net investment income on an APTI basis increased $271 million compared to the prior year quarter primarily reflecting higher private equity and hedge fund returns.
Liquidity and Capital – As of September 30, 2020, AIG Parent liquidity stood at approximately $10.7 billion compared to $7.6 billion at December 31, 2019. In August 2020 AIG repaid $638 million aggregate principal amount of its 3.375% Notes Due 2020.
Book Value per Common Share – As of September 30, 2020, book value per common share was $73.86 compared to $71.68 at June 30, 2020, primarily driven by increased net unrealized gains on the investment portfolio. Adjusted book value per common share, which excludes accumulated other comprehensive income adjusted for the cumulative unrealized gains and losses related to Fortitude Re’s funds withheld assets and deferred tax assets, increased to $56.78 compared to $55.90 at June 30, 2020. Adjusted tangible book value per common share, which is Adjusted book value per common share excluding Goodwill, Value of Business Acquired, Value of Distribution Channel Acquired and Other Intangible Assets was $51.01 compared to $50.16 at June 30, 2020.
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