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AMERICAN INTERNATIONAL GROUP, INC.
2017 Annual Report
FINANCIAL
HIGHLIGHTS1
American International Group,
Inc. (AIG) is a leading global
insurance organization.
Founded in 1919, today AIG
member companies provide a
wide range of property casualty
insurance, life insurance,
retirement products, and other
financial services to customers
in more than 80 countries and
jurisdictions. These diverse
offerings include products and
services that help businesses
and individuals protect their
assets, manage risks and
provide for retirement security.
AIG common stock is listed on
the New York Stock Exchange
and the Tokyo Stock Exchange.
YEARS ENDED DECEMBER 31,
(dollars in millions, except per share data)
2017
2 016
2 015
OPERATING RESULTS:
Total revenues
$ 49,520
$ 52,367
$ 58,327
Net income (loss) attributable to AIG
$ (6,084)
Adjusted after-tax income attributable to AIG2
$
2,231
$
$
(849)
$ 2,196
406
$ 2,872
Net income (loss) per common share attributable
to AIG (diluted)
Adjusted after-tax income per common share
attributable to AIG (diluted)2
BALANCE SHEET (YEAR-END):
$
(6.54)
$
(0.78)
$ 1.65
$
2.34 $
0.36 $
2 .15
Total assets
$ 498,301
$ 498,264
$ 496,842
Total AIG shareholders’ equity
$ 65,171 $ 76,300 $ 89,658
KEY METRICS:
Book value per common share
Adjusted book value per common share3
Return on equity (ROE)
Adjusted ROE4
Core Adjusted ROE5
GENERAL INSURANCE:
$
$
72.49
54.74
$
$
76.66
$ 75.10
58.57
$
58.94
(8.4) %
(1.0) %
2.2 %
4.1 % 0.6 % 3.7 %
3.2 %
0.8 %
3.8 %
Net premiums written
$ 25,438
$ 28,393
Adjusted pre-tax income (loss)6
$
(813)
$
(2,051)
Combined ratio7
Accident year combined ratio, as adjusted8
LIFE AND RETIREMENT:
117. 3
97. 1
11 8 . 9
96.0
$
$
32,199
628
110.1
97. 0
Premiums and deposits9
$ 27,458
$ 29,304
$ 30,398
Adjusted pre-tax income6
$
3,831
$
3,428
$
3 ,12 4
Adjusted ROE5
12.4 %
10.8 %
n/a
1 The non-GAAP financial measures presented herein may not be comparable to similarly-named measures reported by other companies. The reconciliations of such measures
to the most comparable GAAP measures in accordance with Regulation G are included within this Annual Report, AIG’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2017 (included herein) or in the Fourth Quarter 2017 Financial Supplement available in the Investors section of AIG’s website, www.aig.com. 2 Adjusted
after-tax income attributable to AIG and Adjusted after-tax income per common share attributable to AIG (diluted) are reconciled on pages 64 and 65 of the Annual Report
on Form 10-K (included herein). 3 Adjusted book value per common share is reconciled on page 35 of the Annual Report on Form 10-K (included herein). 4 Return on equity
— adjusted after-tax income excluding AOCI and DTA is reconciled on page 35 of the Annual Report on Form 10-K (included herein). 5 Adjusted ROE for Core and Life and
Retirement are defined and reconciled on pages 335 and 337 of this Annual Report. Life and Retirement Adjusted ROE is only available for fiscal years 2016 and 2017, and
not prior. 6 Adjusted pre-tax income is a GAAP measure for General Insurance and Life and Retirement, and is defined on page 39 of the Annual Report on Form 10-K
(included herein). 7 Consistent with our definition of adjusted pre-tax income, excludes loss reserve discount and the portion of favorable or unfavorable prior year reserve
development for which we have ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain. 8 Accident year combined
ratio, as adjusted, is reconciled on page 72 in the Annual Report on Form 10-K (included herein). 9 Premiums and deposits is defined and reconciled on pages 335 and 337 of
this Annual Report.
CHAIRMAN LETTER
TO SHAREHOLDERS
DEAR AIG SHAREHOLDER,
In 2017, the Board’s most significant achievement
was the May appointment of Brian Duperreault
as President and CEO of AIG.
With Brian’s appointment, AIG gained a CEO
with extensive insurance industry experience,
a proven track record of delivering strong
financial performance and growth and a
roadmap to improving AIG’s performance
and restoring it to industry leadership.
Since his arrival, Brian has outlined a clear
strategy for the company focused on pursuing
long-term profitable growth, attracting new
leaders to complement and strengthen AIG’s
executive team and improving core insurance
operations. Several of the management team’s
recent accomplishments include:
•
Instilling a renewed focus on underwriting and
on the performance of AIG’s core businesses;
• Realigning AIG’s organizational structure to
increase accountability and better support
profitable growth;
• Commencing work on a platform to
transform commercial insurance through
digital technology, data analytics and
automation; and
• Growing the business by agreeing to
acquire Validus Holdings, Ltd.
Another notable development was the Financial
Stability Oversight Council’s rescission of AIG’s
designation as a nonbank systemically important
financial institution. This decision acknowledges
AIG as the company it is today following
substantial and successful de-risking over
the past several years.
The Board recognizes these changes also came
about through the hard work and dedication
of AIG’s nearly 50,000 employees around the
world. We are continually grateful for all that
they do each and every day to help AIG realize
profitable growth while keeping its promises to
those AIG insures. We want to also thank clients
for trusting AIG to manage their most important
risks in a world filled with increasing uncertainty.
In 2017, Board members Steve Miller, George
Miles and John Paulson concluded their tenures.
Peter Fisher and Samuel Merksamer have also
decided not to stand for re-election this year.
On behalf of all AIG Directors, I would like to
thank each of them for their service and their
valuable contributions.
DOUGLAS M. STEENLAND
Independent Chairman of the Board
Looking ahead, the Board continues to work to
earn and retain the trust and confidence of you,
our shareholders. I speak for all of our Board
members when I say that delivering long-term
value to you remains our top priority.
Sincerely,
DOUGLAS M. STEENLAND
Independent Chairman of the Board
1
AIG | 2017 Annual Report 2
AIG | 2017 Annual Report CEO LETTER
TO SHAREHOLDERS
DEAR AIG SHAREHOLDER,
In May 2017, I was honored to come home to AIG. From my
perspective as a shareholder and from my former roles as an AIG
employee for 23 years, the CEO of one of our largest competitors
and the CEO of a leading broker partner, I know the depth and
breadth of AIG’s many capabilities. There are few companies in
the industry with our scale, global footprint and brand awareness.
My goal as CEO is to make AIG better than
it’s ever been. I’m confident this will yield value
for all of our stakeholders and — importantly —
for you, our shareholders.
Our Performance in 2017
Our 2017 performance showed once again
AIG’s resilience, along with the value
of our strategy to build a more balanced,
diversified business:
•
In General Insurance, 2017 marked a year
of stabilizing results from which we fully expect
to deliver improvement. Our businesses have
been restructured to play to our strengths,
best serve our clients and distribution partners,
and empower our underwriters towards
clear accountability.
•
Life and Retirement continues to deliver solid
results and benefit from diversification. We saw
strong growth in Life Insurance and Institutional
Markets sales, and we maintained steady
Group Retirement and Index Annuity sales
for the year.
• Our balance sheet and free cash flow
remained strong, with year-end parent liquidity
at $7.3 billion. For the full year, dividends,
return of capital and loan repayments, and
tax sharing payments from our subsidiaries
exceeded $6 billion.
Looking ahead, our strategy is clear — we will
continue to position AIG as a growing, profitable
leader in the insurance industry, known for being
a top-performing underwriter, with the best
talent, armed with the best tools and technology,
and working across a global footprint.
Our Strong Culture
Delivering on this strategy will be influenced
heavily by the strength of our culture, and
our nearly 50,000 employees globally.
Since returning to AIG, I’ve been continually
impressed by the talent of our team, their
commitment to the company and their desire
to be the best. I have also observed how
collegiality and collaboration have taken
hold in our culture, in addition to operating
with the highest levels of integrity.
Our employees’ remarkable response to 2017’s
historically severe natural catastrophes is a
prime example of who we are. AIG employees
prioritized the needs of their clients and
distribution partners, whether they were also
located in the affected areas or stepping in to
help colleagues from other locations. Restoring
lives is what we do. The way we did it — with
compassion and in many cases, heroism —
made an enormous difference.
Our New Organizational Structure
In 2017, we updated our organizational
structure to more logically reflect how business
is marketed and underwritten. Our three
businesses are now General Insurance, led
by Peter Zaffino; Life and Retirement, led by
Kevin Hogan; and Blackboard Insurance,
our technology-based subsidiary, led by
Seraina Macia.
This structure provides the greatest competitive
advantage by giving each business a framework
for growth and investment as well as accountability
for performance. It also restores the strength and
vitality of our international operations by driving
more decision-making to our field operations,
closer to our clients and distributions partners,
so our employees have the ability to respond
quickly to local market needs.
3
BRIAN DUPERREAULT
President and Chief Executive Officer
AIG | 2017 Annual Report CEO LETTER
TO SHAREHOLDERS
continued
“Blackboard’s name
represents a clean slate
and place where our people
from all walks of life can
collaborate to find a better
way. We push ourselves
out of our comfort zones
to achieve insurance
innovations that really
move the needle.”
SERAINA MACIA
CEO, Blackboard Insurance
Strengthening Our
Senior Leadership
A significant part of our work in 2017 was
empowering this organizational structure by
strengthening our leadership and underwriting
talent. I’m very pleased this included several
additions to our Executive Leadership Team (ELT),
from both within and outside AIG. These
additions include:
Peter Zaffino, formerly Chairman of Risk &
Insurance Services at Marsh & McLennan
Companies, CEO of Marsh and CEO of Guy
Carpenter, brings deep insurance knowledge
and expertise to our General Insurance business.
He has a proven track record of delivering top
financial and operational business performance
over the past ten years of his career, and his
execution-based skill set will play a fundamental
role in driving our strategies to create long-term
value at AIG.
The fact that a number of industry leaders
have joined or rejoined the General Insurance
team at AIG under Peter speaks to our future.
They include: Chris Townsend, CEO of
International General Insurance; Tom Bolt,
Chief Underwriting Officer; Charles Fry,
Chief Reinsurance, Operations & Business
Transformation Officer; Bill Rabl, CEO of AIG
Risk Management; Bill Curcio, Chairman of AIG
Risk Management; and Ken Riegler, President,
Field & Underwriting Management.
Claudine Macartney, who has been with AIG
for more than 20 years, joined our ELT as Chief
Human Resources Officer. She plays a vital role
as we continue to strengthen and develop our
current employee base and attract new talent,
as well as take a fresh look at our compensation
programs to align with industry best practices
and promote a pay for performance culture.
Seraina Macia rejoined AIG with our
acquisition of Hamilton USA, having served
as its CEO. She continues to accelerate AIG’s
application of emerging technology and data
science to transform underwriting and claims as
the CEO of the renamed Blackboard Insurance.
Lucy Fato joined as General Counsel with
responsibility for overseeing the Global Legal,
Compliance and Regulatory department.
Peter and I worked with Lucy at Marsh &
McLennan Companies, and we have seen
firsthand the valuable insights she brings to
strategic business discussions and complex
legal and regulatory matters.
Tom Leonardi joined as Head of Government
Affairs, Public Policy and Communications.
A lifelong insurance industry expert, former
Insurance Commissioner for the State of
Connecticut, and business leader, Tom is
building clear lines of communication with
regulators that oversee AIG at the state,
federal and international levels, which will
play an ever more important role in enabling
our future growth.
In addition to these leaders named in 2017,
Naohiro Mouri, who previously oversaw
AIG’s Asia Pacific Audit operations, assumed the
role of Chief Auditor and became a member of
the ELT in March 2018. Mouri-san’s extensive
experience and international perspective will be
a valuable addition to the team, while enabling
Donna DeMaio, our previous Chief Auditor, to
take on the critical role of Global Chief Operating
Officer for the General Insurance business.
Evaluating Our Performance
As our leaders and their teams work to make
this company the best it has ever been, we have
started to speak differently about our financial
performance. Our objective is to better manage
growth, profitability and risk. Improvement in
our bottom line — namely, combined ratio,
book value and return on equity — signals
that we are striving to create long-term value.
These measures will guide our decisions around
investment and growth, and I am confident
the changes we are undertaking provide positive
momentum for the company, its employees and
4
its performance. Financial targets are critical to
the management of the company, but we no
longer provide them because they need to be
balanced against our goal of building a strong,
sustainable business for the long-term.
We also remain focused on expense discipline.
While we have significantly reduced general
operating and other expenses over the last
couple of years, we still have work to do to
become a top quartile performer in our industry.
We continue to focus on prudent expense
management, balanced with the necessary
investment in people and technology, to produce
our desired long-term productivity gains.
Capital Management
Our capital management strategy is directed
by our goal of long-term, profitable growth.
It is ultimately my responsibility to create value
for you, our shareholders, and I take this
responsibility very seriously.
“AIG’s recently announced
acquisition of Validus and
formation of DSA Re
demonstrate our strategic
approach to managing
capital. Our strong balance
sheet and cash flow give us
flexibility to pursue organic
and inorganic growth
opportunities that continue
to build long-term value.”
SID SANKARAN
Chief Financial Officer
AIG | 2017 Annual Report While we still have a buyback authorization in
place, we have already repurchased half the
company’s market capitalization over the past
three years.
I continue to believe that buying back shares
is a capital management tool, not a business
strategy. My priority remains deploying capital
strategically for organic and inorganic growth
to increase the franchise value of our company.
Removal of SIFI Designation
A notable development in 2017 was the Financial
Stability Oversight Council’s determination that
AIG is no longer considered a nonbank
systemically important financial institution (SIFI).
This decision reflects the progress made since
2008 to de-risk the company. Our SIFI
designation has changed, but our focus on
building a profitable, balanced business while
managing risk prudently remains constant.
We will continue to work with our regulators
in the U.S. and globally to ensure a stronger
AIG continues to serve our clients well.
Looking Ahead
We are focused on delivering value for our
shareholders in 2018 across each of our businesses.
General Insurance
2017 represents a starting point from which we
expect to grow profitably over time. Peter is
working with our leaders across this business to
fundamentally improve risk selection and build
a higher-quality book, deploy capital towards
the best opportunities for profitable growth and
improve our operational processes.
In fact, we named 2018 the “Year of the
Underwriter.” As part of our focus on delivering
best-in-class underwriting, we continue to
expand our bench of talent while positioning
More than 100 AIG volunteers worked for two days
at the Houston Food Bank making 1,280 disaster
relief food boxes. AIG provided $1 million in aid
to organizations focused on emergency relief and
ongoing recovery following Hurricane Harvey.
them to perform through the right incentives,
access to more robust data and analysis tools,
and a structure that empowers them to make
decisions based on their expertise and
professional judgment.
We aim to reduce the inherent volatility in this
business by taking a longer-term, strategic
approach to reinsurance, where we will take
smaller net lines in Property and Casualty,
and actively managing gross exposures across
our portfolio.
We are also looking at how we can better
leverage our existing global footprint, a key
differentiator, to profitably grow the business.
We have started to achieve rate improvement in
underperforming lines, and we are factoring loss
cost trends by line of business and attachment
point into our pricing strategy in 2018.
We are working diligently toward the goal of
sustainable underwriting profitability, and I am
pleased that our fourth quarter results showed
progress with regards to better assessing risk
and diversifying our business.
“The General Insurance
strategy for profitable
growth involves focus on
risk selection; underwriting
quality and consistency in
a culture of empowerment
and accountability;
advancement of our
analytical capabilities;
integration among
underwriting, claims and
actuarial; efficient capital
deployment to grow
profitable parts of the
business and reinsurance
optimization.”
PETER ZAFFINO
CEO, General Insurance
Brian Duperreault, Kevin Hogan and Peter Zaffino
addressing colleagues at an employee town hall in
AIG’s Houston offices shortly after Hurricane Harvey.
5
AIG | 2017 Annual Report CEO LETTER
TO SHAREHOLDERS
continued
“We are positioning our
industry-leading Life and
Retirement businesses to
serve growing market needs
with investments in modern
administrative platforms,
digital capabilities, client-
centric offerings and data
analytics while optimizing
capital allocations and
delivering solid earnings
through disciplined pricing,
expense management
and diversifi cation of risks.”
KEVIN HOGAN
CEO, Life and Retirement
6
AIG | 2017 Annual Report
Notable Developments in 2018
Before I close, I want to note several
developments early in the fi rst quarter of 2018
that are indicative of our path forward to
profi table growth.
In January, we announced our agreement to
acquire Validus Holdings, Ltd., which will bring to
AIG a leading reinsurance platform, an insurance-
linked securities asset manager, a meaningful
presence at Lloyd’s and complementary
capabilities in the U.S. crop and excess and
surplus (E&S) markets. We will continue to look
for strategic acquisition opportunities like this
that strengthen our depth of talent and the
value proposition we offer.
In February, we formed a Bermuda-domiciled
legal entity named DSA Reinsurance Company,
Ltd. to reinsure our Legacy Life and Non-life run-off
lines. This was another important step in the
execution of our Legacy strategy. By combining the
majority of our run-off lines into a single, strong,
effi cient legal entity, we will derive operational
effi ciencies while continuing to honor our
policyholder commitments and client relationships.
In Conclusion
As I’ve said previously, 2017 represented the
starting point from which we expect to build.
We now have the right people, structure and
underwriting actions in place to make 2018
a year of execution. As we look towards our
centennial in 2019, it is a unique opportunity
and honor to be restoring AIG as one of the
greatest companies in the world.
We have faced a number of challenges in the
past: wars, fi nancial calamities, industry-changing
regulatory reform and natural disasters. Operating
as we do in a volatile world, our employees have
proven time and time again that they can respond
to the most complex issues and succeed, for which
I am truly grateful.
Let me conclude by thanking all of you — our
shareholders — for entrusting us with your capital.
We take our responsibilities very seriously and
are committed to delivering you a stronger,
growing, and more profi table business.
Sincerely,
Sincerely,
BRIAN DUPERREAULT
President and Chief Executive Offi cer
Gustavo Sarabia, Chief Claims Offi cer in Puerto
Rico, surveying damages on the ground. The AIG
local team tirelessly helped the community to
rebuild in the aftermath of Hurricane Maria.
Life and Retirement
Our Life and Retirement business remains
focused on making the necessary investments
to ensure that we have a competitive and
sustainable platform, for today and the future.
We continue to invest in our market-leading Life
and Retirement businesses in the U.S., while also
selectively seeking potential acquisitions abroad
in attractive markets.
We also continue to formalize our data strategy,
organizing ourselves to maximize our use of
data available within Life and Retirement
and across AIG. This will help support further
innovation and effi ciency across the value
chain — from product development, pricing
and marketing to acquisition, operations and
service delivery.
Finally, Kevin and his team are doing this all
while investing important time and focus on
enhancing our culture of customer-centricity,
accountability and leadership.
Blackboard Insurance
Seraina and her team continue to develop
Blackboard Insurance as a provider of solutions
for the commercial insurance industry using digital
technology, data analytics and automation. The
platform is slated for launch in late 2018 as a
start-up backed by the resources of AIG.
I remain very excited about the potential for
Blackboard Insurance. We are reimagining the
entire commercial insurance experience to help
clients and brokers move faster and with more
insight to focus on what’s important — to reinvest
in growth.
EXECUTIVE
LEADERSHIP TEAM
Back row, from left
Front row, from left
SID SANKARAN
Executive Vice President and
Chief Financial Officer
ALESSA QUANE
Executive Vice President and
Chief Risk Officer
MARTHA GALLO
Executive Vice President and
Chief Information Officer
CLAUDINE MACARTNEY
Executive Vice President and
Chief Human Resources Officer
DONNA DEMAIO*
Executive Vice President and
Chief Auditor
BRIAN DUPERREAULT
President and Chief
Executive Officer
KEVIN HOGAN
Executive Vice President and
Chief Executive Officer,
Life and Retirement
PETER ZAFFINO
Executive Vice President
and Chief Executive Officer,
General Insurance, and
Global Chief Operating Officer
SERAINA MACIA
Executive Vice President
and Chief Executive Officer,
Blackboard Insurance
DOUG DACHILLE
Executive Vice President and
Chief Investment Officer
LUCY FATO
Executive Vice President and
General Counsel
TOM LEONARDI
Executive Vice President,
Government Affairs, Public Policy
and Communications
* Naohiro Mouri became Chief
Auditor in March 2018, succeeding
Donna DeMaio, who joined the
General Insurance Executive
Leadership Team as Global Chief
Operating Officer for that business.
Mouri-san was previously AIG’s
Senior Managing Director of Asia
Pacific Internal Audit.
7
AIG | 2017 Annual Report BOARD
OF DIRECTORS
W. DON CORNWELL
Former Chairman of the Board
and Chief Executive Officer
Granite Broadcasting
Corporation
BRIAN DUPERREAULT
President and Chief
Executive Officer
American International
Group, Inc.
PETER R. FISHER*
Senior Fellow, Center for
Business, Government and
Society, and Clinical Professor
Tuck School of Business at
Dartmouth College
Former Head of Fixed Income
Portfolio Management
BlackRock, Inc.
JOHN H. FITZPATRICK
Former Secretary General
The Geneva Association
WILLIAM G. JURGENSEN
Former Chief Executive Officer
Nationwide Insurance
Former Chief Financial Officer,
Head of the Life and Health
Reinsurance Business Group
and Head of Financial Services
Swiss Re
CHRISTOPHER S. LYNCH
Independent Consultant and
Former National Partner in
Charge of Financial Services
KPMG LLP
SAMUEL J. MERKSAMER*
Former Managing Director
Icahn Capital LP
HENRY S. MILLER
Chairman
Marblegate Asset
Management, LLC
Former Chairman and
Managing Director
Miller Buckfire & Co., LLC
LINDA A. MILLS
Former Corporate Vice
President of Operations
Northrop Grumman
Corporation
SUZANNE NORA
JOHNSON
Former Vice Chairman
The Goldman Sachs
Group, Inc.
RONALD A.
RITTENMEYER
Executive Chairman and
Chief Executive Officer
Tenet Healthcare Corporation
Former Chairman,
Chief Executive Officer
and President
Electronic Data Systems
Corporation
DOUGLAS M.
STEENLAND
Independent Chairman
of the Board
American International
Group, Inc.
Former President and
Chief Executive Officer
Northwest Airlines
Corporation
THERESA M. STONE
Former Executive Vice
President and Treasurer
Massachusetts Institute
of Technology
Former Executive
Vice President and
Chief Financial Officer
Jefferson-Pilot Corporation
Former President
Chubb Life Insurance
Company
8
* Peter R. Fisher and
Samuel J. Merksamer will not
stand for re-election to AIG’s
Board of Directors at the
Company’s 2018 Annual
Meeting of Shareholders on
May 9, 2018. They will
continue to serve as Directors
until this Annual Meeting.
AIG | 2017 Annual Report AMERICAN INTERNATIONAL GROUP, INC.
Form 10-K
AIG offi ce in Shanghai, China. The company traces its roots to the city,
where C.V. Starr founded an insurance agency nearly 100 years ago in 1919.
AIG | 2017 Annual Report
9
Intentionally left blank
10
AIG | 2017 Annual Report UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8787
For the fiscal year ended December 31, 2017
American International Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
175 Water Street, New York, New York
(Address of principal executive offices)
13-2592361
(I.R.S. Employer
Identification No.)
10038
(Zip Code)
Registrants telephone number, including area code (212) 770-7000
______________________________
Securities registered pursuant to Section 12(b) of the Act: See Exhibit 99.02
Securities registered pursuant to Section 12(g) of the Act: None
______________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☑
No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and
emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer ☐
Non-accelerated filer ☐
(Do not check if a
smaller reporting company)
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant (based on the closing price of
the registrants most recently completed second fiscal quarter) was approximately $56,480,000,000.
As of February 7, 2018, there were outstanding 902,468,889 shares of Common Stock, $2.50 par value per share, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant
Form 10-K Reference Locations
Portions of the registrants definitive proxy statement for the 2018
Annual Meeting of Shareholders
Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14
1011252ai_financials.indd 1
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ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
Form 10-K
Ite m Nu mbe r
Part I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
Part II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
Part III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
Part IV
ITEM 15.
ITEM 16.
Signatures
Des c ri p ti o n
Business
Our Global Business Overview
Our Management Framework
Diversified Mix of Businesses
Our Employees
Regulation
Available Information about AIG
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Information
Use of Non-GAAP Measures
Critical Accounting Estimates
Executive Summary
Consolidated Results of Operations
Business Segment Operations
Liquidity and Capital Resources
Enterprise Risk Management
Glossary
Acronyms
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Index to Financial Statements and Schedules
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Investments
Insurance Reserves
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Part I
Pag e
ITEM 1 | Business
3
3
5
7
8
9
16
17
30
30
30
30
31
33
36
36
38
40
55
63
69
103
115
127
139
159
162
163
164
164
307
307
308
308
308
308
308
308
308
315
American International Group, Inc. (AIG)
is a leading global insurance organization. Founded in 1919, today we provide a wide range of
property casualty insurance, life insurance, retirement products, and other financial services to
commercial and individual customers in more than 80 countries and jurisdictions.
Our diverse range of products and services help businesses and individuals protect their
assets, manage risks and provide for retirement security. AIG common stock is listed on the
New York Stock Exchange and the Tokyo Stock Exchange.
On September 25, 2017, we announced organizational changes designed to best position AIG
as a growing, more profitable insurer that is focused on underwriting excellence. In this Annual
Report on Form 10-K (Annual Report), we are presenting our businesses consistent with the
organizational aspects of that announcement. We believe that these organizational changes
will allow us to leverage our key strengths and focus on our future.
In this Annual Report, unless otherwise mentioned or unless the context indicates otherwise, we use the terms AIG, the Company,
we, us and our to refer to American International Group, Inc., a Delaware corporation, and its consolidated subsidiaries. We use
the term AIG Parent to refer solely to American International Group, Inc., and not to any of its consolidated subsidiaries.
AIG | 2017 Form 10-K
3
1011252ai_financials.indd 2
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 AMERICAN INTERNATIONAL GROUP, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
Form 10-K
Ite m Nu mbe r
Des c ri p ti o n
Part I
Pag e
ITEM 1 | Business
Business
Our Global Business Overview
Our Management Framework
Diversified Mix of Businesses
Our Employees
Regulation
Available Information about AIG
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
of Equity Securities
Selected Financial Data
Use of Non-GAAP Measures
Critical Accounting Estimates
Executive Summary
Consolidated Results of Operations
Business Segment Operations
Investments
Insurance Reserves
Liquidity and Capital Resources
Enterprise Risk Management
Glossary
Acronyms
Part I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
Part II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
Part III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
Part IV
ITEM 15.
ITEM 16.
Signatures
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Information
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Index to Financial Statements and Schedules
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
3
3
5
7
8
9
16
17
30
30
30
30
31
33
36
36
38
40
55
63
69
103
115
127
139
159
162
163
164
164
307
307
308
308
308
308
308
308
308
315
Maximizing Industry
Leadership and
Global Footprint
Creating Value
through
Profitable Growth
American International Group, Inc. (AIG)
is a leading global insurance organization. Founded in 1919, today we provide a wide range of
property casualty insurance, life insurance, retirement products, and other financial services to
commercial and individual customers in more than 80 countries and jurisdictions.
Our diverse range of products and services help businesses and individuals protect their
assets, manage risks and provide for retirement security. AIG common stock is listed on the
New York Stock Exchange and the Tokyo Stock Exchange.
On September 25, 2017, we announced organizational changes designed to best position AIG
as a growing, more profitable insurer that is focused on underwriting excellence. In this Annual
Report on Form 10-K (Annual Report), we are presenting our businesses consistent with the
organizational aspects of that announcement. We believe that these organizational changes
will allow us to leverage our key strengths and focus on our future.
In this Annual Report, unless otherwise mentioned or unless the context indicates otherwise, we use the terms AIG, the Company,
we, us and our to refer to American International Group, Inc., a Delaware corporation, and its consolidated subsidiaries. We use
the term AIG Parent to refer solely to American International Group, Inc., and not to any of its consolidated subsidiaries.
AIG | 2017 Form 10-K
3
1011252ai_financials.indd 3
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ITEM 1 | Business | AIG
Our Management Framework
AIGS NEW OPERATING STRUCTURE
Our new operating structure is designed to reflect how our business is marketed and underwritten, allowing us to maximize our global
platform by empowering our businesses with the best competitive advantage and ability to serve our partners and clients.
Our Core businesses include General Insurance, Life and Retirement and Other Operations. General Insurance consists of two
operating segments North America and International. Life and Retirement consists of four operating segments Individual
Retirement, Group Retirement, Life Insurance and Institutional Markets. Blackboard U.S. Holdings, Inc. (Blackboard), AIGs
technology-driven subsidiary, is reported within Other Operations. We also report a Legacy Portfolio consisting of our run-off
insurance lines and legacy investments that we consider non-core.
Consistent with how we now manage our business, our General Insurance North America operating segment primarily includes
insurance businesses in the United States, Canada and Bermuda. Our General Insurance International operating segment includes
insurance businesses in Japan, the United Kingdom, Europe, the Asia Pacific region, Latin America, Puerto Rico, Australia, the Middle
East and Africa. General Insurance results are presented before consideration of internal reinsurance agreements.
We have modified the presentation of our business segment results to reflect our new operating structure and prior periods
presentation has been revised to conform to the new structure.
For further discussion on our business segments see Item 7. MD&A and Note 3 to the Consolidated Financial Statements.
Maximizing Industry Leadership and Global Footprint
World Class
Insurance Franchises
that are among the leaders in their
categories, providing differentiated service
and expertise.
Balance Sheet
Quality and Strength
as demonstrated by over $65 billion in
shareholders equity and AIG Parent
liquidity sources of $11.8 billion as of
December 31, 2017.
Effective
Capital Management
of the largest shareholders equity
of any insurance company in the world(a).
Breadth of Customers
which include over 88 percent of companies in the Fortune Global
500(b) and 83 percent of the Forbes 2000(b).
A Diverse Mix of Businesses
supported through a presence in most international markets.
(a) At June 30, 2017, the latest date for which information was available for certain foreign insurance companies.
(b) At November 1, 2017.
Creating Value Through Profitable Growth
AIG Priorities for 2018
To achieve AIGs goal to deliver sustainable, profitable growth and value to its shareholders, we are focused on the following elements
of risk management, customer service, and strategic growth:
Balance and Diversification of Products Shifting
our business mix to grow the best-performing lines of
business and optimizing our global footprint
Technology and Innovation Improving the tools and processes
that help employees evaluate business and provide the best service
to customers
Culture and Talent Structuring, resourcing, and
Capital and Growth Managing capital efficiently and growing
incentivizing teams to deliver world-class
performance
through targeted investments in our businesses that create value by
improving our profitability, book value per share and return on equity
Underwriting Excellence Empowering the
Reinsurance Optimization Strategically partnering with reinsurers
underwriter and continuing to integrate underwriting,
claims and actuarial to enable better decision making
to reduce exposure to losses arising from frequency of large
catastrophic events and the severity from individual risk losses
Highlights for 2017
Strengthened
Senior leadership with the arrival of Brian
Duperreault and six additions to the
Executive Leadership Team, establishing an
organizational structure that drives
empowerment, responsiveness and
accountability
Reduced
General operating and other expenses by
over $3.6B and General operating
expenses, adjusted basis*, by over $2.3B
since end of 2015, which included a foreign
exchange benefit of $63M
Returned
$20.6B of capital
to shareholders since end of 2015 through
dividends and share and warrant
repurchases
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measure see Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A).
$
4
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
5
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181011252ai_financials_co8_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 1 | Business | AIG
ITEM 1 | Business | AIG
Our Management Framework
AIGS NEW OPERATING STRUCTURE
Our new operating structure is designed to reflect how our business is marketed and underwritten, allowing us to maximize our global
platform by empowering our businesses with the best competitive advantage and ability to serve our partners and clients.
Our Core businesses include General Insurance, Life and Retirement and Other Operations. General Insurance consists of two
operating segments North America and International. Life and Retirement consists of four operating segments Individual
Retirement, Group Retirement, Life Insurance and Institutional Markets. Blackboard U.S. Holdings, Inc. (Blackboard), AIGs
technology-driven subsidiary, is reported within Other Operations. We also report a Legacy Portfolio consisting of our run-off
insurance lines and legacy investments that we consider non-core.
Consistent with how we now manage our business, our General Insurance North America operating segment primarily includes
insurance businesses in the United States, Canada and Bermuda. Our General Insurance International operating segment includes
insurance businesses in Japan, the United Kingdom, Europe, the Asia Pacific region, Latin America, Puerto Rico, Australia, the Middle
East and Africa. General Insurance results are presented before consideration of internal reinsurance agreements.
We have modified the presentation of our business segment results to reflect our new operating structure and prior periods
presentation has been revised to conform to the new structure.
For further discussion on our business segments see Item 7. MD&A and Note 3 to the Consolidated Financial Statements.
Maximizing Industry Leadership and Global Footprint
World Class
Insurance Franchises
Balance Sheet
Quality and Strength
Effective
Capital Management
that are among the leaders in their
as demonstrated by over $65 billion in
categories, providing differentiated service
shareholders equity and AIG Parent
of the largest shareholders equity
of any insurance company in the world(a).
and expertise.
liquidity sources of $11.8 billion as of
December 31, 2017.
Breadth of Customers
A Diverse Mix of Businesses
which include over 88 percent of companies in the Fortune Global
supported through a presence in most international markets.
500(b) and 83 percent of the Forbes 2000(b).
(a) At June 30, 2017, the latest date for which information was available for certain foreign insurance companies.
(b) At November 1, 2017.
Creating Value Through Profitable Growth
AIG Priorities for 2018
To achieve AIGs goal to deliver sustainable, profitable growth and value to its shareholders, we are focused on the following elements
of risk management, customer service, and strategic growth:
Balance and Diversification of Products Shifting
Technology and Innovation Improving the tools and processes
our business mix to grow the best-performing lines of
that help employees evaluate business and provide the best service
business and optimizing our global footprint
to customers
Culture and Talent Structuring, resourcing, and
Capital and Growth Managing capital efficiently and growing
incentivizing teams to deliver world-class
through targeted investments in our businesses that create value by
performance
improving our profitability, book value per share and return on equity
Underwriting Excellence Empowering the
Reinsurance Optimization Strategically partnering with reinsurers
underwriter and continuing to integrate underwriting,
to reduce exposure to losses arising from frequency of large
claims and actuarial to enable better decision making
catastrophic events and the severity from individual risk losses
Highlights for 2017
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measure see Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A).
4
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
5
1011252ai_financials.indd 5
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ITEM 1 | Business | AIG
ITEM 1 | Business | AIG
Business Segments
General Insurance
General Insurance is a leading provider of insurance
products and services for commercial and personal insurance
customers. It includes one of the worlds most far-reaching
property casualty networks. General Insurance offers a broad
range of products to customers through a diversified,
multichannel distribution network. Customers value General
Insurances strong capital position, extensive risk
management and claims experience and its ability to be a
market leader in critical lines of the insurance business.
Life and Retirement
Life and Retirement is a unique franchise that brings together a broad
portfolio of life insurance, retirement and institutional products offered
through an extensive, multichannel distribution network. It holds long-
standing, leading market positions in many of the markets it serves in
the U.S. With its strong capital position, customer-focused service,
breadth of product expertise and deep distribution relationships across
multiple channels, Life and Retirement is well positioned to serve
growing market needs.
North
America
International
Individual
Retirement
Group
Retirement
Life
Insurance
Institutional
Markets
General Insurance companies include the following major
operating companies: National Union Fire Insurance
Company of Pittsburgh, Pa. (National Union); American Home
Assurance Company (American Home); Lexington Insurance
Company (Lexington); AIG General Insurance Company, Ltd.
(AIG Sonpo); AIG Asia Pacific Insurance, Pte, Ltd. and AIG
Europe Limited.
Life and Retirement companies include the following major operating
companies: American General Life Insurance Company (American
General Life); The Variable Annuity Life Insurance Company (VALIC)
and The United States Life Insurance Company in the City of New York
(U.S. Life).
Other Operations
Legacy Portfolio
Other Operations consists of businesses and items not
attributed to our General Insurance and Life and Retirement
segments or our Legacy Portfolio. It includes AIG Parent;
Blackboard; AIG Fuji Life Insurance Company, Ltd. (Fuji Life),
which was sold on April 30, 2017; United Guaranty
Corporation (United Guaranty), which was sold on December
31, 2016; deferred tax assets related to tax attributes;
corporate expenses and intercompany eliminations.
Legacy Portfolio includes Legacy General Insurance Run-Off Lines,
Legacy Life and Retirement Run-Off Lines and Legacy Investments.
Effective in 2018, our newly formed Bermuda domiciled composite
reinsurer, DSA Reinsurance Company, Ltd. (DSA Re) will be part of our
Legacy Portfolio.
Diversified Mix of Businesses
(dollars in millions)
* Represents Adjusted revenues excluding revenues from our Legacy Portfolio operations of $4.4 billion. Consolidated International Adjusted revenues of $15.1 billion
consists of Adjusted revenues from our General Insurance International operating segment. Consolidated North America Adjusted revenues of $31.6 billion consists of
Adjusted revenues from our General Insurance North America operating segment and Life and Retirement and Other Operations reportable segments. For
reconciliation of Adjusted revenues to Total revenues see Note 3 to the Consolidated Financial Statements.
Geographic Concentration
In 2017, 6.5 percent of our property casualty direct premiums were written in the state of California, and 18.7 percent and 7.7 percent
were written in Japan and the United Kingdom, respectively. No other state or foreign jurisdiction accounted for more than five percent
of our property casualty direct premiums.
For further information on our business segments see Note 3 to the Consolidated Financial Statements.
6
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
7
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ITEM 1 | Business | AIG
ITEM 1 | Business | AIG
Business Segments
General Insurance
Life and Retirement
General Insurance is a leading provider of insurance
Life and Retirement is a unique franchise that brings together a broad
products and services for commercial and personal insurance
portfolio of life insurance, retirement and institutional products offered
customers. It includes one of the worlds most far-reaching
through an extensive, multichannel distribution network. It holds long-
property casualty networks. General Insurance offers a broad
standing, leading market positions in many of the markets it serves in
range of products to customers through a diversified,
the U.S. With its strong capital position, customer-focused service,
multichannel distribution network. Customers value General
breadth of product expertise and deep distribution relationships across
Insurances strong capital position, extensive risk
multiple channels, Life and Retirement is well positioned to serve
management and claims experience and its ability to be a
growing market needs.
market leader in critical lines of the insurance business.
General Insurance companies include the following major
Life and Retirement companies include the following major operating
operating companies: National Union Fire Insurance
companies: American General Life Insurance Company (American
Company of Pittsburgh, Pa. (National Union); American Home
General Life); The Variable Annuity Life Insurance Company (VALIC)
Assurance Company (American Home); Lexington Insurance
and The United States Life Insurance Company in the City of New York
Company (Lexington); AIG General Insurance Company, Ltd.
(U.S. Life).
(AIG Sonpo); AIG Asia Pacific Insurance, Pte, Ltd. and AIG
Europe Limited.
Other Operations
Legacy Portfolio
Other Operations consists of businesses and items not
Legacy Portfolio includes Legacy General Insurance Run-Off Lines,
attributed to our General Insurance and Life and Retirement
Legacy Life and Retirement Run-Off Lines and Legacy Investments.
segments or our Legacy Portfolio. It includes AIG Parent;
Effective in 2018, our newly formed Bermuda domiciled composite
Blackboard; AIG Fuji Life Insurance Company, Ltd. (Fuji Life),
reinsurer, DSA Reinsurance Company, Ltd. (DSA Re) will be part of our
which was sold on April 30, 2017; United Guaranty
Legacy Portfolio.
Corporation (United Guaranty), which was sold on December
31, 2016; deferred tax assets related to tax attributes;
corporate expenses and intercompany eliminations.
Diversified Mix of Businesses
(dollars in millions)
64%
General Insurance
North America 31%
International 33%
3%
Other Operations
$14,600
2017
Adjusted
Revenues*
$15,094
33%
Life and Retirement
12% Individual Retirement
9% Life Insurance
$5,514
7% Institutional Markets
5% Group Retirement
$4,056
3
1
1,4
$
$3,168
$2,848
* Represents Adjusted revenues excluding revenues from our Legacy Portfolio operations of $4.4 billion. Consolidated International Adjusted revenues of $15.1 billion
consists of Adjusted revenues from our General Insurance International operating segment. Consolidated North America Adjusted revenues of $31.6 billion consists of
Adjusted revenues from our General Insurance North America operating segment and Life and Retirement and Other Operations reportable segments. For
reconciliation of Adjusted revenues to Total revenues see Note 3 to the Consolidated Financial Statements.
Geographic Concentration
In 2017, 6.5 percent of our property casualty direct premiums were written in the state of California, and 18.7 percent and 7.7 percent
were written in Japan and the United Kingdom, respectively. No other state or foreign jurisdiction accounted for more than five percent
of our property casualty direct premiums.
For further information on our business segments see Note 3 to the Consolidated Financial Statements.
6
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
7
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ITEM 1 | Business | AIG
ITEM 1 | Business
How We Generate Revenues and Profitability
We earn revenues primarily from insurance premiums, policy fees and income from investments.
Our expenses consist of policyholder benefits and losses incurred, interest credited to policyholders, commissions and other costs of
selling and servicing our products, interest expense and general operating expenses.
Our profitability is dependent on our ability to properly price and manage risk on insurance and annuity products, to manage our
portfolio of investments effectively and to control costs through expense discipline.
Investment Activities of Our Insurance Operations
Our insurance companies generally receive premiums and deposits well in advance of paying covered claims or benefits. In the
intervening periods, we invest these premiums and deposits to generate net investment income that, along with the invested funds, is
available to pay claims or benefits. As a result, we generate significant revenues from insurance investment activities.
Our worldwide insurance investment policy places primary emphasis on investments in corporate bonds, municipal bonds and
government bonds in all of our portfolios, and, to a lesser extent, investments in high yield bonds, common stock, real estate, hedge
funds and other alternative investments. Our fundamental strategy across all of our investment portfolios is to optimize the duration
characteristics of the assets within a target range based on comparable liability characteristics, to the extent practicable.
For additional discussion of investment strategies see Item 7. MD&A Investments.
Loss Reserve Development Process
The liability for unpaid losses and loss adjustment expenses (loss reserves) represents the accumulation of estimates for unpaid
claims, including estimates for claims incurred but not reported (IBNR) for our General Insurance companies, including the related
expenses of settling those losses.
The process of establishing loss reserves is complex and imprecise because it must take into consideration many variables that are
subject to the outcome of future events. As a result, informed subjective estimates and judgments about our ultimate exposure to
losses are an integral component of our loss reserving process. Because reserve estimates are subject to the outcome of future
events, changes in prior year estimates are unavoidable in the insurance industry. These changes are sometimes referred to as prior
year loss development or reserve development.
For further discussion on loss reserves and of prior year loss development see Item 7. MD&A Critical Accounting Estimates
Insurance Liabilities Loss Reserves, Item 7. MD&A Insurance Reserves Loss Reserves, and Note 13 to the Consolidated
Financial Statements.
Our Employees
At AIG, we believe that a major strength of ours is the quality and dedication of our people. At December 31, 2017 and 2016, we had
approximately 49,800 and 56,400 employees, respectively. We believe that our relations with our employees are satisfactory.
Regulation
OVERVIEW
Our operations around the world are subject to regulation by many different types of regulatory authorities, including insurance,
securities, derivatives, investment advisory and thrift regulators in the United States and abroad. The insurance and financial services
industries generally have been subject to heightened regulatory scrutiny and supervision in recent years.
Our insurance subsidiaries are subject to regulation and supervision by the states and other jurisdictions in which they do
business. We expect that the domestic and international regulations applicable to us and our regulated entities will continue to evolve
for the foreseeable future.
REGULATORY DEVELOPMENTS
On September 29, 2017, the Financial Stability Oversight Council (Council) rescinded its determination that material financial distress
at AIG could pose a threat to U.S. financial stability and as a result, AIG is no longer designated as a nonbank systemically important
financial institution (nonbank SIFI). With the rescission of its designation as a nonbank SIFI, AIG is no longer subject to the
consolidated supervision of the Board of Governors of the Federal Reserve System (FRB) or subject to the enhanced prudential
standards set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and its implementing
regulations.
U.S. REGULATION
Dodd-Frank
On July 21, 2010, Dodd-Frank, which brought about the most extensive changes to financial regulation in the United States in many
years, was signed into law. Although the Council has rescinded its designation of AIG as a nonbank SIFI, certain provisions of Dodd-
Frank remain relevant to insurance groups generally.
The Council has authority to determine, subject to certain statutory and regulatory standards, that any nonbank financial company
be designated as a nonbank SIFI subject to supervision by the FRB and enhanced prudential standards. The Council may also
recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or
practices that nonbank financial services companies, including insurers, engage in.
Title II of Dodd-Frank (Orderly Liquidation Authority) provides that a financial company whose largest United States subsidiary is
an insurer may be subject to a special orderly liquidation process outside the Bankruptcy Code. That process is to be administered
by the FDIC upon a determination that the company is: (i) in default or in danger of default, (ii) would have serious adverse effects
on U.S. financial stability were it to fail and be resolved, (iii) is not likely to attract private sector alternatives to default and (iv) is not
suitable for resolution under the Bankruptcy Code. Dodd-Frank authorizes possible assessments to cover the costs of any special
resolution of a financial company conducted under Title II. U.S. insurance subsidiaries of any such financial company, however,
would be subject to rehabilitation and liquidation proceedings under state insurance law.
Title VII of Dodd-Frank provides for significantly increased regulation of and restrictions on derivatives markets and transactions
that have affected and, as additional regulations come into effect, could affect various activities of insurance and other financial
services companies, including (i) regulatory reporting for swaps and security-based swaps, (ii) mandated clearing through central
counterparties and execution through regulated swap execution facilities for certain swaps and security-based swaps and (iii)
margin and collateral requirements. Although the Commodities Futures Trading Commission (CFTC), which oversees and
regulates the U.S. swap, commodities and futures markets, has finalized most of its requirements, the SEC has yet to finalize the
majority of rules comprising its security-based swap regulatory regime. Increased regulation of and restrictions on derivatives
markets and transactions could increase the cost of our trading and hedging activities, reduce liquidity and reduce the availability
of customized hedging solutions and derivatives.
Dodd-Frank mandated a study to determine whether stable value contracts should be included in the definition of "swap." If that
study concludes that stable value contracts are swaps, Dodd-Frank authorizes certain federal regulators to determine whether an
exemption from the definition of a swap for stable value contracts is appropriate and in the public interest. Certain of our affiliates
participate in the stable value contract business. We cannot predict what regulations might emanate from the aforementioned
study or be promulgated applicable to this business in the future.
8
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
9
1011252ai_financials.indd 8
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business | AIG
ITEM 1 | Business
How We Generate Revenues and Profitability
We earn revenues primarily from insurance premiums, policy fees and income from investments.
Our expenses consist of policyholder benefits and losses incurred, interest credited to policyholders, commissions and other costs of
selling and servicing our products, interest expense and general operating expenses.
Our profitability is dependent on our ability to properly price and manage risk on insurance and annuity products, to manage our
portfolio of investments effectively and to control costs through expense discipline.
Investment Activities of Our Insurance Operations
Our insurance companies generally receive premiums and deposits well in advance of paying covered claims or benefits. In the
intervening periods, we invest these premiums and deposits to generate net investment income that, along with the invested funds, is
available to pay claims or benefits. As a result, we generate significant revenues from insurance investment activities.
Our worldwide insurance investment policy places primary emphasis on investments in corporate bonds, municipal bonds and
government bonds in all of our portfolios, and, to a lesser extent, investments in high yield bonds, common stock, real estate, hedge
funds and other alternative investments. Our fundamental strategy across all of our investment portfolios is to optimize the duration
characteristics of the assets within a target range based on comparable liability characteristics, to the extent practicable.
For additional discussion of investment strategies see Item 7. MD&A Investments.
Loss Reserve Development Process
The liability for unpaid losses and loss adjustment expenses (loss reserves) represents the accumulation of estimates for unpaid
claims, including estimates for claims incurred but not reported (IBNR) for our General Insurance companies, including the related
expenses of settling those losses.
The process of establishing loss reserves is complex and imprecise because it must take into consideration many variables that are
subject to the outcome of future events. As a result, informed subjective estimates and judgments about our ultimate exposure to
losses are an integral component of our loss reserving process. Because reserve estimates are subject to the outcome of future
events, changes in prior year estimates are unavoidable in the insurance industry. These changes are sometimes referred to as prior
year loss development or reserve development.
For further discussion on loss reserves and of prior year loss development see Item 7. MD&A Critical Accounting Estimates
Insurance Liabilities Loss Reserves, Item 7. MD&A Insurance Reserves Loss Reserves, and Note 13 to the Consolidated
Financial Statements.
Our Employees
At AIG, we believe that a major strength of ours is the quality and dedication of our people. At December 31, 2017 and 2016, we had
approximately 49,800 and 56,400 employees, respectively. We believe that our relations with our employees are satisfactory.
Regulation
OVERVIEW
Our operations around the world are subject to regulation by many different types of regulatory authorities, including insurance,
securities, derivatives, investment advisory and thrift regulators in the United States and abroad. The insurance and financial services
industries generally have been subject to heightened regulatory scrutiny and supervision in recent years.
Our insurance subsidiaries are subject to regulation and supervision by the states and other jurisdictions in which they do
business. We expect that the domestic and international regulations applicable to us and our regulated entities will continue to evolve
for the foreseeable future.
REGULATORY DEVELOPMENTS
On September 29, 2017, the Financial Stability Oversight Council (Council) rescinded its determination that material financial distress
at AIG could pose a threat to U.S. financial stability and as a result, AIG is no longer designated as a nonbank systemically important
financial institution (nonbank SIFI). With the rescission of its designation as a nonbank SIFI, AIG is no longer subject to the
consolidated supervision of the Board of Governors of the Federal Reserve System (FRB) or subject to the enhanced prudential
standards set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and its implementing
regulations.
U.S. REGULATION
Dodd-Frank
On July 21, 2010, Dodd-Frank, which brought about the most extensive changes to financial regulation in the United States in many
years, was signed into law. Although the Council has rescinded its designation of AIG as a nonbank SIFI, certain provisions of Dodd-
Frank remain relevant to insurance groups generally.
The Council has authority to determine, subject to certain statutory and regulatory standards, that any nonbank financial company
be designated as a nonbank SIFI subject to supervision by the FRB and enhanced prudential standards. The Council may also
recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or
practices that nonbank financial services companies, including insurers, engage in.
Title II of Dodd-Frank (Orderly Liquidation Authority) provides that a financial company whose largest United States subsidiary is
an insurer may be subject to a special orderly liquidation process outside the Bankruptcy Code. That process is to be administered
by the FDIC upon a determination that the company is: (i) in default or in danger of default, (ii) would have serious adverse effects
on U.S. financial stability were it to fail and be resolved, (iii) is not likely to attract private sector alternatives to default and (iv) is not
suitable for resolution under the Bankruptcy Code. Dodd-Frank authorizes possible assessments to cover the costs of any special
resolution of a financial company conducted under Title II. U.S. insurance subsidiaries of any such financial company, however,
would be subject to rehabilitation and liquidation proceedings under state insurance law.
Title VII of Dodd-Frank provides for significantly increased regulation of and restrictions on derivatives markets and transactions
that have affected and, as additional regulations come into effect, could affect various activities of insurance and other financial
services companies, including (i) regulatory reporting for swaps and security-based swaps, (ii) mandated clearing through central
counterparties and execution through regulated swap execution facilities for certain swaps and security-based swaps and (iii)
margin and collateral requirements. Although the Commodities Futures Trading Commission (CFTC), which oversees and
regulates the U.S. swap, commodities and futures markets, has finalized most of its requirements, the SEC has yet to finalize the
majority of rules comprising its security-based swap regulatory regime. Increased regulation of and restrictions on derivatives
markets and transactions could increase the cost of our trading and hedging activities, reduce liquidity and reduce the availability
of customized hedging solutions and derivatives.
Dodd-Frank mandated a study to determine whether stable value contracts should be included in the definition of "swap." If that
study concludes that stable value contracts are swaps, Dodd-Frank authorizes certain federal regulators to determine whether an
exemption from the definition of a swap for stable value contracts is appropriate and in the public interest. Certain of our affiliates
participate in the stable value contract business. We cannot predict what regulations might emanate from the aforementioned
study or be promulgated applicable to this business in the future.
8
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
9
1011252ai_financials.indd 9
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1 | Business
Title V of Dodd-Frank authorizes the United States to enter into covered agreements with foreign governments or regulatory
entities regarding the business of insurance and reinsurance and on September 22, 2017, the U.S. and the European Union (EU)
entered into such an agreement. For additional information, see International Regulation.
Dodd-Frank established the Consumer Financial Protection Bureau (CFPB), an independent agency within the FRB, to regulate
certain non-insurance consumer financial products and services offered primarily for personal, family or household purposes.
Insurance products and services are not within the CFPB's general jurisdiction. Broker-dealers and investment advisers are not
subject to the CFPB's jurisdiction when acting in their registered capacity.
Dodd-Frank established the Federal Insurance Office (FIO) to serve as the central insurance authority in the federal government.
While not serving a regulatory function, FIO performs certain duties related to the business of insurance. FIO serves as a non-
voting member of the Council, has authority to collect information on the insurance industry and recommend prudential standards,
monitors market access issues, represents the United States in international insurance forums, has authority to determine, after
consulting with the relevant State and the United States Trade Representative, if certain regulations are preempted by covered
agreements, and assists the Secretary of the Treasury in administering the Terrorism Risk Insurance Program under the Terrorism
Risk Insurance Act of 2002.
On February 3, 2017, the President of the United States signed an Executive Order that directed the Secretary of the Treasury, in
consultation with federal financial regulators, to assess all laws, rules and policies that regulate the U.S. financial system, including
requirements put into place under Dodd-Frank since 2010, and to recommend necessary changes to make sure they conform to
certain core principles. Treasury divided its review into four parts and has published three reports to date: Banks and Credit Unions
(June 12, 2017), Capital Markets (October 6, 2017), and Asset Management and Insurance (October 26, 2017). A fourth report on
other nonbank financial institutions, financial technology, and financial innovation is forthcoming.
Treasury identified several areas for improvement at the federal and state levels and defined the role it intends for federal agencies.
Among the points made in the report:
In its report on insurance regulation,
Treasury expressed support for an activities-based approach to regulating systemic risk in the insurance industry rather than
designating individual entities;
Treasury recommended continued U.S. engagement in international standard-setting forums and charged FIO with coordinating
the efforts of the federal government, state regulators, the National Association of Insurance Commissioners (NAIC), and other
stakeholders on the issues within its scope, such as covered agreements, matters related to the Terrorism Risk Insurance
Program, and standard-setting at the International Association of Insurance Supervisors (IAIS), including discussions regarding
capital and liquidity requirements;
Treasury expressed support for robust liquidity risk management programs for insurers and encouraged regulators to continue
work on addressing potential liquidity risk in the insurance sector; and
Treasury supported the DOL in delaying full implementation of the DOL Fiduciary Rule until relevant issues are further evaluated
and addressed by the DOL, SEC, and state insurance regulators working together. For additional information regarding the DOL
Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs Outlook Industry and Economic Factors Department of Labor
Fiduciary Rule and Related Regulatory Developments.
In addition, on April 21, 2017 the President of the United States directed the Secretary of the Treasury to evaluate and provide
recommendations regarding the Councils processes for designating nonbank SIFIs. The Treasury published a report pursuant to this
directive on November 17, 2017, recommending that the Council prioritize an activities-based approach to regulating systemic risk
rather than designating individual entities, and recommending that the Council increase the analytical rigor of its designation
analyses, enhance engagement with relevant regulators and transparency to the public, and provide a clear off-ramp to designated
nonbank SIFIs. We will monitor developments resulting from these recommendations closely.
Insurance Regulation
Certain states and other jurisdictions require registration and periodic reporting by insurance companies that are licensed in such
jurisdictions and are controlled by other entities. Applicable legislation typically requires periodic disclosure concerning the entity that
controls the registered insurer and the other companies in the holding company system and prior approval of intercompany
transactions and transfers of assets, including in some instances payment of dividends by the insurance subsidiary, within the holding
company system. This legislation also requires any person or entity desiring to purchase more than a specified percentage
(commonly 10 percent) of our outstanding voting securities to obtain regulatory approval prior to such purchase. Our subsidiaries are
registered under such legislation in those jurisdictions that have such requirements.
Our U.S. insurance subsidiaries are subject to regulation and supervision by the states and other jurisdictions in which they do
business. The method of such regulation varies but generally has its source in statutes that delegate regulatory and supervisory
powers to a state insurance official. The regulation and supervision relate primarily to the financial condition of the insurers and their
corporate conduct and market conduct activities. This includes approval of policy forms and rates, the standards of solvency that must
be met and maintained, including with respect to risk-based capital, the standards on transactions between insurance company
subsidiaries and their affiliates, including restrictions and limitations on the amount of dividends or other distributions payable by
insurance company subsidiaries to their parent companies, the licensing of insurers and their agents, restrictions on the size of risks
that may be insured under a single policy, deposits of securities for the benefit of policyholders, requirements for acceptability of
reinsurers, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required
to be filed, reserves for unearned premiums, losses and other purposes and enterprise risk management and corporate governance
requirements. Our insurance subsidiaries are also subject to requirements on investments, which prescribe the kind, quality and
concentration of investments they can make. In general, such regulation is for the protection of policyholders rather than the creditors
or equity owners of these companies.
U.S. states have state insurance guaranty associations in which insurers doing business in the state are required by law to be
members. Member insurers may be assessed by the associations for certain obligations of insolvent insurance companies to
policyholders and claimants. Typically, states assess member insurers in amounts related to the members proportionate share of the
relevant type of business written by all members in the state. The protection afforded by a states guaranty association to
policyholders of insolvent insurers varies from state to state.
In the U.S., the NAIC is a standard-setting and regulatory support organization created and governed by the chief insurance
regulators from the 50 states, the District of Columbia and five U.S. territories. The NAIC itself is not a regulator, but, with assistance
from the NAIC, state insurance regulators establish standards and best practices, conduct peer review and coordinate regulatory
oversight. Every state has adopted, in substantial part, the Risk-Based Capital (RBC) Model Law promulgated by the NAIC or a
substantially similar law, which allows states to act upon the results of RBC calculations, and provides four incremental levels of
regulatory action regarding insurers whose RBC calculations fall below specific thresholds. Those levels of action range from the
requirement to submit a plan describing how an insurer would regain a specified RBC ratio to a mandatory regulatory takeover of the
company. The RBC formula is designed to measure the adequacy of an insurers statutory surplus in relation to the risks inherent in
its business and computes a risk-adjusted surplus level by applying discrete factors to various asset, premium, reserve and other
financial statement items. These factors are developed to be risk-sensitive so that higher factors are applied to items exposed to
greater risk. The statutory surplus of each of our U.S. based insurance companies exceeded RBC minimum required levels as of
December 31, 2017.
If any of our insurance entities fell below prescribed levels of statutory surplus, it would be our intention to provide appropriate capital
or other types of support to that entity. For additional information, see Item 7. MD&A Liquidity and Capital Resources Liquidity and
Capital Resources of AIG Parent and Subsidiaries Insurance Companies.
The NAICs Model Regulation Valuation of Life Insurance Policies (Regulation XXX) requires insurers to establish additional
statutory reserves for term life insurance policies with long-term premium guarantees and universal life policies with secondary
guarantees (ULSGs). NAIC Actuarial Guideline 38 (Guideline AXXX) clarifies the application of Regulation XXX as to these
guarantees, including certain ULSGs. See Item 1A. Risk Factors and Note 18 to the Consolidated Financial Statements for risks and
additional information related to these statutory reserving requirements. In December 2012, the NAIC approved a new valuation
manual containing a principle-based approach to life insurance company reserves. Principle-based reserving (PBR) is designed to
tailor the reserving process to specific products in an effort to create a principle-based modeling approach to reserving rather than the
factor-based approach historically employed. PBR became effective on January 1, 2017, after the NAICs model Standard Valuation
Law was enacted by the requisite number of states representing the required premium volume, replacing Regulation XXX and
Guideline AXXX with respect to new life insurance business issued after that date. Two of our domiciliary states (Missouri and Texas)
have adopted the regulations necessary to implement PBR. A third domiciliary state (New York) has approved PBR for new products
written by regulated life insurers effective January 1, 2018. We have up to three years after January 1, 2017 to implement PBR, and
have currently elected to defer implementation.
The NAICs Insurance Holding Company System Regulatory Act (the Model Holding Company Act) and the Insurance Holding
Company System Model Regulation include (i) provisions authorizing NAIC commissioners to act as global group-wide supervisors for
internationally active insurance groups and participate in international supervisory colleges, and (ii) the requirement that the ultimate
controlling person of a U.S. insurer file an annual enterprise risk report with its lead state regulator identifying risks likely to have a
material adverse effect upon the financial condition or liquidity of its licensed insurers or the insurance holding company system as a
whole. All of the states where AIG has domestic insurers have enacted a version of the revised Model Holding Company Act, including
the enterprise risk reporting requirement.
The NAICs Risk Management and Own Risk and Solvency Assessment Model Act (ORSA) requires that insurers maintain a risk
management framework and conduct an internal own risk and solvency assessment of the insurers material risks in normal and
stressed environments. All of the states where AIG has domestic insurers have enacted a version of ORSA.
10
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
11
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3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1 | Business
Title V of Dodd-Frank authorizes the United States to enter into covered agreements with foreign governments or regulatory
entities regarding the business of insurance and reinsurance and on September 22, 2017, the U.S. and the European Union (EU)
entered into such an agreement. For additional information, see International Regulation.
Dodd-Frank established the Consumer Financial Protection Bureau (CFPB), an independent agency within the FRB, to regulate
certain non-insurance consumer financial products and services offered primarily for personal, family or household purposes.
Insurance products and services are not within the CFPB's general jurisdiction. Broker-dealers and investment advisers are not
subject to the CFPB's jurisdiction when acting in their registered capacity.
Dodd-Frank established the Federal Insurance Office (FIO) to serve as the central insurance authority in the federal government.
While not serving a regulatory function, FIO performs certain duties related to the business of insurance. FIO serves as a non-
voting member of the Council, has authority to collect information on the insurance industry and recommend prudential standards,
monitors market access issues, represents the United States in international insurance forums, has authority to determine, after
consulting with the relevant State and the United States Trade Representative, if certain regulations are preempted by covered
agreements, and assists the Secretary of the Treasury in administering the Terrorism Risk Insurance Program under the Terrorism
Risk Insurance Act of 2002.
On February 3, 2017, the President of the United States signed an Executive Order that directed the Secretary of the Treasury, in
consultation with federal financial regulators, to assess all laws, rules and policies that regulate the U.S. financial system, including
requirements put into place under Dodd-Frank since 2010, and to recommend necessary changes to make sure they conform to
certain core principles. Treasury divided its review into four parts and has published three reports to date: Banks and Credit Unions
(June 12, 2017), Capital Markets (October 6, 2017), and Asset Management and Insurance (October 26, 2017). A fourth report on
other nonbank financial institutions, financial technology, and financial innovation is forthcoming.
In its report on insurance regulation,
Treasury identified several areas for improvement at the federal and state levels and defined the role it intends for federal agencies.
Among the points made in the report:
designating individual entities;
Treasury expressed support for an activities-based approach to regulating systemic risk in the insurance industry rather than
Treasury recommended continued U.S. engagement in international standard-setting forums and charged FIO with coordinating
the efforts of the federal government, state regulators, the National Association of Insurance Commissioners (NAIC), and other
stakeholders on the issues within its scope, such as covered agreements, matters related to the Terrorism Risk Insurance
Program, and standard-setting at the International Association of Insurance Supervisors (IAIS), including discussions regarding
capital and liquidity requirements;
Treasury expressed support for robust liquidity risk management programs for insurers and encouraged regulators to continue
work on addressing potential liquidity risk in the insurance sector; and
Treasury supported the DOL in delaying full implementation of the DOL Fiduciary Rule until relevant issues are further evaluated
and addressed by the DOL, SEC, and state insurance regulators working together. For additional information regarding the DOL
Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs Outlook Industry and Economic Factors Department of Labor
Fiduciary Rule and Related Regulatory Developments.
In addition, on April 21, 2017 the President of the United States directed the Secretary of the Treasury to evaluate and provide
recommendations regarding the Councils processes for designating nonbank SIFIs. The Treasury published a report pursuant to this
directive on November 17, 2017, recommending that the Council prioritize an activities-based approach to regulating systemic risk
rather than designating individual entities, and recommending that the Council increase the analytical rigor of its designation
analyses, enhance engagement with relevant regulators and transparency to the public, and provide a clear off-ramp to designated
nonbank SIFIs. We will monitor developments resulting from these recommendations closely.
Insurance Regulation
Certain states and other jurisdictions require registration and periodic reporting by insurance companies that are licensed in such
jurisdictions and are controlled by other entities. Applicable legislation typically requires periodic disclosure concerning the entity that
controls the registered insurer and the other companies in the holding company system and prior approval of intercompany
transactions and transfers of assets, including in some instances payment of dividends by the insurance subsidiary, within the holding
company system. This legislation also requires any person or entity desiring to purchase more than a specified percentage
(commonly 10 percent) of our outstanding voting securities to obtain regulatory approval prior to such purchase. Our subsidiaries are
registered under such legislation in those jurisdictions that have such requirements.
Our U.S. insurance subsidiaries are subject to regulation and supervision by the states and other jurisdictions in which they do
business. The method of such regulation varies but generally has its source in statutes that delegate regulatory and supervisory
powers to a state insurance official. The regulation and supervision relate primarily to the financial condition of the insurers and their
corporate conduct and market conduct activities. This includes approval of policy forms and rates, the standards of solvency that must
be met and maintained, including with respect to risk-based capital, the standards on transactions between insurance company
subsidiaries and their affiliates, including restrictions and limitations on the amount of dividends or other distributions payable by
insurance company subsidiaries to their parent companies, the licensing of insurers and their agents, restrictions on the size of risks
that may be insured under a single policy, deposits of securities for the benefit of policyholders, requirements for acceptability of
reinsurers, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required
to be filed, reserves for unearned premiums, losses and other purposes and enterprise risk management and corporate governance
requirements. Our insurance subsidiaries are also subject to requirements on investments, which prescribe the kind, quality and
concentration of investments they can make. In general, such regulation is for the protection of policyholders rather than the creditors
or equity owners of these companies.
U.S. states have state insurance guaranty associations in which insurers doing business in the state are required by law to be
members. Member insurers may be assessed by the associations for certain obligations of insolvent insurance companies to
policyholders and claimants. Typically, states assess member insurers in amounts related to the members proportionate share of the
relevant type of business written by all members in the state. The protection afforded by a states guaranty association to
policyholders of insolvent insurers varies from state to state.
In the U.S., the NAIC is a standard-setting and regulatory support organization created and governed by the chief insurance
regulators from the 50 states, the District of Columbia and five U.S. territories. The NAIC itself is not a regulator, but, with assistance
from the NAIC, state insurance regulators establish standards and best practices, conduct peer review and coordinate regulatory
oversight. Every state has adopted, in substantial part, the Risk-Based Capital (RBC) Model Law promulgated by the NAIC or a
substantially similar law, which allows states to act upon the results of RBC calculations, and provides four incremental levels of
regulatory action regarding insurers whose RBC calculations fall below specific thresholds. Those levels of action range from the
requirement to submit a plan describing how an insurer would regain a specified RBC ratio to a mandatory regulatory takeover of the
company. The RBC formula is designed to measure the adequacy of an insurers statutory surplus in relation to the risks inherent in
its business and computes a risk-adjusted surplus level by applying discrete factors to various asset, premium, reserve and other
financial statement items. These factors are developed to be risk-sensitive so that higher factors are applied to items exposed to
greater risk. The statutory surplus of each of our U.S. based insurance companies exceeded RBC minimum required levels as of
December 31, 2017.
If any of our insurance entities fell below prescribed levels of statutory surplus, it would be our intention to provide appropriate capital
or other types of support to that entity. For additional information, see Item 7. MD&A Liquidity and Capital Resources Liquidity and
Capital Resources of AIG Parent and Subsidiaries Insurance Companies.
The NAICs Model Regulation Valuation of Life Insurance Policies (Regulation XXX) requires insurers to establish additional
statutory reserves for term life insurance policies with long-term premium guarantees and universal life policies with secondary
guarantees (ULSGs). NAIC Actuarial Guideline 38 (Guideline AXXX) clarifies the application of Regulation XXX as to these
guarantees, including certain ULSGs. See Item 1A. Risk Factors and Note 18 to the Consolidated Financial Statements for risks and
additional information related to these statutory reserving requirements. In December 2012, the NAIC approved a new valuation
manual containing a principle-based approach to life insurance company reserves. Principle-based reserving (PBR) is designed to
tailor the reserving process to specific products in an effort to create a principle-based modeling approach to reserving rather than the
factor-based approach historically employed. PBR became effective on January 1, 2017, after the NAICs model Standard Valuation
Law was enacted by the requisite number of states representing the required premium volume, replacing Regulation XXX and
Guideline AXXX with respect to new life insurance business issued after that date. Two of our domiciliary states (Missouri and Texas)
have adopted the regulations necessary to implement PBR. A third domiciliary state (New York) has approved PBR for new products
written by regulated life insurers effective January 1, 2018. We have up to three years after January 1, 2017 to implement PBR, and
have currently elected to defer implementation.
The NAICs Insurance Holding Company System Regulatory Act (the Model Holding Company Act) and the Insurance Holding
Company System Model Regulation include (i) provisions authorizing NAIC commissioners to act as global group-wide supervisors for
internationally active insurance groups and participate in international supervisory colleges, and (ii) the requirement that the ultimate
controlling person of a U.S. insurer file an annual enterprise risk report with its lead state regulator identifying risks likely to have a
material adverse effect upon the financial condition or liquidity of its licensed insurers or the insurance holding company system as a
whole. All of the states where AIG has domestic insurers have enacted a version of the revised Model Holding Company Act, including
the enterprise risk reporting requirement.
The NAICs Risk Management and Own Risk and Solvency Assessment Model Act (ORSA) requires that insurers maintain a risk
management framework and conduct an internal own risk and solvency assessment of the insurers material risks in normal and
stressed environments. All of the states where AIG has domestic insurers have enacted a version of ORSA.
10
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AIG | 2017 Form 10-K
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1 | Business
The NAIC is currently considering adoption of model standards, and state regulators are currently considering implementing
regulations, that would apply an impartial conduct standard similar to the DOL Fiduciary Rule to recommendations made in
connection with certain life insurance policies and annuities. For example, on December 27, 2017, the New York Department of
Financial Services (NYDFS) proposed regulations that would adopt a best interest standard for the sale of life insurance and annuity
products in New York. For additional information regarding the DOL Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs
Outlook Industry and Economic Factors Department of Labor Fiduciary Rule and Related Regulatory Developments.
ERISA Considerations
We provide products and services that are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), or
the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). Plans subject to ERISA include pension and profit
sharing plans and welfare plans, including health, life and disability plans. As a result, our activities are subject to the restrictions
imposed by ERISA and the Internal Revenue Code, including the requirement under ERISA that fiduciaries must perform their duties
solely in the interests of ERISA plan participants and beneficiaries, and that fiduciaries may not cause a covered plan to engage in
certain prohibited transactions. ERISA also provides for civil and criminal penalties and enforcement.
For additional information regarding the DOL Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs Outlook Industry and
Economic Factors Department of Labor Fiduciary Rule and Related Regulatory Developments.
Investment Adviser, Broker-Dealer and Investment Company Regulation
Our investment products and services are subject to federal and state securities, fiduciary, including ERISA, and other laws and
regulations. The SEC, Financial Industry Regulatory Authority (FINRA), CFTC, state securities commissions, state insurance
departments and the DOL are the principal U.S. regulators of these operations.
The subsidiaries that manage the operations of our investment products are registered as investment advisers with the SEC under
the Investment Advisers Act of 1940 and are required to supervise the activities of their personnel. Our affiliates that offer interests in
insurance company separate accounts, mutual funds and other pooled investment products, and that provide other financial services
to customers, are registered as broker-dealers with the SEC under the Exchange Act and with certain states, and are also members
of FINRA. Our broker-dealer subsidiaries and their personnel are subject to examination by the SEC, FINRA, and the states for
compliance with law, and certain personnel of these broker-dealers are also required to pass qualification examinations. Sales to
retirement accounts are subject to the DOL Fiduciary Rule. The investment products that are offered by our affiliates may be
registered under the Securities Act, which regulates disclosure regarding the products, and/or the Investment Company of 1940,
which imposes substantive regulation on the structure and governance of the products, as well as being subject to insurance
regulation in the case of separate accounts. Some products may also be qualified for sale in various states, the District of Columbia
and Puerto Rico.
For additional information regarding the DOL Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs Outlook Industry and
Economic Factors Department of Labor Fiduciary Rule and Related Regulatory Developments.
Data Protection and Cybersecurity
We are subject to U.S. and foreign laws and regulations that require financial institutions and other businesses to protect the security
and confidentiality of personal information and provide notice of their practices relating to the collection and disclosure of personal
information. We also are subject to laws and regulations requiring notification to affected individuals and regulators of security
breaches. In addition, we must comply with laws and regulations regarding the cross-border transfer of information.
In October 2017, the NAIC adopted the Insurance Data Security Model Law, which would require insurers, insurance producers and
other entities required to be licensed under state insurance laws to develop and maintain a written information security program,
conduct risk assessments, oversee the data security practices of third-party service providers and other related requirements. It is not
clear whether or not, or in what form, the Insurance Data Security Model Law will be adopted by states in which we have licensed
insurers and other licensed subsidiaries.
Effective March 1, 2017, the NYDFS promulgated a cybersecurity regulation requiring covered financial services institutions to
implement a cybersecurity program designed to protect information systems. The regulation imposes specific technical safeguards as
well as governance, risk assessment, monitoring and testing, third party service provider incident response and reporting and other
requirements. The regulation sets forth transitional periods for compliance with different sections of the regulation through early 2019.
Requirements under the NYDFS cybersecurity regulation are similar to those under the NAIC Insurance Data Security Model Law,
with some differences.
For information on data protection regulation in the EU, see International Regulation Data Protection.
Thrift Regulator
AIG Federal Savings Bank, our trust-only federal thrift subsidiary, is supervised and regulated by the Office of the Comptroller of the
Currency.
INTERNATIONAL REGULATION
Insurance Regulation
A substantial portion of our business is conducted in foreign countries. The degree of regulation and supervision in foreign
jurisdictions varies. Generally, our subsidiaries operating in foreign jurisdictions must satisfy local regulatory requirements; licenses
issued by foreign authorities to our subsidiaries are subject to modification or revocation by such authorities, and therefore these
subsidiaries could be prevented from conducting business in certain of the jurisdictions where they currently operate.
Certain jurisdictions require registration and periodic reporting by insurance companies that are licensed in such jurisdictions and are
controlled by other entities. Applicable legislation typically requires periodic disclosure concerning the entity that controls the
registered insurer and the other companies in the holding company system and prior approval of intercompany transactions and
transfers of assets, including in some instances payment of dividends by the insurance subsidiary within the holding company system.
Our subsidiaries are registered under such legislation in those jurisdictions that have such requirements.
In addition to these licensing and other requirements, our foreign operations are also regulated in various jurisdictions with respect to
currency, policy language and terms, advertising, amount and type of security deposits, amount and type of reserves, amount and
type of capital to be held, amount and type of local investment and the share of profits to be returned to policyholders on participating
policies. Some foreign countries regulate rates on various types of policies. Certain countries have established reinsurance
institutions, wholly or partially owned by the local government, to which admitted insurers are obligated to cede a portion of their
business on terms that may not always allow foreign insurers, including our subsidiaries, full compensation. In some countries,
regulations governing constitution of technical reserves and remittance balances may hinder remittance of profits and repatriation of
assets.
Legislation in the EU could also affect our international insurance operations. The European Parliament issues Directives on a wide
range of topics that impact financial services. Insurance companies operating in the EU are subject to the Solvency II framework. The
Prudential Regulatory Authority, the United Kingdoms (UKs) prudential regulator, is our lead EU prudential supervisor. For
information on the UKs pending withdrawal of its membership in the EU, see Brexit. The UKs Financial Conduct Authority has
oversight of AIGs operations for consumer protection and competition matters within the UK. In addition, financial companies that
operate in the EU are subject to a range of regulations enforced by the national regulators in each member state in which that firm
operates. The EU has also established a set of regulatory requirements under the European Market Infrastructure Regulation (EMIR)
that include, among other things, risk mitigation, risk management, regulatory reporting and clearing requirements. Solvency II
governs the insurance industrys solvency framework, including minimum capital and solvency requirements, governance
requirements, risk management and public reporting standards. In accordance with Solvency II, the European Commission is required
to make a determination as to whether a supervisory regime outside of the EU is equivalent.
On September 22, 2017, the U.S. Treasury Department and the Office of the U.S. Trade Representative, on behalf of the U.S., and
the EU signed the bilateral Covered Agreement, which is intended to address issues regarding the application of Solvency II
requirements to U.S.-based insurance groups as well as other (re)insurance regulatory issues. While the signatures by both parties
will allow for the provisional application of the agreement, the agreement is still subject to approval by the European Parliament before
it enters into force. Other aspects of the agreement remain subject to an implementation timetable in the U.S. and the EU, which may
delay or even prevent the agreement from being fully implemented.
comply with the agreements reinsurance collateral provisions. After 42 months, FIO must begin evaluating a potential preemption
determination with respect to any state law not in compliance with the aim of assuring full compliance within the five-year timeframe.
The agreement may be terminated (following mandatory consultation) by notice from one party to the other effective in 180 days, or at
such time as the parties may agree.
In particular, the U.S. states will be given a period of five years to
The agreement provides that AIG will be supervised at the worldwide group level only by its relevant U.S. insurance supervisors, and
that it will not have to satisfy EU Solvency II group capital, reporting and governance requirements for its worldwide group. The
agreement, however, would permit the imposition of EU Solvency II group capital requirements if, after five years from the signing of
the agreement, a U.S. insurer is not subject to a group capital assessment by its applicable state regulator. The NAIC is in the
process of developing a group capital calculation that, once adopted by the states, is expected to satisfy this condition. The
agreement further provides that if the summary risk reports submitted to the supervisory authority of a host jurisdiction expose any
serious threat to policyholder protection or financial stability in such host state, the host supervisor may request further information
from the insurance group and/or impose preventive or corrective measures with respect to the (re)insurer in its jurisdiction. The
agreement also seeks to impose equal treatment of U.S. and EU-based reinsurers that meet certain qualifications.
In the U.S., once
12
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1 | Business
The NAIC is currently considering adoption of model standards, and state regulators are currently considering implementing
regulations, that would apply an impartial conduct standard similar to the DOL Fiduciary Rule to recommendations made in
connection with certain life insurance policies and annuities. For example, on December 27, 2017, the New York Department of
Financial Services (NYDFS) proposed regulations that would adopt a best interest standard for the sale of life insurance and annuity
products in New York. For additional information regarding the DOL Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs
Outlook Industry and Economic Factors Department of Labor Fiduciary Rule and Related Regulatory Developments.
ERISA Considerations
We provide products and services that are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), or
the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). Plans subject to ERISA include pension and profit
sharing plans and welfare plans, including health, life and disability plans. As a result, our activities are subject to the restrictions
imposed by ERISA and the Internal Revenue Code, including the requirement under ERISA that fiduciaries must perform their duties
solely in the interests of ERISA plan participants and beneficiaries, and that fiduciaries may not cause a covered plan to engage in
certain prohibited transactions. ERISA also provides for civil and criminal penalties and enforcement.
For additional information regarding the DOL Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs Outlook Industry and
Economic Factors Department of Labor Fiduciary Rule and Related Regulatory Developments.
Investment Adviser, Broker-Dealer and Investment Company Regulation
Our investment products and services are subject to federal and state securities, fiduciary, including ERISA, and other laws and
regulations. The SEC, Financial Industry Regulatory Authority (FINRA), CFTC, state securities commissions, state insurance
departments and the DOL are the principal U.S. regulators of these operations.
The subsidiaries that manage the operations of our investment products are registered as investment advisers with the SEC under
the Investment Advisers Act of 1940 and are required to supervise the activities of their personnel. Our affiliates that offer interests in
insurance company separate accounts, mutual funds and other pooled investment products, and that provide other financial services
to customers, are registered as broker-dealers with the SEC under the Exchange Act and with certain states, and are also members
of FINRA. Our broker-dealer subsidiaries and their personnel are subject to examination by the SEC, FINRA, and the states for
compliance with law, and certain personnel of these broker-dealers are also required to pass qualification examinations. Sales to
retirement accounts are subject to the DOL Fiduciary Rule. The investment products that are offered by our affiliates may be
registered under the Securities Act, which regulates disclosure regarding the products, and/or the Investment Company of 1940,
which imposes substantive regulation on the structure and governance of the products, as well as being subject to insurance
regulation in the case of separate accounts. Some products may also be qualified for sale in various states, the District of Columbia
and Puerto Rico.
For additional information regarding the DOL Fiduciary Rule, see Item 7. MD&A Executive Summary AIGs Outlook Industry and
Economic Factors Department of Labor Fiduciary Rule and Related Regulatory Developments.
Data Protection and Cybersecurity
We are subject to U.S. and foreign laws and regulations that require financial institutions and other businesses to protect the security
and confidentiality of personal information and provide notice of their practices relating to the collection and disclosure of personal
information. We also are subject to laws and regulations requiring notification to affected individuals and regulators of security
breaches. In addition, we must comply with laws and regulations regarding the cross-border transfer of information.
In October 2017, the NAIC adopted the Insurance Data Security Model Law, which would require insurers, insurance producers and
other entities required to be licensed under state insurance laws to develop and maintain a written information security program,
conduct risk assessments, oversee the data security practices of third-party service providers and other related requirements. It is not
clear whether or not, or in what form, the Insurance Data Security Model Law will be adopted by states in which we have licensed
insurers and other licensed subsidiaries.
Effective March 1, 2017, the NYDFS promulgated a cybersecurity regulation requiring covered financial services institutions to
implement a cybersecurity program designed to protect information systems. The regulation imposes specific technical safeguards as
well as governance, risk assessment, monitoring and testing, third party service provider incident response and reporting and other
requirements. The regulation sets forth transitional periods for compliance with different sections of the regulation through early 2019.
Requirements under the NYDFS cybersecurity regulation are similar to those under the NAIC Insurance Data Security Model Law,
with some differences.
For information on data protection regulation in the EU, see International Regulation Data Protection.
Thrift Regulator
AIG Federal Savings Bank, our trust-only federal thrift subsidiary, is supervised and regulated by the Office of the Comptroller of the
Currency.
INTERNATIONAL REGULATION
Insurance Regulation
A substantial portion of our business is conducted in foreign countries. The degree of regulation and supervision in foreign
jurisdictions varies. Generally, our subsidiaries operating in foreign jurisdictions must satisfy local regulatory requirements; licenses
issued by foreign authorities to our subsidiaries are subject to modification or revocation by such authorities, and therefore these
subsidiaries could be prevented from conducting business in certain of the jurisdictions where they currently operate.
Certain jurisdictions require registration and periodic reporting by insurance companies that are licensed in such jurisdictions and are
controlled by other entities. Applicable legislation typically requires periodic disclosure concerning the entity that controls the
registered insurer and the other companies in the holding company system and prior approval of intercompany transactions and
transfers of assets, including in some instances payment of dividends by the insurance subsidiary within the holding company system.
Our subsidiaries are registered under such legislation in those jurisdictions that have such requirements.
In addition to these licensing and other requirements, our foreign operations are also regulated in various jurisdictions with respect to
currency, policy language and terms, advertising, amount and type of security deposits, amount and type of reserves, amount and
type of capital to be held, amount and type of local investment and the share of profits to be returned to policyholders on participating
policies. Some foreign countries regulate rates on various types of policies. Certain countries have established reinsurance
institutions, wholly or partially owned by the local government, to which admitted insurers are obligated to cede a portion of their
business on terms that may not always allow foreign insurers, including our subsidiaries, full compensation. In some countries,
regulations governing constitution of technical reserves and remittance balances may hinder remittance of profits and repatriation of
assets.
Legislation in the EU could also affect our international insurance operations. The European Parliament issues Directives on a wide
range of topics that impact financial services. Insurance companies operating in the EU are subject to the Solvency II framework. The
Prudential Regulatory Authority, the United Kingdoms (UKs) prudential regulator, is our lead EU prudential supervisor. For
information on the UKs pending withdrawal of its membership in the EU, see Brexit. The UKs Financial Conduct Authority has
oversight of AIGs operations for consumer protection and competition matters within the UK. In addition, financial companies that
operate in the EU are subject to a range of regulations enforced by the national regulators in each member state in which that firm
operates. The EU has also established a set of regulatory requirements under the European Market Infrastructure Regulation (EMIR)
that include, among other things, risk mitigation, risk management, regulatory reporting and clearing requirements. Solvency II
governs the insurance industrys solvency framework, including minimum capital and solvency requirements, governance
requirements, risk management and public reporting standards. In accordance with Solvency II, the European Commission is required
to make a determination as to whether a supervisory regime outside of the EU is equivalent.
On September 22, 2017, the U.S. Treasury Department and the Office of the U.S. Trade Representative, on behalf of the U.S., and
the EU signed the bilateral Covered Agreement, which is intended to address issues regarding the application of Solvency II
requirements to U.S.-based insurance groups as well as other (re)insurance regulatory issues. While the signatures by both parties
will allow for the provisional application of the agreement, the agreement is still subject to approval by the European Parliament before
it enters into force. Other aspects of the agreement remain subject to an implementation timetable in the U.S. and the EU, which may
delay or even prevent the agreement from being fully implemented.
In particular, the U.S. states will be given a period of five years to
comply with the agreements reinsurance collateral provisions. After 42 months, FIO must begin evaluating a potential preemption
determination with respect to any state law not in compliance with the aim of assuring full compliance within the five-year timeframe.
The agreement may be terminated (following mandatory consultation) by notice from one party to the other effective in 180 days, or at
such time as the parties may agree.
The agreement provides that AIG will be supervised at the worldwide group level only by its relevant U.S. insurance supervisors, and
that it will not have to satisfy EU Solvency II group capital, reporting and governance requirements for its worldwide group. The
agreement, however, would permit the imposition of EU Solvency II group capital requirements if, after five years from the signing of
the agreement, a U.S. insurer is not subject to a group capital assessment by its applicable state regulator. The NAIC is in the
process of developing a group capital calculation that, once adopted by the states, is expected to satisfy this condition. The
agreement further provides that if the summary risk reports submitted to the supervisory authority of a host jurisdiction expose any
serious threat to policyholder protection or financial stability in such host state, the host supervisor may request further information
from the insurance group and/or impose preventive or corrective measures with respect to the (re)insurer in its jurisdiction. The
agreement also seeks to impose equal treatment of U.S. and EU-based reinsurers that meet certain qualifications.
In the U.S., once
12
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
13
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1 | Business
fully implemented, the agreement requires U.S. states to lift reinsurance collateral requirements on qualifying EU-based reinsurers
and provide them equal treatment with U.S. reinsurers or be subject to federal preemption. While this provision does not preclude AIG
from continuing to request collateral from an EU reinsurer that is party to a bilateral reinsurance transaction, it is unclear how much
collateral AIG will be able to obtain from EU reinsurers going forward.
Data Protection
The EU General Data Protection Regulation (GDPR) will take effect in May 2018. The GDPR aims to introduce consistent data
protection rules across the EU, and its scope will extend to entities established within the European Economic Area (EEA) (i.e., EU
member states plus Iceland, Liechtenstein and Norway) and may extend to certain entities not established in the EEA (if they process
personal data of or offer goods or services to EEA data subjects or monitor the behavior of EEA data subjects (e.g., in an online
context)).
The GDPR contains a number of new requirements regarding the processing of personal data about individuals, including mandatory
security breach reporting, new and strengthened individual rights, evidenced data controller accountability for compliance with the
GDPR principles (including fairness and transparency), maintenance of data processing activity records and the implementation of
privacy by design, including through the completion of mandatory Data Protection Impact Assessments in connection with higher risk
data processing activities.
For additional information on data protection and cybersecurity regulation generally, see U.S. Regulation Data Protection and
Cybersecurity.
FSB and IAIS
The Financial Stability Board (FSB) consists of representatives of national financial authorities of the G20 countries. The FSB itself is
not a regulator but is focused primarily on promoting international financial stability. It does so by coordinating the work of national
financial authorities and international standard-setting bodies as well as developing and promoting the implementation of regulatory,
supervisory and other financial policies. The FSB has issued a series of frameworks and recommendations intended to produce
significant changes in how financial companies, particularly global systemically important financial institutions, should be regulated.
These frameworks and recommendations address such issues as systemic financial risk, financial group supervision, capital and
solvency standards, corporate governance including compensation, and a number of related issues associated with responses to the
financial crisis.
The IAIS represents insurance regulators and supervisors of more than 200 jurisdictions (including regions and states) in nearly 140
countries and seeks to promote globally consistent insurance industry supervision. The IAIS itself is not a regulator, but one of its
activities is to develop insurance regulatory standards for use by local authorities across the globe. The FSB has charged the IAIS
with developing a framework for measuring systemic risks posed by insurance groups and has directed the IAIS to create standards
relative to many of the areas of focus of the FSB, which go beyond the IAIS basic Insurance Core Principles. The IAIS is developing
ComFrame, a Common Framework for the Supervision of Internationally Active Insurance Groups (IAIGs). ComFrame sets out
qualitative and quantitative standards in order to assist supervisors in collectively addressing an IAIGs activities and risks, identifying
and avoiding regulatory gaps and coordinating supervisory activities. ComFrame is expected to include standards for group
supervision, governance and internal controls, enterprise risk management, and recovery and resolution planning. Also in connection
with ComFrame, the IAIS is in the process of developing a risk-based global insurance capital standard (ICS) applicable to IAIGs. We
currently meet the parameters set forth to define an IAIG. ComFrame standards are expected to be finalized in 2019. On November
2, 2017, the IAIS announced a new timeline and process for the development of the ICS. Following completion of field testing in 2019,
the IAIS will put forward ICS version 2.0 for implementation in 2020. Implementation of ICS version 2.0 will consist of two phases: (1)
a five year monitoring phase in which ICS version 2.0 will be used for confidential reporting to group-wide supervisors and discussion
in supervisory colleges; and (2) an implementation phase whereby the ICS will be applied as a group-wide prescribed capital
requirement at which point results will be used as the basis for supervisory action. Confidential reporting of ICS version 2.0 will
include mandatory reporting by all insurance groups of a standard formula based on market adjusted valuation and the option, at the
discretion of the group-wide supervisor, of additional ICS reporting based on GAAP with adjustments and/or an internal model based-
calculation. In recognition of the fact that the U.S. Federal Reserve and the NAIC have announced plans to develop an aggregation
method for a group capital calculation, the IAIS has agreed to aid in the development of - and collect data from jurisdictions that are
party to - the aggregation method. Although the aggregation method will not be part of ICS version 2.0, the IAIS aims to be in a
position at the end of the monitoring phase to determine whether the aggregated approach provides substantially the same outcome
as the ICS in which case it could be incorporated into the ICS as an outcome-equivalent approach.
In February 2017, the IAIS announced the adoption of a three-year systemic risk assessment and policy workplan due to be finalized
by year-end 2019. This initiative is comprised of a new macroprudential activities-based approach (ABA) to regulating systemic risk
which will be developed in conjunction with the IAIS previously announced work in finalizing ComFrame, including the ICS, as well as
any improvements to the methodology for identifying global systemically important insurers (G-SIIs). Based on the IAIS G-SII
assessment methodology, since July 2013 the FSB has published an annual list of G-SIIs, which has included us. However, on
November 30, 2017 the FSB announced that it would not be proceeding with the publication of a G-SII list for 2017 in light of the IAIS
development of the ABA and its implications for the assessment of systemic risk in insurance and, by extension, the identification of
G-SIIs and related policy measures for G-SIIs. The FSB plans to re-assess the situation in November 2018, based on the IAIS
progress in finalizing the ABA framework. In the interim, the IAIS will continue to collect data for the G-SII identification process and G-
SII policy measures are intended to continue to apply to those insurers identified on the FSBs 2016 G-SII list. The IAIS intends G-SIIs
to be subject to a policy framework that includes recovery and resolution planning, enhanced group-wide supervision, enhanced
liquidity and systemic risk management planning; and group-wide capital standards, including higher loss absorbency (HLA) capital.
The IAIS basic capital requirement (BCR) was endorsed by the FSB in October 2014 and by the G20 countries in November
2014. The BCR covers all group activities of G-SIIs, and we report our BCR ratios to supervisory authorities annually on a
confidential basis. The BCR serves as the initial foundation for the application of HLA requirements, although the IAIS has indicated
that the BCR will eventually be replaced by the ICS. In October 2015, the IAIS announced that it had concluded initial development of
the HLA requirements, according to which we reported on a confidential basis to supervisors in 2016 and 2017. The IAIS had
announced that expected revisions to the initial HLA requirements would occur once the systemic risk assessment and policy
workplan were finalized and adopted, anticipated to be by 2019. However, in light of the new timeline announced on November 2,
2017 for development of the ICS, including a five-year monitoring phase and subsequent implementation phase, it is unclear how HLA
might apply in the future. It is not known how any standards that might result from the IAIS initiatives might be implemented in the
U.S. and other jurisdictions around the world, or how they might apply to AIG.
The standards issued by the FSB and/or the IAIS are not binding on the United States or other jurisdictions around the world unless
and until the appropriate local governmental bodies or regulators adopt appropriate laws and regulations. At this time, it is not known
how the IAIS frameworks and/or standards might be implemented in the United States and other jurisdictions around the world, or
how they might apply to us.
Brexit
On June 23, 2016, the UK held a referendum in which a majority voted for the UK to withdraw its membership in the EU, commonly
referred to as Brexit. The terms of withdrawal are subject to a formal negotiation period which was initiated on March 29, 2017
through the invocation of Article 50 of the Treaty on European Union. Negotiations on Brexit could, by treaty, last up to two years. It is
not clear at this stage (and may not be for some time) what form the UKs future relationship with the remaining EU member states
will take. We have significant operations and employees in the UK and other EU member states, including AIG Europe Ltd., which
enjoys certain benefits based on the UKs membership in the EU. In order to adapt to Brexit, on March 8, 2017, we announced plans
to reorganize our operations and legal entity structure in the UK and the EU through the establishment of a new European subsidiary
in Luxembourg. The reorganization is expected to be completed in the fourth quarter of 2018, subject to regulatory and court
approvals. Future regulatory, tax or other developments may affect this reorganization and result in changes to our plans.
Derivatives
Regulation of and restrictions on derivatives markets and transactions have been proposed or adopted outside the United States. For
instance, the EU has also established a set of new regulatory requirements for EU derivatives activities under EMIR. These
requirements include, among other things, various risk mitigation, risk management, margin posting and regulatory reporting
requirements that have already become effective and clearing requirements that were outlined in EU delegated legislation at the end
of 2015 and are phased in over three years. These requirements could result in increased administrative costs with respect to our EU
derivatives activities and overlapping or inconsistent regulation depending on the ultimate application of cross-border regulatory
requirements between and among U.S. and non-U.S. jurisdictions.
Markets in Financial Instruments Directive (MiFID) II
The Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation took effect in Europe on
January 3, 2018. MiFID II and the related regulations are intended to create transparency in market trading by, for example, imposing
trade and transaction reporting and other requirements. AIG Asset Management (Europe) Limited (AAMEL) has prepared for the
implementation deadline over the last two years and is continuing to work with data providers, other market participants and AAMELs
regulator on compliance with MiFID II and the related regulations.
14
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
15
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1 | Business
fully implemented, the agreement requires U.S. states to lift reinsurance collateral requirements on qualifying EU-based reinsurers
and provide them equal treatment with U.S. reinsurers or be subject to federal preemption. While this provision does not preclude AIG
from continuing to request collateral from an EU reinsurer that is party to a bilateral reinsurance transaction, it is unclear how much
collateral AIG will be able to obtain from EU reinsurers going forward.
The EU General Data Protection Regulation (GDPR) will take effect in May 2018. The GDPR aims to introduce consistent data
protection rules across the EU, and its scope will extend to entities established within the European Economic Area (EEA) (i.e., EU
member states plus Iceland, Liechtenstein and Norway) and may extend to certain entities not established in the EEA (if they process
personal data of or offer goods or services to EEA data subjects or monitor the behavior of EEA data subjects (e.g., in an online
The GDPR contains a number of new requirements regarding the processing of personal data about individuals, including mandatory
security breach reporting, new and strengthened individual rights, evidenced data controller accountability for compliance with the
GDPR principles (including fairness and transparency), maintenance of data processing activity records and the implementation of
privacy by design, including through the completion of mandatory Data Protection Impact Assessments in connection with higher risk
For additional information on data protection and cybersecurity regulation generally, see U.S. Regulation Data Protection and
Data Protection
context)).
data processing activities.
Cybersecurity.
FSB and IAIS
The Financial Stability Board (FSB) consists of representatives of national financial authorities of the G20 countries. The FSB itself is
not a regulator but is focused primarily on promoting international financial stability. It does so by coordinating the work of national
financial authorities and international standard-setting bodies as well as developing and promoting the implementation of regulatory,
supervisory and other financial policies. The FSB has issued a series of frameworks and recommendations intended to produce
significant changes in how financial companies, particularly global systemically important financial institutions, should be regulated.
These frameworks and recommendations address such issues as systemic financial risk, financial group supervision, capital and
solvency standards, corporate governance including compensation, and a number of related issues associated with responses to the
financial crisis.
The IAIS represents insurance regulators and supervisors of more than 200 jurisdictions (including regions and states) in nearly 140
countries and seeks to promote globally consistent insurance industry supervision. The IAIS itself is not a regulator, but one of its
activities is to develop insurance regulatory standards for use by local authorities across the globe. The FSB has charged the IAIS
with developing a framework for measuring systemic risks posed by insurance groups and has directed the IAIS to create standards
relative to many of the areas of focus of the FSB, which go beyond the IAIS basic Insurance Core Principles. The IAIS is developing
ComFrame, a Common Framework for the Supervision of Internationally Active Insurance Groups (IAIGs). ComFrame sets out
qualitative and quantitative standards in order to assist supervisors in collectively addressing an IAIGs activities and risks, identifying
and avoiding regulatory gaps and coordinating supervisory activities. ComFrame is expected to include standards for group
supervision, governance and internal controls, enterprise risk management, and recovery and resolution planning. Also in connection
with ComFrame, the IAIS is in the process of developing a risk-based global insurance capital standard (ICS) applicable to IAIGs. We
currently meet the parameters set forth to define an IAIG. ComFrame standards are expected to be finalized in 2019. On November
2, 2017, the IAIS announced a new timeline and process for the development of the ICS. Following completion of field testing in 2019,
the IAIS will put forward ICS version 2.0 for implementation in 2020. Implementation of ICS version 2.0 will consist of two phases: (1)
a five year monitoring phase in which ICS version 2.0 will be used for confidential reporting to group-wide supervisors and discussion
in supervisory colleges; and (2) an implementation phase whereby the ICS will be applied as a group-wide prescribed capital
requirement at which point results will be used as the basis for supervisory action. Confidential reporting of ICS version 2.0 will
include mandatory reporting by all insurance groups of a standard formula based on market adjusted valuation and the option, at the
discretion of the group-wide supervisor, of additional ICS reporting based on GAAP with adjustments and/or an internal model based-
calculation. In recognition of the fact that the U.S. Federal Reserve and the NAIC have announced plans to develop an aggregation
method for a group capital calculation, the IAIS has agreed to aid in the development of - and collect data from jurisdictions that are
party to - the aggregation method. Although the aggregation method will not be part of ICS version 2.0, the IAIS aims to be in a
position at the end of the monitoring phase to determine whether the aggregated approach provides substantially the same outcome
as the ICS in which case it could be incorporated into the ICS as an outcome-equivalent approach.
In February 2017, the IAIS announced the adoption of a three-year systemic risk assessment and policy workplan due to be finalized
by year-end 2019. This initiative is comprised of a new macroprudential activities-based approach (ABA) to regulating systemic risk
which will be developed in conjunction with the IAIS previously announced work in finalizing ComFrame, including the ICS, as well as
any improvements to the methodology for identifying global systemically important insurers (G-SIIs). Based on the IAIS G-SII
assessment methodology, since July 2013 the FSB has published an annual list of G-SIIs, which has included us. However, on
November 30, 2017 the FSB announced that it would not be proceeding with the publication of a G-SII list for 2017 in light of the IAIS
development of the ABA and its implications for the assessment of systemic risk in insurance and, by extension, the identification of
G-SIIs and related policy measures for G-SIIs. The FSB plans to re-assess the situation in November 2018, based on the IAIS
progress in finalizing the ABA framework. In the interim, the IAIS will continue to collect data for the G-SII identification process and G-
SII policy measures are intended to continue to apply to those insurers identified on the FSBs 2016 G-SII list. The IAIS intends G-SIIs
to be subject to a policy framework that includes recovery and resolution planning, enhanced group-wide supervision, enhanced
liquidity and systemic risk management planning; and group-wide capital standards, including higher loss absorbency (HLA) capital.
The IAIS basic capital requirement (BCR) was endorsed by the FSB in October 2014 and by the G20 countries in November
2014. The BCR covers all group activities of G-SIIs, and we report our BCR ratios to supervisory authorities annually on a
confidential basis. The BCR serves as the initial foundation for the application of HLA requirements, although the IAIS has indicated
that the BCR will eventually be replaced by the ICS. In October 2015, the IAIS announced that it had concluded initial development of
the HLA requirements, according to which we reported on a confidential basis to supervisors in 2016 and 2017. The IAIS had
announced that expected revisions to the initial HLA requirements would occur once the systemic risk assessment and policy
workplan were finalized and adopted, anticipated to be by 2019. However, in light of the new timeline announced on November 2,
2017 for development of the ICS, including a five-year monitoring phase and subsequent implementation phase, it is unclear how HLA
might apply in the future. It is not known how any standards that might result from the IAIS initiatives might be implemented in the
U.S. and other jurisdictions around the world, or how they might apply to AIG.
The standards issued by the FSB and/or the IAIS are not binding on the United States or other jurisdictions around the world unless
and until the appropriate local governmental bodies or regulators adopt appropriate laws and regulations. At this time, it is not known
how the IAIS frameworks and/or standards might be implemented in the United States and other jurisdictions around the world, or
how they might apply to us.
Brexit
On June 23, 2016, the UK held a referendum in which a majority voted for the UK to withdraw its membership in the EU, commonly
referred to as Brexit. The terms of withdrawal are subject to a formal negotiation period which was initiated on March 29, 2017
through the invocation of Article 50 of the Treaty on European Union. Negotiations on Brexit could, by treaty, last up to two years. It is
not clear at this stage (and may not be for some time) what form the UKs future relationship with the remaining EU member states
will take. We have significant operations and employees in the UK and other EU member states, including AIG Europe Ltd., which
enjoys certain benefits based on the UKs membership in the EU. In order to adapt to Brexit, on March 8, 2017, we announced plans
to reorganize our operations and legal entity structure in the UK and the EU through the establishment of a new European subsidiary
in Luxembourg. The reorganization is expected to be completed in the fourth quarter of 2018, subject to regulatory and court
approvals. Future regulatory, tax or other developments may affect this reorganization and result in changes to our plans.
Derivatives
Regulation of and restrictions on derivatives markets and transactions have been proposed or adopted outside the United States. For
instance, the EU has also established a set of new regulatory requirements for EU derivatives activities under EMIR. These
requirements include, among other things, various risk mitigation, risk management, margin posting and regulatory reporting
requirements that have already become effective and clearing requirements that were outlined in EU delegated legislation at the end
of 2015 and are phased in over three years. These requirements could result in increased administrative costs with respect to our EU
derivatives activities and overlapping or inconsistent regulation depending on the ultimate application of cross-border regulatory
requirements between and among U.S. and non-U.S. jurisdictions.
Markets in Financial Instruments Directive (MiFID) II
The Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation took effect in Europe on
January 3, 2018. MiFID II and the related regulations are intended to create transparency in market trading by, for example, imposing
trade and transaction reporting and other requirements. AIG Asset Management (Europe) Limited (AAMEL) has prepared for the
implementation deadline over the last two years and is continuing to work with data providers, other market participants and AAMELs
regulator on compliance with MiFID II and the related regulations.
14
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
15
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1A | Risk Factors
Available Information about AIG
Our corporate website is www.aig.com. We make available free of charge, through the Investor Information section of our corporate
website, the following reports (and related amendments as filed with the SEC) as soon as reasonably practicable after such materials
are electronically filed with, or furnished to, the SEC:
Annual Reports on Form 10-K
Quarterly Reports on Form 10-Q
Current Reports on Form 8-K
Proxy Statements on Schedule 14A, as well as other filings with the SEC
Also available on our corporate website:
Charters for Board Committees: Audit, Nominating and Corporate Governance, Compensation and Management Resources, Risk
and Capital, Regulatory, Compliance and Public Policy, and Technology Committees
Corporate Governance Guidelines (which include Director Independence Standards)
Director, Executive Officer and Senior Financial Officer Code of Business Conduct and Ethics (we will post on our website any
amendment or waiver to this Code within the time period required by the SEC)
Employee Code of Conduct
Related-Party Transactions Approval Policy
Except for the documents specifically incorporated by reference into this Annual Report on Form 10-K, information contained on our
website or that can be accessed through our website is not incorporated by reference into this Annual Report on Form 10-K.
Reference to our website is made as an inactive textual reference.
ITEM 1A | Risk Factors
Investing in AIG involves risk. In deciding whether to invest in AIG, you should carefully consider the following risk factors. Any of
these risk factors could have a significant or material adverse effect on our businesses, results of operations, financial condition or
liquidity. They could also cause significant fluctuations and volatility in the trading price of our securities. Readers should not consider
any descriptions of these factors to be a complete set of all potential risks that could affect AIG. These factors should be considered
carefully together with the other information contained in this report and the other reports and materials filed by us with the Securities
and Exchange Commission (SEC). Further, many of these risks are interrelated and could occur under similar business and economic
conditions, and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others. Such a
combination could materially increase the severity of the impact of these risks on our businesses, results of operations, financial
condition and liquidity.
MARKET CONDITIONS
Deterioration of economic conditions, geopolitical tensions or weakening in global capital markets may materially affect our
businesses, results of operations, financial condition and liquidity. Our businesses are highly dependent on global economic
and market conditions. Weaknesses in economic conditions and the capital markets have in the past led, and may in the future lead,
to a poor operating environment, erosion of consumer and investor confidence, reduced business volumes, deteriorating liquidity and
declines in asset valuations. Adverse economic conditions may result from global economic and political developments, including
plateauing business activity and inflationary pressures in developed economies, uncertainty surrounding Chinas ability to successfully
maintain growth, the effects of Brexit (as defined below) on business investment, hiring, migration and labor supply, intensifying trade
protectionism, and tensions over North Koreas nuclear program. These and other market, economic, and political factors could have
a material adverse effect on our businesses, results of operations, financial condition and liquidity in many ways, including (i) lower
levels of consumer and commercial business activities that could decrease revenues and profitability and decrease value in goodwill,
deferred tax assets and other long term assets, (ii) increases in credit spreads and defaults that could reduce investment asset
valuations, increase credit losses across numerous asset classes, and increase statutory capital requirements and (iii) increased
market volatility and uncertainty that could decrease liquidity and increase borrowing costs. Other ways in which we could be
negatively affected by economic conditions include, but are not limited to: increases in policy surrenders and cancellations; write-offs
of deferred policy acquisition costs; increases in liability for future policy benefits due to loss recognition on certain long-duration
insurance contracts; and increases in expenses associated with reinsurance, or decreased ability to obtain reinsurance at acceptable
terms.
Sustained low interest rates, or rapidly increasing interest rates, may materially and adversely affect our profitability. Recent
periods have been characterized by low interest rates relative to historical levels. Sustained low interest rates can negatively affect
the performance of our investment securities and reduce the level of investment income earned on our investment portfolios. If a low
interest rate environment persists, we may experience lower investment income growth. Due to practical and capital markets
limitations, we may not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities.
Continued low interest rates could also impair our ability to earn the returns assumed in the pricing and the reserving for our products
at the time they were sold and issued. Changes in interest rates may be correlated with inflation trends, which would impact our loss
trends.
On the other hand, in periods of rapidly increasing interest rates, we may not be able to replace, in a timely manner, the investments
in our general account with higher yielding investments needed to fund the higher crediting rates necessary to keep interest rate
sensitive products competitive. Therefore, we may have to accept a lower credit spread and, thus, lower profitability or face a decline
in sales and greater loss of existing contracts and related assets. In addition, policy loans, surrenders and withdrawals may tend to
increase as policyholders seek investments with higher perceived returns as interest rates rise. This process may result in cash
outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in
interest rates. This may result in realized investment losses. An increase in interest rates could also have a material adverse effect on
the value of our investment portfolio, for example, by decreasing the estimated fair values of the fixed income securities that comprise
a substantial portion of our investment portfolio. This in turn could adversely affect our ability to realize our deferred tax assets.
RESERVES AND EXPOSURES
Insurance liabilities are difficult to predict and may exceed the related reserves for losses and loss expenses. We regularly
review the adequacy of the established loss reserves and conduct extensive analyses of our reserves during the year. Our loss
reserves, however, may develop adversely and materially impact our businesses, results of operations, financial condition and
liquidity.
16
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
17
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1 | Business
ITEM 1A | Risk Factors
Available Information about AIG
Our corporate website is www.aig.com. We make available free of charge, through the Investor Information section of our corporate
website, the following reports (and related amendments as filed with the SEC) as soon as reasonably practicable after such materials
are electronically filed with, or furnished to, the SEC:
Annual Reports on Form 10-K
Quarterly Reports on Form 10-Q
Current Reports on Form 8-K
Proxy Statements on Schedule 14A, as well as other filings with the SEC
Also available on our corporate website:
Charters for Board Committees: Audit, Nominating and Corporate Governance, Compensation and Management Resources, Risk
and Capital, Regulatory, Compliance and Public Policy, and Technology Committees
Corporate Governance Guidelines (which include Director Independence Standards)
Director, Executive Officer and Senior Financial Officer Code of Business Conduct and Ethics (we will post on our website any
amendment or waiver to this Code within the time period required by the SEC)
Employee Code of Conduct
Related-Party Transactions Approval Policy
Except for the documents specifically incorporated by reference into this Annual Report on Form 10-K, information contained on our
website or that can be accessed through our website is not incorporated by reference into this Annual Report on Form 10-K.
Reference to our website is made as an inactive textual reference.
ITEM 1A | Risk Factors
Investing in AIG involves risk. In deciding whether to invest in AIG, you should carefully consider the following risk factors. Any of
these risk factors could have a significant or material adverse effect on our businesses, results of operations, financial condition or
liquidity. They could also cause significant fluctuations and volatility in the trading price of our securities. Readers should not consider
any descriptions of these factors to be a complete set of all potential risks that could affect AIG. These factors should be considered
carefully together with the other information contained in this report and the other reports and materials filed by us with the Securities
and Exchange Commission (SEC). Further, many of these risks are interrelated and could occur under similar business and economic
conditions, and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others. Such a
combination could materially increase the severity of the impact of these risks on our businesses, results of operations, financial
condition and liquidity.
MARKET CONDITIONS
Deterioration of economic conditions, geopolitical tensions or weakening in global capital markets may materially affect our
businesses, results of operations, financial condition and liquidity. Our businesses are highly dependent on global economic
and market conditions. Weaknesses in economic conditions and the capital markets have in the past led, and may in the future lead,
to a poor operating environment, erosion of consumer and investor confidence, reduced business volumes, deteriorating liquidity and
declines in asset valuations. Adverse economic conditions may result from global economic and political developments, including
plateauing business activity and inflationary pressures in developed economies, uncertainty surrounding Chinas ability to successfully
maintain growth, the effects of Brexit (as defined below) on business investment, hiring, migration and labor supply, intensifying trade
protectionism, and tensions over North Koreas nuclear program. These and other market, economic, and political factors could have
a material adverse effect on our businesses, results of operations, financial condition and liquidity in many ways, including (i) lower
levels of consumer and commercial business activities that could decrease revenues and profitability and decrease value in goodwill,
deferred tax assets and other long term assets, (ii) increases in credit spreads and defaults that could reduce investment asset
valuations, increase credit losses across numerous asset classes, and increase statutory capital requirements and (iii) increased
market volatility and uncertainty that could decrease liquidity and increase borrowing costs. Other ways in which we could be
negatively affected by economic conditions include, but are not limited to: increases in policy surrenders and cancellations; write-offs
of deferred policy acquisition costs; increases in liability for future policy benefits due to loss recognition on certain long-duration
insurance contracts; and increases in expenses associated with reinsurance, or decreased ability to obtain reinsurance at acceptable
terms.
Sustained low interest rates, or rapidly increasing interest rates, may materially and adversely affect our profitability. Recent
periods have been characterized by low interest rates relative to historical levels. Sustained low interest rates can negatively affect
the performance of our investment securities and reduce the level of investment income earned on our investment portfolios. If a low
interest rate environment persists, we may experience lower investment income growth. Due to practical and capital markets
limitations, we may not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities.
Continued low interest rates could also impair our ability to earn the returns assumed in the pricing and the reserving for our products
at the time they were sold and issued. Changes in interest rates may be correlated with inflation trends, which would impact our loss
trends.
On the other hand, in periods of rapidly increasing interest rates, we may not be able to replace, in a timely manner, the investments
in our general account with higher yielding investments needed to fund the higher crediting rates necessary to keep interest rate
sensitive products competitive. Therefore, we may have to accept a lower credit spread and, thus, lower profitability or face a decline
in sales and greater loss of existing contracts and related assets. In addition, policy loans, surrenders and withdrawals may tend to
increase as policyholders seek investments with higher perceived returns as interest rates rise. This process may result in cash
outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in
interest rates. This may result in realized investment losses. An increase in interest rates could also have a material adverse effect on
the value of our investment portfolio, for example, by decreasing the estimated fair values of the fixed income securities that comprise
a substantial portion of our investment portfolio. This in turn could adversely affect our ability to realize our deferred tax assets.
RESERVES AND EXPOSURES
Insurance liabilities are difficult to predict and may exceed the related reserves for losses and loss expenses. We regularly
review the adequacy of the established loss reserves and conduct extensive analyses of our reserves during the year. Our loss
reserves, however, may develop adversely and materially impact our businesses, results of operations, financial condition and
liquidity.
16
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
17
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
For General Insurance, estimation of ultimate net losses, loss expenses and loss reserves is a complex process, particularly for long-
tail liability lines of business. These lines include, but are not limited to, general liability, commercial automobile liability, environmental,
workers' compensation, excess casualty and crisis management coverages, insurance and risk management programs for large
corporate customers and other customized structured insurance products, as well as excess and umbrella liability, errors and
omissions, products liability, programs and specialty. There is also greater uncertainty in establishing reserves with respect to new
business, particularly new business that is generated with respect to more recently introduced product lines. In these cases, there is
less historical experience or knowledge and less data upon which the actuaries can rely. Estimating reserves is further complicated by
unexpected claims or unintended coverages that emerge due to changing conditions. These emerging issues may increase the size
or number of claims beyond our underwriting intent and may not become apparent for many years after a policy is issued.
While we use a number of analytical reserve development techniques to project future loss development, reserves have been and
may be significantly affected by changes in loss cost trends or loss development factors that were relied upon in setting the reserves.
For example, in 2017, 2016 and 2015, we recorded net charges of $1.0 billion, $5.4 billion and $3.3 billion, respectively, to strengthen
our General Insurance loss reserves, reflecting adverse development in classes of business with long reporting tails, primarily in
Casualty and Financial Lines. These changes in loss cost trends or loss development factors could be due to changes in actual
versus expected claims and losses, difficulties in predicting changes, such as changes in inflation, unemployment duration, or other
social or economic factors affecting claims, including the judicial environment. Any deviation in loss cost trends or in loss development
factors might not be identified for an extended period of time after we record the initial loss reserve estimates for any accident year or
number of years.
For Life and Retirement, experience may develop adversely such that additional reserves must be established. Adverse experience
could arise out of a severe short term event such as a pandemic, or due to misestimation of long-term assumptions such as mortality
improvement and interest rate assumptions. While mortality experience is relatively stable due to the large amount of historical data
available, assumptions in respect of other variables, such as policyholder behavior can be more difficult to estimate and may have a
significant impact on reserves. Life and Retirement reserves and assumptions are reviewed quarterly and loss recognition testing and
cash flow testing is carried out annually.
For a further discussion of our loss reserves see Item 7. MD&A Critical Accounting Estimates Insurance Liabilities Loss
Reserves and Insurance Reserves Loss Reserves and Note 13 to the Consolidated Financial Statements.
Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and
man-made catastrophic events. Events such as hurricanes, windstorms, flooding, earthquakes, wildfires, solar storms, acts of
terrorism, explosions and fires, cyber-crimes, product defects, pandemic and other highly contagious diseases, mass torts and other
catastrophes have adversely affected our business in the past and could do so in the future. For example, we had pre-tax catastrophe
losses of $3.0 billion in the third quarter of 2017, which included losses from Hurricanes Harvey, Irma and Maria and the earthquake
in Mexico and pre-tax catastrophe losses of $766 million in the fourth quarter of 2017, which included losses from the California
wildfires.
In addition, we recognize the scientific consensus that climate change is a reality of increasing concern, indicated by higher
concentrations of greenhouse gases, a warming atmosphere and ocean, diminished snow and ice, and sea level rise. We understand
that climate change potentially poses a serious financial threat to society as a whole, with implications for the insurance industry in
areas such as catastrophe risk perception, pricing and modeling assumptions. Because there is significant variability associated with
the impacts of climate change, we cannot predict how physical, legal, regulatory and social responses may impact our business.
Such catastrophic events, and any relevant regulations, could expose us to:
In addition, legislative and regulatory initiatives and court decisions following major catastrophes could require us to pay the insured
beyond the provisions of the original insurance policy and may prohibit the application of a deductible, resulting in inflated catastrophe
claims.
For further details on potential catastrophic events, including a sensitivity analysis of our exposure to certain catastrophes, see Item 7.
MD&A Enterprise Risk Management Insurance Risks.
Reinsurance may not be available or affordable and may not be adequate to protect us against losses. Our subsidiaries are
major purchasers of reinsurance and we use reinsurance as part of our overall risk management strategy. While reinsurance does not
discharge our subsidiaries from their obligation to pay claims for losses insured under our policies, it does make the reinsurer liable to
them for the reinsured portion of the risk. For this reason, reinsurance is an important tool to manage transaction and insurance line
risk retention and to mitigate losses from catastrophes. Market conditions beyond our control may impact the availability and cost of
reinsurance and could have a material adverse effect on our business, results of operations and financial condition. For example,
reinsurance may be more difficult or costly to obtain after a year with a large number of major catastrophes. We may, at certain times,
be forced to incur additional costs for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms. In the latter
case, we would have to accept an increase in exposure to risk, reduce the amount of business written by our subsidiaries or seek
alternatives in line with our risk limits.
Additionally, we are exposed to credit risk with respect to our subsidiaries reinsurers to the extent the reinsurance receivable is not
secured by collateral or does not benefit from other credit enhancements. We also bear the risk that a reinsurer may be unwilling to
pay amounts we have recorded as reinsurance recoverable for any reason, including that (i) the terms of the reinsurance contract do
not reflect the intent of the parties of the contract or there is a disagreement between the parties as to their intent, (ii) the terms of the
contract cannot be legally enforced, (iii) the terms of the contract are interpreted by a court or arbitration panel differently than
intended, (iv) the reinsurance transaction performs differently than we anticipated due to a flawed design of the reinsurance structure,
terms or conditions, or (v) a change in laws and regulations, or in the interpretation of the laws and regulations, materially impacts a
reinsurance transaction. The insolvency of one or more of our reinsurers, or inability or unwillingness to make timely payments under
the terms of our contracts, could have a material adverse effect on our results of operations and liquidity.
Additionally, the use of reinsurance placed in the capital markets, may not provide the same levels of protection as traditional
reinsurance transactions. Any disruption, volatility and uncertainty in these markets, such as following a major catastrophic event, may
limit our ability to access such markets on terms favorable to us or at all. Also, to the extent that we intend to use structures based on
an industry loss index or other non-indemnity trigger rather than on actual losses incurred by us, we could be subject to residual risk.
We currently have limited reinsurance coverage for terrorist attacks. Further, the availability of private sector reinsurance for terrorism
is limited. We rely heavily on the Terrorism Risk Insurance Program (TRIP), which provides U.S. government risk assistance to the
insurance industry to manage the exposure to terrorism incidents in the U.S. TRIP was reauthorized in January 2015 and is
scheduled to expire on December 31, 2020. Under TRIP, once our losses for certain acts of terrorism exceed a deductible equal to 20
percent of our commercial property and casualty insurance premiums for covered lines for the prior calendar year, the federal
government will reimburse us for losses in excess of our deductible, starting at 85 percent of losses in 2015 (83 percent in 2017), and
reducing by one percentage point each year, ending at 80 percent in 2020, up to a total industry program limit of $100 billion. TRIP
does not cover losses in certain lines of business such as consumer property and consumer casualty. We also rely on the government
sponsored and government arranged terrorism reinsurance programs, including pools, in force in applicable non-U.S. jurisdictions.
For additional information on our reinsurance recoverable, see Item 7. MD&A Enterprise Risk Management Insurance Risks
widespread claim costs associated with property, workers compensation, A&H, business interruption and mortality and morbidity
Reinsurance Activities Reinsurance Recoverable.
claims;
loss resulting from a decline in the value of our invested assets;
limitations on our ability to recover deferred tax assets;
loss resulting from actual policy experience that is adverse compared to the assumptions made in product pricing;
declines in value and/or losses with respect to companies and other entities whose securities we hold and counterparties we
transact business with and have credit exposure to, including reinsurers, and declines in the value of investments; and
significant interruptions to our systems and operations.
Natural and man-made catastrophic events are generally unpredictable. Our exposure to catastrophic-related loss depends on
various factors, including the frequency and severity of the catastrophes, the rate of inflation and the value and geographic or other
concentrations of insured companies and individuals. Vendor models and proprietary assumptions and processes that we use to
manage catastrophe exposure may prove to be ineffective due to incorrect assumptions or estimates.
Interest rate fluctuations, increased lapses and surrenders, declining investment returns and other events may require our
subsidiaries to accelerate the amortization of deferred policy acquisition costs (DAC) and record additional liabilities for
future policy benefits. We incur significant costs in connection with acquiring new and renewal insurance business. DAC represents
deferred costs that are incremental and directly related to the successful acquisition of new business or renewal of existing business.
The recovery of these costs is generally dependent upon the future profitability of the related business, but DAC amortization varies
based on the type of contract. For long-duration traditional business, DAC is generally amortized in proportion to premium revenue
and varies with lapse experience. Actual lapses in excess of expectations can result in an acceleration of DAC amortization.
DAC for investment-oriented products is generally amortized in proportion to estimated gross profits. Estimated gross profits are
affected by a number of assumptions, including current and expected interest rates, net investment income and spreads, net realized
capital gains and losses, fees, surrender rates, mortality experience and equity market returns and volatility.
estimated gross profits are less than originally expected, then the amortization of these costs would be accelerated in the period the
actual experience is known and would result in a charge to income. For example, if interest rates rise rapidly and significantly,
customers with policies that have interest crediting rates below the current market may seek competing products with higher returns
If actual and/or future
18
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
19
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
For General Insurance, estimation of ultimate net losses, loss expenses and loss reserves is a complex process, particularly for long-
tail liability lines of business. These lines include, but are not limited to, general liability, commercial automobile liability, environmental,
workers' compensation, excess casualty and crisis management coverages, insurance and risk management programs for large
corporate customers and other customized structured insurance products, as well as excess and umbrella liability, errors and
omissions, products liability, programs and specialty. There is also greater uncertainty in establishing reserves with respect to new
business, particularly new business that is generated with respect to more recently introduced product lines. In these cases, there is
less historical experience or knowledge and less data upon which the actuaries can rely. Estimating reserves is further complicated by
unexpected claims or unintended coverages that emerge due to changing conditions. These emerging issues may increase the size
or number of claims beyond our underwriting intent and may not become apparent for many years after a policy is issued.
While we use a number of analytical reserve development techniques to project future loss development, reserves have been and
may be significantly affected by changes in loss cost trends or loss development factors that were relied upon in setting the reserves.
For example, in 2017, 2016 and 2015, we recorded net charges of $1.0 billion, $5.4 billion and $3.3 billion, respectively, to strengthen
our General Insurance loss reserves, reflecting adverse development in classes of business with long reporting tails, primarily in
Casualty and Financial Lines. These changes in loss cost trends or loss development factors could be due to changes in actual
versus expected claims and losses, difficulties in predicting changes, such as changes in inflation, unemployment duration, or other
social or economic factors affecting claims, including the judicial environment. Any deviation in loss cost trends or in loss development
factors might not be identified for an extended period of time after we record the initial loss reserve estimates for any accident year or
number of years.
For Life and Retirement, experience may develop adversely such that additional reserves must be established. Adverse experience
could arise out of a severe short term event such as a pandemic, or due to misestimation of long-term assumptions such as mortality
improvement and interest rate assumptions. While mortality experience is relatively stable due to the large amount of historical data
available, assumptions in respect of other variables, such as policyholder behavior can be more difficult to estimate and may have a
significant impact on reserves. Life and Retirement reserves and assumptions are reviewed quarterly and loss recognition testing and
cash flow testing is carried out annually.
For a further discussion of our loss reserves see Item 7. MD&A Critical Accounting Estimates Insurance Liabilities Loss
Reserves and Insurance Reserves Loss Reserves and Note 13 to the Consolidated Financial Statements.
Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and
man-made catastrophic events. Events such as hurricanes, windstorms, flooding, earthquakes, wildfires, solar storms, acts of
terrorism, explosions and fires, cyber-crimes, product defects, pandemic and other highly contagious diseases, mass torts and other
catastrophes have adversely affected our business in the past and could do so in the future. For example, we had pre-tax catastrophe
losses of $3.0 billion in the third quarter of 2017, which included losses from Hurricanes Harvey, Irma and Maria and the earthquake
in Mexico and pre-tax catastrophe losses of $766 million in the fourth quarter of 2017, which included losses from the California
wildfires.
In addition, we recognize the scientific consensus that climate change is a reality of increasing concern, indicated by higher
concentrations of greenhouse gases, a warming atmosphere and ocean, diminished snow and ice, and sea level rise. We understand
that climate change potentially poses a serious financial threat to society as a whole, with implications for the insurance industry in
areas such as catastrophe risk perception, pricing and modeling assumptions. Because there is significant variability associated with
the impacts of climate change, we cannot predict how physical, legal, regulatory and social responses may impact our business.
Such catastrophic events, and any relevant regulations, could expose us to:
widespread claim costs associated with property, workers compensation, A&H, business interruption and mortality and morbidity
claims;
loss resulting from a decline in the value of our invested assets;
limitations on our ability to recover deferred tax assets;
loss resulting from actual policy experience that is adverse compared to the assumptions made in product pricing;
declines in value and/or losses with respect to companies and other entities whose securities we hold and counterparties we
transact business with and have credit exposure to, including reinsurers, and declines in the value of investments; and
significant interruptions to our systems and operations.
Natural and man-made catastrophic events are generally unpredictable. Our exposure to catastrophic-related loss depends on
various factors, including the frequency and severity of the catastrophes, the rate of inflation and the value and geographic or other
concentrations of insured companies and individuals. Vendor models and proprietary assumptions and processes that we use to
manage catastrophe exposure may prove to be ineffective due to incorrect assumptions or estimates.
In addition, legislative and regulatory initiatives and court decisions following major catastrophes could require us to pay the insured
beyond the provisions of the original insurance policy and may prohibit the application of a deductible, resulting in inflated catastrophe
claims.
For further details on potential catastrophic events, including a sensitivity analysis of our exposure to certain catastrophes, see Item 7.
MD&A Enterprise Risk Management Insurance Risks.
Reinsurance may not be available or affordable and may not be adequate to protect us against losses. Our subsidiaries are
major purchasers of reinsurance and we use reinsurance as part of our overall risk management strategy. While reinsurance does not
discharge our subsidiaries from their obligation to pay claims for losses insured under our policies, it does make the reinsurer liable to
them for the reinsured portion of the risk. For this reason, reinsurance is an important tool to manage transaction and insurance line
risk retention and to mitigate losses from catastrophes. Market conditions beyond our control may impact the availability and cost of
reinsurance and could have a material adverse effect on our business, results of operations and financial condition. For example,
reinsurance may be more difficult or costly to obtain after a year with a large number of major catastrophes. We may, at certain times,
be forced to incur additional costs for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms. In the latter
case, we would have to accept an increase in exposure to risk, reduce the amount of business written by our subsidiaries or seek
alternatives in line with our risk limits.
Additionally, we are exposed to credit risk with respect to our subsidiaries reinsurers to the extent the reinsurance receivable is not
secured by collateral or does not benefit from other credit enhancements. We also bear the risk that a reinsurer may be unwilling to
pay amounts we have recorded as reinsurance recoverable for any reason, including that (i) the terms of the reinsurance contract do
not reflect the intent of the parties of the contract or there is a disagreement between the parties as to their intent, (ii) the terms of the
contract cannot be legally enforced, (iii) the terms of the contract are interpreted by a court or arbitration panel differently than
intended, (iv) the reinsurance transaction performs differently than we anticipated due to a flawed design of the reinsurance structure,
terms or conditions, or (v) a change in laws and regulations, or in the interpretation of the laws and regulations, materially impacts a
reinsurance transaction. The insolvency of one or more of our reinsurers, or inability or unwillingness to make timely payments under
the terms of our contracts, could have a material adverse effect on our results of operations and liquidity.
Additionally, the use of reinsurance placed in the capital markets, may not provide the same levels of protection as traditional
reinsurance transactions. Any disruption, volatility and uncertainty in these markets, such as following a major catastrophic event, may
limit our ability to access such markets on terms favorable to us or at all. Also, to the extent that we intend to use structures based on
an industry loss index or other non-indemnity trigger rather than on actual losses incurred by us, we could be subject to residual risk.
We currently have limited reinsurance coverage for terrorist attacks. Further, the availability of private sector reinsurance for terrorism
is limited. We rely heavily on the Terrorism Risk Insurance Program (TRIP), which provides U.S. government risk assistance to the
insurance industry to manage the exposure to terrorism incidents in the U.S. TRIP was reauthorized in January 2015 and is
scheduled to expire on December 31, 2020. Under TRIP, once our losses for certain acts of terrorism exceed a deductible equal to 20
percent of our commercial property and casualty insurance premiums for covered lines for the prior calendar year, the federal
government will reimburse us for losses in excess of our deductible, starting at 85 percent of losses in 2015 (83 percent in 2017), and
reducing by one percentage point each year, ending at 80 percent in 2020, up to a total industry program limit of $100 billion. TRIP
does not cover losses in certain lines of business such as consumer property and consumer casualty. We also rely on the government
sponsored and government arranged terrorism reinsurance programs, including pools, in force in applicable non-U.S. jurisdictions.
For additional information on our reinsurance recoverable, see Item 7. MD&A Enterprise Risk Management Insurance Risks
Reinsurance Activities Reinsurance Recoverable.
Interest rate fluctuations, increased lapses and surrenders, declining investment returns and other events may require our
subsidiaries to accelerate the amortization of deferred policy acquisition costs (DAC) and record additional liabilities for
future policy benefits. We incur significant costs in connection with acquiring new and renewal insurance business. DAC represents
deferred costs that are incremental and directly related to the successful acquisition of new business or renewal of existing business.
The recovery of these costs is generally dependent upon the future profitability of the related business, but DAC amortization varies
based on the type of contract. For long-duration traditional business, DAC is generally amortized in proportion to premium revenue
and varies with lapse experience. Actual lapses in excess of expectations can result in an acceleration of DAC amortization.
DAC for investment-oriented products is generally amortized in proportion to estimated gross profits. Estimated gross profits are
affected by a number of assumptions, including current and expected interest rates, net investment income and spreads, net realized
capital gains and losses, fees, surrender rates, mortality experience and equity market returns and volatility.
estimated gross profits are less than originally expected, then the amortization of these costs would be accelerated in the period the
actual experience is known and would result in a charge to income. For example, if interest rates rise rapidly and significantly,
customers with policies that have interest crediting rates below the current market may seek competing products with higher returns
If actual and/or future
18
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
19
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
and we may experience an increase in surrenders and withdrawals of life and annuity contracts, resulting in a decrease in future
profitability and an acceleration of the amortization of DAC.
We also periodically review products for potential loss recognition events, principally insurance-oriented products. This review
involves estimating the future profitability of in-force business and requires significant management judgment about assumptions
including mortality, morbidity, persistency, maintenance expenses, and investment returns, including net realized capital gains
(losses). If actual experience or estimates result in projected future losses, we may be required to amortize any remaining DAC and
record additional liabilities through a charge to policyholder benefit expense, which could negatively affect our results of operations.
For further discussion of DAC and future policy benefits, see Item 7. MD&A Critical Accounting Estimates and Notes 9 and 13 to
the Consolidated Financial Statements.
Our valuation of investment securities may include methodologies, estimations and assumptions that are subject to
differing interpretations and could result in changes to investment valuations that may materially adversely affect our
results of operations, financial condition and liquidity. During periods of market disruption, it may be difficult to value certain of
our investment securities if trading becomes less frequent and/or market data becomes less observable. There may be cases where
certain assets in normally active markets with significant observable data become inactive with insufficient observable data due to the
financial environment or market conditions in effect at that time. As a result, valuations may include inputs and assumptions that are
less observable or require greater estimation and judgment as well as valuation methods that are more complex. These values may
not be realized in a market transaction, may not reflect the value of the asset and may change very rapidly as market conditions
change and valuation assumptions are modified. Decreases in value and/or an inability to realize that value in a market transaction or
secured lending transaction may have a material adverse effect on our results of operations, financial condition and liquidity.
INVESTMENT PORTFOLIO, CONCENTRATION OF INVESTMENTS, INSURANCE AND OTHER
EXPOSURES
The performance and value of our investment portfolio are subject to a number of risks and uncertainties, including
changes in interest rates. Our investment securities are subject to market risks and uncertainties. In particular, interest rates are
highly sensitive to many factors, including monetary and fiscal policy, domestic and international economic and political issues and
other factors beyond our control. Changes in monetary policy or other factors may cause interest rate volatility, which would adversely
affect the value of the fixed income securities that we hold and could adversely affect our ability to sell these securities. In addition,
the evaluation of available-for-sale securities for other-than-temporary impairments, which may occur if interest rates rise, is a
quantitative and qualitative process that is subject to significant management judgment.
For a sensitivity analysis of our exposure to certain market risk factors see Item 7. MD&A Enterprise Risk Management Market
Risk Management.
Additionally, on July 27, 2017, the UK Financial Conduct Authority announced that it will no longer persuade or compel banks to
submit rates for the calculation of the LIBOR rates after 2021, which is expected to result in these widely used reference rates no
longer being available. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative
reference rates or any other reforms to LIBOR that may be enacted in the UK or elsewhere. Uncertainty as to the nature of such
potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based securities,
including those held in our investment portfolio.
For discussion regarding changes to LIBOR rates, see Changes in the method for determining LIBOR and the potential replacement
of LIBOR may affect our cost of capital and net investment income below.
Furthermore, our alternative investment portfolio includes investments for which changes in fair value are reported through operating
income and are therefore subject to significant volatility.
income due to decreases in the fair value of alternative investments could have a material adverse effect on operating income.
In an economic downturn or declining market, the reduction in our investment
Our investment portfolio is concentrated in certain segments of the economy. Our results of operations and financial condition
have in the past been, and may in the future be, adversely affected by the degree of concentration in our investment portfolio. We
have significant exposure in real estate and real estate-related securities, including residential mortgage-backed, commercial
mortgage-backed and other asset-backed securities and commercial mortgage loans. We also have significant exposures to financial
institutions and, in particular, to money center and global banks; certain industries, such as energy and utilities; U.S. state and local
government issuers and authorities; and Euro-Zone financial institutions, governments and corporations. Events or developments that
have a negative effect on any particular industry, asset class, group of related industries or geographic region may adversely affect
our investments to the extent they are concentrated in such segments. Our ability to sell assets concentrated in such segments may
be limited.
Concentration of our insurance and other risk exposures may have adverse effects. We may be exposed to risks as a result of
concentrations in our insurance policies, derivatives and other obligations that we undertake for customers and counterparties. We
manage these concentration risks by monitoring the accumulation of our exposures to factors such as exposure type, industry,
geographic region, counterparty and other factors. We also seek to use reinsurance, hedging and other arrangements to limit or offset
exposures that exceed the limits we wish to retain. In certain circumstances, however, these risk management arrangements may not
be available on acceptable terms or may prove to be ineffective for certain exposures. Also, our exposure for certain single risk
coverages and other coverages may be so large that adverse experience compared to our expectations may have a material adverse
effect on our consolidated results of operations or result in additional statutory capital requirements for our subsidiaries.
Also see Item 7. MD&A Business Segment Operations General Insurance Business Strategy and Outlook Industry and
Economic Factors.
LIQUIDITY, CAPITAL AND CREDIT
AIG Parents ability to access funds from our subsidiaries is limited. As a holding company, AIG Parent depends on dividends,
distributions and other payments from its subsidiaries to fund dividends on AIG Common Stock, to fund repurchases of AIG Common
Stock, warrants and debt obligations and to make payments due on its obligations, including its outstanding debt. The majority of our
investments are held by our regulated subsidiaries. Our subsidiaries may be limited in their ability to make dividend payments or other
distributions to AIG Parent in the future because of the need to support their own capital levels or because of regulatory limits or rating
agency requirements. The inability of our subsidiaries to make payments, dividends or other distributions in an amount sufficient to
enable AIG Parent to meet its cash requirements could have an adverse effect on our operations, and on our ability to pay dividends,
repurchase AIG Common Stock, warrants and debt obligations or to meet our debt service obligations.
Our internal sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by
our subsidiaries. We need liquidity to pay our operating expenses, interest on our debt, maturing debt obligations and to meet
capital needs of our subsidiaries. If our liquidity is insufficient to meet our needs, we may at the time need to have recourse to third-
party financing, external capital markets or other sources of liquidity, which may not be available or could be prohibitively expensive.
The availability and cost of any additional financing at any given time depends on a variety of factors, including general market
conditions, the volume of trading activities, the overall availability of credit, regulatory actions and our credit ratings and credit
capacity. It is also possible that, as a result of such recourse to external financing, customers, lenders or investors could develop a
negative perception of our long- or short-term financial prospects. Disruptions, volatility and uncertainty in the financial markets, and
downgrades in our credit ratings, may limit our ability to access external capital markets at times and on terms favorable to us to meet
our capital and liquidity needs or prevent our accessing the external capital markets or other financing sources.
For a further discussion of our liquidity, see Item 7. MD&A Liquidity and Capital Resources.
AIG Parents ability to support our subsidiaries is limited. AIG Parent has in the past and expects to continue to provide capital to
our subsidiaries as necessary to maintain regulatory capital ratios, comply with rating agency requirements and meet unexpected
cash flow obligations.
subsidiary insurers financial strength ratings or the subsidiary could become insolvent or, in certain cases, could be seized by its
regulator.
If AIG Parent is unable to satisfy a capital need of a subsidiary, the credit rating agencies could downgrade the
For further discussion of rating agency requirements, see A downgrade in the Insurer Financial Strength ratings of our insurance
companies could limit their ability to write or prevent them from writing new business and retaining customers and business below.
Our subsidiaries may not be able to generate cash to meet their needs due to the illiquidity of some of their investments.
Our subsidiaries have investments in certain securities that may be illiquid, including certain fixed income securities and certain
structured securities, private company securities, investments in private equity funds and hedge funds, mortgage loans, finance
receivables and real estate. Collectively, investments in these assets had a fair value of $58 billion at December 31, 2017. Adverse
real estate and capital markets, and wider credit spreads, have in the past, and may in the future, materially adversely affect the
liquidity of our other securities portfolios, including our residential and commercial mortgage-related securities portfolios. In the event
additional liquidity is required by one or more of our subsidiaries and AIG Parent is unable to provide it, it may be difficult for these
subsidiaries to generate additional liquidity by selling, pledging or otherwise monetizing these less liquid investments.
A downgrade in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or prevent
them from writing new business and retaining customers and business. Insurer Financial Strength (IFS) ratings are an important
factor in establishing the competitive position of insurance companies. IFS ratings measure an insurance companys ability to meet its
obligations to contract holders and policyholders. High ratings help maintain public confidence in a companys products, facilitate
marketing of products and enhance its competitive position. Downgrades of the IFS ratings of our insurance companies could prevent
these companies from selling, or make it more difficult for them to succeed in selling, products and services, or result in increased
policy cancellations, lapses and surrenders, termination of assumed reinsurance contracts, or return of premiums. Under credit rating
20
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
21
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
and we may experience an increase in surrenders and withdrawals of life and annuity contracts, resulting in a decrease in future
profitability and an acceleration of the amortization of DAC.
We also periodically review products for potential loss recognition events, principally insurance-oriented products. This review
involves estimating the future profitability of in-force business and requires significant management judgment about assumptions
including mortality, morbidity, persistency, maintenance expenses, and investment returns, including net realized capital gains
(losses). If actual experience or estimates result in projected future losses, we may be required to amortize any remaining DAC and
record additional liabilities through a charge to policyholder benefit expense, which could negatively affect our results of operations.
For further discussion of DAC and future policy benefits, see Item 7. MD&A Critical Accounting Estimates and Notes 9 and 13 to
the Consolidated Financial Statements.
Our valuation of investment securities may include methodologies, estimations and assumptions that are subject to
differing interpretations and could result in changes to investment valuations that may materially adversely affect our
results of operations, financial condition and liquidity. During periods of market disruption, it may be difficult to value certain of
our investment securities if trading becomes less frequent and/or market data becomes less observable. There may be cases where
certain assets in normally active markets with significant observable data become inactive with insufficient observable data due to the
financial environment or market conditions in effect at that time. As a result, valuations may include inputs and assumptions that are
less observable or require greater estimation and judgment as well as valuation methods that are more complex. These values may
not be realized in a market transaction, may not reflect the value of the asset and may change very rapidly as market conditions
change and valuation assumptions are modified. Decreases in value and/or an inability to realize that value in a market transaction or
secured lending transaction may have a material adverse effect on our results of operations, financial condition and liquidity.
INVESTMENT PORTFOLIO, CONCENTRATION OF INVESTMENTS, INSURANCE AND OTHER
LIQUIDITY, CAPITAL AND CREDIT
EXPOSURES
The performance and value of our investment portfolio are subject to a number of risks and uncertainties, including
changes in interest rates. Our investment securities are subject to market risks and uncertainties. In particular, interest rates are
highly sensitive to many factors, including monetary and fiscal policy, domestic and international economic and political issues and
other factors beyond our control. Changes in monetary policy or other factors may cause interest rate volatility, which would adversely
affect the value of the fixed income securities that we hold and could adversely affect our ability to sell these securities. In addition,
the evaluation of available-for-sale securities for other-than-temporary impairments, which may occur if interest rates rise, is a
quantitative and qualitative process that is subject to significant management judgment.
For a sensitivity analysis of our exposure to certain market risk factors see Item 7. MD&A Enterprise Risk Management Market
Risk Management.
Additionally, on July 27, 2017, the UK Financial Conduct Authority announced that it will no longer persuade or compel banks to
submit rates for the calculation of the LIBOR rates after 2021, which is expected to result in these widely used reference rates no
longer being available. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative
reference rates or any other reforms to LIBOR that may be enacted in the UK or elsewhere. Uncertainty as to the nature of such
potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based securities,
including those held in our investment portfolio.
For discussion regarding changes to LIBOR rates, see Changes in the method for determining LIBOR and the potential replacement
of LIBOR may affect our cost of capital and net investment income below.
Furthermore, our alternative investment portfolio includes investments for which changes in fair value are reported through operating
income and are therefore subject to significant volatility.
In an economic downturn or declining market, the reduction in our investment
income due to decreases in the fair value of alternative investments could have a material adverse effect on operating income.
Our investment portfolio is concentrated in certain segments of the economy. Our results of operations and financial condition
have in the past been, and may in the future be, adversely affected by the degree of concentration in our investment portfolio. We
have significant exposure in real estate and real estate-related securities, including residential mortgage-backed, commercial
mortgage-backed and other asset-backed securities and commercial mortgage loans. We also have significant exposures to financial
institutions and, in particular, to money center and global banks; certain industries, such as energy and utilities; U.S. state and local
government issuers and authorities; and Euro-Zone financial institutions, governments and corporations. Events or developments that
have a negative effect on any particular industry, asset class, group of related industries or geographic region may adversely affect
our investments to the extent they are concentrated in such segments. Our ability to sell assets concentrated in such segments may
be limited.
Concentration of our insurance and other risk exposures may have adverse effects. We may be exposed to risks as a result of
concentrations in our insurance policies, derivatives and other obligations that we undertake for customers and counterparties. We
manage these concentration risks by monitoring the accumulation of our exposures to factors such as exposure type, industry,
geographic region, counterparty and other factors. We also seek to use reinsurance, hedging and other arrangements to limit or offset
exposures that exceed the limits we wish to retain. In certain circumstances, however, these risk management arrangements may not
be available on acceptable terms or may prove to be ineffective for certain exposures. Also, our exposure for certain single risk
coverages and other coverages may be so large that adverse experience compared to our expectations may have a material adverse
effect on our consolidated results of operations or result in additional statutory capital requirements for our subsidiaries.
Also see Item 7. MD&A Business Segment Operations General Insurance Business Strategy and Outlook Industry and
Economic Factors.
20
AIG | 2017 Form 10-K
AIG Parents ability to access funds from our subsidiaries is limited. As a holding company, AIG Parent depends on dividends,
distributions and other payments from its subsidiaries to fund dividends on AIG Common Stock, to fund repurchases of AIG Common
Stock, warrants and debt obligations and to make payments due on its obligations, including its outstanding debt. The majority of our
investments are held by our regulated subsidiaries. Our subsidiaries may be limited in their ability to make dividend payments or other
distributions to AIG Parent in the future because of the need to support their own capital levels or because of regulatory limits or rating
agency requirements. The inability of our subsidiaries to make payments, dividends or other distributions in an amount sufficient to
enable AIG Parent to meet its cash requirements could have an adverse effect on our operations, and on our ability to pay dividends,
repurchase AIG Common Stock, warrants and debt obligations or to meet our debt service obligations.
Our internal sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by
our subsidiaries. We need liquidity to pay our operating expenses, interest on our debt, maturing debt obligations and to meet
capital needs of our subsidiaries. If our liquidity is insufficient to meet our needs, we may at the time need to have recourse to third-
party financing, external capital markets or other sources of liquidity, which may not be available or could be prohibitively expensive.
The availability and cost of any additional financing at any given time depends on a variety of factors, including general market
conditions, the volume of trading activities, the overall availability of credit, regulatory actions and our credit ratings and credit
capacity. It is also possible that, as a result of such recourse to external financing, customers, lenders or investors could develop a
negative perception of our long- or short-term financial prospects. Disruptions, volatility and uncertainty in the financial markets, and
downgrades in our credit ratings, may limit our ability to access external capital markets at times and on terms favorable to us to meet
our capital and liquidity needs or prevent our accessing the external capital markets or other financing sources.
For a further discussion of our liquidity, see Item 7. MD&A Liquidity and Capital Resources.
AIG Parents ability to support our subsidiaries is limited. AIG Parent has in the past and expects to continue to provide capital to
our subsidiaries as necessary to maintain regulatory capital ratios, comply with rating agency requirements and meet unexpected
cash flow obligations.
subsidiary insurers financial strength ratings or the subsidiary could become insolvent or, in certain cases, could be seized by its
regulator.
If AIG Parent is unable to satisfy a capital need of a subsidiary, the credit rating agencies could downgrade the
For further discussion of rating agency requirements, see A downgrade in the Insurer Financial Strength ratings of our insurance
companies could limit their ability to write or prevent them from writing new business and retaining customers and business below.
Our subsidiaries may not be able to generate cash to meet their needs due to the illiquidity of some of their investments.
Our subsidiaries have investments in certain securities that may be illiquid, including certain fixed income securities and certain
structured securities, private company securities, investments in private equity funds and hedge funds, mortgage loans, finance
receivables and real estate. Collectively, investments in these assets had a fair value of $58 billion at December 31, 2017. Adverse
real estate and capital markets, and wider credit spreads, have in the past, and may in the future, materially adversely affect the
liquidity of our other securities portfolios, including our residential and commercial mortgage-related securities portfolios. In the event
additional liquidity is required by one or more of our subsidiaries and AIG Parent is unable to provide it, it may be difficult for these
subsidiaries to generate additional liquidity by selling, pledging or otherwise monetizing these less liquid investments.
A downgrade in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or prevent
them from writing new business and retaining customers and business. Insurer Financial Strength (IFS) ratings are an important
factor in establishing the competitive position of insurance companies. IFS ratings measure an insurance companys ability to meet its
obligations to contract holders and policyholders. High ratings help maintain public confidence in a companys products, facilitate
marketing of products and enhance its competitive position. Downgrades of the IFS ratings of our insurance companies could prevent
these companies from selling, or make it more difficult for them to succeed in selling, products and services, or result in increased
policy cancellations, lapses and surrenders, termination of assumed reinsurance contracts, or return of premiums. Under credit rating
AIG | 2017 Form 10-K
21
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
agency policies concerning the relationship between parent and subsidiary ratings, a downgrade in AIG Parents credit ratings could
result in a downgrade of the IFS ratings of our insurance subsidiaries. Certain rating agencies negatively revised the outlook for our
IFS ratings in early 2017, primarily as a result of our reserve strengthening in the fourth quarter of 2016 and related concerns
regarding our profitability outlook. We cannot predict what actions rating agencies may take, or what actions we may take in response
to the actions of rating agencies, which could adversely affect our business.
A downgrade in our credit ratings could adversely affect our business, our results of operations or our liquidity. Credit
ratings estimate a companys ability to meet its obligations. A downgrade of our long-term debt ratings by the major rating agencies
could potentially increase our financing costs and limit the availability of financing. A downgrade would also require us to post
additional collateral payments related to derivative transactions to which we are a party, and could permit the termination of these
derivative transactions. This could adversely affect our business, our consolidated results of operations in a reporting period and/or
our liquidity. Certain rating agencies negatively revised our credit ratings and ratings outlooks in early 2017, primarily as a result of our
reserve strengthening in the fourth quarter of 2016 and related concerns regarding our profitability outlook. We cannot predict what
actions rating agencies may take, or what actions we may take in response to the actions of rating agencies, which could adversely
affect our business.
Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net
investment income. As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers Association
(BBA) member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged
manipulation of LIBOR. Actions by the BBA, regulators or law enforcement agencies as a result of these or future events may result
in changes to the manner in which LIBOR is determined.
Potential changes or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities.
addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease
in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our investment
portfolio.
In
BUSINESS AND OPERATIONS
Our restructuring initiatives may not yield our expected reductions in expenses and improvements in operational and
organizational efficiency. We may not be able to fully realize the anticipated expense reductions and operational and organizational
efficiency improvements we expect to result from our restructuring initiatives, including the reorganization of AIG into General
Insurance and Life and Retirement segments. Actual costs to implement these initiatives may exceed our estimates or we may be
unable to fully implement and execute these initiatives as planned. The implementation of these initiatives may harm our relationships
with customers or employees or our competitive position. Our businesses and results of operations may be negatively impacted if we
are unable to realize these anticipated expense reductions and efficiency improvements or if implementing these initiatives harms our
relationships with customers or employees or our competitive position. The successful implementation of these initiatives may
continue to require us to effect workforce reductions, business rationalizations, systems enhancements, business process
outsourcing, business and asset dispositions and acquisitions and other actions, which depend on a number of factors, some of which
are beyond our control.
Pricing for our products is subject to our ability to adequately assess risks and estimate losses. We seek to price our
insurance products such that insurance premiums, policy fees and charges, and future net investment income earned on revenues
received will result in an acceptable profit in excess of expenses and the cost of paying claims. Our business is dependent on our
ability to price our products effectively and charge appropriate premiums. Pricing adequacy depends on a number of factors and
assumptions, including proper evaluation of insurance risks, our expense levels, net investment income realized, our response to rate
actions taken by competitors, legal and regulatory developments and the ability to obtain regulatory approval for rate changes. Some
life insurance business has the ability to adjust certain nonguaranteed charges or benefits if necessary; however, this right is limited
and may be subject to guaranteed minimums and/or maximums. Inadequate pricing could have a material adverse effect on our
results of operations and financial condition.
Guarantees within certain of our products may increase the volatility of our results. Certain of our variable annuity and life
insurance products include features that guarantee a certain level of benefits, including guaranteed minimum death benefits (GMDB),
guaranteed minimum withdrawal benefits (GMWB), and products with guaranteed interest crediting rates tied to an index.
For a discussion of market risk management related to these product features see Item 7. MD&A Enterprise Risk Management
Insurance Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Programs.
Differences between the change in fair value of the embedded derivatives associated with some of these guarantees and the related
hedging portfolio can be caused by extreme and unanticipated movements in the equity markets, interest rates and market volatility,
policyholder behavior that differs from our assumptions and our inability to purchase hedging instruments at prices consistent with the
desired risk and return trade-off. The occurrence of one or more of these events could result in an increase in the liabilities
associated with the guaranteed benefits, reducing our net income and shareholders equity. While we believe that our actions have
reduced the risks related to guaranteed benefits and guaranteed interest crediting, our exposure may not be fully hedged.
For more information regarding these products see Notes 5 and 14 to the Consolidated Financial Statements, Item 1. Business
Regulation, and Item 7. MD&A Critical Accounting Estimates Insurance Liabilities Guaranteed Benefit Features of Variable
Annuity Products.
Our foreign operations expose us to risks that may affect our operations. We provide insurance, investment and other financial
products and services to both businesses and individuals in more than 80 countries and jurisdictions. A substantial portion of our
business is conducted outside the U.S., and we intend to continue to grow business in strategic markets. Operations outside the U.S.
may be affected by regional economic downturns, changes in foreign currency exchange rates, political events or upheaval,
nationalization and other restrictive government actions, which could also affect our other operations.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign jurisdictions must satisfy
local regulatory requirements and it is possible that local licenses may require AIG Parent to meet certain conditions. Licenses issued
by foreign authorities to our subsidiaries are subject to modification and revocation. Consequently, our insurance subsidiaries could
be prevented from conducting future business in some of the jurisdictions where they currently operate. Adverse actions from any
single country could adversely affect our results of operations, depending on the magnitude of the event and our financial exposure at
that time in that country.
On June 23, 2016, the United Kingdom (UK) held a referendum in which a majority voted for the UK to withdraw its membership in the
European Union (EU), commonly referred to as Brexit. The terms of withdrawal are subject to a formal two-year negotiation period
that was initiated on March 29, 2017 by invoking Article 50 of the Treaty on European Union. It is not clear at this stage (and may not
be for some time) what form the UKs future relationship with the remaining EU member states will take. We have significant
operations and employees in the UK and other EU member states, including AIG Europe Ltd., which enjoys certain benefits based on
the UKs membership in the EU. In order to adapt to Brexit, we intend to reorganize our operations and legal entity structure in the UK
and the EU through the establishment of a new European subsidiary in Luxembourg. Such a reorganization will have various costs
associated with it, such as notifications to policyholders, and may involve the replication of certain resources currently in place in the
UK. The reorganization is expected to be completed in the fourth quarter of 2018, subject to regulatory and court approvals. There
can be no assurance that future regulatory, tax or other developments will not affect this reorganization and change our plans. Brexit
has also affected the U.S. dollar/British pound exchange rate, increased the volatility of exchange rates among the euro, British pound
and the Japanese yen, and created volatility in the financial markets. It is possible that the uncertainty around the outcome of the
negotiations between the UK and the EU will lead to further turbulence in the financial markets, which may affect the value of our
investments.
We may experience difficulty in marketing and distributing products through our current and future distribution channels.
Although we distribute our products through a wide variety of distribution channels, we maintain relationships with certain key
distributors. Distributors have in the past, and may in the future, elect to renegotiate the terms of existing relationships, or reduce or
terminate their distribution relationships with us, including for such reasons as industry consolidation of distributors or other industry
changes that increase the competition for access to distributors, developments in legislation or regulation that affect our business,
adverse developments in our business, adverse rating agency actions or concerns about market-related risks. An interruption in
certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our
businesses, operating results and financial condition.
In addition, when our products are distributed through unaffiliated firms, we may not be able to monitor or control the manner of their
distribution, despite our training and compliance programs. If our products are distributed to customers for whom they are unsuitable
or distributed in any other inappropriate manner, we may suffer reputational and other harm to our business.
In our insurance and reinsurance operations, we frequently engage in litigation and arbitration concerning the
Significant legal proceedings may adversely affect our results of operations or financial condition. Like others in the
insurance and financial services industries in general, in the ordinary course of operating our businesses we face significant risk from
regulatory and governmental investigations and civil actions, litigation and other forms of dispute resolution in various domestic and
foreign jurisdictions.
scope of coverage under insurance and reinsurance contracts, and face litigation and arbitration in which our subsidiaries defend or
indemnify their insureds under insurance contracts. AIG, our subsidiaries and their respective officers and directors are also subject
to a variety of additional types of legal disputes brought by holders of AIG securities, customers, employees and others, alleging,
among other things, breach of contractual or fiduciary duties, bad faith and violations of federal and state statutes and regulations.
Certain of these matters involve potentially significant risk of loss due to the possibility of significant jury awards and settlements,
punitive damages or other penalties. Many of these matters are also highly complex and seek recovery on behalf of a class or
similarly large number of plaintiffs.
It is therefore inherently difficult to predict the size or scope of potential future losses arising from
22
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
23
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
agency policies concerning the relationship between parent and subsidiary ratings, a downgrade in AIG Parents credit ratings could
result in a downgrade of the IFS ratings of our insurance subsidiaries. Certain rating agencies negatively revised the outlook for our
IFS ratings in early 2017, primarily as a result of our reserve strengthening in the fourth quarter of 2016 and related concerns
regarding our profitability outlook. We cannot predict what actions rating agencies may take, or what actions we may take in response
to the actions of rating agencies, which could adversely affect our business.
A downgrade in our credit ratings could adversely affect our business, our results of operations or our liquidity. Credit
ratings estimate a companys ability to meet its obligations. A downgrade of our long-term debt ratings by the major rating agencies
could potentially increase our financing costs and limit the availability of financing. A downgrade would also require us to post
additional collateral payments related to derivative transactions to which we are a party, and could permit the termination of these
derivative transactions. This could adversely affect our business, our consolidated results of operations in a reporting period and/or
our liquidity. Certain rating agencies negatively revised our credit ratings and ratings outlooks in early 2017, primarily as a result of our
reserve strengthening in the fourth quarter of 2016 and related concerns regarding our profitability outlook. We cannot predict what
actions rating agencies may take, or what actions we may take in response to the actions of rating agencies, which could adversely
affect our business.
Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net
investment income. As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers Association
(BBA) member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged
manipulation of LIBOR. Actions by the BBA, regulators or law enforcement agencies as a result of these or future events may result
in changes to the manner in which LIBOR is determined.
Potential changes or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities.
In
addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease
in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our investment
portfolio.
BUSINESS AND OPERATIONS
Our restructuring initiatives may not yield our expected reductions in expenses and improvements in operational and
organizational efficiency. We may not be able to fully realize the anticipated expense reductions and operational and organizational
efficiency improvements we expect to result from our restructuring initiatives, including the reorganization of AIG into General
Insurance and Life and Retirement segments. Actual costs to implement these initiatives may exceed our estimates or we may be
unable to fully implement and execute these initiatives as planned. The implementation of these initiatives may harm our relationships
with customers or employees or our competitive position. Our businesses and results of operations may be negatively impacted if we
are unable to realize these anticipated expense reductions and efficiency improvements or if implementing these initiatives harms our
relationships with customers or employees or our competitive position. The successful implementation of these initiatives may
continue to require us to effect workforce reductions, business rationalizations, systems enhancements, business process
outsourcing, business and asset dispositions and acquisitions and other actions, which depend on a number of factors, some of which
are beyond our control.
Pricing for our products is subject to our ability to adequately assess risks and estimate losses. We seek to price our
insurance products such that insurance premiums, policy fees and charges, and future net investment income earned on revenues
received will result in an acceptable profit in excess of expenses and the cost of paying claims. Our business is dependent on our
ability to price our products effectively and charge appropriate premiums. Pricing adequacy depends on a number of factors and
assumptions, including proper evaluation of insurance risks, our expense levels, net investment income realized, our response to rate
actions taken by competitors, legal and regulatory developments and the ability to obtain regulatory approval for rate changes. Some
life insurance business has the ability to adjust certain nonguaranteed charges or benefits if necessary; however, this right is limited
and may be subject to guaranteed minimums and/or maximums. Inadequate pricing could have a material adverse effect on our
results of operations and financial condition.
Guarantees within certain of our products may increase the volatility of our results. Certain of our variable annuity and life
insurance products include features that guarantee a certain level of benefits, including guaranteed minimum death benefits (GMDB),
guaranteed minimum withdrawal benefits (GMWB), and products with guaranteed interest crediting rates tied to an index.
For a discussion of market risk management related to these product features see Item 7. MD&A Enterprise Risk Management
Insurance Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Programs.
Differences between the change in fair value of the embedded derivatives associated with some of these guarantees and the related
hedging portfolio can be caused by extreme and unanticipated movements in the equity markets, interest rates and market volatility,
policyholder behavior that differs from our assumptions and our inability to purchase hedging instruments at prices consistent with the
desired risk and return trade-off. The occurrence of one or more of these events could result in an increase in the liabilities
associated with the guaranteed benefits, reducing our net income and shareholders equity. While we believe that our actions have
reduced the risks related to guaranteed benefits and guaranteed interest crediting, our exposure may not be fully hedged.
For more information regarding these products see Notes 5 and 14 to the Consolidated Financial Statements, Item 1. Business
Regulation, and Item 7. MD&A Critical Accounting Estimates Insurance Liabilities Guaranteed Benefit Features of Variable
Annuity Products.
Our foreign operations expose us to risks that may affect our operations. We provide insurance, investment and other financial
products and services to both businesses and individuals in more than 80 countries and jurisdictions. A substantial portion of our
business is conducted outside the U.S., and we intend to continue to grow business in strategic markets. Operations outside the U.S.
may be affected by regional economic downturns, changes in foreign currency exchange rates, political events or upheaval,
nationalization and other restrictive government actions, which could also affect our other operations.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign jurisdictions must satisfy
local regulatory requirements and it is possible that local licenses may require AIG Parent to meet certain conditions. Licenses issued
by foreign authorities to our subsidiaries are subject to modification and revocation. Consequently, our insurance subsidiaries could
be prevented from conducting future business in some of the jurisdictions where they currently operate. Adverse actions from any
single country could adversely affect our results of operations, depending on the magnitude of the event and our financial exposure at
that time in that country.
On June 23, 2016, the United Kingdom (UK) held a referendum in which a majority voted for the UK to withdraw its membership in the
European Union (EU), commonly referred to as Brexit. The terms of withdrawal are subject to a formal two-year negotiation period
that was initiated on March 29, 2017 by invoking Article 50 of the Treaty on European Union. It is not clear at this stage (and may not
be for some time) what form the UKs future relationship with the remaining EU member states will take. We have significant
operations and employees in the UK and other EU member states, including AIG Europe Ltd., which enjoys certain benefits based on
the UKs membership in the EU. In order to adapt to Brexit, we intend to reorganize our operations and legal entity structure in the UK
and the EU through the establishment of a new European subsidiary in Luxembourg. Such a reorganization will have various costs
associated with it, such as notifications to policyholders, and may involve the replication of certain resources currently in place in the
UK. The reorganization is expected to be completed in the fourth quarter of 2018, subject to regulatory and court approvals. There
can be no assurance that future regulatory, tax or other developments will not affect this reorganization and change our plans. Brexit
has also affected the U.S. dollar/British pound exchange rate, increased the volatility of exchange rates among the euro, British pound
and the Japanese yen, and created volatility in the financial markets. It is possible that the uncertainty around the outcome of the
negotiations between the UK and the EU will lead to further turbulence in the financial markets, which may affect the value of our
investments.
We may experience difficulty in marketing and distributing products through our current and future distribution channels.
Although we distribute our products through a wide variety of distribution channels, we maintain relationships with certain key
distributors. Distributors have in the past, and may in the future, elect to renegotiate the terms of existing relationships, or reduce or
terminate their distribution relationships with us, including for such reasons as industry consolidation of distributors or other industry
changes that increase the competition for access to distributors, developments in legislation or regulation that affect our business,
adverse developments in our business, adverse rating agency actions or concerns about market-related risks. An interruption in
certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our
businesses, operating results and financial condition.
In addition, when our products are distributed through unaffiliated firms, we may not be able to monitor or control the manner of their
distribution, despite our training and compliance programs. If our products are distributed to customers for whom they are unsuitable
or distributed in any other inappropriate manner, we may suffer reputational and other harm to our business.
Significant legal proceedings may adversely affect our results of operations or financial condition. Like others in the
insurance and financial services industries in general, in the ordinary course of operating our businesses we face significant risk from
regulatory and governmental investigations and civil actions, litigation and other forms of dispute resolution in various domestic and
foreign jurisdictions.
In our insurance and reinsurance operations, we frequently engage in litigation and arbitration concerning the
scope of coverage under insurance and reinsurance contracts, and face litigation and arbitration in which our subsidiaries defend or
indemnify their insureds under insurance contracts. AIG, our subsidiaries and their respective officers and directors are also subject
to a variety of additional types of legal disputes brought by holders of AIG securities, customers, employees and others, alleging,
among other things, breach of contractual or fiduciary duties, bad faith and violations of federal and state statutes and regulations.
Certain of these matters involve potentially significant risk of loss due to the possibility of significant jury awards and settlements,
punitive damages or other penalties. Many of these matters are also highly complex and seek recovery on behalf of a class or
similarly large number of plaintiffs.
It is therefore inherently difficult to predict the size or scope of potential future losses arising from
22
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
23
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
them, and developments in these matters could have a material adverse effect on our consolidated financial condition or consolidated
results of operations for an individual reporting period.
For a discussion of certain legal proceedings, including certain tax controversies, see Notes 16 and 23 to the Consolidated Financial
Statements.
If we are unable to maintain the availability of our electronic data systems and safeguard the security of our data, our ability
to conduct business may be compromised, which could adversely affect our consolidated financial condition or results of
operations. We use computer systems to store, retrieve, evaluate and use customer, employee, and company data and information.
Some of these systems, in turn, rely upon third-party systems. Our business is highly dependent on our ability to access these
systems to perform necessary business functions. These functions include providing insurance quotes, processing premium
payments, making changes to existing policies, filing and paying claims, administering variable annuity products and mutual funds,
providing customer support, executing transactions and managing our investment portfolios. Systems failures or outages could
compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business and hurt our
relationships with our business partners and customers. In the event of a natural disaster, a computer virus, unauthorized access, a
terrorist attack, cyberattack or other disruption inside or outside the U.S., our systems may be inaccessible to our employees,
customers or business partners for an extended period of time, and our employees may be unable to perform their duties for an
extended period of time if our data or systems are disabled or destroyed. Our systems have in the past been, and may in the future
be, subject to unauthorized access, such as physical or electronic break-ins or unauthorized tampering. Like other global companies,
we are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information
technology networks and infrastructure to prevent, detect, address and mitigate the risk of threats to our data and systems, including
malware and computer virus attacks, ransomware, unauthorized access, misuse, denial-of-service attacks, system failures and
disruptions. There is no assurance that our security measures, including information security policies, will provide fully effective
protection from such events. AIG maintains cyber risk insurance, but this insurance may not cover all costs associated with the
consequences of personal, confidential or proprietary information being compromised. In some cases, such unauthorized access may
not be immediately detected. This may impede or interrupt our business operations and could adversely affect our consolidated
financial condition or results of operations.
In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email and other electronic
means. Although we attempt to keep such information confidential, we may be unable to do so in all events, especially with clients,
vendors, service providers, counterparties and other third parties who may not have or use appropriate controls to protect personal,
confidential or proprietary information. Any problems caused by these third parties, including those resulting from breakdowns or other
disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks
and security breaches at a vendor could adversely affect our ability to deliver products and services to our customers and otherwise
conduct our business. Furthermore, certain of our businesses are subject to compliance with laws and regulations enacted by U.S.
federal and state governments, the European Union or other jurisdictions or enacted by various regulatory organizations or
exchanges relating to the privacy and security of the information of clients, employees or others. The compromise of personal,
confidential or proprietary information could cause a loss of data, give rise to remediation or other expenses, expose us to liability
under federal and state laws, and subject us to litigation and investigations and result in reputational harm, which could have a
material adverse effect on our business, cash flows, financial condition and results of operations.
We are continuously evaluating and enhancing systems and creating new systems and processes as our business depends on our
ability to maintain and improve our technology systems for interacting with customers, brokers and employees. Due to the complexity
and interconnectedness of our systems and processes, these changes, as well as changes designed to update and enhance our
protective measures to address new threats, increase the risk of a system or process failure or the creation of a gap in our security
measures. Any such failure or gap could adversely affect our business operations and the advancement of our restructuring initiatives.
Business or asset acquisitions and dispositions may expose us to certain risks. The completion of any business or asset
acquisition or disposition is subject to certain risks, including those relating to the receipt of required regulatory approvals, the terms
and conditions of regulatory approvals, the occurrence of any event, change or other circumstances that could give rise to the
termination of a transaction and the risk that parties may not be willing or able to satisfy the conditions to a transaction. As a result,
there can be no assurance that any business or asset acquisition or disposition will be completed as contemplated, or at all, or
regarding the expected timing of the completion of the acquisition or disposition. Once we complete acquisitions or dispositions, there
can be no assurance that we will realize the anticipated economic, strategic or other benefits of any transaction. For example, the
integration of businesses we acquire may not be as successful as we anticipate or there may be undisclosed risks present in such
businesses. Acquisitions involve a number of risks, including operational, strategic, financial, accounting, legal, compliance and tax
risks. Difficulties integrating an acquired business may result in the acquired business performing differently than we expected
(including through the loss of customers) or in our failure to realize anticipated expense-related efficiencies. Our existing businesses
could also be negatively impacted by acquisitions. Risks resulting from future acquisitions may have a material adverse effect on our
results of operations and financial condition. In connection with a business or asset disposition, we may also hold a concentrated
position in securities of the acquirer as part of the consideration, which subjects us to risks related to the price of equity securities and
our ability to monetize such securities.
Indemnity claims could be made against us in connection with divested businesses. We have provided financial guarantees
and indemnities in connection with the businesses we have sold, as described in greater detail in Note 16 to the Consolidated
Financial Statements. While we do not currently believe that claims under these indemnities will be material, it is possible that
significant indemnity claims could be made against us. If such a claim or claims were successful, it could have a material adverse
effect on our results of operations, cash flows and liquidity.
For additional information on these financial guarantees and indemnities see Note 16 to the Consolidated Financial Statements.
Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or
unanticipated risk, which could adversely affect our businesses or result in losses. We have developed and continue to
develop enterprise-wide risk management policies and procedures to mitigate risk and loss to which we are exposed.
There are, however, inherent limitations to risk management strategies because there may exist, or develop in the future, risks that we
have not appropriately anticipated or identified. If our risk management policies and procedures are ineffective, we may suffer
unexpected losses and could be materially adversely affected. As our businesses change and the markets in which we operate
evolve, our risk management framework may not evolve at the same pace as those changes. As a result, there is a risk that new
products or new business strategies may present risks that are not appropriately identified, monitored or managed. In times of market
stress, unanticipated market movements or unanticipated claims experience resulting from adverse mortality, morbidity or policyholder
behavior, the effectiveness of our risk management strategies may be limited, resulting in losses to us. In addition, there can be no
assurance that we can effectively review and monitor all risks or that all of our employees will follow our risk management policies and
procedures.
REGULATION
Our businesses are heavily regulated and changes in regulation may affect our operations, increase our insurance
subsidiary capital requirements or reduce our profitability. Our operations generally, and our insurance subsidiaries, in particular,
are subject to extensive and potentially conflicting supervision and regulation by national authorities and by the various jurisdictions in
which we do business. Supervision and regulation relate to numerous aspects of our business and financial condition. Federal, state
and foreign regulators also periodically review and investigate our insurance businesses, including AIG-specific and industry-wide
practices. The primary purpose of insurance regulation is the protection of our insurance contract holders, and not our investors. The
extent of domestic regulation varies, but generally is governed by state statutes, which delegate regulatory, supervisory and
administrative authority to state insurance departments.
We strive to maintain all required licenses and approvals. However, our businesses may not fully comply with the wide variety of
applicable laws and regulations. The relevant authoritys interpretation of the laws and regulations also may change from time to time.
Regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the
required licenses and approvals or do not comply with applicable regulatory requirements, these authorities could preclude or
temporarily suspend us from carrying on some or all of our activities or impose substantial fines. Further, insurance regulatory
authorities have relatively broad discretion to issue orders of supervision, which permit them to supervise the business and operations
of an insurance company.
In the U.S., the RBC formula is designed to measure the adequacy of an insurers statutory surplus in relation to the risks inherent in
its business. Every state has adopted, in substantial part, the RBC Model Law promulgated by the NAIC or a substantially similar law,
which specifies the regulatory actions the insurance regulator may take if an insurers RBC calculations fall below specific thresholds.
Those actions range from requiring an insurer to submit a plan describing how it would regain a specified RBC ratio to a mandatory
regulatory takeover of the company. The NAIC and certain international standard-setting bodies are also considering methodologies
for assessing group-wide regulatory capital, which might evolve into more formal group-wide capital requirements on certain
insurance companies that may augment state-law RBC standards that apply at the legal entity level, and such capital calculations
may be made, in whole or in part, on bases other than the statutory statements of our U.S. insurance subsidiaries. We cannot predict
the effect these initiatives may have on our business, results of operations, cash flows and financial condition.
See Actions by foreign governments, regulators and international standard setters could result in substantial additional regulation to
which we may be subject below for additional information on increased capital and other requirements that may be imposed on us.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign jurisdictions must satisfy
local regulatory requirements and it is possible that local licenses may require AIG Parent to meet certain conditions. Licenses issued
by foreign authorities to our subsidiaries are subject to modification and revocation. Accordingly, our insurance subsidiaries could be
24
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
25
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
them, and developments in these matters could have a material adverse effect on our consolidated financial condition or consolidated
results of operations for an individual reporting period.
For a discussion of certain legal proceedings, including certain tax controversies, see Notes 16 and 23 to the Consolidated Financial
Statements.
If we are unable to maintain the availability of our electronic data systems and safeguard the security of our data, our ability
to conduct business may be compromised, which could adversely affect our consolidated financial condition or results of
operations. We use computer systems to store, retrieve, evaluate and use customer, employee, and company data and information.
Some of these systems, in turn, rely upon third-party systems. Our business is highly dependent on our ability to access these
results of operations and financial condition. In connection with a business or asset disposition, we may also hold a concentrated
position in securities of the acquirer as part of the consideration, which subjects us to risks related to the price of equity securities and
our ability to monetize such securities.
Indemnity claims could be made against us in connection with divested businesses. We have provided financial guarantees
and indemnities in connection with the businesses we have sold, as described in greater detail in Note 16 to the Consolidated
Financial Statements. While we do not currently believe that claims under these indemnities will be material, it is possible that
significant indemnity claims could be made against us. If such a claim or claims were successful, it could have a material adverse
effect on our results of operations, cash flows and liquidity.
systems to perform necessary business functions. These functions include providing insurance quotes, processing premium
For additional information on these financial guarantees and indemnities see Note 16 to the Consolidated Financial Statements.
payments, making changes to existing policies, filing and paying claims, administering variable annuity products and mutual funds,
providing customer support, executing transactions and managing our investment portfolios. Systems failures or outages could
compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business and hurt our
relationships with our business partners and customers. In the event of a natural disaster, a computer virus, unauthorized access, a
terrorist attack, cyberattack or other disruption inside or outside the U.S., our systems may be inaccessible to our employees,
customers or business partners for an extended period of time, and our employees may be unable to perform their duties for an
extended period of time if our data or systems are disabled or destroyed. Our systems have in the past been, and may in the future
be, subject to unauthorized access, such as physical or electronic break-ins or unauthorized tampering. Like other global companies,
we are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information
technology networks and infrastructure to prevent, detect, address and mitigate the risk of threats to our data and systems, including
malware and computer virus attacks, ransomware, unauthorized access, misuse, denial-of-service attacks, system failures and
disruptions. There is no assurance that our security measures, including information security policies, will provide fully effective
protection from such events. AIG maintains cyber risk insurance, but this insurance may not cover all costs associated with the
consequences of personal, confidential or proprietary information being compromised. In some cases, such unauthorized access may
not be immediately detected. This may impede or interrupt our business operations and could adversely affect our consolidated
financial condition or results of operations.
In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email and other electronic
means. Although we attempt to keep such information confidential, we may be unable to do so in all events, especially with clients,
vendors, service providers, counterparties and other third parties who may not have or use appropriate controls to protect personal,
confidential or proprietary information. Any problems caused by these third parties, including those resulting from breakdowns or other
disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks
and security breaches at a vendor could adversely affect our ability to deliver products and services to our customers and otherwise
conduct our business. Furthermore, certain of our businesses are subject to compliance with laws and regulations enacted by U.S.
federal and state governments, the European Union or other jurisdictions or enacted by various regulatory organizations or
exchanges relating to the privacy and security of the information of clients, employees or others. The compromise of personal,
confidential or proprietary information could cause a loss of data, give rise to remediation or other expenses, expose us to liability
under federal and state laws, and subject us to litigation and investigations and result in reputational harm, which could have a
material adverse effect on our business, cash flows, financial condition and results of operations.
We are continuously evaluating and enhancing systems and creating new systems and processes as our business depends on our
ability to maintain and improve our technology systems for interacting with customers, brokers and employees. Due to the complexity
and interconnectedness of our systems and processes, these changes, as well as changes designed to update and enhance our
protective measures to address new threats, increase the risk of a system or process failure or the creation of a gap in our security
measures. Any such failure or gap could adversely affect our business operations and the advancement of our restructuring initiatives.
Business or asset acquisitions and dispositions may expose us to certain risks. The completion of any business or asset
acquisition or disposition is subject to certain risks, including those relating to the receipt of required regulatory approvals, the terms
and conditions of regulatory approvals, the occurrence of any event, change or other circumstances that could give rise to the
termination of a transaction and the risk that parties may not be willing or able to satisfy the conditions to a transaction. As a result,
there can be no assurance that any business or asset acquisition or disposition will be completed as contemplated, or at all, or
regarding the expected timing of the completion of the acquisition or disposition. Once we complete acquisitions or dispositions, there
can be no assurance that we will realize the anticipated economic, strategic or other benefits of any transaction. For example, the
integration of businesses we acquire may not be as successful as we anticipate or there may be undisclosed risks present in such
businesses. Acquisitions involve a number of risks, including operational, strategic, financial, accounting, legal, compliance and tax
risks. Difficulties integrating an acquired business may result in the acquired business performing differently than we expected
(including through the loss of customers) or in our failure to realize anticipated expense-related efficiencies. Our existing businesses
could also be negatively impacted by acquisitions. Risks resulting from future acquisitions may have a material adverse effect on our
Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or
unanticipated risk, which could adversely affect our businesses or result in losses. We have developed and continue to
develop enterprise-wide risk management policies and procedures to mitigate risk and loss to which we are exposed.
There are, however, inherent limitations to risk management strategies because there may exist, or develop in the future, risks that we
have not appropriately anticipated or identified. If our risk management policies and procedures are ineffective, we may suffer
unexpected losses and could be materially adversely affected. As our businesses change and the markets in which we operate
evolve, our risk management framework may not evolve at the same pace as those changes. As a result, there is a risk that new
products or new business strategies may present risks that are not appropriately identified, monitored or managed. In times of market
stress, unanticipated market movements or unanticipated claims experience resulting from adverse mortality, morbidity or policyholder
behavior, the effectiveness of our risk management strategies may be limited, resulting in losses to us. In addition, there can be no
assurance that we can effectively review and monitor all risks or that all of our employees will follow our risk management policies and
procedures.
REGULATION
Our businesses are heavily regulated and changes in regulation may affect our operations, increase our insurance
subsidiary capital requirements or reduce our profitability. Our operations generally, and our insurance subsidiaries, in particular,
are subject to extensive and potentially conflicting supervision and regulation by national authorities and by the various jurisdictions in
which we do business. Supervision and regulation relate to numerous aspects of our business and financial condition. Federal, state
and foreign regulators also periodically review and investigate our insurance businesses, including AIG-specific and industry-wide
practices. The primary purpose of insurance regulation is the protection of our insurance contract holders, and not our investors. The
extent of domestic regulation varies, but generally is governed by state statutes, which delegate regulatory, supervisory and
administrative authority to state insurance departments.
We strive to maintain all required licenses and approvals. However, our businesses may not fully comply with the wide variety of
applicable laws and regulations. The relevant authoritys interpretation of the laws and regulations also may change from time to time.
Regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the
required licenses and approvals or do not comply with applicable regulatory requirements, these authorities could preclude or
temporarily suspend us from carrying on some or all of our activities or impose substantial fines. Further, insurance regulatory
authorities have relatively broad discretion to issue orders of supervision, which permit them to supervise the business and operations
of an insurance company.
In the U.S., the RBC formula is designed to measure the adequacy of an insurers statutory surplus in relation to the risks inherent in
its business. Every state has adopted, in substantial part, the RBC Model Law promulgated by the NAIC or a substantially similar law,
which specifies the regulatory actions the insurance regulator may take if an insurers RBC calculations fall below specific thresholds.
Those actions range from requiring an insurer to submit a plan describing how it would regain a specified RBC ratio to a mandatory
regulatory takeover of the company. The NAIC and certain international standard-setting bodies are also considering methodologies
for assessing group-wide regulatory capital, which might evolve into more formal group-wide capital requirements on certain
insurance companies that may augment state-law RBC standards that apply at the legal entity level, and such capital calculations
may be made, in whole or in part, on bases other than the statutory statements of our U.S. insurance subsidiaries. We cannot predict
the effect these initiatives may have on our business, results of operations, cash flows and financial condition.
See Actions by foreign governments, regulators and international standard setters could result in substantial additional regulation to
which we may be subject below for additional information on increased capital and other requirements that may be imposed on us.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign jurisdictions must satisfy
local regulatory requirements and it is possible that local licenses may require AIG Parent to meet certain conditions. Licenses issued
by foreign authorities to our subsidiaries are subject to modification and revocation. Accordingly, our insurance subsidiaries could be
24
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
25
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
prevented from conducting future business in certain of the jurisdictions where they currently operate. Adverse actions from any single
country could adversely affect our results of operations, liquidity and financial condition, depending on the magnitude of the event and
our financial exposure at that time in that country.
For further discussion of our regulatory environment see Item 1. Business Regulation.
Certain provisions of Dodd-Frank remain relevant to insurance groups generally, including AIG. The Financial Stability
Oversight Council (Council) rescinded our designation as a nonbank systemically important financial institution (nonbank SIFI) on
September 29, 2017, but the Council remains authorized under Dodd-Frank to determine, subject to certain statutory and regulatory
standards, that any nonbank financial company be designated as a nonbank SIFI subject to supervision by the Board of Governors of
the Federal Reserve System and enhanced prudential standards. The Council may also recommend that state insurance regulators
or other regulators apply new or heightened standards and safeguards for activities or practices that we and other insurers or other
nonbank financial services companies, including insurers, engage in. Additionally, Dodd-Frank directs existing and newly created
government agencies and bodies to promulgate regulations implementing the law, which is an ongoing process. Following the change
in administration in the U.S., there is considerable uncertainty as to the potential adoption and timing of regulatory changes related to
Dodd-Frank. We cannot predict the requirements of the regulations that may be ultimately adopted or the impact they may have on
our businesses, results of operations or cash flows and financial condition.
See Item 1. Business Regulation U.S. Regulation Dodd-Frank for further discussion of provisions of Dodd-Frank that remain
relevant to insurance groups generally.
Actions by foreign governments, regulators and international standard setters could result in substantial additional
regulation to which we may be subject. We cannot predict the impact laws and regulations adopted in foreign jurisdictions may
have on the financial markets generally or our businesses, results of operations or cash flows. It is possible such laws and
regulations, the impact of our designation as a global systemically important insurer (G-SII), our status as an Internationally Active
Insurance Group (IAIG) and certain standard-setting initiatives by the FSB and the IAIS, including, but not limited to, the application of
HLA capital and the ongoing development of a risk-based global insurance capital standard (ICS), and implementation of Solvency II
in the European Union, may significantly alter our business practices. They may also limit our ability to engage in capital or liability
management, require us to raise additional capital, and impose burdensome requirements and additional costs. It is possible that the
laws and regulations adopted in foreign jurisdictions will differ from one another, and that they could be inconsistent with the laws and
regulations of other jurisdictions including the U.S.
For further details on these international regulations and their potential impact on AIG and its businesses, see Item 1. Business
Regulation International Regulation.
The USA PATRIOT Act, the Office of Foreign Assets Control regulations and similar laws and regulations that apply to us
may expose us to significant penalties. The operations of our subsidiaries are subject to laws and regulations, including, in some
cases, the USA PATRIOT Act of 2001, which require companies to know certain information about their clients and to monitor their
transactions for suspicious activities. Also, the Department of the Treasurys Office of Foreign Assets Control administers regulations
requiring U.S. persons to refrain from doing business, or allowing their clients to do business through them, with certain organizations
or individuals on a prohibited list maintained by the U.S. government or with certain countries. The UK, the EU and other jurisdictions
maintain similar laws and regulations. Although we have instituted compliance programs to address these requirements, there are
inherent risks in global transactions.
Attempts to efficiently manage the impact of Regulation XXX and Actuarial Guideline AXXX may fail in whole or in part
resulting in an adverse effect on our financial condition and results of operations. The NAIC Model Regulation Valuation of
Life Insurance Policies (Regulation XXX) requires insurers to establish additional statutory reserves for term life insurance policies
with long-term premium guarantees and universal life policies with secondary guarantees. In addition, NAIC Actuarial Guideline 38
(AG 38, also referred to as Guideline AXXX) clarifies the application of Regulation XXX as to certain universal life insurance policies
with secondary guarantees.
Our domestic Life and Retirement companies manage the capital impact of statutory reserve requirements under Regulation XXX and
Guideline AXXX through reinsurance transactions, to maintain their ability to offer competitive pricing and successfully market such
products. If regulations change with respect to our ability to manage the capital impact of certain statutory reserve requirements, our
statutory reserve requirements could increase, or our ability to take reserve credit for reinsurance transactions could be reduced or
eliminated. As a result, we could be required to increase prices on our products, raise capital to replace the reserve credit provided by
the reinsurance transactions or incur higher costs to obtain reinsurance, each of which could adversely affect our competitive position,
financial condition or results of operations. If our actions to efficiently manage the impact of Regulation XXX or Guideline AXXX on
future sales of term and universal life insurance products are not successful, we may incur higher operating costs or our sales of
these products may be affected.
For additional information on statutory reserving requirements under Regulation XXX and Guideline AXXX and our use of reinsurance
see Note 19 to the Consolidated Financial Statements.
New regulations may affect our businesses, results of operations, financial condition and ability to compete effectively.
Legislators and regulators may periodically consider various proposals that may affect our business practices and product designs,
how we sell or service certain products we offer, or the profitability of certain of our businesses. New regulations may even affect our
ability to conduct certain businesses at all, including proposals relating to restrictions on the type of activities in which financial
institutions are permitted to engage and the size of financial institutions. These proposals could also impose additional taxes on a
limited subset of financial institutions and insurance companies (either based on size, activities, geography, government support or
other criteria). It is uncertain whether and how these and other such proposals would apply to us or our competitors or how they could
impact our consolidated results of operations, financial condition and ability to compete effectively.
For discussion regarding the implementation of the Department of Labors (the DOL) final fiduciary rule (the DOL Fiduciary Rule), see
Item 7. MD&A Executive Summary AIGs Outlook Industry and Economic Factors Department of Labor Fiduciary Rule and
Related Regulatory Developments and Item 1. Business Regulation.
An ownership change could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income. As
of December 31, 2017, on a tax basis, we had U.S. federal net operating loss carryforwards of approximately $35.6 billion, $305
million in capital loss carryforwards, $4.5 billion in foreign tax credits and $1.2 billion in other tax credits (tax loss and credit
carryforwards). Our ability to use these tax attributes to offset future taxable income may be significantly limited if we experience an
ownership change as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general, an
ownership change will occur when the percentage of AIG Parent's ownership (by value) of one or more 5-percent shareholders (as
defined in the Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time
during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally will be subject to
an annual limitation on its pre-ownership change tax loss and credit carryforwards equal to the equity value of the corporation
immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain
adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year. The
limitation on our ability to utilize tax loss and credit carryforwards arising from an ownership change under Section 382 would depend
on the value of our equity at the time of any ownership change.
significant portion of our tax loss and credit carryforwards could expire before we would be able to use them to offset future taxable
income.
If we were to experience an ownership change, it is possible that a
On March 9, 2011, our Board adopted our Tax Asset Protection Plan (the Plan) to help protect these tax loss and credit carryforwards,
and on December 14, 2016, the Board adopted an amendment to the Plan, extending its expiration date to December 14, 2019. Our
shareholders ratified the amendment of the Plan at our 2017 Annual Meeting of Shareholders. At our 2011 Annual Meeting of
Shareholders, shareholders adopted a protective amendment to our Restated Certificate of Incorporation (Protective Amendment),
which is designed to prevent certain transfers of AIG Common Stock that could result in an ownership change. At our 2017 Annual
Meeting of Shareholders, our shareholders approved the amendment to our Amended and Restated Certificate of Incorporation to
adopt a successor to the Protective Amendment that contains substantially the same terms as the Protective Amendment but would
expire on June 28, 2020.
The Plan is designed to reduce the likelihood of an ownership change by (i) discouraging any person or group from becoming a 4.99
percent shareholder and (ii) discouraging any existing 4.99 percent shareholder from acquiring additional shares of AIG Common
Stock. The Protective Amendment generally restricts any transfer of AIG Common Stock that would (i) increase the ownership by any
person to 4.99 percent or more of AIG stock then outstanding or (ii) increase the percentage of AIG stock owned by a Five Percent
Stockholder (as defined in the Plan). Despite the intentions of the Plan and the Protective Amendment to deter and prevent an
ownership change, such an event may still occur. In addition, the Plan and the Protective Amendment may make it more difficult and
more expensive to acquire us, and may discourage open market purchases of AIG Common Stock or a non-negotiated tender or
exchange offer for AIG Common Stock. Accordingly, the Plan and the Protective Amendment may limit a shareholders ability to
realize a premium over the market price of AIG Common Stock in connection with any stock transaction.
Changes to tax laws, including recently enacted U.S. legislation, could increase our corporate taxes or make some of our
products less attractive to consumers.
On December 22, 2017 President Trump signed major tax legislation into law (Public Law 115-97) (the Tax Act). The Tax Act, known
informally as the Tax Cuts and Jobs Act, reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts
numerous other changes impacting AIG and the insurance industry.
The reduction in the statutory U.S. federal corporate income tax rate is expected to positively impact AIGs future U.S. after-tax
earnings. Other changes in the Tax Act that broaden the tax base by reducing or eliminating deductions for certain items (e.g.,
reductions to separate account dividends received deductions, disallowance of entertainment expenses, and limitations on the
26
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
27
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 prevented from conducting future business in certain of the jurisdictions where they currently operate. Adverse actions from any single
country could adversely affect our results of operations, liquidity and financial condition, depending on the magnitude of the event and
For additional information on statutory reserving requirements under Regulation XXX and Guideline AXXX and our use of reinsurance
see Note 19 to the Consolidated Financial Statements.
ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
our financial exposure at that time in that country.
For further discussion of our regulatory environment see Item 1. Business Regulation.
Certain provisions of Dodd-Frank remain relevant to insurance groups generally, including AIG. The Financial Stability
Oversight Council (Council) rescinded our designation as a nonbank systemically important financial institution (nonbank SIFI) on
September 29, 2017, but the Council remains authorized under Dodd-Frank to determine, subject to certain statutory and regulatory
standards, that any nonbank financial company be designated as a nonbank SIFI subject to supervision by the Board of Governors of
the Federal Reserve System and enhanced prudential standards. The Council may also recommend that state insurance regulators
or other regulators apply new or heightened standards and safeguards for activities or practices that we and other insurers or other
nonbank financial services companies, including insurers, engage in. Additionally, Dodd-Frank directs existing and newly created
government agencies and bodies to promulgate regulations implementing the law, which is an ongoing process. Following the change
in administration in the U.S., there is considerable uncertainty as to the potential adoption and timing of regulatory changes related to
Dodd-Frank. We cannot predict the requirements of the regulations that may be ultimately adopted or the impact they may have on
our businesses, results of operations or cash flows and financial condition.
See Item 1. Business Regulation U.S. Regulation Dodd-Frank for further discussion of provisions of Dodd-Frank that remain
relevant to insurance groups generally.
Actions by foreign governments, regulators and international standard setters could result in substantial additional
regulation to which we may be subject. We cannot predict the impact laws and regulations adopted in foreign jurisdictions may
have on the financial markets generally or our businesses, results of operations or cash flows. It is possible such laws and
regulations, the impact of our designation as a global systemically important insurer (G-SII), our status as an Internationally Active
Insurance Group (IAIG) and certain standard-setting initiatives by the FSB and the IAIS, including, but not limited to, the application of
HLA capital and the ongoing development of a risk-based global insurance capital standard (ICS), and implementation of Solvency II
in the European Union, may significantly alter our business practices. They may also limit our ability to engage in capital or liability
management, require us to raise additional capital, and impose burdensome requirements and additional costs. It is possible that the
laws and regulations adopted in foreign jurisdictions will differ from one another, and that they could be inconsistent with the laws and
regulations of other jurisdictions including the U.S.
For further details on these international regulations and their potential impact on AIG and its businesses, see Item 1. Business
Regulation International Regulation.
The USA PATRIOT Act, the Office of Foreign Assets Control regulations and similar laws and regulations that apply to us
may expose us to significant penalties. The operations of our subsidiaries are subject to laws and regulations, including, in some
cases, the USA PATRIOT Act of 2001, which require companies to know certain information about their clients and to monitor their
transactions for suspicious activities. Also, the Department of the Treasurys Office of Foreign Assets Control administers regulations
requiring U.S. persons to refrain from doing business, or allowing their clients to do business through them, with certain organizations
or individuals on a prohibited list maintained by the U.S. government or with certain countries. The UK, the EU and other jurisdictions
maintain similar laws and regulations. Although we have instituted compliance programs to address these requirements, there are
inherent risks in global transactions.
Attempts to efficiently manage the impact of Regulation XXX and Actuarial Guideline AXXX may fail in whole or in part
resulting in an adverse effect on our financial condition and results of operations. The NAIC Model Regulation Valuation of
Life Insurance Policies (Regulation XXX) requires insurers to establish additional statutory reserves for term life insurance policies
with long-term premium guarantees and universal life policies with secondary guarantees. In addition, NAIC Actuarial Guideline 38
(AG 38, also referred to as Guideline AXXX) clarifies the application of Regulation XXX as to certain universal life insurance policies
with secondary guarantees.
Our domestic Life and Retirement companies manage the capital impact of statutory reserve requirements under Regulation XXX and
New regulations may affect our businesses, results of operations, financial condition and ability to compete effectively.
Legislators and regulators may periodically consider various proposals that may affect our business practices and product designs,
how we sell or service certain products we offer, or the profitability of certain of our businesses. New regulations may even affect our
ability to conduct certain businesses at all, including proposals relating to restrictions on the type of activities in which financial
institutions are permitted to engage and the size of financial institutions. These proposals could also impose additional taxes on a
limited subset of financial institutions and insurance companies (either based on size, activities, geography, government support or
other criteria). It is uncertain whether and how these and other such proposals would apply to us or our competitors or how they could
impact our consolidated results of operations, financial condition and ability to compete effectively.
For discussion regarding the implementation of the Department of Labors (the DOL) final fiduciary rule (the DOL Fiduciary Rule), see
Item 7. MD&A Executive Summary AIGs Outlook Industry and Economic Factors Department of Labor Fiduciary Rule and
Related Regulatory Developments and Item 1. Business Regulation.
An ownership change could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income. As
of December 31, 2017, on a tax basis, we had U.S. federal net operating loss carryforwards of approximately $35.6 billion, $305
million in capital loss carryforwards, $4.5 billion in foreign tax credits and $1.2 billion in other tax credits (tax loss and credit
carryforwards). Our ability to use these tax attributes to offset future taxable income may be significantly limited if we experience an
ownership change as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general, an
ownership change will occur when the percentage of AIG Parent's ownership (by value) of one or more 5-percent shareholders (as
defined in the Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time
during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally will be subject to
an annual limitation on its pre-ownership change tax loss and credit carryforwards equal to the equity value of the corporation
immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain
adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year. The
limitation on our ability to utilize tax loss and credit carryforwards arising from an ownership change under Section 382 would depend
on the value of our equity at the time of any ownership change.
If we were to experience an ownership change, it is possible that a
significant portion of our tax loss and credit carryforwards could expire before we would be able to use them to offset future taxable
income.
On March 9, 2011, our Board adopted our Tax Asset Protection Plan (the Plan) to help protect these tax loss and credit carryforwards,
and on December 14, 2016, the Board adopted an amendment to the Plan, extending its expiration date to December 14, 2019. Our
shareholders ratified the amendment of the Plan at our 2017 Annual Meeting of Shareholders. At our 2011 Annual Meeting of
Shareholders, shareholders adopted a protective amendment to our Restated Certificate of Incorporation (Protective Amendment),
which is designed to prevent certain transfers of AIG Common Stock that could result in an ownership change. At our 2017 Annual
Meeting of Shareholders, our shareholders approved the amendment to our Amended and Restated Certificate of Incorporation to
adopt a successor to the Protective Amendment that contains substantially the same terms as the Protective Amendment but would
expire on June 28, 2020.
The Plan is designed to reduce the likelihood of an ownership change by (i) discouraging any person or group from becoming a 4.99
percent shareholder and (ii) discouraging any existing 4.99 percent shareholder from acquiring additional shares of AIG Common
Stock. The Protective Amendment generally restricts any transfer of AIG Common Stock that would (i) increase the ownership by any
person to 4.99 percent or more of AIG stock then outstanding or (ii) increase the percentage of AIG stock owned by a Five Percent
Stockholder (as defined in the Plan). Despite the intentions of the Plan and the Protective Amendment to deter and prevent an
ownership change, such an event may still occur. In addition, the Plan and the Protective Amendment may make it more difficult and
more expensive to acquire us, and may discourage open market purchases of AIG Common Stock or a non-negotiated tender or
exchange offer for AIG Common Stock. Accordingly, the Plan and the Protective Amendment may limit a shareholders ability to
realize a premium over the market price of AIG Common Stock in connection with any stock transaction.
Guideline AXXX through reinsurance transactions, to maintain their ability to offer competitive pricing and successfully market such
products. If regulations change with respect to our ability to manage the capital impact of certain statutory reserve requirements, our
Changes to tax laws, including recently enacted U.S. legislation, could increase our corporate taxes or make some of our
products less attractive to consumers.
statutory reserve requirements could increase, or our ability to take reserve credit for reinsurance transactions could be reduced or
eliminated. As a result, we could be required to increase prices on our products, raise capital to replace the reserve credit provided by
the reinsurance transactions or incur higher costs to obtain reinsurance, each of which could adversely affect our competitive position,
financial condition or results of operations. If our actions to efficiently manage the impact of Regulation XXX or Guideline AXXX on
future sales of term and universal life insurance products are not successful, we may incur higher operating costs or our sales of
these products may be affected.
26
AIG | 2017 Form 10-K
On December 22, 2017 President Trump signed major tax legislation into law (Public Law 115-97) (the Tax Act). The Tax Act, known
informally as the Tax Cuts and Jobs Act, reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts
numerous other changes impacting AIG and the insurance industry.
The reduction in the statutory U.S. federal corporate income tax rate is expected to positively impact AIGs future U.S. after-tax
earnings. Other changes in the Tax Act that broaden the tax base by reducing or eliminating deductions for certain items (e.g.,
reductions to separate account dividends received deductions, disallowance of entertainment expenses, and limitations on the
AIG | 2017 Form 10-K
27
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
deduction of certain executive compensation costs) will offset a portion of the benefits from the lower statutory rate. Other specific
changes, including the calculation of insurance tax reserves and the amortization of deferred acquisition costs, will impact the timing
of our tax expense items and could impact the pricing of certain insurance products.
In addition to changing the taxation of corporations in general and insurance companies in particular, the Tax Act temporarily reduces
certain tax rates for individuals and increases the exemption for the federal estate tax. These changes could reduce demand in the
U.S. for life insurance and annuity contracts, which would reduce our income due to lower sales of these products or potential
increased surrenders of in-force business.
Furthermore, the overall impact of the Tax Act is subject to the effect of other complex provisions in the Tax Act (including the base
erosion and anti-abuse tax (BEAT) and global intangible low-taxed income (GILTI)), which AIG continues to review.
the impact from BEAT and GILTI could reduce the benefit of the reduction in the statutory U.S. federal rate.
induces other countries to enact similar legislation that could impact cross-border reinsurance transactions, AIG could be negatively
impacted by increased tax costs in those countries.
In addition, if BEAT
It is possible that
Finally, it is possible that tax laws will be further changed either in a technical corrections bill or entirely new legislation. The overall
impact of the Tax Act also depends on the future interpretations and regulations that may be issued by U.S. tax authorities.
It remains
difficult to predict whether or when there will be any tax law changes or further guidance by the authorities in the U.S. or elsewhere in
the world having a material adverse effect on our financial condition or results of operations, as the impact of broad proposals on our
business can vary substantially depending upon the specific changes or further guidance made and how the changes or guidance are
implemented by the authorities.
For additional information see Item 7. MD&A Consolidated Results of Operations U.S. Tax Reform Overview.
COMPETITION AND EMPLOYEES
We face intense competition in each of our businesses. Our businesses operate in highly competitive environments, both
domestically and overseas. Our principal competitors are other large multinational insurance organizations, as well as banks,
investment banks and other nonbank financial institutions. The insurance industry in particular is highly competitive. Within the U.S.,
our General Insurance companies compete with other stock companies, specialty insurance organizations, mutual insurance
companies and other underwriting organizations. Our Life and Retirement companies compete in the U.S. with life insurance
companies and other participants in related financial services fields. Overseas, our subsidiaries compete for business with the foreign
insurance operations of large U.S. insurers and with global insurance groups and local companies. Technological advancements and
innovation in the insurance industry may present competitive risks; technological advancements and innovation are occurring in
distribution, underwriting and operations and at a pace that may increase. Our business and results of operations could be materially
and adversely affected if technological advancements or innovation limit our ability to retain existing business, write new business at
adequate rates or on appropriate terms, render our insurance products less suitable or impact our ability to adapt or deploy current
products as quickly and effectively as our competitors.
Reductions of our credit ratings or negative publicity may make it more difficult to compete to retain existing customers and to
maintain our historical levels of business with existing customers and counterparties. General Insurance companies and Life and
Retirement companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions.
Retirement services companies compete through crediting rates and the issuance of guaranteed benefits. A decline in our position as
to any one or more of these factors could adversely affect our profitability.
Competition for employees in our industry is intense, and we may not be able to attract and retain the highly skilled people
we need to support our business. Our success depends, in large part, on our ability to attract and retain key people. Due to the
intense competition in our industry for key employees with demonstrated ability, we may be unable to hire or retain such employees.
In addition, we may experience higher than expected employee turnover and difficulty attracting new employees as a result of
uncertainty from strategic actions and organizational and operational changes. Losing any of our key people also could have a
material adverse effect on our operations given their skills, knowledge of our business, years of industry experience and the potential
difficulty of promptly finding qualified replacement employees. Our results of operations and financial condition could be materially
adversely affected if we are unsuccessful in attracting and retaining key employees.
Managing key employee succession and retention is critical to our success. We would be adversely affected if we fail to
adequately plan for the succession of our senior management and other key employees. While we have succession plans and long-
term compensation plans designed to retain our employees, our succession plans may not operate effectively and our compensation
plans cannot guarantee that the services of these employees will continue to be available to us.
Employee error and misconduct may be difficult to detect and prevent and may result in significant losses. There have been
a number of cases involving fraud or other misconduct by employees in the financial services industry in recent years and we run the
risk that employee misconduct could occur. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain
proper internal authorization, misuse of customer or proprietary information, or failure to comply with regulatory requirements or our
internal policies may result in losses and/or reputational damage. It is not always possible to deter or prevent employee misconduct,
and the controls that we have in place to prevent and detect this activity may not be effective in all cases.
Third-party vendors we rely upon to provide certain business and administrative services on our behalf may not perform as
anticipated, which could have an adverse effect on our business and results of operations. We have taken action to reduce
coordination costs and take advantage of economies of scale by transitioning multiple functions and services to a small number of third-
party providers. We periodically negotiate provisions and renewals of these relationships, and there can be no assurance that such
terms will remain acceptable to us or such third parties. If such third-party providers experience disruptions or do not perform as
anticipated, or we experience problems with a transition to a third-party provider, we may experience operational difficulties, an inability
to meet obligations (including, but not limited to, policyholder obligations), a loss of business and increased costs, or suffer other
negative consequences, all of which may have a material adverse effect on our business and results of operations.
For discussion regarding cyber risk arising from third-party vendors, see If we are unable to maintain the availability of our electronic
data systems and safeguard the security of our data, our ability to conduct business may be compromised, which could adversely affect
our consolidated financial condition or results of operations above.
ESTIMATES AND ASSUMPTIONS
Estimates used in the preparation of financial statements and modeled results used in various areas of our business may
differ materially from actual experience. Our financial statements are prepared in conformity with U.S. Generally Accepted
Accounting Principles (U.S. GAAP), which requires the application of accounting policies that often involve a significant degree of
judgment. The accounting policies that we consider most dependent on the application of estimates and assumptions, and therefore
may be viewed as critical accounting estimates, are described in Item 7. MD&A Critical Accounting Estimates. These accounting
estimates require the use of assumptions, some of which are highly uncertain at the time of estimation. These estimates are based on
judgment, current facts and circumstances, and, when applicable, internally developed models. Therefore, actual results could differ
from these estimates, possibly in the near term, and could have a material effect on our consolidated financial statements.
In addition, we employ models to price products, calculate reserves and value assets, as well as evaluate risk and determine capital
requirements, among other uses. These models rely on estimates and projections that are inherently uncertain, may use incomplete,
outdated or incorrect data or assumptions and may not operate properly. As our businesses continue to expand and evolve, the
number and complexity of models we employ has grown, increasing our exposure to error in the design, implementation or use of
models, including the associated input data, controls and assumptions and the controls we have in place to mitigate their risk may not
be effective in all cases.
Changes in accounting principles and financial reporting requirements could impact our reported results of operations and
our reported financial position. Our financial statements are subject to the application of U.S. GAAP, which is periodically revised.
Accordingly, from time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative
bodies, including the Financial Accounting Standards Board (FASB). The impact of accounting pronouncements that have been
issued but are not yet required to be implemented is disclosed in Note 2 to the Consolidated Financial Statements.
The International Accounting Standards Board (IASB) has issued International Financial Reporting Standard (IFRS) 17, Insurance
Contracts, with an effective date of January 1, 2021. This new standard will require significant changes to accounting measurements
for long-duration insurance contracts for many of our international operations. The FASB is also nearing completion of its ongoing
project to revise accounting standards for insurance contracts. The FASB has focused on disclosures for short-duration insurance
contracts, which primarily relate to our property casualty products, and on targeted improvements to accounting measurements and
disclosures for long-duration insurance contracts, which primarily relate to our life and annuity products. The effects of IFRS 17 are
currently under review, while the final resolution of changes to insurance contracts under U.S. GAAP has not yet been finalized.
Changes to the manner in which we account for insurance products could have a significant impact on our future financial reports,
operations, capital management and business. Further, the adoption of a new insurance contracts standard as well as other future
accounting standards could have a material effect on our reported results of operations and reported financial condition.
Changes in our assumptions regarding the discount rate, expected rate of return, and expected compensation for our
pension and other postretirement benefit plans may result in increased expenses and reduce our profitability. We determine
our pension and other postretirement benefit plan costs based on assumed discount rates, expected rates of return on plan assets,
expected increases in compensation levels and trends in health care costs. Changes in these assumptions, including from the impact
of a sustained low interest rate environment or rapidly rising interest rates, may result in increased expenses and reduce our
profitability.
For further details on our pension and postretirement benefit plans see Note 21 to the Consolidated Financial Statements.
28
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
29
1011252ai_financials.indd 28
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
deduction of certain executive compensation costs) will offset a portion of the benefits from the lower statutory rate. Other specific
changes, including the calculation of insurance tax reserves and the amortization of deferred acquisition costs, will impact the timing
of our tax expense items and could impact the pricing of certain insurance products.
In addition to changing the taxation of corporations in general and insurance companies in particular, the Tax Act temporarily reduces
certain tax rates for individuals and increases the exemption for the federal estate tax. These changes could reduce demand in the
U.S. for life insurance and annuity contracts, which would reduce our income due to lower sales of these products or potential
increased surrenders of in-force business.
Furthermore, the overall impact of the Tax Act is subject to the effect of other complex provisions in the Tax Act (including the base
erosion and anti-abuse tax (BEAT) and global intangible low-taxed income (GILTI)), which AIG continues to review.
It is possible that
the impact from BEAT and GILTI could reduce the benefit of the reduction in the statutory U.S. federal rate.
In addition, if BEAT
induces other countries to enact similar legislation that could impact cross-border reinsurance transactions, AIG could be negatively
impacted by increased tax costs in those countries.
Finally, it is possible that tax laws will be further changed either in a technical corrections bill or entirely new legislation. The overall
impact of the Tax Act also depends on the future interpretations and regulations that may be issued by U.S. tax authorities.
It remains
difficult to predict whether or when there will be any tax law changes or further guidance by the authorities in the U.S. or elsewhere in
the world having a material adverse effect on our financial condition or results of operations, as the impact of broad proposals on our
business can vary substantially depending upon the specific changes or further guidance made and how the changes or guidance are
implemented by the authorities.
For additional information see Item 7. MD&A Consolidated Results of Operations U.S. Tax Reform Overview.
COMPETITION AND EMPLOYEES
We face intense competition in each of our businesses. Our businesses operate in highly competitive environments, both
domestically and overseas. Our principal competitors are other large multinational insurance organizations, as well as banks,
investment banks and other nonbank financial institutions. The insurance industry in particular is highly competitive. Within the U.S.,
our General Insurance companies compete with other stock companies, specialty insurance organizations, mutual insurance
companies and other underwriting organizations. Our Life and Retirement companies compete in the U.S. with life insurance
companies and other participants in related financial services fields. Overseas, our subsidiaries compete for business with the foreign
insurance operations of large U.S. insurers and with global insurance groups and local companies. Technological advancements and
innovation in the insurance industry may present competitive risks; technological advancements and innovation are occurring in
distribution, underwriting and operations and at a pace that may increase. Our business and results of operations could be materially
and adversely affected if technological advancements or innovation limit our ability to retain existing business, write new business at
adequate rates or on appropriate terms, render our insurance products less suitable or impact our ability to adapt or deploy current
products as quickly and effectively as our competitors.
Reductions of our credit ratings or negative publicity may make it more difficult to compete to retain existing customers and to
maintain our historical levels of business with existing customers and counterparties. General Insurance companies and Life and
Retirement companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions.
Retirement services companies compete through crediting rates and the issuance of guaranteed benefits. A decline in our position as
to any one or more of these factors could adversely affect our profitability.
Competition for employees in our industry is intense, and we may not be able to attract and retain the highly skilled people
we need to support our business. Our success depends, in large part, on our ability to attract and retain key people. Due to the
intense competition in our industry for key employees with demonstrated ability, we may be unable to hire or retain such employees.
In addition, we may experience higher than expected employee turnover and difficulty attracting new employees as a result of
uncertainty from strategic actions and organizational and operational changes. Losing any of our key people also could have a
material adverse effect on our operations given their skills, knowledge of our business, years of industry experience and the potential
difficulty of promptly finding qualified replacement employees. Our results of operations and financial condition could be materially
adversely affected if we are unsuccessful in attracting and retaining key employees.
Managing key employee succession and retention is critical to our success. We would be adversely affected if we fail to
adequately plan for the succession of our senior management and other key employees. While we have succession plans and long-
term compensation plans designed to retain our employees, our succession plans may not operate effectively and our compensation
plans cannot guarantee that the services of these employees will continue to be available to us.
Employee error and misconduct may be difficult to detect and prevent and may result in significant losses. There have been
a number of cases involving fraud or other misconduct by employees in the financial services industry in recent years and we run the
risk that employee misconduct could occur. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain
proper internal authorization, misuse of customer or proprietary information, or failure to comply with regulatory requirements or our
internal policies may result in losses and/or reputational damage. It is not always possible to deter or prevent employee misconduct,
and the controls that we have in place to prevent and detect this activity may not be effective in all cases.
Third-party vendors we rely upon to provide certain business and administrative services on our behalf may not perform as
anticipated, which could have an adverse effect on our business and results of operations. We have taken action to reduce
coordination costs and take advantage of economies of scale by transitioning multiple functions and services to a small number of third-
party providers. We periodically negotiate provisions and renewals of these relationships, and there can be no assurance that such
terms will remain acceptable to us or such third parties. If such third-party providers experience disruptions or do not perform as
anticipated, or we experience problems with a transition to a third-party provider, we may experience operational difficulties, an inability
to meet obligations (including, but not limited to, policyholder obligations), a loss of business and increased costs, or suffer other
negative consequences, all of which may have a material adverse effect on our business and results of operations.
For discussion regarding cyber risk arising from third-party vendors, see If we are unable to maintain the availability of our electronic
data systems and safeguard the security of our data, our ability to conduct business may be compromised, which could adversely affect
our consolidated financial condition or results of operations above.
ESTIMATES AND ASSUMPTIONS
Estimates used in the preparation of financial statements and modeled results used in various areas of our business may
differ materially from actual experience. Our financial statements are prepared in conformity with U.S. Generally Accepted
Accounting Principles (U.S. GAAP), which requires the application of accounting policies that often involve a significant degree of
judgment. The accounting policies that we consider most dependent on the application of estimates and assumptions, and therefore
may be viewed as critical accounting estimates, are described in Item 7. MD&A Critical Accounting Estimates. These accounting
estimates require the use of assumptions, some of which are highly uncertain at the time of estimation. These estimates are based on
judgment, current facts and circumstances, and, when applicable, internally developed models. Therefore, actual results could differ
from these estimates, possibly in the near term, and could have a material effect on our consolidated financial statements.
In addition, we employ models to price products, calculate reserves and value assets, as well as evaluate risk and determine capital
requirements, among other uses. These models rely on estimates and projections that are inherently uncertain, may use incomplete,
outdated or incorrect data or assumptions and may not operate properly. As our businesses continue to expand and evolve, the
number and complexity of models we employ has grown, increasing our exposure to error in the design, implementation or use of
models, including the associated input data, controls and assumptions and the controls we have in place to mitigate their risk may not
be effective in all cases.
Changes in accounting principles and financial reporting requirements could impact our reported results of operations and
our reported financial position. Our financial statements are subject to the application of U.S. GAAP, which is periodically revised.
Accordingly, from time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative
bodies, including the Financial Accounting Standards Board (FASB). The impact of accounting pronouncements that have been
issued but are not yet required to be implemented is disclosed in Note 2 to the Consolidated Financial Statements.
The International Accounting Standards Board (IASB) has issued International Financial Reporting Standard (IFRS) 17, Insurance
Contracts, with an effective date of January 1, 2021. This new standard will require significant changes to accounting measurements
for long-duration insurance contracts for many of our international operations. The FASB is also nearing completion of its ongoing
project to revise accounting standards for insurance contracts. The FASB has focused on disclosures for short-duration insurance
contracts, which primarily relate to our property casualty products, and on targeted improvements to accounting measurements and
disclosures for long-duration insurance contracts, which primarily relate to our life and annuity products. The effects of IFRS 17 are
currently under review, while the final resolution of changes to insurance contracts under U.S. GAAP has not yet been finalized.
Changes to the manner in which we account for insurance products could have a significant impact on our future financial reports,
operations, capital management and business. Further, the adoption of a new insurance contracts standard as well as other future
accounting standards could have a material effect on our reported results of operations and reported financial condition.
Changes in our assumptions regarding the discount rate, expected rate of return, and expected compensation for our
pension and other postretirement benefit plans may result in increased expenses and reduce our profitability. We determine
our pension and other postretirement benefit plan costs based on assumed discount rates, expected rates of return on plan assets,
expected increases in compensation levels and trends in health care costs. Changes in these assumptions, including from the impact
of a sustained low interest rate environment or rapidly rising interest rates, may result in increased expenses and reduce our
profitability.
For further details on our pension and postretirement benefit plans see Note 21 to the Consolidated Financial Statements.
28
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
29
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1B | Unresolved Staff Comments
There are no material unresolved written comments that were received from the SEC staff 180 days or more before the end of our
fiscal year relating to periodic or current reports under the Securities Exchange Act of 1934.
Part II
ITEM 5 | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 2 | Properties
We operate from approximately 160 offices in the United States and approximately 380 offices in approximately 60 foreign countries.
The following offices are located in buildings in the United States owned by us:
General Insurance Companies:
Life and Retirement Companies:
Stevens Point, Wisconsin
Other Operations:
Amarillo and Houston, Texas
175 Water Street in New York, New York (Corporate Headquarters; also includes General Insurance companies)
Livingston, New Jersey
Ft. Worth, Texas
In addition, our General Insurance companies own offices in 13 foreign countries and jurisdictions including Bermuda, Ecuador,
Japan, Mexico, the UK and Venezuela. The remainder of the office space we use is leased. We believe that our leases and
properties are sufficient for our current purposes.
LOCATIONS OF CERTAIN ASSETS
ITEM 5 | Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
AIGs common stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange (NYSE: AIG) and
the Tokyo Stock Exchange. There were approximately 25,522 stockholders of record of AIG Common Stock as of February 7, 2018.
The following table presents high and low closing sale prices of AIG Common Stock on the New York Stock Exchange
Composite Tape for each quarter of 2017 and 2016, and the dividends declared per share during those periods:
$
$
$
$
$
$
Low
Dividends
Low
Dividends
High
67.20
64.25
66.06
65.13
2017
60.85
58.98
58.27
58.11
0.320
0.320
0.320
0.320
High
60.64
58.32
59.86
66.70
2016
50.20
48.79
51.21
57.38
0.320
0.320
0.320
0.320
First quarter
Second quarter
Third quarter
Fourth quarter
Dividends
As of December 31, 2017, approximately 11 percent of our consolidated assets were located outside the U.S. and Canada, including
$491 million of cash and securities on deposit with regulatory authorities in those locations.
On February 8, 2018, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
29, 2018 to shareholders of record on March 15, 2018.
For additional geographic information see Note 3 to the Consolidated Financial Statements.
For total carrying values of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities
see Note 6 to the Consolidated Financial Statements.
Operations outside the U.S. and Canada and assets held abroad may be adversely affected by political developments in foreign
countries, including tax changes, nationalization and changes in regulatory policy, as well as by consequence of hostilities and unrest.
The risks of such occurrences and their overall effect upon us vary from country to country and cannot be predicted. If expropriation
or nationalization does occur, our policy is to take all appropriate measures to seek recovery of any affected assets. Certain of the
countries in which our business is conducted have currency restrictions that generally cause a delay in a companys ability to
repatriate assets and profits.
For additional information see Item 1A. Risk Factors Business and Operations.
ITEM 3 | Legal Proceedings
Any dividend payment must be approved by AIGs Board of Directors. In determining whether to pay any dividend, our Board of
Directors may consider AIGs financial position, the performance of our businesses, our consolidated financial condition, results of
operations, capital and liquidity positions and risk profile, our expectations for capital generation and utilization, the existence of
investment opportunities, and other factors.
For a discussion of certain restrictions on the payment of dividends to AIG by some of its insurance subsidiaries see Item 1A. Risk
Factors Liquidity, Capital and Credit AIG Parents ability to access funds from our subsidiaries is limited, and Note 19 to the
Consolidated Financial Statements.
Equity Compensation Plans
Our table of equity compensation plans will be included in the definitive proxy statement for AIGs 2018 Annual Meeting of
Shareholders. The definitive proxy statement will be filed with the SEC no later than 120 days after the end of AIGs fiscal year
pursuant to Regulation 14A.
For a discussion of legal proceedings see Note 16 to the Consolidated Financial Statements, which is incorporated herein by
reference.
Purchases of Equity Securities
ITEM 4 | Mine Safety Disclosures
Not applicable.
Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG
Common Stock through a series of actions. On May 3, 2017, our Board of Directors approved an additional increase of $2.5 billion to
the share repurchase authorization.
During the three-month period ended December 31, 2017, we did not repurchase any shares of AIG Common Stock or any warrants
to purchase shares of AIG Common Stock under this authorization.
30
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
31
1011252ai_financials.indd 30
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 1B | Unresolved Staff Comments
There are no material unresolved written comments that were received from the SEC staff 180 days or more before the end of our
fiscal year relating to periodic or current reports under the Securities Exchange Act of 1934.
Part II
ITEM 5 | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 2 | Properties
Stevens Point, Wisconsin
Other Operations:
Livingston, New Jersey
Ft. Worth, Texas
ITEM 5 | Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
We operate from approximately 160 offices in the United States and approximately 380 offices in approximately 60 foreign countries.
The following offices are located in buildings in the United States owned by us:
AIGs common stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange (NYSE: AIG) and
the Tokyo Stock Exchange. There were approximately 25,522 stockholders of record of AIG Common Stock as of February 7, 2018.
General Insurance Companies:
Life and Retirement Companies:
Amarillo and Houston, Texas
The following table presents high and low closing sale prices of AIG Common Stock on the New York Stock Exchange
Composite Tape for each quarter of 2017 and 2016, and the dividends declared per share during those periods:
175 Water Street in New York, New York (Corporate Headquarters; also includes General Insurance companies)
In addition, our General Insurance companies own offices in 13 foreign countries and jurisdictions including Bermuda, Ecuador,
Japan, Mexico, the UK and Venezuela. The remainder of the office space we use is leased. We believe that our leases and
properties are sufficient for our current purposes.
LOCATIONS OF CERTAIN ASSETS
First quarter
Second quarter
Third quarter
Fourth quarter
Dividends
2017
2016
$
$
High
67.20
64.25
66.06
65.13
Low
60.85
58.98
58.27
58.11
$
Dividends
0.320
0.320
0.320
0.320
$
High
60.64
58.32
59.86
66.70
$
$
Low
50.20
48.79
51.21
57.38
Dividends
0.320
0.320
0.320
0.320
As of December 31, 2017, approximately 11 percent of our consolidated assets were located outside the U.S. and Canada, including
$491 million of cash and securities on deposit with regulatory authorities in those locations.
On February 8, 2018, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
29, 2018 to shareholders of record on March 15, 2018.
For additional geographic information see Note 3 to the Consolidated Financial Statements.
For total carrying values of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities
see Note 6 to the Consolidated Financial Statements.
Operations outside the U.S. and Canada and assets held abroad may be adversely affected by political developments in foreign
countries, including tax changes, nationalization and changes in regulatory policy, as well as by consequence of hostilities and unrest.
The risks of such occurrences and their overall effect upon us vary from country to country and cannot be predicted. If expropriation
or nationalization does occur, our policy is to take all appropriate measures to seek recovery of any affected assets. Certain of the
countries in which our business is conducted have currency restrictions that generally cause a delay in a companys ability to
repatriate assets and profits.
For additional information see Item 1A. Risk Factors Business and Operations.
Any dividend payment must be approved by AIGs Board of Directors. In determining whether to pay any dividend, our Board of
Directors may consider AIGs financial position, the performance of our businesses, our consolidated financial condition, results of
operations, capital and liquidity positions and risk profile, our expectations for capital generation and utilization, the existence of
investment opportunities, and other factors.
For a discussion of certain restrictions on the payment of dividends to AIG by some of its insurance subsidiaries see Item 1A. Risk
Factors Liquidity, Capital and Credit AIG Parents ability to access funds from our subsidiaries is limited, and Note 19 to the
Consolidated Financial Statements.
Equity Compensation Plans
Our table of equity compensation plans will be included in the definitive proxy statement for AIGs 2018 Annual Meeting of
Shareholders. The definitive proxy statement will be filed with the SEC no later than 120 days after the end of AIGs fiscal year
pursuant to Regulation 14A.
For a discussion of legal proceedings see Note 16 to the Consolidated Financial Statements, which is incorporated herein by
Purchases of Equity Securities
Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG
Common Stock through a series of actions. On May 3, 2017, our Board of Directors approved an additional increase of $2.5 billion to
the share repurchase authorization.
During the three-month period ended December 31, 2017, we did not repurchase any shares of AIG Common Stock or any warrants
to purchase shares of AIG Common Stock under this authorization.
ITEM 3 | Legal Proceedings
reference.
Not applicable.
ITEM 4 | Mine Safety Disclosures
30
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
31
1011252ai_financials.indd 31
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 5 | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6 | Selected Financial Data
As of December 31, 2017, approximately $2.3 billion remained under our share repurchase authorization. We did not
repurchase any shares of AIG Common Stock from January 1, 2018 to February 8, 2018. Shares may be repurchased from time
to time in the open market, private purchases, through forward, derivative, accelerated repurchase or automatic repurchase
transactions or otherwise (including through the purchase of warrants). Certain of our share repurchases have been and may from
time to time be effected through Exchange Act Rule 10b5-1 repurchase plans. The timing of any future share repurchases will depend
on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and other factors.
For additional information on our share purchases see Note 17 to the Consolidated Financial Statements.
Common Stock Performance Graph
The following Performance Graph compares the cumulative total shareholder return on AIG Common Stock for a five-year period
(December 31, 2012 to December 31, 2017) with the cumulative total return of the S&Ps 500 stock index (which includes AIG), the
S&P Property and Casualty Insurance Index (S&P P&C Index) and the S&P Life and Health Insurance Index (S&P L&H Index).
Value of $100 Invested on December 31, 2012
(All $ as of December 31st)
$350
$300
$250
$200
$150
$100
$50
$0
2012
2013
2014
2015
2016
2017
AMERICAN INTERNATIONAL GROUP
S&P 500 INDEX
S&P 500 Property & Casualty Insurance Index
S&P 500 Life & Health Insurance Index
Dividend reinvestment has been assumed and returns have been weighted to reflect relative stock market capitalization.
AIG
S&P 500
S&P 500 Property & Casualty Insurance Index
S&P 500 Life & Health Insurance
$
2012
100.00
100.00
100.00
100.00
$
2013
145.20
132.39
138.29
163.48
$
As of December 31,
2014
160.80
150.51
160.06
166.66
2015
180.37
152.59
175.32
156.14
$
$
2016
194.36
170.84
202.85
194.96
$
2017
181.03
208.14
248.26
226.98
ITEM 6 | Selected Financial Data
The Selected Consolidated Financial Data should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying notes
included elsewhere herein.
(in millions, except per share data)
2017
2016
2015
2014
2013
Years Ended December 31,
$
31,374
$
34,393
$
36,655
$
37,254
$
37,499
Revenues:
Premiums
Policy fees
Net investment income
Net realized capital gains (losses)
Aircraft leasing revenue
Other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
Aircraft leasing expenses
Net (gain) loss on extinguishment of debt
Net (gain) loss on sale of divested businesses
Total benefits, losses and expenses
Income (loss) from continuing operations before income taxes
Income tax expense
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes
Net income (loss)
Net income (loss) from continuing operations attributable
to noncontrolling interests
Net income (loss) attributable to AIG
Income (loss) per common share attributable to AIG
common shareholders
Basic
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to AIG
Diluted
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to AIG
Dividends declared per common share
2,935
14,179
(1,380)
-
2,412
49,520
29,972
3,592
4,288
9,107
1,168
-
(5)
(68)
48,054
1,466
7,526
(6,060)
4
(6,056)
28
(6,084)
(6.54)
(6.54)
(6.54)
-
-
(6.54)
1.28
2,732
14,065
(1,944)
-
3,121
52,367
32,437
3,705
4,521
10,989
1,260
-
74
(545)
52,441
(74)
185
(259)
(90)
(349)
500
(849)
(0.70)
(0.08)
(0.78)
(0.70)
(0.08)
(0.78)
1.28
2,755
14,053
776
-
4,088
58,327
31,345
3,731
5,236
12,686
1,281
-
756
11
55,046
3,281
1,059
2,222
-
2,222
26
2,196
1.69
1.69
1.65
-
-
1.65
0.81
2,615
16,079
739
1,602
6,117
64,406
28,281
3,768
5,330
13,138
1,718
1,585
2,282
(2,197)
53,905
10,501
2,927
7,574
(50)
7,524
(5)
7,529
5.31
(0.04)
5.27
5.24
(0.04)
5.20
0.50
2,340
15,810
1,939
4,420
6,866
68,874
29,503
3,892
5,157
13,564
2,142
4,549
651
48
59,506
9,368
360
9,008
84
9,092
7
9,085
6.11
0.05
6.16
6.08
0.05
6.13
0.20
32
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
33
1011252ai_financials.indd 32
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 5 | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6 | Selected Financial Data
As of December 31, 2017, approximately $2.3 billion remained under our share repurchase authorization. We did not
repurchase any shares of AIG Common Stock from January 1, 2018 to February 8, 2018. Shares may be repurchased from time
to time in the open market, private purchases, through forward, derivative, accelerated repurchase or automatic repurchase
transactions or otherwise (including through the purchase of warrants). Certain of our share repurchases have been and may from
time to time be effected through Exchange Act Rule 10b5-1 repurchase plans. The timing of any future share repurchases will depend
on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and other factors.
For additional information on our share purchases see Note 17 to the Consolidated Financial Statements.
Common Stock Performance Graph
The following Performance Graph compares the cumulative total shareholder return on AIG Common Stock for a five-year period
(December 31, 2012 to December 31, 2017) with the cumulative total return of the S&Ps 500 stock index (which includes AIG), the
S&P Property and Casualty Insurance Index (S&P P&C Index) and the S&P Life and Health Insurance Index (S&P L&H Index).
Value of $100 Invested on December 31, 2012
(All $ as of December 31st)
Dividend reinvestment has been assumed and returns have been weighted to reflect relative stock market capitalization.
AIG
S&P 500
S&P 500 Property & Casualty Insurance Index
S&P 500 Life & Health Insurance
$
$
$
$
$
$
As of December 31,
2012
100.00
100.00
100.00
100.00
2013
145.20
132.39
138.29
163.48
2014
160.80
150.51
160.06
166.66
2015
180.37
152.59
175.32
156.14
2016
194.36
170.84
202.85
194.96
2017
181.03
208.14
248.26
226.98
ITEM 6 | Selected Financial Data
The Selected Consolidated Financial Data should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying notes
included elsewhere herein.
(in millions, except per share data)
2017
2016
2015
2014
2013
Years Ended December 31,
Revenues:
Premiums
Policy fees
Net investment income
Net realized capital gains (losses)
Aircraft leasing revenue
Other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
Aircraft leasing expenses
Net (gain) loss on extinguishment of debt
Net (gain) loss on sale of divested businesses
Total benefits, losses and expenses
Income (loss) from continuing operations before income taxes
Income tax expense
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes
Net income (loss)
Net income (loss) from continuing operations attributable
to noncontrolling interests
Net income (loss) attributable to AIG
Income (loss) per common share attributable to AIG
common shareholders
Basic
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to AIG
Diluted
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to AIG
Dividends declared per common share
$
31,374
$
34,393
$
36,655
$
37,254
$
37,499
2,935
14,179
(1,380)
-
2,412
49,520
29,972
3,592
4,288
9,107
1,168
-
(5)
(68)
48,054
1,466
7,526
(6,060)
4
(6,056)
28
(6,084)
(6.54)
-
(6.54)
(6.54)
-
(6.54)
1.28
2,732
14,065
(1,944)
-
3,121
52,367
32,437
3,705
4,521
10,989
1,260
-
74
(545)
52,441
(74)
185
(259)
(90)
(349)
500
(849)
(0.70)
(0.08)
(0.78)
(0.70)
(0.08)
(0.78)
1.28
2,755
14,053
776
-
4,088
58,327
31,345
3,731
5,236
12,686
1,281
-
756
11
55,046
3,281
1,059
2,222
-
2,222
26
2,196
1.69
-
1.69
1.65
-
1.65
0.81
2,615
16,079
739
1,602
6,117
64,406
28,281
3,768
5,330
13,138
1,718
1,585
2,282
(2,197)
53,905
10,501
2,927
7,574
(50)
7,524
(5)
7,529
5.31
(0.04)
5.27
5.24
(0.04)
5.20
0.50
2,340
15,810
1,939
4,420
6,866
68,874
29,503
3,892
5,157
13,564
2,142
4,549
651
48
59,506
9,368
360
9,008
84
9,092
7
9,085
6.11
0.05
6.16
6.08
0.05
6.13
0.20
32
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
33
1011252ai_financials.indd 33
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 6 | Selected Financial Data
ITEM 6 | Selected Financial Data
Year-end balance sheet data:
Total investments
Total assets
Long-term debt
Total liabilities
Total AIG shareholders' equity
Total equity
Book value per common share
322,292
498,301
31,640
432,593
65,171
65,708
72.49
328,175
498,264
30,912
421,406
76,300
76,858
76.66
338,354
496,842
29,249
406,632
89,658
90,210
75.10
355,766
515,500
31,136
408,228
106,898
107,272
77.69
356,428
541,221
41,585
440,110
100,470
101,081
68.62
Book value per common share, excluding Accumulated other
comprehensive income (loss)(a)
Adjusted book value per common share(a)
ROE
Adjusted ROE(a)
66.41
54.74
(8.4)%
4.1
73.41
58.57
(1.0)%
0.6
72.97
58.94
2.2 %
3.7
69.98
58.23
7.1 %
8.8
64.28
52.12
9.2 %
9.0
(in millions, except per share data)
Other data:
Catastrophe-related losses(b)
Prior year unfavorable development
Other-than-temporary impairments
Adjustment to federal deferred tax valuation allowance
Impact of Tax Act
Net positive (negative) adjustment from update of
Years Ended December 31,
2017
2016
2015
2014
2013
$
4,167
$
978
260
43
6,687
1,331
5,788
559
83
-
$
731
$
4,119
671
110
-
3
$
728
703
247
(181)
-
787
557
232
(3,165)
-
Life and Retirement actuarial assumptions
$
68
$
(427)
$
$
168
$
214
(a) Book value per common share excluding Accumulated other comprehensive income (loss) (AOCI), Book value per common share excluding AOCI and DTA (Adjusted
book value per common share), and return on equity adjusted after-tax income excluding AOCI and DTA (Adjusted return on equity) are non-GAAP financial measures
and the reconciliations to the relevant GAAP financial measures are below. For additional information see Item 7. MD&A Use of Non-GAAP Measures.
Reconciliation of Non-GAAP Measures Included in Selected Financial Data
The following table presents a reconciliation of Book value per common share to Book value per common share, excluding
AOCI and Book value per common share, excluding AOCI and DTA (Adjusted book value per common share), which are non-
GAAP measures. For additional information see Item 7. MD&A Use of Non-GAAP Measures.
(in millions, except per share data)
Total AIG shareholders' equity
Accumulated other comprehensive income
Total AIG shareholders' equity, excluding AOCI
Deferred tax assets
Adjusted shareholders' equity
Total common shares outstanding
Book value per common share
Book value per common share, excluding AOCI
Adjusted book value per common share
2017
2016
2015
2014
$
65,171 $
76,300 $
89,658 $
106,898 $
At December 31,
5,465
59,706
10,492
49,214
3,230
73,070
14,770
58,300
2,537
87,121
16,751
70,370
10,617
96,281
16,158
80,123
2013
100,470
6,360
94,110
17,797
76,313
899,044,657
995,335,841
1,193,916,617
1,375,926,971
1,464,063,323
$
72.49 $
66.41
54.74
76.66 $
73.41
58.57
75.10 $
72.97
58.94
77.69 $
69.98
58.23
68.62
64.28
52.12
The following table presents a reconciliation of Return on equity to Adjusted return on equity, which is a non-GAAP
measure. For additional information see Item 7. MD&A Use of Non-GAAP Measures.
Years Ended December 31,
(dollars in millions)
Net income (loss) attributable to AIG
Adjusted after-tax income attributable to AIG
Average AIG Shareholders' equity
2017
2016
$
(6,084) $
(849)
$
2,231
72,348
4,675
67,673
13,806
406
86,617
5,722
80,895
15,905
2015
2,196
2,872
$
2014
7,529
6,941
$
101,558
105,589
7,598
93,960
15,803
9,781
95,808
16,611
2013
9,085
6,449
98,850
8,865
89,985
18,150
71,835
(b) Natural and man-made catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each. Catastrophes also include
Average AOCI
certain man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
Items Affecting Comparability Between Periods
The following are significant developments that affected multiple periods and financial statement captions.
ASSET DISPOSITIONS IN 2015, 2016 AND 2017
In 2015 we sold all of our ordinary shares of AerCap Holdings N.V. (AerCap) received as part of the consideration for the sale of
International Lease Finance Corporation (ILFC). In 2016, we sold United Guaranty to Arch Capital Group Ltd. In 2017, we sold Fuji
Life to FWD Group and certain international insurance operations to Fairfax Financial Holdings Limited (Fairfax).
For further discussion on 2016 and 2017 asset dispositions see Note 1 to the Consolidated Financial Statements.
Average AIG Shareholders' equity, excluding average AOCI
Average DTA
Average adjusted Shareholders' equity
$
53,867
$
64,990
$
78,157
$
79,197
$
ROE
Adjusted Return on Equity
(8.4)%
4.1
(1.0) %
0.6
2.2 %
3.7
7.1 %
8.8
9.2 %
9.0
34
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
35
1011252ai_financials.indd 34
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 6 | Selected Financial Data
ITEM 6 | Selected Financial Data
Year-end balance sheet data:
Total investments
Total assets
Long-term debt
Total liabilities
Total AIG shareholders' equity
Total equity
Book value per common share
322,292
498,301
31,640
432,593
65,171
65,708
72.49
328,175
498,264
30,912
421,406
76,300
76,858
76.66
338,354
496,842
29,249
406,632
89,658
90,210
75.10
355,766
515,500
31,136
408,228
106,898
107,272
77.69
356,428
541,221
41,585
440,110
100,470
101,081
68.62
Book value per common share, excluding Accumulated other
comprehensive income (loss)(a)
Adjusted book value per common share(a)
ROE
Adjusted ROE(a)
66.41
54.74
(8.4)%
4.1
73.41
58.57
(1.0)%
0.6
72.97
58.94
2.2 %
3.7
69.98
58.23
7.1 %
8.8
64.28
52.12
9.2 %
9.0
(in millions, except per share data)
Other data:
Catastrophe-related losses(b)
Prior year unfavorable development
Other-than-temporary impairments
Adjustment to federal deferred tax valuation allowance
Impact of Tax Act
Net positive (negative) adjustment from update of
Years Ended December 31,
2017
2016
2015
2014
2013
$
4,167
$
$
731
$
$
978
260
43
6,687
1,331
5,788
559
83
-
4,119
671
110
-
3
728
703
247
(181)
-
787
557
232
(3,165)
-
Life and Retirement actuarial assumptions
$
68
$
(427)
$
$
168
$
214
(a) Book value per common share excluding Accumulated other comprehensive income (loss) (AOCI), Book value per common share excluding AOCI and DTA (Adjusted
book value per common share), and return on equity adjusted after-tax income excluding AOCI and DTA (Adjusted return on equity) are non-GAAP financial measures
and the reconciliations to the relevant GAAP financial measures are below. For additional information see Item 7. MD&A Use of Non-GAAP Measures.
Reconciliation of Non-GAAP Measures Included in Selected Financial Data
The following table presents a reconciliation of Book value per common share to Book value per common share, excluding
AOCI and Book value per common share, excluding AOCI and DTA (Adjusted book value per common share), which are non-
GAAP measures. For additional information see Item 7. MD&A Use of Non-GAAP Measures.
(in millions, except per share data)
Total AIG shareholders' equity
Accumulated other comprehensive income
Total AIG shareholders' equity, excluding AOCI
Deferred tax assets
Adjusted shareholders' equity
Total common shares outstanding
Book value per common share
Book value per common share, excluding AOCI
Adjusted book value per common share
2017
2016
2015
2014
$
65,171 $
76,300 $
89,658 $
106,898 $
At December 31,
5,465
59,706
10,492
49,214
3,230
73,070
14,770
58,300
2,537
87,121
16,751
70,370
10,617
96,281
16,158
80,123
2013
100,470
6,360
94,110
17,797
76,313
899,044,657
995,335,841
1,193,916,617
1,375,926,971
1,464,063,323
$
72.49 $
66.41
54.74
76.66 $
73.41
58.57
75.10 $
72.97
58.94
77.69 $
69.98
58.23
68.62
64.28
52.12
The following table presents a reconciliation of Return on equity to Adjusted return on equity, which is a non-GAAP
measure. For additional information see Item 7. MD&A Use of Non-GAAP Measures.
Years Ended December 31,
(dollars in millions)
Net income (loss) attributable to AIG
Adjusted after-tax income attributable to AIG
Average AIG Shareholders' equity
2017
2016
$
(6,084) $
(849)
$
2,231
72,348
4,675
67,673
13,806
406
86,617
5,722
80,895
15,905
2015
2,196
2,872
$
2014
7,529
6,941
$
101,558
105,589
7,598
93,960
15,803
9,781
95,808
16,611
2013
9,085
6,449
98,850
8,865
89,985
18,150
71,835
(b) Natural and man-made catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each. Catastrophes also include
Average AOCI
certain man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
Average AIG Shareholders' equity, excluding average AOCI
Average DTA
Average adjusted Shareholders' equity
$
53,867
$
64,990
$
78,157
$
79,197
$
Items Affecting Comparability Between Periods
ROE
Adjusted Return on Equity
(8.4)%
4.1
(1.0) %
0.6
2.2 %
3.7
7.1 %
8.8
9.2 %
9.0
The following are significant developments that affected multiple periods and financial statement captions.
ASSET DISPOSITIONS IN 2015, 2016 AND 2017
In 2015 we sold all of our ordinary shares of AerCap Holdings N.V. (AerCap) received as part of the consideration for the sale of
International Lease Finance Corporation (ILFC). In 2016, we sold United Guaranty to Arch Capital Group Ltd. In 2017, we sold Fuji
Life to FWD Group and certain international insurance operations to Fairfax Financial Holdings Limited (Fairfax).
For further discussion on 2016 and 2017 asset dispositions see Note 1 to the Consolidated Financial Statements.
34
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
35
1011252ai_financials.indd 35
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Managements Discussion and Analysis of Financial
Condition and Results of Operations
INDEX TO ITEM 7
ITEM 7 | Index to Item 7
Cautionary Statement Regarding Forward-Looking Information
This Annual Report on Form 10-K (Annual Report) and other publicly available documents 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 our belief regarding
future events, many of which, by their nature, are inherently uncertain and outside our control. These projections, goals, assumptions
and statements include statements preceded by, followed by or including words such as will, believe, anticipate, expect,
intend, plan, focused on achieving, view, target, "goal" or estimate. These projections, goals, assumptions and statements
may address, among other things, our:
exposures to subprime mortgages, monoline insurers, the
residential and commercial real estate markets, state and
municipal bond issuers, sovereign bond issuers, the energy
sector and currency exchange rates;
exposure to European governments and European financial
institutions;
strategy for risk management;
actual and anticipated sales, monetizations and/or
acquisitions of businesses or assets, including our ability to
successfully consummate the purchase of Validus Holdings,
Ltd.;
restructuring of business operations, including anticipated
restructuring charges and annual cost savings;
generation of deployable capital;
strategies to increase return on equity and earnings per share;
strategies to grow net investment income, efficiently manage
capital, grow book value per common share, and reduce
expenses;
anticipated organizational, business and regulatory changes;
strategies for customer retention, growth, product
development, market position, financial results and reserves;
management of the impact that innovation and technology
changes may have on customer preferences, the frequency or
severity of losses and/or the way we distribute and underwrite
our products;
segments revenues and combined ratios; and
management succession and retention plans.
It is possible that our 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 our actual results to differ, possibly
materially, from those in the specific projections, goals, assumptions and statements include:
changes in market conditions;
negative impacts on customers, business partners and other
stakeholders;
the occurrence of catastrophic events, both natural and man-
made;
significant legal, regulatory or governmental proceedings;
the timing and applicable requirements of any regulatory
framework to which we are subject, including as a global
systemically important insurer (G-SII);
concentrations in our investment portfolios;
actions by credit rating agencies;
judgments concerning casualty insurance underwriting and
insurance liabilities;
our ability to successfully manage Legacy portfolios;
our ability to successfully reduce costs and expenses and
make business and organizational changes without negatively
impacting client relationships or our competitive position;
our ability to successfully dispose of, monetize and/or acquire
businesses or assets, including our ability to successfully
consummate the purchase of Validus Holdings, Ltd.;
judgments concerning the recognition of deferred tax assets;
judgments concerning estimated restructuring charges and
estimated cost savings; and
such other factors discussed in:
Part I, Item 1A. Risk Factors of this Annual Report; and
this Part II, Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations (MD&A)
of this Annual Report.
Use of Non-GAAP Measures
Critical Accounting Estimates
Executive Summary
Overview
Financial Performance Summary
AIG's Outlook Industry and Economic Factors
Consolidated Results of Operations
Business Segment Operations
General Insurance
Life and Retirement
Other Operations
Legacy Portfolio
Investments
Overview
Investment Highlights
Investment Strategies
Credit Ratings
Impairments
Insurance Reserves
Loss Reserves
Life and Annuity Reserves and DAC
Liquidity and Capital Resources
Overview
Analysis of Sources and Uses of Cash
Liquidity and Capital Resources of AIG Parent and Subsidiaries
Credit Facilities
Contractual Obligations
Off-Balance Sheet Arrangements and Commercial Commitments
Debt
Credit Ratings
Financial Strength Ratings
Regulation and Supervision
Dividends and Repurchases of AIG Common Stock
Dividend Restrictions
Enterprise Risk Management
Overview
Risk Governance Structure
Risk Appetite, Limits, Identification, and Measurement
Credit Risk Management
Market Risk Management
Liquidity Risk Management
Operational Risk Management
Insurance Risks
Other Business Risks
Glossary
Acronyms
Page
38
40
55
55
56
59
63
69
70
82
99
100
103
103
103
103
106
111
115
115
119
127
127
129
130
132
133
134
135
137
137
138
138
138
139
139
139
141
142
143
148
149
150
158
159
162
We are not under any obligation (and expressly disclaim 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.
Throughout the MD&A, we use certain terms and abbreviations, which are summarized in the Glossary and Acronyms.
We have incorporated into this discussion a number of cross-references to additional information included throughout this Annual
Report to assist readers seeking additional information related to a particular subject.
36
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
37
1011252ai_financials.indd 36
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Managements Discussion and Analysis of Financial
Condition and Results of Operations
INDEX TO ITEM 7
Cautionary Statement Regarding Forward-Looking Information
This Annual Report on Form 10-K (Annual Report) and other publicly available documents 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 our belief regarding
future events, many of which, by their nature, are inherently uncertain and outside our control. These projections, goals, assumptions
and statements include statements preceded by, followed by or including words such as will, believe, anticipate, expect,
intend, plan, focused on achieving, view, target, "goal" or estimate. These projections, goals, assumptions and statements
may address, among other things, our:
exposures to subprime mortgages, monoline insurers, the
strategies to grow net investment income, efficiently manage
residential and commercial real estate markets, state and
capital, grow book value per common share, and reduce
municipal bond issuers, sovereign bond issuers, the energy
expenses;
sector and currency exchange rates;
exposure to European governments and European financial
institutions;
strategy for risk management;
anticipated organizational, business and regulatory changes;
strategies for customer retention, growth, product
development, market position, financial results and reserves;
management of the impact that innovation and technology
actual and anticipated sales, monetizations and/or
acquisitions of businesses or assets, including our ability to
changes may have on customer preferences, the frequency or
severity of losses and/or the way we distribute and underwrite
successfully consummate the purchase of Validus Holdings,
our products;
Ltd.;
restructuring of business operations, including anticipated
restructuring charges and annual cost savings;
generation of deployable capital;
strategies to increase return on equity and earnings per share;
segments revenues and combined ratios; and
management succession and retention plans.
It is possible that our 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 our actual results to differ, possibly
materially, from those in the specific projections, goals, assumptions and statements include:
changes in market conditions;
negative impacts on customers, business partners and other
stakeholders;
made;
the occurrence of catastrophic events, both natural and man-
significant legal, regulatory or governmental proceedings;
the timing and applicable requirements of any regulatory
framework to which we are subject, including as a global
systemically important insurer (G-SII);
concentrations in our investment portfolios;
actions by credit rating agencies;
judgments concerning casualty insurance underwriting and
insurance liabilities;
our ability to successfully manage Legacy portfolios;
our ability to successfully reduce costs and expenses and
make business and organizational changes without negatively
impacting client relationships or our competitive position;
our ability to successfully dispose of, monetize and/or acquire
businesses or assets, including our ability to successfully
consummate the purchase of Validus Holdings, Ltd.;
judgments concerning the recognition of deferred tax assets;
judgments concerning estimated restructuring charges and
estimated cost savings; and
such other factors discussed in:
Part I, Item 1A. Risk Factors of this Annual Report; and
this Part II, Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations (MD&A)
of this Annual Report.
Use of Non-GAAP Measures
Critical Accounting Estimates
Executive Summary
Overview
Financial Performance Summary
AIG's Outlook Industry and Economic Factors
Consolidated Results of Operations
Business Segment Operations
General Insurance
Life and Retirement
Other Operations
Legacy Portfolio
Investments
Overview
Investment Highlights
Investment Strategies
Credit Ratings
Impairments
Insurance Reserves
Loss Reserves
Life and Annuity Reserves and DAC
Liquidity and Capital Resources
Overview
Analysis of Sources and Uses of Cash
Liquidity and Capital Resources of AIG Parent and Subsidiaries
Credit Facilities
Contractual Obligations
Off-Balance Sheet Arrangements and Commercial Commitments
Debt
Credit Ratings
Financial Strength Ratings
Regulation and Supervision
Dividends and Repurchases of AIG Common Stock
Dividend Restrictions
Enterprise Risk Management
Overview
Risk Governance Structure
Risk Appetite, Limits, Identification, and Measurement
Credit Risk Management
Market Risk Management
Liquidity Risk Management
Operational Risk Management
Insurance Risks
Other Business Risks
Glossary
Acronyms
ITEM 7 | Index to Item 7
Page
38
40
55
55
56
59
63
69
70
82
99
100
103
103
103
103
106
111
115
115
119
127
127
129
130
132
133
134
135
137
137
138
138
138
139
139
139
141
142
143
148
149
150
158
159
162
We are not under any obligation (and expressly disclaim any obligation) to update or alter any projections, goals, assumptions or
Throughout the MD&A, we use certain terms and abbreviations, which are summarized in the Glossary and Acronyms.
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.
36
AIG | 2017 Form 10-K
We have incorporated into this discussion a number of cross-references to additional information included throughout this Annual
Report to assist readers seeking additional information related to a particular subject.
AIG | 2017 Form 10-K
37
1011252ai_financials.indd 37
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Use of Non-GAAP Measures
ITEM 7 | Use of Non-GAAP Measures
Use of Non-GAAP Measures
In Item 1. Business, Item 6. Selected Financial Data and throughout this MD&A, we present our financial condition and results of
operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we
use are non-GAAP financial measures under Securities and Exchange Commission rules and regulations. GAAP is the acronym for
generally accepted accounting principles in the United States. The non-GAAP financial measures we present may not be
comparable to similarly-named measures reported by other companies.
Book value per common share, excluding accumulated other comprehensive income (AOCI) and Book value per common
share, excluding AOCI and deferred tax assets (DTA) (Adjusted book value per common share) are used to show the amount
of our net worth on a per-share basis. We believe these measures are useful to investors because they eliminate items that can
fluctuate significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign
currency translation adjustments and U.S. tax attribute deferred tax assets. These measures also eliminate the asymmetrical impact
resulting from changes in fair value of our available for sale securities portfolio wherein there is largely no offsetting impact for certain
related insurance liabilities. We exclude deferred tax assets representing U.S. tax attributes related to net operating loss
carryforwards and foreign tax credits as they have not yet been utilized. Amounts for interim periods are estimates based on
projections of full-year attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the
DTA utilized is included in these book value per common share metrics. Book value per common share excluding AOCI, is derived by
dividing total AIG shareholders equity, excluding AOCI, by total common shares outstanding. Adjusted book value per common share
is derived by dividing total AIG shareholders equity, excluding AOCI and DTA (Adjusted Shareholders Equity), by total common
shares outstanding. The reconciliation to book value per common share, the most comparable GAAP measure, is presented in Item 6.
Selected Financial Data.
Return on equity Adjusted after-tax income excluding AOCI and DTA (Adjusted return on equity) is used to show the rate of
return on shareholders equity. We believe this measure is useful to investors because it eliminates items that can fluctuate
significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign currency
translation adjustments and U.S. tax attribute deferred tax assets. This measure also eliminates the asymmetrical impact resulting
from changes in fair value of our available for sale securities portfolio wherein there is largely no offsetting impact for certain related
insurance liabilities. We exclude deferred tax assets representing U.S. tax attributes related to net operating loss carryforwards and
foreign tax credits as they have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year
attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the DTA utilized is included in
Adjusted return on equity. Adjusted return on equity is derived by dividing actual or annualized adjusted after-tax income attributable
to AIG by average Adjusted Shareholders Equity. The reconciliation to return on equity, the most comparable GAAP measure, is
presented in Item 6. Selected Financial Data.
Adjusted after-tax income attributable to AIG is derived by excluding the tax effected adjusted pre-tax income (APTI) adjustments
described below and the following tax items from net income attributable to AIG:
deferred income tax valuation allowance releases and charges;
We use the following operating performance measures because we believe they enhance the understanding of the underlying
profitability of continuing operations and trends of our business segments. We believe they also allow for more meaningful
comparisons with our insurance competitors. When we use these measures, reconciliations to the most comparable GAAP measure
are provided on a consolidated basis in the Consolidated Results of Operations section of this MD&A.
Adjusted revenues exclude Net realized capital gains (losses), income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities used to hedge guaranteed living benefits (included in Net
investment income for GAAP purposes). Adjusted revenues is a GAAP measure for our operating segments.
Adjusted pre-tax income is derived by excluding the following items from income from continuing operations before income tax. This
definition is consistent across our operating segments. These items generally fall into one or more of the following broad categories:
legacy matters having no relevance to our current businesses or operating performance; adjustments to enhance transparency to the
underlying economics of transactions; and measures that we believe to be common to the industry. APTI is a GAAP measure for our
operating segments.
changes in fair value of securities used to hedge guaranteed
pension expense related to a one-time lump sum payment to
living benefits;
former employees;
changes in benefit reserves and deferred policy acquisition
income and loss from divested businesses;
costs (DAC), value of business acquired (VOBA), and sales
inducement assets (SIA) related to net realized capital gains
and losses;
loss (gain) on extinguishment of debt;
net realized capital gains and losses;
non-operating litigation reserves and settlements;
reserve development related to non-operating run-off
insurance business;
restructuring and other costs related to initiatives designed to
reduce operating expenses, improve efficiency and simplify
non-qualifying derivative hedging activities, excluding net
our organization; and
realized capital gains and losses;
the portion of favorable or unfavorable prior year reserve
income or loss from discontinued operations;
development for which we have ceded the risk under
net loss reserve discount benefit (charge);
retroactive reinsurance agreements and related changes in
amortization of the deferred gain.
• General Insurance
Ratios: We, along with most property and casualty insurance companies, use the loss ratio, the expense ratio and the
combined ratio as measures of underwriting performance. These ratios are relative measurements that describe, for every $100
of net premiums earned, the amount of losses and loss adjustment expenses (which for General Insurance excludes net loss
reserve discount), and the amount of other underwriting expenses that would be incurred. A combined ratio of less than 100
indicates underwriting income and a combined ratio of over 100 indicates an underwriting loss. Our ratios are calculated using
the relevant segment information calculated under GAAP, and thus may not be comparable to similar ratios calculated for
regulatory reporting purposes. The underwriting environment varies across countries and products, as does the degree of
litigation activity, all of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product
type and competition can have an effect on pricing and consequently on profitability as reflected in underwriting income and
changes in uncertain tax positions and other tax items related to legacy matters having no relevance to our current businesses or
operating performance; and
associated ratios.
net tax charge related to the enactment of the Tax Act.
General operating expenses, adjusted basis is derived by making the following adjustments to general operating and other
expenses: include (i) certain loss adjustment expenses, reported as policyholder benefits and losses incurred and (ii) certain
investment and other expenses reported as net investment income, and exclude (i) advisory fee expenses, (ii) non-deferrable
insurance commissions, (iii) direct marketing and acquisition expenses, net of deferrals and (iv) non-operating litigation reserves. We
use General operating expenses, adjusted basis, because we believe it provides a more meaningful indication of our ordinary course
of business operating costs, regardless of within which financial statement line item these expenses are reported externally within our
segment results. The majority of these expenses are employee-related costs. For example, Other acquisition expenses and loss
adjustment expenses primarily represent employee-related costs in the underwriting and claims functions, respectively. Excluded
from this measure are non-operating expenses (such as restructuring costs and litigation reserves), direct marketing expenses,
insurance company assessments and non-deferrable commissions.
• Life and Retirement
Premiums and deposits: includes direct and assumed amounts received and earned on traditional life insurance policies,
group benefit policies and life-contingent payout annuities, as well as deposits received on universal life, investment-type
annuity contracts and mutual funds.
Results from discontinued operations are excluded from all of these measures.
Accident year loss and combined ratios, as adjusted: both the accident year loss and combined ratios, as adjusted, exclude
catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments, and the impact
of reserve discounting. Natural and man-made catastrophe losses are generally weather or seismic events having a net impact
on AIG in excess of $10 million each and also include certain man-made events, such as terrorism and civil disorders that meet
the $10 million threshold. We believe the as adjusted ratios are meaningful measures of our underwriting results on an ongoing
basis as they exclude catastrophes and the impact of reserve discounting which are outside of managements control. We also
exclude prior year development to provide transparency related to current accident year results.
38
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
39
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Use of Non-GAAP Measures
ITEM 7 | Use of Non-GAAP Measures
Use of Non-GAAP Measures
In Item 1. Business, Item 6. Selected Financial Data and throughout this MD&A, we present our financial condition and results of
operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we
use are non-GAAP financial measures under Securities and Exchange Commission rules and regulations. GAAP is the acronym for
generally accepted accounting principles in the United States. The non-GAAP financial measures we present may not be
comparable to similarly-named measures reported by other companies.
Book value per common share, excluding accumulated other comprehensive income (AOCI) and Book value per common
share, excluding AOCI and deferred tax assets (DTA) (Adjusted book value per common share) are used to show the amount
of our net worth on a per-share basis. We believe these measures are useful to investors because they eliminate items that can
fluctuate significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign
currency translation adjustments and U.S. tax attribute deferred tax assets. These measures also eliminate the asymmetrical impact
resulting from changes in fair value of our available for sale securities portfolio wherein there is largely no offsetting impact for certain
related insurance liabilities. We exclude deferred tax assets representing U.S. tax attributes related to net operating loss
carryforwards and foreign tax credits as they have not yet been utilized. Amounts for interim periods are estimates based on
projections of full-year attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the
DTA utilized is included in these book value per common share metrics. Book value per common share excluding AOCI, is derived by
dividing total AIG shareholders equity, excluding AOCI, by total common shares outstanding. Adjusted book value per common share
is derived by dividing total AIG shareholders equity, excluding AOCI and DTA (Adjusted Shareholders Equity), by total common
shares outstanding. The reconciliation to book value per common share, the most comparable GAAP measure, is presented in Item 6.
Selected Financial Data.
Return on equity Adjusted after-tax income excluding AOCI and DTA (Adjusted return on equity) is used to show the rate of
return on shareholders equity. We believe this measure is useful to investors because it eliminates items that can fluctuate
significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign currency
translation adjustments and U.S. tax attribute deferred tax assets. This measure also eliminates the asymmetrical impact resulting
from changes in fair value of our available for sale securities portfolio wherein there is largely no offsetting impact for certain related
insurance liabilities. We exclude deferred tax assets representing U.S. tax attributes related to net operating loss carryforwards and
foreign tax credits as they have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year
attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the DTA utilized is included in
Adjusted return on equity. Adjusted return on equity is derived by dividing actual or annualized adjusted after-tax income attributable
to AIG by average Adjusted Shareholders Equity. The reconciliation to return on equity, the most comparable GAAP measure, is
presented in Item 6. Selected Financial Data.
Adjusted after-tax income attributable to AIG is derived by excluding the tax effected adjusted pre-tax income (APTI) adjustments
described below and the following tax items from net income attributable to AIG:
deferred income tax valuation allowance releases and charges;
changes in uncertain tax positions and other tax items related to legacy matters having no relevance to our current businesses or
operating performance; and
net tax charge related to the enactment of the Tax Act.
General operating expenses, adjusted basis is derived by making the following adjustments to general operating and other
expenses: include (i) certain loss adjustment expenses, reported as policyholder benefits and losses incurred and (ii) certain
investment and other expenses reported as net investment income, and exclude (i) advisory fee expenses, (ii) non-deferrable
insurance commissions, (iii) direct marketing and acquisition expenses, net of deferrals and (iv) non-operating litigation reserves. We
use General operating expenses, adjusted basis, because we believe it provides a more meaningful indication of our ordinary course
of business operating costs, regardless of within which financial statement line item these expenses are reported externally within our
segment results. The majority of these expenses are employee-related costs. For example, Other acquisition expenses and loss
adjustment expenses primarily represent employee-related costs in the underwriting and claims functions, respectively. Excluded
from this measure are non-operating expenses (such as restructuring costs and litigation reserves), direct marketing expenses,
insurance company assessments and non-deferrable commissions.
We use the following operating performance measures because we believe they enhance the understanding of the underlying
profitability of continuing operations and trends of our business segments. We believe they also allow for more meaningful
comparisons with our insurance competitors. When we use these measures, reconciliations to the most comparable GAAP measure
are provided on a consolidated basis in the Consolidated Results of Operations section of this MD&A.
Adjusted revenues exclude Net realized capital gains (losses), income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities used to hedge guaranteed living benefits (included in Net
investment income for GAAP purposes). Adjusted revenues is a GAAP measure for our operating segments.
Adjusted pre-tax income is derived by excluding the following items from income from continuing operations before income tax. This
definition is consistent across our operating segments. These items generally fall into one or more of the following broad categories:
legacy matters having no relevance to our current businesses or operating performance; adjustments to enhance transparency to the
underlying economics of transactions; and measures that we believe to be common to the industry. APTI is a GAAP measure for our
operating segments.
changes in fair value of securities used to hedge guaranteed
living benefits;
changes in benefit reserves and deferred policy acquisition
costs (DAC), value of business acquired (VOBA), and sales
inducement assets (SIA) related to net realized capital gains
and losses;
loss (gain) on extinguishment of debt;
net realized capital gains and losses;
non-qualifying derivative hedging activities, excluding net
realized capital gains and losses;
income or loss from discontinued operations;
net loss reserve discount benefit (charge);
pension expense related to a one-time lump sum payment to
former employees;
income and loss from divested businesses;
non-operating litigation reserves and settlements;
reserve development related to non-operating run-off
insurance business;
restructuring and other costs related to initiatives designed to
reduce operating expenses, improve efficiency and simplify
our organization; and
the portion of favorable or unfavorable prior year reserve
development for which we have ceded the risk under
retroactive reinsurance agreements and related changes in
amortization of the deferred gain.
• General Insurance
Ratios: We, along with most property and casualty insurance companies, use the loss ratio, the expense ratio and the
combined ratio as measures of underwriting performance. These ratios are relative measurements that describe, for every $100
of net premiums earned, the amount of losses and loss adjustment expenses (which for General Insurance excludes net loss
reserve discount), and the amount of other underwriting expenses that would be incurred. A combined ratio of less than 100
indicates underwriting income and a combined ratio of over 100 indicates an underwriting loss. Our ratios are calculated using
the relevant segment information calculated under GAAP, and thus may not be comparable to similar ratios calculated for
regulatory reporting purposes. The underwriting environment varies across countries and products, as does the degree of
litigation activity, all of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product
type and competition can have an effect on pricing and consequently on profitability as reflected in underwriting income and
associated ratios.
Accident year loss and combined ratios, as adjusted: both the accident year loss and combined ratios, as adjusted, exclude
catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments, and the impact
of reserve discounting. Natural and man-made catastrophe losses are generally weather or seismic events having a net impact
on AIG in excess of $10 million each and also include certain man-made events, such as terrorism and civil disorders that meet
the $10 million threshold. We believe the as adjusted ratios are meaningful measures of our underwriting results on an ongoing
basis as they exclude catastrophes and the impact of reserve discounting which are outside of managements control. We also
exclude prior year development to provide transparency related to current accident year results.
• Life and Retirement
Premiums and deposits: includes direct and assumed amounts received and earned on traditional life insurance policies,
group benefit policies and life-contingent payout annuities, as well as deposits received on universal life, investment-type
annuity contracts and mutual funds.
Results from discontinued operations are excluded from all of these measures.
38
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
39
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a
significant degree of judgment.
OVERVIEW OF LOSS RESERVING PROCESS AND METHODS
Our loss reserves can generally be categorized into two distinct groups. Short-tail reserves consists principally of U.S. Property and
Special Risks, Europe Property and Special Risks, U.S. Personal Insurance, and Europe and Japan Personal Insurance. Long-tail
reserves include U.S. Workers Compensation, U.S. Excess Casualty, U.S. Other Casualty, U.S. Financial Lines, Europe Casualty
and Financial Lines, and U.S. Run-off Long Tail Insurance Lines.
The accounting policies that we believe are most dependent on the application of estimates and assumptions,
which are critical accounting estimates, are related to the determination of:
Short-Tail Reserves
•
•
•
•
loss reserves;
reinsurance assets;
valuation of future policy benefit liabilities and timing and extent of loss recognition;
valuation of liabilities for guaranteed benefit features of variable annuity products;
• estimated gross profits to value deferred acquisition costs for investment-oriented products;
•
•
•
•
impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested
assets, including investments in life settlements, and goodwill impairment;
liability for legal contingencies;
fair value measurements of certain financial assets and liabilities; and
income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating
profitability of the character necessary to realize the net deferred tax asset and provisional estimates associated with the Tax Act.
For our short-tail coverages, such as property, where the nature of claims is generally high frequency with short reporting periods,
with volatility arising from occasional severe events, the process for recording non-catastrophe quarterly loss reserves is geared
toward maintaining IBNR based on percentages of net earned premiums for that business, rather than projecting ultimate loss ratios
based on reported losses. For example, the IBNR reserve required for the latest accident quarter for a product line such as
homeowners might be approximately 20 percent of the quarters earned premiums. This level of reserve would generally be recorded
regardless of the actual losses reported in the current quarter, thus recognizing severe events as they occur. The percent of premium
factor reflects both our expectation of the ultimate loss costs associated with the line of business and the expectation of the
percentage of ultimate loss costs that have not yet been reported. The expected ultimate loss costs generally reflect the average loss
costs from a period of preceding accident quarters that have been adjusted for changes in rate and loss cost levels, mix of business,
known exposure to unreported losses, or other factors affecting the particular line of business. The expected percentage of ultimate
loss costs that have not yet been reported would be derived from historical loss emergence patterns. For more mature quarters,
specific loss development methods would be used to determine the IBNR. For other product lines where the nature of claims is high
frequency but low severity, methods including loss development, frequency/severity or a multiple of average monthly losses may be
used to determine IBNR reserves. IBNR for claims arising from catastrophic events or events of unusual severity would be
determined in close collaboration with the claims departments knowledge of known information, using alternative techniques or
expected percentages of ultimate loss cost emergence based on historical loss emergence of similar claim types.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of
operations and cash flows could be materially affected.
Long-Tail Reserves
INSURANCE LIABILITIES
Loss Reserves
The estimate of the loss reserves relies on several key judgments:
•
•
•
•
the determination of the actuarial models used as the basis for these estimates;
the relative weights given to these models by product line;
the underlying assumptions used in these models; and
the determination of the appropriate groupings of similar product lines and, in some cases, the disaggregation of dissimilar losses
within a product line.
We use numerous assumptions in determining the best estimate of reserves for each line of business. The importance of any specific
assumption can vary by both line of business and accident year. Because actual experience can differ from key assumptions used in
establishing reserves, there is potential for significant variation in the development of loss reserves. This is particularly true for long-
tail classes of business.
All of our methods to calculate net reserves include assumptions about estimated reinsurance recoveries and their collectability.
Reinsurance collectability is evaluated independently of the reserving process and appropriate allowances for uncollectible
reinsurance are established.
Estimation of ultimate net losses and loss adjustment expenses (net losses) for our long-tail casualty lines of business is a
complex process and depends on a number of factors, including the product line and volume of business, as well as estimates of
reinsurance recoveries. Experience in the more recent accident years generally provides limited statistical credibility of reported net
losses on long-tail casualty lines of business. That is because in the more recent accident years, a relatively low proportion of
estimated ultimate net incurred losses are reported or paid. Therefore, IBNR reserves constitute a relatively high proportion of net
losses.
For our longer-tail lines, we generally make actuarial and other assumptions with respect to the following:
•
•
•
•
Loss cost trend factors are used to establish expected loss ratios for subsequent accident years based on the projected loss ratios for prior
accident years.
Expected loss ratios are used for the latest accident year (i.e., accident year 2017 for the year-end 2017 loss reserve analysis) and, in some
cases for accident years prior to the latest accident year. The expected loss ratio generally reflects the projected loss ratio from prior accident
years, adjusted for the loss cost trend and the effect of rate changes and other quantifiable factors on the loss ratio. For low-frequency, high-
severity lines of business such as excess casualty, expected loss ratios generally are used for at least the three most recent accident years.
Loss development factors are used to project the reported losses for each accident year to an ultimate basis. Generally, the actual loss
development factors observed from prior accident years would be used as a basis to determine the loss development factors for the
subsequent accident years.
Tail factors are development factors used for certain longer tailed lines of business (for example, excess casualty, workers compensation
and general liability),to project future loss development for periods that extend beyond the available development data. The development of
losses to the ultimate loss for a given accident year for these lines may take decades and the projection of ultimate losses for an accident year
is very sensitive to the tail factors selected beyond a certain age.
40
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
41
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a
significant degree of judgment.
OVERVIEW OF LOSS RESERVING PROCESS AND METHODS
Our loss reserves can generally be categorized into two distinct groups. Short-tail reserves consists principally of U.S. Property and
Special Risks, Europe Property and Special Risks, U.S. Personal Insurance, and Europe and Japan Personal Insurance. Long-tail
reserves include U.S. Workers Compensation, U.S. Excess Casualty, U.S. Other Casualty, U.S. Financial Lines, Europe Casualty
and Financial Lines, and U.S. Run-off Long Tail Insurance Lines.
The accounting policies that we believe are most dependent on the application of estimates and assumptions,
Short-Tail Reserves
which are critical accounting estimates, are related to the determination of:
loss reserves;
reinsurance assets;
valuation of future policy benefit liabilities and timing and extent of loss recognition;
valuation of liabilities for guaranteed benefit features of variable annuity products;
• estimated gross profits to value deferred acquisition costs for investment-oriented products;
impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested
assets, including investments in life settlements, and goodwill impairment;
liability for legal contingencies;
fair value measurements of certain financial assets and liabilities; and
income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating
profitability of the character necessary to realize the net deferred tax asset and provisional estimates associated with the Tax Act.
For our short-tail coverages, such as property, where the nature of claims is generally high frequency with short reporting periods,
with volatility arising from occasional severe events, the process for recording non-catastrophe quarterly loss reserves is geared
toward maintaining IBNR based on percentages of net earned premiums for that business, rather than projecting ultimate loss ratios
based on reported losses. For example, the IBNR reserve required for the latest accident quarter for a product line such as
homeowners might be approximately 20 percent of the quarters earned premiums. This level of reserve would generally be recorded
regardless of the actual losses reported in the current quarter, thus recognizing severe events as they occur. The percent of premium
factor reflects both our expectation of the ultimate loss costs associated with the line of business and the expectation of the
percentage of ultimate loss costs that have not yet been reported. The expected ultimate loss costs generally reflect the average loss
costs from a period of preceding accident quarters that have been adjusted for changes in rate and loss cost levels, mix of business,
known exposure to unreported losses, or other factors affecting the particular line of business. The expected percentage of ultimate
loss costs that have not yet been reported would be derived from historical loss emergence patterns. For more mature quarters,
specific loss development methods would be used to determine the IBNR. For other product lines where the nature of claims is high
frequency but low severity, methods including loss development, frequency/severity or a multiple of average monthly losses may be
used to determine IBNR reserves. IBNR for claims arising from catastrophic events or events of unusual severity would be
determined in close collaboration with the claims departments knowledge of known information, using alternative techniques or
expected percentages of ultimate loss cost emergence based on historical loss emergence of similar claim types.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of
operations and cash flows could be materially affected.
Long-Tail Reserves
INSURANCE LIABILITIES
Loss Reserves
The estimate of the loss reserves relies on several key judgments:
the determination of the actuarial models used as the basis for these estimates;
the relative weights given to these models by product line;
the underlying assumptions used in these models; and
the determination of the appropriate groupings of similar product lines and, in some cases, the disaggregation of dissimilar losses
within a product line.
We use numerous assumptions in determining the best estimate of reserves for each line of business. The importance of any specific
assumption can vary by both line of business and accident year. Because actual experience can differ from key assumptions used in
establishing reserves, there is potential for significant variation in the development of loss reserves. This is particularly true for long-
tail classes of business.
reinsurance are established.
All of our methods to calculate net reserves include assumptions about estimated reinsurance recoveries and their collectability.
Reinsurance collectability is evaluated independently of the reserving process and appropriate allowances for uncollectible
Estimation of ultimate net losses and loss adjustment expenses (net losses) for our long-tail casualty lines of business is a
complex process and depends on a number of factors, including the product line and volume of business, as well as estimates of
reinsurance recoveries. Experience in the more recent accident years generally provides limited statistical credibility of reported net
losses on long-tail casualty lines of business. That is because in the more recent accident years, a relatively low proportion of
estimated ultimate net incurred losses are reported or paid. Therefore, IBNR reserves constitute a relatively high proportion of net
losses.
For our longer-tail lines, we generally make actuarial and other assumptions with respect to the following:
•
•
•
•
Loss cost trend factors are used to establish expected loss ratios for subsequent accident years based on the projected loss ratios for prior
accident years.
Expected loss ratios are used for the latest accident year (i.e., accident year 2017 for the year-end 2017 loss reserve analysis) and, in some
cases for accident years prior to the latest accident year. The expected loss ratio generally reflects the projected loss ratio from prior accident
years, adjusted for the loss cost trend and the effect of rate changes and other quantifiable factors on the loss ratio. For low-frequency, high-
severity lines of business such as excess casualty, expected loss ratios generally are used for at least the three most recent accident years.
Loss development factors are used to project the reported losses for each accident year to an ultimate basis. Generally, the actual loss
development factors observed from prior accident years would be used as a basis to determine the loss development factors for the
subsequent accident years.
Tail factors are development factors used for certain longer tailed lines of business (for example, excess casualty, workers compensation
and general liability),to project future loss development for periods that extend beyond the available development data. The development of
losses to the ultimate loss for a given accident year for these lines may take decades and the projection of ultimate losses for an accident year
is very sensitive to the tail factors selected beyond a certain age.
•
•
•
•
•
•
•
•
•
•
•
•
40
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
41
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3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
We record quarterly changes in loss reserves for each product line of business. The overall change in our loss reserves is based on the
sum of the changes for all product lines of business. For most long-tail product lines of business, the quarterly loss reserve changes
are based on the estimated current loss ratio for each subset of coverage less any amounts paid. Also, any change in estimated
ultimate losses from prior accident years deemed to be necessary based on the results of our latest detailed valuation reviews, large
loss analyses, or other analytical techniques, either positive or negative, is reflected in the loss reserve and incurred losses for the
current quarter. Differences between actual loss emergence in a given period and our expectations based on prior loss reserve
estimates are used to monitor reserve adequacy between detailed valuation reviews and may also influence our judgment with
respect to adjusting reserve estimates.
Details of the Loss Reserving Process
The process of determining the current loss ratio for each product line of business is based on a variety of factors. These include
considerations such as: prior accident year and policy year loss ratios; rate changes; and changes in coverage, reinsurance, or mix of
business. Other considerations include actual and anticipated changes in external factors such as trends in loss costs, inflation,
employment rates or unemployment duration or in the legal and claims environment. The current loss ratio for each product line of
business is intended to represent our best estimate after reflecting all of the relevant factors. At the close of each quarter, the
assumptions and data underlying the loss ratios are reviewed to determine whether the loss ratios remain appropriate. This process
includes a review of the actual loss experience in the quarter, actual rate changes achieved, actual changes in reinsurance,
quantifiable changes in coverage or mix of business, and changes in other factors that may affect the loss ratio. When this review
suggests that the previously determined loss ratio is no longer appropriate, the loss ratio is changed to reflect the revised estimates.
We conduct a comprehensive loss detailed valuation review at least annually for each product line of business in accordance with Actuarial
Standards of Practice. These standards provide that the unpaid loss estimate may be presented in a variety of ways, such as a point
estimate, a range of estimates, a point estimate based on the expected value of several reasonable estimates, or a probability
distribution of the unpaid loss amount. Our actuarial best estimate for each product line of business represents an expected value
generally considering a range of reasonably possible outcomes.
The reserve analysis for each product line of business is performed by a credentialed actuarial team in collaboration with claims,
underwriting, business unit management, risk management and senior management. Our actuaries consider the ongoing applicability
of prior data groupings and update numerous assumptions, including the analysis and selection of loss development and loss trend
factors. They also determine and select the appropriate actuarial or other methods used to estimate reserve adequacy for each
business product line, and may employ multiple methods and assumptions for each product line. These data groupings, accident year
weights, method selections and assumptions necessarily change over time as business mix changes, development factors mature
and become more credible and loss characteristics evolve. In the course of these detailed valuation reviews an actuarial best
estimate of the loss reserve is determined. The sum of these estimates for each product line of business yields an overall actuarial
best estimate for that line of business.
For certain product lines, we measure sensitivities and determine explicit ranges around the actuarial best estimate using multiple
methodologies and varying assumptions. Where we have ranges, we use them to inform our selection of best estimates of loss
reserves by major product line of business. Our range of reasonable estimates is not intended to cover all possibilities or extreme
values and is based on known data and facts at the time of estimation.
We consult with third party environmental litigation and engineering specialists, third party toxic tort claims professionals, third party
clinical and public health specialists, third party workers compensation claims adjusters and third party actuarial advisors to help
inform our judgments, as needed.
A critical component of our detailed valuation reviews is an internal peer review of our reserving analyses and conclusions, where
actuaries independent of the initial review evaluate the reasonableness of assumptions used, methods selected and weightings given
to different methods.
Enterprise Risk Management group.
In addition, each detailed valuation review is subjected to a review and challenge process by specialists in our
We consider key factors in performing detailed actuarial reviews, including:
•
•
•
•
•
•
•
•
•
an assessment of economic conditions including inflation, employment rates or unemployment duration;
changes in the legal, regulatory, judicial and social environment including changes in road safety, public health and cleanup standards;
changes in medical cost trends (inflation, intensity and utilization of medical services) and wage inflation trends;
underlying policy pricing, terms and conditions including attachment points and policy limits;
changes in claims handling philosophy, operating model, processes and related ongoing enhancements;
third-party claims reviews that are periodically performed for key product lines such as toxic tort, environmental and other complex casualty;
third-party actuarial reviews that are periodically performed for key product lines of business;
input from underwriters on pricing, terms, and conditions and market trends; and
changes in our reinsurance program, pricing and commutations.
Actuarial and Other Methods for Major Lines of Business
Our actuaries determine the appropriate actuarial methods and segmentation. This determination is based on a variety of factors
including the nature of the losses associated with the product line of business, such as the frequency or severity of the claims. In
addition to determining the actuarial methods, the actuaries determine the appropriate loss reserve groupings of data. This
determination is a judgmental, dynamic process and refinements to the groupings are made every year. The changes to groupings
may be driven by and may change to reflect observed or emerging patterns within and across product lines, or to differentiate different
risk characteristics (for example, size of deductibles and extent of third party claims specialists used by our insureds). As an example
of reserve segmentation, we write many unique subsets of professional liability, which cover different products, industry segments,
and coverage structures. While for pricing or other purposes, it may be appropriate to evaluate the profitability of each subset
individually, we believe it is appropriate to combine the subsets into larger groups for reserving purposes to produce a greater degree
of credibility in the loss experience. This determination of data segmentation and related actuarial methods is assessed, reviewed and
updated at least annually.
The actuarial methods we use most commonly include paid and incurred loss development methods, expected loss ratio methods,
including Bornhuetter Ferguson and Cape Cod, and frequency/severity models. Loss development methods utilize the actual loss
development patterns from prior accident years updated through the current year to project the reported losses to an ultimate basis
for all accident years. We also use this information to update our current accident year loss selections. Loss development methods
are generally most appropriate for classes of business that exhibit a stable pattern of loss development from one accident year to the
next, and for which the components of the product line have similar development characteristics. For example, property exposures
would generally not be combined into the same product line as casualty exposures, and primary casualty exposures would generally
not be combined into the same product line as excess casualty exposures. We continually refine our loss reserving techniques and
adopt further segmentations based on our analysis of differing emerging loss patterns for certain product lines. We generally use
expected loss ratio methods in cases where the reported loss data lacked sufficient credibility to utilize loss development methods,
such as for new product lines of business or for long-tail product lines at early stages of loss development. Frequency/severity
models may be used where sufficient frequency counts are available to apply such approaches.
Expected loss ratio methods rely on the application of an expected loss ratio to the earned premium for the product line of business to
determine the liability for loss reserves and loss adjustment expenses. For example, an expected loss ratio of 70 percent applied to an
earned premium base of $10 million for a product line of business would generate an ultimate loss estimate of $7 million. Subtracting
any paid losses and loss adjustment expenses would result in the indicated loss reserve for this product line. Under the Bornhuetter
Ferguson methods, the expected loss ratio is applied only to the expected unreported portion of the losses. For example, for a long-
tail product line of business for which only 10 percent of the losses are expected to be reported at the end of the accident year, the
expected loss ratio would be used to represent the 90 percent of losses still unreported. The actual reported losses at the end of the
accident year would be added to determine the total ultimate loss estimate for the accident year. Subtracting the reported paid losses
and loss adjustment expenses would result in the indicated loss reserve. In the example above, the expected loss ratio of 70 percent
would be multiplied by 90 percent. The result of 63 percent would be applied to the earned premium of $10 million resulting in an
estimated unreported loss of $6.3 million. Actual reported losses would be added to arrive at the total ultimate losses. If the reported
losses were $1 million, the ultimate loss estimate under the Bornhuetter Ferguson method would be $7.3 million versus the $7 million
amount under the expected loss ratio method described above. Thus, the Bornhuetter Ferguson method gives partial credibility to the
actual loss experience to date for the product line of business. Loss development methods generally give full credibility to the reported
loss experience to date. In the example above, loss development methods would typically indicate an ultimate loss estimate of
$10 million, as the reported losses of $1 million would be estimated to reflect only 10 percent of the ultimate losses.
42
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
43
1011252ai_financials.indd 42
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 We record quarterly changes in loss reserves for each product line of business. The overall change in our loss reserves is based on the
We consider key factors in performing detailed actuarial reviews, including:
ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
sum of the changes for all product lines of business. For most long-tail product lines of business, the quarterly loss reserve changes
are based on the estimated current loss ratio for each subset of coverage less any amounts paid. Also, any change in estimated
ultimate losses from prior accident years deemed to be necessary based on the results of our latest detailed valuation reviews, large
loss analyses, or other analytical techniques, either positive or negative, is reflected in the loss reserve and incurred losses for the
current quarter. Differences between actual loss emergence in a given period and our expectations based on prior loss reserve
estimates are used to monitor reserve adequacy between detailed valuation reviews and may also influence our judgment with
respect to adjusting reserve estimates.
Details of the Loss Reserving Process
The process of determining the current loss ratio for each product line of business is based on a variety of factors. These include
considerations such as: prior accident year and policy year loss ratios; rate changes; and changes in coverage, reinsurance, or mix of
business. Other considerations include actual and anticipated changes in external factors such as trends in loss costs, inflation,
employment rates or unemployment duration or in the legal and claims environment. The current loss ratio for each product line of
business is intended to represent our best estimate after reflecting all of the relevant factors. At the close of each quarter, the
assumptions and data underlying the loss ratios are reviewed to determine whether the loss ratios remain appropriate. This process
includes a review of the actual loss experience in the quarter, actual rate changes achieved, actual changes in reinsurance,
quantifiable changes in coverage or mix of business, and changes in other factors that may affect the loss ratio. When this review
suggests that the previously determined loss ratio is no longer appropriate, the loss ratio is changed to reflect the revised estimates.
We conduct a comprehensive loss detailed valuation review at least annually for each product line of business in accordance with Actuarial
Standards of Practice. These standards provide that the unpaid loss estimate may be presented in a variety of ways, such as a point
estimate, a range of estimates, a point estimate based on the expected value of several reasonable estimates, or a probability
distribution of the unpaid loss amount. Our actuarial best estimate for each product line of business represents an expected value
generally considering a range of reasonably possible outcomes.
The reserve analysis for each product line of business is performed by a credentialed actuarial team in collaboration with claims,
underwriting, business unit management, risk management and senior management. Our actuaries consider the ongoing applicability
of prior data groupings and update numerous assumptions, including the analysis and selection of loss development and loss trend
factors. They also determine and select the appropriate actuarial or other methods used to estimate reserve adequacy for each
business product line, and may employ multiple methods and assumptions for each product line. These data groupings, accident year
weights, method selections and assumptions necessarily change over time as business mix changes, development factors mature
and become more credible and loss characteristics evolve. In the course of these detailed valuation reviews an actuarial best
estimate of the loss reserve is determined. The sum of these estimates for each product line of business yields an overall actuarial
best estimate for that line of business.
For certain product lines, we measure sensitivities and determine explicit ranges around the actuarial best estimate using multiple
methodologies and varying assumptions. Where we have ranges, we use them to inform our selection of best estimates of loss
reserves by major product line of business. Our range of reasonable estimates is not intended to cover all possibilities or extreme
values and is based on known data and facts at the time of estimation.
We consult with third party environmental litigation and engineering specialists, third party toxic tort claims professionals, third party
clinical and public health specialists, third party workers compensation claims adjusters and third party actuarial advisors to help
inform our judgments, as needed.
A critical component of our detailed valuation reviews is an internal peer review of our reserving analyses and conclusions, where
actuaries independent of the initial review evaluate the reasonableness of assumptions used, methods selected and weightings given
to different methods.
In addition, each detailed valuation review is subjected to a review and challenge process by specialists in our
Enterprise Risk Management group.
•
•
•
•
•
•
•
•
•
an assessment of economic conditions including inflation, employment rates or unemployment duration;
changes in the legal, regulatory, judicial and social environment including changes in road safety, public health and cleanup standards;
changes in medical cost trends (inflation, intensity and utilization of medical services) and wage inflation trends;
underlying policy pricing, terms and conditions including attachment points and policy limits;
changes in claims handling philosophy, operating model, processes and related ongoing enhancements;
third-party claims reviews that are periodically performed for key product lines such as toxic tort, environmental and other complex casualty;
third-party actuarial reviews that are periodically performed for key product lines of business;
input from underwriters on pricing, terms, and conditions and market trends; and
changes in our reinsurance program, pricing and commutations.
Actuarial and Other Methods for Major Lines of Business
Our actuaries determine the appropriate actuarial methods and segmentation. This determination is based on a variety of factors
including the nature of the losses associated with the product line of business, such as the frequency or severity of the claims. In
addition to determining the actuarial methods, the actuaries determine the appropriate loss reserve groupings of data. This
determination is a judgmental, dynamic process and refinements to the groupings are made every year. The changes to groupings
may be driven by and may change to reflect observed or emerging patterns within and across product lines, or to differentiate different
risk characteristics (for example, size of deductibles and extent of third party claims specialists used by our insureds). As an example
of reserve segmentation, we write many unique subsets of professional liability, which cover different products, industry segments,
and coverage structures. While for pricing or other purposes, it may be appropriate to evaluate the profitability of each subset
individually, we believe it is appropriate to combine the subsets into larger groups for reserving purposes to produce a greater degree
of credibility in the loss experience. This determination of data segmentation and related actuarial methods is assessed, reviewed and
updated at least annually.
The actuarial methods we use most commonly include paid and incurred loss development methods, expected loss ratio methods,
including Bornhuetter Ferguson and Cape Cod, and frequency/severity models. Loss development methods utilize the actual loss
development patterns from prior accident years updated through the current year to project the reported losses to an ultimate basis
for all accident years. We also use this information to update our current accident year loss selections. Loss development methods
are generally most appropriate for classes of business that exhibit a stable pattern of loss development from one accident year to the
next, and for which the components of the product line have similar development characteristics. For example, property exposures
would generally not be combined into the same product line as casualty exposures, and primary casualty exposures would generally
not be combined into the same product line as excess casualty exposures. We continually refine our loss reserving techniques and
adopt further segmentations based on our analysis of differing emerging loss patterns for certain product lines. We generally use
expected loss ratio methods in cases where the reported loss data lacked sufficient credibility to utilize loss development methods,
such as for new product lines of business or for long-tail product lines at early stages of loss development. Frequency/severity
models may be used where sufficient frequency counts are available to apply such approaches.
Expected loss ratio methods rely on the application of an expected loss ratio to the earned premium for the product line of business to
determine the liability for loss reserves and loss adjustment expenses. For example, an expected loss ratio of 70 percent applied to an
earned premium base of $10 million for a product line of business would generate an ultimate loss estimate of $7 million. Subtracting
any paid losses and loss adjustment expenses would result in the indicated loss reserve for this product line. Under the Bornhuetter
Ferguson methods, the expected loss ratio is applied only to the expected unreported portion of the losses. For example, for a long-
tail product line of business for which only 10 percent of the losses are expected to be reported at the end of the accident year, the
expected loss ratio would be used to represent the 90 percent of losses still unreported. The actual reported losses at the end of the
accident year would be added to determine the total ultimate loss estimate for the accident year. Subtracting the reported paid losses
and loss adjustment expenses would result in the indicated loss reserve. In the example above, the expected loss ratio of 70 percent
would be multiplied by 90 percent. The result of 63 percent would be applied to the earned premium of $10 million resulting in an
estimated unreported loss of $6.3 million. Actual reported losses would be added to arrive at the total ultimate losses. If the reported
losses were $1 million, the ultimate loss estimate under the Bornhuetter Ferguson method would be $7.3 million versus the $7 million
amount under the expected loss ratio method described above. Thus, the Bornhuetter Ferguson method gives partial credibility to the
actual loss experience to date for the product line of business. Loss development methods generally give full credibility to the reported
loss experience to date. In the example above, loss development methods would typically indicate an ultimate loss estimate of
$10 million, as the reported losses of $1 million would be estimated to reflect only 10 percent of the ultimate losses.
42
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
43
1011252ai_financials.indd 43
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
A key advantage of loss development methods is that they respond more quickly to any actual changes in loss costs for the product
line of business. Therefore, if loss experience is unexpectedly deteriorating or improving, the loss development method gives full
credibility to the changing experience. Expected loss ratio methods would be slower to respond to the change, as they would continue
to give more weight to a prior expected loss ratio, until enough evidence emerged to modify the expected loss ratio to reflect the
changing loss experience. On the other hand, loss development methods have the disadvantage of overreacting to changes in
reported losses if the loss experience is anomalous due to the various key factors described above and the inherent volatility in some
of the classes. For example, the presence or absence of large losses at the early stages of loss development could cause the loss
development method to overreact to the favorable or unfavorable experience by assuming it is a fundamental shift in the development
pattern. In these instances, expected loss ratio methods such as Bornhuetter Ferguson have the advantage of recognizing large
losses without extrapolating unusual large loss activity onto the unreported portion of the losses for the accident year.
The Cape Cod method is a hybrid between the loss development and Bornhuetter Ferguson methods, where the historic loss data
and loss development factor assumptions are used to determine the expected loss ratio estimate in the Bornhuetter Ferguson
method.
Frequency/severity methods generally rely on the determination of an ultimate number of claims and an average severity for each claim for
each accident year. Multiplying the estimated ultimate number of claims for each accident year by the expected average severity of
each claim produces the estimated ultimate loss for the accident year. Frequency/severity methods generally require a sufficient
volume of claims in order for the average severity to be predictable. Average severity for subsequent accident years is generally
determined by applying an estimated annual loss cost trend to the estimated average claim severity from prior accident years. In
certain cases, a structural approach may also be used to predict the ultimate loss cost. Frequency/severity methods have the
advantage that ultimate claim counts can generally be estimated more quickly and accurately than can ultimate losses. Thus, if the
average claim severity can be accurately estimated, these methods can more quickly respond to changes in loss experience than
other methods. However, for average severity to be predictable, the product line of business must consist of homogenous types of
claims for which loss severity trends from one year to the next are reasonably consistent and where there are limited changes to
deductible levels or limits. Generally these methods work best for high frequency, low severity product lines of business such as
personal auto. However, frequency and severity metrics are also used to test the reasonability of results for other product lines of
business and provide indications of underlying trends in the data. In addition, ultimate claim counts can be used as an alternative
exposure measure to earned premiums in the Cape Cod method.
Structural driver analytics seek to explain the underlying drivers of frequency/severity. A structural driver analysis of frequency/severity
is particularly useful for understanding the key drivers of uncertainty in the ultimate loss cost. For example, for the excess workers
compensation product line of business, we have attempted to corroborate our judgment by considering the impact on severity of the
future potential for deterioration of an injured workers medical condition, the impact of price inflation on the various categories of
medical expense and cost of living adjustments on indemnity benefits, the impact of injured worker mortality and claim specific
settlement and loss mitigation strategies, etc., using the following:
Claim by claim reviews, often facilitated by third party specialists, to determine the stability and likelihood of settling an injured
workers indemnity and medical benefits;
Analysis of the potential for future deterioration in medical condition unlikely to be picked up by a claim file review and associated
with potentially costly medical procedures (i.e., increases in both utilization and intensity of medical care) over the course of the
injured workers lifetime;
Analysis of the cost of medical price inflation for each category of medical spend (services and devices) and for cost of living
adjustments in line with statutory requirements;
Portfolio specific mortality level and mortality improvement assumptions based on a mortality study conducted for our primary and
excess workers compensation portfolios and our opinion of future longevity trends for the open reported cases;
Ground-up consideration of the reinsurance recoveries expected for the product line of business for reported claims with
extrapolation for unreported claims; and
The effects of various run-off loss management strategies that have been developed by our run-off unit.
In recent years, we have expanded our analysis of structural drivers to additional product lines of business as a means of
corroborating our judgments using traditional actuarial techniques. For example, we have explicitly used external estimates of future
medical inflation and mortality in estimating the loss development tail for excess of deductible primary workers compensation
business. Using external forecasts for items such as these can improve the accuracy and stability of our estimates.
The estimation of liability for loss reserves and loss adjustment expenses relating to asbestos and environmental pollution losses on
insurance policies written many years ago is typically subject to greater uncertainty than other types of losses. This is due to inconsistent
court decisions, as well as judicial interpretations and legislative actions that in some cases have tended to broaden coverage beyond
the original intent of such policies or have expanded theories of liability. In addition, reinsurance recoverable balances relating to
asbestos and environmental loss reserves are subject to greater uncertainty due to the underlying age of the claim, underlying legal
issues surrounding the nature of the coverage, and determination of proper policy period. For these reasons, these balances tend to
be subject to increased levels of disputes and legal collection activity when actually billed. The insurance industry as a whole is
engaged in extensive litigation over these coverage and liability issues and is thus confronted with a continuing uncertainty in its
efforts to quantify these exposures.
We continue to receive claims asserting injuries and damages from toxic waste, hazardous substances, and other environmental
pollutants and alleged claims to cover the cleanup costs of hazardous waste dump sites, referred to collectively as environmental
claims, and indemnity claims asserting injuries from asbestos. The vast majority of these asbestos and environmental losses emanate
from policies written in 1984 and prior years. Commencing in 1985, standard policies contained absolute exclusions for pollution-
related damage and asbestos. The current environmental policies that we specifically price and underwrite for environmental risks on
a claims-made basis have been excluded from the analysis.
The majority of our exposures for asbestos and environmental losses are related to excess casualty coverages, not primary
coverages. The litigation costs are treated in the same manner as indemnity amounts, with litigation expenses included within the
limits of the liability we incur. Individual significant loss reserves, where future litigation costs are reasonably determinable, are
established on a case-by-case basis.
Discussion of Key Assumptions of our Actuarial Methods
Line of
Business or Category
U.S. Workers
Compensation
Key Assumptions
as this line of business is long-tail.
We generally use a combination of loss development and expected loss ratio methods for U.S. Workers Compensation
The loss cost trend assumption is not believed to be material with respect to our guaranteed cost loss reserves. This is
primarily because our actuaries are generally able to use loss development projections for all but the most recent
accident years reserves, so there is limited need to rely on loss cost trend assumptions for primary workers
compensation business.
The tail factor is typically the most critical assumption, and small changes in the selected tail factor can have a material
effect on our carried reserves. For example, the tail factors beyond twenty years for guaranteed cost business could
vary by one and one-half percent below to two percent above those actually indicated in the 2017 loss reserve review.
For excess of deductible business, in our judgment, it is reasonably likely that tail factors beyond twenty years could
vary by four percent below to six percent above those actually indicated in the 2017 loss reserve review.
44
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
45
1011252ai_financials.indd 44
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
A key advantage of loss development methods is that they respond more quickly to any actual changes in loss costs for the product
line of business. Therefore, if loss experience is unexpectedly deteriorating or improving, the loss development method gives full
credibility to the changing experience. Expected loss ratio methods would be slower to respond to the change, as they would continue
to give more weight to a prior expected loss ratio, until enough evidence emerged to modify the expected loss ratio to reflect the
changing loss experience. On the other hand, loss development methods have the disadvantage of overreacting to changes in
reported losses if the loss experience is anomalous due to the various key factors described above and the inherent volatility in some
of the classes. For example, the presence or absence of large losses at the early stages of loss development could cause the loss
development method to overreact to the favorable or unfavorable experience by assuming it is a fundamental shift in the development
pattern. In these instances, expected loss ratio methods such as Bornhuetter Ferguson have the advantage of recognizing large
losses without extrapolating unusual large loss activity onto the unreported portion of the losses for the accident year.
The Cape Cod method is a hybrid between the loss development and Bornhuetter Ferguson methods, where the historic loss data
and loss development factor assumptions are used to determine the expected loss ratio estimate in the Bornhuetter Ferguson
method.
Frequency/severity methods generally rely on the determination of an ultimate number of claims and an average severity for each claim for
each accident year. Multiplying the estimated ultimate number of claims for each accident year by the expected average severity of
each claim produces the estimated ultimate loss for the accident year. Frequency/severity methods generally require a sufficient
volume of claims in order for the average severity to be predictable. Average severity for subsequent accident years is generally
determined by applying an estimated annual loss cost trend to the estimated average claim severity from prior accident years. In
certain cases, a structural approach may also be used to predict the ultimate loss cost. Frequency/severity methods have the
advantage that ultimate claim counts can generally be estimated more quickly and accurately than can ultimate losses. Thus, if the
average claim severity can be accurately estimated, these methods can more quickly respond to changes in loss experience than
other methods. However, for average severity to be predictable, the product line of business must consist of homogenous types of
claims for which loss severity trends from one year to the next are reasonably consistent and where there are limited changes to
deductible levels or limits. Generally these methods work best for high frequency, low severity product lines of business such as
personal auto. However, frequency and severity metrics are also used to test the reasonability of results for other product lines of
In recent years, we have expanded our analysis of structural drivers to additional product lines of business as a means of
corroborating our judgments using traditional actuarial techniques. For example, we have explicitly used external estimates of future
medical inflation and mortality in estimating the loss development tail for excess of deductible primary workers compensation
business. Using external forecasts for items such as these can improve the accuracy and stability of our estimates.
The estimation of liability for loss reserves and loss adjustment expenses relating to asbestos and environmental pollution losses on
insurance policies written many years ago is typically subject to greater uncertainty than other types of losses. This is due to inconsistent
court decisions, as well as judicial interpretations and legislative actions that in some cases have tended to broaden coverage beyond
the original intent of such policies or have expanded theories of liability. In addition, reinsurance recoverable balances relating to
asbestos and environmental loss reserves are subject to greater uncertainty due to the underlying age of the claim, underlying legal
issues surrounding the nature of the coverage, and determination of proper policy period. For these reasons, these balances tend to
be subject to increased levels of disputes and legal collection activity when actually billed. The insurance industry as a whole is
engaged in extensive litigation over these coverage and liability issues and is thus confronted with a continuing uncertainty in its
efforts to quantify these exposures.
We continue to receive claims asserting injuries and damages from toxic waste, hazardous substances, and other environmental
pollutants and alleged claims to cover the cleanup costs of hazardous waste dump sites, referred to collectively as environmental
claims, and indemnity claims asserting injuries from asbestos. The vast majority of these asbestos and environmental losses emanate
from policies written in 1984 and prior years. Commencing in 1985, standard policies contained absolute exclusions for pollution-
related damage and asbestos. The current environmental policies that we specifically price and underwrite for environmental risks on
a claims-made basis have been excluded from the analysis.
The majority of our exposures for asbestos and environmental losses are related to excess casualty coverages, not primary
coverages. The litigation costs are treated in the same manner as indemnity amounts, with litigation expenses included within the
limits of the liability we incur. Individual significant loss reserves, where future litigation costs are reasonably determinable, are
established on a case-by-case basis.
business and provide indications of underlying trends in the data. In addition, ultimate claim counts can be used as an alternative
Discussion of Key Assumptions of our Actuarial Methods
exposure measure to earned premiums in the Cape Cod method.
Structural driver analytics seek to explain the underlying drivers of frequency/severity. A structural driver analysis of frequency/severity
is particularly useful for understanding the key drivers of uncertainty in the ultimate loss cost. For example, for the excess workers
compensation product line of business, we have attempted to corroborate our judgment by considering the impact on severity of the
future potential for deterioration of an injured workers medical condition, the impact of price inflation on the various categories of
medical expense and cost of living adjustments on indemnity benefits, the impact of injured worker mortality and claim specific
settlement and loss mitigation strategies, etc., using the following:
Claim by claim reviews, often facilitated by third party specialists, to determine the stability and likelihood of settling an injured
workers indemnity and medical benefits;
Analysis of the potential for future deterioration in medical condition unlikely to be picked up by a claim file review and associated
with potentially costly medical procedures (i.e., increases in both utilization and intensity of medical care) over the course of the
Analysis of the cost of medical price inflation for each category of medical spend (services and devices) and for cost of living
injured workers lifetime;
adjustments in line with statutory requirements;
Portfolio specific mortality level and mortality improvement assumptions based on a mortality study conducted for our primary and
excess workers compensation portfolios and our opinion of future longevity trends for the open reported cases;
Ground-up consideration of the reinsurance recoveries expected for the product line of business for reported claims with
extrapolation for unreported claims; and
The effects of various run-off loss management strategies that have been developed by our run-off unit.
Line of
Business or Category
U.S. Workers
Compensation
Key Assumptions
We generally use a combination of loss development and expected loss ratio methods for U.S. Workers Compensation
as this line of business is long-tail.
The loss cost trend assumption is not believed to be material with respect to our guaranteed cost loss reserves. This is
primarily because our actuaries are generally able to use loss development projections for all but the most recent
accident years reserves, so there is limited need to rely on loss cost trend assumptions for primary workers
compensation business.
The tail factor is typically the most critical assumption, and small changes in the selected tail factor can have a material
effect on our carried reserves. For example, the tail factors beyond twenty years for guaranteed cost business could
vary by one and one-half percent below to two percent above those actually indicated in the 2017 loss reserve review.
For excess of deductible business, in our judgment, it is reasonably likely that tail factors beyond twenty years could
vary by four percent below to six percent above those actually indicated in the 2017 loss reserve review.
44
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
45
1011252ai_financials.indd 45
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Line of
Business or Category
U.S. Excess Casualty
U.S. Other Casualty
U.S. Financial Lines
Europe Casualty and
Financial Lines
U.S. Property and
Special Risks, and
Europe Property and
Special Risks
U.S. Personal
Insurance, and Europe,
and Japan Personal
Insurance
ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
Key Assumptions
We utilize various loss cost trend assumptions for different segments of the portfolio. After evaluating the historical loss
cost trends from prior accident years since the early 1990s, in our judgment, it is reasonably likely that actual loss cost
trends applicable to the year-end 2017 loss reserve review for U.S. Excess Casualty may range five percent lower or
higher than this estimated loss trend. The loss cost trend assumption is critical for the U.S. Excess Casualty class of
business due to the long-tail nature of the losses, and is applied across many accident years. Thus, there is the
potential for the loss reserves with respect to a number of accident years (the expected loss ratio years) to be
significantly affected by changes in loss cost trends that were initially relied upon in setting the loss reserves. These
changes in loss trends could be attributable to changes in inflation or in the judicial environment, or in other social or
economic conditions affecting losses.
U.S. Excess Casualty is a long-tail class of business and any deviation in loss development factors might not be
discernible for an extended period of time subsequent to the recording of the initial loss reserve estimates for any
accident year. Mass tort claims in particular may develop over a very extended period and impact multiple accident
years, so we usually select a separate pattern for them. Thus, there is the potential for the loss reserves with respect to
a number of accident years to be significantly affected by changes in loss development factors that were initially relied
upon in setting the reserves.
After evaluating the historical loss development factors from prior accident years since the early 1990s, in our judgment,
it is reasonably likely that the actual loss development factors could vary by an amount equivalent to a six month shift
from those actually utilized in the year-end 2017 reserve review. This would impact projections both for accident years
where the selections were directly based on loss development methods as well as the a priori loss ratio assumptions for
accident years with selections based on Bornhuetter-Ferguson or Cape Cod methods. Similar to loss cost trends, these
changes in loss development factors could be attributable to changes in inflation or in the judicial environment, or in
other social or economic conditions affecting losses.
The key uncertainties for other casualty lines are similar to excess casualty, as the underlying business is long-tailed
and can be subject to variability in loss cost trends and changes in loss development factors. These may differ
significantly by line of business as coverages such as general liability, medical malpractice and environmental may be
subject to different risk drivers.
The loss cost trends for U.S. D&O business vary by year and subset, but for the most recent accident years, it is
assumed to have been generally close to zero. After evaluating the historical loss cost levels from prior accident years
since the early 1990s, including the potential effect of losses relating to the credit crisis, in our judgment, it is
reasonably likely that the actual variation in loss cost levels for these subsets could vary by approximately 10 percent
lower or higher on a year-over-year basis than the assumptions actually utilized in the year-end 2017 reserve review.
Because U.S. D&O business has exhibited highly volatile loss trends from one accident year to the next, there is the
possibility of an exceptionally high deviation. In our analysis, the effects of loss cost trend assumptions affect the
results through the a priori loss ratio assumptions used for the Bornhuetter-Ferguson and Cape Cod methods, which
impact the projections for the more recent accident years.
The selected loss development factors are also an important assumption, but are less critical than for U.S. Excess
Casualty. Because these classes are written on a claims made basis, the loss reporting and development tail is much
shorter than for U.S. Excess Casualty. However, the high severity nature of the losses does create the potential for
significant deviations in loss development patterns from one year to the next. Similar to U.S. Excess Casualty, after
evaluating the historical loss development factors from prior accident years since the early 1990s, in our judgment, it is
reasonably likely that actual loss development factors could change by an amount equivalent to a shift by six months
from those actually utilized in the year-end 2017 reserve review.
Similar to U.S. business, European Casualty and Financial Lines can be significantly impacted by loss cost trends and
changes in loss development factors. The variation in such factors can differ significantly by product and region.
For short-tail lines such as Property and Special Risks, variance in outcomes for individual large claims or events can
have a significant impact on results. These outcomes generally relate to unique characteristics of events such as
catastrophes or losses with significant business interruption claims.
Line of
Business or Category
Key Assumptions
U.S. Run-off Long Tail
Insurance lines
We historically have used a combination of loss development methods and expected loss ratio methods for excess
workers compensation and other run-off segments. For environmental claims, we have utilized a variety of methods
including traditional loss development approaches, claim department and other expert evaluations of the ultimate costs
for certain claims and survival ratio metrics.
Other Reserve Items
Loss adjustment expenses (LAE) are separated into two broad categories, allocated loss adjustment expenses (ALAE),
U.S. Run-off Long Tail Insurance lines is an extremely long-tail class of business, with a much greater than normal
uncertainty as to the appropriate loss development factors for the tail of the loss development. Specifically for excess
workers compensation, after evaluating the historical loss development factors for prior accident years since the 1980s
as well as the development over the past several years of the ground up loss projections utilized to help select the loss
development factors in the tail for this class of business, in our judgment, it is reasonably likely that the tail factor
beyond 30 years could vary by 10 percent above or below that actually indicated in the 2017 loss reserve review.
also referred to as legal defense and cost containment or legal and unallocated loss adjustment expenses (ULAE),
which includes certain claims adjuster fees and other internal claim management costs.
We determine reserves for legal expenses for each class of business by one or more actuarial or structural driver
methods. For the majority of segments, legal costs are analyzed in conjunction with losses. For segments where they
are separately analyzed the methods used generally include development methods comparable to those described for
loss development methods. The development could be based on either the paid loss adjustment expenses or the ratio
of paid loss adjustment expenses to paid losses, or both. Other methods include the utilization of expected ultimate
ratios of paid loss expense to paid losses, based on actual experience from prior accident years or from similar product
lines of business.
The bulk of adjuster expenses are allocated and charged to individual claim files. For these expenses, we generally
determine reserves based on calendar year ratios of adjuster expenses paid to losses paid for the particular product
line of business. For other internal claim costs, which generally relate to specific claim department expenses that are
not allocated to individual claim files such as technology costs and other broad initiatives, we look at historic and
expected expenditures for these items and project these into the future.
The incidence of LAE is directly related to the frequency, complexity and level of underlying claims. As a result, a key
driver of variability in LAE is the variability in the overall claims, particularly for long tail lines.
The following sensitivity analysis table summarizes the effect on the loss reserve position of using certain alternative loss
cost trend (for accident years where we use expected loss ratio methods) or loss development factor assumptions rather
than the assumptions actually used in determining our estimates in the year-end loss reserve analyses in 2017:
December 31, 2017
(in millions)
Loss cost trends:
U.S. Excess Casualty:
5 percent increase
5 percent decrease
U.S. Financial Lines (D&O)
10 percent increase
10 percent decrease
Personal Insurance is short-tailed in nature similar to Property and Special Risks but less volatile. Variance in
estimates can result from unique events such as catastrophes.
auto liability, can be impacted by changes in loss development factors and loss cost trends.
In addition, some subsets of this business, such as
(a) Tail factor increase of 2 percent for guaranteed cost business and 6 percent for deductible business.
(b) Tail factor decrease of 1.5 percent for guaranteed cost business and 4 percent for deductible business.
Increase (Decrease)
to Loss Reserves
Increase (Decrease)
to Loss Reserves
$
$
1,100
(950)
700
(400)
Loss development factors:
U.S. Excess Casualty:
U.S. Financial Lines (D&O)
6-months slower
6-months faster
6-months slower
6-months faster
U.S. Run-off P&C Lines (Excess
Workers' Compensation):
10% tail factor increase
10% tail factor decrease
U.S. Workers' Compensation:
Tail factor increase(a)
Tail factor decrease(b)
900
(750)
800
(550)
470
(470)
1,100
(800)
46
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
47
1011252ai_financials.indd 46
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
Line of
Business or Category
Key Assumptions
U.S. Excess Casualty
We utilize various loss cost trend assumptions for different segments of the portfolio. After evaluating the historical loss
cost trends from prior accident years since the early 1990s, in our judgment, it is reasonably likely that actual loss cost
trends applicable to the year-end 2017 loss reserve review for U.S. Excess Casualty may range five percent lower or
higher than this estimated loss trend. The loss cost trend assumption is critical for the U.S. Excess Casualty class of
business due to the long-tail nature of the losses, and is applied across many accident years. Thus, there is the
potential for the loss reserves with respect to a number of accident years (the expected loss ratio years) to be
significantly affected by changes in loss cost trends that were initially relied upon in setting the loss reserves. These
changes in loss trends could be attributable to changes in inflation or in the judicial environment, or in other social or
economic conditions affecting losses.
U.S. Excess Casualty is a long-tail class of business and any deviation in loss development factors might not be
discernible for an extended period of time subsequent to the recording of the initial loss reserve estimates for any
accident year. Mass tort claims in particular may develop over a very extended period and impact multiple accident
years, so we usually select a separate pattern for them. Thus, there is the potential for the loss reserves with respect to
a number of accident years to be significantly affected by changes in loss development factors that were initially relied
upon in setting the reserves.
After evaluating the historical loss development factors from prior accident years since the early 1990s, in our judgment,
it is reasonably likely that the actual loss development factors could vary by an amount equivalent to a six month shift
from those actually utilized in the year-end 2017 reserve review. This would impact projections both for accident years
where the selections were directly based on loss development methods as well as the a priori loss ratio assumptions for
accident years with selections based on Bornhuetter-Ferguson or Cape Cod methods. Similar to loss cost trends, these
changes in loss development factors could be attributable to changes in inflation or in the judicial environment, or in
other social or economic conditions affecting losses.
U.S. Other Casualty
The key uncertainties for other casualty lines are similar to excess casualty, as the underlying business is long-tailed
and can be subject to variability in loss cost trends and changes in loss development factors. These may differ
significantly by line of business as coverages such as general liability, medical malpractice and environmental may be
subject to different risk drivers.
U.S. Financial Lines
The loss cost trends for U.S. D&O business vary by year and subset, but for the most recent accident years, it is
assumed to have been generally close to zero. After evaluating the historical loss cost levels from prior accident years
since the early 1990s, including the potential effect of losses relating to the credit crisis, in our judgment, it is
reasonably likely that the actual variation in loss cost levels for these subsets could vary by approximately 10 percent
lower or higher on a year-over-year basis than the assumptions actually utilized in the year-end 2017 reserve review.
Because U.S. D&O business has exhibited highly volatile loss trends from one accident year to the next, there is the
possibility of an exceptionally high deviation. In our analysis, the effects of loss cost trend assumptions affect the
results through the a priori loss ratio assumptions used for the Bornhuetter-Ferguson and Cape Cod methods, which
impact the projections for the more recent accident years.
The selected loss development factors are also an important assumption, but are less critical than for U.S. Excess
Casualty. Because these classes are written on a claims made basis, the loss reporting and development tail is much
shorter than for U.S. Excess Casualty. However, the high severity nature of the losses does create the potential for
significant deviations in loss development patterns from one year to the next. Similar to U.S. Excess Casualty, after
evaluating the historical loss development factors from prior accident years since the early 1990s, in our judgment, it is
reasonably likely that actual loss development factors could change by an amount equivalent to a shift by six months
from those actually utilized in the year-end 2017 reserve review.
Similar to U.S. business, European Casualty and Financial Lines can be significantly impacted by loss cost trends and
changes in loss development factors. The variation in such factors can differ significantly by product and region.
For short-tail lines such as Property and Special Risks, variance in outcomes for individual large claims or events can
have a significant impact on results. These outcomes generally relate to unique characteristics of events such as
catastrophes or losses with significant business interruption claims.
Personal Insurance is short-tailed in nature similar to Property and Special Risks but less volatile. Variance in
estimates can result from unique events such as catastrophes.
In addition, some subsets of this business, such as
auto liability, can be impacted by changes in loss development factors and loss cost trends.
Europe Casualty and
Financial Lines
U.S. Property and
Special Risks, and
Europe Property and
Special Risks
U.S. Personal
Insurance, and Europe,
and Japan Personal
Insurance
Line of
Business or Category
U.S. Run-off Long Tail
Insurance lines
Other Reserve Items
Key Assumptions
We historically have used a combination of loss development methods and expected loss ratio methods for excess
workers compensation and other run-off segments. For environmental claims, we have utilized a variety of methods
including traditional loss development approaches, claim department and other expert evaluations of the ultimate costs
for certain claims and survival ratio metrics.
U.S. Run-off Long Tail Insurance lines is an extremely long-tail class of business, with a much greater than normal
uncertainty as to the appropriate loss development factors for the tail of the loss development. Specifically for excess
workers compensation, after evaluating the historical loss development factors for prior accident years since the 1980s
as well as the development over the past several years of the ground up loss projections utilized to help select the loss
development factors in the tail for this class of business, in our judgment, it is reasonably likely that the tail factor
beyond 30 years could vary by 10 percent above or below that actually indicated in the 2017 loss reserve review.
Loss adjustment expenses (LAE) are separated into two broad categories, allocated loss adjustment expenses (ALAE),
also referred to as legal defense and cost containment or legal and unallocated loss adjustment expenses (ULAE),
which includes certain claims adjuster fees and other internal claim management costs.
We determine reserves for legal expenses for each class of business by one or more actuarial or structural driver
methods. For the majority of segments, legal costs are analyzed in conjunction with losses. For segments where they
are separately analyzed the methods used generally include development methods comparable to those described for
loss development methods. The development could be based on either the paid loss adjustment expenses or the ratio
of paid loss adjustment expenses to paid losses, or both. Other methods include the utilization of expected ultimate
ratios of paid loss expense to paid losses, based on actual experience from prior accident years or from similar product
lines of business.
The bulk of adjuster expenses are allocated and charged to individual claim files. For these expenses, we generally
determine reserves based on calendar year ratios of adjuster expenses paid to losses paid for the particular product
line of business. For other internal claim costs, which generally relate to specific claim department expenses that are
not allocated to individual claim files such as technology costs and other broad initiatives, we look at historic and
expected expenditures for these items and project these into the future.
The incidence of LAE is directly related to the frequency, complexity and level of underlying claims. As a result, a key
driver of variability in LAE is the variability in the overall claims, particularly for long tail lines.
The following sensitivity analysis table summarizes the effect on the loss reserve position of using certain alternative loss
cost trend (for accident years where we use expected loss ratio methods) or loss development factor assumptions rather
than the assumptions actually used in determining our estimates in the year-end loss reserve analyses in 2017:
December 31, 2017
(in millions)
Loss cost trends:
U.S. Excess Casualty:
5 percent increase
5 percent decrease
U.S. Financial Lines (D&O)
10 percent increase
10 percent decrease
Increase (Decrease)
to Loss Reserves
$
1,100
(950)
700
(400)
Increase (Decrease)
to Loss Reserves
$
Loss development factors:
U.S. Excess Casualty:
6-months slower
6-months faster
U.S. Financial Lines (D&O)
6-months slower
6-months faster
U.S. Run-off P&C Lines (Excess
Workers' Compensation):
10% tail factor increase
10% tail factor decrease
U.S. Workers' Compensation:
Tail factor increase(a)
Tail factor decrease(b)
900
(750)
800
(550)
470
(470)
1,100
(800)
(a) Tail factor increase of 2 percent for guaranteed cost business and 6 percent for deductible business.
(b) Tail factor decrease of 1.5 percent for guaranteed cost business and 4 percent for deductible business.
46
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
47
1011252ai_financials.indd 47
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
FUTURE POLICY BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS
Long-duration traditional products include whole life insurance, term life insurance, accident and health insurance, long-term care
insurance, and certain payout annuities for which the payment period is life-contingent, which include certain of our single premium
immediate annuities and structured settlements.
For long-duration traditional business, a lock-in principle applies. The assumptions used to calculate the benefit liabilities and
DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs.
The assumptions include mortality, morbidity, persistency, maintenance expenses, and investment returns. These assumptions are
typically consistent with pricing inputs. The assumptions also include margins for adverse deviation, principally for key assumptions
such as mortality and interest rates used to discount cash flows, to reflect uncertainty given that actual experience might deviate from
these assumptions. Establishing margins at contract inception requires management judgment. The extent of the margin for adverse
deviation may vary depending on the uncertainty of the cash flows, which is affected by the volatility of the business and the extent of
our experience with the product.
Loss recognition occurs if observed changes in actual experience or estimates result in projected future losses under loss recognition
testing. To determine whether loss recognition exists, we determine whether a future loss is expected based on updated current
assumptions.
If loss recognition exists, we recognize the loss by first reducing DAC through amortization expense, and, if DAC is
depleted, record additional liabilities through a charge to policyholder benefit expense. Because of the long-term nature of many of
our liabilities subject to the lock-in principle, small changes in certain assumptions may cause large changes in the degree of
reserve adequacy. In particular, changes in estimates of future invested asset returns have a large effect on the degree of reserve
deficiency.
For additional information on loss recognition see Note 9 to the Consolidated Financial Statements.
Groupings for loss recognition testing are consistent with our manner of acquiring, servicing, and measuring the profitability of the
business and are applied by product groupings, including traditional life, payout annuities and long-term care insurance. Once
loss recognition has been recorded for a block of business, the old assumption set is replaced and the assumption set used for the
loss recognition would then be subject to the lock-in principle. Key judgments made in loss recognition testing include the following:
To determine investment returns used in loss recognition tests, we typically match liabilities with assets of comparable duration, to
the extent practicable, and then project future cash flows on those assets. Assets supporting insurance liabilities are primarily
comprised of a diversified portfolio of high to medium quality fixed maturity securities, and may also include, to a lesser extent,
alternative investments. Our projections include a reasonable allowance for investment expenses and expected credit losses over
the projection horizon. A critical assumption in the projection of expected investment income is the assumed net rate of investment
return at which excess cash flows are to be reinvested. For products in which asset and liability durations are matched relatively
well, this is less of a consideration since interest on excess cash flows are not a significant component of future cash flows. For
the reinvestment rate assumption, anticipated future changes to the yield curves could have a large effect. Given the interest rate
environment applicable at the date of our most recent loss recognition tests, we assumed a modest and gradual increase in long-
term interest rates over time.
For mortality assumptions, key judgments include the extent of industry versus own experience to base future assumptions as well
as the extent of expected mortality improvements in the future. The latter judgment is based on a combination of historical
mortality trends and advice from industry, public health and demography specialists that were consulted by AIGs actuaries and
published industry information.
For surrender rates, a key judgment involves the correlation between expected increases/decreases in interest rates and
increases/decreases in surrender rates. To support this judgment, we compare crediting rates on our products to expected rates on
competing products under different interest rate scenarios.
For in-force long-term care insurance, rate increases are allowed but must be approved by state insurance regulators.
Consequently, the extent of rate increases that may be assumed requires judgment.
increases for long-term care insurance, we consider historical experience as to the frequency and level of rate increases approved
by state regulators.
In establishing our assumption for rate
Significant unrealized appreciation on investments in a low interest rate environment may cause DAC to be adjusted and additional
future policy benefit liabilities to be recorded through a charge directly to accumulated other comprehensive income (shadow loss
recognition). These charges are included, net of tax, with the change in net unrealized appreciation of investments. In applying
shadow loss recognition, the Company overlays unrealized gains onto loss recognition tests without revising the underlying test.
Accordingly, there is limited additional judgment in this process.
For additional information on shadow loss recognition see Note 9 to the Consolidated Financial Statements.
GUARANTEED BENEFIT FEATURES OF VARIABLE ANNUITY PRODUCTS
Variable annuity products offered by our Individual Retirement and Group Retirement product lines offer guaranteed benefit features.
These guaranteed features include guaranteed minimum death benefits (GMDB) that are payable in the event of death or other
instances, and living benefits that are payable in the event of annuitization, or, in other instances, at specified dates during the
accumulation period. Living benefits primarily include guaranteed minimum withdrawal benefits (GMWB).
For additional information on these features see Note 14 to the Consolidated Financial Statements.
The liability for GMDB, which is recorded in Future policyholder benefits, represents the expected value of benefits in excess of the
projected account value, with the excess recognized ratably through Policyholder benefits and losses incurred over the accumulation
period based on total expected fee assessments. The liabilities for GMWB, which are recorded in Policyholder contract deposits, are
accounted for as embedded derivatives measured at fair value, with changes in the fair value of the liabilities recorded in Other
realized capital gains (losses).
Our exposure to the guaranteed amounts is equal to the amount by which the contract holders account balance is below the amount
provided by the guaranteed feature. A variable annuity contract may include more than one type of guaranteed benefit feature; for
example, it may have both a GMDB and a GMWB. However, a policyholder can generally only receive payout from one guaranteed
feature on a contract containing a death benefit and a living benefit, i.e., the features are generally mutually exclusive (except a
surviving spouse who has a rider to potentially collect both a GMDB upon their spouses death and a GMWB during his or her
lifetime). A policyholder cannot purchase more than one living benefit on one contract. Declines in the equity markets, increased
volatility and a sustained low interest rate environment increase our exposure to potential benefits under the guaranteed features,
leading to an increase in the liabilities for those benefits.
For sensitivity analysis which includes the sensitivity of reserves for guaranteed benefit features to changes in the assumptions for
interest rates, equity market returns, volatility, and mortality see Estimated Gross Profits for Investment-Oriented Products below.
For additional discussion of market risk management related to these product features see Enterprise Risk Management Insurance
Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Program.
48
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
49
1011252ai_financials.indd 48
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
FUTURE POLICY BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS
Long-duration traditional products include whole life insurance, term life insurance, accident and health insurance, long-term care
insurance, and certain payout annuities for which the payment period is life-contingent, which include certain of our single premium
immediate annuities and structured settlements.
For long-duration traditional business, a lock-in principle applies. The assumptions used to calculate the benefit liabilities and
DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs.
The assumptions include mortality, morbidity, persistency, maintenance expenses, and investment returns. These assumptions are
typically consistent with pricing inputs. The assumptions also include margins for adverse deviation, principally for key assumptions
such as mortality and interest rates used to discount cash flows, to reflect uncertainty given that actual experience might deviate from
these assumptions. Establishing margins at contract inception requires management judgment. The extent of the margin for adverse
deviation may vary depending on the uncertainty of the cash flows, which is affected by the volatility of the business and the extent of
our experience with the product.
Loss recognition occurs if observed changes in actual experience or estimates result in projected future losses under loss recognition
testing. To determine whether loss recognition exists, we determine whether a future loss is expected based on updated current
assumptions.
If loss recognition exists, we recognize the loss by first reducing DAC through amortization expense, and, if DAC is
depleted, record additional liabilities through a charge to policyholder benefit expense. Because of the long-term nature of many of
our liabilities subject to the lock-in principle, small changes in certain assumptions may cause large changes in the degree of
reserve adequacy. In particular, changes in estimates of future invested asset returns have a large effect on the degree of reserve
deficiency.
For additional information on loss recognition see Note 9 to the Consolidated Financial Statements.
Groupings for loss recognition testing are consistent with our manner of acquiring, servicing, and measuring the profitability of the
business and are applied by product groupings, including traditional life, payout annuities and long-term care insurance. Once
loss recognition has been recorded for a block of business, the old assumption set is replaced and the assumption set used for the
loss recognition would then be subject to the lock-in principle. Key judgments made in loss recognition testing include the following:
To determine investment returns used in loss recognition tests, we typically match liabilities with assets of comparable duration, to
the extent practicable, and then project future cash flows on those assets. Assets supporting insurance liabilities are primarily
comprised of a diversified portfolio of high to medium quality fixed maturity securities, and may also include, to a lesser extent,
alternative investments. Our projections include a reasonable allowance for investment expenses and expected credit losses over
the projection horizon. A critical assumption in the projection of expected investment income is the assumed net rate of investment
return at which excess cash flows are to be reinvested. For products in which asset and liability durations are matched relatively
well, this is less of a consideration since interest on excess cash flows are not a significant component of future cash flows. For
the reinvestment rate assumption, anticipated future changes to the yield curves could have a large effect. Given the interest rate
environment applicable at the date of our most recent loss recognition tests, we assumed a modest and gradual increase in long-
For mortality assumptions, key judgments include the extent of industry versus own experience to base future assumptions as well
as the extent of expected mortality improvements in the future. The latter judgment is based on a combination of historical
mortality trends and advice from industry, public health and demography specialists that were consulted by AIGs actuaries and
term interest rates over time.
published industry information.
For surrender rates, a key judgment involves the correlation between expected increases/decreases in interest rates and
increases/decreases in surrender rates. To support this judgment, we compare crediting rates on our products to expected rates on
competing products under different interest rate scenarios.
For in-force long-term care insurance, rate increases are allowed but must be approved by state insurance regulators.
Consequently, the extent of rate increases that may be assumed requires judgment.
In establishing our assumption for rate
increases for long-term care insurance, we consider historical experience as to the frequency and level of rate increases approved
by state regulators.
Significant unrealized appreciation on investments in a low interest rate environment may cause DAC to be adjusted and additional
future policy benefit liabilities to be recorded through a charge directly to accumulated other comprehensive income (shadow loss
recognition). These charges are included, net of tax, with the change in net unrealized appreciation of investments. In applying
shadow loss recognition, the Company overlays unrealized gains onto loss recognition tests without revising the underlying test.
Accordingly, there is limited additional judgment in this process.
For additional information on shadow loss recognition see Note 9 to the Consolidated Financial Statements.
GUARANTEED BENEFIT FEATURES OF VARIABLE ANNUITY PRODUCTS
Variable annuity products offered by our Individual Retirement and Group Retirement product lines offer guaranteed benefit features.
These guaranteed features include guaranteed minimum death benefits (GMDB) that are payable in the event of death or other
instances, and living benefits that are payable in the event of annuitization, or, in other instances, at specified dates during the
accumulation period. Living benefits primarily include guaranteed minimum withdrawal benefits (GMWB).
For additional information on these features see Note 14 to the Consolidated Financial Statements.
The liability for GMDB, which is recorded in Future policyholder benefits, represents the expected value of benefits in excess of the
projected account value, with the excess recognized ratably through Policyholder benefits and losses incurred over the accumulation
period based on total expected fee assessments. The liabilities for GMWB, which are recorded in Policyholder contract deposits, are
accounted for as embedded derivatives measured at fair value, with changes in the fair value of the liabilities recorded in Other
realized capital gains (losses).
Our exposure to the guaranteed amounts is equal to the amount by which the contract holders account balance is below the amount
provided by the guaranteed feature. A variable annuity contract may include more than one type of guaranteed benefit feature; for
example, it may have both a GMDB and a GMWB. However, a policyholder can generally only receive payout from one guaranteed
feature on a contract containing a death benefit and a living benefit, i.e., the features are generally mutually exclusive (except a
surviving spouse who has a rider to potentially collect both a GMDB upon their spouses death and a GMWB during his or her
lifetime). A policyholder cannot purchase more than one living benefit on one contract. Declines in the equity markets, increased
volatility and a sustained low interest rate environment increase our exposure to potential benefits under the guaranteed features,
leading to an increase in the liabilities for those benefits.
For sensitivity analysis which includes the sensitivity of reserves for guaranteed benefit features to changes in the assumptions for
interest rates, equity market returns, volatility, and mortality see Estimated Gross Profits for Investment-Oriented Products below.
For additional discussion of market risk management related to these product features see Enterprise Risk Management Insurance
Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Program.
48
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
49
1011252ai_financials.indd 49
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
The reserving methodology and assumptions used to measure the liabilities of our two largest guaranteed benefit features
are presented in the following table:
Guaranteed
Benefit Feature
Reserving Methodology &
Assumptions and Accounting Judgments
GMDB
We determine the GMDB liability at each balance sheet date by estimating the expected value of death benefits in excess of the
projected account balance and recognizing the excess ratably over the accumulation period based on total expected fee
assessments. For additional information on how we reserve for variable annuity products with guaranteed benefit features see
Note 14 to the Consolidated Financial Statements.
Key assumptions include:
Interest rates, which vary by year of issuance and products
Mortality rates, which are based upon actual experience modified to allow for variations in policy form
Lapse rates, which are based upon actual experience modified to allow for variations in policy form
Investment returns, using assumptions from a randomly generated model
In applying asset growth assumptions for the valuation of the GMDB liability, we use a reversion to the mean methodology,
similar to that applied for DAC. For a description of this methodology see Estimated Gross Profits for Investment-Oriented
Products below.
GMWB
GMWB living benefits are embedded derivatives that are required to be bifurcated from the host contract and carried at fair
value. For additional information on how we reserve for variable annuity products with guaranteed benefit features see Note 14
to the Consolidated Financial Statements, and for information on fair value measurement of these embedded derivatives,
including how we incorporate our own non-performance risk see Note 5 to the Consolidated Financial Statements.
The fair value of the embedded derivatives is based on actuarial and capital market assumptions related to projected cash flows
over the expected lives of the contracts. Key assumptions include:
Interest rates
Equity market returns
Market volatility
Credit spreads
Equity / interest rate correlation
Policyholder behavior, including mortality, lapses, withdrawals and benefit utilization. Estimates of future policyholder
behavior are subjective and based primarily on our historical experience
In applying asset growth assumptions for the valuation of GMWBs, we use market-consistent assumptions calibrated to
observable interest rate and equity option prices
Allocation of fees between the embedded derivative and host contract
ESTIMATED GROSS PROFITS FOR INVESTMENTORIENTED PRODUCTS
Policy acquisition costs and policy issuance costs that are incremental and directly related to the successful acquisition of new or
renewal of existing insurance contracts related to universal life and investment-type products (collectively, investment-oriented
products) are generally deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over
the expected lives of the contracts, except in instances where significant negative gross profits are expected in one or more periods.
Estimated gross profits include net investment income and spreads, net realized capital gains and losses, fees, surrender charges,
expenses, and mortality gains and losses. In estimating future gross profits, lapse assumptions require judgment and can have a
material impact on DAC amortization. For fixed deferred annuity contracts, the future spread between investment income and interest
credited to policyholders is a significant judgment, particularly in a low interest rate environment.
If the assumptions used for estimated gross profits change significantly, DAC and related reserves, including VOBA, SIA, guaranteed
benefit reserves and unearned revenue reserve (URR), are recalculated using the new assumptions, and any resulting adjustment is
included in income. Updating such assumptions may result in acceleration of amortization in some products and deceleration of
amortization in other products.
In estimating future gross profits for variable annuity products as of December 31, 2017, a long-term annual asset growth assumption
of 7.0 percent (before expenses that reduce the asset base from which future fees are projected) was applied to estimate the future
growth in assets and related asset-based fees.
markets is partially mitigated through the use of a reversion to the mean methodology, whereby short-term asset growth above or
below the long-term annual rate assumption impacts the growth assumption applied to the five-year period subsequent to the current
balance sheet date. The reversion to the mean methodology allows us to maintain our long-term growth assumptions, while also
giving consideration to the effect of actual investment performance. When actual performance significantly deviates from the annual
In determining the asset growth rate, the effect of short-term fluctuations in the equity
long-term growth assumption, as evidenced by growth assumptions for the five-year reversion to the mean period falling below a
certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or unlock the growth rate
assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual growth assumption
applied to subsequent periods. The use of a reversion to the mean assumption is common within the industry; however, the
parameters used in the methodology are subject to judgment and vary within the industry.
For additional discussion see Insurance Reserves Life and Annuity Reserves and DAC DAC Reversion to the Mean.
The following table summarizes the sensitivity of changes in certain assumptions for DAC and SIA, embedded derivatives
and other reserves related to guaranteed benefits and URR, measured as the related hypothetical impact on December 31,
2017 balances and the resulting hypothetical impact on pre-tax income, before hedging.
Effect of an increase by 10 basis points
$
Effect of a decrease by 10 basis points
137
$
(136)
(24)
$
24
15
$
(19)
(129) $
132
December 31, 2017
(in millions)
Assumptions:
Net Investment Spread
Equity Return(a)
Effect of an increase by 1%
Effect of a decrease by 1%
Volatility (b)
Effect of an increase by 1%
Effect of a decrease by 1%
Interest Rate(c)
Effect of an increase by 1%
Effect of a decrease by 1%
Mortality
Effect of an increase by 1%
Effect of a decrease by 1%
Lapse
Effect of an increase by 10%
Effect of an decrease by 10%
Increase (decrease) in
Other
Reserves
Related to
Embedded
Derivatives
Related to
Guaranteed
Benefits
Unearned
Revenue
Reserve
DAC/SIA
Guaranteed
Asset
Benefits
87
(82)
(3)
3
-
-
(10)
10
(132)
137
(24)
32
20
(19)
-
-
41
(41)
(63)
66
-
-
-
-
-
-
-
(2)
(16)
15
(59)
63
2
-
(30)
30
(106)
109
(2,175)
2,200
2,175
(2,200)
Pre-Tax
Income
275
(273)
170
(177)
(25)
22
(19)
21
53
(53)
(a) Represents the net impact of a one percent increase or decrease in long-term equity returns for GMDB reserves and net impact of a one percent increase or decrease
in the S&P 500 index on the value of the GMWB embedded derivative.
(b) Represents the net impact of a one percentage point increase or decrease in equity volatility.
(c) Represents the net impact of one percent parallel shift in the yield curve on the value of the GMWB embedded derivative. Does not represent interest rate spread
compression on investment-oriented products.
The sensitivity ranges of 10 basis points, one percent and 10 percent are included for illustrative purposes only and do not reflect the
changes in net investment spreads, equity return, volatility, interest rate, mortality or lapse used by AIG in its fair value analyses or
estimates of future gross profits to value DAC and related reserves. Changes in excess of those illustrated may occur in any period.
The analysis of DAC, embedded derivatives and other reserves related to guaranteed benefits, and unearned revenue reserve is a
dynamic process that considers all relevant factors and assumptions described above. We estimate each of the above factors
individually, without the effect of any correlation among the key assumptions. An assessment of sensitivity associated with changes in
any single assumption would not necessarily be an indicator of future results. The effects on pre-tax income in the sensitivity analysis
table above do not reflect the related effects from our economic hedging program, which utilizes derivative and other financial
instruments and is designed so that changes in value of those instruments move in the opposite direction of changes in the
guaranteed benefit embedded derivative liabilities.
For a further discussion on guaranteed benefit features of our variable annuities and the related hedging program see Enterprise Risk
Management Insurance Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging
Program, Insurance Reserves Life and Annuity Reserves and DAC DAC Variable Annuity Guaranteed Benefits and Hedging
Results, and Notes 5 and 14 to the Consolidated Financial Statements.
50
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
51
1011252ai_financials.indd 50
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 The reserving methodology and assumptions used to measure the liabilities of our two largest guaranteed benefit features
are presented in the following table:
Guaranteed
Benefit Feature
Reserving Methodology &
Assumptions and Accounting Judgments
long-term growth assumption, as evidenced by growth assumptions for the five-year reversion to the mean period falling below a
certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or unlock the growth rate
assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual growth assumption
applied to subsequent periods. The use of a reversion to the mean assumption is common within the industry; however, the
parameters used in the methodology are subject to judgment and vary within the industry.
GMDB
We determine the GMDB liability at each balance sheet date by estimating the expected value of death benefits in excess of the
For additional discussion see Insurance Reserves Life and Annuity Reserves and DAC DAC Reversion to the Mean.
ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
projected account balance and recognizing the excess ratably over the accumulation period based on total expected fee
assessments. For additional information on how we reserve for variable annuity products with guaranteed benefit features see
Note 14 to the Consolidated Financial Statements.
Key assumptions include:
Interest rates, which vary by year of issuance and products
Mortality rates, which are based upon actual experience modified to allow for variations in policy form
Lapse rates, which are based upon actual experience modified to allow for variations in policy form
Investment returns, using assumptions from a randomly generated model
In applying asset growth assumptions for the valuation of the GMDB liability, we use a reversion to the mean methodology,
similar to that applied for DAC. For a description of this methodology see Estimated Gross Profits for Investment-Oriented
Products below.
GMWB
GMWB living benefits are embedded derivatives that are required to be bifurcated from the host contract and carried at fair
value. For additional information on how we reserve for variable annuity products with guaranteed benefit features see Note 14
to the Consolidated Financial Statements, and for information on fair value measurement of these embedded derivatives,
including how we incorporate our own non-performance risk see Note 5 to the Consolidated Financial Statements.
The fair value of the embedded derivatives is based on actuarial and capital market assumptions related to projected cash flows
over the expected lives of the contracts. Key assumptions include:
Interest rates
Equity market returns
Market volatility
Credit spreads
Equity / interest rate correlation
Policyholder behavior, including mortality, lapses, withdrawals and benefit utilization. Estimates of future policyholder
behavior are subjective and based primarily on our historical experience
In applying asset growth assumptions for the valuation of GMWBs, we use market-consistent assumptions calibrated to
observable interest rate and equity option prices
Allocation of fees between the embedded derivative and host contract
ESTIMATED GROSS PROFITS FOR INVESTMENTORIENTED PRODUCTS
Policy acquisition costs and policy issuance costs that are incremental and directly related to the successful acquisition of new or
renewal of existing insurance contracts related to universal life and investment-type products (collectively, investment-oriented
products) are generally deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over
the expected lives of the contracts, except in instances where significant negative gross profits are expected in one or more periods.
Estimated gross profits include net investment income and spreads, net realized capital gains and losses, fees, surrender charges,
expenses, and mortality gains and losses. In estimating future gross profits, lapse assumptions require judgment and can have a
material impact on DAC amortization. For fixed deferred annuity contracts, the future spread between investment income and interest
credited to policyholders is a significant judgment, particularly in a low interest rate environment.
If the assumptions used for estimated gross profits change significantly, DAC and related reserves, including VOBA, SIA, guaranteed
benefit reserves and unearned revenue reserve (URR), are recalculated using the new assumptions, and any resulting adjustment is
included in income. Updating such assumptions may result in acceleration of amortization in some products and deceleration of
amortization in other products.
In estimating future gross profits for variable annuity products as of December 31, 2017, a long-term annual asset growth assumption
of 7.0 percent (before expenses that reduce the asset base from which future fees are projected) was applied to estimate the future
growth in assets and related asset-based fees.
In determining the asset growth rate, the effect of short-term fluctuations in the equity
markets is partially mitigated through the use of a reversion to the mean methodology, whereby short-term asset growth above or
below the long-term annual rate assumption impacts the growth assumption applied to the five-year period subsequent to the current
balance sheet date. The reversion to the mean methodology allows us to maintain our long-term growth assumptions, while also
giving consideration to the effect of actual investment performance. When actual performance significantly deviates from the annual
The following table summarizes the sensitivity of changes in certain assumptions for DAC and SIA, embedded derivatives
and other reserves related to guaranteed benefits and URR, measured as the related hypothetical impact on December 31,
2017 balances and the resulting hypothetical impact on pre-tax income, before hedging.
December 31, 2017
(in millions)
Assumptions:
Net Investment Spread
Increase (decrease) in
Other
Reserves
Related to
Guaranteed
Benefits
Embedded
Derivatives
Related to
Guaranteed
Benefits
Unearned
Revenue
Reserve
DAC/SIA
Asset
$
$
15
(19)
(129) $
132
Effect of an increase by 10 basis points
Effect of a decrease by 10 basis points
$
$
137
(136)
Equity Return(a)
Effect of an increase by 1%
Effect of a decrease by 1%
Volatility (b)
Effect of an increase by 1%
Effect of a decrease by 1%
Interest Rate(c)
Effect of an increase by 1%
Effect of a decrease by 1%
Mortality
Effect of an increase by 1%
Effect of a decrease by 1%
Lapse
Effect of an increase by 10%
Effect of an decrease by 10%
87
(82)
(3)
3
-
-
(10)
10
(132)
137
(24)
24
(24)
32
20
(19)
-
-
41
(41)
(63)
66
-
-
-
-
-
-
(2)
-
(16)
15
Pre-Tax
Income
275
(273)
170
(177)
(25)
22
(59)
63
2
-
(2,175)
2,200
2,175
(2,200)
(30)
30
(106)
109
(19)
21
53
(53)
(a) Represents the net impact of a one percent increase or decrease in long-term equity returns for GMDB reserves and net impact of a one percent increase or decrease
in the S&P 500 index on the value of the GMWB embedded derivative.
(b) Represents the net impact of a one percentage point increase or decrease in equity volatility.
(c) Represents the net impact of one percent parallel shift in the yield curve on the value of the GMWB embedded derivative. Does not represent interest rate spread
compression on investment-oriented products.
The sensitivity ranges of 10 basis points, one percent and 10 percent are included for illustrative purposes only and do not reflect the
changes in net investment spreads, equity return, volatility, interest rate, mortality or lapse used by AIG in its fair value analyses or
estimates of future gross profits to value DAC and related reserves. Changes in excess of those illustrated may occur in any period.
The analysis of DAC, embedded derivatives and other reserves related to guaranteed benefits, and unearned revenue reserve is a
dynamic process that considers all relevant factors and assumptions described above. We estimate each of the above factors
individually, without the effect of any correlation among the key assumptions. An assessment of sensitivity associated with changes in
any single assumption would not necessarily be an indicator of future results. The effects on pre-tax income in the sensitivity analysis
table above do not reflect the related effects from our economic hedging program, which utilizes derivative and other financial
instruments and is designed so that changes in value of those instruments move in the opposite direction of changes in the
guaranteed benefit embedded derivative liabilities.
For a further discussion on guaranteed benefit features of our variable annuities and the related hedging program see Enterprise Risk
Management Insurance Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging
Program, Insurance Reserves Life and Annuity Reserves and DAC DAC Variable Annuity Guaranteed Benefits and Hedging
Results, and Notes 5 and 14 to the Consolidated Financial Statements.
50
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
51
1011252ai_financials.indd 51
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
REINSURANCE ASSETS
The estimation of reinsurance recoverable involves a significant amount of judgment, particularly for latent exposures, such as
asbestos, due to their long-tail nature. Reinsurance assets include reinsurance recoverable on unpaid losses and loss adjustment
expenses that are estimated as part of our loss reserving process and, consequently, are subject to similar judgments and
uncertainties as the estimation of gross loss reserves.
We assess the collectability of reinsurance recoverable balances through either detailed reviews of the underlying nature of the
reinsurance balance or comparisons with historical trends of disputes and credit events. We record adjustments to reflect the results
of these assessments through an allowance for uncollectable reinsurance that reduces the carrying amount of reinsurance assets on
the balance sheet. This estimate requires significant judgment for which key considerations include:
paid and unpaid amounts recoverable;
whether the balance is in dispute or subject to legal collection;
FAIR VALUE MEASUREMENTS OF CERTAIN FINANCIAL ASSETS AND FINANCIAL LIABILITIES
For additional information about the measurement of fair value of financial assets and financial liabilities and our accounting policy
regarding the incorporation of credit risk in fair value measurements see Note 5 to the Consolidated Financial Statements.
The following table presents the fair value of fixed maturity and equity securities by source of value determination:
December 31, 2017
(in billions)
Fair value based on external sources(a)
Fair value based on internal sources
Total fixed maturity and equity securities(b)
(a) Includes $16.4 billion for which the primary source is broker quotes.
Fair
Value
233
21
254
Percent
of Total
92 %
8
100 %
$
$
whether the reinsurer is financially troubled (i.e., liquidated, insolvent, in receivership or otherwise subject to formal or informal
(b) Includes available for sale and other securities.
regulatory restriction); and
whether collateral and collateral arrangements exist.
At December 31, 2017, the allowance for estimated unrecoverable reinsurance was $187 million, or less than one percent of the
consolidated reinsurance recoverable.
Level 3 Assets and Liabilities
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in a hierarchy for
disclosure purposes consisting of three levels based on the observability of inputs available in the marketplace used to measure the
fair value.
For additional information on reinsurance see Note 8 to the Consolidated Financial Statements.
For additional information see Note 5 to the Consolidated Financial Statements.
IMPAIRMENT CHARGES
Impairments of Investments
The following table presents the amount of assets and liabilities measured at fair value on a recurring basis and classified
as Level 3:
At each balance sheet date, we evaluate our available for sale securities holdings with unrealized losses to determine if an other-
than-temporary impairment has occurred. We also evaluate our other invested assets for impairment; these include equity and cost
method investments in private equity funds, hedge funds and other entities as well as investments in life settlements, aircraft and real
estate.
(in billions)
Assets
Liabilities
December 31,
Percentage
December 31, Percentage
$
2017
35.9
4.4
of Total
7.2 % $
1.0
2016
37.7
3.5
of Total
7.6 %
0.8
For additional information on the methodology and significant inputs, by investment type, that we use to determine the amount of
impairment see the discussion in Note 6 to the Consolidated Financial Statements.
Goodwill Impairment
For a discussion of goodwill impairment see Note 12 to the Consolidated Financial Statements. In 2017, 2016 and 2015, for
substantially all of the reporting units we elected to bypass the qualitative assessment of whether goodwill impairment may exist and,
therefore, performed quantitative assessments that supported a conclusion that the fair value of all of the reporting units tested
exceeded their book value. To determine fair value, we primarily use a discounted expected future cash flow analysis that estimates
and discounts projected future distributable earnings. Such analysis is principally based on our business projections that inherently
include judgments regarding business trends.
LIABILITY FOR LEGAL CONTINGENCIES
We estimate and record a liability for potential losses that may arise from regulatory and government investigations and actions and
litigation and other forms of dispute resolution to the extent such losses are probable and can be estimated. Determining a
reasonable estimate of the amount of such losses requires significant management judgment. In many cases, it is not possible to
determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the matter is close
to resolution. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases that are in the early
stages of litigation or in which claimants seek substantial or indeterminate damages, we often cannot predict the outcome or estimate
the eventual loss or range of reasonably possible losses related to such matters. Given the inherent unpredictability of such matters,
the outcome of certain matters could, from time to time, have a material adverse effect on the companys consolidated financial
condition, results of operations or cash flows.
For more information on legal, regulatory and litigation matters see Note 16 to the Consolidated Financial Statements.
Level 3 fair value measurements are based on valuation techniques that use at least one significant input that is unobservable. We
consider unobservable inputs to be those for which market data is not available and that are developed using the best information
available about the assumptions that market participants would use when valuing the asset or liability. Our assessment of the
significance of a particular input to the fair value measurement in its entirety requires judgment.
We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant unobservable inputs in
their valuation, including contractual terms, prices and rates, yield curves, credit curves, measures of volatility, prepayment rates,
default rates, mortality rates and correlations of such inputs.
For discussion of the valuation methodologies for assets and liabilities measured at fair value, as well as a discussion of transfers of
Level 3 assets and liabilities see Note 5 to the Consolidated Financial Statements.
INCOME TAXES
Recoverability of Net Deferred Tax Asset
The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive
and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be
realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative
evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation
allowance is not needed.
We consider a number of factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net
operating losses (NOLs), foreign tax credits (FTCs), realized capital loss and other carryforwards. These factors include forecasts of
future income for each of our businesses and actual and planned business and operational changes, both of which include
assumptions about future macroeconomic and AIG specific conditions and events. We subject the forecasts to stresses of key
assumptions and evaluate the effect on tax attribute utilization. We also apply stresses to our assumptions about the effectiveness of
relevant prudent and feasible tax planning strategies. Our income forecasts, coupled with our tax planning strategies, all resulted in
sufficient taxable income to achieve realization of the U.S. tax attributes prior to their expiration.
52
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
53
1011252ai_financials.indd 52
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 IMPAIRMENT CHARGES
Impairments of Investments
estate.
Goodwill Impairment
ITEM 7 | Critical Accounting Estimates
ITEM 7 | Critical Accounting Estimates
REINSURANCE ASSETS
The estimation of reinsurance recoverable involves a significant amount of judgment, particularly for latent exposures, such as
asbestos, due to their long-tail nature. Reinsurance assets include reinsurance recoverable on unpaid losses and loss adjustment
expenses that are estimated as part of our loss reserving process and, consequently, are subject to similar judgments and
uncertainties as the estimation of gross loss reserves.
We assess the collectability of reinsurance recoverable balances through either detailed reviews of the underlying nature of the
reinsurance balance or comparisons with historical trends of disputes and credit events. We record adjustments to reflect the results
of these assessments through an allowance for uncollectable reinsurance that reduces the carrying amount of reinsurance assets on
the balance sheet. This estimate requires significant judgment for which key considerations include:
FAIR VALUE MEASUREMENTS OF CERTAIN FINANCIAL ASSETS AND FINANCIAL LIABILITIES
For additional information about the measurement of fair value of financial assets and financial liabilities and our accounting policy
regarding the incorporation of credit risk in fair value measurements see Note 5 to the Consolidated Financial Statements.
The following table presents the fair value of fixed maturity and equity securities by source of value determination:
December 31, 2017
(in billions)
Fair value based on external sources(a)
Fair value based on internal sources
Total fixed maturity and equity securities(b)
(a) Includes $16.4 billion for which the primary source is broker quotes.
Fair
Value
233
21
254
Percent
of Total
92 %
8
100 %
$
$
whether the reinsurer is financially troubled (i.e., liquidated, insolvent, in receivership or otherwise subject to formal or informal
(b) Includes available for sale and other securities.
At December 31, 2017, the allowance for estimated unrecoverable reinsurance was $187 million, or less than one percent of the
consolidated reinsurance recoverable.
Level 3 Assets and Liabilities
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in a hierarchy for
disclosure purposes consisting of three levels based on the observability of inputs available in the marketplace used to measure the
fair value.
For additional information on reinsurance see Note 8 to the Consolidated Financial Statements.
For additional information see Note 5 to the Consolidated Financial Statements.
The following table presents the amount of assets and liabilities measured at fair value on a recurring basis and classified
as Level 3:
paid and unpaid amounts recoverable;
whether the balance is in dispute or subject to legal collection;
regulatory restriction); and
whether collateral and collateral arrangements exist.
At each balance sheet date, we evaluate our available for sale securities holdings with unrealized losses to determine if an other-
than-temporary impairment has occurred. We also evaluate our other invested assets for impairment; these include equity and cost
method investments in private equity funds, hedge funds and other entities as well as investments in life settlements, aircraft and real
(in billions)
Assets
Liabilities
December 31,
2017
35.9
4.4
$
Percentage
of Total
7.2 % $
1.0
December 31, Percentage
of Total
2016
37.7
3.5
7.6 %
0.8
For additional information on the methodology and significant inputs, by investment type, that we use to determine the amount of
impairment see the discussion in Note 6 to the Consolidated Financial Statements.
For a discussion of goodwill impairment see Note 12 to the Consolidated Financial Statements. In 2017, 2016 and 2015, for
substantially all of the reporting units we elected to bypass the qualitative assessment of whether goodwill impairment may exist and,
therefore, performed quantitative assessments that supported a conclusion that the fair value of all of the reporting units tested
exceeded their book value. To determine fair value, we primarily use a discounted expected future cash flow analysis that estimates
and discounts projected future distributable earnings. Such analysis is principally based on our business projections that inherently
include judgments regarding business trends.
LIABILITY FOR LEGAL CONTINGENCIES
We estimate and record a liability for potential losses that may arise from regulatory and government investigations and actions and
litigation and other forms of dispute resolution to the extent such losses are probable and can be estimated. Determining a
reasonable estimate of the amount of such losses requires significant management judgment. In many cases, it is not possible to
determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the matter is close
to resolution. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases that are in the early
stages of litigation or in which claimants seek substantial or indeterminate damages, we often cannot predict the outcome or estimate
the eventual loss or range of reasonably possible losses related to such matters. Given the inherent unpredictability of such matters,
the outcome of certain matters could, from time to time, have a material adverse effect on the companys consolidated financial
condition, results of operations or cash flows.
For more information on legal, regulatory and litigation matters see Note 16 to the Consolidated Financial Statements.
Level 3 fair value measurements are based on valuation techniques that use at least one significant input that is unobservable. We
consider unobservable inputs to be those for which market data is not available and that are developed using the best information
available about the assumptions that market participants would use when valuing the asset or liability. Our assessment of the
significance of a particular input to the fair value measurement in its entirety requires judgment.
We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant unobservable inputs in
their valuation, including contractual terms, prices and rates, yield curves, credit curves, measures of volatility, prepayment rates,
default rates, mortality rates and correlations of such inputs.
For discussion of the valuation methodologies for assets and liabilities measured at fair value, as well as a discussion of transfers of
Level 3 assets and liabilities see Note 5 to the Consolidated Financial Statements.
INCOME TAXES
Recoverability of Net Deferred Tax Asset
The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive
and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be
realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative
evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation
allowance is not needed.
We consider a number of factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net
operating losses (NOLs), foreign tax credits (FTCs), realized capital loss and other carryforwards. These factors include forecasts of
future income for each of our businesses and actual and planned business and operational changes, both of which include
assumptions about future macroeconomic and AIG specific conditions and events. We subject the forecasts to stresses of key
assumptions and evaluate the effect on tax attribute utilization. We also apply stresses to our assumptions about the effectiveness of
relevant prudent and feasible tax planning strategies. Our income forecasts, coupled with our tax planning strategies, all resulted in
sufficient taxable income to achieve realization of the U.S. tax attributes prior to their expiration.
52
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
53
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Executive Summary
We assess the recoverability of deferred tax assets related to unrealized tax capital losses in the U.S. non-life companies available
for sale portfolio. For the year ended December 31, 2017, recent changes in market conditions, including interest rate fluctuations,
impacted the unrealized tax gains and losses in the U.S. non-life companies available for sale securities portfolio, resulting in a
deferred tax liability related to net unrealized tax capital gains. As of December 31, 2017, based on all available evidence, we have
concluded no valuation allowance is necessary in the U.S. non-life companies available for sale securities portfolio.
We also assess the recoverability of deferred tax assets related to unrealized tax capital losses in the U.S. life insurance companies
available for sale portfolio. For the year ended December 31, 2017, recent changes in market conditions, including interest rate
fluctuations, impacted the unrealized tax gains and losses in the U.S. life insurance companies available for sale securities portfolio,
resulting in a deferred tax liability related to net unrealized tax capital gains. As of December 31, 2017, based on all available
evidence, we have concluded no valuation allowance is necessary in the U.S. life insurance companies available for sale securities
portfolio.
For a discussion of our framework for assessing the recoverability of our deferred tax asset see Note 23 to the Consolidated Financial
Statements.
Uncertain Tax Positions
Our accounting for income taxes, including uncertain tax positions, represents managements best estimate of various events and
transactions, and requires judgment. FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) now
incorporated into Accounting Standards Codification, 740, Income Taxes (ASC 740) prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be
taken in a tax return. The standard also provides guidance on derecognition, classification, interest and penalties and additional
disclosures. We determine whether it is more likely than not that a tax position will be sustained, based on technical merits, upon
examination by the relevant taxing authorities before any part of the benefit can be recognized in the financial statements. A tax
position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
We classify interest expense and penalties recognized on income taxes as a component of income taxes.
U.S. Income Taxes on Earnings of Certain Foreign Subsidiaries
The U.S. federal income tax laws applicable to determining the amount of income taxes related to differences between the book
carrying amounts and tax bases of subsidiaries are complex. Determining the amount also requires significant judgment and reliance
on reasonable assumptions and estimates.
U.S. Tax Reform
On December 22, 2017, the U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the Tax Act). The Tax
Act reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts numerous other changes impacting AIG
and the insurance industry. Additionally, the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on
accounting for the tax effects of the Tax Act. SAB 118 addresses situations where accounting for certain income tax effects of the Tax
Act under ASC 740 may be incomplete upon issuance of an entitys financial statements and provides a one-year measurement
period from the enactment date to complete the accounting under ASC 740. As of December 31, 2017, we had not fully completed our
accounting for the tax effects of the Tax Act. Our provision for income taxes for the periods ended December 31, 2017, is based in
part on a reasonable estimate of the effects on existing deferred tax balances and of certain provisions of the Tax Act.
The Tax Act includes a provision for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed
on the excess of a deemed return on tangible assets of certain foreign subsidiaries. We have made a policy election to treat GILTI as
an in period tax charge when incurred in future periods for which no deferred taxes need to be provided.
For additional discussion of the Tax Act see Note 23 to the Consolidated Financial Statements.
Executive Summary
OVERVIEW
This overview of the MD&A highlights selected information and may not contain all of the information that is important to current or
potential investors in our securities. You should read this Annual Report in its entirety for a more detailed description of events, trends,
uncertainties, risks and critical accounting estimates affecting us.
In the fourth quarter of 2017, we completed the reorganization of our operating structure. For a further discussion on these actions
see Item 1. Business.
On January 21, 2018, we entered into an agreement to purchase Validus Holdings, Ltd., a leading provider of reinsurance, primary
insurance, and asset management services, for $5.6 billion in cash. This transaction strengthens our global General Insurance
business by expanding our current product portfolio through additional distribution channels and advancing the tools available to
enhance underwriting. The transaction is expected to close mid-2018 and is subject to obtaining the relevant regulatory approvals and
other customary closing conditions.
In February 2018, we closed a series of affiliated reinsurance transactions impacting the Legacy Portfolio. These transactions were
designed to consolidate the bulk of the Legacy Insurance Run-Off Lines into a single legal entity, DSA Reinsurance Company, Ltd.
(DSA Re), a Bermuda domiciled composite reinsurer, 100 percent owned by AIG. The transactions include the cession of
approximately $32 billion of reserves from the Legacy Life and Retirement Run-off Lines and approximately $5 billion of reserves from
the Legacy General Insurance Run-off Lines relating to business written by multiple AIG legal entities. This represented over 80
percent of the insurance reserves in the Legacy Portfolio as of December 31, 2017. DSA Re will have approximately $40 billion of
invested assets, managed by AIG Investments and will become AIGs main run-off reinsurer with its own dedicated management
team.
Following the close of the DSA Re transactions, Eaglestone Reinsurance Company will continue to reinsure the AIG property casualty
pool companies for their asbestos liabilities and benefit from the retroactive reinsurance agreement entered into with NICO in 2011.
54
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
55
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Critical Accounting Estimates
ITEM 7 | Executive Summary
We assess the recoverability of deferred tax assets related to unrealized tax capital losses in the U.S. non-life companies available
for sale portfolio. For the year ended December 31, 2017, recent changes in market conditions, including interest rate fluctuations,
impacted the unrealized tax gains and losses in the U.S. non-life companies available for sale securities portfolio, resulting in a
deferred tax liability related to net unrealized tax capital gains. As of December 31, 2017, based on all available evidence, we have
concluded no valuation allowance is necessary in the U.S. non-life companies available for sale securities portfolio.
We also assess the recoverability of deferred tax assets related to unrealized tax capital losses in the U.S. life insurance companies
available for sale portfolio. For the year ended December 31, 2017, recent changes in market conditions, including interest rate
fluctuations, impacted the unrealized tax gains and losses in the U.S. life insurance companies available for sale securities portfolio,
resulting in a deferred tax liability related to net unrealized tax capital gains. As of December 31, 2017, based on all available
evidence, we have concluded no valuation allowance is necessary in the U.S. life insurance companies available for sale securities
For a discussion of our framework for assessing the recoverability of our deferred tax asset see Note 23 to the Consolidated Financial
portfolio.
Statements.
Uncertain Tax Positions
Our accounting for income taxes, including uncertain tax positions, represents managements best estimate of various events and
transactions, and requires judgment. FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) now
incorporated into Accounting Standards Codification, 740, Income Taxes (ASC 740) prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be
taken in a tax return. The standard also provides guidance on derecognition, classification, interest and penalties and additional
disclosures. We determine whether it is more likely than not that a tax position will be sustained, based on technical merits, upon
examination by the relevant taxing authorities before any part of the benefit can be recognized in the financial statements. A tax
position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
We classify interest expense and penalties recognized on income taxes as a component of income taxes.
U.S. Income Taxes on Earnings of Certain Foreign Subsidiaries
The U.S. federal income tax laws applicable to determining the amount of income taxes related to differences between the book
carrying amounts and tax bases of subsidiaries are complex. Determining the amount also requires significant judgment and reliance
on reasonable assumptions and estimates.
U.S. Tax Reform
On December 22, 2017, the U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the Tax Act). The Tax
Act reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts numerous other changes impacting AIG
and the insurance industry. Additionally, the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on
accounting for the tax effects of the Tax Act. SAB 118 addresses situations where accounting for certain income tax effects of the Tax
Act under ASC 740 may be incomplete upon issuance of an entitys financial statements and provides a one-year measurement
period from the enactment date to complete the accounting under ASC 740. As of December 31, 2017, we had not fully completed our
accounting for the tax effects of the Tax Act. Our provision for income taxes for the periods ended December 31, 2017, is based in
part on a reasonable estimate of the effects on existing deferred tax balances and of certain provisions of the Tax Act.
The Tax Act includes a provision for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed
on the excess of a deemed return on tangible assets of certain foreign subsidiaries. We have made a policy election to treat GILTI as
an in period tax charge when incurred in future periods for which no deferred taxes need to be provided.
For additional discussion of the Tax Act see Note 23 to the Consolidated Financial Statements.
Executive Summary
OVERVIEW
This overview of the MD&A highlights selected information and may not contain all of the information that is important to current or
potential investors in our securities. You should read this Annual Report in its entirety for a more detailed description of events, trends,
uncertainties, risks and critical accounting estimates affecting us.
In the fourth quarter of 2017, we completed the reorganization of our operating structure. For a further discussion on these actions
see Item 1. Business.
On January 21, 2018, we entered into an agreement to purchase Validus Holdings, Ltd., a leading provider of reinsurance, primary
insurance, and asset management services, for $5.6 billion in cash. This transaction strengthens our global General Insurance
business by expanding our current product portfolio through additional distribution channels and advancing the tools available to
enhance underwriting. The transaction is expected to close mid-2018 and is subject to obtaining the relevant regulatory approvals and
other customary closing conditions.
In February 2018, we closed a series of affiliated reinsurance transactions impacting the Legacy Portfolio. These transactions were
designed to consolidate the bulk of the Legacy Insurance Run-Off Lines into a single legal entity, DSA Reinsurance Company, Ltd.
(DSA Re), a Bermuda domiciled composite reinsurer, 100 percent owned by AIG. The transactions include the cession of
approximately $32 billion of reserves from the Legacy Life and Retirement Run-off Lines and approximately $5 billion of reserves from
the Legacy General Insurance Run-off Lines relating to business written by multiple AIG legal entities. This represented over 80
percent of the insurance reserves in the Legacy Portfolio as of December 31, 2017. DSA Re will have approximately $40 billion of
invested assets, managed by AIG Investments and will become AIGs main run-off reinsurer with its own dedicated management
team.
Following the close of the DSA Re transactions, Eaglestone Reinsurance Company will continue to reinsure the AIG property casualty
pool companies for their asbestos liabilities and benefit from the retroactive reinsurance agreement entered into with NICO in 2011.
54
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
55
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 FINANCIAL PERFORMANCE SUMMARY
Net Income (Loss) Attributable To AIG
( $ i n m i l l i o n s )
$(6,084)
$(849)
$5,235
2017
2016
$2,196
2015
$3,045
$(849)
2016
ITEM 7 | Executive Summary
ITEM 7 | Executive Summary
Adjusted Pre-Tax Income*
( $ i n m i l l i o n s )
2017 and 2016 Comparison
Decreased primarily due to a $6.7 billion tax charge related to the
enactment of the Tax Act. Excluding this tax charge, net income
increased $1.5 billion due to:
lower losses from General Insurance operations, reflecting $1.0
billion of pre-tax unfavorable prior year loss reserve
development in 2017 driven by higher than expected loss
emergence in General Insurance primarily related to accident
year 2016 compared to $5.4 billion in 2016, partially offset by
higher catastrophe losses;
a net positive adjustment from the update of Life and
Retirement actuarial assumptions in 2017 compared to a net
negative adjustment in the prior year;
lower general operating and other expenses;
lower net realized capital losses;
increased adjusted pre-tax income from the Legacy Portfolio;
and
higher net investment income due to increased income from
alternative investments and higher appreciation on assets for
which the fair value option was elected.
This increase was partially offset by a loss on sale of divested
businesses in 2017 compared to a gain on sale of divested
businesses in 2016.
2016 and 2015 Comparison
Declined primarily due to a decrease in income from insurance
operations, reflecting $5.4 billion of pre-tax prior year adverse
reserve development in General Insurance in 2016 compared to
$3.3 billion pre-tax in 2015.
In addition, we recorded net realized
capital losses in 2016 compared to net realized capital gains in
2015. These decreases were partially offset by improved
performance from Life and Retirement.
For further discussion see MD&A Consolidated Results of
Operations.
2017 and 2016 Comparison
Increased primarily due to:
lower losses from General Insurance operations, reflecting $1.0
billion of pre-tax unfavorable prior year loss reserve
development in 2017 driven by higher than expected loss
emergence in General Insurance primarily related to accident
year 2016 compared to $5.4 billion in 2016, partially offset by
higher catastrophe losses;
a net positive adjustment from the update of Life and
Retirement actuarial assumptions in 2017 compared to a net
negative adjustment in in the prior year;
lower general operating and other expenses;
increased adjusted pre-tax income from the Legacy Portfolio;
and
higher net investment income due to increased income from
alternative investments and higher appreciation on assets for
which the fair value option was elected.
2016 and 2015 Comparison
Decreased primarily due to adverse prior year loss reserve
development in General Insurance of $5.4 billion in 2016
compared to $3.3 billion in 2015.
This decrease was partially offset by:
favorable adjustments to reserves and DAC in Life and
Retirement, including higher net positive adjustments from the
update of actuarial assumptions in Individual Retirement and
Life Insurance; and
lower general operating and other expenses.
For further discussion see MD&A Consolidated Results of
Operations.
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
56
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
57
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
FINANCIAL PERFORMANCE SUMMARY
Net Income (Loss) Attributable To AIG
( $ i n m i l l i o n s )
2017 and 2016 Comparison
Decreased primarily due to a $6.7 billion tax charge related to the
enactment of the Tax Act. Excluding this tax charge, net income
increased $1.5 billion due to:
lower losses from General Insurance operations, reflecting $1.0
$3,158
ITEM 7 | Executive Summary
ITEM 7 | Executive Summary
Adjusted Pre-Tax Income*
( $ i n m i l l i o n s )
$1,743
$1,415
2017
2016
$2,569
$3,984
$1,415
2016
2015
2017 and 2016 Comparison
Increased primarily due to:
lower losses from General Insurance operations, reflecting $1.0
billion of pre-tax unfavorable prior year loss reserve
development in 2017 driven by higher than expected loss
emergence in General Insurance primarily related to accident
year 2016 compared to $5.4 billion in 2016, partially offset by
higher catastrophe losses;
a net positive adjustment from the update of Life and
Retirement actuarial assumptions in 2017 compared to a net
negative adjustment in in the prior year;
lower general operating and other expenses;
increased adjusted pre-tax income from the Legacy Portfolio;
and
higher net investment income due to increased income from
alternative investments and higher appreciation on assets for
which the fair value option was elected.
2016 and 2015 Comparison
Decreased primarily due to adverse prior year loss reserve
development in General Insurance of $5.4 billion in 2016
compared to $3.3 billion in 2015.
This decrease was partially offset by:
favorable adjustments to reserves and DAC in Life and
Retirement, including higher net positive adjustments from the
update of actuarial assumptions in Individual Retirement and
Life Insurance; and
lower general operating and other expenses.
For further discussion see MD&A Consolidated Results of
Operations.
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
billion of pre-tax unfavorable prior year loss reserve
development in 2017 driven by higher than expected loss
emergence in General Insurance primarily related to accident
year 2016 compared to $5.4 billion in 2016, partially offset by
higher catastrophe losses;
a net positive adjustment from the update of Life and
Retirement actuarial assumptions in 2017 compared to a net
negative adjustment in the prior year;
lower general operating and other expenses;
lower net realized capital losses;
increased adjusted pre-tax income from the Legacy Portfolio;
and
higher net investment income due to increased income from
alternative investments and higher appreciation on assets for
which the fair value option was elected.
This increase was partially offset by a loss on sale of divested
businesses in 2017 compared to a gain on sale of divested
businesses in 2016.
2016 and 2015 Comparison
Declined primarily due to a decrease in income from insurance
operations, reflecting $5.4 billion of pre-tax prior year adverse
reserve development in General Insurance in 2016 compared to
$3.3 billion pre-tax in 2015.
In addition, we recorded net realized
capital losses in 2016 compared to net realized capital gains in
2015. These decreases were partially offset by improved
performance from Life and Retirement.
For further discussion see MD&A Consolidated Results of
Operations.
56
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
57
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
General Operating and Other Expenses
( $ i n m i l l i o n s )
$(1,697)
$(1,882)
$10,989
$12,686
$9,107
2017
2016
2015
ITEM 7 | Executive Summary
ITEM 7 | Executive Summary
Return on Equity
Adjusted Return on Equity*
Declined $3.6 billion since 2015 due to lower employee-related
expenses and professional fee reductions related to our ongoing
efficiency program and divestitures of businesses, including United
Guaranty, AIG Advisor Group, Fuji Life and NSM Insurance Group
LLC (NSM), and a favorable foreign exchange impact of $63
million.
In keeping with our broad and ongoing efforts to transform for
long-term competitiveness, general operating and other expenses
for 2017, 2016 and 2015 included approximately $413 million,
$694 million and $496 million of pre-tax restructuring and other
costs, respectively, which were primarily comprised of employee
severance charges.
General Operating Expenses, Adjusted Basis*
( $ i n m i l l i o n s )
We continue to execute initiatives focused on organizational
simplification, operational efficiency, and business rationalization.
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
$(1,081)
$(1,189)
$8,871
$9,952
$11,141
2017
2016
2015
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
Book Value Per Share
Book Value Per Share, excluding AOCI*
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
AIGS OUTLOOK INDUSTRY AND ECONOMIC FACTORS
Our business is affected by industry and economic factors such as interest rates, currency exchange rates, credit and equity market
conditions, catastrophic claims events, regulation, tax policy, competition, and general economic, market and political conditions. We
continued to operate under difficult market conditions in 2017, characterized by factors such as historically low interest rates, the
Department of Labors (the DOL) final fiduciary duty rule (the DOL Fiduciary Rule), historically high levels of catastrophic events,
slowing growth in China and Euro-Zone economies, and the formal commencement of the UKs withdrawal from its membership in the
European Union (the EU) (commonly referred to as Brexit). Brexit has also affected the U.S. dollar/British pound exchange rate and
increased the volatility of exchange rates among the euro, British pound and the Japanese yen (the Major Currencies), which may
continue for some time.
Impact of Changes in the Interest Rate Environment
Interest rates have remained at historically low levels throughout 2017. Certain markets in which we operate have experienced
negative interest rates. A sustained low interest rate environment negatively affects sales of interest rate sensitive products in our
industry and may negatively impact the profitability of our existing business as we reinvest cash flows from investments, including
increased calls and prepayments of fixed maturity securities and mortgage loans, at rates below the average yield of our existing
portfolios. We actively manage our exposure to the interest rate environment through portfolio selection and asset-liability
management, including spread management strategies for our investment-oriented products and economic hedging of interest rate
risk from guarantee features in our variable and fixed index annuities.
58
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
59
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
General Operating and Other Expenses
( $ i n m i l l i o n s )
Return on Equity
Adjusted Return on Equity*
ITEM 7 | Executive Summary
ITEM 7 | Executive Summary
Declined $3.6 billion since 2015 due to lower employee-related
expenses and professional fee reductions related to our ongoing
efficiency program and divestitures of businesses, including United
Guaranty, AIG Advisor Group, Fuji Life and NSM Insurance Group
LLC (NSM), and a favorable foreign exchange impact of $63
million.
In keeping with our broad and ongoing efforts to transform for
long-term competitiveness, general operating and other expenses
for 2017, 2016 and 2015 included approximately $413 million,
$694 million and $496 million of pre-tax restructuring and other
costs, respectively, which were primarily comprised of employee
severance charges.
2.2%
(1.0)%
(8.4)%
2017
2016
2015
4.1%
2017
3.7%
2015
0.6%
2016
General Operating Expenses, Adjusted Basis*
We continue to execute initiatives focused on organizational
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
( $ i n m i l l i o n s )
simplification, operational efficiency, and business rationalization.
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
Book Value Per Share
Book Value Per Share, excluding AOCI*
$72.49
$76.66
$75.10
$66.41
$73.41
$72.97
2017
2016
2015
2017
2016
2015
* Non-GAAP measure for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.
AIGS OUTLOOK INDUSTRY AND ECONOMIC FACTORS
Our business is affected by industry and economic factors such as interest rates, currency exchange rates, credit and equity market
conditions, catastrophic claims events, regulation, tax policy, competition, and general economic, market and political conditions. We
continued to operate under difficult market conditions in 2017, characterized by factors such as historically low interest rates, the
Department of Labors (the DOL) final fiduciary duty rule (the DOL Fiduciary Rule), historically high levels of catastrophic events,
slowing growth in China and Euro-Zone economies, and the formal commencement of the UKs withdrawal from its membership in the
European Union (the EU) (commonly referred to as Brexit). Brexit has also affected the U.S. dollar/British pound exchange rate and
increased the volatility of exchange rates among the euro, British pound and the Japanese yen (the Major Currencies), which may
continue for some time.
Impact of Changes in the Interest Rate Environment
Interest rates have remained at historically low levels throughout 2017. Certain markets in which we operate have experienced
negative interest rates. A sustained low interest rate environment negatively affects sales of interest rate sensitive products in our
industry and may negatively impact the profitability of our existing business as we reinvest cash flows from investments, including
increased calls and prepayments of fixed maturity securities and mortgage loans, at rates below the average yield of our existing
portfolios. We actively manage our exposure to the interest rate environment through portfolio selection and asset-liability
management, including spread management strategies for our investment-oriented products and economic hedging of interest rate
risk from guarantee features in our variable and fixed index annuities.
58
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
59
1011252ai_financials.indd 59
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Executive Summary
ITEM 7 | Executive Summary
Annuity Sales and Surrenders
The sustained low interest rate environment has a significant impact on the annuity industry. Low long-term interest rates put pressure
on investment returns, which may negatively affect sales of interest rate sensitive products and reduce future profits on certain
existing fixed rate products. However, our disciplined rate setting has helped to mitigate some of the pressure on investment spreads.
As long as the low interest rate environment continues, conditions will be challenging for the fixed annuity market. Rapidly rising
interest rates could create the potential for increased sales, but may also drive higher surrenders. Customers are, however, currently
buying fixed annuities with surrender charge periods of four to seven years in pursuit of higher returns, which may help mitigate the
rate of increase in surrenders in a rapidly rising rate environment. In addition, older contracts that have higher minimum interest rates
and continue to be attractive to the contract holders have driven better than expected persistency in Fixed Annuities, although the
reserves for such contracts have continued to decrease over time in amount and as a percentage of the total annuity portfolio. We
will closely monitor surrenders of Fixed Annuities as contracts with lower minimum interest rates come out of the surrender charge
period in a more attractive rate environment. Low interest rates have also driven growth in our fixed index annuity products, which
provide additional interest crediting tied to favorable performance in certain equity market indices and the availability of guaranteed
living benefits. Changes in interest rates significantly impact the valuation of our liabilities for guaranteed products with income
features and the value of the related hedging portfolio.
Reinvestment and Spread Management
We actively monitor fixed income markets, including the level of interest rates, credit spreads and the shape of the yield curve. We
also frequently review our interest rate assumptions and actively manage the crediting rates used for new and in-force business.
Business strategies continue to evolve to maintain profitability of the overall business in a historically low interest rate environment.
The low interest rate environment makes it more difficult to profitably price many of our products and puts margin pressure on existing
products, due to the challenge of investing recurring premiums and deposits and reinvesting investment portfolio cash flows in the low
interest rate environment while maintaining satisfactory investment quality and liquidity. In addition, there is investment risk associated
with future premium receipts from certain in-force business. Specifically, the investment of these future premium receipts may be at a
yield below that required to meet future policy liabilities.
The contractual provisions for renewal of crediting rates and guaranteed minimum crediting rates included in products may reduce
spreads in a sustained low interest rate environment and thus reduce future profitability. Although this interest rate risk is partially
mitigated through the asset-liability management process, product design elements and crediting rate strategies, a sustained low
interest rate environment may negatively affect future profitability.
For additional information on our investment and asset-liability management strategies see Investments.
For investment-oriented products in our Individual Retirement, Group Retirement, Life Insurance and Institutional Markets businesses,
our spread management strategies include disciplined pricing and product design for new business, modifying or limiting the sale of
products that do not achieve targeted spreads, using asset-liability management to match assets to liabilities to the extent practicable,
and actively managing crediting rates to help mitigate some of the pressure on investment spreads. Renewal crediting rate
management is done under contractual provisions that were designed to allow crediting rates to be reset at pre-established intervals
in accordance with state and federal laws and subject to minimum crediting rate guarantees. We will continue to adjust crediting rates
on in-force business to mitigate the pressure on spreads from declining base yields, but our ability to lower crediting rates may be
limited by the competitive environment, contractual minimum crediting rates, and provisions that allow rates to be reset only at pre-
established intervals.
Of the aggregate fixed account values of our Individual Retirement and Group Retirement annuity products, 73 percent were crediting
at the contractual minimum guaranteed interest rate at December 31, 2017. The percentage of fixed account values of our annuity
products that are currently crediting at rates above one percent was 69 percent and 70 percent at December 31, 2017 and 2016,
respectively. These businesses continue to focus on pricing discipline and strategies to reduce the minimum guaranteed interest
crediting rates offered on new sales. In the core universal life business in our Life Insurance business, 71 percent of the account
values were crediting at the contractual minimum guaranteed interest rate at December 31, 2017.
6,904
13,753
10,207
556
34
6,359
15,340
879
7,103
157
60
601
1,694
3,227
303
$
$
$
$
$
$
89
25
44
-
-
-
-
-
-
513
150
511
348
216
-
2,341
432
7
4
5
-
-
-
157
162
209
926
6
-
-
22,126
9,334
14,210
10,258
560
39
6,650
7,029
15,502
879
7,103
157
9
419
2,038
2,048
3,443
303
8,260
The following table presents fixed annuity and universal life account values of our Individual Retirement, Group Retirement
and Life Insurance operating segments by contractual minimum guaranteed interest rate and current crediting rates:
December 31, 2017
Contractual Minimum Guaranteed
Interest Rate
(in millions)
Individual Retirement*
Current Crediting Rates
1-50 Basis
More than 50
Basis Points
At Contractual Points Above
Minimum
Minimum Above Minimum
Guarantee
Guarantee
Guarantee
Total
$
5,340 $
3,823 $
12,963 $
Total Individual Retirement
Group Retirement*
36,794 $
3,981 $
15,752 $
56,527
1,411 $
2,674 $
2,565 $
Total Group Retirement
Universal life insurance
31,249 $
3,187 $
2,884 $
37,320
- $
- $
9 $
1%
> 1% - 2%
> 2% - 3%
> 3% - 4%
> 4% - 5%
> 5% - 5.5%
1%
> 1% - 2%
> 2% - 3%
> 3% - 4%
> 4% - 5%
> 5% - 5.5%
1%
> 1% - 2%
> 2% - 3%
> 3% - 4%
> 4% - 5%
> 5% - 5.5%
Total universal life insurance
Total
Percentage of total
5,885 $
73,928 $
73 %
1,225 $
8,393 $
8 %
1,150 $
19,786 $ 102,107
19 %
100 %
*
Individual Retirement and Group Retirement amounts shown include fixed options within variable annuity products.
Assumption Updates and Loss Recognition
Spreads and surrender rates are important components of the future profit assumptions that drive the rate we use to amortize DAC
and related reserves for investment-oriented products. If future profit assumptions change significantly, we may be required to
recalculate DAC and related reserves, and reflect any resulting adjustments in current period income. In addition to investment-
oriented products, certain traditional long-duration products for which we do not have the ability to adjust interest rates, such as
payout annuities, are exposed to reduced earnings and potential loss recognition reserve increases in a sustained low interest rate
environment.
For discussion of such adjustments recorded in our Life and Retirement and Legacy Life and Retirement Run-Off Lines see Insurance
Reserves Life and Annuity Reserves and DAC Update of Actuarial Assumptions.
General Insurance
The impact of low interest rates on our General Insurance segment is primarily on our long-tail Casualty line of business. We expect
limited impacts on our existing long-tail Casualty business as the duration of our assets is slightly longer than that of our liabilities. We
do expect sustained low interest rates will impact new and renewal business for the long-tail Casualty line as we may not be able to
adjust our future pricing consistent with our profitability objectives to fully offset the impact of investing at lower rates. However, we will
continue to maintain pricing discipline and risk selection.
In addition, for our General Insurance segment and General Insurance run-off lines reported within the Legacy Portfolio, sustained low
interest rates may unfavorably affect the net loss reserve discount for workers compensation, and to a lesser extent could favorably
impact assumptions about future medical costs, the combined net effect of which could result in higher net loss reserves.
60
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
61
1011252ai_financials.indd 60
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Executive Summary
ITEM 7 | Executive Summary
Annuity Sales and Surrenders
The sustained low interest rate environment has a significant impact on the annuity industry. Low long-term interest rates put pressure
on investment returns, which may negatively affect sales of interest rate sensitive products and reduce future profits on certain
existing fixed rate products. However, our disciplined rate setting has helped to mitigate some of the pressure on investment spreads.
As long as the low interest rate environment continues, conditions will be challenging for the fixed annuity market. Rapidly rising
interest rates could create the potential for increased sales, but may also drive higher surrenders. Customers are, however, currently
buying fixed annuities with surrender charge periods of four to seven years in pursuit of higher returns, which may help mitigate the
rate of increase in surrenders in a rapidly rising rate environment. In addition, older contracts that have higher minimum interest rates
and continue to be attractive to the contract holders have driven better than expected persistency in Fixed Annuities, although the
reserves for such contracts have continued to decrease over time in amount and as a percentage of the total annuity portfolio. We
will closely monitor surrenders of Fixed Annuities as contracts with lower minimum interest rates come out of the surrender charge
period in a more attractive rate environment. Low interest rates have also driven growth in our fixed index annuity products, which
provide additional interest crediting tied to favorable performance in certain equity market indices and the availability of guaranteed
living benefits. Changes in interest rates significantly impact the valuation of our liabilities for guaranteed products with income
features and the value of the related hedging portfolio.
Reinvestment and Spread Management
We actively monitor fixed income markets, including the level of interest rates, credit spreads and the shape of the yield curve. We
also frequently review our interest rate assumptions and actively manage the crediting rates used for new and in-force business.
Business strategies continue to evolve to maintain profitability of the overall business in a historically low interest rate environment.
The low interest rate environment makes it more difficult to profitably price many of our products and puts margin pressure on existing
products, due to the challenge of investing recurring premiums and deposits and reinvesting investment portfolio cash flows in the low
interest rate environment while maintaining satisfactory investment quality and liquidity. In addition, there is investment risk associated
with future premium receipts from certain in-force business. Specifically, the investment of these future premium receipts may be at a
yield below that required to meet future policy liabilities.
The contractual provisions for renewal of crediting rates and guaranteed minimum crediting rates included in products may reduce
spreads in a sustained low interest rate environment and thus reduce future profitability. Although this interest rate risk is partially
mitigated through the asset-liability management process, product design elements and crediting rate strategies, a sustained low
interest rate environment may negatively affect future profitability.
For additional information on our investment and asset-liability management strategies see Investments.
For investment-oriented products in our Individual Retirement, Group Retirement, Life Insurance and Institutional Markets businesses,
our spread management strategies include disciplined pricing and product design for new business, modifying or limiting the sale of
products that do not achieve targeted spreads, using asset-liability management to match assets to liabilities to the extent practicable,
and actively managing crediting rates to help mitigate some of the pressure on investment spreads. Renewal crediting rate
management is done under contractual provisions that were designed to allow crediting rates to be reset at pre-established intervals
in accordance with state and federal laws and subject to minimum crediting rate guarantees. We will continue to adjust crediting rates
on in-force business to mitigate the pressure on spreads from declining base yields, but our ability to lower crediting rates may be
limited by the competitive environment, contractual minimum crediting rates, and provisions that allow rates to be reset only at pre-
established intervals.
Of the aggregate fixed account values of our Individual Retirement and Group Retirement annuity products, 73 percent were crediting
at the contractual minimum guaranteed interest rate at December 31, 2017. The percentage of fixed account values of our annuity
products that are currently crediting at rates above one percent was 69 percent and 70 percent at December 31, 2017 and 2016,
respectively. These businesses continue to focus on pricing discipline and strategies to reduce the minimum guaranteed interest
crediting rates offered on new sales. In the core universal life business in our Life Insurance business, 71 percent of the account
values were crediting at the contractual minimum guaranteed interest rate at December 31, 2017.
The following table presents fixed annuity and universal life account values of our Individual Retirement, Group Retirement
and Life Insurance operating segments by contractual minimum guaranteed interest rate and current crediting rates:
Current Crediting Rates
December 31, 2017
Contractual Minimum Guaranteed
Interest Rate
(in millions)
Individual Retirement*
1%
> 1% - 2%
> 2% - 3%
> 3% - 4%
> 4% - 5%
> 5% - 5.5%
Total Individual Retirement
Group Retirement*
1%
> 1% - 2%
> 2% - 3%
> 3% - 4%
> 4% - 5%
> 5% - 5.5%
Total Group Retirement
Universal life insurance
1%
> 1% - 2%
> 2% - 3%
> 3% - 4%
> 4% - 5%
> 5% - 5.5%
Total universal life insurance
Total
Percentage of total
1-50 Basis
At Contractual Points Above
More than 50
Basis Points
Minimum Above Minimum
Guarantee
Guarantee
Minimum
Guarantee
5,340 $
6,904
13,753
10,207
556
34
36,794 $
1,411 $
6,359
15,340
879
7,103
157
31,249 $
- $
60
601
1,694
3,227
303
5,885 $
73,928 $
73 %
$
$
$
$
$
$
$
3,823 $
89
25
44
-
-
3,981 $
2,674 $
513
-
-
-
-
3,187 $
- $
150
511
348
216
-
1,225 $
8,393 $
8 %
Total
22,126
9,334
14,210
10,258
560
39
56,527
6,650
7,029
15,502
879
7,103
157
37,320
12,963 $
2,341
432
7
4
5
15,752 $
2,565 $
157
162
-
-
-
2,884 $
9 $
9
419
2,038
2,048
3,443
303
8,260
19,786 $ 102,107
209
926
6
-
-
1,150 $
19 %
100 %
*
Individual Retirement and Group Retirement amounts shown include fixed options within variable annuity products.
Assumption Updates and Loss Recognition
Spreads and surrender rates are important components of the future profit assumptions that drive the rate we use to amortize DAC
and related reserves for investment-oriented products. If future profit assumptions change significantly, we may be required to
recalculate DAC and related reserves, and reflect any resulting adjustments in current period income. In addition to investment-
oriented products, certain traditional long-duration products for which we do not have the ability to adjust interest rates, such as
payout annuities, are exposed to reduced earnings and potential loss recognition reserve increases in a sustained low interest rate
environment.
For discussion of such adjustments recorded in our Life and Retirement and Legacy Life and Retirement Run-Off Lines see Insurance
Reserves Life and Annuity Reserves and DAC Update of Actuarial Assumptions.
General Insurance
The impact of low interest rates on our General Insurance segment is primarily on our long-tail Casualty line of business. We expect
limited impacts on our existing long-tail Casualty business as the duration of our assets is slightly longer than that of our liabilities. We
do expect sustained low interest rates will impact new and renewal business for the long-tail Casualty line as we may not be able to
adjust our future pricing consistent with our profitability objectives to fully offset the impact of investing at lower rates. However, we will
continue to maintain pricing discipline and risk selection.
In addition, for our General Insurance segment and General Insurance run-off lines reported within the Legacy Portfolio, sustained low
interest rates may unfavorably affect the net loss reserve discount for workers compensation, and to a lesser extent could favorably
impact assumptions about future medical costs, the combined net effect of which could result in higher net loss reserves.
60
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
61
1011252ai_financials.indd 61
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Executive Summary
ITEM 7 | Consolidated Results of Operations
Additionally, sustained low interest rates on discounting of projected benefit cash flows for our pension plans may result in higher
pension expense.
Department of Labor Fiduciary Rule and Related Regulatory Developments
Our Individual Retirement and Group Retirement operating segments provide products and services that are subject to restrictions
imposed by the ERISA and the Internal Revenue Code, including the requirements of the DOL Fiduciary Rule, related exemption
amendments, and subsequent interpretative guidance and bulletins. Overall, the DOL Fiduciary Rule, as currently promulgated, would
result in increased compliance costs and may create increased exposure to legal claims under certain circumstances, including class
actions. Following the extension of the applicability dates of the DOL Fiduciary Rule and related exemptions announced by the DOL in
April 2017, the new definition of fiduciary and the impartial conduct standards under the DOL Fiduciary Rule became applicable on
June 9, 2017, with the remaining provisions of the rule scheduled to become applicable on January 1, 2018. On November 29, 2017,
the DOL finalized an 18-month delay of the elements of the rule that have not yet taken effect.
Uncertainty in the annuity market around the implementation of the DOL Fiduciary Rule has negatively impacted industry sales of
annuity products, including those offered by Individual Retirement as reflected in declines of premiums and deposits and net flows in
our variable annuity product line during the 12-month period ended December 31, 2017. Despite these effects, we believe our
diverse complement of annuity product offerings position Individual Retirement and Group Retirement to effectively compete in this
evolving retirement market environment.
In addition to the DOL reexamining the Fiduciary Rule, the Securities and Exchange Commission and state insurance regulators are
also engaged in efforts to evaluate standards of conduct for investment advice, and to impose fiduciary duties on financial advisers
who give investment advice. These regulatory initiatives may also create additional uncertainties in the annuity marketplace that
could affect our distribution partners and the industry sales of annuity products. While we cannot yet predict what impact these
developments will have on our businesses, we are closely following the ongoing review and assessment of the DOL Fiduciary Rule as
well as these other federal and state-level developments.
Impact of Currency Volatility
Currency volatility remains acute. Such volatility affected line item components of income for those businesses with substantial
international operations. In particular, growth trends in net premiums written reported in U.S. dollars can differ significantly from those
measured in original currencies. The net effect on underwriting results, however, is significantly mitigated, as both revenues and
expenses are similarly affected.
Consolidated Results of Operations
The following section provides a comparative discussion of our Consolidated Results of Operations on a reported basis for the three-
year period ended December 31, 2017. Factors that relate primarily to a specific business are discussed in more detail within the
business segment operations section.
For a discussion of the Critical Accounting Estimates that affect our results of operations see the Critical Accounting Estimates section
of this MD&A.
The following table presents our consolidated results of operations and other key financial metrics:
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Net realized capital gains (losses)
Other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
(Gain) loss on extinguishment of debt
Net (gain) loss on sale of divested businesses
Total benefits, losses and expenses
Income (loss) from continuing operations before
income tax expense
Income tax expense
Income (loss) from continuing operations
Income (loss) from discontinued operations,
net of income tax expense
These currencies may continue to fluctuate, in either direction, especially as a result of the UKs announced exit from the EU, and
such fluctuations will affect net premiums written growth trends reported in U.S. dollars, as well as financial statement line item
comparability.
Net income (loss)
Less: Net income attributable to noncontrolling interests
Net income (loss) attributable to AIG
$
(6,084) $
(
849
)
$
2,196
NM%
NM%
General Insurance businesses are transacted in most major foreign currencies. The following table presents the average of
the quarterly weighted average exchange rates of the Major Currencies, which have the most significant impact on our
businesses:
Years Ended December 31,
Rate for 1 USD
Currency:
JPY
EUR
GBP
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
112.44
0.90
0.78
109.19
0.90
0.73
120.82
0.89
0.65
3 %
- %
7 %
(10)%
1 %
12 %
Unless otherwise noted, references to the effects of foreign exchange in the General Insurance discussion of results of operations are
with respect to movements in the Major Currencies included in the preceding table.
Other Industry Developments
On September 7, 2017, the UK Ministry of Justice announced a proposal to increase the Ogden rate from negative 0.75 percent to
between zero and one percent. This proposal has to be passed by Parliament. We will continue to monitor the progress with this
potential change.
Years Ended December 31,
Return on equity
Adjusted Return on equity
(in millions, except per share data)
Balance sheet data:
Total assets
Long-term debt
Total AIG shareholders equity
Book value per common share
Book value per common share, excluding AOCI
Adjusted book value per common share
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
31,374 $ 34,393 $ 36,655
(9)%
(6)%
2,935
14,179
(1,380)
2,412
49,520
29,972
3,592
4,288
9,107
1,168
(5)
(68)
1,466
7,526
(6,060)
(6,056)
4
28
2,732
14,065
(
1,944
)
3,121
52,367
32,437
3,705
4,521
10,989
1,260
74
(
545
)
)74(
185
(
259
)
)90(
(
349
)
500
48,054
52,441
55,046
2,755
14,053
776
4,088
58,327
31,345
3,731
5,236
12,686
1,281
756
11
3,281
1,059
2,222
-
2,222
26
2017
(8.4)%
4.1
7
1
29
(23)
(5)
(8)
(3)
(5)
(17)
(7)
NM
88
(8)
NM
NM
NM
NM
NM
(94)
(1)
-
NM
(24)
(10)
3
(1)
(14)
(13)
(2)
(90)
NM
(5)
NM
(83)
NM
NM
NM
NM
2016
(1.0)%
0.6
2015
2.2 %
3.7
December 31,
December 31,
2017
2016
$
498,301
$
498,264
31,640
65,171
72.49
66.41
54.74
30,912
76,300
76.66
73.41
58.57
62
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AIG | 2017 Form 10-K
63
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Executive Summary
ITEM 7 | Consolidated Results of Operations
Additionally, sustained low interest rates on discounting of projected benefit cash flows for our pension plans may result in higher
pension expense.
Department of Labor Fiduciary Rule and Related Regulatory Developments
Our Individual Retirement and Group Retirement operating segments provide products and services that are subject to restrictions
imposed by the ERISA and the Internal Revenue Code, including the requirements of the DOL Fiduciary Rule, related exemption
amendments, and subsequent interpretative guidance and bulletins. Overall, the DOL Fiduciary Rule, as currently promulgated, would
result in increased compliance costs and may create increased exposure to legal claims under certain circumstances, including class
actions. Following the extension of the applicability dates of the DOL Fiduciary Rule and related exemptions announced by the DOL in
April 2017, the new definition of fiduciary and the impartial conduct standards under the DOL Fiduciary Rule became applicable on
June 9, 2017, with the remaining provisions of the rule scheduled to become applicable on January 1, 2018. On November 29, 2017,
the DOL finalized an 18-month delay of the elements of the rule that have not yet taken effect.
Uncertainty in the annuity market around the implementation of the DOL Fiduciary Rule has negatively impacted industry sales of
annuity products, including those offered by Individual Retirement as reflected in declines of premiums and deposits and net flows in
our variable annuity product line during the 12-month period ended December 31, 2017. Despite these effects, we believe our
diverse complement of annuity product offerings position Individual Retirement and Group Retirement to effectively compete in this
evolving retirement market environment.
In addition to the DOL reexamining the Fiduciary Rule, the Securities and Exchange Commission and state insurance regulators are
also engaged in efforts to evaluate standards of conduct for investment advice, and to impose fiduciary duties on financial advisers
who give investment advice. These regulatory initiatives may also create additional uncertainties in the annuity marketplace that
could affect our distribution partners and the industry sales of annuity products. While we cannot yet predict what impact these
developments will have on our businesses, we are closely following the ongoing review and assessment of the DOL Fiduciary Rule as
well as these other federal and state-level developments.
Impact of Currency Volatility
Currency volatility remains acute. Such volatility affected line item components of income for those businesses with substantial
international operations. In particular, growth trends in net premiums written reported in U.S. dollars can differ significantly from those
measured in original currencies. The net effect on underwriting results, however, is significantly mitigated, as both revenues and
expenses are similarly affected.
These currencies may continue to fluctuate, in either direction, especially as a result of the UKs announced exit from the EU, and
such fluctuations will affect net premiums written growth trends reported in U.S. dollars, as well as financial statement line item
comparability.
businesses:
Rate for 1 USD
Currency:
JPY
EUR
GBP
General Insurance businesses are transacted in most major foreign currencies. The following table presents the average of
the quarterly weighted average exchange rates of the Major Currencies, which have the most significant impact on our
Years Ended December 31,
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
112.44
109.19
120.82
0.90
0.78
0.90
0.73
0.89
0.65
3 %
- %
7 %
(10)%
1 %
12 %
Unless otherwise noted, references to the effects of foreign exchange in the General Insurance discussion of results of operations are
with respect to movements in the Major Currencies included in the preceding table.
Other Industry Developments
potential change.
On September 7, 2017, the UK Ministry of Justice announced a proposal to increase the Ogden rate from negative 0.75 percent to
between zero and one percent. This proposal has to be passed by Parliament. We will continue to monitor the progress with this
Consolidated Results of Operations
The following section provides a comparative discussion of our Consolidated Results of Operations on a reported basis for the three-
year period ended December 31, 2017. Factors that relate primarily to a specific business are discussed in more detail within the
business segment operations section.
For a discussion of the Critical Accounting Estimates that affect our results of operations see the Critical Accounting Estimates section
of this MD&A.
The following table presents our consolidated results of operations and other key financial metrics:
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Net realized capital gains (losses)
Other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
(Gain) loss on extinguishment of debt
Net (gain) loss on sale of divested businesses
Total benefits, losses and expenses
Income (loss) from continuing operations before
income tax expense
Income tax expense
Income (loss) from continuing operations
Income (loss) from discontinued operations,
net of income tax expense
Net income (loss)
Less: Net income attributable to noncontrolling interests
Net income (loss) attributable to AIG
Years Ended December 31,
Return on equity
Adjusted Return on equity
(in millions, except per share data)
Balance sheet data:
Total assets
Long-term debt
Total AIG shareholders equity
Book value per common share
Book value per common share, excluding AOCI
Adjusted book value per common share
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
31,374 $ 34,393 $ 36,655
2,755
2,732
14,053
14,065
776
1,944
(
4,088
3,121
58,327
52,367
2,935
14,179
(1,380)
2,412
49,520
)
29,972
3,592
4,288
9,107
1,168
(5)
(68)
48,054
1,466
7,526
(6,060)
4
(6,056)
28
(6,084) $
$
32,437
3,705
4,521
10,989
1,260
74
(
545
52,441
)
)74(
185
(
259
)
)90(
349
(
)
500
(
849
)
$
31,345
3,731
5,236
12,686
1,281
756
11
55,046
3,281
1,059
2,222
-
2,222
26
2,196
2017
(8.4)%
4.1
(9)%
7
1
29
(23)
(5)
(8)
(3)
(5)
(17)
(7)
NM
88
(8)
NM
NM
NM
NM
NM
(94)
NM%
2016
(1.0)%
0.6
(6)%
(1)
-
NM
(24)
(10)
3
(1)
(14)
(13)
(2)
(90)
NM
(5)
NM
(83)
NM
NM
NM
NM
NM%
2015
2.2 %
3.7
December 31,
December 31,
2017
2016
$
498,301
$
498,264
31,640
65,171
72.49
66.41
54.74
30,912
76,300
76.66
73.41
58.57
62
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
63
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Consolidated Results of Operations
ITEM 7 | Consolidated Results of Operations
The following table presents a reconciliation of General operating and other expenses to General operating expense,
adjusted basis, which is a Non-GAAP measure:
Years Ended December 31,
(in millions)
General operating and other expenses
Restructuring and other costs
Other (income) expense related to retroactive reinsurance
agreement
Pension expense related to a one-time lump sum payment
to former employees
Non-operating litigation reserves
Total general operating and other expenses included
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
$ 9,107 $
10,989 $ 12,686
(413)
(694)
(496)
(17)%
40
(13)%
(40)
Percentage Change
-
18
(233)
(60)
102
(147)
(3)
-
(12)
in adjusted pre-tax income
8,736
10,163
11,945
Loss adjustment expenses, reported as policyholder
benefits and losses incurred
Advisory fee expenses
Non-deferrable insurance commissions and other
Direct marketing and acquisition expenses, net of deferrals, and other
Investment expenses reported as net investment income and other
1,184
1,345
(324)
(579)
(219)
73
(645)
(508)
(460)
57
1,632
(1,349)
(504)
(659)
76
income
$ 3,158 $
906 $
2,231
$
1,415 $
448 $
406
$
3,984 $
1,115 $
2,872
Adjusted pre-tax income/Adjusted after-tax
Weighted average diluted shares outstanding
Income (loss) per common share attributable
to AIG (diluted)
After-tax operating income per
common share attributable to AIG (diluted)
930.6
(6.54)
2.34
$
$
1,091.1
$
$
(0.78)
0.36
1,334.5
$
$
1.65
2.15
NM
59
NM
(14)
(12)
50
(14)
52
28
NM
NM
75
(15)
(18)
52
(1)
30
(25)
* For 2017 and 2016, because we reported a net loss, all common stock equivalents are anti-dilutive and are therefore excluded from the calculation of diluted shares and
diluted per share amounts. However, because we reported adjusted after-tax income, the calculation of adjusted after-tax income per diluted share includes 22,412,682
dilutive shares and 30,326,772 dilutive shares for 2017 and 2016, respectively.
PRE-TAX INCOME (LOSS) COMPARISON FOR 2017 AND 2016
Pre-tax results increased in 2017 compared to 2016 primarily due to:
an increase in General Insurance Adjusted pre-tax income due to unfavorable prior year loss reserve development of $1.0 billion in
2017 driven by higher than expected loss emergence in General Insurance primarily related to accident year 2016 compared to
$5.4 billion in 2016, partially offset by higher aggregate pre-tax catastrophe losses of $4.2 billion, which included losses from
Hurricanes Harvey, Irma and Maria, the earthquake in Mexico and the wildfires in California, compared to catastrophe losses of
$1.3 billion in the prior year;
lower general operating and other expenses reflecting strategic actions to reduce expenses and divestitures of businesses,
Total general operating expenses, adjusted basis
$ 8,871 $
9,952 $ 11,141
(11)%
(11)%
including United Guaranty, AIG Advisor Group, Inc. (AIG Advisor Group), Fuji Life and NSM;
a net positive adjustment from the update of Life and Retirement actuarial assumptions compared to a net negative adjustment in
The following table presents a reconciliation of pre-tax income/net income (loss) attributable to AIG to adjusted pre-tax
income/adjusted after-tax income attributable to AIG:
the prior year;
higher Adjusted pre-tax income from the Legacy Portfolio;
Years Ended December 31,
2017
Total Tax
(Benefit)
(in millions, except per share data)
Pre-tax income/net income (loss), including
Pre-tax
Charge
2016
Total Tax
(Benefit)
Pre-tax
Charge
After
Tax
$ 1,466 $
7,526 $
(6,063)
$
(74) $
185 $
(21)
2015
Total Tax
(Benefit)
Pre-tax
Charge
After
Tax
$
3,281 $
1,059 $
2,193
3
After
Tax
(288)
(561)
$ 1,466 $
7,526 $
(6,084)
$
(74) $
185 $
(849)
$
3,281 $
1,059 $
2,196
noncontrolling interests
Noncontrolling interest
Pre-tax income/net income (loss) attributable
to AIG
Changes in uncertain tax positions and other tax
adjustments
Deferred income tax valuation allowance
charges
Impact of Tax Act
Changes in fair value of securities used to hedge
guaranteed living benefits
Changes in benefit reserves and DAC, VOBA and
SIA related to net realized capital gains (losses)
Unfavorable (favorable) prior year development and
related amortization changes ceded
under retroactive reinsurance agreements
(Gain) loss on extinguishment of debt
Net realized capital (gains) losses
Noncontrolling interest on
net realized capital (gains) losses
(Income) loss from discontinued operations
(Income) loss from divested businesses
Non-operating litigation reserves and settlements
Reserve development related to certain
non-operating run-off insurance business
Net loss reserve discount (benefit) charge
Pension expense related to a one-time lump sum
payment to former employees
Restructuring and other costs
64
AIG | 2017 Form 10-K
(488)
488
63
(63)
(43)
(6,687)
43
6,687
(83)
-
83
-
(146)
(51)
(95)
(120)
(42)
(78)
(303)
(106)
(197)
(195)
(68)
(127)
(112)
(110)
-
15
5
82
265
43
15
233
756
303
(5)
1,380
(68)
(129)
-
187
60
413
106
(2)
506
(41)
(45)
-
65
21
145
197
(3)
874
7
(4)
(27)
(84)
-
122
39
268
(42)
74
1,944
(15)
26
561
(545)
(41)
(309)
(14)
-
-
(427)
(150)
147
694
51
243
(27)
48
1,383
(776)
(271)
(61)
90
(236)
(27)
-
(277)
96
451
59
(82)
30
(71)
-
496
43
(29)
10
(16)
-
174
112
110
-
28
10
151
491
(505)
29
-
16
(53)
20
(55)
-
322
an increase in net investment income due to higher income on alternative investments, primarily in our hedge fund portfolio and
higher gains on assets for which we elected the fair value option, which more than offset lower invested assets and blended
investment yields on new investments that were lower than the average yield of our existing portfolios; and
foreign exchange gains in 2017 compared to foreign exchange losses in the prior year due to $910 million of remeasurement
a decrease in net realized capital losses reflecting:
losses for a short-term intercompany balance in 2016; and
lower other-than-temporary impairments.
Partially offset by:
movement in the non-performance or own credit risk adjustment (NPA), driven by tightening credit spreads and lower
expected GMWB payments due to higher equity markets, and higher derivative losses from variable annuity GMWB, net of
hedges, including losses from guaranteed living benefit embedded derivatives, net of hedging, primarily due to a higher net
negative adjustment from updates of actuarial assumptions; and
gains in the prior year on the sale of a portion of our investment in Peoples Insurance Company (Group) of China Limited and
PICC Property & Casualty Company Limited (collectively, our PICC Investment).
The increase in pre-tax results was partially offset by lower income from divested businesses in 2017 compared to the prior year due
to gains on the sales of United Guaranty, AIG Advisor Group and NSM, partially offset by losses on the agreements to sell Fuji Life to
FWD Group and certain insurance operations and assets to Fairfax.
AIG | 2017 Form 10-K
65
1011252ai_financials.indd 64
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Consolidated Results of Operations
ITEM 7 | Consolidated Results of Operations
The following table presents a reconciliation of General operating and other expenses to General operating expense,
Adjusted pre-tax income/Adjusted after-tax
adjusted basis, which is a Non-GAAP measure:
Years Ended December 31,
(in millions)
General operating and other expenses
Restructuring and other costs
Other (income) expense related to retroactive reinsurance
agreement
Pension expense related to a one-time lump sum payment
to former employees
Non-operating litigation reserves
Total general operating and other expenses included
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
$ 9,107 $
10,989 $ 12,686
(413)
(694)
(496)
(17)%
40
(13)%
(40)
Percentage Change
-
18
(233)
(60)
102
(147)
(3)
-
(12)
in adjusted pre-tax income
8,736
10,163
11,945
Loss adjustment expenses, reported as policyholder
benefits and losses incurred
Advisory fee expenses
Non-deferrable insurance commissions and other
Direct marketing and acquisition expenses, net of deferrals, and other
Investment expenses reported as net investment income and other
1,184
1,345
(324)
(579)
(219)
73
(645)
(508)
(460)
57
1,632
(1,349)
(504)
(659)
76
Total general operating expenses, adjusted basis
$ 8,871 $
9,952 $ 11,141
(11)%
(11)%
NM
59
NM
(14)
(12)
50
(14)
52
28
NM
NM
75
(15)
(18)
52
(1)
30
(25)
income
$ 3,158 $
906 $
2,231
$
1,415 $
448 $
406
$
3,984 $
1,115 $
2,872
Weighted average diluted shares outstanding
Income (loss) per common share attributable
to AIG (diluted)
After-tax operating income per
common share attributable to AIG (diluted)
930.6
(6.54)
2.34
$
$
1,091.1
$
$
(0.78)
0.36
1,334.5
$
$
1.65
2.15
* For 2017 and 2016, because we reported a net loss, all common stock equivalents are anti-dilutive and are therefore excluded from the calculation of diluted shares and
diluted per share amounts. However, because we reported adjusted after-tax income, the calculation of adjusted after-tax income per diluted share includes 22,412,682
dilutive shares and 30,326,772 dilutive shares for 2017 and 2016, respectively.
PRE-TAX INCOME (LOSS) COMPARISON FOR 2017 AND 2016
Pre-tax results increased in 2017 compared to 2016 primarily due to:
an increase in General Insurance Adjusted pre-tax income due to unfavorable prior year loss reserve development of $1.0 billion in
2017 driven by higher than expected loss emergence in General Insurance primarily related to accident year 2016 compared to
$5.4 billion in 2016, partially offset by higher aggregate pre-tax catastrophe losses of $4.2 billion, which included losses from
Hurricanes Harvey, Irma and Maria, the earthquake in Mexico and the wildfires in California, compared to catastrophe losses of
$1.3 billion in the prior year;
lower general operating and other expenses reflecting strategic actions to reduce expenses and divestitures of businesses,
including United Guaranty, AIG Advisor Group, Inc. (AIG Advisor Group), Fuji Life and NSM;
a net positive adjustment from the update of Life and Retirement actuarial assumptions compared to a net negative adjustment in
The following table presents a reconciliation of pre-tax income/net income (loss) attributable to AIG to adjusted pre-tax
the prior year;
income/adjusted after-tax income attributable to AIG:
Years Ended December 31,
(in millions, except per share data)
Pre-tax
Charge
Pre-tax
Charge
Pre-tax
Charge
2017
Total Tax
(Benefit)
2016
Total Tax
(Benefit)
2015
Total Tax
(Benefit)
After
Tax
higher Adjusted pre-tax income from the Legacy Portfolio;
an increase in net investment income due to higher income on alternative investments, primarily in our hedge fund portfolio and
higher gains on assets for which we elected the fair value option, which more than offset lower invested assets and blended
investment yields on new investments that were lower than the average yield of our existing portfolios; and
a decrease in net realized capital losses reflecting:
$ 1,466 $
7,526 $
(6,063)
$
(74) $
185 $
$
3,281 $
1,059 $
2,193
foreign exchange gains in 2017 compared to foreign exchange losses in the prior year due to $910 million of remeasurement
$ 1,466 $
7,526 $
(6,084)
$
(74) $
185 $
(849)
$
3,281 $
1,059 $
2,196
Partially offset by:
3
losses for a short-term intercompany balance in 2016; and
lower other-than-temporary impairments.
movement in the non-performance or own credit risk adjustment (NPA), driven by tightening credit spreads and lower
expected GMWB payments due to higher equity markets, and higher derivative losses from variable annuity GMWB, net of
hedges, including losses from guaranteed living benefit embedded derivatives, net of hedging, primarily due to a higher net
negative adjustment from updates of actuarial assumptions; and
gains in the prior year on the sale of a portion of our investment in Peoples Insurance Company (Group) of China Limited and
PICC Property & Casualty Company Limited (collectively, our PICC Investment).
The increase in pre-tax results was partially offset by lower income from divested businesses in 2017 compared to the prior year due
to gains on the sales of United Guaranty, AIG Advisor Group and NSM, partially offset by losses on the agreements to sell Fuji Life to
FWD Group and certain insurance operations and assets to Fairfax.
(488)
488
63
(63)
(43)
(6,687)
43
6,687
(83)
-
83
-
(146)
(51)
(95)
(120)
(42)
(78)
(303)
(106)
(197)
(195)
(68)
(127)
303
(5)
1,380
(68)
(129)
-
187
60
413
106
(2)
506
(41)
(45)
-
65
21
145
(42)
74
1,944
(15)
26
561
(545)
(41)
(309)
(14)
-
-
(427)
(150)
147
694
51
243
1,383
(776)
(271)
(112)
(110)
-
15
5
82
265
43
(29)
10
(16)
-
174
43
15
233
756
59
(82)
30
(71)
-
496
112
110
-
28
10
151
491
(505)
29
-
16
(53)
20
(55)
-
322
1011252ai_financials.indd 65
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AIG | 2017 Form 10-K
65
Pre-tax income/net income (loss), including
noncontrolling interests
Noncontrolling interest
Pre-tax income/net income (loss) attributable
Changes in uncertain tax positions and other tax
Deferred income tax valuation allowance
to AIG
adjustments
charges
Impact of Tax Act
Changes in fair value of securities used to hedge
guaranteed living benefits
Changes in benefit reserves and DAC, VOBA and
SIA related to net realized capital gains (losses)
Unfavorable (favorable) prior year development and
related amortization changes ceded
under retroactive reinsurance agreements
(Gain) loss on extinguishment of debt
Net realized capital (gains) losses
Noncontrolling interest on
net realized capital (gains) losses
(Income) loss from discontinued operations
(Income) loss from divested businesses
Non-operating litigation reserves and settlements
Reserve development related to certain
non-operating run-off insurance business
Net loss reserve discount (benefit) charge
Pension expense related to a one-time lump sum
payment to former employees
Restructuring and other costs
64
AIG | 2017 Form 10-K
After
Tax
(21)
197
(3)
874
7
(4)
(27)
(84)
-
122
39
268
After
Tax
(288)
(561)
(27)
48
(61)
90
(236)
(27)
-
(277)
96
451
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Consolidated Results of Operations
ITEM 7 | Consolidated Results of Operations
PRE-TAX INCOME (LOSS) COMPARISON FOR 2016 AND 2015
Pre-tax results decreased in 2016 compared to 2015 primarily due to:
adverse prior year loss reserve development in General Insurance of $5.4 billion in 2016 compared to $3.3 billion in 2015; and
net realized losses compared to net realized gains in the prior year due to:
foreign exchange losses in 2016 compared to foreign exchange gains in 2015 primarily due to $910 million of remeasurement
losses for a short-term intercompany balance;
the sale of Class B shares of Prudential Financial Inc. and common shares of Springleaf Holdings, Inc. (Springleaf, now known
as OneMain Holdings, Inc.) in 2015; and
a net decrease of $1.4 billion related to Life and Retirement guaranteed living benefits, net of hedges, primarily due to
movement in the NPA component of the embedded derivative fair value measurement and 2016 actuarial assumption updates
to surrender and mortality assumptions (see Insurance Reserves Life and Annuity Reserves and DAC Variable Annuity
Guaranteed Benefits and Hedging Results).
The Tax Act includes provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on
the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax (BEAT)
under which taxes are imposed on certain base eroding payments to affiliated foreign companies. Consistent with accounting
guidance, we will treat BEAT as an in period tax charge when incurred in future periods for which no deferred taxes need to be
provided and have made an accounting policy election to treat GILTI taxes in a similar manner. Accordingly, no provision for income
taxes related to GILTI or BEAT was recorded as of December 31, 2017.
For the period ended December 31, 2017, we recognized a provisional estimate of income tax effects of the Tax Act of $6.7 billion,
including a tax charge of $6.7 billion attributable to the reduction in the U.S. corporate income tax rate and tax benefit of $38 million
related to the deemed repatriation tax.
In our assessment of the realizability of our deferred tax assets, we made certain assumptions related to the impact of the Tax Act on
our future taxable income. Generally, the Tax Act provisions result in an increase in our taxable income and, thus, accelerate
utilization of our tax attribute deferred tax asset. Accordingly, we do not currently anticipate that our reliance on provisional estimates
would have a material impact on our determination of the realizability of our deferred tax assets.
These decreases were partially offset by:
Repatriation Assumptions
favorable adjustments to reserves and DAC in Life and Retirement, including higher net positive adjustments in 2016 to reflect the
update of actuarial assumptions in Individual Retirement and Life Insurance;
lower general operating expenses reflecting strategic actions to reduce expenses;
lower loss on extinguishment of debt from ongoing liability management activities; and
higher income from divested businesses due to gains on the sales of United Guaranty, AIG Advisor Group and NSM, partially offset
by losses on the agreements to sell Fuji Life to FWD Group and certain insurance operations and assets to Fairfax.
U.S. TAX REFORM OVERVIEW
On December 22, 2017, the U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the Tax Act). The Tax
Act reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts numerous other changes impacting AIG
and the insurance industry.
Changes specific to the insurance industry include the calculation of insurance tax reserves and related transition adjustments,
amortization of specified policy acquisition expenses, treatment of separate account dividends received deductions, and computation
of pro-ration adjustments. Provisions of the Tax Act with broader application include reductions or elimination of deductions for certain
items, e.g., reductions to corporate dividends received deductions, disallowance of entertainment expenses, and limitations on the
deduction of certain executive compensation costs. These provisions, generally, will result in an increase in AIGs taxable income in
the years beginning after December 31, 2017.
Consistent with current income tax accounting requirements, we have remeasured our deferred tax assets and liabilities with
reference to the statutory income tax rate of 21 percent and taking into consideration other provisions of the Tax Act. As of December
31, 2017, we had not fully completed our accounting for the tax effects of the Tax Act. Our provision for income taxes for the period
ended December 31, 2017, is based in part on a reasonable estimate of the effects on existing deferred tax balances and of certain
provisions of the Tax Act. To the extent a reasonable estimate of the impact of certain provisions was determinable, we recorded
provisional estimates as a component of our provision for income taxes on continuing operations. To the extent a reasonable
estimate of the impact of certain provisions was not determinable, we have not recorded any adjustments and have continued
accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before enactment of the Tax Act. Please refer to
Note 23 to the Consolidated Financial Statements for further information about these provisions.
As a result of the Tax Act, the majority of accumulated foreign earnings that were previously untaxed will become subject to a one-
time deemed repatriation tax. Going forward, foreign earnings not taxed as part of the one-time deemed repatriation (or otherwise
taxed currently under the GILTI or subpart F regimes) will generally be exempt from U.S. tax upon repatriation. Notwithstanding the
changes, U.S. tax on foreign exchange gain or loss and certain non-U.S. withholding taxes will continue to be applicable upon future
repatriations of foreign earnings. For the year ended December 31, 2017, we consider our foreign earnings with respect to certain
operations in Canada, South Africa, the Far East, Latin America, Bermuda as well as the European, Asia Pacific and Middle East
regions to be indefinitely reinvested. These earnings relate to ongoing operations and have been reinvested in active business
operations. Deferred taxes have been provided on earnings of non-U.S. affiliates whose earnings are not indefinitely reinvested.
Impact of Deemed Repatriation Tax on Liquidity
The Tax Act requires companies to pay a one-time transition tax, net of tax credits related to applicable foreign taxes paid, on
previously untaxed current and accumulated earnings and profits (E&P) of certain of our foreign subsidiaries.
the deemed repatriation tax, we reviewed estimated post-1986 E&P of the relevant foreign subsidiaries, and any related non-U.S.
income tax paid on such earnings. Based on this analysis, we were able to determine a reasonable estimate and we have recorded a
provisional estimated tax benefit of $38 million. This amount is not considered to be material to our liquidity and capital resources.
In the determination of
Impact to Effective Tax Rate on Future Consolidated Results of Operations
We currently estimate that effective tax rate on future consolidated results of operations would be 21-22 percent, excluding impact of
the items that cannot be forecasted. The effective tax rate is anticipated to exceed the U.S. statutory income tax rate primarily
because we have operations in jurisdictions where statutory income tax rates exceed 21 percent.
INCOME TAX EXPENSE ANALYSIS
For the year ended December 31, 2017, the effective tax rate on income from continuing operations was not meaningful. The effective
tax rate differs from the 2017 statutory tax rate of 35 percent primarily due to
tax charges of:
$6.7 billion associated with the enactment of the Tax Act discussed above,
$660 million of tax charges and related interest associated with increases in uncertain tax positions primarily related to cross
border financing transactions and other open tax issues,
$69 million associated with the effect of foreign operations, and
$35 million of non-deductible transfer pricing charges
partially offset by tax benefits of:
$201 million of tax exempt income,
$184 million of reclassifications from accumulated other comprehensive income to income from continuing operations related to
$40 million of excess tax deductions related to share based compensation payments recorded through the income statement in
the disposal of available for sale securities, and
accordance with relevant accounting literature.
66
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
67
1011252ai_financials.indd 66
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Consolidated Results of Operations
ITEM 7 | Consolidated Results of Operations
PRE-TAX INCOME (LOSS) COMPARISON FOR 2016 AND 2015
Pre-tax results decreased in 2016 compared to 2015 primarily due to:
adverse prior year loss reserve development in General Insurance of $5.4 billion in 2016 compared to $3.3 billion in 2015; and
net realized losses compared to net realized gains in the prior year due to:
foreign exchange losses in 2016 compared to foreign exchange gains in 2015 primarily due to $910 million of remeasurement
the sale of Class B shares of Prudential Financial Inc. and common shares of Springleaf Holdings, Inc. (Springleaf, now known
losses for a short-term intercompany balance;
as OneMain Holdings, Inc.) in 2015; and
a net decrease of $1.4 billion related to Life and Retirement guaranteed living benefits, net of hedges, primarily due to
movement in the NPA component of the embedded derivative fair value measurement and 2016 actuarial assumption updates
to surrender and mortality assumptions (see Insurance Reserves Life and Annuity Reserves and DAC Variable Annuity
Guaranteed Benefits and Hedging Results).
These decreases were partially offset by:
favorable adjustments to reserves and DAC in Life and Retirement, including higher net positive adjustments in 2016 to reflect the
update of actuarial assumptions in Individual Retirement and Life Insurance;
lower general operating expenses reflecting strategic actions to reduce expenses;
lower loss on extinguishment of debt from ongoing liability management activities; and
higher income from divested businesses due to gains on the sales of United Guaranty, AIG Advisor Group and NSM, partially offset
by losses on the agreements to sell Fuji Life to FWD Group and certain insurance operations and assets to Fairfax.
U.S. TAX REFORM OVERVIEW
On December 22, 2017, the U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the Tax Act). The Tax
Act reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts numerous other changes impacting AIG
and the insurance industry.
Changes specific to the insurance industry include the calculation of insurance tax reserves and related transition adjustments,
amortization of specified policy acquisition expenses, treatment of separate account dividends received deductions, and computation
of pro-ration adjustments. Provisions of the Tax Act with broader application include reductions or elimination of deductions for certain
items, e.g., reductions to corporate dividends received deductions, disallowance of entertainment expenses, and limitations on the
deduction of certain executive compensation costs. These provisions, generally, will result in an increase in AIGs taxable income in
the years beginning after December 31, 2017.
Consistent with current income tax accounting requirements, we have remeasured our deferred tax assets and liabilities with
reference to the statutory income tax rate of 21 percent and taking into consideration other provisions of the Tax Act. As of December
31, 2017, we had not fully completed our accounting for the tax effects of the Tax Act. Our provision for income taxes for the period
ended December 31, 2017, is based in part on a reasonable estimate of the effects on existing deferred tax balances and of certain
provisions of the Tax Act. To the extent a reasonable estimate of the impact of certain provisions was determinable, we recorded
provisional estimates as a component of our provision for income taxes on continuing operations. To the extent a reasonable
The Tax Act includes provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on
the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax (BEAT)
under which taxes are imposed on certain base eroding payments to affiliated foreign companies. Consistent with accounting
guidance, we will treat BEAT as an in period tax charge when incurred in future periods for which no deferred taxes need to be
provided and have made an accounting policy election to treat GILTI taxes in a similar manner. Accordingly, no provision for income
taxes related to GILTI or BEAT was recorded as of December 31, 2017.
For the period ended December 31, 2017, we recognized a provisional estimate of income tax effects of the Tax Act of $6.7 billion,
including a tax charge of $6.7 billion attributable to the reduction in the U.S. corporate income tax rate and tax benefit of $38 million
related to the deemed repatriation tax.
In our assessment of the realizability of our deferred tax assets, we made certain assumptions related to the impact of the Tax Act on
our future taxable income. Generally, the Tax Act provisions result in an increase in our taxable income and, thus, accelerate
utilization of our tax attribute deferred tax asset. Accordingly, we do not currently anticipate that our reliance on provisional estimates
would have a material impact on our determination of the realizability of our deferred tax assets.
Repatriation Assumptions
As a result of the Tax Act, the majority of accumulated foreign earnings that were previously untaxed will become subject to a one-
time deemed repatriation tax. Going forward, foreign earnings not taxed as part of the one-time deemed repatriation (or otherwise
taxed currently under the GILTI or subpart F regimes) will generally be exempt from U.S. tax upon repatriation. Notwithstanding the
changes, U.S. tax on foreign exchange gain or loss and certain non-U.S. withholding taxes will continue to be applicable upon future
repatriations of foreign earnings. For the year ended December 31, 2017, we consider our foreign earnings with respect to certain
operations in Canada, South Africa, the Far East, Latin America, Bermuda as well as the European, Asia Pacific and Middle East
regions to be indefinitely reinvested. These earnings relate to ongoing operations and have been reinvested in active business
operations. Deferred taxes have been provided on earnings of non-U.S. affiliates whose earnings are not indefinitely reinvested.
Impact of Deemed Repatriation Tax on Liquidity
The Tax Act requires companies to pay a one-time transition tax, net of tax credits related to applicable foreign taxes paid, on
previously untaxed current and accumulated earnings and profits (E&P) of certain of our foreign subsidiaries.
the deemed repatriation tax, we reviewed estimated post-1986 E&P of the relevant foreign subsidiaries, and any related non-U.S.
income tax paid on such earnings. Based on this analysis, we were able to determine a reasonable estimate and we have recorded a
provisional estimated tax benefit of $38 million. This amount is not considered to be material to our liquidity and capital resources.
In the determination of
Impact to Effective Tax Rate on Future Consolidated Results of Operations
We currently estimate that effective tax rate on future consolidated results of operations would be 21-22 percent, excluding impact of
the items that cannot be forecasted. The effective tax rate is anticipated to exceed the U.S. statutory income tax rate primarily
because we have operations in jurisdictions where statutory income tax rates exceed 21 percent.
INCOME TAX EXPENSE ANALYSIS
For the year ended December 31, 2017, the effective tax rate on income from continuing operations was not meaningful. The effective
tax rate differs from the 2017 statutory tax rate of 35 percent primarily due to
estimate of the impact of certain provisions was not determinable, we have not recorded any adjustments and have continued
tax charges of:
accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before enactment of the Tax Act. Please refer to
$6.7 billion associated with the enactment of the Tax Act discussed above,
Note 23 to the Consolidated Financial Statements for further information about these provisions.
$660 million of tax charges and related interest associated with increases in uncertain tax positions primarily related to cross
border financing transactions and other open tax issues,
$69 million associated with the effect of foreign operations, and
$35 million of non-deductible transfer pricing charges
partially offset by tax benefits of:
$201 million of tax exempt income,
$184 million of reclassifications from accumulated other comprehensive income to income from continuing operations related to
the disposal of available for sale securities, and
$40 million of excess tax deductions related to share based compensation payments recorded through the income statement in
accordance with relevant accounting literature.
66
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
67
1011252ai_financials.indd 67
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Consolidated Results of Operations
ITEM 7 | Business Segment Operations
The effect of foreign operations is primarily related to losses incurred in our European operations taxed at a statutory tax rate lower
than 35 percent and other foreign taxes.
For the year ended December 31, 2016, the effective tax rate on loss from continuing operations was not meaningful. The effective
tax rate on loss from continuing operations differs from the statutory tax rate of 35 percent primarily due to
tax charges of:
$234 million associated with the effect of foreign operations,
$216 million of tax and related interest associated with increases in uncertain tax positions related to cross border financing
transactions,
$118 million related to disposition of subsidiaries,
$102 million related to non-deductible transfer pricing charges, and
$83 million related to increases in the deferred tax asset valuation allowances associated with U.S. federal and certain foreign
jurisdictions;
partially offset by tax benefits of:
$253 million related to tax exempt income,
Business Segment Operations
Our business operations consist of General Insurance, Life and Retirement, Other Operations, and a Legacy Portfolio.
General Insurance consists of two operating segments: North America and International. Life and Retirement consists of four
operating segments: Group Retirement, Individual Retirement, Life Insurance and Institutional Markets. Other Operations consists of
businesses and items not allocated to our other businesses, which are primarily AIG Parent, Blackboard, Fuji Life, which was sold on
April 30, 2017, and United Guaranty, which was sold on December 31, 2016. Our Legacy Portfolio consists of our Legacy General
Insurance Run-Off Lines, Legacy Life and Retirement Run-Off Lines and Legacy Investments. Effective in 2018, our newly formed
Bermuda domiciled composite reinsurer, DSA Re. will be part of our Legacy Portfolio.
We modified the presentation of our segment results in 2017 to reflect our new operating structure and prior periods presentation has
been revised to conform to our new structure.
For further information on our segment changes see Note 3 to the Consolidated Financial Statements.
$164 million associated with a portion of the U.S. Life Insurance companies capital loss carryforwards previously treated as
expired that was restored and utilized,
The following table summarizes Adjusted pre-tax income (loss) from our business segment operations. See also Note 3 to
the Consolidated Financial Statements.
$116 million related to the impact of an agreement reached with the Internal Revenue Service (IRS) related to certain tax issues
under audit, and
$132 million of reclassifications from accumulated other comprehensive income to income from continuing operations related to
the disposal of available for sale securities.
The effect of foreign operations is primarily related to foreign exchange losses incurred by our foreign subsidiaries related to the
weakening of the British pound following the Brexit vote taxed at a statutory tax rate lower than 35 percent.
For the year ended December 31, 2015, the effective tax rate on income from continuing operations was 32.3 percent. The effective
tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax benefits of $195
million associated with tax exempt interest income, $127 million related to reclassifications from accumulated other comprehensive
income to income from continuing operations related to the disposal of available for sale securities, $58 million associated with the
effect of foreign operations, and $109 million related to the partial completion of the IRS examination covering tax year 2006, partially
offset by $324 million of tax charges and related interest associated with increases in uncertain tax positions related to cross border
financing transactions, and $110 million related to increases in the deferred tax asset valuation allowances associated with certain
foreign jurisdictions.
For additional information see Note 23 to the Consolidated Financial Statements.
Years Ended December 31,
(in millions)
Core business:
General Insurance
North America
International
General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Life and Retirement
Other Operations
Total Core
Legacy Portfolio
Adjusted pre-tax income
Consolidations, eliminations and other adjustments
2017
2016
2015
$
(232) $
(2,399) $
(581)
(813)
348
(2,051)
2,289
1,004
274
264
3,831
(1,405)
75
1,688
1,470
2,269
931
(37)
265
3,428
(1,011)
42
408
1,007
$
3,158 $
1,415 $
558
70
628
1,812
1,100
(51)
263
3,124
(825)
(76)
2,851
1,133
3,984
68
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
69
1011252ai_financials.indd 68
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Consolidated Results of Operations
ITEM 7 | Business Segment Operations
The effect of foreign operations is primarily related to losses incurred in our European operations taxed at a statutory tax rate lower
than 35 percent and other foreign taxes.
For the year ended December 31, 2016, the effective tax rate on loss from continuing operations was not meaningful. The effective
tax rate on loss from continuing operations differs from the statutory tax rate of 35 percent primarily due to
tax charges of:
transactions,
$234 million associated with the effect of foreign operations,
$216 million of tax and related interest associated with increases in uncertain tax positions related to cross border financing
$118 million related to disposition of subsidiaries,
$102 million related to non-deductible transfer pricing charges, and
$83 million related to increases in the deferred tax asset valuation allowances associated with U.S. federal and certain foreign
jurisdictions;
partially offset by tax benefits of:
$253 million related to tax exempt income,
expired that was restored and utilized,
under audit, and
the disposal of available for sale securities.
$164 million associated with a portion of the U.S. Life Insurance companies capital loss carryforwards previously treated as
$116 million related to the impact of an agreement reached with the Internal Revenue Service (IRS) related to certain tax issues
$132 million of reclassifications from accumulated other comprehensive income to income from continuing operations related to
The effect of foreign operations is primarily related to foreign exchange losses incurred by our foreign subsidiaries related to the
weakening of the British pound following the Brexit vote taxed at a statutory tax rate lower than 35 percent.
For the year ended December 31, 2015, the effective tax rate on income from continuing operations was 32.3 percent. The effective
tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax benefits of $195
million associated with tax exempt interest income, $127 million related to reclassifications from accumulated other comprehensive
income to income from continuing operations related to the disposal of available for sale securities, $58 million associated with the
effect of foreign operations, and $109 million related to the partial completion of the IRS examination covering tax year 2006, partially
offset by $324 million of tax charges and related interest associated with increases in uncertain tax positions related to cross border
financing transactions, and $110 million related to increases in the deferred tax asset valuation allowances associated with certain
foreign jurisdictions.
For additional information see Note 23 to the Consolidated Financial Statements.
Business Segment Operations
Our business operations consist of General Insurance, Life and Retirement, Other Operations, and a Legacy Portfolio.
General Insurance consists of two operating segments: North America and International. Life and Retirement consists of four
operating segments: Group Retirement, Individual Retirement, Life Insurance and Institutional Markets. Other Operations consists of
businesses and items not allocated to our other businesses, which are primarily AIG Parent, Blackboard, Fuji Life, which was sold on
April 30, 2017, and United Guaranty, which was sold on December 31, 2016. Our Legacy Portfolio consists of our Legacy General
Insurance Run-Off Lines, Legacy Life and Retirement Run-Off Lines and Legacy Investments. Effective in 2018, our newly formed
Bermuda domiciled composite reinsurer, DSA Re. will be part of our Legacy Portfolio.
We modified the presentation of our segment results in 2017 to reflect our new operating structure and prior periods presentation has
been revised to conform to our new structure.
For further information on our segment changes see Note 3 to the Consolidated Financial Statements.
The following table summarizes Adjusted pre-tax income (loss) from our business segment operations. See also Note 3 to
the Consolidated Financial Statements.
Years Ended December 31,
(in millions)
Core business:
General Insurance
North America
International
General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Life and Retirement
Other Operations
Consolidations, eliminations and other adjustments
Total Core
Legacy Portfolio
Adjusted pre-tax income
2017
2016
2015
$
(232) $
(581)
(813)
(2,399) $
348
(2,051)
558
70
628
2,289
1,004
274
264
3,831
(1,405)
75
1,688
1,470
3,158 $
2,269
931
(37)
265
3,428
(1,011)
42
408
1,007
1,415 $
$
1,812
1,100
(51)
263
3,124
(825)
(76)
2,851
1,133
3,984
68
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
69
1011252ai_financials.indd 69
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
General Insurance
General Insurance is managed by our geographic markets of North America and International. Our
global presence is reflected in our multinational capabilities to provide our Commercial Lines and
Personal Insurance products within these geographic markets.
PRODUCTS AND DISTRIBUTION
COMPETITION AND CHALLENGES
Operating in a highly competitive industry, General Insurance competes against several hundred companies, specialty insurance
organizations, mutual companies and other underwriting organizations in the U.S. In international markets, we compete for business
with the foreign insurance operations of large global insurance groups and local companies in specific market areas and product
types. Insurance companies compete through a combination of risk acceptance criteria, product pricing, service and terms and
conditions. General Insurance seeks to distinguish itself in the insurance industry primarily based on its well-established brand, global
franchise, multinational capabilities, financial and capital strength, innovative products, claims expertise to handle complex claims,
expertise in providing specialized coverages and customer service.
We serve our business and individual customers on a global basis from the largest multinational corporations to local businesses
and individuals. Our clients benefit from our substantial underwriting expertise.
Our challenges include:
long-tail Commercial Lines exposures that create added challenges to pricing and risk management;
North
America
International
over capacity in certain lines of business that creates downward market pressure on pricing;
Liability: Products include general liability, environmental, commercial automobile liability, workers compensation, excess casualty
and crisis management insurance products. Casualty also includes risk- sharing and other customized structured programs for large
corporate and multinational customers.
Financial Lines: Products include professional liability insurance for a range of businesses and risks, including directors and officers
liability (D&O), mergers and acquisitions (M&A), fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and
errors and omissions insurance (E&O).
Property: Products include commercial, industrial and energy-related property insurance products and services that cover exposures
to man-made and natural disasters, including business interruption.
Special Risks: Products include aerospace, political risk, trade credit, portfolio solutions, surety and marine insurance.
Personal Lines: Products include personal auto and property in selected international markets and insurance for high net worth
individuals offered through AIG Private Client Group (PCG) in the U.S. that covers auto, homeowners, umbrella, yacht, fine art and
collections. In addition, we offer extended warranty insurance and services covering electronics, appliances, and HVAC.
Accident & Health: Products include voluntary and sponsor-paid personal accident and supplemental health products for individuals,
employees, associations and other organizations, as well as a broad range of travel insurance products and services for leisure and
business travelers.
General Insurance products in North America and International markets are distributed through various channels, including captive
and independent agents, brokers, affinity partners, airlines and travel agents, and retailers. Our distribution network is aided by our
competitive position to write multiple-national and cross-border risks in both Commercial Lines and Personal Insurance.
BUSINESS STRATEGY
Profitable Growth: Deploy capital efficiently to act opportunistically and optimize diversity within the portfolio to grow in profitable
lines, geographies and customer segments. Look to inorganic growth opportunities in profitable markets and segments to expand our
capabilities and footprint.
Reinsurance Optimization: Strategically partner with reinsurers to reduce exposure to losses arising from frequency of large
catastrophic events and the severity from individual risk losses. We will optimize our reinsurance program to manage volatility and
protect the balance sheet from tail events and unpredictable net losses in support of our profitable growth objectives.
Underwriting Excellence: Empower and increase accountability of the underwriter and continue to integrate underwriting, claims and
actuarial to enable better decision making. Focus on enhancing risk selection, driving consistent underwriting best practices and
building robust monitoring standards to improve underwriting results.
tort environment volatility in certain jurisdictions and lines of business; and
volatility in claims arising from natural and man-made catastrophes.
OUTLOOKINDUSTRY AND ECONOMIC FACTORS
Below is a discussion of the industry and economic factors impacting our operating segments:
General Insurance North America
Commercial Lines continues to face challenging market conditions, with excess capacity negatively impacting the rate environment
and suppressing margins. However, we continue to achieve positive rate increases across a number of lines and sub-segments as a
result of our disciplined underwriting strategy and focus on risk selection. We continue to observe higher loss cost trends in Casualty,
in particular Excess Casualty. We anticipate a positive impact on market pricing for Property following recent catastrophe activity, and
observed progressive rate improvements throughout the fourth quarter of 2017. The more profitable segments of Commercial Lines
remain highly competitive; however, we continue to achieve growth in several of our high margin businesses.
Personal Insurance growth prospects are supported by the need for full life cycle products and coverage, increases in personal
wealth accumulation, and awareness of insurance protection and risk management. We compete in the high net worth market,
accident and health insurance, travel insurance, and warranty services and will continue to expand our innovative products and
services to distribution partners and clients.
General Insurance International
We believe our global presence provides Commercial Lines and Personal Insurance a distinct competitive advantage, as the demand
for multinational cross-border coverage and services increase due to the internationalization of customers.
The Commercial Lines market continues to be highly competitive, with increased pressure on rates, particularly in Europe and the
Asia Pacific region, due to increased market capacity. Despite this, we are continuing to grow our most profitable segments across all
regions and are maintaining market leadership in key developed markets. We are actively remediating our underperforming
segments, maintaining our underwriting discipline and continuing our risk selection strategy to maintain profitability.
Personal Insurance focuses on individual customers, as well as group and corporate clients. Although market competition within
Personal Insurance has increased, we continue to benefit from the underwriting quality, portfolio diversity, and low volatility of the
short-tailed risk in the business. We expect our newly formed entity in Japan AIG Sonpo to provide the necessary scale and
platform to compete more efficiently in the Japanese market. Outside of Japan, Personal Insurance continues to invest selectively in
international markets, which we believe have higher potential for sustainable profitability.
70
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
71
1011252ai_financials.indd 70
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
General Insurance
General Insurance is managed by our geographic markets of North America and International. Our
global presence is reflected in our multinational capabilities to provide our Commercial Lines and
Personal Insurance products within these geographic markets.
PRODUCTS AND DISTRIBUTION
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
COMPETITION AND CHALLENGES
Operating in a highly competitive industry, General Insurance competes against several hundred companies, specialty insurance
organizations, mutual companies and other underwriting organizations in the U.S. In international markets, we compete for business
with the foreign insurance operations of large global insurance groups and local companies in specific market areas and product
types. Insurance companies compete through a combination of risk acceptance criteria, product pricing, service and terms and
conditions. General Insurance seeks to distinguish itself in the insurance industry primarily based on its well-established brand, global
franchise, multinational capabilities, financial and capital strength, innovative products, claims expertise to handle complex claims,
expertise in providing specialized coverages and customer service.
We serve our business and individual customers on a global basis from the largest multinational corporations to local businesses
and individuals. Our clients benefit from our substantial underwriting expertise.
Our challenges include:
long-tail Commercial Lines exposures that create added challenges to pricing and risk management;
over capacity in certain lines of business that creates downward market pressure on pricing;
tort environment volatility in certain jurisdictions and lines of business; and
volatility in claims arising from natural and man-made catastrophes.
Liability: Products include general liability, environmental, commercial automobile liability, workers compensation, excess casualty
and crisis management insurance products. Casualty also includes risk- sharing and other customized structured programs for large
OUTLOOKINDUSTRY AND ECONOMIC FACTORS
corporate and multinational customers.
Below is a discussion of the industry and economic factors impacting our operating segments:
Financial Lines: Products include professional liability insurance for a range of businesses and risks, including directors and officers
liability (D&O), mergers and acquisitions (M&A), fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and
errors and omissions insurance (E&O).
Property: Products include commercial, industrial and energy-related property insurance products and services that cover exposures
to man-made and natural disasters, including business interruption.
Special Risks: Products include aerospace, political risk, trade credit, portfolio solutions, surety and marine insurance.
Personal Lines: Products include personal auto and property in selected international markets and insurance for high net worth
individuals offered through AIG Private Client Group (PCG) in the U.S. that covers auto, homeowners, umbrella, yacht, fine art and
collections. In addition, we offer extended warranty insurance and services covering electronics, appliances, and HVAC.
Accident & Health: Products include voluntary and sponsor-paid personal accident and supplemental health products for individuals,
employees, associations and other organizations, as well as a broad range of travel insurance products and services for leisure and
business travelers.
General Insurance products in North America and International markets are distributed through various channels, including captive
and independent agents, brokers, affinity partners, airlines and travel agents, and retailers. Our distribution network is aided by our
competitive position to write multiple-national and cross-border risks in both Commercial Lines and Personal Insurance.
BUSINESS STRATEGY
capabilities and footprint.
Profitable Growth: Deploy capital efficiently to act opportunistically and optimize diversity within the portfolio to grow in profitable
lines, geographies and customer segments. Look to inorganic growth opportunities in profitable markets and segments to expand our
Reinsurance Optimization: Strategically partner with reinsurers to reduce exposure to losses arising from frequency of large
catastrophic events and the severity from individual risk losses. We will optimize our reinsurance program to manage volatility and
protect the balance sheet from tail events and unpredictable net losses in support of our profitable growth objectives.
Underwriting Excellence: Empower and increase accountability of the underwriter and continue to integrate underwriting, claims and
actuarial to enable better decision making. Focus on enhancing risk selection, driving consistent underwriting best practices and
building robust monitoring standards to improve underwriting results.
General Insurance North America
Commercial Lines continues to face challenging market conditions, with excess capacity negatively impacting the rate environment
and suppressing margins. However, we continue to achieve positive rate increases across a number of lines and sub-segments as a
result of our disciplined underwriting strategy and focus on risk selection. We continue to observe higher loss cost trends in Casualty,
in particular Excess Casualty. We anticipate a positive impact on market pricing for Property following recent catastrophe activity, and
observed progressive rate improvements throughout the fourth quarter of 2017. The more profitable segments of Commercial Lines
remain highly competitive; however, we continue to achieve growth in several of our high margin businesses.
Personal Insurance growth prospects are supported by the need for full life cycle products and coverage, increases in personal
wealth accumulation, and awareness of insurance protection and risk management. We compete in the high net worth market,
accident and health insurance, travel insurance, and warranty services and will continue to expand our innovative products and
services to distribution partners and clients.
General Insurance International
We believe our global presence provides Commercial Lines and Personal Insurance a distinct competitive advantage, as the demand
for multinational cross-border coverage and services increase due to the internationalization of customers.
The Commercial Lines market continues to be highly competitive, with increased pressure on rates, particularly in Europe and the
Asia Pacific region, due to increased market capacity. Despite this, we are continuing to grow our most profitable segments across all
regions and are maintaining market leadership in key developed markets. We are actively remediating our underperforming
segments, maintaining our underwriting discipline and continuing our risk selection strategy to maintain profitability.
Personal Insurance focuses on individual customers, as well as group and corporate clients. Although market competition within
Personal Insurance has increased, we continue to benefit from the underwriting quality, portfolio diversity, and low volatility of the
short-tailed risk in the business. We expect our newly formed entity in Japan AIG Sonpo to provide the necessary scale and
platform to compete more efficiently in the Japanese market. Outside of Japan, Personal Insurance continues to invest selectively in
international markets, which we believe have higher potential for sustainable profitability.
70
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
71
1011252ai_financials.indd 71
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Catastrophes(b)
Change
The following tables present General Insurance accident year catastrophes and severe losses by geography(a) and number
of events:
GENERAL INSURANCE RESULTS
Year Ended December 31,
(in millions)
Underwriting results:
Net premiums written
Decrease in unearned premiums
Net premiums earned
Losses and loss adjustment expenses incurred(a)
Acquisition expenses:
Amortization of deferred policy acquisition costs
Other acquisition expenses
Total acquisition expenses
General operating expenses
Underwriting loss
Net investment income
Adjusted pre-tax income (loss)
Loss ratio(a)
Acquisition ratio
General operating expense ratio
Expense ratio
Combined ratio(a)
Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums
Prior year development, net of (additional) return
premium on loss sensitive business
Adjustment for ceded premiums under reinsurance
contracts related to prior accident years
Accident year loss ratio, as adjusted
Accident year combined ratio, as adjusted
$ 25,438 $ 28,393 $ 32,199
(1,277)
30,922
22,873
588
26,026
21,642
1,193
29,586
25,103
3,765
1,388
5,153
3,712
(4,481)
3,668
(813) $
4,121
1,732
5,853
4,235
(5,605)
3,554
(2,051) $
$
83.2
19.8
14.3
34.1
84.8
19.8
14.3
34.1
4,319
2,081
6,400
4,767
(3,118)
3,746
628
74.0
20.7
15.4
36.1
117.3
118.9
110.1
(16.1)
(4.4)
(2.4)
(4.0)
(18.5)
(10.7)
(0.1)
63.0
97.1
-
61.9
96.0
-
60.9
97.0
(10)%
(51)
(12)
(14)
(9)
(20)
(12)
(12)
20
3
(12)%
NM
(4)
10
(5)
(17)
(9)
(11)
(80)
(5)
60 %
NM%
(1.6)
-
-
-
(1.6)
(11.7)
14.5
(0.1)
1.1
1.1
10.8
(0.9)
(1.1)
(2.0)
8.8
(2.0)
(7.8)
NM
1.0
(1.0)
(a) Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have
ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.
The following table presents General Insurance net premiums written by operating segment, showing change on both
reported and constant dollar basis:
Years Ended December 31,
(in millions)
North America
International
Total net premiums
2017
2016
2015
$ 10,973 $ 13,026 $ 15,866
16,333
15,367
14,465
Percentage Change in
U.S. dollars
Percentage Change in
Original Currency
2017 vs. 2016
2016 vs. 2015
2017 vs. 2016
2016 vs. 2015
(16)%
(6)
(18)%
(6)
(16)%
(4)
(18)%
(4)
written
$ 25,438 $ 28,393 $ 32,199
(10)%
(12)%
(10)%
(11)%
# of
Events
North
America
International
Total
- (c) $
962 $
20
2
1
1
-
3
2
3
1
-
4
1
1
1
24
19
28
14
$
$
$
$
1,771
562
-
-
(23)
3,272 $
631
129
25
-
(2)
406
10
18
-
158 $
616
10
66
41
-
1,120
2,387
572
66
41
(23)
891 $
4,163
127
7
205
40
3
121
-
15
7
161
758
136
230
40
1
149
527
10
33
7
726
134 $
27 $
917 $
409 $
1,326
70 $
79 $
(in millions)
Year Ended December 31, 2017
Flooding
Windstorms and hailstorms
Wildfire
Tropical cyclone
Earthquakes
Reinstatement premiums
Total catastrophe-related charges
Year Ended December 31, 2016
Windstorms and hailstorms
Flooding
Wildfire
Earthquakes
Other
Reinstatement premiums
Total catastrophe-related charges
Year Ended December 31, 2015
Flooding
Windstorms and hailstorms
Wildfire
Tropical cyclone
Earthquakes
Total catastrophe-related charges
21
$
504 $
222 $
(a) Geography: North America primarily includes insurance businesses in the United States, Canada and Bermuda. International includes insurance businesses in Japan,
the United Kingdom, Europe, the Asia Pacific region, Latin America, Puerto Rico, Australia, the Middle East and Africa. Geography results are presented before
consideration of internal reinsurance agreements.
(b) Natural and man-made catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and also include certain
man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
(c) Flooding events reported in 2017 are a subset of windstorm events.
Severe Losses(d)
Years Ended December 31,
(in millions)
2017(e)
2016
2015
# of
North
Events
America
International
27 $
24 $
30 $
203 $
110 $
247 $
273 $
323 $
464 $
Total
476
433
711
(d) Severe losses are defined as non-catastrophe individual first party losses, surety losses and trade credit losses greater than $10 million, net of related reinsurance and
salvage and subrogation.
(e) The amount presented for 2017 is net of $121 million of recoveries, $65 million in North America and $56 million in International, under an aggregate reinsurance
contract. Eligible incurred losses under this agreement exceeded the applicable aggregate attachment point in the fourth quarter of 2017. There were no aggregate
recoveries included in the amounts presented or 2016 and 2015.
72
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
73
1011252ai_financials.indd 72
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
The following tables present General Insurance accident year catastrophes and severe losses by geography(a) and number
of events:
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Catastrophes(b)
$ 25,438 $ 28,393 $ 32,199
(10)%
(12)%
GENERAL INSURANCE RESULTS
Year Ended December 31,
(in millions)
Underwriting results:
Net premiums written
Decrease in unearned premiums
Net premiums earned
Losses and loss adjustment expenses incurred(a)
Acquisition expenses:
Amortization of deferred policy acquisition costs
Other acquisition expenses
Total acquisition expenses
General operating expenses
Underwriting loss
Net investment income
Loss ratio(a)
Acquisition ratio
Expense ratio
Combined ratio(a)
General operating expense ratio
588
26,026
21,642
3,765
1,388
5,153
3,712
(4,481)
3,668
83.2
19.8
14.3
34.1
1,193
29,586
25,103
4,121
1,732
5,853
4,235
(5,605)
3,554
84.8
19.8
14.3
34.1
(1,277)
30,922
22,873
4,319
2,081
6,400
4,767
(3,118)
3,746
628
74.0
20.7
15.4
36.1
Adjusted pre-tax income (loss)
$
(813) $
(2,051) $
Change
(51)
(12)
(14)
(9)
(20)
(12)
(12)
20
3
60 %
(1.6)
-
-
-
(11.7)
14.5
(0.1)
1.1
1.1
NM
(4)
10
(5)
(17)
(9)
(11)
(80)
(5)
NM%
10.8
(0.9)
(1.1)
(2.0)
8.8
(2.0)
(7.8)
NM
1.0
(1.0)
117.3
118.9
110.1
(1.6)
Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums
(16.1)
(4.4)
(2.4)
Prior year development, net of (additional) return
premium on loss sensitive business
Adjustment for ceded premiums under reinsurance
contracts related to prior accident years
Accident year loss ratio, as adjusted
Accident year combined ratio, as adjusted
(4.0)
(18.5)
(10.7)
(0.1)
63.0
97.1
-
61.9
96.0
-
60.9
97.0
(a) Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have
ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.
The following table presents General Insurance net premiums written by operating segment, showing change on both
reported and constant dollar basis:
Years Ended December 31,
(in millions)
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
2017 vs. 2016
2016 vs. 2015
North America
$ 10,973 $ 13,026 $ 15,866
International
14,465
15,367
16,333
(16)%
(6)
(18)%
(6)
(16)%
(4)
(18)%
(4)
Total net premiums
written
$ 25,438 $ 28,393 $ 32,199
(10)%
(12)%
(10)%
(11)%
Percentage Change in
U.S. dollars
Percentage Change in
Original Currency
(in millions)
Year Ended December 31, 2017
Flooding
Windstorms and hailstorms
Wildfire
Tropical cyclone
Earthquakes
Reinstatement premiums
Total catastrophe-related charges
Year Ended December 31, 2016
Flooding
Windstorms and hailstorms
Wildfire
Earthquakes
Other
Reinstatement premiums
Total catastrophe-related charges
Year Ended December 31, 2015
Flooding
Windstorms and hailstorms
Wildfire
Tropical cyclone
Earthquakes
Total catastrophe-related charges
# of
Events
North
America
International
Total
- (c) $
962 $
1,771
562
-
-
(23)
3,272 $
158 $
616
10
66
41
-
891 $
134 $
27 $
631
129
25
-
(2)
127
7
205
40
3
917 $
409 $
1,326
70 $
79 $
406
10
18
-
121
-
15
7
$
504 $
222 $
1,120
2,387
572
66
41
(23)
4,163
161
758
136
230
40
1
149
527
10
33
7
726
20
2
1
1
-
24
3
19
2
3
1
-
28
4
14
1
1
1
21
$
$
$
$
(a) Geography: North America primarily includes insurance businesses in the United States, Canada and Bermuda. International includes insurance businesses in Japan,
the United Kingdom, Europe, the Asia Pacific region, Latin America, Puerto Rico, Australia, the Middle East and Africa. Geography results are presented before
consideration of internal reinsurance agreements.
(b) Natural and man-made catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and also include certain
man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
(c) Flooding events reported in 2017 are a subset of windstorm events.
Severe Losses(d)
Years Ended December 31,
(in millions)
2017(e)
2016
2015
# of
Events
North
America
International
27 $
24 $
30 $
203 $
110 $
247 $
273 $
323 $
464 $
Total
476
433
711
(d) Severe losses are defined as non-catastrophe individual first party losses, surety losses and trade credit losses greater than $10 million, net of related reinsurance and
salvage and subrogation.
(e) The amount presented for 2017 is net of $121 million of recoveries, $65 million in North America and $56 million in International, under an aggregate reinsurance
contract. Eligible incurred losses under this agreement exceeded the applicable aggregate attachment point in the fourth quarter of 2017. There were no aggregate
recoveries included in the amounts presented or 2016 and 2015.
72
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
73
1011252ai_financials.indd 73
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Change
North America Adjusted Pre-Tax Loss
(in millions)
NORTH AMERICA RESULTS
Years Ended December 31,
(in millions)
Underwriting results:
Net premiums written
Decrease in unearned premiums
Net premiums earned
Losses and loss adjustment expenses incurred(a)
Acquisition expenses:
Amortization of deferred policy acquisition costs
Other acquisition expenses
Total acquisition expenses
General operating expenses
Underwriting loss
Net investment income
Adjusted pre-tax income (loss)
Loss ratio(a)
Acquisition ratio
General operating expense ratio
Expense ratio
Combined ratio(a)
Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
(16)%
(49)
(18)
(26)
(10)
(32)
(17)
(10)
38
3
(18)%
NM
(9)
15
(15)
(18)
(16)
(9)
(106)
(5)
90 %
NM%
$ 10,973 $ 13,026 $ 15,866
(580)
938
482
11,455
11,646
13,964
15,692
15,286
13,647
1,305
485
1,790
1,396
(3,377)
3,145
1,444
718
2,162
1,550
(5,440)
3,041
$
(232) $
(2,399) $
1,699
880
2,579
1,698
(2,638)
3,196
558
89.3
16.9
11.1
28.0
101.7
15.6
12.2
27.8
129.5
112.4
15.5
11.1
26.6
139.0
117.3
(10.7)
0.1
1.1
1.2
(9.5)
Catastrophe losses and reinstatement premiums
(28.7)
(6.6)
(2.9)
(22.1)
Prior year development, net of (additional) return
premium on loss sensitive business
Adjustment for ceded premiums under reinsurance
contracts related to prior accident years
Accident year loss ratio, as adjusted
Accident year combined ratio, as adjusted
(3.6)
(37.9)
(20.6)
34.3
(0.3)
69.1
96.9
-
67.9
94.5
-
65.8
93.8
(0.3)
1.2
2.4
23.1
(1.4)
-
(1.4)
21.7
(3.7)
(17.3)
NM
2.1
0.7
North America Adjusted Pre-Tax Income (Loss)
(in millions)
(a) Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have
ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.
Business and Financial Highlights
The adjusted pre-tax loss decreased in 2017 primarily due to significantly lower unfavorable prior year loss reserve development. This
decrease in adjusted pre-tax loss was partially offset by higher severe losses and higher catastrophe losses due to hurricanes
Harvey, Irma and Maria, and the California wildfires during the second half of 2017. Net premiums written decreased primarily due to
continued underwriting actions to strengthen our portfolio and increased rate pressure.
The increase in net investment income was driven by higher income on alternative investments and gains on securities where we
elected the fair value option partially offset by lower interest and dividends due to lower invested assets resulting from the first quarter
2017 funding of the adverse development reinsurance agreement with NICO.
For further discussion on the NICO transaction see MD&A Insurance Reserves.
74
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
75
1011252ai_financials.indd 74
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2017 and 2016 Comparison
Adjusted pre-tax loss decreased primarily due to:
lower unfavorable prior year loss reserve development (decrease by $4.9
billion);
licenses and fees;
lower acquisition expenses driven by lower production, the impact of the
reinsurance agreement with Swiss Re Group, and lower insurance taxes,
lower general operating expenses driven by lower employee-related
expenses and other expense reduction initiatives; and
higher net investment income reflecting higher income on alternative
investments and gains on securities where we elected the fair value option
partially offset by lower interest and dividends due to lower invested assets
resulting from the first quarter 2017 funding of the adverse development
reinsurance agreement with NICO.
This decrease was partially offset by:
higher severe losses; and
higher catastrophe losses primarily driven by hurricanes Harvey, Irma and
Maria and the California wildfires.
2016 and 2015 Comparison
was primarily due to:
billion);
Adjusted pre-tax loss in 2016 compared to adjusted pre-tax income in 2015
higher unfavorable prior year loss reserve development (increase by $2.2
higher current accident year loss ratio, as adjusted, in Casualty and
programs business, partially offset by lower severe losses;
higher catastrophe losses; and
lower net investment income reflecting lower income on alternative
investments and lower interest and dividends on invested assets.
These were partially offset by:
lower acquisition expenses primarily due to reduced production and the
ceding commissions related to the reinsurance arrangement with Swiss Re
Group; and
lower general operating expenses primarily due to lower employee-related
expenses and other expense reduction initiatives.
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
NORTH AMERICA RESULTS
Years Ended December 31,
(in millions)
Underwriting results:
Net premiums written
Decrease in unearned premiums
Net premiums earned
Losses and loss adjustment expenses incurred(a)
Acquisition expenses:
Amortization of deferred policy acquisition costs
Other acquisition expenses
Total acquisition expenses
General operating expenses
Underwriting loss
Net investment income
Adjusted pre-tax income (loss)
Loss ratio(a)
Acquisition ratio
Expense ratio
Combined ratio(a)
General operating expense ratio
Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
Prior year development, net of (additional) return
premium on loss sensitive business
Adjustment for ceded premiums under reinsurance
contracts related to prior accident years
Accident year loss ratio, as adjusted
Accident year combined ratio, as adjusted
Business and Financial Highlights
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Change
$ 10,973 $ 13,026 $ 15,866
(16)%
(18)%
482
11,455
11,646
938
13,964
15,692
(580)
15,286
13,647
1,305
485
1,790
1,396
1,444
718
2,162
1,550
(3,377)
(5,440)
(2,638)
3,145
3,041
$
(232) $
(2,399) $
101.7
112.4
15.6
12.2
27.8
15.5
11.1
26.6
129.5
139.0
117.3
1,699
880
2,579
1,698
3,196
558
89.3
16.9
11.1
28.0
(49)
(18)
(26)
(10)
(32)
(17)
(10)
38
3
(10.7)
0.1
1.1
1.2
(9.5)
(3.6)
(37.9)
(20.6)
34.3
(0.3)
69.1
96.9
-
67.9
94.5
-
65.8
93.8
(0.3)
1.2
2.4
NM
(9)
15
(15)
(18)
(16)
(9)
(106)
(5)
23.1
(1.4)
-
(1.4)
21.7
(3.7)
(17.3)
NM
2.1
0.7
90 %
NM%
(a) Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have
ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.
The adjusted pre-tax loss decreased in 2017 primarily due to significantly lower unfavorable prior year loss reserve development. This
decrease in adjusted pre-tax loss was partially offset by higher severe losses and higher catastrophe losses due to hurricanes
Harvey, Irma and Maria, and the California wildfires during the second half of 2017. Net premiums written decreased primarily due to
continued underwriting actions to strengthen our portfolio and increased rate pressure.
Catastrophe losses and reinstatement premiums
(28.7)
(6.6)
(2.9)
(22.1)
North America Adjusted Pre-Tax Loss
(in millions)
$(232)
$2,167
$(2,399)
2017
2016
2017 and 2016 Comparison
Adjusted pre-tax loss decreased primarily due to:
lower unfavorable prior year loss reserve development (decrease by $4.9
billion);
lower acquisition expenses driven by lower production, the impact of the
reinsurance agreement with Swiss Re Group, and lower insurance taxes,
licenses and fees;
lower general operating expenses driven by lower employee-related
expenses and other expense reduction initiatives; and
higher net investment income reflecting higher income on alternative
investments and gains on securities where we elected the fair value option
partially offset by lower interest and dividends due to lower invested assets
resulting from the first quarter 2017 funding of the adverse development
reinsurance agreement with NICO.
This decrease was partially offset by:
higher severe losses; and
higher catastrophe losses primarily driven by hurricanes Harvey, Irma and
Maria and the California wildfires.
North America Adjusted Pre-Tax Income (Loss)
(in millions)
$2,957
$558
2016 and 2015 Comparison
Adjusted pre-tax loss in 2016 compared to adjusted pre-tax income in 2015
was primarily due to:
higher unfavorable prior year loss reserve development (increase by $2.2
billion);
higher current accident year loss ratio, as adjusted, in Casualty and
programs business, partially offset by lower severe losses;
$(2,399)
higher catastrophe losses; and
lower net investment income reflecting lower income on alternative
investments and lower interest and dividends on invested assets.
These were partially offset by:
lower acquisition expenses primarily due to reduced production and the
ceding commissions related to the reinsurance arrangement with Swiss Re
Group; and
lower general operating expenses primarily due to lower employee-related
expenses and other expense reduction initiatives.
The increase in net investment income was driven by higher income on alternative investments and gains on securities where we
elected the fair value option partially offset by lower interest and dividends due to lower invested assets resulting from the first quarter
2016
2015
2017 funding of the adverse development reinsurance agreement with NICO.
For further discussion on the NICO transaction see MD&A Insurance Reserves.
74
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
75
1011252ai_financials.indd 75
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
North America Net Premiums Written
(in millions)
$2,053
2017 and 2016 Comparison
Net premiums written decreased primarily due to:
lower production primarily in Casualty, commercial property within Property,
D&O products within Financial Lines and programs business due to
continued underwriting actions to strengthen our portfolio and to maintain
pricing discipline; and
$10,973
the North American catastrophe reinsurance cover for 2017.
$13,026
higher ceded premiums related to the additional layer of coverage added to
2017
2016
This decrease was partially offset by:
the growth of PCG business within Personal Lines and travel insurance
within Accident and Health;
recognition of ceded return premiums on our excess of loss reinsurance
covers; and
lower ceded premiums related to the reinsurance arrangement with the
Swiss Re Group partially offset by lower assumed premium from the quota
share reinsurance agreement with United Guaranty.
North America Net Premiums Written
(in millions)
$2,840
$15,866
$13,026
2016
2015
2016 and 2015 Comparison
Net premiums written decreased primarily due to:
decreased production in Casualty reflecting continued underwriting actions
to strengthen our portfolio by either exiting or revising rates and terms and
conditions in certain underperforming products;
increased rate pressure, significant competition and challenging market
conditions in Property and Special Risks combined with continued
adherence to our underwriting discipline;
the effect of the reinsurance arrangement with the Swiss Re Group partially
offset by the effect of the reinsurance agreement with United Guaranty; and
the renewal of a large multi-year E&O policy in 2015.
This decrease was partially offset by growth in PCG business.
North America Combined Ratios
North America Combined Ratios
2017 and 2016 Comparison
The decrease in the combined ratio reflected a decrease in the loss ratio slightly
offset by an increase in the expense ratio.
The decrease in the loss ratio was primarily due to lower prior year unfavorable
development. Prior year reserve development is net of the losses ceded under the
NICO reinsurance agreement as well as the amortization of the related deferred gain.
This decrease in the loss ratio was partially offset by:
higher catastrophe losses primarily driven by hurricanes Harvey, Irma and Maria,
and the California wildfires; and
slightly elevated current accident year loss ratio, as adjusted, driven primarily by
higher severe losses and an increase in loss estimates in Casualty and Financial
Lines reflecting the result of 2017 detailed valuation reviews, partially offset by
lower current accident year losses in Personal Insurance.
The increase in the expense ratio was primarily due to a higher general operating
expense ratio primarily driven by a decrease in net premiums earned reflecting
portfolio optimization, which more than offset expense reductions.
2016 and 2015 Comparison
The increase in the combined ratio reflected an increase in the loss ratio slightly
offset by a decrease in the expense ratio.
The increase in the loss ratio was primarily due to:
higher prior year unfavorable loss reserve development impacted by unfavorable
loss emergence in workers compensation and other casualty;
higher catastrophe losses; and
higher current accident year loss ratio, as adjusted, in Casualty and programs
business within Property driven by an increase in loss estimates as a result of
2016 year-end detailed reserves valuation reviews, offset slightly by lower severe
The decrease in the expense ratio reflected lower acquisition expense ratio driven
primarily by higher commission income from the reinsurance agreement with Swiss
losses.
Re Group.
76
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
77
1011252ai_financials.indd 76
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
North America Net Premiums Written
(in millions)
North America Net Premiums Written
(in millions)
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
2017 and 2016 Comparison
Net premiums written decreased primarily due to:
lower production primarily in Casualty, commercial property within Property,
D&O products within Financial Lines and programs business due to
continued underwriting actions to strengthen our portfolio and to maintain
pricing discipline; and
higher ceded premiums related to the additional layer of coverage added to
the North American catastrophe reinsurance cover for 2017.
This decrease was partially offset by:
the growth of PCG business within Personal Lines and travel insurance
within Accident and Health;
recognition of ceded return premiums on our excess of loss reinsurance
covers; and
lower ceded premiums related to the reinsurance arrangement with the
Swiss Re Group partially offset by lower assumed premium from the quota
share reinsurance agreement with United Guaranty.
2016 and 2015 Comparison
Net premiums written decreased primarily due to:
decreased production in Casualty reflecting continued underwriting actions
to strengthen our portfolio by either exiting or revising rates and terms and
conditions in certain underperforming products;
increased rate pressure, significant competition and challenging market
conditions in Property and Special Risks combined with continued
adherence to our underwriting discipline;
the effect of the reinsurance arrangement with the Swiss Re Group partially
offset by the effect of the reinsurance agreement with United Guaranty; and
the renewal of a large multi-year E&O policy in 2015.
This decrease was partially offset by growth in PCG business.
North America Combined Ratios
Calendar
Year
139.0
11.1
15.5
112.4
129.5
12.2
15.6
101.7
GOE Ratio
Acquisition
Ratio
Loss Ratio
Accident
Year
(as adjusted)
2017 and 2016 Comparison
The decrease in the combined ratio reflected a decrease in the loss ratio slightly
offset by an increase in the expense ratio.
The decrease in the loss ratio was primarily due to lower prior year unfavorable
development. Prior year reserve development is net of the losses ceded under the
NICO reinsurance agreement as well as the amortization of the related deferred gain.
This decrease in the loss ratio was partially offset by:
94.5
11.1
15.5
higher catastrophe losses primarily driven by hurricanes Harvey, Irma and Maria,
67.9
and the California wildfires; and
96.9
12.2
15.6
69.1
CAT Loss
PYD*
Severe
28.7
3.6
1.8
6.6
37.9
0.8
1.8
0.8
slightly elevated current accident year loss ratio, as adjusted, driven primarily by
higher severe losses and an increase in loss estimates in Casualty and Financial
Lines reflecting the result of 2017 detailed valuation reviews, partially offset by
lower current accident year losses in Personal Insurance.
2017
2016
2017
2016
The increase in the expense ratio was primarily due to a higher general operating
expense ratio primarily driven by a decrease in net premiums earned reflecting
portfolio optimization, which more than offset expense reductions.
North America Combined Ratios
Calendar
Year
139.0
11.1
15.5
GOE Ratio
Acquisition
Ratio
Loss Ratio
112.4
117.3
11.1
16.9
89.3
Accident
Year
(as adjusted)
94.5
11.1
15.5
67.9
93.8
11.1
16.9
65.8
CAT Loss
6.6
2.9
PYD*
37.9
20.6
Severe
0.8
1.6
0.8
1.6
2016
2015
2016
2015
2016 and 2015 Comparison
The increase in the combined ratio reflected an increase in the loss ratio slightly
offset by a decrease in the expense ratio.
The increase in the loss ratio was primarily due to:
higher prior year unfavorable loss reserve development impacted by unfavorable
loss emergence in workers compensation and other casualty;
higher catastrophe losses; and
higher current accident year loss ratio, as adjusted, in Casualty and programs
business within Property driven by an increase in loss estimates as a result of
2016 year-end detailed reserves valuation reviews, offset slightly by lower severe
losses.
The decrease in the expense ratio reflected lower acquisition expense ratio driven
primarily by higher commission income from the reinsurance agreement with Swiss
Re Group.
76
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
77
1011252ai_financials.indd 77
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Change
International Adjusted Pre-Tax Income (Loss)
(in millions)
INTERNATIONAL RESULTS
Years Ended December 31,
(in millions)
Underwriting results:
Net premiums written
Decrease in unearned premiums
Net premiums earned
Losses and loss adjustment expenses incurred(a)
Acquisition expenses:
Amortization of deferred policy acquisition costs
Other acquisition expenses
Total acquisition expenses
General operating expenses
Underwriting loss
Net investment income
Adjusted pre-tax income (loss)
Loss ratio(a)
Acquisition ratio
General operating expense ratio
Expense ratio
Combined ratio(a)
Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
$ 14,465 $ 15,367 $ 16,333
(697)
15,636
9,226
255
15,622
9,411
106
14,571
9,996
2,460
903
3,363
2,316
(1,104)
523
(581) $
68.6
23.1
15.9
39.0
2,677
1,014
3,691
2,685
(165)
513
348 $
60.2
23.6
17.2
40.8
2,620
1,201
3,821
3,069
(480)
550
70
59.0
24.4
19.6
44.0
107.6
101.0
103.0
$
Catastrophe losses and reinstatement premiums
(6.1)
(2.6)
(1.9)
Prior year development, net of (additional) return premium on
loss sensitive business
Adjustment for ceded premiums under reinsurance contracts
related to prior accident years
Accident year loss ratio, as adjusted
Accident year combined ratio, as adjusted
(4.3)
(1.0)
(1.0)
-
58.2
97.2
-
56.6
97.4
-
56.1
100.1
(6)%
(58)
(7)
6
(8)
(11)
(9)
(14)
NM
2
NM%
8.4
(0.5)
(1.3)
(1.8)
6.6
(3.5)
(3.3)
NM
1.6
(0.2)
(6)%
NM
-
2
2
(16)
(3)
(13)
66
(7)
397 %
1.2
(0.8)
(2.4)
(3.2)
(2.0)
(0.7)
-
NM
0.5
(2.7)
International Adjusted Pre-Tax Income
(in millions)
2017 and 2016 Comparison
was primarily due to:
Irma;
Adjusted pre-tax loss in 2017 compared to adjusted pre-tax income in 2016
higher catastrophe losses primarily driven by hurricanes Maria, Harvey and
higher prior year unfavorable loss reserve development impacted by
unfavorable loss emergence in Europe Casualty and Property; and
higher current accident year loss ratio, as adjusted, in Europe Casualty,
partially offset by improvements in our Europe and Japan Personal
Insurance businesses.
These were partially offset by lower general operating expenses driven by
lower employee-related expenses and other expense reduction initiatives.
2016 and 2015 Comparison
Adjusted pre-tax income increased due to lower general operating expenses
primarily due to lower employee-related expenses and other expense
reduction initiatives, as well as lower acquisition costs reflecting strategic
actions to refocus direct marketing activities.
This increase was partially offset by higher catastrophe losses and higher
current accident year loss ratio, as adjusted, in Europe Casualty and Property.
(a)Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have
ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.
Business and Financial Highlights
The adjusted pre-tax loss in 2017 resulted primarily from higher unfavorable prior year loss reserve development and higher
catastrophe losses mainly driven by hurricanes Maria, Harvey and Irma. These were partially offset by lower general operating
expenses driven by lower employee-related expenses and other expense reduction initiatives. Net premiums written decreased
primarily due to the sale of our interest in Ascot Underwriting Holdings Limited and Ascot Employees Corporate Member Limited
(Ascot) and certain of our insurance operations to Fairfax, and lower production in Japan.
78
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
79
1011252ai_financials.indd 78
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
INTERNATIONAL RESULTS
Years Ended December 31,
(in millions)
Underwriting results:
Net premiums written
Decrease in unearned premiums
Net premiums earned
Losses and loss adjustment expenses incurred(a)
Acquisition expenses:
Amortization of deferred policy acquisition costs
Other acquisition expenses
Total acquisition expenses
General operating expenses
Underwriting loss
Net investment income
Adjusted pre-tax income (loss)
Loss ratio(a)
Acquisition ratio
Expense ratio
Combined ratio(a)
General operating expense ratio
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Change
$ 14,465 $ 15,367 $ 16,333
(6)%
106
14,571
9,996
255
15,622
9,411
(697)
15,636
9,226
2,460
903
3,363
2,316
(1,104)
523
68.6
23.1
15.9
39.0
2,677
1,014
3,691
2,685
(165)
513
60.2
23.6
17.2
40.8
2,620
1,201
3,821
3,069
(480)
550
70
59.0
24.4
19.6
44.0
107.6
101.0
103.0
$
(581) $
348 $
NM%
(58)
(7)
6
(8)
(11)
(9)
(14)
NM
2
8.4
(0.5)
(1.3)
(1.8)
6.6
(3.5)
(3.3)
NM
1.6
(0.2)
(6)%
NM
-
2
2
(16)
(3)
(13)
66
(7)
397 %
1.2
(0.8)
(2.4)
(3.2)
(2.0)
(0.7)
-
NM
0.5
(2.7)
Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums
(6.1)
(2.6)
(1.9)
Prior year development, net of (additional) return premium on
loss sensitive business
Adjustment for ceded premiums under reinsurance contracts
related to prior accident years
Accident year loss ratio, as adjusted
Accident year combined ratio, as adjusted
(4.3)
(1.0)
(1.0)
-
58.2
97.2
-
56.6
97.4
-
56.1
100.1
(a)Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have
ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.
Business and Financial Highlights
The adjusted pre-tax loss in 2017 resulted primarily from higher unfavorable prior year loss reserve development and higher
catastrophe losses mainly driven by hurricanes Maria, Harvey and Irma. These were partially offset by lower general operating
expenses driven by lower employee-related expenses and other expense reduction initiatives. Net premiums written decreased
primarily due to the sale of our interest in Ascot Underwriting Holdings Limited and Ascot Employees Corporate Member Limited
(Ascot) and certain of our insurance operations to Fairfax, and lower production in Japan.
International Adjusted Pre-Tax Income (Loss)
(in millions)
$929
$348
$(581)
2017
2016
International Adjusted Pre-Tax Income
(in millions)
$348
$278
2016
$70
2015
2017 and 2016 Comparison
Adjusted pre-tax loss in 2017 compared to adjusted pre-tax income in 2016
was primarily due to:
higher catastrophe losses primarily driven by hurricanes Maria, Harvey and
Irma;
higher prior year unfavorable loss reserve development impacted by
unfavorable loss emergence in Europe Casualty and Property; and
higher current accident year loss ratio, as adjusted, in Europe Casualty,
partially offset by improvements in our Europe and Japan Personal
Insurance businesses.
These were partially offset by lower general operating expenses driven by
lower employee-related expenses and other expense reduction initiatives.
2016 and 2015 Comparison
Adjusted pre-tax income increased due to lower general operating expenses
primarily due to lower employee-related expenses and other expense
reduction initiatives, as well as lower acquisition costs reflecting strategic
actions to refocus direct marketing activities.
This increase was partially offset by higher catastrophe losses and higher
current accident year loss ratio, as adjusted, in Europe Casualty and Property.
78
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
79
1011252ai_financials.indd 79
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
International Net Premiums Written
(in millions)
International Combined Ratios
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
$902
$14,465
$15,367
2017 and 2016 Comparison
Net premiums written decreased, excluding the impact of foreign exchange,
primarily due to:
the sale of our interest in the Ascot business and certain of our insurance
operations to Fairfax; and
lower production in our Japan business reflecting our focus on profitability
combined with a competitive market environment.
2017
2016
International Net Premiums Written
(in millions)
$966
Net premiums written decreased, excluding the impact of foreign exchange,
primarily due to:
International Combined Ratios
2016 and 2015 Comparison
lower production mainly in Casualty due to continued underwriting actions to
strengthen our portfolio and to maintain pricing discipline; and
lower production in personal property primarily due to the impact of a
duration restriction on long-term fire insurance put in place in the fourth
quarter of 2015 in Japan.
$15,367
$16,333
2016
2015
The increase in the combined ratio reflected a higher loss ratio partially offset by a
2017 and 2016 Comparison
decrease in the expense ratio.
The higher loss ratio reflected:
higher catastrophe losses primarily driven by hurricanes Maria, Harvey and Irma;
higher prior year unfavorable loss reserve development impacted by unfavorable
loss emergence in Europe Casualty and Property; and
higher current accident year loss ratio, as adjusted, in Europe Casualty driven by
an increase in loss estimates as a result of 2017 year-end detailed reserve
valuation reviews slightly offset by lower severe losses and improved current
accident year performance in Europe and Japan Personal Insurance.
The decrease in the expense ratio was primarily due to:
a lower general operating expense ratio driven by lower employee-related
expenses and other expense reduction initiatives, and
a lower acquisition ratio driven by the sale of our interest in the Ascot business.
2016 and 2015 Comparison
by an increase in the loss ratio.
The decrease in the combined ratio reflected a lower expense ratio partially offset
The lower expense ratio reflected a decrease in the general operating expense
ratio due to lower employee-related expenses and other expense reduction
initiatives.
The increase in the loss ratio was primarily due to:
a higher current accident year loss ratio, as adjusted, in Europe Casualty and
Property driven by an increase in loss estimates as a result of 2016 year-end
detailed reserve valuation reviews partially offset by severe losses; and
higher catastrophe losses.
80
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
81
1011252ai_financials.indd 80
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | General Insurance
ITEM 7 | Business Segment Operations | General Insurance
International Combined Ratios
Calendar
Year
Accident
Year
(as adjusted)
2017 and 2016 Comparison
The increase in the combined ratio reflected a higher loss ratio partially offset by a
decrease in the expense ratio.
GOE Ratio
Acquisition
Ratio
107.6
15.9
23.1
Loss Ratio
68.6
CAT Loss
PYD*
Severe
6.1
4.3
1.9
101.0
17.2
23.6
60.2
2.6
1.0
2.1
The higher loss ratio reflected:
97.2
15.9
97.4
17.2
23.1
23.6
58.2
56.6
higher catastrophe losses primarily driven by hurricanes Maria, Harvey and Irma;
higher prior year unfavorable loss reserve development impacted by unfavorable
loss emergence in Europe Casualty and Property; and
higher current accident year loss ratio, as adjusted, in Europe Casualty driven by
an increase in loss estimates as a result of 2017 year-end detailed reserve
valuation reviews slightly offset by lower severe losses and improved current
accident year performance in Europe and Japan Personal Insurance.
The decrease in the expense ratio was primarily due to:
1.9
2.1
a lower general operating expense ratio driven by lower employee-related
expenses and other expense reduction initiatives, and
2017
2016
2017
2016
a lower acquisition ratio driven by the sale of our interest in the Ascot business.
Net premiums written decreased, excluding the impact of foreign exchange,
International Combined Ratios
International Net Premiums Written
(in millions)
2017 and 2016 Comparison
primarily due to:
Net premiums written decreased, excluding the impact of foreign exchange,
the sale of our interest in the Ascot business and certain of our insurance
operations to Fairfax; and
lower production in our Japan business reflecting our focus on profitability
combined with a competitive market environment.
International Net Premiums Written
(in millions)
2016 and 2015 Comparison
primarily due to:
Calendar
Year
Accident
Year
(as adjusted)
lower production mainly in Casualty due to continued underwriting actions to
strengthen our portfolio and to maintain pricing discipline; and
lower production in personal property primarily due to the impact of a
duration restriction on long-term fire insurance put in place in the fourth
quarter of 2015 in Japan.
GOE Ratio
Acquisition
Ratio
2016 and 2015 Comparison
The decrease in the combined ratio reflected a lower expense ratio partially offset
by an increase in the loss ratio.
The lower expense ratio reflected a decrease in the general operating expense
ratio due to lower employee-related expenses and other expense reduction
initiatives.
The increase in the loss ratio was primarily due to:
a higher current accident year loss ratio, as adjusted, in Europe Casualty and
Property driven by an increase in loss estimates as a result of 2016 year-end
detailed reserve valuation reviews partially offset by severe losses; and
higher catastrophe losses.
101.0
103.0
17.2
19.6
23.6
24.4
59.0
1.9
1.0
3.0
97.4
17.2
100.1
19.6
23.6
24.4
56.6
56.1
2.1
3.0
Loss Ratio
60.2
CAT Loss
PYD*
Severe
2.6
1.0
2.1
2016
2015
2016
2015
80
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
81
1011252ai_financials.indd 81
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
Life and Retirement
PRODUCTS AND DISTRIBUTION
Individual
Retirement
Variable Annuities: Products include variable annuities that offer a combination of growth potential, death benefit
features and income protection features. Variable annuities are distributed primarily through banks, wirehouses,
and regional and independent broker-dealers.
Index Annuities: Products include fixed index annuities that provide growth potential based in part on the
performance of a market index. Certain fixed index annuity products offer optional income protection features.
Fixed index annuities are distributed primarily through banks, broker dealers, independent marketing
organizations and independent insurance agents.
Fixed Annuities: Products include single premium fixed annuities, immediate annuities and deferred income
annuities. The Fixed Annuities product line maintains its industry-leading position in the U.S. bank distribution
channel by designing products collaboratively with banks and offering an efficient and flexible administration
platform.
Retail Mutual Funds: Includes our mutual fund sales and related administration and servicing operations. Retail
Mutual Funds are distributed primarily through broker-dealers.
BUSINESS STRATEGY
Deliver client-centric solutions through our unique franchise by bringing together a broad portfolio of life insurance, retirement
and institutional products offered through an extensive, multichannel distribution network. Life and Retirement focuses on ease of
doing business, offering valuable solutions, and expanding and deepening its distribution relationships across multiple channels.
Position market leading businesses to serve growing needs by continually enhancing product solutions, service delivery and
digital capabilities while using data and analytics in an innovative manner to improve customer experience.
Individual Retirement will continue to capitalize on the
Group Retirement continues to enhance its technology
opportunity to meet consumer demand for guaranteed income
platform to improve the customer experience for plan
by maintaining innovative variable and index annuity products,
sponsors and individual participants. VALICs self-service
while also managing risk from guarantee features through
tools paired with its career financial advisors provide a
risk-mitigating product design and well-developed economic
compelling service platform. Group Retirements strategy also
hedging capabilities.
Our fixed annuity products provide diversity in our annuity
product suite by offering stable returns for retirement savings.
involves providing financial planning services for its clients
and meeting their demand for income in retirement.
Group Retirement: Products and services include group mutual funds, group fixed annuities, group variable
annuities, individual annuity and investment products, and financial planning and advisory services.
channels, consolidating systems to state-of-the-art platforms,
and employing innovative underwriting enhancements.
requirements.
Group
Retirement
Products and services are marketed by the Variable Annuity Life Insurance Company (VALIC) under the VALIC
brand and include investment offerings and plan administrative and compliance services. VALIC career financial
advisors and independent financial advisors provide retirement plan participants with enrollment support and
comprehensive financial planning services.
Life
Insurance
Life Insurance: In the U.S., products primarily include term life and universal life insurance. International
operations include the distribution of life and health products in the UK and Ireland. Life products in the U.S. are
primarily distributed through independent marketing organizations, independent insurance agents, financial
advisors and direct marketing.
Institutional
Markets
Institutional Markets: Products primarily include stable value wrap products, structured settlement and pension
risk transfer annuities, corporate- and bank-owned life insurance and guaranteed investment contracts (GICs).
Institutional Markets products are primarily distributed through specialized marketing and consulting firms and
structured settlement brokers.
Enhance Operational Effectiveness by simplifying processes and operating environments to increase competitiveness, improve
service and product capabilities and facilitate delivery of our target customer experience. We continue to invest in technology to
improve operating efficiency and ease of doing business for our distribution partners and customers. In the U.S. Life business, we are
focused on leveraging our most efficient systems and increasing automation of our underwriting process. We believe that simplifying
our operating models will enhance productivity and support further profitable growth.
Manage our Balance Sheet through a rigorous approach to our products and portfolio. We match our product design and high quality
investments with our asset and liability exposures to maximize our ability to meet cash and liquidity needs under various operating
scenarios.
Deliver Value Creation and Manage Capital by striving to deliver solid earnings through disciplined pricing, sustainable underwriting
improvements, expense reductions, and diversification of risk, while optimizing capital allocation and efficiency within insurance
entities to enhance return on equity.
Life Insurance continues to invest to position itself for
Institutional Markets continues to grow its assets under
growth, while executing on strategies to enhance returns.
management across multiple product lines, including stable
Life Insurance is focused on rationalizing its product
portfolio, aligning distribution with its most productive
value wrap, GICs and pensions risk transfer business. Our
growth strategy is opportunistic and allows us to pursue
select transactions that meet our risk-adjusted return
82
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
83
1011252ai_financials.indd 82
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
Life and Retirement
PRODUCTS AND DISTRIBUTION
Variable Annuities: Products include variable annuities that offer a combination of growth potential, death benefit
features and income protection features. Variable annuities are distributed primarily through banks, wirehouses,
and regional and independent broker-dealers.
Index Annuities: Products include fixed index annuities that provide growth potential based in part on the
performance of a market index. Certain fixed index annuity products offer optional income protection features.
Fixed index annuities are distributed primarily through banks, broker dealers, independent marketing
organizations and independent insurance agents.
Fixed Annuities: Products include single premium fixed annuities, immediate annuities and deferred income
annuities. The Fixed Annuities product line maintains its industry-leading position in the U.S. bank distribution
channel by designing products collaboratively with banks and offering an efficient and flexible administration
platform.
Retail Mutual Funds: Includes our mutual fund sales and related administration and servicing operations. Retail
Mutual Funds are distributed primarily through broker-dealers.
Group Retirement: Products and services include group mutual funds, group fixed annuities, group variable
annuities, individual annuity and investment products, and financial planning and advisory services.
Products and services are marketed by the Variable Annuity Life Insurance Company (VALIC) under the VALIC
brand and include investment offerings and plan administrative and compliance services. VALIC career financial
advisors and independent financial advisors provide retirement plan participants with enrollment support and
comprehensive financial planning services.
Life Insurance: In the U.S., products primarily include term life and universal life insurance. International
operations include the distribution of life and health products in the UK and Ireland. Life products in the U.S. are
primarily distributed through independent marketing organizations, independent insurance agents, financial
advisors and direct marketing.
Institutional Markets: Products primarily include stable value wrap products, structured settlement and pension
risk transfer annuities, corporate- and bank-owned life insurance and guaranteed investment contracts (GICs).
Institutional Markets products are primarily distributed through specialized marketing and consulting firms and
structured settlement brokers.
BUSINESS STRATEGY
Deliver client-centric solutions through our unique franchise by bringing together a broad portfolio of life insurance, retirement
and institutional products offered through an extensive, multichannel distribution network. Life and Retirement focuses on ease of
doing business, offering valuable solutions, and expanding and deepening its distribution relationships across multiple channels.
Position market leading businesses to serve growing needs by continually enhancing product solutions, service delivery and
digital capabilities while using data and analytics in an innovative manner to improve customer experience.
Individual Retirement will continue to capitalize on the
opportunity to meet consumer demand for guaranteed income
by maintaining innovative variable and index annuity products,
while also managing risk from guarantee features through
risk-mitigating product design and well-developed economic
hedging capabilities.
Our fixed annuity products provide diversity in our annuity
product suite by offering stable returns for retirement savings.
Group Retirement continues to enhance its technology
platform to improve the customer experience for plan
sponsors and individual participants. VALICs self-service
tools paired with its career financial advisors provide a
compelling service platform. Group Retirements strategy also
involves providing financial planning services for its clients
and meeting their demand for income in retirement.
Life Insurance continues to invest to position itself for
growth, while executing on strategies to enhance returns.
Life Insurance is focused on rationalizing its product
portfolio, aligning distribution with its most productive
channels, consolidating systems to state-of-the-art platforms,
and employing innovative underwriting enhancements.
Institutional Markets continues to grow its assets under
management across multiple product lines, including stable
value wrap, GICs and pensions risk transfer business. Our
growth strategy is opportunistic and allows us to pursue
select transactions that meet our risk-adjusted return
requirements.
Enhance Operational Effectiveness by simplifying processes and operating environments to increase competitiveness, improve
service and product capabilities and facilitate delivery of our target customer experience. We continue to invest in technology to
improve operating efficiency and ease of doing business for our distribution partners and customers. In the U.S. Life business, we are
focused on leveraging our most efficient systems and increasing automation of our underwriting process. We believe that simplifying
our operating models will enhance productivity and support further profitable growth.
Manage our Balance Sheet through a rigorous approach to our products and portfolio. We match our product design and high quality
investments with our asset and liability exposures to maximize our ability to meet cash and liquidity needs under various operating
scenarios.
Deliver Value Creation and Manage Capital by striving to deliver solid earnings through disciplined pricing, sustainable underwriting
improvements, expense reductions, and diversification of risk, while optimizing capital allocation and efficiency within insurance
entities to enhance return on equity.
82
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
83
1011252ai_financials.indd 83
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
COMPETITION AND CHALLENGES
Life and Retirement operates in the highly competitive insurance and financial services industry in the U.S. and select international
markets, competing against various financial services companies, including mutual funds, banks and other life insurance companies.
Competition is primarily based on product pricing and design, distribution, financial strength, customer service and ease of doing
business.
Our business remains competitive due to its long-standing market leading positions, innovative products, distribution relationships
across multiple channels, customer-focused service and strong financial ratings.
Our primary challenges include:
a sustained low interest rate environment, which makes it difficult to profitably price new products and puts margin pressure on
existing business due to lower reinvestment yields;
increased competition in our primary markets, including aggressive pricing of annuities by private equity-backed annuity writers,
increased competition and consolidation of employer groups in the group retirement planning market, and peers with lower
profitability targets in the pension funding space;
increasingly complex new and proposed regulatory requirements, which have created uncertainty that is affecting industry growth;
and
investments to upgrade our technology and underwriting processes challenge our management of general operating expenses.
OUTLOOKINDUSTRY AND ECONOMIC FACTORS
Below is a discussion of the industry and economic factors impacting our specific operating segments:
Individual Retirement
Increasing life expectancy and reduced expectations for traditional retirement income from defined benefit programs and fixed income
securities are leading Americans to seek additional financial security as they approach retirement. The strong demand for individual
variable and fixed index annuities with guaranteed income features has attracted increased competition in this product space. In
response to the continued low interest rate environment, which has added pressure to profit margins, we have developed guaranteed
income benefits for both variable and fixed index annuities with margins that are less sensitive to the level of interest rates.
Changes in the interest rate environment can have a significant impact on sales, surrender rates, investment returns, guaranteed
income features, and spreads in the annuity industry.
Individual Retirement provides products and services that are subject to the requirements of the DOL Fiduciary Rule.
Group Retirement
Group Retirement competes in the defined contribution market under the VALIC brand. VALIC is a leading retirement plan provider in
the U.S. for K-12 schools and school districts, higher education, healthcare, government and other not-for-profit institutions. The
defined contribution market is a highly efficient and competitive market that requires support for both plan sponsors and individual
participants. To meet this challenge, VALIC is investing in a client-focused technology platform to support improved compliance and
self-service functionality. VALICs service model pairs self-service tools with its career financial advisors who provide individual plan
participants with enrollment support and comprehensive financial planning services.
Changes in the interest rate environment can have a significant impact on investment returns, guaranteed income features, and
spreads, and a moderate impact on sales and surrender rates.
Group Retirement provides products and services that are subject to the requirements of the DOL Fiduciary Rule.
Life Insurance
Consumers have a significant need for life insurance, whether it is used for income replacement for their surviving family, estate
planning or wealth transfer. Additionally, consumers use life insurance to provide living benefits in case of chronic, critical or terminal
illnesses, as well as to supplement retirement income.
In response to consumer needs and a sustained low interest rate environment, our Life Insurance product portfolio has been evolving.
We will continue to place a strong focus on indexed universal life products and de-emphasize products with long-duration interest rate
guarantees.
As life insurance ownership remains at historical lows in the United States, efforts to expand the reach and increase the affordability
of life insurance are critical. The industry is investing in consumer-centric efforts to reduce traditional barriers to securing life
protection by simplifying the sales and service experience. Digitally enabled processes and tools provide a fast, friendly and simple
path to life insurance protection.
Institutional Markets
Institutional Markets serves a variety of needs for corporate clients. Demand is driven by a number of factors including the
macroeconomic and regulatory environment. We expect to see continued growth in the pension risk transfer market as corporate plan
sponsors look to transfer asset or liability, longevity, administrative and operational risks associated with their defined benefit plans.
Changes in interest rate environment can have significant impact on investment returns and net investment spread, as well as reduce
the tax efficiency associated with institutional life insurance products, dampening organic growth opportunities. Tax reform may lead to
new opportunities in the stable value wrap market.
For additional discussion of the impact of market interest rate movement on our Life and Retirement business see Executive
Summary AIGs Outlook Industry and Economic Factors Impact of Changes in the Interest Rate Environment.
For additional information on the impact of the DOL Fiduciary Rule on our Individual Retirement and Group Retirement businesses
see Executive Summary AIGs Outlook Industry and Economic Factors Department of Labor Fiduciary Rule and Related
Regulatory Developments.
LIFE AND RETIREMENT RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Other income
Total adjusted revenues
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses*
Interest expense
Total operating expenses
Adjusted pre-tax income
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
4,046 $
2,288 $
77 %
(25)%
15,586
13,778
15,322
2,798
7,816
926
5,247
3,360
743
2,296
109
2,590
7,622
1,278
3,496
3,449
613
2,700
92
3,054
2,623
7,541
2,104
4,292
3,453
794
3,607
52
12,198
3,124
8
3
(28)
13
50
(3)
21
(15)
18
14
(1)
1
(39)
(10)
(19)
-
(23)
(25)
77
(15)
11,755
10,350
$
3,831 $
3,428 $
12 %
10 %
*
Includes general operating expenses, non-deferrable commissions, other acquisition expenses, advisory fee expenses and other expenses.
Our insurance companies generate significant revenues from investment activities. As a result, the operating segments in Life and
Retirement are subject to variances in net investment income on the asset portfolios that support insurance liabilities and surplus.
For additional information on our investment strategy, asset-liability management process and invested asset composition see
Investments.
Life and Retirement reviews and updates estimated gross profit assumptions used to amortize DAC and related items for investment-
oriented products, as well as other actuarial assumptions, at least annually. As a result, the adjusted pre-tax income of Life and
Retirement included adjustments to policy fees, policyholder benefits, interest credited and DAC amortization to reflect such
assumption updates, which may be significant.
84
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
85
1011252ai_financials.indd 84
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
COMPETITION AND CHALLENGES
Life and Retirement operates in the highly competitive insurance and financial services industry in the U.S. and select international
markets, competing against various financial services companies, including mutual funds, banks and other life insurance companies.
Competition is primarily based on product pricing and design, distribution, financial strength, customer service and ease of doing
business.
and
Our business remains competitive due to its long-standing market leading positions, innovative products, distribution relationships
across multiple channels, customer-focused service and strong financial ratings.
Our primary challenges include:
a sustained low interest rate environment, which makes it difficult to profitably price new products and puts margin pressure on
existing business due to lower reinvestment yields;
increased competition in our primary markets, including aggressive pricing of annuities by private equity-backed annuity writers,
increased competition and consolidation of employer groups in the group retirement planning market, and peers with lower
profitability targets in the pension funding space;
increasingly complex new and proposed regulatory requirements, which have created uncertainty that is affecting industry growth;
investments to upgrade our technology and underwriting processes challenge our management of general operating expenses.
OUTLOOKINDUSTRY AND ECONOMIC FACTORS
Below is a discussion of the industry and economic factors impacting our specific operating segments:
Individual Retirement
Increasing life expectancy and reduced expectations for traditional retirement income from defined benefit programs and fixed income
securities are leading Americans to seek additional financial security as they approach retirement. The strong demand for individual
variable and fixed index annuities with guaranteed income features has attracted increased competition in this product space. In
response to the continued low interest rate environment, which has added pressure to profit margins, we have developed guaranteed
income benefits for both variable and fixed index annuities with margins that are less sensitive to the level of interest rates.
Changes in the interest rate environment can have a significant impact on sales, surrender rates, investment returns, guaranteed
income features, and spreads in the annuity industry.
Individual Retirement provides products and services that are subject to the requirements of the DOL Fiduciary Rule.
Group Retirement
Group Retirement competes in the defined contribution market under the VALIC brand. VALIC is a leading retirement plan provider in
the U.S. for K-12 schools and school districts, higher education, healthcare, government and other not-for-profit institutions. The
defined contribution market is a highly efficient and competitive market that requires support for both plan sponsors and individual
participants. To meet this challenge, VALIC is investing in a client-focused technology platform to support improved compliance and
self-service functionality. VALICs service model pairs self-service tools with its career financial advisors who provide individual plan
participants with enrollment support and comprehensive financial planning services.
Changes in the interest rate environment can have a significant impact on investment returns, guaranteed income features, and
spreads, and a moderate impact on sales and surrender rates.
Group Retirement provides products and services that are subject to the requirements of the DOL Fiduciary Rule.
Life Insurance
Consumers have a significant need for life insurance, whether it is used for income replacement for their surviving family, estate
planning or wealth transfer. Additionally, consumers use life insurance to provide living benefits in case of chronic, critical or terminal
illnesses, as well as to supplement retirement income.
In response to consumer needs and a sustained low interest rate environment, our Life Insurance product portfolio has been evolving.
We will continue to place a strong focus on indexed universal life products and de-emphasize products with long-duration interest rate
guarantees.
As life insurance ownership remains at historical lows in the United States, efforts to expand the reach and increase the affordability
of life insurance are critical. The industry is investing in consumer-centric efforts to reduce traditional barriers to securing life
protection by simplifying the sales and service experience. Digitally enabled processes and tools provide a fast, friendly and simple
path to life insurance protection.
Institutional Markets
Institutional Markets serves a variety of needs for corporate clients. Demand is driven by a number of factors including the
macroeconomic and regulatory environment. We expect to see continued growth in the pension risk transfer market as corporate plan
sponsors look to transfer asset or liability, longevity, administrative and operational risks associated with their defined benefit plans.
Changes in interest rate environment can have significant impact on investment returns and net investment spread, as well as reduce
the tax efficiency associated with institutional life insurance products, dampening organic growth opportunities. Tax reform may lead to
new opportunities in the stable value wrap market.
For additional discussion of the impact of market interest rate movement on our Life and Retirement business see Executive
Summary AIGs Outlook Industry and Economic Factors Impact of Changes in the Interest Rate Environment.
For additional information on the impact of the DOL Fiduciary Rule on our Individual Retirement and Group Retirement businesses
see Executive Summary AIGs Outlook Industry and Economic Factors Department of Labor Fiduciary Rule and Related
Regulatory Developments.
LIFE AND RETIREMENT RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Other income
Total adjusted revenues
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses*
Interest expense
Total operating expenses
Adjusted pre-tax income
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
4,046 $
2,798
7,816
926
15,586
2,288 $
2,590
7,622
1,278
13,778
5,247
3,360
743
2,296
109
11,755
3,496
3,449
613
2,700
92
10,350
$
3,831 $
3,428 $
3,054
2,623
7,541
2,104
15,322
4,292
3,453
794
3,607
52
12,198
3,124
77 %
8
3
(28)
13
50
(3)
21
(15)
18
14
12 %
(25)%
(1)
1
(39)
(10)
(19)
-
(23)
(25)
77
(15)
10 %
*
Includes general operating expenses, non-deferrable commissions, other acquisition expenses, advisory fee expenses and other expenses.
Our insurance companies generate significant revenues from investment activities. As a result, the operating segments in Life and
Retirement are subject to variances in net investment income on the asset portfolios that support insurance liabilities and surplus.
For additional information on our investment strategy, asset-liability management process and invested asset composition see
Investments.
Life and Retirement reviews and updates estimated gross profit assumptions used to amortize DAC and related items for investment-
oriented products, as well as other actuarial assumptions, at least annually. As a result, the adjusted pre-tax income of Life and
Retirement included adjustments to policy fees, policyholder benefits, interest credited and DAC amortization to reflect such
assumption updates, which may be significant.
84
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
85
1011252ai_financials.indd 85
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 For the amount of adjustments recorded to reflect such assumption updates by product line and financial statement line item and for
related discussion of the assumption changes that resulted in these adjustments see Insurance Reserves Life and Annuity
Reserves and DAC Update of Actuarial Assumptions.
Individual Retirement Adjusted Pre-Tax Income
(in millions)
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
INDIVIDUAL RETIREMENT RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Advisory fee and other income
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Non deferrable insurance commissions
Advisory fee expenses
General operating expenses
Interest expense
Adjusted pre-tax income
$
Fixed Annuities base net investment spread:
$
91 $
767
4,013
643
161
1,616
415
308
241
426
58
2,289 $
163 $
709
3,878
1,008
173
1,684
298
226
570
488
50
2,269 $
137
670
3,805
1,838
328
1,702
431
212
1,277
661
27
1,812
Base yield
Cost of funds
Fixed Annuities base net investment spread
4.80 %
2.65
2.15 %
4.90 %
2.74
2.16 %
4.96 %
2.78
2.18 %
(44)%
8
3
(36)
(7)
(4)
39
36
(58)
(13)
16
1 %
(10)bps
(9)
(1)bps
19 %
6
2
(45)
(47)
(1)
(31)
7
(55)
(26)
85
25 %
(6)bps
(4)
(2)bps
Business and Financial Highlights
The market environment reflected continued uncertainty about the DOL Fiduciary Rule and interest rates, which remained low relative
to historical levels. As a result, deposits were lower in 2017 compared to 2016 and 2015. In 2017, net investment income included
higher gains on securities for which the fair value option was elected and higher returns from alternative investments, partially offset
by a reduction in the overall size of the hedge fund portfolio. In 2016 and 2015, net investment income included the impact of volatility
from alternative investments, commercial mortgage loan prepayments and fair value option assets. Adjusted pre-tax income also
included adjustments in each year to update actuarial assumptions, which were net positive adjustments for all years presented. The
sale of AIG Advisor Group in May 2016 resulted in decreases in advisory fee income, advisory fee expenses and general operating
expenses in 2017 compared to 2016 and 2015, but did not result in a significant decrease in adjusted pre-tax income.
Fixed Annuities base net investment spread decreased slightly in 2017 compared to 2016 and 2015, primarily due to lower
reinvestment yields partially mitigated by disciplined pricing and active crediting rate management.
Individual Retirement Adjusted Pre-Tax Income
(in millions)
86
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
87
1011252ai_financials.indd 86
3/9/18 6:10 PM
2016;
2017 and 2016 Comparison
Adjusted pre-tax income increased primarily due to:
net investment income, which included higher gains on securities for which the
fair value option was elected and higher returns on alternative investments,
partially offset by a reduction in the overall size of the hedge fund portfolio;
higher base net investment spread primarily in Variable and Index Annuities
driven by growth in invested assets, and disciplined pricing and active
crediting rate management; and
higher policy fees due to growth in annuity account values driven by improved
equity market performance.
Partially offsetting these increases were:
lower net positive adjustment from the review and update of actuarial
assumptions which was $242 million in 2017 compared to $369 million in
increases in reserves primarily due to additional reserves for guaranteed
benefits in 2017 compared to a reduction in 2016;
excluding the impact of actuarial assumption updates, higher DAC
amortization due to system conversions and model refinements, partially offset
by a decrease driven by improved equity market performance;
higher commission expense primarily due to growth in account values driven
by improved equity market performance and the allocation of reinsurance risk
charges, as all U.S. Life and Retirement segments benefited from the
reduction in the required statutory capital resulting from a reinsurance
agreement entered into in 2016 involving certain whole life, term life and
universal life businesses (Life Insurance Reinsurance Transactions); and
the sale of AIG Advisor Group in May 2016, which drove the decreases in
advisory fee income, advisory expenses and general operating expenses, and
resulted in a net $13 million decrease in adjusted pre-tax income.
2016 and 2015 Comparison
Adjusted pre-tax income increased primarily due to:
a higher net positive adjustment from the review and update of actuarial
assumptions, which was $369 million in 2016 compared to $92 million in 2015;
higher net investment income reflecting higher commercial mortgage loan
prepayments, growth in average invested assets and higher gains on
securities for which the fair value option was elected, partially offset by lower
income on alternative investments;
better equity market performance contributed to decreases in policyholder
benefit expense and DAC amortization. Excluding the impact of actuarial
assumption updates and equity market performance, DAC amortization
increased primarily due to higher rate of amortization in Fixed Annuities and
growth in Index Annuities;
higher policy fees due to growth in annuity account values from positive net
lower general operating expenses due to decreases in employee-related
flows; and
expenses
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
For the amount of adjustments recorded to reflect such assumption updates by product line and financial statement line item and for
related discussion of the assumption changes that resulted in these adjustments see Insurance Reserves Life and Annuity
Individual Retirement Adjusted Pre-Tax Income
(in millions)
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
Reserves and DAC Update of Actuarial Assumptions.
INDIVIDUAL RETIREMENT RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Advisory fee and other income
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Non deferrable insurance commissions
Advisory fee expenses
General operating expenses
Interest expense
Adjusted pre-tax income
Base yield
Cost of funds
Fixed Annuities base net investment spread:
Fixed Annuities base net investment spread
Business and Financial Highlights
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
91 $
163 $
(44)%
19 %
767
4,013
643
161
1,616
415
308
241
426
58
709
3,878
1,008
173
1,684
298
226
570
488
50
137
670
3,805
1,838
328
1,702
431
212
1,277
661
27
8
3
(36)
(7)
(4)
39
36
(58)
(13)
16
6
2
(45)
(47)
(1)
(31)
7
(55)
(26)
85
$
2,289 $
2,269 $
1,812
1 %
25 %
4.80 %
4.90 %
4.96 %
2.65
2.74
2.78
2.15 %
2.16 %
2.18 %
(10)bps
(9)
(1)bps
(6)bps
(4)
(2)bps
The market environment reflected continued uncertainty about the DOL Fiduciary Rule and interest rates, which remained low relative
to historical levels. As a result, deposits were lower in 2017 compared to 2016 and 2015. In 2017, net investment income included
higher gains on securities for which the fair value option was elected and higher returns from alternative investments, partially offset
by a reduction in the overall size of the hedge fund portfolio. In 2016 and 2015, net investment income included the impact of volatility
from alternative investments, commercial mortgage loan prepayments and fair value option assets. Adjusted pre-tax income also
included adjustments in each year to update actuarial assumptions, which were net positive adjustments for all years presented. The
sale of AIG Advisor Group in May 2016 resulted in decreases in advisory fee income, advisory fee expenses and general operating
expenses in 2017 compared to 2016 and 2015, but did not result in a significant decrease in adjusted pre-tax income.
Fixed Annuities base net investment spread decreased slightly in 2017 compared to 2016 and 2015, primarily due to lower
reinvestment yields partially mitigated by disciplined pricing and active crediting rate management.
2017 and 2016 Comparison
Adjusted pre-tax income increased primarily due to:
net investment income, which included higher gains on securities for which the
fair value option was elected and higher returns on alternative investments,
partially offset by a reduction in the overall size of the hedge fund portfolio;
higher base net investment spread primarily in Variable and Index Annuities
driven by growth in invested assets, and disciplined pricing and active
crediting rate management; and
$2,269
higher policy fees due to growth in annuity account values driven by improved
$2,289
2017
2016
Individual Retirement Adjusted Pre-Tax Income
(in millions)
$457
$1,812
$2,269
2016
2015
equity market performance.
Partially offsetting these increases were:
lower net positive adjustment from the review and update of actuarial
assumptions which was $242 million in 2017 compared to $369 million in
2016;
increases in reserves primarily due to additional reserves for guaranteed
benefits in 2017 compared to a reduction in 2016;
excluding the impact of actuarial assumption updates, higher DAC
amortization due to system conversions and model refinements, partially offset
by a decrease driven by improved equity market performance;
higher commission expense primarily due to growth in account values driven
by improved equity market performance and the allocation of reinsurance risk
charges, as all U.S. Life and Retirement segments benefited from the
reduction in the required statutory capital resulting from a reinsurance
agreement entered into in 2016 involving certain whole life, term life and
universal life businesses (Life Insurance Reinsurance Transactions); and
the sale of AIG Advisor Group in May 2016, which drove the decreases in
advisory fee income, advisory expenses and general operating expenses, and
resulted in a net $13 million decrease in adjusted pre-tax income.
2016 and 2015 Comparison
Adjusted pre-tax income increased primarily due to:
a higher net positive adjustment from the review and update of actuarial
assumptions, which was $369 million in 2016 compared to $92 million in 2015;
higher net investment income reflecting higher commercial mortgage loan
prepayments, growth in average invested assets and higher gains on
securities for which the fair value option was elected, partially offset by lower
income on alternative investments;
better equity market performance contributed to decreases in policyholder
benefit expense and DAC amortization. Excluding the impact of actuarial
assumption updates and equity market performance, DAC amortization
increased primarily due to higher rate of amortization in Fixed Annuities and
growth in Index Annuities;
higher policy fees due to growth in annuity account values from positive net
flows; and
lower general operating expenses due to decreases in employee-related
expenses
86
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
87
1011252ai_financials.indd 87
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
A discussion of the significant variances in premiums and deposits and net flows for each product line follows:
Individual Retirement Premiums and Deposits (P&D) and Net Flows
(in millions)
INDIVIDUAL RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET
FLOWS
For Individual Retirement, premiums primarily represent amounts received on life-contingent payout annuities. Premiums decreased
in 2017 compared to 2016, primarily due to strong annuity sales in 2016 driven by higher equity market volatility, which made
immediate annuities more attractive to customers seeking less volatile returns. Premiums increased in 2016 compared to 2015,
primarily due to higher rates in the first half of 2016.
Premiums and deposits is a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits
received on investment-type annuity contracts and mutual funds under administration.
Net flows for annuity products in Individual Retirement represent premiums and deposits less death, surrender and other withdrawal
benefits. Net flows for mutual funds represent deposits less withdrawals.
The following table presents a reconciliation of Individual Retirement GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
The following table presents surrenders as a percentage of average reserves:
Years Ended December 31,
Surrenders as a percentage of average reserves
Fixed Annuities
Variable and Index Annuities
2017
91 $
11,819
(4)
11,906 $
2016
163 $
15,898
1
16,062 $
2015
137
18,238
1
18,376
$
$
2017
2016
2015
6.7 %
6.0
7.6 %
5.2
7.2 %
6.0
The following table presents reserves for Fixed Annuities and Variable and Index Annuities by surrender charge category:
At December 31,
2017
2016
Individual Retirement Premiums and Deposits and Net Flows
(in millions)
(in millions)
No surrender charge
Greater than 0% - 2%
Greater than 2% - 4%
Greater than 4%
Non-surrenderable
Total reserves
Fixed
Annuities
32,299
1,704
1,560
13,329
1,665
50,557
$
$
Variable
and Index
Annuities
18,896
6,045
9,470
34,677
429
69,517
$
$
Fixed
Annuities
34,674
857
2,221
12,599
1,606
51,957
$
$
Variable
and Index
Annuities
15,338
4,558
5,741
34,966
380
60,983
$
$
Individual Retirement annuities are typically subject to a four- to seven-year surrender charge period, depending on the product. For
Variable and Index Annuities, the proportion of reserves subject to surrender charges at December 31, 2017 has decreased
compared to December 31, 2016 due to normal aging of the business and slower sales, which were due in part to uncertainty around
the implementation of the DOL Fiduciary Rule. The increase in reserves with no surrender charge contributed to the increase in the
surrender rate for variable and index annuities in 2017 compared to 2016.
2017 and 2016 Comparison
Fixed Annuities premiums and deposits decreased,
primarily due to disciplined pricing in the continued low
interest rate environment and strong sales in 2016 driven by
higher equity market volatility, which made fixed annuities
more attractive to customers seeking less volatile returns.
Although premiums and deposits were lower compared to
2016, annuity sales in the second half of 2017 improved
compared to the same period in 2016. Net flows declined and
continued to be negative reflecting lower premiums and
deposits, partially offset by lower surrenders.
Variable and Index Annuities premiums and deposits and
net flows declined, reflecting a continued decrease in variable
annuity industry sales due in part to uncertainty around the
implementation of the DOL Fiduciary Rule, partially offset by
slightly higher index annuity sales. Lower premiums and
deposits combined with higher surrenders resulted in a
decrease in net flows.
Retail Mutual Funds had negative net flows compared to
positive net flows in 2016, reflecting lower deposits and
higher withdrawals due to negative industry trends in U.S.
equity actively managed funds and uncertainty surrounding
the DOL Fiduciary Rule.
2016 and 2015 Comparison
Fixed Annuities deposits increased primarily due to higher
sales in the bank and broker-dealer distribution channels as a
result of customers favoring the safety of fixed annuities in
response to equity market volatility. Net flows were negative,
but improved compared to 2015 due to higher sales.
Variable and Index Annuities net flows were significantly
lower due to a decrease in premiums and deposits, primarily
due to lower sales of variable annuities, which reflected a
strategic decision to scale back living benefits during the
period of very low interest rates, as well as an industry-wide
slowdown and uncertainty around the effect of the DOL
Fiduciary Rule.
Retail Mutual Funds net flows increased due to
improvement in the level of deposits, which was partially
offset by higher withdrawals, both driven by activity within the
Focused Dividend Strategy Portfolio fund.
88
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
89
1011252ai_financials.indd 88
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
INDIVIDUAL RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET
FLOWS
For Individual Retirement, premiums primarily represent amounts received on life-contingent payout annuities. Premiums decreased
in 2017 compared to 2016, primarily due to strong annuity sales in 2016 driven by higher equity market volatility, which made
immediate annuities more attractive to customers seeking less volatile returns. Premiums increased in 2016 compared to 2015,
primarily due to higher rates in the first half of 2016.
Premiums and deposits is a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits
received on investment-type annuity contracts and mutual funds under administration.
Net flows for annuity products in Individual Retirement represent premiums and deposits less death, surrender and other withdrawal
benefits. Net flows for mutual funds represent deposits less withdrawals.
The following table presents a reconciliation of Individual Retirement GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
The following table presents surrenders as a percentage of average reserves:
Years Ended December 31,
Surrenders as a percentage of average reserves
Fixed Annuities
Variable and Index Annuities
2017
91 $
2016
163 $
$
11,819
15,898
(4)
1
$
11,906 $
16,062 $
2015
137
18,238
1
18,376
2017
2016
2015
6.7 %
6.0
7.6 %
7.2 %
5.2
6.0
A discussion of the significant variances in premiums and deposits and net flows for each product line follows:
Individual Retirement Premiums and Deposits (P&D) and Net Flows
(in millions)
P&D
Net Flows
2017 and 2016 Comparison
$16,062
$4,886
$2,687
$4,507
$11,906
$2,975
$2,713
$3,208
$3,010
$3,982
2017
2016
$3,044
$1,860
$2,430
$926
$(2,126)
$2,324
$(2,689)
$(2,172)
$(1,164)
$(597)
2017
2016
Fixed Annuities
Variable Annuities
Index Annuities
Retail Mutual Funds
Fixed Annuities premiums and deposits decreased,
primarily due to disciplined pricing in the continued low
interest rate environment and strong sales in 2016 driven by
higher equity market volatility, which made fixed annuities
more attractive to customers seeking less volatile returns.
Although premiums and deposits were lower compared to
2016, annuity sales in the second half of 2017 improved
compared to the same period in 2016. Net flows declined and
continued to be negative reflecting lower premiums and
deposits, partially offset by lower surrenders.
Variable and Index Annuities premiums and deposits and
net flows declined, reflecting a continued decrease in variable
annuity industry sales due in part to uncertainty around the
implementation of the DOL Fiduciary Rule, partially offset by
slightly higher index annuity sales. Lower premiums and
deposits combined with higher surrenders resulted in a
decrease in net flows.
Retail Mutual Funds had negative net flows compared to
positive net flows in 2016, reflecting lower deposits and
higher withdrawals due to negative industry trends in U.S.
equity actively managed funds and uncertainty surrounding
the DOL Fiduciary Rule.
The following table presents reserves for Fixed Annuities and Variable and Index Annuities by surrender charge category:
Individual Retirement Premiums and Deposits and Net Flows
(in millions)
At December 31,
2017
2016
P&D
Net Flows
2016 and 2015 Comparison
(in millions)
No surrender charge
Greater than 0% - 2%
Greater than 2% - 4%
Greater than 4%
Non-surrenderable
Total reserves
$
32,299
$
18,896
$
34,674
$
15,338
Variable
and Index
Annuities
6,045
9,470
34,677
429
Fixed
Annuities
1,704
1,560
13,329
1,665
50,557
Variable
and Index
Annuities
4,558
5,741
34,966
380
Fixed
Annuities
857
2,221
12,599
1,606
51,957
$
$
69,517
$
$
60,983
Individual Retirement annuities are typically subject to a four- to seven-year surrender charge period, depending on the product. For
Variable and Index Annuities, the proportion of reserves subject to surrender charges at December 31, 2017 has decreased
compared to December 31, 2016 due to normal aging of the business and slower sales, which were due in part to uncertainty around
the implementation of the DOL Fiduciary Rule. The increase in reserves with no surrender charge contributed to the increase in the
surrender rate for variable and index annuities in 2017 compared to 2016.
$16,062
$18,376
$3,791
$4,886
$2,826
$2,687
$4,507
$8,012
$3,982
$3,747
$5,617
$1,026
$2,679
$4,257
$3,044
$1,860
$2,430
$926
$(2,172)
$(2,345)
2016
2015
2016
2015
Fixed Annuities
Variable Annuities
Index Annuities
Retail Mutual Funds
Fixed Annuities deposits increased primarily due to higher
sales in the bank and broker-dealer distribution channels as a
result of customers favoring the safety of fixed annuities in
response to equity market volatility. Net flows were negative,
but improved compared to 2015 due to higher sales.
Variable and Index Annuities net flows were significantly
lower due to a decrease in premiums and deposits, primarily
due to lower sales of variable annuities, which reflected a
strategic decision to scale back living benefits during the
period of very low interest rates, as well as an industry-wide
slowdown and uncertainty around the effect of the DOL
Fiduciary Rule.
Retail Mutual Funds net flows increased due to
improvement in the level of deposits, which was partially
offset by higher withdrawals, both driven by activity within the
Focused Dividend Strategy Portfolio fund.
88
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
89
1011252ai_financials.indd 89
3/13/18 3:29 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181011252ai_financials_co8_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
GROUP RETIREMENT RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Advisory fee and other income
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Non deferrable insurance commissions
Advisory fee expenses
General operating expenses
Interest expense
Adjusted pre-tax income
Base net investment spread:
Base yield
Cost of funds
Base net investment spread
Business and Financial Highlights
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
27 $
27 $
427
2,164
230
383
2,146
213
74
1,115
84
108
83
348
32
1,004 $
28
1,135
129
85
75
360
26
931 $
$
22
401
2,192
219
33
1,113
50
71
73
379
15
1,100
4.53 %
2.76
1.77 %
4.71 %
2.89
1.82 %
4.91 %
2.95
1.96 %
- %
11
1
8
164
(2)
(35)
27
11
(3)
23
8 %
(18)bps
(13)
(5)bps
23 %
(4)
(2)
(3)
(15)
2
158
20
3
(5)
73
(15)%
(20)bps
(6)
(14)bps
Group Retirement premiums remained flat and premiums and deposits decreased slightly in 2017 compared to 2016 and increased in
2016 compared to 2015. Net flows in 2017 declined and continued to be negative primarily due to higher surrenders reflecting
continued pressure from the consolidation of healthcare providers and other employers in our target markets. Net flows in 2016
showed significant improvement compared to 2015 primarily due to lower surrenders as well as record sales, resulting in part from
investment in talent, group plan administration record-keeping capabilities and digital functionality. Higher deposits from group
acquisitions in 2017 and 2016 partially mitigated the negative impact of surrenders to net flows and of lower index annuity sales in
2017.
Low base net investment yields continued to pressure investment spreads, partially mitigated by crediting rate management. In 2017,
net investment income included higher gains on securities for which the fair value option was elected and higher returns from
alternative investments, partially offset by a reduction in the overall size of the hedge fund portfolio. In 2016 and 2015, net investment
income included the impact of volatility from alternative investments, fair value option assets and commercial mortgage loan
prepayments. Adjusted pre-tax income also included adjustments in each year to update actuarial assumptions, which were net
positive adjustments in 2017 and 2015 compared to a net negative adjustment in 2016.
Group Retirement Adjusted Pre-Tax Income
(in millions)
Group Retirement Adjusted Pre-Tax Income
(in millions)
2017 and 2016 Comparison
Adjusted pre-tax income increased primarily due to:
a net positive adjustment from the review and update of actuarial
assumptions which was $13 million in 2017 compared to a $47 million net
negative adjustment in 2016;
net investment income, which included higher gains on securities for which
the fair value option was elected and higher
returns on alternative
investments, partially offset by a reduction in the overall size of the hedge
fund portfolio;
higher policy fees and advisory fees, net of expenses, due to growth in
account values driven by improved equity market performance; and
lower general operating expenses primarily due to reduced legal expenses,
partially offset by higher spending for implementation of the DOL Fiduciary
Rule.
Partially offsetting these increases were:
higher policyholder benefits primarily due to increases in reserves for
guaranteed benefits;
lower base net investment spread primarily due to lower reinvestment yields,
partially mitigated by effective crediting rate management; and
higher commission expense primarily due to the allocation of reinsurance
risk charges from Life Insurance Reinsurance Transactions.
2016 and 2015 Comparison
Adjusted pre-tax income decreased primarily due to:
a net negative adjustment from the review and update of actuarial
assumptions, which was $47 million in 2016 compared to a $48 million net
positive adjustment in 2015;
lower net investment income on alternative investments and lower base
spreads primarily due to lower investment returns, partially offset by higher
commercial mortgage loan prepayments and gains on securities for which
the fair value option was elected; and
lower policy fees primarily due to a decrease in separate account assets
driven by negative net flows.
These decreases were partially offset by lower general operating expenses due
to reductions in employee-related expenses.
90
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
91
1011252ai_financials.indd 90
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
GROUP RETIREMENT RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Advisory fee and other income
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Non deferrable insurance commissions
Advisory fee expenses
General operating expenses
Interest expense
Adjusted pre-tax income
Base net investment spread:
Base yield
Cost of funds
Base net investment spread
Business and Financial Highlights
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
27 $
27 $
427
2,164
230
74
1,115
84
108
83
348
32
383
2,146
213
28
1,135
129
85
75
360
26
22
401
2,192
219
1,113
33
50
71
73
379
15
- %
11
1
8
164
(2)
(35)
27
11
(3)
23
23 %
(4)
(2)
(3)
(15)
2
158
20
3
(5)
73
$
1,004 $
931 $
1,100
8 %
(15)%
4.53 %
4.71 %
4.91 %
2.76
2.89
2.95
1.77 %
1.82 %
1.96 %
(18)bps
(13)
(5)bps
(20)bps
(6)
(14)bps
Group Retirement premiums remained flat and premiums and deposits decreased slightly in 2017 compared to 2016 and increased in
2016 compared to 2015. Net flows in 2017 declined and continued to be negative primarily due to higher surrenders reflecting
continued pressure from the consolidation of healthcare providers and other employers in our target markets. Net flows in 2016
showed significant improvement compared to 2015 primarily due to lower surrenders as well as record sales, resulting in part from
investment in talent, group plan administration record-keeping capabilities and digital functionality. Higher deposits from group
acquisitions in 2017 and 2016 partially mitigated the negative impact of surrenders to net flows and of lower index annuity sales in
2017.
Low base net investment yields continued to pressure investment spreads, partially mitigated by crediting rate management. In 2017,
net investment income included higher gains on securities for which the fair value option was elected and higher returns from
alternative investments, partially offset by a reduction in the overall size of the hedge fund portfolio. In 2016 and 2015, net investment
income included the impact of volatility from alternative investments, fair value option assets and commercial mortgage loan
prepayments. Adjusted pre-tax income also included adjustments in each year to update actuarial assumptions, which were net
positive adjustments in 2017 and 2015 compared to a net negative adjustment in 2016.
Group Retirement Adjusted Pre-Tax Income
(in millions)
$73
$1,004
$931
2017 and 2016 Comparison
Adjusted pre-tax income increased primarily due to:
a net positive adjustment from the review and update of actuarial
assumptions which was $13 million in 2017 compared to a $47 million net
negative adjustment in 2016;
net investment income, which included higher gains on securities for which
the fair value option was elected and higher
returns on alternative
investments, partially offset by a reduction in the overall size of the hedge
fund portfolio;
higher policy fees and advisory fees, net of expenses, due to growth in
account values driven by improved equity market performance; and
lower general operating expenses primarily due to reduced legal expenses,
partially offset by higher spending for implementation of the DOL Fiduciary
Rule.
2017
2016
Partially offsetting these increases were:
higher policyholder benefits primarily due to increases in reserves for
guaranteed benefits;
lower base net investment spread primarily due to lower reinvestment yields,
partially mitigated by effective crediting rate management; and
higher commission expense primarily due to the allocation of reinsurance
risk charges from Life Insurance Reinsurance Transactions.
Group Retirement Adjusted Pre-Tax Income
(in millions)
$169
$931
$1,100
2016
2015
2016 and 2015 Comparison
Adjusted pre-tax income decreased primarily due to:
a net negative adjustment from the review and update of actuarial
assumptions, which was $47 million in 2016 compared to a $48 million net
positive adjustment in 2015;
lower net investment income on alternative investments and lower base
spreads primarily due to lower investment returns, partially offset by higher
commercial mortgage loan prepayments and gains on securities for which
the fair value option was elected; and
lower policy fees primarily due to a decrease in separate account assets
driven by negative net flows.
These decreases were partially offset by lower general operating expenses due
to reductions in employee-related expenses.
90
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
91
1011252ai_financials.indd 91
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
GROUP RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET
FLOWS
For Group Retirement, premiums primarily represent amounts received on life-contingent payout annuities. Premiums in 2017 were
comparable to 2016. Premiums increased in 2016 compared to 2015, as customers continued to invest in immediate annuities due to
equity market volatility.
Premiums and deposits is a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits
received on investment-type annuity contracts and mutual funds under administration.
Net flows for annuity products included in Group Retirement represent premiums and deposits less death, surrender and other
withdrawal benefits. Net flows for mutual funds represent deposits less withdrawals.
The following table presents a reconciliation of Group Retirement GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
2017
27 $
7,523
-
2016
27 $
7,543
-
7,550 $
7,570 $
$
$
2015
22
6,899
(1)
6,920
A discussion of the significant variances in premiums and deposits and net flows follows:
Group Retirement Premiums and Deposits and Net Flows
(in millions)
2017 and 2016 Comparison
Net flows declined and continued to be negative primarily due to
surrenders, including group plan surrenders of approximately
$460 million. In addition, premiums and deposits decreased
slightly primarily due to lower index annuity sales, partially offset
by significantly higher deposits from group plan acquisitions.
The following table presents Group Retirement surrenders as a percentage of average reserves and mutual funds under
administration:
Years Ended December 31,
Surrenders as a percentage of average reserves and mutual funds
2017
8.6 %
2016
8.8 %
2015
10.0 %
Group Retirement Premiums and Deposits and Net Flows
(in millions)
The following table presents reserves for Group Retirement annuities by surrender charge category:
At December 31,
(in millions)
No surrender charge(b)
Greater than 0% - 2%
Greater than 2% - 4%
Greater than 4%
Non-surrenderable
Total reserves
2017 (a)
2016 (a)
69,006
1,087
1,344
5,270
439
77,146
$
$
64,160
906
1,395
5,434
417
72,312
$
$
(a) Excludes mutual fund assets under administration of $20.2 billion and $16.3 billion at December 31, 2017 and 2016, respectively.
(b) Group Retirement amounts in this category include reserves of approximately $6.3 billion, at both December 31, 2017 and 2016, which are subject to 20 percent annual
withdrawal limitations.
Group Retirement annuities are typically subject to a five- to seven-year surrender charge period, depending on the product. The
increase in the amount and proportion of Group Retirement annuity reserves that have no surrender charge at December 31, 2017
compared to December 31, 2016 was primarily due to normal aging of this book of business, withdrawal limitations on certain plan
assets and lower than expected surrenders of older contracts with higher minimum interest rates on fixed account balances that have
continued to be attractive to the contract holders in the low interest rate environment.
2016 and 2015 Comparison
Net flows improved significantly due to both record deposits and
improved surrender activity, which included group plan
surrenders of approximately $631 million in 2016 compared to
$1.5 billion in 2015. The group plan market has been impacted
by the consolidation of healthcare providers and other
employers in target markets, but group plan acquisitions
improved, due in part to investments in talent, group plan
administration record-keeping capabilities and digital
functionality.
92
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
93
1011252ai_financials.indd 92
3/9/18 10:03 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_p92-96_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
FLOWS
equity market volatility.
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
administration:
Years Ended December 31,
At December 31,
(in millions)
No surrender charge(b)
Greater than 0% - 2%
Greater than 2% - 4%
Greater than 4%
Non-surrenderable
Total reserves
withdrawal limitations.
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
GROUP RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET
For Group Retirement, premiums primarily represent amounts received on life-contingent payout annuities. Premiums in 2017 were
comparable to 2016. Premiums increased in 2016 compared to 2015, as customers continued to invest in immediate annuities due to
Premiums and deposits is a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits
received on investment-type annuity contracts and mutual funds under administration.
Net flows for annuity products included in Group Retirement represent premiums and deposits less death, surrender and other
withdrawal benefits. Net flows for mutual funds represent deposits less withdrawals.
A discussion of the significant variances in premiums and deposits and net flows follows:
Group Retirement Premiums and Deposits and Net Flows
(in millions)
P&D
Net Flows
2017 and 2016 Comparison
Net flows declined and continued to be negative primarily due to
surrenders, including group plan surrenders of approximately
$460 million. In addition, premiums and deposits decreased
slightly primarily due to lower index annuity sales, partially offset
by significantly higher deposits from group plan acquisitions.
The following table presents a reconciliation of Group Retirement GAAP premiums to premiums and deposits:
$7,550
$7,570
The following table presents Group Retirement surrenders as a percentage of average reserves and mutual funds under
2017
27 $
7,523
-
2016
27 $
7,543
-
7,550 $
7,570 $
$
$
2015
22
6,899
(1)
6,920
$(1,031)
$(555)
2017
2016
2017
2016
Surrenders as a percentage of average reserves and mutual funds
2017
8.6 %
2016
2015
8.8 %
10.0 %
Group Retirement Premiums and Deposits and Net Flows
(in millions)
The following table presents reserves for Group Retirement annuities by surrender charge category:
P&D
Net Flows
2017 (a)
2016 (a)
$
69,006
$
64,160
1,087
1,344
5,270
439
906
1,395
5,434
417
$
77,146
$
72,312
(a) Excludes mutual fund assets under administration of $20.2 billion and $16.3 billion at December 31, 2017 and 2016, respectively.
(b) Group Retirement amounts in this category include reserves of approximately $6.3 billion, at both December 31, 2017 and 2016, which are subject to 20 percent annual
Group Retirement annuities are typically subject to a five- to seven-year surrender charge period, depending on the product. The
increase in the amount and proportion of Group Retirement annuity reserves that have no surrender charge at December 31, 2017
compared to December 31, 2016 was primarily due to normal aging of this book of business, withdrawal limitations on certain plan
assets and lower than expected surrenders of older contracts with higher minimum interest rates on fixed account balances that have
continued to be attractive to the contract holders in the low interest rate environment.
$7,570
$6,920
$(555)
$(2,091)
2016
2015
2016
2015
2016 and 2015 Comparison
Net flows improved significantly due to both record deposits and
improved surrender activity, which included group plan
surrenders of approximately $631 million in 2016 compared to
$1.5 billion in 2015. The group plan market has been impacted
by the consolidation of healthcare providers and other
employers in target markets, but group plan acquisitions
improved, due in part to investments in talent, group plan
administration record-keeping capabilities and digital
functionality.
92
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
93
1011252ai_financials.indd 93
3/9/18 10:03 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_p92-96_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
Life Insurance Adjusted Pre-Tax Loss
(in millions)
LIFE INSURANCE RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Other income
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Non deferrable insurance commissions
General operating expenses
Interest expense
Adjusted pre-tax income (loss)
Business and Financial Highlights
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
$
1,530 $
1,430
1,044
52
1,407 $
1,319
1,035
57
1,311
1,379
1,034
47
2,444
376
239
109
601
13
274 $
2,452
386
182
155
668
12
(37) $
2,248
392
311
157
707
7
(51)
9 %
8
1
(9)
-
(3)
31
(30)
(10)
8
NM%
7 %
(4)
-
21
9
(2)
(41)
(1)
(6)
71
27 %
Individual life premiums and deposits in 2017 reflected higher universal life deposits and term life premiums compared to 2016. Life
Insurance is focused on selling profitable new products through strategic channels to enhance future returns. General operating
expenses decreased in 2017 compared to the prior year, primarily due to the strategic decision to refocus the group benefits
business. Adjusted pre-tax income also included adjustments in each year to update actuarial assumptions, which was a net positive
adjustment in 2017 compared to net negative adjustments in 2016 and 2015.
Life Insurance Adjusted Pre-Tax Income (Loss)
(in millions)
2017 and 2016 Comparison
Adjusted pre-tax income increased in 2017 compared to a loss in 2016 primarily
due to:
a net positive adjustment from the review and update of actuarial
assumptions, which was $29 million in 2017 compared to a $92 million net
negative adjustment in 2016;
lower commissions and general operating expenses primarily due to the
strategic decision to refocus the group benefits business, partially offset by
the allocation of reinsurance risk charges from Life Insurance Reinsurance
Transactions. In addition, lower general operating expenses in 2017 reflected
the impact of new business reinsurance;
favorable loss experience and a reserve reduction in group benefits
business;
favorable mortality experience in individual life business; and
excluding the impact of the actuarial assumption updates, lower DAC
amortization primarily due to lapse assumptions on international life.
$311
$274
2017
$(37)
2016
2016 and 2015 Comparison
Adjusted pre-tax loss improved primarily due to:
a lower negative adjustment from the review and update of actuarial
assumptions, which was $92 million in 2016 compared to $118 million in
2015;
improved mortality experience in individual life; and
lower domestic employee-related expenses.
These improvements were partially offset by:
lower net investment income on alternative investments, largely offset by
higher other enhancement income, primarily bond call and tender income;
underperforming group benefits results, including reserve increases and
elevated morbidity experience;
reserve increases in individual life, and individual and group benefits
higher international general operating expenses, due in part to the acquisition
in March 2015 of Laya Healthcare, an Irish healthcare distributor and
increased DAC amortization (excluding adjustments to reflect assumption
products;
administrator; and
updates).
LIFE INSURANCE GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Life Insurance represent amounts received on traditional life insurance policies, primarily term life, and group benefit
policies. Premiums, excluding the effect of foreign exchange, increased nine percent in both 2017 compared to 2016 and 2016
compared to 2015, primarily due to assumed premiums related to business distributed by Laya Healthcare and growth in international
life and health. Premiums in 2017 also reflected growth in term life business, partially offset by lower group benefits premiums.
Premiums and deposits for Life Insurance is a non-GAAP financial measure that includes direct and assumed premiums as well as
deposits received on universal life insurance.
The following table presents a reconciliation of Life Insurance GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
2017
2016
1,530 $
1,407 $
1,518
707
1,419
693
3,755 $
3,519 $
$
$
2015
1,311
1,451
608
3,370
94
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
95
1011252ai_financials.indd 94
3/9/18 10:03 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_p92-96_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
A discussion of the significant variances in premiums and deposits and net flows follows:
Group Retirement Premiums and Deposits and Net Flows
(in millions)
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
Life Insurance Adjusted Pre-Tax Loss
(in millions)
2017 and 2016 Comparison
Net flows declined and continued to be negative primarily due to
surrenders, including group plan surrenders of approximately
$460 million. In addition, premiums and deposits decreased
slightly primarily due to lower index annuity sales, partially offset
by significantly higher deposits from group plan acquisitions.
$(37)
$14
2016 and 2015 Comparison
Adjusted pre-tax loss improved primarily due to:
a lower negative adjustment from the review and update of actuarial
assumptions, which was $92 million in 2016 compared to $118 million in
2015;
$(51)
improved mortality experience in individual life; and
lower domestic employee-related expenses.
These improvements were partially offset by:
lower net investment income on alternative investments, largely offset by
higher other enhancement income, primarily bond call and tender income;
underperforming group benefits results, including reserve increases and
elevated morbidity experience;
reserve increases in individual life, and individual and group benefits
products;
higher international general operating expenses, due in part to the acquisition
in March 2015 of Laya Healthcare, an Irish healthcare distributor and
administrator; and
increased DAC amortization (excluding adjustments to reflect assumption
updates).
2016
2015
Group Retirement Premiums and Deposits and Net Flows
(in millions)
2016 and 2015 Comparison
Net flows improved significantly due to both record deposits and
improved surrender activity, which included group plan
surrenders of approximately $631 million in 2016 compared to
$1.5 billion in 2015. The group plan market has been impacted
by the consolidation of healthcare providers and other
employers in target markets, but group plan acquisitions
improved, due in part to investments in talent, group plan
administration record-keeping capabilities and digital
functionality.
LIFE INSURANCE GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Life Insurance represent amounts received on traditional life insurance policies, primarily term life, and group benefit
policies. Premiums, excluding the effect of foreign exchange, increased nine percent in both 2017 compared to 2016 and 2016
compared to 2015, primarily due to assumed premiums related to business distributed by Laya Healthcare and growth in international
life and health. Premiums in 2017 also reflected growth in term life business, partially offset by lower group benefits premiums.
Premiums and deposits for Life Insurance is a non-GAAP financial measure that includes direct and assumed premiums as well as
deposits received on universal life insurance.
The following table presents a reconciliation of Life Insurance GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
2017
1,530 $
1,518
707
3,755 $
$
$
2016
1,407 $
1,419
693
3,519 $
2015
1,311
1,451
608
3,370
AIG | 2017 Form 10-K
93
AIG | 2017 Form 10-K
95
1011252ai_financials.indd 95
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
2017 and 2016 Comparison
Adjusted pre-tax income was comparable to 2016. Increases in premiums and
policyholder benefits were primarily due to pension risk transfer business
written in 2017. Growth in reserves and assets under management drove the
increase in net investment income with similar impact to policyholder benefits.
A discussion of the significant variances in premiums and deposits follows:
Life Insurance Premiums and Deposits
($ in millions)
Institutional Markets Adjusted Pre-Tax Income
(in millions)
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
Premiums and deposits, excluding the effect of foreign exchange,
grew by seven percent in 2017 compared to 2016, and increased
by five percent in 2016 compared to 2015, primarily due to
assumed premiums related to business distributed by Laya
Healthcare and growth in international life and health. Premiums
and deposits in 2017 also reflected growth in universal life and
term life business, partially offset by lower group benefits
premiums.
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
$
2,398 $
174
595
1
2,568
253
5
28
44
6
264 $
691 $
179
563
-
843
244
4
32
41
4
265 $
1,584
173
510
-
1,683
246
2
29
41
3
263
247 %
(3)
6
NM
205
4
25
(13)
7
50
(56)%
3
10
NM
(50)
(1)
100
10
-
33
- %
1 %
$3,755
$3,519
$3,370
2017
2016
2015
INSTITUTIONAL MARKETS RESULTS
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Other income
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Non deferrable insurance commissions
General operating expenses
Interest expense
Adjusted pre-tax income
Business and Financial Highlights
Institutional Markets continued to grow its assets under management, which drove the continuous increase in net investment income
over the recent years.
Institutional Markets Adjusted Pre-Tax Income
(in millions)
2016 and 2015 Comparison
Adjusted pre-tax income was comparable to 2015. Decreases in premiums and
policyholder benefits were primarily due to pension risk transfer business
written in 2015. Growth in reserves and assets under management drove the
increase in net investment income with similar impact to policyholder benefits.
96
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
97
1011252ai_financials.indd 96
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Life and Retirement
A discussion of the significant variances in premiums and deposits follows:
Life Insurance Premiums and Deposits
($ in millions)
Institutional Markets Adjusted Pre-Tax Income
(in millions)
Premiums and deposits, excluding the effect of foreign exchange,
grew by seven percent in 2017 compared to 2016, and increased
by five percent in 2016 compared to 2015, primarily due to
assumed premiums related to business distributed by Laya
Healthcare and growth in international life and health. Premiums
and deposits in 2017 also reflected growth in universal life and
term life business, partially offset by lower group benefits
premiums.
$264
$265
2017 and 2016 Comparison
Adjusted pre-tax income was comparable to 2016. Increases in premiums and
policyholder benefits were primarily due to pension risk transfer business
written in 2017. Growth in reserves and assets under management drove the
increase in net investment income with similar impact to policyholder benefits.
INSTITUTIONAL MARKETS RESULTS
2017
2016
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
2,398 $
691 $
1,584
247 %
(56)%
174
595
1
2,568
253
5
28
44
6
179
563
-
843
244
4
32
41
4
173
510
-
1,683
246
2
29
41
3
(3)
6
NM
205
(13)
4
25
7
50
3
10
NM
(50)
(1)
100
10
-
33
$
264 $
265 $
263
- %
1 %
Institutional Markets continued to grow its assets under management, which drove the continuous increase in net investment income
Years Ended December 31,
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Other income
Benefits and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Non deferrable insurance commissions
General operating expenses
Interest expense
Adjusted pre-tax income
Business and Financial Highlights
over the recent years.
Institutional Markets Adjusted Pre-Tax Income
(in millions)
2016 and 2015 Comparison
Adjusted pre-tax income was comparable to 2015. Decreases in premiums and
policyholder benefits were primarily due to pension risk transfer business
written in 2015. Growth in reserves and assets under management drove the
increase in net investment income with similar impact to policyholder benefits.
$265
$263
2016
2015
96
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
97
1011252ai_financials.indd 97
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Ot he r Op er at io n s
INSTITUTIONAL MARKETS GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Institutional Markets represent amounts received on traditional life insurance policies and pension risk transfer annuities
or structured settlements. Premiums increased in 2017 compared to 2016 and declined in 2016 compared to 2015 primarily driven by
the pension risk transfer business written in 2017 and 2015. Partially offsetting the increase in 2017 was a decrease in structured
settlement sales.
Other Operations
The following table presents Other Operations results:
Premiums and deposits for Institutional Markets is a non-GAAP financial measure that includes direct premiums as well as deposits
received on universal life insurance and investment-type annuity contracts, including GICs.
(in millions)
Adjusted pre-tax income (loss) by activities:
The following table presents a reconciliation of Institutional Markets GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
2017
2,398 $
1,821
28
4,247 $
$
$
2016
691 $
1,434
28
2,153 $
2015
1,584
118
30
1,732
United Guaranty
Fuji Life
Parent and Other:
Interest expense
Other income, net
Total Parent and Other
Corporate General operating expenses
Adjusted pre-tax loss before eliminations
Consolidation, eliminations and other adjustments
A discussion of the significant variances in premiums and deposits follows:
Institutional Markets Premiums and Deposits
($ in millions)
Premiums and deposits increased in 2017 compared to 2016
primarily driven by higher pension risk transfer business, partially
offset by lower structured settlement sales. In 2016, premiums
and deposits increased compared to 2015 primarily due to higher
GIC deposits, partially offset by lower pension risk transfer
business.
$4,247
$2,153
$1,732
2017
2016
2015
Adjusted pre-tax loss
$ (1,330) $
(969) $
(37)%
(8)%
2017 AND 2016 COMPARISON
Adjusted pre-tax loss increased primarily due to the sale of United Guaranty during the fourth quarter of 2016.
Parent and Other adjusted pre-tax loss decreased as a result of gains on securities where we elected the fair value option, partially
offset by higher general operating expenses related to one time payments for recent executive leadership changes.
Fuji Life adjusted pre-tax results increased primarily as a result of increases in underwriting income as a result of new products
launched during 2016 as well as growth within existing product lines. Fuji Life was sold on April 30, 2017.
2016 AND 2015 COMPARISON
Adjusted pre-tax loss increased primarily due to higher Parent and Other corporate general operating expenses partially offset by
lower interest expense. Parent and Other general operating expenses increased in 2016 due to higher technology costs as a result of
our investment in our infrastructure, offset by lower professional fees and employee related costs, consistent with our strategy to
reduce expenses.
primarily as a result of liability management activities.
In addition, 2015 included a $175 million pension curtailment credit. Parent and Other interest expense decreased
United Guaranty adjusted pre-tax income decreased primarily as a result of the 50 percent quota share reinsurance agreement
between United Guaranty and our subsidiaries for business originated from 2014 to 2016.
Fuji Life adjusted pre-tax income increased primarily as a result of increases in underwriting and net investment income. The
increase in underwriting income was primarily as a result of new products launched during 2016. Net investment income increased
primarily as a result of increased investment in bonds.
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
- $
522 $
43
14
(769)
(968)
289
(1,448)
(1,405)
75
(666)
(983)
102
(1,547)
(1,011)
42
537
(33)
(411)
(1,030)
112
(1,329)
(825)
(76)
(901)
NM%
207
(15)
183
2
6
(39)
79
(3)%
NM
(62)
5
(9)
(16)
(23)
NM
98
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
99
1011252ai_financials.indd 98
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Life and Retirement
ITEM 7 | Business Segment Operations | Ot he r Op er at io n s
INSTITUTIONAL MARKETS GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Institutional Markets represent amounts received on traditional life insurance policies and pension risk transfer annuities
or structured settlements. Premiums increased in 2017 compared to 2016 and declined in 2016 compared to 2015 primarily driven by
the pension risk transfer business written in 2017 and 2015. Partially offsetting the increase in 2017 was a decrease in structured
settlement sales.
Other Operations
The following table presents Other Operations results:
Premiums and deposits for Institutional Markets is a non-GAAP financial measure that includes direct premiums as well as deposits
received on universal life insurance and investment-type annuity contracts, including GICs.
(in millions)
Adjusted pre-tax income (loss) by activities:
The following table presents a reconciliation of Institutional Markets GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions)
Premiums
Deposits
Other
Premiums and deposits
2017
2,398 $
1,821
28
2016
691 $
1,434
28
4,247 $
2,153 $
$
$
2015
1,584
118
30
1,732
A discussion of the significant variances in premiums and deposits follows:
Institutional Markets Premiums and Deposits
($ in millions)
United Guaranty
Fuji Life
Parent and Other:
Corporate General operating expenses
Interest expense
Other income, net
Total Parent and Other
Adjusted pre-tax loss before eliminations
Consolidation, eliminations and other adjustments
Adjusted pre-tax loss
2017 AND 2016 COMPARISON
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
- $
43
522 $
14
537
(33)
(769)
(968)
289
(1,448)
(1,405)
75
$ (1,330) $
(666)
(983)
102
(1,547)
(1,011)
42
(969) $
(411)
(1,030)
112
(1,329)
(825)
(76)
(901)
NM%
207
(15)
2
183
6
(39)
79
(37)%
(3)%
NM
(62)
5
(9)
(16)
(23)
NM
(8)%
Premiums and deposits increased in 2017 compared to 2016
primarily driven by higher pension risk transfer business, partially
offset by lower structured settlement sales. In 2016, premiums
and deposits increased compared to 2015 primarily due to higher
GIC deposits, partially offset by lower pension risk transfer
business.
Adjusted pre-tax loss increased primarily due to the sale of United Guaranty during the fourth quarter of 2016.
Parent and Other adjusted pre-tax loss decreased as a result of gains on securities where we elected the fair value option, partially
offset by higher general operating expenses related to one time payments for recent executive leadership changes.
Fuji Life adjusted pre-tax results increased primarily as a result of increases in underwriting income as a result of new products
launched during 2016 as well as growth within existing product lines. Fuji Life was sold on April 30, 2017.
2016 AND 2015 COMPARISON
Adjusted pre-tax loss increased primarily due to higher Parent and Other corporate general operating expenses partially offset by
lower interest expense. Parent and Other general operating expenses increased in 2016 due to higher technology costs as a result of
our investment in our infrastructure, offset by lower professional fees and employee related costs, consistent with our strategy to
reduce expenses.
primarily as a result of liability management activities.
In addition, 2015 included a $175 million pension curtailment credit. Parent and Other interest expense decreased
United Guaranty adjusted pre-tax income decreased primarily as a result of the 50 percent quota share reinsurance agreement
between United Guaranty and our subsidiaries for business originated from 2014 to 2016.
Fuji Life adjusted pre-tax income increased primarily as a result of increases in underwriting and net investment income. The
increase in underwriting income was primarily as a result of new products launched during 2016. Net investment income increased
primarily as a result of increased investment in bonds.
98
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
99
1011252ai_financials.indd 99
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Le g a c y P o r t f ol io
ITEM 7 | Business Segment Operations | Le g a c y P o r t f ol io
Legacy Portfolio
Legacy Insurance Lines represent exited or discontinued product lines, policy forms or distribution channels.
Legacy General Insurance Run-Off Lines consists of asbestos and environmental exposures and other exposures within certain
Property and Casualty profit centers no longer actively marketed, including excess workers compensation, environmental impairment
liability, public entity liability, accident & health, physicians and surgeons professional liability, and various other workers
compensation and general liability exposures.
Legacy Life and Retirement Run-Off Lines include whole life, long-term care and exited accident & health product lines. Also
includes certain structured settlement, pension risk transfer annuities and single premium immediate annuities written prior to April
2012.
Legacy Investments include investment classes that we have placed into run-off.
BUSINESS STRATEGY
For Legacy Insurance Lines, securing the interests of our policyholders and insureds is paramount. We have considered and continue
to evaluate the following strategies for these lines:
Third party and affiliated reinsurance and retrocessions to improve capital efficiency
Commutations of assumed reinsurance and direct policy buy-backs
Enhance insured policyholder options and claims resolution strategies
Enhanced asset liability management and expense management
LEGACY PORTFOLIO RESULTS
The following table presents Legacy Portfolio results:
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Other income (loss)
Total adjusted revenues
Benefits and expenses:
Policyholder benefits and losses and loss adjustment
expenses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
Total benefits and expenses
Adjusted pre-tax income
Adjusted pre-tax income by type:
General Insurance Run-Off Lines
Life and Retirement Run-Off Lines
Legacy Investments
Adjusted pre-tax income
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
590 $
674 $
1,037
(12)%
(35)%
137
2,776
888
4,391
142
2,913
1,521
5,250
133
2,928
1,673
5,771
1,998
3,084
3,337
241
76
484
122
267
108
502
282
2,921
4,243
1,470 $
1,007 $
$
$
221 $
(237) $
406
843
(224)
1,468
$
1,470 $
1,007 $
267
102
640
292
4,638
1,133
(709)
468
1,374
1,133
(4)
(5)
(42)
(16)
(35)
(10)
(30)
(4)
(57)
(31)
46 %
NM%
NM
(43)
46 %
7
(1)
(9)
(9)
(8)
-
6
(22)
(3)
(9)
(11)%
67 %
NM
7
(11)%
For Legacy Investments, our business strategy is to maximize liquidity to AIG Parent and minimize book value impairments while
sourcing for our insurance companies attractive assets for their portfolios.
Business and Financial Highlights
In 2017, the Legacy Investment portfolio executed several transactions with external parties for total consideration of approximately
$2.5 billion, which included sales of our entire life settlements portfolio with a face value (death benefits) of approximately $9.8 billion,
resulting in a loss on the sale of $139 million and total book value impairments of $360 million. A significant portion of the
consideration received was used to pay down intercompany loans and notes with affiliated insurance companies. In addition, the
Legacy Investment portfolio returned approximately $3.0 billion of cash proceeds to AIG Parent in 2017, including $191 million from
the sale of an AIG-sponsored fund that occurred in the fourth quarter of 2016.
100
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
101
1011252ai_financials.indd 100
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Le g a c y P o r t f ol io
ITEM 7 | Business Segment Operations | Le g a c y P o r t f ol io
Legacy Portfolio
Legacy Insurance Lines represent exited or discontinued product lines, policy forms or distribution channels.
Legacy General Insurance Run-Off Lines consists of asbestos and environmental exposures and other exposures within certain
Property and Casualty profit centers no longer actively marketed, including excess workers compensation, environmental impairment
liability, public entity liability, accident & health, physicians and surgeons professional liability, and various other workers
compensation and general liability exposures.
Legacy Life and Retirement Run-Off Lines include whole life, long-term care and exited accident & health product lines. Also
includes certain structured settlement, pension risk transfer annuities and single premium immediate annuities written prior to April
Legacy Investments include investment classes that we have placed into run-off.
2012.
BUSINESS STRATEGY
to evaluate the following strategies for these lines:
Third party and affiliated reinsurance and retrocessions to improve capital efficiency
Commutations of assumed reinsurance and direct policy buy-backs
Enhance insured policyholder options and claims resolution strategies
Enhanced asset liability management and expense management
For Legacy Insurance Lines, securing the interests of our policyholders and insureds is paramount. We have considered and continue
LEGACY PORTFOLIO RESULTS
The following table presents Legacy Portfolio results:
(in millions)
Revenues:
Premiums
Policy fees
Net investment income
Other income (loss)
Total adjusted revenues
Benefits and expenses:
Policyholder benefits and losses and loss adjustment
expenses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
Total benefits and expenses
Adjusted pre-tax income
Adjusted pre-tax income by type:
General Insurance Run-Off Lines
Life and Retirement Run-Off Lines
Legacy Investments
Adjusted pre-tax income
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Percentage Change
$
590 $
674 $
1,037
(12)%
(35)%
137
2,776
888
4,391
142
2,913
1,521
5,250
133
2,928
1,673
5,771
1,998
3,084
3,337
241
76
484
122
267
108
502
282
2,921
4,243
1,470 $
1,007 $
221 $
(237) $
406
843
(224)
1,468
$
$
$
1,470 $
1,007 $
267
102
640
292
4,638
1,133
(709)
468
1,374
1,133
(4)
(5)
(42)
(16)
(35)
(10)
(30)
(4)
(57)
(31)
46 %
NM%
NM
(43)
46 %
7
(1)
(9)
(9)
(8)
-
6
(22)
(3)
(9)
(11)%
67 %
NM
7
(11)%
For Legacy Investments, our business strategy is to maximize liquidity to AIG Parent and minimize book value impairments while
sourcing for our insurance companies attractive assets for their portfolios.
Business and Financial Highlights
In 2017, the Legacy Investment portfolio executed several transactions with external parties for total consideration of approximately
$2.5 billion, which included sales of our entire life settlements portfolio with a face value (death benefits) of approximately $9.8 billion,
resulting in a loss on the sale of $139 million and total book value impairments of $360 million. A significant portion of the
consideration received was used to pay down intercompany loans and notes with affiliated insurance companies. In addition, the
Legacy Investment portfolio returned approximately $3.0 billion of cash proceeds to AIG Parent in 2017, including $191 million from
the sale of an AIG-sponsored fund that occurred in the fourth quarter of 2016.
100
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
101
1011252ai_financials.indd 101
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Le g a c y P o r t f ol io
ITEM 7 | Investments
Legacy Portfolio Adjusted Pre-Tax Income
(in millions)
$463
$1,007
$1,470
2017
2016
Legacy Portfolio Adjusted Pre-Tax Income
(in millions)
2017 and 2016 Comparison
Adjusted pre-tax income increased due to:
increased Legacy Life and Retirement adjusted pre-tax income due to the
absence of any significant loss recognition on certain payout annuities from
the update of actuarial assumptions in 2017 compared to 2016. Loss
recognition from the update to actuarial assumptions in 2017 was $14 million
mainly attributable to the Long-Term Care portfolio;
increased Legacy General Insurance adjusted pre-tax income due to the
absence of any significant prior year development in 2017 compared to
2016.
This increase was partially offset by decreased Legacy Investment adjusted
pre-tax income in 2017 compared to 2016 driven by the decreased value of the
remaining Legacy Investment portfolio post-sales.
2016 and 2015 Comparison
Adjusted pre-tax income remained relatively stable; however, there were
fluctuations within the portfolios due to:
lower Legacy Life and Retirement earnings in 2016 compared to 2015
primarily due to lower net investment income on investments and higher loss
recognition on certain payout annuities from the update of actuarial
assumptions;
lower Legacy General Insurance adjusted pre-tax loss due to lower
unfavorable prior year development in 2016 compared to 2015; and
$126
$1,133
Investments
OVERVIEW
Our investment strategies are tailored to the specific business needs of each operating unit. The investment objectives are driven by
the respective operating segments and AIG Parent. The primary objectives are generation of investment income, preservation of
capital, liquidity management and growth of surplus to support the insurance products. The majority of assets backing our insurance
liabilities consist of fixed maturity securities.
Investment Highlights in 2017
A decrease in interest rates and narrowing credit spreads resulted in a net unrealized gain in our investment portfolio. Net
unrealized gains in our available for sale portfolio increased to approximately $13.9 billion as of December 31, 2017 from
approximately $9.7 billion as of December 31, 2016.
We continued to make investments in structured securities and other fixed maturity securities and increased lending activities
in mortgage loans with favorable risk versus return characteristics to improve yields and increase net investment income.
During the first quarter of 2017, we funded the adverse development reinsurance agreement entered into with NICO. The
approximate $10.2 billion funding of this agreement was the primary reason for the decrease in the invested asset portfolio in
During 2017, we reduced our hedge fund portfolio by approximately $2.4 billion as a result of redemptions consistent with our
planned reduction of exposure. Our hedge fund portfolio experienced above average returns in 2017 due to higher equity
Blended investment yields on new investments were lower than blended rates on investments that were sold, matured or
Other-than-temporary impairments decreased due to lower impairments in our structured securities and corporate bond
During the second quarter of 2017, we had a partial sale of our investment in Arch Capital Group Ltd. (Arch), which we
received as part of the consideration for selling United Guaranty to Arch in 2016.
We sold the remaining portion of our life settlements portfolio in 2017.
market performance.
2017.
called.
portfolios.
$1,007
higher Legacy Investment adjusted pre-tax income driven mainly by asset
sales, partially offset by fair value losses on certain investments.
Investment Strategies
2016
2015
Investment strategies are based on considerations that include the local and general market conditions, liability duration and cash
flow characteristics, rating agency and regulatory capital considerations, legal investment limitations, tax optimization and
diversification.
Some of our key investment strategies are as follows:
Fixed maturity securities held by the U.S. insurance companies included in General Insurance consist of a mix of instruments that
meet our current risk-return, tax, liquidity, credit quality and diversification objectives.
Outside of the U.S., fixed maturity securities held by General Insurance companies consist primarily of high-grade securities
generally denominated in the currencies of the countries in which we operate.
While more of a focus is placed on asset-liability management in Life and Retirement companies, our fundamental strategy across
all of our investment portfolios is to optimize the duration characteristics of the assets within a target range based on comparable
liability characteristics, to the extent practicable.
AIG Parent, included in Other Operations, actively manages its assets and liabilities in terms of products, counterparties and
duration. AIG Parents liquidity sources are held primarily in the form of cash, short-term investments and publicly traded,
investment-grade rated fixed maturity securities. Based upon an assessment of its immediate and longer-term funding needs, AIG
Parent purchases publicly traded, investment-grade rated fixed maturity securities that can be readily monetized through sales or
repurchase agreements. These securities allow us to diversify sources of liquidity while reducing the cost of maintaining sufficient
liquidity.
102
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
103
1011252ai_financials.indd 102
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Business Segment Operations | Le g a c y P o r t f ol io
ITEM 7 | Investments
Legacy Portfolio Adjusted Pre-Tax Income
(in millions)
Legacy Portfolio Adjusted Pre-Tax Income
(in millions)
2017 and 2016 Comparison
Adjusted pre-tax income increased due to:
increased Legacy Life and Retirement adjusted pre-tax income due to the
absence of any significant loss recognition on certain payout annuities from
the update of actuarial assumptions in 2017 compared to 2016. Loss
recognition from the update to actuarial assumptions in 2017 was $14 million
mainly attributable to the Long-Term Care portfolio;
increased Legacy General Insurance adjusted pre-tax income due to the
absence of any significant prior year development in 2017 compared to
2016.
This increase was partially offset by decreased Legacy Investment adjusted
pre-tax income in 2017 compared to 2016 driven by the decreased value of the
remaining Legacy Investment portfolio post-sales.
2016 and 2015 Comparison
Adjusted pre-tax income remained relatively stable; however, there were
fluctuations within the portfolios due to:
lower Legacy Life and Retirement earnings in 2016 compared to 2015
primarily due to lower net investment income on investments and higher loss
recognition on certain payout annuities from the update of actuarial
assumptions;
lower Legacy General Insurance adjusted pre-tax loss due to lower
unfavorable prior year development in 2016 compared to 2015; and
higher Legacy Investment adjusted pre-tax income driven mainly by asset
sales, partially offset by fair value losses on certain investments.
Investments
OVERVIEW
Our investment strategies are tailored to the specific business needs of each operating unit. The investment objectives are driven by
the respective operating segments and AIG Parent. The primary objectives are generation of investment income, preservation of
capital, liquidity management and growth of surplus to support the insurance products. The majority of assets backing our insurance
liabilities consist of fixed maturity securities.
Investment Highlights in 2017
A decrease in interest rates and narrowing credit spreads resulted in a net unrealized gain in our investment portfolio. Net
unrealized gains in our available for sale portfolio increased to approximately $13.9 billion as of December 31, 2017 from
approximately $9.7 billion as of December 31, 2016.
We continued to make investments in structured securities and other fixed maturity securities and increased lending activities
in mortgage loans with favorable risk versus return characteristics to improve yields and increase net investment income.
During the first quarter of 2017, we funded the adverse development reinsurance agreement entered into with NICO. The
approximate $10.2 billion funding of this agreement was the primary reason for the decrease in the invested asset portfolio in
2017.
During 2017, we reduced our hedge fund portfolio by approximately $2.4 billion as a result of redemptions consistent with our
planned reduction of exposure. Our hedge fund portfolio experienced above average returns in 2017 due to higher equity
market performance.
Blended investment yields on new investments were lower than blended rates on investments that were sold, matured or
called.
Other-than-temporary impairments decreased due to lower impairments in our structured securities and corporate bond
portfolios.
During the second quarter of 2017, we had a partial sale of our investment in Arch Capital Group Ltd. (Arch), which we
received as part of the consideration for selling United Guaranty to Arch in 2016.
We sold the remaining portion of our life settlements portfolio in 2017.
Investment Strategies
Investment strategies are based on considerations that include the local and general market conditions, liability duration and cash
flow characteristics, rating agency and regulatory capital considerations, legal investment limitations, tax optimization and
diversification.
Some of our key investment strategies are as follows:
Fixed maturity securities held by the U.S. insurance companies included in General Insurance consist of a mix of instruments that
meet our current risk-return, tax, liquidity, credit quality and diversification objectives.
Outside of the U.S., fixed maturity securities held by General Insurance companies consist primarily of high-grade securities
generally denominated in the currencies of the countries in which we operate.
While more of a focus is placed on asset-liability management in Life and Retirement companies, our fundamental strategy across
all of our investment portfolios is to optimize the duration characteristics of the assets within a target range based on comparable
liability characteristics, to the extent practicable.
AIG Parent, included in Other Operations, actively manages its assets and liabilities in terms of products, counterparties and
duration. AIG Parents liquidity sources are held primarily in the form of cash, short-term investments and publicly traded,
investment-grade rated fixed maturity securities. Based upon an assessment of its immediate and longer-term funding needs, AIG
Parent purchases publicly traded, investment-grade rated fixed maturity securities that can be readily monetized through sales or
repurchase agreements. These securities allow us to diversify sources of liquidity while reducing the cost of maintaining sufficient
liquidity.
102
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
103
1011252ai_financials.indd 103
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Investments
ITEM 7 | Investments
Attribution of Net Investment Income to Operating Segments
Net investment income is attributed to our businesses based on internal models consistent with the nature of the underlying
businesses.
For General Insurance North America and International and Legacy General Insurance Run-Off Lines, we estimate investable
funds based primarily on loss reserves and unearned premiums. The allocation of net investment income of the General Insurance
companies to segments is calculated based on these estimated investable funds, consistent with the approximate duration of the
liabilities and the required economic capital allocation for each segment.
For Life and Retirement Individual Retirement, Group Retirement, Life Insurance, and Institutional Markets and Legacy Life and
Retirement Run-Off Lines, net investment income is attributed based on invested assets from segregated product line portfolios held
in our Life and Retirement companies. All invested assets of the Life and Retirement companies in excess of liabilities are allocated
based on estimates of required economic capital allocation for each segment.
Asset Liability Measurement
For the General Insurance companies, the duration of liabilities for long-tail casualty lines is greater than that of other lines. As a
result, the investment strategy within the General Insurance companies focuses on growth of surplus and preservation of capital,
subject to liability and other business considerations.
The General Insurance companies invest primarily in fixed maturity securities issued by corporations, municipalities and other
governmental agencies and also invest in structured securities collateralized by, among other assets, residential and commercial real
estate and commercial mortgage loans. While invested assets backing reserves of the General Insurance companies are primarily
invested in conventional fixed maturity securities, we have continued to allocate a portion of our investment activity into asset classes
that offer higher yields, particularly in the domestic operations. In addition, we continue to invest in both fixed rate and floating rate
asset-backed investments for their risk-return attributes, as well as to manage our exposure to potential changes in interest rates.
This asset diversification has maintained stable average yields while the overall credit ratings of our fixed maturity securities were
largely unchanged. We expect to continue to pursue this investment strategy to meet the General Insurance companies liquidity,
duration and credit quality objectives as well as current risk-return and tax objectives.
component of the investment strategy of the Life and Retirement companies, we have reduced the overall size of the hedge fund
portfolio, in light of changing market conditions and perceived market opportunities, and to continue reducing the size of the private
equity portfolio.
Fixed maturity securities of the Life and Retirement companies domestic operations, with an average duration of 7.3 years, are
comprised primarily of taxable corporate bonds, as well as taxable municipal and government bonds, and agency and non-agency
structured securities. The majority of these investments are held in the available for sale portfolio and are rated investment grade
based on its composite ratings.
Fixed maturity securities held in the Life and Retirement companies foreign operations are of high quality, primarily rated A or higher
based on composite ratings, with an average duration of 21.1 years.
NAIC Designations of Fixed Maturity Securities
The Securities Valuation Office (SVO) of the National Association of Insurance Companies (NAIC) evaluates the investments of U.S.
insurers for statutory reporting purposes and assigns fixed maturity securities to one of six categories called NAIC Designations. In
general, NAIC Designations of 1 highest quality, or 2 high quality, include fixed maturity securities considered investment grade,
while NAIC Designations of 3 through 6 generally include fixed maturity securities referred to as below investment grade. The NAIC
has adopted revised rating methodologies for certain structured securities, including non-agency RMBS and CMBS, which are
intended to enable a more precise assessment of the value of such structured securities and increase the accuracy in assessing
expected losses to better determine the appropriate capital requirement for such structured securities. These methodologies result in
an improved NAIC Designation for such securities compared to the rating typically assigned by the three major rating agencies. The
following tables summarize the ratings distribution of U.S. Insurance Companies fixed maturity security portfolio by NAIC Designation,
and the distribution by composite AIG credit rating, which is generally based on ratings of the three major rating agencies.
For a full description of the composite AIG credit ratings see Investments Credit Ratings.
The following table presents the fixed maturity security portfolio of U.S. Insurance Companies categorized by NAIC
Designation, at fair value:
In addition, the General Insurance companies seek to enhance returns through selective investments in a diversified portfolio of
alternative investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically
achieved yields in excess of the fixed maturity portfolio yields and have provided added diversification to the broader portfolio.
December 31, 2017
(in millions)
Fixed maturity securities of the General Insurance companies domestic operations, with an average duration of 3.9 years, are
currently comprised of corporate bonds, structured securities, taxable municipal bonds and government and agency bonds as well as
tax-exempt securities, which provide attractive risk-adjusted after-tax returns. The majority of these high quality investments are rated
A or higher based on composite ratings.
Fixed maturity securities held in the General Insurance companies foreign operations are of high quality, primarily rated A or higher
based on composite ratings, with an average duration of 3.6 years.
The investment strategy of the Life and Retirement companies is to maximize net investment income and portfolio value, subject to
liquidity requirements, capital constraints, diversification requirements, asset-liability management and available investment
opportunities.
The Life and Retirement companies use asset-liability management as a primary tool to monitor and manage risk in their businesses.
The Life and Retirement companies' fundamental investment strategy is to maintain a diversified, high to medium quality portfolio of
fixed maturity securities that, to the extent practicable, complements the characteristics of liabilities, including duration, which is a
measure of sensitivity to changes in interest rates. The investment portfolio of each product line is tailored to the specific
characteristics of its insurance liabilities, and as a result, certain portfolios are shorter in duration and others are longer in duration.
An extended low interest rate environment may result in a lengthening of liability durations from initial estimates, primarily due to lower
lapses, which may require us to further extend the duration of the investment portfolio.
The Life and Retirement companies invest primarily in fixed maturity securities issued by corporations, municipalities and other
governmental agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and
commercial mortgage loans.
In addition, the Life and Retirement companies seek to enhance returns through investments in a diversified portfolio of alternative
investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved
yields in excess of the fixed maturity portfolio yields. While a diversified portfolio of alternative investments remains a fundamental
NAIC Designation
1
2
Grade
3
4
5
6
Grade
Total
Other fixed maturity securities
$
74,791 $ 68,400 $
143,191
$
5,778 $
5,180 $ 1,348 $
144 $
12,450 $ 155,641
Mortgage-backed, asset-backed and collateralized
64,364
3,181
67,545
571
170
96
2,304
3,141
70,686
Total*
$ 139,155 $ 71,581 $
210,736
$
6,349 $
5,350 $ 1,444 $
2,448 $
15,591 $ 226,327
*
Excludes $25.4 billion of fixed maturity securities for which no NAIC Designation is available because they are held in legal entities within U.S. Insurance Companies
that do not require a statutory filing.
The following table presents the fixed maturity security portfolio of U.S. Insurance Companies categorized by composite
AIG credit rating, at fair value:
December 31, 2017
(in millions)
Total
Investment
Total
Below
CCC and
Investment
Composite AIG Credit Rating
Other fixed maturity securities
Mortgage-backed, asset-backed and collateralized
Total*
AAA/AA/A
BBB
Grade
BB
B
Lower
Grade
Total
$
$
75,277 $
68,211 $
143,488
$
5,561 $
5,232 $
1,360 $
12,153 $
155,641
45,464
4,546
50,010
1,032
867
18,777
20,676
70,686
120,741 $
72,757 $
193,498
$
6,593 $
6,099 $
20,137 $
32,829 $
226,327
*
Excludes $25.4 billion of fixed maturity securities for which no NAIC Designation is available because they are held in legal entities within U.S. Insurance Companies
that do not require a statutory filing.
Total
Investment
Total
Below
Investment
104
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
105
1011252ai_financials.indd 104
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Investments
ITEM 7 | Investments
Attribution of Net Investment Income to Operating Segments
Net investment income is attributed to our businesses based on internal models consistent with the nature of the underlying
businesses.
For General Insurance North America and International and Legacy General Insurance Run-Off Lines, we estimate investable
funds based primarily on loss reserves and unearned premiums. The allocation of net investment income of the General Insurance
companies to segments is calculated based on these estimated investable funds, consistent with the approximate duration of the
liabilities and the required economic capital allocation for each segment.
For Life and Retirement Individual Retirement, Group Retirement, Life Insurance, and Institutional Markets and Legacy Life and
Retirement Run-Off Lines, net investment income is attributed based on invested assets from segregated product line portfolios held
in our Life and Retirement companies. All invested assets of the Life and Retirement companies in excess of liabilities are allocated
based on estimates of required economic capital allocation for each segment.
Asset Liability Measurement
For the General Insurance companies, the duration of liabilities for long-tail casualty lines is greater than that of other lines. As a
result, the investment strategy within the General Insurance companies focuses on growth of surplus and preservation of capital,
subject to liability and other business considerations.
The General Insurance companies invest primarily in fixed maturity securities issued by corporations, municipalities and other
governmental agencies and also invest in structured securities collateralized by, among other assets, residential and commercial real
estate and commercial mortgage loans. While invested assets backing reserves of the General Insurance companies are primarily
invested in conventional fixed maturity securities, we have continued to allocate a portion of our investment activity into asset classes
that offer higher yields, particularly in the domestic operations. In addition, we continue to invest in both fixed rate and floating rate
asset-backed investments for their risk-return attributes, as well as to manage our exposure to potential changes in interest rates.
This asset diversification has maintained stable average yields while the overall credit ratings of our fixed maturity securities were
largely unchanged. We expect to continue to pursue this investment strategy to meet the General Insurance companies liquidity,
duration and credit quality objectives as well as current risk-return and tax objectives.
component of the investment strategy of the Life and Retirement companies, we have reduced the overall size of the hedge fund
portfolio, in light of changing market conditions and perceived market opportunities, and to continue reducing the size of the private
equity portfolio.
Fixed maturity securities of the Life and Retirement companies domestic operations, with an average duration of 7.3 years, are
comprised primarily of taxable corporate bonds, as well as taxable municipal and government bonds, and agency and non-agency
structured securities. The majority of these investments are held in the available for sale portfolio and are rated investment grade
based on its composite ratings.
Fixed maturity securities held in the Life and Retirement companies foreign operations are of high quality, primarily rated A or higher
based on composite ratings, with an average duration of 21.1 years.
NAIC Designations of Fixed Maturity Securities
The Securities Valuation Office (SVO) of the National Association of Insurance Companies (NAIC) evaluates the investments of U.S.
insurers for statutory reporting purposes and assigns fixed maturity securities to one of six categories called NAIC Designations. In
general, NAIC Designations of 1 highest quality, or 2 high quality, include fixed maturity securities considered investment grade,
while NAIC Designations of 3 through 6 generally include fixed maturity securities referred to as below investment grade. The NAIC
has adopted revised rating methodologies for certain structured securities, including non-agency RMBS and CMBS, which are
intended to enable a more precise assessment of the value of such structured securities and increase the accuracy in assessing
expected losses to better determine the appropriate capital requirement for such structured securities. These methodologies result in
an improved NAIC Designation for such securities compared to the rating typically assigned by the three major rating agencies. The
following tables summarize the ratings distribution of U.S. Insurance Companies fixed maturity security portfolio by NAIC Designation,
and the distribution by composite AIG credit rating, which is generally based on ratings of the three major rating agencies.
For a full description of the composite AIG credit ratings see Investments Credit Ratings.
The following table presents the fixed maturity security portfolio of U.S. Insurance Companies categorized by NAIC
Designation, at fair value:
In addition, the General Insurance companies seek to enhance returns through selective investments in a diversified portfolio of
alternative investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically
achieved yields in excess of the fixed maturity portfolio yields and have provided added diversification to the broader portfolio.
December 31, 2017
(in millions)
Fixed maturity securities of the General Insurance companies domestic operations, with an average duration of 3.9 years, are
currently comprised of corporate bonds, structured securities, taxable municipal bonds and government and agency bonds as well as
tax-exempt securities, which provide attractive risk-adjusted after-tax returns. The majority of these high quality investments are rated
A or higher based on composite ratings.
Fixed maturity securities held in the General Insurance companies foreign operations are of high quality, primarily rated A or higher
based on composite ratings, with an average duration of 3.6 years.
The investment strategy of the Life and Retirement companies is to maximize net investment income and portfolio value, subject to
liquidity requirements, capital constraints, diversification requirements, asset-liability management and available investment
opportunities.
The Life and Retirement companies use asset-liability management as a primary tool to monitor and manage risk in their businesses.
The Life and Retirement companies' fundamental investment strategy is to maintain a diversified, high to medium quality portfolio of
fixed maturity securities that, to the extent practicable, complements the characteristics of liabilities, including duration, which is a
measure of sensitivity to changes in interest rates. The investment portfolio of each product line is tailored to the specific
characteristics of its insurance liabilities, and as a result, certain portfolios are shorter in duration and others are longer in duration.
An extended low interest rate environment may result in a lengthening of liability durations from initial estimates, primarily due to lower
lapses, which may require us to further extend the duration of the investment portfolio.
The Life and Retirement companies invest primarily in fixed maturity securities issued by corporations, municipalities and other
governmental agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and
commercial mortgage loans.
In addition, the Life and Retirement companies seek to enhance returns through investments in a diversified portfolio of alternative
investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved
yields in excess of the fixed maturity portfolio yields. While a diversified portfolio of alternative investments remains a fundamental
Total
Investment
Total
Below
Investment
NAIC Designation
1
2
Grade
3
4
5
6
Grade
Total
Other fixed maturity securities
$
74,791 $ 68,400 $
143,191
$
5,778 $
5,180 $ 1,348 $
144 $
12,450 $ 155,641
Mortgage-backed, asset-backed and collateralized
64,364
3,181
67,545
571
170
96
2,304
3,141
70,686
Total*
$ 139,155 $ 71,581 $
210,736
$
6,349 $
5,350 $ 1,444 $
2,448 $
15,591 $ 226,327
*
Excludes $25.4 billion of fixed maturity securities for which no NAIC Designation is available because they are held in legal entities within U.S. Insurance Companies
that do not require a statutory filing.
The following table presents the fixed maturity security portfolio of U.S. Insurance Companies categorized by composite
AIG credit rating, at fair value:
December 31, 2017
(in millions)
Total
Investment
Total
Below
CCC and
Investment
Composite AIG Credit Rating
Other fixed maturity securities
Mortgage-backed, asset-backed and collateralized
Total*
AAA/AA/A
BBB
Grade
BB
B
Lower
Grade
Total
$
$
75,277 $
68,211 $
143,488
$
5,561 $
5,232 $
1,360 $
12,153 $
155,641
45,464
4,546
50,010
1,032
867
18,777
20,676
70,686
120,741 $
72,757 $
193,498
$
6,593 $
6,099 $
20,137 $
32,829 $
226,327
*
Excludes $25.4 billion of fixed maturity securities for which no NAIC Designation is available because they are held in legal entities within U.S. Insurance Companies
that do not require a statutory filing.
104
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
105
1011252ai_financials.indd 105
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Credit Ratings
Available-for-Sale Investments
ITEM 7 | Investments
ITEM 7 | Investments
At December 31, 2017, approximately 90 percent of our fixed maturity securities were held by our domestic entities. Approximately 18
percent of these securities were rated AAA by one or more of the principal rating agencies, and approximately 16 percent were rated
below investment grade or not rated. Our investment decision process relies primarily on internally generated fundamental analysis
and internal risk ratings. Third-party rating services ratings and opinions provide one source of independent perspective for
consideration in the internal analysis.
Moodys Investors Service Inc. (Moodys), Standard & Poors Financial Services LLC, a subsidiary of S&P Global Inc. (S&P), or
similar foreign rating services rate a significant portion of our foreign entities fixed maturity securities portfolio. Rating services are not
available for some foreign-issued securities. Our Credit Risk Management department closely reviews the credit quality of the foreign
portfolios non-rated fixed maturity securities. At December 31, 2017, approximately 22 percent of such investments were either rated
AAA or, on the basis of our internal analysis, were equivalent from a credit standpoint to securities rated AAA, and approximately 8
percent were below investment grade or not rated. Approximately 36 percent of the foreign entities fixed maturity securities portfolio is
comprised of sovereign fixed maturity securities supporting policy liabilities in the country of issuance.
Composite AIG Credit Ratings
With respect to our fixed maturity securities, the credit ratings in the table below and in subsequent tables reflect: (a) a composite of
the ratings of the three major rating agencies, or when agency ratings are not available, the rating assigned by the NAIC SVO (over
99 percent of total fixed maturity securities), or (b) our equivalent internal ratings when these investments have not been rated by any
of the major rating agencies or the NAIC. The Non-rated category in those tables consists of fixed maturity securities that have not
been rated by any of the major rating agencies, the NAIC or us.
For a discussion of credit risks associated with Investments see Enterprise Risk Management.
The following table presents the composite AIG credit ratings of our fixed maturity securities calculated on the basis of their
fair value:
(in millions)
Rating:
Other fixed maturity
securities
AAA
AA
A
BBB
Below investment grade
Non-rated
Total
Mortgage-backed, asset-
backed and collateralized
AAA
AA
A
BBB
Below investment grade
Non-rated
Total
Total
AAA
AA
A
BBB
Below investment grade
Non-rated
$
$
$
$
$
Available for Sale
Other
Total
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2017
2016
2017
2016
2017
2016
$
11,644
29,560
45,049
70,636
13,173
1,073
11,791
33,647
45,619
68,700
12,832
890
$
2,656
$
2,807
$
212
1,745
138
17
-
250
1,612
76
17
-
$
14,300
29,772
46,794
70,774
13,190
1,073
14,598
33,897
47,231
68,776
12,849
890
171,135
$
173,479
$
4,768
$
4,762
$
175,903
$
178,241
30,306
$
28,593
$
8,158
7,760
4,414
17,194
25
67,857
41,950
37,718
52,809
75,050
30,367
1,098
$
$
6,114
8,504
4,996
19,838
13
68,058
40,384
39,761
54,123
73,696
32,670
903
$
$
818
610
382
163
6,004
27
8,004
3,474
822
2,127
301
6,021
27
$
1,055
$
31,124
$
$
$
714
307
303
6,790
67
9,236
3,862
964
1,919
379
6,807
67
$
$
8,768
8,142
4,577
23,198
52
75,861
45,424
38,540
54,936
75,351
36,388
1,125
$
$
29,648
6,828
8,811
5,299
26,628
80
77,294
44,246
40,725
56,042
74,075
39,477
970
$
238,992
$
241,537
$
12,772
$
13,998
$
251,764
$
255,535
Total
106
The following table presents the fair value of our available-for-sale securities:
(in millions)
Bonds available for sale:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
Mortgage-backed, asset-backed and collateralized:
Total mortgage-backed, asset-backed and collateralized
Total bonds available for sale*
Equity securities available for sale:
RMBS
CMBS
CDO/ABS
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Total
$
240,700
$
*
At December 31, 2017 and 2016, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled $31.5 billion and
$33.6 billion, respectively.
The following table presents the fair value of our aggregate credit exposures to non-U.S. governments for our fixed maturity
securities:
December 31,
December 31,
(in millions)
Japan
Germany
United Kingdom
Canada
France
Netherlands
Mexico
Indonesia
United Arab Emirates
Norway
Other
Total
The following table presents the fair value of our aggregate European credit exposures by major sector for our fixed
maturity securities:
(in millions)
Euro-Zone countries:
France
Germany
Netherlands
Belgium
Ireland
December 31, 2017
Non-
December 31,
Sovereign
Corporates
Products
Total
Financial
Institution
Financial
Structured
$
923 $
1,623
608
219
11
1,243 $
2,003 $
- $
$
178
941
109
-
2,001
1,271
888
495
1
48
-
565
4,169
3,803
2,868
1,216
1,071
Fair Value at
December 31,
2017
Fair Value at
December 31,
2016
$
$
2,656
18,644
15,659
134,176
37,234
13,841
16,782
67,857
238,992
1,061
533
114
1,708
2017
1,791
1,623
1,214
1,051
923
608
513
493
432
409
6,659
15,716
$
$
$
$
1,992
24,772
14,535
132,180
37,374
14,271
16,413
68,058
241,537
1,065
752
261
2,078
243,615
2016
2,140
1,168
815
1,115
667
445
637
366
343
456
6,434
14,586
2016
Total
3,788
3,227
2,658
1,075
1,263
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
107
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Credit Ratings
Available-for-Sale Investments
ITEM 7 | Investments
ITEM 7 | Investments
At December 31, 2017, approximately 90 percent of our fixed maturity securities were held by our domestic entities. Approximately 18
percent of these securities were rated AAA by one or more of the principal rating agencies, and approximately 16 percent were rated
below investment grade or not rated. Our investment decision process relies primarily on internally generated fundamental analysis
and internal risk ratings. Third-party rating services ratings and opinions provide one source of independent perspective for
consideration in the internal analysis.
Moodys Investors Service Inc. (Moodys), Standard & Poors Financial Services LLC, a subsidiary of S&P Global Inc. (S&P), or
similar foreign rating services rate a significant portion of our foreign entities fixed maturity securities portfolio. Rating services are not
available for some foreign-issued securities. Our Credit Risk Management department closely reviews the credit quality of the foreign
portfolios non-rated fixed maturity securities. At December 31, 2017, approximately 22 percent of such investments were either rated
AAA or, on the basis of our internal analysis, were equivalent from a credit standpoint to securities rated AAA, and approximately 8
percent were below investment grade or not rated. Approximately 36 percent of the foreign entities fixed maturity securities portfolio is
comprised of sovereign fixed maturity securities supporting policy liabilities in the country of issuance.
Composite AIG Credit Ratings
With respect to our fixed maturity securities, the credit ratings in the table below and in subsequent tables reflect: (a) a composite of
the ratings of the three major rating agencies, or when agency ratings are not available, the rating assigned by the NAIC SVO (over
99 percent of total fixed maturity securities), or (b) our equivalent internal ratings when these investments have not been rated by any
of the major rating agencies or the NAIC. The Non-rated category in those tables consists of fixed maturity securities that have not
been rated by any of the major rating agencies, the NAIC or us.
For a discussion of credit risks associated with Investments see Enterprise Risk Management.
The following table presents the fair value of our available-for-sale securities:
(in millions)
Bonds available for sale:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
Mortgage-backed, asset-backed and collateralized:
RMBS
CMBS
CDO/ABS
Total mortgage-backed, asset-backed and collateralized
Total bonds available for sale*
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Total
Fair Value at
December 31,
2017
Fair Value at
December 31,
2016
$
$
2,656
18,644
15,659
134,176
37,234
13,841
16,782
67,857
238,992
1,061
533
114
1,708
240,700
$
$
1,992
24,772
14,535
132,180
37,374
14,271
16,413
68,058
241,537
1,065
752
261
2,078
243,615
The following table presents the composite AIG credit ratings of our fixed maturity securities calculated on the basis of their
*
At December 31, 2017 and 2016, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled $31.5 billion and
$33.6 billion, respectively.
Available for Sale
Other
Total
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2017
2016
2017
2016
2017
2016
171,135
$
173,479
$
4,768
$
4,762
$
175,903
$
178,241
14,598
33,897
47,231
68,776
12,849
890
29,648
6,828
8,811
5,299
26,628
80
77,294
44,246
40,725
56,042
74,075
39,477
970
$
238,992
$
241,537
$
12,772
$
13,998
$
251,764
$
255,535
The following table presents the fair value of our aggregate credit exposures to non-U.S. governments for our fixed maturity
securities:
(in millions)
Japan
Germany
United Kingdom
Canada
France
Netherlands
Mexico
Indonesia
United Arab Emirates
Norway
Other
Total
December 31,
2017
1,791
1,623
1,214
1,051
923
608
513
493
432
409
6,659
15,716
$
$
December 31,
2016
2,140
1,168
815
1,115
667
445
637
366
343
456
6,434
14,586
$
$
The following table presents the fair value of our aggregate European credit exposures by major sector for our fixed
maturity securities:
(in millions)
Euro-Zone countries:
France
Germany
Netherlands
Belgium
Ireland
December 31, 2017
Non-
Financial
Corporates
Financial
Institution
Structured
Products
1,243 $
178
941
109
-
2,003 $
2,001
1,271
888
495
- $
1
48
-
565
December 31,
2016
Total
$
3,788
3,227
2,658
1,075
1,263
Total
4,169
3,803
2,868
1,216
1,071
Sovereign
$
923 $
1,623
608
219
11
AIG | 2017 Form 10-K
107
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fair value:
(in millions)
Rating:
Other fixed maturity
securities
Below investment grade
Non-rated
Total
Mortgage-backed, asset-
backed and collateralized
Below investment grade
Non-rated
AAA
AA
A
BBB
AAA
AA
A
BBB
Total
Total
AAA
AA
A
BBB
Total
106
$
$
$
$
$
Below investment grade
Non-rated
AIG | 2017 Form 10-K
11,644
29,560
45,049
70,636
13,173
1,073
8,158
7,760
4,414
17,194
25
67,857
41,950
37,718
52,809
75,050
30,367
1,098
30,306
$
28,593
$
$
1,055
$
31,124
$
$
$
2,656
$
2,807
$
$
11,791
33,647
45,619
68,700
12,832
890
6,114
8,504
4,996
19,838
13
68,058
40,384
39,761
54,123
73,696
32,670
903
212
1,745
138
17
-
818
610
382
163
6,004
27
8,004
3,474
822
2,127
301
6,021
27
250
1,612
76
17
-
714
307
303
6,790
67
9,236
3,862
964
1,919
379
6,807
67
14,300
29,772
46,794
70,774
13,190
1,073
8,768
8,142
4,577
23,198
52
75,861
45,424
38,540
54,936
75,351
36,388
1,125
$
$
$
$
$
$
$
$
$
$
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Investments
ITEM 7 | Investments
Spain
Italy
Luxembourg
Finland
Austria
Other - EuroZone
Total Euro-Zone
Remainder of Europe:
United Kingdom
Switzerland
Sweden
Norway
Russian Federation
Other - Remainder of Europe
Total - Remainder of Europe
Total
-
-
-
51
29
731
4,195 $
1,214 $
46
119
409
114
140
2,042 $
6,237 $
$
$
$
$
Investments in Municipal Bonds
149
184
30
34
8
45
2,921 $
3,554 $
1,221
378
45
17
55
5,270 $
8,191 $
860
510
406
78
-
237
8,749 $
8,465 $
1,032
161
164
153
92
10,067 $
18,816 $
-
-
-
-
-
-
614 $
3,742 $
-
-
-
-
-
3,742 $
4,356 $
1,009
694
436
163
37
1,013
16,479
16,975
2,299
658
618
284
287
21,121
37,600
918
842
430
198
95
1,104
15,598
15,293
2,360
691
582
169
285
19,380
34,978
$
$
$
$
At December 31, 2017, the U.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality
tax-exempt bonds with over 92 percent of the portfolio rated A or higher.
The following table presents the fair values of our available for sale U.S. municipal bond portfolio by state and municipal
bond type:
(in millions)
State:
New York
California
Texas
Massachusetts
Illinois
Florida
Washington
Virginia
Ohio
Georgia
Washington D.C.
Pennsylvania
Maryland
All other states(a)
Total(b)(c)
State
General
Obligation
December 31, 2017
Local
General
Obligation
Revenue
Total
Fair
Value
December 31,
2016
Total Fair Value
$
$
20 $
703
196
476
109
61
256
8
92
130
37
160
166
402
2,816 $
539 $
424
700
-
128
-
13
-
-
168
1
22
93
334
2,422 $
3,003 $
2,148
1,096
490
671
605
381
631
483
268
459
236
121
2,814
13,406 $
3,562 $
3,275
1,992
966
908
666
650
639
575
566
497
418
380
3,550
18,644 $
4,170
3,471
3,287
1,396
1,171
1,016
1,059
789
536
747
671
719
423
5,317
24,772
Investments in Corporate Debt Securities
The following table presents the industry categories of our available for sale corporate debt securities:
Industry Category
(in millions)
Financial institutions:
Money Center/Global Bank Groups
Regional banks other
Life insurance
Securities firms and other finance companies
Insurance non-life
Regional banks North America
Other financial institutions
Utilities
Communications
Consumer noncyclical
Capital goods
Energy
Consumer cyclical
Basic
Other
Total *
*
At both December 31, 2017 and December 31, 2016, approximately 91 percent of these investments were rated investment grade.
Our investments in the energy category, as a percentage of total investments in available-for-sale fixed maturities, was 5.5 percent
and 5.6 percent at December 31, 2017 and December 31, 2016, respectively. While the energy investments are primarily investment
grade and are actively managed, the category continues to experience volatility that could adversely affect credit quality and fair
value.
Investments in RMBS
The following table presents AIGs RMBS available for sale securities:
(in millions)
Agency RMBS
Alt-A RMBS
Subprime RMBS
Prime non-agency
Other housing related
Total RMBS(a)(b)
Fair Value at
December 31,
2017
Fair Value at
December 31,
2016
$
9,295
$
562
3,603
386
4,893
6,320
9,906
18,655
9,756
15,873
7,797
13,171
9,166
6,123
18,670
$
134,176
$
8,892
606
3,100
392
5,213
6,844
8,435
17,938
10,025
15,338
8,339
13,618
8,606
6,582
18,252
132,180
Fair Value at
December 31,
Fair Value at
December 31,
$
$
$
2017
15,002
11,624
2,947
6,891
770
37,234
$
2016
13,854
12,387
2,905
7,422
806
37,374
(a) We did not have material credit exposure to the government of Puerto Rico.
(b) Excludes certain university and not-for-profit entities that issue their bonds in the corporate debt market. Includes industrial revenue bonds.
(c) Includes $0.9 billion of pre-refunded municipal bonds.
(a) Includes approximately $12.3 billion and $12.9 billion at December 31, 2017 and December 31, 2016, respectively, of certain RMBS that had experienced deterioration
in credit quality since their origination. For additional discussion on Purchased Credit Impaired (PCI) Securities see Note 6 to the Consolidated Financial Statements.
(b) The weighted average expected life was six years at both December 31, 2017 and December 31, 2016.
Our underwriting practices for investing in RMBS, other asset-backed securities (ABS) and CDOs take into consideration the quality
of the originator, the manager, the servicer, security credit ratings, underlying characteristics of the mortgages, borrower
characteristics, and the level of credit enhancement in the transaction.
108
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
109
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Investments
ITEM 7 | Investments
Spain
Italy
Finland
Austria
Luxembourg
Other - EuroZone
Total Euro-Zone
Remainder of Europe:
United Kingdom
Switzerland
Sweden
Norway
Russian Federation
Other - Remainder of Europe
Total - Remainder of Europe
Total
$
$
$
$
Investments in Municipal Bonds
-
-
-
51
29
731
46
119
409
114
140
149
184
30
34
8
45
1,221
378
45
17
55
860
510
406
78
-
237
1,032
161
164
153
92
4,195 $
2,921 $
8,749 $
614 $
1,214 $
3,554 $
8,465 $
3,742 $
-
-
-
-
-
-
-
-
-
-
-
1,009
694
436
163
37
1,013
16,479
16,975
2,299
658
618
284
287
918
842
430
198
95
1,104
15,598
15,293
2,360
691
582
169
285
19,380
34,978
$
$
$
$
2,042 $
6,237 $
5,270 $
8,191 $
10,067 $
18,816 $
3,742 $
4,356 $
21,121
37,600
At December 31, 2017, the U.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality
tax-exempt bonds with over 92 percent of the portfolio rated A or higher.
The following table presents the fair values of our available for sale U.S. municipal bond portfolio by state and municipal
bond type:
(in millions)
State:
New York
California
Texas
Massachusetts
Illinois
Florida
Washington
Virginia
Ohio
Georgia
Washington D.C.
Pennsylvania
Maryland
All other states(a)
Total(b)(c)
December 31, 2017
State
General
Local
General
Obligation
Obligation
Revenue
Total
Fair
Value
December 31,
2016
Total Fair Value
$
20 $
539 $
3,003 $
3,562 $
2,148
1,096
3,275
1,992
703
196
476
109
61
256
8
92
130
37
160
166
402
424
700
128
13
-
-
-
-
168
1
22
93
334
490
671
605
381
631
483
268
459
236
121
966
908
666
650
639
575
566
497
418
380
$
2,816 $
2,422 $
13,406 $
18,644 $
2,814
3,550
4,170
3,471
3,287
1,396
1,171
1,016
1,059
789
536
747
671
719
423
5,317
24,772
Investments in Corporate Debt Securities
The following table presents the industry categories of our available for sale corporate debt securities:
Industry Category
(in millions)
Financial institutions:
Money Center/Global Bank Groups
Regional banks other
Life insurance
Securities firms and other finance companies
Insurance non-life
Regional banks North America
Other financial institutions
Utilities
Communications
Consumer noncyclical
Capital goods
Energy
Consumer cyclical
Basic
Other
Total *
Fair Value at
December 31,
2017
Fair Value at
December 31,
2016
$
$
9,295
562
3,603
386
4,893
6,320
9,906
18,655
9,756
15,873
7,797
13,171
9,166
6,123
18,670
134,176
$
$
8,892
606
3,100
392
5,213
6,844
8,435
17,938
10,025
15,338
8,339
13,618
8,606
6,582
18,252
132,180
*
At both December 31, 2017 and December 31, 2016, approximately 91 percent of these investments were rated investment grade.
Our investments in the energy category, as a percentage of total investments in available-for-sale fixed maturities, was 5.5 percent
and 5.6 percent at December 31, 2017 and December 31, 2016, respectively. While the energy investments are primarily investment
grade and are actively managed, the category continues to experience volatility that could adversely affect credit quality and fair
value.
Investments in RMBS
The following table presents AIGs RMBS available for sale securities:
(in millions)
Agency RMBS
Alt-A RMBS
Subprime RMBS
Prime non-agency
Other housing related
Total RMBS(a)(b)
Fair Value at
December 31,
2017
15,002
11,624
2,947
6,891
770
37,234
$
$
$
$
Fair Value at
December 31,
2016
13,854
12,387
2,905
7,422
806
37,374
(a) We did not have material credit exposure to the government of Puerto Rico.
(b) Excludes certain university and not-for-profit entities that issue their bonds in the corporate debt market. Includes industrial revenue bonds.
(c) Includes $0.9 billion of pre-refunded municipal bonds.
(a) Includes approximately $12.3 billion and $12.9 billion at December 31, 2017 and December 31, 2016, respectively, of certain RMBS that had experienced deterioration
in credit quality since their origination. For additional discussion on Purchased Credit Impaired (PCI) Securities see Note 6 to the Consolidated Financial Statements.
(b) The weighted average expected life was six years at both December 31, 2017 and December 31, 2016.
Our underwriting practices for investing in RMBS, other asset-backed securities (ABS) and CDOs take into consideration the quality
of the originator, the manager, the servicer, security credit ratings, underlying characteristics of the mortgages, borrower
characteristics, and the level of credit enhancement in the transaction.
108
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
109
1011252ai_financials.indd 109
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Investments
ITEM 7 | Investments
Investments in CMBS
The following table presents our CMBS available for sale securities:
(in millions)
CMBS (traditional)
Agency
Other
Total
Fair Value at
December 31,
2017
11,092 $
2,093
656
13,841 $
Fair Value at
December 31,
2016
11,782
1,737
752
14,271
$
$
The fair value of CMBS holdings remained stable throughout 2017. The majority of our investments in CMBS are in tranches that
contain substantial protection features through collateral subordination. The majority of CMBS holdings are traditional conduit
transactions, broadly diversified across property types and geographical areas.
Investments in CDOs
The following table presents our CDO available for sale securities by collateral type:
(in millions)
Collateral Type:
Bank loans (CLO)
Other
Total
Commercial Mortgage Loans
Fair value at
December 31,
2017
Fair value at
December 31,
2016
$
$
8,112 $
94
8,206 $
8,548
129
8,677
At December 31, 2017, we had direct commercial mortgage loan exposure of $28.6 billion. All commercial mortgage loans were
current or performing according to their restructured terms.
The following table presents the commercial mortgage loan exposure by location and class of loan based on amortized
cost:
December 31, 2016
State:
New York
California
Texas
Florida
Massachusetts
New Jersey
Illinois
Pennsylvania
Ohio
Connecticut
Other states
Foreign
Total*
96
89
58
67
20
39
19
24
29
19
269
59
788
* Does not reflect allowance for credit losses.
$
1,391
$ 3,527 $
$
$
$
$
185
401
24 %
12
325
255
322
415
529
258
-
151
343
761
857
94
114
47
307
28
17
67
534
282
97
340
408
355
20
473
211
23
1,309
707
1,239
906
1,670
784
215
286
108
165
50
-
52
51
165
80
481
245
163
870
154
19
-
29
36
26
-
-
560
532
6,015
2,925
1,515
1,016
1,014
993
696
578
549
513
5,458
3,770
6
4
4
4
3
2
2
2
22
15
$
6,005
$ 7,964 $
5,197
$
1,898
$ 2,389
$
1,589
$
25,042
100 %
For additional discussion on commercial mortgage loans see Note 7 to the Consolidated Financial Statements.
Impairments
The following table presents impairments by investment type:
Years Ended December 31,
(in millions)
Other-than-temporary Impairments:
Fixed maturity securities, available for sale
Equity securities, available for sale
Private equity funds and hedge funds
Subtotal
Other impairments:
Investments in life settlements(a)
Other investments
Real estate(b)
Total
44
76
27
33
23
-
5
-
199
596
11
33
260
360
20
61
2017
2016
2015
$
216 $
480 $
7
72
559
397
66
10
425
166
80
671
540
166
23
$
701 $
1,032 $
1,400
(dollars in millions)
December 31, 2017
State:
New York
California
Texas
Massachusetts
New Jersey
Florida
Pennsylvania
Illinois
Ohio
Washington D.C.
Other states
Foreign
Total*
Number
of
Class
Loans Apartments
Offices
Retail
Industrial
Hotel
Others
Total
Percent
of
Total
(a) Impairments include $360 million related to investments in our life settlements portfolio that were sold in 2017.
(b) Impairments include $35 million related to other assets that were sold during the three-month period ended June 30, 2017.
97
86
55
21
42
81
25
15
26
11
253
71
783
$
$
1,673
438
327
701
667
319
74
315
163
232
1,790
1,464
8,163
$ 3,716 $
1,055
934
384
46
84
22
304
11
359
964
821
$ 8,700 $
556
301
160
410
486
435
577
11
205
-
1,466
754
5,361
$
$
265
313
83
-
41
227
47
25
240
-
696
86
2,023
$
105
845
154
-
28
19
26
-
-
19
564
629
$ 2,389
$
$
177
360
38
27
32
69
-
23
5
-
160
1,069
1,960
$
$
6,492
3,312
1,696
1,522
1,300
1,153
746
678
624
610
5,640
4,823
28,596
23 %
12
6
5
4
4
3
2
2
2
20
17
100 %
Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An investment in life
settlements is considered impaired if the undiscounted cash flows resulting from the expected proceeds would not be sufficient to
recover our estimated future carrying amount. This amount is defined as the current carrying amount for the investment in life
settlements plus anticipated undiscounted future premiums and other capitalizable future costs, if any. Impaired investments in life
settlements are written down to their estimated fair value. This is determined on a discounted cash flow basis, incorporating current
market mortality assumptions and market yields or by repricing to the anticipated sale price as appropriate.
Impairments on life settlements in 2017 were mainly attributable to write-downs of the policies to the purchase price as agreed in the
sale of the remainder of the life settlements portfolio.
Impairments on life settlements in 2016 were partially attributable to an increase in policy premiums required to keep policies in force
which resulted in lower future expected net cash flows that were insufficient to recover our net investment on certain policies.
Impairments on life settlements in 2015 were partially attributable to an increase in policy premiums required to keep policies in force
which resulted in lower future expected net cash flows that were insufficient to recover our net investment on certain policies as well
as our adoption of the Society of Actuaries 2015 Valuation Basic Table (VBT) as the market mortality assumption used to measure the
fair value of impaired policies.
110
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
111
1011252ai_financials.indd 110
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
$
$
$
$
Investments in CMBS
The following table presents our CMBS available for sale securities:
The fair value of CMBS holdings remained stable throughout 2017. The majority of our investments in CMBS are in tranches that
contain substantial protection features through collateral subordination. The majority of CMBS holdings are traditional conduit
transactions, broadly diversified across property types and geographical areas.
ITEM 7 | Investments
ITEM 7 | Investments
Fair Value at
December 31,
Fair Value at
December 31,
2016
11,782
1,737
752
14,271
2017
11,092 $
2,093
656
13,841 $
December 31, 2016
State:
New York
California
Texas
Florida
Massachusetts
New Jersey
Illinois
Pennsylvania
Ohio
Connecticut
Other states
Foreign
Total*
96
89
58
67
20
39
19
24
29
19
269
59
788
$
$
1,391
325
255
322
415
529
258
-
151
343
1,309
707
6,005
$ 3,527 $
761
857
94
114
47
307
28
17
67
1,239
906
$ 7,964 $
534
282
97
340
408
355
20
473
211
23
1,670
784
5,197
$
$
215
286
108
165
50
-
52
51
165
80
481
245
1,898
$
163
870
154
19
-
29
36
26
-
-
560
532
$ 2,389
$
$
185
401
44
76
27
33
23
-
5
-
199
596
1,589
$
$
6,015
2,925
1,515
1,016
1,014
993
696
578
549
513
5,458
3,770
25,042
24 %
12
6
4
4
4
3
2
2
2
22
15
100 %
Investments in CDOs
* Does not reflect allowance for credit losses.
The following table presents our CDO available for sale securities by collateral type:
For additional discussion on commercial mortgage loans see Note 7 to the Consolidated Financial Statements.
At December 31, 2017, we had direct commercial mortgage loan exposure of $28.6 billion. All commercial mortgage loans were
current or performing according to their restructured terms.
The following table presents the commercial mortgage loan exposure by location and class of loan based on amortized
Fair value at
December 31,
2017
Fair value at
December 31,
2016
8,112 $
94
8,206 $
8,548
129
8,677
Impairments
The following table presents impairments by investment type:
Years Ended December 31,
(in millions)
Other-than-temporary Impairments:
Fixed maturity securities, available for sale
Equity securities, available for sale
Private equity funds and hedge funds
Subtotal
Other impairments:
Investments in life settlements(a)
Other investments
Real estate(b)
Total
2017
2016
2015
216 $
11
33
260
360
20
61
701 $
480 $
7
72
559
397
66
10
1,032 $
425
166
80
671
540
166
23
1,400
$
$
Number
of
Class
Percent
of
(a) Impairments include $360 million related to investments in our life settlements portfolio that were sold in 2017.
(b) Impairments include $35 million related to other assets that were sold during the three-month period ended June 30, 2017.
Loans Apartments
Offices
Retail
Industrial
Hotel
Others
Total
Total
97
86
55
21
42
81
25
15
26
11
253
71
783
438
327
701
667
319
74
315
163
232
1,790
1,464
8,163
1,055
934
384
46
84
22
304
11
359
964
821
556
301
160
410
486
435
577
11
205
-
1,466
754
265
313
83
-
41
227
47
25
240
-
696
86
105
845
154
-
28
19
26
-
-
19
564
629
6,492
3,312
1,696
1,522
1,300
1,153
746
678
624
610
5,640
4,823
6
5
4
4
3
2
2
2
20
17
38
27
32
69
23
-
5
-
160
1,069
1,960
$
1,673
$ 3,716 $
$
$
$
$
177
360
23 %
12
$
$ 8,700 $
5,361
$
2,023
$ 2,389
$
$
28,596
100 %
Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An investment in life
settlements is considered impaired if the undiscounted cash flows resulting from the expected proceeds would not be sufficient to
recover our estimated future carrying amount. This amount is defined as the current carrying amount for the investment in life
settlements plus anticipated undiscounted future premiums and other capitalizable future costs, if any. Impaired investments in life
settlements are written down to their estimated fair value. This is determined on a discounted cash flow basis, incorporating current
market mortality assumptions and market yields or by repricing to the anticipated sale price as appropriate.
Impairments on life settlements in 2017 were mainly attributable to write-downs of the policies to the purchase price as agreed in the
sale of the remainder of the life settlements portfolio.
Impairments on life settlements in 2016 were partially attributable to an increase in policy premiums required to keep policies in force
which resulted in lower future expected net cash flows that were insufficient to recover our net investment on certain policies.
Impairments on life settlements in 2015 were partially attributable to an increase in policy premiums required to keep policies in force
which resulted in lower future expected net cash flows that were insufficient to recover our net investment on certain policies as well
as our adoption of the Society of Actuaries 2015 Valuation Basic Table (VBT) as the market mortality assumption used to measure the
fair value of impaired policies.
(in millions)
CMBS (traditional)
Agency
Other
Total
(in millions)
Collateral Type:
Bank loans (CLO)
Other
Total
Commercial Mortgage Loans
cost:
(dollars in millions)
December 31, 2017
State:
New York
California
Texas
Massachusetts
New Jersey
Florida
Pennsylvania
Illinois
Ohio
Washington D.C.
Other states
Foreign
Total*
110
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
111
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Investments
ITEM 7 | Investments
Other-Than-Temporary Impairments
To determine other-than-temporary impairments, we use fundamental credit analyses of individual securities without regard to rating
agency ratings. Based on this analysis, we expect to receive cash flows sufficient to cover the amortized cost of all below investment
grade securities for which credit impairments were not recognized.
The following tables present other-than-temporary impairment charges recorded in earnings on fixed maturity securities,
equity securities, private equity funds and hedge funds.
Other-than-temporary impairment charges by investment type and impairment type:
(in millions)
For the Year Ended December 31, 2017
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Total
For the Year Ended December 31, 2016
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Total
For the Year Ended December 31, 2015
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Total
$
$
$
$
$
$
RMBS
CDO/ABS
CMBS
Other Fixed
Maturity
Equities/Other
Invested Assets*
Total
- $
-
-
24
4
28 $
- $
-
-
116
47
163 $
- $
3
-
79
20
102 $
- $
-
-
41
-
41 $
- $
-
-
1
-
1 $
- $
-
-
3
-
3 $
- $
-
-
32
-
32 $
- $
-
-
38
-
38 $
- $
14
-
8
-
22 $
- $
9
11
95
-
115 $
- $
46
18
214
-
278 $
- $
131
57
110
-
298 $
2 $
-
-
42
-
44 $
15 $
-
-
64
-
79 $
13 $
85
-
148
-
246 $
2
9
11
234
4
260
15
46
18
433
47
559
13
233
57
348
20
671
*
Includes other-than-temporary impairment charges on private equity funds, hedge funds and direct private equity investments.
We recorded other-than-temporary impairment charges in the years ended December 31, 2017, 2016 and 2015 related to:
issuer-specific credit events;
securities that we intend to sell or for which it is more likely than not that we will be required to sell;
declines due to foreign exchange rates;
adverse changes in estimated cash flows on certain structured securities; and
securities that experienced severe market valuation declines.
In addition, impairments are recorded on real estate and investments in life settlements.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities
that is not foreign-exchange related, we generally prospectively accrete into earnings the difference between the new amortized cost
and the expected undiscounted recoverable value over the remaining life of the security. The accretion that was recognized for these
securities in earnings was $669 million in 2017, $767 million in 2016 and $735 million in 2015.
For a discussion of our other-than-temporary impairment accounting policy see Note 6 to the Consolidated Financial Statements.
The following table shows the aging of the pre-tax unrealized losses of fixed maturity and equity securities, the extent to
which the fair value is less than amortized cost or cost, and the number of respective items in each category:
December 31, 2017
Aging(a)
(dollars in millions)
Investment grade
bonds
0-6 months
7-11 months
12 months or more
Total
$
41,697 $
5,216
$
462 $
156
10
$
42,193 $
1,079
Below investment
grade bonds
0-6 months
7-11 months
12 months or more
Total
Total bonds
0-6 months
7-11 months
12 months or more
Total(e)
Equity securities
0-11 months
Total
Less Than or Equal
to 20% of Cost(b)
Unrealized
Greater Than 20%
to 50% of Cost(b)
Unrealized
Greater Than 50%
of Cost(b)
Unrealized
Total
Unrealized
Cost(c)
Loss
Items(e)
Cost(c)
Loss Items(e)
Cost(c)
Loss Items(e)
Cost(c)
Loss(d)
Items(e)
$
2,956 $
1,490
$
20 $
$
2,977 $
$
24,962 $
3,202
$
368 $
128
3,364
13,371
528
1,486
32
62
321
108
473
902
85
24
104
213
406
132
577
476
2,141
$
5,573 $
3,840
15,512
29
186
235 $
61
248
239
385
2,114
4,692
767
1,871
$
$
$
$
$
$
$
113 $
113 $
11
11
66
66
45 $
45 $
7
5
13
25
30
19
29
78
37
24
42
8
8
$
$
$
$
$
$
$
$
- $
17
17
34 $
1 $
-
5
6 $
1 $
17
22
- $
- $
10
18
6
11
45
62
21
63
10
10
-
11
10
21
1
-
5
6
1
11
15
27
-
-
-
4
6
4
-
1
5
4
4
7
-
-
$
25,330 $
3,413
13,450
505
2,332
5,814 $
28,307 $
3,918
15,782
158 $
158 $
$
$
$
$
$
449
129
501
92
35
154
281
541
164
655
21
21
3,209
537
1,505
5,251
1,524
258
415
2,197
4,733
795
1,920
7,448
74
74
$
47,270 $
1,115
7,330
697 $
218
103
40 $
15
48,007 $
1,360
$
27,918 $
388 $
134
(a) Represents the number of consecutive months that fair value has been less than cost by any amount.
(b) Represents the percentage by which fair value is less than cost at December 31, 2017.
(c) For bonds, represents amortized cost.
(d) The effect on Net income of unrealized losses after taxes will be mitigated upon realization because certain realized losses will result in current decreases in the
amortization of certain DAC.
(e) Item count is by CUSIP by subsidiary.
Change in Unrealized Gains and Losses on Investments
The change in net unrealized gains and losses on investments in 2017 was primarily attributable to increases in the fair value of fixed
maturity securities. For 2017, net unrealized gains related to fixed maturity and equity securities increased by $4.3 billion due primarily
to a decrease in rates and a narrowing of credit spreads.
The change in net unrealized gains and losses on investments in 2016 was primarily attributable to increases in the fair value of fixed
maturity securities. For 2016, net unrealized gains related to fixed maturity and equity securities increased by $0.9 billion due primarily
to a narrowing of credit spreads, which more than offset the rise in rates.
For further discussion of our investment portfolio see also Note 6 to the Consolidated Financial Statements.
112
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
113
1011252ai_financials.indd 112
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Other-Than-Temporary Impairments
To determine other-than-temporary impairments, we use fundamental credit analyses of individual securities without regard to rating
The following table shows the aging of the pre-tax unrealized losses of fixed maturity and equity securities, the extent to
which the fair value is less than amortized cost or cost, and the number of respective items in each category:
ITEM 7 | Investments
ITEM 7 | Investments
agency ratings. Based on this analysis, we expect to receive cash flows sufficient to cover the amortized cost of all below investment
December 31, 2017
grade securities for which credit impairments were not recognized.
Less Than or Equal
to 20% of Cost(b)
Unrealized
Greater Than 20%
to 50% of Cost(b)
Unrealized
Greater Than 50%
of Cost(b)
Unrealized
Cost(c)
Loss
Items(e)
Cost(c)
Loss Items(e)
Cost(c)
Loss Items(e)
Cost(c)
Total
Unrealized
Loss(d)
Items(e)
(in millions)
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Total
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Total
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
For the Year Ended December 31, 2016
28 $
41 $
32 $
115 $
- $
- $
- $
- $
15 $
$
$
$
$
$
-
-
24
4
-
-
116
47
3
-
79
20
-
-
-
41
-
-
1
-
-
-
3
-
32
-
-
-
-
-
-
38
14
-
8
-
9
11
95
-
46
18
214
-
131
57
110
-
-
-
-
-
-
-
-
-
42
44 $
64
79 $
13 $
85
148
2
9
11
234
4
260
15
46
18
433
47
559
13
233
57
348
20
671
For the Year Ended December 31, 2015
163 $
1 $
38 $
278 $
- $
- $
- $
- $
The following tables present other-than-temporary impairment charges recorded in earnings on fixed maturity securities,
equity securities, private equity funds and hedge funds.
Other-than-temporary impairment charges by investment type and impairment type:
For the Year Ended December 31, 2017
RMBS
CDO/ABS
CMBS
Maturity
Other Fixed
Equities/Other
Invested Assets*
Total
- $
- $
- $
- $
2 $
Total
*
Includes other-than-temporary impairment charges on private equity funds, hedge funds and direct private equity investments.
$
102 $
3 $
22 $
298 $
246 $
We recorded other-than-temporary impairment charges in the years ended December 31, 2017, 2016 and 2015 related to:
issuer-specific credit events;
securities that we intend to sell or for which it is more likely than not that we will be required to sell;
declines due to foreign exchange rates;
adverse changes in estimated cash flows on certain structured securities; and
securities that experienced severe market valuation declines.
In addition, impairments are recorded on real estate and investments in life settlements.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities
that is not foreign-exchange related, we generally prospectively accrete into earnings the difference between the new amortized cost
and the expected undiscounted recoverable value over the remaining life of the security. The accretion that was recognized for these
securities in earnings was $669 million in 2017, $767 million in 2016 and $735 million in 2015.
For a discussion of our other-than-temporary impairment accounting policy see Note 6 to the Consolidated Financial Statements.
Total
$
41,697 $
Aging(a)
(dollars in millions)
Investment grade
bonds
0-6 months
7-11 months
12 months or more
Below investment
grade bonds
0-6 months
7-11 months
12 months or more
Total
Total bonds
0-6 months
7-11 months
12 months or more
Total(e)
Equity securities
0-11 months
Total
$
24,962 $
3,364
13,371
$
2,956 $
476
2,141
$
5,573 $
$
27,918 $
3,840
15,512
321
108
473
902
85
24
104
213
406
132
577
1,490
$
20 $
$
2,977 $
3,202
$
368 $
128
528
1,486
32
62
10
18
5,216
$
462 $
156
29
186
235 $
6
11
45
62
388 $
134
61
248
21
63
239
385
2,114
4,692
767
1,871
$
$
$
$
$
7
5
13
25
30
19
29
78
37
24
42
$
$
$
$
$
$
$
$
- $
17
17
34 $
1 $
-
5
6 $
1 $
17
22
40 $
- $
- $
-
11
10
21
1
-
5
6
1
11
15
27
-
-
-
4
6
$
25,330 $
3,413
13,450
449
129
501
10
$
42,193 $
1,079
4
-
1
5
4
4
7
15
-
-
$
$
$
$
$
505
2,332
5,814 $
28,307 $
3,918
15,782
92
35
154
281
541
164
655
48,007 $
1,360
158 $
158 $
21
21
74
74
3,209
537
1,505
5,251
1,524
258
415
2,197
4,733
795
1,920
7,448
$
47,270 $
1,115
7,330
$
$
113 $
113 $
11
11
66
66
697 $
218
103
45 $
45 $
10
10
8
8
(a) Represents the number of consecutive months that fair value has been less than cost by any amount.
(b) Represents the percentage by which fair value is less than cost at December 31, 2017.
(c) For bonds, represents amortized cost.
(d) The effect on Net income of unrealized losses after taxes will be mitigated upon realization because certain realized losses will result in current decreases in the
amortization of certain DAC.
(e) Item count is by CUSIP by subsidiary.
Change in Unrealized Gains and Losses on Investments
The change in net unrealized gains and losses on investments in 2017 was primarily attributable to increases in the fair value of fixed
maturity securities. For 2017, net unrealized gains related to fixed maturity and equity securities increased by $4.3 billion due primarily
to a decrease in rates and a narrowing of credit spreads.
The change in net unrealized gains and losses on investments in 2016 was primarily attributable to increases in the fair value of fixed
maturity securities. For 2016, net unrealized gains related to fixed maturity and equity securities increased by $0.9 billion due primarily
to a narrowing of credit spreads, which more than offset the rise in rates.
For further discussion of our investment portfolio see also Note 6 to the Consolidated Financial Statements.
112
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
113
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Net Realized Capital Gains and Losses
The following table presents the components of Net realized capital losses:
Insurance Reserves
ITEM 7 | Investments
ITEM 7 | Insurance Reserves
Years Ended December 31,
(in millions)
Sales of fixed maturity securities
Sales of equity securities(a)
Other-than-temporary impairments:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Provision for loan losses
Foreign exchange transactions
Variable annuity embedded derivatives, net of related hedges
All other derivatives and hedge accounting
Impairments on investments in life settlements
Other(b)
Net realized capital gains (losses)
2017
425 $
88
2016
1 $
1,057
2015
94
1,032
(2)
(9)
(11)
(234)
(4)
(50)
489
(1,374)
(368)
(360)
30
(1,380) $
(15)
(46)
(18)
(433)
(47)
10
(1,226)
(1,243)
299
(397)
114
(1,944) $
(13)
(233)
(57)
(348)
(20)
(58)
416
320
78
(540)
105
776
$
$
(a) In 2016 and 2015 includes realized gains on the sale of a portion of our holdings in Peoples Insurance Company (Group) of China Limited and PICC Property &
Casualty Company Limited (collectively, our PICC Investment).
(b) In 2016, primarily includes $107 million of realized gains due to a purchase price adjustment on the sale of Class B shares of Prudential Financial, Inc. and losses of
$253 million from the sale of a portion of our Life Settlements portfolio. In 2015, primarily includes $357 million of realized gains due to the sale of common shares of
SpringLeaf Holdings (now known as OneMain Holdings, Inc.), $428 million of realized gains due to the sale of Class B shares of Prudential Financial, Inc. and $463
million of realized losses due to the sale of ordinary shares of AerCap.
Net realized capital losses decreased in 2017 compared to 2016 due primarily to foreign exchange gains versus losses in the prior
year and lower other-than-temporary impairments. Net realized capital losses in 2017 consisted primarily of variable annuity
embedded derivatives, net of related hedges, and impairments, which were partially offset by gains on the sales of securities and
foreign exchange gains.
Variable annuity embedded derivatives, net of related hedge losses were primarily a result of the non-performance or own credit risk
adjustment used in the valuation of the variable annuities with guaranteed minimum withdrawal benefits (GMWB) embedded
derivative impacted by interest rates and equity market performance in 2017 and changes in actuarial assumptions in our variable
annuity program, both of which are not hedged as part of our economic hedging program.
For additional discussion of market risk management related to these product features see MD&A Enterprise Risk Management
Insurance Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Programs. For more
information on the economic hedging target and the impact to pre-tax income of this program see Insurance Reserves Life and
Annuity Reserves and DAC Variable Annuity Guaranteed Benefits and Hedging Results in this MD&A.
Net realized capital losses in 2016 were primarily related to foreign exchange losses, derivative losses, and impairments, which were
higher than the gain recognized on the sale of a portion of our PICC Investment. Foreign exchange gains (losses) were primarily due
to $910 million of remeasurement losses in 2016 for a short term intercompany balance that was matched with available for sale
investments in fixed maturity securities denominated in the same foreign currencies. Unrealized gains and losses on the available for
sale investments were recorded in other comprehensive income resulting in an immaterial impact on our overall equity or book value
per share from this arrangement.
Net realized capital gains in 2015 were primarily driven by foreign exchange gains which included $243 million of gains in 2015,
related to the intercompany notional cash pooling arrangement, discussed above and net gains on the sales of various securities
such as the Class B shares of Prudential Financial, Inc., common shares of OneMain Holdings and sales of our PICC Investment.
These realized gains were partially offset by realized losses related to the sale of ordinary shares of AerCap.
For further discussion of our investment portfolio see also Note 6 to the Consolidated Financial Statements.
LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LOSS RESERVES)
The following table presents the components of our gross and net loss reserves by segment and major lines of business*:
At December 31,
2017
2016
(in millions)
General Insurance:
U.S. Workers' Compensation
(net of discount)
U.S. Excess Casualty
U.S. Other Casualty
U.S. Financial Lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial Lines
Europe Property and Special risks
Europe and Japan Personal Insurance
Other product lines
Unallocated loss adjustment expenses
Total General Insurance
Legacy Portfolio - Run-off Lines:
U.S. Long Tail Insurance lines
(net of discount)
Other run-off product lines
Unallocated loss adjusted expenses
Total Legacy Portfolio - Run-off Lines
Other Operations (Blackboard)
Net liability for
Reinsurance
Gross liability
Net liability
Reinsurance
Gross liability
unpaid losses
recoverable on
for unpaid
for unpaid
recoverable on
for unpaid
and loss unpaid losses and
losses and
losses and unpaid losses and
losses and
adjustment
loss adjustment
loss adjustment
loss adjustment
loss adjustment
loss adjustment
expenses
expenses
expenses
expenses
expenses
expenses
$
5,690 $
4,974 $
10,664
$
10,486 $
1,159 $
4,802
5,149
5,104
5,410
1,380
6,986
2,022
2,348
5,804
1,974
46,669
4,465
153
370
4,988
28
4,053
4,793
1,962
968
194
1,156
632
349
2,307
1,258
22,646
3,675
65
111
3,851
211
8,855
9,942
7,066
6,378
1,574
8,142
2,654
2,697
8,111
3,232
8,140
218
481
8,839
239
8,653
8,853
6,014
4,087
1,042
5,784
1,818
2,260
4,320
2,741
4,980
160
347
5,487
-
951
2,618
1,195
905
197
1,313
691
180
1,706
303
11,218
4,154
46
114
4,314
-
11,645
9,604
11,471
7,209
4,992
1,239
7,097
2,509
2,440
6,026
3,044
67,276
9,134
206
461
9,801
-
69,315
56,058
Total
$
51,685 $
26,708 $
78,393
$
61,545 $
15,532 $
77,077
* Includes loss reserve discount of $1.8 billion and $3.6 billion for the years ended December 31, 2017, and 2016, respectively. For discussion of loss reserve discount see
Note 13 to the Consolidated Financial Statements.
114
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
115
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Net Realized Capital Gains and Losses
Years Ended December 31,
(in millions)
Sales of fixed maturity securities
Sales of equity securities(a)
Other-than-temporary impairments:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Provision for loan losses
Foreign exchange transactions
Variable annuity embedded derivatives, net of related hedges
All other derivatives and hedge accounting
Impairments on investments in life settlements
Other(b)
Net realized capital gains (losses)
The following table presents the components of Net realized capital losses:
Insurance Reserves
ITEM 7 | Investments
ITEM 7 | Insurance Reserves
2017
2016
$
425 $
1 $
88
1,057
2015
94
1,032
(2)
(9)
(11)
(234)
(4)
(50)
489
(368)
(360)
30
(1,374)
(15)
(46)
(18)
(433)
(47)
10
(1,226)
(1,243)
299
(397)
114
$
(1,380) $
(1,944) $
(13)
(233)
(57)
(348)
(20)
(58)
416
320
78
(540)
105
776
(a) In 2016 and 2015 includes realized gains on the sale of a portion of our holdings in Peoples Insurance Company (Group) of China Limited and PICC Property &
Casualty Company Limited (collectively, our PICC Investment).
(b) In 2016, primarily includes $107 million of realized gains due to a purchase price adjustment on the sale of Class B shares of Prudential Financial, Inc. and losses of
$253 million from the sale of a portion of our Life Settlements portfolio. In 2015, primarily includes $357 million of realized gains due to the sale of common shares of
SpringLeaf Holdings (now known as OneMain Holdings, Inc.), $428 million of realized gains due to the sale of Class B shares of Prudential Financial, Inc. and $463
million of realized losses due to the sale of ordinary shares of AerCap.
Net realized capital losses decreased in 2017 compared to 2016 due primarily to foreign exchange gains versus losses in the prior
year and lower other-than-temporary impairments. Net realized capital losses in 2017 consisted primarily of variable annuity
embedded derivatives, net of related hedges, and impairments, which were partially offset by gains on the sales of securities and
foreign exchange gains.
Variable annuity embedded derivatives, net of related hedge losses were primarily a result of the non-performance or own credit risk
adjustment used in the valuation of the variable annuities with guaranteed minimum withdrawal benefits (GMWB) embedded
derivative impacted by interest rates and equity market performance in 2017 and changes in actuarial assumptions in our variable
annuity program, both of which are not hedged as part of our economic hedging program.
For additional discussion of market risk management related to these product features see MD&A Enterprise Risk Management
Insurance Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Programs. For more
information on the economic hedging target and the impact to pre-tax income of this program see Insurance Reserves Life and
Annuity Reserves and DAC Variable Annuity Guaranteed Benefits and Hedging Results in this MD&A.
Net realized capital losses in 2016 were primarily related to foreign exchange losses, derivative losses, and impairments, which were
higher than the gain recognized on the sale of a portion of our PICC Investment. Foreign exchange gains (losses) were primarily due
to $910 million of remeasurement losses in 2016 for a short term intercompany balance that was matched with available for sale
investments in fixed maturity securities denominated in the same foreign currencies. Unrealized gains and losses on the available for
sale investments were recorded in other comprehensive income resulting in an immaterial impact on our overall equity or book value
per share from this arrangement.
Net realized capital gains in 2015 were primarily driven by foreign exchange gains which included $243 million of gains in 2015,
related to the intercompany notional cash pooling arrangement, discussed above and net gains on the sales of various securities
such as the Class B shares of Prudential Financial, Inc., common shares of OneMain Holdings and sales of our PICC Investment.
These realized gains were partially offset by realized losses related to the sale of ordinary shares of AerCap.
For further discussion of our investment portfolio see also Note 6 to the Consolidated Financial Statements.
LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LOSS RESERVES)
The following table presents the components of our gross and net loss reserves by segment and major lines of business*:
At December 31,
2017
2016
(in millions)
General Insurance:
U.S. Workers' Compensation
(net of discount)
U.S. Excess Casualty
U.S. Other Casualty
U.S. Financial Lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial Lines
Europe Property and Special risks
Europe and Japan Personal Insurance
Other product lines
Unallocated loss adjustment expenses
Total General Insurance
Legacy Portfolio - Run-off Lines:
U.S. Long Tail Insurance lines
(net of discount)
Other run-off product lines
Unallocated loss adjusted expenses
Total Legacy Portfolio - Run-off Lines
Other Operations (Blackboard)
Net liability for
Reinsurance
Gross liability
Net liability
Reinsurance
Gross liability
unpaid losses
recoverable on
for unpaid
for unpaid
recoverable on
for unpaid
and loss unpaid losses and
losses and
losses and unpaid losses and
losses and
adjustment
loss adjustment
loss adjustment
loss adjustment
loss adjustment
loss adjustment
expenses
expenses
expenses
expenses
expenses
expenses
$
5,690 $
4,974 $
10,664
$
10,486 $
1,159 $
4,802
5,149
5,104
5,410
1,380
6,986
2,022
2,348
5,804
1,974
46,669
4,465
153
370
4,988
28
4,053
4,793
1,962
968
194
1,156
632
349
2,307
1,258
22,646
3,675
65
111
3,851
211
8,855
9,942
7,066
6,378
1,574
8,142
2,654
2,697
8,111
3,232
8,653
8,853
6,014
4,087
1,042
5,784
1,818
2,260
4,320
2,741
69,315
56,058
8,140
218
481
8,839
239
4,980
160
347
5,487
-
951
2,618
1,195
905
197
1,313
691
180
1,706
303
11,218
4,154
46
114
4,314
-
11,645
9,604
11,471
7,209
4,992
1,239
7,097
2,509
2,440
6,026
3,044
67,276
9,134
206
461
9,801
-
Total
$
51,685 $
26,708 $
78,393
$
61,545 $
15,532 $
77,077
* Includes loss reserve discount of $1.8 billion and $3.6 billion for the years ended December 31, 2017, and 2016, respectively. For discussion of loss reserve discount see
Note 13 to the Consolidated Financial Statements.
114
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
115
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
PRIOR YEAR DEVELOPMENT
The following table summarizes incurred (favorable) unfavorable prior year development net of reinsurance by segment:
Year Ended December 31,
(in millions)
General Insurance:
North America*
International
Total General Insurance
Legacy Portfolio - Run-off Lines
Other Operations
Total prior year unfavorable development
2017
2016
2015
$
$
$
371 $
628
999 $
(21)
-
978 $
5,286 $
156
5,442 $
402
(56)
5,788 $
3,120
155
3,275
913
(69)
4,119
*
Includes the amortization attributed to the deferred gain at inception from the NICO adverse development reinsurance agreement of $228 million in the year ended
December 31, 2017. Consistent with our definition of APTI, the year ended December 31, 2017 excludes the portion of unfavorable prior year reserve development for
which we have ceded the risk under the NICO reinsurance agreements of $359 million, and related changes in amortization of the deferred gain of $56 million.
Net Loss Development 2017
During 2017, we recognized unfavorable prior year loss reserve development of $978 million. This unfavorable development was
primarily a result of the following:
Unfavorable development in U.S. Excess Casualty and U.S. Other Casualty, driven primarily by increases in underlying severity
and greater than expected emerging loss experience in accident year 2016 as well as increased development from claims related
to construction defects and construction wrap business (largely from accident years 2006 and prior).
The following tables summarize incurred (favorable) unfavorable prior year development net of reinsurance, by segment and
major lines of business, and by accident year groupings:
Year Ended December 31, 2017
(in millions)
General Insurance North America:
U.S. Workers' Compensation
U.S. Excess casualty
U.S. Other casualty
U.S. Financial lines
U.S. Property and special risks
U.S. Personal insurance
Other product lines
Total General Insurance North America
General Insurance International:
Europe casualty and financial lines
Europe property and special risks
Europe and Japan Personal insurance
Other product lines
Total General Insurance International
Legacy Portfolio - Run-off Lines
Other Operations
Unfavorable development in U.S. Financial Lines, primarily from Directors & Officers (D&O) policies covering privately owned and
Total prior year unfavorable development
$
978 $
820 $
not-for-profit insureds. This development was predominantly in accident year 2016 and resulted largely from increases in
bankruptcy-related claims and fiduciary liability claims for large educational institutions.
Higher than expected losses for Europe Casualty and Financial Lines, including a significant increase in large claims activity in our
Europe long-tail business, with a large proportion emanating from accident year 2016. In addition, we increased our loss reserves
as a result of the decision made by the UK Ministry of Justice to reduce the discount rate applied to lump-sum bodily injury
payouts, known as the Ogden rate.
In addition, we also observed higher than expected losses in our Europe Property and Special Risks business driven by
unexpected development on various large claims across the property, aviation, marine, and trade credit segments.
For accident year 2016, the unfavorable development of $820 million was spread across multiple segments, with the drivers being
U.S. Excess Casualty, U.S. Financial Lines, Europe Casualty and Financial Lines, and Europe Property and Special Risks. As noted
above, we have seen unexpected loss severity in these portfolios at this early stage of development.
For accident years 2015 and prior, the unfavorable development of $158 million was primarily driven by Europe Casualty and
Financial Lines. For North America, development was favorable, primarily reflecting the benefit of the prior year development ceded to
NICO and the amortization on the adverse development reinsurance agreement.
Net Loss Development 2016
Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss
adjustment expense ratios we selected.
During 2016, we recognized adverse prior year loss reserve development of $5.8 billion. This unfavorable development was primarily
a result of the following:
Total
2016
2015 & Prior
$
(99) $
46 $
125
14
248
71
17
(5)
157
(58)
22
(21)
-
$
$
$
240
16
272
74
(4)
(19)
122
(42)
(28)
(10)
-
371 $
625 $
(254)
507 $
153 $
628 $
205 $
(145)
(115)
(2)
(24)
(3)
21
14
354
35
(16)
50
423
(11)
-
158
For further details of prior year development by line of business, see Note 13 to the Consolidated Financial Statements. For a
discussion of actuarial methods employed for major classes of business, see also Critical Accounting Estimates.
Higher than expected losses emerging across several casualty product lines, especially in recent accident years (generally, 2011
to 2015) driven by increased frequency and severity of claims. This recent accident year loss emergence caused us to increase
loss development factors applied across many accident years.
Loss development factors including workers compensation tail factors, also increased due to an observed lengthening of loss
Increases in loss trend assumptions to reflect the latest observed increases in frequency and severity and the impact of these
reporting patterns relative to prior expectations.
increased loss trends on expected loss ratios.
Changes in weights we apply to the various actuarial methods to better align with updated trends.
Net Loss Development 2015
During 2015, we recognized unfavorable prior year loss reserve development of $4.1 billion. This unfavorable development was
primarily as a result of the following:
Higher than expected loss emergence across U.S. Excess Casualty, U.S. Workers Compensation, and U.S. Other Casualty lines
as well as European Financial Lines.
Updated loss development selections in U.S. Excess Casualty, U.S. Financial Lines and U.S. Run-off Casualty Insurance lines,
most notably tail factor selections and incorporation of updated industry experience for asbestos liabilities.
Revised estimates of expected future recoveries from risk-sharing policies in the U.S. Workers Compensation business.
116
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
The following tables summarize incurred (favorable) unfavorable prior year development net of reinsurance, by segment and
major lines of business, and by accident year groupings:
PRIOR YEAR DEVELOPMENT
Year Ended December 31,
(in millions)
General Insurance:
North America*
International
Total General Insurance
Legacy Portfolio - Run-off Lines
Other Operations
Total prior year unfavorable development
Net Loss Development 2017
primarily a result of the following:
The following table summarizes incurred (favorable) unfavorable prior year development net of reinsurance by segment:
2017
2016
2015
$
$
$
371 $
5,286 $
999 $
5,442 $
628
(21)
-
156
402
(56)
3,120
155
3,275
913
(69)
978 $
5,788 $
4,119
*
Includes the amortization attributed to the deferred gain at inception from the NICO adverse development reinsurance agreement of $228 million in the year ended
December 31, 2017. Consistent with our definition of APTI, the year ended December 31, 2017 excludes the portion of unfavorable prior year reserve development for
which we have ceded the risk under the NICO reinsurance agreements of $359 million, and related changes in amortization of the deferred gain of $56 million.
During 2017, we recognized unfavorable prior year loss reserve development of $978 million. This unfavorable development was
Unfavorable development in U.S. Excess Casualty and U.S. Other Casualty, driven primarily by increases in underlying severity
and greater than expected emerging loss experience in accident year 2016 as well as increased development from claims related
to construction defects and construction wrap business (largely from accident years 2006 and prior).
Year Ended December 31, 2017
(in millions)
General Insurance North America:
U.S. Workers' Compensation
U.S. Excess casualty
U.S. Other casualty
U.S. Financial lines
U.S. Property and special risks
U.S. Personal insurance
Other product lines
Total General Insurance North America
General Insurance International:
Europe casualty and financial lines
Europe property and special risks
Europe and Japan Personal insurance
Other product lines
Total General Insurance International
Legacy Portfolio - Run-off Lines
Other Operations
Total
2016
2015 & Prior
$
$
$
$
(99) $
125
14
248
71
17
(5)
371 $
507 $
157
(58)
22
628 $
(21)
-
46 $
240
16
272
74
(4)
(19)
625 $
153 $
122
(42)
(28)
205 $
(10)
-
(145)
(115)
(2)
(24)
(3)
21
14
(254)
354
35
(16)
50
423
(11)
-
158
Unfavorable development in U.S. Financial Lines, primarily from Directors & Officers (D&O) policies covering privately owned and
Total prior year unfavorable development
$
978 $
820 $
not-for-profit insureds. This development was predominantly in accident year 2016 and resulted largely from increases in
bankruptcy-related claims and fiduciary liability claims for large educational institutions.
Higher than expected losses for Europe Casualty and Financial Lines, including a significant increase in large claims activity in our
Europe long-tail business, with a large proportion emanating from accident year 2016. In addition, we increased our loss reserves
as a result of the decision made by the UK Ministry of Justice to reduce the discount rate applied to lump-sum bodily injury
payouts, known as the Ogden rate.
In addition, we also observed higher than expected losses in our Europe Property and Special Risks business driven by
unexpected development on various large claims across the property, aviation, marine, and trade credit segments.
Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss
adjustment expense ratios we selected.
For further details of prior year development by line of business, see Note 13 to the Consolidated Financial Statements. For a
discussion of actuarial methods employed for major classes of business, see also Critical Accounting Estimates.
For accident year 2016, the unfavorable development of $820 million was spread across multiple segments, with the drivers being
U.S. Excess Casualty, U.S. Financial Lines, Europe Casualty and Financial Lines, and Europe Property and Special Risks. As noted
above, we have seen unexpected loss severity in these portfolios at this early stage of development.
For accident years 2015 and prior, the unfavorable development of $158 million was primarily driven by Europe Casualty and
Financial Lines. For North America, development was favorable, primarily reflecting the benefit of the prior year development ceded to
NICO and the amortization on the adverse development reinsurance agreement.
Net Loss Development 2016
During 2016, we recognized adverse prior year loss reserve development of $5.8 billion. This unfavorable development was primarily
a result of the following:
Higher than expected losses emerging across several casualty product lines, especially in recent accident years (generally, 2011
to 2015) driven by increased frequency and severity of claims. This recent accident year loss emergence caused us to increase
loss development factors applied across many accident years.
Loss development factors including workers compensation tail factors, also increased due to an observed lengthening of loss
reporting patterns relative to prior expectations.
Increases in loss trend assumptions to reflect the latest observed increases in frequency and severity and the impact of these
increased loss trends on expected loss ratios.
Changes in weights we apply to the various actuarial methods to better align with updated trends.
Net Loss Development 2015
During 2015, we recognized unfavorable prior year loss reserve development of $4.1 billion. This unfavorable development was
primarily as a result of the following:
Higher than expected loss emergence across U.S. Excess Casualty, U.S. Workers Compensation, and U.S. Other Casualty lines
as well as European Financial Lines.
Updated loss development selections in U.S. Excess Casualty, U.S. Financial Lines and U.S. Run-off Casualty Insurance lines,
most notably tail factor selections and incorporation of updated industry experience for asbestos liabilities.
Revised estimates of expected future recoveries from risk-sharing policies in the U.S. Workers Compensation business.
116
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
117
1011252ai_financials.indd 117
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Updated estimates for extra-contractual obligation claims and unallocated loss adjustment expenses
We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for reinsurance
recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the date of
occurrence becomes available to us. These reclassifications are shown as development in the respective years in the tables above.
Significant Reinsurance Agreements
Effective January 1, 2016, we entered into a two-year reinsurance arrangement with the Swiss Reinsurance Company Ltd, under
which we ceded a proportional share of our new and renewal U.S. Primary Casualty portfolio in order to reduce the concentration of
casualty business in our portfolio. This agreement was not renewed for new and renewal business for 2018 but remains in effect for
risks attaching during the two-year term of the agreement.
In 2017, we entered into an adverse development reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., under
which we transferred to NICO 80 percent of the reserve risk on substantially all of our U.S. Commercial long-tail exposures for
accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the losses on subject business paid on or after
January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25 billion. At NICOs 80 percent share,
NICOs limit of liability under the contract is $20 billion. The covered losses ceded to NICO were $13.1 billion and the unexpired limit
was $6.9 billion at December 31, 2017. We account for this transaction as retroactive reinsurance. We paid total consideration,
including interest, of $10.2 billion. The consideration was placed into a collateral trust account as security for NICOs claim payment
obligations, and Berkshire Hathaway Inc. has provided a parental guarantee to secure the obligations of NICO under the agreement.
This transaction resulted in a gain, which under U.S. GAAP retroactive reinsurance accounting is deferred and amortized into income
over the settlement period.
For a description of AIGs catastrophe reinsurance protection for 2018, see Enterprise Risk Management Insurance Risks General
Insurance Companies Key Risks Natural Catastrophe Risk.
The following table presents the rollforward of activity in the deferred gain from the adverse development reinsurance
agreement:
Year Ended
December 31, 2017
Before
Discount Discount
$
- $
- $
Net
-
2,655
(1,539)
1,116
310
(228)
(31)
-
-
-
-
-
310
(228)
(31)
-
$
2,706 $
(1,539) $ 1,167
(in millions)
Balance at beginning of year
Gain at inception
Unfavorable prior year reserve development ceded to NICO(a)
Amortization attributed to deferred gain at inception(b)
Amortization attributed to changes in deferred gain(c)
Changes in discount on ceded loss reserves
Balance at end of year
(a) Prior year reserve development ceded to NICO under the retroactive reinsurance agreement is deferred under U.S. GAAP and is recognized in APTI.
(b) Represents amortization of the deferred gain recognized in APTI and under U.S. GAAP.
(c) Excluded from APTI and included in U.S. GAAP.
The lines of business subject to this agreement have been the source of the majority of the prior year adverse development charges
over the past several years. The agreement is expected to result in lower capital charges for reserve risks at our U.S. insurance
subsidiaries. In addition, we would expect future net investment income to decline as a result of lower invested assets.
For a summary of significant reinsurers see Item 7. MD&A Enterprise Risk Management Insurance Operations Risks General
Insurance Companies Key Insurance Risks Reinsurance Recoverable.
LIFE AND ANNUITY RESERVES AND DAC
The table below shows the calculation of the deferred gain on the adverse development reinsurance agreement at inception
and as of December 31, 2017, showing the effect of discounting of loss reserves and amortization of the deferred gain.
The following section provides discussion of life and annuity reserves and deferred policy acquisition costs.
(in millions)
Gross Covered Losses
Covered reserves before discount
Inception to date losses paid
Attachment point
Covered losses above attachment point
Deferred Gain Development
Covered losses above attachment ceded to NICO (80%)
Consideration paid including interest
Pre-tax deferred gain before discount and amortization
Discount on ceded losses(a)
Pre-tax deferred gain before amortization
Inception to date amortization of deferred gain at inception
Inception to date amortization attributed to changes in deferred gain(b)
Deferred gain liability reflected in AIG's balance sheet
At
Inception
December 31,
2017
2017
Change
$
$
$
$
33,510 $
7,543
(25,000)
16,053 $
12,843 $
(10,188)
2,655
(1,539)
1,116
-
-
1,116 $
26,654 $
14,788
(25,000)
16,442 $
(6,856)
7,245
-
389
13,153 $
(10,188)
2,965
(1,539)
1,426
(228)
(31)
1,167 $
310
-
310
-
310
(228)
(31)
51
(a) For the period from inception to December 31, 2017, the accretion of discount and a reduction in effective interest rates was offset by changes in estimates of the
amount and timing of future recoveries under the Adverse Development Reinsurance Agreement.
(b) Excluded from our definition of APTI.
Update of Actuarial Assumptions
The Life and Retirement companies review and update estimated gross profit projections used to amortize DAC and related items for
investment-oriented products at least annually. Estimated gross profit projections include assumptions for investment-related returns
and spreads, product-related fees and expenses, mortality gains and losses, policyholder behavior and other factors. In estimating
future gross profits, lapse assumptions require judgment and can have a material impact on DAC amortization. If the assumptions
used for estimated gross profits change significantly, DAC and related reserves (which may include VOBA, SIA, guaranteed benefit
reserves and unearned revenue reserves) are recalculated using the new projections, and any resulting adjustment is included in
income. Updating such projections may result in acceleration of amortization in some products and deceleration of amortization in
other products.
The Life and Retirement companies also review assumptions related to the valuation of variable annuity GMWB living benefits which
are accounted for as embedded derivatives and measured at fair value. The fair value of these embedded derivatives is based on
actuarial assumptions, including policyholder behavior, as well as capital market assumptions.
Various assumptions were updated, including the following effective September 30, 2017:
we reduced our separate account long-term asset growth rate assumption related to equity market performance by 50 basis points
to 7.0 percent and increased our reversion to the mean rates (gross of fees) to 3.74 percent for the Variable Annuity product line in
Individual Retirement and 3.78 percent for the Variable Annuity product line in Group Retirement; and
we lowered our ultimate projected yields on invested assets by approximately five to 10 basis points. Projected yields are graded
from a weighted average net GAAP book yield of existing assets supporting the business based on the value of the asset to a
weighted average yield based on the duration of the assets excluding assets that mature during the grading period. The grading
period is three years for annuity products and five years for life insurance products.
118
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
119
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Updated estimates for extra-contractual obligation claims and unallocated loss adjustment expenses
We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for reinsurance
recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the date of
occurrence becomes available to us. These reclassifications are shown as development in the respective years in the tables above.
Significant Reinsurance Agreements
Effective January 1, 2016, we entered into a two-year reinsurance arrangement with the Swiss Reinsurance Company Ltd, under
which we ceded a proportional share of our new and renewal U.S. Primary Casualty portfolio in order to reduce the concentration of
casualty business in our portfolio. This agreement was not renewed for new and renewal business for 2018 but remains in effect for
risks attaching during the two-year term of the agreement.
In 2017, we entered into an adverse development reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., under
which we transferred to NICO 80 percent of the reserve risk on substantially all of our U.S. Commercial long-tail exposures for
The following table presents the rollforward of activity in the deferred gain from the adverse development reinsurance
agreement:
Year Ended
December 31, 2017
Before
(in millions)
Balance at beginning of year
Gain at inception
Unfavorable prior year reserve development ceded to NICO(a)
Amortization attributed to deferred gain at inception(b)
Amortization attributed to changes in deferred gain(c)
Changes in discount on ceded loss reserves
Balance at end of year
Discount Discount
$
- $
2,655
310
(228)
(31)
-
$
2,706 $
- $
Net
-
1,116
310
(228)
(31)
-
(1,539) $ 1,167
(1,539)
-
-
-
-
accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the losses on subject business paid on or after
(a) Prior year reserve development ceded to NICO under the retroactive reinsurance agreement is deferred under U.S. GAAP and is recognized in APTI.
January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25 billion. At NICOs 80 percent share,
(b) Represents amortization of the deferred gain recognized in APTI and under U.S. GAAP.
NICOs limit of liability under the contract is $20 billion. The covered losses ceded to NICO were $13.1 billion and the unexpired limit
(c) Excluded from APTI and included in U.S. GAAP.
was $6.9 billion at December 31, 2017. We account for this transaction as retroactive reinsurance. We paid total consideration,
including interest, of $10.2 billion. The consideration was placed into a collateral trust account as security for NICOs claim payment
obligations, and Berkshire Hathaway Inc. has provided a parental guarantee to secure the obligations of NICO under the agreement.
This transaction resulted in a gain, which under U.S. GAAP retroactive reinsurance accounting is deferred and amortized into income
over the settlement period.
For a description of AIGs catastrophe reinsurance protection for 2018, see Enterprise Risk Management Insurance Risks General
Insurance Companies Key Risks Natural Catastrophe Risk.
The lines of business subject to this agreement have been the source of the majority of the prior year adverse development charges
over the past several years. The agreement is expected to result in lower capital charges for reserve risks at our U.S. insurance
subsidiaries. In addition, we would expect future net investment income to decline as a result of lower invested assets.
For a summary of significant reinsurers see Item 7. MD&A Enterprise Risk Management Insurance Operations Risks General
Insurance Companies Key Insurance Risks Reinsurance Recoverable.
LIFE AND ANNUITY RESERVES AND DAC
The table below shows the calculation of the deferred gain on the adverse development reinsurance agreement at inception
and as of December 31, 2017, showing the effect of discounting of loss reserves and amortization of the deferred gain.
The following section provides discussion of life and annuity reserves and deferred policy acquisition costs.
(in millions)
Gross Covered Losses
Covered reserves before discount
Inception to date losses paid
Attachment point
Covered losses above attachment point
Deferred Gain Development
Covered losses above attachment ceded to NICO (80%)
Consideration paid including interest
Pre-tax deferred gain before discount and amortization
Discount on ceded losses(a)
Pre-tax deferred gain before amortization
Inception to date amortization of deferred gain at inception
Inception to date amortization attributed to changes in deferred gain(b)
$
$
$
At
December 31,
Inception
2017
2017
Change
33,510 $
26,654 $
7,543
(25,000)
14,788
(25,000)
16,053 $
16,442 $
(6,856)
7,245
-
389
12,843 $
(10,188)
2,655
(1,539)
1,116
-
-
13,153 $
(10,188)
2,965
(1,539)
1,426
(228)
(31)
310
-
310
-
310
(228)
(31)
51
Deferred gain liability reflected in AIG's balance sheet
$
1,116 $
1,167 $
(a) For the period from inception to December 31, 2017, the accretion of discount and a reduction in effective interest rates was offset by changes in estimates of the
amount and timing of future recoveries under the Adverse Development Reinsurance Agreement.
(b) Excluded from our definition of APTI.
Update of Actuarial Assumptions
The Life and Retirement companies review and update estimated gross profit projections used to amortize DAC and related items for
investment-oriented products at least annually. Estimated gross profit projections include assumptions for investment-related returns
and spreads, product-related fees and expenses, mortality gains and losses, policyholder behavior and other factors. In estimating
future gross profits, lapse assumptions require judgment and can have a material impact on DAC amortization. If the assumptions
used for estimated gross profits change significantly, DAC and related reserves (which may include VOBA, SIA, guaranteed benefit
reserves and unearned revenue reserves) are recalculated using the new projections, and any resulting adjustment is included in
income. Updating such projections may result in acceleration of amortization in some products and deceleration of amortization in
other products.
The Life and Retirement companies also review assumptions related to the valuation of variable annuity GMWB living benefits which
are accounted for as embedded derivatives and measured at fair value. The fair value of these embedded derivatives is based on
actuarial assumptions, including policyholder behavior, as well as capital market assumptions.
Various assumptions were updated, including the following effective September 30, 2017:
we reduced our separate account long-term asset growth rate assumption related to equity market performance by 50 basis points
to 7.0 percent and increased our reversion to the mean rates (gross of fees) to 3.74 percent for the Variable Annuity product line in
Individual Retirement and 3.78 percent for the Variable Annuity product line in Group Retirement; and
we lowered our ultimate projected yields on invested assets by approximately five to 10 basis points. Projected yields are graded
from a weighted average net GAAP book yield of existing assets supporting the business based on the value of the asset to a
weighted average yield based on the duration of the assets excluding assets that mature during the grading period. The grading
period is three years for annuity products and five years for life insurance products.
118
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
119
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
For long-duration traditional products, which include whole life insurance, term life insurance, accident and health insurance, long-
term care insurance, and life-contingent single premium immediate annuities and structured settlements, a lock-in principle applies.
The assumptions used to calculate the benefit liabilities and DAC are set when a policy is issued and do not change with changes in
actual experience, unless a loss recognition event occurs. Loss recognition occurs if observed changes in actual experience or
estimates result in projected future losses under loss recognition testing. Underlying assumptions are reviewed periodically and
updated as appropriate.
The following table presents the increase (decrease) in adjusted pre-tax income resulting from the update of actuarial
assumptions for the domestic life and retirement companies, by segment and product line:
Years Ended December 31,
(in millions)
Life and Retirement:
Individual Retirement
Fixed Annuities
Variable and Index Annuities
Total Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other:
$
Legacy Life and Retirement Run-off
Total increase (decrease) in adjusted pre-tax income from update of assumptions
$
2017
2016
2015
130 $
112
242
13
29
-
284
(14)
270 $
330 $
39
369
(47)
(92)
-
230
(614)
(384) $
92
-
92
48
(118)
-
22
(28)
(6)
The following table presents the increase (decrease) in pre-tax income resulting from the update of actuarial assumptions in
the domestic life and retirement companies, by line item as reported in Results of Operations:
Years Ended December 31,
(in millions)
Policy fees
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Policyholder benefits and losses incurred
Increase (decrease) in adjusted pre-tax income
Change in DAC related to net realized capital gains (losses)
Net realized capital gains (losses)
Increase (decrease) in pre-tax income
2017
(2) $
49
184
39
270
44
(246)
68 $
2016
(54) $
65
325
(720)
(384)
13
(56)
(427) $
2015
21
74
79
(180)
(6)
11
(2)
3
$
$
In 2017, adjusted pre-tax income included a net positive adjustment of $270 million, primarily driven by lower lapse assumptions in
Fixed Annuities, improved mortality assumptions in Life Insurance, and an increase in the reversion to the mean rates in Variable
Annuities. The positive adjustments were partially offset by lower spread assumptions in Fixed Annuities and a loss recognition
expense on long-term care business in the Legacy Life and Retirement Run-Off Lines.
In 2016, adjusted pre-tax income included a net negative adjustment of $384 million, primarily driven by $622 million of loss
recognition reserves for pre-2010 payout annuities in the Legacy Portfolio, and an increase in Life Insurance reserves for universal life
with secondary guarantees. These negative adjustments were partially offset by positive adjustments, primarily due to lower lapse
assumptions in Fixed Annuities.
In 2015, adjusted pre-tax income included a net negative adjustment of $6 million, primarily driven by a net negative adjustment of
$118 million in Life Insurance, which was offset in large part by net positive adjustments of $92 million in Fixed Annuities and $48
million in Group Retirement.
The adjustments related to the update of actuarial assumptions in each period are discussed by segment below.
Update of Actuarial Assumptions by Segment
Individual Retirement
The update of actuarial assumptions resulted in net positive adjustments to adjusted pre-tax income of Individual Retirement of $242
million, $369 million and $92 million in 2017, 2016 and 2015, respectively.
In Fixed Annuities, the update of estimated gross profit assumptions resulted in a net positive adjustment of $130 million in 2017,
which reflected lower lapse assumptions, partially offset by lower spread assumptions. In 2016, a net positive adjustment of $330
million reflected lower lapse assumptions, primarily due to lower long-term interest rates, as well as updates to spread assumptions.
In 2015, a net positive adjustment of $92 million reflected refinements to investment spread assumptions, lower terminations and
decreases to expense assumptions.
In Variable and Index Annuities, the update of estimated gross profit assumptions resulted in a net positive adjustment of $112 million
in 2017, primarily due to an increase in the reversion to the mean rate used for projecting future estimated gross profit for variable
annuity products and changes in volatility assumptions. The net positive adjustment was partially offset by a decrease in the separate
account long-term asset growth rate assumption from 7.5 percent to 7.0 percent (before expenses that reduce the asset base from
which future fees are projected) and a negative adjustment in connection with the conversion to a new modeling platform for Index
Annuities.
In 2016, the update of estimated gross profit assumptions resulted in a net positive adjustment of $39 million in Variable and Index
Annuities primarily due to favorable updates to assumptions for volatility, lapses, mortality and policy expenses, partially offset by a
decrease in the separate account long-term asset growth rate assumption from 8.5 percent to 7.5 percent (before expenses that
reduce the asset base from which future fees are projected). The net positive adjustment included a net negative adjustment of
approximately $24 million in connection with the conversion to a new modeling platform for variable annuities, primarily due to
refinements to assumptions for guaranteed minimum interest rates and investment fees, partially offset by the impact of other
refinements identified during the conversion.
In 2015, there were offsetting updates to assumed investment fees, modeled expenses, and terminations, resulting in no net
adjustment to adjusted pre-tax income in Variable and Index Annuities.
Group Retirement
In Group Retirement, the update of estimated gross profit assumptions resulted in a net positive adjustment of $13 million in 2017,
primarily due to an increase in the reversion to the mean rate used for projecting future estimated gross profit for variable annuity
products and changes in maintenance expense assumptions. The net positive adjustment was partially offset by a decrease in the
separate account long-term asset growth rate assumption from 7.5 percent to 7.0 percent (before expenses that reduce the asset
base from which future fees are projected) and decreases in fixed annuity spread and separate account fee assumptions. In 2016, a
net negative adjustment of $47 million was primarily due to refinements in lapse and partial withdrawal assumptions and a decrease
in the separate account long-term asset growth rate assumption from 8.5 percent to 7.5 percent (before expenses that reduce the
asset base from which future fees are projected). In 2015, a net positive adjustment of $48 million was primarily due to revisions to
mortality and lapse assumptions, partially offset by decreased spread assumptions.
Life Insurance
In Life Insurance, the update of actuarial assumptions resulted in a net positive adjustment of $29 million in 2017, primarily due to
improved mortality assumptions, partially offset by lower spread assumptions. In 2016, a net negative adjustment of $92 million was
primarily due to refinement to reserves for universal life insurance with secondary guarantees due to lower assumed lapse rates. The
update to Life Insurance assumptions in 2016 also included lower spread assumptions. In 2015, the net negative adjustment of $118
million was primarily due to lower assumed lapse rates for certain later-duration universal life with secondary guarantees. The net
negative adjustment also reflected lower investment spread assumptions, partially offset by more favorable than expected mortality.
Legacy Portfolio
In 2017, the update of actuarial assumptions resulted in a net negative adjustment of $14 million, primarily due to $13 million of loss
recognition expense on long-term care business in the Legacy Life and Retirement Run-Off Lines resulting from model
enhancements. In 2016, Legacy Life and Retirement Run-Off Lines recorded $622 million of loss recognition expense on payout
annuities. The loss recognition reflected the establishment of additional reserves primarily as a result of mortality experience studies,
which indicated increased longevity, particularly on disabled lives on a block of structured settlements underwritten prior to 2010. In
2015, Legacy Life and Retirement Run-Off Lines recorded loss recognition expense of $28 million to increase reserves for certain
long-term care business. The loss recognition was primarily a result of lower future premium increase assumptions.
120
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
121
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
For long-duration traditional products, which include whole life insurance, term life insurance, accident and health insurance, long-
Update of Actuarial Assumptions by Segment
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
term care insurance, and life-contingent single premium immediate annuities and structured settlements, a lock-in principle applies.
The assumptions used to calculate the benefit liabilities and DAC are set when a policy is issued and do not change with changes in
actual experience, unless a loss recognition event occurs. Loss recognition occurs if observed changes in actual experience or
estimates result in projected future losses under loss recognition testing. Underlying assumptions are reviewed periodically and
updated as appropriate.
The following table presents the increase (decrease) in adjusted pre-tax income resulting from the update of actuarial
assumptions for the domestic life and retirement companies, by segment and product line:
Years Ended December 31,
(in millions)
Life and Retirement:
Individual Retirement
Fixed Annuities
Variable and Index Annuities
Total Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other:
Legacy Life and Retirement Run-off
Total increase (decrease) in adjusted pre-tax income from update of assumptions
$
2017
2016
2015
$
130 $
330 $
112
242
13
29
-
284
39
369
(47)
(92)
-
230
(14)
270 $
(614)
(384) $
92
-
92
48
(118)
-
22
(28)
(6)
The following table presents the increase (decrease) in pre-tax income resulting from the update of actuarial assumptions in
the domestic life and retirement companies, by line item as reported in Results of Operations:
Years Ended December 31,
(in millions)
Policy fees
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
Policyholder benefits and losses incurred
Increase (decrease) in adjusted pre-tax income
Change in DAC related to net realized capital gains (losses)
Net realized capital gains (losses)
Increase (decrease) in pre-tax income
2017
(2) $
2016
(54) $
49
184
39
270
44
(246)
68 $
65
325
(720)
(384)
13
(56)
(427) $
2015
21
74
79
(180)
(6)
11
(2)
3
$
$
In 2017, adjusted pre-tax income included a net positive adjustment of $270 million, primarily driven by lower lapse assumptions in
Individual Retirement
The update of actuarial assumptions resulted in net positive adjustments to adjusted pre-tax income of Individual Retirement of $242
million, $369 million and $92 million in 2017, 2016 and 2015, respectively.
In Fixed Annuities, the update of estimated gross profit assumptions resulted in a net positive adjustment of $130 million in 2017,
which reflected lower lapse assumptions, partially offset by lower spread assumptions. In 2016, a net positive adjustment of $330
million reflected lower lapse assumptions, primarily due to lower long-term interest rates, as well as updates to spread assumptions.
In 2015, a net positive adjustment of $92 million reflected refinements to investment spread assumptions, lower terminations and
decreases to expense assumptions.
In Variable and Index Annuities, the update of estimated gross profit assumptions resulted in a net positive adjustment of $112 million
in 2017, primarily due to an increase in the reversion to the mean rate used for projecting future estimated gross profit for variable
annuity products and changes in volatility assumptions. The net positive adjustment was partially offset by a decrease in the separate
account long-term asset growth rate assumption from 7.5 percent to 7.0 percent (before expenses that reduce the asset base from
which future fees are projected) and a negative adjustment in connection with the conversion to a new modeling platform for Index
Annuities.
In 2016, the update of estimated gross profit assumptions resulted in a net positive adjustment of $39 million in Variable and Index
Annuities primarily due to favorable updates to assumptions for volatility, lapses, mortality and policy expenses, partially offset by a
decrease in the separate account long-term asset growth rate assumption from 8.5 percent to 7.5 percent (before expenses that
reduce the asset base from which future fees are projected). The net positive adjustment included a net negative adjustment of
approximately $24 million in connection with the conversion to a new modeling platform for variable annuities, primarily due to
refinements to assumptions for guaranteed minimum interest rates and investment fees, partially offset by the impact of other
refinements identified during the conversion.
In 2015, there were offsetting updates to assumed investment fees, modeled expenses, and terminations, resulting in no net
adjustment to adjusted pre-tax income in Variable and Index Annuities.
Group Retirement
In Group Retirement, the update of estimated gross profit assumptions resulted in a net positive adjustment of $13 million in 2017,
primarily due to an increase in the reversion to the mean rate used for projecting future estimated gross profit for variable annuity
products and changes in maintenance expense assumptions. The net positive adjustment was partially offset by a decrease in the
separate account long-term asset growth rate assumption from 7.5 percent to 7.0 percent (before expenses that reduce the asset
base from which future fees are projected) and decreases in fixed annuity spread and separate account fee assumptions. In 2016, a
net negative adjustment of $47 million was primarily due to refinements in lapse and partial withdrawal assumptions and a decrease
in the separate account long-term asset growth rate assumption from 8.5 percent to 7.5 percent (before expenses that reduce the
asset base from which future fees are projected). In 2015, a net positive adjustment of $48 million was primarily due to revisions to
mortality and lapse assumptions, partially offset by decreased spread assumptions.
Fixed Annuities, improved mortality assumptions in Life Insurance, and an increase in the reversion to the mean rates in Variable
Life Insurance
Annuities. The positive adjustments were partially offset by lower spread assumptions in Fixed Annuities and a loss recognition
expense on long-term care business in the Legacy Life and Retirement Run-Off Lines.
In 2016, adjusted pre-tax income included a net negative adjustment of $384 million, primarily driven by $622 million of loss
recognition reserves for pre-2010 payout annuities in the Legacy Portfolio, and an increase in Life Insurance reserves for universal life
with secondary guarantees. These negative adjustments were partially offset by positive adjustments, primarily due to lower lapse
In Life Insurance, the update of actuarial assumptions resulted in a net positive adjustment of $29 million in 2017, primarily due to
improved mortality assumptions, partially offset by lower spread assumptions. In 2016, a net negative adjustment of $92 million was
primarily due to refinement to reserves for universal life insurance with secondary guarantees due to lower assumed lapse rates. The
update to Life Insurance assumptions in 2016 also included lower spread assumptions. In 2015, the net negative adjustment of $118
million was primarily due to lower assumed lapse rates for certain later-duration universal life with secondary guarantees. The net
negative adjustment also reflected lower investment spread assumptions, partially offset by more favorable than expected mortality.
In 2015, adjusted pre-tax income included a net negative adjustment of $6 million, primarily driven by a net negative adjustment of
$118 million in Life Insurance, which was offset in large part by net positive adjustments of $92 million in Fixed Annuities and $48
Legacy Portfolio
In 2017, the update of actuarial assumptions resulted in a net negative adjustment of $14 million, primarily due to $13 million of loss
recognition expense on long-term care business in the Legacy Life and Retirement Run-Off Lines resulting from model
enhancements. In 2016, Legacy Life and Retirement Run-Off Lines recorded $622 million of loss recognition expense on payout
annuities. The loss recognition reflected the establishment of additional reserves primarily as a result of mortality experience studies,
which indicated increased longevity, particularly on disabled lives on a block of structured settlements underwritten prior to 2010. In
2015, Legacy Life and Retirement Run-Off Lines recorded loss recognition expense of $28 million to increase reserves for certain
long-term care business. The loss recognition was primarily a result of lower future premium increase assumptions.
assumptions in Fixed Annuities.
million in Group Retirement.
The adjustments related to the update of actuarial assumptions in each period are discussed by segment below.
120
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
121
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Variable Annuity Guaranteed Benefits and Hedging Results
Impact on Pre-tax Income (Loss)
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Our Individual Retirement and Group Retirement businesses offer variable annuity products with GMWB riders that provide
guaranteed living benefit features. The liabilities for GMWB are accounted for as embedded derivatives measured at fair value. The
fair value of the embedded derivatives may fluctuate significantly based on market interest rates, equity prices, credit spreads, market
volatility, policyholder behavior and other factors.
In addition to risk-mitigating features in our variable annuity product design, we have an economic hedging program designed to
manage market risk from GMWB, including exposures to changes in interest rates, equity prices, credit spreads and volatility. The
hedging program utilizes derivative instruments, including but not limited to equity options, futures contracts and interest rate swap
and swaption contracts, as well as fixed maturity securities with a fair value election.
For additional discussion of market risk management related to these product features see Enterprise Risk Management Insurance
Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Programs.
Differences in Valuation of Embedded Derivatives and Economic Hedge Target
The variable annuity hedging program utilizes an economic hedge target, which represents an estimate of the underlying economic
risks in our GMWB riders. The economic hedge target differs from the U.S. GAAP valuation of the GMWB embedded derivatives
primarily due to the following:
The economic hedge target includes 100 percent of rider fees in present value calculations; the U.S. GAAP valuation reflects only
those fees attributed to the embedded derivative such that the initial value at contract issue equals zero;
The economic hedge target uses best estimate actuarial assumptions and excludes explicit risk margins used for U.S. GAAP
valuation, such as margins for policyholder behavior, mortality, and volatility; and
The economic hedge target excludes the non-performance or own credit risk adjustment used in the U.S. GAAP valuation, which
reflects a market participants view of our claims-paying ability by incorporating an additional spread (the NPA spread) to the swap
curve used to discount projected benefit cash flows. Because the discount rate includes the NPA spread and other explicit risk
margins, the U.S. GAAP valuation is generally less sensitive to movements in interest rates and other market factors, and to
changes from actuarial assumption updates, than the economic hedge target. For more information on our valuation methodology
for embedded derivatives within policyholder contract deposits see Note 5 to the Consolidated Financial Statements.
The market value of the hedge portfolio compared to the economic hedge target at any point in time may be different and is not
expected to be fully offsetting. In addition to the derivatives held in conjunction with the variable annuity hedging program, the Life and
Retirement companies have cash and invested assets available to cover future claims payable under these guarantees. The primary
sources of difference between the change in the fair value of the hedging portfolio and the economic hedge target include:
Basis risk due to the variance between expected and actual fund returns, which may be either positive or negative;
Realized volatility versus implied volatility;
Actual versus expected changes in the hedge target driven by assumptions not subject to hedging, particularly policyholder
behavior; and
Risk exposures that we have elected not to explicitly or fully hedge.
The following table presents a reconciliation between the fair value of the U.S. GAAP embedded derivatives and the value of
our economic hedge target:
December 31,
(in millions)
Reconciliation of embedded derivatives and economic hedge target:
Embedded derivative liability
Exclude non-performance risk adjustment
Embedded derivative liability, excluding NPA
Adjustments for risk margins and differences in valuation
Economic hedge target liability
2017
2016
1,994 $
(1,947)
3,941
(1,557)
2,384 $
1,777
(3,148)
4,925
(2,251)
2,674
$
$
The impact on our pre-tax income (loss) of the variable annuity guaranteed living benefits and related hedging results includes
changes in the fair value of the GMWB embedded derivatives, and changes in the fair value of related derivative hedging instruments,
both of which are recorded in Other realized capital gains (losses). Realized capital gains (losses), as well as net investment income
from changes in the fair value of fixed maturity securities used in the hedging program, are excluded from adjusted pre-tax income of
Individual Retirement and Group Retirement.
The change in the fair value of the embedded derivatives and the change in the value of the hedging portfolio are not expected to be
fully offsetting, primarily due to the differences in valuation between the economic hedge target, the U.S. GAAP embedded derivatives
and the fair value of the hedging portfolio, as discussed above. When corporate credit spreads widen, the change in the NPA spread
generally reduces the fair value of the embedded derivative liabilities, resulting in a gain, and when corporate credit spreads narrow or
tighten, the change in the NPA spread generally increases the fair value of the embedded derivative liabilities, resulting in a loss. In
addition to changes driven by credit market-related movements in the NPA spread, the NPA balance also reflects changes in business
activity and in the net amount at risk from the underlying guaranteed living benefits.
The following table presents the net increase (decrease) to consolidated pre-tax income (loss) from changes in the fair value
of the GMWB embedded derivatives and related hedges, excluding related DAC amortization:
Years Ended December 31,
(in millions)
Change in fair value of embedded derivatives, excluding update of actuarial
assumptions and NPA
Change in fair value of variable annuity hedging portfolio:
Fixed maturity securities
Interest rate derivative contracts
Equity derivative contracts
Change in fair value of variable annuity hedging portfolio
Change in fair value of embedded derivatives excluding update of actuarial assumptions
and NPA, net of hedging portfolio
Change in fair value of embedded derivatives due to NPA spread
Change in fair value of embedded derivatives due to change in NPA volume
Change in fair value of embedded derivatives due to update of actuarial assumptions
Total change due to update of actuarial assumptions and NPA
Net impact on pre-tax income (loss)
By Consolidated Income Statement line
Net Investment Income
Net Realized capital gains (losses)
Net Impact on pre-tax income (loss)
2017
2016
2015
$
1,423 $
- $
(843)
146
(70)
(1,347)
(1,271)
152
(840)
(352)
(188)
(1,380)
120
(194)
(919)
(993)
(993)
(286)
257
(101)
(130)
$
(1,228) $
(1,123) $
$
$
146 $
120 $
(1,374)
(1,243)
(1,228) $
(1,123) $
(43)
343
(86)
214
(629)
498
438
(30)
906
277
(43)
320
277
The net impact on pre-tax income from the GMWB and related hedges in 2017 (excluding related DAC amortization) was primarily
driven by losses from actuarial assumption updates to lapse and volatility assumptions, tightening credit spreads on the NPA spread
and the impact on the NPA volume of lower expected GMWB payments, driven by higher equity markets. In 2016, the net impact on
pre-tax income was primarily driven by the impact of rising interest rates and equity markets late in the fourth quarter of 2016, which
resulted in fair value losses in the hedging portfolio, which were not offset by decreases in the embedded derivative liabilities as the
risk margins and other assumptions used in the U.S. GAAP valuation caused the embedded derivatives to be less sensitive to market
changes than the related hedge portfolio. In addition, 2016 included losses from actuarial assumption updates due to lapse and
mortality assumptions. In 2015, the net impact was primarily driven by increasing NPA spread and volume, which had a positive
impact on pre-tax income, partially offset by an increase in embedded derivative liabilities driven by a decline in interest rates and
unfavorable equity market performance.
The change in the fair value of embedded derivatives, excluding update of actuarial assumptions and NPA, in 2017 was largely offset
by the related hedging portfolio. However, in 2016, the change in fair value of embedded derivatives, excluding update of actuarial
assumptions and NPA, reflected losses on the hedging portfolio driven by improvements in both interest rates and equity markets late
in the fourth quarter of 2016, which were not offset by decreases in embedded derivative liabilities. In 2015, the change in the fair
value of embedded derivatives, excluding update of actuarial assumptions and NPA, included losses from equity volatility, primarily in
the third quarter of 2015, a decline in interest rates and unfavorable equity market performance.
122
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
123
1011252ai_financials.indd 122
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Variable Annuity Guaranteed Benefits and Hedging Results
Impact on Pre-tax Income (Loss)
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Our Individual Retirement and Group Retirement businesses offer variable annuity products with GMWB riders that provide
guaranteed living benefit features. The liabilities for GMWB are accounted for as embedded derivatives measured at fair value. The
fair value of the embedded derivatives may fluctuate significantly based on market interest rates, equity prices, credit spreads, market
volatility, policyholder behavior and other factors.
In addition to risk-mitigating features in our variable annuity product design, we have an economic hedging program designed to
manage market risk from GMWB, including exposures to changes in interest rates, equity prices, credit spreads and volatility. The
hedging program utilizes derivative instruments, including but not limited to equity options, futures contracts and interest rate swap
and swaption contracts, as well as fixed maturity securities with a fair value election.
For additional discussion of market risk management related to these product features see Enterprise Risk Management Insurance
Risks Life and Retirement Companies Key Risks Variable Annuity Risk Management and Hedging Programs.
Differences in Valuation of Embedded Derivatives and Economic Hedge Target
The variable annuity hedging program utilizes an economic hedge target, which represents an estimate of the underlying economic
risks in our GMWB riders. The economic hedge target differs from the U.S. GAAP valuation of the GMWB embedded derivatives
primarily due to the following:
The economic hedge target includes 100 percent of rider fees in present value calculations; the U.S. GAAP valuation reflects only
those fees attributed to the embedded derivative such that the initial value at contract issue equals zero;
The economic hedge target uses best estimate actuarial assumptions and excludes explicit risk margins used for U.S. GAAP
valuation, such as margins for policyholder behavior, mortality, and volatility; and
The economic hedge target excludes the non-performance or own credit risk adjustment used in the U.S. GAAP valuation, which
reflects a market participants view of our claims-paying ability by incorporating an additional spread (the NPA spread) to the swap
curve used to discount projected benefit cash flows. Because the discount rate includes the NPA spread and other explicit risk
margins, the U.S. GAAP valuation is generally less sensitive to movements in interest rates and other market factors, and to
changes from actuarial assumption updates, than the economic hedge target. For more information on our valuation methodology
for embedded derivatives within policyholder contract deposits see Note 5 to the Consolidated Financial Statements.
The market value of the hedge portfolio compared to the economic hedge target at any point in time may be different and is not
expected to be fully offsetting. In addition to the derivatives held in conjunction with the variable annuity hedging program, the Life and
Retirement companies have cash and invested assets available to cover future claims payable under these guarantees. The primary
sources of difference between the change in the fair value of the hedging portfolio and the economic hedge target include:
Basis risk due to the variance between expected and actual fund returns, which may be either positive or negative;
Realized volatility versus implied volatility;
Actual versus expected changes in the hedge target driven by assumptions not subject to hedging, particularly policyholder
behavior; and
Risk exposures that we have elected not to explicitly or fully hedge.
The following table presents a reconciliation between the fair value of the U.S. GAAP embedded derivatives and the value of
our economic hedge target:
December 31,
(in millions)
Reconciliation of embedded derivatives and economic hedge target:
Embedded derivative liability
Exclude non-performance risk adjustment
Embedded derivative liability, excluding NPA
Adjustments for risk margins and differences in valuation
Economic hedge target liability
2017
2016
1,994 $
(1,947)
3,941
(1,557)
2,384 $
1,777
(3,148)
4,925
(2,251)
2,674
$
$
The impact on our pre-tax income (loss) of the variable annuity guaranteed living benefits and related hedging results includes
changes in the fair value of the GMWB embedded derivatives, and changes in the fair value of related derivative hedging instruments,
both of which are recorded in Other realized capital gains (losses). Realized capital gains (losses), as well as net investment income
from changes in the fair value of fixed maturity securities used in the hedging program, are excluded from adjusted pre-tax income of
Individual Retirement and Group Retirement.
The change in the fair value of the embedded derivatives and the change in the value of the hedging portfolio are not expected to be
fully offsetting, primarily due to the differences in valuation between the economic hedge target, the U.S. GAAP embedded derivatives
and the fair value of the hedging portfolio, as discussed above. When corporate credit spreads widen, the change in the NPA spread
generally reduces the fair value of the embedded derivative liabilities, resulting in a gain, and when corporate credit spreads narrow or
tighten, the change in the NPA spread generally increases the fair value of the embedded derivative liabilities, resulting in a loss. In
addition to changes driven by credit market-related movements in the NPA spread, the NPA balance also reflects changes in business
activity and in the net amount at risk from the underlying guaranteed living benefits.
The following table presents the net increase (decrease) to consolidated pre-tax income (loss) from changes in the fair value
of the GMWB embedded derivatives and related hedges, excluding related DAC amortization:
Years Ended December 31,
(in millions)
Change in fair value of embedded derivatives, excluding update of actuarial
assumptions and NPA
Change in fair value of variable annuity hedging portfolio:
Fixed maturity securities
Interest rate derivative contracts
Equity derivative contracts
Change in fair value of variable annuity hedging portfolio
Change in fair value of embedded derivatives excluding update of actuarial assumptions
and NPA, net of hedging portfolio
Change in fair value of embedded derivatives due to NPA spread
Change in fair value of embedded derivatives due to change in NPA volume
Change in fair value of embedded derivatives due to update of actuarial assumptions
Total change due to update of actuarial assumptions and NPA
Net impact on pre-tax income (loss)
By Consolidated Income Statement line
Net Investment Income
Net Realized capital gains (losses)
Net Impact on pre-tax income (loss)
2017
2016
2015
$
1,423 $
- $
(843)
146
(70)
(1,347)
(1,271)
120
(194)
(919)
(993)
152
(840)
(352)
(188)
(1,380)
(1,228) $
(993)
(286)
257
(101)
(130)
(1,123) $
146 $
120 $
(1,374)
(1,228) $
(1,243)
(1,123) $
$
$
$
(43)
343
(86)
214
(629)
498
438
(30)
906
277
(43)
320
277
The net impact on pre-tax income from the GMWB and related hedges in 2017 (excluding related DAC amortization) was primarily
driven by losses from actuarial assumption updates to lapse and volatility assumptions, tightening credit spreads on the NPA spread
and the impact on the NPA volume of lower expected GMWB payments, driven by higher equity markets. In 2016, the net impact on
pre-tax income was primarily driven by the impact of rising interest rates and equity markets late in the fourth quarter of 2016, which
resulted in fair value losses in the hedging portfolio, which were not offset by decreases in the embedded derivative liabilities as the
risk margins and other assumptions used in the U.S. GAAP valuation caused the embedded derivatives to be less sensitive to market
changes than the related hedge portfolio. In addition, 2016 included losses from actuarial assumption updates due to lapse and
mortality assumptions. In 2015, the net impact was primarily driven by increasing NPA spread and volume, which had a positive
impact on pre-tax income, partially offset by an increase in embedded derivative liabilities driven by a decline in interest rates and
unfavorable equity market performance.
The change in the fair value of embedded derivatives, excluding update of actuarial assumptions and NPA, in 2017 was largely offset
by the related hedging portfolio. However, in 2016, the change in fair value of embedded derivatives, excluding update of actuarial
assumptions and NPA, reflected losses on the hedging portfolio driven by improvements in both interest rates and equity markets late
in the fourth quarter of 2016, which were not offset by decreases in embedded derivative liabilities. In 2015, the change in the fair
value of embedded derivatives, excluding update of actuarial assumptions and NPA, included losses from equity volatility, primarily in
the third quarter of 2015, a decline in interest rates and unfavorable equity market performance.
122
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
123
1011252ai_financials.indd 123
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Fair value gains or losses in the hedging portfolio are typically not fully offset by increases or decreases in liabilities on a U.S. GAAP
basis, due to the NPA and other risk margins used for U.S. GAAP valuation that cause the embedded derivatives to be less sensitive
to changes in market rates than the hedge portfolio. On an economic basis, the changes in the fair value of the hedge portfolio were
partially offset by the decrease in the economic hedge target, as discussed below.
Change in Economic Hedge Target
The decrease in the economic hedge target liability in 2017 was primarily due to positive equity markets, partially offset by tighter
credit spreads and lower equity volatility. The increase in the economic hedge target liability in 2016 was primarily due to the update
of actuarial assumptions offset by reductions from positive equity markets and increases in interest rates, particularly in the fourth
quarter of 2016.
Change in Fair Value of the Hedging Portfolio
The changes in the fair value of the economic hedge target and, to a lesser extent, the embedded derivative valuation under U.S.
GAAP, were offset in part by the following changes in the fair value of the variable annuity hedging portfolio:
Changes in the fair value of fixed maturity securities, primarily corporate bonds for which the fair value option has been elected,
are used as a capital-efficient way to economically hedge interest rate and credit spread-related risk. In 2017, the change in the fair
value of the corporate bond hedging program reflected gains primarily due to tightening of credit spreads. The net gains in 2016
reflected the impact of credit spreads tightening and decreases in market interest rates in the first nine months of 2016, partially
offset by an increase in rates in the fourth quarter of 2016. The net losses in 2015 reflected increases in market interest rates in the
first six months of 2015 and credit spreads widening. The change in the fair value of the hedging bonds, which is excluded from the
adjusted pre-tax income of the Individual Retirement and Group Retirement segments, is reported in net investment income on the
Consolidated Statements of Income (Loss).
Changes in the fair value of interest rate derivative contracts, which included swaps, swaptions and futures, resulted in a small net
loss in 2017, which reflected increases in rates in the latter half of 2017, partially offset by the impact of interest rate declines in the
first half of 2017. The net losses in 2016 reflected increases in rates in the fourth quarter of 2016, which more than offset the
impact of interest rate declines in the first nine months of 2016. The net gains in 2015 reflected decreases in market interest rates
in the latter half of 2015, partially offset by the impact of increases in rates in the first half of 2015.
The change in the fair value of equity derivative contracts, which included futures and options, resulted in losses in 2017, 2016 and
2015, which varied based on the relative growth in equity market returns in the respective years.
DAC
Reversion to the Mean
In 2017, we updated the long-term annual growth assumption applied to subsequent periods used in our reversion to the mean
methodology for estimating future estimated gross profits for variable annuity products, from 7.5 percent to 7.0 percent (before
expenses that reduce the asset base from which future fees are projected). The five-year reversion to the mean period has met the
criteria for adjustment in 2017. As a result, the average gross long-term return measurement start date was reset to December 31,
2011 for Individual Retirement and June 30, 2013 for Group Retirement; the reversion to the mean rates (gross of fees) were
increased to 3.74 percent in Individual Retirement and 3.78 percent for Group Retirement. Sustained favorable equity market
performance in excess of long-term assumptions could result in additional unlocking in the Individual Retirement or Group Retirement
variable annuity product lines in the future, with a positive effect on pre-tax income in the period of the unlocking.
In 2016, the long-term annual asset growth assumption was updated from 8.5 percent to 7.5 percent. The five-year reversion to the
mean period has not met the criteria for adjustment in 2016 and 2015.
For additional discussion of assumptions related to our reversion to the mean methodology see Critical Accounting Estimates
Estimated Gross Profits for Investment-Oriented Products.
DAC and Reserves Related to Unrealized Appreciation of Investments
DAC and Reserves for universal life and investment-type products (collectively, investment-oriented products) are adjusted at each
balance sheet date to reflect the change in DAC, unearned revenue, and benefit reserves with an offset to Other comprehensive
income as if securities available for sale had been sold at their stated aggregate fair value and the proceeds reinvested at current
yields (shadow Investment-Oriented Adjustments). Shadow Investment-Oriented Adjustments to DAC and unearned revenue
generally move in the opposite direction of the change in unrealized appreciation of the available for sale securities portfolio, reducing
the reported DAC and unearned revenue balance when market interest rates decline. Conversely, shadow Investment-Oriented
Adjustments to benefit reserves generally move in the same direction as the change in unrealized appreciation of the available for
sale securities portfolio, increasing reported future policy benefit liabilities balance when market interest rates decline. Market interest
rates decreased in 2017. As a result, the unrealized appreciation of fixed maturity securities held in the Life and Retirement
companies that support the businesses at December 31, 2017 increased by $3.4 billion compared to December 31, 2016, which
resulted in a decrease in DAC and unearned revenues and an increase in future policy benefit liabilities to reflect the shadow
Investment-Oriented Adjustments.
Similarly, for long-duration traditional products, significant unrealized appreciation of investments in a sustained low interest rate
environment may cause additional future policy benefit liabilities (shadow loss reserves) with an offset to Other comprehensive
income to be recorded. At December 31, 2017, future policy benefit liabilities increased to reflect additional shadow loss reserves.
The following table summarizes the major components of the changes in DAC, including VOBA, within the life and
retirement companies, excluding DAC of Legacy Portfolio:
Reserves
Years Ended December 31,
(in millions)
Balance, beginning of year
Acquisition costs deferred
Amortization expense:
Update of assumptions included in adjusted pre-tax income
Related to realized capital gains and losses
All other operating amortization
Increase (decrease) in DAC due to foreign exchange
Change related to unrealized depreciation (appreciation) of investments
Balance, end of year*
2017
7,571 $
970
194
293
(937)
26
(480)
7,637 $
2016
7,174 $
1,026
315
276
(928)
(40)
(252)
7,571 $
2015
5,949
1,205
79
(2)
(873)
(11)
827
7,174
$
$
* DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments was $8.9 billion, $8.4 billion and $7.7 billion at December 31, 2017,
2016 and 2015, respectively.
The net adjustments to DAC amortization from the update of actuarial assumptions for estimated gross profits, including those
reported within change in DAC related to net realized capital gains (losses), represented two percent, four percent and one percent of
the DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments as of December 31, 2017,
2016 and 2015, respectively.
The following table presents a rollforward of insurance reserves by operating segments for Life and Retirement, including
future policy benefits, policyholder contract deposits, other policy funds, and separate account liabilities, as well as Retail
Mutual Funds and Group Retirement mutual fund assets under administration:
Years Ended December 31,
(in millions)
Individual Retirement
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Change in fair value of underlying assets and reserve accretion, net of
2017
2016
2015
$ 129,321 $ 121,474 $ 115,831
11,906
(10,943)
(3,089)
(2,126)
10,098
1,528
(250)
16,062
(10,027)
(2,991)
3,044
3,657
1,614
(468)
18,376
(9,742)
(3,016)
5,618
(1,775)
1,613
187
138,571
129,321
121,474
(322)
(371)
(336)
Total Individual Retirement insurance reserves and mutual fund assets
$ 138,249 $ 128,950 $ 121,138
124
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
125
1011252ai_financials.indd 124
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Fair value gains or losses in the hedging portfolio are typically not fully offset by increases or decreases in liabilities on a U.S. GAAP
basis, due to the NPA and other risk margins used for U.S. GAAP valuation that cause the embedded derivatives to be less sensitive
to changes in market rates than the hedge portfolio. On an economic basis, the changes in the fair value of the hedge portfolio were
partially offset by the decrease in the economic hedge target, as discussed below.
Change in Economic Hedge Target
The decrease in the economic hedge target liability in 2017 was primarily due to positive equity markets, partially offset by tighter
credit spreads and lower equity volatility. The increase in the economic hedge target liability in 2016 was primarily due to the update
of actuarial assumptions offset by reductions from positive equity markets and increases in interest rates, particularly in the fourth
quarter of 2016.
Change in Fair Value of the Hedging Portfolio
The changes in the fair value of the economic hedge target and, to a lesser extent, the embedded derivative valuation under U.S.
GAAP, were offset in part by the following changes in the fair value of the variable annuity hedging portfolio:
Changes in the fair value of fixed maturity securities, primarily corporate bonds for which the fair value option has been elected,
Reversion to the Mean
In 2017, we updated the long-term annual growth assumption applied to subsequent periods used in our reversion to the mean
methodology for estimating future estimated gross profits for variable annuity products, from 7.5 percent to 7.0 percent (before
expenses that reduce the asset base from which future fees are projected). The five-year reversion to the mean period has met the
criteria for adjustment in 2017. As a result, the average gross long-term return measurement start date was reset to December 31,
2011 for Individual Retirement and June 30, 2013 for Group Retirement; the reversion to the mean rates (gross of fees) were
increased to 3.74 percent in Individual Retirement and 3.78 percent for Group Retirement. Sustained favorable equity market
performance in excess of long-term assumptions could result in additional unlocking in the Individual Retirement or Group Retirement
variable annuity product lines in the future, with a positive effect on pre-tax income in the period of the unlocking.
In 2016, the long-term annual asset growth assumption was updated from 8.5 percent to 7.5 percent. The five-year reversion to the
mean period has not met the criteria for adjustment in 2016 and 2015.
For additional discussion of assumptions related to our reversion to the mean methodology see Critical Accounting Estimates
Estimated Gross Profits for Investment-Oriented Products.
are used as a capital-efficient way to economically hedge interest rate and credit spread-related risk. In 2017, the change in the fair
DAC and Reserves Related to Unrealized Appreciation of Investments
value of the corporate bond hedging program reflected gains primarily due to tightening of credit spreads. The net gains in 2016
reflected the impact of credit spreads tightening and decreases in market interest rates in the first nine months of 2016, partially
offset by an increase in rates in the fourth quarter of 2016. The net losses in 2015 reflected increases in market interest rates in the
first six months of 2015 and credit spreads widening. The change in the fair value of the hedging bonds, which is excluded from the
adjusted pre-tax income of the Individual Retirement and Group Retirement segments, is reported in net investment income on the
Consolidated Statements of Income (Loss).
Changes in the fair value of interest rate derivative contracts, which included swaps, swaptions and futures, resulted in a small net
loss in 2017, which reflected increases in rates in the latter half of 2017, partially offset by the impact of interest rate declines in the
first half of 2017. The net losses in 2016 reflected increases in rates in the fourth quarter of 2016, which more than offset the
impact of interest rate declines in the first nine months of 2016. The net gains in 2015 reflected decreases in market interest rates
in the latter half of 2015, partially offset by the impact of increases in rates in the first half of 2015.
The change in the fair value of equity derivative contracts, which included futures and options, resulted in losses in 2017, 2016 and
2015, which varied based on the relative growth in equity market returns in the respective years.
DAC and Reserves for universal life and investment-type products (collectively, investment-oriented products) are adjusted at each
balance sheet date to reflect the change in DAC, unearned revenue, and benefit reserves with an offset to Other comprehensive
income as if securities available for sale had been sold at their stated aggregate fair value and the proceeds reinvested at current
yields (shadow Investment-Oriented Adjustments). Shadow Investment-Oriented Adjustments to DAC and unearned revenue
generally move in the opposite direction of the change in unrealized appreciation of the available for sale securities portfolio, reducing
the reported DAC and unearned revenue balance when market interest rates decline. Conversely, shadow Investment-Oriented
Adjustments to benefit reserves generally move in the same direction as the change in unrealized appreciation of the available for
sale securities portfolio, increasing reported future policy benefit liabilities balance when market interest rates decline. Market interest
rates decreased in 2017. As a result, the unrealized appreciation of fixed maturity securities held in the Life and Retirement
companies that support the businesses at December 31, 2017 increased by $3.4 billion compared to December 31, 2016, which
resulted in a decrease in DAC and unearned revenues and an increase in future policy benefit liabilities to reflect the shadow
Investment-Oriented Adjustments.
Similarly, for long-duration traditional products, significant unrealized appreciation of investments in a sustained low interest rate
environment may cause additional future policy benefit liabilities (shadow loss reserves) with an offset to Other comprehensive
income to be recorded. At December 31, 2017, future policy benefit liabilities increased to reflect additional shadow loss reserves.
The following table summarizes the major components of the changes in DAC, including VOBA, within the life and
retirement companies, excluding DAC of Legacy Portfolio:
Reserves
DAC
Years Ended December 31,
(in millions)
Balance, beginning of year
Acquisition costs deferred
Amortization expense:
Update of assumptions included in adjusted pre-tax income
Related to realized capital gains and losses
All other operating amortization
Increase (decrease) in DAC due to foreign exchange
Change related to unrealized depreciation (appreciation) of investments
Balance, end of year*
2016 and 2015, respectively.
$
7,571 $
2017
970
194
293
(937)
26
(480)
2016
7,174 $
1,026
315
276
(928)
(40)
(252)
2015
5,949
1,205
79
(2)
(873)
(11)
827
$
7,637 $
7,571 $
7,174
* DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments was $8.9 billion, $8.4 billion and $7.7 billion at December 31, 2017,
The following table presents a rollforward of insurance reserves by operating segments for Life and Retirement, including
future policy benefits, policyholder contract deposits, other policy funds, and separate account liabilities, as well as Retail
Mutual Funds and Group Retirement mutual fund assets under administration:
Years Ended December 31,
(in millions)
Individual Retirement
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
Change in fair value of underlying assets and reserve accretion, net of
2017
2016
2015
$ 129,321 $ 121,474 $ 115,831
18,376
(9,742)
(3,016)
5,618
11,906
(10,943)
(3,089)
(2,126)
16,062
(10,027)
(2,991)
3,044
The net adjustments to DAC amortization from the update of actuarial assumptions for estimated gross profits, including those
reported within change in DAC related to net realized capital gains (losses), represented two percent, four percent and one percent of
the DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments as of December 31, 2017,
2016 and 2015, respectively.
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Total Individual Retirement insurance reserves and mutual fund assets
10,098
1,528
(250)
138,571
(322)
(1,775)
1,613
187
121,474
(336)
$ 138,249 $ 128,950 $ 121,138
3,657
1,614
(468)
129,321
(371)
124
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
125
1011252ai_financials.indd 125
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Group Retirement
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
Change in fair value of underlying assets and reserve accretion, net of
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Total Group Retirement insurance reserves and mutual fund assets
Life Insurance
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
Change in fair value of underlying assets and reserve accretion, net of
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Total Life Insurance reserves
Institutional Markets
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
Change in fair value of underlying assets and reserve accretion, net of
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Total Institutional Markets reserves
Total insurance reserves and mutual fund assets
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
Change in fair value of underlying assets and reserve accretion, net of
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Total insurance reserves and mutual fund assets
* Excludes amortization of deferred sales inducements
$
$
$
$
$
88,622 $
7,550
(8,019)
(562)
(1,031)
8,617
1,098
-
97,306
97,306 $
18,397 $
3,484
(569)
(575)
2,340
(889)
376
(800)
19,424
(1,055)
18,369 $
15,385 $
4,247
(1,291)
(343)
2,613
245
253
84
18,580
(3)
84,145 $
7,570
(7,589)
(536)
(555)
3,923
1,109
-
88,622
88,622 $
18,006 $
3,391
(650)
(522)
2,219
(1,033)
386
(1,181)
18,397
(1,085)
17,312 $
14,216 $
2,153
(1,283)
(617)
253
256
244
416
15,385
(3)
$
18,577 $
15,382 $
85,861
6,920
(8,505)
(506)
(2,091)
(657)
1,106
(74)
84,145
84,145
17,464
3,353
(440)
(577)
2,336
(1,026)
394
(1,162)
18,006
(1,121)
16,885
12,978
1,732
(520)
(56)
1,156
(16)
245
(147)
14,216
(4)
14,212
$ 251,725 $ 237,841 $ 232,134
30,381
(19,207)
(4,155)
7,019
27,187
(20,822)
(4,569)
1,796
29,176
(19,549)
(4,666)
4,961
18,071
3,255
(966)
273,881
(1,380)
(3,474)
3,358
(1,196)
237,841
(1,461)
$ 272,501 $ 250,266 $ 236,380
6,803
3,353
(1,233)
251,725
(1,459)
Insurance reserves of Life and Retirement, as well as Retail Mutual Funds and Group Retirement mutual fund assets under
administration, were comprised of the following balances:
At December 31,
(in millions)
Future policy benefits
Policyholder contract deposits
Other policy funds
Separate account liabilities
Total insurance reserves
Mutual fund assets
Total insurance reserves and mutual fund assets
Liquidity and Capital Resources
OVERVIEW
$
2017
13,592 $
130,735
401
90,819
235,547
38,334
$
273,881 $
2016
10,945
127,048
434
80,979
219,406
32,319
251,725
Liquidity refers to the ability to generate sufficient cash resources to meet our payment obligations.
unencumbered assets that can be monetized in a short period of time at a reasonable cost. We manage our liquidity prudently
through various risk committees, policies and procedures, and a stress testing and liquidity risk framework established by our
Treasury group with oversight by Enterprise Risk Management (ERM). Our liquidity risk framework is designed to manage liquidity at
both AIG Parent and its subsidiaries to meet our financial obligations for a minimum of six months under a liquidity stress scenario.
It is defined as cash and
See Enterprise Risk Management Risk Appetite, Limits, Identification, and Measurement and Enterprise Risk Management
Liquidity Risk Management below for additional information.
Capital refers to the long-term financial resources available to support the operation of our businesses, fund business growth, and
cover financial and operational needs that arise from adverse circumstances. Our primary source of ongoing capital generation is
derived from the profitability of our insurance subsidiaries. We must comply with numerous constraints on our minimum capital
positions. These constraints drive the requirements for capital adequacy at AIG and the individual businesses and are based on
internally-defined risk tolerances, regulatory requirements, rating agency and creditor expectations and business needs. Actual capital
levels are monitored on a regular basis, and using ERMs stress testing methodology, we evaluate the capital impact of potential
macroeconomic, financial and insurance stresses in relation to the relevant capital constraints of both AIG and our insurance
subsidiaries.
We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations to
policyholders, customers, creditors and debt-holders, including those arising from reasonably foreseeable contingencies or events.
Nevertheless, some circumstances may cause our cash or capital needs to exceed projected liquidity or readily deployable capital
resources. Additional collateral calls, deterioration in investment portfolios or reserve strengthening affecting statutory surplus, higher
surrenders of annuities and other policies, downgrades in credit ratings, or catastrophic losses may result in significant additional cash
or capital needs and loss of sources of liquidity and capital. In addition, regulatory and other legal restrictions could limit our ability to
transfer funds freely, either to or from our subsidiaries.
Depending on market conditions, regulatory and rating agency considerations and other factors, we may take various liability and
capital management actions. Liability management actions may include, but are not limited to, repurchasing or redeeming outstanding
debt, issuing new debt or engaging in debt exchange offers. Capital management actions may include, but are not limited to, paying
dividends to our shareholders and share and/or warrant repurchases.
126
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
127
1011252ai_financials.indd 126
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Insurance Reserves
ITEM 7 | Insurance Reserves
Change in fair value of underlying assets and reserve accretion, net of
Total Group Retirement insurance reserves and mutual fund assets
Change in fair value of underlying assets and reserve accretion, net of
Group Retirement
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Life Insurance
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Total Life Insurance reserves
Institutional Markets
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Change in fair value of underlying assets and reserve accretion, net of
Total Institutional Markets reserves
Total insurance reserves and mutual fund assets
Balance at beginning of year, gross
Premiums and deposits
Surrenders and withdrawals
Death and other contract benefits
Subtotal
policy fees
Cost of funds*
Other reserve changes
Balance at end of year
Reinsurance ceded
Change in fair value of underlying assets and reserve accretion, net of
$
88,622 $
84,145 $
97,306
88,622
97,306 $
88,622 $
18,397 $
18,006 $
7,550
(8,019)
(562)
(1,031)
8,617
1,098
-
3,484
(569)
(575)
2,340
(889)
376
(800)
19,424
(1,055)
4,247
(1,291)
(343)
2,613
245
253
84
$
$
$
$
7,570
(7,589)
(536)
(555)
3,923
1,109
-
3,391
(650)
(522)
2,219
(1,033)
386
(1,181)
18,397
(1,085)
2,153
(1,283)
(617)
253
256
244
416
85,861
6,920
(8,505)
(506)
(2,091)
(657)
1,106
(74)
84,145
84,145
17,464
3,353
(440)
(577)
2,336
(1,026)
394
(1,162)
18,006
(1,121)
12,978
1,732
(520)
(56)
1,156
(16)
245
(147)
18,369 $
17,312 $
16,885
15,385 $
14,216 $
18,580
15,385
14,216
(3)
(3)
(4)
$
18,577 $
15,382 $
14,212
$ 251,725 $ 237,841 $ 232,134
27,187
(20,822)
(4,569)
1,796
18,071
3,255
(966)
273,881
(1,380)
29,176
(19,549)
(4,666)
4,961
6,803
3,353
(1,233)
30,381
(19,207)
(4,155)
7,019
(3,474)
3,358
(1,196)
251,725
237,841
(1,459)
(1,461)
Total insurance reserves and mutual fund assets
$ 272,501 $ 250,266 $ 236,380
* Excludes amortization of deferred sales inducements
Insurance reserves of Life and Retirement, as well as Retail Mutual Funds and Group Retirement mutual fund assets under
administration, were comprised of the following balances:
At December 31,
(in millions)
Future policy benefits
Policyholder contract deposits
Other policy funds
Separate account liabilities
Total insurance reserves
Mutual fund assets
Total insurance reserves and mutual fund assets
Liquidity and Capital Resources
OVERVIEW
$
$
2017
13,592 $
130,735
401
90,819
235,547
38,334
273,881 $
2016
10,945
127,048
434
80,979
219,406
32,319
251,725
Liquidity refers to the ability to generate sufficient cash resources to meet our payment obligations.
It is defined as cash and
unencumbered assets that can be monetized in a short period of time at a reasonable cost. We manage our liquidity prudently
through various risk committees, policies and procedures, and a stress testing and liquidity risk framework established by our
Treasury group with oversight by Enterprise Risk Management (ERM). Our liquidity risk framework is designed to manage liquidity at
both AIG Parent and its subsidiaries to meet our financial obligations for a minimum of six months under a liquidity stress scenario.
See Enterprise Risk Management Risk Appetite, Limits, Identification, and Measurement and Enterprise Risk Management
Liquidity Risk Management below for additional information.
Capital refers to the long-term financial resources available to support the operation of our businesses, fund business growth, and
cover financial and operational needs that arise from adverse circumstances. Our primary source of ongoing capital generation is
derived from the profitability of our insurance subsidiaries. We must comply with numerous constraints on our minimum capital
positions. These constraints drive the requirements for capital adequacy at AIG and the individual businesses and are based on
internally-defined risk tolerances, regulatory requirements, rating agency and creditor expectations and business needs. Actual capital
levels are monitored on a regular basis, and using ERMs stress testing methodology, we evaluate the capital impact of potential
macroeconomic, financial and insurance stresses in relation to the relevant capital constraints of both AIG and our insurance
subsidiaries.
We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations to
policyholders, customers, creditors and debt-holders, including those arising from reasonably foreseeable contingencies or events.
Nevertheless, some circumstances may cause our cash or capital needs to exceed projected liquidity or readily deployable capital
resources. Additional collateral calls, deterioration in investment portfolios or reserve strengthening affecting statutory surplus, higher
surrenders of annuities and other policies, downgrades in credit ratings, or catastrophic losses may result in significant additional cash
or capital needs and loss of sources of liquidity and capital. In addition, regulatory and other legal restrictions could limit our ability to
transfer funds freely, either to or from our subsidiaries.
Depending on market conditions, regulatory and rating agency considerations and other factors, we may take various liability and
capital management actions. Liability management actions may include, but are not limited to, repurchasing or redeeming outstanding
debt, issuing new debt or engaging in debt exchange offers. Capital management actions may include, but are not limited to, paying
dividends to our shareholders and share and/or warrant repurchases.
126
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
127
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCES ACTIVITY FOR 2017
SOURCES
AIG Parent Funding from Subsidiaries
During 2017, AIG Parent received $1.9 billion in dividends from subsidiaries. Of this amount, $350 million was dividends in the
form of cash and fixed maturity securities from our General Insurance companies, $1.5 billion was dividends and loan repayments
in the form of cash and fixed maturity securities from our Life and Retirement companies and $2 million was cash dividends from
AIG Federal Savings Bank.
AIG Parent also received a net amount of $2.2 billion in tax sharing payments in the form of cash and fixed maturity securities from
our insurance businesses in 2017, reflecting $1.2 billion that was reimbursed by AIG Parent to our insurance businesses during the
fourth quarter of 2017 primarily as a result of adjustments made to prior-year tax sharing payments. The tax sharing payments may
continue to be subject to adjustment in future periods.
The dividends, loan repayments and tax sharing payments from our Life and Retirement companies resulted from and were
funded, in part, by excess statutory capital released by Life Insurance Reinsurance Transactions.
For information regarding the Life Insurance Reinsurance Transactions, see Business Segment Operations Life and Retirement.
Debt Issuances
In June 2017, we issued 1.0 billion aggregate principal amount ($1.1 billion at closing) of 1.875% Notes Due 2027.
In November 2017, we issued $400 million aggregate principal amount of Zero Coupon Callable Notes due 2047.
Legacy Investments
During 2017, we generated approximately $3.0 billion in return of capital from Legacy Investments, including through the sale of
our remaining life settlements contracts.
Arch
In June 2017, AIG Parent and National Union received gross proceeds of approximately $391 million and $261 million,
respectively, from the sale of approximately four million and three million shares, respectively, of common stock of Arch Capital
Group Ltd. by means of an underwritten public offering.
USES
Debt Reduction
On July 17, 2017, we redeemed $290 million aggregate principal amount of our outstanding 4.90% Callable Notes Due July 17,
2045.
On September 25, 2017, we redeemed $420 million aggregate principal amount of our outstanding 4.90% Callable Notes Due
September 25, 2045.
We also made other repurchases of and repayments on debt instruments of approximately $3.1 billion during 2017. AIG Parent
made interest payments on our debt instruments totaling $948 million during 2017.
Dividend
We paid a cash dividend of $0.32 per share on AIG Common Stock during each quarter of 2017.
Repurchase of Common Stock
We repurchased approximately 100 million shares of AIG Common Stock during 2017, for an aggregate purchase price of
approximately $6.3 billion.
ANALYSIS OF SOURCES AND USES OF CASH
The following table presents selected data from AIG's Consolidated Statements of Cash Flows:
Years Ended December 31,
(in millions)
Sources:
Net cash provided by operating activities
Net cash provided by changes in restricted cash
Net cash provided by other investing activities
Changes in policyholder contract balances
Issuance of long-term debt
Net cash provided by other financing activities
Total sources
Uses:
Net cash used in operating activities
Change in restricted cash
Repayments of long-term debt
Purchases of AIG Common Stock
Dividends paid
Purchases of warrants
Net cash used in other financing activities
Total uses
Effect of exchange rate changes on cash
Increase (decrease) in cash
Net cash provided by (used in) operating activities
$
(8,585) $
2,383 $
The following table presents a summary of AIGs Consolidated Statement of Cash Flows:
Years Ended December 31,
(in millions)
Summary:
Net cash provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
Operating Cash Flow Activities
Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits. The ability of
insurance companies to generate positive cash flow is affected by the frequency and severity of losses under their insurance policies,
policy retention rates and operating expenses.
Interest payments totaled $1.2 billion in 2017 compared to $1.3 billion in 2016 and $1.4 billion in 2015. Excluding interest payments,
AIG had operating cash outflows of $7.3 billion in 2017 compared to operating cash inflow of $3.7 billion and $4.2 billion in 2016 and
2015 respectively. The operating cash outflow in 2017 was primarily due to payment for the adverse development reinsurance
agreement entered into with NICO.
2017
2016
2015
$
- $
2,383 $
20,271
17,517
21,434
14,792
2,123
3,356
-
-
(8,585)
(121)
(3,698)
(6,275)
(1,172)
(3)
(28)
385
4,359
4,059
5,954
377
-
-
-
(4,082)
(11,460)
(1,372)
(309)
2,877
1,457
7,005
2,410
6,867
818
(9,805)
(10,691)
(1,028)
-
-
-
-
(19,882)
(17,223)
(21,524)
(28)
361 $
$
52
346 $
(39)
(129)
2017
2016
2015
14,671
(5,697)
(28)
361
1,868
133
4,744
(6,833)
52
346
1,629
(107)
2,877
8,462
(11,429)
(39)
(129)
1,758
-
$
2,362 $
1,868 $
1,629
128
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
129
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 LIQUIDITY AND CAPITAL RESOURCES ACTIVITY FOR 2017
SOURCES
AIG Parent Funding from Subsidiaries
ANALYSIS OF SOURCES AND USES OF CASH
The following table presents selected data from AIG's Consolidated Statements of Cash Flows:
ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
During 2017, AIG Parent received $1.9 billion in dividends from subsidiaries. Of this amount, $350 million was dividends in the
form of cash and fixed maturity securities from our General Insurance companies, $1.5 billion was dividends and loan repayments
in the form of cash and fixed maturity securities from our Life and Retirement companies and $2 million was cash dividends from
Years Ended December 31,
(in millions)
Sources:
AIG Federal Savings Bank.
AIG Parent also received a net amount of $2.2 billion in tax sharing payments in the form of cash and fixed maturity securities from
our insurance businesses in 2017, reflecting $1.2 billion that was reimbursed by AIG Parent to our insurance businesses during the
fourth quarter of 2017 primarily as a result of adjustments made to prior-year tax sharing payments. The tax sharing payments may
continue to be subject to adjustment in future periods.
The dividends, loan repayments and tax sharing payments from our Life and Retirement companies resulted from and were
funded, in part, by excess statutory capital released by Life Insurance Reinsurance Transactions.
For information regarding the Life Insurance Reinsurance Transactions, see Business Segment Operations Life and Retirement.
In June 2017, we issued 1.0 billion aggregate principal amount ($1.1 billion at closing) of 1.875% Notes Due 2027.
In November 2017, we issued $400 million aggregate principal amount of Zero Coupon Callable Notes due 2047.
During 2017, we generated approximately $3.0 billion in return of capital from Legacy Investments, including through the sale of
Debt Issuances
Legacy Investments
our remaining life settlements contracts.
Arch
In June 2017, AIG Parent and National Union received gross proceeds of approximately $391 million and $261 million,
respectively, from the sale of approximately four million and three million shares, respectively, of common stock of Arch Capital
Group Ltd. by means of an underwritten public offering.
USES
Debt Reduction
2045.
September 25, 2045.
Dividend
Repurchase of Common Stock
approximately $6.3 billion.
On July 17, 2017, we redeemed $290 million aggregate principal amount of our outstanding 4.90% Callable Notes Due July 17,
On September 25, 2017, we redeemed $420 million aggregate principal amount of our outstanding 4.90% Callable Notes Due
We also made other repurchases of and repayments on debt instruments of approximately $3.1 billion during 2017. AIG Parent
made interest payments on our debt instruments totaling $948 million during 2017.
We paid a cash dividend of $0.32 per share on AIG Common Stock during each quarter of 2017.
We repurchased approximately 100 million shares of AIG Common Stock during 2017, for an aggregate purchase price of
Net cash provided by operating activities
Net cash provided by changes in restricted cash
Net cash provided by other investing activities
Changes in policyholder contract balances
Issuance of long-term debt
Net cash provided by other financing activities
Total sources
Uses:
Net cash used in operating activities
Change in restricted cash
Repayments of long-term debt
Purchases of AIG Common Stock
Dividends paid
Purchases of warrants
Net cash used in other financing activities
Total uses
Effect of exchange rate changes on cash
Increase (decrease) in cash
2017
2016
2015
$
- $
-
14,792
2,123
3,356
-
2,383 $
385
4,359
4,059
5,954
377
2,877
1,457
7,005
2,410
6,867
818
20,271
17,517
21,434
(8,585)
(121)
(3,698)
(6,275)
(1,172)
(3)
(28)
(19,882)
(28)
361 $
$
-
-
(4,082)
(11,460)
(1,372)
(309)
-
(17,223)
52
-
-
(9,805)
(10,691)
(1,028)
-
-
(21,524)
(39)
346 $
(129)
The following table presents a summary of AIGs Consolidated Statement of Cash Flows:
Years Ended December 31,
(in millions)
Summary:
Net cash provided by (used in) operating activities
Net cash provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
Operating Cash Flow Activities
2017
2016
2015
$
$
(8,585) $
14,671
(5,697)
(28)
361
1,868
133
2,362 $
2,383 $
4,744
(6,833)
52
346
1,629
(107)
1,868 $
2,877
8,462
(11,429)
(39)
(129)
1,758
-
1,629
Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits. The ability of
insurance companies to generate positive cash flow is affected by the frequency and severity of losses under their insurance policies,
policy retention rates and operating expenses.
Interest payments totaled $1.2 billion in 2017 compared to $1.3 billion in 2016 and $1.4 billion in 2015. Excluding interest payments,
AIG had operating cash outflows of $7.3 billion in 2017 compared to operating cash inflow of $3.7 billion and $4.2 billion in 2016 and
2015 respectively. The operating cash outflow in 2017 was primarily due to payment for the adverse development reinsurance
agreement entered into with NICO.
128
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
129
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
Investing Cash Flow Activities
The following table presents AIG Parent's liquidity sources:
Net cash provided by investing activities in 2017 was $14.7 billion compared to investing cash inflows of $4.7 billion in 2016, which
included $2.8 billion of net cash proceeds from the sales of United Guaranty, Ascot and AIG Advisor Group. Net cash provided by
investing activities for 2015 included $4.2 billion of net cash proceeds from the sale of ordinary shares of AerCap. Net cash provided
by investing activities in 2017 primarily included sales of certain investments to fund the adverse development reinsurance agreement
entered into with NICO.
Financing Cash Flow Activities
Net cash used in financing activities in 2017 included:
approximately $1.2 billion in the aggregate to pay a dividend of $0.32 per share on AIG Common Stock in each quarter of 2017;
approximately $6.3 billion to repurchase approximately 100 million shares of AIG Common Stock; and
(In millions)
Cash and short-term investments(a)
Unencumbered fixed maturity securities(b)
Total AIG Parent liquidity
Available capacity under syndicated credit facility(c)
Total AIG Parent liquidity sources
As of
As of
December 31, 2017
December 31, 2016
$
$
2,114
5,172
7,286
4,500
11,786
$
$
3,950
4,470
8,420
4,500
12,920
(a) Cash and short-term investments include reverse repurchase agreements totaling $1.7 billion and $1.0 billion as of December 31, 2017 and 2016, respectively.
(b) Unencumbered securities consist of publicly traded, investment grade rated fixed maturity securities. Fixed maturity securities primarily include U.S. government and
government sponsored entity securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain other highly rated securities.
(c) For additional information relating to this syndicated credit facility see Credit Facilities below.
approximately $342 million in net outflows from the issuance and repayment of long-term debt.
Insurance Companies
Net cash used in financing activities in 2016 included:
approximately $1.4 billion in the aggregate to pay a dividend of $0.32 per share on AIG Common Stock in each quarter of 2016;
approximately $11.5 billion to repurchase approximately 201 million shares of AIG Common Stock;
approximately $309 million to repurchase approximately 17 million warrants to purchase shares of AIG Common Stock; and
approximately $1.9 billion in net inflows from the issuance and repayment of long-term debt.
Net cash used in financing activities in 2015 included:
approximately $1.0 billion in the aggregate to pay a dividend of $0.125 per share on AIG Common Stock in each of the first and
second quarters of 2015 and $0.28 per share on AIG Common Stock in each of the third and fourth quarters of 2015;
approximately $10.7 billion to repurchase approximately 182 million shares of AIG Common Stock; and
approximately $2.9 billion in net outflows from the issuance and repayment of long-term debt.
LIQUIDITY AND CAPITAL RESOURCES OF AIG PARENT AND SUBSIDIARIES
AIG Parent
As of December 31, 2017, AIG Parent had approximately $11.8 billion in liquidity sources. AIG Parents liquidity sources are primarily
held in the form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities. Fixed maturity
securities primarily include U.S. government and government sponsored entity securities, U.S. agency mortgage-backed securities,
corporate and municipal bonds and certain other highly rated securities. AIG Parent actively manages its assets and liabilities in terms
of products, counterparties and duration. Based upon an assessment of funding needs, the liquidity sources can be readily monetized
through sales or repurchase agreements or contributed as admitted assets to regulated insurance companies. AIG Parent liquidity is
monitored through the use of various internal liquidity risk measures. AIG Parents primary sources of liquidity are dividends,
distributions, loans and other payments from subsidiaries and credit facilities. AIG Parents primary uses of liquidity are for debt
service, capital and liability management, and operating expenses.
We believe that we have sufficient liquidity and capital resources to satisfy our reasonably foreseeable future requirements and meet
our obligations to our creditors, debt-holders and insurance company subsidiaries. We expect to access the debt markets from time to
time to meet funding requirements as needed.
We utilize our capital resources to support our businesses, with the majority of capital allocated to our insurance operations. Should
we have or generate more capital than is needed to support our business strategies (including organic growth or acquisition
opportunities) or mitigate risks inherent to our business, we may develop plans to distribute such capital to shareholders via dividends
or share repurchase authorizations or deploy such capital towards liability management.
In the normal course, it is expected that a portion of the capital released by our insurance operations, by our other operations or
through the utilization of AIGs deferred tax assets may be available to support our business strategies, for distribution to shareholders
or for liability management.
In developing plans to distribute capital, AIG considers a number of factors, including, but not limited to: AIGs business and strategic
plans, expectations for capital generation and utilization, AIGs funding capacity and capital resources in comparison to internal
benchmarks, as well as rating agency expectations, regulatory standards and internal stress tests for capital.
We expect that our insurance companies will be able to continue to satisfy reasonably foreseeable future liquidity requirements and
meet their obligations, including those arising from reasonably foreseeable contingencies or events, through cash from operations
and, to the extent necessary, monetization of invested assets. Our insurance companies liquidity resources are primarily held in the
form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities.
Each of our material insurance companies liquidity is monitored through various internal liquidity risk measures. The primary sources
of liquidity are premiums, fees, reinsurance recoverables and investment income and maturities. The primary uses of liquidity are paid
losses, reinsurance payments, benefit claims, surrenders, withdrawals, interest payments, dividends, expenses, investment
purchases and collateral requirements.
Our General Insurance companies may require additional funding to meet capital or liquidity needs under certain circumstances.
Large catastrophes may require us to provide additional support to our affected operations. Downgrades in our credit ratings could put
pressure on the insurer financial strength ratings of our subsidiaries, which could result in non-renewals or cancellations by
policyholders and adversely affect the subsidiarys ability to meet its own obligations. Increases in market interest rates may adversely
affect the financial strength ratings of our subsidiaries, as rating agency capital models may reduce the amount of available capital
relative to required capital. Other potential events that could cause a liquidity strain include an economic collapse of a nation or region
significant to our operations, nationalization, catastrophic terrorist acts, pandemics or other events causing economic or political
upheaval.
On January 20, 2017, certain of our General Insurance companies entered into an adverse development reinsurance agreement with
NICO under which they transferred to NICO 80 percent of reserve risk on substantially all of their U.S. Commercial long-tail exposures
for accident years 2015 and prior. Under this agreement, these General Insurance companies ceded to NICO 80 percent of the paid
losses on subject business paid on or after January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25
billion. The total consideration paid, including interest, was $10.2 billion.
Management believes that because of the size and liquidity of our Life and Retirement companies investment portfolios, normal
deviations from projected claim or surrender experience would not create significant liquidity risk. Furthermore, our Life and
Retirement companies products contain certain features that mitigate surrender risk, including surrender charges. However, in times
of extreme capital markets disruption, liquidity needs could outpace resources. As part of their risk management framework, our Life
and Retirement companies continue to evaluate and, where appropriate, pursue strategies and programs to improve their liquidity
position and facilitate their ability to maintain a fully invested asset portfolio.
Certain of our U.S. insurance companies are members of the Federal Home Loan Banks (FHLBs) in their respective districts.
Borrowings from the FHLBs are used to supplement liquidity or for other uses deemed appropriate by management. Our U.S. General
Insurance companies had outstanding borrowings from the FHLBs in an aggregate amount of approximately $190 million and $733
million at December 31, 2017 and December 31, 2016, respectively. The outstanding borrowings are being used primarily for interest
rate risk management purposes in connection with certain reinsurance arrangements, and the related balances are expected to
decline as underlying premiums are collected. Our U.S. Life and Retirement companies had no outstanding borrowings in the form of
cash advances from the FHLBs at December 31, 2017, and aggregate borrowings in the form of cash advances of approximately $2
million at December 31, 2016. In addition, $606 million and $429 million were due to the FHLB of Dallas at December 31, 2017 and
December 31, 2016, respectively, under funding agreements issued by our Institutional Markets business, which were reported in
Policyholder contract deposits.
130
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
131
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Investing Cash Flow Activities
The following table presents AIG Parent's liquidity sources:
ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
Net cash provided by investing activities in 2017 was $14.7 billion compared to investing cash inflows of $4.7 billion in 2016, which
included $2.8 billion of net cash proceeds from the sales of United Guaranty, Ascot and AIG Advisor Group. Net cash provided by
investing activities for 2015 included $4.2 billion of net cash proceeds from the sale of ordinary shares of AerCap. Net cash provided
by investing activities in 2017 primarily included sales of certain investments to fund the adverse development reinsurance agreement
entered into with NICO.
Financing Cash Flow Activities
Net cash used in financing activities in 2017 included:
approximately $1.2 billion in the aggregate to pay a dividend of $0.32 per share on AIG Common Stock in each quarter of 2017;
approximately $6.3 billion to repurchase approximately 100 million shares of AIG Common Stock; and
(In millions)
Cash and short-term investments(a)
Unencumbered fixed maturity securities(b)
Total AIG Parent liquidity
Available capacity under syndicated credit facility(c)
Total AIG Parent liquidity sources
$
As of
December 31, 2017
2,114
5,172
7,286
4,500
11,786
$
$
As of
December 31, 2016
3,950
4,470
8,420
4,500
12,920
$
(a) Cash and short-term investments include reverse repurchase agreements totaling $1.7 billion and $1.0 billion as of December 31, 2017 and 2016, respectively.
(b) Unencumbered securities consist of publicly traded, investment grade rated fixed maturity securities. Fixed maturity securities primarily include U.S. government and
government sponsored entity securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain other highly rated securities.
(c) For additional information relating to this syndicated credit facility see Credit Facilities below.
approximately $342 million in net outflows from the issuance and repayment of long-term debt.
Insurance Companies
Net cash used in financing activities in 2016 included:
approximately $1.4 billion in the aggregate to pay a dividend of $0.32 per share on AIG Common Stock in each quarter of 2016;
approximately $11.5 billion to repurchase approximately 201 million shares of AIG Common Stock;
approximately $309 million to repurchase approximately 17 million warrants to purchase shares of AIG Common Stock; and
approximately $1.9 billion in net inflows from the issuance and repayment of long-term debt.
Net cash used in financing activities in 2015 included:
approximately $1.0 billion in the aggregate to pay a dividend of $0.125 per share on AIG Common Stock in each of the first and
second quarters of 2015 and $0.28 per share on AIG Common Stock in each of the third and fourth quarters of 2015;
approximately $10.7 billion to repurchase approximately 182 million shares of AIG Common Stock; and
approximately $2.9 billion in net outflows from the issuance and repayment of long-term debt.
LIQUIDITY AND CAPITAL RESOURCES OF AIG PARENT AND SUBSIDIARIES
AIG Parent
As of December 31, 2017, AIG Parent had approximately $11.8 billion in liquidity sources. AIG Parents liquidity sources are primarily
held in the form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities. Fixed maturity
securities primarily include U.S. government and government sponsored entity securities, U.S. agency mortgage-backed securities,
corporate and municipal bonds and certain other highly rated securities. AIG Parent actively manages its assets and liabilities in terms
of products, counterparties and duration. Based upon an assessment of funding needs, the liquidity sources can be readily monetized
through sales or repurchase agreements or contributed as admitted assets to regulated insurance companies. AIG Parent liquidity is
monitored through the use of various internal liquidity risk measures. AIG Parents primary sources of liquidity are dividends,
distributions, loans and other payments from subsidiaries and credit facilities. AIG Parents primary uses of liquidity are for debt
service, capital and liability management, and operating expenses.
We believe that we have sufficient liquidity and capital resources to satisfy our reasonably foreseeable future requirements and meet
our obligations to our creditors, debt-holders and insurance company subsidiaries. We expect to access the debt markets from time to
time to meet funding requirements as needed.
We utilize our capital resources to support our businesses, with the majority of capital allocated to our insurance operations. Should
we have or generate more capital than is needed to support our business strategies (including organic growth or acquisition
opportunities) or mitigate risks inherent to our business, we may develop plans to distribute such capital to shareholders via dividends
or share repurchase authorizations or deploy such capital towards liability management.
In the normal course, it is expected that a portion of the capital released by our insurance operations, by our other operations or
through the utilization of AIGs deferred tax assets may be available to support our business strategies, for distribution to shareholders
or for liability management.
In developing plans to distribute capital, AIG considers a number of factors, including, but not limited to: AIGs business and strategic
plans, expectations for capital generation and utilization, AIGs funding capacity and capital resources in comparison to internal
benchmarks, as well as rating agency expectations, regulatory standards and internal stress tests for capital.
We expect that our insurance companies will be able to continue to satisfy reasonably foreseeable future liquidity requirements and
meet their obligations, including those arising from reasonably foreseeable contingencies or events, through cash from operations
and, to the extent necessary, monetization of invested assets. Our insurance companies liquidity resources are primarily held in the
form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities.
Each of our material insurance companies liquidity is monitored through various internal liquidity risk measures. The primary sources
of liquidity are premiums, fees, reinsurance recoverables and investment income and maturities. The primary uses of liquidity are paid
losses, reinsurance payments, benefit claims, surrenders, withdrawals, interest payments, dividends, expenses, investment
purchases and collateral requirements.
Our General Insurance companies may require additional funding to meet capital or liquidity needs under certain circumstances.
Large catastrophes may require us to provide additional support to our affected operations. Downgrades in our credit ratings could put
pressure on the insurer financial strength ratings of our subsidiaries, which could result in non-renewals or cancellations by
policyholders and adversely affect the subsidiarys ability to meet its own obligations. Increases in market interest rates may adversely
affect the financial strength ratings of our subsidiaries, as rating agency capital models may reduce the amount of available capital
relative to required capital. Other potential events that could cause a liquidity strain include an economic collapse of a nation or region
significant to our operations, nationalization, catastrophic terrorist acts, pandemics or other events causing economic or political
upheaval.
On January 20, 2017, certain of our General Insurance companies entered into an adverse development reinsurance agreement with
NICO under which they transferred to NICO 80 percent of reserve risk on substantially all of their U.S. Commercial long-tail exposures
for accident years 2015 and prior. Under this agreement, these General Insurance companies ceded to NICO 80 percent of the paid
losses on subject business paid on or after January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25
billion. The total consideration paid, including interest, was $10.2 billion.
Management believes that because of the size and liquidity of our Life and Retirement companies investment portfolios, normal
deviations from projected claim or surrender experience would not create significant liquidity risk. Furthermore, our Life and
Retirement companies products contain certain features that mitigate surrender risk, including surrender charges. However, in times
of extreme capital markets disruption, liquidity needs could outpace resources. As part of their risk management framework, our Life
and Retirement companies continue to evaluate and, where appropriate, pursue strategies and programs to improve their liquidity
position and facilitate their ability to maintain a fully invested asset portfolio.
Certain of our U.S. insurance companies are members of the Federal Home Loan Banks (FHLBs) in their respective districts.
Borrowings from the FHLBs are used to supplement liquidity or for other uses deemed appropriate by management. Our U.S. General
Insurance companies had outstanding borrowings from the FHLBs in an aggregate amount of approximately $190 million and $733
million at December 31, 2017 and December 31, 2016, respectively. The outstanding borrowings are being used primarily for interest
rate risk management purposes in connection with certain reinsurance arrangements, and the related balances are expected to
decline as underlying premiums are collected. Our U.S. Life and Retirement companies had no outstanding borrowings in the form of
cash advances from the FHLBs at December 31, 2017, and aggregate borrowings in the form of cash advances of approximately $2
million at December 31, 2016. In addition, $606 million and $429 million were due to the FHLB of Dallas at December 31, 2017 and
December 31, 2016, respectively, under funding agreements issued by our Institutional Markets business, which were reported in
Policyholder contract deposits.
130
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
131
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
Certain of our U.S. Life and Retirement companies have programs, which began in 2012, that lend securities from their investment
portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under these programs, these U.S. Life and
Retirement companies lend securities to financial institutions and receive cash as collateral equal to 102 percent of the fair value of
the loaned securities. Cash collateral received is invested in short-term investments. Additionally, the aggregate amount of securities
that a Life and Retirement company is able to lend under its program at any time is limited to five percent of its general account
statutory-basis admitted assets. Our U.S. Life and Retirement companies had $2.9 billion and $2.4 billion of securities subject to
these agreements at December 31, 2017 and December 31, 2016, respectively, and $3.0 billion and $2.5 billion of liabilities to
borrowers for collateral received at December 31, 2017 and December 31, 2016, respectively.
AIG generally manages capital between AIG Parent and our insurance companies through internal, Board-approved policies and
limits, as well as management standards. In addition, AIG Parent has unconditional capital maintenance agreements (CMAs) in place
with certain subsidiaries. Nevertheless, regulatory and other legal restrictions could limit our ability to transfer capital freely, either to
or from our subsidiaries.
AIG Parent and/or certain subsidiaries are parties to several letter of credit agreements with various financial institutions. These
financial institutions issue letters of credit from time to time to certain of our General Insurance companies for insurance regulatory
and reinsurance collateral purposes or for capital support, and the total outstanding amount of issued letters of credit for these
purposes was approximately $3.1 billion at year end 2017. Letters of credit issued in support of the Life and Retirement companies
totaled approximately $900 million at year end 2017.
During 2016, we created a new Switzerland-domiciled international holding company, AIG International Holdings, GmbH (AIGIH),
which is intended to be the ultimate holding company for all of our international entities. This international holding company structure
is part of our ongoing efforts to simplify our organizational structure, and is expected to facilitate the optimization of our international
capital strategy from both a regulatory and tax perspective. Through February 8, 2018, substantially all of our international operations
have been transferred to AIGIH. We will continue to monitor our international holding company structure in light of regulatory, tax and
other developments, to ensure that this strategy continues to be effective.
In 2017, our General Insurance companies paid approximately $350 million in dividends in the form of cash and fixed maturity
securities to AIG Parent. The fixed maturity securities primarily included U.S. government and government-sponsored entity
securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain other highly rated securities.
In 2017, our Life and Retirement companies collectively declared a total of $2.4 billion of dividends, return of capital and loan
repayments. Of this amount, $1.1 billion was paid in the form of cash, $387 million was paid in the form of fixed maturity securities,
and $890 million was retained at an intermediate life insurance holding company to fund tax sharing payments to AIG Parent. The Life
and Retirement companies made tax sharing payments to AIG Parent in 2017 totaling $3.3 billion in the form of cash and fixed
maturity securities, primarily as a result of the Life Insurance Reinsurance Transactions. Fixed maturity securities used to fund
dividends and tax sharing payments included U.S. government and government sponsored entity securities, U.S. agency mortgage-
backed securities, corporate and municipal bonds and certain other highly rated securities.
CREDIT FACILITIES
We maintain a committed, revolving syndicated credit facility (the Facility) as a potential source of liquidity for general corporate
purposes. The Facility provides for aggregate commitments by the bank syndicate to provide unsecured revolving loans and/or
standby letters of credit of up to $4.5 billion without any limits on the type of borrowings and is scheduled to expire in June 2022.
As of December 31, 2017, a total of $4.5 billion remains available under the Facility. Our ability to utilize the Facility is not contingent
on our credit ratings. However, our ability to utilize the Facility is conditioned on the satisfaction of certain legal, operating,
administrative and financial covenants and other requirements contained in the Facility. These include covenants relating to our
maintenance of a specified total consolidated net worth and total consolidated debt to total consolidated capitalization. Failure to
satisfy these and other requirements contained in the Facility would restrict our access to the Facility and could have a material
adverse effect on our financial condition, results of operations and liquidity. We expect to utilize the Facility from time to time, and may
use the proceeds for general corporate purposes.
CONTRACTUAL OBLIGATIONS
The following table summarizes contractual obligations in total, and by remaining maturity:
December 31, 2017
(in millions)
Insurance operations
Loss reserves
Insurance and investment contract liabilities
Borrowings
Interest payments on borrowings
Operating leases
Other long-term obligations
Interest payments on borrowings
Operating leases
Other long-term obligations
Total
Other
Borrowings
Total
Consolidated
Loss reserves
Borrowings
Interest payments on borrowings
Operating leases
Other long-term obligations(a)
Total(b)
Insurance and investment contract liabilities
Payments due by Period
Total
Payments
2018
2019 -
2020
2021 -
2022
Thereafter
$
80,237
$
242,108
18,204
15,804
$
23,033 $
30,283
12,872
28,563
$
26,128
167,458
324,942
34,263
53,794 $
41,896
194,989
$
$
$
$
976
902
708
11
24,445
14,340
125
283
80,237
242,108
25,421
15,242
833
294
$
$
$
$
-
50
202
3
2,095
996
41
50
18,204
15,804
2,095
1,046
243
53
$
$
$
$
115
99
259
5
219
99
141
2
2,636 $
1,818
57
106
3,252
1,539
13
84
23,033 $
30,283
2,751
1,917
316
111
12,872
28,563
3,471
1,638
154
86
$
$
$
$
642
654
106
1
16,462
9,987
14
43
26,128
167,458
17,104
10,641
120
44
39,193
3,182
4,617 $
4,888
26,506
$
364,135
$
37,445
$
58,411 $
46,784
$
221,495
(a) Primarily includes contracts to purchase future services and other capital expenditures.
(b) Does not reflect obligations in connection with the agreement to purchase Validus Holdings, Ltd., which was entered into on January 21, 2018 and is expected to close
mid-2018 subject to obtaining the relevant regulatory approvals and other customary closing conditions. For further discussion of the purchase of Validus Holdings, Ltd.
see Note 26 to the Consolidated Financial Statements. Also does not reflect unrecognized tax benefits of $4.7 billion. See Note 23 to the Consolidated Financial
Statements for additional information.
Loss Reserves
Loss reserves relate to our General Insurance companies and represent estimates of future loss and loss adjustment expense
payments estimated based on historical loss development payment patterns. Due to the significance of the assumptions used, the
payments by period presented above could be materially different from actual required payments. We believe that our General
Insurance companies maintain adequate financial resources to meet the actual required payments under these obligations.
Insurance and Investment Contract Liabilities
Insurance and investment contract liabilities, including GIC liabilities, relate to our Life and Retirement companies. These liabilities
include various investment-type products with contractually scheduled maturities, including periodic payments. These liabilities also
include benefit and claim liabilities, of which a significant portion represents policies and contracts that do not have stated contractual
maturity dates and may not result in any future payment obligations. For these policies and contracts (i) we are not currently making
payments until the occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship or
(iii) payment may occur due to a surrender or other non-scheduled event beyond our control.
We have made significant assumptions to determine the estimated undiscounted cash flows of these contractual policy benefits.
These assumptions include mortality, morbidity, future lapse rates, expenses, investment returns and interest crediting rates, offset by
expected future deposits and premiums on in-force policies. Due to the significance of the assumptions, the periodic amounts
presented could be materially different from actual required payments. The amounts presented in this table are undiscounted and
exceed the future policy benefits and policyholder contract deposits included in the Consolidated Balance Sheets.
We believe that our Life and Retirement companies have adequate financial resources to meet the payments actually required under
these obligations. These subsidiaries have substantial liquidity in the form of cash and short-term investments. In addition, our Life
and Retirement companies maintain significant levels of investment grade rated fixed maturity securities, including substantial
132
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
133
1011252ai_financials.indd 132
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
Certain of our U.S. Life and Retirement companies have programs, which began in 2012, that lend securities from their investment
portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under these programs, these U.S. Life and
Retirement companies lend securities to financial institutions and receive cash as collateral equal to 102 percent of the fair value of
the loaned securities. Cash collateral received is invested in short-term investments. Additionally, the aggregate amount of securities
that a Life and Retirement company is able to lend under its program at any time is limited to five percent of its general account
statutory-basis admitted assets. Our U.S. Life and Retirement companies had $2.9 billion and $2.4 billion of securities subject to
these agreements at December 31, 2017 and December 31, 2016, respectively, and $3.0 billion and $2.5 billion of liabilities to
borrowers for collateral received at December 31, 2017 and December 31, 2016, respectively.
AIG generally manages capital between AIG Parent and our insurance companies through internal, Board-approved policies and
limits, as well as management standards. In addition, AIG Parent has unconditional capital maintenance agreements (CMAs) in place
with certain subsidiaries. Nevertheless, regulatory and other legal restrictions could limit our ability to transfer capital freely, either to
or from our subsidiaries.
AIG Parent and/or certain subsidiaries are parties to several letter of credit agreements with various financial institutions. These
financial institutions issue letters of credit from time to time to certain of our General Insurance companies for insurance regulatory
and reinsurance collateral purposes or for capital support, and the total outstanding amount of issued letters of credit for these
purposes was approximately $3.1 billion at year end 2017. Letters of credit issued in support of the Life and Retirement companies
totaled approximately $900 million at year end 2017.
During 2016, we created a new Switzerland-domiciled international holding company, AIG International Holdings, GmbH (AIGIH),
which is intended to be the ultimate holding company for all of our international entities. This international holding company structure
is part of our ongoing efforts to simplify our organizational structure, and is expected to facilitate the optimization of our international
capital strategy from both a regulatory and tax perspective. Through February 8, 2018, substantially all of our international operations
have been transferred to AIGIH. We will continue to monitor our international holding company structure in light of regulatory, tax and
other developments, to ensure that this strategy continues to be effective.
In 2017, our General Insurance companies paid approximately $350 million in dividends in the form of cash and fixed maturity
securities to AIG Parent. The fixed maturity securities primarily included U.S. government and government-sponsored entity
securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain other highly rated securities.
In 2017, our Life and Retirement companies collectively declared a total of $2.4 billion of dividends, return of capital and loan
repayments. Of this amount, $1.1 billion was paid in the form of cash, $387 million was paid in the form of fixed maturity securities,
and $890 million was retained at an intermediate life insurance holding company to fund tax sharing payments to AIG Parent. The Life
and Retirement companies made tax sharing payments to AIG Parent in 2017 totaling $3.3 billion in the form of cash and fixed
maturity securities, primarily as a result of the Life Insurance Reinsurance Transactions. Fixed maturity securities used to fund
dividends and tax sharing payments included U.S. government and government sponsored entity securities, U.S. agency mortgage-
backed securities, corporate and municipal bonds and certain other highly rated securities.
CREDIT FACILITIES
We maintain a committed, revolving syndicated credit facility (the Facility) as a potential source of liquidity for general corporate
purposes. The Facility provides for aggregate commitments by the bank syndicate to provide unsecured revolving loans and/or
CONTRACTUAL OBLIGATIONS
The following table summarizes contractual obligations in total, and by remaining maturity:
December 31, 2017
(in millions)
Insurance operations
Loss reserves
Insurance and investment contract liabilities
Borrowings
Interest payments on borrowings
Operating leases
Other long-term obligations
Total
Other
Borrowings
Interest payments on borrowings
Operating leases
Other long-term obligations
Total
Consolidated
Loss reserves
Insurance and investment contract liabilities
Borrowings
Interest payments on borrowings
Operating leases
Other long-term obligations(a)
Total(b)
Payments due by Period
Total
Payments
2018
2019 -
2020
2021 -
2022
Thereafter
$
$
$
$
$
$
80,237
242,108
976
902
708
11
324,942
24,445
14,340
125
283
39,193
80,237
242,108
25,421
15,242
833
294
364,135
$
$
$
$
$
$
18,204
15,804
-
50
202
3
34,263
2,095
996
41
50
3,182
18,204
15,804
2,095
1,046
243
53
37,445
$
$
$
$
$
$
23,033 $
30,283
115
99
259
5
53,794 $
2,636 $
1,818
57
106
4,617 $
23,033 $
30,283
2,751
1,917
316
111
58,411 $
12,872
28,563
219
99
141
2
41,896
3,252
1,539
13
84
4,888
12,872
28,563
3,471
1,638
154
86
46,784
$
$
$
$
$
$
26,128
167,458
642
654
106
1
194,989
16,462
9,987
14
43
26,506
26,128
167,458
17,104
10,641
120
44
221,495
(a) Primarily includes contracts to purchase future services and other capital expenditures.
(b) Does not reflect obligations in connection with the agreement to purchase Validus Holdings, Ltd., which was entered into on January 21, 2018 and is expected to close
mid-2018 subject to obtaining the relevant regulatory approvals and other customary closing conditions. For further discussion of the purchase of Validus Holdings, Ltd.
see Note 26 to the Consolidated Financial Statements. Also does not reflect unrecognized tax benefits of $4.7 billion. See Note 23 to the Consolidated Financial
Statements for additional information.
Loss Reserves
Loss reserves relate to our General Insurance companies and represent estimates of future loss and loss adjustment expense
payments estimated based on historical loss development payment patterns. Due to the significance of the assumptions used, the
payments by period presented above could be materially different from actual required payments. We believe that our General
Insurance companies maintain adequate financial resources to meet the actual required payments under these obligations.
standby letters of credit of up to $4.5 billion without any limits on the type of borrowings and is scheduled to expire in June 2022.
Insurance and Investment Contract Liabilities
As of December 31, 2017, a total of $4.5 billion remains available under the Facility. Our ability to utilize the Facility is not contingent
on our credit ratings. However, our ability to utilize the Facility is conditioned on the satisfaction of certain legal, operating,
administrative and financial covenants and other requirements contained in the Facility. These include covenants relating to our
maintenance of a specified total consolidated net worth and total consolidated debt to total consolidated capitalization. Failure to
satisfy these and other requirements contained in the Facility would restrict our access to the Facility and could have a material
adverse effect on our financial condition, results of operations and liquidity. We expect to utilize the Facility from time to time, and may
use the proceeds for general corporate purposes.
Insurance and investment contract liabilities, including GIC liabilities, relate to our Life and Retirement companies. These liabilities
include various investment-type products with contractually scheduled maturities, including periodic payments. These liabilities also
include benefit and claim liabilities, of which a significant portion represents policies and contracts that do not have stated contractual
maturity dates and may not result in any future payment obligations. For these policies and contracts (i) we are not currently making
payments until the occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship or
(iii) payment may occur due to a surrender or other non-scheduled event beyond our control.
We have made significant assumptions to determine the estimated undiscounted cash flows of these contractual policy benefits.
These assumptions include mortality, morbidity, future lapse rates, expenses, investment returns and interest crediting rates, offset by
expected future deposits and premiums on in-force policies. Due to the significance of the assumptions, the periodic amounts
presented could be materially different from actual required payments. The amounts presented in this table are undiscounted and
exceed the future policy benefits and policyholder contract deposits included in the Consolidated Balance Sheets.
We believe that our Life and Retirement companies have adequate financial resources to meet the payments actually required under
these obligations. These subsidiaries have substantial liquidity in the form of cash and short-term investments. In addition, our Life
and Retirement companies maintain significant levels of investment grade rated fixed maturity securities, including substantial
132
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
133
1011252ai_financials.indd 133
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
holdings in government and corporate bonds, and could seek to monetize those holdings in the event operating cash flows are
insufficient. We expect liquidity needs related to GIC liabilities to be funded through cash flows generated from maturities and sales of
invested assets.
Borrowings
Our borrowings exclude those incurred by consolidated investments and include hybrid financial instrument liabilities recorded at fair
value. We expect to repay the long-term debt maturities and interest accrued on borrowings by AIG through maturing investments and
dispositions of invested assets, future cash flows from operations, cash flows generated from invested assets, future debt issuance
and other financing arrangements. Borrowings supported by assets of AIG include various notes and bonds payable as well as GIAs
that are supported by cash and investments held by AIG Parent and certain non-insurance subsidiaries for the repayment of those
obligations.
OFF-BALANCE SHEET ARRANGEMENTS AND COMMERCIAL COMMITMENTS
The following table summarizes Off-Balance Sheet Arrangements and Commercial Commitments in total, and by remaining
maturity:
December 31, 2017
(in millions)
Insurance operations
Guarantees:
Standby letters of credit
Guarantees of indebtedness
All other guarantees(a)
Commitments:
Investment commitments(b)
Commitments to extend credit
Letters of credit
Total(c)
Other
Guarantees:
Liquidity facilities(d)
Standby letters of credit
All other guarantees
Commitments:
Investment commitments(b)
Commitments to extend credit(e)
Letters of credit
Total(c)(f)
Consolidated
Guarantees:
Liquidity facilities(d)
Standby letters of credit
Guarantees of indebtedness
All other guarantees(a)
Commitments:
Investment commitments(b)
Commitments to extend credit(e)
Letters of credit
Total(c)(f)
Total Amounts
Committed
2018
2019 -
2020
2021 -
2022
Thereafter
Amount of Commitment Expiring
$
$
$
$
$
$
160 $
63
2
2,914
2,334
5
5,478 $
138 $
63
-
1,893
1,633
5
3,732 $
74 $
- $
139
84
264
200
17
778 $
139
7
32
-
17
195 $
11 $
-
-
813
323
-
1,147 $
- $
-
28
16
200
-
244 $
74 $
- $
- $
299
63
86
277
63
7
11
-
28
3,178
2,534
22
6,256 $
1,925
1,633
22
3,927 $
829
523
-
1,391 $
- $
-
2
166
285
-
453 $
- $
-
28
106
-
-
134 $
- $
-
-
30
272
285
-
587 $
11
-
-
42
93
-
146
74
-
21
110
-
-
205
74
11
-
21
152
93
-
351
(a) Includes construction guarantees connected to affordable housing investments by our Life and Retirement companies. Excludes potential amounts for indemnification
obligations included in asset sales agreements. For further information on indemnification obligations see Note 16 to the Consolidated Financial Statements.
(b) Includes commitments to invest in private equity funds, hedge funds and other funds and commitments to purchase and develop real estate in the United States and
abroad. The commitments to invest in private equity funds, hedge funds and other funds are called at the discretion of each fund, as needed for funding new
investments or expenses of the fund. The expiration of these commitments is estimated in the table above based on the expected life cycle of the related fund,
consistent with past trends of requirements for funding. Investors under these commitments are primarily insurance and real estate subsidiaries.
(c) Does not include guarantees, CMAs or other support arrangements among AIG consolidated entities.
(d) Primarily represents liquidity facilities provided in connection with certain municipal swap transactions and collateralized bond obligations.
(e) Includes a senior unsecured revolving credit facility between AerCap Ireland Capital Designated Activity Company (formerly AerCap Ireland Capital Limited), as
borrower, and AIG Parent, as lender (the AerCap Credit Facility). The AerCap Credit Facility permits loans for general corporate purposes. In December 2017, the
aggregate commitment under the AerCap Credit Facility was reduced to $200 million from $500 million and the termination date of the facility was extended to October
2019 from May 2019. At December 31, 2017, no amounts were outstanding under the AerCap Credit Facility.
(f) Excludes commitments with respect to pension plans. The annual pension contribution for 2018 is expected to be approximately $64 million for U.S. and non-U.S. plans.
Tax Matters
If the settlement agreements in principle are concluded in our ongoing dispute related to the disallowance of foreign tax credits
associated with cross border financing transactions, we will be required to make a payment to the U.S. Treasury. Although we can
provide no assurance regarding whether the non-binding settlements will be finalized, the amount we currently expect to pay based
on current proposed settlement terms is approximately $1.3 billion. This amount is net of payments previously made with respect to
cross border financing transactions involving matters dating back to 1997 and other matters largely related to the same tax
years. There remains uncertainty with regard to whether the settlements in principle will ultimately be approved by the relevant
authorities as well as the amount and timing of any potential payments, which are not likely to be made before sometime in 2019.
For additional information regarding this matter see Note 23 to the Consolidated Financial Statements.
Arrangements with Variable Interest Entities
We enter into various arrangements with variable interest entities (VIEs) in the normal course of business, and we consolidate a VIE
when we are the primary beneficiary of the entity.
For a further discussion of our involvement with VIEs see Note 10 to the Consolidated Financial Statements.
Indemnification Agreements
We are subject to financial guarantees and indemnity arrangements in connection with our sales of businesses. These arrangements
may be triggered by declines in asset values, specified business contingencies, the realization of contingent liabilities, litigation
developments, or breaches of representations, warranties or covenants provided by us. These arrangements are typically subject to
time limitations, defined by contract or by operation of law, such as by prevailing statutes of limitation. Depending on the specific
terms of the arrangements, the maximum potential obligation may or may not be subject to contractual limitations.
For additional information regarding our indemnification agreements see Note 16 to the Consolidated Financial Statements.
We have recorded liabilities for certain of these arrangements where it is possible to estimate them. These liabilities are not material
in the aggregate. We are unable to develop a reasonable estimate of the maximum potential payout under some of these
arrangements. Overall, we believe that it is unlikely we will have to make any material payments under these arrangements.
DEBT
The following table provides the rollforward of AIGs total debt outstanding:
Year Ended December 31, 2017
(in millions)
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable
Junior subordinated debt
AIG Japan Holdings Kabushiki Kaisha
AIGLH notes and bonds payable
AIGLH junior subordinated debt
Total AIG general borrowings
AIG borrowings supported by assets:(a)
MIP notes payable
GIAs, at fair value
Series AIGFP matched notes and bonds payable
Notes and bonds payable, at fair value
Total AIG borrowings supported by assets
Balance at
December 31,
Maturities
Effect of
Balance at
and
Foreign
Other
December 31,
2016
Issuances Repayments Exchange
Changes
2017
$
19,432 $
1,505 $
(890) $
274 $
$
20,339
21,247
1,505
(928)
313
843
330
281
361
1,099
32
2,934
494
4,559
-
-
-
-
-
-
375
2
377
(38)
-
-
-
(786)
(10)
(613)
(359)
(1,768)
35
4
-
-
46
-
-
-
46
18
1
-
-
-
19
(3)
(1)
11 (b)
44 (b)
51
841
334
281
361
22,156
356
21
2,707
181
3,265
134
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
135
1011252ai_financials.indd 134
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 invested assets.
Borrowings
obligations.
maturity:
December 31, 2017
(in millions)
Insurance operations
Guarantees:
Standby letters of credit
Guarantees of indebtedness
All other guarantees(a)
Commitments:
Investment commitments(b)
Commitments to extend credit
Letters of credit
Total(c)
Other
Guarantees:
Liquidity facilities(d)
Standby letters of credit
All other guarantees
Commitments:
Investment commitments(b)
Commitments to extend credit(e)
Letters of credit
Total(c)(f)
Consolidated
Guarantees:
Liquidity facilities(d)
Standby letters of credit
Guarantees of indebtedness
All other guarantees(a)
Commitments:
Investment commitments(b)
Commitments to extend credit(e)
Letters of credit
Total(c)(f)
holdings in government and corporate bonds, and could seek to monetize those holdings in the event operating cash flows are
(c) Does not include guarantees, CMAs or other support arrangements among AIG consolidated entities.
insufficient. We expect liquidity needs related to GIC liabilities to be funded through cash flows generated from maturities and sales of
(d) Primarily represents liquidity facilities provided in connection with certain municipal swap transactions and collateralized bond obligations.
ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
Our borrowings exclude those incurred by consolidated investments and include hybrid financial instrument liabilities recorded at fair
value. We expect to repay the long-term debt maturities and interest accrued on borrowings by AIG through maturing investments and
(e) Includes a senior unsecured revolving credit facility between AerCap Ireland Capital Designated Activity Company (formerly AerCap Ireland Capital Limited), as
borrower, and AIG Parent, as lender (the AerCap Credit Facility). The AerCap Credit Facility permits loans for general corporate purposes. In December 2017, the
aggregate commitment under the AerCap Credit Facility was reduced to $200 million from $500 million and the termination date of the facility was extended to October
2019 from May 2019. At December 31, 2017, no amounts were outstanding under the AerCap Credit Facility.
(f) Excludes commitments with respect to pension plans. The annual pension contribution for 2018 is expected to be approximately $64 million for U.S. and non-U.S. plans.
dispositions of invested assets, future cash flows from operations, cash flows generated from invested assets, future debt issuance
Tax Matters
and other financing arrangements. Borrowings supported by assets of AIG include various notes and bonds payable as well as GIAs
that are supported by cash and investments held by AIG Parent and certain non-insurance subsidiaries for the repayment of those
OFF-BALANCE SHEET ARRANGEMENTS AND COMMERCIAL COMMITMENTS
The following table summarizes Off-Balance Sheet Arrangements and Commercial Commitments in total, and by remaining
Total Amounts
Committed
2018
2019 -
2020
2021 -
2022
Thereafter
Amount of Commitment Expiring
$
$
$
$
$
5,478 $
3,732 $
1,147 $
453 $
74 $
- $
- $
- $
160 $
138 $
11 $
63
2
2,914
2,334
5
139
84
264
200
17
299
63
86
3,178
2,534
22
63
-
1,893
1,633
5
139
7
32
-
17
277
63
7
1,925
1,633
22
-
-
-
813
323
-
28
16
200
-
11
-
28
829
523
-
778 $
195 $
244 $
134 $
74 $
- $
- $
- $
- $
-
2
166
285
-
-
28
106
-
-
-
-
30
272
285
-
11
-
-
42
93
-
146
74
-
21
110
-
-
205
74
11
-
21
152
93
-
351
$
6,256 $
3,927 $
1,391 $
587 $
(a) Includes construction guarantees connected to affordable housing investments by our Life and Retirement companies. Excludes potential amounts for indemnification
obligations included in asset sales agreements. For further information on indemnification obligations see Note 16 to the Consolidated Financial Statements.
(b) Includes commitments to invest in private equity funds, hedge funds and other funds and commitments to purchase and develop real estate in the United States and
abroad. The commitments to invest in private equity funds, hedge funds and other funds are called at the discretion of each fund, as needed for funding new
investments or expenses of the fund. The expiration of these commitments is estimated in the table above based on the expected life cycle of the related fund,
consistent with past trends of requirements for funding. Investors under these commitments are primarily insurance and real estate subsidiaries.
If the settlement agreements in principle are concluded in our ongoing dispute related to the disallowance of foreign tax credits
associated with cross border financing transactions, we will be required to make a payment to the U.S. Treasury. Although we can
provide no assurance regarding whether the non-binding settlements will be finalized, the amount we currently expect to pay based
on current proposed settlement terms is approximately $1.3 billion. This amount is net of payments previously made with respect to
cross border financing transactions involving matters dating back to 1997 and other matters largely related to the same tax
years. There remains uncertainty with regard to whether the settlements in principle will ultimately be approved by the relevant
authorities as well as the amount and timing of any potential payments, which are not likely to be made before sometime in 2019.
For additional information regarding this matter see Note 23 to the Consolidated Financial Statements.
Arrangements with Variable Interest Entities
We enter into various arrangements with variable interest entities (VIEs) in the normal course of business, and we consolidate a VIE
when we are the primary beneficiary of the entity.
For a further discussion of our involvement with VIEs see Note 10 to the Consolidated Financial Statements.
Indemnification Agreements
We are subject to financial guarantees and indemnity arrangements in connection with our sales of businesses. These arrangements
may be triggered by declines in asset values, specified business contingencies, the realization of contingent liabilities, litigation
developments, or breaches of representations, warranties or covenants provided by us. These arrangements are typically subject to
time limitations, defined by contract or by operation of law, such as by prevailing statutes of limitation. Depending on the specific
terms of the arrangements, the maximum potential obligation may or may not be subject to contractual limitations.
For additional information regarding our indemnification agreements see Note 16 to the Consolidated Financial Statements.
We have recorded liabilities for certain of these arrangements where it is possible to estimate them. These liabilities are not material
in the aggregate. We are unable to develop a reasonable estimate of the maximum potential payout under some of these
arrangements. Overall, we believe that it is unlikely we will have to make any material payments under these arrangements.
DEBT
The following table provides the rollforward of AIGs total debt outstanding:
Year Ended December 31, 2017
(in millions)
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable
Junior subordinated debt
AIG Japan Holdings Kabushiki Kaisha
AIGLH notes and bonds payable
AIGLH junior subordinated debt
Total AIG general borrowings
AIG borrowings supported by assets:(a)
MIP notes payable
Series AIGFP matched notes and bonds payable
GIAs, at fair value
Notes and bonds payable, at fair value
Total AIG borrowings supported by assets
Balance at
December 31,
Maturities
Effect of
Balance at
and
Foreign
Other
December 31,
2016
Issuances Repayments Exchange
Changes
2017
$
19,432 $
1,505 $
(890) $
274 $
843
330
281
361
-
-
-
-
(38)
-
-
-
35
4
-
-
21,247
1,505
(928)
313
1,099
32
2,934
494
4,559
-
-
375
2
377
(786)
(10)
(613)
(359)
(1,768)
46
-
-
-
46
18
1
-
-
-
19
(3)
(1)
11 (b)
44 (b)
51
$
20,339
841
334
281
361
22,156
356
21
2,707
181
3,265
134
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
135
1011252ai_financials.indd 135
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
Total debt issued or guaranteed by AIG
25,806
1,882
(2,696)
359
70
25,421
Debt not guaranteed by AIG:
Other subsidiaries' notes, bonds, loans and
mortgages payable(c)
Debt of consolidated investments(d)
Total debt not guaranteed by AIG
Total debt
735
4,371
5,106
-
1,474
1,474
(543)
(588)
(1,131)
-
22
22
$
30,912 $
3,356 $
(3,827) $
381 $
(2)
750 (e)
748
818
190
6,029
6,219
$
31,640
CREDIT RATINGS
Credit ratings estimate a companys ability to meet its obligations and may directly affect the cost and availability of
financing to that company. The following table presents the credit ratings of AIG and certain of its subsidiaries as of February 8,
2018. Figures in parentheses indicate the relative ranking of the ratings within the agencys rating categories; that ranking refers only
to the major rating category and not to the modifiers assigned by the rating agencies.
(a) AIG Parent guarantees all such debt, except for MIP notes payable and Series AIGFP matched notes and bonds payable, which are direct obligations of AIG Parent.
Collateral posted to third parties was $2.0 billion and $2.2 billion at December 31, 2017 and 2016, respectively. This collateral primarily consists of securities of the U.S.
government and government sponsored entities and generally cannot be repledged or resold by the counterparties.
AIG
(b) Primarily represents adjustments to the fair value of debt.
(c) Includes primarily borrowings with Federal Home Loan Banks by our U.S. insurance companies. These borrowings are short term in nature and related activity is
presented net of issuances and maturities and repayments.
AIG Financial Products Corp.(d)
P-2
A-2
Baa 1
BBB+
-
Stable Outlook
Stable Outlook Negative Outlook
(d) At December 31, 2017, includes debt of consolidated investment vehicles related to real estate investments of $2.5 billion, affordable housing partnership investments
(a) Moodys appends numerical modifiers 1, 2 and 3 to the generic rating categories to show relative position within the rating categories.
of $1.8 billion and other securitization vehicles of $1.7 billion. At December 31, 2016, includes debt of consolidated investment vehicles related to real estate
investments of $1.9 billion, affordable housing partnership investments of $1.7 billion and other securitization vehicles of $771 million.
(e) Includes the effect of consolidating previously unconsolidated partnerships.
(b) S&P ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
(c) Fitch ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
(d) AIG guarantees all obligations of AIG Financial Products Corp.
Short-Term Debt
Senior Long-Term Debt
Moodys
S&P
Moodys(a)
S&P(b)
Fitch(c)
P-2 (2nd of 3)
A-2 (2nd of 8)
Baa 1 (4th of 9)
BBB+ (4th of 9)
BBB+ (4th of 9)
Stable Outlook
Stable Outlook Negative Outlook
Negative Outlook
TOTAL DEBT OUTSTANDING
(in millions)
$31,640
$30,912
$22,156
$3,265
$6,219
$21,247
Total AIG general
borrowings
$4,559
$5,106
Total AIG borrowings
supported by assets
Total debt not guaranteed
by AIG
December 31, 2017
December 31, 2016
Debt Maturities
The following table summarizes maturing debt at December 31, 2017 of AIG (excluding $6.0 billion of borrowings of
consolidated investments) for the next four quarters:
(in millions)
AIG general borrowings
AIG borrowings supported by assets
Other subsidiaries' notes, bonds, loans and
mortgages payable
Total
First
Quarter
2018
1,107 $
34
190
1,331 $
Second
Quarter
2018
Third
Quarter
2018
- $
349
-
349 $
- $
469
-
469 $
Fourth
Quarter
2018
- $
136
Total
1,107
988
-
136 $
190
2,285
$
$
See Note 15 to the Consolidated Financial Statements for additional details on debt outstanding.
These credit ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any time by the
rating agencies as a result of changes in, or unavailability of, information or based on other circumstances. Ratings may also be
withdrawn at our request.
We are party to some agreements that contain ratings triggers. Depending on the ratings maintained by one or more rating
agencies, these triggers could result in (i) the termination or limitation of credit availability or a requirement for accelerated repayment,
(ii) the termination of business contracts or (iii) a requirement to post collateral for the benefit of counterparties.
In the event of adverse actions on our long-term debt ratings by the major rating agencies, AIGFP and certain other AIG entities would
be required to post additional collateral under some derivative transactions or could experience termination of the transactions. Such
requirements and terminations could adversely affect our business, our consolidated results of operations in a reporting period or our
liquidity. In the event of a further downgrade of AIGs long-term senior debt ratings, AIGFP and certain other AIG entities would be
required to post additional collateral, and certain of the counterparties of AIGFP or of such other AIG entities would be permitted to
terminate their contracts early.
The actual amount of collateral that we would be required to post to counterparties in the event of such downgrades, or the aggregate
amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected
transactions and other factors prevailing at the time of the downgrade.
For a discussion of the effects of downgrades in our credit ratings see Note 11 to the Consolidated Financial Statements herein and
Part I, Item 1A. Risk Factors Liquidity, Capital and Credit.
FINANCIAL STRENGTH RATINGS
Financial Strength ratings estimate an insurance companys ability to pay its obligations under an insurance policy. The
following table presents the ratings of our significant insurance subsidiaries as of February 8, 2018.
National Union Fire Insurance Company of Pittsburgh, Pa.
Lexington Insurance Company
American Home Assurance Company (US)
American General Life Insurance Company
The Variable Annuity Life Insurance Company
United States Life Insurance Company in the City of New York
AIG Europe Limited
AIG General Insurance Co. Ltd.
A.M. Best
S&P
Fitch
Moodys
A
A
A
A
A
A
A
NR
A+
A+
A+
A+
A+
A+
A+
A+
A
A
A
A+
A+
A+
A
NR
A2
A2
A2
A2
A2
A2
A2
NR
These financial strength ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any
time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances.
For a discussion of the effects of downgrades in our financial strength ratings see Note 11 to the Consolidated Financial Statements
herein and Part I, Item 1A. Risk Factors Liquidity, Capital and Credit.
136
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
137
1011252ai_financials.indd 136
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Debt not guaranteed by AIG:
Other subsidiaries' notes, bonds, loans and
mortgages payable(c)
Debt of consolidated investments(d)
Total debt not guaranteed by AIG
Total debt
735
4,371
5,106
-
1,474
1,474
(543)
(588)
(1,131)
-
22
22
(2)
750 (e)
748
818
(b) Primarily represents adjustments to the fair value of debt.
presented net of issuances and maturities and repayments.
(c) Includes primarily borrowings with Federal Home Loan Banks by our U.S. insurance companies. These borrowings are short term in nature and related activity is
of $1.8 billion and other securitization vehicles of $1.7 billion. At December 31, 2016, includes debt of consolidated investment vehicles related to real estate
investments of $1.9 billion, affordable housing partnership investments of $1.7 billion and other securitization vehicles of $771 million.
(e) Includes the effect of consolidating previously unconsolidated partnerships.
TOTAL DEBT OUTSTANDING
(in millions)
ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Liquidity and Capital Resources
Total debt issued or guaranteed by AIG
25,806
1,882
(2,696)
359
70
25,421
CREDIT RATINGS
(a) AIG Parent guarantees all such debt, except for MIP notes payable and Series AIGFP matched notes and bonds payable, which are direct obligations of AIG Parent.
Collateral posted to third parties was $2.0 billion and $2.2 billion at December 31, 2017 and 2016, respectively. This collateral primarily consists of securities of the U.S.
government and government sponsored entities and generally cannot be repledged or resold by the counterparties.
AIG
$
30,912 $
3,356 $
(3,827) $
381 $
$
31,640
Short-Term Debt
Moodys
S&P
P-2 (2nd of 3)
A-2 (2nd of 8)
Senior Long-Term Debt
Moodys(a)
Baa 1 (4th of 9)
S&P(b)
BBB+ (4th of 9)
Fitch(c)
BBB+ (4th of 9)
Stable Outlook
Stable Outlook Negative Outlook
Negative Outlook
AIG Financial Products Corp.(d)
P-2
A-2
Baa 1
BBB+
-
Stable Outlook
Stable Outlook Negative Outlook
(d) At December 31, 2017, includes debt of consolidated investment vehicles related to real estate investments of $2.5 billion, affordable housing partnership investments
(a) Moodys appends numerical modifiers 1, 2 and 3 to the generic rating categories to show relative position within the rating categories.
190
6,029
6,219
Credit ratings estimate a companys ability to meet its obligations and may directly affect the cost and availability of
financing to that company. The following table presents the credit ratings of AIG and certain of its subsidiaries as of February 8,
2018. Figures in parentheses indicate the relative ranking of the ratings within the agencys rating categories; that ranking refers only
to the major rating category and not to the modifiers assigned by the rating agencies.
(b) S&P ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
(c) Fitch ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
(d) AIG guarantees all obligations of AIG Financial Products Corp.
These credit ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any time by the
rating agencies as a result of changes in, or unavailability of, information or based on other circumstances. Ratings may also be
withdrawn at our request.
We are party to some agreements that contain ratings triggers. Depending on the ratings maintained by one or more rating
agencies, these triggers could result in (i) the termination or limitation of credit availability or a requirement for accelerated repayment,
(ii) the termination of business contracts or (iii) a requirement to post collateral for the benefit of counterparties.
In the event of adverse actions on our long-term debt ratings by the major rating agencies, AIGFP and certain other AIG entities would
be required to post additional collateral under some derivative transactions or could experience termination of the transactions. Such
requirements and terminations could adversely affect our business, our consolidated results of operations in a reporting period or our
liquidity. In the event of a further downgrade of AIGs long-term senior debt ratings, AIGFP and certain other AIG entities would be
required to post additional collateral, and certain of the counterparties of AIGFP or of such other AIG entities would be permitted to
terminate their contracts early.
The actual amount of collateral that we would be required to post to counterparties in the event of such downgrades, or the aggregate
amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected
transactions and other factors prevailing at the time of the downgrade.
For a discussion of the effects of downgrades in our credit ratings see Note 11 to the Consolidated Financial Statements herein and
Part I, Item 1A. Risk Factors Liquidity, Capital and Credit.
FINANCIAL STRENGTH RATINGS
Financial Strength ratings estimate an insurance companys ability to pay its obligations under an insurance policy. The
following table presents the ratings of our significant insurance subsidiaries as of February 8, 2018.
National Union Fire Insurance Company of Pittsburgh, Pa.
Lexington Insurance Company
American Home Assurance Company (US)
American General Life Insurance Company
The Variable Annuity Life Insurance Company
United States Life Insurance Company in the City of New York
AIG Europe Limited
AIG General Insurance Co. Ltd.
A.M. Best
S&P
Fitch
Moodys
A
A
A
A
A
A
A
NR
A+
A+
A+
A+
A+
A+
A+
A+
A
A
A
A+
A+
A+
A
NR
A2
A2
A2
A2
A2
A2
A2
NR
These financial strength ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any
time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances.
For a discussion of the effects of downgrades in our financial strength ratings see Note 11 to the Consolidated Financial Statements
herein and Part I, Item 1A. Risk Factors Liquidity, Capital and Credit.
Debt Maturities
The following table summarizes maturing debt at December 31, 2017 of AIG (excluding $6.0 billion of borrowings of
consolidated investments) for the next four quarters:
(in millions)
AIG general borrowings
AIG borrowings supported by assets
Other subsidiaries' notes, bonds, loans and
mortgages payable
Total
First
Quarter
2018
Second
Quarter
2018
Third
Quarter
2018
Fourth
Quarter
2018
$
1,107 $
- $
349
- $
469
- $
136
$
1,331 $
349 $
469 $
136 $
-
-
-
34
190
Total
1,107
988
190
2,285
See Note 15 to the Consolidated Financial Statements for additional details on debt outstanding.
136
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
137
1011252ai_financials.indd 137
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
REGULATION AND SUPERVISION
For a discussion of our regulation and supervision by different regulatory authorities in the United States and abroad, including with
respect to our liquidity and capital resources see Item 1. Business Regulation and Item 1A. Risk Factors Regulation.
Enterprise Risk Management
ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Enterprise Risk Management
DIVIDENDS AND REPURCHASES OF AIG COMMON STOCK
On February 14, 2017, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
29, 2017 to shareholders of record on March 15, 2017. On May 3, 2017, our Board of Directors declared a cash dividend on AIG
Common Stock of $0.32 per share, payable on June 28, 2017 to shareholders of record on June 14, 2017. On August 2, 2017, our
Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on September 29, 2017 to
shareholders of record on September 15, 2017. On November 2, 2017, our Board of Directors declared a cash dividend on AIG
Common Stock of $0.32 per share, payable on December 22, 2017 to shareholders of record on December 8, 2017.
On February 8, 2018, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
29, 2018 to shareholders of record on March 15, 2018. The payment of any future dividends will be at the discretion of our Board of
Directors and will depend on various factors, as discussed further in Note 17 to the Consolidated Financial Statements.
Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG
Common Stock through a series of actions. On May 3, 2017, our Board of Directors approved an additional increase of $2.5 billion to
the share repurchase authorization. As of February 8, 2018, approximately $2.3 billion remained under the authorization. Shares may
be repurchased from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or
automatic repurchase transactions or otherwise (including through the purchase of warrants). Certain of our share repurchases have
been and may from time to time be effected through Exchange Act Rule 10b5-1 repurchase plans. The timing of any future share
repurchases will depend on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and
other factors.
During 2017, we repurchased approximately 100 million shares of AIG Common Stock for an aggregate purchase price of
approximately $6.3 billion pursuant to this authorization.
DIVIDEND RESTRICTIONS
Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities.
For a discussion of restrictions on payments of dividends by our subsidiaries see Note 19 to the Consolidated Financial Statements.
Risk management includes the identification and measurement of various forms of risk, the establishment of risk thresholds and the
creation of processes intended to maintain risks within these thresholds while optimizing returns. We consider risk management an
integral part of managing our core businesses and a key element of our approach to corporate governance.
OVERVIEW
We have an integrated process for managing risks throughout our organization in accordance with our firm-wide risk appetite. Our
Board of Directors has oversight responsibility for the management of risk. Our Enterprise Risk Management (ERM) Department
supervises and integrates the risk management functions in each of our business units, providing senior management with a
consolidated view of AIGs major risk positions. Within each business unit, senior leaders and executives approve risk-taking policies
and targeted risk tolerance within the framework provided by ERM. ERM supports our businesses and management in the embedding
of risk management in our key day-to-day business processes and in identifying, assessing, quantifying, managing, monitoring,
reporting, and mitigating the risks taken by us and our businesses. Nevertheless, our risk management efforts may not always be
successful and material adverse effects on our business, results of operations, cash flows, liquidity or financial condition may occur.
RISK GOVERNANCE STRUCTURE
Our risk governance structure fosters the development and maintenance of a risk and control management culture that encompasses
all significant risk categories impacting our lines of business and functions. Accountability for the implementation and oversight of risk
policies is aligned with individual corporate executives, with the risk committees receiving regular reports regarding compliance with
each policy to support risk governance at our corporate level as well as in each business unit. We review our governance and
committee structure on a regular basis and make changes as appropriate to continue to effectively manage and govern our risks and
risk-taking.
Our Board of Directors oversees the management of risk through its Risk and Capital Committee (RCC) and Audit Committee. Those
committees regularly interact with other committees of the Board of Directors. Our Chief Risk Officer (CRO) reports to both the RCC
and our Chief Executive Officer (CEO).
The Group Risk Committee (GRC): The GRC is the senior management group responsible for assessing all significant risk issues
on a global basis to protect our financial strength, optimize our intrinsic value, and protect our reputation. The GRC is chaired by our
CRO. Its membership includes our CEO, Chief Financial Officer (CFO), and other senior executives from across our corporate
functions and business units. Our CRO reports periodically on behalf of the GRC to both the RCC and the Audit Committee of the
Board of Directors. Our CRO is also a member of the Executive Leadership Team (ELT) providing ERM the opportunity to contribute
to, review, monitor and consider the impact of changes in strategy.
Management committees that support the GRC are described below. These committees are comprised of senior executives and
experienced business representatives from a range of functions and business units throughout AIG and its subsidiaries. These
committees are charged with identifying, analyzing and reviewing specific risk matters within their respective mandates.
Financial Risk Group (FRG): The FRG is responsible for the oversight of financial risks taken by AIG and our subsidiaries. Its
mandate includes overseeing our aggregate credit, market, interest rate, capital, liquidity and model risks, as well as asset-liability
management, derivatives activity, and foreign exchange transactions. It provides the primary corporate-level review function for all
proposed transactions and business practices that are significant in size, complex in scope, or that present heightened legal,
reputational, accounting or regulatory risks. The FRG is chaired by our CRO. Membership of the FRG also includes our CFO, Chief
Investment Officer (CIO) and Treasurer.
Technology, Operational Risk & Control Committee (TORCC): This committee oversees technology and operational risk
management and control issues and activities across our businesses, functions, and geographic locations. The TORCC reviews our
risk management practices and monitors current and emerging technology and operational risks, as well as management actions
taken to reduce such risks to acceptable levels within our risk appetite. It primarily focuses on establishing the firm-wide framework for
identifying, assessing, measuring, managing and monitoring technology and operational risks. The TORCC addresses firm-wide,
rather than business-specific issues and is mandated to prioritize technology and operational improvements that are significant and
transformational. The TORCC also provides a forum for senior management to assess our business technology and operational risk
profiles that may affect our strategic objectives.
138
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
139
1011252ai_financials.indd 138
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 REGULATION AND SUPERVISION
For a discussion of our regulation and supervision by different regulatory authorities in the United States and abroad, including with
respect to our liquidity and capital resources see Item 1. Business Regulation and Item 1A. Risk Factors Regulation.
Enterprise Risk Management
ITEM 7 | Liquidity and Capital Resources
ITEM 7 | Enterprise Risk Management
DIVIDENDS AND REPURCHASES OF AIG COMMON STOCK
On February 14, 2017, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
29, 2017 to shareholders of record on March 15, 2017. On May 3, 2017, our Board of Directors declared a cash dividend on AIG
Common Stock of $0.32 per share, payable on June 28, 2017 to shareholders of record on June 14, 2017. On August 2, 2017, our
Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on September 29, 2017 to
shareholders of record on September 15, 2017. On November 2, 2017, our Board of Directors declared a cash dividend on AIG
Common Stock of $0.32 per share, payable on December 22, 2017 to shareholders of record on December 8, 2017.
On February 8, 2018, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
29, 2018 to shareholders of record on March 15, 2018. The payment of any future dividends will be at the discretion of our Board of
Directors and will depend on various factors, as discussed further in Note 17 to the Consolidated Financial Statements.
Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG
Common Stock through a series of actions. On May 3, 2017, our Board of Directors approved an additional increase of $2.5 billion to
the share repurchase authorization. As of February 8, 2018, approximately $2.3 billion remained under the authorization. Shares may
be repurchased from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or
automatic repurchase transactions or otherwise (including through the purchase of warrants). Certain of our share repurchases have
been and may from time to time be effected through Exchange Act Rule 10b5-1 repurchase plans. The timing of any future share
repurchases will depend on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and
other factors.
During 2017, we repurchased approximately 100 million shares of AIG Common Stock for an aggregate purchase price of
approximately $6.3 billion pursuant to this authorization.
DIVIDEND RESTRICTIONS
Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities.
For a discussion of restrictions on payments of dividends by our subsidiaries see Note 19 to the Consolidated Financial Statements.
Risk management includes the identification and measurement of various forms of risk, the establishment of risk thresholds and the
creation of processes intended to maintain risks within these thresholds while optimizing returns. We consider risk management an
integral part of managing our core businesses and a key element of our approach to corporate governance.
OVERVIEW
We have an integrated process for managing risks throughout our organization in accordance with our firm-wide risk appetite. Our
Board of Directors has oversight responsibility for the management of risk. Our Enterprise Risk Management (ERM) Department
supervises and integrates the risk management functions in each of our business units, providing senior management with a
consolidated view of AIGs major risk positions. Within each business unit, senior leaders and executives approve risk-taking policies
and targeted risk tolerance within the framework provided by ERM. ERM supports our businesses and management in the embedding
of risk management in our key day-to-day business processes and in identifying, assessing, quantifying, managing, monitoring,
reporting, and mitigating the risks taken by us and our businesses. Nevertheless, our risk management efforts may not always be
successful and material adverse effects on our business, results of operations, cash flows, liquidity or financial condition may occur.
RISK GOVERNANCE STRUCTURE
Our risk governance structure fosters the development and maintenance of a risk and control management culture that encompasses
all significant risk categories impacting our lines of business and functions. Accountability for the implementation and oversight of risk
policies is aligned with individual corporate executives, with the risk committees receiving regular reports regarding compliance with
each policy to support risk governance at our corporate level as well as in each business unit. We review our governance and
committee structure on a regular basis and make changes as appropriate to continue to effectively manage and govern our risks and
risk-taking.
Our Board of Directors oversees the management of risk through its Risk and Capital Committee (RCC) and Audit Committee. Those
committees regularly interact with other committees of the Board of Directors. Our Chief Risk Officer (CRO) reports to both the RCC
and our Chief Executive Officer (CEO).
The Group Risk Committee (GRC): The GRC is the senior management group responsible for assessing all significant risk issues
on a global basis to protect our financial strength, optimize our intrinsic value, and protect our reputation. The GRC is chaired by our
CRO. Its membership includes our CEO, Chief Financial Officer (CFO), and other senior executives from across our corporate
functions and business units. Our CRO reports periodically on behalf of the GRC to both the RCC and the Audit Committee of the
Board of Directors. Our CRO is also a member of the Executive Leadership Team (ELT) providing ERM the opportunity to contribute
to, review, monitor and consider the impact of changes in strategy.
Management committees that support the GRC are described below. These committees are comprised of senior executives and
experienced business representatives from a range of functions and business units throughout AIG and its subsidiaries. These
committees are charged with identifying, analyzing and reviewing specific risk matters within their respective mandates.
Financial Risk Group (FRG): The FRG is responsible for the oversight of financial risks taken by AIG and our subsidiaries. Its
mandate includes overseeing our aggregate credit, market, interest rate, capital, liquidity and model risks, as well as asset-liability
management, derivatives activity, and foreign exchange transactions. It provides the primary corporate-level review function for all
proposed transactions and business practices that are significant in size, complex in scope, or that present heightened legal,
reputational, accounting or regulatory risks. The FRG is chaired by our CRO. Membership of the FRG also includes our CFO, Chief
Investment Officer (CIO) and Treasurer.
Technology, Operational Risk & Control Committee (TORCC): This committee oversees technology and operational risk
management and control issues and activities across our businesses, functions, and geographic locations. The TORCC reviews our
risk management practices and monitors current and emerging technology and operational risks, as well as management actions
taken to reduce such risks to acceptable levels within our risk appetite. It primarily focuses on establishing the firm-wide framework for
identifying, assessing, measuring, managing and monitoring technology and operational risks. The TORCC addresses firm-wide,
rather than business-specific issues and is mandated to prioritize technology and operational improvements that are significant and
transformational. The TORCC also provides a forum for senior management to assess our business technology and operational risk
profiles that may affect our strategic objectives.
138
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
139
1011252ai_financials.indd 139
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
The scope of the TORCC includes, but is not limited to, Operational Risk Management, Technology Risk Management, Model Risk
Management, Information Security, Compliance, Sarbanes Oxley, Disaster Recovery, Project Risk Management and Vendor Risk
Management.
The TORCC is an authorized sub-committee of our GRC and supports the GRC in its risk management oversight role. The TORCC is
co-chaired by our CRO and our CIO. Membership of the TORCC also includes Owners of the Control Agenda (OCA), Business
Information Officers, and members of the various control and assurance functions.
In addition, the TORCC may form, and delegate authority to, sub-committees or working groups which oversee Technology and
Operational risk-related matters on its behalf with periodic reporting to the TORCC.
Business Unit Risk Committees: Each of our major insurance businesses has established a risk committee that serves as the
senior management committee responsible for risk oversight at the individual business unit level. The risk committees are responsible
for the identification, assessment and monitoring of all sources of risk within their respective portfolios. Specific responsibilities include
setting risk tolerances, reviewing the capital allocation framework, insurance portfolio optimization, and providing oversight of risk-
adjusted metrics. In addition, each business unit has established subordinate committees at the legal entity level and has working
groups in place that support these committees in executing their duties, such as ensuring policies are adhered to, and transactions
are completed with risk appetite in mind. Together, these committees provide comprehensive risk oversight throughout the
organization.
Risk and Capital
Risk and Capital
Committee (RCC)
Committee (RCC)
Group Risk Committee
Group Risk Committee
(GRC)
(GRC)
Financial Risk Group
Financial Risk Group
(FRG)
(FRG)
Technology, Operational
Technology, Operational
Risk & Control Committee
Risk & Control Committee
(TORCC)
(TORCC)
Business Unit Risk
Business Unit Risk
Committees
Committees
(General Insurance,
(General Insurance,
Life and Retirement)
Life and Retirement)
RISK APPETITE, LIMITS, IDENTIFICATION, AND MEASUREMENT
Risk Appetite Framework
Our Risk Appetite Framework integrates stakeholder interests, strategic business goals and available financial resources. We balance
these by seeking to take measured risks that are expected to generate repeatable, sustainable earnings and create long-term value
for our shareholders. The framework includes our risk appetite statement approved by the Board of Directors or a committee thereof
and a set of supporting tools, including risk tolerances, risk limits and policies, which we use to manage our risk profile and financial
resources.
We articulate our aggregate risk-taking by setting risk tolerances and thresholds on capital and liquidity measures. These measures
are set at the AIG Parent level as well as the legal entity level and cover consolidated and insurance company capital and liquidity
ratios. We must comply with standards for capital adequacy and maintain sufficient liquidity to meet all our obligations as they come
due in accordance with our internal capital management and liquidity policies. Our risk tolerances take into consideration regulatory
requirements, rating agency expectations, and business needs. The GRC routinely reviews the level of risk taken by the consolidated
organization in relation to the established risk tolerances. A consolidated risk report is also presented periodically, as required, to the
RCC by our CRO.
Risk Limits
A key component of our Risk Appetite Framework is having a process in place that establishes and maintains appropriate limits on the
material risks identified for our core businesses and facilitates monitoring and meeting of both internal and external stakeholder
expectations. Our objectives include:
Establishing risk monitoring, providing early warning indicators, and ensuring timely oversight and enforceability of limits;
Defining a consistent and transparent approach to limits governance; and
Aligning our business activities with our risk appetite statement.
To support the monitoring and management of AIGs and its business units material risks, ERM has an established limits framework
that employs a three-tiered hierarchy:
Board-level risk tolerances are AIGs aggregate capital and liquidity limits. They define the minimum level of capital and liquidity
that we should maintain. These board-level risk tolerances require RCC approval.
AIG management level limits are risk type specific limits at the AIG consolidated level. These limits are defined and calibrated to
constrain our concentration in specific risk types, to protect against taking risks that exceed the amount of overall capital AIG has
available, and to protect against excess earnings volatility. These limits are approved by our CRO with consultation from the GRC.
BU and legal entity level limits are set to address key risks identified by ERM for the business unit and legal entities, protect
capital and liquidity at legal entities and/or meet legal entity specific requirements of regulators and rating agencies. These limits
are defined by the business unit and legal entity risk officers.
All limits are reviewed by the FRG, GRC or relevant business unit risk committees on a periodic basis and revisions, if applicable, are
approved by those committees.
The business units are responsible for measuring and monitoring their risk exposures. ERM is responsible for monitoring compliance
with limits and providing regular, timely reporting to our senior management and risk committees. Limit breaches are required to be
reported in a timely manner and are documented and escalated in accordance with their level of severity or materiality.
Risk Identification and Measurement
One tool we use to inform our Risk Appetite Framework is risk identification. We conduct risk identification through a number of
processes at the business unit and corporate level focused on capturing our material risks and key areas of focus for follow-up risk
management actions. A key initiative is our integrated bottom-up risk identification and assessment process down to the product-line
level. These processes are used as a critical input to enhance and develop our analytics for measuring and assessing risks across
the organization.
We employ various approaches to measure, monitor, and manage risk exposures, including the utilization of a variety of metrics and
early warning indicators. We use a proprietary internal capital and stress testing framework to measure our quantifiable risks for both
insurance and non-insurance operations.
140
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
141
1011252ai_financials.indd 140
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
The scope of the TORCC includes, but is not limited to, Operational Risk Management, Technology Risk Management, Model Risk
Management, Information Security, Compliance, Sarbanes Oxley, Disaster Recovery, Project Risk Management and Vendor Risk
Management.
The TORCC is an authorized sub-committee of our GRC and supports the GRC in its risk management oversight role. The TORCC is
co-chaired by our CRO and our CIO. Membership of the TORCC also includes Owners of the Control Agenda (OCA), Business
Information Officers, and members of the various control and assurance functions.
In addition, the TORCC may form, and delegate authority to, sub-committees or working groups which oversee Technology and
Operational risk-related matters on its behalf with periodic reporting to the TORCC.
Business Unit Risk Committees: Each of our major insurance businesses has established a risk committee that serves as the
senior management committee responsible for risk oversight at the individual business unit level. The risk committees are responsible
for the identification, assessment and monitoring of all sources of risk within their respective portfolios. Specific responsibilities include
setting risk tolerances, reviewing the capital allocation framework, insurance portfolio optimization, and providing oversight of risk-
adjusted metrics. In addition, each business unit has established subordinate committees at the legal entity level and has working
groups in place that support these committees in executing their duties, such as ensuring policies are adhered to, and transactions
are completed with risk appetite in mind. Together, these committees provide comprehensive risk oversight throughout the
organization.
Risk and Capital
Committee (RCC)
Group Risk Committee
(GRC)
Financial Risk Group
(FRG)
Technology, Operational
Risk & Control Committee
(TORCC)
Business Unit Risk
Committees
(General Insurance,
Life and Retirement)
RISK APPETITE, LIMITS, IDENTIFICATION, AND MEASUREMENT
Risk Appetite Framework
Our Risk Appetite Framework integrates stakeholder interests, strategic business goals and available financial resources. We balance
these by seeking to take measured risks that are expected to generate repeatable, sustainable earnings and create long-term value
for our shareholders. The framework includes our risk appetite statement approved by the Board of Directors or a committee thereof
and a set of supporting tools, including risk tolerances, risk limits and policies, which we use to manage our risk profile and financial
resources.
We articulate our aggregate risk-taking by setting risk tolerances and thresholds on capital and liquidity measures. These measures
are set at the AIG Parent level as well as the legal entity level and cover consolidated and insurance company capital and liquidity
ratios. We must comply with standards for capital adequacy and maintain sufficient liquidity to meet all our obligations as they come
due in accordance with our internal capital management and liquidity policies. Our risk tolerances take into consideration regulatory
requirements, rating agency expectations, and business needs. The GRC routinely reviews the level of risk taken by the consolidated
organization in relation to the established risk tolerances. A consolidated risk report is also presented periodically, as required, to the
RCC by our CRO.
Risk Limits
A key component of our Risk Appetite Framework is having a process in place that establishes and maintains appropriate limits on the
material risks identified for our core businesses and facilitates monitoring and meeting of both internal and external stakeholder
expectations. Our objectives include:
Establishing risk monitoring, providing early warning indicators, and ensuring timely oversight and enforceability of limits;
Defining a consistent and transparent approach to limits governance; and
Aligning our business activities with our risk appetite statement.
To support the monitoring and management of AIGs and its business units material risks, ERM has an established limits framework
that employs a three-tiered hierarchy:
Board-level risk tolerances are AIGs aggregate capital and liquidity limits. They define the minimum level of capital and liquidity
that we should maintain. These board-level risk tolerances require RCC approval.
AIG management level limits are risk type specific limits at the AIG consolidated level. These limits are defined and calibrated to
constrain our concentration in specific risk types, to protect against taking risks that exceed the amount of overall capital AIG has
available, and to protect against excess earnings volatility. These limits are approved by our CRO with consultation from the GRC.
BU and legal entity level limits are set to address key risks identified by ERM for the business unit and legal entities, protect
capital and liquidity at legal entities and/or meet legal entity specific requirements of regulators and rating agencies. These limits
are defined by the business unit and legal entity risk officers.
All limits are reviewed by the FRG, GRC or relevant business unit risk committees on a periodic basis and revisions, if applicable, are
approved by those committees.
The business units are responsible for measuring and monitoring their risk exposures. ERM is responsible for monitoring compliance
with limits and providing regular, timely reporting to our senior management and risk committees. Limit breaches are required to be
reported in a timely manner and are documented and escalated in accordance with their level of severity or materiality.
Risk Identification and Measurement
One tool we use to inform our Risk Appetite Framework is risk identification. We conduct risk identification through a number of
processes at the business unit and corporate level focused on capturing our material risks and key areas of focus for follow-up risk
management actions. A key initiative is our integrated bottom-up risk identification and assessment process down to the product-line
level. These processes are used as a critical input to enhance and develop our analytics for measuring and assessing risks across
the organization.
We employ various approaches to measure, monitor, and manage risk exposures, including the utilization of a variety of metrics and
early warning indicators. We use a proprietary internal capital and stress testing framework to measure our quantifiable risks for both
insurance and non-insurance operations.
140
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
141
1011252ai_financials.indd 141
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
The internal capital framework quantifies our aggregate economic risk at a given confidence interval, after taking into account a level
of diversification benefits between risk factors and business lines. We leverage the internal capital framework to help inform our
consolidated risk consumption and profile as well as risk and capital allocation for our businesses.
The stress testing framework measures risk over multiple time horizons and under different levels of stress. We develop a range of
stress scenarios based on both internal experience and regulatory guidance. The stress tests are intended to ensure that sufficient
resources are available under both idiosyncratic and systemic market stress conditions.
The stress testing framework assesses our aggregate exposure to our most significant financial and insurance risks, including the risk
in each of our key insurance company subsidiaries in relation to its capital needs under stress, risks inherent in our non-insurance
company subsidiaries, and risks to AIG consolidated capital. We use this information to determine the resources needed at the AIG
Parent level to support our subsidiaries and capital resources required to maintain consolidated company target capitalization levels.
We evaluate and manage risk in material topics as shown below. These topics are discussed in more detail in
the following pages:
Credit Risk Management
Market Risk Management
Liquidity Risk Management
Operational Risk Management
Insurance Risks
Other Business Risks
CREDIT RISK MANAGEMENT
Overview
Credit risk is defined as the risk that our customers or counterparties are unable or unwilling to repay their contractual obligations
when they become due. Credit risk may also result from a downgrade of a counterpartys credit ratings or a widening of its credit
spreads.
We devote considerable resources to managing our direct and indirect credit exposures. These exposures may arise from, but are not
limited to, fixed income investments, equity securities, deposits, commercial paper investments, reverse repurchase agreements and
repurchase agreements, corporate and consumer loans, leases, reinsurance recoverables, counterparty risk arising from derivatives
activities, collateral extended to counterparties, insurance risk cessions to third parties, financial guarantees, letters of credit, and
certain General Insurance businesses.
Governance
Our credit risks are managed by teams of credit professionals, subject to ERM oversight and various control processes. Their primary
role is to assure appropriate credit risk management in accordance with our credit policies and procedures relative to our credit risk
parameters. Our Chief Credit Officer (CCO) and credit executives are primarily responsible for the development, implementation and
maintenance of a risk management framework, which includes the following elements related to our credit risks:
developing and implementing our company-wide credit policies and procedures;
approving delegated credit authorities to our credit executives and qualified credit professionals;
developing methodologies for quantification and assessment of credit risks, including the establishment and maintenance of our
internal risk rating process;
managing a system of credit and program limits, as well as the approval process for credit transactions, above limit exposures, and
concentrations of risk that may exist or be incurred;
evaluating, monitoring, reviewing and reporting of credit risks and concentrations regularly with senior management; and
approving appropriate credit reserves, credit-related other-than-temporary impairments and corresponding methodologies for all
credit portfolios.
We monitor and control our company-wide credit risk concentrations and attempt to avoid unwanted or excessive risk accumulations,
whether funded or unfunded. To minimize the level of credit risk in some circumstances, we may require mitigants, such as third-party
guarantees, reinsurance or collateral, including commercial bank-issued letters of credit and trust collateral accounts. We treat these
guarantees, reinsurance recoverables, and letters of credit as credit exposure and include them in our risk concentration exposure
data. We also monitor closely the quality of any trust collateral accounts.
For further information on our credit concentrations and credit exposures see Investments Available-for-Sale Investments.
Our credit risk management framework incorporates the following elements:
Risk Identification
including the ongoing capture and monitoring of all existing, contingent, potential and emerging credit
risk exposures, whether funded or unfunded
Risk Measurement
comprising risk ratings, default probabilities, loss given default and expected loss parameters,
exposure calculations, stress testing and other risk analytics
Risk Limits
including, but not limited to, a system of single obligor or risk group-based AIG-wide house limits and
sub-limits for corporates, financial institutions, sovereigns and sub-sovereigns when appropriate and
a defined process for identifying, evaluating, documenting and approving, if appropriate, breaches of
and exceptions to such limits
throughout the company
Risk Delegations
a comprehensive credit risk delegation framework from the CCO to authorized credit professionals
Risk Evaluation, Monitoring
and Reporting
including the ongoing analysis and assessment of credit risks, trending of those risks and reporting of
other key risk metrics and limits to the CCO and senior management, as may be required
Credit Reserving
including but not limited to development of a proper framework, policies and procedures for
establishing accurate identification of (i) Allowance for Loan and Lease Losses, and (ii) other-than-
temporary impairments for securities portfolios
MARKET RISK MANAGEMENT
Market risk is defined as the risk of adverse impact due to systemic movements in one or more of the following market risk drivers:
equity and commodity prices, residential and commercial real estate values, interest rates, credit spreads, foreign exchange, inflation,
and their levels of volatility.
We are engaged in a variety of insurance, investment and other financial services businesses that expose us to market risk, directly
and indirectly. We are exposed to market risks primarily within our insurance and capital markets activities, on both the asset and
liability side of our balance sheet through on- and off-balance sheet exposures. The Risk Officer within each business is responsible
for creating a framework to properly identify these risks, then ensuring that they are appropriately measured, monitored and managed
in accordance with the risk governance framework established by the Chief Market Risk Officer (CMRO).
The scope and magnitude of our market risk exposures is managed under a robust framework that contains defined risk limits and
minimum standards for managing market risk in a manner consistent with our risk appetite statement. Our market risk management
framework focuses on quantifying the financial repercussions of changes in these broad market observables, as opposed to the
idiosyncratic risks associated with individual assets that are addressed through our credit risk management function.
Many of our market risk exposures related to interest rates and equity returns are associated with our Life and Retirement companies
and relate to both asset and liability exposures. In addition, these exposures are long-term in nature. Examples of liability-related
exposures include interest rate sensitive surrenders in our fixed deferred annuity product portfolio. Also, we have equity market risk
sensitive surrenders in our variable annuity product portfolio. These interactive asset-liability types of risk exposures are regularly
monitored in accordance with the risk governance framework noted above.
142
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
143
1011252ai_financials.indd 142
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 CREDIT RISK MANAGEMENT
Overview
spreads.
certain General Insurance businesses.
Governance
ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
The internal capital framework quantifies our aggregate economic risk at a given confidence interval, after taking into account a level
Our credit risk management framework incorporates the following elements:
of diversification benefits between risk factors and business lines. We leverage the internal capital framework to help inform our
consolidated risk consumption and profile as well as risk and capital allocation for our businesses.
The stress testing framework measures risk over multiple time horizons and under different levels of stress. We develop a range of
stress scenarios based on both internal experience and regulatory guidance. The stress tests are intended to ensure that sufficient
resources are available under both idiosyncratic and systemic market stress conditions.
The stress testing framework assesses our aggregate exposure to our most significant financial and insurance risks, including the risk
in each of our key insurance company subsidiaries in relation to its capital needs under stress, risks inherent in our non-insurance
company subsidiaries, and risks to AIG consolidated capital. We use this information to determine the resources needed at the AIG
Parent level to support our subsidiaries and capital resources required to maintain consolidated company target capitalization levels.
We evaluate and manage risk in material topics as shown below. These topics are discussed in more detail in
the following pages:
Risk Identification
Risk Measurement
Risk Limits
including the ongoing capture and monitoring of all existing, contingent, potential and emerging credit
risk exposures, whether funded or unfunded
comprising risk ratings, default probabilities, loss given default and expected loss parameters,
exposure calculations, stress testing and other risk analytics
including, but not limited to, a system of single obligor or risk group-based AIG-wide house limits and
sub-limits for corporates, financial institutions, sovereigns and sub-sovereigns when appropriate and
a defined process for identifying, evaluating, documenting and approving, if appropriate, breaches of
and exceptions to such limits
Risk Delegations
a comprehensive credit risk delegation framework from the CCO to authorized credit professionals
throughout the company
Risk Evaluation, Monitoring
and Reporting
including the ongoing analysis and assessment of credit risks, trending of those risks and reporting of
other key risk metrics and limits to the CCO and senior management, as may be required
Credit Risk Management
Liquidity Risk Management
Insurance Risks
Credit Reserving
Market Risk Management
Operational Risk Management
Other Business Risks
including but not limited to development of a proper framework, policies and procedures for
establishing accurate identification of (i) Allowance for Loan and Lease Losses, and (ii) other-than-
temporary impairments for securities portfolios
MARKET RISK MANAGEMENT
Market risk is defined as the risk of adverse impact due to systemic movements in one or more of the following market risk drivers:
equity and commodity prices, residential and commercial real estate values, interest rates, credit spreads, foreign exchange, inflation,
and their levels of volatility.
We are engaged in a variety of insurance, investment and other financial services businesses that expose us to market risk, directly
and indirectly. We are exposed to market risks primarily within our insurance and capital markets activities, on both the asset and
liability side of our balance sheet through on- and off-balance sheet exposures. The Risk Officer within each business is responsible
for creating a framework to properly identify these risks, then ensuring that they are appropriately measured, monitored and managed
in accordance with the risk governance framework established by the Chief Market Risk Officer (CMRO).
The scope and magnitude of our market risk exposures is managed under a robust framework that contains defined risk limits and
minimum standards for managing market risk in a manner consistent with our risk appetite statement. Our market risk management
framework focuses on quantifying the financial repercussions of changes in these broad market observables, as opposed to the
idiosyncratic risks associated with individual assets that are addressed through our credit risk management function.
Many of our market risk exposures related to interest rates and equity returns are associated with our Life and Retirement companies
and relate to both asset and liability exposures. In addition, these exposures are long-term in nature. Examples of liability-related
exposures include interest rate sensitive surrenders in our fixed deferred annuity product portfolio. Also, we have equity market risk
sensitive surrenders in our variable annuity product portfolio. These interactive asset-liability types of risk exposures are regularly
monitored in accordance with the risk governance framework noted above.
Credit risk is defined as the risk that our customers or counterparties are unable or unwilling to repay their contractual obligations
when they become due. Credit risk may also result from a downgrade of a counterpartys credit ratings or a widening of its credit
We devote considerable resources to managing our direct and indirect credit exposures. These exposures may arise from, but are not
limited to, fixed income investments, equity securities, deposits, commercial paper investments, reverse repurchase agreements and
repurchase agreements, corporate and consumer loans, leases, reinsurance recoverables, counterparty risk arising from derivatives
activities, collateral extended to counterparties, insurance risk cessions to third parties, financial guarantees, letters of credit, and
Our credit risks are managed by teams of credit professionals, subject to ERM oversight and various control processes. Their primary
role is to assure appropriate credit risk management in accordance with our credit policies and procedures relative to our credit risk
parameters. Our Chief Credit Officer (CCO) and credit executives are primarily responsible for the development, implementation and
maintenance of a risk management framework, which includes the following elements related to our credit risks:
developing and implementing our company-wide credit policies and procedures;
approving delegated credit authorities to our credit executives and qualified credit professionals;
developing methodologies for quantification and assessment of credit risks, including the establishment and maintenance of our
managing a system of credit and program limits, as well as the approval process for credit transactions, above limit exposures, and
internal risk rating process;
concentrations of risk that may exist or be incurred;
evaluating, monitoring, reviewing and reporting of credit risks and concentrations regularly with senior management; and
approving appropriate credit reserves, credit-related other-than-temporary impairments and corresponding methodologies for all
credit portfolios.
We monitor and control our company-wide credit risk concentrations and attempt to avoid unwanted or excessive risk accumulations,
whether funded or unfunded. To minimize the level of credit risk in some circumstances, we may require mitigants, such as third-party
guarantees, reinsurance or collateral, including commercial bank-issued letters of credit and trust collateral accounts. We treat these
guarantees, reinsurance recoverables, and letters of credit as credit exposure and include them in our risk concentration exposure
data. We also monitor closely the quality of any trust collateral accounts.
For further information on our credit concentrations and credit exposures see Investments Available-for-Sale Investments.
142
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
143
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Risk Identification
Governance
ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
Market risk focuses on quantifying the financial repercussions of changes in broad, external, predominantly market-observable risks.
Financial repercussions can include an adverse impact on results of operations, financial condition, liquidity and capital.
Each of the following systemic risks is considered a market risk:
Equity prices
We are exposed to changes in equity market prices affecting a variety of instruments. Changes in equity
prices can affect the valuation of publicly traded equity shares, investments in private equity, hedge funds
and mutual funds, exchange-traded funds, and other equity-linked capital market instruments as well as
equity-linked insurance products, including but not limited to index annuities, variable annuities, indexed
universal life insurance and variable universal life insurance.
Residential and
commercial real estate
values
Our investment portfolios are exposed to the risk of changing values in a variety of residential and
commercial real estate investments. Changes in residential/commercial real estate prices can affect the
valuation of residential/commercial mortgages, residential/commercial mortgage-backed securities and other
structured securities with underlying assets that include residential/commercial mortgages, trusts that
include residential/commercial real estate and/or mortgages, residential mortgage insurance and
reinsurance contracts and commercial real estate investments.
Interest rates
Credit spreads
Interest rate risk can arise from a mismatch in the interest rate exposure of assets versus liabilities. Lower
interest rates generally result in lower investment income and make some of our product offerings less
attractive to investors. Conversely, higher interest rates are typically beneficial for the opposite reasons.
However, when rates rise quickly, there can be a temporary asymmetric GAAP accounting effect where the
existing securities lose market value, which is largely reported in Other comprehensive income, and the
offsetting decrease in the value of related liabilities may not be recognized. Changes in interest rates can
affect the valuation of fixed maturity securities, financial liabilities, insurance contracts including but not
limited to universal life, fixed rate annuities, variable annuities and derivative contracts.
Credit spreads measure an instruments risk premium or yield relative to that of a comparable duration,
default-free instrument. Changes in credit spreads can affect the valuation of fixed maturity securities,
including but not limited to corporate bonds, ABS, mortgage-backed securities, AIG-issued debt obligations,
credit derivatives and derivative credit valuation adjustments. Much like higher interest rates, wider credit
spreads with unchanged default losses mean more investment income in the long term. In the short term,
quickly rising spreads will cause a loss in the value of existing fixed maturity securities, which is largely
reported in Other comprehensive income. A precipitous widening of credit spreads may also signal a
fundamental weakness in the credit worthiness of bond obligors, potentially resulting in default losses.
Foreign exchange (FX)
rates
We are a globally diversified enterprise with income, assets and liabilities denominated in, and capital
deployed in, a variety of currencies. Changes in FX rates can affect the valuation of a broad range of
balance sheet and income statement items as well as the settlement of cash flows exchanged in specific
transactions.
Commodity prices
Inflation
Changes in commodity prices (the value of commodities) can affect the valuation of publicly-traded
commodities, commodity indices and derivatives on commodities and commodity indices. We are exposed
to commodity prices primarily through their impact on the prices and credit quality of commodity producers
debt and equity securities in our investment portfolio.
Changes in inflation can affect the valuation of fixed maturity securities, including AIG-issued debt
obligations, derivatives and other contracts explicitly linked to inflation indices, and insurance contracts
where the claims are linked to inflation either explicitly, via indexing, or implicitly, through medical costs or
wage levels.
Market risk is overseen at the corporate level within ERM through the CMRO, who reports directly to the CRO. The CMRO is
supported by a dedicated team of professionals within ERM. Market Risk is managed by our finance, treasury and investment
management corporate functions, collectively, and in partnership with ERM. The CMRO is primarily responsible for the development
and maintenance of a risk management framework that includes the following key components:
written policies that define the rules for our market risk-taking activities and provide clear guidance regarding their execution and
management;
a limit framework that aligns with our Board-approved risk appetite statement;
independent measurement, monitoring and reporting for line of business, business unit and enterprise-wide market risks; and
clearly defined authorities for all individuals and committee roles and responsibilities related to market risk management.
These components facilitate the CMROs identification, measurement, monitoring, reporting and management of our market risks.
Risk Measurement
Our market risk measurement framework was developed with the main objective of communicating the range and scale of our market
risk exposures. At the firm-wide level market risk is measured in a manner that is consistent with AIGs risk appetite statement. This is
designed to ensure that we remain within our stated risk tolerance levels and can determine how much additional market risk taking
capacity is available within our framework. Our risk appetite is currently defined in terms of capital and liquidity levels. At the market
risk level, the framework measures our overall exposure to each systemic market risk change on an economic basis.
In addition, we continue to use enhanced economic, GAAP accounting and statutory capital-based risk measures at the market risk
level, business-unit level and firm-wide levels. This process aims to ensure that we have a comprehensive view of the impact of our
market risk exposures.
We use a number of approaches to measure our market risk exposure, including:
Sensitivity
analysis
a market risk input
measures the impact from a unit change in
a one basis point increase in yield on fixed maturity securities,
a one basis point increase in credit spreads of fixed maturity
securities, and
a one percent increase in prices of equity securities.
Scenario
analysis
uses historical, hypothetical, or
forward-looking macroeconomic scenarios
to assess and report exposures
a 100 basis point parallel shift in the yield curve, or
a 20 percent immediate and simultaneous decrease in
world-wide equity markets.
Examples include:
Scenarios may also utilize a stochastic framework to arrive at a
probability distribution of losses.
Stress testing
a special form of scenario analysis in
the stock market crash of October 1987 or the widening of
which the scenarios are designed to lead
yields or spreads of RMBS or CMBS during 2008.
to a material adverse outcome
144
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
145
1011252ai_financials.indd 144
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Risk Identification
Governance
ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
Market risk focuses on quantifying the financial repercussions of changes in broad, external, predominantly market-observable risks.
Financial repercussions can include an adverse impact on results of operations, financial condition, liquidity and capital.
Each of the following systemic risks is considered a market risk:
Equity prices
We are exposed to changes in equity market prices affecting a variety of instruments. Changes in equity
prices can affect the valuation of publicly traded equity shares, investments in private equity, hedge funds
and mutual funds, exchange-traded funds, and other equity-linked capital market instruments as well as
equity-linked insurance products, including but not limited to index annuities, variable annuities, indexed
universal life insurance and variable universal life insurance.
Residential and
commercial real estate
values
Our investment portfolios are exposed to the risk of changing values in a variety of residential and
commercial real estate investments. Changes in residential/commercial real estate prices can affect the
valuation of residential/commercial mortgages, residential/commercial mortgage-backed securities and other
structured securities with underlying assets that include residential/commercial mortgages, trusts that
include residential/commercial real estate and/or mortgages, residential mortgage insurance and
reinsurance contracts and commercial real estate investments.
Interest rates
Credit spreads
Interest rate risk can arise from a mismatch in the interest rate exposure of assets versus liabilities. Lower
interest rates generally result in lower investment income and make some of our product offerings less
attractive to investors. Conversely, higher interest rates are typically beneficial for the opposite reasons.
However, when rates rise quickly, there can be a temporary asymmetric GAAP accounting effect where the
existing securities lose market value, which is largely reported in Other comprehensive income, and the
offsetting decrease in the value of related liabilities may not be recognized. Changes in interest rates can
affect the valuation of fixed maturity securities, financial liabilities, insurance contracts including but not
limited to universal life, fixed rate annuities, variable annuities and derivative contracts.
Credit spreads measure an instruments risk premium or yield relative to that of a comparable duration,
default-free instrument. Changes in credit spreads can affect the valuation of fixed maturity securities,
including but not limited to corporate bonds, ABS, mortgage-backed securities, AIG-issued debt obligations,
credit derivatives and derivative credit valuation adjustments. Much like higher interest rates, wider credit
spreads with unchanged default losses mean more investment income in the long term. In the short term,
quickly rising spreads will cause a loss in the value of existing fixed maturity securities, which is largely
reported in Other comprehensive income. A precipitous widening of credit spreads may also signal a
fundamental weakness in the credit worthiness of bond obligors, potentially resulting in default losses.
Foreign exchange (FX)
rates
We are a globally diversified enterprise with income, assets and liabilities denominated in, and capital
deployed in, a variety of currencies. Changes in FX rates can affect the valuation of a broad range of
balance sheet and income statement items as well as the settlement of cash flows exchanged in specific
Commodity prices
Changes in commodity prices (the value of commodities) can affect the valuation of publicly-traded
commodities, commodity indices and derivatives on commodities and commodity indices. We are exposed
to commodity prices primarily through their impact on the prices and credit quality of commodity producers
debt and equity securities in our investment portfolio.
Inflation
Changes in inflation can affect the valuation of fixed maturity securities, including AIG-issued debt
obligations, derivatives and other contracts explicitly linked to inflation indices, and insurance contracts
where the claims are linked to inflation either explicitly, via indexing, or implicitly, through medical costs or
transactions.
wage levels.
Market risk is overseen at the corporate level within ERM through the CMRO, who reports directly to the CRO. The CMRO is
supported by a dedicated team of professionals within ERM. Market Risk is managed by our finance, treasury and investment
management corporate functions, collectively, and in partnership with ERM. The CMRO is primarily responsible for the development
and maintenance of a risk management framework that includes the following key components:
written policies that define the rules for our market risk-taking activities and provide clear guidance regarding their execution and
management;
a limit framework that aligns with our Board-approved risk appetite statement;
independent measurement, monitoring and reporting for line of business, business unit and enterprise-wide market risks; and
clearly defined authorities for all individuals and committee roles and responsibilities related to market risk management.
These components facilitate the CMROs identification, measurement, monitoring, reporting and management of our market risks.
Risk Measurement
Our market risk measurement framework was developed with the main objective of communicating the range and scale of our market
risk exposures. At the firm-wide level market risk is measured in a manner that is consistent with AIGs risk appetite statement. This is
designed to ensure that we remain within our stated risk tolerance levels and can determine how much additional market risk taking
capacity is available within our framework. Our risk appetite is currently defined in terms of capital and liquidity levels. At the market
risk level, the framework measures our overall exposure to each systemic market risk change on an economic basis.
In addition, we continue to use enhanced economic, GAAP accounting and statutory capital-based risk measures at the market risk
level, business-unit level and firm-wide levels. This process aims to ensure that we have a comprehensive view of the impact of our
market risk exposures.
We use a number of approaches to measure our market risk exposure, including:
Sensitivity
analysis
measures the impact from a unit change in
a market risk input
Scenario
analysis
uses historical, hypothetical, or
forward-looking macroeconomic scenarios
to assess and report exposures
Stress testing
a special form of scenario analysis in
which the scenarios are designed to lead
to a material adverse outcome
Examples include:
a one basis point increase in yield on fixed maturity securities,
a one basis point increase in credit spreads of fixed maturity
securities, and
a one percent increase in prices of equity securities.
a 100 basis point parallel shift in the yield curve, or
a 20 percent immediate and simultaneous decrease in
world-wide equity markets.
Scenarios may also utilize a stochastic framework to arrive at a
probability distribution of losses.
the stock market crash of October 1987 or the widening of
yields or spreads of RMBS or CMBS during 2008.
144
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
145
1011252ai_financials.indd 145
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
Market Risk Sensitivities
The following table provides estimates of our sensitivity to changes in yield curves, equity prices and foreign currency
exchange rates:
(dollars in millions)
Sensitivity factor
Interest rate sensitive assets:
Fixed maturity securities
Mortgage and other loans receivable
Preferred stock
Derivatives:
Interest rate contracts
Equity contracts
Foreign exchange contracts
Credit contracts
Other contracts
Total interest rate sensitive assets
Interest rate sensitive liabilities:
Policyholder contract deposits:
Investment-type contracts
Variable annuity and other embedded
derivatives
Long-term debt(b)
Total interest rate sensitive liabilities
Sensitivity factor
Derivatives:
Equity contracts(c)
Equity and alternative investments
exposure:
Real estate investments
Hedge funds
Private equity
Common equity
PICC Investment
Aircraft asset investments
Other investments
Total derivatives, equity and alternative
investments exposure
Policyholder contract deposits:
Variable annuity and other embedded
derivatives(c)
Total liability exposure
Sensitivity factor
Foreign currency-denominated net
asset position:
Great Britain pound
Japanese yen
Euro
All other foreign currencies
Total foreign currency-denominated net
asset position(d)
146
AIG | 2017 Form 10-K
Balance Sheet Exposure
December 31,
2017
December 31,
2016
Economic Effect
December 31,
2017
December 31,
2016
100 bps parallel increase in all yield curves
$
$
$
$
$
$
$
$
$
$
248,195
28,799
14
$
251,784
25,113
17
(29)
501
(416)
(276)
17
276,805 (a)
$
(749)
286
(49)
(329)
16
276,089 (a)
114,326
$
112,705
$
$
$
(14,998)
(1,566)
(1)
(1,343)
36
42
-
-
(17,830)
506
$
$
$
(14,745)
(1,352)
(1)
(1,762)
14
14
-
(1)
(17,833)
1,087
4,148
24,445
142,919
501
8,258
5,768
5,540
1,215
549
206
555
22,592
4,148
4,148
2,026
651
1,349
2,533
$
$
$
$
$
$
3,058
24,834
140,597
(2,175)
(1,803)
(3,472)
(2,061)
(1,791)
(2,765)
$
20% decline in stock prices and value of
derivatives and alternative investments
$
286
$
(100)
$
(57)
6,900
7,249
6,130
1,369
439
321
946
(1,652)
(1,153)
(1,108)
(243)
(110)
(41)
(111)
(1,380)
(1,450)
(1,226)
(274)
(88)
(64)
(189)
23,640
$
(4,518)
$
(4,728)
3,058
3,058
2,274
2,345
2,000
3,210
982
982
$
$
10% depreciation of all foreign currency
exchange rates against the U.S. dollar
$
$
888
888
$
(203)
(65)
(135)
(253)
(656)
$
$
(227)
(235)
(200)
(321)
(983)
6,559
$
9,829
$
(a) At December 31, 2017, the analysis covered $276.8 billion of $289.6 billion interest-rate sensitive assets. Excluded were $8.2 billion of loans. In addition, $4.6 billion of
assets across various asset categories were excluded due to modeling limitations. At December 31, 2016, the analysis covered $276.1 billion of $291.7 billion interest-
rate sensitive assets. Excluded were $8.1 billion of loans and $2.5 billion of investments in life settlements. In addition, $5.0 billion of assets across various asset
categories were excluded due to modeling limitations.
(b) At December 31, 2017, the analysis excluded $6.0 billion of long-term debt related to debt of consolidated investments, $642 million of AIGLH borrowings, $190 million
of borrowings from the FHLB and $334 million of AIG Japan Holdings loans. At December 31, 2016, the analysis excluded $4.4 billion of long-term debt related to debt
of consolidated investments, $642 million of AIGLH borrowings, $735 million of borrowings from the FHLB and $330 million of AIG Japan Holdings loans.
(c) The balance sheet exposures for equity contracts and variable annuity and other embedded derivatives are also reflected under Interest rate sensitive liabilities above,
and are not additive.
(d) The majority of the foreign currency exposure is reported on a one quarter lag.
The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot ensure
that our actual losses in any particular period will not exceed the amounts indicated above.
We use duration and convexity metrics to measure price sensitivity to interest rate changes for interest rate sensitive assets excluding
derivatives and long-term debt. Duration measures the relative sensitivity of the fair value of a financial instrument to changes in
interest rates. Convexity measures the rate of change of duration with respect to changes in interest rates.
Interest rate sensitivity of a derivative is calculated as change in its value with respect to plus a 100 basis point change in the interest
rate environment, calculated as: scenario value minus base value, where base value is the value of the derivative under the yield
curves as of the period end and scenario value is the value reflecting a 100 basis point parallel increase in all yield curves.
We evaluate our interest rate risk without the effect of any correlation among other key market risks or other assumptions used for
calculating the fair value of our financial liabilities and embedded derivatives. This scenario does not measure changes in value
resulting from non-parallel shifts in the yield curve, which could produce different results.
We evaluate our equity price risk without the effect of any correlation among other key market risks or other assumptions used for
calculating the fair value of our financial liabilities and embedded derivatives. This scenario considers the direct impact of declines in
equity prices and not changes in asset-based fees, changes in the estimated gross profits used for amortizing DAC, or changes in
any other assumptions used to calculate the fair value of the embedded derivatives related to the living benefit features within variable
annuity products. In addition, this scenario does not reflect the impact of basis risk, such as projections about the future performance
of the underlying contract holder funds and actual fund returns, which we use as a basis for developing our hedging strategy.
Foreign currency-denominated net asset position reflects our consolidated non-U.S. dollar assets less our consolidated non-U.S
dollar liabilities on a GAAP basis, with certain adjustments. We use a bottom-up approach in managing our foreign currency exchange
rate exposures with the objective of protecting statutory capital at the regulated insurance entity level. At the AIG Parent level, we
monitor our foreign currency exposures against single currency and aggregate currency portfolio limits.
Our foreign currency-denominated net asset position at December 31, 2017, decreased by $3.3 billion compared to December 31,
2016. The decrease was primarily due to a $1.7 billion decrease in our Japanese yen position primarily due to the sale of Fuji Life and
the unwinding of certain yen hedges; a $0.7 billion decrease in our euro position primarily due to the issuance of 1.0 billion euro
denominated debt; and a $248 million decrease in our British pound position primarily due to an increase in reserves.
For illustrative purposes, we modeled our sensitivities based on a 100 basis point increase in yield curves, a 20 percent decline in
equities and alternative assets, and a 10 percent depreciation of all foreign currency exchange rates against the U.S. dollar. The
estimated results presented in the table above should not be taken as a prediction, but only as a demonstration of the potential effects
of such events.
The sensitivity factors utilized for 2017 and presented above were selected based on historical data from 1997 to 2017, as follows
(see the table below):
a 100 basis point parallel shift in the yield curve is consistent with a one standard deviation movement of the benchmark ten-year
a 20 percent drop for equity and alternative investments is broadly consistent with a one standard deviation movement in the S&P
treasury yield;
500; and
a 10 percent depreciation of foreign currency exchange rates is consistent with a one standard deviation movement in the U.S.
dollar (USD)/Japanese yen (JPY) exchange rate.
AIG | 2017 Form 10-K
147
1011252ai_financials.indd 146
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
The following table provides estimates of our sensitivity to changes in yield curves, equity prices and foreign currency
Market Risk Sensitivities
exchange rates:
(dollars in millions)
Sensitivity factor
Interest rate sensitive assets:
Fixed maturity securities
Mortgage and other loans receivable
Preferred stock
Derivatives:
Interest rate contracts
Equity contracts
Foreign exchange contracts
Credit contracts
Other contracts
Total interest rate sensitive assets
Interest rate sensitive liabilities:
Policyholder contract deposits:
Investment-type contracts
Variable annuity and other embedded
Total interest rate sensitive liabilities
derivatives
Long-term debt(b)
Sensitivity factor
Derivatives:
Equity contracts(c)
Equity and alternative investments
exposure:
Real estate investments
Hedge funds
Private equity
Common equity
PICC Investment
Aircraft asset investments
Other investments
Total derivatives, equity and alternative
investments exposure
Policyholder contract deposits:
Variable annuity and other embedded
derivatives(c)
Total liability exposure
Sensitivity factor
Foreign currency-denominated net
asset position:
Great Britain pound
Japanese yen
Euro
All other foreign currencies
Total foreign currency-denominated net
asset position(d)
146
AIG | 2017 Form 10-K
$
$
$
$
$
$
$
$
$
$
(14,998)
(1,566)
(1)
(1,343)
36
42
-
-
506
(2,175)
(1,803)
(3,472)
(1,652)
(1,153)
(1,108)
(243)
(110)
(41)
(111)
(4,518)
982
982
(203)
(65)
(135)
(253)
(656)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
10% depreciation of all foreign currency
exchange rates against the U.S. dollar
8,258
5,768
5,540
1,215
549
206
555
6,900
7,249
6,130
1,369
439
321
946
22,592
23,640
4,148
4,148
3,058
3,058
$
$
$
$
2,026
651
1,349
2,533
2,274
2,345
2,000
3,210
6,559
$
9,829
$
Balance Sheet Exposure
December 31,
December 31,
2017
2016
Economic Effect
December 31,
December 31,
2016
100 bps parallel increase in all yield curves
2017
$
251,784
$
248,195
28,799
14
(29)
501
(416)
(276)
17
25,113
17
(749)
286
(49)
(329)
16
276,805 (a)
$
276,089 (a)
(17,830)
114,326
$
112,705
4,148
24,445
142,919
3,058
24,834
$
140,597
(14,745)
(1,352)
(1)
(1,762)
14
14
-
(1)
(17,833)
1,087
(2,061)
(1,791)
(2,765)
20% decline in stock prices and value of
derivatives and alternative investments
501
$
286
(100)
(57)
(1,380)
(1,450)
(1,226)
(274)
(88)
(64)
(189)
(4,728)
888
888
(227)
(235)
(200)
(321)
(983)
(a) At December 31, 2017, the analysis covered $276.8 billion of $289.6 billion interest-rate sensitive assets. Excluded were $8.2 billion of loans. In addition, $4.6 billion of
assets across various asset categories were excluded due to modeling limitations. At December 31, 2016, the analysis covered $276.1 billion of $291.7 billion interest-
rate sensitive assets. Excluded were $8.1 billion of loans and $2.5 billion of investments in life settlements. In addition, $5.0 billion of assets across various asset
categories were excluded due to modeling limitations.
(b) At December 31, 2017, the analysis excluded $6.0 billion of long-term debt related to debt of consolidated investments, $642 million of AIGLH borrowings, $190 million
of borrowings from the FHLB and $334 million of AIG Japan Holdings loans. At December 31, 2016, the analysis excluded $4.4 billion of long-term debt related to debt
of consolidated investments, $642 million of AIGLH borrowings, $735 million of borrowings from the FHLB and $330 million of AIG Japan Holdings loans.
(c) The balance sheet exposures for equity contracts and variable annuity and other embedded derivatives are also reflected under Interest rate sensitive liabilities above,
and are not additive.
(d) The majority of the foreign currency exposure is reported on a one quarter lag.
The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot ensure
that our actual losses in any particular period will not exceed the amounts indicated above.
We use duration and convexity metrics to measure price sensitivity to interest rate changes for interest rate sensitive assets excluding
derivatives and long-term debt. Duration measures the relative sensitivity of the fair value of a financial instrument to changes in
interest rates. Convexity measures the rate of change of duration with respect to changes in interest rates.
Interest rate sensitivity of a derivative is calculated as change in its value with respect to plus a 100 basis point change in the interest
rate environment, calculated as: scenario value minus base value, where base value is the value of the derivative under the yield
curves as of the period end and scenario value is the value reflecting a 100 basis point parallel increase in all yield curves.
We evaluate our interest rate risk without the effect of any correlation among other key market risks or other assumptions used for
calculating the fair value of our financial liabilities and embedded derivatives. This scenario does not measure changes in value
resulting from non-parallel shifts in the yield curve, which could produce different results.
We evaluate our equity price risk without the effect of any correlation among other key market risks or other assumptions used for
calculating the fair value of our financial liabilities and embedded derivatives. This scenario considers the direct impact of declines in
equity prices and not changes in asset-based fees, changes in the estimated gross profits used for amortizing DAC, or changes in
any other assumptions used to calculate the fair value of the embedded derivatives related to the living benefit features within variable
annuity products. In addition, this scenario does not reflect the impact of basis risk, such as projections about the future performance
of the underlying contract holder funds and actual fund returns, which we use as a basis for developing our hedging strategy.
Foreign currency-denominated net asset position reflects our consolidated non-U.S. dollar assets less our consolidated non-U.S
dollar liabilities on a GAAP basis, with certain adjustments. We use a bottom-up approach in managing our foreign currency exchange
rate exposures with the objective of protecting statutory capital at the regulated insurance entity level. At the AIG Parent level, we
monitor our foreign currency exposures against single currency and aggregate currency portfolio limits.
Our foreign currency-denominated net asset position at December 31, 2017, decreased by $3.3 billion compared to December 31,
2016. The decrease was primarily due to a $1.7 billion decrease in our Japanese yen position primarily due to the sale of Fuji Life and
the unwinding of certain yen hedges; a $0.7 billion decrease in our euro position primarily due to the issuance of 1.0 billion euro
denominated debt; and a $248 million decrease in our British pound position primarily due to an increase in reserves.
For illustrative purposes, we modeled our sensitivities based on a 100 basis point increase in yield curves, a 20 percent decline in
equities and alternative assets, and a 10 percent depreciation of all foreign currency exchange rates against the U.S. dollar. The
estimated results presented in the table above should not be taken as a prediction, but only as a demonstration of the potential effects
of such events.
The sensitivity factors utilized for 2017 and presented above were selected based on historical data from 1997 to 2017, as follows
(see the table below):
a 100 basis point parallel shift in the yield curve is consistent with a one standard deviation movement of the benchmark ten-year
treasury yield;
a 20 percent drop for equity and alternative investments is broadly consistent with a one standard deviation movement in the S&P
500; and
a 10 percent depreciation of foreign currency exchange rates is consistent with a one standard deviation movement in the U.S.
dollar (USD)/Japanese yen (JPY) exchange rate.
1011252ai_financials.indd 147
3/9/18 6:10 PM
AIG | 2017 Form 10-K
147
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
Standard
Suggested
a Multiple of
Change/
of Standard
on Standard Deviation for
Period
Deviation 2017 Scenario Standard Deviation
Return
Deviation
1996-2016 Period)
2017 Scenario as
2017
2017 as a Multiple Original 2016 Scenario (based
10-Year Treasury
S&P 500
USD/JPY
1997-2017
1997-2017
1997-2017
0.01
0.18
0.11
0.01
0.20
0.10
0.99
1.14
0.88
-
0.19
0.04
0.05
1.11
0.33
0.01
0.20
0.10
Risk Monitoring and Limits
The risk monitoring responsibilities, owned by the business units, include ensuring compliance with market risk limits and escalation
and remediation of limit breaches. Such activities must be reported to the ERM Market Risk team by the relevant business unit. This
monitoring approach is aligned with our overall risk limits framework.
To control our exposure to market risk, we rely on a three-tiered hierarchy of limits that the CMRO closely monitors and reports to our
CRO, senior management and risk committees.
For further information on our three-tiered hierarchy of limits see Risk Appetite, Limits, Identification, and Measurement Risk Limits
herein.
LIQUIDITY RISK MANAGEMENT
Liquidity risk is defined as the risk that our financial condition will be adversely affected by the inability or perceived inability to meet
our short-term cash, collateral or other financial obligations. Failure to appropriately manage liquidity risk can result in insolvency,
reduced operating flexibility, increased costs, reputational harm and regulatory action.
AIG and its legal entities seek to maintain sufficient liquidity both during the normal course of business and under defined liquidity
stress scenarios to ensure that sufficient cash will be available to meet the obligations as they come due.
AIG Parent liquidity risk tolerance levels are designed to allow us to meet our financial obligations for a minimum of six months under
a liquidity stress scenario. We maintain liquidity limits and minimum coverage ratios designed to ensure that funding needs are met
under varying market conditions. If we project that we will breach these tolerances, we will assess and determine appropriate liquidity
management actions. However, the market conditions in effect at that time may not permit us to achieve an increase in liquidity
sources or a reduction in liquidity requirements.
Risk Identification
The following sources of liquidity and funding risks could impact our ability to meet short-term financial obligations as they
come due.
Market/Monetization
Risk
Assets may not be readily transformed into cash due to unfavorable market conditions. Market liquidity risk
may limit our ability to sell assets at reasonable values to meet liquidity needs.
Our Liquidity Risk Management Framework includes a number of liquidity and funding policies and monitoring tools to address AIG-
specific, broader industry and market-related liquidity events.
Risk Measurement
Comprehensive cash flow projections under normal conditions are the primary component for identifying and measuring liquidity risk.
We produce comprehensive liquidity projections over varying time horizons that incorporate all relevant liquidity sources and uses and
include known and likely cash inflows and outflows. In addition, we perform stress testing by identifying liquidity stress scenarios and
assessing the effects of these scenarios on our cash flow and liquidity.
We use a number of approaches to measure our liquidity risk exposure, including:
Minimum Liquidity
Limits
Minimum Liquidity Limits specify the amount of assets required to be maintained in specific liquidity
portfolios to meet obligations as they arise over a specified time horizon under stressed liquidity conditions.
Coverage Ratios
Coverage Ratios measure the adequacy of available liquidity sources, including the ability to monetize
assets to meet the forecasted cash flows over a specified time horizon. The portfolio of assets is selected
based on our ability to convert those assets into cash under the assumed market conditions and within the
specified time horizon.
Cash Flow
Forecasts
Cash Flow Forecasts measure the liquidity needed for a specific legal entity over a specified time horizon.
Stress Testing
Asset liquidity and Coverage Ratios are re-measured under defined liquidity stress scenarios that will impact
net cash flows, liquid assets and/or other funding sources.
Relevant liquidity reporting is produced and reported regularly to AIG Parent and business unit risk committees. The frequency,
content, and nature of reporting will vary for each business unit and legal entity, based on its complexity, risk profile, activities and
size.
OPERATIONAL RISK MANAGEMENT
Overview
Operational risk is defined as the risk of loss, or other adverse consequences, resulting from inadequate or failed internal processes,
people, systems, or from external events. Operational risk includes legal, regulatory, and compliance risks, and excludes business
and strategy risks.
Operational risk is inherent in each of our business units and functions and can have many impacts, including but not limited to:
unexpected economic losses or gains, reputational harm due to negative publicity, regulatory action from supervisory agencies and
operational and business disruptions, and/or damage to customer relationships.
Cash Flow
Mismatch Risk
Discrete and cumulative cash flow mismatches or gaps over short-term horizons under both expected and
adverse business conditions may create future liquidity shortfalls.
Governance
Event Funding Risk
Additional funding may be required as the result of a trigger event. Event funding risk comes in many forms
and may result from a downgrade in credit ratings, a market event, or some other event that creates a
funding obligation or limits existing funding options.
Financing Risk
We may be unable to raise additional cash on a secured or unsecured basis due to unfavorable market
conditions, AIG-specific issues, or any other issue that impedes access to additional funding.
Governance
Liquidity risk is overseen at the corporate level within ERM. The CRO has responsibility for the oversight of the Liquidity Risk
Management Framework and delegates the day-to-day implementation of this framework to the AIG Treasurer. Our corporate treasury
function manages liquidity risk, subject to ERM oversight and various control processes.
The Liquidity Risk Management Framework is guided by the liquidity risk tolerance as set forth in the Board-approved risk appetite
statement. The principal objective of this framework is to establish minimum liquidity requirements that protect our long-term viability
and ability to fund our ongoing business, and to meet short-term financial obligations in a timely manner in both normal and stressed
conditions.
Our operational risk governance sets the requirements necessary to embed a risk management culture throughout the organization.
AIG and its consolidated subsidiaries establish and maintain operational risk and controls governance forums that include
representatives from the relevant business units and corporate functions to appropriately manage significant operational risk
exposures. At an enterprise level, the TORCC oversees operational risk. The TORCC addresses firm-wide rather than business-
specific issues and is mandated to prioritize technology and operational improvements that are significant and transformational.
Operational risk is overseen at the corporate level within ERM through the Head of AIG Operational and Technology Controls, who
reports directly to our CRO. The Head of AIG Operational and Technology Controls is responsible for the development and
maintenance of the operational risk framework that includes policies, standards and deployment of systems.
Risk Identification, Measurement and Monitoring
The ORM function within ERM oversees the operational risk policy and integrated risk and control framework, which includes risk
identification, assessment, measurement, management and monitoring of operational risk exposures. ORM supports the TORCC and
has responsibility to provide an aggregate view of our operational risk profile. As part of the framework, we employ a Three Lines of
Defense model whereby the first line consists of business units and corporate functions that own and manage AIG risks, the second
line consists of ERM and other control functions and serves as an independent advisor to the first line and has risk oversight
148
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
149
1011252ai_financials.indd 148
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
Standard
Suggested
a Multiple of
Change/
of Standard
on Standard Deviation for
Period
Deviation 2017 Scenario Standard Deviation
Return
Deviation
1996-2016 Period)
2017 Scenario as
2017
2017 as a Multiple Original 2016 Scenario (based
10-Year Treasury
S&P 500
USD/JPY
1997-2017
1997-2017
1997-2017
0.01
0.18
0.11
0.01
0.20
0.10
0.99
1.14
0.88
-
0.19
0.04
0.05
1.11
0.33
0.01
0.20
0.10
Risk Monitoring and Limits
The risk monitoring responsibilities, owned by the business units, include ensuring compliance with market risk limits and escalation
and remediation of limit breaches. Such activities must be reported to the ERM Market Risk team by the relevant business unit. This
monitoring approach is aligned with our overall risk limits framework.
To control our exposure to market risk, we rely on a three-tiered hierarchy of limits that the CMRO closely monitors and reports to our
CRO, senior management and risk committees.
For further information on our three-tiered hierarchy of limits see Risk Appetite, Limits, Identification, and Measurement Risk Limits
herein.
LIQUIDITY RISK MANAGEMENT
Liquidity risk is defined as the risk that our financial condition will be adversely affected by the inability or perceived inability to meet
our short-term cash, collateral or other financial obligations. Failure to appropriately manage liquidity risk can result in insolvency,
reduced operating flexibility, increased costs, reputational harm and regulatory action.
AIG and its legal entities seek to maintain sufficient liquidity both during the normal course of business and under defined liquidity
stress scenarios to ensure that sufficient cash will be available to meet the obligations as they come due.
AIG Parent liquidity risk tolerance levels are designed to allow us to meet our financial obligations for a minimum of six months under
a liquidity stress scenario. We maintain liquidity limits and minimum coverage ratios designed to ensure that funding needs are met
under varying market conditions. If we project that we will breach these tolerances, we will assess and determine appropriate liquidity
management actions. However, the market conditions in effect at that time may not permit us to achieve an increase in liquidity
sources or a reduction in liquidity requirements.
Risk Identification
The following sources of liquidity and funding risks could impact our ability to meet short-term financial obligations as they
Market/Monetization
Assets may not be readily transformed into cash due to unfavorable market conditions. Market liquidity risk
Risk
may limit our ability to sell assets at reasonable values to meet liquidity needs.
Our Liquidity Risk Management Framework includes a number of liquidity and funding policies and monitoring tools to address AIG-
specific, broader industry and market-related liquidity events.
Risk Measurement
Comprehensive cash flow projections under normal conditions are the primary component for identifying and measuring liquidity risk.
We produce comprehensive liquidity projections over varying time horizons that incorporate all relevant liquidity sources and uses and
include known and likely cash inflows and outflows. In addition, we perform stress testing by identifying liquidity stress scenarios and
assessing the effects of these scenarios on our cash flow and liquidity.
We use a number of approaches to measure our liquidity risk exposure, including:
Minimum Liquidity
Limits
Minimum Liquidity Limits specify the amount of assets required to be maintained in specific liquidity
portfolios to meet obligations as they arise over a specified time horizon under stressed liquidity conditions.
Coverage Ratios
Cash Flow
Forecasts
Stress Testing
Coverage Ratios measure the adequacy of available liquidity sources, including the ability to monetize
assets to meet the forecasted cash flows over a specified time horizon. The portfolio of assets is selected
based on our ability to convert those assets into cash under the assumed market conditions and within the
specified time horizon.
Cash Flow Forecasts measure the liquidity needed for a specific legal entity over a specified time horizon.
Asset liquidity and Coverage Ratios are re-measured under defined liquidity stress scenarios that will impact
net cash flows, liquid assets and/or other funding sources.
Relevant liquidity reporting is produced and reported regularly to AIG Parent and business unit risk committees. The frequency,
content, and nature of reporting will vary for each business unit and legal entity, based on its complexity, risk profile, activities and
size.
OPERATIONAL RISK MANAGEMENT
Overview
Operational risk is defined as the risk of loss, or other adverse consequences, resulting from inadequate or failed internal processes,
people, systems, or from external events. Operational risk includes legal, regulatory, and compliance risks, and excludes business
and strategy risks.
Operational risk is inherent in each of our business units and functions and can have many impacts, including but not limited to:
unexpected economic losses or gains, reputational harm due to negative publicity, regulatory action from supervisory agencies and
operational and business disruptions, and/or damage to customer relationships.
Discrete and cumulative cash flow mismatches or gaps over short-term horizons under both expected and
Governance
adverse business conditions may create future liquidity shortfalls.
Event Funding Risk
Additional funding may be required as the result of a trigger event. Event funding risk comes in many forms
and may result from a downgrade in credit ratings, a market event, or some other event that creates a
funding obligation or limits existing funding options.
Financing Risk
We may be unable to raise additional cash on a secured or unsecured basis due to unfavorable market
conditions, AIG-specific issues, or any other issue that impedes access to additional funding.
Liquidity risk is overseen at the corporate level within ERM. The CRO has responsibility for the oversight of the Liquidity Risk
Management Framework and delegates the day-to-day implementation of this framework to the AIG Treasurer. Our corporate treasury
function manages liquidity risk, subject to ERM oversight and various control processes.
The Liquidity Risk Management Framework is guided by the liquidity risk tolerance as set forth in the Board-approved risk appetite
statement. The principal objective of this framework is to establish minimum liquidity requirements that protect our long-term viability
and ability to fund our ongoing business, and to meet short-term financial obligations in a timely manner in both normal and stressed
conditions.
148
AIG | 2017 Form 10-K
Our operational risk governance sets the requirements necessary to embed a risk management culture throughout the organization.
AIG and its consolidated subsidiaries establish and maintain operational risk and controls governance forums that include
representatives from the relevant business units and corporate functions to appropriately manage significant operational risk
exposures. At an enterprise level, the TORCC oversees operational risk. The TORCC addresses firm-wide rather than business-
specific issues and is mandated to prioritize technology and operational improvements that are significant and transformational.
Operational risk is overseen at the corporate level within ERM through the Head of AIG Operational and Technology Controls, who
reports directly to our CRO. The Head of AIG Operational and Technology Controls is responsible for the development and
maintenance of the operational risk framework that includes policies, standards and deployment of systems.
Risk Identification, Measurement and Monitoring
The ORM function within ERM oversees the operational risk policy and integrated risk and control framework, which includes risk
identification, assessment, measurement, management and monitoring of operational risk exposures. ORM supports the TORCC and
has responsibility to provide an aggregate view of our operational risk profile. As part of the framework, we employ a Three Lines of
Defense model whereby the first line consists of business units and corporate functions that own and manage AIG risks, the second
line consists of ERM and other control functions and serves as an independent advisor to the first line and has risk oversight
AIG | 2017 Form 10-K
149
come due.
Cash Flow
Mismatch Risk
Governance
1011252ai_financials.indd 149
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
responsibilities, and the third line consists of our Internal Audit Group that provides independent assurance covering aspects of the
First and Second Lines of Defense, in each case, to strengthen the governance, capability and delivery of operational risk
management tools and methods. A key area of ongoing development is to have business leaders assume ownership and
accountability for the risks and controls in their operating units, including support functions, for the operational risks that arise in their
own processes and activities. In line with the Three Lines of Defense Model, the ORM programs include, but are not limited to,
several key components outlined below:
Risk Event Capture enables every employee to identify, document, and escalate operational risk events, with a view to
enhancing processes and promoting lessons learned.
Risk Assessments allows for the assessment, measurement and management of the key operational risks within our business
units and helps inform on the efficacy of our control environment.
Key Risk Indicators enhances the ongoing monitoring and mitigation of operational risks and facilitate risk reporting.
modeling and reporting of aggregations and limit concentrations at multiple levels (policy, line of business, product group, country,
individual/group, correlation and catastrophic risk events);
compliance with financial reporting and capital and solvency targets;
use of reinsurance, both internal and third-party; and
review and challenge of reserves to ensure comprehensive analysis with established escalation procedures to provide appropriate
transparency in reserving decisions and judgments made in the establishment of reserves.
We closely manage insurance risk by monitoring and controlling the nature and geographic location of the risks in each line of
business underwritten, the terms and conditions of the underwriting and the premiums we charge for taking on the risk. We analyze
concentrations of risk using various modeling techniques, including both probability distributions (stochastic) and/or single-point
estimates (deterministic) approaches.
Issues Management enables a consistent tracking of issues across the firm, including policy and process exceptions, control
deficiencies and findings from risk and control assessment activities.
Risk Identification
Scenario Analyses executed by first- and second-line professionals to identify potential risks that could result in financial losses
in order to identify the financial implications of the risk to the firm and support the prioritization of operational risk treatment.
ORM, working together with other control and assurance functions (e.g., Compliance, Financial Controls Unit / Sarbanes Oxley,
Global Business Continuity, and Internal Audit) through the integrated risk and control framework, provides an independent view of
operational risks for each business, and works with the business unit CRO and business unit OCA to facilitate implementation of the
above programs. This includes coverage of operational risks related to core insurance activities, investing, model risk, technology
(including cyber security, identify and access management, data privacy and data security), third-party providers, as well as
compliance and regulatory matters. Based on the results of the risk identification and assessment efforts above, business leaders are
accountable for tracking and remediating identified issues in line with our risk-monitoring procedures. Governance committees
support these efforts and promote transparency enabling improved management decision making.
An integrated risk and control framework facilitates the identification and mitigation of operational risk issues.
To accomplish this, our integrated risk and control framework is designed to:
ensure first line accountability and ownership of risks and controls;
promote role clarity among the business and risk and control functions;
enhance transparency, risk management governance and culture;
foster greater consistency in identifying, measuring and ranking material risks;
proactively address potential risk issues and assign clear ownership and accountability for risk treatment; and
manage the development of technology solutions that support the objectives above.
INSURANCE RISKS
Insurance risk is defined as risk arising from the uncertainty around the actual experience and/or policyholder behavior being
materially different than expected at the inception of an insurance contract. These uncertainties include the amount and timing of cash
flows from premiums, commissions, expenses, claims and claim settlement expenses paid or received under a contract.
Except as described above, we manage our business risk oversight activities through our insurance operations. A primary goal in
managing our insurance operations is to achieve an acceptable risk-adjusted return on equity. To achieve this goal, we must be
disciplined in risk selection, premium adequacy, and appropriate terms and conditions to cover the risk accepted.
We operate our insurance businesses on a global basis, and we are exposed to a wide variety of risks with different time horizons.
We manage these risks throughout the organization, both centrally and locally, through a number of procedures:
pre-launch approval of product design, development and distribution;
underwriting approval processes and authorities;
exposure limits with ongoing monitoring;
management of relationship between assets and liabilities, including hedging;
enhanced pricing models;
General Insurance companies risks covered include property, casualty, fidelity/surety, accident and health, aviation, and
management liability. We manage risks in the General Insurance business through aggregations and limitations of concentrations
at multiple levels: policy, line of business, geography, industry and legal entity.
Life and Retirement companies risks include mortality and morbidity in the insurance-oriented products and insufficient
cash flows to cover contract liabilities and longevity risk in the retirement savings-oriented products. We manage risks through
product design, sound medical and non-medical underwriting, and external reinsurance programs.
We purchase reinsurance for our insurance operations. Reinsurance facilitates insurance risk management (retention,
volatility, concentrations) and capital planning. We may purchase reinsurance on a pooled basis. Pooling of our reinsurance risks
enables us to purchase reinsurance more efficiently at a consolidated level, manage global counterparty risk and relationships and
manage global catastrophe risks.
Governance
Insurance risks are monitored at the business unit level within ERM and overseen by the business unit chief risk officer, who reports
directly to our CRO. The framework includes the following key components:
written policies that define the rules for our insurance risk-taking activities;
a limit framework focused on key insurance risks that aligns with our Board-approved risk appetite statement; and
clearly defined authorities for all individuals and committee roles and responsibilities related to insurance risk management.
Risk Measurement, Monitoring and Limits
We use a number of approaches to measure our insurance risk exposure, including:
Stochastic methods. Stochastic methods are used to measure and monitor risks including natural catastrophe, reserve and
premium risk. We develop probabilistic estimates of risk based on our exposures, historical observed volatility or industry-
recognized models in the case of catastrophe risk.
Scenario analysis. Scenario or deterministic analysis is used to measure and monitor risks such as terrorism or to estimate
losses due to man-made catastrophic scenarios.
In addition, we monitor concentrations of exposure through insurance limits aggregated along dimensions such as geography,
industry, or counterparty.
The risk monitoring responsibilities of the business units include ensuring compliance with insurance risk limits and escalation and
remediation of limit breaches. Such activities are reported to management by the relevant business unit for informative decision-
making on a regular basis. This monitoring approach is aligned with our overall risk limits framework.
Risk limits have a consistent framework used across AIG, its business units, and legal entities. This includes escalation thresholds in
cases where measurement is particularly challenging.
For further information on our three-tiered hierarchy of limits see Risk Appetite, Limits, Identification, and Measurement Risk Limits
herein.
150
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
151
1011252ai_financials.indd 150
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
responsibilities, and the third line consists of our Internal Audit Group that provides independent assurance covering aspects of the
modeling and reporting of aggregations and limit concentrations at multiple levels (policy, line of business, product group, country,
First and Second Lines of Defense, in each case, to strengthen the governance, capability and delivery of operational risk
individual/group, correlation and catastrophic risk events);
management tools and methods. A key area of ongoing development is to have business leaders assume ownership and
accountability for the risks and controls in their operating units, including support functions, for the operational risks that arise in their
own processes and activities. In line with the Three Lines of Defense Model, the ORM programs include, but are not limited to,
compliance with financial reporting and capital and solvency targets;
use of reinsurance, both internal and third-party; and
several key components outlined below:
Risk Event Capture enables every employee to identify, document, and escalate operational risk events, with a view to
enhancing processes and promoting lessons learned.
Risk Assessments allows for the assessment, measurement and management of the key operational risks within our business
units and helps inform on the efficacy of our control environment.
Key Risk Indicators enhances the ongoing monitoring and mitigation of operational risks and facilitate risk reporting.
review and challenge of reserves to ensure comprehensive analysis with established escalation procedures to provide appropriate
transparency in reserving decisions and judgments made in the establishment of reserves.
We closely manage insurance risk by monitoring and controlling the nature and geographic location of the risks in each line of
business underwritten, the terms and conditions of the underwriting and the premiums we charge for taking on the risk. We analyze
concentrations of risk using various modeling techniques, including both probability distributions (stochastic) and/or single-point
estimates (deterministic) approaches.
Issues Management enables a consistent tracking of issues across the firm, including policy and process exceptions, control
Risk Identification
deficiencies and findings from risk and control assessment activities.
Scenario Analyses executed by first- and second-line professionals to identify potential risks that could result in financial losses
in order to identify the financial implications of the risk to the firm and support the prioritization of operational risk treatment.
ORM, working together with other control and assurance functions (e.g., Compliance, Financial Controls Unit / Sarbanes Oxley,
Global Business Continuity, and Internal Audit) through the integrated risk and control framework, provides an independent view of
operational risks for each business, and works with the business unit CRO and business unit OCA to facilitate implementation of the
above programs. This includes coverage of operational risks related to core insurance activities, investing, model risk, technology
(including cyber security, identify and access management, data privacy and data security), third-party providers, as well as
compliance and regulatory matters. Based on the results of the risk identification and assessment efforts above, business leaders are
accountable for tracking and remediating identified issues in line with our risk-monitoring procedures. Governance committees
support these efforts and promote transparency enabling improved management decision making.
An integrated risk and control framework facilitates the identification and mitigation of operational risk issues.
To accomplish this, our integrated risk and control framework is designed to:
General Insurance companies risks covered include property, casualty, fidelity/surety, accident and health, aviation, and
management liability. We manage risks in the General Insurance business through aggregations and limitations of concentrations
at multiple levels: policy, line of business, geography, industry and legal entity.
Life and Retirement companies risks include mortality and morbidity in the insurance-oriented products and insufficient
cash flows to cover contract liabilities and longevity risk in the retirement savings-oriented products. We manage risks through
product design, sound medical and non-medical underwriting, and external reinsurance programs.
We purchase reinsurance for our insurance operations. Reinsurance facilitates insurance risk management (retention,
volatility, concentrations) and capital planning. We may purchase reinsurance on a pooled basis. Pooling of our reinsurance risks
enables us to purchase reinsurance more efficiently at a consolidated level, manage global counterparty risk and relationships and
manage global catastrophe risks.
Governance
Insurance risks are monitored at the business unit level within ERM and overseen by the business unit chief risk officer, who reports
directly to our CRO. The framework includes the following key components:
written policies that define the rules for our insurance risk-taking activities;
a limit framework focused on key insurance risks that aligns with our Board-approved risk appetite statement; and
clearly defined authorities for all individuals and committee roles and responsibilities related to insurance risk management.
proactively address potential risk issues and assign clear ownership and accountability for risk treatment; and
manage the development of technology solutions that support the objectives above.
Risk Measurement, Monitoring and Limits
INSURANCE RISKS
Insurance risk is defined as risk arising from the uncertainty around the actual experience and/or policyholder behavior being
materially different than expected at the inception of an insurance contract. These uncertainties include the amount and timing of cash
flows from premiums, commissions, expenses, claims and claim settlement expenses paid or received under a contract.
Except as described above, we manage our business risk oversight activities through our insurance operations. A primary goal in
managing our insurance operations is to achieve an acceptable risk-adjusted return on equity. To achieve this goal, we must be
disciplined in risk selection, premium adequacy, and appropriate terms and conditions to cover the risk accepted.
We operate our insurance businesses on a global basis, and we are exposed to a wide variety of risks with different time horizons.
We manage these risks throughout the organization, both centrally and locally, through a number of procedures:
pre-launch approval of product design, development and distribution;
underwriting approval processes and authorities;
exposure limits with ongoing monitoring;
management of relationship between assets and liabilities, including hedging;
enhanced pricing models;
We use a number of approaches to measure our insurance risk exposure, including:
Stochastic methods. Stochastic methods are used to measure and monitor risks including natural catastrophe, reserve and
premium risk. We develop probabilistic estimates of risk based on our exposures, historical observed volatility or industry-
recognized models in the case of catastrophe risk.
Scenario analysis. Scenario or deterministic analysis is used to measure and monitor risks such as terrorism or to estimate
losses due to man-made catastrophic scenarios.
In addition, we monitor concentrations of exposure through insurance limits aggregated along dimensions such as geography,
industry, or counterparty.
The risk monitoring responsibilities of the business units include ensuring compliance with insurance risk limits and escalation and
remediation of limit breaches. Such activities are reported to management by the relevant business unit for informative decision-
making on a regular basis. This monitoring approach is aligned with our overall risk limits framework.
Risk limits have a consistent framework used across AIG, its business units, and legal entities. This includes escalation thresholds in
cases where measurement is particularly challenging.
For further information on our three-tiered hierarchy of limits see Risk Appetite, Limits, Identification, and Measurement Risk Limits
herein.
150
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
151
ensure first line accountability and ownership of risks and controls;
promote role clarity among the business and risk and control functions;
enhance transparency, risk management governance and culture;
foster greater consistency in identifying, measuring and ranking material risks;
1011252ai_financials.indd 151
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
General Insurance Companies Key Risks
We manage our risks through risk review and selection processes, exposure limitations, exclusions, deductibles, self-insured
retentions, coverage limits, attachment points, and reinsurance. This management is supported by sound underwriting practices,
pricing procedures and the use of actuarial analysis to help determine overall adequacy of provisions for insurance. Underwriting
practices and pricing procedures incorporate historical experience, changes in underlying exposure, current regulation and judicial
decisions as well as proposed or anticipated regulatory changes.
For General Insurance companies, risks primarily include the following:
Loss Reserves The potential inadequacy of the liabilities we establish for unpaid losses and loss adjustment expenses is a key
risk faced by the General Insurance companies. There is significant uncertainty in factors that may drive the ultimate development
of losses compared to our estimates of losses and loss adjustment expenses. We manage this uncertainty through internal
controls and oversight of the loss reserve setting process, as well as reviews by external experts. For further information see
Critical Accounting Estimates Insurance Liabilities Loss Reserves herein.
Underwriting The potential inadequacy of premiums charged for future risk periods on risks underwritten in our portfolios can
impact the General Insurance companies ability to achieve an underwriting profit. We develop pricing based on our estimates of
losses and expenses, but factors such as market pressures and the inherent uncertainty and complexity in estimating losses may
result in premiums that are inadequate to generate underwriting profit. This may be driven by adverse economic conditions,
unanticipated emergence of risks or increase in frequency of claims, worse than expected prepayment of policies, investment
results, or unexpected or increased costs or expenses.
Catastrophe Exposure Our business is exposed to various catastrophic events in which multiple losses can occur and affect
multiple lines of business in any calendar year. Natural disasters, such as hurricanes, earthquakes and other catastrophes, have
the potential to adversely affect our operating results. Other risks, such as man-made catastrophes or pandemic disease, could
also adversely affect our business and operating results to the extent they are covered by our insurance products. Concentration of
exposure in certain industries or geographies may cause us to suffer disproportionate losses.
Single Risk Loss Exposure Our business is exposed to loss events that have the potential to generate losses from a single
insured client. Events such as fires or explosions can result in loss activity for our clients. The net risk to us is managed to
acceptable limits established by our GRC through a combination of internal underwriting standards and external reinsurance.
Furthermore, single risk loss exposure is managed and monitored on both a segregated and aggregated basis.
Reinsurance Since we use reinsurance to limit our losses, we are exposed to risks associated with reinsurance including the
unrecoverability of expected payments from reinsurers due to either an inability or unwillingness to pay, contracts that do not
respond properly to the event or actual reinsurance coverage that is different than anticipated. The inability or unwillingness to pay
is considered credit risk and is monitored through our credit risk management framework.
Natural Catastrophe Risk
We manage catastrophe exposure with multiple approaches such as setting risk limits based on aggregate Probable Maximum Loss
(PML) modeling, monitoring overall exposures and risk accumulations, and purchasing catastrophe reinsurance through both the
traditional reinsurance and capital markets in addition to other reinsurance protections.
We use third-party catastrophe risk models and other tools to evaluate and simulate frequency and severity of catastrophic events
and associated losses to our portfolios of exposures. We apply a proprietary multi-model approach to account for relative strengths
and weaknesses of vendor models, and make adjustments to modeled losses to account for loss adjustment expenses, model biases,
data quality and non-modeled risks.
We perform post-catastrophe event studies to identify model weaknesses, underwriting gaps, and improvement opportunities.
Lessons learned from post-catastrophe event studies are incorporated into the modeling and underwriting processes of risk pricing
and selection. The majority of policies exposed to catastrophic risks are one-year contracts that allow us to adjust our underwriting
guidelines, pricing and exposure accumulation in a relatively short period.
We recognize that climate change has implications for insurance industry exposure to natural catastrophe risk. With multiple levels of
risk management processes in place, we actively analyze the latest climate science and policy to anticipate potential changes to our
risk profile, pricing models and strategic planning. For example, we continually consider changes in climate and weather patterns as
an integral part of the underwriting process. In addition, we are committed to providing innovative insurance products and services to
help our clients be proactive against the threat of climate change, including expanding natural disaster resilience, promoting
adaptation, and reducing greenhouse gas emissions. Our internal product development, underwriting, modeling, and sustainability
practices will continue to adapt to and evolve with the developing risk exposures attributed to climate change.
Our natural catastrophe exposure is primarily driven by the U.S. and Japan, though our overall exposure is diversified across multiple
countries. For example, we have exposures to additional perils such as European windstorms and floods and seismic events across
the Pacific Rim. Within the U.S., we have significant hurricane exposure in Florida, the Gulf of Mexico, the Northeast U.S. and mid-
Atlantic regions. Events impacting the Northeast U.S. and the mid-Atlantic may result in a higher share of industry losses than other
regions primarily due to our relative share of exposure in those regions. Within the U.S., we have significant earthquake exposure in
California, the Pacific Northwest and New Madrid regions. Earthquakes impacting the Pacific Northwest and New Madrid regions may
result in a higher share of industry losses than other regions primarily due to our relative share of exposure in these regions.
The estimates below are the Occurrence Exceedance Probability (OEP) losses, which reflect losses that may occur in any single
event due to the defined peril. The 1-in-100 and 1-in-250 PMLs are the probable maximum losses from a single natural catastrophe
event with probability of 1 percent and 0.4 percent in a year, respectively.
The following table presents an overview of OEP modeled losses for top perils and countries:
At December 31, 2017
(in millions)
Exposures:
Net of 2018
Net of 2018
Percent of Total
Gross
Reinsurance
Reinsurance, After Tax(d)
Shareholder Equity
U.S. Hurricane (1-in-100)(a)
U.S. Earthquake (1-in-250)(b)
Japanese Wind (1-in-100)
Japanese Earthquake (1-in-250)(c)
$
$
4,767 $
1,109 $
6,461
1,028
1,043 $
1,632
495
630 $
876
1,289
346
441
1.3%
2.0
0.5
0.7%
(a) The U.S. hurricane amount includes losses to Property from hurricane hazards of wind and storm surge.
(b) U.S. earthquake loss estimates represent exposure to Property, Workers Compensation (U.S.) and A&H business lines.
(c) Japan Earthquake represents exposure to Property and A&H business lines.
(d) Taxed at statutory rate of 21 percent and 30 percent for the U.S. and Japanese modeled losses, respectively.
The OEP estimates provided above reflect our in-force portfolios at September 30, 2017, for both U.S. and Japan exposures. The
catastrophe reinsurance program is as of January 1, 2018.
AIG, along with other property casualty insurance and reinsurance companies, uses industry-recognized catastrophe models and
applies proprietary modeling processes and assumptions to arrive at loss estimates. The use of different methodologies and
assumptions could materially change the projected losses. Since there is no industry standard for assumptions and preparation of
insured data for use in these models, our modeled losses may not be comparable to estimates made by other companies.
Also, the modeled results are based on the assumption that all reinsurers fulfill their obligations to us under the terms of the
reinsurance arrangements and all catastrophe bonds attach and pay as modeled. However, reinsurance recoverable may not be fully
collectible. In particular, the use of catastrophe bonds may not provide commensurate levels of protection compared to traditional
reinsurance transactions. Therefore, these estimates are inherently uncertain and may not accurately reflect our exposure to these
events.
Our 2018 catastrophe reinsurance program provides protection on both an aggregate and occurrence basis with respect to North
American exposures including United States, Canada, Mexico and the Caribbean.
Aggregate protection protects us against a high frequency of losses from certain events including windstorm, severe convective
storm, earthquake, wildfire, and flood. Under this part of the program, AIG can recover up to $2.75 billion of aggregate losses in
excess of $750 million. The event deductible is $100 million initially, but increases to $250 million for individual events greater than
$750 million after the $750 million aggregate retention is exhausted. This protection will also cover a large event, providing
coverage of up to $2 billion after the aggregate retention of $750 million is exhausted.
Occurrence protection is provided primarily on a $2 billion excess of $2 billion basis, with one reinstatement, with an additional
$750 million excess of $4 billion on top of that but with no reinstatement. The $750 million excess of $4 billion layer is shared with
the top $750 million layer of aggregate protections, such that, only a total of $750 million of limit is available across those two
layers.
Additional multi-year coverages purchased in prior years provide additional coverage at various points of the program, including $125
million that is part of $500 million excess of $4.5 billion coverage from the catastrophe bond reinsurance contract we entered into with
Tradewynd Re Ltd. in 2014.
In addition, we continue to purchase specific covers to protect against catastrophic events in Japan and have also purchased
protection against severe losses for other international locations on a global basis.
152
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
153
1011252ai_financials.indd 152
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
General Insurance Companies Key Risks
We manage our risks through risk review and selection processes, exposure limitations, exclusions, deductibles, self-insured
retentions, coverage limits, attachment points, and reinsurance. This management is supported by sound underwriting practices,
pricing procedures and the use of actuarial analysis to help determine overall adequacy of provisions for insurance. Underwriting
practices and pricing procedures incorporate historical experience, changes in underlying exposure, current regulation and judicial
decisions as well as proposed or anticipated regulatory changes.
For General Insurance companies, risks primarily include the following:
Loss Reserves The potential inadequacy of the liabilities we establish for unpaid losses and loss adjustment expenses is a key
risk faced by the General Insurance companies. There is significant uncertainty in factors that may drive the ultimate development
of losses compared to our estimates of losses and loss adjustment expenses. We manage this uncertainty through internal
Our natural catastrophe exposure is primarily driven by the U.S. and Japan, though our overall exposure is diversified across multiple
countries. For example, we have exposures to additional perils such as European windstorms and floods and seismic events across
the Pacific Rim. Within the U.S., we have significant hurricane exposure in Florida, the Gulf of Mexico, the Northeast U.S. and mid-
Atlantic regions. Events impacting the Northeast U.S. and the mid-Atlantic may result in a higher share of industry losses than other
regions primarily due to our relative share of exposure in those regions. Within the U.S., we have significant earthquake exposure in
California, the Pacific Northwest and New Madrid regions. Earthquakes impacting the Pacific Northwest and New Madrid regions may
result in a higher share of industry losses than other regions primarily due to our relative share of exposure in these regions.
The estimates below are the Occurrence Exceedance Probability (OEP) losses, which reflect losses that may occur in any single
event due to the defined peril. The 1-in-100 and 1-in-250 PMLs are the probable maximum losses from a single natural catastrophe
event with probability of 1 percent and 0.4 percent in a year, respectively.
controls and oversight of the loss reserve setting process, as well as reviews by external experts. For further information see
The following table presents an overview of OEP modeled losses for top perils and countries:
Critical Accounting Estimates Insurance Liabilities Loss Reserves herein.
Underwriting The potential inadequacy of premiums charged for future risk periods on risks underwritten in our portfolios can
impact the General Insurance companies ability to achieve an underwriting profit. We develop pricing based on our estimates of
losses and expenses, but factors such as market pressures and the inherent uncertainty and complexity in estimating losses may
result in premiums that are inadequate to generate underwriting profit. This may be driven by adverse economic conditions,
unanticipated emergence of risks or increase in frequency of claims, worse than expected prepayment of policies, investment
results, or unexpected or increased costs or expenses.
Catastrophe Exposure Our business is exposed to various catastrophic events in which multiple losses can occur and affect
multiple lines of business in any calendar year. Natural disasters, such as hurricanes, earthquakes and other catastrophes, have
the potential to adversely affect our operating results. Other risks, such as man-made catastrophes or pandemic disease, could
also adversely affect our business and operating results to the extent they are covered by our insurance products. Concentration of
exposure in certain industries or geographies may cause us to suffer disproportionate losses.
Single Risk Loss Exposure Our business is exposed to loss events that have the potential to generate losses from a single
insured client. Events such as fires or explosions can result in loss activity for our clients. The net risk to us is managed to
acceptable limits established by our GRC through a combination of internal underwriting standards and external reinsurance.
Furthermore, single risk loss exposure is managed and monitored on both a segregated and aggregated basis.
Reinsurance Since we use reinsurance to limit our losses, we are exposed to risks associated with reinsurance including the
unrecoverability of expected payments from reinsurers due to either an inability or unwillingness to pay, contracts that do not
respond properly to the event or actual reinsurance coverage that is different than anticipated. The inability or unwillingness to pay
is considered credit risk and is monitored through our credit risk management framework.
Natural Catastrophe Risk
We manage catastrophe exposure with multiple approaches such as setting risk limits based on aggregate Probable Maximum Loss
(PML) modeling, monitoring overall exposures and risk accumulations, and purchasing catastrophe reinsurance through both the
traditional reinsurance and capital markets in addition to other reinsurance protections.
We use third-party catastrophe risk models and other tools to evaluate and simulate frequency and severity of catastrophic events
and associated losses to our portfolios of exposures. We apply a proprietary multi-model approach to account for relative strengths
and weaknesses of vendor models, and make adjustments to modeled losses to account for loss adjustment expenses, model biases,
data quality and non-modeled risks.
We perform post-catastrophe event studies to identify model weaknesses, underwriting gaps, and improvement opportunities.
Lessons learned from post-catastrophe event studies are incorporated into the modeling and underwriting processes of risk pricing
and selection. The majority of policies exposed to catastrophic risks are one-year contracts that allow us to adjust our underwriting
guidelines, pricing and exposure accumulation in a relatively short period.
We recognize that climate change has implications for insurance industry exposure to natural catastrophe risk. With multiple levels of
risk management processes in place, we actively analyze the latest climate science and policy to anticipate potential changes to our
risk profile, pricing models and strategic planning. For example, we continually consider changes in climate and weather patterns as
an integral part of the underwriting process. In addition, we are committed to providing innovative insurance products and services to
help our clients be proactive against the threat of climate change, including expanding natural disaster resilience, promoting
adaptation, and reducing greenhouse gas emissions. Our internal product development, underwriting, modeling, and sustainability
practices will continue to adapt to and evolve with the developing risk exposures attributed to climate change.
At December 31, 2017
(in millions)
Exposures:
U.S. Hurricane (1-in-100)(a)
U.S. Earthquake (1-in-250)(b)
Japanese Wind (1-in-100)
Japanese Earthquake (1-in-250)(c)
$
$
Gross
4,767 $
6,461
1,028
1,043 $
Net of 2018
Reinsurance
Net of 2018
Reinsurance, After Tax(d)
Percent of Total
Shareholder Equity
1,109 $
1,632
495
630 $
876
1,289
346
441
1.3%
2.0
0.5
0.7%
(a) The U.S. hurricane amount includes losses to Property from hurricane hazards of wind and storm surge.
(b) U.S. earthquake loss estimates represent exposure to Property, Workers Compensation (U.S.) and A&H business lines.
(c) Japan Earthquake represents exposure to Property and A&H business lines.
(d) Taxed at statutory rate of 21 percent and 30 percent for the U.S. and Japanese modeled losses, respectively.
The OEP estimates provided above reflect our in-force portfolios at September 30, 2017, for both U.S. and Japan exposures. The
catastrophe reinsurance program is as of January 1, 2018.
AIG, along with other property casualty insurance and reinsurance companies, uses industry-recognized catastrophe models and
applies proprietary modeling processes and assumptions to arrive at loss estimates. The use of different methodologies and
assumptions could materially change the projected losses. Since there is no industry standard for assumptions and preparation of
insured data for use in these models, our modeled losses may not be comparable to estimates made by other companies.
Also, the modeled results are based on the assumption that all reinsurers fulfill their obligations to us under the terms of the
reinsurance arrangements and all catastrophe bonds attach and pay as modeled. However, reinsurance recoverable may not be fully
collectible. In particular, the use of catastrophe bonds may not provide commensurate levels of protection compared to traditional
reinsurance transactions. Therefore, these estimates are inherently uncertain and may not accurately reflect our exposure to these
events.
Our 2018 catastrophe reinsurance program provides protection on both an aggregate and occurrence basis with respect to North
American exposures including United States, Canada, Mexico and the Caribbean.
Aggregate protection protects us against a high frequency of losses from certain events including windstorm, severe convective
storm, earthquake, wildfire, and flood. Under this part of the program, AIG can recover up to $2.75 billion of aggregate losses in
excess of $750 million. The event deductible is $100 million initially, but increases to $250 million for individual events greater than
$750 million after the $750 million aggregate retention is exhausted. This protection will also cover a large event, providing
coverage of up to $2 billion after the aggregate retention of $750 million is exhausted.
Occurrence protection is provided primarily on a $2 billion excess of $2 billion basis, with one reinstatement, with an additional
$750 million excess of $4 billion on top of that but with no reinstatement. The $750 million excess of $4 billion layer is shared with
the top $750 million layer of aggregate protections, such that, only a total of $750 million of limit is available across those two
layers.
Additional multi-year coverages purchased in prior years provide additional coverage at various points of the program, including $125
million that is part of $500 million excess of $4.5 billion coverage from the catastrophe bond reinsurance contract we entered into with
Tradewynd Re Ltd. in 2014.
In addition, we continue to purchase specific covers to protect against catastrophic events in Japan and have also purchased
protection against severe losses for other international locations on a global basis.
152
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
153
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Actual results in any period are likely to vary, perhaps materially, from the modeled scenarios. The occurrence of one or more severe
events could have a material adverse effect on our financial condition, results of operations and liquidity.
Variable Annuity Risk Management and Hedging Programs
ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
For additional information see also Item 1A. Risk Factors Reserves and Exposures.
Terrorism Risk
We actively monitor terrorism risk and manage exposures to losses from terrorist attacks. We have set risk limits based on modeled
losses from certain terrorism attack scenarios. Terrorism risks are modeled using a third-party vendor model for various terrorism
attack modes and scenarios. Adjustments are made to account for vendor model gaps and the nature of the General Insurance
companies exposures. Examples of modeled scenarios are conventional bombs of different sizes, anthrax attacks and nuclear
attacks.
Our largest terrorism exposures are in New York City, and estimated losses are largely driven by the Property and Workers
Compensation lines of business. At our largest exposure location, modeled losses for a five-ton bomb attack net of the Terrorism Risk
Insurance Program (TRIP) and reinsurance recoveries are estimated to be $2.4 billion as of September 30, 2017.
Our exposure to terrorism risk in the U.S. is mitigated by TRIP in addition to limited private reinsurance protections. TRIP covers
terrorist attacks within the United States or U.S. missions and against certain U.S. carriers or vessels and excludes certain lines of
business as specified by applicable law. In 2018, TRIP covers 82 percent of insured losses above a deductible, decreasing by one
percent each year to 80 percent in 2020. The current estimate of our deductible is approximately $2.2 billion for 2017.
We offer terrorism coverage in many other countries through various insurance products and participate in country terrorism pools
when applicable. International terrorism exposure is estimated using scenario-based modeling and exposure concentration is
monitored routinely. Targeted reinsurance purchases are made for some lines of business to cover potential losses due to terrorist
attacks. We also rely on the government-sponsored and government-arranged terrorism reinsurance programs, including pools, in
force in applicable non-U.S. jurisdictions.
Life and Retirement Companies Key Risks
We manage risk through product design, experience monitoring, pricing actions, risk limitations, reinsurance and active monitoring
and management of the relationships between assets and liabilities, including hedging.
For Life and Retirement companies, risks include the following:
Longevity risk represents the risk of a change in value of a policy or benefit as a result of actual mortality rates being lower than
the expected mortality rates. This risk could arise from longer-term societal health changes as well as other factors. This risk exists
in a number of our product lines but is most significant for our pension risk transfer, structured settlement, and annuity products.
Morbidity risk represents the risk arising from actual morbidity (i.e,. illness, disability or disease) incidence being higher than
expected or the length of the claims extending longer than expected resulting in a higher overall benefit payout. This risk could
arise from longer-term medical advances in detection and treatment for various diseases and medical conditions, as well as other
factors. This risk exists in certain product lines such as group benefits, health and long-term care businesses.
Mortality risk represents the risk of loss arising from actual mortality rates being higher than expected mortality rates. This risk
could arise from pandemics or other events, including longer-term societal changes that cause higher-than-expected mortality. This
risk exists in a number of our product lines, but is most significant for our life insurance products.
Policyholder behavior risk including full and partial surrender/lapse risk represents the risk that actual policyholder
behavior differs from expected behavior in a manner that has an adverse effect on our operating results. There are many related
assumptions made when products are sold, including how long the contracts will persist and other assumptions which impact the
expected utilization of contract benefits and features. Actual experience can vary significantly from these assumptions. This risk is
impacted by a number of factors including changes in market conditions, especially changes in the levels of interest rate and equity
markets, tax law, regulations, competitive landscape and policyholder preferences. This risk exists in the majority of our product
lines.
The emergence of significant adverse experience compared to the initial assumptions at policy issuance or updated assumption
would require an adjustment to DAC and benefit reserves, which could have a material adverse effect on our consolidated results of
operations for a particular period.
For additional discussion of the impact of actual and expected experience on DAC and benefit reserves see Critical Accounting
Estimates Future Policy Benefits for Life and Accident and Health Insurance Contracts and Critical Accounting Estimates
Guaranteed Benefit Features of Variable Annuity Products. For additional discussion of business risks see Item 1A. Risk Factors
Business and Operations.
Our Individual and Group Retirement businesses offer variable annuity products with GMWB riders that guarantee a certain level of
benefits. GMWB guaranteed living benefits are accounted for as embedded derivatives measured at fair value, with changes in the
fair value recorded in Other realized capital gains (losses). GMWB features subject the Life and Retirement companies to market risk,
including exposure to changes in interest rates, equity prices, credit spreads and market volatility.
Variable annuity product design is the first step in managing our exposure to these market risks. Risk mitigation features of our
variable annuity product design include GMWB rider fees indexed to an equity market volatility index, which can provide additional fee
assessments in periods of increased market volatility, required minimum allocations to fixed accounts to reduce overall equity
exposure, and the utilization of volatility control funds, which reduce equity exposure in the funds in response to changes in market
volatility, even under sudden or extreme market movements.
After reflecting our product risk-mitigating features, we hedge our remaining economic exposure to market risk within GMWB features
through our variable annuity hedging program, which is designed to offset certain changes in the economic value of these GMWB
embedded derivatives, within established thresholds. The hedging program is designed to provide additional protection against large
and combined movements in interest rates, equity prices, credit spreads and market volatility under multiple scenarios.
Our hedging program utilizes an economic hedge target, which represents our estimate of the underlying economic risks in our
GMWB riders, based on the present value of the future expected benefit payments for the GMWB, less the present value of future
rider fees, over numerous stochastic scenarios. This stochastic projection method uses best estimate assumptions for policyholder
behavior (including mortality, lapses, withdrawals and benefit utilization) in conjunction with market scenarios calibrated to observable
equity and interest rate option prices. Policyholder behaviors are regularly evaluated to compare current assumptions to actual
experience and, if appropriate, changes are made to the policyholder behavior assumptions. The risk of changes in policyholder
behavior is not explicitly hedged and such differences between expected and actual policyholder behaviors will result in hedge
ineffectiveness.
Due to differences between the calculation of the economic hedge target and U.S. GAAP valuation of the embedded derivative, which
include differences in the treatment of rider fees and exclusion of certain risk margins and other differences in discount rates, we
expect relative movements in the economic hedge target and the U.S. GAAP embedded derivative valuation will vary over time with
changes in equity markets, interest rates and credit spreads.
For information on the impact on our consolidated pre-tax income from the change in fair value of the embedded derivatives and the
hedging portfolio, as well as additional discussion of differences between the economic hedge target and the valuation of the
embedded derivatives see Insurance Reserves Life and Annuity Reserves and DAC Variable Annuity Guaranteed Benefits and
Hedging Results.
In designing our hedging portfolio for our variable annuity hedging program, we make assumptions and projections about the future
performance of the underlying contract holder funds. To project future account value changes, we make assumptions about how each
of the underlying funds will perform. We map the contract holder funds to a set of publicly traded indices that we believe best
represent the liability to be hedged. Basis risk exists due to the variance between these assumptions and actual fund returns, which
may result in variances between changes in the hedging portfolio and changes in the economic hedge target. Net hedge results and
the cost of hedging are also impacted by differences between realized volatility and implied volatility.
For index annuity and universal life products, we have a hedging program designed to manage the index crediting strategies
associated with index annuity and index life products. This hedging program is designed to offset the economic risk with respect to the
index returns for the current crediting rate reset period, and utilizes derivative instruments, including but not limited to equity index
options and futures contracts. Similarly as with the variable annuities, there are differences between the calculation of the economic
hedge target and U.S. GAAP valuation of the index annuity and index life embedded derivatives, which can lead to variances in their
relative movements.
To manage the capital market exposures embedded within the economic hedge target, we identify and hedge market sensitivities to
changes in equity markets, interest rates, volatility and for variable annuities, credit spreads. Each hedge program purchases
derivative instruments or securities having sensitivities that offset those in the economic hedge target, within internally defined
threshold levels. Since the relative movements of the hedging portfolio and the economic hedge target vary over time or with market
changes, the net exposure can be outside the threshold limits, and adjustments to the hedging portfolio are made periodically to
return the net exposure to within threshold limits.
Our hedging programs utilize various derivative instruments, including but not limited to equity options, futures contracts, interest rate
swaps and swaption contracts, as well as other hedging instruments. In addition, for variable annuities, we purchase certain fixed
income securities and elect the fair value option as a capital efficient way to manage interest rate and credit spread exposures. To
154
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
155
1011252ai_financials.indd 154
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Actual results in any period are likely to vary, perhaps materially, from the modeled scenarios. The occurrence of one or more severe
Variable Annuity Risk Management and Hedging Programs
ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
events could have a material adverse effect on our financial condition, results of operations and liquidity.
For additional information see also Item 1A. Risk Factors Reserves and Exposures.
Terrorism Risk
attacks.
We actively monitor terrorism risk and manage exposures to losses from terrorist attacks. We have set risk limits based on modeled
losses from certain terrorism attack scenarios. Terrorism risks are modeled using a third-party vendor model for various terrorism
attack modes and scenarios. Adjustments are made to account for vendor model gaps and the nature of the General Insurance
companies exposures. Examples of modeled scenarios are conventional bombs of different sizes, anthrax attacks and nuclear
Our largest terrorism exposures are in New York City, and estimated losses are largely driven by the Property and Workers
Compensation lines of business. At our largest exposure location, modeled losses for a five-ton bomb attack net of the Terrorism Risk
Insurance Program (TRIP) and reinsurance recoveries are estimated to be $2.4 billion as of September 30, 2017.
Our exposure to terrorism risk in the U.S. is mitigated by TRIP in addition to limited private reinsurance protections. TRIP covers
terrorist attacks within the United States or U.S. missions and against certain U.S. carriers or vessels and excludes certain lines of
business as specified by applicable law. In 2018, TRIP covers 82 percent of insured losses above a deductible, decreasing by one
percent each year to 80 percent in 2020. The current estimate of our deductible is approximately $2.2 billion for 2017.
We offer terrorism coverage in many other countries through various insurance products and participate in country terrorism pools
when applicable. International terrorism exposure is estimated using scenario-based modeling and exposure concentration is
monitored routinely. Targeted reinsurance purchases are made for some lines of business to cover potential losses due to terrorist
attacks. We also rely on the government-sponsored and government-arranged terrorism reinsurance programs, including pools, in
force in applicable non-U.S. jurisdictions.
Life and Retirement Companies Key Risks
We manage risk through product design, experience monitoring, pricing actions, risk limitations, reinsurance and active monitoring
and management of the relationships between assets and liabilities, including hedging.
For Life and Retirement companies, risks include the following:
Longevity risk represents the risk of a change in value of a policy or benefit as a result of actual mortality rates being lower than
the expected mortality rates. This risk could arise from longer-term societal health changes as well as other factors. This risk exists
in a number of our product lines but is most significant for our pension risk transfer, structured settlement, and annuity products.
Morbidity risk represents the risk arising from actual morbidity (i.e,. illness, disability or disease) incidence being higher than
expected or the length of the claims extending longer than expected resulting in a higher overall benefit payout. This risk could
arise from longer-term medical advances in detection and treatment for various diseases and medical conditions, as well as other
factors. This risk exists in certain product lines such as group benefits, health and long-term care businesses.
Mortality risk represents the risk of loss arising from actual mortality rates being higher than expected mortality rates. This risk
could arise from pandemics or other events, including longer-term societal changes that cause higher-than-expected mortality. This
risk exists in a number of our product lines, but is most significant for our life insurance products.
Policyholder behavior risk including full and partial surrender/lapse risk represents the risk that actual policyholder
behavior differs from expected behavior in a manner that has an adverse effect on our operating results. There are many related
assumptions made when products are sold, including how long the contracts will persist and other assumptions which impact the
expected utilization of contract benefits and features. Actual experience can vary significantly from these assumptions. This risk is
impacted by a number of factors including changes in market conditions, especially changes in the levels of interest rate and equity
markets, tax law, regulations, competitive landscape and policyholder preferences. This risk exists in the majority of our product
lines.
The emergence of significant adverse experience compared to the initial assumptions at policy issuance or updated assumption
would require an adjustment to DAC and benefit reserves, which could have a material adverse effect on our consolidated results of
operations for a particular period.
For additional discussion of the impact of actual and expected experience on DAC and benefit reserves see Critical Accounting
Estimates Future Policy Benefits for Life and Accident and Health Insurance Contracts and Critical Accounting Estimates
Guaranteed Benefit Features of Variable Annuity Products. For additional discussion of business risks see Item 1A. Risk Factors
Business and Operations.
154
AIG | 2017 Form 10-K
Our Individual and Group Retirement businesses offer variable annuity products with GMWB riders that guarantee a certain level of
benefits. GMWB guaranteed living benefits are accounted for as embedded derivatives measured at fair value, with changes in the
fair value recorded in Other realized capital gains (losses). GMWB features subject the Life and Retirement companies to market risk,
including exposure to changes in interest rates, equity prices, credit spreads and market volatility.
Variable annuity product design is the first step in managing our exposure to these market risks. Risk mitigation features of our
variable annuity product design include GMWB rider fees indexed to an equity market volatility index, which can provide additional fee
assessments in periods of increased market volatility, required minimum allocations to fixed accounts to reduce overall equity
exposure, and the utilization of volatility control funds, which reduce equity exposure in the funds in response to changes in market
volatility, even under sudden or extreme market movements.
After reflecting our product risk-mitigating features, we hedge our remaining economic exposure to market risk within GMWB features
through our variable annuity hedging program, which is designed to offset certain changes in the economic value of these GMWB
embedded derivatives, within established thresholds. The hedging program is designed to provide additional protection against large
and combined movements in interest rates, equity prices, credit spreads and market volatility under multiple scenarios.
Our hedging program utilizes an economic hedge target, which represents our estimate of the underlying economic risks in our
GMWB riders, based on the present value of the future expected benefit payments for the GMWB, less the present value of future
rider fees, over numerous stochastic scenarios. This stochastic projection method uses best estimate assumptions for policyholder
behavior (including mortality, lapses, withdrawals and benefit utilization) in conjunction with market scenarios calibrated to observable
equity and interest rate option prices. Policyholder behaviors are regularly evaluated to compare current assumptions to actual
experience and, if appropriate, changes are made to the policyholder behavior assumptions. The risk of changes in policyholder
behavior is not explicitly hedged and such differences between expected and actual policyholder behaviors will result in hedge
ineffectiveness.
Due to differences between the calculation of the economic hedge target and U.S. GAAP valuation of the embedded derivative, which
include differences in the treatment of rider fees and exclusion of certain risk margins and other differences in discount rates, we
expect relative movements in the economic hedge target and the U.S. GAAP embedded derivative valuation will vary over time with
changes in equity markets, interest rates and credit spreads.
For information on the impact on our consolidated pre-tax income from the change in fair value of the embedded derivatives and the
hedging portfolio, as well as additional discussion of differences between the economic hedge target and the valuation of the
embedded derivatives see Insurance Reserves Life and Annuity Reserves and DAC Variable Annuity Guaranteed Benefits and
Hedging Results.
In designing our hedging portfolio for our variable annuity hedging program, we make assumptions and projections about the future
performance of the underlying contract holder funds. To project future account value changes, we make assumptions about how each
of the underlying funds will perform. We map the contract holder funds to a set of publicly traded indices that we believe best
represent the liability to be hedged. Basis risk exists due to the variance between these assumptions and actual fund returns, which
may result in variances between changes in the hedging portfolio and changes in the economic hedge target. Net hedge results and
the cost of hedging are also impacted by differences between realized volatility and implied volatility.
For index annuity and universal life products, we have a hedging program designed to manage the index crediting strategies
associated with index annuity and index life products. This hedging program is designed to offset the economic risk with respect to the
index returns for the current crediting rate reset period, and utilizes derivative instruments, including but not limited to equity index
options and futures contracts. Similarly as with the variable annuities, there are differences between the calculation of the economic
hedge target and U.S. GAAP valuation of the index annuity and index life embedded derivatives, which can lead to variances in their
relative movements.
To manage the capital market exposures embedded within the economic hedge target, we identify and hedge market sensitivities to
changes in equity markets, interest rates, volatility and for variable annuities, credit spreads. Each hedge program purchases
derivative instruments or securities having sensitivities that offset those in the economic hedge target, within internally defined
threshold levels. Since the relative movements of the hedging portfolio and the economic hedge target vary over time or with market
changes, the net exposure can be outside the threshold limits, and adjustments to the hedging portfolio are made periodically to
return the net exposure to within threshold limits.
Our hedging programs utilize various derivative instruments, including but not limited to equity options, futures contracts, interest rate
swaps and swaption contracts, as well as other hedging instruments. In addition, for variable annuities, we purchase certain fixed
income securities and elect the fair value option as a capital efficient way to manage interest rate and credit spread exposures. To
AIG | 2017 Form 10-K
155
1011252ai_financials.indd 155
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
minimize counterparty credit risk, the majority of our derivative instrument hedges are implemented using exchange-traded futures
and options, cleared through global exchanges. Over the counter derivatives are highly collateralized.
The hedging programs are monitored on a daily basis to ensure that the economic hedge target and derivative portfolio are within the
threshold limits, pursuant to the approved hedge strategy. Daily risk monitoring verifies that the net risk exposures, as measured
through sensitivities to a large set of market shocks, are within the approved net risk exposure threshold limits. In addition, monthly
stress tests are performed to determine the programs effectiveness relative to the applicable limits, under an array of combined
severe market stresses in equity prices, interest rates, volatility and credit spreads. Finally, hedge strategies are reviewed regularly to
gauge their effectiveness in managing our market exposures in the context of our overall risk appetite.
Reinsurance Activities
Reinsurance is used primarily to manage overall capital adequacy and mitigate the insurance loss (Life and Non-Life) exposure
related to certain events such as natural and man-made catastrophes or death events. Our subsidiaries operate worldwide primarily
by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an
individual risk or an aggregate basis to the extent those risks exceed the desired retention level. In addition, as a condition of certain
direct underwriting transactions, we may be required by clients, agents or regulation to cede all or a portion of risks to specified
reinsurance entities, such as captives, other insurers, local reinsurers and compulsory pools.
Reinsurance markets include:
Traditional local and global reinsurance markets including those in the United States, Bermuda, London and Europe, accessed
directly and through reinsurance intermediaries;
Capital markets through insurance-linked securities and collateralized reinsurance transactions, such as catastrophe bonds,
sidecars and similar vehicles; and
Other insurers that engage in both direct and assumed reinsurance.
The form of reinsurance we may choose from time to time will generally depend on whether we are seeking:
proportional reinsurance, whereby we cede a specified percentage of premiums and losses to reinsurers;
non-proportional or excess of loss reinsurance, whereby we cede all or a specified portion of losses in excess of a specified
amount on a per risk, per occurrence (including catastrophe reinsurance) or aggregate basis; or
facultative contracts that reinsure individual policies.
We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used
to achieve our risk and profitability objectives.
Reinsurance contracts do not relieve our subsidiaries from their direct obligations to insureds. However, an effective reinsurance
program substantially mitigates our exposure to potentially significant losses.
In certain markets, we are required to participate on a proportional basis in reinsurance pools based on our relative share of direct
writings in those markets. Such mandatory reinsurance generally covers higher-risk consumer exposures such as assigned-risk
automobile and earthquake, as well as certain commercial exposures such as workers compensation.
Reinsurance Recoverable
AIGs reinsurance recoverable assets are comprised of:
Paid losses recoverable balances due from reinsurers for losses and loss adjustment expenses paid by our subsidiaries and
billed, but not yet collected.
Ceded loss reserves ultimate ceded reserves for losses and loss adjustment expenses, including reserves for claims reported
but not yet paid and estimates for IBNR.
Ceded reserves for unearned premiums.
Life and Annuity reinsurance recoverables (ceded policy and claim reserves).
At December 31, 2017, total reinsurance recoverable assets were $33.0 billion. These assets include general reinsurance paid losses
recoverable of $1.4 billion, ceded loss reserves of $26.9 billion including reserves for incurred but not reported (IBNR) claims, and
ceded reserves for unearned premiums of $3.1 billion, as well as life reinsurance recoverable of $1.6 billion. The methods used to
estimate IBNR and to establish the resulting ultimate losses involve projecting the frequency and severity of losses over multiple
years. These methods are continually reviewed and updated by management. Any adjustments are reflected in income. We believe
that the amount recorded for ceded loss reserves at December 31, 2017 reflects a reasonable estimate of the ultimate losses
recoverable. Actual losses may, however, differ from the reserves currently ceded.
The Reinsurance Credit Department (RCD) conducts periodic detailed assessments of the financial strength and condition of current
and potential reinsurers, both foreign and domestic. The RCD monitors both the financial condition of reinsurers as well as the total
reinsurance recoverable ceded to reinsurers, and sets limits with regard to the amount and type of exposure we are willing to take
with reinsurers. As part of these assessments, we attempt to identify whether a reinsurer is appropriately licensed, assess its financial
capacity and liquidity, and evaluate the local economic and financial environment in which a foreign reinsurer operates. The RCD
reviews the nature of the risks ceded and the need for measures, including collateral to mitigate credit risk. For example, in our treaty
reinsurance contracts, we frequently include provisions that require a reinsurer to post collateral or use other measures to reduce
exposure when a referenced event occurs. Furthermore, we limit our unsecured exposure to reinsurers through the use of credit
triggers such as insurer financial strength rating downgrades, declines in regulatory capital, or relevant risk-based capital (RBC) ratios
fall below certain levels. We also set maximum limits for reinsurance recoverable exposure, which in some cases is the recoverable
amount plus an estimate of the maximum potential exposure from unexpected events for a reinsurer. In addition, credit executives
within ERM review reinsurer exposures and credit limits and approve reinsurer credit limits above specified levels. Finally, even where
we conclude that uncollateralized credit risk is acceptable, we require collateral from active reinsurance counterparties where it is
necessary for our subsidiaries to recognize the reinsurance recoverable assets for statutory accounting purposes. At December 31,
2017, we held $20.5 billion of collateral, in the form of funds withheld, securities in reinsurance trust accounts and/or irrevocable
letters of credit, in support of reinsurance recoverable assets from unaffiliated reinsurers. We believe that no exposure to a single
reinsurer represents an inappropriate concentration of risk to AIG, nor is our business substantially dependent upon any single
reinsurance contract.
The following table presents information for each reinsurer representing in excess of five percent of our total reinsurance
recoverable assets:
At December 31, 2017
(in millions)
Reinsurer:
A.M.
Gross
Percent of
Uncollateralized
S&P
Best Reinsurance
Reinsurance
Collateral
Reinsurance
Rating(a) Rating(a)
Assets
Assets(b)
Held(c)
Assets
Berkshire Hathaway Group of Companies
Swiss Reinsurance Group of Companies
AA+
AA-
A++ $
A+ $
13,707 (d)
4,341
41.5 % $
13.1 % $
13,265
2,371
$
$
442
1,970
(a) The financial strength ratings reflect the ratings of the various reinsurance subsidiaries of the companies listed as of February 8, 2018.
(b) Total reinsurance assets include both Property Casualty and Life and Retirement reinsurance recoverable.
(c) Excludes collateral held in excess of applicable treaty balances.
(d) Includes $13.2 billion recoverable under the 2011 retroactive asbestos reinsurance transaction and the 2017 Adverse Development Reinsurance agreement.
At December 31, 2017, we had no significant reinsurance recoverable due from any individual reinsurer that was financially troubled.
Reinsurer capital levels continued to increase in 2017, thereby increasing the industrys underwriting capacity, which resulted in
continued competition and lower rates for 2018 renewals. Reduced profitability associated with lower rates could potentially result in
reduced capacity or rating downgrades for some reinsurers. The RCD, in conjunction with the credit executives within ERM, reviews
these developments, monitors compliance with credit triggers that may require the reinsurer to post collateral, and seeks to use other
appropriate means to mitigate any material risks arising from these developments.
For further discussion of reinsurance recoverable see Critical Accounting Estimates Reinsurance Assets
156
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
157
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3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
ITEM 7 | Enterprise Risk Management
minimize counterparty credit risk, the majority of our derivative instrument hedges are implemented using exchange-traded futures
and options, cleared through global exchanges. Over the counter derivatives are highly collateralized.
The hedging programs are monitored on a daily basis to ensure that the economic hedge target and derivative portfolio are within the
threshold limits, pursuant to the approved hedge strategy. Daily risk monitoring verifies that the net risk exposures, as measured
through sensitivities to a large set of market shocks, are within the approved net risk exposure threshold limits. In addition, monthly
stress tests are performed to determine the programs effectiveness relative to the applicable limits, under an array of combined
severe market stresses in equity prices, interest rates, volatility and credit spreads. Finally, hedge strategies are reviewed regularly to
gauge their effectiveness in managing our market exposures in the context of our overall risk appetite.
Reinsurance Activities
Reinsurance is used primarily to manage overall capital adequacy and mitigate the insurance loss (Life and Non-Life) exposure
related to certain events such as natural and man-made catastrophes or death events. Our subsidiaries operate worldwide primarily
by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an
individual risk or an aggregate basis to the extent those risks exceed the desired retention level. In addition, as a condition of certain
direct underwriting transactions, we may be required by clients, agents or regulation to cede all or a portion of risks to specified
reinsurance entities, such as captives, other insurers, local reinsurers and compulsory pools.
Reinsurance markets include:
directly and through reinsurance intermediaries;
Traditional local and global reinsurance markets including those in the United States, Bermuda, London and Europe, accessed
Capital markets through insurance-linked securities and collateralized reinsurance transactions, such as catastrophe bonds,
sidecars and similar vehicles; and
Other insurers that engage in both direct and assumed reinsurance.
The form of reinsurance we may choose from time to time will generally depend on whether we are seeking:
proportional reinsurance, whereby we cede a specified percentage of premiums and losses to reinsurers;
non-proportional or excess of loss reinsurance, whereby we cede all or a specified portion of losses in excess of a specified
amount on a per risk, per occurrence (including catastrophe reinsurance) or aggregate basis; or
facultative contracts that reinsure individual policies.
We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used
to achieve our risk and profitability objectives.
Reinsurance contracts do not relieve our subsidiaries from their direct obligations to insureds. However, an effective reinsurance
program substantially mitigates our exposure to potentially significant losses.
In certain markets, we are required to participate on a proportional basis in reinsurance pools based on our relative share of direct
writings in those markets. Such mandatory reinsurance generally covers higher-risk consumer exposures such as assigned-risk
automobile and earthquake, as well as certain commercial exposures such as workers compensation.
Reinsurance Recoverable
AIGs reinsurance recoverable assets are comprised of:
billed, but not yet collected.
but not yet paid and estimates for IBNR.
Ceded reserves for unearned premiums.
Paid losses recoverable balances due from reinsurers for losses and loss adjustment expenses paid by our subsidiaries and
Ceded loss reserves ultimate ceded reserves for losses and loss adjustment expenses, including reserves for claims reported
Life and Annuity reinsurance recoverables (ceded policy and claim reserves).
At December 31, 2017, total reinsurance recoverable assets were $33.0 billion. These assets include general reinsurance paid losses
recoverable of $1.4 billion, ceded loss reserves of $26.9 billion including reserves for incurred but not reported (IBNR) claims, and
ceded reserves for unearned premiums of $3.1 billion, as well as life reinsurance recoverable of $1.6 billion. The methods used to
estimate IBNR and to establish the resulting ultimate losses involve projecting the frequency and severity of losses over multiple
years. These methods are continually reviewed and updated by management. Any adjustments are reflected in income. We believe
that the amount recorded for ceded loss reserves at December 31, 2017 reflects a reasonable estimate of the ultimate losses
recoverable. Actual losses may, however, differ from the reserves currently ceded.
The Reinsurance Credit Department (RCD) conducts periodic detailed assessments of the financial strength and condition of current
and potential reinsurers, both foreign and domestic. The RCD monitors both the financial condition of reinsurers as well as the total
reinsurance recoverable ceded to reinsurers, and sets limits with regard to the amount and type of exposure we are willing to take
with reinsurers. As part of these assessments, we attempt to identify whether a reinsurer is appropriately licensed, assess its financial
capacity and liquidity, and evaluate the local economic and financial environment in which a foreign reinsurer operates. The RCD
reviews the nature of the risks ceded and the need for measures, including collateral to mitigate credit risk. For example, in our treaty
reinsurance contracts, we frequently include provisions that require a reinsurer to post collateral or use other measures to reduce
exposure when a referenced event occurs. Furthermore, we limit our unsecured exposure to reinsurers through the use of credit
triggers such as insurer financial strength rating downgrades, declines in regulatory capital, or relevant risk-based capital (RBC) ratios
fall below certain levels. We also set maximum limits for reinsurance recoverable exposure, which in some cases is the recoverable
amount plus an estimate of the maximum potential exposure from unexpected events for a reinsurer. In addition, credit executives
within ERM review reinsurer exposures and credit limits and approve reinsurer credit limits above specified levels. Finally, even where
we conclude that uncollateralized credit risk is acceptable, we require collateral from active reinsurance counterparties where it is
necessary for our subsidiaries to recognize the reinsurance recoverable assets for statutory accounting purposes. At December 31,
2017, we held $20.5 billion of collateral, in the form of funds withheld, securities in reinsurance trust accounts and/or irrevocable
letters of credit, in support of reinsurance recoverable assets from unaffiliated reinsurers. We believe that no exposure to a single
reinsurer represents an inappropriate concentration of risk to AIG, nor is our business substantially dependent upon any single
reinsurance contract.
The following table presents information for each reinsurer representing in excess of five percent of our total reinsurance
recoverable assets:
At December 31, 2017
(in millions)
Reinsurer:
S&P
Rating(a) Rating(a)
A.M.
Gross
Best Reinsurance
Assets
Percent of
Reinsurance
Assets(b)
Collateral
Held(c)
Uncollateralized
Reinsurance
Assets
Berkshire Hathaway Group of Companies
Swiss Reinsurance Group of Companies
AA+
AA-
A++ $
A+ $
13,707 (d)
4,341
41.5 % $
13.1 % $
13,265
2,371
$
$
442
1,970
(a) The financial strength ratings reflect the ratings of the various reinsurance subsidiaries of the companies listed as of February 8, 2018.
(b) Total reinsurance assets include both Property Casualty and Life and Retirement reinsurance recoverable.
(c) Excludes collateral held in excess of applicable treaty balances.
(d) Includes $13.2 billion recoverable under the 2011 retroactive asbestos reinsurance transaction and the 2017 Adverse Development Reinsurance agreement.
At December 31, 2017, we had no significant reinsurance recoverable due from any individual reinsurer that was financially troubled.
Reinsurer capital levels continued to increase in 2017, thereby increasing the industrys underwriting capacity, which resulted in
continued competition and lower rates for 2018 renewals. Reduced profitability associated with lower rates could potentially result in
reduced capacity or rating downgrades for some reinsurers. The RCD, in conjunction with the credit executives within ERM, reviews
these developments, monitors compliance with credit triggers that may require the reinsurer to post collateral, and seeks to use other
appropriate means to mitigate any material risks arising from these developments.
For further discussion of reinsurance recoverable see Critical Accounting Estimates Reinsurance Assets
156
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
157
1011252ai_financials.indd 157
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
G l o s s a r y
OTHER BUSINESS RISKS
Derivative Transactions
We utilize derivatives principally to enable us to hedge exposure to interest rates, currencies, credit, commodities, equities and other
risks. Credit risk associated with derivative counterparties exists for a derivative contract when that contract has a positive fair value to
us. The maximum potential exposure will increase or decrease during the life of the derivative commitments as a function of maturity
and market conditions. All derivative transactions must be transacted within counterparty limits that have been approved by ERM.
We evaluate counterparty credit quality by internal analysis consistent with the AIG Credit Policy. We utilize various credit
enhancements, including letters of credit, guarantees, collateral, credit triggers, credit derivatives, margin agreements and
subordination to reduce the credit risk relating to outstanding financial derivative transactions. We require credit enhancements in
connection with specific transactions based on, among other things, the creditworthiness of the counterparties, and transaction size
and maturity. Furthermore, we enter into certain agreements that have the benefit of set-off and close-out netting provisions, such as
ISDA Master Agreements. These provisions provide that, in the case of an early termination of a transaction, we can set off
receivables from a counterparty against payables to the same counterparty arising out of all covered transactions. As a result, where
a legally enforceable netting agreement exists, the fair value of the transaction with the counterparty represents the net sum of
estimated fair values.
The fair value of our interest rate, currency, credit, commodity and equity swaps, options, swaptions, and forward commitments,
futures, and forward contracts reported as a component of Other assets, was approximately $0.9 billion at December 31, 2017 and
$1.8 billion at December 31, 2016. Where applicable, these amounts have been determined in accordance with the respective master
netting agreements.
The following table presents the fair value of our derivatives portfolios in asset positions by internal counterparty credit
rating:
At December 31,
(in millions)
Rating:
AAA
AA
A
BBB
Below investment grade*
Total
* Below investment grade includes not rated.
2017
2016
12
5
151
526
228
922
$
$
68
12
163
1,338
228
1,809
$
$
For additional discussion related to derivative transactions see Note 11 to the Consolidated Financial Statements.
Glossary
Accident year The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually
reported, booked or paid.
Accident year combined ratio, as adjusted The combined ratio excluding catastrophe losses and related reinstatement premiums,
prior year development, net of premium adjustments, and the impact of reserve discounting.
Accident year loss ratio, as adjusted The loss ratio excluding catastrophe losses and related reinstatement premiums, prior year
development, net of premium adjustments, and the impact of reserve discounting.
Acquisition ratio Acquisition costs divided by net premiums earned. Acquisition costs are those costs incurred to acquire new and
renewal insurance contracts and also include the amortization of VOBA and DAC. Acquisition costs vary with sales and include, but
are not limited to, commissions, premium taxes, direct marketing costs and certain costs of personnel engaged in sales support
activities such as underwriting.
Additional premium represents a premium on an insurance policy over and above the initial premium imposed at the beginning of
the policy. An additional premium may be assessed if the insureds risk is found to have increased significantly.
Adjusted revenues exclude Net realized capital gains (losses), income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities used to hedge guaranteed living benefits (included in Net
investment income for GAAP purposes).
Assets under administration include assets under management and Retail Mutual Funds and Group Retirement mutual fund assets
that we sell or administer.
Assets under management include assets in the general and separate accounts of our subsidiaries that support liabilities and
surplus related to our life and annuity insurance products and the notional value of stable value wrap contracts.
Base Spread Net investment income excluding income from alternative investments and other enhancements, less interest credited
excluding amortization of sales inducement assets.
Base Yield Net investment income excluding income from alternative investments and other enhancements, as a percentage of
average base invested asset portfolio, which excludes alternative investments, other bond securities and certain other investments for
which the fair value option has been elected.
Book value per common share, excluding accumulated other comprehensive income (AOCI) and Book value per common
share, excluding AOCI and deferred tax assets (DTA) (Adjusted book value per common share) are non-GAAP measures and
are used to show the amount of our net worth on a per-share basis. Book value per common share excluding AOCI is derived by
dividing total AIG shareholders equity, excluding AOCI, by total common shares outstanding. Adjusted book value per common share
is derived by dividing total AIG shareholders equity, excluding AOCI and DTA (Adjusted Shareholders Equity), by total common
shares outstanding.
Casualty insurance Insurance that is primarily associated with the losses caused by injuries to third persons, i.e., not the insured,
and the legal liability imposed on the insured as a result.
Combined ratio Sum of the loss ratio and the acquisition and general operating expense ratios.
CSA Credit Support Annex A legal document generally associated with an ISDA Master Agreement that provides for collateral
postings which could vary depending on ratings and threshold levels.
CVA Credit Valuation Adjustment The CVA adjusts the valuation of derivatives to account for nonperformance risk of our
counterparty with respect to all net derivative assets positions. Also, the CVA reflects the fair value movement in AIGFP's asset
portfolio that is attributable to credit movements only, without the impact of other market factors such as interest rates and foreign
exchange rates. Finally, the CVA also accounts for our own credit risk in the fair value measurement of all derivative net liability
positions and liabilities where AIG has elected the fair value option, when appropriate.
DAC Deferred Policy Acquisition Costs Deferred costs that are incremental and directly related to the successful acquisition of new
business or renewal of existing business.
158
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
159
1011252ai_financials.indd 158
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 7 | Enterprise Risk Management
G l o s s a r y
OTHER BUSINESS RISKS
Derivative Transactions
We utilize derivatives principally to enable us to hedge exposure to interest rates, currencies, credit, commodities, equities and other
risks. Credit risk associated with derivative counterparties exists for a derivative contract when that contract has a positive fair value to
us. The maximum potential exposure will increase or decrease during the life of the derivative commitments as a function of maturity
and market conditions. All derivative transactions must be transacted within counterparty limits that have been approved by ERM.
We evaluate counterparty credit quality by internal analysis consistent with the AIG Credit Policy. We utilize various credit
enhancements, including letters of credit, guarantees, collateral, credit triggers, credit derivatives, margin agreements and
subordination to reduce the credit risk relating to outstanding financial derivative transactions. We require credit enhancements in
connection with specific transactions based on, among other things, the creditworthiness of the counterparties, and transaction size
and maturity. Furthermore, we enter into certain agreements that have the benefit of set-off and close-out netting provisions, such as
ISDA Master Agreements. These provisions provide that, in the case of an early termination of a transaction, we can set off
receivables from a counterparty against payables to the same counterparty arising out of all covered transactions. As a result, where
a legally enforceable netting agreement exists, the fair value of the transaction with the counterparty represents the net sum of
The fair value of our interest rate, currency, credit, commodity and equity swaps, options, swaptions, and forward commitments,
futures, and forward contracts reported as a component of Other assets, was approximately $0.9 billion at December 31, 2017 and
$1.8 billion at December 31, 2016. Where applicable, these amounts have been determined in accordance with the respective master
The following table presents the fair value of our derivatives portfolios in asset positions by internal counterparty credit
estimated fair values.
netting agreements.
rating:
At December 31,
(in millions)
Rating:
AAA
AA
A
BBB
Total
Below investment grade*
* Below investment grade includes not rated.
2017
2016
12
5
151
526
228
922
$
$
68
12
163
1,338
228
1,809
$
$
For additional discussion related to derivative transactions see Note 11 to the Consolidated Financial Statements.
Glossary
Accident year The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually
reported, booked or paid.
Accident year combined ratio, as adjusted The combined ratio excluding catastrophe losses and related reinstatement premiums,
prior year development, net of premium adjustments, and the impact of reserve discounting.
Accident year loss ratio, as adjusted The loss ratio excluding catastrophe losses and related reinstatement premiums, prior year
development, net of premium adjustments, and the impact of reserve discounting.
Acquisition ratio Acquisition costs divided by net premiums earned. Acquisition costs are those costs incurred to acquire new and
renewal insurance contracts and also include the amortization of VOBA and DAC. Acquisition costs vary with sales and include, but
are not limited to, commissions, premium taxes, direct marketing costs and certain costs of personnel engaged in sales support
activities such as underwriting.
Additional premium represents a premium on an insurance policy over and above the initial premium imposed at the beginning of
the policy. An additional premium may be assessed if the insureds risk is found to have increased significantly.
Adjusted revenues exclude Net realized capital gains (losses), income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities used to hedge guaranteed living benefits (included in Net
investment income for GAAP purposes).
Assets under administration include assets under management and Retail Mutual Funds and Group Retirement mutual fund assets
that we sell or administer.
Assets under management include assets in the general and separate accounts of our subsidiaries that support liabilities and
surplus related to our life and annuity insurance products and the notional value of stable value wrap contracts.
Base Spread Net investment income excluding income from alternative investments and other enhancements, less interest credited
excluding amortization of sales inducement assets.
Base Yield Net investment income excluding income from alternative investments and other enhancements, as a percentage of
average base invested asset portfolio, which excludes alternative investments, other bond securities and certain other investments for
which the fair value option has been elected.
Book value per common share, excluding accumulated other comprehensive income (AOCI) and Book value per common
share, excluding AOCI and deferred tax assets (DTA) (Adjusted book value per common share) are non-GAAP measures and
are used to show the amount of our net worth on a per-share basis. Book value per common share excluding AOCI is derived by
dividing total AIG shareholders equity, excluding AOCI, by total common shares outstanding. Adjusted book value per common share
is derived by dividing total AIG shareholders equity, excluding AOCI and DTA (Adjusted Shareholders Equity), by total common
shares outstanding.
Casualty insurance Insurance that is primarily associated with the losses caused by injuries to third persons, i.e., not the insured,
and the legal liability imposed on the insured as a result.
Combined ratio Sum of the loss ratio and the acquisition and general operating expense ratios.
CSA Credit Support Annex A legal document generally associated with an ISDA Master Agreement that provides for collateral
postings which could vary depending on ratings and threshold levels.
CVA Credit Valuation Adjustment The CVA adjusts the valuation of derivatives to account for nonperformance risk of our
counterparty with respect to all net derivative assets positions. Also, the CVA reflects the fair value movement in AIGFP's asset
portfolio that is attributable to credit movements only, without the impact of other market factors such as interest rates and foreign
exchange rates. Finally, the CVA also accounts for our own credit risk in the fair value measurement of all derivative net liability
positions and liabilities where AIG has elected the fair value option, when appropriate.
DAC Deferred Policy Acquisition Costs Deferred costs that are incremental and directly related to the successful acquisition of new
business or renewal of existing business.
158
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
159
1011252ai_financials.indd 159
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 G l o s s a r y
G l o s s a r y
DAC Related to Unrealized Appreciation (Depreciation) of Investments An adjustment to DAC and Reserves for investment-
oriented products, equal to the change in DAC and Unearned Revenue amortization that would have been recorded if fixed maturity
and equity securities available for sale had been sold at their stated aggregate fair value and the proceeds reinvested at current
yields. An adjustment to benefit reserves for investment-oriented products is also recognized to reflect the application of the benefit
ratio to the accumulated assessments that would have been recorded if fixed maturity and equity securities available for sale had
been sold at their stated aggregate fair value and the proceeds reinvested at current yields (collectively referred to as shadow
Investment-Oriented Adjustments).
For long-duration traditional products, significant unrealized appreciation of investments in a sustained low interest rate environment
may cause additional future policy benefit liabilities to be recorded (shadow loss reserves).
Deferred Gain on Retroactive Reinsurance Retroactive reinsurance is a reinsurance contract in which an assuming entity agrees
to reimburse a ceding entity for liabilities incurred as a result of past insurable events. If the amount of premium paid by the ceding
reinsurer is less than the related ceded loss reserves, the resulting gain is deferred and amortized over the settlement period of the
reserves. Any related development on the ceded loss reserves recoverable under the contract would increase the deferred gain if
unfavorable, or decrease the deferred gain if favorable.
Expense ratio Sum of acquisition expenses and general operating expenses, divided by net premiums earned.
General operating expense ratio General operating expenses divided by net premiums earned. General operating expenses are
those costs that are generally attributed to the support infrastructure of the organization and include but are not limited to personnel
costs, projects and bad debt expenses. General operating expenses exclude losses and loss adjustment expenses incurred,
acquisition expenses, and investment expenses.
GIC/GIA Guaranteed Investment Contract/Guaranteed Investment Agreement A contract whereby the seller provides a guaranteed
repayment of principal and a fixed or floating interest rate for a predetermined period of time.
G-SII Global Systemically Important Insurer An insurer that is deemed globally systemically important (that is, of such size, market
importance and global interconnectedness that the distress or failure of the insurer would cause significant dislocation in the global
financial system and adverse economic consequences across a range of countries) by the Financial Stability Board, in consultation
with and based on a methodology developed by the International Association of Insurance Supervisors.
IBNR Incurred But Not Reported Estimates of claims that have been incurred but not reported to us.
ISDA Master Agreement An agreement between two counterparties, which may have multiple derivative transactions with each
other governed by such agreement, that generally provides for the net settlement of all or a specified group of these derivative
transactions, as well as pledged collateral, through a single payment, in a single currency, in the event of a default on, or affecting
any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions.
LAE Loss Adjustment Expenses The expenses directly attributed to settling and paying claims of insureds and include, but are not
limited to, legal fees, adjusters fees and the portion of general expenses allocated to claim settlement costs.
Loss Ratio Losses and loss adjustment expenses incurred divided by net premiums earned.
Loss reserve development The increase or decrease in incurred losses and loss adjustment expenses related to prior years as a
result of the re-estimation of loss reserves at successive valuation dates for a given group of claims.
Loss reserves Liability for unpaid losses and loss adjustment expenses. The estimated ultimate cost of settling claims relating to
insured events that have occurred on or before the balance sheet date, whether or not reported to the insurer at that date.
Loan-to-Value Ratio Principal amount of loan amount divided by appraised value of collateral securing the loan.
Master netting agreement An agreement between two counterparties who have multiple derivative contracts with each other that
provides for the net settlement of all contracts covered by such agreement, as well as pledged collateral, through a single payment, in
a single currency, in the event of default on or upon termination of any one such contract.
Natural catastrophe and man-made losses are generally weather or seismic events having a net impact on AIG in excess of $10
million each and also include certain man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
Net premiums written represent the sales of an insurer, adjusted for reinsurance premiums assumed and ceded, during a given
period. Net premiums earned are the revenue of an insurer for covering risk during a given period. Net premiums written are a
measure of performance for a sales period, while Net premiums earned are a measure of performance for a coverage period.
Noncontrolling interest The portion of equity ownership in a consolidated subsidiary not attributable to the controlling parent
company.
Policy fees An amount added to a policy premium, or deducted from a policy cash value or contract holder account, to reflect the
cost of issuing a policy, establishing the required records, sending premium notices and other related expenses.
Pool A reinsurance arrangement whereby all of the underwriting results of the pool members are combined and then shared by each
member in accordance with its pool participation percentage.
Premiums and deposits Life and Retirement include direct and assumed amounts received on traditional life insurance policies
and group benefit policies, and deposits on life-contingent payout annuities, as well as deposits received on universal life, investment-
type annuity contracts and mutual funds.
Prior year development See Loss reserve development.
RBC Risk-Based Capital A formula designed to measure the adequacy of an insurers statutory surplus compared to the risks
inherent in its business.
Reinstatement premium Additional premiums payable to reinsurers to restore coverage limits that have been exhausted as a result
of reinsured losses under certain excess of loss reinsurance treaties.
Reinsurance The practice whereby one insurer, the reinsurer, in consideration of a premium paid to that insurer, agrees to indemnify
another insurer, the ceding company, for part or all of the liability of the ceding company under one or more policies or contracts of
insurance which it has issued.
Retroactive Reinsurance See Deferred Gain on Retroactive Reinsurance.
Return on equity Adjusted after-tax income excluding AOCI and DTA (Adjusted Return on Equity) is a non-GAAP measure
and is used to show the rate of return on shareholders equity. Adjusted Return on Equity is derived by dividing actual or annualized
adjusted after-tax income attributable to AIG by average Adjusted Shareholders Equity.
Return premium represents amounts given back to the insured in the case of a cancellation, an adjustment to the rate or an
overpayment of an advance premium.
Salvage The amount that can be recovered by an insurer for the sale of damaged goods for which a policyholder has been
indemnified (and to which title was transferred).
Severe losses are defined as non-catastrophic individual first-party losses, surety and trade credit losses greater than $10 million,
net of related reinsurance and salvage and subrogation.
SIA Sales Inducement Asset Represents enhanced crediting rates or bonus payments to contract holders on certain annuity and
investment contract products that meet the criteria to be deferred and amortized over the life of the contract.
Solvency II Legislation in the European Union which reforms the insurance industrys solvency framework, including minimum capital
and solvency requirements, governance requirements, risk management and public reporting standards. The Solvency II Directive
(2009/138/EEC) was adopted on November 25, 2009 and became effective on January 1, 2016.
Subrogation The amount of recovery for claims we have paid our policyholders, generally from a negligent third party or such partys
insurer.
Surrender charge A charge levied against an investor for the early withdrawal of funds from a life insurance or annuity contract, or
for the cancellation of the agreement.
Surrender rate represents annualized surrenders and withdrawals as a percentage of average reserves and Group Retirement
mutual fund assets under administration.
Unearned premium reserve Liabilities established by insurers and reinsurers to reflect unearned premiums, which are usually
refundable to policyholders if an insurance or reinsurance contract is canceled prior to expiration of the contract term.
VOBA Value of Business Acquired Present value of projected future gross profits from in-force policies of acquired businesses.
160
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
161
1011252ai_financials.indd 160
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 G l o s s a r y
G l o s s a r y
DAC Related to Unrealized Appreciation (Depreciation) of Investments An adjustment to DAC and Reserves for investment-
oriented products, equal to the change in DAC and Unearned Revenue amortization that would have been recorded if fixed maturity
Noncontrolling interest The portion of equity ownership in a consolidated subsidiary not attributable to the controlling parent
company.
and equity securities available for sale had been sold at their stated aggregate fair value and the proceeds reinvested at current
yields. An adjustment to benefit reserves for investment-oriented products is also recognized to reflect the application of the benefit
ratio to the accumulated assessments that would have been recorded if fixed maturity and equity securities available for sale had
been sold at their stated aggregate fair value and the proceeds reinvested at current yields (collectively referred to as shadow
Investment-Oriented Adjustments).
For long-duration traditional products, significant unrealized appreciation of investments in a sustained low interest rate environment
may cause additional future policy benefit liabilities to be recorded (shadow loss reserves).
Deferred Gain on Retroactive Reinsurance Retroactive reinsurance is a reinsurance contract in which an assuming entity agrees
Policy fees An amount added to a policy premium, or deducted from a policy cash value or contract holder account, to reflect the
cost of issuing a policy, establishing the required records, sending premium notices and other related expenses.
Pool A reinsurance arrangement whereby all of the underwriting results of the pool members are combined and then shared by each
member in accordance with its pool participation percentage.
Premiums and deposits Life and Retirement include direct and assumed amounts received on traditional life insurance policies
and group benefit policies, and deposits on life-contingent payout annuities, as well as deposits received on universal life, investment-
type annuity contracts and mutual funds.
to reimburse a ceding entity for liabilities incurred as a result of past insurable events. If the amount of premium paid by the ceding
Prior year development See Loss reserve development.
reinsurer is less than the related ceded loss reserves, the resulting gain is deferred and amortized over the settlement period of the
reserves. Any related development on the ceded loss reserves recoverable under the contract would increase the deferred gain if
unfavorable, or decrease the deferred gain if favorable.
Expense ratio Sum of acquisition expenses and general operating expenses, divided by net premiums earned.
General operating expense ratio General operating expenses divided by net premiums earned. General operating expenses are
those costs that are generally attributed to the support infrastructure of the organization and include but are not limited to personnel
costs, projects and bad debt expenses. General operating expenses exclude losses and loss adjustment expenses incurred,
acquisition expenses, and investment expenses.
GIC/GIA Guaranteed Investment Contract/Guaranteed Investment Agreement A contract whereby the seller provides a guaranteed
repayment of principal and a fixed or floating interest rate for a predetermined period of time.
G-SII Global Systemically Important Insurer An insurer that is deemed globally systemically important (that is, of such size, market
importance and global interconnectedness that the distress or failure of the insurer would cause significant dislocation in the global
financial system and adverse economic consequences across a range of countries) by the Financial Stability Board, in consultation
with and based on a methodology developed by the International Association of Insurance Supervisors.
IBNR Incurred But Not Reported Estimates of claims that have been incurred but not reported to us.
ISDA Master Agreement An agreement between two counterparties, which may have multiple derivative transactions with each
other governed by such agreement, that generally provides for the net settlement of all or a specified group of these derivative
transactions, as well as pledged collateral, through a single payment, in a single currency, in the event of a default on, or affecting
any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions.
LAE Loss Adjustment Expenses The expenses directly attributed to settling and paying claims of insureds and include, but are not
limited to, legal fees, adjusters fees and the portion of general expenses allocated to claim settlement costs.
Loss Ratio Losses and loss adjustment expenses incurred divided by net premiums earned.
Loss reserve development The increase or decrease in incurred losses and loss adjustment expenses related to prior years as a
result of the re-estimation of loss reserves at successive valuation dates for a given group of claims.
Loss reserves Liability for unpaid losses and loss adjustment expenses. The estimated ultimate cost of settling claims relating to
insured events that have occurred on or before the balance sheet date, whether or not reported to the insurer at that date.
Loan-to-Value Ratio Principal amount of loan amount divided by appraised value of collateral securing the loan.
Master netting agreement An agreement between two counterparties who have multiple derivative contracts with each other that
provides for the net settlement of all contracts covered by such agreement, as well as pledged collateral, through a single payment, in
a single currency, in the event of default on or upon termination of any one such contract.
Natural catastrophe and man-made losses are generally weather or seismic events having a net impact on AIG in excess of $10
million each and also include certain man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
Net premiums written represent the sales of an insurer, adjusted for reinsurance premiums assumed and ceded, during a given
period. Net premiums earned are the revenue of an insurer for covering risk during a given period. Net premiums written are a
measure of performance for a sales period, while Net premiums earned are a measure of performance for a coverage period.
RBC Risk-Based Capital A formula designed to measure the adequacy of an insurers statutory surplus compared to the risks
inherent in its business.
Reinstatement premium Additional premiums payable to reinsurers to restore coverage limits that have been exhausted as a result
of reinsured losses under certain excess of loss reinsurance treaties.
Reinsurance The practice whereby one insurer, the reinsurer, in consideration of a premium paid to that insurer, agrees to indemnify
another insurer, the ceding company, for part or all of the liability of the ceding company under one or more policies or contracts of
insurance which it has issued.
Retroactive Reinsurance See Deferred Gain on Retroactive Reinsurance.
Return on equity Adjusted after-tax income excluding AOCI and DTA (Adjusted Return on Equity) is a non-GAAP measure
and is used to show the rate of return on shareholders equity. Adjusted Return on Equity is derived by dividing actual or annualized
adjusted after-tax income attributable to AIG by average Adjusted Shareholders Equity.
Return premium represents amounts given back to the insured in the case of a cancellation, an adjustment to the rate or an
overpayment of an advance premium.
Salvage The amount that can be recovered by an insurer for the sale of damaged goods for which a policyholder has been
indemnified (and to which title was transferred).
Severe losses are defined as non-catastrophic individual first-party losses, surety and trade credit losses greater than $10 million,
net of related reinsurance and salvage and subrogation.
SIA Sales Inducement Asset Represents enhanced crediting rates or bonus payments to contract holders on certain annuity and
investment contract products that meet the criteria to be deferred and amortized over the life of the contract.
Solvency II Legislation in the European Union which reforms the insurance industrys solvency framework, including minimum capital
and solvency requirements, governance requirements, risk management and public reporting standards. The Solvency II Directive
(2009/138/EEC) was adopted on November 25, 2009 and became effective on January 1, 2016.
Subrogation The amount of recovery for claims we have paid our policyholders, generally from a negligent third party or such partys
insurer.
Surrender charge A charge levied against an investor for the early withdrawal of funds from a life insurance or annuity contract, or
for the cancellation of the agreement.
Surrender rate represents annualized surrenders and withdrawals as a percentage of average reserves and Group Retirement
mutual fund assets under administration.
Unearned premium reserve Liabilities established by insurers and reinsurers to reflect unearned premiums, which are usually
refundable to policyholders if an insurance or reinsurance contract is canceled prior to expiration of the contract term.
VOBA Value of Business Acquired Present value of projected future gross profits from in-force policies of acquired businesses.
160
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AIG | 2017 Form 10-K
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 A c r o n y m s
ITEM 7A | Quantitative and Qualitative Disclosures about Market Risk
Acronyms
A&H Accident and Health Insurance
GMWB Guaranteed Minimum Withdrawal Benefits
ABS Asset-Backed Securities
ISDA International Swaps and Derivatives Association, Inc.
CDO Collateralized Debt Obligations
Moody's Moody's Investors Service Inc.
CDS Credit Default Swap
NAIC National Association of Insurance Commissioners
CMA Capital Maintenance Agreement
NM Not Meaningful
CMBS Commercial Mortgage-Backed Securities
OTC Over-the-Counter
EGPs Estimated gross profits
OTTI Other-Than-Temporary Impairment
FASB Financial Accounting Standards Board
RMBS Residential Mortgage-Backed Securities
FRBNY Federal Reserve Bank of New York
S&P Standard & Poors Financial Services LLC
GAAP Accounting principles generally accepted in the United
States of America
SEC Securities and Exchange Commission
GMDB Guaranteed Minimum Death Benefits
URR Unearned revenue reserve
VIE Variable Interest Entity
ITEM 7A | Quantitative and Qualitative Disclosures about Market
Risk
The information required by this item is set forth in the Enterprise Risk Management section of Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.
162
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AIG | 2017 Form 10-K
163
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 A c r o n y m s
ITEM 7A | Quantitative and Qualitative Disclosures about Market Risk
ITEM 7A | Quantitative and Qualitative Disclosures about Market
Risk
The information required by this item is set forth in the Enterprise Risk Management section of Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.
Acronyms
A&H Accident and Health Insurance
GMWB Guaranteed Minimum Withdrawal Benefits
ABS Asset-Backed Securities
ISDA International Swaps and Derivatives Association, Inc.
CDO Collateralized Debt Obligations
Moody's Moody's Investors Service Inc.
CDS Credit Default Swap
NAIC National Association of Insurance Commissioners
CMA Capital Maintenance Agreement
NM Not Meaningful
CMBS Commercial Mortgage-Backed Securities
OTC Over-the-Counter
EGPs Estimated gross profits
OTTI Other-Than-Temporary Impairment
FASB Financial Accounting Standards Board
RMBS Residential Mortgage-Backed Securities
FRBNY Federal Reserve Bank of New York
S&P Standard & Poors Financial Services LLC
GAAP Accounting principles generally accepted in the United
SEC Securities and Exchange Commission
States of America
GMDB Guaranteed Minimum Death Benefits
URR Unearned revenue reserve
VIE Variable Interest Entity
162
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
163
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3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Part II
ITEM 8 | Financial Statements and Supplementary Data
AMERICAN INTERNATIONAL GROUP, INC.
REFERENCE TO FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
NOTE 1.
NOTE 2.
NOTE 3.
NOTE 4.
NOTE 5.
NOTE 6.
NOTE 7.
NOTE 8.
NOTE 9.
NOTE 10.
NOTE 11.
NOTE 12.
NOTE 13.
NOTE 14.
NOTE 15.
NOTE 16.
NOTE 17.
NOTE 18.
NOTE 19.
NOTE 20.
NOTE 21.
NOTE 22.
NOTE 23.
NOTE 24.
NOTE 25.
NOTE 26.
Schedules
SCHEDULE I
SCHEDULE II Condensed Financial Information of Registrant at December 31, 2017 and 2016 and for the years ended December 31,
Basis of Presentation
Summary of Significant Accounting Policies
Segment Information
Held-for-Sale Classification
Fair Value Measurements
Investments
Lending Activities
Reinsurance
Deferred Policy Acquisition Costs
Variable Interest Entities
Derivatives and Hedge Accounting
Goodwill
Insurance Liabilities
Variable Life and Annuity Contracts
Debt
Contingencies, Commitments and Guarantees
Equity
Earnings Per Share
Statutory Financial Data and Restrictions
Share-based and Other Compensation Plans
Employee Benefits
Ownership
Income Taxes
Quarterly Financial Information (Unaudited)
Information Provided in Connection With Outstanding Debt
Subsequent Events
Summary of Investments Other than Investments in Related Parties at December 31, 2017
2017, 2016 and 2015
SCHEDULE III Supplementary Insurance Information at December 31, 2017, 2016 and 2015 and for the years then ended
SCHEDULE IV Reinsurance at December 31, 2017, 2016 and 2015 and for the years then ended
SCHEDULE V Valuation and Qualifying Accounts at December 31, 2017, 2016 and 2015 and for the years then ended
ITEM 8 | Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of American International Group, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of American International Group, Inc. and its subsidiaries as of December
31, 2017 and 2016, and the related consolidated statements of income, comprehensive income (loss), equity, and cash flows for each of the
three years in the period ended December 31, 2017, including the related notes and financial statement schedules listed in the accompanying
index (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on
Internal Control over Financial Reporting appearing under Item 9A in the Annual Report on the Form 10-K. Our responsibility is to express
opinions on the Companys consolidated financial statements and on the Company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2018
We have served as the Companys auditor since 1980.
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181011252ai_financials_co8_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Part II
ITEM 8 | Financial Statements and Supplementary Data
AMERICAN INTERNATIONAL GROUP, INC.
REFERENCE TO FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Basis of Presentation
Summary of Significant Accounting Policies
Segment Information
Held-for-Sale Classification
Fair Value Measurements
Investments
Lending Activities
Reinsurance
Deferred Policy Acquisition Costs
Variable Interest Entities
Derivatives and Hedge Accounting
Goodwill
Insurance Liabilities
Variable Life and Annuity Contracts
Debt
Equity
Contingencies, Commitments and Guarantees
Earnings Per Share
Statutory Financial Data and Restrictions
Share-based and Other Compensation Plans
Employee Benefits
Ownership
Income Taxes
NOTE 1.
NOTE 2.
NOTE 3.
NOTE 4.
NOTE 5.
NOTE 6.
NOTE 7.
NOTE 8.
NOTE 9.
NOTE 10.
NOTE 11.
NOTE 12.
NOTE 13.
NOTE 14.
NOTE 15.
NOTE 16.
NOTE 17.
NOTE 18.
NOTE 19.
NOTE 20.
NOTE 21.
NOTE 22.
NOTE 23.
NOTE 24.
NOTE 25.
NOTE 26.
Quarterly Financial Information (Unaudited)
Information Provided in Connection With Outstanding Debt
Subsequent Events
Schedules
SCHEDULE I
Summary of Investments Other than Investments in Related Parties at December 31, 2017
SCHEDULE II Condensed Financial Information of Registrant at December 31, 2017 and 2016 and for the years ended December 31,
2017, 2016 and 2015
SCHEDULE III Supplementary Insurance Information at December 31, 2017, 2016 and 2015 and for the years then ended
SCHEDULE IV Reinsurance at December 31, 2017, 2016 and 2015 and for the years then ended
SCHEDULE V Valuation and Qualifying Accounts at December 31, 2017, 2016 and 2015 and for the years then ended
ITEM 8 | Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of American International Group, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of American International Group, Inc. and its subsidiaries as of December
31, 2017 and 2016, and the related consolidated statements of income, comprehensive income (loss), equity, and cash flows for each of the
three years in the period ended December 31, 2017, including the related notes and financial statement schedules listed in the accompanying
index (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on
Internal Control over Financial Reporting appearing under Item 9A in the Annual Report on the Form 10-K. Our responsibility is to express
opinions on the Companys consolidated financial statements and on the Company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2018
We have served as the Companys auditor since 1980.
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 American International Group, Inc.
Consolidated Balance Sheets
American International Group, Inc.
Consolidated Statements of Income
December 31,
December 31,
2017
2016
(dollars in millions, except per share data)
(in millions, except for share data)
Assets:
Investments:
Fixed maturity securities:
Bonds available for sale, at fair value (amortized cost: 2017 - $225,461; 2016 - $232,241)
$
238,992
$
Other bond securities, at fair value (See Note 6)
Equity Securities:
Common and preferred stock available for sale, at fair value (cost: 2017 - $1,305; 2016 - $1,697)
Other common and preferred stock, at fair value (See Note 6)
Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2017 - $5; 2016 - $11)
Other invested assets (portion measured at fair value: 2017 - $6,248; 2016 - $6,946)
Short-term investments (portion measured at fair value: 2017 - $2,615; 2016 - $3,341)
12,772
1,708
589
37,023
20,822
10,386
241,537
13,998
2,078
482
33,240
24,538
12,302
Total investments
Cash
Accrued investment income
Premiums and other receivables, net of allowance
Reinsurance assets, net of allowance
Deferred income taxes
Deferred policy acquisition costs
Other assets, including restricted cash of $317 in 2017 and $193 in 2016
(portion measured at fair value: 2017 - $922; 2016 - $1,809)
Separate account assets, at fair value
Assets held for sale
Total assets
Liabilities:
Liability for unpaid losses and loss adjustment expenses
Unearned premiums
Future policy benefits for life and accident and health insurance contracts
Policyholder contract deposits (portion measured at fair value: 2017 - $4,150; 2016 - $3,058)
Other policyholder funds (portion measured at fair value: 2017 - $0; 2016 - $5)
Other liabilities (portion measured at fair value: 2017 - $1,124; 2016 - $2,016)
Long-term debt (portion measured at fair value: 2017 - $2,888; 2016 - $3,428)
Separate account liabilities
Liabilities held for sale
Total liabilities
Contingencies, commitments and guarantees (see Note 16)
AIG shareholders equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2017 - 1,906,671,492 and
2016 - 1,906,671,492
Treasury stock, at cost; 2017 - 1,007,626,835; 2016 - 911,335,651 shares of common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total AIG shareholders equity
Non-redeemable noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
322,292
328,175
2,362
2,356
10,248
33,024
14,033
10,994
10,194
92,798
-
498,301
78,393
19,030
45,432
135,602
3,648
26,050
31,640
92,798
-
$
$
1,868
2,495
10,465
21,901
21,332
11,042
10,815
82,972
7,199
498,264
77,077
19,634
42,204
132,216
3,989
26,296
30,912
82,972
6,106
432,593
421,406
$
$
4,766
(47,595)
81,078
21,457
5,465
65,171
537
65,708
$
498,301
$
4,766
(41,471)
81,064
28,711
3,230
76,300
558
76,858
498,264
Revenues:
Premiums
Policy fees
Net investment income
Net realized capital gains (losses):
Total other-than-temporary impairments on available for sale securities
Portion of other-than-temporary impairments on available for sale
fixed maturity securities recognized in Other comprehensive income (loss)
Net other-than-temporary impairments on available for sale
securities recognized in net income (loss)
Other realized capital gains (losses)
Total net realized capital gains (losses)
Other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
(Gain) loss on extinguishment of debt
Net (gain) loss on sale of divested businesses
Total benefits, losses and expenses
Income (loss) from continuing operations before income tax expense
Income tax expense:
Current
Deferred
Income tax expense
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
Net income (loss)
Less:
Net income from continuing operations attributable to
noncontrolling interests
Net income (loss) attributable to AIG
Net income (loss) attributable to AIG common shareholders
Income (loss) per common share attributable to AIG:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss) attributable to AIG
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss) attributable to AIG
Weighted average shares outstanding:
Basic:
Diluted:
Basic
Diluted
Dividends declared per common share
See accompanying Notes to Consolidated Financial Statements.
Years Ended December 31,
2017
2016
2015
$
31,374 $
2,935
14,179
(196)
(31)
(227)
(1,153)
(1,380)
2,412
49,520
29,972
3,592
4,288
9,107
1,168
(5)
(68)
48,054
1,466
636
6,890
7,526
(6,060)
4
(6,056)
28
(6,084) $
(6,084) $
(6.54) $
- $
(6.54) $
(6.54) $
- $
(6.54) $
34,393 $
2,732
14,065
(458)
(29)
(487)
(1,457)
(1,944)
3,121
52,367
32,437
3,705
4,521
10,989
1,260
74
(545)
52,441
(74)
576
(391)
185
(259)
(90)
(349)
500
(849) $
(849) $
(0.70) $
(0.08) $
(0.78) $
(0.70) $
(0.08) $
(0.78) $
36,655
2,755
14,053
(556)
(35)
(591)
1,367
776
4,088
58,327
31,345
3,731
5,236
12,686
1,281
756
11
55,046
3,281
820
239
1,059
2,222
-
2,222
26
2,196
2,196
1.69
1.69
1.65
1.65
-
-
930,561,286
930,561,286
1,091,085,131
1,299,825,350
1,091,085,131
1,334,464,883
1.28 $
1.28 $
0.81
$
$
$
$
$
$
$
$
$
166
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
167
1011252ai_financials.indd 166
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 American International Group, Inc.
Consolidated Balance Sheets
(in millions, except for share data)
Assets:
Investments:
Fixed maturity securities:
Bonds available for sale, at fair value (amortized cost: 2017 - $225,461; 2016 - $232,241)
$
238,992
$
Other bond securities, at fair value (See Note 6)
Equity Securities:
Common and preferred stock available for sale, at fair value (cost: 2017 - $1,305; 2016 - $1,697)
Other common and preferred stock, at fair value (See Note 6)
Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2017 - $5; 2016 - $11)
Other invested assets (portion measured at fair value: 2017 - $6,248; 2016 - $6,946)
Short-term investments (portion measured at fair value: 2017 - $2,615; 2016 - $3,341)
Total investments
Cash
Accrued investment income
Premiums and other receivables, net of allowance
Reinsurance assets, net of allowance
Deferred income taxes
Deferred policy acquisition costs
Other assets, including restricted cash of $317 in 2017 and $193 in 2016
(portion measured at fair value: 2017 - $922; 2016 - $1,809)
Separate account assets, at fair value
Assets held for sale
Total assets
Liabilities:
Unearned premiums
Liability for unpaid losses and loss adjustment expenses
Future policy benefits for life and accident and health insurance contracts
Policyholder contract deposits (portion measured at fair value: 2017 - $4,150; 2016 - $3,058)
Other policyholder funds (portion measured at fair value: 2017 - $0; 2016 - $5)
Other liabilities (portion measured at fair value: 2017 - $1,124; 2016 - $2,016)
Long-term debt (portion measured at fair value: 2017 - $2,888; 2016 - $3,428)
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2017 - 1,906,671,492 and
Treasury stock, at cost; 2017 - 1,007,626,835; 2016 - 911,335,651 shares of common stock
Separate account liabilities
Liabilities held for sale
Total liabilities
AIG shareholders equity:
2016 - 1,906,671,492
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total AIG shareholders equity
Non-redeemable noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
$
$
$
$
12,772
1,708
589
37,023
20,822
10,386
2,362
2,356
10,248
33,024
14,033
10,994
10,194
92,798
-
498,301
78,393
19,030
45,432
135,602
3,648
26,050
31,640
92,798
-
4,766
(47,595)
81,078
21,457
5,465
65,171
537
65,708
December 31,
December 31,
2017
2016
241,537
13,998
2,078
482
33,240
24,538
12,302
322,292
328,175
1,868
2,495
10,465
21,901
21,332
11,042
10,815
82,972
7,199
498,264
77,077
19,634
42,204
132,216
3,989
26,296
30,912
82,972
6,106
Contingencies, commitments and guarantees (see Note 16)
432,593
421,406
4,766
(41,471)
81,064
28,711
3,230
76,300
558
76,858
498,264
$
498,301
$
American International Group, Inc.
Consolidated Statements of Income
(dollars in millions, except per share data)
Revenues:
Premiums
Policy fees
Net investment income
Net realized capital gains (losses):
Total other-than-temporary impairments on available for sale securities
Portion of other-than-temporary impairments on available for sale
fixed maturity securities recognized in Other comprehensive income (loss)
Net other-than-temporary impairments on available for sale
securities recognized in net income (loss)
Other realized capital gains (losses)
Total net realized capital gains (losses)
Other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits and losses incurred
Interest credited to policyholder account balances
Amortization of deferred policy acquisition costs
General operating and other expenses
Interest expense
(Gain) loss on extinguishment of debt
Net (gain) loss on sale of divested businesses
Total benefits, losses and expenses
Income (loss) from continuing operations before income tax expense
Income tax expense:
Current
Deferred
Income tax expense
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
Net income (loss)
Less:
Net income from continuing operations attributable to
noncontrolling interests
Net income (loss) attributable to AIG
Net income (loss) attributable to AIG common shareholders
Income (loss) per common share attributable to AIG:
Basic:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss) attributable to AIG
Diluted:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss) attributable to AIG
Weighted average shares outstanding:
Basic
Diluted
Dividends declared per common share
See accompanying Notes to Consolidated Financial Statements.
Years Ended December 31,
2017
2016
2015
$
31,374 $
2,935
14,179
34,393 $
2,732
14,065
(196)
(31)
(227)
(1,153)
(1,380)
2,412
49,520
29,972
3,592
4,288
9,107
1,168
(5)
(68)
48,054
1,466
636
6,890
7,526
(6,060)
4
(6,056)
28
(6,084) $
(6,084) $
(6.54) $
- $
(6.54) $
(6.54) $
- $
(6.54) $
(458)
(29)
(487)
(1,457)
(1,944)
3,121
52,367
32,437
3,705
4,521
10,989
1,260
74
(545)
52,441
(74)
576
(391)
185
(259)
(90)
(349)
500
(849) $
(849) $
(0.70) $
(0.08) $
(0.78) $
(0.70) $
(0.08) $
(0.78) $
36,655
2,755
14,053
(556)
(35)
(591)
1,367
776
4,088
58,327
31,345
3,731
5,236
12,686
1,281
756
11
55,046
3,281
820
239
1,059
2,222
-
2,222
26
2,196
2,196
1.69
-
1.69
1.65
-
1.65
930,561,286
930,561,286
1,091,085,131
1,091,085,131
1,299,825,350
1,334,464,883
1.28 $
1.28 $
0.81
$
$
$
$
$
$
$
$
$
166
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
167
1011252ai_financials.indd 167
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 American International Group, Inc.
Consolidated Statements of Comprehensive Income (Loss)
American International Group, Inc.
Consolidated Statements of Equity
(in millions)
Net income (loss)
Other comprehensive income (loss), net of tax
Change in unrealized appreciation (depreciation) of fixed maturity securities on
which other-than-temporary credit impairments were taken
Change in unrealized appreciation (depreciation) of all other investments
Change in foreign currency translation adjustments
Change in retirement plan liabilities adjustment
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interests
Comprehensive loss attributable to AIG
See accompanying Notes to Consolidated Financial Statements.
Years Ended December 31,
2017
(6,056) $
$
2016
(349) $
2015
2,222
367
1,288
539
41
2,235
(3,821)
28
(3,849) $
$
(347)
(270)
(6,762)
839
(1,100)
250
123
(126)
(8,086)
693
(5,864)
344
500
20
(156) $ (5,884)
(in millions)
Balance, January 1, 2015
Common stock issued under stock plans
Purchase of common stock
Net income attributable to AIG or other
noncontrolling interests
Dividends
Other comprehensive loss
Deferred income taxes
Net increase due to acquisition and consolidations
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Balance, December 31, 2015
$
4,766 $ (30,098) $
81,510 $
30,943 $
2,537 $
89,658 $
552 $
90,210
Common stock issued under stock plans
Purchase of common stock
Net income (loss) attributable to AIG or other
noncontrolling interests
Dividends
Other comprehensive income (loss)
Current and deferred income taxes
Net increase due to acquisition and consolidations
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Balance, December 31, 2016
$
4,766 $ (41,471) $
81,064 $
28,711 $
3,230 $
76,300 $
558 $
76,858
Common stock issued under stock plans
Purchase of common stock
Net income (loss) attributable to AIG or
noncontrolling interests
Dividends
Other comprehensive income (loss)
Current and deferred income taxes
Net increase due to acquisitions and consolidations
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Balance, December 31, 2017
$
4,766 $ (47,595) $
81,078 $
21,457 $
5,465 $
65,171 $
537 $
65,708
See accompanying Notes to Consolidated Financial Statements.
Additional
Other
Share-
Non-
Accumulated
Total AIG redeemable
Common
Treasury
Paid-in
Retained Comprehensive
holders'
controlling
Stock
Stock
Capital
Earnings
Income
Equity
Interests
$
4,766 $ (19,218) $
80,958 $
29,775 $
10,617 $ 106,898 $
374 $ 107,272
13
(13)
(10,895)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,196
(1,028)
(8,080)
(9)
574
(208)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
1
-
-
-
-
-
-
-
4
86
(175)
(11,460)
(849)
(1,372)
693
(63)
(11)
147
(325)
(6,275)
(6,084)
(1,172)
2,235
(4)
(10,895)
2,196
(1,028)
(8,080)
(9)
576
(89)
(11,460)
(849)
(1,372)
693
(208)
(73)
(178)
(6,275)
(6,084)
(1,172)
2,235
(4)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
343
2
349
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Non-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26
(6)
231
(82)
1
8
500
43
22
11
(570)
28
101
42
(193)
1
Total
Equity
-
(10,895)
2,222
(1,028)
(8,086)
(9)
231
1
(82)
584
(89)
(11,460)
(349)
(1,372)
693
(208)
43
22
(570)
(62)
(178)
(6,275)
(6,056)
(1,172)
2,235
(4)
101
42
(193)
350
168
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
169
1011252ai_financials.indd 168
3/9/18 6:10 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 American International Group, Inc.
Consolidated Statements of Comprehensive Income (Loss)
American International Group, Inc.
Consolidated Statements of Equity
(in millions)
Net income (loss)
Other comprehensive income (loss), net of tax
Change in unrealized appreciation (depreciation) of fixed maturity securities on
which other-than-temporary credit impairments were taken
Change in unrealized appreciation (depreciation) of all other investments
Change in foreign currency translation adjustments
Change in retirement plan liabilities adjustment
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interests
Comprehensive loss attributable to AIG
See accompanying Notes to Consolidated Financial Statements.
Years Ended December 31,
2017
2016
2015
$
(6,056) $
(349) $
2,222
367
1,288
539
41
2,235
(3,821)
28
(270)
839
250
(126)
693
344
500
(347)
(6,762)
(1,100)
123
(8,086)
(5,864)
20
$
(3,849) $
(156) $ (5,884)
(in millions)
Balance, January 1, 2015
Common stock issued under stock plans
Purchase of common stock
Net income attributable to AIG or other
noncontrolling interests
Dividends
Other comprehensive loss
Deferred income taxes
Net increase due to acquisition and consolidations
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Accumulated
Total AIG redeemable
Non-
Additional
Other
Share-
Non-
Common
Treasury
Paid-in
Retained Comprehensive
holders'
controlling
Stock
Stock
Capital
Earnings
Income
Equity
Interests
Total
Equity
$
4,766 $ (19,218) $
80,958 $
29,775 $
10,617 $ 106,898 $
374 $ 107,272
-
-
-
-
-
-
-
-
-
-
13
(13)
(10,895)
-
-
-
-
-
-
-
2
-
-
-
-
(9)
-
-
-
574
-
-
2,196
(1,028)
-
-
-
-
-
-
-
-
-
-
(8,080)
-
-
-
-
-
-
(10,895)
-
-
-
(10,895)
2,196
(1,028)
(8,080)
(9)
-
-
-
576
26
-
(6)
-
231
1
(82)
8
2,222
(1,028)
(8,086)
(9)
231
1
(82)
584
Balance, December 31, 2015
$
4,766 $ (30,098) $
81,510 $
30,943 $
2,537 $
89,658 $
552 $
90,210
86
(175)
Common stock issued under stock plans
Purchase of common stock
Net income (loss) attributable to AIG or other
noncontrolling interests
Dividends
Other comprehensive income (loss)
Current and deferred income taxes
Net increase due to acquisition and consolidations
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
-
-
-
-
-
-
-
-
-
-
(11,460)
-
-
-
-
-
-
-
1
-
-
-
-
(208)
-
-
-
-
-
(849)
(1,372)
-
-
-
-
-
(63)
(11)
-
-
-
-
693
-
-
-
-
-
(89)
(11,460)
-
-
(89)
(11,460)
(849)
(1,372)
693
(208)
-
-
-
(73)
500
-
-
-
43
22
(570)
11
(349)
(1,372)
693
(208)
43
22
(570)
(62)
Balance, December 31, 2016
$
4,766 $ (41,471) $
81,064 $
28,711 $
3,230 $
76,300 $
558 $
76,858
Common stock issued under stock plans
Purchase of common stock
Net income (loss) attributable to AIG or
noncontrolling interests
Dividends
Other comprehensive income (loss)
Current and deferred income taxes
Net increase due to acquisitions and consolidations
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
-
-
-
-
-
-
-
-
-
-
147
(325)
(6,275)
-
-
-
-
-
-
-
4
-
-
-
-
(4)
-
-
-
343
-
-
(6,084)
(1,172)
-
-
-
-
-
2
-
-
-
-
2,235
-
-
-
-
-
(178)
(6,275)
(6,084)
(1,172)
2,235
(4)
-
-
-
349
-
-
28
-
-
-
101
42
(193)
1
(178)
(6,275)
(6,056)
(1,172)
2,235
(4)
101
42
(193)
350
Balance, December 31, 2017
$
4,766 $ (47,595) $
81,078 $
21,457 $
5,465 $
65,171 $
537 $
65,708
See accompanying Notes to Consolidated Financial Statements.
168
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
169
1011252ai_financials.indd 169
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Years Ended December 31,
2017
2016
2015
$
$
$
$
$
1,282 $
544 $
1,331 $
493 $
3,309 $
3,430 $
- $
- $
- $
1,101 $
1,368
511
3,676
500
-
American International Group, Inc.
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities:
Net income (loss)
(Income) loss from discontinued operations
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
Noncash revenues, expenses, gains and losses included in income (loss):
Net gains on sales of securities available for sale and other assets
Net (gains) losses on sales of divested businesses
(Gains) losses on extinguishment of debt
Unrealized (gains) losses in earnings net
Equity in income from equity method investments, net of dividends or distributions
Depreciation and other amortization
Impairments of assets
Changes in operating assets and liabilities:
Insurance reserves
Premiums and other receivables and payables net
Reinsurance assets, net of allowance
Capitalization of deferred policy acquisition costs
Current and deferred income taxes net
Other, net
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Proceeds from (payments for)
Sales or distributions of:
Available for sale securities
Other securities
Other invested assets
Divested businesses, net
Maturities of fixed maturity securities available for sale
Principal payments received on and sales of mortgage and other loans receivable
Purchases of:
Available for sale securities
Other securities
Other invested assets
Mortgage and other loans receivable
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash provided by investing activities
Cash flows from financing activities:
Proceeds from (payments for)
Policyholder contract deposits
Policyholder contract withdrawals
Issuance of long-term debt
Repayments of long-term debt
Purchase of common stock
Dividends paid
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
American International Group, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
2017
2016
2015
Supplementary Disclosure of Consolidated Cash Flow Information
$
(6,056) $
(4)
(349) $
90
2,222
-
(in millions)
Cash paid during the period for:
Interest
Taxes
Non-cash investing/financing activities:
Interest credited to policyholder contract deposits included in financing activities
Non-cash consideration received from sale of AerCap
Non-cash consideration received from sale of United Guaranty
See accompanying Notes to Consolidated Financial Statements.
(431)
(68)
(5)
79
(401)
3,874
685
2,637
410
(10,870)
(4,819)
6,981
(597)
(2,525)
(8,585)
31,082
3,792
7,664
792
29,011
5,742
(49,856)
(1,147)
(2,874)
(9,369)
(121)
2,098
(2,143)
14,671
(2,033)
(545)
74
1,465
(54)
4,090
1,116
5,325
536
(1,804)
(5,216)
(308)
(4)
2,642
2,383
30,103
4,164
9,554
2,809
25,749
6,074
(54,978)
(935)
(3,421)
(10,651)
385
(3,089)
(1,020)
4,744
17,908
(15,785)
3,356
(3,698)
(6,275)
(1,172)
(31)
(5,697)
(28)
361
1,868
133
2,362 $
18,100
(14,041)
5,954
(4,082)
(11,460)
(1,372)
68
(6,833)
52
346
1,629
(107)
1,868 $
$
(1,111)
11
756
(522)
(481)
4,629
1,500
1,645
(70)
1,525
(5,808)
548
(1,967)
655
2,877
28,721
6,055
8,002
-
24,734
5,104
(48,848)
(2,704)
(3,573)
(10,140)
1,457
1,163
(1,509)
8,462
17,029
(14,619)
6,867
(9,805)
(10,691)
(1,028)
818
(11,429)
(39)
(129)
1,758
-
1,629
170
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
171
1011252ai_financials.indd 170
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 American International Group, Inc.
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities:
Net income (loss)
(Income) loss from discontinued operations
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
Noncash revenues, expenses, gains and losses included in income (loss):
Net gains on sales of securities available for sale and other assets
Equity in income from equity method investments, net of dividends or distributions
American International Group, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
2017
2016
2015
Supplementary Disclosure of Consolidated Cash Flow Information
$
(6,056) $
(349) $
2,222
(4)
90
-
(in millions)
Cash paid during the period for:
Interest
Taxes
Non-cash investing/financing activities:
Interest credited to policyholder contract deposits included in financing activities
Non-cash consideration received from sale of AerCap
Non-cash consideration received from sale of United Guaranty
See accompanying Notes to Consolidated Financial Statements.
Years Ended December 31,
2017
2016
2015
$
$
$
$
$
1,282 $
544 $
1,331 $
493 $
3,309 $
- $
- $
3,430 $
- $
1,101 $
1,368
511
3,676
500
-
Maturities of fixed maturity securities available for sale
Principal payments received on and sales of mortgage and other loans receivable
Net (gains) losses on sales of divested businesses
(Gains) losses on extinguishment of debt
Unrealized (gains) losses in earnings net
Depreciation and other amortization
Impairments of assets
Changes in operating assets and liabilities:
Insurance reserves
Premiums and other receivables and payables net
Reinsurance assets, net of allowance
Capitalization of deferred policy acquisition costs
Current and deferred income taxes net
Other, net
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Proceeds from (payments for)
Sales or distributions of:
Available for sale securities
Other securities
Other invested assets
Divested businesses, net
Purchases of:
Available for sale securities
Other securities
Other invested assets
Mortgage and other loans receivable
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash provided by investing activities
Cash flows from financing activities:
Proceeds from (payments for)
Policyholder contract deposits
Policyholder contract withdrawals
Issuance of long-term debt
Repayments of long-term debt
Purchase of common stock
Dividends paid
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
(431)
(68)
(5)
79
(401)
3,874
685
2,637
410
(10,870)
(4,819)
6,981
(597)
(2,525)
(8,585)
31,082
3,792
7,664
792
29,011
5,742
(1,147)
(2,874)
(9,369)
(121)
2,098
(2,143)
14,671
17,908
(15,785)
3,356
(3,698)
(6,275)
(1,172)
(31)
(5,697)
(28)
361
1,868
133
(2,033)
(545)
74
1,465
(54)
4,090
1,116
5,325
536
(1,804)
(5,216)
(308)
(4)
2,642
2,383
30,103
4,164
9,554
2,809
25,749
6,074
(935)
(3,421)
(10,651)
385
(3,089)
(1,020)
4,744
18,100
(14,041)
5,954
(4,082)
(11,460)
(1,372)
68
52
346
1,629
(107)
(1,111)
11
756
(522)
(481)
4,629
1,500
1,645
(70)
1,525
(5,808)
548
(1,967)
655
2,877
28,721
6,055
8,002
-
24,734
5,104
(2,704)
(3,573)
(10,140)
1,457
1,163
(1,509)
8,462
17,029
(14,619)
6,867
(9,805)
(10,691)
(1,028)
818
(39)
(129)
1,758
-
(49,856)
(54,978)
(48,848)
(6,833)
(11,429)
$
2,362 $
1,868 $
1,629
170
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
171
1011252ai_financials.indd 171
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 1. B as is o f P re se n t at io n
ITEM 8 | Notes to Consolidated Financial Statements | 1. B as is o f P re se n t at io n
1. Basis of Presentation
American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 80 countries and
jurisdictions. AIG companies serve commercial and individual customers through one of the most extensive worldwide
property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services
in the United States. AIG Common Stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange
(NYSE: AIG) and the Tokyo Stock Exchange. Unless the context indicates otherwise, the terms AIG, we, us or our mean
American International Group, Inc. and its consolidated subsidiaries and the term AIG Parent means American International
Group, Inc. and not any of its consolidated subsidiaries.
The consolidated financial statements include the accounts of AIG Parent, our controlled subsidiaries (generally through a greater
than 50 percent ownership of voting rights and voting interests), and variable interest entities (VIEs) of which we are the primary
beneficiary. Equity investments in entities that we do not consolidate, including corporate entities in which we have significant
influence and partnership and partnership-like entities in which we have more than minor influence over the operating and financial
policies, are accounted for under the equity method unless we have elected the fair value option.
Certain of our foreign subsidiaries included in the Consolidated Financial Statements report on different fiscal-period bases. The effect
on our consolidated financial condition and results of operations of all material events occurring at these subsidiaries through the date
of each of the periods presented in these Consolidated Financial Statements has been considered for adjustment and/or disclosure.
Ascot
On September 16, 2016, we entered into an agreement to sell our 20 percent interest in Ascot Underwriting Holdings Ltd. and our 100
percent interest in the related syndicate-funding subsidiary Ascot Corporate Name Ltd. to Canada Pension Plan Investment Board
(CPPIB). Total consideration for the transaction was $1.1 billion resulting in a pre-tax gain of approximately $162 million attributable to
AIGs controlling interest, inclusive of CPPIBs recapitalization of Syndicate 1414s Funds at Lloyds (FAL) capital requirements. The
transaction closed on November 18, 2016, and we received approximately $244 million in net cash proceeds.
Korea Fund
On November 17, 2016, an AIG sponsored Fund (the Korea Fund), completed the sale of mixed-use commercial complex in Seoul,
South Korea commonly known as the Seoul International Finance Center to Brookfield Properties for a total consideration of $2.5
billion, of which $1.2 billion was used to repay the funds debt. The sale resulted in a pre-tax gain of $1.1 billion included in Other
Income, of which $464 million was attributable to AIGs controlling interest.
NSM
On August 31, 2016, we sold our controlling interest in NSM Insurance Group LLC (NSM), a managing general agent to ABRY
Partners, a private equity firm, for consideration of $201 million resulting in a pre-tax gain of approximately $105 million in the third
quarter of 2016. We retained an equity interest in a newly formed joint venture and will continue to provide underwriting capacity to
NSM.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (GAAP). All material intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
SALES OF BUSINESSES
Sale of Certain Insurance Subsidiary Operations to Fairfax
On October 18, 2016, we entered into agreements to sell certain insurance operations to Fairfax Financial Holdings Limited (Fairfax).
The agreements include the sale of our subsidiary operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey. Fairfax
will also acquire renewal rights for the portfolios of local business written by our operations in Bulgaria, the Czech Republic, Hungary,
Poland, Romania and Slovakia, and assume certain of our operating assets and employees. Total cash consideration to us is
expected to be approximately $234 million. The transaction is closing on a country-by-country basis as the regulatory approvals are
obtained.
Republic, Hungary, Poland and Slovakia were completed, which resulted in total cash proceeds of $48 million. In the third quarter of
2017, the sale of the operations in Colombia, Chile and Argentina were completed, which resulted in cash proceeds of $168 million.
Substantially all of the operations and renewal rights that we agreed to sell Fairfax were sold by December 31, 2017.
In the second quarter of 2017, the sale of operations in Turkey as well as the renewal rights in Bulgaria, the Czech
AIG Fuji Life Insurance
On November 14, 2016, we entered into an agreement to sell Fuji Life to FWD Group, the insurance arm of Pacific Century Group.
Total cash consideration to us was approximately $333 million. The transaction closed on April 30, 2017.
United Guaranty
On December 31, 2016, we sold our 100 percent interest in United Guaranty Corporation (United Guaranty) and certain related
affiliates to Arch Capital Group Ltd. (Arch) for total consideration of $3.3 billion, consisting of $2.2 billion of cash and approximately
$1.1 billion of newly issued Arch convertible non-voting common-equivalent preferred stock and reported a pre-tax gain of
approximately $697 million. We also received $261 million in pre-closing dividends from United Guaranty in the fourth quarter of 2016.
However, due to pending regulatory approvals, United Guaranty Asia was not included in the December 31, 2016 closing and $40
million of cash consideration was retained by Arch. The sale of United Guaranty Asia was completed on July 1, 2017 and we received
the $40 million cash proceeds.
Concurrent with the closing, we entered into reinsurance agreements with Arch, including an amended and restated 50 percent quota
share reinsurance agreement and an aggregate excess of loss reinsurance agreement, pursuant to which we will continue to be
exposed to certain United Guaranty policies written between 2009 and 2016.
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a
significant degree of judgment. Accounting policies that we believe are most dependent on the application of estimates and
assumptions are considered our critical accounting estimates and are related to the determination of:
liability for unpaid losses and loss adjustment expenses (loss reserves);
reinsurance assets;
valuation of future policy benefit liabilities and timing and extent of loss recognition;
valuation of liabilities for guaranteed benefit features of variable annuity products;
estimated gross profits to value deferred policy acquisition costs for investment-oriented products;
impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested
assets, including investments in life settlements, and goodwill impairment;
allowances for loan losses;
liability for legal contingencies;
fair value measurements of certain financial assets and liabilities; and
income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating
profitability of the character necessary to realize the net deferred tax asset and provisional estimates associated with the Tax Act.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of
operations and cash flows could be materially affected.
OUT OF PERIOD ADJUSTMENTS
For the year ended December 31, 2016, we recorded out of period adjustments relating to prior years that increased Net loss
attributable to AIG by $174 million, increased Loss from continuing operations before income taxes by $57 million and decreased
adjusted pre-tax income by $6 million. The out of period adjustments are primarily related to income tax liabilities and ceded loss
adjustment expenses. Had these adjustments, which were determined not to be material, been recorded in their appropriate periods,
Net Income attributable to AIG for the years ended December 31, 2015 and 2014 would have decreased by $67 million and $12
million, respectively.
For the year ended December 31, 2015, we recorded out of period adjustments relating to prior years that decreased Net income
attributable to AIG by $156 million, decreased Income from continuing operations before income taxes by $376 million and decreased
adjusted pre-tax income by $235 million. The out of period adjustments are primarily related to impairments of Other invested assets
172
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
173
1011252ai_financials.indd 172
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 1. B as is o f P re se n t at io n
ITEM 8 | Notes to Consolidated Financial Statements | 1. B as is o f P re se n t at io n
1. Basis of Presentation
American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 80 countries and
jurisdictions. AIG companies serve commercial and individual customers through one of the most extensive worldwide
property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services
in the United States. AIG Common Stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange
(NYSE: AIG) and the Tokyo Stock Exchange. Unless the context indicates otherwise, the terms AIG, we, us or our mean
American International Group, Inc. and its consolidated subsidiaries and the term AIG Parent means American International
Group, Inc. and not any of its consolidated subsidiaries.
The consolidated financial statements include the accounts of AIG Parent, our controlled subsidiaries (generally through a greater
than 50 percent ownership of voting rights and voting interests), and variable interest entities (VIEs) of which we are the primary
beneficiary. Equity investments in entities that we do not consolidate, including corporate entities in which we have significant
Ascot
On September 16, 2016, we entered into an agreement to sell our 20 percent interest in Ascot Underwriting Holdings Ltd. and our 100
percent interest in the related syndicate-funding subsidiary Ascot Corporate Name Ltd. to Canada Pension Plan Investment Board
(CPPIB). Total consideration for the transaction was $1.1 billion resulting in a pre-tax gain of approximately $162 million attributable to
AIGs controlling interest, inclusive of CPPIBs recapitalization of Syndicate 1414s Funds at Lloyds (FAL) capital requirements. The
transaction closed on November 18, 2016, and we received approximately $244 million in net cash proceeds.
Korea Fund
On November 17, 2016, an AIG sponsored Fund (the Korea Fund), completed the sale of mixed-use commercial complex in Seoul,
South Korea commonly known as the Seoul International Finance Center to Brookfield Properties for a total consideration of $2.5
billion, of which $1.2 billion was used to repay the funds debt. The sale resulted in a pre-tax gain of $1.1 billion included in Other
Income, of which $464 million was attributable to AIGs controlling interest.
influence and partnership and partnership-like entities in which we have more than minor influence over the operating and financial
NSM
policies, are accounted for under the equity method unless we have elected the fair value option.
Certain of our foreign subsidiaries included in the Consolidated Financial Statements report on different fiscal-period bases. The effect
on our consolidated financial condition and results of operations of all material events occurring at these subsidiaries through the date
of each of the periods presented in these Consolidated Financial Statements has been considered for adjustment and/or disclosure.
On August 31, 2016, we sold our controlling interest in NSM Insurance Group LLC (NSM), a managing general agent to ABRY
Partners, a private equity firm, for consideration of $201 million resulting in a pre-tax gain of approximately $105 million in the third
quarter of 2016. We retained an equity interest in a newly formed joint venture and will continue to provide underwriting capacity to
NSM.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (GAAP). All material intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a
significant degree of judgment. Accounting policies that we believe are most dependent on the application of estimates and
assumptions are considered our critical accounting estimates and are related to the determination of:
On October 18, 2016, we entered into agreements to sell certain insurance operations to Fairfax Financial Holdings Limited (Fairfax).
The agreements include the sale of our subsidiary operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey. Fairfax
will also acquire renewal rights for the portfolios of local business written by our operations in Bulgaria, the Czech Republic, Hungary,
Poland, Romania and Slovakia, and assume certain of our operating assets and employees. Total cash consideration to us is
liability for unpaid losses and loss adjustment expenses (loss reserves);
reinsurance assets;
valuation of future policy benefit liabilities and timing and extent of loss recognition;
valuation of liabilities for guaranteed benefit features of variable annuity products;
expected to be approximately $234 million. The transaction is closing on a country-by-country basis as the regulatory approvals are
estimated gross profits to value deferred policy acquisition costs for investment-oriented products;
SALES OF BUSINESSES
Sale of Certain Insurance Subsidiary Operations to Fairfax
obtained.
In the second quarter of 2017, the sale of operations in Turkey as well as the renewal rights in Bulgaria, the Czech
Republic, Hungary, Poland and Slovakia were completed, which resulted in total cash proceeds of $48 million. In the third quarter of
2017, the sale of the operations in Colombia, Chile and Argentina were completed, which resulted in cash proceeds of $168 million.
Substantially all of the operations and renewal rights that we agreed to sell Fairfax were sold by December 31, 2017.
On November 14, 2016, we entered into an agreement to sell Fuji Life to FWD Group, the insurance arm of Pacific Century Group.
Total cash consideration to us was approximately $333 million. The transaction closed on April 30, 2017.
AIG Fuji Life Insurance
United Guaranty
On December 31, 2016, we sold our 100 percent interest in United Guaranty Corporation (United Guaranty) and certain related
affiliates to Arch Capital Group Ltd. (Arch) for total consideration of $3.3 billion, consisting of $2.2 billion of cash and approximately
$1.1 billion of newly issued Arch convertible non-voting common-equivalent preferred stock and reported a pre-tax gain of
approximately $697 million. We also received $261 million in pre-closing dividends from United Guaranty in the fourth quarter of 2016.
However, due to pending regulatory approvals, United Guaranty Asia was not included in the December 31, 2016 closing and $40
million of cash consideration was retained by Arch. The sale of United Guaranty Asia was completed on July 1, 2017 and we received
the $40 million cash proceeds.
Concurrent with the closing, we entered into reinsurance agreements with Arch, including an amended and restated 50 percent quota
share reinsurance agreement and an aggregate excess of loss reinsurance agreement, pursuant to which we will continue to be
exposed to certain United Guaranty policies written between 2009 and 2016.
impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested
assets, including investments in life settlements, and goodwill impairment;
allowances for loan losses;
liability for legal contingencies;
fair value measurements of certain financial assets and liabilities; and
income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating
profitability of the character necessary to realize the net deferred tax asset and provisional estimates associated with the Tax Act.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of
operations and cash flows could be materially affected.
OUT OF PERIOD ADJUSTMENTS
For the year ended December 31, 2016, we recorded out of period adjustments relating to prior years that increased Net loss
attributable to AIG by $174 million, increased Loss from continuing operations before income taxes by $57 million and decreased
adjusted pre-tax income by $6 million. The out of period adjustments are primarily related to income tax liabilities and ceded loss
adjustment expenses. Had these adjustments, which were determined not to be material, been recorded in their appropriate periods,
Net Income attributable to AIG for the years ended December 31, 2015 and 2014 would have decreased by $67 million and $12
million, respectively.
For the year ended December 31, 2015, we recorded out of period adjustments relating to prior years that decreased Net income
attributable to AIG by $156 million, decreased Income from continuing operations before income taxes by $376 million and decreased
adjusted pre-tax income by $235 million. The out of period adjustments are primarily related to impairments of Other invested assets
172
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
173
1011252ai_financials.indd 173
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 1. B as is o f P re se n t at io n
ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
and changes in loss reserves and income tax liabilities. Had these adjustments, which were determined not to be material, been
recorded in their appropriate periods, Net income attributable to AIG for the year ended December 31, 2014 would have decreased by
$51 million.
2. Summary of Significant Accounting Policies
The following table identifies our significant accounting policies presented in other Notes to these Consolidated Financial Statements,
with a reference to the Note where a detailed description can be found:
Note 6.
Fixed maturity and equity securities
Investments
Other invested assets
Short-term investments
Net investment income
Net realized capital gains (losses)
Other-than-temporary impairments
Note 7. Lending Activities
Mortgage and other loans receivable net of allowance
Note 8. Reinsurance
Reinsurance assets net of allowance
Retroactive reinsurance
Note 9. Deferred Policy Acquisition Costs
Deferred policy acquisition costs
Amortization of deferred policy acquisition costs
Note 10. Variable Interest Entities
Note 11. Derivatives and Hedge Accounting
Derivative assets and liabilities, at fair value
Note 12. Goodwill
Note 13.
Liability for unpaid losses and loss adjustment expenses
Insurance Liabilities
Discounting of reserves
Future policy benefits
Policyholder contract deposits
Other policyholder funds
Note 14. Variable Life and Annuity Contracts
Note 15. Debt
Long-term debt
Note 16. Contingencies, Commitments and Guarantees
Legal contingencies
Note 18. Earnings Per Share
Note 23.
Income Taxes
OTHER SIGNIFICANT ACCOUNTING POLICIES
Premiums for short-duration contracts are recorded as written on the inception date of the policy. Premiums are earned primarily on a
pro rata basis over the term of the related coverage. Sales of extended services contracts are reflected as premiums written and
earned on a pro rata basis over the term of the related coverage. In addition, certain miscellaneous income is included as premiums
written and earned. The reserve for unearned premiums includes the portion of premiums written relating to the unexpired terms of
coverage. Reinsurance premiums are typically earned over the same period as the underlying policies or risks covered by the
contract. As a result, the earnings pattern of a reinsurance contract may extend up to 24 months, reflecting the inception dates of the
underlying policies throughout the year.
Reinsurance premiums ceded under prospective reinsurance agreements are recognized as a reduction in revenues over the period
the reinsurance coverage is provided in proportion to the risks to which the premiums relate.
Premiums for long-duration insurance products and life contingent annuities are recognized as revenues when due. Estimates for
premiums due but not yet collected are accrued.
Policy fees represent fees recognized from universal life and investment-type products consisting of policy charges for the cost of
insurance, policy administration charges, surrender charges and amortization of unearned revenue reserves. Policy fees are
recognized as revenues in the period in which they are assessed against policyholders, unless the fees are designed to compensate
AIG for services to be provided in the future. Fees deferred as unearned revenue are amortized in relation to the incidence of
expected gross profits to be realized over the estimated lives of the contracts, similar to DAC.
Other income includes advisory fee income from the Life and Retirement broker dealer business, as well as legal recoveries of $27
million, $44 million and $94 million from legacy crisis and other matters in 2017, 2016 and 2015, respectively.
Other income from our Other Operations category consists of the following:
• Changes in fair value relating to financial assets and liabilities for which the fair value option has been elected.
•
Interest income and related expenses, including amortization of premiums and accretion of discounts on bonds with changes in the
timing and the amount of expected principal and interest cash flows reflected in the yield, as applicable.
• Dividend income from common and preferred stock and earnings distributions from other investments.
• Changes in the fair value of other securities sold but not yet purchased, futures, hybrid financial instruments, securities purchased
under agreements to resell, and securities sold under agreements to repurchase.
•
Income earned on real estate based investments and related realized gains and losses from sales, property level impairments and
financing costs.
• Exchange gains and losses resulting from foreign currency transactions.
• Earnings from private equity funds and hedge fund investments accounted for under the equity method.
• Changes in the fair value of derivatives at AIG Financial Products Corp. and related subsidiaries (collectively AIGFP).
Cash represents cash on hand and non-interest-bearing demand deposits.
Short-term investments consist of interest-bearing cash equivalents, time deposits, securities purchased under agreements to
resell, and investments, such as commercial paper, with original maturities within one year from the date of purchase.
Premiums and other receivables net of allowance include premium balances receivable, amounts due from agents and brokers
and policyholders, trade receivables for the Direct Investment book (DIB) and Global Capital Markets (GCM) and other receivables.
Trade receivables for GCM include cash collateral posted to derivative counterparties that is not eligible to be netted against
derivative liabilities. The allowance for doubtful accounts on premiums and other receivables was $236 million and $279 million at
December 31, 2017 and 2016, respectively.
Other assets consist of sales inducement assets, prepaid expenses, deposits, other deferred charges, real estate, other fixed assets,
capitalized software costs, goodwill, intangible assets other than goodwill, restricted cash and derivative assets.
We offer sales inducements which include enhanced crediting rates or bonus payments to contract holders (bonus interest) on certain
annuity and investment contract products. Sales inducements provided to the contract holder are recognized in Policyholder contract
deposits in the Consolidated Balance Sheets. Such amounts are deferred and amortized over the life of the contract using the same
methodology and assumptions used to amortize DAC (see Note 9 herein). To qualify for such accounting treatment, the bonus interest
must be explicitly identified in the contract at inception. We must also demonstrate that such amounts are incremental to amounts we
credit on similar contracts without bonus interest, and are higher than the contracts expected ongoing crediting rates for periods after
the bonus period. The deferred bonus interest and other deferred sales inducement assets totaled $738 million and $808 million at
December 31, 2017 and 2016, respectively. The amortization expense associated with these assets is reported within Interest
credited to policyholder account balances in the Consolidated Statements of Income. Such amortization expense totaled $94 million,
$77 million and $88 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The cost of buildings and furniture and equipment is depreciated principally on the straight-line basis over their estimated useful lives
(maximum of 40 years for buildings and 10 years for furniture and equipment). Expenditures for maintenance and repairs are charged
to income as incurred and expenditures for improvements are capitalized and depreciated. We periodically assess the carrying
amount of our real estate for purposes of determining any asset impairment. Capitalized software costs, which represent costs directly
related to obtaining, developing or upgrading internal use software, are capitalized and amortized using the straight-line method over
a period generally not exceeding five years. Real estate, fixed assets and other long-lived assets are assessed for impairment when
impairment indicators exist.
Separate accounts represent funds for which investment income and investment gains and losses accrue directly to the
policyholders who bear the investment risk. Each account has specific investment objectives and the assets are carried at fair value.
The assets of each account are legally segregated and are not subject to claims that arise from any of our other businesses. The
liabilities for these accounts are equal to the account assets. Separate accounts may also include deposits for funds held under stable
value wrap funding agreements, although the majority of stable value wrap sales are measured based on the notional amount
included in assets under management and do not include the receipt of funds. For a more detailed discussion of separate accounts
see Note 14 herein.
Other liabilities consist of other funds on deposit, other payables, securities sold under agreements to repurchase, securities sold
but not yet purchased, derivative liabilities and deferred gains on retroactive reinsurance agreements. We have entered into certain
insurance and reinsurance contracts, primarily in our General Insurance companies, that do not contain sufficient insurance risk to be
accounted for as insurance or reinsurance. Accordingly, the premiums received on such contracts, after deduction for certain related
expenses, are recorded as deposits within Other liabilities in the Consolidated Balance Sheets. Net proceeds of these deposits are
invested and generate Net investment income. As amounts are paid, consistent with the underlying contracts, the deposit liability is
reduced. Also included in Other liabilities are trade payables for the DIB and GCM, which include option premiums received and
174
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
175
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 2. Summary of Significant Accounting Policies
with a reference to the Note where a detailed description can be found:
Note 6.
Investments
Fixed maturity and equity securities
Other invested assets
Short-term investments
Net investment income
Net realized capital gains (losses)
Other-than-temporary impairments
Note 7. Lending Activities
Mortgage and other loans receivable net of allowance
Note 8. Reinsurance
Reinsurance assets net of allowance
Retroactive reinsurance
Note 9. Deferred Policy Acquisition Costs
Deferred policy acquisition costs
Amortization of deferred policy acquisition costs
Note 10. Variable Interest Entities
OTHER SIGNIFICANT ACCOUNTING POLICIES
Note 11. Derivatives and Hedge Accounting
Derivative assets and liabilities, at fair value
Note 12. Goodwill
Note 13.
Insurance Liabilities
Liability for unpaid losses and loss adjustment expenses
Discounting of reserves
Future policy benefits
Policyholder contract deposits
Other policyholder funds
Note 14. Variable Life and Annuity Contracts
Note 15. Debt
Long-term debt
Note 16. Contingencies, Commitments and Guarantees
Legal contingencies
Note 18. Earnings Per Share
Note 23.
Income Taxes
ITEM 8 | Notes to Consolidated Financial Statements | 1. B as is o f P re se n t at io n
ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
and changes in loss reserves and income tax liabilities. Had these adjustments, which were determined not to be material, been
recorded in their appropriate periods, Net income attributable to AIG for the year ended December 31, 2014 would have decreased by
$51 million.
•
Interest income and related expenses, including amortization of premiums and accretion of discounts on bonds with changes in the
timing and the amount of expected principal and interest cash flows reflected in the yield, as applicable.
• Dividend income from common and preferred stock and earnings distributions from other investments.
• Changes in the fair value of other securities sold but not yet purchased, futures, hybrid financial instruments, securities purchased
under agreements to resell, and securities sold under agreements to repurchase.
•
Income earned on real estate based investments and related realized gains and losses from sales, property level impairments and
financing costs.
The following table identifies our significant accounting policies presented in other Notes to these Consolidated Financial Statements,
• Exchange gains and losses resulting from foreign currency transactions.
• Earnings from private equity funds and hedge fund investments accounted for under the equity method.
• Changes in the fair value of derivatives at AIG Financial Products Corp. and related subsidiaries (collectively AIGFP).
Cash represents cash on hand and non-interest-bearing demand deposits.
Short-term investments consist of interest-bearing cash equivalents, time deposits, securities purchased under agreements to
resell, and investments, such as commercial paper, with original maturities within one year from the date of purchase.
Premiums and other receivables net of allowance include premium balances receivable, amounts due from agents and brokers
and policyholders, trade receivables for the Direct Investment book (DIB) and Global Capital Markets (GCM) and other receivables.
Trade receivables for GCM include cash collateral posted to derivative counterparties that is not eligible to be netted against
derivative liabilities. The allowance for doubtful accounts on premiums and other receivables was $236 million and $279 million at
December 31, 2017 and 2016, respectively.
Other assets consist of sales inducement assets, prepaid expenses, deposits, other deferred charges, real estate, other fixed assets,
capitalized software costs, goodwill, intangible assets other than goodwill, restricted cash and derivative assets.
We offer sales inducements which include enhanced crediting rates or bonus payments to contract holders (bonus interest) on certain
annuity and investment contract products. Sales inducements provided to the contract holder are recognized in Policyholder contract
deposits in the Consolidated Balance Sheets. Such amounts are deferred and amortized over the life of the contract using the same
methodology and assumptions used to amortize DAC (see Note 9 herein). To qualify for such accounting treatment, the bonus interest
must be explicitly identified in the contract at inception. We must also demonstrate that such amounts are incremental to amounts we
credit on similar contracts without bonus interest, and are higher than the contracts expected ongoing crediting rates for periods after
the bonus period. The deferred bonus interest and other deferred sales inducement assets totaled $738 million and $808 million at
December 31, 2017 and 2016, respectively. The amortization expense associated with these assets is reported within Interest
credited to policyholder account balances in the Consolidated Statements of Income. Such amortization expense totaled $94 million,
$77 million and $88 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The cost of buildings and furniture and equipment is depreciated principally on the straight-line basis over their estimated useful lives
(maximum of 40 years for buildings and 10 years for furniture and equipment). Expenditures for maintenance and repairs are charged
to income as incurred and expenditures for improvements are capitalized and depreciated. We periodically assess the carrying
amount of our real estate for purposes of determining any asset impairment. Capitalized software costs, which represent costs directly
related to obtaining, developing or upgrading internal use software, are capitalized and amortized using the straight-line method over
a period generally not exceeding five years. Real estate, fixed assets and other long-lived assets are assessed for impairment when
impairment indicators exist.
Separate accounts represent funds for which investment income and investment gains and losses accrue directly to the
policyholders who bear the investment risk. Each account has specific investment objectives and the assets are carried at fair value.
The assets of each account are legally segregated and are not subject to claims that arise from any of our other businesses. The
liabilities for these accounts are equal to the account assets. Separate accounts may also include deposits for funds held under stable
value wrap funding agreements, although the majority of stable value wrap sales are measured based on the notional amount
included in assets under management and do not include the receipt of funds. For a more detailed discussion of separate accounts
see Note 14 herein.
Other liabilities consist of other funds on deposit, other payables, securities sold under agreements to repurchase, securities sold
but not yet purchased, derivative liabilities and deferred gains on retroactive reinsurance agreements. We have entered into certain
insurance and reinsurance contracts, primarily in our General Insurance companies, that do not contain sufficient insurance risk to be
accounted for as insurance or reinsurance. Accordingly, the premiums received on such contracts, after deduction for certain related
expenses, are recorded as deposits within Other liabilities in the Consolidated Balance Sheets. Net proceeds of these deposits are
invested and generate Net investment income. As amounts are paid, consistent with the underlying contracts, the deposit liability is
reduced. Also included in Other liabilities are trade payables for the DIB and GCM, which include option premiums received and
Premiums for short-duration contracts are recorded as written on the inception date of the policy. Premiums are earned primarily on a
pro rata basis over the term of the related coverage. Sales of extended services contracts are reflected as premiums written and
earned on a pro rata basis over the term of the related coverage. In addition, certain miscellaneous income is included as premiums
written and earned. The reserve for unearned premiums includes the portion of premiums written relating to the unexpired terms of
coverage. Reinsurance premiums are typically earned over the same period as the underlying policies or risks covered by the
contract. As a result, the earnings pattern of a reinsurance contract may extend up to 24 months, reflecting the inception dates of the
underlying policies throughout the year.
Reinsurance premiums ceded under prospective reinsurance agreements are recognized as a reduction in revenues over the period
the reinsurance coverage is provided in proportion to the risks to which the premiums relate.
Premiums for long-duration insurance products and life contingent annuities are recognized as revenues when due. Estimates for
premiums due but not yet collected are accrued.
Policy fees represent fees recognized from universal life and investment-type products consisting of policy charges for the cost of
insurance, policy administration charges, surrender charges and amortization of unearned revenue reserves. Policy fees are
recognized as revenues in the period in which they are assessed against policyholders, unless the fees are designed to compensate
AIG for services to be provided in the future. Fees deferred as unearned revenue are amortized in relation to the incidence of
expected gross profits to be realized over the estimated lives of the contracts, similar to DAC.
Other income includes advisory fee income from the Life and Retirement broker dealer business, as well as legal recoveries of $27
million, $44 million and $94 million from legacy crisis and other matters in 2017, 2016 and 2015, respectively.
Other income from our Other Operations category consists of the following:
• Changes in fair value relating to financial assets and liabilities for which the fair value option has been elected.
174
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
175
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
payables to counterparties that relate to unrealized gains and losses on futures, forwards, and options and balances due to clearing
brokers and exchanges. Trade payables for GCM also include cash collateral received from derivative counterparties that
contractually cannot be netted against derivative assets.
Securities sold but not yet purchased represent sales of securities not owned at the time of sale. The obligations arising from such
transactions are recorded on a trade-date basis and carried at fair value. Fair values of securities sold but not yet purchased are
based on current market prices.
Foreign currency: Financial statement accounts expressed in foreign currencies are translated into U.S. dollars. Functional currency
assets and liabilities are translated into U.S. dollars generally using rates of exchange prevailing at the balance sheet date of each
respective subsidiary and the related translation adjustments are recorded as a separate component of Accumulated other
comprehensive income, net of any related taxes, in Total AIG shareholders equity. Income statement accounts expressed in
functional currencies are translated using average exchange rates during the period. Functional currencies are generally the
currencies of the local operating environment. Financial statement accounts expressed in currencies other than the functional
currency of a consolidated entity are remeasured into that entitys functional currency resulting in exchange gains or losses recorded
in income. The adjustments resulting from translation of financial statements of foreign entities operating in highly inflationary
economies are recorded in income.
Non-redeemable noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to
a parent.
ACCOUNTING STANDARDS ADOPTED DURING 2017
Derivative Contract Novations
In March 2016, the Financial Accounting Standards Board (FASB) issued an accounting standard that clarifies that a change in the
counterparty (novation) to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require
de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
on our consolidated financial condition, results of operations or cash flows.
Contingent Put and Call Options in Debt Instruments
In March 2016, the FASB issued an accounting standard that clarifies the requirements for assessing whether contingent call (put)
options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The
standard requires an evaluation of embedded call (put) options solely on a four-step decision sequence that requires an entity to
consider whether (1) the amount paid upon settlement is adjusted based on changes in an index, (2) the amount paid upon
settlement is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount
and (4) the put or call option is contingently exercisable.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
on our consolidated financial condition, results of operations or cash flows.
Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued an accounting standard that eliminates the requirement that when an investment qualifies for use of
the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the
investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in
effect during all previous periods during which the investment had been held.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
on our consolidated financial condition, results of operations or cash flows.
Interest Held through Related Parties that are under Common Control
In October 2016, the FASB issued an accounting standard that amends the consolidation analysis for a reporting entity that is the
single decision maker of a variable interest entity (VIE). The new guidance will require the decision makers evaluation of its interests
held through related parties that are under common control on a proportionate basis (rather than in their entirety) when determining
whether it is the primary beneficiary of that VIE. The amendment does not change the characteristics of a primary beneficiary.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
on our consolidated financial condition, results of operations or cash flows.
Clarifying the Definition of a Business
In January 2017, the FASB issued an accounting standard that changes the definition of a business to assist entities with evaluating
when a set of transferred assets and activities is a business. The new standard will require an entity to evaluate if substantially all of
the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar assets; if
so, the set of transferred assets and activities is not a business. At a minimum, a set must include an input and a substantive process
that together significantly contribute to the ability to create output.
We adopted the standard on October 1, 2017. The impact of the standard is primarily related to our investments in real estate. As a
result of the adoption, we anticipate that future acquisitions of certain real estate investments will no longer meet the definition of a
business and will be treated as asset acquisitions. As a result, no goodwill would be recognized from these investments and certain
costs can be capitalized as part of asset acquisitions. The adoption of this standard did not have a material effect on our consolidated
financial condition, results of operations or cash flows.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
Revenue Recognition
In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard
excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are
governed under other GAAP guidance, but could affect the revenue recognition for certain of our other activities.
We will adopt this standard using the modified retrospective approach on its required effective date of January 1, 2018. Our analysis
of revenues indicates that substantially all of our revenues are from sources excluded from the scope of the standard. For those
revenue sources within the scope of the standard, there are no material changes in the timing or measurement of revenues based
upon the guidance. As substantially all of our revenue sources are excluded from the scope of the standard, the adoption of the
standard will not have a material effect on our reported consolidated financial condition, results of operations, cash flows or required
disclosures.
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued an accounting standard that will require equity investments that do not follow the equity method of
accounting or are not subject to consolidation to be measured at fair value with changes in fair value recognized in earnings, while
financial liabilities for which fair value option accounting has been elected, changes in fair value due to instrument-specific credit risk
will be presented separately in other comprehensive income. The standard allows the election to record equity investments without
readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes with changes in the
carrying value of the equity investments recorded in earnings. The standard also updates certain fair value disclosure requirements
for financial instruments carried at amortized cost.
We will adopt this standard on its effective date of January 1, 2018 using the modified retrospective approach. Based on our review,
substantially all of our assets and liabilities are not within the scope of the standard. The adoption of the standard will not have a
material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Leases
In February 2016, the FASB issued an accounting standard that will require lessees with lease terms of more than 12 months to
recognize a right of use asset and a corresponding lease liability on their balance sheets. For income statement purposes, the FASB
retained a dual model, requiring leases to be classified as either operating leases or finance leases.
We plan to adopt the standard on its effective date of January 1, 2019 using a modified retrospective approach upon adoption. We
are currently quantifying the expected recognition on our balance sheet for a right to use asset and a lease liability as required by the
standard. We do not expect the impact of the standard to have a material effect on our reported consolidated financial condition,
results of operations, cash flows or required disclosures.
176
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
177
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
payables to counterparties that relate to unrealized gains and losses on futures, forwards, and options and balances due to clearing
Clarifying the Definition of a Business
brokers and exchanges. Trade payables for GCM also include cash collateral received from derivative counterparties that
contractually cannot be netted against derivative assets.
Securities sold but not yet purchased represent sales of securities not owned at the time of sale. The obligations arising from such
transactions are recorded on a trade-date basis and carried at fair value. Fair values of securities sold but not yet purchased are
based on current market prices.
Foreign currency: Financial statement accounts expressed in foreign currencies are translated into U.S. dollars. Functional currency
assets and liabilities are translated into U.S. dollars generally using rates of exchange prevailing at the balance sheet date of each
respective subsidiary and the related translation adjustments are recorded as a separate component of Accumulated other
comprehensive income, net of any related taxes, in Total AIG shareholders equity. Income statement accounts expressed in
functional currencies are translated using average exchange rates during the period. Functional currencies are generally the
currencies of the local operating environment. Financial statement accounts expressed in currencies other than the functional
currency of a consolidated entity are remeasured into that entitys functional currency resulting in exchange gains or losses recorded
in income. The adjustments resulting from translation of financial statements of foreign entities operating in highly inflationary
Non-redeemable noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to
economies are recorded in income.
a parent.
ACCOUNTING STANDARDS ADOPTED DURING 2017
Derivative Contract Novations
In March 2016, the Financial Accounting Standards Board (FASB) issued an accounting standard that clarifies that a change in the
counterparty (novation) to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require
de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met.
In January 2017, the FASB issued an accounting standard that changes the definition of a business to assist entities with evaluating
when a set of transferred assets and activities is a business. The new standard will require an entity to evaluate if substantially all of
the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar assets; if
so, the set of transferred assets and activities is not a business. At a minimum, a set must include an input and a substantive process
that together significantly contribute to the ability to create output.
We adopted the standard on October 1, 2017. The impact of the standard is primarily related to our investments in real estate. As a
result of the adoption, we anticipate that future acquisitions of certain real estate investments will no longer meet the definition of a
business and will be treated as asset acquisitions. As a result, no goodwill would be recognized from these investments and certain
costs can be capitalized as part of asset acquisitions. The adoption of this standard did not have a material effect on our consolidated
financial condition, results of operations or cash flows.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
Revenue Recognition
In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard
excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are
governed under other GAAP guidance, but could affect the revenue recognition for certain of our other activities.
We will adopt this standard using the modified retrospective approach on its required effective date of January 1, 2018. Our analysis
of revenues indicates that substantially all of our revenues are from sources excluded from the scope of the standard. For those
revenue sources within the scope of the standard, there are no material changes in the timing or measurement of revenues based
upon the guidance. As substantially all of our revenue sources are excluded from the scope of the standard, the adoption of the
standard will not have a material effect on our reported consolidated financial condition, results of operations, cash flows or required
disclosures.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
Recognition and Measurement of Financial Assets and Financial Liabilities
on our consolidated financial condition, results of operations or cash flows.
Contingent Put and Call Options in Debt Instruments
In March 2016, the FASB issued an accounting standard that clarifies the requirements for assessing whether contingent call (put)
options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The
standard requires an evaluation of embedded call (put) options solely on a four-step decision sequence that requires an entity to
consider whether (1) the amount paid upon settlement is adjusted based on changes in an index, (2) the amount paid upon
settlement is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount
and (4) the put or call option is contingently exercisable.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
on our consolidated financial condition, results of operations or cash flows.
Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued an accounting standard that eliminates the requirement that when an investment qualifies for use of
the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the
investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in
effect during all previous periods during which the investment had been held.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
on our consolidated financial condition, results of operations or cash flows.
Interest Held through Related Parties that are under Common Control
In October 2016, the FASB issued an accounting standard that amends the consolidation analysis for a reporting entity that is the
single decision maker of a variable interest entity (VIE). The new guidance will require the decision makers evaluation of its interests
held through related parties that are under common control on a proportionate basis (rather than in their entirety) when determining
whether it is the primary beneficiary of that VIE. The amendment does not change the characteristics of a primary beneficiary.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect
on our consolidated financial condition, results of operations or cash flows.
In January 2016, the FASB issued an accounting standard that will require equity investments that do not follow the equity method of
accounting or are not subject to consolidation to be measured at fair value with changes in fair value recognized in earnings, while
financial liabilities for which fair value option accounting has been elected, changes in fair value due to instrument-specific credit risk
will be presented separately in other comprehensive income. The standard allows the election to record equity investments without
readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes with changes in the
carrying value of the equity investments recorded in earnings. The standard also updates certain fair value disclosure requirements
for financial instruments carried at amortized cost.
We will adopt this standard on its effective date of January 1, 2018 using the modified retrospective approach. Based on our review,
substantially all of our assets and liabilities are not within the scope of the standard. The adoption of the standard will not have a
material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Leases
In February 2016, the FASB issued an accounting standard that will require lessees with lease terms of more than 12 months to
recognize a right of use asset and a corresponding lease liability on their balance sheets. For income statement purposes, the FASB
retained a dual model, requiring leases to be classified as either operating leases or finance leases.
We plan to adopt the standard on its effective date of January 1, 2019 using a modified retrospective approach upon adoption. We
are currently quantifying the expected recognition on our balance sheet for a right to use asset and a lease liability as required by the
standard. We do not expect the impact of the standard to have a material effect on our reported consolidated financial condition,
results of operations, cash flows or required disclosures.
176
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
177
1011252ai_financials.indd 177
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
Financial Instruments - Credit Losses
Gains and Losses from the Derecognition of Nonfinancial Assets
In June 2016, the FASB issued an accounting standard that will change how entities account for credit losses for most financial
assets, trade receivables and reinsurance receivables. The standard will replace the existing incurred loss impairment model with a
new current expected credit loss model that generally will result in earlier recognition of credit losses. The standard will apply to
financial assets subject to credit losses, including loans measured at amortized cost, reinsurance receivables and certain off-balance
sheet credit exposures. Additionally, the impairment of available-for-sale debt securities, including purchased credit deteriorated
securities, are subject to the new guidance and will be measured in a similar manner, except that losses will be recognized as
allowances rather than reductions in the amortized cost of the securities. The standard will also require additional information to be
disclosed in the footnotes.
The standard is effective on January 1, 2020, with early adoption permitted on January 1, 2019. We are continuing to develop our
implementation plan to adopt the standard and are assessing the impact of the standard on our reported consolidated financial
condition, results of operations, cash flows and required disclosures. While we expect an increase in our allowances for credit losses
for the financial instruments within scope of the standard, given the objective of the new standard, the amount of any change will be
dependent on our portfolios composition and quality at the adoption date as well as economic conditions and forecasts at that time.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued an accounting standard that addresses diversity in how certain cash receipts and cash payments
are presented and classified in the statement of cash flows. The amendments provide clarity on the treatment of eight specifically
defined types of cash inflows and outflows.
We will adopt this standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation in the
statement of cash flows only and will have no effect on our reported consolidated financial condition, results of operations or required
disclosures.
Intra-Entity Transfers of Assets Other than Inventory
In October 2016, the FASB issued an accounting standard that will require an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to a third party.
We will adopt the standard on its effective date of January 1, 2018 using a modified retrospective approach. The adoption of this
standard will not have a material impact on our reported consolidated financial condition, results of operations, cash flows or required
disclosures.
Restricted Cash
In November 2016, the FASB issued an accounting standard that provides guidance on the presentation of restricted cash in the
Statement of Cash Flows. Entities will be required to explain the changes during a reporting period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows.
We will adopt the standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation of restricted
cash in the Statement of Cash Flows only and will have no effect on our reported consolidated financial condition, results of
operations or required disclosures.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued an accounting standard that eliminates the requirement to calculate the implied fair value of
goodwill, through a hypothetical purchase price allocation, to measure a goodwill impairment charge. Instead, entities will record an
impairment charge based on the excess of a reporting units carrying amount over its fair value not to exceed the total amount of
goodwill allocated to that reporting unit. An entity should also consider income tax effects from tax deductible goodwill on the carrying
amount of the reporting unit when measuring the goodwill impairment loss, if applicable.
The standard is effective on January 1, 2020, with early adoption permitted. We are evaluating the timing of our adoption. Any impact
of the standard will be dependent on the market conditions of the reporting units at the time of adoption.
In February 2017, the FASB issued an accounting standard that clarifies the scope of the derecognition guidance for the sale, transfer
and derecognition of non-financial assets to noncustomers that aligns with the new revenue recognition principles. The standard also
adds new accounting for partial sales of nonfinancial assets (including in substance real estate) that requires an entity to derecognize
a nonfinancial asset when it 1) ceases to have a controlling financial interest in the legal entity that holds the asset based on the
consolidation model and 2) transfers control of the asset based on the revenue recognition model.
We will adopt this standard on its effective date of January 1, 2018 under the modified retrospective approach. Based on our
evaluation, we do not expect the standard to have a material impact on our reported consolidated financial condition, results of
operations, cash flows or required disclosures.
Improving the Presentation of Net Periodic Pension and Postretirement Benefit Cost
In March 2017, the FASB issued an accounting standard that requires entities to report the service cost component of net periodic
pension and postretirement benefit costs in the same line item as other compensation costs arising from services rendered by the
pertinent employees during the period. The other components of net periodic benefit costs are required to be separately presented in
the income statement. The amendments also allow only the service cost component to be eligible for capitalization when applicable.
We will adopt this standard on its effective date of January 1, 2018. The standard primarily addresses the presentation of the service
cost component of net periodic benefit costs in the income statement. AIGs U.S. pension plans are frozen and no longer accrue
benefits, which are reflected as service costs. Therefore, the standard will have no material effect on our reported consolidated
financial condition, results of operations, cash flows or required disclosures.
Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued an accounting standard that shortens the amortization period for certain callable debt securities held
at a premium by requiring the premium to be amortized to the earliest call date. The standard does not require an accounting change
for securities held at a discount, which continue to be amortized to maturity.
We plan to adopt the standard retrospectively on its effective date, January 1, 2019. We do not expect the standard to have a material
impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Modification of Share-Based Payment Awards
In May 2017, the FASB issued an accounting standard that provides guidance about which changes to the terms or conditions of a
share-based payment award require an entity to apply modification accounting.
We will prospectively adopt this standard on its effective date of January 1, 2018 and do not expect the standard to have a material
effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Derivatives and Hedging
In August 2017, the FASB issued an accounting standard that improves and expands hedge accounting for both financial and
commodity risks. The provisions of the amendment are intended to better align the accounting with an entitys risk management
activities, enhance the transparency on how the economic results are presented in the financial statements and the footnote, and
simplify the application of hedge accounting treatment.
The standard is effective on January 1, 2019, with early adoption permitted. We are evaluating the timing of adoption and are
assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required
disclosures.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued an accounting standard that allows the optional reclassification of stranded tax effects within
accumulated other comprehensive income to retained earnings that arise due to the enactment of the Tax Cuts and Jobs Act of 2017
(Tax Act). The amount of the reclassification would reflect the effect of the change in the U.S. federal corporate income tax rate on the
gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the Tax Act and other income tax
effects of the Tax Act on items remaining in accumulated other comprehensive income.
We plan to early adopt the standard using a retrospective approach effective January 1, 2018. For more information on the adoption
of the Tax Act, see Note 23.
178
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
179
1011252ai_financials.indd 178
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
ITEM 8 | Notes to Consolidated Financial Statements | 2. S u m mar y o f S i g ni fi ca n t Ac c o u nt in g P oli ci es
Financial Instruments - Credit Losses
Gains and Losses from the Derecognition of Nonfinancial Assets
In June 2016, the FASB issued an accounting standard that will change how entities account for credit losses for most financial
assets, trade receivables and reinsurance receivables. The standard will replace the existing incurred loss impairment model with a
new current expected credit loss model that generally will result in earlier recognition of credit losses. The standard will apply to
financial assets subject to credit losses, including loans measured at amortized cost, reinsurance receivables and certain off-balance
sheet credit exposures. Additionally, the impairment of available-for-sale debt securities, including purchased credit deteriorated
securities, are subject to the new guidance and will be measured in a similar manner, except that losses will be recognized as
allowances rather than reductions in the amortized cost of the securities. The standard will also require additional information to be
disclosed in the footnotes.
The standard is effective on January 1, 2020, with early adoption permitted on January 1, 2019. We are continuing to develop our
implementation plan to adopt the standard and are assessing the impact of the standard on our reported consolidated financial
condition, results of operations, cash flows and required disclosures. While we expect an increase in our allowances for credit losses
for the financial instruments within scope of the standard, given the objective of the new standard, the amount of any change will be
dependent on our portfolios composition and quality at the adoption date as well as economic conditions and forecasts at that time.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued an accounting standard that addresses diversity in how certain cash receipts and cash payments
are presented and classified in the statement of cash flows. The amendments provide clarity on the treatment of eight specifically
defined types of cash inflows and outflows.
In February 2017, the FASB issued an accounting standard that clarifies the scope of the derecognition guidance for the sale, transfer
and derecognition of non-financial assets to noncustomers that aligns with the new revenue recognition principles. The standard also
adds new accounting for partial sales of nonfinancial assets (including in substance real estate) that requires an entity to derecognize
a nonfinancial asset when it 1) ceases to have a controlling financial interest in the legal entity that holds the asset based on the
consolidation model and 2) transfers control of the asset based on the revenue recognition model.
We will adopt this standard on its effective date of January 1, 2018 under the modified retrospective approach. Based on our
evaluation, we do not expect the standard to have a material impact on our reported consolidated financial condition, results of
operations, cash flows or required disclosures.
Improving the Presentation of Net Periodic Pension and Postretirement Benefit Cost
In March 2017, the FASB issued an accounting standard that requires entities to report the service cost component of net periodic
pension and postretirement benefit costs in the same line item as other compensation costs arising from services rendered by the
pertinent employees during the period. The other components of net periodic benefit costs are required to be separately presented in
the income statement. The amendments also allow only the service cost component to be eligible for capitalization when applicable.
We will adopt this standard on its effective date of January 1, 2018. The standard primarily addresses the presentation of the service
cost component of net periodic benefit costs in the income statement. AIGs U.S. pension plans are frozen and no longer accrue
benefits, which are reflected as service costs. Therefore, the standard will have no material effect on our reported consolidated
financial condition, results of operations, cash flows or required disclosures.
We will adopt this standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation in the
statement of cash flows only and will have no effect on our reported consolidated financial condition, results of operations or required
Premium Amortization on Purchased Callable Debt Securities
disclosures.
Intra-Entity Transfers of Assets Other than Inventory
In October 2016, the FASB issued an accounting standard that will require an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to a third party.
In March 2017, the FASB issued an accounting standard that shortens the amortization period for certain callable debt securities held
at a premium by requiring the premium to be amortized to the earliest call date. The standard does not require an accounting change
for securities held at a discount, which continue to be amortized to maturity.
We plan to adopt the standard retrospectively on its effective date, January 1, 2019. We do not expect the standard to have a material
impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
We will adopt the standard on its effective date of January 1, 2018 using a modified retrospective approach. The adoption of this
standard will not have a material impact on our reported consolidated financial condition, results of operations, cash flows or required
Modification of Share-Based Payment Awards
disclosures.
Restricted Cash
In November 2016, the FASB issued an accounting standard that provides guidance on the presentation of restricted cash in the
Statement of Cash Flows. Entities will be required to explain the changes during a reporting period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows.
We will adopt the standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation of restricted
cash in the Statement of Cash Flows only and will have no effect on our reported consolidated financial condition, results of
operations or required disclosures.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued an accounting standard that eliminates the requirement to calculate the implied fair value of
goodwill, through a hypothetical purchase price allocation, to measure a goodwill impairment charge. Instead, entities will record an
impairment charge based on the excess of a reporting units carrying amount over its fair value not to exceed the total amount of
goodwill allocated to that reporting unit. An entity should also consider income tax effects from tax deductible goodwill on the carrying
amount of the reporting unit when measuring the goodwill impairment loss, if applicable.
The standard is effective on January 1, 2020, with early adoption permitted. We are evaluating the timing of our adoption. Any impact
of the standard will be dependent on the market conditions of the reporting units at the time of adoption.
In May 2017, the FASB issued an accounting standard that provides guidance about which changes to the terms or conditions of a
share-based payment award require an entity to apply modification accounting.
We will prospectively adopt this standard on its effective date of January 1, 2018 and do not expect the standard to have a material
effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Derivatives and Hedging
In August 2017, the FASB issued an accounting standard that improves and expands hedge accounting for both financial and
commodity risks. The provisions of the amendment are intended to better align the accounting with an entitys risk management
activities, enhance the transparency on how the economic results are presented in the financial statements and the footnote, and
simplify the application of hedge accounting treatment.
The standard is effective on January 1, 2019, with early adoption permitted. We are evaluating the timing of adoption and are
assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required
disclosures.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued an accounting standard that allows the optional reclassification of stranded tax effects within
accumulated other comprehensive income to retained earnings that arise due to the enactment of the Tax Cuts and Jobs Act of 2017
(Tax Act). The amount of the reclassification would reflect the effect of the change in the U.S. federal corporate income tax rate on the
gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the Tax Act and other income tax
effects of the Tax Act on items remaining in accumulated other comprehensive income.
We plan to early adopt the standard using a retrospective approach effective January 1, 2018. For more information on the adoption
of the Tax Act, see Note 23.
178
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
179
1011252ai_financials.indd 179
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
3. Segment Information
We report our results of operations consistent with the manner in which our chief operating decision makers review the business to
assess performance and allocate resources.
In the fourth quarter of 2017, we finalized our plan to reorganize our operating model. Prior to the fourth quarter of 2017, we reported
our results as follows:
• Commercial Insurance business included our Liability and Financial Lines and Property and Special Risks operating segments;
• Consumer Insurance business included our Individual Retirement, Group Retirement, Life Insurance and Personal Insurance
operating segments
• Other Operations category consisted of businesses and items not allocated to our operating segments, including Institutional
Markets, United Guaranty and Fuji Life.
• Legacy Portfolio segment consisted of Legacy Insurance Lines representing exited or discontinued product lines, policy forms or
distribution channels.
We now report our results of operations as follows:
GENERAL INSURANCE
General Insurance business is presented as two operating segments:
• North America consists of insurance businesses in the United States, Canada and Bermuda.
•
International consists of insurance businesses in Japan, United Kingdom, Europe, Asia Pacific, Latin America, Puerto Rico,
Australia, the Middle East and Africa.
Results are presented before internal reinsurance transactions. North America and International operating segments consist of the
following products:
Commercial Lines consists of Liability, Financial Lines, Property and Special Risks.
Personal Insurance consists of Personal Lines and Accident and Health.
LIFE AND RETIREMENT
Life and Retirement business is presented as four operating segments:
•
Individual Retirement consists of fixed annuities, fixed index annuities, variable annuities and retail mutual funds.
• Group Retirement consists of group mutual funds, group fixed annuities, group variable annuities, individual annuity and
investment products, financial planning and advisory services.
• Life Insurance primary products in the U.S. include term life and universal life insurance. International operations include
distribution of life and health products in the UK and Ireland.
•
Institutional Markets consists of stable value wrap products, structured settlement and pension risk transfer annuities,
corporate- and bank-owned life insurance and guaranteed investment contracts (GICs).
OTHER OPERATIONS
The Other Operations category consists of:
•
Income from assets held by AIG Parent and other corporate subsidiaries.
• General operating expenses not attributable to specific reporting segments.
•
Interest expense.
• Blackboard a data-enabled, digital subsidiary that provides the commercial insurance industry with alternative solutions using
digital technology, data analytics and automation
• United Guaranty Mortgage insurance protects mortgage lenders and investors against the increased risk of borrower default
related to high loan-to-value mortgages. The sale of this business was completed on December 31, 2016.
• Fuji Life consists of term insurance, life insurance, endowment policies and annuities. The sale of this business was completed
on April 30, 2017.
180
AIG | 2017 Form 10-K
1011252ai_financials.indd 180
3/9/18 6:11 PM
LEGACY PORTFOLIO
The Legacy Portfolio segment consists of:
Legacy Insurance Lines represent exited or discontinued product lines, policy forms or distribution channels.
• Legacy General Insurance Run-Off Lines consists of asbestos and environmental exposures and other exposures within
certain Property and Casualty profit centers no longer actively marketed, including excess workers compensation, environmental
impairment liability, public entity liability, accident & health, physicians and surgeons professional liability, and various other
workers compensation and general liability exposures.
• Legacy Life and Retirement Run-Off Lines include whole life, long-term care and exited accident & health product lines. Also
includes certain structured settlement, pension risk transfer annuities and single premium immediate annuities written prior to April
2012.
• Legacy Investments include investment classes that we have placed into run-off.
On December 31, 2016, we completed the sale of United Guaranty to Arch. See Note 1 for a further discussion.
In the second quarter of 2015, a United Guaranty subsidiary and certain of our General Insurance companies entered into a 50
percent quota share reinsurance agreement whereby the United Guaranty subsidiary (1) ceded 50 percent of the risk relating to
policies written in 2014 that were current as of January 1, 2015 and (2) ceded 50 percent of the risk relating to all policies written in
2015 and 2016, each in exchange for a 30 percent ceding commission and reimbursements of 50 percent of the losses and loss
adjustment expenses incurred on covered policies. Beginning in the third quarter of 2016, the effect of this intercompany reinsurance
arrangements is included in the results of Property and Special Risks and Other Operations for all periods presented. Previously, this
arrangement was eliminated for purposes of segment reporting. Concurrent with the closing of the sale of United Guaranty, we
amended and restated this arrangement and expect the results of this arrangement to continue to be reported in Property and Special
Risks.
Investment income of the General Insurance companies is attributed to the North America and International operating segments
based on an internal investment income allocation model. The model estimates investable funds based primarily on loss reserves and
unearned premiums. Investment income of the Life and Retirement companies is attributed to the Individual Retirement, Group
Retirement, Life Insurance and Institutional Markets operating segments as well as the Legacy Life and Retirement Run-Off Lines
based on invested assets in segregated product line portfolios; income from invested assets in excess of liabilities is allocated to
product lines based on internal capital estimates.
We evaluate segment performance based on adjusted revenues and adjusted pre-tax income (loss). Adjusted revenues and adjusted
pre-tax income (loss) are derived by excluding certain items from total revenues and net income (loss) attributable to AIG,
respectively. For the items excluded from adjusted revenues and adjusted pre-tax income (loss) see the table below.
AIG | 2017 Form 10-K
181
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
3. Segment Information
We report our results of operations consistent with the manner in which our chief operating decision makers review the business to
assess performance and allocate resources.
In the fourth quarter of 2017, we finalized our plan to reorganize our operating model. Prior to the fourth quarter of 2017, we reported
our results as follows:
operating segments
• Commercial Insurance business included our Liability and Financial Lines and Property and Special Risks operating segments;
• Consumer Insurance business included our Individual Retirement, Group Retirement, Life Insurance and Personal Insurance
• Other Operations category consisted of businesses and items not allocated to our operating segments, including Institutional
Markets, United Guaranty and Fuji Life.
• Legacy Portfolio segment consisted of Legacy Insurance Lines representing exited or discontinued product lines, policy forms or
distribution channels.
We now report our results of operations as follows:
GENERAL INSURANCE
General Insurance business is presented as two operating segments:
• North America consists of insurance businesses in the United States, Canada and Bermuda.
•
International consists of insurance businesses in Japan, United Kingdom, Europe, Asia Pacific, Latin America, Puerto Rico,
Australia, the Middle East and Africa.
following products:
Results are presented before internal reinsurance transactions. North America and International operating segments consist of the
Commercial Lines consists of Liability, Financial Lines, Property and Special Risks.
Personal Insurance consists of Personal Lines and Accident and Health.
LIFE AND RETIREMENT
Life and Retirement business is presented as four operating segments:
•
Individual Retirement consists of fixed annuities, fixed index annuities, variable annuities and retail mutual funds.
• Group Retirement consists of group mutual funds, group fixed annuities, group variable annuities, individual annuity and
investment products, financial planning and advisory services.
• Life Insurance primary products in the U.S. include term life and universal life insurance. International operations include
distribution of life and health products in the UK and Ireland.
•
Institutional Markets consists of stable value wrap products, structured settlement and pension risk transfer annuities,
corporate- and bank-owned life insurance and guaranteed investment contracts (GICs).
OTHER OPERATIONS
The Other Operations category consists of:
Income from assets held by AIG Parent and other corporate subsidiaries.
• General operating expenses not attributable to specific reporting segments.
•
•
Interest expense.
• Blackboard a data-enabled, digital subsidiary that provides the commercial insurance industry with alternative solutions using
digital technology, data analytics and automation
• United Guaranty Mortgage insurance protects mortgage lenders and investors against the increased risk of borrower default
related to high loan-to-value mortgages. The sale of this business was completed on December 31, 2016.
• Fuji Life consists of term insurance, life insurance, endowment policies and annuities. The sale of this business was completed
on April 30, 2017.
180
AIG | 2017 Form 10-K
LEGACY PORTFOLIO
The Legacy Portfolio segment consists of:
Legacy Insurance Lines represent exited or discontinued product lines, policy forms or distribution channels.
• Legacy General Insurance Run-Off Lines consists of asbestos and environmental exposures and other exposures within
certain Property and Casualty profit centers no longer actively marketed, including excess workers compensation, environmental
impairment liability, public entity liability, accident & health, physicians and surgeons professional liability, and various other
workers compensation and general liability exposures.
• Legacy Life and Retirement Run-Off Lines include whole life, long-term care and exited accident & health product lines. Also
includes certain structured settlement, pension risk transfer annuities and single premium immediate annuities written prior to April
2012.
• Legacy Investments include investment classes that we have placed into run-off.
On December 31, 2016, we completed the sale of United Guaranty to Arch. See Note 1 for a further discussion.
In the second quarter of 2015, a United Guaranty subsidiary and certain of our General Insurance companies entered into a 50
percent quota share reinsurance agreement whereby the United Guaranty subsidiary (1) ceded 50 percent of the risk relating to
policies written in 2014 that were current as of January 1, 2015 and (2) ceded 50 percent of the risk relating to all policies written in
2015 and 2016, each in exchange for a 30 percent ceding commission and reimbursements of 50 percent of the losses and loss
adjustment expenses incurred on covered policies. Beginning in the third quarter of 2016, the effect of this intercompany reinsurance
arrangements is included in the results of Property and Special Risks and Other Operations for all periods presented. Previously, this
arrangement was eliminated for purposes of segment reporting. Concurrent with the closing of the sale of United Guaranty, we
amended and restated this arrangement and expect the results of this arrangement to continue to be reported in Property and Special
Risks.
Investment income of the General Insurance companies is attributed to the North America and International operating segments
based on an internal investment income allocation model. The model estimates investable funds based primarily on loss reserves and
unearned premiums. Investment income of the Life and Retirement companies is attributed to the Individual Retirement, Group
Retirement, Life Insurance and Institutional Markets operating segments as well as the Legacy Life and Retirement Run-Off Lines
based on invested assets in segregated product line portfolios; income from invested assets in excess of liabilities is allocated to
product lines based on internal capital estimates.
We evaluate segment performance based on adjusted revenues and adjusted pre-tax income (loss). Adjusted revenues and adjusted
pre-tax income (loss) are derived by excluding certain items from total revenues and net income (loss) attributable to AIG,
respectively. For the items excluded from adjusted revenues and adjusted pre-tax income (loss) see the table below.
1011252ai_financials.indd 181
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AIG | 2017 Form 10-K
181
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
The following table presents AIGs continuing operations by operating segment:
(in millions)
2017
General Insurance
North America
International
Total General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other Operations
Legacy Portfolio
AIG Consolidation and elimination
Total AIG Consolidated adjusted revenues and adjusted
Total
Revenues
Net
Investment
Income
Interest Amortizatio
of DAC
Expense
Adjusted
Pre-Tax
Income (Loss)
$
14,600 $
15,094
29,694
3,145 $
523
3,668
31 $
(9)
22
1,305
2,460
3,765
$
5,514
2,848
4,056
3,168
15,586
1,413
4,391
(308)
4,013
2,164
1,044
595
7,816
53
2,776
(280)
58
32
13
6
109
968
122
(53)
415
84
239
5
743
(9)
76
4
(232)
(581)
(813)
2,289
1,004
274
264
3,831
(1,405)
1,470
75
pre-tax income
$
50,776 $
14,033 $
1,168 $
4,579
$
3,158
Reconciling Items from adjusted pre-tax income to
pre-tax income (loss):
Changes in fair value of securities used to hedge guaranteed
living benefits
Changes in benefit reserves and DAC, VOBA and SIA related to
net realized capital gains
Other income (expense) - net
Gain on extinguishment of debt
Net realized capital losses
Income from divested businesses
Non-operating litigation reserves and settlements
(Unfavorable) favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements
Net loss reserve discount (benefit) charge
Pension expense related to a one-time lump sum payment to
former employees
Restructuring and other costs
Revenues and Pre-tax income
2016
General Insurance
North America
International
Total General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other Operations
Legacy Portfolio
AIG Consolidation and elimination
Total AIG Consolidated adjusted revenues and adjusted
146
146
-
(49)
-
(1,380)
-
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49,520 $
14,179 $
-
-
-
-
-
-
-
-
-
-
(291)
-
-
-
-
-
-
-
-
-
1,168 $
-
-
4,288
17,005 $
16,135
33,140
3,041 $
513
3,554
28 $
-
28
1,444
2,677
4,121
5,758
2,769
3,818
1,433
13,778
2,517
5,250
(494)
3,878
2,146
1,035
563
7,622
207
2,913
(351)
50
26
12
4
92
978
282
(120)
298
129
182
4
613
72
108
(117)
$
$
$
$
146
303
-
5
(1,380)
68
129
(303)
(187)
(60)
(413)
1,466
(2,399)
348
(2,051)
2,269
931
(37)
265
3,428
(1,011)
1,007
42
pre-tax income
$
54,191 $
13,945 $
1,260 $
4,797
$
1,415
Reconciling Items from adjusted pre-tax income to
pre-tax income:
Changes in fair value of securities used to hedge guaranteed
living benefits
Changes in benefit reserves and DAC, VOBA and SIA related to
net realized capital gains
Other income (expense) - net
Loss on extinguishment of debt
Net realized capital losses
Loss from divested businesses
Non-operating litigation reserves and settlements
(Unfavorable) favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements
Net loss reserve discount (benefit) charge
182
AIG | 2017 Form 10-K
120
120
-
(44)
-
(1,944)
-
44
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(276)
-
-
-
-
-
-
-
120
195
-
(74)
(1,944)
545
41
42
427
1011252ai_financials.indd 182
3/9/18 6:11 PM
$
$
-
-
18,482 $
16,186
34,668
6,450
2,834
3,771
2,267
15,322
2,326
5,771
(496)
52,367 $
14,065 $
1,260 $
4,521 $
13 $
1,699 $
3,196 $
550
3,746
3,805
2,192
1,034
510
7,541
196
2,928
(315)
-
-
-
-
-
-
-
-
-
-
-
1,027
292
(103)
-
-
-
13
27
15
7
3
52
-
-
-
-
-
-
-
-
-
-
2,620
4,319
431
50
311
2
794
47
102
(26)
-
-
-
-
-
-
-
-
-
-
-
-
(43)
(43)
(43)
776
(48)
94
-
-
-
-
-
$
58,327 $
14,053 $
1,281 $
5,236 $
(147)
(694)
(74)
558
70
628
1,812
1,100
(51)
263
3,124
(825)
1,133
(76)
(43)
(15)
-
(756)
776
(59)
82
(263)
71
(496)
3,281
Pension expense related to a one-time lump sum payment to
former employees
Restructuring and other costs
Revenues and Pre-tax income
2015
General Insurance
North America
International
Total General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other Operations
Legacy Portfolio
AIG Consolidation and elimination
Total AIG Consolidated adjusted revenues and adjusted
pre-tax income
$
57,591 $
14,096 $
1,281 $
5,236 $
3,984
Reconciling Items from adjusted pre-tax income to
pre-tax income:
Changes in fair value of securities used to hedge guaranteed
Changes in benefit reserves and DAC, VOBA and SIA related to
living benefits
net realized capital gains
Other income (expense) - net
Loss on extinguishment of debt
Net realized capital gains
Loss from divested businesses
Non-operating litigation reserves and settlements
(Unfavorable) favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements
Net loss reserve discount (benefit) charge
Restructuring and other costs
Revenues and Pre-tax income
The following table presents AIGs year-end identifiable assets and capital expenditures by legal entity category:
(in millions)
General Insurance companies
Life and Retirement companies
Other
AIG Consolidation and Elimination
Total Assets
Year-End Identifiable Assets
Capital Expenditures
$
$
2017
114,841
289,457
105,425
(11,422)
2016
118,287
269,813
122,016
(11,852)
$
2017
239
88
156
-
2016
685
85
349
-
$
$
$
498,301
$
498,264
483
$
1,119
The following table presents AIGs consolidated total revenues and real estate and other fixed assets, net of accumulated
depreciation, by major geographic area:
(in millions)
North America
International
Consolidated
Total Revenues*
2017
2016
$
$
34,149 $
36,871
$
15,371
15,496
49,520 $
52,367 $
Real Estate and Other Fixed Assets,
Net of Accumulated Depreciation
2015
41,680
16,647
58,327
$
$
2017
1,630 $
892
2016
1,326
1,334
$
2,522 $
2,660 $
2015
1,819
1,316
3,135
* Revenues are generally reported according to the geographic location of the reporting unit. International revenues consists of revenues from our General Insurance
International operating segment.
AIG | 2017 Form 10-K
183
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
ITEM 8 | Notes to Consolidated Financial Statements | 3. Segment Information
The following table presents AIGs continuing operations by operating segment:
Total
Investment
Interest Amortizatio
Revenues
Income
Expense
of DAC
Adjusted
Pre-Tax
Income (Loss)
(232)
(581)
(813)
2,289
1,004
274
264
3,831
(1,405)
1,470
75
$
50,776 $
14,033 $
1,168 $
4,579
$
3,158
146
303
-
5
(1,380)
68
129
(303)
(187)
(60)
(413)
1,466
(2,399)
348
(2,051)
2,269
931
(37)
265
3,428
(1,011)
1,007
42
$
54,191 $
13,945 $
1,260 $
4,797
$
1,415
120
195
-
(74)
(1,944)
545
41
42
427
AIG Consolidation and elimination
Total AIG Consolidated adjusted revenues and adjusted
Reconciling Items from adjusted pre-tax income to
pre-tax income
pre-tax income (loss):
living benefits
Changes in fair value of securities used to hedge guaranteed
Changes in benefit reserves and DAC, VOBA and SIA related to
net realized capital gains
Other income (expense) - net
Gain on extinguishment of debt
Net realized capital losses
Income from divested businesses
Non-operating litigation reserves and settlements
(Unfavorable) favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements
Net loss reserve discount (benefit) charge
Pension expense related to a one-time lump sum payment to
(in millions)
2017
General Insurance
North America
International
Total General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other Operations
Legacy Portfolio
former employees
Restructuring and other costs
Revenues and Pre-tax income
2016
General Insurance
North America
International
Total General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other Operations
Legacy Portfolio
AIG Consolidation and elimination
Total AIG Consolidated adjusted revenues and adjusted
Reconciling Items from adjusted pre-tax income to
pre-tax income
pre-tax income:
living benefits
Changes in fair value of securities used to hedge guaranteed
Changes in benefit reserves and DAC, VOBA and SIA related to
120
120
net realized capital gains
Other income (expense) - net
Loss on extinguishment of debt
Net realized capital losses
Loss from divested businesses
Non-operating litigation reserves and settlements
(Unfavorable) favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements
Net loss reserve discount (benefit) charge
182
AIG | 2017 Form 10-K
$
14,600 $
3,145 $
31 $
(9)
22
1,305
2,460
3,765
$
Net
523
3,668
4,013
2,164
1,044
595
7,816
53
2,776
(280)
58
32
13
6
109
968
122
(53)
146
146
$
$
49,520 $
14,179 $
1,168 $
4,288
$
17,005 $
3,041 $
28 $
$
513
3,554
3,878
2,146
1,035
563
7,622
207
2,913
(351)
-
28
50
26
12
4
92
978
282
(120)
415
84
239
5
743
(9)
76
4
(291)
1,444
2,677
4,121
298
129
182
4
613
72
108
(117)
(276)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,094
29,694
5,514
2,848
4,056
3,168
15,586
1,413
4,391
(308)
(49)
(1,380)
27
16,135
33,140
5,758
2,769
3,818
1,433
13,778
2,517
5,250
(494)
(44)
(1,944)
44
-
-
-
-
-
-
-
-
-
-
-
-
Pension expense related to a one-time lump sum payment to
former employees
Restructuring and other costs
Revenues and Pre-tax income
2015
General Insurance
North America
International
Total General Insurance
Life and Retirement
Individual Retirement
Group Retirement
Life Insurance
Institutional Markets
Total Life and Retirement
Other Operations
Legacy Portfolio
AIG Consolidation and elimination
Total AIG Consolidated adjusted revenues and adjusted
$
$
-
-
-
-
-
-
52,367 $
14,065 $
1,260 $
-
-
4,521 $
18,482 $
16,186
34,668
6,450
2,834
3,771
2,267
15,322
2,326
5,771
(496)
3,196 $
550
3,746
3,805
2,192
1,034
510
7,541
196
2,928
(315)
13 $
-
13
1,699 $
2,620
4,319
27
15
7
3
52
1,027
292
(103)
431
50
311
2
794
47
102
(26)
(147)
(694)
(74)
558
70
628
1,812
1,100
(51)
263
3,124
(825)
1,133
(76)
pre-tax income
$
57,591 $
14,096 $
1,281 $
5,236 $
3,984
Reconciling Items from adjusted pre-tax income to
pre-tax income:
Changes in fair value of securities used to hedge guaranteed
living benefits
Changes in benefit reserves and DAC, VOBA and SIA related to
net realized capital gains
Other income (expense) - net
Loss on extinguishment of debt
Net realized capital gains
Loss from divested businesses
Non-operating litigation reserves and settlements
(Unfavorable) favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements
Net loss reserve discount (benefit) charge
Restructuring and other costs
Revenues and Pre-tax income
(43)
-
(43)
-
776
(48)
94
-
-
-
(43)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
58,327 $
14,053 $
1,281 $
-
-
-
-
-
-
-
-
-
-
5,236 $
(43)
(15)
-
(756)
776
(59)
82
(263)
71
(496)
3,281
The following table presents AIGs year-end identifiable assets and capital expenditures by legal entity category:
(in millions)
General Insurance companies
Life and Retirement companies
Other
AIG Consolidation and Elimination
Total Assets
Year-End Identifiable Assets
Capital Expenditures
2017
114,841
289,457
105,425
(11,422)
498,301
$
$
2016
118,287
269,813
122,016
(11,852)
498,264
$
$
2017
239
88
156
-
483
$
$
2016
685
85
349
-
1,119
$
$
The following table presents AIGs consolidated total revenues and real estate and other fixed assets, net of accumulated
depreciation, by major geographic area:
(in millions)
North America
International
Consolidated
Total Revenues*
2016
36,871
15,496
52,367 $
2017
34,149 $
15,371
49,520 $
$
$
$
Real Estate and Other Fixed Assets,
Net of Accumulated Depreciation
2015
41,680
16,647
58,327
$
$
2017
1,630 $
892
2,522 $
$
2016
1,326
1,334
2,660 $
2015
1,819
1,316
3,135
* Revenues are generally reported according to the geographic location of the reporting unit. International revenues consists of revenues from our General Insurance
International operating segment.
1011252ai_financials.indd 183
3/9/18 6:11 PM
AIG | 2017 Form 10-K
183
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 4. H el d -F or -S al e Cl ass i fic a ti o n
ITEM 8 | Notes to Consolidated Financial Statements | 4. H el d -F or -S al e Cl ass i fic a ti o n
The following table summarizes the components of assets and liabilities held-for-sale on the Consolidated Balance Sheets
at December 31, 2016:
4. Held-For-Sale Classification
HELD-FOR-SALE CLASSIFICATION
We report a business as held-for-sale when management has approved the sale or received approval to sell the business and is
committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is
anticipated to occur during the next 12 months and certain other specified criteria are met. A business classified as held-for-sale is
recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its
estimated fair value, a loss is recognized.
Assets and liabilities related to the businesses classified as held-for-sale are separately reported in our Consolidated Balance Sheets
beginning in the period in which the business is classified as held-for-sale.
At December 31, 2017, we had no businesses classified as held-for-sale. At December 31, 2016, the following businesses were
reported as held-for-sale:
United Guaranty Asia
On August 15, 2016, we entered into a definitive agreement to sell our 100 percent interest in United Guaranty and certain related
affiliates to Arch. This transaction closed on December 31, 2016 and we received proceeds of approximately $3.3 billion, consisting of
$2.2 billion of cash, and approximately $1.1 billion of newly issued Arch convertible non-voting common-equivalent preferred stock.
We also received $261 million in pre-closing dividends from United Guaranty in the fourth quarter of 2016. However, due to pending
regulatory approvals, United Guaranty Asia was not included in the December 31, 2016 closing and $40 million of cash consideration
was retained by Arch. The sale of United Guaranty Asia was completed on July 1, 2017 and we received the $40 million cash
proceeds.
Sale of Certain Insurance Subsidiary Operations to Fairfax
On October 18, 2016, we entered into agreements to sell certain insurance operations to Fairfax Financial Holdings Limited (Fairfax).
The agreements include the sale of our subsidiary operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey. Fairfax
will also acquire renewal rights for the portfolios of local business written by our operations in Bulgaria, the Czech Republic, Hungary,
Poland, Romania and Slovakia, and assume certain of our operating assets and employees. Total cash consideration to us is
expected to be approximately $234 million. The transaction is closing on a country-by-country basis as the regulatory approvals are
obtained.
Republic, Hungary, Poland and Slovakia were completed, which resulted in total cash proceeds of $48 million. In the third quarter of
2017, the sale of the operations in Colombia, Chile and Argentina were completed, which resulted in cash proceeds of $168 million.
Substantially all of the operations and renewal rights that we agreed to sell Fairfax were sold by December 31, 2017.
In the second quarter of 2017, the sale of operations in Turkey as well as the renewal rights in Bulgaria, the Czech
AIG Fuji Life Insurance
On November 14, 2016, we entered into an agreement to sell Fuji Life to FWD Group, the insurance arm of Pacific Century Group.
Total cash consideration to us was approximately $333 million. The sale resulted in a pre-tax loss of $591 million. The sale of Fuji Life
was completed on April 30, 2017.
(in millions)
Assets:
Fixed maturity securities
Equity securities
Other invested assets
Short-term investments
Cash
Accrued investment income
Mortgage and other loans receivable, net
Premiums and other receivables, net of allowance
Reinsurance assets, net of allowance
Deferred policy acquisition costs
Other assets
Assets of businesses held for sale
Less: Loss Accrual
Total assets held for sale
Liabilities:
Liability for unpaid losses and loss adjustment expenses
Unearned premiums
Future policy benefits for life and accident and health insurance contracts
Other policyholder funds
Long-term debt
Other liabilities
Total liabilities held for sale
5. Fair Value Measurements
FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
December 31,
2016
$
6,045
149
137
2
130
133
21
351
8
471
273
7,720
(521)
7,199
402
297
4,579
378
-
450
6,106
$
$
$
We carry certain of our financial instruments at fair value. We define the fair value of a financial instrument as the amount that would
be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. We are responsible for the determination of the value of the investments carried at fair value and the supporting
methodologies and assumptions.
The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of
observable valuation inputs. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is
used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and
are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is
affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and
not yet established, the characteristics specific to the transaction, liquidity and general market conditions.
Fair Value Hierarchy
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in accordance with a fair
value hierarchy consisting of three levels based on the observability of valuation inputs:
Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that we have the ability to access for
identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the
quoted price for such instruments.
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are
observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
184
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
185
1011252ai_financials.indd 184
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 4. H el d -F or -S al e Cl ass i fic a ti o n
ITEM 8 | Notes to Consolidated Financial Statements | 4. H el d -F or -S al e Cl ass i fic a ti o n
The following table summarizes the components of assets and liabilities held-for-sale on the Consolidated Balance Sheets
at December 31, 2016:
4. Held-For-Sale Classification
HELD-FOR-SALE CLASSIFICATION
We report a business as held-for-sale when management has approved the sale or received approval to sell the business and is
committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is
anticipated to occur during the next 12 months and certain other specified criteria are met. A business classified as held-for-sale is
recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its
estimated fair value, a loss is recognized.
Assets and liabilities related to the businesses classified as held-for-sale are separately reported in our Consolidated Balance Sheets
beginning in the period in which the business is classified as held-for-sale.
At December 31, 2017, we had no businesses classified as held-for-sale. At December 31, 2016, the following businesses were
reported as held-for-sale:
United Guaranty Asia
On August 15, 2016, we entered into a definitive agreement to sell our 100 percent interest in United Guaranty and certain related
affiliates to Arch. This transaction closed on December 31, 2016 and we received proceeds of approximately $3.3 billion, consisting of
$2.2 billion of cash, and approximately $1.1 billion of newly issued Arch convertible non-voting common-equivalent preferred stock.
We also received $261 million in pre-closing dividends from United Guaranty in the fourth quarter of 2016. However, due to pending
regulatory approvals, United Guaranty Asia was not included in the December 31, 2016 closing and $40 million of cash consideration
was retained by Arch. The sale of United Guaranty Asia was completed on July 1, 2017 and we received the $40 million cash
proceeds.
Sale of Certain Insurance Subsidiary Operations to Fairfax
On October 18, 2016, we entered into agreements to sell certain insurance operations to Fairfax Financial Holdings Limited (Fairfax).
The agreements include the sale of our subsidiary operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey. Fairfax
will also acquire renewal rights for the portfolios of local business written by our operations in Bulgaria, the Czech Republic, Hungary,
Poland, Romania and Slovakia, and assume certain of our operating assets and employees. Total cash consideration to us is
expected to be approximately $234 million. The transaction is closing on a country-by-country basis as the regulatory approvals are
obtained.
In the second quarter of 2017, the sale of operations in Turkey as well as the renewal rights in Bulgaria, the Czech
Republic, Hungary, Poland and Slovakia were completed, which resulted in total cash proceeds of $48 million. In the third quarter of
2017, the sale of the operations in Colombia, Chile and Argentina were completed, which resulted in cash proceeds of $168 million.
Substantially all of the operations and renewal rights that we agreed to sell Fairfax were sold by December 31, 2017.
AIG Fuji Life Insurance
was completed on April 30, 2017.
On November 14, 2016, we entered into an agreement to sell Fuji Life to FWD Group, the insurance arm of Pacific Century Group.
Total cash consideration to us was approximately $333 million. The sale resulted in a pre-tax loss of $591 million. The sale of Fuji Life
(in millions)
Assets:
Fixed maturity securities
Equity securities
Mortgage and other loans receivable, net
Other invested assets
Short-term investments
Cash
Accrued investment income
Premiums and other receivables, net of allowance
Reinsurance assets, net of allowance
Deferred policy acquisition costs
Other assets
Assets of businesses held for sale
Less: Loss Accrual
Total assets held for sale
Liabilities:
Liability for unpaid losses and loss adjustment expenses
Unearned premiums
Future policy benefits for life and accident and health insurance contracts
Other policyholder funds
Long-term debt
Other liabilities
Total liabilities held for sale
5. Fair Value Measurements
FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
December 31,
2016
6,045
149
137
2
130
133
21
351
8
471
273
7,720
(521)
7,199
402
297
4,579
378
-
450
6,106
$
$
$
$
We carry certain of our financial instruments at fair value. We define the fair value of a financial instrument as the amount that would
be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. We are responsible for the determination of the value of the investments carried at fair value and the supporting
methodologies and assumptions.
The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of
observable valuation inputs. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is
used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and
are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is
affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and
not yet established, the characteristics specific to the transaction, liquidity and general market conditions.
Fair Value Hierarchy
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in accordance with a fair
value hierarchy consisting of three levels based on the observability of valuation inputs:
Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that we have the ability to access for
identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the
quoted price for such instruments.
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are
observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
184
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
185
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both
observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances
for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we
must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level
in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input
that is significant to the fair value measurement in its entirety.
The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are
applied to assets and liabilities across the levels discussed above, and it is the observability of the inputs used that determines the
appropriate level in the fair value hierarchy for the respective asset or liability.
VALUATION METHODOLOGIES OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
Incorporation of Credit Risk in Fair Value Measurements
Our Own Credit Risk. Fair value measurements for certain liabilities incorporate our own credit risk by determining the explicit
cost for each counterparty to protect against its net credit exposure to us at the balance sheet date by reference to observable AIG
CDS or cash bond spreads. We calculate the effect of credit spread changes using discounted cash flow techniques that
incorporate current market interest rates. A derivative counterpartys net credit exposure to us is determined based on master
netting agreements, when applicable, which take into consideration all derivative positions with us, as well as collateral we post
with the counterparty at the balance sheet date. For a description of how we incorporate our own credit risk in the valuation of
embedded derivatives related to certain annuity and life insurance products see Embedded Derivatives within Policyholder
Contract Deposits below.
Counterparty Credit Risk. Fair value measurements for freestanding derivatives incorporate counterparty credit by determining
the explicit cost for us to protect against our net credit exposure to each counterparty at the balance sheet date by reference to
observable counterparty CDS spreads, when available. When not available, other directly or indirectly observable credit spreads
will be used to derive the best estimates of the counterparty spreads. Our net credit exposure to a counterparty is determined
based on master netting agreements, which take into consideration all derivative positions with the counterparty, as well as
collateral posted by the counterparty at the balance sheet date.
Fair values for fixed maturity securities based on observable market prices for identical or similar instruments implicitly incorporate
counterparty credit risk. Fair values for fixed maturity securities based on internal models incorporate counterparty credit risk by using
discount rates that take into consideration cash issuance spreads for similar instruments or other observable information.
For fair values measured based on internal models, the cost of credit protection is determined under a discounted present value
approach considering the market levels for single name CDS spreads for each specific counterparty, the mid-market value of the net
exposure (reflecting the amount of protection required) and the weighted average life of the net exposure. CDS spreads are provided
to us by an independent third party. We utilize an interest rate based on the benchmark London Interbank Offered Rate (LIBOR) curve
to derive our discount rates.
While this approach does not explicitly consider all potential future behavior of the derivative transactions or potential future changes
in valuation inputs, we believe this approach provides a reasonable estimate of the fair value of the assets and liabilities, including
consideration of the impact of non-performance risk.
Fixed Maturity Securities
Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure fixed
maturity securities at fair value. Market price data is generally obtained from dealer markets.
We employ independent third-party valuation service providers to gather, analyze, and interpret market information to derive fair value
estimates for individual investments, based upon market-accepted methodologies and assumptions. The methodologies used by
these independent third-party valuation service providers are reviewed and understood by management, through periodic discussion
with and information provided by the independent third-party valuation service providers. In addition, as discussed further below,
control processes are applied to the fair values received from independent third-party valuation service providers to ensure the
accuracy of these values.
Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources
and, through the use of market-accepted valuation methodologies, which may utilize matrix pricing, financial models, accompanying
model inputs and various assumptions, provide a single fair value measurement for individual securities. The inputs used by the
valuation service providers include, but are not limited to, market prices from completed transactions for identical securities and
transactions for comparable securities, benchmark yields, interest rate yield curves, credit spreads, prepayment rates, default rates,
recovery assumptions, currency rates, quoted prices for similar securities and other market-observable information, as applicable. If
fair value is determined using financial models, these models generally take into account, among other things, market observable
information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate,
credit rating, industry sector, and when applicable, collateral quality and other security or issuer-specific information. When market
transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly
increased.
We have control processes designed to ensure that the fair values received from independent third-party valuation service providers
are accurately recorded, that their data inputs and valuation techniques are appropriate and consistently applied and that the
assumptions used appear reasonable and consistent with the objective of determining fair value. We assess the reasonableness of
individual security values received from independent third-party valuation service providers through various analytical techniques, and
have procedures to escalate related questions internally and to the independent third-party valuation service providers for resolution.
To assess the degree of pricing consensus among various valuation service providers for specific asset types, we conduct
comparisons of prices received from available sources. We use these comparisons to establish a hierarchy for the fair values
received from independent third-party valuation service providers to be used for particular security classes. We also validate prices for
selected securities through reviews by members of management who have relevant expertise and who are independent of those
charged with executing investing transactions.
When our independent third-party valuation service providers are unable to obtain sufficient market observable information upon
which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable
about these securities to provide a price quote, which is generally non-binding, or by employing market accepted valuation models.
Broker prices may be based on an income approach, which converts expected future cash flows to a single present value amount,
with specific consideration of inputs relevant to particular security types. For structured securities, such inputs may include ratings,
collateral types, geographic concentrations, underlying loan vintages, loan delinquencies and defaults, loss severity assumptions,
prepayments, and weighted average coupons and maturities. When the volume or level of market activity for a security is limited,
certain inputs used to determine fair value may not be observable in the market. Broker prices may also be based on a market
approach that considers recent transactions involving identical or similar securities. Fair values provided by brokers are subject to
similar control processes to those noted above for fair values from independent third-party valuation service providers, including
management reviews. For those corporate debt instruments (for example, private placements) that are not traded in active markets or
that are subject to transfer restrictions, valuations reflect illiquidity and non-transferability, based on available market evidence. When
observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates
based on credit spreads, yields or price levels of comparable securities, adjusted for illiquidity and structure. Fair values determined
internally are also subject to management review to ensure that valuation models and related inputs are reasonable.
The methodology above is relevant for all fixed maturity securities including residential mortgage backed securities (RMBS),
commercial mortgage backed securities (CMBS), collateralized debt obligations (CDO), other asset-backed securities (ABS) and fixed
maturity securities issued by government sponsored entities and corporate entities.
Equity Securities Traded in Active Markets
Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure equity
securities at fair value. Market price data is generally obtained from exchange or dealer markets.
Mortgage and Other Loans Receivable
We estimate the fair value of mortgage and other loans receivable that are measured at fair value by using dealer quotations,
discounted cash flow analyses and/or internal valuation models. The determination of fair value considers inputs such as interest rate,
maturity, the borrowers creditworthiness, collateral, subordination, guarantees, past-due status, yield curves, credit curves,
prepayment rates, market pricing for comparable loans and other relevant factors.
186
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
187
1011252ai_financials.indd 186
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both
observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances
for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we
must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level
in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input
that is significant to the fair value measurement in its entirety.
The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are
applied to assets and liabilities across the levels discussed above, and it is the observability of the inputs used that determines the
appropriate level in the fair value hierarchy for the respective asset or liability.
VALUATION METHODOLOGIES OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
Incorporation of Credit Risk in Fair Value Measurements
Our Own Credit Risk. Fair value measurements for certain liabilities incorporate our own credit risk by determining the explicit
cost for each counterparty to protect against its net credit exposure to us at the balance sheet date by reference to observable AIG
CDS or cash bond spreads. We calculate the effect of credit spread changes using discounted cash flow techniques that
incorporate current market interest rates. A derivative counterpartys net credit exposure to us is determined based on master
netting agreements, when applicable, which take into consideration all derivative positions with us, as well as collateral we post
with the counterparty at the balance sheet date. For a description of how we incorporate our own credit risk in the valuation of
embedded derivatives related to certain annuity and life insurance products see Embedded Derivatives within Policyholder
Contract Deposits below.
Counterparty Credit Risk. Fair value measurements for freestanding derivatives incorporate counterparty credit by determining
the explicit cost for us to protect against our net credit exposure to each counterparty at the balance sheet date by reference to
observable counterparty CDS spreads, when available. When not available, other directly or indirectly observable credit spreads
will be used to derive the best estimates of the counterparty spreads. Our net credit exposure to a counterparty is determined
based on master netting agreements, which take into consideration all derivative positions with the counterparty, as well as
collateral posted by the counterparty at the balance sheet date.
Fair values for fixed maturity securities based on observable market prices for identical or similar instruments implicitly incorporate
counterparty credit risk. Fair values for fixed maturity securities based on internal models incorporate counterparty credit risk by using
discount rates that take into consideration cash issuance spreads for similar instruments or other observable information.
For fair values measured based on internal models, the cost of credit protection is determined under a discounted present value
approach considering the market levels for single name CDS spreads for each specific counterparty, the mid-market value of the net
exposure (reflecting the amount of protection required) and the weighted average life of the net exposure. CDS spreads are provided
to us by an independent third party. We utilize an interest rate based on the benchmark London Interbank Offered Rate (LIBOR) curve
to derive our discount rates.
While this approach does not explicitly consider all potential future behavior of the derivative transactions or potential future changes
in valuation inputs, we believe this approach provides a reasonable estimate of the fair value of the assets and liabilities, including
consideration of the impact of non-performance risk.
Fixed Maturity Securities
Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources
and, through the use of market-accepted valuation methodologies, which may utilize matrix pricing, financial models, accompanying
model inputs and various assumptions, provide a single fair value measurement for individual securities. The inputs used by the
valuation service providers include, but are not limited to, market prices from completed transactions for identical securities and
transactions for comparable securities, benchmark yields, interest rate yield curves, credit spreads, prepayment rates, default rates,
recovery assumptions, currency rates, quoted prices for similar securities and other market-observable information, as applicable. If
fair value is determined using financial models, these models generally take into account, among other things, market observable
information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate,
credit rating, industry sector, and when applicable, collateral quality and other security or issuer-specific information. When market
transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly
increased.
We have control processes designed to ensure that the fair values received from independent third-party valuation service providers
are accurately recorded, that their data inputs and valuation techniques are appropriate and consistently applied and that the
assumptions used appear reasonable and consistent with the objective of determining fair value. We assess the reasonableness of
individual security values received from independent third-party valuation service providers through various analytical techniques, and
have procedures to escalate related questions internally and to the independent third-party valuation service providers for resolution.
To assess the degree of pricing consensus among various valuation service providers for specific asset types, we conduct
comparisons of prices received from available sources. We use these comparisons to establish a hierarchy for the fair values
received from independent third-party valuation service providers to be used for particular security classes. We also validate prices for
selected securities through reviews by members of management who have relevant expertise and who are independent of those
charged with executing investing transactions.
When our independent third-party valuation service providers are unable to obtain sufficient market observable information upon
which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable
about these securities to provide a price quote, which is generally non-binding, or by employing market accepted valuation models.
Broker prices may be based on an income approach, which converts expected future cash flows to a single present value amount,
with specific consideration of inputs relevant to particular security types. For structured securities, such inputs may include ratings,
collateral types, geographic concentrations, underlying loan vintages, loan delinquencies and defaults, loss severity assumptions,
prepayments, and weighted average coupons and maturities. When the volume or level of market activity for a security is limited,
certain inputs used to determine fair value may not be observable in the market. Broker prices may also be based on a market
approach that considers recent transactions involving identical or similar securities. Fair values provided by brokers are subject to
similar control processes to those noted above for fair values from independent third-party valuation service providers, including
management reviews. For those corporate debt instruments (for example, private placements) that are not traded in active markets or
that are subject to transfer restrictions, valuations reflect illiquidity and non-transferability, based on available market evidence. When
observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates
based on credit spreads, yields or price levels of comparable securities, adjusted for illiquidity and structure. Fair values determined
internally are also subject to management review to ensure that valuation models and related inputs are reasonable.
The methodology above is relevant for all fixed maturity securities including residential mortgage backed securities (RMBS),
commercial mortgage backed securities (CMBS), collateralized debt obligations (CDO), other asset-backed securities (ABS) and fixed
maturity securities issued by government sponsored entities and corporate entities.
Equity Securities Traded in Active Markets
Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure equity
securities at fair value. Market price data is generally obtained from exchange or dealer markets.
Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure fixed
Mortgage and Other Loans Receivable
maturity securities at fair value. Market price data is generally obtained from dealer markets.
We employ independent third-party valuation service providers to gather, analyze, and interpret market information to derive fair value
estimates for individual investments, based upon market-accepted methodologies and assumptions. The methodologies used by
these independent third-party valuation service providers are reviewed and understood by management, through periodic discussion
with and information provided by the independent third-party valuation service providers. In addition, as discussed further below,
control processes are applied to the fair values received from independent third-party valuation service providers to ensure the
accuracy of these values.
We estimate the fair value of mortgage and other loans receivable that are measured at fair value by using dealer quotations,
discounted cash flow analyses and/or internal valuation models. The determination of fair value considers inputs such as interest rate,
maturity, the borrowers creditworthiness, collateral, subordination, guarantees, past-due status, yield curves, credit curves,
prepayment rates, market pricing for comparable loans and other relevant factors.
186
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
187
1011252ai_financials.indd 187
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Other Invested Assets
We initially estimate the fair value of investments in certain hedge funds, private equity funds and other investment partnerships by
reference to the transaction price. Subsequently, we generally obtain the fair value of these investments from net asset value
information provided by the general partner or manager of the investments, the financial statements of which are generally audited
annually. We consider observable market data and perform certain control procedures to validate the appropriateness of using the net
asset value as a fair value measurement. The fair values of other investments carried at fair value, such as direct private equity
holdings, are initially determined based on transaction price and are subsequently estimated based on available evidence such as
market transactions in similar instruments, other financing transactions of the issuer and other available financial information for the
issuer, with adjustments made to reflect illiquidity as appropriate.
Short-term Investments
For short-term investments that are measured at amortized cost, the carrying amounts of these assets approximate fair values
because of the relatively short period of time between origination and expected realization, and their limited exposure to credit risk.
Securities purchased under agreements to resell (reverse repurchase agreements) are generally treated as collateralized receivables.
We report certain receivables arising from securities purchased under agreements to resell as Short-term investments in the
Consolidated Balance Sheets. When these receivables are measured at fair value, we use market-observable interest rates to
determine fair value.
Separate Account Assets
Separate account assets are composed primarily of registered and unregistered open-end mutual funds that generally trade daily and
are measured at fair value in the manner discussed above for equity securities traded in active markets.
Freestanding Derivatives
Derivative assets and liabilities can be exchange-traded or traded over-the-counter (OTC). We generally value exchange-traded
derivatives such as futures and options using quoted prices in active markets for identical derivatives at the balance sheet date.
OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs
to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable
levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the
contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. We
generally use similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms,
market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC
derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be corroborated by
observable market data by correlation or other means, and model selection does not involve significant management judgment.
For certain OTC derivatives that trade in less liquid markets, where we generally do not have corroborating market evidence to
support significant model inputs and cannot verify the model to market transactions, the transaction price may provide the best
estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so the model
value at inception equals the transaction price. We will update valuation inputs in these models only when corroborated by evidence
such as similar market transactions, independent third-party valuation service providers and/or broker or dealer quotations, or other
empirical market data. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit
considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence,
managements best estimate is used.
We value our super senior credit default swap portfolio using prices obtained from vendors and/or counterparties. The valuation of
the super senior credit derivatives is complex because of the limited availability of market observable information due to the lack of
trading and price transparency in certain structured finance markets. Our valuation methodologies for the super senior CDS portfolio
have evolved over time in response to market conditions and the availability of market observable information. We have sought to
calibrate the methodologies to available market information and to review the assumptions of the methodologies on a regular basis.
Embedded Derivatives within Policyholder Contract Deposits
Certain variable annuity and equity-indexed annuity and life contracts contain embedded derivatives that we bifurcate from the host
contracts and account for separately at fair value, with changes in fair value recognized in earnings. These embedded derivatives are
classified within Policyholder contract deposits. We have concluded these contracts contain either (i) a written option that guarantees
a minimum accumulation value at maturity, (ii) a written option that guarantees annual withdrawals regardless of underlying market
performance for a specific period or for life, or (iii) equity-indexed written options that meet the criteria of derivatives and must be
bifurcated.
The fair value of embedded derivatives contained in certain variable annuity and equity-indexed annuity and life contracts is
measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts.
These discounted cash flow projections primarily include benefits and related fees assessed, when applicable. In some instances, the
projected cash flows from fees may exceed projected cash flows related to benefit payments and therefore, at a point in time, the
carrying value of the embedded derivative may be in a net asset position. The projected cash flows incorporate best estimate
assumptions for policyholder behavior (including mortality, lapses, withdrawals and benefit utilization), along with an explicit risk
margin to reflect a market participants estimates of projected cash flows and policyholder behavior. Estimates of future policyholder
behavior are subjective and based primarily on our historical experience.
Because of the dynamic and complex nature of the projected cash flows with respect to embedded derivatives in our variable annuity
contracts, risk neutral valuations are used, which are calibrated to observable interest rate and equity option prices. Estimating the
underlying cash flows for these products involves judgments regarding expected market rates of return, market volatility, credit
spreads, correlations of certain market variables, fund performance, discount rates and policyholder behavior. The portion of fees
attributable to the fair value of expected benefit payments are included within the fair value measurement of these embedded
derivatives, and related fees are classified in net realized gain/loss as earned, consistent with other changes in the fair value of these
embedded policy derivatives. Any portion of the fees not attributed to the embedded derivatives are excluded from the fair value
measurement and classified in policy fees as earned.
With respect to embedded derivatives in our equity-indexed annuity and life contracts, option pricing models are used to estimate fair
value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and our
ability to adjust the participation rate and the cap on equity-indexed credited rates in light of market conditions and policyholder
behavior assumptions.
Projected cash flows are discounted using the interest rate swap curve (swap curve), which is commonly viewed as being consistent
with the credit spreads for highly-rated financial institutions (S&P AA-rated or above). A swap curve shows the fixed-rate leg of a non-
complex swap against the floating rate (for example, LIBOR) leg of a related tenor. We also incorporate our own risk of non-
performance in the valuation of the embedded derivatives associated with variable annuity and equity-indexed annuity and life
contracts. The non-performance risk adjustment reflects a market participants view of our claims-paying ability by incorporating an
additional spread to the swap curve used to discount projected benefit cash flows in the valuation of these embedded derivatives. The
non-performance risk adjustment is calculated by constructing forward rates based on a weighted average of observable corporate
credit indices to approximate the claims-paying ability rating of our Life and Retirement companies.
Long-Term Debt
The fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer markets, when
available, or discounting expected cash flows using the appropriate discount rate for the applicable maturity. We determine the fair
value of structured liabilities and hybrid financial instruments (where performance is linked to structured interest rates, inflation or
currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk
profile. In addition, adjustments are made to the valuations of both non-structured and structured liabilities to reflect our own
creditworthiness based on the methodology described under the caption Incorporation of Credit Risk in Fair Value Measurements
Our Own Credit Risk above.
Borrowings under obligations of guaranteed investment agreements (GIAs), which are guaranteed by us, are recorded at fair value
using discounted cash flow calculations based on interest rates currently being offered for similar contracts and our current market
observable implicit credit spread rates with maturities consistent with those remaining for the contracts being valued. Obligations may
be called at various times prior to maturity at the option of the counterparty. Interest rates on these borrowings are primarily fixed, vary
by maturity and range up to 7.62 percent.
Other Liabilities
Other liabilities measured at fair value include certain securities sold under agreements to repurchase and certain securities sold but
not yet purchased. Liabilities arising from securities sold under agreements to repurchase are generally treated as collateralized
borrowings. We estimate the fair value of liabilities arising under these agreements by using market-observable interest rates. This
methodology considers such factors as the coupon rate, yield curves and other relevant factors. Fair values for securities sold but not
yet purchased are based on current market prices.
188
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
189
1011252ai_financials.indd 188
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Other Invested Assets
We initially estimate the fair value of investments in certain hedge funds, private equity funds and other investment partnerships by
reference to the transaction price. Subsequently, we generally obtain the fair value of these investments from net asset value
information provided by the general partner or manager of the investments, the financial statements of which are generally audited
annually. We consider observable market data and perform certain control procedures to validate the appropriateness of using the net
asset value as a fair value measurement. The fair values of other investments carried at fair value, such as direct private equity
holdings, are initially determined based on transaction price and are subsequently estimated based on available evidence such as
market transactions in similar instruments, other financing transactions of the issuer and other available financial information for the
issuer, with adjustments made to reflect illiquidity as appropriate.
Short-term Investments
For short-term investments that are measured at amortized cost, the carrying amounts of these assets approximate fair values
because of the relatively short period of time between origination and expected realization, and their limited exposure to credit risk.
Securities purchased under agreements to resell (reverse repurchase agreements) are generally treated as collateralized receivables.
We report certain receivables arising from securities purchased under agreements to resell as Short-term investments in the
Consolidated Balance Sheets. When these receivables are measured at fair value, we use market-observable interest rates to
determine fair value.
Separate Account Assets
Freestanding Derivatives
Separate account assets are composed primarily of registered and unregistered open-end mutual funds that generally trade daily and
are measured at fair value in the manner discussed above for equity securities traded in active markets.
Derivative assets and liabilities can be exchange-traded or traded over-the-counter (OTC). We generally value exchange-traded
derivatives such as futures and options using quoted prices in active markets for identical derivatives at the balance sheet date.
OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs
to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable
levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the
contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. We
The fair value of embedded derivatives contained in certain variable annuity and equity-indexed annuity and life contracts is
measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts.
These discounted cash flow projections primarily include benefits and related fees assessed, when applicable. In some instances, the
projected cash flows from fees may exceed projected cash flows related to benefit payments and therefore, at a point in time, the
carrying value of the embedded derivative may be in a net asset position. The projected cash flows incorporate best estimate
assumptions for policyholder behavior (including mortality, lapses, withdrawals and benefit utilization), along with an explicit risk
margin to reflect a market participants estimates of projected cash flows and policyholder behavior. Estimates of future policyholder
behavior are subjective and based primarily on our historical experience.
Because of the dynamic and complex nature of the projected cash flows with respect to embedded derivatives in our variable annuity
contracts, risk neutral valuations are used, which are calibrated to observable interest rate and equity option prices. Estimating the
underlying cash flows for these products involves judgments regarding expected market rates of return, market volatility, credit
spreads, correlations of certain market variables, fund performance, discount rates and policyholder behavior. The portion of fees
attributable to the fair value of expected benefit payments are included within the fair value measurement of these embedded
derivatives, and related fees are classified in net realized gain/loss as earned, consistent with other changes in the fair value of these
embedded policy derivatives. Any portion of the fees not attributed to the embedded derivatives are excluded from the fair value
measurement and classified in policy fees as earned.
With respect to embedded derivatives in our equity-indexed annuity and life contracts, option pricing models are used to estimate fair
value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and our
ability to adjust the participation rate and the cap on equity-indexed credited rates in light of market conditions and policyholder
behavior assumptions.
Projected cash flows are discounted using the interest rate swap curve (swap curve), which is commonly viewed as being consistent
with the credit spreads for highly-rated financial institutions (S&P AA-rated or above). A swap curve shows the fixed-rate leg of a non-
complex swap against the floating rate (for example, LIBOR) leg of a related tenor. We also incorporate our own risk of non-
performance in the valuation of the embedded derivatives associated with variable annuity and equity-indexed annuity and life
contracts. The non-performance risk adjustment reflects a market participants view of our claims-paying ability by incorporating an
additional spread to the swap curve used to discount projected benefit cash flows in the valuation of these embedded derivatives. The
non-performance risk adjustment is calculated by constructing forward rates based on a weighted average of observable corporate
credit indices to approximate the claims-paying ability rating of our Life and Retirement companies.
generally use similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms,
Long-Term Debt
market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC
derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be corroborated by
observable market data by correlation or other means, and model selection does not involve significant management judgment.
For certain OTC derivatives that trade in less liquid markets, where we generally do not have corroborating market evidence to
support significant model inputs and cannot verify the model to market transactions, the transaction price may provide the best
estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so the model
value at inception equals the transaction price. We will update valuation inputs in these models only when corroborated by evidence
such as similar market transactions, independent third-party valuation service providers and/or broker or dealer quotations, or other
empirical market data. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit
considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence,
managements best estimate is used.
We value our super senior credit default swap portfolio using prices obtained from vendors and/or counterparties. The valuation of
the super senior credit derivatives is complex because of the limited availability of market observable information due to the lack of
trading and price transparency in certain structured finance markets. Our valuation methodologies for the super senior CDS portfolio
have evolved over time in response to market conditions and the availability of market observable information. We have sought to
calibrate the methodologies to available market information and to review the assumptions of the methodologies on a regular basis.
Embedded Derivatives within Policyholder Contract Deposits
Certain variable annuity and equity-indexed annuity and life contracts contain embedded derivatives that we bifurcate from the host
contracts and account for separately at fair value, with changes in fair value recognized in earnings. These embedded derivatives are
classified within Policyholder contract deposits. We have concluded these contracts contain either (i) a written option that guarantees
a minimum accumulation value at maturity, (ii) a written option that guarantees annual withdrawals regardless of underlying market
performance for a specific period or for life, or (iii) equity-indexed written options that meet the criteria of derivatives and must be
bifurcated.
188
AIG | 2017 Form 10-K
The fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer markets, when
available, or discounting expected cash flows using the appropriate discount rate for the applicable maturity. We determine the fair
value of structured liabilities and hybrid financial instruments (where performance is linked to structured interest rates, inflation or
currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk
profile. In addition, adjustments are made to the valuations of both non-structured and structured liabilities to reflect our own
creditworthiness based on the methodology described under the caption Incorporation of Credit Risk in Fair Value Measurements
Our Own Credit Risk above.
Borrowings under obligations of guaranteed investment agreements (GIAs), which are guaranteed by us, are recorded at fair value
using discounted cash flow calculations based on interest rates currently being offered for similar contracts and our current market
observable implicit credit spread rates with maturities consistent with those remaining for the contracts being valued. Obligations may
be called at various times prior to maturity at the option of the counterparty. Interest rates on these borrowings are primarily fixed, vary
by maturity and range up to 7.62 percent.
Other Liabilities
Other liabilities measured at fair value include certain securities sold under agreements to repurchase and certain securities sold but
not yet purchased. Liabilities arising from securities sold under agreements to repurchase are generally treated as collateralized
borrowings. We estimate the fair value of liabilities arising under these agreements by using market-observable interest rates. This
methodology considers such factors as the coupon rate, yield curves and other relevant factors. Fair values for securities sold but not
yet purchased are based on current market prices.
1011252ai_financials.indd 189
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AIG | 2017 Form 10-K
189
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
The following table presents information about assets and liabilities measured at fair value on a recurring basis and
indicates the level of the fair value measurement based on the observability of the inputs used:
December 31, 2017
(in millions)
Assets:
Bonds available for sale:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
$
Total bonds available for sale
Other bond securities:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Other invested assets(a)
Derivative assets:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Counterparty netting and cash collateral
Total derivative assets
Short-term investments
Separate account assets
Total
Liabilities:
Policyholder contract deposits
Other policyholder funds
Derivative liabilities:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Counterparty netting and cash collateral
Total derivative liabilities
Long-term debt
Other liabilities
Total
190
AIG | 2017 Form 10-K
Level 1
Level 2
Level 3
Counterparty
Cash
Netting(b) Collateral
Total
201 $
-
20
-
-
-
-
221
2,455 $
16,240
15,631
133,003
21,098
13,217
8,131
209,775
238
-
-
-
-
-
-
238
1,061
18
110
1,189
589
-
-
2,564
-
57
1,891
421
485
604
6,022
-
515
4
519
-
-
1
-
2,404
8
1,173
16,136
624
8,651
28,996
-
-
-
18
1,464
74
4,956
6,512
-
-
-
-
-
5
250
1
-
188
-
-
-
189
2,078
87,141
91,645 $
2,170
827
252
-
-
-
3,249
537
5,657
-
4
82
1
20
-
107
-
-
225,760 $ 35,870
- $
-
2
-
2
-
-
-
4
-
46
50 $
14 $
-
4,136
-
2,176
1,241
19
14
-
-
3,450
2,888
43
6,395 $
22
4
-
263
5
-
294
-
-
4,430
$
$
$
$
$
$
$
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
2,656
18,644
15,659
134,176
37,234
13,841
16,782
238,992
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,802
-
57
1,909
1,885
559
5,560
12,772
1,061
533
114
1,708
589
5
251
-
-
-
-
-
(1,464)
(1,464)
-
-
(1,464) $
-
-
-
-
-
(1,159)
(1,159)
-
-
(1,159) $
2,171
831
522
1
20
(2,623)
922
2,615
92,798
350,652
- $
-
- $
-
4,150
-
-
-
-
-
-
(1,464)
(1,464)
-
-
(1,464) $
-
-
-
-
-
(1,249)
(1,249)
-
-
(1,249) $
2,200
1,245
21
277
5
(2,713)
1,035
2,888
89
8,162
Level 1
Level 2
Level 3
Netting(b)
Collateral
Total
Counterparty
Cash
U.S. government and government sponsored entities
$
63 $
1,929 $
-
$
- $
- $
Obligations of states, municipalities and political subdivisions
U.S. government and government sponsored entities
December 31, 2016
(in millions)
Assets:
Bonds available for sale:
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Common stock
Preferred stock
Mutual funds
Total other bond securities
Equity securities available for sale:
Total equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Counterparty netting and cash collateral
Other invested assets(a)
Derivative assets:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Total derivative assets
Short-term investments
Separate account assets
Total
Liabilities:
Other policyholder funds
Derivative liabilities:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Counterparty netting and cash collateral
Total derivative liabilities
Long-term debt
Other liabilities
Total
52
22,732
14,466
131,047
20,468
12,231
8,578
115
211,451
29,971
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,056
752
260
2,068
482
188
188
2,660
77,318
- $
5
12
12
2,939
51
1,755
420
448
905
6,518
10
2,328
1,320
59
3,713
681
5,654
3,039
1,358
4,405
3,357
9
-
1
-
-
1
-
6
-
-
7
-
1
-
-
2,040
17
1,133
16,906
2,040
7,835
-
-
17
1,605
155
5,703
7,480
11
204
58
2
16
76
-
-
-
-
-
-
-
-
-
-
-
38
11
-
5
-
331
385
71
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,992
24,772
14,535
132,180
37,374
14,271
16,413
241,537
2,939
51
1,772
2,025
603
6,608
13,998
1,065
2,078
752
261
482
11
205
2,328
1,320
305
2
22
(2,168)
1,809
3,341
82,972
5
3,077
1,369
19
331
6
(2,786)
2,016
3,428
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,265)
(1,265)
(903)
(903)
$
$
(1,265)
(1,265)
(1,521)
(1,521)
$
17 $
7,787 $
3,489
$
(1,265) $
(1,521) $
8,507
Policyholder contract deposits
$
25 $
3,033
- $
- $
3,058
$ 82,831 $ 228,028 $ 37,742
(1,265) $
(903) $ 346,433
(a) Excludes investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent), which totaled $6.0 billion and $6.7 billion as of
December 31, 2017 and December 31, 2016, respectively.
(b) Represents netting of derivative exposures covered by qualifying master netting agreements.
AIG | 2017 Form 10-K
191
1011252ai_financials.indd 190
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
The following table presents information about assets and liabilities measured at fair value on a recurring basis and
indicates the level of the fair value measurement based on the observability of the inputs used:
December 31, 2016
(in millions)
Assets:
Bonds available for sale:
Level 1
Level 2
Level 3
Counterparty
Netting(b)
Cash
Collateral
Total
U.S. government and government sponsored entities
$
63 $
1,929 $
-
$
- $
- $
U.S. government and government sponsored entities
$
201 $
2,455 $
$
- $
- $
Obligations of states, municipalities and political subdivisions
U.S. government and government sponsored entities
238
2,564
Obligations of states, municipalities and political subdivisions
Total other bond securities
Equity securities available for sale:
238
6,022
Level 1
Level 2
Level 3
Counterparty
Cash
Netting(b) Collateral
Total
20
16,240
15,631
133,003
21,098
13,217
8,131
221
209,775
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
-
-
2
-
2
-
-
-
4
-
46
1,061
18
110
1,189
589
188
189
2,078
87,141
2,404
-
8
1,173
16,136
624
8,651
28,996
1,464
18
74
4,956
6,512
-
-
-
-
-
-
-
-
5
-
-
-
-
4
-
5
-
-
-
250
-
4
82
1
20
107
22
263
294
-
57
1,891
421
485
604
515
519
-
4
-
-
1
2,170
827
252
3,249
537
5,657
-
-
-
-
2,176
1,241
19
14
-
-
3,450
2,888
43
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,656
18,644
15,659
134,176
37,234
13,841
16,782
238,992
2,802
-
57
1,909
1,885
559
5,560
12,772
1,061
533
114
1,708
589
5
251
2,171
831
522
1
20
(2,623)
922
2,615
92,798
350,652
4,150
-
2,200
1,245
21
277
5
(2,713)
1,035
2,888
89
8,162
(1,464)
(1,464)
(1,159)
(1,159)
(1,464)
(1,464)
(1,249)
(1,249)
$
$
91,645 $
225,760 $ 35,870
(1,464) $
(1,159) $
- $
14 $
4,136
- $
- $
$
$
$
50 $
6,395 $
4,430
$
(1,464) $
(1,249) $
December 31, 2017
(in millions)
Assets:
Bonds available for sale:
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Counterparty netting and cash collateral
Other invested assets(a)
Derivative assets:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Total derivative assets
Short-term investments
Separate account assets
Total
Liabilities:
Policyholder contract deposits
Other policyholder funds
Derivative liabilities:
Interest rate contracts
Foreign exchange contracts
Counterparty netting and cash collateral
Total derivative liabilities
Equity contracts
Credit contracts
Other contracts
Long-term debt
Other liabilities
Total
190
AIG | 2017 Form 10-K
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,992
24,772
14,535
132,180
37,374
14,271
16,413
241,537
2,939
51
1,772
2,025
603
6,608
13,998
1,065
752
261
2,078
482
11
205
2,328
1,320
305
2
22
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
U.S. government and government sponsored entities
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Other invested assets(a)
Derivative assets:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Counterparty netting and cash collateral
Total derivative assets
Short-term investments
Separate account assets
Total
Liabilities:
-
52
-
-
-
-
22,732
14,466
131,047
20,468
12,231
8,578
2,040
17
1,133
16,906
2,040
7,835
115
211,451
29,971
-
-
-
-
-
-
-
1,056
752
260
2,068
482
-
-
-
-
188
-
-
-
188
2,660
77,318
2,939
51
1,755
420
448
905
6,518
9
-
1
10
-
-
1
2,328
1,320
59
-
6
-
3,713
681
5,654
-
-
17
1,605
155
5,703
7,480
-
-
-
-
-
11
204
-
-
58
2
16
-
76
-
-
$ 82,831 $ 228,028 $ 37,742
Policyholder contract deposits
$
- $
25 $
3,033
Other policyholder funds
Derivative liabilities:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Counterparty netting and cash collateral
Total derivative liabilities
Long-term debt
Other liabilities
Total
(1,265)
(1,265)
-
-
(903)
(903)
-
-
(2,168)
1,809
3,341
82,972
(1,265) $
(903) $ 346,433
- $
- $
3,058
$
$
-
-
-
-
-
-
-
-
-
-
-
-
(1,265)
(1,265)
(1,521)
(1,521)
-
-
-
-
5
3,077
1,369
19
331
6
(2,786)
2,016
3,428
-
5
-
-
12
-
-
-
12
-
-
-
3,039
1,358
7
-
1
-
4,405
3,357
-
-
38
11
-
331
5
-
385
71
-
$
17 $
7,787 $
3,489
$
(1,265) $
(1,521) $
8,507
(a) Excludes investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent), which totaled $6.0 billion and $6.7 billion as of
December 31, 2017 and December 31, 2016, respectively.
(b) Represents netting of derivative exposures covered by qualifying master netting agreements.
AIG | 2017 Form 10-K
191
1011252ai_financials.indd 191
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
TRANSFERS OF LEVEL 1 AND LEVEL 2 ASSETS AND LIABILITIES
Our policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting
period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer
transacted with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when
transaction volume and frequency are indicative of an active market.
During the years ended December 31, 2017 and 2016, we transferred $0.4 billion and $1.1 billion, respectively, of securities issued by
Non-U.S. government entities from Level 1 to Level 2, because they are no longer considered actively traded. For similar reasons,
during the years ended December 31, 2017 and 2016, we transferred $113 million and $34 million, respectively, of securities issued
by the U.S. government and government-sponsored entities from Level 1 to Level 2. Additionally, we transferred $126 million of
preferred stock from Level 1 to Level 2 during the year ended December 31, 2017. We had no material transfers of preferred stock
from Level 1 to Level 2 during the year ended December 31, 2016. There were no material transfers from Level 2 to Level 1 during
the years ended December 31, 2017 and 2016.
CHANGES IN LEVEL 3 RECURRING FAIR VALUE MEASUREMENTS
The following tables present changes during the years ended December 31, 2017 and 2016 in Level 3 assets and liabilities
measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
liabilities in the Consolidated Balance Sheets at December 31, 2017 and 2016:
Net
Net
Realized and
Realized and
Unrealized
Unrealized
Gains
(Gains) Losses
(Losses)
Fair Value
Fair Value
Beginning
Beginning
Included
Included
Other
Other
Comprehensiv
Comprehensive
e
(in millions)
(in millions)
of Year
of Year
in Income
in Income
Income (Loss)
Income (Loss)
Purchases,
Purchases,
Sales,
Sales,
Issuances and
Issuances and
Settlements,
Settlements, Net
Net
Gross
Gross
Transfer
Transfers
s
Gross
Gross
Transfer
Transfers
s
In
In
Out
Out
Divested
Divested
Businesse
Businesses
s
Reclassifie
Reclassified
d
to Assets
to Liabilities
Fair Value
Fair Value
Held
Held
End
End
Changes in
Changes in
Unrealized
Unrealized Gains
Gains
(Losses)
(Losses) Included
Included
in Income on
in Income on
Instruments
Instruments Held
Held
for Sale
for Sale
of Year
of Year
at End of Year
at End of Year
Net
Realized and
Unrealized
Fair Value
(Gains) Losses
Other
Sales,
Gross
Gross
to Liabilities
Fair Value
in Income on
Beginning
Included
Comprehensive
Issuances and
Transfers
Transfers
Divested
Held
End
Instruments Held
Purchases,
Reclassified
(in millions)
of Year
in Income
Income (Loss)
Settlements, Net
In
Out
Businesses
for Sale
of Year
at End of Year
Liabilities:
Policyholder contract
deposits
Derivative liabilities, net:
Interest rate contracts
Foreign exchange
contracts
Equity contracts
Credit contracts
Other contracts
Total derivative
liabilities, net(a)
Long-term debt(b)
38
11
(58)
329
(11)
309
71
Total
$
3,413
$
639
$
$
274 $
(3) $
$
$
$
4,323
$
Realized and
Unrealized
Gains
(Losses)
Included
Fair
Value
Beginning
Other
Comprehensiv
e
Purchases,
Sales,
Issuances and
Settlements,
Net
Gross
Transfer
Gross
Transfer
s
In
s
Out
Divested
Businesse
s
Reclassified
to Assets
Held
Fair
Value
End
(in millions)
of Year
in Income
Income (Loss)
for Sale
of Year
at End of Year
$
3,033
$
807
$
$
296 $
- $
$
$
$
4,136
$
(499)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(12)
(42)
(24)
(132)
(111)
(11)
(9)
17
(5)
73
65
(87)
-
-
-
-
(3)
(3)
-
7
(111)
(878)
(323)
1,720
-
(1)
(38)
(1,623)
(1,662)
-
-
-
(14)
(75)
1
920
330
23
23
65
65
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5)
(977)
(29)
(185)
(18)
(65)
(83)
-
-
-
-
-
-
-
(54)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,133
16,906
2,040
7,835
17
1,605
155
5,703
7,480
-
-
-
11
204
Changes in
Unrealized Gains
(Losses) Included
22
-
(82)
262
(15)
187
-
5
3
35
61
77
181
-
(318)
Changes in
Unrealized
Gains
(Losses)
Included
in Income on
Instruments
Held
-
-
-
-
-
-
-
-
-
-
-
-
8
(24)
(1)
(393)
(418)
AIG | 2017 Form 10-K
193
(5)
(2)
(41)
(62)
(74)
(184)
16
Net
(3)
(13)
970
72
34
43
-
-
271
314
-
-
-
-
1
December 31, 2016
Assets:
Bonds available for sale:
Obligations of states,
municipalities and
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available
Other bond securities:
Corporate debt
RMBS
CMBS
CDO/ABS
Total other bond
securities
for sale:
Common stock
Total equity securities
available for sale
Other equity securities
Mortgage and other loans
receivable
Other invested assets
32
1,370
16,537
2,585
6,169
17
1,581
193
7,055
8,846
-
-
14
11
332
-
-
-
-
-
-
-
6
-
Total
$
38,020
$
1,380
$
(321) $
(1,275) $
1,364 $
(1,485) $
(14) $
(3) $
37,666
$
(410)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Divested
Businesse
-
s
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Reclassified
-
to Assets
-
Held
$
4,136
$
(499)
22
$
2,404
-
$
8
(82)
1,173
262
16,136
(15)
624
8,651
187
-
$
28,996
4,323
$
5
-
3
-
35
-
61
-
77
-
-
181
-
-
(318)
18
1,464
Fair
Value
74
4,956
End
Changes in
Unrealized
1
Gains
(Losses)
113
Included
5
in Income on
Instruments
362
Held
-
for Sale
of Year
6,512
481
at End of Year
Equity securities available
political subdivisions
$
2,124
$
5
$
- $
61 $
2 $
(152) $
- $
$
2,040
$
(3)
17
(14)
for sale
28,817
1,065
(321)
476
1,299
(1,348)
(14)
(3)
29,971
December 31, 2017
Liabilities:
Policyholder contract
Assets:
deposits
Bonds available for sale:
Derivative liabilities, net:
$
3,033
$
807
$
Obligations of states,
Interest rate contracts
38
(5)
Foreign exchange
municipalities and
-
-
$
296 $
- $
(11)
-
$
-
-
political subdivisions
contracts
$
2,040
11
$
5
(2)
$
167
-
$
216 $
(9)
8 $
-
(32) $
-
Non-U.S. governments
Equity contracts
Corporate debt
Credit contracts
RMBS
Other contracts
Total derivative
CMBS
liabilities, net(a)
CDO/ABS
Long-term debt(b)
Total bonds available
17
(58)
1,133
329
16,906
(11)
2,040
7,835
309
71
(9)
(41)
(3)
(62)
1,071
(74)
35
(19)
(184)
16
9
-
20
-
942
-
11
155
-
-
(9)
17
(259)
(5)
(2,763)
73
(748)
743
65
(87)
-
-
886
-
19
(3)
20
-
(3)
-
-
-
(604)
-
(39)
-
(734)
(63)
-
-
Total
for sale
$
29,971
3,413
$
1,080
639
$
1,304
-
$
(2,820)
274 $
933
(3) $
(1,472)
-
$
Other equity securities
political subdivisions
$
-
2,124
$
-
5
$
-
- $
-
61 $
-
2 $
-
(152) $
-
- $
Mortgage and other loans
Non-U.S. governments
receivable
Corporate debt
Other invested assets
RMBS
32
11
1,370
204
16,537
(3)
-
(13)
14
970
(12)
-
(42)
(6)
(24)
7
(6)
(111)
39
(878)
1
-
920
-
330
(5)
-
(977)
(1)
(29)
Total
CMBS
CDO/ABS
Total bonds available
$
37,666
2,585
$
2,133
72
$
1,298
(132)
$
(4,647) $
(323)
956 $
23
(1,643) $
(185)
6,169
34
(111)
1,720
23
-
-
-
(14)
-
-
-
-
-
$
1,605
Fair
155
Value
5,703
Beginning
191
Unrealized
Gains
4
(Losses)
841
Included
7,480
of Year
1,039
in Income
-
Income (Loss)
-
-
-
Other
Comprehensiv
-
e
10
(313)
Purchases,
24
Sales,
(1,582)
Issuances and
Settlements,
(1,861)
Net
-
14
9
Gross
Transfer
-
s
23
In
(12)
(33)
(118)
Gross
Transfer
(6)
s
(169)
Out
-
-
-
-
$
2,040
-
-
-
$
(3)
17
-
-
-
-
-
-
-
1,133
5
16,906
250
7,835
$
35,763
2,040
$
487
-
-
-
-
-
-
-
1
1
-
-
(1)
(1)
-
-
RMBS
CMBS
CDO/ABS
Total other bond
(in millions)
securities
Equity securities available
December 31, 2016
Assets:
for sale:
Bonds available for sale:
Common stock
Total equity securities
Obligations of states,
available for sale
municipalities and
Other bond securities:
Net
Corporate debt
17
3
Realized and
for sale
28,817
1,065
(321)
476
1,299
(1,348)
(14)
(3)
29,971
Other bond securities:
192
Corporate debt
RMBS
CMBS
1011252ai_financials.indd 192
CDO/ABS
Total other bond
securities
Equity securities available
for sale:
Common stock
Total equity securities
available for sale
Other equity securities
Mortgage and other loans
receivable
Other invested assets
AIG | 2017 Form 10-K
17
1,581
193
7,055
8,846
-
-
14
11
332
-
43
-
271
314
-
-
-
-
1
-
-
-
-
-
-
-
-
-
-
-
(1)
(38)
(1,623)
(1,662)
-
-
(14)
-
(75)
-
-
-
65
65
-
-
-
-
-
-
(18)
-
(65)
(83)
-
-
-
-
(54)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17
1,605
155
5,703
7,480
-
-
-
11
204
Total
$
38,020
$
1,380
$
(321) $
(1,275) $
1,364 $
(1,485) $
(14) $
(3) $
37,666
$
(410)
AIG | 2017 Form 10-K
193
-
-
-
(24)
(1)
(393)
3/13/18 3:29 PM
(418)
-
-
-
-
8
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181011252ai_financials_co8_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
TRANSFERS OF LEVEL 1 AND LEVEL 2 ASSETS AND LIABILITIES
Our policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting
period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer
transacted with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when
transaction volume and frequency are indicative of an active market.
During the years ended December 31, 2017 and 2016, we transferred $0.4 billion and $1.1 billion, respectively, of securities issued by
Non-U.S. government entities from Level 1 to Level 2, because they are no longer considered actively traded. For similar reasons,
during the years ended December 31, 2017 and 2016, we transferred $113 million and $34 million, respectively, of securities issued
by the U.S. government and government-sponsored entities from Level 1 to Level 2. Additionally, we transferred $126 million of
preferred stock from Level 1 to Level 2 during the year ended December 31, 2017. We had no material transfers of preferred stock
from Level 1 to Level 2 during the year ended December 31, 2016. There were no material transfers from Level 2 to Level 1 during
the years ended December 31, 2017 and 2016.
CHANGES IN LEVEL 3 RECURRING FAIR VALUE MEASUREMENTS
The following tables present changes during the years ended December 31, 2017 and 2016 in Level 3 assets and liabilities
measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and
liabilities in the Consolidated Balance Sheets at December 31, 2017 and 2016:
(in millions)
of Year
in Income
Income (Loss)
for Sale
of Year
at End of Year
Changes in
Unrealized
Gains
(Losses)
Included
in Income on
Instruments
Held
Net
Realized and
Unrealized
Gains
(Losses)
Included
Fair Value
Beginning
Other
Comprehensiv
e
Purchases,
Sales,
Issuances and
Settlements,
Net
Gross
Transfer
Gross
Transfer
s
In
s
Out
Divested
Businesse
s
Reclassifie
d
to Assets
Fair Value
Held
End
political subdivisions
$
2,040
$
5
$
167
$
216 $
8 $
(32) $
$
$
2,404
$
for sale
29,971
1,080
1,304
(2,820)
933
(1,472)
December 31, 2017
Assets:
Bonds available for sale:
Obligations of states,
municipalities and
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available
Other bond securities:
Corporate debt
RMBS
CMBS
CDO/ABS
Total other bond
securities
for sale:
Common stock
Equity securities available
Total equity securities
available for sale
Other equity securities
Mortgage and other loans
receivable
Other invested assets
17
1,133
16,906
2,040
7,835
17
1,605
155
5,703
7,480
-
-
-
11
204
192
AIG | 2017 Form 10-K
(9)
(3)
1,071
35
(19)
191
3
4
841
1,039
-
-
-
-
9
20
942
11
155
-
-
-
-
-
-
-
-
-
14
(6)
(9)
(259)
(2,763)
(748)
743
(313)
10
24
(1,582)
(1,861)
1
1
-
(6)
39
-
886
19
20
-
-
14
9
-
23
-
-
-
-
-
-
(604)
(39)
(734)
(63)
(12)
(33)
(118)
(6)
(169)
(1)
(1)
-
-
(1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
1,173
16,136
624
8,651
28,996
1,464
18
74
4,956
6,512
-
-
-
5
250
-
-
-
-
-
-
-
1
113
5
362
481
-
-
-
-
6
Total
$
37,666
$
2,133
$
1,298
$
(4,647) $
956 $
(1,643) $
$
$
35,763
$
487
Net
Realized and
Unrealized
Purchases,
Reclassified
Changes in
Unrealized Gains
(Losses) Included
Fair Value
(Gains) Losses
Other
Sales,
Gross
Gross
to Liabilities
Fair Value
in Income on
Beginning
Included
Comprehensive
Issuances and
Transfers
Transfers
Divested
Held
End
Instruments Held
(in millions)
of Year
in Income
Income (Loss)
Settlements, Net
In
Out
Businesses
for Sale
of Year
at End of Year
Liabilities:
Policyholder contract
deposits
Derivative liabilities, net:
Interest rate contracts
Foreign exchange
contracts
Equity contracts
Credit contracts
Other contracts
Total derivative
liabilities, net(a)
Long-term debt(b)
$
3,033
$
807
$
38
11
(58)
329
(11)
309
71
(5)
(2)
(41)
(62)
(74)
(184)
16
Total
$
3,413
$
639
$
-
-
-
-
-
-
-
$
296 $
- $
(11)
(9)
17
(5)
73
65
-
-
-
-
(3)
(3)
$
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
4,136
$
(499)
22
-
(82)
262
(15)
187
5
3
35
61
77
181
-
-
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
(318)
274 $
4,323
(3) $
(87)
$
$
$
$
$
-
-
-
-
-
-
-
-
-
Net
Net
Realized and
Realized and
Unrealized
Unrealized
Gains
(Gains) Losses
(Losses)
Included
Included
Fair
Fair Value
Value
Beginning
Beginning
Other
Other
Comprehensiv
Comprehensive
e
(in millions)
(in millions)
of Year
of Year
in Income
in Income
Income (Loss)
Income (Loss)
Liabilities:
December 31, 2016
Policyholder contract
Assets:
Purchases,
Purchases,
Sales,
Sales,
Issuances and
Issuances and
Settlements,
Settlements, Net
Net
Gross
Gross
Transfer
Transfers
s
Gross
Gross
Transfer
Transfers
s
In
In
Out
Out
Divested
Divested
Businesse
Businesses
s
Reclassified
Reclassified
to Liabilities
to Assets
Fair
Fair Value
Value
Held
Held
End
End
Changes in
Changes in
Unrealized
Unrealized Gains
Gains
(Losses)
(Losses) Included
Included
in Income on
in Income on
Instruments
Instruments Held
Held
for Sale
for Sale
of Year
of Year
at End of Year
at End of Year
Bonds available for sale:
deposits
$
2,289
$
441
$
- $
303 $
- $
- $
- $
-
$
3,033
$
(366)
Derivative liabilities, net:
Obligations of states,
Interest rate contracts
municipalities and
50
Foreign exchange
political subdivisions
$
2,124
$
(8)
5
$
-
- $
(4)
-
-
61 $
2 $
(152) $
contracts
Non-U.S. governments
7
32
Equity contracts
Corporate debt
Credit contracts
RMBS
Other contracts
CMBS
Total derivatives
CDO/ABS
Total bonds available
liabilities, net(a)
Long-term debt(b)
for sale
1,370
(54)
505
16,537
48
2,585
6,169
556
5
(3)
(10)
(13)
(81)
970
(10)
72
34
(104)
-
(12)
-
(42)
-
(24)
-
(132)
(111)
-
-
(321)
(1)
7
6
(111)
(95)
(878)
(53)
(323)
1,720
(147)
476
(3)
-
1
-
920
-
330
-
23
23
-
-
(5)
-
(977)
-
(29)
4
(185)
-
4
-
- $
-
-
-
(14)
-
-
-
-
-
-
-
-
-
(3)
-
-
-
-
-
-
-
-
38
$
2,040
$
11
17
1,133
(58)
329
16,906
2,040
(11)
7,835
309
183
28,817
4
1,065
-
1,299
(113)
(1,348)
-
(14)
-
(3)
71
29,971
Total
Other bond securities:
$
3,028
$
341
$
- $
153 $
- $
(109) $
- $
-
$
3,413
$
-
(a) Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.
Corporate debt
17
-
-
-
43
(b) Includes guaranteed investment agreements (GIAs), notes, bonds, loans and mortgages payable.
RMBS
1,581
(1)
-
-
CMBS
193
-
-
(38)
-
-
(18)
-
-
-
-
-
-
-
17
1,605
155
CDO/ABS
Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above are
Total other bond
reported in the Consolidated Statements of Income as follows:
securities
Equity securities available
(1,662)
(1,623)
7,480
8,846
7,055
5,703
(83)
(65)
314
271
65
65
-
-
-
-
-
-
(393)
(418)
-
-
-
-
1
-
-
-
-
-
-
-
(14)
-
(75)
1,380
$
(321) $
(1,275) $
$
$
for sale:
Common stock
(in millions)
Total equity securities
December 31, 2017
Assets:
available for sale
Other equity securities
Bonds available for sale
Mortgage and other loans
Other bond securities
-
-
14
11
receivable
Equity securities available for sale
Other invested assets
Other equity securities
Other invested assets
38,020
332
$
$
Total
December 31, 2016
Assets:
Bonds available for sale
Other bond securities
Equity securities available for sale
Other equity securities
Other invested assets
1011252ai_financials.indd 193
(in millions)
December 31, 2017
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
December 31, 2016
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
194
AIG | 2017 Form 10-K
Net
Investment
-
Income
-
Net Realized
Capital
Gains (Losses)
-
-
-
-
-
-
-
-
1,127 $
308
-
(54)
-
(1,485) $
9
1,364 $
-
-
-
-
(14) $
-
-
-
-
(49) $
-
-
-
6
-
(3) $
AIG | 2017 Form 10-K
1,180 $
110
-
-
13
Net
Investment
Income
(118) $
44
-
-
39
Net Realized
Capital
(Gains) Losses
Other
-
Income
-
-
2 $
204
731
11
-
-
$
(1)
37,666
3 $
160
-
-
(51)
Other
Income
-
(167)
16
-
(96)
4
3/13/18 3:29 PM
Total
807
(184)
16
441
(104)
4
-
-
-
-
-
-
807
(17)
-
441
(8)
-
6
-
(4)
-
10
-
71
-
128
-
-
211
(1)
-
(156)
-
(24)
(1)
-
Total
-
-
1,080
1,039
-
-
-
(410)
14
8
1,065
314
193
-
-
1
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181011252ai_financials_co8_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Net
Realized and
Unrealized
Purchases,
Reclassified
Changes in
Unrealized Gains
(Losses) Included
Fair Value
(Gains) Losses
Other
Sales,
Gross
Gross
to Liabilities
Fair Value
in Income on
Beginning
Included
Comprehensive
Issuances and
Transfers
Transfers
Divested
Held
End
Instruments Held
of Year
in Income
Income (Loss)
Settlements, Net
In
Out
Businesses
for Sale
of Year
at End of Year
(in millions)
Liabilities:
Policyholder contract
deposits
$
2,289
$
441
$
- $
303 $
- $
- $
- $
Derivative liabilities, net:
Interest rate contracts
50
Foreign exchange
contracts
Equity contracts
Credit contracts
Other contracts
Total derivatives
liabilities, net(a)
Long-term debt(b)
7
(54)
505
48
556
183
(8)
5
(10)
(81)
(10)
(104)
4
-
-
-
-
-
-
-
(4)
(1)
6
(95)
(53)
(147)
(3)
-
-
-
-
-
-
-
-
-
-
-
4
4
(113)
-
-
-
-
-
-
-
Total
$
3,028
$
341
$
- $
153 $
- $
(109) $
- $
(a) Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.
(b) Includes guaranteed investment agreements (GIAs), notes, bonds, loans and mortgages payable.
-
-
-
-
-
-
-
-
-
$
3,033
$
(366)
38
11
(58)
329
(11)
309
71
$
3,413
$
6
(4)
10
71
128
211
(1)
(156)
Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above are
reported in the Consolidated Statements of Income as follows:
(in millions)
December 31, 2017
Assets:
Bonds available for sale
Other bond securities
Equity securities available for sale
Other equity securities
Other invested assets
December 31, 2016
Assets:
Bonds available for sale
Other bond securities
Equity securities available for sale
Other equity securities
Other invested assets
(in millions)
December 31, 2017
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
December 31, 2016
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
Net
Investment
Income
Net Realized
Capital
Gains (Losses)
Other
Income
Total
$
$
1,127 $
308
-
-
9
(49) $
-
-
-
6
1,180 $
110
-
-
13
Net
Investment
Income
(118) $
44
-
-
39
Net Realized
Capital
(Gains) Losses
-
-
-
-
-
-
807
(17)
-
441
(8)
-
2 $
731
-
-
(1)
3 $
160
-
-
(51)
Other
Income
-
(167)
16
-
(96)
4
1,080
1,039
-
-
14
1,065
314
-
-
1
Total
807
(184)
16
441
(104)
4
The following table presents the gross components of purchases, sales, issuances and settlements, net, shown above for
years ended December 31, 2017 and 2016 related to Level 3 assets and liabilities in the Consolidated Balance Sheet:
Obligations of states, municipalities and political subdivisions
$
286 $
(16) $
(54) $
(in millions)
December 31, 2017
Assets:
Bonds available for sale:
Non-U.S. governments
Corporate debt
Total bonds available for sale
Other bond securities:
Corporate debt
RMBS
CMBS
CDO/ABS
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Other invested assets
Total assets
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt(b)
Total liabilities
December 31, 2016
Assets:
Bonds available for sale:
Non-U.S. governments
Corporate debt
Total bonds available for sale
Other bond securities:
Corporate debt
RMBS
CMBS
CDO/ABS
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Other invested assets
Total assets
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt(b)
Total liabilities
(a) There were no issuances during the years ended December 31, 2017 and 2016.
(b) Includes GIAs, notes, bonds, loans and mortgages payable.
Purchases
Sales
Settlements(a)
Settlements, Net(a)
Purchases, Sales,
Issuances and
Issuances and
4,053 $
(1,071) $
(7,629) $
(4,647)
- $
(4)
-
(4) $
344 $
344 $
(48) $
69
(87)
(66) $
9
36
75
1,199
2,099
3,704
11
167
42
9
229
13
-
-
107
13
29
2,635
156
2,460
5,457
-
343
53
69
465
-
14
1
37
$
$
$
$
$
$
$
(17)
(236)
(3,702)
(677)
(1,113)
(5,799)
(1)
(262)
(7)
(1,526)
(1,796)
(12)
-
-
(22)
(6)
(115)
(3,432)
(381)
(641)
(4,670)
-
(240)
(5)
(1,234)
(1,479)
(28)
-
1
(102)
(1)
(59)
(260)
(146)
(243)
(725)
(218)
(11)
(65)
(294)
(6)
(46)
-
(25)
(81)
(98)
(99)
(311)
(104)
(86)
(458)
(648)
(2)
(10)
-
-
-
-
-
-
-
-
-
-
5,974 $
(971) $
(6,278) $
- $
(6)
-
(6) $
437 $
437 $
(134) $
(141)
(3)
(278) $
216
(9)
(259)
(2,763)
(748)
743
(2,820)
(313)
10
24
(1,582)
(1,861)
1
-
(6)
39
296
65
(87)
274
61
7
(111)
(878)
(323)
1,720
476
(1)
(38)
(1,623)
(1,662)
(14)
-
-
-
(75)
(1,275)
303
(147)
(3)
153
Obligations of states, municipalities and political subdivisions
164 $
(8) $
(95) $
194
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
195
1011252ai_financials.indd 194
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Derivative liabilities, net:
Interest rate contracts
50
(in millions)
Liabilities:
Policyholder contract
Foreign exchange
contracts
Equity contracts
Credit contracts
Other contracts
Total derivatives
liabilities, net(a)
Long-term debt(b)
(8)
5
(10)
(81)
(10)
(104)
4
7
(54)
505
48
556
183
-
-
-
-
-
-
-
(4)
(1)
6
(95)
(53)
(147)
(3)
-
-
-
-
-
-
-
-
-
-
-
4
4
(113)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38
11
(58)
329
(11)
309
71
Total
$
3,028
$
341
$
- $
153 $
- $
(109) $
- $
$
3,413
$
(a) Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.
(b) Includes guaranteed investment agreements (GIAs), notes, bonds, loans and mortgages payable.
Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above are
reported in the Consolidated Statements of Income as follows:
Net
Realized and
Unrealized
Purchases,
Reclassified
Changes in
Unrealized Gains
(Losses) Included
Fair Value
(Gains) Losses
Other
Sales,
Gross
Gross
to Liabilities
Fair Value
in Income on
Beginning
Included
Comprehensive
Issuances and
Transfers
Transfers
Divested
Held
End
Instruments Held
of Year
in Income
Income (Loss)
Settlements, Net
In
Out
Businesses
for Sale
of Year
at End of Year
deposits
$
2,289
$
441
$
- $
303 $
- $
- $
- $
$
3,033
$
(366)
6
(4)
10
71
128
211
(1)
(156)
Net
Net Realized
Investment
Capital
Income
Gains (Losses)
Other
Income
Total
$
1,127 $
(49) $
$
1,180 $
(118) $
13
Net
Investment
Net Realized
Capital
Income
(Gains) Losses
-
-
-
6
44
-
-
39
807
(17)
-
441
(8)
-
2 $
731
-
-
(1)
3 $
160
-
-
(51)
Other
Income
-
(167)
16
(96)
-
4
1,080
1,039
-
-
14
1,065
314
-
-
1
Total
807
(184)
16
441
(104)
4
308
-
-
9
110
-
-
-
-
-
-
-
-
Equity securities available for sale
(in millions)
December 31, 2017
Assets:
Bonds available for sale
Other bond securities
Other equity securities
Other invested assets
December 31, 2016
Assets:
Bonds available for sale
Other bond securities
Equity securities available for sale
Other equity securities
Other invested assets
(in millions)
December 31, 2017
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
December 31, 2016
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
The following table presents the gross components of purchases, sales, issuances and settlements, net, shown above for
years ended December 31, 2017 and 2016 related to Level 3 assets and liabilities in the Consolidated Balance Sheet:
(in millions)
December 31, 2017
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
Corporate debt
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Other invested assets
Total assets
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt(b)
Total liabilities
December 31, 2016
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
Corporate debt
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Other invested assets
Total assets
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt(b)
Total liabilities
(a) There were no issuances during the years ended December 31, 2017 and 2016.
(b) Includes GIAs, notes, bonds, loans and mortgages payable.
Purchases
Sales
Issuances and
Settlements(a)
Purchases, Sales,
Issuances and
Settlements, Net(a)
$
$
$
$
$
$
$
$
286 $
9
36
1,199
75
2,099
3,704
11
167
42
9
229
13
-
-
107
4,053 $
- $
(4)
-
(4) $
164 $
13
29
2,635
156
2,460
5,457
-
343
53
69
465
-
14
1
37
5,974 $
- $
(6)
-
(6) $
(16) $
(1)
(59)
(260)
(146)
(243)
(725)
-
(218)
(11)
(65)
(294)
-
-
(6)
(46)
(1,071) $
344 $
-
-
344 $
(8) $
-
(25)
(81)
(98)
(99)
(311)
-
(104)
(86)
(458)
(648)
-
-
(2)
(10)
(971) $
437 $
-
-
437 $
(54) $
(17)
(236)
(3,702)
(677)
(1,113)
(5,799)
(1)
(262)
(7)
(1,526)
(1,796)
(12)
-
-
(22)
(7,629) $
(48) $
69
(87)
(66) $
(95) $
(6)
(115)
(3,432)
(381)
(641)
(4,670)
-
(240)
(5)
(1,234)
(1,479)
-
(28)
1
(102)
(6,278) $
(134) $
(141)
(3)
(278) $
216
(9)
(259)
(2,763)
(748)
743
(2,820)
10
(313)
24
(1,582)
(1,861)
1
-
(6)
39
(4,647)
296
65
(87)
274
61
7
(111)
(878)
(323)
1,720
476
-
(1)
(38)
(1,623)
(1,662)
-
(14)
-
(75)
(1,275)
303
(147)
(3)
153
194
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
195
1011252ai_financials.indd 195
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables
above. As a result, the unrealized gains (losses) on instruments held at December 31, 2017 and 2016 may include changes in fair
value that were attributable to both observable (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in
unobservable long-dated volatilities).
Transfers of Level 3 Assets and Liabilities
We record transfers of assets and liabilities into or out of Level 3 classification at their fair values as of the end of each reporting
period, consistent with the date of the determination of fair value. The Net realized and unrealized gains (losses) included in income
(loss) or Other comprehensive income (loss) as shown in the table above excludes $64 million and $188 million of net losses related
to assets and liabilities transferred into Level 3 during 2017 and 2016, respectively, and includes $36 million and $189 million of net
losses related to assets and liabilities transferred out of Level 3 during 2017 and 2016, respectively.
Transfers of Level 3 Assets
During the years ended December 31, 2017 and 2016, transfers into Level 3 assets primarily included certain investments in private
placement corporate debt, RMBS, CMBS and CDO/ABS. Transfers of private placement corporate debt and certain ABS into Level 3
assets were primarily the result of limited market pricing information that required us to determine fair value for these securities based
on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated
market liquidity. The transfers of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to decreases
in market transparency and liquidity for individual security types.
During the years ended December 31, 2017 and 2016, transfers out of Level 3 assets primarily included private placement and other
corporate debt, CMBS, RMBS, CDO/ABS and certain investments in municipal securities. Transfers of certain investments in
municipal securities, corporate debt, RMBS, CMBS and CDO/ABS out of Level 3 assets were based on consideration of market
liquidity as well as related transparency of pricing and associated observable inputs for these investments. Transfers of certain
investments in private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of using observable
pricing information that reflects the fair value of those securities without the need for adjustment based on our own assumptions
regarding the characteristics of a specific security or the current liquidity in the market.
Transfers of Level 3 Liabilities
There were no significant transfers of derivative or other liabilities into or out of Level 3 for the years ended December 31, 2017 and
2016.
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS
The table below presents information about the significant unobservable inputs used for recurring fair value measurements
for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably
available to us, such as data from independent third-party valuation service providers and from internal valuation models.
Because input information from third-parties with respect to certain Level 3 instruments (primarily CDO/ABS) may not be
reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and
liabilities:
Fair Value at
December 31,
2017
Valuation
Technique
Unobservable Input(b)
(Weighted Average)
Range
(in millions)
Assets:
Obligations of states,
municipalities and
political subdivisions
$
1,620
Discounted cash flow
Yield
3.55% - 4.32% (3.94%)
Corporate debt
1,086
Discounted cash flow
Yield
3.26% - 12.22% (7.74%)
RMBS(a)
16,156
Discounted cash flow
Constant prepayment rate
3.97% - 13.42% (8.69%)
Loss severity
43.15% - 77.15% (60.15%)
Constant default rate
3.31% - 8.30% (5.80%)
Yield
2.73% - 5.19% (3.96%)
5,254
Discounted cash flow
Yield
3.38% - 4.78% (4.08%)
487
Discounted cash flow
Yield
2.22% - 7.77% (4.99%)
CDO/ABS(a)
CMBS
Liabilities:
Embedded derivatives
within Policyholder
contract deposits:
GMWB
1,994
Discounted cash flow
Index Annuities
1,603
Discounted cash flow
Equity volatility
Base lapse rate
Dynamic lapse multiplier
Mortality multiplier(c)
Utilization
Equity / interest-rate correlation
Lapse rate
Mortality multiplier(c)
Option Budget
6.45% - 51.25%
0.35% - 14.00%
30.00% - 170.00%
40.00% - 153.00%
90.00% - 100.00%
20.00% - 40.00%
0.50% - 40.00%
42.00% - 162.00%
1.00% - 4.00%
Indexed Life
515
Discounted cash flow
Base lapse rate
Mortality rate
2.00% - 19.00%
0.00% - 40.00%
196
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
197
1011252ai_financials.indd 196
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables
above. As a result, the unrealized gains (losses) on instruments held at December 31, 2017 and 2016 may include changes in fair
value that were attributable to both observable (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in
unobservable long-dated volatilities).
Transfers of Level 3 Assets and Liabilities
We record transfers of assets and liabilities into or out of Level 3 classification at their fair values as of the end of each reporting
period, consistent with the date of the determination of fair value. The Net realized and unrealized gains (losses) included in income
(loss) or Other comprehensive income (loss) as shown in the table above excludes $64 million and $188 million of net losses related
to assets and liabilities transferred into Level 3 during 2017 and 2016, respectively, and includes $36 million and $189 million of net
losses related to assets and liabilities transferred out of Level 3 during 2017 and 2016, respectively.
Transfers of Level 3 Assets
During the years ended December 31, 2017 and 2016, transfers into Level 3 assets primarily included certain investments in private
placement corporate debt, RMBS, CMBS and CDO/ABS. Transfers of private placement corporate debt and certain ABS into Level 3
assets were primarily the result of limited market pricing information that required us to determine fair value for these securities based
on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS
The table below presents information about the significant unobservable inputs used for recurring fair value measurements
for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably
available to us, such as data from independent third-party valuation service providers and from internal valuation models.
Because input information from third-parties with respect to certain Level 3 instruments (primarily CDO/ABS) may not be
reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and
liabilities:
(in millions)
Assets:
Obligations of states,
municipalities and
political subdivisions
Fair Value at
December 31,
2017
Valuation
Technique
Unobservable Input(b)
Range
(Weighted Average)
$
1,620
Discounted cash flow
Yield
3.55% - 4.32% (3.94%)
market liquidity. The transfers of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to decreases
Corporate debt
1,086
Discounted cash flow
Yield
3.26% - 12.22% (7.74%)
in market transparency and liquidity for individual security types.
During the years ended December 31, 2017 and 2016, transfers out of Level 3 assets primarily included private placement and other
corporate debt, CMBS, RMBS, CDO/ABS and certain investments in municipal securities. Transfers of certain investments in
municipal securities, corporate debt, RMBS, CMBS and CDO/ABS out of Level 3 assets were based on consideration of market
liquidity as well as related transparency of pricing and associated observable inputs for these investments. Transfers of certain
investments in private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of using observable
pricing information that reflects the fair value of those securities without the need for adjustment based on our own assumptions
regarding the characteristics of a specific security or the current liquidity in the market.
Transfers of Level 3 Liabilities
2016.
There were no significant transfers of derivative or other liabilities into or out of Level 3 for the years ended December 31, 2017 and
RMBS(a)
16,156
Discounted cash flow
Constant prepayment rate
Loss severity
Constant default rate
Yield
3.97% - 13.42% (8.69%)
43.15% - 77.15% (60.15%)
3.31% - 8.30% (5.80%)
2.73% - 5.19% (3.96%)
5,254
Discounted cash flow
Yield
3.38% - 4.78% (4.08%)
487
Discounted cash flow
Yield
2.22% - 7.77% (4.99%)
CDO/ABS(a)
CMBS
Liabilities:
Embedded derivatives
within Policyholder
contract deposits:
GMWB
1,994
Discounted cash flow
Index Annuities
1,603
Discounted cash flow
Equity volatility
Base lapse rate
Dynamic lapse multiplier
Mortality multiplier(c)
Utilization
Equity / interest-rate correlation
Lapse rate
Mortality multiplier(c)
Option Budget
6.45% - 51.25%
0.35% - 14.00%
30.00% - 170.00%
40.00% - 153.00%
90.00% - 100.00%
20.00% - 40.00%
0.50% - 40.00%
42.00% - 162.00%
1.00% - 4.00%
Indexed Life
515
Discounted cash flow
Base lapse rate
Mortality rate
2.00% - 19.00%
0.00% - 40.00%
196
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
197
1011252ai_financials.indd 197
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Fair Value at
December 31,
2016
Valuation
Technique
Unobservable Input(b)
Range
(Weighted Average)
The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS, CDO/ABS,
and CMBS valued using a discounted cash flow technique consist of one standard deviation in either direction from the
value-weighted average. The preceding table does not give effect to our risk management practices that might offset risks inherent in
these Level 3 assets and liabilities.
$
1,248
Discounted cash flow
Yield
4.12% - 4.91% (4.52%)
Corporate debt
498
Discounted cash flow
Yield
3.41% - 6.38% (4.90%)
RMBS(a)
17,412
Discounted cash flow
Constant prepayment rate
Loss severity
Constant default rate
Yield
3.95% - 6.54% (5.25%)
47.51% - 80.98% (64.24%)
3.28% - 8.64% (5.96%)
3.28% - 5.87% (4.57%)
4,368
Discounted cash flow
Yield
3.67% - 5.85% (4.76%)
Obligations of States, Municipalities and Political Subdivisions
1,511
Discounted cash flow
Yield
0.48% - 10.21% (5.34%)
(in millions)
Assets:
Obligations of states,
municipalities and
political subdivisions
CDO/ABS(a)
CMBS
Liabilities:
Embedded derivatives
within Policyholder
contract deposits:
Sensitivity to Changes in Unobservable Inputs
We consider unobservable inputs to be those for which market data is not available and that are developed using the best information
available to us about the assumptions that market participants would use when pricing the asset or liability. Relevant inputs vary
depending on the nature of the instrument being measured at fair value. The following paragraphs provide a general description of
sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs
and their impact on the fair value measurements. The effect of a change in a particular assumption in the sensitivity analysis below is
considered independently of changes in any other assumptions. In practice, simultaneous changes in assumptions may not always
have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs.
Such relationships have not been included in the discussion below. For each of the individual relationships described below, the
inverse relationship would also generally apply.
The significant unobservable input used in the fair value measurement of certain investments in obligations of states, municipalities
and political subdivisions is yield.
states, municipalities and political subdivisions.
In general, increases in the yield would decrease the fair value of investments in obligations of
Corporate Debt
Corporate debt securities included in Level 3 are primarily private placement issuances that are not traded in active markets or that
are subject to transfer restrictions. Fair value measurements consider illiquidity and non-transferability. When observable price
quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit
spreads, yields or price levels of publicly-traded debt of the issuer or other comparable securities, considering illiquidity and structure.
The significant unobservable input used in the fair value measurement of corporate debt is the yield. The yield is affected by the
market movements in credit spreads and U.S. Treasury yields. In addition, the migration in credit quality of a given security generally
has a corresponding effect on the fair value measurement of the security. For example, a downward migration of credit quality would
increase spreads. Holding U.S. Treasury rates constant, an increase in corporate credit spreads would decrease the fair value of
corporate debt.
RMBS and CDO/ABS
The significant unobservable inputs used in fair value measurements of RMBS and certain CDO/ABS valued by third-party valuation
service providers are constant prepayment rates (CPR), loss severity, constant default rates (CDR) and yield. A change in the
assumptions used for the probability of default will generally be accompanied by a corresponding change in the assumption used for
the loss severity and an inverse change in the assumption used for prepayment rates. In general, increases in CPR, loss severity,
CDR and yield, in isolation, would result in a decrease in the fair value measurement. Changes in fair value based on variations in
assumptions generally cannot be extrapolated because the relationship between the directional change of each input is not usually
linear.
CMBS
The significant unobservable input used in fair value measurements for CMBS is the yield. Prepayment assumptions for each
mortgage pool are factored into the yield. CMBS generally feature a lower degree of prepayment risk than RMBS because
commercial mortgages generally contain a penalty for prepayment. In general, increases in the yield would decrease the fair value of
CMBS.
GMWB
1,777
Discounted cash flow
Index Annuities
859
Discounted cash flow
Indexed Life
381
Discounted cash flow
Equity volatility
Base lapse rate
Dynamic lapse multiplier
Mortality multiplier(c)
Utilization
Equity / interest rate correlation
13.00% - 50.00%
0.50% - 20.00%
30.00% - 170.00%
42.00% - 161.00%
100.00%
20.00% - 40.00%
Lapse rate
Mortality multiplier(c)
Option Budget
1.00% - 66.00%
101.00% - 103.00%
1.00% - 4.00%
Base lapse rate
Mortality rate
2.00% - 19.00%
0.00% - 40.00%
(a) Information received from third-party valuation service providers. The ranges of the unobservable inputs for constant prepayment rate, loss severity and constant
default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and
not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the
tranches purchased by us, because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to, purchase price,
position in the waterfall, senior versus subordinated position and attachment points.
(b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities.
(c) Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table.
198
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
199
1011252ai_financials.indd 198
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
(in millions)
Assets:
Obligations of states,
municipalities and
CDO/ABS(a)
CMBS
Liabilities:
Embedded derivatives
within Policyholder
contract deposits:
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Fair Value at
December 31,
2016
Valuation
Technique
Unobservable Input(b)
Range
(Weighted Average)
The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS, CDO/ABS,
and CMBS valued using a discounted cash flow technique consist of one standard deviation in either direction from the
value-weighted average. The preceding table does not give effect to our risk management practices that might offset risks inherent in
these Level 3 assets and liabilities.
political subdivisions
$
1,248
Discounted cash flow
Yield
4.12% - 4.91% (4.52%)
Corporate debt
498
Discounted cash flow
Yield
3.41% - 6.38% (4.90%)
RMBS(a)
17,412
Discounted cash flow
Constant prepayment rate
Loss severity
Constant default rate
Yield
3.95% - 6.54% (5.25%)
47.51% - 80.98% (64.24%)
3.28% - 8.64% (5.96%)
3.28% - 5.87% (4.57%)
Sensitivity to Changes in Unobservable Inputs
We consider unobservable inputs to be those for which market data is not available and that are developed using the best information
available to us about the assumptions that market participants would use when pricing the asset or liability. Relevant inputs vary
depending on the nature of the instrument being measured at fair value. The following paragraphs provide a general description of
sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs
and their impact on the fair value measurements. The effect of a change in a particular assumption in the sensitivity analysis below is
considered independently of changes in any other assumptions. In practice, simultaneous changes in assumptions may not always
have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs.
Such relationships have not been included in the discussion below. For each of the individual relationships described below, the
inverse relationship would also generally apply.
4,368
Discounted cash flow
Yield
3.67% - 5.85% (4.76%)
Obligations of States, Municipalities and Political Subdivisions
1,511
Discounted cash flow
Yield
0.48% - 10.21% (5.34%)
GMWB
1,777
Discounted cash flow
Index Annuities
859
Discounted cash flow
Indexed Life
381
Discounted cash flow
Equity volatility
Base lapse rate
Dynamic lapse multiplier
Mortality multiplier(c)
Utilization
Equity / interest rate correlation
13.00% - 50.00%
0.50% - 20.00%
30.00% - 170.00%
42.00% - 161.00%
100.00%
20.00% - 40.00%
Lapse rate
Mortality multiplier(c)
Option Budget
1.00% - 66.00%
101.00% - 103.00%
1.00% - 4.00%
Base lapse rate
Mortality rate
2.00% - 19.00%
0.00% - 40.00%
(a) Information received from third-party valuation service providers. The ranges of the unobservable inputs for constant prepayment rate, loss severity and constant
default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and
not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the
tranches purchased by us, because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to, purchase price,
position in the waterfall, senior versus subordinated position and attachment points.
(b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities.
(c) Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table.
The significant unobservable input used in the fair value measurement of certain investments in obligations of states, municipalities
and political subdivisions is yield.
states, municipalities and political subdivisions.
In general, increases in the yield would decrease the fair value of investments in obligations of
Corporate Debt
Corporate debt securities included in Level 3 are primarily private placement issuances that are not traded in active markets or that
are subject to transfer restrictions. Fair value measurements consider illiquidity and non-transferability. When observable price
quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit
spreads, yields or price levels of publicly-traded debt of the issuer or other comparable securities, considering illiquidity and structure.
The significant unobservable input used in the fair value measurement of corporate debt is the yield. The yield is affected by the
market movements in credit spreads and U.S. Treasury yields. In addition, the migration in credit quality of a given security generally
has a corresponding effect on the fair value measurement of the security. For example, a downward migration of credit quality would
increase spreads. Holding U.S. Treasury rates constant, an increase in corporate credit spreads would decrease the fair value of
corporate debt.
RMBS and CDO/ABS
The significant unobservable inputs used in fair value measurements of RMBS and certain CDO/ABS valued by third-party valuation
service providers are constant prepayment rates (CPR), loss severity, constant default rates (CDR) and yield. A change in the
assumptions used for the probability of default will generally be accompanied by a corresponding change in the assumption used for
the loss severity and an inverse change in the assumption used for prepayment rates. In general, increases in CPR, loss severity,
CDR and yield, in isolation, would result in a decrease in the fair value measurement. Changes in fair value based on variations in
assumptions generally cannot be extrapolated because the relationship between the directional change of each input is not usually
linear.
CMBS
The significant unobservable input used in fair value measurements for CMBS is the yield. Prepayment assumptions for each
mortgage pool are factored into the yield. CMBS generally feature a lower degree of prepayment risk than RMBS because
commercial mortgages generally contain a penalty for prepayment. In general, increases in the yield would decrease the fair value of
CMBS.
198
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
199
1011252ai_financials.indd 199
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Embedded derivatives within Policyholder contract deposits
Embedded derivatives reported within Policyholder contract deposits include GMWB within variable annuity products and interest
crediting rates based on market indices within index annuities, indexed life and guaranteed investment contracts (GICs). For any
given contract, assumptions for unobservable inputs vary throughout the period over which cash flows are projected for purposes of
valuing the embedded derivative. The following unobservable inputs are used for valuing embedded derivatives measured at fair
value:
Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available.
Increases in assumed volatility will generally increase the fair value of both the projected cash flows from rider fees as well as the
projected cash flows related to benefit payments. Therefore, the net change in the fair value of the liability may be either a
decrease or an increase, depending on the relative changes in projected rider fees and projected benefit payments.
Equity / interest rate correlation estimates the relationship between changes in equity returns and interest rates in the economic
scenario generator used to value our GMWB embedded derivatives. In general, a higher positive correlation assumes that equity
markets and interest rates move in a more correlated fashion, which generally increases the fair value of the liability.
Base lapse rate assumptions are determined by company experience and are adjusted at the contract level using a dynamic lapse
function, which reduces the base lapse rate when the contract is in-the-money (when the contract holders guaranteed value, as
estimated by the company, is worth more than their underlying account value). Lapse rates are also generally assumed to be lower
in periods when a surrender charge applies. Increases in assumed lapse rates will generally decrease the fair value of the liability,
as fewer policyholders would persist to collect guaranteed withdrawal amounts.
Mortality rate assumptions, which vary by age and gender, are based on company experience and include a mortality improvement
assumption. Increases in assumed mortality rates will decrease the fair value of the liability, while lower mortality rate assumptions
will generally increase the fair value of the liability, because guaranteed payments will be made for a longer period of time.
Utilization assumptions estimate the timing when policyholders with a GMWB will elect to utilize their benefit and begin taking
withdrawals. The assumptions may vary by the type of guarantee, tax-qualified status, the contracts withdrawal history and the
age of the policyholder. Utilization assumptions are based on company experience, which includes partial withdrawal behavior.
Increases in assumed utilization rates will generally increase the fair value of the liability.
Option budget estimates the expected long-term cost of options used to hedge exposures associated with equity price changes.
The level of option budgets determines future costs of the options, which impacts the growth in account value and the valuation of
embedded derivatives.
INVESTMENTS IN CERTAIN ENTITIES CARRIED AT FAIR VALUE USING NET ASSET VALUE PER
SHARE
The following table includes information related to our investments in certain other invested assets, including private equity
funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these
investments, which are measured at fair value on a recurring basis, we use the net asset value per share to measure fair
value.
December 31, 2017
December 31, 2016
Fair Value
Using Net
Asset Value
Per Share (or
its equivalent)
Unfunded
Commitments
Fair Value
Using Net
Asset Value
Per Share (or
its equivalent)
Unfunded
Commitments
(in millions)
Investment Category Includes
Investment Category
Private equity funds:
Leveraged buyout
Debt and/or equity investments made as part of a
transaction in which assets of mature companies are
acquired from the current shareholders, typically with the
use of financial leverage
$
1,243 $
706
$
1,424 $
750
Real Estate /
Infrastructure
Investments in real estate properties and infrastructure
positions, including power plants and other energy
generating facilities
210
187
258
208
Venture capital
Early-stage, high-potential, growth companies expected to
generate a return through an eventual realization event,
such as an initial public offering or sale of the company
Distressed
Securities of companies that are in default, under
bankruptcy protection, or troubled
Other
Total private equity funds
Hedge funds:
Event-driven
Includes multi-strategy, mezzanine, and other strategies
Securities of companies undergoing material structural
changes, including mergers, acquisitions and other
reorganizations
Long-short
Securities that the manager believes are undervalued,
with corresponding short positions to hedge market risk
Macro
Investments that take long and short positions in financial
instruments based on a top-down view of certain
economic and capital market conditions
Distressed
Securities of companies that are in default, under
bankruptcy protection or troubled
Other
Total hedge funds
Total
Includes investments held in funds that are less liquid, as
well as other strategies which allow for broader allocation
between public and private investments
134
113
428
2,128
1,128
1,233
1,011
266
231
3,869
73
42
219
1,227
-
-
-
8
4
12
137
123
312
2,254
1,453
1,429
992
416
197
4,487
31
44
215
1,248
9
-
-
8
14
31
$
5,997 $
1,239
$
6,741 $
1,279
200
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
201
1011252ai_financials.indd 200
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Embedded derivatives within Policyholder contract deposits
Embedded derivatives reported within Policyholder contract deposits include GMWB within variable annuity products and interest
crediting rates based on market indices within index annuities, indexed life and guaranteed investment contracts (GICs). For any
given contract, assumptions for unobservable inputs vary throughout the period over which cash flows are projected for purposes of
valuing the embedded derivative. The following unobservable inputs are used for valuing embedded derivatives measured at fair
value:
Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available.
Increases in assumed volatility will generally increase the fair value of both the projected cash flows from rider fees as well as the
projected cash flows related to benefit payments. Therefore, the net change in the fair value of the liability may be either a
decrease or an increase, depending on the relative changes in projected rider fees and projected benefit payments.
Equity / interest rate correlation estimates the relationship between changes in equity returns and interest rates in the economic
scenario generator used to value our GMWB embedded derivatives. In general, a higher positive correlation assumes that equity
markets and interest rates move in a more correlated fashion, which generally increases the fair value of the liability.
Base lapse rate assumptions are determined by company experience and are adjusted at the contract level using a dynamic lapse
function, which reduces the base lapse rate when the contract is in-the-money (when the contract holders guaranteed value, as
estimated by the company, is worth more than their underlying account value). Lapse rates are also generally assumed to be lower
in periods when a surrender charge applies. Increases in assumed lapse rates will generally decrease the fair value of the liability,
as fewer policyholders would persist to collect guaranteed withdrawal amounts.
Mortality rate assumptions, which vary by age and gender, are based on company experience and include a mortality improvement
assumption. Increases in assumed mortality rates will decrease the fair value of the liability, while lower mortality rate assumptions
will generally increase the fair value of the liability, because guaranteed payments will be made for a longer period of time.
Utilization assumptions estimate the timing when policyholders with a GMWB will elect to utilize their benefit and begin taking
withdrawals. The assumptions may vary by the type of guarantee, tax-qualified status, the contracts withdrawal history and the
age of the policyholder. Utilization assumptions are based on company experience, which includes partial withdrawal behavior.
Increases in assumed utilization rates will generally increase the fair value of the liability.
Option budget estimates the expected long-term cost of options used to hedge exposures associated with equity price changes.
The level of option budgets determines future costs of the options, which impacts the growth in account value and the valuation of
embedded derivatives.
INVESTMENTS IN CERTAIN ENTITIES CARRIED AT FAIR VALUE USING NET ASSET VALUE PER
SHARE
The following table includes information related to our investments in certain other invested assets, including private equity
funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these
investments, which are measured at fair value on a recurring basis, we use the net asset value per share to measure fair
value.
(in millions)
Investment Category Includes
Investment Category
Private equity funds:
Leveraged buyout
Debt and/or equity investments made as part of a
transaction in which assets of mature companies are
acquired from the current shareholders, typically with the
use of financial leverage
Real Estate /
Infrastructure
Investments in real estate properties and infrastructure
positions, including power plants and other energy
generating facilities
Venture capital
Early-stage, high-potential, growth companies expected to
generate a return through an eventual realization event,
such as an initial public offering or sale of the company
Distressed
Other
Securities of companies that are in default, under
bankruptcy protection, or troubled
Includes multi-strategy, mezzanine, and other strategies
Total private equity funds
Hedge funds:
Event-driven
Long-short
Macro
Securities of companies undergoing material structural
changes, including mergers, acquisitions and other
reorganizations
Securities that the manager believes are undervalued,
with corresponding short positions to hedge market risk
Investments that take long and short positions in financial
instruments based on a top-down view of certain
economic and capital market conditions
Distressed
Securities of companies that are in default, under
bankruptcy protection or troubled
Other
Total hedge funds
Total
Includes investments held in funds that are less liquid, as
well as other strategies which allow for broader allocation
between public and private investments
December 31, 2017
December 31, 2016
Fair Value
Using Net
Asset Value
Per Share (or
its equivalent)
Unfunded
Commitments
Fair Value
Using Net
Asset Value
Per Share (or
its equivalent)
Unfunded
Commitments
$
1,243 $
706
$
1,424 $
750
210
187
258
208
134
113
428
2,128
1,128
1,233
1,011
266
231
3,869
73
42
219
1,227
-
-
-
8
4
12
137
123
312
2,254
1,453
1,429
992
416
197
4,487
31
44
215
1,248
9
-
-
8
14
31
$
5,997 $
1,239
$
6,741 $
1,279
200
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
201
1011252ai_financials.indd 201
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Private equity fund investments included above are not redeemable, because distributions from the funds will be received when
underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-year lives at their inception,
but these lives may be extended at the fund managers discretion, typically in one or two-year increments. At December 31, 2017,
assuming average original expected lives of 10 years for the funds, 58 percent of the total fair value using net asset value per share
(or its equivalent) presented above would have expected remaining lives of three years or less, 17 percent between four and six years
and 25 percent between seven and 10 years.
The hedge fund investments included above, which are carried at fair value, are generally redeemable monthly (22 percent), quarterly
(43 percent), semi-annually (12 percent) and annually (23 percent), with redemption notices ranging from one day to 180 days. At
December 31, 2017, investments representing approximately 49 percent of the total fair value of these hedge fund investments had
partial contractual redemption restrictions. These partial redemption restrictions are generally related to one or more investments held
in the hedge funds that the fund manager deemed to be illiquid. The majority of these contractual restrictions, which may have been
put in place at the funds inception or thereafter, have pre-defined end dates. The majority of these restrictions are generally expected
to be lifted by the end of 2018.
During 2017, 2016 and 2015, we recognized gains of $4 million and $22 million, and loss of $4 million, respectively, attributable to the
observable effect of changes in credit spreads on our own liabilities for which the fair value option was elected. We calculate the effect
of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, our observable
credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted.
The following table presents the difference between fair values and the aggregate contractual principal amounts of
mortgage and other loans receivable and long-term debt for which the fair value option was elected:
December 31, 2017
Outstanding
December 31, 2016
Outstanding
Fair Value
Principal Amount Difference
Fair Value Principal Amount Difference
(in millions)
Assets:
Liabilities:
Long-term debt*
Mortgage and other loans receivable
5
5
-
$
11
8
3
$
$
$
$
$
$
$
$
$
$
2,888
2,280
608
$ 3,428
2,628
800
FAIR VALUE OPTION
*
Includes GIAs, notes, bonds, loans and mortgages payable.
Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are not otherwise
required to be carried at fair value. Subsequent changes in fair value for designated items are reported in earnings. We elect the fair
value option for certain hybrid securities given the complexity of bifurcating the economic components associated with the embedded
derivatives.
For additional information related to embedded derivatives refer to Note 11 herein.
Additionally, we elect the fair value option for certain alternative investments when such investments are eligible for this election. We
believe this measurement basis is consistent with the applicable accounting guidance used by the respective investment company
funds themselves.
For additional information on securities and other invested assets for which we have elected the fair value option refer to Note 6
herein.
The following table presents the gains or losses recorded related to the eligible instruments for which we elected the fair
value option:
Years Ended December 31,
(in millions)
Assets:
Bond and equity securities
Alternative investments(a)
Other, including Short-term investments
Liabilities:
Long-term debt(b)
Other liabilities
Total gain
Gain (Loss)
2017
2016
2015
$
$
1,646 $
509
1
(49)
(2)
2,105 $
447 $
28
-
(9)
-
466 $
616
36
2
(38)
(3)
613
(a) Includes certain hedge funds, private equity funds and other investment partnerships.
(b) Includes GIAs, notes, bonds and mortgages payable.
Interest income and dividend income on assets measured under the fair value option are recognized and included in Net investment
income in the Consolidated Statements of Income with the exception of activity within AIGs Other Operations category, which is
included in Other income. Interest expense on liabilities measured under the fair value option is reported in Other Income in the
Consolidated Statements of Income.
For additional information about our policies for recognition, measurement, and disclosure of interest and dividend income see Note 6
herein.
There were no mortgage or other loans receivable for which the fair value option was elected that were 90 days or more past due or
in non-accrual status at December 31, 2017 or 2016.
FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS
We measure the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include cost and equity-method
investments, commercial mortgage loans, investments in life settlements, investments in real estate and other fixed assets, goodwill
and other intangible assets.
For additional information about how we test various asset classes for impairment see Notes 6 and 7 herein.
Information regarding the estimation of fair value for financial instruments measured at fair value on a non-recurring basis is
discussed below:
Impairments for Other investments for the period ended December 31, 2015 primarily relate to certain investments in affordable
housing partnerships, the fair values of which are determined based on remaining tax credits and other residual benefits due from
the respective partnerships. Residual benefits include consideration of the fair value of underlying real estate properties, which is
determined based on market-appropriate capitalization rates applied to net operating income of the properties. Impairments for
Other investments for the period ended December 31, 2016 primarily relate to certain investments in aircraft, the fair values of
which are determined based on third-party independent appraisals that use industry specific appraisal standards and
methodologies. Impairments for Other investments for the period ended December 31, 2017 primarily relate to commercial
mortgage loans, the fair values of which are determined based on independent broker quotations or valuation models using
unobservable inputs, as well as the estimated fair value of the underlying collateral or the present value of the expected future
cash flows. The rest of the impairments relate to real estate investments, the fair values of which are determined based on third-
party independent appraisals or discounted cash-flow models, as well as certain investments in aircraft, the fair values of which are
determined based on third-party independent appraisals that use industry-specific appraisal standards and methodologies.
Impairments of Investments in Life Settlements are measured using their fair values as determined using a discounted cash flow
methodology that incorporates the best available market assumptions for mortality as well as market yields based on reported
transactions or the anticipated sale price, as appropriate. Effective December 31, 2015, AIG adopted the Society of Actuaries 2015
Valuation Basic Table (VBT) as the market mortality assumption used to measure fair value of impaired policies.
202
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
203
1011252ai_financials.indd 202
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
Private equity fund investments included above are not redeemable, because distributions from the funds will be received when
underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-year lives at their inception,
but these lives may be extended at the fund managers discretion, typically in one or two-year increments. At December 31, 2017,
assuming average original expected lives of 10 years for the funds, 58 percent of the total fair value using net asset value per share
(or its equivalent) presented above would have expected remaining lives of three years or less, 17 percent between four and six years
and 25 percent between seven and 10 years.
The hedge fund investments included above, which are carried at fair value, are generally redeemable monthly (22 percent), quarterly
(43 percent), semi-annually (12 percent) and annually (23 percent), with redemption notices ranging from one day to 180 days. At
December 31, 2017, investments representing approximately 49 percent of the total fair value of these hedge fund investments had
partial contractual redemption restrictions. These partial redemption restrictions are generally related to one or more investments held
in the hedge funds that the fund manager deemed to be illiquid. The majority of these contractual restrictions, which may have been
put in place at the funds inception or thereafter, have pre-defined end dates. The majority of these restrictions are generally expected
Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are not otherwise
required to be carried at fair value. Subsequent changes in fair value for designated items are reported in earnings. We elect the fair
value option for certain hybrid securities given the complexity of bifurcating the economic components associated with the embedded
For additional information related to embedded derivatives refer to Note 11 herein.
Additionally, we elect the fair value option for certain alternative investments when such investments are eligible for this election. We
believe this measurement basis is consistent with the applicable accounting guidance used by the respective investment company
For additional information on securities and other invested assets for which we have elected the fair value option refer to Note 6
The following table presents the gains or losses recorded related to the eligible instruments for which we elected the fair
Gain (Loss)
2017
2016
2015
$
1,646 $
447 $
509
1
(49)
(2)
28
-
-
(9)
$
2,105 $
466 $
616
36
2
(38)
(3)
613
(a) Includes certain hedge funds, private equity funds and other investment partnerships.
(b) Includes GIAs, notes, bonds and mortgages payable.
Interest income and dividend income on assets measured under the fair value option are recognized and included in Net investment
income in the Consolidated Statements of Income with the exception of activity within AIGs Other Operations category, which is
included in Other income. Interest expense on liabilities measured under the fair value option is reported in Other Income in the
Consolidated Statements of Income.
herein.
For additional information about our policies for recognition, measurement, and disclosure of interest and dividend income see Note 6
to be lifted by the end of 2018.
FAIR VALUE OPTION
derivatives.
funds themselves.
herein.
value option:
(in millions)
Assets:
Liabilities:
Long-term debt(b)
Other liabilities
Total gain
Years Ended December 31,
Bond and equity securities
Alternative investments(a)
Other, including Short-term investments
During 2017, 2016 and 2015, we recognized gains of $4 million and $22 million, and loss of $4 million, respectively, attributable to the
observable effect of changes in credit spreads on our own liabilities for which the fair value option was elected. We calculate the effect
of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, our observable
credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted.
The following table presents the difference between fair values and the aggregate contractual principal amounts of
mortgage and other loans receivable and long-term debt for which the fair value option was elected:
(in millions)
Assets:
December 31, 2017
Outstanding
December 31, 2016
Outstanding
Fair Value
Principal Amount Difference
Fair Value Principal Amount Difference
Mortgage and other loans receivable
Liabilities:
Long-term debt*
$
$
5
2,888
$
$
5
2,280
$
$
-
$
11
608
$ 3,428
$
$
8
2,628
$
$
3
800
*
Includes GIAs, notes, bonds, loans and mortgages payable.
There were no mortgage or other loans receivable for which the fair value option was elected that were 90 days or more past due or
in non-accrual status at December 31, 2017 or 2016.
FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS
We measure the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include cost and equity-method
investments, commercial mortgage loans, investments in life settlements, investments in real estate and other fixed assets, goodwill
and other intangible assets.
For additional information about how we test various asset classes for impairment see Notes 6 and 7 herein.
Information regarding the estimation of fair value for financial instruments measured at fair value on a non-recurring basis is
discussed below:
Impairments for Other investments for the period ended December 31, 2015 primarily relate to certain investments in affordable
housing partnerships, the fair values of which are determined based on remaining tax credits and other residual benefits due from
the respective partnerships. Residual benefits include consideration of the fair value of underlying real estate properties, which is
determined based on market-appropriate capitalization rates applied to net operating income of the properties. Impairments for
Other investments for the period ended December 31, 2016 primarily relate to certain investments in aircraft, the fair values of
which are determined based on third-party independent appraisals that use industry specific appraisal standards and
methodologies. Impairments for Other investments for the period ended December 31, 2017 primarily relate to commercial
mortgage loans, the fair values of which are determined based on independent broker quotations or valuation models using
unobservable inputs, as well as the estimated fair value of the underlying collateral or the present value of the expected future
cash flows. The rest of the impairments relate to real estate investments, the fair values of which are determined based on third-
party independent appraisals or discounted cash-flow models, as well as certain investments in aircraft, the fair values of which are
determined based on third-party independent appraisals that use industry-specific appraisal standards and methodologies.
Impairments of Investments in Life Settlements are measured using their fair values as determined using a discounted cash flow
methodology that incorporates the best available market assumptions for mortality as well as market yields based on reported
transactions or the anticipated sale price, as appropriate. Effective December 31, 2015, AIG adopted the Society of Actuaries 2015
Valuation Basic Table (VBT) as the market mortality assumption used to measure fair value of impaired policies.
202
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
203
1011252ai_financials.indd 203
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the
related impairment charges recorded during the periods presented:
The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at
fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the
observability of the inputs used:
Estimated Fair Value
Level 1
Level 2
Level 3
Total
Carrying
Value
590
7,771
-
2,362
596
7,771
2,362
593
7,771
2,362
387
121,809
122,196
4,494
23,930
4,313
4,494
28,243
114,326
4,494
28,752
2,053
955
8,961
-
3,008
8,961
1,868
3,474
8,961
1,868
1,868
382
121,742
122,124
4,196
23,117
3,333
4,196
26,450
112,705
4,196
27,484
6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(in millions)
December 31, 2017
Other investments
Investments in life settlements
Other assets*
Total
December 31, 2016
Other investments
Investments in life settlements
Other assets
Total
$
$
$
$
Assets at Fair Value
Non-Recurring Basis
Impairment Charges
December 31,
Level 1
Level 2
Level 3
Total
2017
2016
2015
$
$
77 $
76 $
360
157
397
19
594 $
492 $
189
540
80
809
-
-
-
-
-
-
-
-
$
$
$
$
- $
55
$
-
-
- $
- $
-
-
-
-
55
364
736
2
$
$
55
-
-
55
364
736
2
- $
1,102
$
1,102
*
Impairments include $35 million related to other assets that were sold in 2017.
(in millions)
December 31, 2017
Assets:
Other invested assets
Short-term investments
Cash
Liabilities:
Other liabilities
Long-term debt
December 31, 2016
Assets:
Policyholder contract deposits associated
with investment-type contracts
Mortgage and other loans receivable
$
- $
117 $
37,644 $
37,761 $
37,018
FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE
Mortgage and other loans receivable
$
- $
161 $
33,575 $
33,736 $
33,229
Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding insurance contracts and
lease contracts) is discussed below:
Mortgage and other loans receivable: Fair values of loans on commercial real estate and other loans receivable are estimated
for disclosure purposes using discounted cash flow calculations based on discount rates that we believe market participants would
use in determining the price that they would pay for such assets. For certain loans, our current incremental lending rates for similar
types of loans are used as the discount rates, because we believe this rate approximates the rates market participants would use.
Fair values of residential mortgage loans are generally determined based on market prices, using market based adjustments for
credit and servicing as appropriate. The fair values of policy loans are generally estimated based on unpaid principal amount as of
each reporting date. No consideration is given to credit risk because policy loans are effectively collateralized by the cash
surrender value of the policies.
Other invested assets: The majority of Other invested assets that are not measured at fair value in 2016 represent investments
in life settlements. The fair value of investments in life settlements is determined using a discounted cash flow methodology that
incorporates the best available market assumptions for longevity as well as market yields based on reported transactions. Due to
the individual life nature of each investment in life settlements and the illiquidity of the existing market, significant inputs to the fair
value are unobservable. The majority of the Other invested assets that are not measured at fair value in 2017 represent time
deposits with the original maturity at purchase greater than one year. The fair value of long-term time deposits is determined using
the expected discounted future cash flow.
Cash and short-term investments: The carrying amounts of these assets approximate fair values because of the relatively short
period of time between origination and expected realization, and their limited exposure to credit risk.
Policyholder contract deposits associated with investment-type contracts: Fair values for policyholder contract deposits
associated with investment-type contracts not accounted for at fair value are estimated using discounted cash flow calculations
based on interest rates currently being offered for similar contracts with maturities consistent with those of the contracts being
valued. When no similar contracts are being offered, the discount rate is the appropriate swap rate (if available) or current risk-free
interest rate consistent with the currency in which the cash flows are denominated. To determine fair value, other factors include
current policyholder account values and related surrender charges and other assumptions include expectations about policyholder
behavior and an appropriate risk margin.
Other liabilities: The majority of Other liabilities that are financial instruments not measured at fair value represent secured
financing arrangements, including repurchase agreements. The carrying amounts of these liabilities approximate fair value,
because the financing arrangements are short-term and are secured by cash or other liquid collateral.
Long-term debt: Fair values of these obligations were determined by reference to quoted market prices, when available and
appropriate, or discounted cash flow calculations based upon our current market-observable implicit-credit-spread rates for similar
types of borrowings with maturities consistent with those remaining for the debt being valued.
Other invested assets
Short-term investments
Cash
Liabilities:
Policyholder contract deposits associated
with investment-type contracts
Other liabilities
Long-term debt
6. Investments
FIXED MATURITY AND EQUITY SECURITIES
Bonds held to maturity are carried at amortized cost when we have the ability and positive intent to hold these securities until maturity.
When we do not have the ability or positive intent to hold bonds until maturity, these securities are classified as available for sale or
are measured at fair value at our election. None of our fixed maturity securities met the criteria for held to maturity classification at
December 31, 2017 or 2016.
Fixed maturity and equity securities classified as available for sale are carried at fair value. Unrealized gains and losses from
available for sale investments in fixed maturity and equity securities are reported as a separate component of Accumulated other
comprehensive income, net of deferred policy acquisition costs and deferred income taxes, in shareholders equity. Realized and
unrealized gains and losses from fixed maturity and equity securities measured at fair value at our election are reflected in Net
investment income (for insurance subsidiaries) or Other income (for Other Operations). Investments in fixed maturity and equity
securities are recorded on a trade-date basis.
Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield adjustments over their
estimated holding periods, until maturity, or call date, if applicable. For investments in certain RMBS, CMBS and CDO/ABS,
(collectively, structured securities), recognized yields are updated based on current information regarding the timing and amount of
expected undiscounted future cash flows. For high credit quality structured securities, effective yields are recalculated based on
actual payments received and updated prepayment expectations, and the amortized cost is adjusted to the amount that would have
existed had the new effective yield been applied since acquisition with a corresponding charge or credit to net investment income. For
structured securities that are not high credit quality, effective yields are recalculated and adjusted prospectively based on changes in
expected undiscounted future cash flows. For purchased credit impaired (PCI) securities, at acquisition, the difference between the
undiscounted expected future cash flows and the recorded investment in the securities represents the initial accretable yield, which is
to be accreted into net investment income over the securities remaining lives on an effective level-yield basis. Subsequently, effective
yields recognized on PCI securities are recalculated and adjusted prospectively to reflect changes in the contractual benchmark
interest rates on variable rate securities and any significant increases in undiscounted expected future cash flows arising due to
reasons other than interest rate changes.
204
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
205
1011252ai_financials.indd 204
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 5. F ai r Val u e Me as u re me n ts
The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the
related impairment charges recorded during the periods presented:
Investments in life settlements
(in millions)
December 31, 2017
Other investments
Other assets*
Total
December 31, 2016
Other investments
Other assets
Total
Investments in life settlements
Assets at Fair Value
Non-Recurring Basis
Impairment Charges
December 31,
Level 1
Level 2
Level 3
Total
2017
2016
2015
- $
55
$
77 $
76 $
360
157
397
19
594 $
492 $
189
540
80
809
$
$
$
$
-
-
-
-
-
-
-
-
$
$
$
$
-
-
-
-
- $
- $
-
-
55
364
736
2
$
$
$
$
55
-
-
55
364
736
2
- $
1,102
$
1,102
*
Impairments include $35 million related to other assets that were sold in 2017.
FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE
Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding insurance contracts and
lease contracts) is discussed below:
Mortgage and other loans receivable: Fair values of loans on commercial real estate and other loans receivable are estimated
for disclosure purposes using discounted cash flow calculations based on discount rates that we believe market participants would
use in determining the price that they would pay for such assets. For certain loans, our current incremental lending rates for similar
types of loans are used as the discount rates, because we believe this rate approximates the rates market participants would use.
Fair values of residential mortgage loans are generally determined based on market prices, using market based adjustments for
credit and servicing as appropriate. The fair values of policy loans are generally estimated based on unpaid principal amount as of
each reporting date. No consideration is given to credit risk because policy loans are effectively collateralized by the cash
surrender value of the policies.
Other invested assets: The majority of Other invested assets that are not measured at fair value in 2016 represent investments
in life settlements. The fair value of investments in life settlements is determined using a discounted cash flow methodology that
incorporates the best available market assumptions for longevity as well as market yields based on reported transactions. Due to
the individual life nature of each investment in life settlements and the illiquidity of the existing market, significant inputs to the fair
value are unobservable. The majority of the Other invested assets that are not measured at fair value in 2017 represent time
deposits with the original maturity at purchase greater than one year. The fair value of long-term time deposits is determined using
the expected discounted future cash flow.
Cash and short-term investments: The carrying amounts of these assets approximate fair values because of the relatively short
period of time between origination and expected realization, and their limited exposure to credit risk.
Policyholder contract deposits associated with investment-type contracts: Fair values for policyholder contract deposits
associated with investment-type contracts not accounted for at fair value are estimated using discounted cash flow calculations
based on interest rates currently being offered for similar contracts with maturities consistent with those of the contracts being
valued. When no similar contracts are being offered, the discount rate is the appropriate swap rate (if available) or current risk-free
interest rate consistent with the currency in which the cash flows are denominated. To determine fair value, other factors include
current policyholder account values and related surrender charges and other assumptions include expectations about policyholder
behavior and an appropriate risk margin.
Other liabilities: The majority of Other liabilities that are financial instruments not measured at fair value represent secured
financing arrangements, including repurchase agreements. The carrying amounts of these liabilities approximate fair value,
because the financing arrangements are short-term and are secured by cash or other liquid collateral.
Long-term debt: Fair values of these obligations were determined by reference to quoted market prices, when available and
appropriate, or discounted cash flow calculations based upon our current market-observable implicit-credit-spread rates for similar
types of borrowings with maturities consistent with those remaining for the debt being valued.
The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at
fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the
observability of the inputs used:
(in millions)
December 31, 2017
Assets:
Mortgage and other loans receivable
Other invested assets
Short-term investments
Cash
Liabilities:
Policyholder contract deposits associated
with investment-type contracts
Other liabilities
Long-term debt
December 31, 2016
Assets:
Mortgage and other loans receivable
Other invested assets
Short-term investments
Cash
Liabilities:
Policyholder contract deposits associated
with investment-type contracts
Other liabilities
Long-term debt
6. Investments
$
$
Estimated Fair Value
Level 1
Level 2
Level 3
Total
Carrying
Value
- $
-
-
2,362
117 $
590
7,771
-
37,644 $
6
-
-
37,761 $
596
7,771
2,362
37,018
593
7,771
2,362
-
-
-
387
4,494
23,930
121,809
-
4,313
122,196
4,494
28,243
114,326
4,494
28,752
- $
-
-
1,868
161 $
955
8,961
-
33,575 $
2,053
-
-
33,736 $
3,008
8,961
1,868
33,229
3,474
8,961
1,868
-
-
-
382
4,196
23,117
121,742
-
3,333
122,124
4,196
26,450
112,705
4,196
27,484
FIXED MATURITY AND EQUITY SECURITIES
Bonds held to maturity are carried at amortized cost when we have the ability and positive intent to hold these securities until maturity.
When we do not have the ability or positive intent to hold bonds until maturity, these securities are classified as available for sale or
are measured at fair value at our election. None of our fixed maturity securities met the criteria for held to maturity classification at
December 31, 2017 or 2016.
Fixed maturity and equity securities classified as available for sale are carried at fair value. Unrealized gains and losses from
available for sale investments in fixed maturity and equity securities are reported as a separate component of Accumulated other
comprehensive income, net of deferred policy acquisition costs and deferred income taxes, in shareholders equity. Realized and
unrealized gains and losses from fixed maturity and equity securities measured at fair value at our election are reflected in Net
investment income (for insurance subsidiaries) or Other income (for Other Operations). Investments in fixed maturity and equity
securities are recorded on a trade-date basis.
Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield adjustments over their
estimated holding periods, until maturity, or call date, if applicable. For investments in certain RMBS, CMBS and CDO/ABS,
(collectively, structured securities), recognized yields are updated based on current information regarding the timing and amount of
expected undiscounted future cash flows. For high credit quality structured securities, effective yields are recalculated based on
actual payments received and updated prepayment expectations, and the amortized cost is adjusted to the amount that would have
existed had the new effective yield been applied since acquisition with a corresponding charge or credit to net investment income. For
structured securities that are not high credit quality, effective yields are recalculated and adjusted prospectively based on changes in
expected undiscounted future cash flows. For purchased credit impaired (PCI) securities, at acquisition, the difference between the
undiscounted expected future cash flows and the recorded investment in the securities represents the initial accretable yield, which is
to be accreted into net investment income over the securities remaining lives on an effective level-yield basis. Subsequently, effective
yields recognized on PCI securities are recalculated and adjusted prospectively to reflect changes in the contractual benchmark
interest rates on variable rate securities and any significant increases in undiscounted expected future cash flows arising due to
reasons other than interest rate changes.
204
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
205
1011252ai_financials.indd 205
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 SECURITIES AVAILABLE FOR SALE
Securities Available for Sale in a Loss Position
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The following table presents the amortized cost or cost and fair value of our available for sale securities:
(in millions)
December 31, 2017
Bonds available for sale:
Amortized
Gross
Gross
Cost or
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
Other-Than-
Temporary
Impairments
in AOCI(a)
U.S. government and government sponsored entities
$
2,532
$
160 $
(36) $
2,656 $
U.S. government and government sponsored entities
$
1,870
$
148 $
(26) $
1,992 $
$
226,766
$
15,315 $
(1,381) $
240,700 $
1,656
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
Mortgage-backed, asset-backed and collateralized:
RMBS
CMBS
CDO/ABS
Total mortgage-backed, asset-backed and collateralized
Total bonds available for sale(b)
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Total
December 31, 2016
Bonds available for sale:
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
Mortgage-backed, asset-backed and collateralized:
RMBS
CMBS
CDO/ABS
Total mortgage-backed, asset-backed and collateralized
Total bonds available for sale(b)
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Total
17,377
15,059
126,310
34,181
13,538
16,464
64,183
225,461
703
504
98
1,305
1,297
717
8,666
3,273
408
370
4,051
14,891
379
29
16
424
(30)
(117)
(800)
(220)
(105)
(52)
(377)
18,644
15,659
134,176
37,234
13,841
16,782
67,857
(1,360)
238,992
(21)
-
-
(21)
1,061
533
114
1,708
24,025
14,018
126,648
35,311
14,054
16,315
65,680
232,241
708
748
241
1,697
1,001
773
7,271
2,541
409
278
3,228
12,421
369
4
23
396
(254)
(256)
24,772
14,535
(1,739)
132,180
(478)
(192)
(180)
(850)
37,374
14,271
16,413
68,058
(3,125)
241,537
(12)
-
(3)
(15)
1,065
752
261
2,078
(a) Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income. Amount includes unrealized gains and losses on
impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.
(b) At December 31, 2017 and 2016, bonds available for sale held by us that were below investment grade or not rated totaled $31.5 billion and $33.6 billion, respectively.
$
233,938
$
12,817 $
(3,140) $
243,615 $
1,265
-
-
-
17
1,568
42
29
1,639
1,656
-
-
-
-
-
-
-
(31)
1,212
45
39
1,296
1,265
-
-
-
-
The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated
by major investment category and length of time that individual securities have been in a continuous unrealized loss
position:
U.S. government and government sponsored entities $
770 $
23
$
332
$
13
$
1,102 $
Obligations of states, municipalities and political
(in millions)
December 31, 2017
Bonds available for sale:
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Equity securities available for sale:
Common stock
Mutual funds
Total equity securities available for sale
Total
December 31, 2016
Bonds available for sale:
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Equity securities available for sale:
Common stock
Mutual funds
Total equity securities available for sale
Total
Less than 12 Months
12 Months or More
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
586
3,511
15,578
6,212
3,408
1,455
31,520
136
1
137
5,814
3,865
28,184
8,794
4,469
5,362
57,208
125
64
189
453
6
54
99
46
24
705
21
-
21
726
221
162
1,013
252
152
102
1,928
12
3
15
646
857
7,291
3,790
1,389
822
15,127
231
489
6,080
4,045
479
1,961
13,285
-
-
-
-
-
-
24
63
347
121
59
28
655
-
-
-
-
-
-
33
94
726
226
40
78
1,197
1,232
4,368
22,869
10,002
4,797
2,277
46,647
136
1
137
6,045
4,354
34,264
12,839
4,948
7,323
70,493
125
64
189
36
30
117
800
220
105
52
21
-
21
1,360
254
256
1,739
478
192
180
3,125
12
3
15
$
57,397 $
1,943
$ 13,285
$
1,197
$
70,682 $
3,140
$
31,657 $
$ 15,127
$
655
$
46,784 $
1,381
U.S. government and government sponsored entities $
720 $
26
$
-
$
-
$
720 $
26
Obligations of states, municipalities and political
At December 31, 2017, we held 7,448 and 74 individual fixed maturity and equity securities, respectively, that were in an unrealized
loss position, of which 1,920 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more.
We did not recognize the unrealized losses in earnings on these fixed maturity securities at December 31, 2017 because we neither
intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before
recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit
analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying
collateral, review of relevant industry analyst reports and forecasts and other available market data.
206
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
207
1011252ai_financials.indd 206
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
SECURITIES AVAILABLE FOR SALE
Securities Available for Sale in a Loss Position
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The following table presents the amortized cost or cost and fair value of our available for sale securities:
Amortized
Gross
Gross
Cost or
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
Other-Than-
Temporary
Impairments
in AOCI(a)
-
-
-
17
1,568
42
29
1,639
1,656
-
-
-
-
$
226,766
$
15,315 $
(1,381) $
240,700 $
1,656
-
-
-
(31)
1,212
45
39
1,296
1,265
-
-
-
-
(a) Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income. Amount includes unrealized gains and losses on
impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.
(b) At December 31, 2017 and 2016, bonds available for sale held by us that were below investment grade or not rated totaled $31.5 billion and $33.6 billion, respectively.
$
233,938
$
12,817 $
(3,140) $
243,615 $
1,265
U.S. government and government sponsored entities
$
2,532
$
160 $
(36) $
2,656 $
Obligations of states, municipalities and political subdivisions
(in millions)
December 31, 2017
Bonds available for sale:
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Mortgage-backed, asset-backed and collateralized:
Total mortgage-backed, asset-backed and collateralized
Total bonds available for sale(b)
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Total
December 31, 2016
Bonds available for sale:
Mortgage-backed, asset-backed and collateralized:
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total mortgage-backed, asset-backed and collateralized
Total bonds available for sale(b)
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total
Total equity securities available for sale
17,377
15,059
126,310
34,181
13,538
16,464
64,183
225,461
703
504
98
1,305
24,025
14,018
126,648
35,311
14,054
16,315
65,680
232,241
708
748
241
1,697
1,297
717
8,666
3,273
408
370
4,051
14,891
379
29
16
424
1,001
773
7,271
2,541
409
278
3,228
12,421
369
4
23
396
(1,360)
238,992
(30)
(117)
(800)
(220)
(105)
(52)
(377)
(21)
-
-
(21)
(254)
(256)
(478)
(192)
(180)
(850)
(12)
-
(3)
(15)
18,644
15,659
134,176
37,234
13,841
16,782
67,857
1,061
533
114
1,708
24,772
14,535
37,374
14,271
16,413
68,058
1,065
752
261
2,078
(1,739)
132,180
(3,125)
241,537
U.S. government and government sponsored entities
$
1,870
$
148 $
(26) $
1,992 $
Obligations of states, municipalities and political subdivisions
The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated
by major investment category and length of time that individual securities have been in a continuous unrealized loss
position:
(in millions)
December 31, 2017
Bonds available for sale:
Less than 12 Months
12 Months or More
Total
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Fair
Value
Gross
Unrealized
Losses
U.S. government and government sponsored entities $
Obligations of states, municipalities and political
770 $
23
$
332
$
13
$
1,102 $
36
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Equity securities available for sale:
Common stock
Mutual funds
Total equity securities available for sale
Total
December 31, 2016
Bonds available for sale:
586
3,511
15,578
6,212
3,408
1,455
31,520
136
1
137
31,657 $
$
6
54
453
99
46
24
705
21
-
21
726
646
857
7,291
3,790
1,389
822
15,127
-
-
-
$ 15,127
$
24
63
347
121
59
28
655
-
-
-
655
1,232
4,368
22,869
10,002
4,797
2,277
46,647
136
1
137
46,784 $
$
30
117
800
220
105
52
1,360
21
-
21
1,381
U.S. government and government sponsored entities $
Obligations of states, municipalities and political
720 $
26
$
-
$
-
$
720 $
26
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Equity securities available for sale:
Common stock
Mutual funds
Total equity securities available for sale
Total
5,814
3,865
28,184
8,794
4,469
5,362
57,208
125
64
189
57,397 $
$
221
162
1,013
252
152
102
1,928
12
3
15
1,943
231
489
6,080
4,045
479
1,961
13,285
-
-
-
$ 13,285
$
33
94
726
226
40
78
1,197
-
-
-
1,197
6,045
4,354
34,264
12,839
4,948
7,323
70,493
125
64
189
70,682 $
$
254
256
1,739
478
192
180
3,125
12
3
15
3,140
At December 31, 2017, we held 7,448 and 74 individual fixed maturity and equity securities, respectively, that were in an unrealized
loss position, of which 1,920 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more.
We did not recognize the unrealized losses in earnings on these fixed maturity securities at December 31, 2017 because we neither
intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before
recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit
analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying
collateral, review of relevant industry analyst reports and forecasts and other available market data.
206
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
207
1011252ai_financials.indd 207
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
Contractual Maturities of Fixed Maturity Securities Available for Sale
OTHER SECURITIES MEASURED AT FAIR VALUE
The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual
maturity:
The following table presents the fair value of other securities measured at fair value based on our election of the fair value
option:
December 31, 2017
(in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed, asset-backed and collateralized
Total
December 31, 2016
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed, asset-backed and collateralized
Total
Total Fixed Maturity Securities
Available for Sale
Amortized Cost
7,932 $
47,179
42,617
63,550
64,183
225,461 $
7,796 $
49,200
43,308
66,257
65,680
232,241 $
$
$
$
$
Fair Value
8,071
49,093
43,944
70,027
67,857
238,992
7,994
51,958
44,226
69,301
68,058
241,537
Fixed Maturity Securities in a Loss
Position Available for Sale
Amortized Cost
$
$
$
$
1,526 $
7,764
11,559
9,705
17,453
48,007 $
604 $
6,002
16,045
25,007
25,960
73,618 $
Fair Value
1,515
7,571
11,143
9,342
17,076
46,647
581
5,841
15,332
23,629
25,110
70,493
U.S. government and government sponsored entities
$
2,802
21 %
$
2,939
20 %
Obligations of states, municipalities and political subdivisions
(in millions)
Fixed maturity securities:
Non-U.S. governments
Corporate debt
RMBS
CMBS
Mortgage-backed, asset-backed and collateralized:
CDO/ABS and other collateralized*
Total mortgage-backed, asset-backed and collateralized
Total fixed maturity securities
Equity securities
Total
December 31, 2017
December 31, 2016
Fair
Value
Percent
of Total
Fair
Value
Percent
of Total
-
57
1,909
1,885
559
5,560
8,004
12,772
589
-
1
14
14
4
42
60
96
4
-
51
1,772
2,025
603
6,608
9,236
13,998
482
-
-
12
14
4
47
65
97
3
$
13,361
100 %
$
14,480
100 %
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations
with or without call or prepayment penalties.
*
Includes $251 million and $421 million of U.S. government agency backed ABS at December 31, 2017 and 2016, respectively.
OTHER INVESTED ASSETS
The following table presents the gross realized gains and gross realized losses from sales or maturities of our available for
sale securities:
The following table summarizes the carrying amounts of other invested assets:
Years Ended December 31,
2017
2016
2015
(in millions)
Fixed maturity securities
Equity securities
Total
Gross
Realized
Gains
Gross
Realized
Losses
Gross
Realized
Gains
$
$
725 $
107
832 $
300 $
19
319 $
801 $
1,072
1,873 $
Gross
Gross
Gross
Realized Realized Realized
Losses
423
28
451
Gains
517
1,060
$ 1,577
Losses
800
15
815
$
$
$
For the years ended December 31, 2017, 2016 and 2015, the aggregate fair value of available for sale securities sold was $31.3
billion, $30.2 billion and $28.7 billion, which resulted in net realized capital gains of $0.5 billion, $1.1 billion and $1.1 billion,
respectively.
December 31,
(in millions)
Alternative investments(a) (b)
Investment real estate(c)
Aircraft asset investments(d)
Investments in life settlements
All other investments
Total
$
2017
11,308
8,258
206
-
1,050
20,822
$
$
2016
13,379
6,900
321
2,516
1,422
$
24,538
(a) At December 31, 2017, included hedge funds of $5.8 billion, private equity funds of $5.0 billion, and affordable housing partnerships of $543 million. At December 31,
2016, included hedge funds of $7.2 billion, private equity funds of $5.5 billion, and affordable housing partnerships of $625 million.
(b) Approximately 75 percent of our hedge fund portfolio is available for redemption in 2018, an additional 25 percent will be available between 2019 and 2024.
(c) Net of accumulated depreciation of $515 million and $451 million in 2017 and 2016, respectively.
(d) Consists of investments in aircraft equipment held in a consolidated trust.
Other Invested Assets Carried at Fair Value
Certain hedge funds, private equity funds, and other investment partnerships for which we have elected the fair value option are
reported at fair value with changes in fair value recognized in Net investment income with the exception of investments of AIGs Other
Operations, for which such changes are reported in Other income. Other investments in hedge funds, private equity funds and other
investment partnerships in which our insurance operations do not hold aggregate interests sufficient to exercise more than minor
influence over the respective partnerships are reported at fair value with changes in fair value recognized as a component of
Accumulated other comprehensive income. These investments are subject to other-than-temporary impairment evaluations (see
discussion below on evaluating equity investments for other-than-temporary impairment). The gross unrealized loss recorded in
Accumulated other comprehensive income on such investments was $45 million and $32 million at December 31, 2017 and 2016,
respectively, the majority of which pertains to investments in private equity funds and hedge funds that have been in continuous
unrealized loss positions for less than 12 months.
208
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
209
1011252ai_financials.indd 208
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 maturity:
December 31, 2017
(in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed, asset-backed and collateralized
Total
December 31, 2016
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed, asset-backed and collateralized
Total
with or without call or prepayment penalties.
sale securities:
(in millions)
Fixed maturity securities
Equity securities
Total
respectively.
Contractual Maturities of Fixed Maturity Securities Available for Sale
OTHER SECURITIES MEASURED AT FAIR VALUE
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual
Total Fixed Maturity Securities
Fixed Maturity Securities in a Loss
Available for Sale
Position Available for Sale
Amortized Cost
Fair Value
Amortized Cost
$
$
$
$
7,932 $
47,179
42,617
63,550
64,183
7,796 $
49,200
43,308
66,257
65,680
$
$
$
8,071
49,093
43,944
70,027
67,857
7,994
51,958
44,226
69,301
68,058
1,526 $
7,764
11,559
9,705
17,453
604 $
6,002
16,045
25,007
25,960
Fair Value
1,515
7,571
11,143
9,342
17,076
46,647
581
5,841
15,332
23,629
25,110
70,493
232,241 $
241,537
$
73,618 $
225,461 $
238,992
48,007 $
The following table presents the fair value of other securities measured at fair value based on our election of the fair value
option:
(in millions)
Fixed maturity securities:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
Mortgage-backed, asset-backed and collateralized:
RMBS
CMBS
CDO/ABS and other collateralized*
Total mortgage-backed, asset-backed and collateralized
Total fixed maturity securities
Equity securities
Total
December 31, 2017
December 31, 2016
Fair
Value
Percent
of Total
Fair
Value
Percent
of Total
$
$
2,802
-
57
1,909
1,885
559
5,560
8,004
12,772
589
13,361
21 %
-
1
14
14
4
42
60
96
4
100 %
$
$
2,939
-
51
1,772
2,025
603
6,608
9,236
13,998
482
14,480
20 %
-
-
12
14
4
47
65
97
3
100 %
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations
*
Includes $251 million and $421 million of U.S. government agency backed ABS at December 31, 2017 and 2016, respectively.
The following table presents the gross realized gains and gross realized losses from sales or maturities of our available for
OTHER INVESTED ASSETS
The following table summarizes the carrying amounts of other invested assets:
Years Ended December 31,
2017
2016
2015
Gross
Realized
Gains
Gross
Realized
Losses
Gross
Realized
Gains
$
$
725 $
107
832 $
300 $
19
801 $
1,072
319 $
1,873 $
Gross
Gross
Losses
Gross
Realized Realized Realized
Losses
423
28
451
$ 1,577
Gains
1,060
815
800
517
15
$
$
$
December 31,
(in millions)
Alternative investments(a) (b)
Investment real estate(c)
Aircraft asset investments(d)
Investments in life settlements
All other investments
Total
2017
11,308
8,258
206
-
1,050
20,822
$
$
2016
13,379
6,900
321
2,516
1,422
24,538
$
$
For the years ended December 31, 2017, 2016 and 2015, the aggregate fair value of available for sale securities sold was $31.3
billion, $30.2 billion and $28.7 billion, which resulted in net realized capital gains of $0.5 billion, $1.1 billion and $1.1 billion,
(a) At December 31, 2017, included hedge funds of $5.8 billion, private equity funds of $5.0 billion, and affordable housing partnerships of $543 million. At December 31,
2016, included hedge funds of $7.2 billion, private equity funds of $5.5 billion, and affordable housing partnerships of $625 million.
(b) Approximately 75 percent of our hedge fund portfolio is available for redemption in 2018, an additional 25 percent will be available between 2019 and 2024.
(c) Net of accumulated depreciation of $515 million and $451 million in 2017 and 2016, respectively.
(d) Consists of investments in aircraft equipment held in a consolidated trust.
Other Invested Assets Carried at Fair Value
Certain hedge funds, private equity funds, and other investment partnerships for which we have elected the fair value option are
reported at fair value with changes in fair value recognized in Net investment income with the exception of investments of AIGs Other
Operations, for which such changes are reported in Other income. Other investments in hedge funds, private equity funds and other
investment partnerships in which our insurance operations do not hold aggregate interests sufficient to exercise more than minor
influence over the respective partnerships are reported at fair value with changes in fair value recognized as a component of
Accumulated other comprehensive income. These investments are subject to other-than-temporary impairment evaluations (see
discussion below on evaluating equity investments for other-than-temporary impairment). The gross unrealized loss recorded in
Accumulated other comprehensive income on such investments was $45 million and $32 million at December 31, 2017 and 2016,
respectively, the majority of which pertains to investments in private equity funds and hedge funds that have been in continuous
unrealized loss positions for less than 12 months.
208
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
209
1011252ai_financials.indd 209
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
Other Invested Assets Equity Method Investments
We account for hedge funds, private equity funds, affordable housing partnerships and other investment partnerships using the equity
method of accounting unless our interest is so minor that we may have virtually no influence over partnership operating and financial
policies, or we have elected the fair value option. Under the equity method of accounting, our carrying amount generally is our share
of the net asset value of the funds or the partnerships, and changes in our share of the net asset values are recorded in Net
investment income with the exception of investments of AIGs Other Operations, for which such changes are reported in Other
income. In applying the equity method of accounting, we consistently use the most recently available financial information provided by
the general partner or manager of each of these investments, which is one to three months prior to the end of our reporting period.
The financial statements of these investees are generally audited annually.
Summarized Financial Information of Equity Method Investees
The following is the aggregated summarized financial information of our equity method investees, including those for which
the fair value option has been elected:
Years Ended December 31,
(in millions)
Operating results:
Total revenues
Total expenses
Net income
At December 31,
(in millions)
Balance sheet:
Total assets
Total liabilities
2017
2016
2015
$
$
13,066
(6,835)
6,231
$
$
$
$
9,512
(7,361)
2,151
2017
132,708
(35,585)
$
$
$
$
22,055
(3,898)
18,157
2016
158,306
(37,336)
NET INVESTMENT INCOME
Net investment income represents income primarily from the following sources:
Interest income and related expenses, including amortization of premiums and accretion of discounts with changes in the timing
and the amount of expected principal and interest cash flows reflected in yield, as applicable.
Dividend income from common and preferred stocks.
Realized and unrealized gains and losses from investments in other securities and investments for which we elected the fair value
option.
Earnings from alternative investments.
The difference between the carrying amount of an investment in life settlements and the life insurance proceeds of the underlying
life insurance policy recorded in income upon the death of the insured.
The following table presents the components of Net investment income:
Years Ended December 31,
(in millions)
Available for sale fixed maturity securities, including short-term investments
Other fixed maturity securities
Equity securities
Interest on mortgage and other loans
Alternative investments*
Real estate
Other investments
Total investment income
Investment expenses
Net investment income
2017
2016
2015
$
10,435 $
11,314 $
11,331
660
34
1,661
1,475
144
290
14,699
520
331
(5)
1,526
693
150
509
14,518
453
1
99
1,417
1,120
181
432
14,581
528
$
14,179 $
14,065 $
14,053
The following table presents the carrying amount and ownership percentage of equity method investments at December 31,
2017 and 2016:
*
Includes income from hedge funds, private equity funds and affordable housing partnerships. Hedge funds for which we elected the fair value option are recorded as of
the balance sheet date. Other hedge funds are generally reported on a one-month lag, while private equity funds are generally reported on a one-quarter lag.
(in millions, except percentages)
Equity method investments
2017
2016
Carrying
Value
9,050
Ownership
Percentage
Various
$
Carrying
Value
10,756
$
Ownership
Percentage
Various
Summarized financial information for these equity method investees may be presented on a lag, due to the unavailability of
information for the investees at our respective balance sheet dates, and is included for the periods in which we held an equity method
ownership interest.
OTHER INVESTMENTS
Also included in Other invested assets are real estate held for investment and investments in aircraft equipment held in a consolidated
trust. These investments are reported at cost, less depreciation and are subject to impairment review, as discussed below.
Investments in Life Settlements
Investments in life settlements are accounted for under the investment method. Under the investment method, we recognize our initial
investment in life settlements at the transaction price plus all initial direct external costs. Continuing costs to keep the policy in force,
primarily life insurance premiums, increase the carrying amount of the investment. We recognize income on individual investments in
life settlements when the insured dies, at an amount equal to the excess of the investment proceeds over the carrying amount of the
investment at that time. These investments are subject to impairment review, as discussed below.
During 2017, 2016 and 2015, income recognized on investments in life settlements was $266 million, $453 million and $332 million,
respectively, and is included in Net investment income in the Consolidated Statements of Income. We sold the remaining portion of
our life settlements portfolio in 2017.
NET REALIZED CAPITAL GAINS AND LOSSES
Net realized capital gains and losses are determined by specific identification. The net realized capital gains and losses are generated
primarily from the following sources:
Sales or full redemptions of available for sale fixed maturity securities, available for sale equity securities, real estate and other
alternative investments.
Reductions to the amortized cost basis of available for sale fixed maturity securities, available for sale equity securities and certain
other invested assets for other-than-temporary impairments.
Impairments on investments in life settlements.
Changes in fair value of derivatives except for (1) those derivatives at AIGFP and (2) those instruments that are designated as
hedging instruments when the change in the fair value of the hedged item is not reported in Net realized capital gains (losses).
Exchange gains and losses resulting from foreign currency transactions.
210
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
211
1011252ai_financials.indd 210
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
Other Invested Assets Equity Method Investments
We account for hedge funds, private equity funds, affordable housing partnerships and other investment partnerships using the equity
method of accounting unless our interest is so minor that we may have virtually no influence over partnership operating and financial
policies, or we have elected the fair value option. Under the equity method of accounting, our carrying amount generally is our share
of the net asset value of the funds or the partnerships, and changes in our share of the net asset values are recorded in Net
investment income with the exception of investments of AIGs Other Operations, for which such changes are reported in Other
NET INVESTMENT INCOME
Net investment income represents income primarily from the following sources:
Interest income and related expenses, including amortization of premiums and accretion of discounts with changes in the timing
and the amount of expected principal and interest cash flows reflected in yield, as applicable.
Dividend income from common and preferred stocks.
income. In applying the equity method of accounting, we consistently use the most recently available financial information provided by
Realized and unrealized gains and losses from investments in other securities and investments for which we elected the fair value
the general partner or manager of each of these investments, which is one to three months prior to the end of our reporting period.
option.
The financial statements of these investees are generally audited annually.
Summarized Financial Information of Equity Method Investees
The following is the aggregated summarized financial information of our equity method investees, including those for which
the fair value option has been elected:
Years Ended December 31,
2017
2016
2015
$
$
13,066
(6,835)
6,231
9,512
(7,361)
2,151
22,055
(3,898)
18,157
2017
2016
132,708
(35,585)
158,306
(37,336)
$
$
$
$
$
$
$
$
Earnings from alternative investments.
The difference between the carrying amount of an investment in life settlements and the life insurance proceeds of the underlying
life insurance policy recorded in income upon the death of the insured.
The following table presents the components of Net investment income:
Years Ended December 31,
(in millions)
Available for sale fixed maturity securities, including short-term investments
Other fixed maturity securities
Equity securities
Interest on mortgage and other loans
Alternative investments*
Real estate
Other investments
Total investment income
Investment expenses
Net investment income
2017
10,435 $
660
34
1,661
1,475
144
290
14,699
520
14,179 $
2016
11,314 $
331
(5)
1,526
693
150
509
14,518
453
14,065 $
2015
11,331
1
99
1,417
1,120
181
432
14,581
528
14,053
$
$
The following table presents the carrying amount and ownership percentage of equity method investments at December 31,
*
Includes income from hedge funds, private equity funds and affordable housing partnerships. Hedge funds for which we elected the fair value option are recorded as of
the balance sheet date. Other hedge funds are generally reported on a one-month lag, while private equity funds are generally reported on a one-quarter lag.
2017
2016
Carrying
Value
9,050
$
Ownership
Percentage
Various
$
Carrying
Value
10,756
Ownership
Percentage
Various
NET REALIZED CAPITAL GAINS AND LOSSES
Net realized capital gains and losses are determined by specific identification. The net realized capital gains and losses are generated
primarily from the following sources:
Sales or full redemptions of available for sale fixed maturity securities, available for sale equity securities, real estate and other
Summarized financial information for these equity method investees may be presented on a lag, due to the unavailability of
alternative investments.
information for the investees at our respective balance sheet dates, and is included for the periods in which we held an equity method
Reductions to the amortized cost basis of available for sale fixed maturity securities, available for sale equity securities and certain
Also included in Other invested assets are real estate held for investment and investments in aircraft equipment held in a consolidated
trust. These investments are reported at cost, less depreciation and are subject to impairment review, as discussed below.
Investments in life settlements are accounted for under the investment method. Under the investment method, we recognize our initial
investment in life settlements at the transaction price plus all initial direct external costs. Continuing costs to keep the policy in force,
primarily life insurance premiums, increase the carrying amount of the investment. We recognize income on individual investments in
life settlements when the insured dies, at an amount equal to the excess of the investment proceeds over the carrying amount of the
investment at that time. These investments are subject to impairment review, as discussed below.
During 2017, 2016 and 2015, income recognized on investments in life settlements was $266 million, $453 million and $332 million,
respectively, and is included in Net investment income in the Consolidated Statements of Income. We sold the remaining portion of
our life settlements portfolio in 2017.
other invested assets for other-than-temporary impairments.
Impairments on investments in life settlements.
Changes in fair value of derivatives except for (1) those derivatives at AIGFP and (2) those instruments that are designated as
hedging instruments when the change in the fair value of the hedged item is not reported in Net realized capital gains (losses).
Exchange gains and losses resulting from foreign currency transactions.
(in millions)
Operating results:
Total revenues
Total expenses
Net income
At December 31,
(in millions)
Balance sheet:
Total assets
Total liabilities
2017 and 2016:
(in millions, except percentages)
Equity method investments
ownership interest.
OTHER INVESTMENTS
Investments in Life Settlements
210
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
211
1011252ai_financials.indd 211
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The following table presents the components of Net realized capital losses:
Years Ended December 31,
(in millions)
Sales of fixed maturity securities
Sales of equity securities(a)
Other-than-temporary impairments:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Provision for loan losses
Foreign exchange transactions
Variable annuity embedded derivatives, net of related hedges
All other derivatives and hedge accounting
Impairments on investments in life settlements
Other(b)
Net realized capital gains (losses)
2017
425 $
88
2016
1 $
1,057
2015
94
1,032
(2)
(9)
(11)
(234)
(4)
(50)
489
(1,374)
(368)
(360)
30
(1,380) $
(15)
(46)
(18)
(433)
(47)
10
(1,226)
(1,243)
299
(397)
114
(1,944) $
(13)
(233)
(57)
(348)
(20)
(58)
416
320
78
(540)
105
776
$
$
(a) In 2016 and 2015 includes realized gains on the sale of a portion of our holdings in Peoples Insurance Company (Group) of China Limited and PICC Property &
Casualty Company Limited (collectively, our PICC Investment).
(b) In 2016, primarily includes $107 million of realized gains due to a purchase price adjustment on the sale of Class B shares of Prudential Financial, Inc. and losses of
$253 million from the sale of a portion of our Life Settlements portfolio. In 2015, primarily includes $357 million of realized gains due to the sale of common shares of
SpringLeaf Holdings (now known as OneMain Holdings, Inc.), $428 million of realized gains due to the sale of Class B shares of Prudential Financial, Inc. and $463
million of realized losses due to the sale of ordinary shares of AerCap.
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS
The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale
securities and other investments:
(in millions)
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities
Equity securities
Other investments
Total increase (decrease) in unrealized appreciation (depreciation) of investments*
*
Excludes net unrealized gains (losses) attributable to businesses held for sale.
EVALUATING INVESTMENTS FOR OTHER-THAN-TEMPORARY IMPAIRMENTS
Fixed Maturity Securities
Years Ended
December 31,
2017
2016
$
$
4,235 $
22
(195)
4,062 $
2,019
(1,155)
(259)
605
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity security before
recovery of its amortized cost basis and the fair value of the security is below amortized cost, an other-than-temporary impairment has
occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized capital losses. When
assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be required to sell a fixed maturity
security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not
limited to, decisions to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take
advantage of favorable pricing.
For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the estimated
recoverable value with a corresponding charge to realized capital losses. The estimated recoverable value is the present value of
cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost that is not
related to a credit impairment is presented in unrealized appreciation (depreciation) of fixed maturity securities on which other-than-
temporary credit impairments were recognized (a separate component of accumulated other comprehensive income).
When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS) management considers
historical performance of underlying assets and available market information as well as bond-specific structural considerations, such
as credit enhancement and priority of payment structure of the security. In addition, the process of estimating future cash flows
includes, but is not limited to, the following critical inputs, which vary by asset class:
Current delinquency rates;
Expected default rates and the timing of such defaults;
Loss severity and the timing of any recovery; and
Expected prepayment speeds.
For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the fair
value as the recoverable value when available information does not indicate that another value is more relevant or reliable. When
management identifies information that supports a recoverable value other than the fair value, the determination of a recoverable
value considers scenarios specific to the issuer and the security, and may be based upon estimates of outcomes of corporate
restructurings, political and macroeconomic factors, stability and financial strength of the issuer, the value of any secondary sources
of repayment and the disposition of assets.
We consider severe price declines in our assessment of potential credit impairments. We may also modify our model inputs when we
determine that price movements in certain sectors are indicative of factors not captured by the cash flow models.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities
that is not foreign exchange related, we prospectively accrete into earnings the difference between the new amortized cost and the
expected undiscounted recoverable value over the remaining expected holding period of the security.
Credit Impairments
The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized
in earnings for available for sale fixed maturity securities:
Years Ended December 31,
(in millions)
Balance, beginning of year
Increases due to:
Credit impairments on new securities subject to impairment losses
Additional credit impairments on previously impaired securities
Reductions due to:
Credit impaired securities fully disposed of for which there was no
prior intent or requirement to sell
Credit impaired securities for which there is a current intent or
anticipated requirement to sell
Accretion on securities previously impaired due to credit*
Divested businesses
Balance, end of year
2017
2016
$
1,098
$
1,747
$
122
74
(99)
(669)
-
-
204
212
(296)
-
(767)
(2)
2015
2,659
111
109
(399)
(735)
2
-
$
526
$
1,098
$
1,747
* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the
accretion due to the passage of time.
Equity Securities
We evaluate our available for sale equity securities for impairment by considering such securities as candidates for other-than-
temporary impairment if they meet any of the following criteria:
The security has traded at a significant (25 percent or more) discount to cost for an extended period of time (nine consecutive
A discrete credit event has occurred resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking
protection from creditors under the bankruptcy laws or any similar laws intended for court-supervised reorganization of insolvent
enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims
for cash or securities having a fair value substantially lower than the par value of their claims; or
We have concluded that we may not realize a full recovery on our investment, regardless of the occurrence of one of the foregoing
months or longer);
events.
212
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
213
1011252ai_financials.indd 212
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The following table presents the components of Net realized capital losses:
Years Ended December 31,
(in millions)
Sales of fixed maturity securities
Sales of equity securities(a)
Other-than-temporary impairments:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Provision for loan losses
Foreign exchange transactions
Variable annuity embedded derivatives, net of related hedges
All other derivatives and hedge accounting
Impairments on investments in life settlements
Other(b)
Net realized capital gains (losses)
2017
2016
$
425 $
1 $
88
1,057
2015
94
1,032
(2)
(9)
(11)
(234)
(4)
(50)
489
(368)
(360)
30
(1,374)
(15)
(46)
(18)
(433)
(47)
10
(1,226)
(1,243)
299
(397)
114
$
(1,380) $
(1,944) $
(13)
(233)
(57)
(348)
(20)
(58)
416
320
78
(540)
105
776
(a) In 2016 and 2015 includes realized gains on the sale of a portion of our holdings in Peoples Insurance Company (Group) of China Limited and PICC Property &
Casualty Company Limited (collectively, our PICC Investment).
(b) In 2016, primarily includes $107 million of realized gains due to a purchase price adjustment on the sale of Class B shares of Prudential Financial, Inc. and losses of
$253 million from the sale of a portion of our Life Settlements portfolio. In 2015, primarily includes $357 million of realized gains due to the sale of common shares of
SpringLeaf Holdings (now known as OneMain Holdings, Inc.), $428 million of realized gains due to the sale of Class B shares of Prudential Financial, Inc. and $463
million of realized losses due to the sale of ordinary shares of AerCap.
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS
The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale
securities and other investments:
Increase (decrease) in unrealized appreciation (depreciation) of investments:
(in millions)
Fixed maturity securities
Equity securities
Other investments
Total increase (decrease) in unrealized appreciation (depreciation) of investments*
*
Excludes net unrealized gains (losses) attributable to businesses held for sale.
EVALUATING INVESTMENTS FOR OTHER-THAN-TEMPORARY IMPAIRMENTS
Fixed Maturity Securities
Years Ended
December 31,
2017
2016
$
$
4,235 $
22
(195)
4,062 $
2,019
(1,155)
(259)
605
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity security before
recovery of its amortized cost basis and the fair value of the security is below amortized cost, an other-than-temporary impairment has
occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized capital losses. When
assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be required to sell a fixed maturity
security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not
limited to, decisions to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take
advantage of favorable pricing.
For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the estimated
recoverable value with a corresponding charge to realized capital losses. The estimated recoverable value is the present value of
cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost that is not
related to a credit impairment is presented in unrealized appreciation (depreciation) of fixed maturity securities on which other-than-
temporary credit impairments were recognized (a separate component of accumulated other comprehensive income).
When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS) management considers
historical performance of underlying assets and available market information as well as bond-specific structural considerations, such
as credit enhancement and priority of payment structure of the security. In addition, the process of estimating future cash flows
includes, but is not limited to, the following critical inputs, which vary by asset class:
Current delinquency rates;
Expected default rates and the timing of such defaults;
Loss severity and the timing of any recovery; and
Expected prepayment speeds.
For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the fair
value as the recoverable value when available information does not indicate that another value is more relevant or reliable. When
management identifies information that supports a recoverable value other than the fair value, the determination of a recoverable
value considers scenarios specific to the issuer and the security, and may be based upon estimates of outcomes of corporate
restructurings, political and macroeconomic factors, stability and financial strength of the issuer, the value of any secondary sources
of repayment and the disposition of assets.
We consider severe price declines in our assessment of potential credit impairments. We may also modify our model inputs when we
determine that price movements in certain sectors are indicative of factors not captured by the cash flow models.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities
that is not foreign exchange related, we prospectively accrete into earnings the difference between the new amortized cost and the
expected undiscounted recoverable value over the remaining expected holding period of the security.
Credit Impairments
The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized
in earnings for available for sale fixed maturity securities:
Years Ended December 31,
(in millions)
Balance, beginning of year
Increases due to:
Credit impairments on new securities subject to impairment losses
Additional credit impairments on previously impaired securities
Reductions due to:
Credit impaired securities fully disposed of for which there was no
prior intent or requirement to sell
Credit impaired securities for which there is a current intent or
anticipated requirement to sell
Accretion on securities previously impaired due to credit*
Divested businesses
Balance, end of year
2017
1,098
$
2016
1,747
$
2015
2,659
$
122
74
204
212
111
109
(99)
(296)
(399)
-
(669)
-
526
$
-
(767)
(2)
1,098
$
2
(735)
-
1,747
$
* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the
accretion due to the passage of time.
Equity Securities
We evaluate our available for sale equity securities for impairment by considering such securities as candidates for other-than-
temporary impairment if they meet any of the following criteria:
The security has traded at a significant (25 percent or more) discount to cost for an extended period of time (nine consecutive
months or longer);
A discrete credit event has occurred resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking
protection from creditors under the bankruptcy laws or any similar laws intended for court-supervised reorganization of insolvent
enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims
for cash or securities having a fair value substantially lower than the par value of their claims; or
We have concluded that we may not realize a full recovery on our investment, regardless of the occurrence of one of the foregoing
events.
212
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
213
1011252ai_financials.indd 213
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The determination that an equity security is other-than-temporarily impaired requires the judgment of management and consideration
of the fundamental condition of the issuer, its near-term prospects and all the relevant facts and circumstances. In addition to the
above criteria, all equity securities that have been in a continuous decline in value below cost over 12 months are impaired. We also
consider circumstances of a rapid and severe market valuation decline (50 percent or more) discount to cost, in which we could not
reasonably assert that the impairment period would be temporary (severity losses).
Other Invested Assets
The following tables present information on our PCI securities, which are included in bonds available for sale:
(in millions)
Contractually required payments (principal and interest)
Cash flows expected to be collected*
Recorded investment in acquired securities
* Represents undiscounted expected cash flows, including both principal and interest.
Our equity and cost method investments in private equity funds, hedge funds and other entities are evaluated for impairment similar to
the evaluation of equity securities for impairments as discussed above. Such evaluation considers market conditions, events and
volatility that may impact the recoverability of the underlying investments within these private equity funds and hedge funds and is
based on the nature of the underlying investments and specific inherent risks. Such risks may evolve based on the nature of the
underlying investments.
(in millions)
Outstanding principal balance
Amortized cost
Fair value
Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An investment in life
settlements is considered impaired if the undiscounted cash flows resulting from the expected proceeds would not be sufficient to
recover our estimated future carrying amount, which is the current carrying amount for the investment in life settlements plus
anticipated undiscounted future premiums and other capitalizable future costs, if any.
written down to their estimated fair value which is determined on a discounted cash flow basis, incorporating current market mortality
assumptions and market yields or by repricing to the anticipated sale price as appropriate.
Impaired investments in life settlements are
In general, fair value estimates for the investments in life settlements are calculated using cash flows based on medical underwriting
ratings of the policies from a third-party underwriter, applied to an industry mortality table. Our mortality assumptions are based on an
industry table as supplemented with proprietary data on the older age mortality of U.S. insured lives. Mortality improvement factors
are applied to these assumptions based on our view of future mortality improvements likely to apply to the U.S. insured lives
population. Our mortality assumptions coupled with the mortality improvement rates are used in our estimate of future net cash flows
from the investments in life settlements. We sold the remaining portion of our life settlements portfolio in 2017.
Our investments in aircraft assets and real estate are periodically evaluated for recoverability whenever changes in circumstances
indicate the carrying amount of an asset may be impaired. When impairment indicators are present, we compare expected investment
cash flows to carrying amount. When the expected cash flows are less than the carrying amount, the investments are written down to
fair value with a corresponding charge to earnings.
Purchased Credit Impaired (PCI) Securities
We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine
whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both
principal and interest. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each
PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment
speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded
investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining
lives on an effective yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the
undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-
accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected
future cash flows, which are discussed further below.
On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates
to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the
expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are
subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash
flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable
yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are
recognized prospectively as adjustments to the accretable yield.
The following table presents activity for the accretable yield on PCI securities:
Years Ended December 31,
(in millions)
Balance, beginning of year
Newly purchased PCI securities
Disposals
Accretion
Balance, end of year
PLEDGED INVESTMENTS
Effect of changes in interest rate indices
Net reclassification from (to) non-accretable difference, including effects of prepayments
Secured Financing and Similar Arrangements
We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase
agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially
similar securities. Our secured financing transactions also include those that involve the transfer of securities to financial institutions in
exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us
(pledged collateral) may be sold or repledged by the counterparties. These agreements are recorded at their contracted amounts plus
accrued interest, other than those that are accounted for at fair value.
Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the
amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these
secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these
agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the
securities transferred, respectively.
The following table presents the fair value of securities pledged to counterparties under secured financing transactions,
including repurchase and securities lending agreements:
(in millions)
Fixed maturity securities available for sale
Other bond securities, at fair value
December 31, 2017
December 31, 2016
$
$
2,911 $
1,585 $
2,389
1,799
At December 31, 2017 and 2016, amounts borrowed under repurchase and securities lending agreements totaled $4.5 billion and
$4.2 billion, respectively.
At Date of Acquisition
$
36,642
30,040
20,267
December 31,
December 31,
$
2017
14,718 $
10,492
12,293
2016
16,728
11,987
12,922
2016
6,846
707
-
(842)
39
748
2017
7,498 $
$
190
(18)
(797)
(34)
662
$
7,501 $
7,498
214
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
215
1011252ai_financials.indd 214
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The determination that an equity security is other-than-temporarily impaired requires the judgment of management and consideration
of the fundamental condition of the issuer, its near-term prospects and all the relevant facts and circumstances. In addition to the
above criteria, all equity securities that have been in a continuous decline in value below cost over 12 months are impaired. We also
consider circumstances of a rapid and severe market valuation decline (50 percent or more) discount to cost, in which we could not
reasonably assert that the impairment period would be temporary (severity losses).
Other Invested Assets
(in millions)
Contractually required payments (principal and interest)
Cash flows expected to be collected*
Recorded investment in acquired securities
* Represents undiscounted expected cash flows, including both principal and interest.
The following tables present information on our PCI securities, which are included in bonds available for sale:
Our equity and cost method investments in private equity funds, hedge funds and other entities are evaluated for impairment similar to
the evaluation of equity securities for impairments as discussed above. Such evaluation considers market conditions, events and
volatility that may impact the recoverability of the underlying investments within these private equity funds and hedge funds and is
based on the nature of the underlying investments and specific inherent risks. Such risks may evolve based on the nature of the
underlying investments.
(in millions)
Outstanding principal balance
Amortized cost
Fair value
At Date of Acquisition
36,642
$
30,040
20,267
$
December 31,
2017
14,718 $
10,492
12,293
December 31,
2016
16,728
11,987
12,922
Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An investment in life
The following table presents activity for the accretable yield on PCI securities:
settlements is considered impaired if the undiscounted cash flows resulting from the expected proceeds would not be sufficient to
recover our estimated future carrying amount, which is the current carrying amount for the investment in life settlements plus
anticipated undiscounted future premiums and other capitalizable future costs, if any.
Impaired investments in life settlements are
written down to their estimated fair value which is determined on a discounted cash flow basis, incorporating current market mortality
assumptions and market yields or by repricing to the anticipated sale price as appropriate.
In general, fair value estimates for the investments in life settlements are calculated using cash flows based on medical underwriting
ratings of the policies from a third-party underwriter, applied to an industry mortality table. Our mortality assumptions are based on an
industry table as supplemented with proprietary data on the older age mortality of U.S. insured lives. Mortality improvement factors
Years Ended December 31,
(in millions)
Balance, beginning of year
Newly purchased PCI securities
Disposals
Accretion
Effect of changes in interest rate indices
Net reclassification from (to) non-accretable difference, including effects of prepayments
are applied to these assumptions based on our view of future mortality improvements likely to apply to the U.S. insured lives
Balance, end of year
2017
7,498 $
190
(18)
(797)
(34)
662
7,501 $
2016
6,846
707
-
(842)
39
748
7,498
$
$
population. Our mortality assumptions coupled with the mortality improvement rates are used in our estimate of future net cash flows
from the investments in life settlements. We sold the remaining portion of our life settlements portfolio in 2017.
Our investments in aircraft assets and real estate are periodically evaluated for recoverability whenever changes in circumstances
indicate the carrying amount of an asset may be impaired. When impairment indicators are present, we compare expected investment
cash flows to carrying amount. When the expected cash flows are less than the carrying amount, the investments are written down to
fair value with a corresponding charge to earnings.
Purchased Credit Impaired (PCI) Securities
We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine
whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both
principal and interest. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each
PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment
speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded
investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining
lives on an effective yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the
undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-
accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected
future cash flows, which are discussed further below.
On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates
to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the
expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are
subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash
flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable
yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are
recognized prospectively as adjustments to the accretable yield.
PLEDGED INVESTMENTS
Secured Financing and Similar Arrangements
We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase
agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially
similar securities. Our secured financing transactions also include those that involve the transfer of securities to financial institutions in
exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us
(pledged collateral) may be sold or repledged by the counterparties. These agreements are recorded at their contracted amounts plus
accrued interest, other than those that are accounted for at fair value.
Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the
amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these
secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these
agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the
securities transferred, respectively.
The following table presents the fair value of securities pledged to counterparties under secured financing transactions,
including repurchase and securities lending agreements:
(in millions)
Fixed maturity securities available for sale
Other bond securities, at fair value
December 31, 2017
$
$
2,911 $
1,585 $
December 31, 2016
2,389
1,799
At December 31, 2017 and 2016, amounts borrowed under repurchase and securities lending agreements totaled $4.5 billion and
$4.2 billion, respectively.
214
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
215
1011252ai_financials.indd 215
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The following table presents the fair value of securities pledged under our repurchase agreements by collateral type and by
remaining contractual maturity:
(in millions)
December 31, 2017
Bonds available for sale:
Non-U.S. governments
Corporate debt
Other bond securities:
U.S. government and government sponsored entities
Non-U.S. governments
Corporate debt
Total
December 31, 2016
Other bond securities:
Non-U.S. governments
Corporate debt
Total
Remaining Contractual Maturity of the Agreements
Overnight
and
Continuous
up to 30
days
31 - 90
days
91 - 364
days
365 days
or greater
Total
$
$
$
$
- $
-
7 $
13
19 $
35
44
-
-
44 $
-
11
1,065
-
-
387
407 $ 1,130 $
- $
-
-
-
-
- $
- $
-
- $
- $
163
163 $
- $
860
860 $
51 $
725
776 $
- $
-
-
-
-
- $
- $
-
- $
26
48
44
11
1,452
1,581
51
1,748
1,799
The following table presents the fair value of securities pledged under our securities lending agreements by collateral type
and by remaining contractual maturity:
(in millions)
December 31, 2017
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions
Non-U.S. governments
Corporate debt
CMBS
Other bond securities:
Non-U.S. governments
Corporate debt
Total
December 31, 2016
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions
Non-U.S. governments
Corporate debt
CMBS
Total
Remaining Contractual Maturity of the Agreements
Overnight
and
Continuous
up to 30
days
31 - 90
days
91 - 364
days
365 days
or greater
Total
$
$
$
$
- $
-
-
-
-
-
- $
- $
-
-
-
- $
- $
-
588
-
-
-
- $
18
2,231
-
22
56
588 $ 2,327 $
21 $
-
791
-
- $
50
1,466
61
812 $ 1,577 $
- $
-
-
-
-
-
- $
- $
-
-
-
- $
- $
-
-
-
-
-
- $
- $
-
-
-
- $
-
18
2,819
-
22
56
2,915
21
50
2,257
61
2,389
We also enter into agreements in which securities are purchased by us under agreements to resell (reverse repurchase agreements),
which are accounted for as secured financing transactions and reported as short-term investments or other assets, depending on their
terms. These agreements are recorded at their contracted resale amounts plus accrued interest, other than those that are accounted
for at fair value. In all reverse repurchase transactions, we take possession of or obtain a security interest in the related securities,
and we have the right to sell or repledge this collateral received.
The following table presents information on the fair value of securities pledged to us under reverse repurchase agreements:
(in millions)
Securities collateral pledged to us
Amount sold or repledged by us
December 31, 2017
December 31, 2016
$
2,227 $
46
1,434
11
At December 31, 2017 and December 31, 2016, amounts loaned under reverse repurchase agreements totaled $2.2 billion and $1.4
billion, respectively.
We do not currently offset any secured financing transactions. All such transactions are collateralized and margined daily consistent
with market standards and subject to enforceable master netting arrangements with rights of set off.
Insurance Statutory and Other Deposits
The total carrying value of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities or
other insurance-related arrangements, including certain annuity-related obligations and certain reinsurance treaties, was $4.9 billion
at both December 31, 2017 and 2016.
Other Pledges and Restrictions
Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the members to own
stock in these FHLBs. We owned an aggregate of $93 million and $114 million of stock in FHLBs at December 31, 2017 and 2016,
respectively. In addition, our subsidiaries have pledged securities available for sale and residential loans associated with advances
from FHLB, with a fair value of $2.7 billion and $471 million, respectively, at December 31, 2017 and $3.4 billion and $17 million,
respectively, at December 31, 2016, associated with advances from the FHLBs.
Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade of our long-term
debt ratings. The actual amount of collateral required to be posted to the counterparties in the event of such downgrades, and the
aggregate amount of payments that we could be required to make, depend on market conditions, the fair value of outstanding
affected transactions and other factors prevailing at and after the time of the downgrade. The fair value of securities pledged as
collateral with respect to these obligations was approximately $2 billion and $2.2 billion at December 31, 2017 and 2016, respectively.
This collateral primarily consists of securities of the U.S. government and government- sponsored entities and generally cannot be
repledged or resold by the counterparties.
Investments held in escrow accounts or otherwise subject to restriction as to their use were $255 million and $523 million, comprised
of bonds available for sale and short term investments at December 31, 2017 and 2016, respectively.
216
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
217
1011252ai_financials.indd 216
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
ITEM 8 | Notes to Consolidated Financial Statements | 6. I n ves t me n ts
The following table presents the fair value of securities pledged under our repurchase agreements by collateral type and by
remaining contractual maturity:
Remaining Contractual Maturity of the Agreements
Overnight
and
up to 30
Continuous
days
31 - 90
days
91 - 364
days
365 days
or greater
Total
- $
7 $
19 $
- $
- $
44
-
-
-
13
-
-
35
-
11
387
1,065
-
-
-
-
-
-
-
-
44 $
407 $ 1,130 $
- $
- $
- $
-
- $
- $
- $
163
860
51 $
725
163 $
860 $
776 $
- $
-
- $
26
48
44
11
1,452
1,581
51
1,748
1,799
The following table presents the fair value of securities pledged under our securities lending agreements by collateral type
and by remaining contractual maturity:
Remaining Contractual Maturity of the Agreements
Overnight
and
up to 30
Continuous
days
31 - 90
days
91 - 364
days
365 days
or greater
Total
Obligations of states, municipalities and political
- $
588 $ 2,327 $
- $
- $
- $
- $
- $
- $
- $
18
2,231
588
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
56
50
61
-
-
-
-
-
-
-
-
- $
21 $
- $
- $
- $
791
1,466
- $
812 $ 1,577 $
- $
- $
-
-
-
-
-
-
-
-
-
18
2,819
-
22
56
2,915
21
50
2,257
61
2,389
U.S. government and government sponsored entities
(in millions)
December 31, 2017
Bonds available for sale:
Non-U.S. governments
Corporate debt
Other bond securities:
Non-U.S. governments
Corporate debt
Total
December 31, 2016
Other bond securities:
Non-U.S. governments
Corporate debt
Total
(in millions)
December 31, 2017
Bonds available for sale:
subdivisions
Non-U.S. governments
Corporate debt
CMBS
Other bond securities:
Non-U.S. governments
Corporate debt
Total
December 31, 2016
Bonds available for sale:
subdivisions
Non-U.S. governments
Corporate debt
CMBS
Total
Obligations of states, municipalities and political
$
$
$
$
$
$
$
$
We also enter into agreements in which securities are purchased by us under agreements to resell (reverse repurchase agreements),
which are accounted for as secured financing transactions and reported as short-term investments or other assets, depending on their
terms. These agreements are recorded at their contracted resale amounts plus accrued interest, other than those that are accounted
for at fair value. In all reverse repurchase transactions, we take possession of or obtain a security interest in the related securities,
and we have the right to sell or repledge this collateral received.
The following table presents information on the fair value of securities pledged to us under reverse repurchase agreements:
(in millions)
Securities collateral pledged to us
Amount sold or repledged by us
December 31, 2017
$
2,227 $
46
December 31, 2016
1,434
11
At December 31, 2017 and December 31, 2016, amounts loaned under reverse repurchase agreements totaled $2.2 billion and $1.4
billion, respectively.
We do not currently offset any secured financing transactions. All such transactions are collateralized and margined daily consistent
with market standards and subject to enforceable master netting arrangements with rights of set off.
Insurance Statutory and Other Deposits
The total carrying value of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities or
other insurance-related arrangements, including certain annuity-related obligations and certain reinsurance treaties, was $4.9 billion
at both December 31, 2017 and 2016.
Other Pledges and Restrictions
Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the members to own
stock in these FHLBs. We owned an aggregate of $93 million and $114 million of stock in FHLBs at December 31, 2017 and 2016,
respectively. In addition, our subsidiaries have pledged securities available for sale and residential loans associated with advances
from FHLB, with a fair value of $2.7 billion and $471 million, respectively, at December 31, 2017 and $3.4 billion and $17 million,
respectively, at December 31, 2016, associated with advances from the FHLBs.
Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade of our long-term
debt ratings. The actual amount of collateral required to be posted to the counterparties in the event of such downgrades, and the
aggregate amount of payments that we could be required to make, depend on market conditions, the fair value of outstanding
affected transactions and other factors prevailing at and after the time of the downgrade. The fair value of securities pledged as
collateral with respect to these obligations was approximately $2 billion and $2.2 billion at December 31, 2017 and 2016, respectively.
This collateral primarily consists of securities of the U.S. government and government- sponsored entities and generally cannot be
repledged or resold by the counterparties.
Investments held in escrow accounts or otherwise subject to restriction as to their use were $255 million and $523 million, comprised
of bonds available for sale and short term investments at December 31, 2017 and 2016, respectively.
216
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
217
1011252ai_financials.indd 217
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 7. L e n di n g Ac t i vi t i es
ITEM 8 | Notes to Consolidated Financial Statements | 7. L e n di n g Ac t i vi t i es
7. Lending Activities
Mortgage and other loans receivable include commercial mortgages, residential mortgages, life insurance policy loans, commercial
loans, and other loans and notes receivable. Commercial mortgages, residential mortgages, commercial loans, and other loans and
notes receivable are carried at unpaid principal balances less allowance for credit losses and plus or minus adjustments for the
accretion or amortization of discount or premium. Interest income on such loans is accrued as earned.
Direct costs of originating commercial mortgages, commercial loans, and other loans and notes receivable, net of nonrefundable
points and fees, are deferred and included in the carrying amount of the related receivables. The amount deferred is amortized to
income as an adjustment to earnings using the interest method. Premiums and discounts on purchased residential mortgages are
also amortized to income as an adjustment to earnings using the interest method.
Life insurance policy loans are carried at unpaid principal balances. There is no allowance for policy loans because these loans serve
to reduce the death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender
value of the policy.
The following table presents the composition of Mortgage and other loans receivable, net:
(b) The loan-to-value ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. Our
weighted average loan-to-value ratio was 57 percent and 58 percent at December 31, 2017, and 2016, respectively.
The following table presents the credit quality performance indicators for commercial mortgages:
December 31, 2017
(dollars in millions)
Credit Quality Performance
Indicator:
In good standing
Restructured(a)
90 days or less delinquent
>90 days delinquent or in
process of foreclosure
Total(b)
Allowance for credit losses:
Specific
General
Total allowance for credit losses
$
$
38 $
6 $
16 $
18 $
(in millions)
Commercial mortgages*
Residential mortgages
Life insurance policy loans
Commercial loans, other loans and notes receivable
Total mortgage and other loans receivable
Allowance for credit losses
Mortgage and other loans receivable, net
$
December 31,
2017
28,596 $
5,398
2,295
1,056
37,345
(322)
37,023 $
$
December 31,
2016
25,042
3,828
2,367
2,300
33,537
(297)
33,240
* Commercial mortgages primarily represent loans for offices, apartments and retail properties, with exposures in New York and California representing the largest
geographic concentrations (aggregating approximately 23 percent and 12 percent, respectively, at December 31, 2017, and 24 percent and 12 percent, respectively, at
December 31, 2016).
Nonperforming loans are generally those loans where payment of contractual principal or interest is more than 90 days past due.
Nonperforming mortgages were not significant for all periods presented.
CREDIT QUALITY OF COMMERCIAL MORTGAGES
The following table presents debt service coverage ratios and loan-to-value ratios for commercial mortgages:
(in millions)
December 31, 2017
Loan-to-Value Ratios(b)
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Total commercial mortgages
December 31, 2016
Loan-to-Value Ratios(b)
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Debt Service Coverage Ratios(a)
<1.00X
1.00X - 1.20X
>1.20X
$
18,000
$
1,525
$
6,038
569
1,416
193
40
206
$
351
184
-
74
26,023
$
1,964
$
609
$
Total
19,876
6,415
609
1,696
28,596
13,998
$
1,694
$
232
$
15,924
5,946
1,246
471
575
174
392
62
47
205
546
6,583
1,467
1,068
$
25,042
$
$
Total commercial mortgages
$
21,661
$
2,835
$
(a) The debt service coverage ratio compares a propertys net operating income to its debt service payments, including principal and interest. Our weighted average debt
service coverage ratio was 2.1X and 1.9X at December 31, 2017 and 2016, respectively.
Number
of
Class
Percent
of
Loans
Apartments
Offices
Retail
Industrial
Hotel
Others
Total(c)
Total $
778
$
8,163 $
8,585
$ 5,338 $
2,023 $
2,373 $
1,960 $ 28,442
99 %
783
$
8,163 $
8,700
$ 5,361 $
2,023 $
2,389 $
1,960 $ 28,596
100 %
72
72 $
-
-
-
-
-
-
-
115
-
-
3
94
97
134
-
-
23
-
-
1
37
18
-
-
-
-
-
-
6
-
-
-
16
-
-
1
15
16
-
-
18
-
-
-
-
-
-
-
154
-
-
-
-
5
242
247
168
- %
1
1 %
1
-
-
1
-
-
784
$
6,005 $
7,830
$ 5,179 $
1,898 $
2,373 $
1,589 $ 24,874
99 %
788
6,005 $
7,964
$ 5,197 $
1,898 $
2,389 $
1,589 $ 25,042
100 %
- $
35
35 $
3
72
75
$
$
1 $
41
42 $
6 $
7
13 $
1 $
13
- $
15
14 $
15 $
11
183
194
- %
1
1 %
5
-
-
4
-
-
$
$
$
December 31, 2016
(dollars in millions)
Credit Quality Performance
Indicator:
In good standing
Restructured(a)
90 days or less delinquent
>90 days delinquent or in
process of foreclosure
Total(b)
Allowance for credit losses:
Specific
General
Total allowance for credit losses
(a) Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. For additional discussion of troubled debt
restructurings see below.
(b) Does not reflect allowance for credit losses.
(c) Our commercial mortgage loan portfolio is current as to payments of principal and interest, for both periods presented. There were no significant amounts of
nonperforming commercial mortgages (defined as those loans where payment of contractual principal or interest is more than 90 days past due) during any of the
periods presented.
METHODOLOGY USED TO ESTIMATE THE ALLOWANCE FOR CREDIT LOSSES
Mortgage and other loans receivable are considered impaired when collection of all amounts due under contractual terms is not
probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loans effective
interest rate, ii) the loans observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent.
Impairment of commercial mortgages is typically determined using the fair value of collateral while impairment of other loans is
typically determined using the present value of cash flows or the loans observable market price. An allowance is typically established
for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are
established for incurred but not specifically identified impairments, based on statistical models primarily driven by past due status,
debt service coverage, loan-to-value ratio, property type and location, loan term, profile of the borrower and of the major property
tenants, and loan seasoning. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount
of the loan is charged off against the allowance.
Interest income is not accrued when payment of contractual principal and interest is not expected. Any cash received on impaired
loans is generally recorded as a reduction of the current carrying amount of the loan. Accrual of interest income is generally resumed
when delinquent contractual principal and interest is repaid or when a portion of the delinquent contractual payments are made and
the ongoing required contractual payments have been made for an appropriate period.
218
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
219
1011252ai_financials.indd 218
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 7. L e n di n g Ac t i vi t i es
ITEM 8 | Notes to Consolidated Financial Statements | 7. L e n di n g Ac t i vi t i es
7. Lending Activities
Mortgage and other loans receivable include commercial mortgages, residential mortgages, life insurance policy loans, commercial
loans, and other loans and notes receivable. Commercial mortgages, residential mortgages, commercial loans, and other loans and
notes receivable are carried at unpaid principal balances less allowance for credit losses and plus or minus adjustments for the
accretion or amortization of discount or premium. Interest income on such loans is accrued as earned.
Direct costs of originating commercial mortgages, commercial loans, and other loans and notes receivable, net of nonrefundable
points and fees, are deferred and included in the carrying amount of the related receivables. The amount deferred is amortized to
income as an adjustment to earnings using the interest method. Premiums and discounts on purchased residential mortgages are
also amortized to income as an adjustment to earnings using the interest method.
Life insurance policy loans are carried at unpaid principal balances. There is no allowance for policy loans because these loans serve
to reduce the death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender
value of the policy.
The following table presents the composition of Mortgage and other loans receivable, net:
(in millions)
Commercial mortgages*
Residential mortgages
Life insurance policy loans
Commercial loans, other loans and notes receivable
Total mortgage and other loans receivable
Allowance for credit losses
Mortgage and other loans receivable, net
December 31,
December 31,
2016
2017
$
28,596 $
5,398
2,295
1,056
37,345
(322)
$
37,023 $
25,042
3,828
2,367
2,300
33,537
(297)
33,240
* Commercial mortgages primarily represent loans for offices, apartments and retail properties, with exposures in New York and California representing the largest
geographic concentrations (aggregating approximately 23 percent and 12 percent, respectively, at December 31, 2017, and 24 percent and 12 percent, respectively, at
December 31, 2016).
Nonperforming loans are generally those loans where payment of contractual principal or interest is more than 90 days past due.
Nonperforming mortgages were not significant for all periods presented.
CREDIT QUALITY OF COMMERCIAL MORTGAGES
The following table presents debt service coverage ratios and loan-to-value ratios for commercial mortgages:
Total commercial mortgages
26,023
$
1,964
$
609
$
(in millions)
December 31, 2017
Loan-to-Value Ratios(b)
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
December 31, 2016
Loan-to-Value Ratios(b)
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Debt Service Coverage Ratios(a)
>1.20X
1.00X - 1.20X
<1.00X
Total
$
18,000
$
1,525
$
$
$
$
6,038
569
1,416
5,946
1,246
471
193
40
206
575
174
392
13,998
$
1,694
$
232
$
351
184
-
74
62
47
205
546
19,876
6,415
609
1,696
28,596
15,924
6,583
1,467
1,068
25,042
Total commercial mortgages
$
21,661
$
2,835
$
$
(a) The debt service coverage ratio compares a propertys net operating income to its debt service payments, including principal and interest. Our weighted average debt
service coverage ratio was 2.1X and 1.9X at December 31, 2017 and 2016, respectively.
(b) The loan-to-value ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. Our
weighted average loan-to-value ratio was 57 percent and 58 percent at December 31, 2017, and 2016, respectively.
The following table presents the credit quality performance indicators for commercial mortgages:
December 31, 2017
(dollars in millions)
Credit Quality Performance
Indicator:
In good standing
Restructured(a)
90 days or less delinquent
>90 days delinquent or in
process of foreclosure
Total(b)
Allowance for credit losses:
Specific
General
Number
of
Class
Percent
of
Loans
Apartments
Offices
Retail
Industrial
Hotel
Others
Total(c)
Total $
778
$
8,163 $
8,585
$ 5,338 $
2,023 $
2,373 $
1,960 $ 28,442
99 %
5
-
-
-
-
-
115
-
-
23
-
-
-
-
-
16
-
-
-
-
-
154
-
-
1
-
-
783
$
8,163 $
8,700
$ 5,361 $
2,023 $
2,389 $
1,960 $ 28,596
100 %
-
72
3
94
97
1
37
-
6
1
15
-
18
$
38 $
6 $
16 $
18 $
5
242
247
- %
1
1 %
Total allowance for credit losses
$
72 $
December 31, 2016
(dollars in millions)
Credit Quality Performance
Indicator:
In good standing
Restructured(a)
90 days or less delinquent
>90 days delinquent or in
process of foreclosure
Total(b)
Allowance for credit losses:
Specific
General
Total allowance for credit losses
784
$
6,005 $
7,830
$ 5,179 $
1,898 $
2,373 $
1,589 $ 24,874
99 %
4
-
-
788
$
$
$
-
-
-
134
-
-
18
-
-
-
-
-
16
-
-
-
-
-
168
-
-
1
-
-
6,005 $
7,964
$ 5,197 $
1,898 $
2,389 $
1,589 $ 25,042
100 %
- $
35
35 $
3
72
75
$
$
1 $
41
42 $
6 $
7
13 $
1 $
13
- $
15
14 $
15 $
11
183
194
- %
1
1 %
(a) Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. For additional discussion of troubled debt
restructurings see below.
(b) Does not reflect allowance for credit losses.
(c) Our commercial mortgage loan portfolio is current as to payments of principal and interest, for both periods presented. There were no significant amounts of
nonperforming commercial mortgages (defined as those loans where payment of contractual principal or interest is more than 90 days past due) during any of the
periods presented.
METHODOLOGY USED TO ESTIMATE THE ALLOWANCE FOR CREDIT LOSSES
Mortgage and other loans receivable are considered impaired when collection of all amounts due under contractual terms is not
probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loans effective
interest rate, ii) the loans observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent.
Impairment of commercial mortgages is typically determined using the fair value of collateral while impairment of other loans is
typically determined using the present value of cash flows or the loans observable market price. An allowance is typically established
for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are
established for incurred but not specifically identified impairments, based on statistical models primarily driven by past due status,
debt service coverage, loan-to-value ratio, property type and location, loan term, profile of the borrower and of the major property
tenants, and loan seasoning. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount
of the loan is charged off against the allowance.
Interest income is not accrued when payment of contractual principal and interest is not expected. Any cash received on impaired
loans is generally recorded as a reduction of the current carrying amount of the loan. Accrual of interest income is generally resumed
when delinquent contractual principal and interest is repaid or when a portion of the delinquent contractual payments are made and
the ongoing required contractual payments have been made for an appropriate period.
218
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
219
1011252ai_financials.indd 219
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 7. L e n di n g Ac t i vi t i es
ITEM 8 | Notes to Consolidated Financial Statements | 8. R ei ns ur a nce
A significant majority of commercial mortgages in the portfolio are non-recourse loans and, accordingly, the only guarantees are for
specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for us to have cause to enforce the
provisions of a guarantee on a commercial real estate or mortgage loan.
The following table presents a rollforward of the changes in the allowance for losses on Mortgage and other loans
receivable:
Years Ended December 31,
(in millions)
Allowance, beginning of year
Loans charged off
Recoveries of loans previously
charged off
Net charge-offs
Provision for loan losses
Other
Allowance, end of year
$
2017
Commercial
Mortgages
Other
Loans
Commercial
Total
Mortgages
2016
Other
Loans
Commercial
Total
Mortgages
2015
Other
Loans
Total
$
194
$
103 $
297
$
171
$
137
$
308
$
159 $
112
$
271
(22)
(3)
(25)
(13)
(2)
(15)
(23)
(6)
(29)
-
(22)
75
-
247 *
1
(2)
(26)
-
1
(24)
49
-
$
75 $
322
$
11
(2)
25
-
194 *
-
(2)
(32)
-
11
(4)
(7)
-
$
103
$
297
$
4
(19)
31
-
171 *
1
(5)
27
3
5
(24)
58
3
$
137
$
308
* Of the total allowance at the end of the year, $5 million, $11 million and $24 million relates to individually assessed credit losses on $82 million, $280 million and
$507 million of commercial mortgages as of December 31, 2017, 2016 and 2015, respectively.
TROUBLED DEBT RESTRUCTURINGS
We modify loans to optimize their returns and improve their collectability, among other things. When we undertake such a modification
with a borrower that is experiencing financial difficulty and the modification involves us granting a concession to the troubled debtor,
the modification is a troubled debt restructuring (TDR). We assess whether a borrower is experiencing financial difficulty based on a
variety of factors, including the borrowers current default on any of its outstanding debt, the probability of a default on any of its debt
in the foreseeable future without the modification, the insufficiency of the borrowers forecasted cash flows to service any of its
outstanding debt (including both principal and interest), and the borrowers inability to access alternative third-party financing at an
interest rate that would be reflective of current market conditions for a non-troubled debtor. Concessions granted may include
extended maturity dates, interest rate changes, principal or interest forgiveness, payment deferrals and easing of loan covenants.
During the 12 month period ended December 31, 2017, loans with a carrying value of $237 million were modified in troubled debt
restructurings. Loans that had been modified in troubled debt restructurings during the 12 month period ended December 31, 2016
have been fully paid off.
8. Reinsurance
In the ordinary course of business, our insurance companies may use both treaty and facultative reinsurance to minimize their net
loss exposure to any single catastrophic loss event or to an accumulation of losses from a number of smaller events or to provide
greater diversification of our businesses. In addition, our general insurance subsidiaries assume reinsurance from other insurance
companies. We determine the portion of the incurred but not reported (IBNR) loss that will be recoverable under our reinsurance
contracts by reference to the terms of the reinsurance protection purchased. This determination is necessarily based on the estimate
of IBNR and accordingly, is subject to the same uncertainties as the estimate of IBNR. Reinsurance assets include the balances due
from reinsurance and insurance companies under the terms of our reinsurance agreements for paid and unpaid losses and loss
adjustment expenses incurred, ceded unearned premiums and ceded future policy benefits for life and accident and health insurance
contracts and benefits paid and unpaid. Amounts related to paid and unpaid losses and benefits and loss expenses with respect to
these reinsurance agreements are substantially collateralized. We remain liable to the extent that our reinsurers do not meet their
obligation under the reinsurance contracts, and as such, we regularly evaluate the financial condition of our reinsurers and monitor
concentration of our credit risk. The estimation of the allowance for doubtful accounts requires judgment for which key inputs typically
include historical trends regarding uncollectible balances, disputes and credit events as well as specific reviews of balances in dispute
or subject to credit impairment. The allowance for doubtful accounts on reinsurance assets was $187 million and $207 million at
December 31, 2017 and 2016, respectively. Changes in the allowance for doubtful accounts on reinsurance assets are reflected in
Policyholder benefits and losses incurred within the Consolidated Statements of Income.
The following table provides supplemental information for loss and benefit reserves, gross and net of ceded reinsurance:
At December 31,
2017
As
Net of
2016
As
Net of
(in millions)
Liability for unpaid losses and loss adjustment expenses
Future policy benefits for life and accident and health insurance contracts
Reserve for unearned premiums
Reinsurance assets(a)
Reported Reinsurance
Reported Reinsurance
$
(78,393) $ (51,685)
$
(77,077) $ (61,545)
(45,432)
(19,030)
30,823
(44,457)
(15,890)
(42,204)
(19,634)
19,950
(41,140)
(16,280)
(a) Represents gross reinsurance assets, excluding allowances and reinsurance recoverable on paid losses.
SHORT-DURATION REINSURANCE
Short-duration reinsurance is effected under reinsurance treaties and by negotiation on individual risks. Certain of these reinsurance
arrangements consist of excess of loss contracts that protect us against losses above stipulated amounts. Ceded premiums are
considered prepaid reinsurance premiums and are recognized as a reduction of premiums earned over the contract period in
proportion to the protection received. Amounts recoverable from reinsurers on short-duration contracts are estimated in a manner
consistent with the claims liabilities associated with the reinsurance and presented as a component of Reinsurance assets. Assumed
reinsurance premiums are earned primarily on a pro-rata basis over the terms of the reinsurance contracts and the portion of
premiums relating to the unexpired terms of coverage is included in the reserve for unearned premiums. For both ceded and assumed
reinsurance, risk transfer requirements must be met for reinsurance accounting to apply. If risk transfer requirements are not met, the
contract is accounted for as a deposit, resulting in the recognition of cash flows under the contract through a deposit asset or liability
and not as revenue or expense. To meet risk transfer requirements, a reinsurance contract must include both insurance risk,
consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. Similar risk
transfer criteria are used to determine whether directly written insurance contracts should be accounted for as insurance or as a
deposit.
The following table presents short-duration insurance premiums written and earned:
(in millions)
Premiums written:
Direct
Assumed
Ceded
Net
Premiums earned:
Direct
Assumed
Ceded
Net
Years Ended December 31,
2017
2016
2015
$
$
$
$
30,205
$
33,970
$
3,084
(7,533)
25,756
30,904
3,373
(7,902)
$
$
2,824
(7,561)
29,233
34,869
2,962
(7,284)
$
$
26,375
$
30,547
$
37,698
2,972
(7,604)
33,066
37,105
2,659
(7,593)
32,171
For the years ended December 31, 2017, 2016 and 2015, reinsurance recoveries, which reduced losses and loss adjustment
expenses incurred, amounted to $1.5 billion, $2.1 billion and $4.1 billion, respectively.
Retroactive reinsurance agreements are reinsurance agreements under which our reinsurer agrees to reimburse us as a result of past
insurable events. For these agreements, the excess of the amounts ultimately collectible under the agreement over the consideration
paid is recognized as a deferred gain liability and amortized into income over the settlement period of the ceded reserves. The
amount of the deferral is recalculated each period based on loss payments and updated estimates.
the ultimate losses collectible under the agreement, the net loss on the agreement is recognized in income immediately. Ceded loss
reserves under retroactive agreements were $13.4 billion and $1.7 billion, and the deferred gain liability was $1.6 billion and $384
million, as of December 31, 2017 and 2016, respectively. The effect on income from amortization of the deferred gain was $316
million, $30 million and $8 million for the years ended December 31, 2017, 2016, and 2015, respectively.
If the consideration paid exceeds
In 2017, we entered into a retroactive reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire
Hathaway Inc. (Berkshire), under which we transferred to NICO 80 percent of the reserve risk on substantially all of our U.S.
commercial long-tail exposures for accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the paid
losses on subject business paid on or after January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25
billion. At NICOs 80 percent share, NICOs limit of liability under the contract is $20 billion. The covered losses ceded to NICO were
220
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
221
1011252ai_financials.indd 220
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 receivable:
Years Ended December 31,
(in millions)
Loans charged off
Recoveries of loans previously
charged off
Net charge-offs
Provision for loan losses
Other
Allowance, end of year
(22)
(22)
75
-
-
ITEM 8 | Notes to Consolidated Financial Statements | 7. L e n di n g Ac t i vi t i es
ITEM 8 | Notes to Consolidated Financial Statements | 8. R ei ns ur a nce
A significant majority of commercial mortgages in the portfolio are non-recourse loans and, accordingly, the only guarantees are for
specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for us to have cause to enforce the
provisions of a guarantee on a commercial real estate or mortgage loan.
The following table presents a rollforward of the changes in the allowance for losses on Mortgage and other loans
2017
Commercial
Mortgages
Other
Loans
Commercial
Commercial
Total
Mortgages
Total
Mortgages
Total
2016
Other
Loans
2015
Other
Loans
The following table provides supplemental information for loss and benefit reserves, gross and net of ceded reinsurance:
At December 31,
(in millions)
Liability for unpaid losses and loss adjustment expenses
Future policy benefits for life and accident and health insurance contracts
Reserve for unearned premiums
Reinsurance assets(a)
2017
2016
$
As
Net of
Reported Reinsurance
(78,393) $ (51,685)
(44,457)
(45,432)
(19,030)
(15,890)
30,823
$
As
Net of
Reported Reinsurance
(77,077) $ (61,545)
(41,140)
(42,204)
(19,634)
(16,280)
19,950
(a) Represents gross reinsurance assets, excluding allowances and reinsurance recoverable on paid losses.
Allowance, beginning of year
$
194
$
103 $
297
$
171
$
137
$
308
$
159 $
112
$
271
(3)
(25)
(13)
(2)
(15)
(23)
(6)
(29)
SHORT-DURATION REINSURANCE
1
(2)
(26)
-
1
(24)
49
-
11
(2)
25
-
(2)
(32)
-
-
11
(4)
(7)
-
4
(19)
31
-
1
(5)
27
3
5
(24)
58
3
$
247 *
$
75 $
322
$
194 *
$
103
$
297
$
171 *
$
137
$
308
* Of the total allowance at the end of the year, $5 million, $11 million and $24 million relates to individually assessed credit losses on $82 million, $280 million and
$507 million of commercial mortgages as of December 31, 2017, 2016 and 2015, respectively.
TROUBLED DEBT RESTRUCTURINGS
We modify loans to optimize their returns and improve their collectability, among other things. When we undertake such a modification
with a borrower that is experiencing financial difficulty and the modification involves us granting a concession to the troubled debtor,
the modification is a troubled debt restructuring (TDR). We assess whether a borrower is experiencing financial difficulty based on a
variety of factors, including the borrowers current default on any of its outstanding debt, the probability of a default on any of its debt
in the foreseeable future without the modification, the insufficiency of the borrowers forecasted cash flows to service any of its
outstanding debt (including both principal and interest), and the borrowers inability to access alternative third-party financing at an
interest rate that would be reflective of current market conditions for a non-troubled debtor. Concessions granted may include
extended maturity dates, interest rate changes, principal or interest forgiveness, payment deferrals and easing of loan covenants.
During the 12 month period ended December 31, 2017, loans with a carrying value of $237 million were modified in troubled debt
restructurings. Loans that had been modified in troubled debt restructurings during the 12 month period ended December 31, 2016
have been fully paid off.
8. Reinsurance
In the ordinary course of business, our insurance companies may use both treaty and facultative reinsurance to minimize their net
loss exposure to any single catastrophic loss event or to an accumulation of losses from a number of smaller events or to provide
greater diversification of our businesses. In addition, our general insurance subsidiaries assume reinsurance from other insurance
companies. We determine the portion of the incurred but not reported (IBNR) loss that will be recoverable under our reinsurance
contracts by reference to the terms of the reinsurance protection purchased. This determination is necessarily based on the estimate
of IBNR and accordingly, is subject to the same uncertainties as the estimate of IBNR. Reinsurance assets include the balances due
from reinsurance and insurance companies under the terms of our reinsurance agreements for paid and unpaid losses and loss
adjustment expenses incurred, ceded unearned premiums and ceded future policy benefits for life and accident and health insurance
contracts and benefits paid and unpaid. Amounts related to paid and unpaid losses and benefits and loss expenses with respect to
these reinsurance agreements are substantially collateralized. We remain liable to the extent that our reinsurers do not meet their
obligation under the reinsurance contracts, and as such, we regularly evaluate the financial condition of our reinsurers and monitor
concentration of our credit risk. The estimation of the allowance for doubtful accounts requires judgment for which key inputs typically
include historical trends regarding uncollectible balances, disputes and credit events as well as specific reviews of balances in dispute
or subject to credit impairment. The allowance for doubtful accounts on reinsurance assets was $187 million and $207 million at
December 31, 2017 and 2016, respectively. Changes in the allowance for doubtful accounts on reinsurance assets are reflected in
Policyholder benefits and losses incurred within the Consolidated Statements of Income.
Short-duration reinsurance is effected under reinsurance treaties and by negotiation on individual risks. Certain of these reinsurance
arrangements consist of excess of loss contracts that protect us against losses above stipulated amounts. Ceded premiums are
considered prepaid reinsurance premiums and are recognized as a reduction of premiums earned over the contract period in
proportion to the protection received. Amounts recoverable from reinsurers on short-duration contracts are estimated in a manner
consistent with the claims liabilities associated with the reinsurance and presented as a component of Reinsurance assets. Assumed
reinsurance premiums are earned primarily on a pro-rata basis over the terms of the reinsurance contracts and the portion of
premiums relating to the unexpired terms of coverage is included in the reserve for unearned premiums. For both ceded and assumed
reinsurance, risk transfer requirements must be met for reinsurance accounting to apply. If risk transfer requirements are not met, the
contract is accounted for as a deposit, resulting in the recognition of cash flows under the contract through a deposit asset or liability
and not as revenue or expense. To meet risk transfer requirements, a reinsurance contract must include both insurance risk,
consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. Similar risk
transfer criteria are used to determine whether directly written insurance contracts should be accounted for as insurance or as a
deposit.
The following table presents short-duration insurance premiums written and earned:
(in millions)
Premiums written:
Direct
Assumed
Ceded
Net
Premiums earned:
Direct
Assumed
Ceded
Net
Years Ended December 31,
2017
2016
$
$
$
$
30,205
3,084
(7,533)
25,756
30,904
3,373
(7,902)
26,375
$
$
$
$
33,970
2,824
(7,561)
29,233
34,869
2,962
(7,284)
30,547
$
$
$
$
2015
37,698
2,972
(7,604)
33,066
37,105
2,659
(7,593)
32,171
For the years ended December 31, 2017, 2016 and 2015, reinsurance recoveries, which reduced losses and loss adjustment
expenses incurred, amounted to $1.5 billion, $2.1 billion and $4.1 billion, respectively.
Retroactive reinsurance agreements are reinsurance agreements under which our reinsurer agrees to reimburse us as a result of past
insurable events. For these agreements, the excess of the amounts ultimately collectible under the agreement over the consideration
paid is recognized as a deferred gain liability and amortized into income over the settlement period of the ceded reserves. The
amount of the deferral is recalculated each period based on loss payments and updated estimates.
the ultimate losses collectible under the agreement, the net loss on the agreement is recognized in income immediately. Ceded loss
reserves under retroactive agreements were $13.4 billion and $1.7 billion, and the deferred gain liability was $1.6 billion and $384
million, as of December 31, 2017 and 2016, respectively. The effect on income from amortization of the deferred gain was $316
million, $30 million and $8 million for the years ended December 31, 2017, 2016, and 2015, respectively.
If the consideration paid exceeds
In 2017, we entered into a retroactive reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire
Hathaway Inc. (Berkshire), under which we transferred to NICO 80 percent of the reserve risk on substantially all of our U.S.
commercial long-tail exposures for accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the paid
losses on subject business paid on or after January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25
billion. At NICOs 80 percent share, NICOs limit of liability under the contract is $20 billion. The covered losses ceded to NICO were
220
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AIG | 2017 Form 10-K
221
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 8. R ei ns ur a nce
ITEM 8 | Notes to Consolidated Financial Statements | 9. D ef er r e d P oli c y Ac q u i si ti o n Co s ts
$13.1 billion and the unexpired limit was $6.9 billion at December 31, 2017. We paid total consideration, including interest, of $10.2
billion. The consideration was placed into a collateral trust account as security for NICOs claim payment obligations, and Berkshire
has provided a parental guarantee to secure the obligations of NICO under the agreement.
LONG-DURATION REINSURANCE
Long-duration reinsurance is effected principally under yearly renewable term treaties. The premiums with respect to these treaties
are earned over the contract period in proportion to the protection provided. Amounts recoverable from reinsurers on long-duration
contracts are estimated in a manner consistent with the assumptions used for the underlying policy benefits and are presented as a
component of Reinsurance assets.
The following table presents premiums for our long-duration life insurance and annuity operations:
Years Ended December 31,
(in millions)
Gross premiums
Ceded premiums
Net
2017
5,338
(809)
4,529
$
$
2016
4,732
(789)
3,943
$
$
2015
5,240
(756)
4,484
$
$
Long-duration reinsurance recoveries, which reduced Policyholder benefits and losses incurred, was approximately $1.0 billion for the
years ended December 31, 2017, 2016 and 2015.
The following table presents long-duration insurance in-force ceded to other insurance companies:
At December 31,
(in millions)
Long-duration insurance in force ceded
2017
202,402 $
2016
174,363 $
2015
177,025
$
Long-duration insurance in-force assumed as a percentage of gross long-duration insurance in-force was 0.03 percent at both
December 31, 2017 and 2016, and 0.04 percent at December 31, 2015; and premiums assumed represented 5 percent, 3 percent
and 0.1 percent of gross premiums for the years ended December 31, 2017, 2016 and 2015, respectively.
The U.S. Life and Retirement companies manage the capital impact of their statutory reserve requirements, including those resulting
from the NAIC Model Regulation Valuation of Life Insurance Policies (Regulation XXX) and NAIC Actuarial Guideline 38 (Guideline
AXXX), through unaffiliated and affiliated reinsurance transactions. Effective July 1, 2016, one of the U.S. Life and Retirement
companies entered into an agreement to cede approximately $5 billion of statutory reserves for certain whole life and universal life
policies to an unaffiliated reinsurer. Effective December 31, 2016, the same life insurance subsidiary recaptured term and universal
life reserves subject to Regulation XXX and Guideline AXXX, previously ceded to an affiliate, and ceded approximately $14 billion of
such statutory reserves to an unaffiliated reinsurer under an amendment to the July 1, 2016 agreement. Under GAAP, these
unaffiliated reinsurance transactions use deposit accounting with a reinsurance risk charge recorded in income, whereas such
affiliated transactions are eliminated in consolidation. Under one affiliated reinsurance arrangement, one of the U.S. Life and
Retirement companies obtains letters of credit to support statutory recognition of the ceded reinsurance. As of December 31, 2017,
this subsidiary had two bilateral letters of credit totaling $450 million, which were issued on February 7, 2014 and expire on February
7, 2021. The letters of credit are subject to reimbursement by AIG Parent in the event of a drawdown.
For additional information on the use of affiliated reinsurance for Regulation XXX and Guideline AXXX reserves see Note 19.
REINSURANCE SECURITY
Our third-party reinsurance arrangements do not relieve us from our direct obligations to our beneficiaries. Thus, a credit exposure
exists with respect to both short-duration and long-duration reinsurance ceded to the extent that any reinsurer fails to meet the
obligations assumed under any reinsurance agreement. We hold substantial collateral as security under related reinsurance
agreements in the form of funds, securities, and/or letters of credit. A provision has been recorded for estimated unrecoverable
reinsurance. We believe that no exposure to a single reinsurer represents an inappropriate concentration of credit risk to AIG. Gross
reinsurance assets due from reinsurers exceeding 5 percent of our total reinsurance assets were approximately $18 billion and $8.2
billion at December 31, 2017 and 2016, respectively, of which approximately $7.6 billion and $4.4 billion at December 31, 2017 and
2016, respectively, was not secured by collateral.
9. Deferred Policy Acquisition Costs
Deferred policy acquisition costs (DAC) represent those costs that are incremental and directly related to the successful acquisition of
new or renewal of existing insurance contracts. We defer incremental costs that result directly from, and are essential to, the
acquisition or renewal of an insurance contract. Such deferred policy acquisition costs generally include agent or broker commissions
and bonuses, premium taxes, and medical and inspection fees that would not have been incurred if the insurance contract had not
been acquired or renewed. Each cost is analyzed to assess whether it is fully deferrable. We partially defer costs, including certain
commissions, when we do not believe that the entire cost is directly related to the acquisition or renewal of insurance contracts.
We also defer a portion of employee total compensation and payroll-related fringe benefits directly related to time spent performing
specific acquisition or renewal activities, including costs associated with the time spent on underwriting, policy issuance and
processing, and sales force contract selling. The amounts deferred are derived based on successful efforts for each distribution
channel and/or cost center from which the cost originates.
Short-duration insurance contracts: Policy acquisition costs are deferred and amortized over the period in which the related
premiums written are earned, generally 12 months. DAC is grouped consistent with the manner in which the insurance contracts are
acquired, serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying
insurance contracts. Investment income is anticipated in assessing the recoverability of DAC. We assess the recoverability of DAC on
an annual basis or more frequently if circumstances indicate an impairment may have occurred. This assessment is performed by
comparing recorded net unearned premiums and anticipated investment income on in-force business to the sum of expected losses
and loss adjustment expenses incurred, unamortized DAC and maintenance costs. If the sum of these costs exceeds the amount of
recorded net unearned premiums and anticipated investment income, the excess is recognized as an offset against the asset
established for DAC. This offset is referred to as a premium deficiency charge. Increases in expected losses and loss adjustment
expenses incurred can have a significant impact on the likelihood and amount of a premium deficiency charge.
Long-duration insurance contracts: Policy acquisition costs for participating life, traditional life and accident and health insurance
products are generally deferred and amortized, with interest, over the premium paying period. The assumptions used to calculate the
benefit liabilities and DAC for these traditional products are set when a policy is issued and do not change with changes in actual
experience, unless a loss recognition event occurs. These locked-in assumptions include mortality, morbidity, persistency,
maintenance expenses and investment returns, and include margins for adverse deviation to reflect uncertainty given that actual
experience might deviate from these assumptions. A loss recognition event occurs when there is a shortfall between the carrying
amount of future policy benefit liabilities, net of DAC, and what the future policy benefit liabilities, net of DAC, would be when applying
updated current assumptions. When we determine a loss recognition event has occurred, we first reduce any DAC related to that
block of business through amortization of acquisition expense, and after DAC is depleted, we record additional liabilities through a
charge to Policyholder benefits and losses incurred. Groupings for loss recognition testing are consistent with our manner of
acquiring, servicing and measuring the profitability of the business and applied by product groupings. We perform separate loss
recognition tests for traditional life products, payout annuities and long-term care products. Once loss recognition has been recorded
for a block of business, the old assumption set is replaced and the assumption set used for the loss recognition would then be subject
to the lock-in principle.
Investment-oriented contracts: Policy acquisition costs and policy issuance costs related to universal life and investment-type
products (collectively, investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the contracts. Estimated gross profits include net investment income and
spreads, net realized capital gains and losses, fees, surrender charges, expenses, and mortality gains and losses. In each reporting
period, current period amortization expense is adjusted to reflect actual gross profits. If estimated gross profits change significantly,
DAC is recalculated using the new assumptions, and any resulting adjustment is included in income. If the new assumptions indicate
that future estimated gross profits are higher than previously estimated, DAC will be increased resulting in a decrease in amortization
expense and increase in income in the current period; if future estimated gross profits are lower than previously estimated, DAC will
be decreased resulting in an increase in amortization expense and decrease in income in the current period. Updating such
assumptions may result in acceleration of amortization in some products and deceleration of amortization in other products. DAC is
grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is
reviewed for recoverability based on the current and projected future profitability of the underlying insurance contracts.
To estimate future estimated gross profits for variable annuity products, a long-term annual asset growth assumption is applied to
determine the future growth in assets and related asset-based fees.
fluctuations in the equity markets is partially mitigated through the use of a reversion to the mean methodology whereby short-term
In determining the asset growth rate, the effect of short-term
222
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AIG | 2017 Form 10-K
223
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 8. R ei ns ur a nce
ITEM 8 | Notes to Consolidated Financial Statements | 9. D ef er r e d P oli c y Ac q u i si ti o n Co s ts
$13.1 billion and the unexpired limit was $6.9 billion at December 31, 2017. We paid total consideration, including interest, of $10.2
billion. The consideration was placed into a collateral trust account as security for NICOs claim payment obligations, and Berkshire
has provided a parental guarantee to secure the obligations of NICO under the agreement.
LONG-DURATION REINSURANCE
Long-duration reinsurance is effected principally under yearly renewable term treaties. The premiums with respect to these treaties
are earned over the contract period in proportion to the protection provided. Amounts recoverable from reinsurers on long-duration
contracts are estimated in a manner consistent with the assumptions used for the underlying policy benefits and are presented as a
component of Reinsurance assets.
The following table presents premiums for our long-duration life insurance and annuity operations:
Years Ended December 31,
(in millions)
Gross premiums
Ceded premiums
Net
2017
5,338
(809)
4,529
$
$
2016
4,732
(789)
3,943
$
$
2015
5,240
(756)
4,484
$
$
Long-duration reinsurance recoveries, which reduced Policyholder benefits and losses incurred, was approximately $1.0 billion for the
years ended December 31, 2017, 2016 and 2015.
The following table presents long-duration insurance in-force ceded to other insurance companies:
At December 31,
(in millions)
Long-duration insurance in force ceded
2017
2016
$
202,402 $
174,363 $
2015
177,025
Long-duration insurance in-force assumed as a percentage of gross long-duration insurance in-force was 0.03 percent at both
December 31, 2017 and 2016, and 0.04 percent at December 31, 2015; and premiums assumed represented 5 percent, 3 percent
and 0.1 percent of gross premiums for the years ended December 31, 2017, 2016 and 2015, respectively.
The U.S. Life and Retirement companies manage the capital impact of their statutory reserve requirements, including those resulting
from the NAIC Model Regulation Valuation of Life Insurance Policies (Regulation XXX) and NAIC Actuarial Guideline 38 (Guideline
AXXX), through unaffiliated and affiliated reinsurance transactions. Effective July 1, 2016, one of the U.S. Life and Retirement
companies entered into an agreement to cede approximately $5 billion of statutory reserves for certain whole life and universal life
policies to an unaffiliated reinsurer. Effective December 31, 2016, the same life insurance subsidiary recaptured term and universal
life reserves subject to Regulation XXX and Guideline AXXX, previously ceded to an affiliate, and ceded approximately $14 billion of
such statutory reserves to an unaffiliated reinsurer under an amendment to the July 1, 2016 agreement. Under GAAP, these
unaffiliated reinsurance transactions use deposit accounting with a reinsurance risk charge recorded in income, whereas such
affiliated transactions are eliminated in consolidation. Under one affiliated reinsurance arrangement, one of the U.S. Life and
Retirement companies obtains letters of credit to support statutory recognition of the ceded reinsurance. As of December 31, 2017,
this subsidiary had two bilateral letters of credit totaling $450 million, which were issued on February 7, 2014 and expire on February
7, 2021. The letters of credit are subject to reimbursement by AIG Parent in the event of a drawdown.
For additional information on the use of affiliated reinsurance for Regulation XXX and Guideline AXXX reserves see Note 19.
REINSURANCE SECURITY
Our third-party reinsurance arrangements do not relieve us from our direct obligations to our beneficiaries. Thus, a credit exposure
exists with respect to both short-duration and long-duration reinsurance ceded to the extent that any reinsurer fails to meet the
obligations assumed under any reinsurance agreement. We hold substantial collateral as security under related reinsurance
agreements in the form of funds, securities, and/or letters of credit. A provision has been recorded for estimated unrecoverable
reinsurance. We believe that no exposure to a single reinsurer represents an inappropriate concentration of credit risk to AIG. Gross
reinsurance assets due from reinsurers exceeding 5 percent of our total reinsurance assets were approximately $18 billion and $8.2
billion at December 31, 2017 and 2016, respectively, of which approximately $7.6 billion and $4.4 billion at December 31, 2017 and
2016, respectively, was not secured by collateral.
9. Deferred Policy Acquisition Costs
Deferred policy acquisition costs (DAC) represent those costs that are incremental and directly related to the successful acquisition of
new or renewal of existing insurance contracts. We defer incremental costs that result directly from, and are essential to, the
acquisition or renewal of an insurance contract. Such deferred policy acquisition costs generally include agent or broker commissions
and bonuses, premium taxes, and medical and inspection fees that would not have been incurred if the insurance contract had not
been acquired or renewed. Each cost is analyzed to assess whether it is fully deferrable. We partially defer costs, including certain
commissions, when we do not believe that the entire cost is directly related to the acquisition or renewal of insurance contracts.
We also defer a portion of employee total compensation and payroll-related fringe benefits directly related to time spent performing
specific acquisition or renewal activities, including costs associated with the time spent on underwriting, policy issuance and
processing, and sales force contract selling. The amounts deferred are derived based on successful efforts for each distribution
channel and/or cost center from which the cost originates.
Short-duration insurance contracts: Policy acquisition costs are deferred and amortized over the period in which the related
premiums written are earned, generally 12 months. DAC is grouped consistent with the manner in which the insurance contracts are
acquired, serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying
insurance contracts. Investment income is anticipated in assessing the recoverability of DAC. We assess the recoverability of DAC on
an annual basis or more frequently if circumstances indicate an impairment may have occurred. This assessment is performed by
comparing recorded net unearned premiums and anticipated investment income on in-force business to the sum of expected losses
and loss adjustment expenses incurred, unamortized DAC and maintenance costs. If the sum of these costs exceeds the amount of
recorded net unearned premiums and anticipated investment income, the excess is recognized as an offset against the asset
established for DAC. This offset is referred to as a premium deficiency charge. Increases in expected losses and loss adjustment
expenses incurred can have a significant impact on the likelihood and amount of a premium deficiency charge.
Long-duration insurance contracts: Policy acquisition costs for participating life, traditional life and accident and health insurance
products are generally deferred and amortized, with interest, over the premium paying period. The assumptions used to calculate the
benefit liabilities and DAC for these traditional products are set when a policy is issued and do not change with changes in actual
experience, unless a loss recognition event occurs. These locked-in assumptions include mortality, morbidity, persistency,
maintenance expenses and investment returns, and include margins for adverse deviation to reflect uncertainty given that actual
experience might deviate from these assumptions. A loss recognition event occurs when there is a shortfall between the carrying
amount of future policy benefit liabilities, net of DAC, and what the future policy benefit liabilities, net of DAC, would be when applying
updated current assumptions. When we determine a loss recognition event has occurred, we first reduce any DAC related to that
block of business through amortization of acquisition expense, and after DAC is depleted, we record additional liabilities through a
charge to Policyholder benefits and losses incurred. Groupings for loss recognition testing are consistent with our manner of
acquiring, servicing and measuring the profitability of the business and applied by product groupings. We perform separate loss
recognition tests for traditional life products, payout annuities and long-term care products. Once loss recognition has been recorded
for a block of business, the old assumption set is replaced and the assumption set used for the loss recognition would then be subject
to the lock-in principle.
Investment-oriented contracts: Policy acquisition costs and policy issuance costs related to universal life and investment-type
products (collectively, investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the contracts. Estimated gross profits include net investment income and
spreads, net realized capital gains and losses, fees, surrender charges, expenses, and mortality gains and losses. In each reporting
period, current period amortization expense is adjusted to reflect actual gross profits. If estimated gross profits change significantly,
DAC is recalculated using the new assumptions, and any resulting adjustment is included in income. If the new assumptions indicate
that future estimated gross profits are higher than previously estimated, DAC will be increased resulting in a decrease in amortization
expense and increase in income in the current period; if future estimated gross profits are lower than previously estimated, DAC will
be decreased resulting in an increase in amortization expense and decrease in income in the current period. Updating such
assumptions may result in acceleration of amortization in some products and deceleration of amortization in other products. DAC is
grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is
reviewed for recoverability based on the current and projected future profitability of the underlying insurance contracts.
To estimate future estimated gross profits for variable annuity products, a long-term annual asset growth assumption is applied to
determine the future growth in assets and related asset-based fees.
In determining the asset growth rate, the effect of short-term
fluctuations in the equity markets is partially mitigated through the use of a reversion to the mean methodology whereby short-term
222
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
223
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 9. D ef er r e d P oli c y Ac q u i si ti o n Co s ts
ITEM 8 | Notes to Consolidated Financial Statements | 9. D ef er r e d P oli c y Ac q u i si ti o n Co s ts
asset growth above or below long-term annual rate assumptions impacts the growth assumption applied to the five-year period
subsequent to the current balance sheet date. The reversion to the mean methodology allows us to maintain our long-term growth
assumptions, while also giving consideration to the effect of actual investment performance. When actual performance significantly
deviates from the annual long-term growth assumption, as evidenced by growth assumptions in the five-year reversion to the mean
period falling below a certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or
unlock the growth rate assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual
growth assumption applied to subsequent periods.
Shadow DAC and Shadow Loss Recognition: DAC related to investment-oriented products is also adjusted to reflect the effect of
unrealized gains or losses on fixed maturity and equity securities available for sale on estimated gross profits, with related changes
recognized through Other comprehensive income (shadow DAC). The adjustment is made at each balance sheet date, as if the
securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. Similarly, for long-duration
traditional insurance contracts, if the assets supporting the liabilities are in a net unrealized gain position at the balance sheet date,
loss recognition testing assumptions are updated to exclude such gains from future cash flows by reflecting the impact of
reinvestment rates on future yields.
tests is recognized as a reduction in accumulated other comprehensive income (shadow loss recognition). Similar to other loss
recognition on long-duration insurance contracts, such shortfall is first reflected as a reduction in DAC and secondly as an increase in
liabilities for future policy benefits. The change in these adjustments, net of tax, is included with the change in net unrealized
appreciation of investments that is credited or charged directly to Other comprehensive income.
If a future loss is anticipated under this basis, any additional shortfall indicated by loss recognition
Internal Replacements of Long-duration and Investment-oriented Products: For some products, policyholders can elect to
modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or
rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal
replacements.
existing DAC and related actuarial balances.
considered to be extinguished and any related DAC or other policy balances are charged or credited to income, and any new
deferrable costs associated with the replacement contract are deferred.
If the modification does not substantially change the contract, we do not change the accounting and amortization of
If an internal replacement represents a substantial change, the original contract is
Value of Business Acquired (VOBA) is determined at the time of acquisition and is reported in the Consolidated Balance Sheets with
DAC. This value is based on the present value of future pre-tax profits discounted at yields applicable at the time of purchase. For
participating life, traditional life and accident and health insurance products, VOBA is amortized over the life of the business in a
manner similar to that for DAC based on the assumptions at purchase. For investment-oriented products, VOBA is amortized in
relation to estimated gross profits and adjusted for the effect of unrealized gains or losses on fixed maturity and equity securities
available for sale in a manner similar to DAC.
The following table presents a rollforward of DAC and VOBA:
Years Ended December 31,
(in millions)
Balance, beginning of year
Dispositions
Acquisition costs deferred
Amortization expense
Change in net unrealized gains (losses) on securities
Other, including foreign exchange
Reclassified to Assets held for sale
Balance, end of year*
Supplemental Information:
VOBA amortization expense included in DAC amortization
VOBA, end of year included in DAC balance
$
$
2017
11,042 $
(35)
4,820
(4,288)
(505)
(40)
-
10,994 $
2016
11,115 $
(110)
5,216
(4,521)
(259)
72
(471)
11,042 $
20
381
40
393
2015
9,828
-
5,825
(5,236)
848
(150)
-
11,115
64
453
* Net of reductions in DAC of $1.3 billion, $842 million, and $583 million at December 31, 2017, 2016 and 2015, respectively, related to the effect of net unrealized gains
and losses on available for sale securities (shadow DAC).
The percentage of the unamortized balance of VOBA at December 31, 2017 expected to be amortized in 2018 through 2022 by year
is: 8.4 percent, 7.8 percent, 7.2 percent, 6.1 percent and 5.9 percent, respectively, with 64.6 percent being amortized after five years.
These projections are based on current estimates for investment income and spreads, persistency, mortality and morbidity
assumptions.
DAC, VOBA and SIA for insurance-oriented and investment-oriented products are reviewed for recoverability, which involves
estimating the future profitability of current business. This review involves significant management judgment. If actual future
profitability is substantially lower than estimated, AIGs DAC, VOBA and SIA may be subject to an impairment charge and AIGs
results of operations could be significantly affected in future periods.
10. Variable Interest Entities
A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its activities without additional
subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the
entitys operations through voting rights or do not substantively participate in the gains and losses of the entity. Consolidation of a VIE
by its primary beneficiary is not based on majority voting interest, but is based on other criteria discussed below.
We enter into various arrangements with VIEs in the normal course of business and consolidate the VIEs when we determine we are
the primary beneficiary. This analysis includes a review of the VIEs capital structure, related contractual relationships and terms,
nature of the VIEs operations and purpose, nature of the VIEs interests issued and our involvement with the entity. When assessing
the need to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed to expose the
variable interest holders to.
The primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE that most significantly affect the
entitys economic performance and (2) the obligation to absorb losses or the right to receive benefits that could be potentially
significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of our decision-
making ability and our ability to influence activities that significantly affect the economic performance of the VIE.
BALANCE SHEET CLASSIFICATION AND EXPOSURE TO LOSS
The following table presents the total assets and total liabilities associated with our variable interests in consolidated VIEs,
as classified in the Consolidated Balance Sheets:
Real Estate
and
Investment
Entities(d)
Securitization
Vehicles(e)
Structured
Investment
Vehicle
Affordable
Housing
Partnerships
Other
Total
1,667 $
18,127 $
3,437 $
113 $
23,344
Mortgage and other loans receivable
Other invested assets
(in millions)
December 31, 2017
Assets:
Bonds available for sale
Other bond securities
Other(a)
Total assets(b)
Liabilities:
Long-term debt
Other(c)
Total liabilities
December 31, 2016
Assets:
Bonds available for sale
Other bond securities
Other(a)
Total assets(b)
Liabilities:
Long-term debt
Other(c)
Total liabilities
Mortgage and other loans receivable
Other invested assets
$
$
$
$
$
$
$
$
- $
-
-
1,365
302
680 $
144
824 $
- $
-
1
1,052
365
444 $
224
668 $
9,632 $
4,518
2,290
206
1,481
1,624 $
244
1,868 $
10,233 $
4,858
1,442
321
1,104
771 $
203
974 $
- $
-
-
-
-
-
- $
- $
- $
- $
266
-
-
50
56 $
1
57 $
- $
-
-
3,087
350
1,825 $
181
2,006 $
- $
-
-
2,821
384
1,696 $
211
1,907 $
- $
3
-
25
85
5 $
26
31 $
5
104
28
92
6 $
38
44 $
9,632
4,521
2,290
4,683
2,218
4,134
595
4,729
5,129
1,547
4,222
1,995
2,973
677
3,650
- $
10,233
1,418 $
17,958 $
316 $
3,205 $
229 $
23,126
224
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
225
1011252ai_financials.indd 224
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 9. D ef er r e d P oli c y Ac q u i si ti o n Co s ts
ITEM 8 | Notes to Consolidated Financial Statements | 9. D ef er r e d P oli c y Ac q u i si ti o n Co s ts
asset growth above or below long-term annual rate assumptions impacts the growth assumption applied to the five-year period
subsequent to the current balance sheet date. The reversion to the mean methodology allows us to maintain our long-term growth
assumptions, while also giving consideration to the effect of actual investment performance. When actual performance significantly
deviates from the annual long-term growth assumption, as evidenced by growth assumptions in the five-year reversion to the mean
period falling below a certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or
unlock the growth rate assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual
growth assumption applied to subsequent periods.
Shadow DAC and Shadow Loss Recognition: DAC related to investment-oriented products is also adjusted to reflect the effect of
unrealized gains or losses on fixed maturity and equity securities available for sale on estimated gross profits, with related changes
recognized through Other comprehensive income (shadow DAC). The adjustment is made at each balance sheet date, as if the
securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. Similarly, for long-duration
traditional insurance contracts, if the assets supporting the liabilities are in a net unrealized gain position at the balance sheet date,
loss recognition testing assumptions are updated to exclude such gains from future cash flows by reflecting the impact of
reinvestment rates on future yields.
If a future loss is anticipated under this basis, any additional shortfall indicated by loss recognition
tests is recognized as a reduction in accumulated other comprehensive income (shadow loss recognition). Similar to other loss
recognition on long-duration insurance contracts, such shortfall is first reflected as a reduction in DAC and secondly as an increase in
liabilities for future policy benefits. The change in these adjustments, net of tax, is included with the change in net unrealized
appreciation of investments that is credited or charged directly to Other comprehensive income.
Internal Replacements of Long-duration and Investment-oriented Products: For some products, policyholders can elect to
modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or
rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal
replacements.
If the modification does not substantially change the contract, we do not change the accounting and amortization of
existing DAC and related actuarial balances.
If an internal replacement represents a substantial change, the original contract is
considered to be extinguished and any related DAC or other policy balances are charged or credited to income, and any new
deferrable costs associated with the replacement contract are deferred.
Value of Business Acquired (VOBA) is determined at the time of acquisition and is reported in the Consolidated Balance Sheets with
DAC. This value is based on the present value of future pre-tax profits discounted at yields applicable at the time of purchase. For
participating life, traditional life and accident and health insurance products, VOBA is amortized over the life of the business in a
manner similar to that for DAC based on the assumptions at purchase. For investment-oriented products, VOBA is amortized in
relation to estimated gross profits and adjusted for the effect of unrealized gains or losses on fixed maturity and equity securities
available for sale in a manner similar to DAC.
The following table presents a rollforward of DAC and VOBA:
Years Ended December 31,
(in millions)
Balance, beginning of year
Dispositions
Acquisition costs deferred
Amortization expense
Change in net unrealized gains (losses) on securities
Other, including foreign exchange
Reclassified to Assets held for sale
Balance, end of year*
Supplemental Information:
VOBA amortization expense included in DAC amortization
VOBA, end of year included in DAC balance
2017
2016
$
11,042 $
11,115 $
(35)
4,820
(4,288)
(505)
(40)
-
(110)
5,216
(4,521)
(259)
72
(471)
20
381
40
393
$
10,994 $
11,042 $
2015
9,828
-
5,825
(5,236)
848
(150)
-
11,115
64
453
* Net of reductions in DAC of $1.3 billion, $842 million, and $583 million at December 31, 2017, 2016 and 2015, respectively, related to the effect of net unrealized gains
and losses on available for sale securities (shadow DAC).
The percentage of the unamortized balance of VOBA at December 31, 2017 expected to be amortized in 2018 through 2022 by year
is: 8.4 percent, 7.8 percent, 7.2 percent, 6.1 percent and 5.9 percent, respectively, with 64.6 percent being amortized after five years.
These projections are based on current estimates for investment income and spreads, persistency, mortality and morbidity
assumptions.
DAC, VOBA and SIA for insurance-oriented and investment-oriented products are reviewed for recoverability, which involves
estimating the future profitability of current business. This review involves significant management judgment. If actual future
profitability is substantially lower than estimated, AIGs DAC, VOBA and SIA may be subject to an impairment charge and AIGs
results of operations could be significantly affected in future periods.
10. Variable Interest Entities
A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its activities without additional
subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the
entitys operations through voting rights or do not substantively participate in the gains and losses of the entity. Consolidation of a VIE
by its primary beneficiary is not based on majority voting interest, but is based on other criteria discussed below.
We enter into various arrangements with VIEs in the normal course of business and consolidate the VIEs when we determine we are
the primary beneficiary. This analysis includes a review of the VIEs capital structure, related contractual relationships and terms,
nature of the VIEs operations and purpose, nature of the VIEs interests issued and our involvement with the entity. When assessing
the need to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed to expose the
variable interest holders to.
The primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE that most significantly affect the
entitys economic performance and (2) the obligation to absorb losses or the right to receive benefits that could be potentially
significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of our decision-
making ability and our ability to influence activities that significantly affect the economic performance of the VIE.
BALANCE SHEET CLASSIFICATION AND EXPOSURE TO LOSS
The following table presents the total assets and total liabilities associated with our variable interests in consolidated VIEs,
as classified in the Consolidated Balance Sheets:
(in millions)
December 31, 2017
Assets:
Bonds available for sale
Other bond securities
Mortgage and other loans receivable
Other invested assets
Other(a)
Total assets(b)
Liabilities:
Long-term debt
Other(c)
Total liabilities
December 31, 2016
Assets:
Bonds available for sale
Other bond securities
Mortgage and other loans receivable
Other invested assets
Other(a)
Total assets(b)
Liabilities:
Long-term debt
Other(c)
Total liabilities
$
$
$
$
$
$
$
$
Real Estate
and
Investment
Entities(d)
Securitization
Vehicles(e)
Structured
Investment
Vehicle
Affordable
Housing
Partnerships
Other
Total
- $
-
-
1,365
302
9,632 $
4,518
2,290
206
1,481
1,667 $
18,127 $
680 $
144
824 $
- $
-
1
1,052
365
1,624 $
244
1,868 $
10,233 $
4,858
1,442
321
1,104
- $
-
-
-
-
- $
- $
-
- $
- $
266
-
-
50
- $
-
-
3,087
350
- $
3
-
25
85
9,632
4,521
2,290
4,683
2,218
3,437 $
113 $
23,344
1,825 $
181
2,006 $
- $
-
-
2,821
384
5 $
26
31 $
4,134
595
4,729
- $
10,233
5
104
28
92
5,129
1,547
4,222
1,995
1,418 $
17,958 $
316 $
3,205 $
229 $
23,126
444 $
224
668 $
771 $
203
974 $
56 $
1
57 $
1,696 $
211
1,907 $
6 $
38
44 $
2,973
677
3,650
224
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
225
1011252ai_financials.indd 225
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 10 . V a ria bl e I n te re s t E n ti ti es
ITEM 8 | Notes to Consolidated Financial Statements | 10 . V a ria bl e I n te re s t E n ti ti es
(a) Comprised primarily of Short-term investments and Other assets at December 31, 2017 and 2016.
(b) The assets of each VIE can be used only to settle specific obligations of that VIE.
(c) Comprised primarily of Other liabilities at December 31, 2017 and 2016.
(d) At December 31, 2017 and 2016, off-balance sheet exposure primarily consisting of commitments to real estate and investment entities was $85.8 million and
$106 million, respectively.
(e) At December 31, 2017 and 2016, $17.6 billion and $17.3 billion, respectively, of the total assets of consolidated securitization vehicles were owed to AIG Parent or its
subsidiaries.
We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of
VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as the referenced obligation, and
(iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by us generally have recourse only to the
assets and cash flows of the VIEs and do not have recourse to us, except in limited circumstances when we have provided a
guarantee to the VIEs interest holders.
The following table presents total assets of unconsolidated VIEs in which we hold a variable interest, as well as our
maximum exposure to loss associated with these VIEs:
(in millions)
December 31, 2017
Real estate and investment entities(a)
Affordable housing partnerships
Other
Total
December 31, 2016
Real estate and investment entities(a)
Affordable housing partnerships
Other
Total
Maximum Exposure to Loss
Total VIE
Assets
On-Balance
Sheet(b)
Off-Balance
Sheet
$
$
$
$
380,030
4,468
2,703
387,201
409,087
4,709
2,869
416,665
$
$
$
$
9,253
725
254
10,232
11,015
785
314
12,114
$
$
$
$
2,043
-
1,205 (c)
3,248
2,115
-
1,045 (c)
3,160
$
$
$
$
Total
11,296
725
1,459
13,480
13,130
785
1,359
15,274
(a) Comprised primarily of hedge funds and private equity funds.
(b) At December 31, 2017 and 2016, $9.8 billion and $11.7 billion, respectively, of our total unconsolidated VIE assets were recorded as Other invested assets.
(c) These amounts represent our estimate of the maximum exposure to loss under certain insurance policies issued to VIEs if a hypothetical loss occurred to the extent of
the full amount of the insured value. Our insurance policies cover defined risks and our estimate of liability is included in our insurance reserves on the balance sheet.
REAL ESTATE AND INVESTMENT ENTITIES
Through our insurance operations and AIG Global Real Estate, we are an investor in various real estate investment entities, some of
which are VIEs. These investments are typically with unaffiliated third-party developers via a partnership or limited liability company
structure. The VIEs activities consist of the development or redevelopment of commercial, industrial and residential real estate. Our
involvement varies from being a passive equity investor or finance provider to actively managing the activities of the VIEs.
Our insurance operations participate as passive investors in the equity issued by certain third-party-managed hedge and private
equity funds that are VIEs. Our insurance operations typically are not involved in the design or establishment of these VIEs, nor do
they actively participate in the management of the VIEs.
SECURITIZATION VEHICLES
We created certain VIEs that hold investments, primarily in investment-grade debt securities and loans, and issued beneficial interests
in these investments. The majority of these beneficial interests are owned by our insurance operations and we maintain the power to
direct the activities of the VIEs that most significantly impact their economic performance and bear the obligation to absorb losses or
receive benefits from the entities that could potentially be significant to the entities. Accordingly, we consolidate these entities and
those beneficial interests issued to third-parties are reported as Long-term debt. Total assets of consolidated securitization vehicles
are $18.1 billion, of which $17.6 billion represents amounts owed to Parent or its subsidiaries.
AFFORDABLE HOUSING PARTNERSHIPS
SunAmerica Affordable Housing Partners, Inc. (SAAHP) organized and invested in limited partnerships that develop and operate
affordable housing qualifying for federal, state, and historic tax credits, in addition to a few market rate properties across the United
States. The operating partnerships are VIEs, whose debt is generally non-recourse in nature, and the general partners of which are
mostly unaffiliated third-party developers. We account for our investments in operating partnerships using the equity method of
accounting, unless they are required to be consolidated. We consolidate an operating partnership if the general partner is an affiliated
entity or we otherwise have the power to direct activities that most significantly impact the entities economic performance. The pre-tax
income of SAAHP is reported as a component of the Life and Retirement segment.
RMBS, CMBS, OTHER ABS AND CDOS
Primarily through our insurance operations, we are a passive investor in RMBS, CMBS, other ABS and CDOs, the majority of which
are issued by domestic special purpose entities. We generally do not sponsor or transfer assets to, or act as the servicer to these
asset-backed structures, and were not involved in the design of these entities.
Our maximum exposure in these types of structures is limited to our investment in securities issued by these entities. Based on the
nature of our investments and our passive involvement in these types of structures, we have determined that we are not the primary
beneficiary of these entities. We have not included these entities in the above tables; however, the fair values of our investments in
these structures are reported in Notes 5 and 6 herein.
11. Derivatives and Hedge Accounting
We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment
operations. Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated with embedded
derivatives contained in insurance contract liabilities, fixed maturity securities, outstanding medium- and long-term notes as well as
other interest rate sensitive assets and liabilities. Foreign exchange derivatives (principally foreign exchange forwards and options)
are used to economically mitigate risk associated with non-U.S. dollar denominated debt, net capital exposures, and foreign currency
transactions. Equity derivatives are used to mitigate financial risk embedded in certain insurance liabilities. We use credit derivatives
to manage our credit exposures. The derivatives are effective economic hedges of the exposures that they are meant to offset. In
addition to hedging activities, we also enter into derivative instruments with respect to investment operations, which may include,
among other things, CDSs and purchases of investments with embedded derivatives, such as equity-linked notes and convertible
bonds.
Interest rate, currency, equity and commodity swaps, credit contracts, swaptions, options and forward transactions are accounted for
as derivatives, recorded on a trade-date basis and carried at fair value. Unrealized gains and losses are reflected in income, when
appropriate. Aggregate asset or liability positions are netted on the Consolidated Balance Sheets only to the extent permitted by
qualifying master netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties in
conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the corresponding net
derivative liability, while cash collateral received in conjunction with transactions supported by qualifying master netting arrangements
is reported as a reduction of the corresponding net derivative asset.
Derivatives, with the exception of embedded derivatives, are reported at fair value in the Consolidated Balance Sheets in Other
assets and Other liabilities. Embedded derivatives are generally presented with the host contract in the Consolidated Balance Sheets.
A bifurcated embedded derivative is measured at fair value and accounted for in the same manner as a free standing derivative
contract. The corresponding host contract is accounted for according to the accounting guidance applicable for that instrument.
For additional information on embedded derivatives see Notes 5 and 14 herein.
226
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
227
1011252ai_financials.indd 226
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 10 . V a ria bl e I n te re s t E n ti ti es
ITEM 8 | Notes to Consolidated Financial Statements | 10 . V a ria bl e I n te re s t E n ti ti es
(a) Comprised primarily of Short-term investments and Other assets at December 31, 2017 and 2016.
(b) The assets of each VIE can be used only to settle specific obligations of that VIE.
(c) Comprised primarily of Other liabilities at December 31, 2017 and 2016.
(d) At December 31, 2017 and 2016, off-balance sheet exposure primarily consisting of commitments to real estate and investment entities was $85.8 million and
(e) At December 31, 2017 and 2016, $17.6 billion and $17.3 billion, respectively, of the total assets of consolidated securitization vehicles were owed to AIG Parent or its
$106 million, respectively.
subsidiaries.
We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of
VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as the referenced obligation, and
(iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by us generally have recourse only to the
assets and cash flows of the VIEs and do not have recourse to us, except in limited circumstances when we have provided a
guarantee to the VIEs interest holders.
The following table presents total assets of unconsolidated VIEs in which we hold a variable interest, as well as our
maximum exposure to loss associated with these VIEs:
(in millions)
December 31, 2017
Real estate and investment entities(a)
Affordable housing partnerships
December 31, 2016
Real estate and investment entities(a)
Affordable housing partnerships
Other
Total
Other
Total
Maximum Exposure to Loss
Total VIE
Assets
On-Balance
Sheet(b)
Off-Balance
Sheet
$
380,030
$
$
4,468
2,703
387,201
409,087
4,709
2,869
$
416,665
$
$
$
$
9,253
725
254
10,232
11,015
785
314
12,114
$
$
$
$
2,043
-
-
1,205 (c)
3,248
2,115
1,045 (c)
3,160
$
$
$
$
Total
11,296
725
1,459
13,480
13,130
785
1,359
15,274
(a) Comprised primarily of hedge funds and private equity funds.
(b) At December 31, 2017 and 2016, $9.8 billion and $11.7 billion, respectively, of our total unconsolidated VIE assets were recorded as Other invested assets.
(c) These amounts represent our estimate of the maximum exposure to loss under certain insurance policies issued to VIEs if a hypothetical loss occurred to the extent of
the full amount of the insured value. Our insurance policies cover defined risks and our estimate of liability is included in our insurance reserves on the balance sheet.
REAL ESTATE AND INVESTMENT ENTITIES
Through our insurance operations and AIG Global Real Estate, we are an investor in various real estate investment entities, some of
which are VIEs. These investments are typically with unaffiliated third-party developers via a partnership or limited liability company
structure. The VIEs activities consist of the development or redevelopment of commercial, industrial and residential real estate. Our
involvement varies from being a passive equity investor or finance provider to actively managing the activities of the VIEs.
Our insurance operations participate as passive investors in the equity issued by certain third-party-managed hedge and private
equity funds that are VIEs. Our insurance operations typically are not involved in the design or establishment of these VIEs, nor do
they actively participate in the management of the VIEs.
SECURITIZATION VEHICLES
We created certain VIEs that hold investments, primarily in investment-grade debt securities and loans, and issued beneficial interests
in these investments. The majority of these beneficial interests are owned by our insurance operations and we maintain the power to
direct the activities of the VIEs that most significantly impact their economic performance and bear the obligation to absorb losses or
receive benefits from the entities that could potentially be significant to the entities. Accordingly, we consolidate these entities and
those beneficial interests issued to third-parties are reported as Long-term debt. Total assets of consolidated securitization vehicles
are $18.1 billion, of which $17.6 billion represents amounts owed to Parent or its subsidiaries.
AFFORDABLE HOUSING PARTNERSHIPS
SunAmerica Affordable Housing Partners, Inc. (SAAHP) organized and invested in limited partnerships that develop and operate
affordable housing qualifying for federal, state, and historic tax credits, in addition to a few market rate properties across the United
States. The operating partnerships are VIEs, whose debt is generally non-recourse in nature, and the general partners of which are
mostly unaffiliated third-party developers. We account for our investments in operating partnerships using the equity method of
accounting, unless they are required to be consolidated. We consolidate an operating partnership if the general partner is an affiliated
entity or we otherwise have the power to direct activities that most significantly impact the entities economic performance. The pre-tax
income of SAAHP is reported as a component of the Life and Retirement segment.
RMBS, CMBS, OTHER ABS AND CDOS
Primarily through our insurance operations, we are a passive investor in RMBS, CMBS, other ABS and CDOs, the majority of which
are issued by domestic special purpose entities. We generally do not sponsor or transfer assets to, or act as the servicer to these
asset-backed structures, and were not involved in the design of these entities.
Our maximum exposure in these types of structures is limited to our investment in securities issued by these entities. Based on the
nature of our investments and our passive involvement in these types of structures, we have determined that we are not the primary
beneficiary of these entities. We have not included these entities in the above tables; however, the fair values of our investments in
these structures are reported in Notes 5 and 6 herein.
11. Derivatives and Hedge Accounting
We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment
operations. Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated with embedded
derivatives contained in insurance contract liabilities, fixed maturity securities, outstanding medium- and long-term notes as well as
other interest rate sensitive assets and liabilities. Foreign exchange derivatives (principally foreign exchange forwards and options)
are used to economically mitigate risk associated with non-U.S. dollar denominated debt, net capital exposures, and foreign currency
transactions. Equity derivatives are used to mitigate financial risk embedded in certain insurance liabilities. We use credit derivatives
to manage our credit exposures. The derivatives are effective economic hedges of the exposures that they are meant to offset. In
addition to hedging activities, we also enter into derivative instruments with respect to investment operations, which may include,
among other things, CDSs and purchases of investments with embedded derivatives, such as equity-linked notes and convertible
bonds.
Interest rate, currency, equity and commodity swaps, credit contracts, swaptions, options and forward transactions are accounted for
as derivatives, recorded on a trade-date basis and carried at fair value. Unrealized gains and losses are reflected in income, when
appropriate. Aggregate asset or liability positions are netted on the Consolidated Balance Sheets only to the extent permitted by
qualifying master netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties in
conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the corresponding net
derivative liability, while cash collateral received in conjunction with transactions supported by qualifying master netting arrangements
is reported as a reduction of the corresponding net derivative asset.
Derivatives, with the exception of embedded derivatives, are reported at fair value in the Consolidated Balance Sheets in Other
assets and Other liabilities. Embedded derivatives are generally presented with the host contract in the Consolidated Balance Sheets.
A bifurcated embedded derivative is measured at fair value and accounted for in the same manner as a free standing derivative
contract. The corresponding host contract is accounted for according to the accounting guidance applicable for that instrument.
For additional information on embedded derivatives see Notes 5 and 14 herein.
226
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
227
1011252ai_financials.indd 227
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge Ac c ou nti n g
ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge Ac c ou nti n g
The following table presents the notional amounts of our derivatives and the fair value of derivative assets and liabilities in
the Consolidated Balance Sheets:
December 31, 2017
December 31, 2016
Gross Derivative Assets Gross Derivative Liabilities
Gross Derivative Assets
Gross Derivative Liabilities
Collateral posted by us to third parties for derivative transactions was $2.9 billion and $4.5 billion at December 31, 2017 and 2016,
respectively. In the case of collateral posted under derivative transactions that are not subject to clearing, this collateral can generally
be repledged or resold by the counterparties. Collateral provided to us from third parties for derivative transactions was $1.3 billion
and $1.5 billion at December 31, 2017 and 2016, respectively. In the case of collateral provided to us under derivative transactions
that are not subject to clearing, we generally can repledge or resell collateral.
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
OFFSETTING
We have elected to present all derivative receivables and derivative payables, and the related cash collateral received and paid, on a
net basis on our Consolidated Balance Sheets when a legally enforceable ISDA Master Agreement exists between us and our
derivative counterparty. An ISDA Master Agreement is an agreement governing multiple derivative transactions between two
counterparties. The ISDA Master Agreement generally provides for the net settlement of all, or a specified group, of these derivative
transactions, as well as transferred collateral, through a single payment, and in a single currency, as applicable. The net settlement
provisions apply in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a
specified group of, derivative transactions governed by the ISDA Master Agreement.
HEDGE ACCOUNTING
We designated certain derivatives entered into with third parties as fair value hedges of available for sale investment securities held
by our insurance subsidiaries. The fair value hedges include foreign currency forwards and cross currency swaps designated as
hedges of the change in fair value of foreign currency denominated available for sale securities attributable to changes in foreign
exchange rates. We also designated certain interest rate swaps entered into with third parties as fair value hedges of fixed rate GICs
attributable to changes in benchmark interest rates.
We use foreign currency denominated debt and cross-currency swaps as hedging instruments in net investment hedge relationships
to mitigate the foreign exchange risk associated with our non-U.S. dollar functional currency foreign subsidiaries. For net investment
hedge relationships where issued debt is used as a hedging instrument, we assess the hedge effectiveness and measure the amount
of ineffectiveness based on changes in spot rates. For net investment hedge relationships that use derivatives as hedging
instruments, we assess hedge effectiveness and measure hedge ineffectiveness using changes in forward rates. For the years ended
December 31, 2017, 2016, and 2015 we recognized gains (losses) of $(106) million, $123 million and $90 million, respectively,
included in Change in foreign currency translation adjustment in Other comprehensive income related to the net investment hedge
relationships.
A qualitative methodology is utilized to assess hedge effectiveness for net investment hedges, while regression analysis is employed
for all other hedges.
(in millions)
Derivatives designated as
hedging instruments:(a)
Interest rate contracts
Foreign exchange contracts
Equity contracts
Derivatives not designated
as hedging instruments:(a)
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit contracts(b)
Other contracts(c)
Total derivatives, gross
Counterparty netting(d)
Cash collateral(e)
Total derivatives on
$
- $
-
$
838 $
2,823
-
173
-
4,783
159
37,751
6,305
19,975
-
4
39,829
2,171
658
522
-
1
20
26,461
11,093
1,130
-
1,365
59
15
350
19
2,185
895
2
-
277
5
$
175 $
-
$
782 $
3,527
-
385
-
2,602
113
51,030
9,468
14,060
-
4
37,633
2,328
935
305
-
2
22
44,211
7,674
8,633
-
861
62
11
184
7
3,066
1,185
12
-
331
6
$
106,687 $
3,545
$
45,888 $
3,748
$ 115,897 $
3,977
$
64,938 $
4,802
(1,464)
(1,159)
(1,464)
(1,249)
(1,265)
(903)
(1,265)
(1,521)
consolidated balance sheets(f)
$
922
$
1,035
$
1,809
$
2,016
(a) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(b) As of December 31, 2017 and 2016, included CDSs on super senior multi-sector CDOs with a net notional amount of $685 million and $801 million (fair value liability of
$254 million and $308 million), respectively. The expected weighted average maturity as of December 31, 2017 is six years. Because of long-term maturities of the
CDSs in the portfolio, we are unable to make reasonable estimates of the periods during which any payments would be made. However, the net notional amount
represents the maximum exposure to loss on the portfolio. As of December 31, 2017 and 2016, there were no super senior corporate debt/CLOs remaining.
(c) Consists primarily of stable value wraps and contracts with multiple underlying exposures.
(d) Represents netting of derivative exposures covered by a qualifying master netting agreement.
(e) Represents cash collateral posted and received that is eligible for netting.
(f) Freestanding derivatives only, excludes Embedded derivatives. Derivative instrument assets and liabilities are recorded in Other Assets and Liabilities, respectively.
Fair value of assets related to bifurcated Embedded derivatives was zero at both December 31, 2017 and December 31, 2016. Fair value of liabilities related to
bifurcated Embedded derivatives was $4.1 billion and $3.1 billion, respectively, at December 31, 2017 and December 31, 2016. A bifurcated Embedded derivative is
generally presented with the host contract in the Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in variable annuity
products, which include equity and interest rate components.
COLLATERAL
We engage in derivative transactions that are not subject to a clearing requirement directly with unaffiliated third parties, in most
cases, under International Swaps and Derivatives Association, Inc. (ISDA) Master Agreements. Many of the ISDA Master Agreements
also include Credit Support Annex (CSA) provisions, which provide for collateral postings that may vary at various ratings and
threshold levels. We attempt to reduce our risk with certain counterparties by entering into agreements that enable collateral to be
obtained from a counterparty on an upfront or contingent basis. We minimize the risk that counterparties might be unable to fulfill their
contractual obligations by monitoring counterparty credit exposure and collateral value and generally requiring additional collateral to
be posted upon the occurrence of certain events or circumstances. In addition, certain derivative transactions have provisions that
require collateral to be posted upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate the
transaction. In the case of some of the derivative transactions, upon a downgrade of our long-term debt ratings, as an alternative to
posting collateral and subject to certain conditions, we may assign the transaction to an obligor with higher debt ratings or arrange for
a substitute guarantee of our obligations by an obligor with higher debt ratings or take other similar action. The actual amount of
collateral required to be posted to counterparties in the event of such downgrades, or the aggregate amount of payments that we
could be required to make, depends on market conditions, the fair value of outstanding affected transactions and other factors
prevailing at and after the time of the downgrade.
228
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
229
1011252ai_financials.indd 228
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Interest rate contracts
$
- $
$
838 $
$
175 $
$
782 $
(in millions)
Derivatives designated as
hedging instruments:(a)
Foreign exchange contracts
Equity contracts
Derivatives not designated
as hedging instruments:(a)
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit contracts(b)
Other contracts(c)
Total derivatives, gross
Counterparty netting(d)
Cash collateral(e)
Total derivatives on
2,823
-
37,751
6,305
19,975
-
4
39,829
173
-
-
2,171
658
522
-
1
20
(1,464)
(1,159)
4,783
159
26,461
11,093
1,130
-
1,365
59
15
350
19
2,185
895
2
-
5
277
(1,464)
(1,249)
3,527
-
51,030
9,468
14,060
-
4
37,633
385
-
-
2,328
935
305
-
2
22
(1,265)
(903)
ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge A c c ou nti n g
ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge Ac c ou nti n g
The following table presents the notional amounts of our derivatives and the fair value of derivative assets and liabilities in
the Consolidated Balance Sheets:
December 31, 2017
December 31, 2016
Gross Derivative Assets Gross Derivative Liabilities
Gross Derivative Assets
Gross Derivative Liabilities
Collateral posted by us to third parties for derivative transactions was $2.9 billion and $4.5 billion at December 31, 2017 and 2016,
respectively. In the case of collateral posted under derivative transactions that are not subject to clearing, this collateral can generally
be repledged or resold by the counterparties. Collateral provided to us from third parties for derivative transactions was $1.3 billion
and $1.5 billion at December 31, 2017 and 2016, respectively. In the case of collateral provided to us under derivative transactions
that are not subject to clearing, we generally can repledge or resell collateral.
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
OFFSETTING
We have elected to present all derivative receivables and derivative payables, and the related cash collateral received and paid, on a
net basis on our Consolidated Balance Sheets when a legally enforceable ISDA Master Agreement exists between us and our
derivative counterparty. An ISDA Master Agreement is an agreement governing multiple derivative transactions between two
counterparties. The ISDA Master Agreement generally provides for the net settlement of all, or a specified group, of these derivative
transactions, as well as transferred collateral, through a single payment, and in a single currency, as applicable. The net settlement
provisions apply in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a
specified group of, derivative transactions governed by the ISDA Master Agreement.
HEDGE ACCOUNTING
We designated certain derivatives entered into with third parties as fair value hedges of available for sale investment securities held
by our insurance subsidiaries. The fair value hedges include foreign currency forwards and cross currency swaps designated as
hedges of the change in fair value of foreign currency denominated available for sale securities attributable to changes in foreign
exchange rates. We also designated certain interest rate swaps entered into with third parties as fair value hedges of fixed rate GICs
attributable to changes in benchmark interest rates.
We use foreign currency denominated debt and cross-currency swaps as hedging instruments in net investment hedge relationships
to mitigate the foreign exchange risk associated with our non-U.S. dollar functional currency foreign subsidiaries. For net investment
hedge relationships where issued debt is used as a hedging instrument, we assess the hedge effectiveness and measure the amount
of ineffectiveness based on changes in spot rates. For net investment hedge relationships that use derivatives as hedging
instruments, we assess hedge effectiveness and measure hedge ineffectiveness using changes in forward rates. For the years ended
December 31, 2017, 2016, and 2015 we recognized gains (losses) of $(106) million, $123 million and $90 million, respectively,
included in Change in foreign currency translation adjustment in Other comprehensive income related to the net investment hedge
relationships.
A qualitative methodology is utilized to assess hedge effectiveness for net investment hedges, while regression analysis is employed
for all other hedges.
2,602
113
44,211
7,674
8,633
-
861
62
11
184
7
3,066
1,185
12
-
331
6
$
106,687 $
3,545
$
45,888 $
3,748
$ 115,897 $
3,977
$
64,938 $
4,802
(1,265)
(1,521)
consolidated balance sheets(f)
$
922
$
1,035
$
1,809
$
2,016
(a) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(b) As of December 31, 2017 and 2016, included CDSs on super senior multi-sector CDOs with a net notional amount of $685 million and $801 million (fair value liability of
$254 million and $308 million), respectively. The expected weighted average maturity as of December 31, 2017 is six years. Because of long-term maturities of the
CDSs in the portfolio, we are unable to make reasonable estimates of the periods during which any payments would be made. However, the net notional amount
represents the maximum exposure to loss on the portfolio. As of December 31, 2017 and 2016, there were no super senior corporate debt/CLOs remaining.
(c) Consists primarily of stable value wraps and contracts with multiple underlying exposures.
(d) Represents netting of derivative exposures covered by a qualifying master netting agreement.
(e) Represents cash collateral posted and received that is eligible for netting.
(f) Freestanding derivatives only, excludes Embedded derivatives. Derivative instrument assets and liabilities are recorded in Other Assets and Liabilities, respectively.
Fair value of assets related to bifurcated Embedded derivatives was zero at both December 31, 2017 and December 31, 2016. Fair value of liabilities related to
bifurcated Embedded derivatives was $4.1 billion and $3.1 billion, respectively, at December 31, 2017 and December 31, 2016. A bifurcated Embedded derivative is
generally presented with the host contract in the Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in variable annuity
products, which include equity and interest rate components.
COLLATERAL
We engage in derivative transactions that are not subject to a clearing requirement directly with unaffiliated third parties, in most
cases, under International Swaps and Derivatives Association, Inc. (ISDA) Master Agreements. Many of the ISDA Master Agreements
also include Credit Support Annex (CSA) provisions, which provide for collateral postings that may vary at various ratings and
threshold levels. We attempt to reduce our risk with certain counterparties by entering into agreements that enable collateral to be
obtained from a counterparty on an upfront or contingent basis. We minimize the risk that counterparties might be unable to fulfill their
contractual obligations by monitoring counterparty credit exposure and collateral value and generally requiring additional collateral to
be posted upon the occurrence of certain events or circumstances. In addition, certain derivative transactions have provisions that
require collateral to be posted upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate the
transaction. In the case of some of the derivative transactions, upon a downgrade of our long-term debt ratings, as an alternative to
posting collateral and subject to certain conditions, we may assign the transaction to an obligor with higher debt ratings or arrange for
a substitute guarantee of our obligations by an obligor with higher debt ratings or take other similar action. The actual amount of
collateral required to be posted to counterparties in the event of such downgrades, or the aggregate amount of payments that we
could be required to make, depends on market conditions, the fair value of outstanding affected transactions and other factors
prevailing at and after the time of the downgrade.
228
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
229
1011252ai_financials.indd 229
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
The following table presents the gain (loss) recognized in earnings on our derivative instruments in fair value hedging
relationships in the Consolidated Statements of Income:
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge Ac c ou nti n g
ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge Ac c ou nti n g
(in millions)
Year ended December 31, 2017
Interest rate contracts:
Gains/(Losses) Recognized in
Earnings for:
Hedging
Derivatives(a)
Hedged
Items
Including Gains/(Losses) Attributable to:
Excluded
Components
Hedge
Ineffectiveness
Other(b)
Realized capital gains/(losses)
Other income
Gain/(Loss) on extinguishment of debt
$
(4) $
-
-
$
4
-
-
Foreign exchange contracts:
Realized capital gains/(losses)
Interest credited to policyholder
account balances
Other income
Gain/(Loss) on extinguishment of debt
Equity contracts:
Realized capital gains/(losses)
Year ended December 31, 2016
Interest rate contracts:
Realized capital gains/(losses)
Other income
Gain/(Loss) on extinguishment of debt
$
Foreign exchange contracts:
Realized capital gains/(losses)
Interest credited to policyholder
account balances
Other income
Gain/(Loss) on extinguishment of debt
Equity contracts:
Realized capital gains/(losses)
Year ended December 31, 2015
Interest rate contracts:
Realized capital gains
Other income
Gain/(Loss) on extinguishment of debt
Foreign exchange contracts:
Realized capital gains/(losses)
Interest credited to policyholder
account balances
Other income
Gain/(Loss) on extinguishment of debt
Equity contracts:
Realized capital gains/(losses)
$
(420)
393
-
-
-
(47)
(7) $
-
-
-
4
-
42
1
10
-
$
294
(335)
-
-
-
10
- $
-
-
-
24
-
(11)
$
1
9
14
202
(167)
-
-
-
(45)
(1)
17
17
45
- $
-
-
-
-
-
-
-
1 $
-
-
-
-
-
-
-
1 $
-
-
-
-
-
-
-
- $
-
-
(26)
-
-
-
(5)
- $
-
-
(41)
-
-
-
(1)
- $
-
-
32
-
-
-
-
-
-
-
-
-
4
-
-
(7)
10
-
-
-
24
-
-
-
9
14
3
(1)
17
17
-
(a) The amounts presented do not include the periodic net coupon settlements of the derivative contract or the coupon income (expense) related to the hedged item.
(b) Represents accretion/amortization of opening fair value of the hedged item at inception of hedge relationship, amortization of basis adjustment on hedged item following
the discontinuation of hedge accounting, and the release of debt basis adjustment following the repurchase of issued debt that was part of previously-discontinued fair
value hedge relationship.
The following table presents the effect of derivative instruments not designated as hedging instruments in the Consolidated
Statements of Income:
Years Ended December 31,
(in millions)
By Derivative Type:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit contracts
Other contracts
Embedded derivatives
Total
By Classification:
Policy fees
Net investment income
Net realized capital gains (losses)
Other income
Policyholder benefits and claims incurred
Total
Gains (Losses) Recognized in Earnings
2017
2016
$
$
$
$
56
$
(277)
(964)
-
58
75
(449)
(1,501) $
$
77
(11)
(1,709)
139
3
(229) $
293
(902)
-
81
80
(48)
(725) $
80 $
(895)
26
63
1
(1,501) $
(725) $
2015
339
416
(182)
(1)
186
69
49
876
78
26
365
401
6
876
CREDIT RISK-RELATED CONTINGENT FEATURES
We estimate that at December 31, 2017, based on our outstanding financial derivative transactions, a downgrade of our long-term
senior debt ratings to BBB or BBB by Standard & Poors Financial Services LLC, a subsidiary of S&P Global Inc., and/or a
downgrade to Baa2 or Baa3 by Moodys Investors Service, Inc. would permit counterparties to make additional collateral calls and
permit certain counterparties to elect early termination of contracts, resulting in corresponding collateral postings and termination
payments in the total amount of up to approximately $83 million. The aggregate fair value of our derivatives that were in a net liability
position and that contain such credit risk-related contingencies which can be triggered below our long-term senior debt ratings of
BBB+ or Baa1 was approximately $572 million and $848 million at December 31, 2017 and 2016, respectively. The aggregate fair
value of assets posted as collateral under these contracts at December 31, 2017 and 2016, was approximately $676 million and $875
million, respectively.
HYBRID SECURITIES WITH EMBEDDED CREDIT DERIVATIVES
We invest in hybrid securities (such as credit-linked notes) with the intent of generating income, and not specifically to acquire
exposure to embedded derivative risk. As is the case with our other investments in RMBS, CMBS, CDOs and ABS, our investments in
these hybrid securities are exposed to losses only up to the amount of our initial investment in the hybrid security. Other than our
initial investment in the hybrid securities, we have no further obligation to make payments on the embedded credit derivatives in the
related hybrid securities.
We elect to account for our investments in these hybrid securities with embedded written credit derivatives at fair value, with changes
in fair value recognized in Net investment income and Other income. Our investments in these hybrid securities are reported as Other
bond securities in the Consolidated Balance Sheets. The fair values of these hybrid securities were $4.4 billion and $4.8 billion at
December 31, 2017 and 2016, respectively. These securities have par amounts of $9.1 billion and $10.1 billion at December 31, 2017
and 2016, respectively, and have remaining stated maturity dates that extend to 2052.
12. Goodwill
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually
identified and separately recognized. Goodwill
impairment may have occurred. At December 31, 2017, as a result of the 2017 segment changes, goodwill is reported within our
General
Insurance operating segment and our Other Operations and Legacy Portfolio operating segments. When a business is transferred
Insurance business North America and International operating segments, our Life and Retirement business Life
is tested for impairment annually or more frequently if circumstances indicate an
230
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
231
1011252ai_financials.indd 230
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Gains/(Losses) Recognized in
Earnings for:
Including Gains/(Losses) Attributable to:
Hedging
Derivatives(a)
Hedged
Items
Hedge
Excluded
Ineffectiveness
Components
Other(b)
Realized capital gains/(losses)
$
(4) $
$
- $
- $
(420)
393
The following table presents the gain (loss) recognized in earnings on our derivative instruments in fair value hedging
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
relationships in the Consolidated Statements of Income:
ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge A c c ou nti n g
ITEM 8 | Notes to Consolidated Financial Statements | 1 1. D eri v ati v es a nd H e dge Ac c ou nti n g
The following table presents the effect of derivative instruments not designated as hedging instruments in the Consolidated
Statements of Income:
Realized capital gains/(losses)
$
(7) $
$
1 $
- $
(in millions)
Year ended December 31, 2017
Interest rate contracts:
Other income
Gain/(Loss) on extinguishment of debt
Foreign exchange contracts:
Realized capital gains/(losses)
Interest credited to policyholder
account balances
Other income
Gain/(Loss) on extinguishment of debt
Equity contracts:
Realized capital gains/(losses)
Year ended December 31, 2016
Interest rate contracts:
Other income
Gain/(Loss) on extinguishment of debt
Foreign exchange contracts:
Realized capital gains/(losses)
Interest credited to policyholder
account balances
Other income
Gain/(Loss) on extinguishment of debt
Equity contracts:
Realized capital gains/(losses)
Year ended December 31, 2015
Interest rate contracts:
Realized capital gains
Other income
Gain/(Loss) on extinguishment of debt
Foreign exchange contracts:
Realized capital gains/(losses)
Interest credited to policyholder
account balances
Other income
Gain/(Loss) on extinguishment of debt
Equity contracts:
Realized capital gains/(losses)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(47)
(45)
4
-
-
-
4
-
42
1
10
-
24
-
-
1
9
14
(1)
17
17
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(26)
(5)
(1)
32
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
-
-
(7)
10
-
-
-
24
-
-
-
9
14
3
(1)
17
17
-
294
(335)
(41)
$
- $
$
1 $
- $
10
(11)
202
(167)
(a) The amounts presented do not include the periodic net coupon settlements of the derivative contract or the coupon income (expense) related to the hedged item.
(b) Represents accretion/amortization of opening fair value of the hedged item at inception of hedge relationship, amortization of basis adjustment on hedged item following
the discontinuation of hedge accounting, and the release of debt basis adjustment following the repurchase of issued debt that was part of previously-discontinued fair
value hedge relationship.
Years Ended December 31,
(in millions)
By Derivative Type:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit contracts
Other contracts
Embedded derivatives
Total
By Classification:
Policy fees
Net investment income
Net realized capital gains (losses)
Other income
Policyholder benefits and claims incurred
Total
Gains (Losses) Recognized in Earnings
2017
2016
$
$
$
$
$
56
(277)
(964)
-
58
75
(449)
(1,501) $
$
77
(11)
(1,709)
139
3
(1,501) $
(229) $
293
(902)
-
81
80
(48)
(725) $
80 $
26
(895)
63
1
(725) $
2015
339
416
(182)
(1)
186
69
49
876
78
26
365
401
6
876
CREDIT RISK-RELATED CONTINGENT FEATURES
We estimate that at December 31, 2017, based on our outstanding financial derivative transactions, a downgrade of our long-term
senior debt ratings to BBB or BBB by Standard & Poors Financial Services LLC, a subsidiary of S&P Global Inc., and/or a
downgrade to Baa2 or Baa3 by Moodys Investors Service, Inc. would permit counterparties to make additional collateral calls and
permit certain counterparties to elect early termination of contracts, resulting in corresponding collateral postings and termination
payments in the total amount of up to approximately $83 million. The aggregate fair value of our derivatives that were in a net liability
position and that contain such credit risk-related contingencies which can be triggered below our long-term senior debt ratings of
BBB+ or Baa1 was approximately $572 million and $848 million at December 31, 2017 and 2016, respectively. The aggregate fair
value of assets posted as collateral under these contracts at December 31, 2017 and 2016, was approximately $676 million and $875
million, respectively.
HYBRID SECURITIES WITH EMBEDDED CREDIT DERIVATIVES
We invest in hybrid securities (such as credit-linked notes) with the intent of generating income, and not specifically to acquire
exposure to embedded derivative risk. As is the case with our other investments in RMBS, CMBS, CDOs and ABS, our investments in
these hybrid securities are exposed to losses only up to the amount of our initial investment in the hybrid security. Other than our
initial investment in the hybrid securities, we have no further obligation to make payments on the embedded credit derivatives in the
related hybrid securities.
We elect to account for our investments in these hybrid securities with embedded written credit derivatives at fair value, with changes
in fair value recognized in Net investment income and Other income. Our investments in these hybrid securities are reported as Other
bond securities in the Consolidated Balance Sheets. The fair values of these hybrid securities were $4.4 billion and $4.8 billion at
December 31, 2017 and 2016, respectively. These securities have par amounts of $9.1 billion and $10.1 billion at December 31, 2017
and 2016, respectively, and have remaining stated maturity dates that extend to 2052.
12. Goodwill
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually
identified and separately recognized. Goodwill
is tested for impairment annually or more frequently if circumstances indicate an
impairment may have occurred. At December 31, 2017, as a result of the 2017 segment changes, goodwill is reported within our
General
Insurance business North America and International operating segments, our Life and Retirement business Life
Insurance operating segment and our Other Operations and Legacy Portfolio operating segments. When a business is transferred
230
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
231
1011252ai_financials.indd 231
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 12 . Go o dw ill
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
from one reporting unit to another, as occurred as part of the 2017 segment changes, goodwill from the original operating segment is
allocated among reporting units based on the fair value of business transferred, relative to business retained by a reporting unit. As a
result, at December 31, 2017, $1.3 billion of goodwill was re-allocated to the General Insurance North America and General
Insurance International operating segments based on their respective fair values.
The impairment assessment involves an option to first assess qualitative factors to determine whether events or circumstances exist
that lead to a determination that it is more likely than not that the fair value of an operating segment is less than its carrying amount. If
the qualitative assessment is not performed, or after assessing the totality of the events or circumstances, we determine it is more
likely than not that the fair value of an operating segment is less than its carrying amount, the impairment assessment involves a two-
step process in which a quantitative assessment for potential impairment is performed.
If the qualitative test is not performed or if the test indicates a potential impairment is present, we estimate the fair value of each
operating segment and compare the estimated fair value with the carrying amount of the operating segment, including allocated
goodwill. The estimate of an operating segments fair value involves management judgment and is based on one or a combination of
approaches including discounted expected future cash flows, market-based earnings multiples of the units peer companies, external
appraisals or, in the case of reporting units being considered for sale, third-party indications of fair value, if available. We consider one
or more of these estimates when determining the fair value of an operating segment to be used in the impairment test.
If the estimated fair value of an operating segment exceeds its carrying amount, goodwill is not impaired. If the carrying value of an
operating segment exceeds its estimated fair value, goodwill associated with that operating segment potentially is impaired. The
amount of impairment, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the
goodwill. The implied fair value of the goodwill is measured as the excess of the fair value of the operating segment over the amounts
that would be assigned to the operating segments assets and liabilities in a hypothetical business combination. An impairment
charge is recognized in earnings to the extent of the excess of carrying value over fair value.
Goodwill was not impaired at December 31, 2017 based on the results of the goodwill impairment test.
The following table presents the changes in goodwill by operating segment:
(in millions)
Balance at January 1, 2015:
Goodwill - gross
Accumulated impairments
Net goodwill
Increase (decrease) due to:
Acquisition
Other
Balance at December 31, 2015:
Goodwill - gross
Accumulated impairments
Net goodwill
Increase (decrease) due to:
Dispositions
Other
Balance at December 31, 2016:
Goodwill - gross
Accumulated impairments
Net goodwill
Increase (decrease) due to:
Acquisition
Dispositions
Other
Balance at December 31, 2017:
Goodwill - gross
Accumulated impairments
Net goodwill
North
America
International
Life
Other
Insurance Operations
Legacy
Portfolio
$
$
1,834
(1,264)
570
2,887 $
(2,136)
751
21 $
-
21
7 $
-
7
182 $
(77)
105
50
-
1,884
(1,264)
620
(6)
-
1,878
(1,264)
614
-
(10)
-
1,868
(1,264)
604
$
46
(50)
2,883
(2,136)
747
(6)
(70)
2,807
(2,136)
671
-
(7)
74
2,874
(2,136)
$
738 $
55
1
77
-
77
-
-
77
-
77
-
(6)
13
20
-
27
-
27
-
-
27
-
27
4
-
-
37
-
219
(77)
142
-
(3)
216
(77)
139
-
(2)
-
Total
4,931
(3,477)
1,454
208
(49)
5,090
(3,477)
1,613
(12)
(73)
5,005
(3,477)
1,528
4
(25)
87
13. Insurance Liabilities
LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LOSS RESERVES)
Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and
loss adjustment expenses (IBNR), less applicable discount. We regularly review and update the methods used to determine loss
reserve estimates. Any adjustments resulting from this review are reflected currently in pre-tax income. Because these estimates are
subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for
changes in trends to be recognized and confirmed. Reserve changes that increase previous estimates of ultimate cost are referred to
as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost
are referred to as favorable development.
Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from
policyholders of approximately $12.6 billion and $12.8 billion at December 31, 2017 and 2016, respectively. These recoverable
amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through self-
insured retentions, deductibles, retrospective programs, or captive arrangements, each referred to generically as deductibles),
primarily for U.S. commercial casualty business. With respect to the deductible portion of the claim, we manage and pay the entire
claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. Thus, these recoverable
amounts represent a credit exposure to us. At December 31, 2017 and 2016, we held collateral of approximately $9.5 billion and
$9.7 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust
agreements.
The following table presents the roll-forward of activity in Loss Reserves:
Years Ended December 31,
(in millions)
Liability for unpaid loss and loss adjustment expenses, beginning of year
Reinsurance recoverable
Net Liability for unpaid loss and loss adjustment expenses, beginning of year
Losses and loss adjustment expenses incurred:
Current year
Prior years, excluding discount and amortization of deferred gain
Prior years, discount charge (benefit)
Prior years, amortization of deferred gain on retroactive reinsurance(a)
Total losses and loss adjustment expenses incurred
Losses and loss adjustment expenses paid:
Current year
Prior years
Total losses and loss adjustment expenses paid
Other changes:
Foreign exchange effect
Acquisitions(b)
Dispositions(c)
Retroactive reinsurance adjustment (net of discount)(d)
Reclassified to liabilities held for sale(e)
Total other changes
Liability for unpaid losses and loss adjustment expenses, end of year:
Net liability for unpaid losses and loss adjustment expenses
Reinsurance recoverable
Total
2017
2016
$
77,077 $
74,942 $
(15,532)
61,545
(14,339)
60,603
2015
77,260
(15,648)
61,612
20,308
4,119
(71)
-
-
-
-
20
(1,409)
60,603
14,339
74,942
22,547
25,598
24,356
(5,825)
(16,908)
(22,733)
(5,751)
(18,205)
(23,956)
(463)
(1,429)
21,079
1,565
187
(284)
(5,323)
(16,241)
(21,564)
788
23
(360)
(11,294)
-
(10,843)
51,685
26,708
20,232
5,788
(422)
-
-
-
(1,058)
(402)
(1,923)
61,545
15,532
$
78,393 $
77,077 $
84
-
84 $
31
-
31 $
214
(77)
137 $
5,071
(3,477)
1,594
(a) Includes $25 million for 2011 retroactive reinsurance agreement with NICO covering U.S. asbestos exposures for the year ended December 31, 2017.
(b) Includes amounts related to the acquisition of Blackboard U.S. Holdings Inc in 2017.
(c) Includes amounts related to dispositions through the date of disposition. Includes sale of insurance operations to Fairfax, United Guaranty and Ascot Underwriting
Holdings Limited, and Ascot Employees Corporate Member Limited (Ascot).
(d) Includes discount on retroactive insurance in the amount of $1.5 billion for the period ended December 31, 2017.
232
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
233
1011252ai_financials.indd 232
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 12 . Go o dw ill
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
from one reporting unit to another, as occurred as part of the 2017 segment changes, goodwill from the original operating segment is
allocated among reporting units based on the fair value of business transferred, relative to business retained by a reporting unit. As a
result, at December 31, 2017, $1.3 billion of goodwill was re-allocated to the General Insurance North America and General
Insurance International operating segments based on their respective fair values.
The impairment assessment involves an option to first assess qualitative factors to determine whether events or circumstances exist
that lead to a determination that it is more likely than not that the fair value of an operating segment is less than its carrying amount. If
the qualitative assessment is not performed, or after assessing the totality of the events or circumstances, we determine it is more
likely than not that the fair value of an operating segment is less than its carrying amount, the impairment assessment involves a two-
step process in which a quantitative assessment for potential impairment is performed.
If the qualitative test is not performed or if the test indicates a potential impairment is present, we estimate the fair value of each
operating segment and compare the estimated fair value with the carrying amount of the operating segment, including allocated
goodwill. The estimate of an operating segments fair value involves management judgment and is based on one or a combination of
approaches including discounted expected future cash flows, market-based earnings multiples of the units peer companies, external
appraisals or, in the case of reporting units being considered for sale, third-party indications of fair value, if available. We consider one
or more of these estimates when determining the fair value of an operating segment to be used in the impairment test.
If the estimated fair value of an operating segment exceeds its carrying amount, goodwill is not impaired. If the carrying value of an
operating segment exceeds its estimated fair value, goodwill associated with that operating segment potentially is impaired. The
amount of impairment, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the
goodwill. The implied fair value of the goodwill is measured as the excess of the fair value of the operating segment over the amounts
that would be assigned to the operating segments assets and liabilities in a hypothetical business combination. An impairment
charge is recognized in earnings to the extent of the excess of carrying value over fair value.
Goodwill was not impaired at December 31, 2017 based on the results of the goodwill impairment test.
The following table presents the changes in goodwill by operating segment:
North
Life
Other
America
International
Insurance Operations
Legacy
Portfolio
$
1,834
$
2,887 $
21 $
7 $
182 $
13. Insurance Liabilities
LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LOSS RESERVES)
Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and
loss adjustment expenses (IBNR), less applicable discount. We regularly review and update the methods used to determine loss
reserve estimates. Any adjustments resulting from this review are reflected currently in pre-tax income. Because these estimates are
subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for
changes in trends to be recognized and confirmed. Reserve changes that increase previous estimates of ultimate cost are referred to
as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost
are referred to as favorable development.
Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from
policyholders of approximately $12.6 billion and $12.8 billion at December 31, 2017 and 2016, respectively. These recoverable
amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through self-
insured retentions, deductibles, retrospective programs, or captive arrangements, each referred to generically as deductibles),
primarily for U.S. commercial casualty business. With respect to the deductible portion of the claim, we manage and pay the entire
claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. Thus, these recoverable
amounts represent a credit exposure to us. At December 31, 2017 and 2016, we held collateral of approximately $9.5 billion and
$9.7 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust
agreements.
The following table presents the roll-forward of activity in Loss Reserves:
Years Ended December 31,
(in millions)
Liability for unpaid loss and loss adjustment expenses, beginning of year
Reinsurance recoverable
Net Liability for unpaid loss and loss adjustment expenses, beginning of year
Losses and loss adjustment expenses incurred:
Current year
Prior years, excluding discount and amortization of deferred gain
Prior years, discount charge (benefit)
Prior years, amortization of deferred gain on retroactive reinsurance(a)
Total losses and loss adjustment expenses incurred
Losses and loss adjustment expenses paid:
Current year
Prior years
Total losses and loss adjustment expenses paid
Other changes:
Foreign exchange effect
Acquisitions(b)
Dispositions(c)
Retroactive reinsurance adjustment (net of discount)(d)
Reclassified to liabilities held for sale(e)
Total other changes
Liability for unpaid losses and loss adjustment expenses, end of year:
Net liability for unpaid losses and loss adjustment expenses
Reinsurance recoverable
Total
$
2017
77,077 $
(15,532)
61,545
2016
74,942 $
(14,339)
60,603
21,079
1,565
187
(284)
22,547
(5,323)
(16,241)
(21,564)
788
23
(360)
(11,294)
-
(10,843)
20,232
5,788
(422)
-
25,598
(5,825)
(16,908)
(22,733)
(463)
-
(1,058)
-
(402)
(1,923)
2015
77,260
(15,648)
61,612
20,308
4,119
(71)
-
24,356
(5,751)
(18,205)
(23,956)
(1,429)
-
-
20
-
(1,409)
51,685
26,708
78,393 $
61,545
15,532
77,077 $
60,603
14,339
74,942
$
1,868
(1,264)
2,874
(2,136)
(a) Includes $25 million for 2011 retroactive reinsurance agreement with NICO covering U.S. asbestos exposures for the year ended December 31, 2017.
(b) Includes amounts related to the acquisition of Blackboard U.S. Holdings Inc in 2017.
$
604
$
738 $
84 $
31 $
137 $
(c) Includes amounts related to dispositions through the date of disposition. Includes sale of insurance operations to Fairfax, United Guaranty and Ascot Underwriting
Holdings Limited, and Ascot Employees Corporate Member Limited (Ascot).
(d) Includes discount on retroactive insurance in the amount of $1.5 billion for the period ended December 31, 2017.
232
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AIG | 2017 Form 10-K
233
1011252ai_financials.indd 233
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(in millions)
Balance at January 1, 2015:
Goodwill - gross
Accumulated impairments
Net goodwill
Increase (decrease) due to:
Acquisition
Other
Balance at December 31, 2015:
Goodwill - gross
Accumulated impairments
Net goodwill
Increase (decrease) due to:
Dispositions
Other
Balance at December 31, 2016:
Goodwill - gross
Accumulated impairments
Net goodwill
Increase (decrease) due to:
Acquisition
Dispositions
Other
Balance at December 31, 2017:
Goodwill - gross
Accumulated impairments
Net goodwill
(1,264)
570
50
-
1,884
(1,264)
620
(6)
-
1,878
(1,264)
614
(10)
-
-
(2,136)
751
46
(50)
2,883
(2,136)
747
(6)
(70)
2,807
(2,136)
671
-
(7)
74
-
21
55
1
77
77
-
-
-
-
-
77
77
(6)
13
84
-
Total
4,931
(3,477)
1,454
208
(49)
5,090
(3,477)
1,613
(12)
(73)
5,005
(3,477)
1,528
4
(25)
87
5,071
(3,477)
1,594
(77)
105
37
-
219
(77)
142
-
(3)
216
(77)
139
(2)
-
-
214
(77)
-
7
20
27
27
-
-
-
-
-
27
27
4
-
-
31
-
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
(e) Represents change in loss reserves included in our sale of certain of our insurance operations and certain assets to Fairfax for the period ended December 31, 2016.
Upon consummation of the sale, we retained a portion of these reserves through reinsurance arrangements.
During 2017, we recognized unfavorable prior year loss reserve development of $1.6 billion. This unfavorable development was
primarily a result of the following:
Unfavorable development in U.S. Casualty lines, driven primarily by increases in underlying severity and greater than expected
emerging loss experience in accident year 2016 as well as increased development from claims related to construction defects and
construction wrap business (largely from accident years 2006 and prior).
Unfavorable development in U.S. Financial Lines, primarily from Directors & Officers (D&O) policies covering privately owned and
not-for-profit insureds. This development was predominantly in accident year 2016 and resulted largely from increases in
bankruptcy-related claims and fiduciary liability claims for large educational institutions.
Higher than expected losses for Europe Casualty and Financial Lines. We observed a significant increase in large claims activity in
our Europe long-tail business, with a large proportion emanating from accident year 2016. In addition, we increased our loss
reserves as a result of the decision made by the U.K. Ministry of Justice to reduce the discount rate applied to lump-sum bodily
injury payouts, known as the Ogden rate.
In addition we also observed higher than expected losses in Europe property and special risks business driven by unexpected
development on various large claims across the property, aviation, marine, and trade credit segments.
Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss
adjustment expense ratios we selected.
During 2016, we recognized adverse prior year loss reserve development of $5.8 billion. This unfavorable development was primarily
a result of the following:
Higher than expected losses emerging across several casualty product lines, especially in the recent accident years (generally,
2011 to 2015) driven by increased frequency and severity of claims. This recent accident year loss emergence caused us to
increase loss development factors applied across many accident years.
Loss development factors including workers compensation tail factors, also increased due to an observed lengthening of loss
reporting patterns relative to prior expectations.
Increases in loss trend assumptions to reflect the latest observed increases in frequency and severity and the impact of these
increased loss trends on expected loss ratios.
Changes in weights we apply to the various actuarial methods to better align with updated trends.
During 2015, we recognized unfavorable prior year loss reserve development of $4.1 billion. This unfavorable development was
primarily as a result of the following:
Higher than expected loss emergence across U.S. Excess Casualty, U.S. Workers Compensation, and U.S. Other Casualty lines
as well as European Financial Lines.
Updated loss development selections in U.S. Excess Casualty, U.S. Financial Lines and U.S. Run-off Casualty Insurance lines,
most notably tail factor selections and incorporation of updated industry experience for asbestos liabilities.
Revised estimates of expected future recoveries from risk-sharing policies in the U.S. Workers Compensation business.
Updated estimates for extra-contractual obligation claims and unallocated loss adjustment expenses.
The loss development tables below include loss development data by major lines of business for the last ten accident years. The
drivers of prior year development are discussed following each of the loss development tables.
.
The table below presents the reconciliation of the net liability for unpaid losses and loss adjustment expenses in the
following tables to Loss Reserves in the Consolidated Balance Sheets for the year ended December 31, 2017:
Net liability for
unpaid losses and
Reinsurance recoverable
loss adjustment
on unpaid losses and loss
expenses
adjustment expenses
as presented in the
disaggregated tables
included in the
Gross liability for
disaggregated tables
unpaid losses and loss
below
adjustment expenses
U.S. Workers' Compensation (before discount)
$
$
$
13,129
(in millions)
U.S. Excess Casualty
U.S. Other Casualty
U.S. Financial Lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial lines
Europe Property and Special risks
Europe and Japan Personal Insurance
U.S. Run-Off Long Tail Insurance Lines (before
below
6,616
4,802
5,149
5,104
5,410
1,380
6,986
2,022
2,348
6,513
4,053
4,793
1,962
968
194
1,156
632
349
discount)
Total
5,383
45,200
$
3,675
24,295
$
Reconciling Items
Discount on workers' compensation lines
Other product lines
Unallocated loss adjustment expenses
Total Loss Reserves
8,855
9,942
7,066
6,378
1,574
8,142
2,654
2,697
9,058
69,495
(3,383)
8,568
3,713
78,393
$
$
234
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
235
1011252ai_financials.indd 234
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
(e) Represents change in loss reserves included in our sale of certain of our insurance operations and certain assets to Fairfax for the period ended December 31, 2016.
Upon consummation of the sale, we retained a portion of these reserves through reinsurance arrangements.
During 2017, we recognized unfavorable prior year loss reserve development of $1.6 billion. This unfavorable development was
primarily a result of the following:
Unfavorable development in U.S. Casualty lines, driven primarily by increases in underlying severity and greater than expected
emerging loss experience in accident year 2016 as well as increased development from claims related to construction defects and
construction wrap business (largely from accident years 2006 and prior).
Unfavorable development in U.S. Financial Lines, primarily from Directors & Officers (D&O) policies covering privately owned and
not-for-profit insureds. This development was predominantly in accident year 2016 and resulted largely from increases in
bankruptcy-related claims and fiduciary liability claims for large educational institutions.
Higher than expected losses for Europe Casualty and Financial Lines. We observed a significant increase in large claims activity in
our Europe long-tail business, with a large proportion emanating from accident year 2016. In addition, we increased our loss
reserves as a result of the decision made by the U.K. Ministry of Justice to reduce the discount rate applied to lump-sum bodily
injury payouts, known as the Ogden rate.
In addition we also observed higher than expected losses in Europe property and special risks business driven by unexpected
development on various large claims across the property, aviation, marine, and trade credit segments.
Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss
adjustment expense ratios we selected.
a result of the following:
During 2016, we recognized adverse prior year loss reserve development of $5.8 billion. This unfavorable development was primarily
Higher than expected losses emerging across several casualty product lines, especially in the recent accident years (generally,
2011 to 2015) driven by increased frequency and severity of claims. This recent accident year loss emergence caused us to
increase loss development factors applied across many accident years.
Loss development factors including workers compensation tail factors, also increased due to an observed lengthening of loss
Increases in loss trend assumptions to reflect the latest observed increases in frequency and severity and the impact of these
reporting patterns relative to prior expectations.
increased loss trends on expected loss ratios.
Changes in weights we apply to the various actuarial methods to better align with updated trends.
During 2015, we recognized unfavorable prior year loss reserve development of $4.1 billion. This unfavorable development was
primarily as a result of the following:
as well as European Financial Lines.
Higher than expected loss emergence across U.S. Excess Casualty, U.S. Workers Compensation, and U.S. Other Casualty lines
Updated loss development selections in U.S. Excess Casualty, U.S. Financial Lines and U.S. Run-off Casualty Insurance lines,
most notably tail factor selections and incorporation of updated industry experience for asbestos liabilities.
Revised estimates of expected future recoveries from risk-sharing policies in the U.S. Workers Compensation business.
Updated estimates for extra-contractual obligation claims and unallocated loss adjustment expenses.
The loss development tables below include loss development data by major lines of business for the last ten accident years. The
drivers of prior year development are discussed following each of the loss development tables.
.
The table below presents the reconciliation of the net liability for unpaid losses and loss adjustment expenses in the
following tables to Loss Reserves in the Consolidated Balance Sheets for the year ended December 31, 2017:
(in millions)
U.S. Workers' Compensation (before discount)
U.S. Excess Casualty
U.S. Other Casualty
U.S. Financial Lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial lines
Europe Property and Special risks
Europe and Japan Personal Insurance
U.S. Run-Off Long Tail Insurance Lines (before
discount)
Total
Reconciling Items
Discount on workers' compensation lines
Other product lines
Unallocated loss adjustment expenses
Total Loss Reserves
$
Net liability for
unpaid losses and
loss adjustment
expenses
as presented in the
disaggregated tables
below
6,616
4,802
5,149
5,104
5,410
1,380
6,986
2,022
2,348
$
Reinsurance recoverable
on unpaid losses and loss
adjustment expenses
included in the
disaggregated tables
below
6,513
4,053
4,793
1,962
968
194
1,156
632
349
5,383
45,200
$
3,675
24,295
$
$
Gross liability for
unpaid losses and loss
adjustment expenses
13,129
8,855
9,942
7,066
6,378
1,574
8,142
2,654
2,697
9,058
69,495
(3,383)
8,568
3,713
78,393
$
$
234
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
235
1011252ai_financials.indd 235
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Loss Development Information
The following is information about incurred and paid loss developments as of December 31, 2017, net of reinsurance. The cumulative
number of reported claims, the total of IBNR liabilities and expected development on reported loss included within the net incurred
loss amounts are presented in the following section.
Reserving Methodology
We use a combination of methods to project ultimate losses for both long-tail and short-tail exposures, which include:
Paid Development method: The Paid Development method estimates ultimate losses by reviewing paid loss patterns and
selecting paid ultimate loss development factors. These factors are then applied to paid losses by applying them to accident years,
with further expected changes in paid loss. Since the method does not rely on case reserves, it is not directly influenced by
changes in the adequacy of case reserves.
Incurred Development method: The Incurred Development method is similar to the Paid Development method, but it uses case
incurred losses instead of paid losses. Since this method uses more data (case reserves in addition to paid losses) than the Paid
Development method, the incurred development patterns may be less variable than paid development patterns.
Expected Loss Ratio method: The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce
ultimate loss estimates for each accident year. This method may be useful if loss development patterns are inconsistent, losses
emerge very slowly, or there is relatively little loss history from which to estimate future losses.
Bornhuetter-Ferguson method: The Bornhuetter-Ferguson method using premiums and paid losses is a combination of the Paid
Development method and the Expected Loss Ratio method where the weight given to each method is the reciprocal of the loss
development factor. This method normally determines expected loss ratios similar to the method used for the Expected Loss Ratio
method. The Bornhuetter-Ferguson method using premiums and incurred losses is similar to the Bornhuetter-Ferguson method
using premiums and paid losses except that it uses case-incurred losses.
Cape Cod method: The Cape Cod method is mechanically similar to the Bornhuetter-Ferguson method with the difference being
that the Expected Loss Ratio estimates are determined based on a weighting of the loss estimates that come from the
Paid/Incurred Development Methods. This method may be more responsive to recent loss trends than the Bornhuetter-Ferguson
method.
Average Loss method: The Average Loss method multiplies a projected number of ultimate claims by an estimated ultimate
severity average loss for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims
are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve categories where
loss development patterns are inconsistent or too variable to be relied on exclusively.
In updating our loss reserve estimates, we consider and evaluate inputs from many sources, including actual claims data, the
performance of prior reserve estimates, observed industry trends, our internal peer review processes, including challenges and
recommendations from our Enterprise Risk Management group, as well as the views of third-party actuarial firms. We use these
inputs to improve our evaluation techniques, and to analyze and assess the change in estimated ultimate loss for each accident year
by product line. Our analyses produce a range of indications from various methods, from which we select our best estimate.
In determining the actual carried loss reserves, we consider both the internal actuarial best estimate and numerous other internal and
external factors, including:
an assessment of economic conditions, including real GDP growth, inflation, employment rates or unemployment duration, stock
market volatility and changes in corporate bond spreads;
changes in the legal, regulatory, judicial and social environment, including changes in road safety, public health and cleanup
standards;
changes in medical cost trends (inflation, intensity and utilization of medical services) and wage inflation trends;
underlying policy pricing, terms and conditions including attachment points and policy limits;
The following factors are relevant to the loss development information Included in the tables below:
Table organization: The tables are organized by accident year and include policies written on an occurrence and claims- made
basis. We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for
reinsurance recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the
date of occurrence becomes available to us. These reclassifications are shown as development in the respective years in the
tables below. Financial Lines business is primarily written on a claims-made basis, while the majority of the workers
compensation, excess casualty, other casualty, and run-off property and casualty lines of business are written on an occurrence
basis. Primarily, all short-tail lines in Property and Special Risks and Personal Insurance are written on an occurrence basis.
Groupings: We believe our groupings have homogenous risk characteristics with similar development patterns and would
generally be subject to similar trends and reflect our reportable segments. The incurred losses and loss adjustment expenses and
paid losses in the following tables for the current reporting year are allocated to the line of business and accident years based on
an initial allocation methodology and updated for the final allocation in the subsequent reporting year. The difference between the
initial and the final allocation does not have a material impact on the loss tables.
Reinsurance: Our reinsurance program varies by exposure type and may change from year to year. This may affect the
comparability of the data presented in our tables. Note that the impact of the Adverse Development Reinsurance Agreement is
shown separately. For the lines of business covered by the agreement, an allocation of the loss recoveries to the line of business
by accident year is presented separately in the loss tables. The allocation is based on the underlying distribution of the losses
subject to the agreement.
Incurred but not reported liabilities (IBNR): We include development from past reported losses in IBNR.
Data excluded from tables: Information with respect to accident years older than ten years is excluded from the development
tables. Unallocated loss adjustment expenses are also excluded.
Foreign exchange: The loss development for operations outside of the U.S. is presented for all accident years using the current
exchange rate at December 31, 2017. Although this approach requires restating all prior accident year information, the changes in
exchange rates do not impact incurred and paid loss development trends.
Dispositions: We exclude dispositions from all accident years presented in the tables.
Claim counts: We consider a reported claim to be one claim for each claimant or feature for each loss occurrence. Claims relating
to losses that are 100 percent reinsured are excluded from the reported claims in the tables below. Reported claims for losses
from assumed reinsurance contracts are not available and hence not included in the reported claims.
There are limitations that should be considered on the reported claim count data in the tables below, including:
Claim counts are presented only on a reported (not an ultimate) basis;
The tables below include lines of business and geographies at a certain aggregated level which may indicate different
frequency and severity trends and characteristics, and may not be as meaningful as the claim count information related to the
individual products within those lines of business and geographies;
Certain lines of business are more likely to be subject to occurrences involving multiple claimants and features, which can
distort measures based on the reported claim counts in the table below; and
Reported claim counts are not adjusted for ceded reinsurance, which may distort the measure of frequency or severity.
-
-
-
-
Supplemental Information: The information about incurred and paid loss development for all periods preceding year ended
December 31, 2017 and the related historical claims payout percentage disclosure is unaudited and is presented as supplementary
information.
The following tables present undiscounted, incurred and paid losses and allocated loss adjustment expenses by accident
year, on a net basis after reinsurance, with a separate presentation of the Adverse Development Reinsurance Agreement
excluding the related amortization of the deferred gain:
change in claims handling philosophy, operating model, processes, and related ongoing enhancements;
U.S. Workers' Compensation
third-party claims reviews that are periodically performed for key classes of claims such as toxic tort, environmental and other
complex casualty claims;
third-party actuarial reviews that are periodically performed for key classes of business;
input from underwriters on pricing, terms, and conditions and market trends; and
changes in our reinsurance program, pricing and commutations.
During 2017, we recognized $31 million of favorable prior year development.
During 2016, we recognized $1.9 billion of unfavorable prior year development due to increased tail and loss development
factors.
236
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
237
1011252ai_financials.indd 236
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
The following is information about incurred and paid loss developments as of December 31, 2017, net of reinsurance. The cumulative
number of reported claims, the total of IBNR liabilities and expected development on reported loss included within the net incurred
Loss Development Information
loss amounts are presented in the following section.
Reserving Methodology
We use a combination of methods to project ultimate losses for both long-tail and short-tail exposures, which include:
Paid Development method: The Paid Development method estimates ultimate losses by reviewing paid loss patterns and
selecting paid ultimate loss development factors. These factors are then applied to paid losses by applying them to accident years,
with further expected changes in paid loss. Since the method does not rely on case reserves, it is not directly influenced by
changes in the adequacy of case reserves.
Incurred Development method: The Incurred Development method is similar to the Paid Development method, but it uses case
incurred losses instead of paid losses. Since this method uses more data (case reserves in addition to paid losses) than the Paid
Development method, the incurred development patterns may be less variable than paid development patterns.
Expected Loss Ratio method: The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce
ultimate loss estimates for each accident year. This method may be useful if loss development patterns are inconsistent, losses
emerge very slowly, or there is relatively little loss history from which to estimate future losses.
Bornhuetter-Ferguson method: The Bornhuetter-Ferguson method using premiums and paid losses is a combination of the Paid
Development method and the Expected Loss Ratio method where the weight given to each method is the reciprocal of the loss
The following factors are relevant to the loss development information Included in the tables below:
Table organization: The tables are organized by accident year and include policies written on an occurrence and claims- made
basis. We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for
reinsurance recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the
date of occurrence becomes available to us. These reclassifications are shown as development in the respective years in the
tables below. Financial Lines business is primarily written on a claims-made basis, while the majority of the workers
compensation, excess casualty, other casualty, and run-off property and casualty lines of business are written on an occurrence
basis. Primarily, all short-tail lines in Property and Special Risks and Personal Insurance are written on an occurrence basis.
Groupings: We believe our groupings have homogenous risk characteristics with similar development patterns and would
generally be subject to similar trends and reflect our reportable segments. The incurred losses and loss adjustment expenses and
paid losses in the following tables for the current reporting year are allocated to the line of business and accident years based on
an initial allocation methodology and updated for the final allocation in the subsequent reporting year. The difference between the
initial and the final allocation does not have a material impact on the loss tables.
Reinsurance: Our reinsurance program varies by exposure type and may change from year to year. This may affect the
comparability of the data presented in our tables. Note that the impact of the Adverse Development Reinsurance Agreement is
shown separately. For the lines of business covered by the agreement, an allocation of the loss recoveries to the line of business
by accident year is presented separately in the loss tables. The allocation is based on the underlying distribution of the losses
subject to the agreement.
Incurred but not reported liabilities (IBNR): We include development from past reported losses in IBNR.
Data excluded from tables: Information with respect to accident years older than ten years is excluded from the development
tables. Unallocated loss adjustment expenses are also excluded.
development factor. This method normally determines expected loss ratios similar to the method used for the Expected Loss Ratio
Foreign exchange: The loss development for operations outside of the U.S. is presented for all accident years using the current
method. The Bornhuetter-Ferguson method using premiums and incurred losses is similar to the Bornhuetter-Ferguson method
using premiums and paid losses except that it uses case-incurred losses.
exchange rate at December 31, 2017. Although this approach requires restating all prior accident year information, the changes in
exchange rates do not impact incurred and paid loss development trends.
Cape Cod method: The Cape Cod method is mechanically similar to the Bornhuetter-Ferguson method with the difference being
that the Expected Loss Ratio estimates are determined based on a weighting of the loss estimates that come from the
Paid/Incurred Development Methods. This method may be more responsive to recent loss trends than the Bornhuetter-Ferguson
method.
Average Loss method: The Average Loss method multiplies a projected number of ultimate claims by an estimated ultimate
severity average loss for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims
are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve categories where
loss development patterns are inconsistent or too variable to be relied on exclusively.
In updating our loss reserve estimates, we consider and evaluate inputs from many sources, including actual claims data, the
performance of prior reserve estimates, observed industry trends, our internal peer review processes, including challenges and
recommendations from our Enterprise Risk Management group, as well as the views of third-party actuarial firms. We use these
inputs to improve our evaluation techniques, and to analyze and assess the change in estimated ultimate loss for each accident year
by product line. Our analyses produce a range of indications from various methods, from which we select our best estimate.
In determining the actual carried loss reserves, we consider both the internal actuarial best estimate and numerous other internal and
external factors, including:
standards;
an assessment of economic conditions, including real GDP growth, inflation, employment rates or unemployment duration, stock
market volatility and changes in corporate bond spreads;
changes in the legal, regulatory, judicial and social environment, including changes in road safety, public health and cleanup
changes in medical cost trends (inflation, intensity and utilization of medical services) and wage inflation trends;
underlying policy pricing, terms and conditions including attachment points and policy limits;
Dispositions: We exclude dispositions from all accident years presented in the tables.
Claim counts: We consider a reported claim to be one claim for each claimant or feature for each loss occurrence. Claims relating
to losses that are 100 percent reinsured are excluded from the reported claims in the tables below. Reported claims for losses
from assumed reinsurance contracts are not available and hence not included in the reported claims.
There are limitations that should be considered on the reported claim count data in the tables below, including:
-
-
-
-
Claim counts are presented only on a reported (not an ultimate) basis;
The tables below include lines of business and geographies at a certain aggregated level which may indicate different
frequency and severity trends and characteristics, and may not be as meaningful as the claim count information related to the
individual products within those lines of business and geographies;
Certain lines of business are more likely to be subject to occurrences involving multiple claimants and features, which can
distort measures based on the reported claim counts in the table below; and
Reported claim counts are not adjusted for ceded reinsurance, which may distort the measure of frequency or severity.
Supplemental Information: The information about incurred and paid loss development for all periods preceding year ended
December 31, 2017 and the related historical claims payout percentage disclosure is unaudited and is presented as supplementary
information.
The following tables present undiscounted, incurred and paid losses and allocated loss adjustment expenses by accident
year, on a net basis after reinsurance, with a separate presentation of the Adverse Development Reinsurance Agreement
excluding the related amortization of the deferred gain:
change in claims handling philosophy, operating model, processes, and related ongoing enhancements;
U.S. Workers' Compensation
third-party claims reviews that are periodically performed for key classes of claims such as toxic tort, environmental and other
During 2017, we recognized $31 million of favorable prior year development.
During 2016, we recognized $1.9 billion of unfavorable prior year development due to increased tail and loss development
factors.
complex casualty claims;
third-party actuarial reviews that are periodically performed for key classes of business;
input from underwriters on pricing, terms, and conditions and market trends; and
changes in our reinsurance program, pricing and commutations.
236
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
237
1011252ai_financials.indd 237
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Unaudited
2017 Prior
Year
Development
Excluding
the Impact of
Adverse
Development
Reinsurance
Agreement
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Incurred
Impact of
Adverse
Development
Reinsurance
Agreement
2017 (Net of
Impact of
Adverse
Development
Reinsurance
Agreement)
Cumulative
Number of
Reported
Claims
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
2008
$ 4,114 $ 4,184 $ 4,422 $ 4,425 $ 4,471 $ 4,398 $ 4,385 $ 4,398 $ 4,547
$
4,536 $
(11) $
3,466
3,633
3,608
3,666
3,639
3,616
3,606
3,708
2,706
3,049
3,125
3,148
3,211
3,214
3,286
2,901
2,953
3,091
3,158
3,113
3,152
2,382
2,194
2,286
2,260
2,334
1,932
1,880
1,950
2,060
1,729
1,764
1,866
1,708
1,864
1,299
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
3,714
3,267
3,156
2,308
2,032
1,862
1,866
1,346
789
$ 24,876 $
(16,580)
3,867
6
(19)
4
(26)
(28)
(4)
2
47
(29)
-
4
(6)
448
495
451
481
503
548
664
849
773
577
198,852 $
(416) $
4,120 $
147,357
133,191
124,657
70,625
46,483
39,408
35,059
28,880
22,523
(416)
(449)
(479)
(494)
(538)
(552)
(587)
-
-
3,298
2,818
2,677
1,814
1,494
1,310
1,279
1,346
789
$
(3,931) $
20,945
-
(16,580)
(1,616)
2,251
32
79
2
2
9
10
112
262
773
577
development, net of reinsurance
$ 12,163 $
(31)
$
(5,547) $
6,616
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
785 $
1,678 $
2,252 $
2,655 $
3,044 $
3,272 $
3,476 $
3,609 $
3,707
$
3,789 $
Unaudited
630
1,328
550
1,756
1,093
519
2,120
1,537
1,129
415
2,390
1,855
1,561
804
282
2,621
2,126
1,884
1,089
619
231
2,780
2,288
2,129
1,272
879
558
234
2,887
2,426
2,285
1,440
1,067
786
524
147
2,968
2,532
2,388
1,563
1,214
930
725
378
93
$
16,580 $
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
Reserving Process and Methodology
U.S. Workers Compensation is an extremely long-tail line of business, with loss emergence extending for decades. We generally
use a combination of loss development, frequency/severity and expected loss ratio methods for workers compensation.
Many of our primary casualty policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective
rating features, in addition to a traditional insurance component. These risk-sharing programs generally are large and complex,
comprising multiple products, years and structures, and are subject to amendment over time. We group guaranteed cost and excess
of deductible business separately and then further by state and industry subset to the extent that meaningful differences are
determined to exist. We also separately analyze certain subsets of the portfolio that have unique characteristics (e.g., U.S.
government sub-contractor accounts and construction wrap-up business). For excess of deductible business, we also segment by
size of deductible and whether the claim is handled by AIG or an outside third-party administrator (TPA). The proportion of large
deductible business has increased over time, which has slowed the reporting pattern of claims.
For guaranteed cost business, expected loss ratio methods generally are given significant weight only in the most recent accident
year. Workers compensation claims are generally characterized by high frequency, low severity, and relatively consistent loss
development from one accident year to the next. We historically have been a leading writer of workers compensation, and thus have
sufficient volume of claims experience to use development methods. We generally segregate California (CA) and New York (NY)
businesses from the other states to reflect their different development patterns and changing percentage of the mix by state. The
claims development tables above are impacted by two other significant initiatives, which offset each other.
instituted claims strategy changes and loss mitigation efforts to accelerate settlements, which we believe results in an overall
reduction in claim costs. This strategy resulted in an increase in paid losses along the latest diagonals relative to prior years. In
addition, we have been reducing premium volume in recent years and shifting a greater proportion of business to insured risk
retention structures such as high deductible policies. These mix and volume changes slowed paid and incurred development since
excess of deductible claims will typically take longer to emerge and settle.
In recent years, we
Expected loss ratio methods for business written in excess of a deductible may be given significant weight in the most recent five
accident years. In the 2016 analysis, we increased our tail factor estimates for states other than NY and CA for guaranteed cost
business in recognition of longer medical development patterns that we have been seeing in recent years. We reflected increases in
legal costs we have seen across the portfolio, particularly in California.
Additionally, over the years we have written a number of very large accounts which include workers compensation coverage. These
accounts are generally individually priced by our actuaries, and to the extent appropriate, the indicated losses based on the pricing
analysis may be used to record the initial estimated loss reserves for these accounts.
Prior Year Development
During 2017, we recognized $31 million of favorable prior year development in U.S. workers compensation business, particularly
guaranteed cost business in the states of California and New York. Actual loss emergence during the year, particularly for guaranteed
cost business in these two states, was significantly less than expected on a reported loss basis. We did recognize some offsetting
unfavorable development in our Defense Based Act (DBA) business that covers government contractors in U.S. and non-U.S. military
installations, as well as from a Pennsylvania Supreme Court decision that overturned a ruling that provided limitations on payments
for certain permanent injuries (the Protz decision).
During 2016, we recognized $1.9 billion of unfavorable prior year development in primary workers compensation coverages primarily
driven by the risk-sharing programs where we provide coverage in excess of large deductibles. For this excess of large deductible
business, in 2016, we observed actual loss emergence and development at significantly greater levels than expected based on our
previous experience in particular from losses in excess of $1 million. Since these policies respond to larger claims, the loss reporting
pattern is much longer than observed in guaranteed cost workers compensation and it takes several years to discern credible
changes in the pattern. Furthermore, implementation of claims settlement and loss mitigation strategies over the past several years
has made the recent evaluation of data more challenging as historical development patterns may not yet fully reflect these claim and
mitigation activities. During 2016, we refined our actuarial methodology by combining data across previously segregated
underwriting portfolios to improve our ability to analyze the loss development trends and patterns that had been altered by the mix,
claims handling and loss mitigation changes we have made during the last five years. We also developed further segmentations by
deductible size and other key parameters, such as claims handled by TPA staff and not our claims department. As a result, we
determined that the loss emergence patterns had changed and lengthened significantly from our prior expectation and therefore, we
increased our loss development factors.
In addition, for workers compensation policies with no deductibles (guaranteed cost), we increased our tail factors for the all other
states grouping to reflect the latest unfavorable experience in more mature accident years. This change increased the ultimate losses
by approximately $440 million in 2016. We also reflected the increasing cost trends for legal and cost containment services, especially
in California, as recent trends in this sector have been unfavorable.
Furthermore, in 2016, the Florida Supreme Court issued two separate rulings that have increased the potential liability for workers
compensation claims in that state by undoing certain aspects of regulations in place since 2003. The Castellanos ruling eliminated
statutory caps on claimant attorney fees in certain cases, and the Westphal ruling eliminated the 104-week limitation on temporary
total disability benefits. Also in the second quarter, the Florida Court of Appeals issued the Miles decision, declaring unconstitutional
certain restrictions on claimant-paid attorney fees.
by $100 million to reflect our estimate of the costs of these rulings on prior years claims.
In in the second quarter 2016, we increased our workers compensation reserves
During 2015, we increased our reserves by $234 million, primarily for accident years 2012 and prior in the U.S. Workers
Compensation line, to reflect estimated increased losses and reduced expectations of future recoveries from our insureds through
risk-sharing features. We also recognized $100 million of unfavorable prior year development in U.S. Workers Compensation
coverages sold to government contractors in U.S. and non-U.S. military installations as a result of unfavorable loss emergence from
238
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
239
1011252ai_financials.indd 238
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Agreement
Losses
Claims
Agreement
Agreement)
2008
$ 4,114 $ 4,184 $ 4,422 $ 4,425 $ 4,471 $ 4,398 $ 4,385 $ 4,398 $ 4,547
$
4,536 $
(11) $
198,852 $
(416) $
4,120 $
Unaudited
3,466
3,633
3,608
3,666
3,639
3,616
3,606
3,708
2,706
3,049
3,125
3,148
3,211
3,214
3,286
2,901
2,953
3,091
3,158
3,113
3,152
2,382
2,194
2,286
2,260
2,334
1,932
1,880
1,950
2,060
1,729
1,764
1,866
1,708
1,864
1,299
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
2017 Prior
Year
Development
Excluding
the Impact of
Total of
IBNR
Liabilities
Plus
Adverse
Expected
Cumulative
Development
Development
Number of
Development
Development
Reinsurance
on Reported
Reported
Reinsurance
Reinsurance
Incurred
Impact of
Adverse
2017 (Net of
Impact of
Adverse
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
3,714
3,267
3,156
2,308
2,032
1,862
1,866
1,346
789
(16,580)
3,867
(19)
6
4
(26)
(28)
(4)
2
47
(29)
-
4
(6)
448
495
451
481
503
548
664
849
773
577
147,357
133,191
124,657
70,625
46,483
39,408
35,059
28,880
22,523
3,298
2,818
2,677
1,814
1,494
1,310
1,279
1,346
789
32
79
2
2
9
10
112
262
773
577
(416)
(449)
(479)
(494)
(538)
(552)
(587)
-
-
-
(16,580)
(1,616)
2,251
$ 24,876 $
$
(3,931) $
20,945
development, net of reinsurance
$ 12,163 $
(31)
$
(5,547) $
6,616
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$
785 $
1,678 $
2,252 $
2,655 $
3,044 $
3,272 $
3,476 $
3,609 $
3,707
$
3,789 $
630
1,328
550
1,756
1,093
519
Unaudited
2,120
1,537
1,129
415
2,390
1,855
1,561
804
282
2,621
2,126
1,884
1,089
619
231
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
2,780
2,288
2,129
1,272
879
558
234
2,887
2,426
2,285
1,440
1,067
786
524
147
2,968
2,532
2,388
1,563
1,214
930
725
378
93
$
16,580 $
Reserving Process and Methodology
U.S. Workers Compensation is an extremely long-tail line of business, with loss emergence extending for decades. We generally
use a combination of loss development, frequency/severity and expected loss ratio methods for workers compensation.
Many of our primary casualty policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective
rating features, in addition to a traditional insurance component. These risk-sharing programs generally are large and complex,
comprising multiple products, years and structures, and are subject to amendment over time. We group guaranteed cost and excess
of deductible business separately and then further by state and industry subset to the extent that meaningful differences are
determined to exist. We also separately analyze certain subsets of the portfolio that have unique characteristics (e.g., U.S.
government sub-contractor accounts and construction wrap-up business). For excess of deductible business, we also segment by
size of deductible and whether the claim is handled by AIG or an outside third-party administrator (TPA). The proportion of large
deductible business has increased over time, which has slowed the reporting pattern of claims.
For guaranteed cost business, expected loss ratio methods generally are given significant weight only in the most recent accident
year. Workers compensation claims are generally characterized by high frequency, low severity, and relatively consistent loss
development from one accident year to the next. We historically have been a leading writer of workers compensation, and thus have
sufficient volume of claims experience to use development methods. We generally segregate California (CA) and New York (NY)
businesses from the other states to reflect their different development patterns and changing percentage of the mix by state. The
claims development tables above are impacted by two other significant initiatives, which offset each other.
instituted claims strategy changes and loss mitigation efforts to accelerate settlements, which we believe results in an overall
reduction in claim costs. This strategy resulted in an increase in paid losses along the latest diagonals relative to prior years. In
addition, we have been reducing premium volume in recent years and shifting a greater proportion of business to insured risk
retention structures such as high deductible policies. These mix and volume changes slowed paid and incurred development since
excess of deductible claims will typically take longer to emerge and settle.
In recent years, we
Expected loss ratio methods for business written in excess of a deductible may be given significant weight in the most recent five
accident years. In the 2016 analysis, we increased our tail factor estimates for states other than NY and CA for guaranteed cost
business in recognition of longer medical development patterns that we have been seeing in recent years. We reflected increases in
legal costs we have seen across the portfolio, particularly in California.
Additionally, over the years we have written a number of very large accounts which include workers compensation coverage. These
accounts are generally individually priced by our actuaries, and to the extent appropriate, the indicated losses based on the pricing
analysis may be used to record the initial estimated loss reserves for these accounts.
Prior Year Development
During 2017, we recognized $31 million of favorable prior year development in U.S. workers compensation business, particularly
guaranteed cost business in the states of California and New York. Actual loss emergence during the year, particularly for guaranteed
cost business in these two states, was significantly less than expected on a reported loss basis. We did recognize some offsetting
unfavorable development in our Defense Based Act (DBA) business that covers government contractors in U.S. and non-U.S. military
installations, as well as from a Pennsylvania Supreme Court decision that overturned a ruling that provided limitations on payments
for certain permanent injuries (the Protz decision).
During 2016, we recognized $1.9 billion of unfavorable prior year development in primary workers compensation coverages primarily
driven by the risk-sharing programs where we provide coverage in excess of large deductibles. For this excess of large deductible
business, in 2016, we observed actual loss emergence and development at significantly greater levels than expected based on our
previous experience in particular from losses in excess of $1 million. Since these policies respond to larger claims, the loss reporting
pattern is much longer than observed in guaranteed cost workers compensation and it takes several years to discern credible
changes in the pattern. Furthermore, implementation of claims settlement and loss mitigation strategies over the past several years
has made the recent evaluation of data more challenging as historical development patterns may not yet fully reflect these claim and
mitigation activities. During 2016, we refined our actuarial methodology by combining data across previously segregated
underwriting portfolios to improve our ability to analyze the loss development trends and patterns that had been altered by the mix,
claims handling and loss mitigation changes we have made during the last five years. We also developed further segmentations by
deductible size and other key parameters, such as claims handled by TPA staff and not our claims department. As a result, we
determined that the loss emergence patterns had changed and lengthened significantly from our prior expectation and therefore, we
increased our loss development factors.
In addition, for workers compensation policies with no deductibles (guaranteed cost), we increased our tail factors for the all other
states grouping to reflect the latest unfavorable experience in more mature accident years. This change increased the ultimate losses
by approximately $440 million in 2016. We also reflected the increasing cost trends for legal and cost containment services, especially
in California, as recent trends in this sector have been unfavorable.
Furthermore, in 2016, the Florida Supreme Court issued two separate rulings that have increased the potential liability for workers
compensation claims in that state by undoing certain aspects of regulations in place since 2003. The Castellanos ruling eliminated
statutory caps on claimant attorney fees in certain cases, and the Westphal ruling eliminated the 104-week limitation on temporary
total disability benefits. Also in the second quarter, the Florida Court of Appeals issued the Miles decision, declaring unconstitutional
In in the second quarter 2016, we increased our workers compensation reserves
certain restrictions on claimant-paid attorney fees.
by $100 million to reflect our estimate of the costs of these rulings on prior years claims.
During 2015, we increased our reserves by $234 million, primarily for accident years 2012 and prior in the U.S. Workers
Compensation line, to reflect estimated increased losses and reduced expectations of future recoveries from our insureds through
risk-sharing features. We also recognized $100 million of unfavorable prior year development in U.S. Workers Compensation
coverages sold to government contractors in U.S. and non-U.S. military installations as a result of unfavorable loss emergence from
238
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
239
1011252ai_financials.indd 239
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
several large accounts in the recent accident years. In addition, we reacted to the unfavorable emergence by increasing our expected
loss ratios in recent accident years. For the remainder of the primary workers compensation portfolio, our 2015 analysis was based
on the refined segmentation from 2014, and indicated that prior year loss reserve development was flat after taking into account the
initiatives that our claim function had undertaken to manage high risk claims.
U.S. Excess Casualty
During 2017, we recognized $254 million of unfavorable prior year development in Excess Casualty driven by higher than
expected loss emergence.
During 2016, we recognized $1.1 billion of unfavorable prior year development in Excess Casualty driven by continued
higher than expected loss emergence.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Unaudited
2017 Prior
Year
Development
Excluding the
Impact of
Adverse
Development
Reinsurance
Agreement
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Incurred
Impact of
Adverse
Development
Reinsurance
Agreement
2017 (Net of
Impact of
Adverse
Development
Reinsurance
Agreement)
Cumulative
Number of
Reported
Claims
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
2008
$ 1,948 $ 1,968 $ 2,146 $ 1,933 $ 1,819 $ 1,875 $ 1,714 $ 1,662 $ 1,635
$
1,658 $
23 $
1,831
1,897
1,797
1,638
1,457
1,321
1,407
1,518
1,863
2,076
2,076
1,771
1,640
1,723
1,719
1,766
1,807
1,581
1,416
1,521
1,606
1,588
1,382
1,226
1,477
1,530
1,073
973
1,113
1,258
849
968
1,157
892
1,334
790
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
1,522
1,706
1,623
1,481
1,178
1,135
1,320
1,029
758
$
13,410 $
(7,120)
1,649
4
(13)
17
(49)
(80)
(22)
(14)
239
105
-
141
8
12
41
99
94
48
132
228
177
870
725
188
210
359
350
371
441
583
602
870
725
4,662 $
(176) $
1,482 $
3,789
3,588
3,520
3,398
2,722
2,088
1,770
1,061
376
(169)
(260)
(256)
(323)
(309)
(355)
(425)
-
-
1,353
1,446
1,367
1,158
869
780
895
1,029
758
$
(2,273) $
11,137
-
(7,120)
(864)
785
development, net of reinsurance
$
7,939 $
254
$
(3,137) $
4,802
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
11 $
97 $
8
439 $
667 $
842 $
954 $
1,061 $
1,172 $
1,226
$
1,364 $
Unaudited
69
10
249
197
5
449
475
63
3
624
654
225
106
15
788
795
386
288
104
3
965
946
716
495
204
68
9
1,174
1,052
921
649
382
202
192
14
1,212
1,217
1,069
887
546
397
361
66
1
$
7,120 $
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
Reserving Process and Methodology
U.S. Excess Casualty policies tend to attach at a high layer above underlying policies, which causes the loss development pattern to
be lagged significantly. Many of the claims notified to the excess layers are closed without payment because the claims never reach
our layer as a result of high deductibles and other underlying coverages, while the claims that reach our layer and close with payment
can be large and highly variable in terms of reported timing and amount. For a portion of this business, the underlying primary policies
are issued by other insurance companies, which can limit our access to relevant information to help inform our judgments as the loss
events evolve and mature.
We generally use a combination of loss development methods and expected loss ratio methods for excess casualty product lines. We
segment our analysis between automobile-related claims and non-automobile claims, due to the shorter-tail nature of the automobile
claims. We then further segment the non-automobile claims for certain latent exposures such as construction defects and mass torts
where losses have unique emergence patterns. Mass tort claims in particular may develop over an extended period of time and
impact multiple accident years when they emerge. The more standard types of claims are then separately analyzed based on
attachment point bands, to recognize that the impact of the level of the attachment point can significantly impact the delay in loss
reporting and development.
expected loss ratio methods and then this estimate was used to derive the expected loss estimate for losses above $10 million
reflecting the expected relationships between the layers, reflecting the attachment point and limit.
In our analyses, losses capped at $10 million were first analyzed using traditional loss development and
Expected loss ratio methods are generally used for at least the three latest accident years, due to the relatively low credibility of the
reported losses. The loss experience is generally reviewed separately by attachment point. The expected loss ratios used for recent
accident years are based on the projected ultimate loss ratios for older years adjusted for rate changes and loss trend.
Prior Year Development
During 2017, we recognized $254 million of unfavorable prior year development driven in large part by emerging loss experience in
accident year 2016 where frequency and severity to date has exceeded initial expectations and is coinciding with increased loss
severity in the underlying primary auto and general liability segments. In addition, we experienced increased development from claims
related to construction defects and construction wrap business. The majority of this experience came from accident years 2006 and
prior.
During 2016, we recognized $1.1 billion of unfavorable prior year development driven by continued higher than expected loss
emergence due to increased frequency and severity in recent accident years for both automobile and general liability claims.
Approximately $250 million of the unfavorable development is attributable to a cohort of commercial automobile claims identified in
2015 which continued to increase in severity in 2016 beyond what was observed or reasonably expected in 2015. The most
significant increases in incurred losses were for accident years 2011 and subsequent. In particular, the frequency and severity of loss
events for accident years 2011 and subsequent showed a significant step change from accident years 2010 and prior. We therefore
gave limited credibility to accident year 2010 and prior in selecting our expected loss ratios for 2011 and subsequent accident years
due to this shift in loss patterns that is now more evident and credible after examining 2016 data. As a result of the continued adverse
emergence, we have increased our loss trend assumptions for general liability and automobile and increased our expected loss ratios
for the most recent four accident years.
During 2015, U.S. Excess Casualty experienced $1.4 billion of unfavorable prior year development largely driven by worse than
expected loss emergence reported in 2015. This increase was largely driven by adverse emergence in both general liability and
umbrella auto liability, reflecting worsening trends in the number and nature of high severity losses. Approximately $411 million of the
unfavorable development is related to automobile liability. Based on the adverse emergence we updated our assumptions about loss
severity, loss development patterns and expected loss ratios for the most recent accident years. We have seen an increasing trend in
the frequency of high severity claims, especially in the umbrella automobile liability portfolio. We also observed deterioration in certain
class action claims that have complex coverage uncertainties and high limits characterized by increases in new claims and/or
demands reported in 2015 and progress towards potential settlements, which have further informed our actuarial projections of
ultimate losses for these types of claims. These types of claim classes have the longest emergence period within the excess casualty
class and can impact multiple accident years, and are therefore inherently more volatile.
associated with bad-faith claims by approximately $120 million reflecting an increase in recent settlements.
In addition, we also increased losses
240
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AIG | 2017 Form 10-K
241
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
several large accounts in the recent accident years. In addition, we reacted to the unfavorable emergence by increasing our expected
Reserving Process and Methodology
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
loss ratios in recent accident years. For the remainder of the primary workers compensation portfolio, our 2015 analysis was based
on the refined segmentation from 2014, and indicated that prior year loss reserve development was flat after taking into account the
initiatives that our claim function had undertaken to manage high risk claims.
U.S. Excess Casualty
expected loss emergence.
During 2017, we recognized $254 million of unfavorable prior year development in Excess Casualty driven by higher than
During 2016, we recognized $1.1 billion of unfavorable prior year development in Excess Casualty driven by continued
higher than expected loss emergence.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Agreement
Losses
Claims
Agreement
Agreement)
2008
$ 1,948 $ 1,968 $ 2,146 $ 1,933 $ 1,819 $ 1,875 $ 1,714 $ 1,662 $ 1,635
$
1,658 $
23 $
4,662 $
(176) $
1,482 $
Unaudited
1,831
1,897
1,797
1,638
1,457
1,321
1,407
1,518
1,863
2,076
2,076
1,771
1,640
1,723
1,719
1,766
1,807
1,581
1,416
1,521
1,606
1,588
1,382
1,226
1,477
1,530
1,073
973
1,113
1,258
849
968
1,157
892
1,334
790
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
2017 Prior
Year
Development
Excluding the
Impact of
Adverse
Total of
IBNR
Liabilities
Plus
Expected
Cumulative
Development
Development
Number of
Development
Development
Reinsurance
on Reported
Reported
Reinsurance
Reinsurance
Incurred
Impact of
Adverse
2017 (Net of
Impact of
Adverse
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
1,522
1,706
1,623
1,481
1,178
1,135
1,320
1,029
758
(7,120)
1,649
4
(13)
17
(49)
(80)
(22)
(14)
239
105
-
141
8
188
210
359
350
371
441
583
602
870
725
3,789
3,588
3,520
3,398
2,722
2,088
1,770
1,061
376
12
41
99
94
48
132
228
177
870
725
(169)
(260)
(256)
(323)
(309)
(355)
(425)
-
-
-
1,353
1,446
1,367
1,158
869
780
895
1,029
758
(7,120)
(864)
785
$
13,410 $
$
(2,273) $
11,137
development, net of reinsurance
$
7,939 $
254
$
(3,137) $
4,802
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$
11 $
439 $
667 $
842 $
954 $
1,061 $
1,172 $
1,226
$
1,364 $
97 $
8
69
10
249
197
5
Unaudited
449
475
63
3
624
654
225
106
15
788
795
386
288
104
3
965
946
716
495
204
68
9
1,174
1,052
921
649
382
202
192
14
1,212
1,217
1,069
887
546
397
361
66
1
$
7,120 $
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
U.S. Excess Casualty policies tend to attach at a high layer above underlying policies, which causes the loss development pattern to
be lagged significantly. Many of the claims notified to the excess layers are closed without payment because the claims never reach
our layer as a result of high deductibles and other underlying coverages, while the claims that reach our layer and close with payment
can be large and highly variable in terms of reported timing and amount. For a portion of this business, the underlying primary policies
are issued by other insurance companies, which can limit our access to relevant information to help inform our judgments as the loss
events evolve and mature.
We generally use a combination of loss development methods and expected loss ratio methods for excess casualty product lines. We
segment our analysis between automobile-related claims and non-automobile claims, due to the shorter-tail nature of the automobile
claims. We then further segment the non-automobile claims for certain latent exposures such as construction defects and mass torts
where losses have unique emergence patterns. Mass tort claims in particular may develop over an extended period of time and
impact multiple accident years when they emerge. The more standard types of claims are then separately analyzed based on
attachment point bands, to recognize that the impact of the level of the attachment point can significantly impact the delay in loss
reporting and development.
expected loss ratio methods and then this estimate was used to derive the expected loss estimate for losses above $10 million
reflecting the expected relationships between the layers, reflecting the attachment point and limit.
In our analyses, losses capped at $10 million were first analyzed using traditional loss development and
Expected loss ratio methods are generally used for at least the three latest accident years, due to the relatively low credibility of the
reported losses. The loss experience is generally reviewed separately by attachment point. The expected loss ratios used for recent
accident years are based on the projected ultimate loss ratios for older years adjusted for rate changes and loss trend.
Prior Year Development
During 2017, we recognized $254 million of unfavorable prior year development driven in large part by emerging loss experience in
accident year 2016 where frequency and severity to date has exceeded initial expectations and is coinciding with increased loss
severity in the underlying primary auto and general liability segments. In addition, we experienced increased development from claims
related to construction defects and construction wrap business. The majority of this experience came from accident years 2006 and
prior.
During 2016, we recognized $1.1 billion of unfavorable prior year development driven by continued higher than expected loss
emergence due to increased frequency and severity in recent accident years for both automobile and general liability claims.
Approximately $250 million of the unfavorable development is attributable to a cohort of commercial automobile claims identified in
2015 which continued to increase in severity in 2016 beyond what was observed or reasonably expected in 2015. The most
significant increases in incurred losses were for accident years 2011 and subsequent. In particular, the frequency and severity of loss
events for accident years 2011 and subsequent showed a significant step change from accident years 2010 and prior. We therefore
gave limited credibility to accident year 2010 and prior in selecting our expected loss ratios for 2011 and subsequent accident years
due to this shift in loss patterns that is now more evident and credible after examining 2016 data. As a result of the continued adverse
emergence, we have increased our loss trend assumptions for general liability and automobile and increased our expected loss ratios
for the most recent four accident years.
During 2015, U.S. Excess Casualty experienced $1.4 billion of unfavorable prior year development largely driven by worse than
expected loss emergence reported in 2015. This increase was largely driven by adverse emergence in both general liability and
umbrella auto liability, reflecting worsening trends in the number and nature of high severity losses. Approximately $411 million of the
unfavorable development is related to automobile liability. Based on the adverse emergence we updated our assumptions about loss
severity, loss development patterns and expected loss ratios for the most recent accident years. We have seen an increasing trend in
the frequency of high severity claims, especially in the umbrella automobile liability portfolio. We also observed deterioration in certain
class action claims that have complex coverage uncertainties and high limits characterized by increases in new claims and/or
demands reported in 2015 and progress towards potential settlements, which have further informed our actuarial projections of
ultimate losses for these types of claims. These types of claim classes have the longest emergence period within the excess casualty
class and can impact multiple accident years, and are therefore inherently more volatile.
associated with bad-faith claims by approximately $120 million reflecting an increase in recent settlements.
In addition, we also increased losses
240
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
241
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
U.S. Other Casualty
Reserving Process and Methodology
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
U.S Other Casualty includes general liability, commercial auto, medical malpractice, and various other casualty lines of
business.
In 2017, we recognized $216 million of unfavorable prior year development in Other Casualty primarily as a result of
increased loss severity in recent accident years.
In 2016, we recognized $1.6 billion of unfavorable prior year development in Other Casualty as a result of increased
frequency and severity in all three product lines.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Unaudited
2017 Prior
Year
Development
Excluding
the Impact of
Adverse
Development
Reinsurance
Agreement
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Incurred
Impact of
Adverse
Development
Reinsurance
Agreement
2017 (Net of
Impact of
Adverse
Development
Reinsurance
Agreement)
Cumulative
Number of
Reported
Claims
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
2008
$ 2,957 $ 2,773 $ 2,837 $ 2,901 $ 2,981 $ 2,983 $ 3,087 $ 3,154 $ 3,193
$
3,175 $
(18) $
2,416
2,517
2,586
2,582
2,697
2,818
2,880
2,863
2,132
2,109
2,243
2,192
2,341
2,384
2,503
2,052
2,222
2,321
2,458
2,601
2,639
2,012
2,162
2,218
2,229
2,371
1,662
1,739
1,918
2,152
1,756
1,729
1,973
1,340
1,778
1,348
2,855
2,494
2,596
2,430
2,183
2,017
1,847
1,352
616
(8)
(9)
(43)
59
31
44
69
4
204
144
325
256
382
450
603
752
853
487
117,484 $
(104) $
3,071 $
90,101
96,061
75,189
41,924
36,699
34,745
31,409
23,868
15,172
(143)
(133)
(187)
(210)
(225)
(331)
(456)
-
-
2,712
2,361
2,409
2,220
1,958
1,686
1,391
1,352
616
100
1
192
69
172
225
272
296
853
487
$ 21,565 $
129
$
(1,789) $
19,776
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
(15,521)
1,406
-
10
77
-
(15,521)
(512)
894
development, net of reinsurance
$
7,450 $
216
$
(2,301) $
5,149
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
277 $
791 $
1,251 $
1,771 $
2,119 $
2,396 $
2,586 $
2,731 $
2,835
$
2,895 $
Unaudited
393
842
295
1,253
661
235
1,650
985
726
413
2,002
1,358
1,109
743
169
2,241
1,640
1,488
1,048
592
210
2,386
1,824
1,822
1,395
956
621
111
2,607
1,972
2,048
1,690
1,243
871
321
77
2,664
2,087
2,220
1,882
1,483
1,157
783
299
51
$
15,521 $
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
U.S. Other Casualty includes general liability, automobile liability, environmental, medical malpractice, and other casualty lines of
business. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures, these lines are often
subject to similar trends. These lines are often significantly impacted by the underwriting cycle and external judicial trends. Many of
our policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective rating features, in
addition to a traditional insurance component. These risk-sharing programs generally are large and complex, comprising multiple
products, years and structures, and are subject to amendment over time.
We generally use a combination of loss development methods, frequency/severity and expected loss ratio methods for primary
general liability or products liability product lines. We also supplement the standard actuarial techniques by using evaluations of the
ultimate losses on unusual claims or claim accumulations by external specialists on those subsets of claims. The segmentation of the
data reflects state differences, industry groups, deductible/non-deductible programs and type of claim.
We segment our analysis by line of business and key coverage structures (claims-made vs. occurrence, large deductible policies,
retrospective-rated policies, captives, etc.). Additionally, certain subsets, such as construction defect for general liability, auto liability
policies for trucking business, hospital policies for medical malpractice and underground storage tanks for environmental are generally
reviewed separately from business in other subsets. We continually refine our loss reserving techniques for the domestic primary
casualty product lines and adopt further segmentations based on our analysis of the differing emerging loss patterns for certain
subsets of insureds. Due to the long-tail nature of general liability business, and the many subsets that are reviewed individually, there
is less credibility given to the reported losses and increased reliance on expected loss ratio methods for recent accident years.
For certain product lines with sufficient loss volume, loss development methods may be given significant weight for all but the most
recent one or two accident years. For smaller or more volatile subsets of business and excess of a large deductible business, loss
development methods may be given limited weight for the five or more recent accident years. Expected loss ratio methods are used
for the more recent accident years for these subsets. The loss experience for primary general liability business is generally reviewed
at a level that is believed to provide the most appropriate data for reserve analysis. For other subsets, such as environmental, we
utilize a combination of claim analysts loss projections and actuarial methods to estimate ultimate losses.
Expected loss ratio methods are generally given significant weight only in the most recent accident year, except for excess of large
deductible business, in which expected loss ratio methods may receive weight for several of the most recent accident years. In recent
years, the impact of the increase in the frequency of severe claims was projected in the accident years where it was most prevalent.
The resulting increase in ultimate loss projections and loss ratios for those years impacted subsequent years through loss
development factors and prior expected loss ratio assumptions.
Prior Year Development
Primary General Liability
In 2017, we increased our ultimate loss estimates for prior accident years by $330 million. This was driven by reported loss
development being greater than expected as a result of increased loss severity. We revised our loss trend assumptions which also
contributed to increased estimates for the more recent accident years. For older accident years, we experienced increased loss
development from construction defect claims and construction wrap business.
In 2016, we increased our ultimate loss estimates for prior accident years by $754 million. We increased our assumptions about loss
development and expected loss ratios based on the adverse actual versus expected loss emergence driven by increases in severity,
especially in the risk-sharing excess of deductible programs. In addition, our segmentation separately evaluated key structural drivers
recently identified in the data. As a result, we noted the unfavorable development that was driven by construction defect claims which
continue to increase in severity and which exhibit continued higher development at later ages than previously observed. We also
identified and separately analyzed in 2016 certain mass tort claims and increased reserves for such claims due to their much longer
claim emergence and loss development patterns than previously observed.
In 2015, we increased our ultimate loss estimates for prior accident years by $172 million largely related to coverage sold to the
construction sectors as we reacted to adverse loss emergence throughout the year, by changing our assumptions about loss
development and expected loss ratios. For construction, the unfavorable development was driven by construction defect claims. The
construction class was re-underwritten to reduce New York and U.S. residential exposures.
242
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
243
1011252ai_financials.indd 242
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
U.S. Other Casualty
business.
U.S Other Casualty includes general liability, commercial auto, medical malpractice, and various other casualty lines of
In 2017, we recognized $216 million of unfavorable prior year development in Other Casualty primarily as a result of
increased loss severity in recent accident years.
In 2016, we recognized $1.6 billion of unfavorable prior year development in Other Casualty as a result of increased
frequency and severity in all three product lines.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Agreement
Losses
Claims
Agreement
Agreement)
2008
$ 2,957 $ 2,773 $ 2,837 $ 2,901 $ 2,981 $ 2,983 $ 3,087 $ 3,154 $ 3,193
$
3,175 $
(18) $
117,484 $
(104) $
3,071 $
Unaudited
2,416
2,517
2,586
2,582
2,697
2,818
2,880
2,863
2,132
2,109
2,243
2,192
2,341
2,384
2,503
2,052
2,222
2,321
2,458
2,601
2,639
2,012
2,162
2,218
2,229
2,371
1,662
1,739
1,918
2,152
1,756
1,729
1,973
1,340
1,778
1,348
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
2017 Prior
Year
Development
Excluding
the Impact of
Total of
IBNR
Liabilities
Plus
Adverse
Expected
Cumulative
Development
Development
Number of
Development
Development
Reinsurance
on Reported
Reported
Reinsurance
Reinsurance
Incurred
Impact of
Adverse
2017 (Net of
Impact of
Adverse
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
2,855
2,494
2,596
2,430
2,183
2,017
1,847
1,352
616
(15,521)
1,406
(8)
(9)
(43)
59
31
44
69
4
-
10
77
204
144
325
256
382
450
603
752
853
487
90,101
96,061
75,189
41,924
36,699
34,745
31,409
23,868
15,172
2,712
2,361
2,409
2,220
1,958
1,686
1,391
1,352
616
100
1
192
69
172
225
272
296
853
487
(143)
(133)
(187)
(210)
(225)
(331)
(456)
-
-
-
(15,521)
(512)
894
$ 21,565 $
129
$
(1,789) $
19,776
development, net of reinsurance
$
7,450 $
216
$
(2,301) $
5,149
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$
277 $
791 $
1,251 $
1,771 $
2,119 $
2,396 $
2,586 $
2,731 $
2,835
$
2,895 $
393
842
295
1,253
661
235
Unaudited
1,650
985
726
413
2,002
1,358
1,109
743
169
2,241
1,640
1,488
1,048
592
210
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
2,386
1,824
1,822
1,395
956
621
111
2,607
1,972
2,048
1,690
1,243
871
321
77
2,664
2,087
2,220
1,882
1,483
1,157
783
299
51
$
15,521 $
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reserving Process and Methodology
U.S. Other Casualty includes general liability, automobile liability, environmental, medical malpractice, and other casualty lines of
business. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures, these lines are often
subject to similar trends. These lines are often significantly impacted by the underwriting cycle and external judicial trends. Many of
our policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective rating features, in
addition to a traditional insurance component. These risk-sharing programs generally are large and complex, comprising multiple
products, years and structures, and are subject to amendment over time.
We generally use a combination of loss development methods, frequency/severity and expected loss ratio methods for primary
general liability or products liability product lines. We also supplement the standard actuarial techniques by using evaluations of the
ultimate losses on unusual claims or claim accumulations by external specialists on those subsets of claims. The segmentation of the
data reflects state differences, industry groups, deductible/non-deductible programs and type of claim.
We segment our analysis by line of business and key coverage structures (claims-made vs. occurrence, large deductible policies,
retrospective-rated policies, captives, etc.). Additionally, certain subsets, such as construction defect for general liability, auto liability
policies for trucking business, hospital policies for medical malpractice and underground storage tanks for environmental are generally
reviewed separately from business in other subsets. We continually refine our loss reserving techniques for the domestic primary
casualty product lines and adopt further segmentations based on our analysis of the differing emerging loss patterns for certain
subsets of insureds. Due to the long-tail nature of general liability business, and the many subsets that are reviewed individually, there
is less credibility given to the reported losses and increased reliance on expected loss ratio methods for recent accident years.
For certain product lines with sufficient loss volume, loss development methods may be given significant weight for all but the most
recent one or two accident years. For smaller or more volatile subsets of business and excess of a large deductible business, loss
development methods may be given limited weight for the five or more recent accident years. Expected loss ratio methods are used
for the more recent accident years for these subsets. The loss experience for primary general liability business is generally reviewed
at a level that is believed to provide the most appropriate data for reserve analysis. For other subsets, such as environmental, we
utilize a combination of claim analysts loss projections and actuarial methods to estimate ultimate losses.
Expected loss ratio methods are generally given significant weight only in the most recent accident year, except for excess of large
deductible business, in which expected loss ratio methods may receive weight for several of the most recent accident years. In recent
years, the impact of the increase in the frequency of severe claims was projected in the accident years where it was most prevalent.
The resulting increase in ultimate loss projections and loss ratios for those years impacted subsequent years through loss
development factors and prior expected loss ratio assumptions.
Prior Year Development
Primary General Liability
In 2017, we increased our ultimate loss estimates for prior accident years by $330 million. This was driven by reported loss
development being greater than expected as a result of increased loss severity. We revised our loss trend assumptions which also
contributed to increased estimates for the more recent accident years. For older accident years, we experienced increased loss
development from construction defect claims and construction wrap business.
In 2016, we increased our ultimate loss estimates for prior accident years by $754 million. We increased our assumptions about loss
development and expected loss ratios based on the adverse actual versus expected loss emergence driven by increases in severity,
especially in the risk-sharing excess of deductible programs. In addition, our segmentation separately evaluated key structural drivers
recently identified in the data. As a result, we noted the unfavorable development that was driven by construction defect claims which
continue to increase in severity and which exhibit continued higher development at later ages than previously observed. We also
identified and separately analyzed in 2016 certain mass tort claims and increased reserves for such claims due to their much longer
claim emergence and loss development patterns than previously observed.
In 2015, we increased our ultimate loss estimates for prior accident years by $172 million largely related to coverage sold to the
construction sectors as we reacted to adverse loss emergence throughout the year, by changing our assumptions about loss
development and expected loss ratios. For construction, the unfavorable development was driven by construction defect claims. The
construction class was re-underwritten to reduce New York and U.S. residential exposures.
242
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
243
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Primary Commercial Auto Liability
In 2017, we increased our ultimate loss estimates for prior accident years by $42 million. A majority of this development related to
accident year 2016 where reported loss experience has been emerging greater than expected, driven by an increase in the frequency
of large claims. We have experienced severity trends in recent accident years that have been at much higher levels than what has
been reflected in the historic data, although we did see some signs of abatement during the second half of the year.
In 2016, we continued to observe increases in both the frequency and severity of claims occurring in accident years since the recent
U.S. economic downturn. These claims have significantly outpaced both our accident year loss ratio assumptions made in 2015 and
the pricing rate increases implemented during the same period. As a result, we recognized $352 million of unfavorable development
during 2016 as we increased the expected loss ratios for recent accident years to reflect continued market deterioration in the trends
observed in 2016 and the higher reported losses in very recent accident years.
For primary commercial auto liability in 2015, we observed increases in both the frequency and severity of claims occurring since the
recovery from the recent U.S. economic downturn, which have significantly outpaced the pricing rate increases implemented during
the same period. As a result, we recognized $105 million of unfavorable development during 2015 as we increased the expected loss
ratios for recent accident years to reflect the deteriorating trends.
In 2015, we also reassessed the reasonableness of our primary general liability and commercial auto liability for future claim handling
expenses related to existing loss reserves and updated our estimates to reflect the costs from recent investments in claims systems,
processes and people with the objective of improving our ability to better manage total loss costs. We increased our reserve
estimates by $214 million based on refined analyses, $100 million of which was attributable to U.S. general liability. The balance was
distributed among other product lines.
Medical Malpractice
During 2017, we recognized favorable loss development of $23 million. Reported loss development was less than expected in
aggregate; although we did continue to see higher loss severity in the more recent accident years. Premium volume has declined
significantly over the last several years and certain segments such as physicians and surgeons, medical products, and nursing homes
business (in certain jurisdictions) have been exited entirely.
During 2016, we recognized $428 million of unfavorable development in U.S. Other Casualty medical malpractice comprising primary
and excess hospitals and nursing homes coverages. This was in reaction to a continued increase in the frequency of unusually large
claims in these classes that drove the adverse actual versus expected loss emergence observed in 2016. Based on the observed
adverse emergence and its sustained levels over the last several years, we increased our expected incurred losses and loss ratios for
accident years 2011 and subsequent to reflect the distinct step change in the loss ratios from accident years 2010 and prior.
During 2015, we recognized $202 million of unfavorable development in U.S. Other Casualty hospitals coverages driven by
deteriorating loss experience in accident years 2008 and subsequent characterized by large claims in various segments including
hospitals, nursing homes, and pharmaceutical and medical products liability. Based on the review of these large claims, we increased
our expected loss ratios for recent accident years and classified physicians and surgeons and pharmaceutical and medical products
classes into runoff.
Other Lines
During 2017, we recognized favorable loss development of $133 million. The key drivers of this activity were favorable development
on loss-sensitive casualty business, environmental impairment liability business, extra-contractual obligations, and business internally
reinsured from other business units.
During 2016, we recognized adverse loss development of $50 million. The key drivers of this activity were adverse development on
liabilities related to commuted and insolvent reinsurers, environmental impairment liability business, and extra-contractual obligations,
partially offset by favorable development on loss-sensitive casualty business, residual market business, and reserves for unallocated
loss adjustment expenses.
During 2016, we recognized $306 million of unfavorable prior year development in U.S. Financial Lines primarily due to
higher than expected settlements on large claims from the financial crisis.
The mix of business has been changing in recent years as we write more cyber and mergers and acquisitions business,
which generally report claims faster.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident
Year
Unaudited
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Agreement
Losses
Claims
Agreement
Agreement)
Agreement
2008
$ 1,871 $ 2,045 $ 2,017 $ 1,847 $ 1,961 $ 1,897 $ 1,933 $ 2,066 $ 2,096
$
2,106 $
10 $
21,719 $
(21) $
2,085 $
2017 Prior
Year
Development
Excluding
the Impact of
Total of
IBNR
Liabilities
Plus
Adverse
Expected
Cumulative
Development
Development
Number of
Development
Development
Development
Reinsurance
on Reported
Reported
Reinsurance
Reinsurance
Reinsurance
Total of IBNR
Incurred
Impact of
Adverse
2017 (Net of
Liabilities
Impact of
Net of Impact
Adverse
of Adverse
1,693
1,780
1,845
1,904
2,097
2,189
2,183
2,273
1,552
1,509
1,406
1,366
1,370
1,472
1,514
1,816
1,734
1,902
1,902
1,935
1,965
1,572
1,739
1,777
1,892
1,986
1,767
1,691
1,643
1,597
1,767
1,736
1,849
1,705
1,744
1,593
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
2,310
1,541
1,997
1,987
1,541
1,898
1,719
1,841
1,560
(12,615)
88
37
27
32
1
(56)
49
(25)
248
-
(44)
66
development, net of reinsurance
$
5,973 $
345
$
(869) $
5,104
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
36
60
70
50
146
248
417
665
1,036
1,369
22,613
20,159
20,048
20,090
18,996
17,249
15,698
15,386
13,428
2,284
1,510
1,947
1,904
1,415
1,700
1,406
1,841
1,560
15
34
39
-
63
122
219
352
1,036
1,369
(26)
(31)
(50)
(83)
(126)
(198)
(313)
-
-
-
(12,615)
(21)
67
$ 18,500 $
323
$
(848) $
17,652
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
32 $
420 $
888 $
1,183 $
1,385 $
1,590 $
1,712 $
1,897 $
1,990
$
2,016 $
129
499
31
1,273
1,614
Unaudited
566
494
76
887
285
165
800
886
406
43
1,838
1,017
1,210
815
333
66
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
1,964
1,180
1,528
1,252
686
371
66
2,056
1,280
1,732
1,497
945
853
393
76
2,092
1,361
1,862
1,625
1,142
1,159
792
500
66
$
12,615 $
During 2015, we recognized adverse loss development of $514 million. This was primarily related to an increase in estimated
liabilities related to our loss-sensitive casualty business.
U.S. Financial Lines
During 2017, we recognized $345 million of unfavorable prior year development in U.S. Financial Lines primarily due to
adverse experience in the Directors and Officers (D&O) subset of business.
Reserving Process and Methodology
U.S. Financial Lines business includes D&O, Errors and Omissions (E&O), Employment Practices Liability Insurance (EPLI) and
various professional liability subsets of business, as well as the fidelity book of business. This includes cyber coverage and mergers
and acquisitions coverage, which have been a growing and evolving portion of this portfolio. These product lines are predominantly
claims-made in nature, losses are characterized by low frequency and high severity, and results are often significantly impacted by
external economic conditions.
244
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
245
1011252ai_financials.indd 244
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Primary Commercial Auto Liability
In 2017, we increased our ultimate loss estimates for prior accident years by $42 million. A majority of this development related to
During 2016, we recognized $306 million of unfavorable prior year development in U.S. Financial Lines primarily due to
higher than expected settlements on large claims from the financial crisis.
accident year 2016 where reported loss experience has been emerging greater than expected, driven by an increase in the frequency
of large claims. We have experienced severity trends in recent accident years that have been at much higher levels than what has
The mix of business has been changing in recent years as we write more cyber and mergers and acquisitions business,
which generally report claims faster.
been reflected in the historic data, although we did see some signs of abatement during the second half of the year.
In 2016, we continued to observe increases in both the frequency and severity of claims occurring in accident years since the recent
U.S. economic downturn. These claims have significantly outpaced both our accident year loss ratio assumptions made in 2015 and
the pricing rate increases implemented during the same period. As a result, we recognized $352 million of unfavorable development
during 2016 as we increased the expected loss ratios for recent accident years to reflect continued market deterioration in the trends
observed in 2016 and the higher reported losses in very recent accident years.
For primary commercial auto liability in 2015, we observed increases in both the frequency and severity of claims occurring since the
recovery from the recent U.S. economic downturn, which have significantly outpaced the pricing rate increases implemented during
the same period. As a result, we recognized $105 million of unfavorable development during 2015 as we increased the expected loss
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Unaudited
2017 Prior
Year
Development
Excluding
the Impact of
Adverse
Development
Reinsurance
Agreement
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Incurred
Impact of
Adverse
Development
Reinsurance
Agreement
2017 (Net of
Impact of
Adverse
Development
Reinsurance
Agreement)
Cumulative
Number of
Reported
Claims
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
ratios for recent accident years to reflect the deteriorating trends.
2008
$ 1,871 $ 2,045 $ 2,017 $ 1,847 $ 1,961 $ 1,897 $ 1,933 $ 2,066 $ 2,096
$
2,106 $
10 $
In 2015, we also reassessed the reasonableness of our primary general liability and commercial auto liability for future claim handling
expenses related to existing loss reserves and updated our estimates to reflect the costs from recent investments in claims systems,
processes and people with the objective of improving our ability to better manage total loss costs. We increased our reserve
estimates by $214 million based on refined analyses, $100 million of which was attributable to U.S. general liability. The balance was
distributed among other product lines.
Medical Malpractice
During 2017, we recognized favorable loss development of $23 million. Reported loss development was less than expected in
aggregate; although we did continue to see higher loss severity in the more recent accident years. Premium volume has declined
significantly over the last several years and certain segments such as physicians and surgeons, medical products, and nursing homes
business (in certain jurisdictions) have been exited entirely.
During 2016, we recognized $428 million of unfavorable development in U.S. Other Casualty medical malpractice comprising primary
and excess hospitals and nursing homes coverages. This was in reaction to a continued increase in the frequency of unusually large
claims in these classes that drove the adverse actual versus expected loss emergence observed in 2016. Based on the observed
adverse emergence and its sustained levels over the last several years, we increased our expected incurred losses and loss ratios for
accident years 2011 and subsequent to reflect the distinct step change in the loss ratios from accident years 2010 and prior.
During 2015, we recognized $202 million of unfavorable development in U.S. Other Casualty hospitals coverages driven by
deteriorating loss experience in accident years 2008 and subsequent characterized by large claims in various segments including
hospitals, nursing homes, and pharmaceutical and medical products liability. Based on the review of these large claims, we increased
our expected loss ratios for recent accident years and classified physicians and surgeons and pharmaceutical and medical products
classes into runoff.
Other Lines
During 2017, we recognized favorable loss development of $133 million. The key drivers of this activity were favorable development
on loss-sensitive casualty business, environmental impairment liability business, extra-contractual obligations, and business internally
reinsured from other business units.
During 2016, we recognized adverse loss development of $50 million. The key drivers of this activity were adverse development on
liabilities related to commuted and insolvent reinsurers, environmental impairment liability business, and extra-contractual obligations,
partially offset by favorable development on loss-sensitive casualty business, residual market business, and reserves for unallocated
loss adjustment expenses.
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
1,693
1,780
1,845
1,904
2,097
2,189
2,183
2,273
1,552
1,509
1,406
1,366
1,370
1,472
1,514
1,816
1,734
1,902
1,902
1,935
1,965
1,572
1,739
1,777
1,892
1,986
1,767
1,691
1,643
1,597
1,767
1,736
1,849
1,705
1,744
1,593
2,310
1,541
1,997
1,987
1,541
1,898
1,719
1,841
1,560
37
27
32
1
(56)
49
(25)
248
36
60
70
50
146
248
417
665
1,036
1,369
21,719 $
(21) $
2,085 $
22,613
20,159
20,048
20,090
18,996
17,249
15,698
15,386
13,428
(26)
(31)
(50)
(83)
(126)
(198)
(313)
-
-
2,284
1,510
1,947
1,904
1,415
1,700
1,406
1,841
1,560
15
34
39
-
63
122
219
352
1,036
1,369
$ 18,500 $
323
$
(848) $
17,652
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
(12,615)
88
-
(44)
66
-
(12,615)
(21)
67
development, net of reinsurance
$
5,973 $
345
$
(869) $
5,104
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
32 $
420 $
888 $
1,183 $
1,385 $
1,590 $
1,712 $
1,897 $
1,990
$
2,016 $
Unaudited
129
499
31
887
285
165
1,273
1,614
566
494
76
800
886
406
43
1,838
1,017
1,210
815
333
66
1,964
1,180
1,528
1,252
686
371
66
2,056
1,280
1,732
1,497
945
853
393
76
2,092
1,361
1,862
1,625
1,142
1,159
792
500
66
$
12,615 $
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
During 2015, we recognized adverse loss development of $514 million. This was primarily related to an increase in estimated
Reserving Process and Methodology
liabilities related to our loss-sensitive casualty business.
U.S. Financial Lines
During 2017, we recognized $345 million of unfavorable prior year development in U.S. Financial Lines primarily due to
adverse experience in the Directors and Officers (D&O) subset of business.
U.S. Financial Lines business includes D&O, Errors and Omissions (E&O), Employment Practices Liability Insurance (EPLI) and
various professional liability subsets of business, as well as the fidelity book of business. This includes cyber coverage and mergers
and acquisitions coverage, which have been a growing and evolving portion of this portfolio. These product lines are predominantly
claims-made in nature, losses are characterized by low frequency and high severity, and results are often significantly impacted by
external economic conditions.
244
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
245
1011252ai_financials.indd 245
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Our analysis is segmented by major coverages, such as D&O, E&O, etc. and then further segmented by major industry groups (e.g.
corporate accounts, national accounts, financial institutions, private/not-for-profit, etc.). We also separately review primary business
from excess business for certain product lines.
We generally use a combination of loss development methods and expected loss ratio methods for D&O, E&O, EPLI, and
professional liability. These product lines generally are offered on a claims-made basis, and losses are characterized by low frequency
and high severity. In general, expected loss ratio methods are given more weight in the more recent accident years, and loss
development methods are given more weight in more mature accident years. The loss development factors for the different segments
differ significantly in some cases, based on specific coverage characteristics and other factors such as industry group, attachment
points, and limits offered. Individual claims projections for accident years ended over eighteen months prior are also used in the
analysis.
Frequency/severity methods are generally not used in isolation for these product lines as the overall losses are driven by large losses
more than by claim frequency. Severity trends have varied significantly from accident year to accident year and care is required in
analyzing these trends by claim type. We also give weight to claim department ground-up projections of ultimate loss on a claim-by-
claim basis as these may be more predictive of ultimate loss values, especially for older accident years.
We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department
projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight
is given to this method in the more recent accident years. For surety exposures, we generally use the same method as for short-tail
classes whereby frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination
to set reserves.
Expected loss ratio methods are also given weight for the more recent accident years. IBNR factor methods are used, when the
nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected
losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters loss costs
adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to
reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.
Prior Year Development
During 2017, we recognized $345 million of unfavorable prior year development particularly in accident year 2016. The largest share
of the unfavorable development came from D&O for privately owned and not-for -profit insureds and resulted largely from increases in
bankruptcy-related claims and fiduciary liability claims for large educational institutions. Other segments of the portfolio contributed
largely offsetting favorable and unfavorable development; notably, development was unfavorable for excess D&O and employment
practices liability while development was favorable for fidelity and D&O for corporate and national accounts.
During 2016, we recognized $306 million of unfavorable prior year development as we reacted to the unfavorable actual versus
expected in 2016 driven by higher than expected settlements on several large claims from the financial crisis for accident years 2006
to 2010, as well as unfavorable emergence of errors and omissions losses relative to historical expectations.
unfavorable emergence, we also updated our loss development factor assumptions, expected loss ratio assumptions and the weights
given to the various methods in recent accident years.
In addition to the
During 2015, we recognized $502 million of unfavorable prior year development driven largely by the unfavorable loss emergence
that we saw in 2015, especially in D&O and professional liability.
In particular, we have observed greater than expected loss costs for
several claims from accident years 2006 through 2010, driven by unfavorable settlements and deterioration in known claims. We also
updated our loss development factor assumptions as well as expected loss ratio assumptions.
U.S. Property and Special Risks
During 2017, we recognized $115 million of unfavorable prior year development in U.S. Property and Special Risks mainly
due to unfavorable development from the commercial auto portion of the Program business unit, which offers multiline
policies to small and mid-sized insureds.
During 2016, we recognized $396 million of unfavorable prior year development in U.S. Property and Special Risks. The
increase was mainly due to the U.S. program product line which is a collection of programs offering package policies to
small and middle market insureds.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident
Year
Unaudited
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Agreement
Losses
Claims
Agreement
Agreement)
Agreement
2008
$ 3,531 $ 3,789 $ 3,747 $ 3,700 $ 3,659 $ 3,609 $ 3,585 $ 3,581 $ 3,576
$
3,575 $
(1) $
56,526 $
(14) $
3,561 $
2017 Prior
Year
Development
Excluding the
Impact of
Adverse
Total of
IBNR
Liabilities
Plus
Expected
Cumulative
Incurred
Impact of
Adverse
2017 (Net of
Total of IBNR
Liabilities
Impact of
Net of Impact
Adverse
of Adverse
Development
Development
Number of
Development
Development
Development
Reinsurance
on Reported
Reported
Reinsurance
Reinsurance
Reinsurance
1,919
1,704
1,689
1,700
1,662
1,665
1,656
1,664
2,275
2,042
2,009
2,049
2,061
2,038
2,043
3,045
2,917
2,872
2,878
2,867
2,910
3,470
3,617
3,585
3,576
3,697
1,975
1,972
1,859
1,926
2,355
2,143
2,220
2,398
2,312
2,516
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
1,663
2,058
2,919
3,691
1,949
2,213
2,299
2,580
4,085
(21,589)
318
(1)
15
9
(6)
23
(7)
(13)
64
83
-
12
20
development, net of reinsurance
$
5,761 $
115
$
(351)
5,410
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
20
18
21
43
62
74
140
203
402
1,331
42,897
42,276
43,849
42,278
41,937
50,160
50,624
45,583
29,709
1,650
2,040
2,900
3,666
1,911
2,152
2,201
2,580
4,085
6
5
3
24
37
36
79
105
402
1,331
(13)
(18)
(19)
(25)
(38)
(61)
(98)
-
-
-
(21,589)
(65)
253
$
27,032 $
$
(286)
26,746
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
1,323 $
2,679 $
3,150 $
3,342 $
3,457 $
3,487 $
3,498 $
3,515 $
3,530
$
3,540 $
495
1,044
654
1,288
1,391
880
Unaudited
1,443
1,657
1,988
734
1,528
1,799
2,417
2,410
586
1,580
1,880
2,593
2,978
1,275
745
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
1,597
1,940
2,734
3,273
1,469
1,452
820
1,618
1,978
2,812
3,456
1,620
1,713
1,501
799
1,633
2,001
2,840
3,565
1,732
1,869
1,766
1,689
954
$
21,589 $
246
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
247
1011252ai_financials.indd 246
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Our analysis is segmented by major coverages, such as D&O, E&O, etc. and then further segmented by major industry groups (e.g.
corporate accounts, national accounts, financial institutions, private/not-for-profit, etc.). We also separately review primary business
from excess business for certain product lines.
We generally use a combination of loss development methods and expected loss ratio methods for D&O, E&O, EPLI, and
professional liability. These product lines generally are offered on a claims-made basis, and losses are characterized by low frequency
and high severity. In general, expected loss ratio methods are given more weight in the more recent accident years, and loss
development methods are given more weight in more mature accident years. The loss development factors for the different segments
differ significantly in some cases, based on specific coverage characteristics and other factors such as industry group, attachment
points, and limits offered. Individual claims projections for accident years ended over eighteen months prior are also used in the
analysis.
Frequency/severity methods are generally not used in isolation for these product lines as the overall losses are driven by large losses
more than by claim frequency. Severity trends have varied significantly from accident year to accident year and care is required in
analyzing these trends by claim type. We also give weight to claim department ground-up projections of ultimate loss on a claim-by-
claim basis as these may be more predictive of ultimate loss values, especially for older accident years.
We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department
projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight
is given to this method in the more recent accident years. For surety exposures, we generally use the same method as for short-tail
classes whereby frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination
to set reserves.
Expected loss ratio methods are also given weight for the more recent accident years. IBNR factor methods are used, when the
nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected
losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters loss costs
adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to
reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.
Prior Year Development
During 2017, we recognized $345 million of unfavorable prior year development particularly in accident year 2016. The largest share
of the unfavorable development came from D&O for privately owned and not-for -profit insureds and resulted largely from increases in
bankruptcy-related claims and fiduciary liability claims for large educational institutions. Other segments of the portfolio contributed
largely offsetting favorable and unfavorable development; notably, development was unfavorable for excess D&O and employment
practices liability while development was favorable for fidelity and D&O for corporate and national accounts.
During 2016, we recognized $306 million of unfavorable prior year development as we reacted to the unfavorable actual versus
expected in 2016 driven by higher than expected settlements on several large claims from the financial crisis for accident years 2006
to 2010, as well as unfavorable emergence of errors and omissions losses relative to historical expectations.
In addition to the
unfavorable emergence, we also updated our loss development factor assumptions, expected loss ratio assumptions and the weights
given to the various methods in recent accident years.
During 2015, we recognized $502 million of unfavorable prior year development driven largely by the unfavorable loss emergence
that we saw in 2015, especially in D&O and professional liability.
In particular, we have observed greater than expected loss costs for
several claims from accident years 2006 through 2010, driven by unfavorable settlements and deterioration in known claims. We also
updated our loss development factor assumptions as well as expected loss ratio assumptions.
U.S. Property and Special Risks
During 2017, we recognized $115 million of unfavorable prior year development in U.S. Property and Special Risks mainly
due to unfavorable development from the commercial auto portion of the Program business unit, which offers multiline
policies to small and mid-sized insureds.
During 2016, we recognized $396 million of unfavorable prior year development in U.S. Property and Special Risks. The
increase was mainly due to the U.S. program product line which is a collection of programs offering package policies to
small and middle market insureds.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Unaudited
2017 Prior
Year
Development
Excluding the
Impact of
Adverse
Development
Reinsurance
Agreement
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Incurred
Impact of
Adverse
Development
Reinsurance
Agreement
2017 (Net of
Impact of
Adverse
Development
Reinsurance
Agreement)
Cumulative
Number of
Reported
Claims
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
2008
$ 3,531 $ 3,789 $ 3,747 $ 3,700 $ 3,659 $ 3,609 $ 3,585 $ 3,581 $ 3,576
$
3,575 $
(1) $
1,919
1,704
1,689
1,700
1,662
1,665
1,656
1,664
2,275
2,042
2,009
2,049
2,061
2,038
2,043
3,045
2,917
2,872
2,878
2,867
2,910
3,470
3,617
3,585
3,576
3,697
1,975
1,972
1,859
1,926
2,355
2,143
2,220
2,398
2,312
2,516
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
1,663
2,058
2,919
3,691
1,949
2,213
2,299
2,580
4,085
$
27,032 $
(21,589)
318
(1)
15
9
(6)
23
(7)
(13)
64
83
-
12
20
20
18
21
43
62
74
140
203
402
1,331
6
5
3
24
37
36
79
105
402
1,331
56,526 $
(14) $
3,561 $
42,897
42,276
43,849
42,278
41,937
50,160
50,624
45,583
29,709
(13)
(18)
(19)
(25)
(38)
(61)
(98)
-
-
1,650
2,040
2,900
3,666
1,911
2,152
2,201
2,580
4,085
$
(286)
26,746
-
(21,589)
(65)
253
development, net of reinsurance
$
5,761 $
115
$
(351)
5,410
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
1,323 $
2,679 $
3,150 $
3,342 $
3,457 $
3,487 $
3,498 $
3,515 $
3,530
$
3,540 $
Unaudited
495
1,044
654
1,288
1,391
880
1,443
1,657
1,988
734
1,528
1,799
2,417
2,410
586
1,580
1,880
2,593
2,978
1,275
745
1,597
1,940
2,734
3,273
1,469
1,452
820
1,618
1,978
2,812
3,456
1,620
1,713
1,501
799
1,633
2,001
2,840
3,565
1,732
1,869
1,766
1,689
954
$
21,589 $
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
246
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
247
1011252ai_financials.indd 247
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
U.S. Property products include commercial, industrial and energy-related property insurance products and services that cover
exposures to manmade and natural disasters, including business interruption. U.S. Special Risk products include aerospace,
environmental, political risk, trade credit, surety and marine insurance, and program business for various small and medium sized
enterprises insurance lines. The program segments include both property and casualty exposures.
We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and
liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.
Accident
Year
Unaudited
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Agreement
Losses
Claims
Agreement
Agreement)
Agreement
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
2017 Prior
Year
Development
Excluding
the Impact of
Total of
IBNR
Liabilities
Plus
Adverse
Expected
Cumulative
Development
Development
Number of
Development
Development
Development
Reinsurance
on Reported
Reported
Reinsurance
Reinsurance
Reinsurance
Total of IBNR
Incurred
Impact of
Adverse
2017 (Net of
Liabilities
Impact of
Net of Impact
Adverse
of Adverse
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail classes such as U.S. Property.
IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned
premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based
on prior accident quarters loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The
factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy
of the IBNR factor being employed.
We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation
claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and
expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods
are not employed due to the high severity nature of the claims and different mix of claims from year to year.
We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department
projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight
is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of
reserves for natural catastrophe losses.
For program business, we use methods which vary by line of business. For property classes, we use methods similar to those noted
above. For liability classes, we use methods similar to those described in the casualty sections detailed above.
Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim
projections provided by our claims staff to assist in developing the appropriate reserve.
Prior Year Development
During 2017, we recognized $115 million of unfavorable prior year development primarily driven by commercial auto business in the
program business unit. A significant portion of this development came from accident year 2016 with much of it related to programs
that have been terminated over the past year. We also experienced some individual severe loss experience, also mostly related to
accident year 2016 in other lines of business including aviation, surety, and marine; however, this was largely offset by favorable
development in commercial property.
During 2016, we recognized $396 million of unfavorable prior year development driven by our U.S. program business where we
recognized $350 million of unfavorable prior year development due to higher than expected claim emergence in certain automobile,
habitational and professional liability programs that resulted in our increasing expected loss ratios and loss development factors for
several program subsets.
During 2015, we recognized $132 million of favorable prior year development from a number of large individual property claims.
U.S. Personal Insurance
During 2017, we recognized $16 million of unfavorable prior year development in U.S. Personal Insurance mainly due to
homeowners business in accident year 2016. This was partially offset by favorable development in accident and health
business.
During 2016, we recognized $32 million of favorable prior year development in U.S. Personal Insurance.
1
4
2
1
4
7
19
23
73
571
375,959
422,527
412,670
403,542
334,474
273,481
258,241
240,892
185,198
1,671
1,816
1,880
2,091
1,774
1,564
1,475
1,533
2,028
-
(1)
(1)
(3)
(6)
(8)
(19)
-
-
-
(16,053)
(1)
(66)
$
17,538 $
$
(39)
17,499
2008
$ 1,630 $ 1,638 $ 1,640 $ 1,654 $ 1,654 $ 1,654 $ 1,663 $ 1,666 $ 1,664
$
1,668 $
4 $
292,830 $
(1) $
1,667 $
1,763
1,697
1,649
1,663
1,664
1,664
1,668
1,667
1,843
1,809
1,819
1,819
1,820
1,819
1,817
1,886
1,908
1,896
1,891
1,890
1,886
2,208
2,128
2,109
2,083
2,077
1,887
1,816
1,803
1,782
1,552
1,562
1,572
1,511
1,498
1,536
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
1,671
1,817
1,881
2,094
1,780
1,572
1,494
1,533
2,028
(16,053)
(65)
4
-
(5)
17
(2)
-
(4)
(3)
11
-
5
-
development, net of reinsurance
$
1,420 $
16
$
(40)
1,380
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
1,151 $
1,493 $
1,569 $
1,609 $
1,634 $
1,644 $
1,656 $
1,660 $
1,663
$
1,665 $
1,129
1,563
1,205
1,567
1,669
1,204
Unaudited
1,618
1,736
1,752
1,238
1,639
1,772
1,814
1,936
1,109
1,650
1,794
1,840
1,996
1,634
959
1,658
1,803
1,860
2,035
1,705
1,380
931
1,663
1,808
1,869
2,065
1,744
1,463
1,320
857
1,664
1,810
1,873
2,079
1,759
1,507
1,411
1,344
941
$
16,053 $
-
4
1
-
1
1
11
4
73
571
-
-
-
-
-
-
-
-
-
-
-
Paid Impact
of Adverse
Development
Reinsurance
Agreement
248
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
249
1011252ai_financials.indd 248
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Reserving Process and Methodology
U.S. Property products include commercial, industrial and energy-related property insurance products and services that cover
exposures to manmade and natural disasters, including business interruption. U.S. Special Risk products include aerospace,
environmental, political risk, trade credit, surety and marine insurance, and program business for various small and medium sized
enterprises insurance lines. The program segments include both property and casualty exposures.
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
Years Ended December 31, (dollars in millions)
December 31, 2017
We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and
liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.
Accident
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Unaudited
2017 Prior
Year
Development
Excluding
the Impact of
Adverse
Development
Reinsurance
Agreement
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Incurred
Impact of
Adverse
Development
Reinsurance
Agreement
2017 (Net of
Impact of
Adverse
Development
Reinsurance
Agreement)
Cumulative
Number of
Reported
Claims
Total of IBNR
Liabilities
Net of Impact
of Adverse
Development
Reinsurance
Agreement
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail classes such as U.S. Property.
IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned
premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based
on prior accident quarters loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The
factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy
of the IBNR factor being employed.
We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation
claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and
expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods
are not employed due to the high severity nature of the claims and different mix of claims from year to year.
We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department
projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight
is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of
reserves for natural catastrophe losses.
For program business, we use methods which vary by line of business. For property classes, we use methods similar to those noted
above. For liability classes, we use methods similar to those described in the casualty sections detailed above.
Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim
projections provided by our claims staff to assist in developing the appropriate reserve.
Prior Year Development
During 2017, we recognized $115 million of unfavorable prior year development primarily driven by commercial auto business in the
program business unit. A significant portion of this development came from accident year 2016 with much of it related to programs
that have been terminated over the past year. We also experienced some individual severe loss experience, also mostly related to
accident year 2016 in other lines of business including aviation, surety, and marine; however, this was largely offset by favorable
development in commercial property.
During 2016, we recognized $396 million of unfavorable prior year development driven by our U.S. program business where we
recognized $350 million of unfavorable prior year development due to higher than expected claim emergence in certain automobile,
habitational and professional liability programs that resulted in our increasing expected loss ratios and loss development factors for
During 2015, we recognized $132 million of favorable prior year development from a number of large individual property claims.
During 2017, we recognized $16 million of unfavorable prior year development in U.S. Personal Insurance mainly due to
homeowners business in accident year 2016. This was partially offset by favorable development in accident and health
During 2016, we recognized $32 million of favorable prior year development in U.S. Personal Insurance.
several program subsets.
U.S. Personal Insurance
business.
2008
$ 1,630 $ 1,638 $ 1,640 $ 1,654 $ 1,654 $ 1,654 $ 1,663 $ 1,666 $ 1,664
$
1,668 $
4 $
1,763
1,697
1,649
1,663
1,664
1,664
1,668
1,667
1,843
1,809
1,819
1,819
1,820
1,819
1,817
1,886
1,908
1,896
1,891
1,890
1,886
2,208
2,128
2,109
2,083
2,077
1,887
1,816
1,803
1,782
1,552
1,562
1,572
1,511
1,498
1,536
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
1,671
1,817
1,881
2,094
1,780
1,572
1,494
1,533
2,028
$
17,538 $
(16,053)
(65)
4
-
(5)
17
(2)
-
(4)
(3)
11
-
5
-
1
4
2
1
4
7
19
23
73
571
292,830 $
(1) $
1,667 $
375,959
422,527
412,670
403,542
334,474
273,481
258,241
240,892
185,198
-
(1)
(1)
(3)
(6)
(8)
(19)
-
-
1,671
1,816
1,880
2,091
1,774
1,564
1,475
1,533
2,028
$
(39)
17,499
-
(16,053)
(1)
(66)
-
4
1
-
1
1
11
4
73
571
development, net of reinsurance
$
1,420 $
16
$
(40)
1,380
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
1,151 $
1,493 $
1,569 $
1,609 $
1,634 $
1,644 $
1,656 $
1,660 $
1,663
$
1,665 $
Unaudited
1,129
1,563
1,205
1,567
1,669
1,204
1,618
1,736
1,752
1,238
1,639
1,772
1,814
1,936
1,109
1,650
1,794
1,840
1,996
1,634
959
1,658
1,803
1,860
2,035
1,705
1,380
931
1,663
1,808
1,869
2,065
1,744
1,463
1,320
857
1,664
1,810
1,873
2,079
1,759
1,507
1,411
1,344
941
$
16,053 $
Paid Impact
of Adverse
Development
Reinsurance
Agreement
-
-
-
-
-
-
-
-
-
-
-
248
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
249
1011252ai_financials.indd 249
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
U.S. Personal Insurance consists of accident and health and personal lines. Accident and health products include voluntary and
sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations as
well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines include automobile
and homeowners insurance, extended warranty, and consumer specialty products, such as identity theft and credit card protection.
Personal lines also provides insurance for high net worth individuals offered through AIG Private Client Group, including auto,
homeowners, umbrella, yacht, fine art and collections insurance. Personal lines are generally short-tail in nature.
We primarily segment our analysis by line of business and may separately review various sub-segments, such as specific accident
and health products and property damage versus liability for personal lines products.
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail product lines such as personal property.
Frequency/severity and loss development methods are utilized for domestic personal auto product lines.
For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto.
Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other
diagnostic metrics.
In general, development for U.S. Personal Insurance classes has been very stable, with only modest changes in the initial selected
loss ratios for this business.
Prior Year Development
During 2017, we recognized $16 million of unfavorable prior year development in U.S. Personal Insurance mainly due to homeowners
business in accident year 2016, particularly from catastrophe activity. This was partially offset by favorable development in accident
and health business.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Development
Losses
$
1,511 $
1,615 $
1,632 $
1,580 $
1,595 $
1,599 $
1,649 $
1,605 $
1,604
$
1,604 $
- $
1,746
1,844
1,484
Unaudited
1,858
1,436
1,414
1,856
1,432
1,352
1,224
1,885
1,457
1,426
1,193
1,221
1,906
1,380
1,465
1,150
1,277
1,280
1,912
1,420
1,552
1,222
1,257
1,267
1,337
1,996
1,377
1,554
1,263
1,258
1,302
1,515
1,563
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance
$
6,986 $
507
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Total of
IBNR
Liabilities
Plus
Expected
2017 Prior
Development
Year
on Reported
Cumulative
Number of
Reported
Claims
24
103
77
83
103
194
340
588
724
1,214
236,384
236,270
274,310
264,629
217,887
185,435
175,630
188,348
221,122
204,712
2,030
1,445
1,597
1,232
1,305
1,303
1,538
1,716
1,587
$
15,357 $
(8,965)
(31)
34
68
43
47
1
23
153
338
-
-
594
169
During 2016 and 2015, we recognized $32 million, and $69 million of favorable development, respectively, mainly driven by accident
and health business.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
Europe Casualty and Financial Lines
During 2017, we recognized $507 million of unfavorable prior year development in Europe Casualty and Financial Lines
driven by continued higher than expected loss emergence.
During 2016, we recognized $320 million of unfavorable prior year development, largely from accident years 2014 and 2015.
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Years Ended December 31, (dollars in millions)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
130 $
477 $
726 $
961 $
1,118 $
1,245 $
1,323 $
1,375 $
1,455
$
139
418
147
Unaudited
970
635
376
121
708
420
140
1,139
1,274
808
564
334
105
947
811
484
375
86
1,442
1,042
963
677
543
299
80
1,581
1,109
1,108
809
736
494
286
140
1,471
1,681
1,162
1,224
897
877
628
486
426
113
$
8,965
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
250
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
251
1011252ai_financials.indd 250
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
U.S. Personal Insurance consists of accident and health and personal lines. Accident and health products include voluntary and
sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations as
well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines include automobile
and homeowners insurance, extended warranty, and consumer specialty products, such as identity theft and credit card protection.
Personal lines also provides insurance for high net worth individuals offered through AIG Private Client Group, including auto,
homeowners, umbrella, yacht, fine art and collections insurance. Personal lines are generally short-tail in nature.
We primarily segment our analysis by line of business and may separately review various sub-segments, such as specific accident
and health products and property damage versus liability for personal lines products.
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail product lines such as personal property.
Frequency/severity and loss development methods are utilized for domestic personal auto product lines.
For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto.
Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other
In general, development for U.S. Personal Insurance classes has been very stable, with only modest changes in the initial selected
During 2017, we recognized $16 million of unfavorable prior year development in U.S. Personal Insurance mainly due to homeowners
business in accident year 2016, particularly from catastrophe activity. This was partially offset by favorable development in accident
diagnostic metrics.
loss ratios for this business.
Prior Year Development
and health business.
and health business.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Cumulative
Number of
Reported
Claims
2017 Prior
Year
Development
$
1,511 $
1,615 $
1,632 $
1,580 $
1,595 $
1,599 $
1,649 $
1,605 $
1,604
$
1,604 $
- $
Unaudited
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
1,746
1,844
1,484
1,858
1,436
1,414
1,856
1,432
1,352
1,224
1,885
1,457
1,426
1,193
1,221
1,906
1,380
1,465
1,150
1,277
1,280
1,912
1,420
1,552
1,222
1,257
1,267
1,337
1,996
1,377
1,554
1,263
1,258
1,302
1,515
1,563
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
24
103
77
83
103
194
340
588
724
1,214
236,384
236,270
274,310
264,629
217,887
185,435
175,630
188,348
221,122
204,712
2,030
1,445
1,597
1,232
1,305
1,303
1,538
1,716
1,587
34
68
43
(31)
47
1
23
153
$
15,357 $
338
(8,965)
594
$
6,986 $
-
169
-
507
During 2016 and 2015, we recognized $32 million, and $69 million of favorable development, respectively, mainly driven by accident
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
Europe Casualty and Financial Lines
During 2017, we recognized $507 million of unfavorable prior year development in Europe Casualty and Financial Lines
driven by continued higher than expected loss emergence.
During 2016, we recognized $320 million of unfavorable prior year development, largely from accident years 2014 and 2015.
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Years Ended December 31, (dollars in millions)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
130 $
477 $
726 $
961 $
1,118 $
1,245 $
1,323 $
1,375 $
1,455
$
Unaudited
139
418
147
708
420
140
970
635
376
121
1,139
1,274
808
564
334
105
947
811
484
375
86
1,442
1,042
963
677
543
299
80
1,581
1,109
1,108
809
736
494
286
140
1,471
1,681
1,162
1,224
897
877
628
486
426
113
$
8,965
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
250
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
251
1011252ai_financials.indd 251
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
Europe is our largest non-U.S. region for Liability and Financial Lines. Europe Casualty and Financial Lines is composed of third-
party coverages including general liability, auto liability, D&O, professional liability and various other lines of business throughout both
the UK and Continental Europe. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures,
these lines are often subject to similar trends. These lines are impacted by the underwriting cycle and external judicial trends. The
largest share of business is in the UK, but significant business is also written in other European countries such as Germany, France,
and Italy.
We primarily segment our analysis by country and line of business. Additionally, we separately review various product lines, including
excess versus primary casualty, commercial versus financial institutions management liability, and other specific programs and
subsets of business. We maintain a database of detailed historical premium and loss transactions in original currency for business
written outside of the U.S. which allows our actuaries to determine loss reserves without foreign exchange distorting development.
We generally use a combination of loss development methods and expected loss ratio methods. For countries and lines of business
with sufficient loss volume, loss development methods may be given significant weight for all but the most recent accident years. For
smaller countries and more volatile product lines, loss development methods are typically given limited weight for recent accident
years. Further, we may rely on larger data subsets in determining the loss development factors and a priori loss ratio assumptions.
In general, the loss development for long-tail lines in Europe has been more stable than the development in U.S. long-tail lines,
although some underlying drivers have affected the results in a similar manner (e.g. the impact of the financial crisis in accident years
2008 and 2009).
Prior Year Development
During 2017 we recognized $507 million of unfavorable prior year development in Europe casualty and Financial Lines. We observed
a significant increase in large claims activity across multiple segments, notably excess casualty business and D&O and professional
liability coverages for financial institutions. This experience was spread across multiple accident years but had the largest impact on
accident year 2016 and accident years 2008 and prior. We increased loss development assumptions for Financial Lines business in
consideration of the increased loss activity experienced in older accident years and increased expected loss ratios for more recent
accident years. For Casualty lines, we increased loadings for large losses, particularly in the more recent accident years. In addition,
we increased our loss reserves as a result of the decision made by the U.K. Ministry of Justice to reduce the discount rate applied to
lump-sum bodily injury payouts, known as the Ogden rate.
During 2016, we recognized $320 million of unfavorable prior year development. Within Europe Financial Lines, we recognized $232
million of unfavorable development primarily from the D&O line in UK and Continental Europe as result of the unfavorable actual
versus expected loss emergence in 2016 due to increased frequency and severity resulting from increasing litigation. In Europe
Casualty we recognized $123 million of unfavorable development primarily from the unexpected emergence of several large excess
casualty claims. The actual versus expected loss emergence for Europe Casualty and Financial Lines was more than expected.
During 2015, we recognized $142 million of unfavorable prior year development, primarily due to primary casualty and professional
liability in Continental Europe and the UK. During 2015, we implemented an enhanced claims operating model in Europe which has
provided our actuaries with more detailed case reserve data and analysis, enabling AIGs actuaries to react sooner to case
development than in prior years.
Europe Property and Special Risks
During 2017, we recognized $157 million of unfavorable prior year development in the Europe Property and Special Risks
segment driven primarily by unexpected development on large claims, primarily from accident years 2015 and 2016.
During 2016, we recognized $11 million of unfavorable prior year development.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Development
Losses
$
633
$
$
$
$
$
$
$
$
$
613 $
(1) $
636
738
644
666
788
643
675
747
763
Unaudited
632
674
719
687
728
626
666
703
648
682
914
620
680
712
642
648
915
994
618
655
703
631
630
842
1,046
1,226
614
655
706
628
615
840
1,052
1,219
1,118
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
December 31, 2017
Total of IBNR
Liabilities
Plus
Expected
Cumulative
Number of
Reported
Claims
2017 Prior
Development
Year
on Reported
-
3
-
-
(2)
(1)
1
12
24
390
41,602
39,109
40,389
39,925
34,457
32,405
38,719
41,799
40,629
29,313
655
707
628
627
842
1,050
1,248
1,239
1,377
$
8,986 $
(6,971)
7
-
1
-
12
2
(2)
29
121
162
-
-
(5)
development, net of reinsurance
$
2,022 $
157
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Years Ended December 31, (dollars in millions)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
148 $
399 $
511 $
546 $
577 $
590 $
596 $
596 $
$
183
429
187
Unaudited
585
584
444
154
532
489
181
613
634
543
410
193
620
672
581
511
535
220
632
686
591
549
700
669
290
598
634
690
599
572
751
885
778
300
599
635
693
604
580
786
939
894
236
1,005
$
6,971
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
252
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
253
1011252ai_financials.indd 252
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
In general, the loss development for long-tail lines in Europe has been more stable than the development in U.S. long-tail lines,
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
although some underlying drivers have affected the results in a similar manner (e.g. the impact of the financial crisis in accident years
Reinsurance from the table below
Reserving Process and Methodology
Europe is our largest non-U.S. region for Liability and Financial Lines. Europe Casualty and Financial Lines is composed of third-
party coverages including general liability, auto liability, D&O, professional liability and various other lines of business throughout both
the UK and Continental Europe. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures,
these lines are often subject to similar trends. These lines are impacted by the underwriting cycle and external judicial trends. The
largest share of business is in the UK, but significant business is also written in other European countries such as Germany, France,
and Italy.
We primarily segment our analysis by country and line of business. Additionally, we separately review various product lines, including
excess versus primary casualty, commercial versus financial institutions management liability, and other specific programs and
subsets of business. We maintain a database of detailed historical premium and loss transactions in original currency for business
written outside of the U.S. which allows our actuaries to determine loss reserves without foreign exchange distorting development.
We generally use a combination of loss development methods and expected loss ratio methods. For countries and lines of business
with sufficient loss volume, loss development methods may be given significant weight for all but the most recent accident years. For
smaller countries and more volatile product lines, loss development methods are typically given limited weight for recent accident
years. Further, we may rely on larger data subsets in determining the loss development factors and a priori loss ratio assumptions.
2008 and 2009).
Prior Year Development
During 2017 we recognized $507 million of unfavorable prior year development in Europe casualty and Financial Lines. We observed
a significant increase in large claims activity across multiple segments, notably excess casualty business and D&O and professional
liability coverages for financial institutions. This experience was spread across multiple accident years but had the largest impact on
accident year 2016 and accident years 2008 and prior. We increased loss development assumptions for Financial Lines business in
consideration of the increased loss activity experienced in older accident years and increased expected loss ratios for more recent
accident years. For Casualty lines, we increased loadings for large losses, particularly in the more recent accident years. In addition,
we increased our loss reserves as a result of the decision made by the U.K. Ministry of Justice to reduce the discount rate applied to
lump-sum bodily injury payouts, known as the Ogden rate.
During 2016, we recognized $320 million of unfavorable prior year development. Within Europe Financial Lines, we recognized $232
million of unfavorable development primarily from the D&O line in UK and Continental Europe as result of the unfavorable actual
versus expected loss emergence in 2016 due to increased frequency and severity resulting from increasing litigation. In Europe
Casualty we recognized $123 million of unfavorable development primarily from the unexpected emergence of several large excess
casualty claims. The actual versus expected loss emergence for Europe Casualty and Financial Lines was more than expected.
During 2015, we recognized $142 million of unfavorable prior year development, primarily due to primary casualty and professional
liability in Continental Europe and the UK. During 2015, we implemented an enhanced claims operating model in Europe which has
provided our actuaries with more detailed case reserve data and analysis, enabling AIGs actuaries to react sooner to case
development than in prior years.
Europe Property and Special Risks
During 2017, we recognized $157 million of unfavorable prior year development in the Europe Property and Special Risks
segment driven primarily by unexpected development on large claims, primarily from accident years 2015 and 2016.
During 2016, we recognized $11 million of unfavorable prior year development.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total of IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Cumulative
Number of
Reported
Claims
2017 Prior
Year
Development
$
633
$
$
636
738
$
644
666
788
Unaudited
$
643
675
747
763
$
632
674
719
687
728
$
626
666
703
648
682
914
620
680
712
642
648
915
994
$
618
655
703
631
630
842
1,046
1,226
$
614
655
706
628
615
840
1,052
1,219
1,118
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
-
3
-
-
(2)
(1)
1
12
24
390
41,602
39,109
40,389
39,925
34,457
32,405
38,719
41,799
40,629
29,313
$
613 $
(1) $
655
707
628
627
842
1,050
1,248
1,239
1,377
$
8,986 $
(6,971)
7
-
1
-
12
2
(2)
29
121
162
-
(5)
-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance
$
2,022 $
157
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Years Ended December 31, (dollars in millions)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
148 $
399 $
511 $
546 $
577 $
590 $
596 $
596 $
Unaudited
183
429
187
532
489
181
585
584
444
154
613
634
543
410
193
620
672
581
511
535
220
632
686
591
549
700
669
290
$
598
634
690
599
572
751
885
778
300
599
635
693
604
580
786
939
1,005
894
236
$
6,971
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
252
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
253
1011252ai_financials.indd 253
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
Europe Property products include commercial, industrial and energy-related property insurance products and services that cover
exposures to manmade and natural disasters, including business interruption. Europe Special Risk products include aerospace,
environmental, political risk, trade credit, surety and marine insurance, and various small and medium sized enterprises insurance
lines.
We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and
liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail classes such as Europe Property.
IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned
premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based
on prior accident quarters loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The
factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy
of the IBNR factor being employed.
We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation
claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and
expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods
are not employed due to the high severity nature of the claims and different mix of claims from year to year.
We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department
projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight
is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of
reserves for natural catastrophe losses.
Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim
projections provided by our claims staff to assist in developing the appropriate reserve.
Prior Year Development
During 2017, we recognized $157 million of unfavorable prior year development, primarily from accident years 2015 and 2016. This
was largely driven by large individual claim development in the property, aviation, marine, and trade credit lines of business
During 2016, we recognized $11 million of unfavorable prior year development, primarily from the property segment.
During 2015, we recognized $4 million of unfavorable prior year development from a number of large individual property claims.
Europe and Japan Personal Insurance
During 2017, we recognized $58 million of favorable prior year development in Europe and Japan Personal Insurance mainly
due to accident and health business.
During 2016, we recognized $82 million of favorable prior year development in Europe and Japan Personal Insurance mainly
due to accident and health business.
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Development
Losses
$ 2,869
$ 2,911
$ 2,904
$ 2,908
$ 2,915
$ 2,919
$ 2,913
$ 2,916
$ 2,912
$
2,914 $
2 $
2,913
2,900
2,969
Unaudited
2,901
3,007
3,274
2,920
3,015
3,324
2,898
2,909
3,003
3,293
2,867
2,747
2,907
3,004
3,295
2,851
2,736
2,717
2,900
2,999
3,284
2,836
2,705
2,716
2,795
2,902
3,027
3,288
2,845
2,706
2,698
2,756
2,734
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
December 31, 2017
Total of
IBNR
Liabilities
Plus
Expected
Cumulative
Number of
Reported
Claims
2017 Prior
Development
Year
on Reported
3
5
8
10
16
25
45
92
194
549
1,577,002
1,605,992
1,819,631
1,777,001
1,729,298
1,734,759
1,789,718
1,762,514
1,762,768
1,502,118
2,902
3,030
3,287
2,846
2,702
2,690
2,746
2,692
2,659
$ 28,468 $
(26,161)
41
-
3
1
(1)
(4)
(8)
(10)
(42)
(59)
-
1
-
development, net of reinsurance
$
2,348 $
(58)
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Years Ended December 31, (dollars in millions)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
1,602 $
2,421 $
2,655 $
2,773 $
2,829 $
2,865 $
2,880 $
2,887 $
2,896
$
1,627
2,412
1,703
2,656
2,497
1,987
Unaudited
2,765
2,741
2,787
1,614
2,821
2,852
3,022
2,363
1,503
2,850
2,909
3,134
2,591
2,246
1,476
2,867
2,944
3,198
2,698
2,462
2,225
1,501
2,879
2,963
3,227
2,754
2,569
2,447
2,270
1,500
2,899
2,886
2,975
3,244
2,785
2,625
2,558
2,493
2,231
1,465
$
26,161
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
254
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
255
1011252ai_financials.indd 254
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
Europe Property products include commercial, industrial and energy-related property insurance products and services that cover
exposures to manmade and natural disasters, including business interruption. Europe Special Risk products include aerospace,
environmental, political risk, trade credit, surety and marine insurance, and various small and medium sized enterprises insurance
lines.
We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and
liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail classes such as Europe Property.
IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned
premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based
on prior accident quarters loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The
factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy
of the IBNR factor being employed.
We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
December 31, 2017
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total of
IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
2017 Prior
Year
Development
$ 2,869
$ 2,911
$ 2,904
$ 2,908
$ 2,915
$ 2,919
$ 2,913
$ 2,916
$ 2,912
$
2,914 $
2 $
Unaudited
2,913
2,900
2,969
2,901
3,007
3,274
2,920
3,015
3,324
2,898
2,909
3,003
3,293
2,867
2,747
2,907
3,004
3,295
2,851
2,736
2,717
2,900
2,999
3,284
2,836
2,705
2,716
2,795
2,902
3,027
3,288
2,845
2,706
2,698
2,756
2,734
Cumulative
Number of
Reported
Claims
1,577,002
1,605,992
1,819,631
1,777,001
1,729,298
1,734,759
1,789,718
1,762,514
1,762,768
1,502,118
3
5
8
10
16
25
45
92
194
549
2,902
3,030
3,287
2,846
2,702
2,690
2,746
2,692
2,659
$ 28,468 $
(26,161)
41
-
3
(1)
1
(4)
(8)
(10)
(42)
(59)
-
1
-
claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods
Reinsurance from the table below
are not employed due to the high severity nature of the claims and different mix of claims from year to year.
We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department
projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of
development, net of reinsurance
$
2,348 $
(58)
Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim
projections provided by our claims staff to assist in developing the appropriate reserve.
reserves for natural catastrophe losses.
Prior Year Development
During 2017, we recognized $157 million of unfavorable prior year development, primarily from accident years 2015 and 2016. This
was largely driven by large individual claim development in the property, aviation, marine, and trade credit lines of business
During 2016, we recognized $11 million of unfavorable prior year development, primarily from the property segment.
During 2015, we recognized $4 million of unfavorable prior year development from a number of large individual property claims.
During 2017, we recognized $58 million of favorable prior year development in Europe and Japan Personal Insurance mainly
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Years Ended December 31, (dollars in millions)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
1,602 $
2,421 $
2,655 $
2,773 $
2,829 $
2,865 $
2,880 $
2,887 $
2,896
$
Unaudited
1,627
2,412
1,703
2,656
2,497
1,987
2,765
2,741
2,787
1,614
2,821
2,852
3,022
2,363
1,503
2,850
2,909
3,134
2,591
2,246
1,476
2,867
2,944
3,198
2,698
2,462
2,225
1,501
2,879
2,963
3,227
2,754
2,569
2,447
2,270
1,500
2,899
2,886
2,975
3,244
2,785
2,625
2,558
2,493
2,231
1,465
$
26,161
During 2016, we recognized $82 million of favorable prior year development in Europe and Japan Personal Insurance mainly
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Europe and Japan Personal Insurance
due to accident and health business.
due to accident and health business.
254
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
255
1011252ai_financials.indd 255
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
Europe and Japan Personal Insurance lines consist of accident and health and personal lines. Accident and health products include
voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other
organizations as well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines
include automobile and homeowners insurance, extended warranty, and consumer specialty products, such as identity theft and
credit card protection. Personal lines are generally short-tail in nature.
We primarily segment our analysis by line of business (and by country for Europe and Japan business) and may separately review
various sub-segments, such as specific accident and health products and property damage versus liability for other personal lines
products.
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail product lines such as personal property.
Frequency/severity and loss development methods are utilized for domestic personal auto product lines.
For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto.
Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other
diagnostic metrics.
In general, development for Europe and Japan Personal Insurance classes has been very stable, with only modest changes in the
initial selected loss ratios for this business.
Prior Year Development
During 2017, 2016 and 2015, we recognized $58 million and $82 million of favorable development, and $15 million of unfavorable
development, respectively, mainly driven by the accident and health business.
U.S. Run-Off Long Tail Insurance Lines
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Development
Losses
$
945
$ 1,035
$
$
$
$
$
$
$
$
985 $
2 $
553
884
532
640
868
544
528
534
Unaudited
909
579
534
542
629
926
635
557
576
678
482
978
602
585
641
741
533
379
976
599
582
676
786
589
475
439
983
580
611
685
751
570
453
523
294
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance
December 31, 2017
Total of IBNR
Liabilities
Plus
Expected
Cumulative
Number of
Reported
Claims
2017 Prior
Development
Year
on Reported
65
75
68
97
104
84
164
174
98
163
40,075
16,237
8,490
7,798
4,053
2,510
2,307
2,285
1,591
607
576
565
700
752
528
459
550
285
197
$
5,597 $
(3,830)
3,616
$
5,383 $
(4)
(46)
15
(42)
1
6
27
(9)
(50)
-
(46)
66
(30)
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
During 2017, the U.S. Run-Off Long Tail Insurance Lines experienced favorable prior year development of $30 million driven
primarily by favorable asbestos development.
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Years Ended December 31, (dollars in millions)
During 2016, the U.S. Run-Off Long Tail Insurance Lines experienced unfavorable prior year development of $390 million
driven by Legacy pre-1986 pollution losses and the Run-Off public entity casualty business.
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
133 $
370 $
497 $
572 $
657 $
726 $
787 $
832 $
$
42
134
57
Unaudited
286
243
140
86
231
149
21
368
321
259
194
87
409
404
385
286
154
21
429
435
449
414
261
96
35
846
447
455
532
481
321
185
132
53
866
461
464
549
498
368
233
238
140
13
$
3,830
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
256
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
257
1011252ai_financials.indd 256
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
Europe and Japan Personal Insurance lines consist of accident and health and personal lines. Accident and health products include
voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other
organizations as well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines
include automobile and homeowners insurance, extended warranty, and consumer specialty products, such as identity theft and
credit card protection. Personal lines are generally short-tail in nature.
We primarily segment our analysis by line of business (and by country for Europe and Japan business) and may separately review
various sub-segments, such as specific accident and health products and property damage versus liability for other personal lines
products.
Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves
for short-tail product lines such as personal property.
Frequency/severity and loss development methods are utilized for domestic personal auto product lines.
For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto.
Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other
Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
Years Ended December 31, (dollars in millions)
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
December 31, 2017
Total of IBNR
Liabilities
Plus
Expected
Development
on Reported
Losses
Cumulative
Number of
Reported
Claims
2017 Prior
Year
Development
$
945
$ 1,035
$
553
Unaudited
$
884
532
640
$
868
544
528
534
$
909
579
534
542
629
$
926
635
557
576
678
482
$
978
602
585
641
741
533
379
$
976
599
582
676
786
589
475
439
983
580
611
685
751
570
453
523
294
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
65
75
68
97
104
84
164
174
98
163
40,075
16,237
8,490
7,798
4,053
2,510
2,307
2,285
1,591
607
$
985 $
2 $
576
565
700
752
528
459
550
285
197
$
5,597 $
(3,830)
3,616
$
5,383 $
(4)
(46)
15
1
(42)
6
27
(9)
(50)
-
(46)
66
(30)
In general, development for Europe and Japan Personal Insurance classes has been very stable, with only modest changes in the
Reinsurance from the table below
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance
Unallocated loss adjustment expense prior year development
Liabilities for losses and loss adjustment expenses and prior year loss
During 2017, 2016 and 2015, we recognized $58 million and $82 million of favorable development, and $15 million of unfavorable
development, net of reinsurance
diagnostic metrics.
initial selected loss ratios for this business.
Prior Year Development
During 2016, the U.S. Run-Off Long Tail Insurance Lines experienced unfavorable prior year development of $390 million
driven by Legacy pre-1986 pollution losses and the Run-Off public entity casualty business.
development, respectively, mainly driven by the accident and health business.
U.S. Run-Off Long Tail Insurance Lines
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
During 2017, the U.S. Run-Off Long Tail Insurance Lines experienced favorable prior year development of $30 million driven
Years Ended December 31, (dollars in millions)
primarily by favorable asbestos development.
Accident Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
$
133 $
370 $
497 $
572 $
657 $
726 $
787 $
832 $
Unaudited
42
134
57
231
149
21
286
243
140
86
368
321
259
194
87
409
404
385
286
154
21
429
435
449
414
261
96
35
$
846
447
455
532
481
321
185
132
53
866
461
464
549
498
368
233
238
140
13
$
3,830
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.
256
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
257
1011252ai_financials.indd 257
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Reserving Process and Methodology
U.S. Run-Off Long Tail Insurance lines include run-off lines for asbestos and environmental (1986 and prior), excess workers
compensation, and other casualty coverages consisting of environmental impairment liability and related coverages, medical
malpractice, workers compensation, and general liability.
the portfolio is in run-off.
In some cases, the exposures in the more recent years have declined since
Asbestos and Environmental (1986 and prior)
Asbestos coverage has been excluded from AIG policies commencing in 1985. Most of AIGs asbestos claims exposures are ceded to
National Indemnity Company (NICO) under a retroactive reinsurance arrangement entered into in 2011. Many of other asbestos-
related exposures are very long-tailed in nature and with exposures dating back 30 years or more. We consider a number of factors
and recent experience in addition to the results of both external and internal analyses, to estimate asbestos and pre-1986
environmental loss reserves. We primarily base our determination of these loss reserves on a combination of ground-up and top-
down analyses of historical claims and available insurance coverages. Nonetheless, we believe that significant uncertainty remains
as to our ultimate liability for asbestos and environmental claims, which is due to several factors, including:
the long latency period between asbestos exposure and disease manifestation, and pollution events occurring undetected over
many years, leading to the potential for involvement of multiple policy periods for individual claims;
claims filed under the non-aggregate premises or operations section of general liability policies;
the number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
diverging legal interpretations; and
the difficulty in estimating the allocation of remediation cost among various parties with respect to environmental claims.
Loss reserves for asbestos and environmental claims cannot be estimated using conventional reserving techniques such as those
that rely on historical accident year loss development factors. The methods used to determine asbestos and environmental loss
estimates and to establish the resulting reserves are continually reviewed and updated by management.
Excess Workers Compensation
Excess workers compensation has an extremely long tail and is one of the most challenging lines of business from a reserving
perspective, particularly when the excess coverage is provided above a self-insured retention layer. The class is highly sensitive to
small changes in assumptions (for example in the rate of medical inflation or the longevity of injured workers) which can have a
significant effect on the ultimate reserve cost estimate.
Excess Workers Compensation business was written over qualified self-insurance by various divisions beginning in the 1980s.
In
1992, this business was consolidated into one division where it continued writing business up until 2011, when it was effectively put
into runoff.
In this book of business, the claims are not handled (or administered) by AIG General Insurance claims personnel, but are
administered by the clients designated TPA. However, AIG General Insurance claims personnel maintain an oversight role over these
TPAs and claims.
Loss and loss adjustment expense liability estimates for excess workers compensation exposures are subject to additional
uncertainties, due to the following:
claim settlement time is longer than most other casualty lines, due to the lifetime benefits that can be expected to payout on certain
claims;
coverage statutes that vary by state; and
future medical inflation costs are difficult to estimate
For this business, a combination of traditional methods (paid and incurred loss development) and non-traditional methods (individual
claim annuity model, report yea incurred loss development, and pure IBNR count/severity methods) are used to estimate loss and
loss expense liability estimates. Loss data is segmented so as to reflect the anomalies in the historical data due to the various loss
mitigation initiatives employed over the last several years.
Other Casualty Run-Off
As noted above, other legacy exposures include environmental impairment liability and related coverages, medical malpractice,
workers compensation, and general liability. Depending on the individual class or lines of business reviewed, either traditional
methods (i.e. paid loss development, incurred loss development), non-traditional methods (such as paid survival ratio or IBNR-to-case
ratio methods) or a combination of the two are used.
In addition, for some of the environmental impairment liability related coverage,
approaches based on individual claim department estimates for large remediation sites are extensively included as part of the overall
actuarial estimates for environmental impairment liability related exposures.
Prior Year Development
During 2017, the U.S. Run-Off long tail insurance lines recognized $30 million of favorable prior year development.
During 2016, the U.S. Run-Off long tail insurance lines recognized $390 million of unfavorable prior year development.
Asbestos and Environmental (1986 and prior)
In 2017, we recognized favorable net prior year development of $37 million on the retained portion of asbestos claims. This was
primarily due to additional reinsurance recoveries identified for this portfolio. The development on the portion of the asbestos business
ceded to NICO was unfavorable by $50 million on a gross basis, but had no net impact. For environmental, we recognized $22 million
in unfavorable prior year development in consideration of activity related to several large clean-up sites and related accounts as well
as a result of top-down actuarial analyses performed during the year. As part of this analysis, we increased our estimates of
unallocated loss adjustment expense reserves for such claims, which were partially offset by a decrease in indemnity reserves.
In 2016, we increased gross undiscounted asbestos incurred losses by $106 million and decreased net undiscounted asbestos
incurred losses by $20 million. The gross undiscounted change reflects an increase in estimates related to our accounts retroceded to
NICO. The favorable development of the net incurred losses was largely a result of higher estimated external reinsurance recoveries
on our retained asbestos exposures. For environmental, we increased incurred losses by $211 million primarily due to unfavorable
development on several large clean-up sites and related accounts as well as a result of top down actuarial analyses performed during
the year.
During 2015, the reported claim activity on the assumed claims increased. We responded to this by modifying certain of our loss-
reserve-related assumptions to better reflect our loss development. Additionally, we considered recent industry-wide trends regarding
expanding coverage theories for liability.
asbestos were updated. As a result, we increased gross undiscounted asbestos incurred losses by $13 million and increased net
undiscounted asbestos incurred losses by $164 million. The net undiscounted change reflects an increase primarily due to third-party
assumed reinsurance exposures. With the gross incurred loss increase less than the net incurred loss increase, the resulting ceded
incurred losses were reduced. For environmental, we increased gross environmental incurred losses by $214 million and net
environmental incurred losses by $117 million as a result of top down actuarial analyses performed during the year, as well as
development on a large sediment site.
In 2015, both the retained accounts and retroceded accounts ground-up reviews for
Excess Workers Compensation
We did not recognize any material development in this segment during 2017, 2016 or 2015. The proactive management of settlement
negotiations and other claims mitigation strategies minimized the volatility observed during this period.
Other Casualty Run-Off
In 2017, the net prior year development for the remaining legacy was favorable by $15 million. We experienced favorable
development on runoff medical malpractice and environmental impairment liability business, which was partially offset by net
unfavorable development on other casualty segments.
We increased the reserves for these coverages by $190 million and $636 million during 2016 and 2015, respectively, to reflect
updated assumptions about future loss development. The 2016 increase was driven by runoff public entity business where we reacted
to the adverse emergence over the last year by increasing our loss development factors to reflect the portfolios experience especially
in the loss tail instead of relying on the overall excess casualty loss development factors.
258
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
259
1011252ai_financials.indd 258
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Reserving Process and Methodology
the portfolio is in run-off.
Asbestos and Environmental (1986 and prior)
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
approaches based on individual claim department estimates for large remediation sites are extensively included as part of the overall
actuarial estimates for environmental impairment liability related exposures.
U.S. Run-Off Long Tail Insurance lines include run-off lines for asbestos and environmental (1986 and prior), excess workers
compensation, and other casualty coverages consisting of environmental impairment liability and related coverages, medical
Prior Year Development
malpractice, workers compensation, and general liability.
In some cases, the exposures in the more recent years have declined since
During 2017, the U.S. Run-Off long tail insurance lines recognized $30 million of favorable prior year development.
Asbestos coverage has been excluded from AIG policies commencing in 1985. Most of AIGs asbestos claims exposures are ceded to
National Indemnity Company (NICO) under a retroactive reinsurance arrangement entered into in 2011. Many of other asbestos-
related exposures are very long-tailed in nature and with exposures dating back 30 years or more. We consider a number of factors
and recent experience in addition to the results of both external and internal analyses, to estimate asbestos and pre-1986
environmental loss reserves. We primarily base our determination of these loss reserves on a combination of ground-up and top-
down analyses of historical claims and available insurance coverages. Nonetheless, we believe that significant uncertainty remains
as to our ultimate liability for asbestos and environmental claims, which is due to several factors, including:
the long latency period between asbestos exposure and disease manifestation, and pollution events occurring undetected over
many years, leading to the potential for involvement of multiple policy periods for individual claims;
claims filed under the non-aggregate premises or operations section of general liability policies;
the number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
diverging legal interpretations; and
the difficulty in estimating the allocation of remediation cost among various parties with respect to environmental claims.
Loss reserves for asbestos and environmental claims cannot be estimated using conventional reserving techniques such as those
that rely on historical accident year loss development factors. The methods used to determine asbestos and environmental loss
estimates and to establish the resulting reserves are continually reviewed and updated by management.
Excess Workers Compensation
Excess workers compensation has an extremely long tail and is one of the most challenging lines of business from a reserving
perspective, particularly when the excess coverage is provided above a self-insured retention layer. The class is highly sensitive to
small changes in assumptions (for example in the rate of medical inflation or the longevity of injured workers) which can have a
significant effect on the ultimate reserve cost estimate.
Excess Workers Compensation business was written over qualified self-insurance by various divisions beginning in the 1980s.
In
1992, this business was consolidated into one division where it continued writing business up until 2011, when it was effectively put
into runoff.
In this book of business, the claims are not handled (or administered) by AIG General Insurance claims personnel, but are
administered by the clients designated TPA. However, AIG General Insurance claims personnel maintain an oversight role over these
Loss and loss adjustment expense liability estimates for excess workers compensation exposures are subject to additional
claim settlement time is longer than most other casualty lines, due to the lifetime benefits that can be expected to payout on certain
TPAs and claims.
uncertainties, due to the following:
claims;
coverage statutes that vary by state; and
future medical inflation costs are difficult to estimate
For this business, a combination of traditional methods (paid and incurred loss development) and non-traditional methods (individual
claim annuity model, report yea incurred loss development, and pure IBNR count/severity methods) are used to estimate loss and
loss expense liability estimates. Loss data is segmented so as to reflect the anomalies in the historical data due to the various loss
mitigation initiatives employed over the last several years.
Other Casualty Run-Off
As noted above, other legacy exposures include environmental impairment liability and related coverages, medical malpractice,
workers compensation, and general liability. Depending on the individual class or lines of business reviewed, either traditional
methods (i.e. paid loss development, incurred loss development), non-traditional methods (such as paid survival ratio or IBNR-to-case
ratio methods) or a combination of the two are used.
In addition, for some of the environmental impairment liability related coverage,
During 2016, the U.S. Run-Off long tail insurance lines recognized $390 million of unfavorable prior year development.
Asbestos and Environmental (1986 and prior)
In 2017, we recognized favorable net prior year development of $37 million on the retained portion of asbestos claims. This was
primarily due to additional reinsurance recoveries identified for this portfolio. The development on the portion of the asbestos business
ceded to NICO was unfavorable by $50 million on a gross basis, but had no net impact. For environmental, we recognized $22 million
in unfavorable prior year development in consideration of activity related to several large clean-up sites and related accounts as well
as a result of top-down actuarial analyses performed during the year. As part of this analysis, we increased our estimates of
unallocated loss adjustment expense reserves for such claims, which were partially offset by a decrease in indemnity reserves.
In 2016, we increased gross undiscounted asbestos incurred losses by $106 million and decreased net undiscounted asbestos
incurred losses by $20 million. The gross undiscounted change reflects an increase in estimates related to our accounts retroceded to
NICO. The favorable development of the net incurred losses was largely a result of higher estimated external reinsurance recoveries
on our retained asbestos exposures. For environmental, we increased incurred losses by $211 million primarily due to unfavorable
development on several large clean-up sites and related accounts as well as a result of top down actuarial analyses performed during
the year.
During 2015, the reported claim activity on the assumed claims increased. We responded to this by modifying certain of our loss-
reserve-related assumptions to better reflect our loss development. Additionally, we considered recent industry-wide trends regarding
expanding coverage theories for liability.
asbestos were updated. As a result, we increased gross undiscounted asbestos incurred losses by $13 million and increased net
undiscounted asbestos incurred losses by $164 million. The net undiscounted change reflects an increase primarily due to third-party
assumed reinsurance exposures. With the gross incurred loss increase less than the net incurred loss increase, the resulting ceded
incurred losses were reduced. For environmental, we increased gross environmental incurred losses by $214 million and net
environmental incurred losses by $117 million as a result of top down actuarial analyses performed during the year, as well as
development on a large sediment site.
In 2015, both the retained accounts and retroceded accounts ground-up reviews for
Excess Workers Compensation
We did not recognize any material development in this segment during 2017, 2016 or 2015. The proactive management of settlement
negotiations and other claims mitigation strategies minimized the volatility observed during this period.
Other Casualty Run-Off
In 2017, the net prior year development for the remaining legacy was favorable by $15 million. We experienced favorable
development on runoff medical malpractice and environmental impairment liability business, which was partially offset by net
unfavorable development on other casualty segments.
We increased the reserves for these coverages by $190 million and $636 million during 2016 and 2015, respectively, to reflect
updated assumptions about future loss development. The 2016 increase was driven by runoff public entity business where we reacted
to the adverse emergence over the last year by increasing our loss development factors to reflect the portfolios experience especially
in the loss tail instead of relying on the overall excess casualty loss development factors.
258
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
259
1011252ai_financials.indd 259
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Prior Year Development before 2008
The previous development tables include only accident years 2008 to 2017. The following table summarizes (favorable)
unfavorable development, of incurred losses and loss adjustment expenses for accident year 2007 and prior by operating
segment and major class of business:
Years Ended December 31,
(in millions)
2007 and prior accident year development, excluding the impact of
Adverse Development Reinsurance Agreement, by major class of
of business and driver of development:
U.S. Workers' compensation (before discount)
U.S. Excess casualty
U.S. Other casualty
U.S. Financial lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial lines
Europe Property and Special risks
Europe and Japan Personal Insurance
U.S. Long Tail Insurance lines (before discount)
All Other including unallocated loss adjustment expenses
Total prior year unfavorable development
Claims Payout Patterns
2017
2016
2015
$
$
4 $
141
10
(44)
12
5
169
(5)
1
(46)
177
424 $
1,009 $
107
338
31
12
(13)
(6)
1
(5)
363
3
1,840 $
100
450
440
191
26
33
(2)
(1)
1
621
(11)
1,848
The following table presents the historical average annual percentage claims payout on an accident year basis at the same
level of disaggregation as presented in the claims development table.
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)
Year
1
2
3
4
5
6
7
8
9
10
U.S. Workers' compensation
14.7 % 17.6 % 12.4 % 9.1 % 7.7 % 5.3 % 4.1 % 3.0 % 2.2 % 1.8 %
U.S. Excess casualty
U.S. Other casualty
U.S. Financial lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial lines
Europe Property and Special risks
Europe and Japan Personal Insurance
U.S. Long Tail Insurance lines
0.6
9.9
4.0
30.2
61.4
7.9
24.0
56.0
9.8
7.0
16.3
17.9
35.7
27.6
17.0
41.6
26.9
18.3
13.0
15.4
21.1
13.0
3.8
13.7
17.2
8.0
16.9
13.4
14.5
16.7
7.2
2.2
13.7
6.3
3.8
12.5
12.5
11.8
13.2
4.6
1.2
9.8
4.0
2.0
10.7
11.0
8.2
9.3
2.5
0.6
7.5
1.5
1.1
6.7
8.4
5.9
6.1
1.0
0.4
6.3
1.0
0.6
4.0
10.0
5.6
6.0
0.9
0.2
4.6
0.2
0.3
3.1
2.8
2.6
3.0
0.7
0.1
5.0
0.2
0.3
1.9
8.3
1.9
1.2
0.3
0.2
1.0
0.2
0.1
2.0
DISCOUNTING OF LOSS RESERVES
At December 31, 2017, the loss reserves reflect a net loss reserve discount of $1.8 billion, including tabular and non-tabular
calculations based upon the following assumptions:
Certain asbestos claims were discounted when allowed by the regulator and when payments are fixed and determinable, based on
the investment yields of the companies and the payout pattern for the claims. At December 31, 2016, the discount for asbestos
reserves was fully amortized.
The tabular workers compensation discount is calculated based on a 3.5 percent interest rate and the mortality rate used in the 2007
U.S. Life Table.
The non-tabular workers compensation discount is calculated separately for companies domiciled in New York and Pennsylvania,
and follows the statutory regulations (prescribed or permitted) for each state. For New York companies, the discount is based on a 5
percent interest rate and the companies own payout patterns. For the Pennsylvania companies, the statute specifies discount factors
for accident years 2001 and prior, which are based on a 6 percent interest rate and an industry payout pattern. For accident years
2002 and subsequent, the discount is based on the payout patterns and investment yields of the companies.
In 2013, our Pennsylvania regulator approved use of a consistent discount rate (U.S. Treasury rate plus a liquidity premium) to all of
our workers compensation reserves in our Pennsylvania-domiciled companies, as well as our use of updated payout patterns specific
to our primary and excess workers compensation portfolios.
The discount consists of $622 million of tabular discount for workers compensation and $1,222 million of non-tabular discount for
workers compensation. During the years ended December 31, 2017, 2016 and 2015 the benefit/(charge) from changes in discount of
($187) million, $422 million and $71 million, respectively, were recorded as part of the policyholder benefits and losses incurred in the
Consolidated Statement of Income.
The following table presents the components of the loss reserve discount discussed above:
December 31, 2017
December 31, 2016
Legacy
Portfolio -
General
Legacy
Portfolio -
General
North America Insurance Run-
Commercial
Off Insurance
North America
Insurance Run-
Commercial
Off Insurance
(in millions)
U.S. Workers' compensation
Retroactive reinsurance
Total reserve discount*
$
$
Insurance
2,465 $
(1,539)
926 $
Lines
918 $
-
918 $
Total
3,383
(1,539)
1,844
$
$
Insurance
2,583 $
-
2,583 $
Lines
Total
987 $
3,570
-
-
987 $
3,570
* Excludes $173 million and $181 million of discount related to certain long tail liabilities in the United Kingdom at December 31, 2017 and December 31, 2016, respectively.
The following table presents the net loss reserve discount benefit (charge):
Years Ended December 31,
2016
2015
(in millions)
Current accident year
Accretion and other
adjustments to prior
year discount
Effect of interest rate
changes
Net reserve discount
benefit (charge)
Amount transferred to run-off
insurance lines
Change in discount on loss
reserves ceded under
retroactive reinsurance
Net change in total
reserve discount
*
Comprised of:
U.S. Workers' compensation $
(1,657) $
Asbestos
$
- $
(69) $
- $
(1,726) $
-
$
23 $
(7) $
429
$
(7) $
* Excludes $8 million and $20 million of discount related to certain long tail liabilities in the United Kingdom at December 31, 2017 and 2016, respectively.
During 2017 and 2016, effective interest rates declined due to a decrease in the forward yield curve component of the discount rates
reflecting a decline U.S. Treasury rates along the changes in payout pattern assumptions. This resulted in a decrease in the loss
reserve discount by $71 million in 2017 and $106 million in 2016.
During 2015, the effective interest rate increased due to the increase in Treasury rates and credit spreads that resulted in an increase
in the loss reserve discount by $225 million.
2017
Legacy
Portfolio -
General
Insurance
Run-Off
Insurance
North
America
Commercial
Insurance
$
114 $
Legacy
Portfolio -
General
Insurance
Run-Off
Insurance
Lines
North
America
Commercial
Insurance
177 $
Legacy
Portfolio -
General
Insurance
Run-Off
Insurance
Lines
North
America
Commercial
Insurance
182 $
Lines
- $
Total
114
$
Total
177
$
- $
Total
182
- $
(186)
(46)
(118)
-
(230)
(71)
(187)
-
(44)
(25)
(69)
-
-
(1,539)
(1,539)
64
351
(262)
(74)
(336)
(48)
(106)
16
422
-
-
-
-
287
(58)
406
-
-
406
406 $
- $
148
68
(39)
-
29
29 $
- $
77
3
39
-
42
46 $
(4) $
225
71
-
-
71
75
(4)
(1,657)
(69)
(1,726)
16
422
260
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
261
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Prior Year Development before 2008
The previous development tables include only accident years 2008 to 2017. The following table summarizes (favorable)
unfavorable development, of incurred losses and loss adjustment expenses for accident year 2007 and prior by operating
segment and major class of business:
Years Ended December 31,
(in millions)
2007 and prior accident year development, excluding the impact of
Adverse Development Reinsurance Agreement, by major class of
of business and driver of development:
U.S. Workers' compensation (before discount)
U.S. Excess casualty
U.S. Other casualty
U.S. Financial lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial lines
Europe Property and Special risks
Europe and Japan Personal Insurance
U.S. Long Tail Insurance lines (before discount)
All Other including unallocated loss adjustment expenses
Total prior year unfavorable development
Claims Payout Patterns
2017
2016
2015
$
4 $
1,009 $
141
10
(44)
12
5
169
(5)
1
(46)
177
107
338
31
12
(13)
(6)
1
(5)
363
3
100
450
440
191
26
33
(2)
(1)
1
621
(11)
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
In 2013, our Pennsylvania regulator approved use of a consistent discount rate (U.S. Treasury rate plus a liquidity premium) to all of
our workers compensation reserves in our Pennsylvania-domiciled companies, as well as our use of updated payout patterns specific
to our primary and excess workers compensation portfolios.
The discount consists of $622 million of tabular discount for workers compensation and $1,222 million of non-tabular discount for
workers compensation. During the years ended December 31, 2017, 2016 and 2015 the benefit/(charge) from changes in discount of
($187) million, $422 million and $71 million, respectively, were recorded as part of the policyholder benefits and losses incurred in the
Consolidated Statement of Income.
The following table presents the components of the loss reserve discount discussed above:
December 31, 2017
December 31, 2016
Legacy
Portfolio -
General
North America Insurance Run-
Off Insurance
Lines
918 $
-
918 $
Commercial
Insurance
2,465 $
(1,539)
926 $
North America
Commercial
Insurance
2,583 $
-
2,583 $
Total
3,383
(1,539)
1,844
$
$
Legacy
Portfolio -
General
Insurance Run-
Off Insurance
Lines
987 $
-
987 $
Total
3,570
-
3,570
(in millions)
U.S. Workers' compensation
Retroactive reinsurance
Total reserve discount*
$
$
$
424 $
1,840 $
1,848
The following table presents the net loss reserve discount benefit (charge):
Years Ended December 31,
2017
2016
2015
* Excludes $173 million and $181 million of discount related to certain long tail liabilities in the United Kingdom at December 31, 2017 and December 31, 2016, respectively.
The following table presents the historical average annual percentage claims payout on an accident year basis at the same
level of disaggregation as presented in the claims development table.
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)
Year
1
2
3
4
5
6
7
8
9
10
U.S. Workers' compensation
14.7 % 17.6 % 12.4 % 9.1 % 7.7 % 5.3 % 4.1 % 3.0 % 2.2 % 1.8 %
U.S. Excess casualty
U.S. Other casualty
U.S. Financial lines
U.S. Property and Special risks
U.S. Personal Insurance
Europe Casualty and Financial lines
Europe Property and Special risks
Europe and Japan Personal Insurance
U.S. Long Tail Insurance lines
0.6
9.9
4.0
30.2
61.4
7.9
24.0
56.0
9.8
7.0
16.3
17.9
35.7
27.6
17.0
41.6
26.9
18.3
13.0
15.4
21.1
13.0
3.8
13.7
17.2
8.0
16.9
13.4
14.5
16.7
7.2
2.2
13.7
6.3
3.8
12.5
12.5
11.8
13.2
4.6
1.2
9.8
4.0
2.0
10.7
11.0
10.0
8.4
5.9
6.1
1.0
0.4
6.3
1.0
0.6
4.0
2.8
2.6
3.0
0.7
0.1
5.0
0.2
0.3
1.9
8.3
1.9
1.2
0.3
0.2
1.0
0.2
0.1
2.0
5.6
6.0
0.9
0.2
4.6
0.2
0.3
3.1
8.2
9.3
2.5
0.6
7.5
1.5
1.1
6.7
DISCOUNTING OF LOSS RESERVES
At December 31, 2017, the loss reserves reflect a net loss reserve discount of $1.8 billion, including tabular and non-tabular
calculations based upon the following assumptions:
Certain asbestos claims were discounted when allowed by the regulator and when payments are fixed and determinable, based on
the investment yields of the companies and the payout pattern for the claims. At December 31, 2016, the discount for asbestos
reserves was fully amortized.
U.S. Life Table.
The tabular workers compensation discount is calculated based on a 3.5 percent interest rate and the mortality rate used in the 2007
The non-tabular workers compensation discount is calculated separately for companies domiciled in New York and Pennsylvania,
and follows the statutory regulations (prescribed or permitted) for each state. For New York companies, the discount is based on a 5
percent interest rate and the companies own payout patterns. For the Pennsylvania companies, the statute specifies discount factors
for accident years 2001 and prior, which are based on a 6 percent interest rate and an industry payout pattern. For accident years
2002 and subsequent, the discount is based on the payout patterns and investment yields of the companies.
Legacy
Portfolio -
General
Insurance
Run-Off
Insurance
Lines
North
America
Commercial
Insurance
$
114 $
- $
Legacy
Portfolio -
General
Insurance
Run-Off
Insurance
Lines
North
America
Commercial
Insurance
177 $
- $
Total
114
$
Legacy
Portfolio -
General
Insurance
Run-Off
Insurance
Lines
North
America
Commercial
Insurance
182 $
- $
Total
182
Total
177
$
(in millions)
Current accident year
Accretion and other
adjustments to prior
year discount
Effect of interest rate
changes
Net reserve discount
benefit (charge)
Amount transferred to run-off
insurance lines
Change in discount on loss
reserves ceded under
retroactive reinsurance
Net change in total
*
reserve discount
Comprised of:
(186)
(46)
(118)
-
(1,539)
(44)
(25)
(69)
-
-
(230)
(71)
(187)
-
(1,539)
(1,657)
(69)
(1,726)
287
(58)
406
-
-
406
406 $
- $
64
351
(262)
(74)
(336)
(48)
(106)
16
422
-
-
-
-
16
422
23 $
(7) $
429
$
(7) $
148
68
(39)
-
29
29 $
- $
77
3
39
-
42
46 $
(4) $
225
71
-
-
71
75
(4)
U.S. Workers' compensation $
$
Asbestos
(1,657) $
- $
(69) $
- $
(1,726) $
-
$
* Excludes $8 million and $20 million of discount related to certain long tail liabilities in the United Kingdom at December 31, 2017 and 2016, respectively.
During 2017 and 2016, effective interest rates declined due to a decrease in the forward yield curve component of the discount rates
reflecting a decline U.S. Treasury rates along the changes in payout pattern assumptions. This resulted in a decrease in the loss
reserve discount by $71 million in 2017 and $106 million in 2016.
During 2015, the effective interest rate increased due to the increase in Treasury rates and credit spreads that resulted in an increase
in the loss reserve discount by $225 million.
260
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
261
1011252ai_financials.indd 261
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 FUTURE POLICY BENEFITS
OTHER POLICYHOLDER FUNDS
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Future policy benefits primarily include reserves for traditional life and annuity payout contracts, which represent an estimate of the
present value of future benefits less the present value of future net premiums. Included in Future policy benefits are liabilities for
annuities issued in structured settlement arrangements whereby a claimant has agreed to settle a general insurance claim in
exchange for fixed payments over a fixed determinable period of time with a life contingency feature. In addition, reserves for
contracts in loss recognition are adjusted to reflect the effect of unrealized gains on fixed maturity and equity securities available for
sale, with related changes recognized through Other comprehensive income.
Future policy benefits also include certain guaranteed benefits of variable annuity products that are not considered embedded
derivatives, primarily guaranteed minimum death benefits.
For additional information on guaranteed minimum death benefits see Note 14.
The liability for long-duration future policy benefits has been established including assumptions for interest rates which vary by year of
issuance and product, and range from approximately 0.1 percent to 14 percent. Mortality and surrender rate assumptions are
generally based on actual experience when the liability is established.
POLICYHOLDER CONTRACT DEPOSITS
The liability for Policyholder contract deposits is primarily recorded at accumulated value (deposits received and net transfers from
separate accounts, plus accrued interest credited at rates ranging from 0.2 percent to 9.0 percent at December 31, 2017, less
withdrawals and assessed fees). Deposits collected on investment-oriented products are not reflected as revenues, because they are
recorded directly to Policyholder contract deposits upon receipt. Amounts assessed against the contract holders for mortality,
administrative, and other services are included in revenues.
In addition to liabilities for universal life, fixed annuities, fixed options within variable annuities, annuities without life contingencies,
funding agreements and GICs, policyholder contract deposits also include our liability for (a) certain guaranteed benefits and indexed
features accounted for as embedded derivatives at fair value, (b) annuities issued in a structured settlement arrangement with no life
contingency and (c) certain contracts we have elected to account for at fair value.
For additional information on guaranteed benefits accounted for as embedded derivatives see Note 14 herein.
For universal life policies with secondary guarantees, we recognize certain liabilities in addition to policyholder account balances. For
universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are
expected at contract inception, a liability is recognized based on a benefit ratio of (a) the present value of total expected payments, in
excess of the account value, over the life of the contract, divided by (b) the present value of total expected assessments over the life
of the contract. For universal life policies without secondary guarantees, for which profits followed by losses are first expected after
contract inception, we establish a liability, in addition to policyholder account balances, so that expected future losses are recognized
in proportion to the emergence of profits in the earlier (profitable) years. Universal life account balances as well as these additional
liabilities related to universal life products are reported within Policyholder contract deposits in the Consolidated Balance Sheet.
These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity and equity securities
available for sale on accumulated assessments, with related changes recognized through Other comprehensive income.
Under a funding agreement-backed notes issuance program, an unaffiliated, non-consolidated statutory trust issues medium-term
notes to investors, which are secured by GICs issued to the trust by one of our Life and Retirement companies through our
Institutional Markets business.
The following table presents Policyholder contract deposits by product line:
At December 31,
(in millions)
Policyholder contract deposits:
Fixed Annuities
Group Retirement
Life Insurance
Variable and Index Annuities
Institutional Markets
Legacy Portfolio
Total Policyholder contract deposits
262
AIG | 2017 Form 10-K
2017
2016
$
$
49,979 $
40,422
12,448
19,690
8,077
4,986
135,602 $
51,278
39,578
11,855
16,934
7,286
5,285
132,216
Other policyholder funds include unearned revenue reserves (URR). URR consist of front-end loads on investment-oriented contracts,
representing those policy loads that are non-level and typically higher in initial policy years than in later policy years. URR for
investment-oriented contracts are generally deferred and amortized, with interest, in relation to the incidence of estimated gross
profits (EGPs) to be realized over the estimated lives of the contracts and are subject to the same adjustments due to changes in the
assumptions underlying EGPs as DAC. Amortization of URR is recorded in Policy fees. Similar to Shadow DAC, URR related to
investment-oriented products is also adjusted to reflect the effect of unrealized gains or losses on fixed maturity and equity securities
available for sale on estimated gross profits, with related changes recognized through Other comprehensive income (shadow URR).
Other policyholder funds also include provisions for future dividends to participating policyholders, accrued in accordance with all
applicable regulatory or contractual provisions. Participating life business represented approximately 1.9 percent of gross insurance in
force at December 31, 2017 and 1.8 percent of gross domestic premiums and other considerations in 2017. The amount of annual
dividends to be paid is approved locally by the boards of directors of the Life and Retirement companies. Provisions for future
dividend payments are computed by jurisdiction, reflecting local regulations. The portions of current and prior net income and of
current unrealized appreciation of investments that can inure to our benefit are restricted in some cases by the insurance contracts
and by the local insurance regulations of the jurisdictions in which the policies are in force.
Certain products are subject to experience adjustments. These include group life and group medical products, credit life contracts,
accident and health insurance contracts/riders attached to life policies and, to a limited extent, reinsurance agreements with other
direct insurers. Ultimate premiums from these contracts are estimated and recognized as revenue with the unearned portions of the
premiums recorded as liabilities in Other policyholder funds. Experience adjustments vary according to the type of contract and the
territory in which the policy is in force and are subject to local regulatory guidance.
14. Variable Life and Annuity Contracts
We report variable contracts within the separate accounts when investment income and investment gains and losses accrue directly
to, and investment risk is borne by, the contract holder and the separate account meets additional accounting criteria to qualify for
separate account treatment. The assets supporting the variable portion of variable annuity and variable universal life contracts that
qualify for separate account treatment are carried at fair value and reported as Separate account assets, with an equivalent summary
total reported as Separate account liabilities.
Policy values for variable products and investment contracts are expressed in terms of investment units. Each unit is linked to an
asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The current liability at any
time is the sum of the current unit value of all investment units in the separate accounts, plus any liabilities for guaranteed minimum
death benefits or guaranteed minimum withdrawal benefits included in Future policy benefits or Policyholder contract deposits,
respectively.
Amounts assessed against the contract holders for mortality, administrative and other services are included in revenue. Net
investment income, net investment gains and losses, changes in fair value of assets, and policyholder account deposits and
withdrawals related to separate accounts are excluded from the Consolidated Statements of Income, Comprehensive Income (Loss)
and Cash Flows.
Variable annuity contracts may include certain contractually guaranteed benefits to the contract holder. These guaranteed features
include guaranteed minimum death benefits (GMDB) that are payable in the event of death, and living benefits that are payable in the
event of annuitization, or, in other instances, at specified dates during the accumulation period. Living benefits primarily include
guaranteed minimum withdrawal benefits (GMWB). A variable annuity contract may include more than one type of guaranteed benefit
feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can only receive payout from one guaranteed
feature on a contract containing a death benefit and a living benefit, i.e. the features are mutually exclusive (except a surviving
spouse who has a rider to potentially collect both a GMDB upon their spouses death and a GMWB during their lifetime). A
policyholder cannot purchase more than one living benefit on one contract. The net amount at risk for each feature is calculated
irrespective of the existence of other features; as a result, the net amount at risk for each feature is not additive to that of other
features.
AIG | 2017 Form 10-K
263
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 FUTURE POLICY BENEFITS
OTHER POLICYHOLDER FUNDS
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
ITEM 8 | Notes to Consolidated Financial Statements | 13 . In sur a nc e Li ab ili ti es
Future policy benefits primarily include reserves for traditional life and annuity payout contracts, which represent an estimate of the
present value of future benefits less the present value of future net premiums. Included in Future policy benefits are liabilities for
annuities issued in structured settlement arrangements whereby a claimant has agreed to settle a general insurance claim in
exchange for fixed payments over a fixed determinable period of time with a life contingency feature. In addition, reserves for
contracts in loss recognition are adjusted to reflect the effect of unrealized gains on fixed maturity and equity securities available for
sale, with related changes recognized through Other comprehensive income.
Future policy benefits also include certain guaranteed benefits of variable annuity products that are not considered embedded
derivatives, primarily guaranteed minimum death benefits.
For additional information on guaranteed minimum death benefits see Note 14.
The liability for long-duration future policy benefits has been established including assumptions for interest rates which vary by year of
issuance and product, and range from approximately 0.1 percent to 14 percent. Mortality and surrender rate assumptions are
generally based on actual experience when the liability is established.
POLICYHOLDER CONTRACT DEPOSITS
The liability for Policyholder contract deposits is primarily recorded at accumulated value (deposits received and net transfers from
separate accounts, plus accrued interest credited at rates ranging from 0.2 percent to 9.0 percent at December 31, 2017, less
withdrawals and assessed fees). Deposits collected on investment-oriented products are not reflected as revenues, because they are
recorded directly to Policyholder contract deposits upon receipt. Amounts assessed against the contract holders for mortality,
administrative, and other services are included in revenues.
In addition to liabilities for universal life, fixed annuities, fixed options within variable annuities, annuities without life contingencies,
funding agreements and GICs, policyholder contract deposits also include our liability for (a) certain guaranteed benefits and indexed
features accounted for as embedded derivatives at fair value, (b) annuities issued in a structured settlement arrangement with no life
contingency and (c) certain contracts we have elected to account for at fair value.
For additional information on guaranteed benefits accounted for as embedded derivatives see Note 14 herein.
For universal life policies with secondary guarantees, we recognize certain liabilities in addition to policyholder account balances. For
universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are
expected at contract inception, a liability is recognized based on a benefit ratio of (a) the present value of total expected payments, in
excess of the account value, over the life of the contract, divided by (b) the present value of total expected assessments over the life
of the contract. For universal life policies without secondary guarantees, for which profits followed by losses are first expected after
contract inception, we establish a liability, in addition to policyholder account balances, so that expected future losses are recognized
in proportion to the emergence of profits in the earlier (profitable) years. Universal life account balances as well as these additional
liabilities related to universal life products are reported within Policyholder contract deposits in the Consolidated Balance Sheet.
These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity and equity securities
available for sale on accumulated assessments, with related changes recognized through Other comprehensive income.
Under a funding agreement-backed notes issuance program, an unaffiliated, non-consolidated statutory trust issues medium-term
notes to investors, which are secured by GICs issued to the trust by one of our Life and Retirement companies through our
Institutional Markets business.
The following table presents Policyholder contract deposits by product line:
Policyholder contract deposits:
At December 31,
(in millions)
Fixed Annuities
Group Retirement
Life Insurance
Variable and Index Annuities
Institutional Markets
Legacy Portfolio
Total Policyholder contract deposits
262
AIG | 2017 Form 10-K
2017
2016
$
49,979 $
40,422
12,448
19,690
8,077
4,986
$
135,602 $
51,278
39,578
11,855
16,934
7,286
5,285
132,216
Other policyholder funds include unearned revenue reserves (URR). URR consist of front-end loads on investment-oriented contracts,
representing those policy loads that are non-level and typically higher in initial policy years than in later policy years. URR for
investment-oriented contracts are generally deferred and amortized, with interest, in relation to the incidence of estimated gross
profits (EGPs) to be realized over the estimated lives of the contracts and are subject to the same adjustments due to changes in the
assumptions underlying EGPs as DAC. Amortization of URR is recorded in Policy fees. Similar to Shadow DAC, URR related to
investment-oriented products is also adjusted to reflect the effect of unrealized gains or losses on fixed maturity and equity securities
available for sale on estimated gross profits, with related changes recognized through Other comprehensive income (shadow URR).
Other policyholder funds also include provisions for future dividends to participating policyholders, accrued in accordance with all
applicable regulatory or contractual provisions. Participating life business represented approximately 1.9 percent of gross insurance in
force at December 31, 2017 and 1.8 percent of gross domestic premiums and other considerations in 2017. The amount of annual
dividends to be paid is approved locally by the boards of directors of the Life and Retirement companies. Provisions for future
dividend payments are computed by jurisdiction, reflecting local regulations. The portions of current and prior net income and of
current unrealized appreciation of investments that can inure to our benefit are restricted in some cases by the insurance contracts
and by the local insurance regulations of the jurisdictions in which the policies are in force.
Certain products are subject to experience adjustments. These include group life and group medical products, credit life contracts,
accident and health insurance contracts/riders attached to life policies and, to a limited extent, reinsurance agreements with other
direct insurers. Ultimate premiums from these contracts are estimated and recognized as revenue with the unearned portions of the
premiums recorded as liabilities in Other policyholder funds. Experience adjustments vary according to the type of contract and the
territory in which the policy is in force and are subject to local regulatory guidance.
14. Variable Life and Annuity Contracts
We report variable contracts within the separate accounts when investment income and investment gains and losses accrue directly
to, and investment risk is borne by, the contract holder and the separate account meets additional accounting criteria to qualify for
separate account treatment. The assets supporting the variable portion of variable annuity and variable universal life contracts that
qualify for separate account treatment are carried at fair value and reported as Separate account assets, with an equivalent summary
total reported as Separate account liabilities.
Policy values for variable products and investment contracts are expressed in terms of investment units. Each unit is linked to an
asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The current liability at any
time is the sum of the current unit value of all investment units in the separate accounts, plus any liabilities for guaranteed minimum
death benefits or guaranteed minimum withdrawal benefits included in Future policy benefits or Policyholder contract deposits,
respectively.
Amounts assessed against the contract holders for mortality, administrative and other services are included in revenue. Net
investment income, net investment gains and losses, changes in fair value of assets, and policyholder account deposits and
withdrawals related to separate accounts are excluded from the Consolidated Statements of Income, Comprehensive Income (Loss)
and Cash Flows.
Variable annuity contracts may include certain contractually guaranteed benefits to the contract holder. These guaranteed features
include guaranteed minimum death benefits (GMDB) that are payable in the event of death, and living benefits that are payable in the
event of annuitization, or, in other instances, at specified dates during the accumulation period. Living benefits primarily include
guaranteed minimum withdrawal benefits (GMWB). A variable annuity contract may include more than one type of guaranteed benefit
feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can only receive payout from one guaranteed
feature on a contract containing a death benefit and a living benefit, i.e. the features are mutually exclusive (except a surviving
spouse who has a rider to potentially collect both a GMDB upon their spouses death and a GMWB during their lifetime). A
policyholder cannot purchase more than one living benefit on one contract. The net amount at risk for each feature is calculated
irrespective of the existence of other features; as a result, the net amount at risk for each feature is not additive to that of other
features.
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AIG | 2017 Form 10-K
263
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 14 . V a ria bl e Li fe a n d An n ui t y C o n tra ct s
ITEM 8 | Notes to Consolidated Financial Statements | 14 . V a ria bl e Li fe a n d An n ui t y C o n tra ct s
Account balances of variable annuity contracts with guarantees were invested in separate account investment options as
follows:
At December 31,
(in millions)
Equity funds
Bond funds
Balanced funds
Money market funds
Total
GMDB
2017
$ 48,594
7,793
27,656
730
$ 84,773
2016
$ 42,266
7,798
25,365
840
$ 76,269
Depending on the contract, the GMDB feature may provide a death benefit of either (a) total deposits made to the contract less any
partial withdrawals plus a minimum return (and in rare instances, no minimum return) or (b) the highest contract value attained,
typically on any anniversary date minus any subsequent withdrawals following the contract anniversary. GMDB is our most widely
offered benefit.
The liability for GMDB, which is recorded in Future policy benefits, represents the expected value of benefits in excess of the
projected account value, with the excess recognized ratably over the accumulation period based on total expected assessments,
through Policyholder benefits and losses incurred. The net amount at risk for GMDB represents the amount of benefits in excess of
account value if death claims were filed on all contracts on the balance sheet date.
The following table presents details concerning our GMDB exposures, by benefit type:
At December 31,
(dollars in billions)
Account value
Net amount at risk
Average attained age of contract holders by product
Range of guaranteed minimum return rates
$
2017
Net Deposits
Plus a Minimum
Return
99 $
1
63
0%-4.5%
Highest Contract
Value Attained
17
-
68
$
2016
Net Deposits
Plus a Minimum
Return
91 $
1
63
0%-4.5%
Highest Contract
Value Attained
16
1
68
The following summarizes GMDB liability related to variable annuity contracts, excluding assumed reinsurance:
Years Ended December 31,
(in millions)
Balance, beginning of year
Reserve increase (decrease)
Benefits paid
Changes in reserves related to unrealized appreciation of investments
Balance, end of year
2017
402
(14)
(42)
6
352
$
$
2016
491
(32)
(57)
-
402
$
$
2015
420
127
(56)
-
491
$
$
Assumptions used to determine the GMDB liability include interest rates, which vary by year of issuance and products; mortality rates,
which are based upon actual experience modified to allow for variations in policy form; lapse rates, which are based upon actual
experience modified to allow for variations in policy form; investment returns, using assumptions from a randomly generated model;
and asset growth assumptions, which include a reversion to the mean methodology, similar to that applied for DAC.
We regularly evaluate estimates used to determine the GMDB liability and adjust the additional liability balance, with a related charge
or credit to Policyholder benefits and losses incurred, if actual experience or other evidence suggests that earlier assumptions should
be revised.
GMWB
Certain of our variable annuity contracts contain optional GMWB benefits and, to a lesser extent, guaranteed minimum accumulation
benefits, which are not currently offered. With a GMWB, the contract holder can monetize the excess of the guaranteed amount over
the account value of the contract only through a series of withdrawals that do not exceed a specific percentage per year of the
guaranteed amount. If, after the series of withdrawals, the account value is exhausted, the contract holder will receive a series of
annuity payments equal to the remaining guaranteed amount, and, for lifetime GMWB products, the annuity payments continue as
long as the covered person(s) is living.
The liabilities for GMWB, which are recorded in Policyholder contract deposits, are accounted for as embedded derivatives measured
at fair value, with changes in the fair value of the liabilities recorded in Other net realized capital gains (losses). The fair value of these
embedded derivatives was a net liability of $2.0 billion and $1.8 billion at December 31, 2017 and 2016, respectively.
For discussion of the fair value measurement of guaranteed benefits that are accounted for as embedded derivatives see Note 5.
We had account values subject to GMWB that totaled $45 billion and $41 billion at December 31, 2017 and 2016, respectively. The
net amount at risk for GMWB represents the present value of minimum guaranteed withdrawal payments, in accordance with contract
terms, in excess of account value, assuming no lapses. The net amount at risk related to the GMWB guarantees was $450 million and
$834 million at December 31, 2017 and 2016, respectively. We use derivative instruments and other financial instruments to mitigate
a portion of our exposure that arises from GMWB benefits.
15. Debt
Our long-term debt is denominated in various currencies, with both fixed and variable interest rates. Long-term debt is carried at the
principal amount borrowed, including unamortized discounts, hedge accounting valuation adjustments and fair value adjustments,
when applicable.
The following table lists our total debt outstanding at December 31, 2017 and 2016. The interest rates presented in the
following table are the range of contractual rates in effect at December 31, 2017, including fixed and variable-rates:
At December 31, 2017
(in millions)
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable
Junior subordinated debt
AIG Japan Holdings Kabushiki Kaisha
AIGLH notes and bonds payable
AIGLH junior subordinated debt
Total AIG general borrowings
AIG borrowings supported by assets:(a)
MIP notes payable
GIAs, at fair value
Series AIGFP matched notes and bonds payable
Notes and bonds payable, at fair value
Total AIG borrowings supported by assets
Total debt issued or guaranteed by AIG
Debt not guaranteed by AIG:
Other subsidiaries notes, bonds, loans and
mortgages payable
Debt of consolidated investments(b)
Total debt not guaranteed by AIG
Total long term debt
Range of
Interest Rate(s)
Maturity
Date(s)
Balance at
Balance at
December 31,
December 31,
2017
2016
0% - 8.13%
2018 - 2097
$
20,339
$
19,432
4.88% - 8.63%
0.28% - 0.44%
6.63% - 7.50%
7.57% - 8.50%
2.72% - 2.95%
1.21% - 1.30%
0.50% - 7.62%
0.50% - 9.97%
2037 - 2058
2020 - 2021
2025 - 2029
2030 - 2046
2018
2046 - 2047
2018 - 2053
2018 - 2040
1.40% - 1.57%
2018
0% - 9.31%
2018 - 2065
841
334
281
361
22,156
356
21
2,707
181
3,265
25,421
190
6,029
6,219
843
330
281
361
21,247
1,099
32
2,934
494
4,559
25,806
735
4,371
5,106
$
31,640
$
30,912
(a) AIG Parent guarantees all such debt, except for MIP notes payable and Series AIGFP matched notes and bonds payable, which are direct obligations of AIG
Parent. Collateral posted to third parties was $2.0 billion and $2.2 billion at December 31, 2017 and December 31, 2016, respectively. This collateral primarily consists
of securities of the U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties.
(b) At December 31, 2017, includes debt of consolidated investment vehicles related to real estate investments of $2.5 billion, affordable housing partnership investments
of $1.8 billion and other securitization vehicles of $1.7 billion. At December 31, 2016, includes debt of consolidated investment vehicles related to real estate
investments of $1.9 billion, affordable housing partnership investments of $1.7 billion and other securitization vehicles of $771 million.
264
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
265
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 follows:
At December 31,
(in millions)
Equity funds
Bond funds
Balanced funds
Money market funds
Total
GMDB
offered benefit.
At December 31,
(dollars in billions)
Account value
Net amount at risk
Account balances of variable annuity contracts with guarantees were invested in separate account investment options as
ITEM 8 | Notes to Consolidated Financial Statements | 14 . V a ria bl e Li fe a n d An n ui t y C o n tra ct s
ITEM 8 | Notes to Consolidated Financial Statements | 14 . V a ria bl e Li fe a n d An n ui t y C o n tra ct s
2017
$ 48,594
7,793
27,656
730
$ 84,773
2016
$ 42,266
7,798
25,365
840
$ 76,269
annuity payments equal to the remaining guaranteed amount, and, for lifetime GMWB products, the annuity payments continue as
long as the covered person(s) is living.
The liabilities for GMWB, which are recorded in Policyholder contract deposits, are accounted for as embedded derivatives measured
at fair value, with changes in the fair value of the liabilities recorded in Other net realized capital gains (losses). The fair value of these
embedded derivatives was a net liability of $2.0 billion and $1.8 billion at December 31, 2017 and 2016, respectively.
For discussion of the fair value measurement of guaranteed benefits that are accounted for as embedded derivatives see Note 5.
We had account values subject to GMWB that totaled $45 billion and $41 billion at December 31, 2017 and 2016, respectively. The
net amount at risk for GMWB represents the present value of minimum guaranteed withdrawal payments, in accordance with contract
terms, in excess of account value, assuming no lapses. The net amount at risk related to the GMWB guarantees was $450 million and
$834 million at December 31, 2017 and 2016, respectively. We use derivative instruments and other financial instruments to mitigate
a portion of our exposure that arises from GMWB benefits.
Depending on the contract, the GMDB feature may provide a death benefit of either (a) total deposits made to the contract less any
partial withdrawals plus a minimum return (and in rare instances, no minimum return) or (b) the highest contract value attained,
typically on any anniversary date minus any subsequent withdrawals following the contract anniversary. GMDB is our most widely
15. Debt
The liability for GMDB, which is recorded in Future policy benefits, represents the expected value of benefits in excess of the
projected account value, with the excess recognized ratably over the accumulation period based on total expected assessments,
through Policyholder benefits and losses incurred. The net amount at risk for GMDB represents the amount of benefits in excess of
account value if death claims were filed on all contracts on the balance sheet date.
The following table presents details concerning our GMDB exposures, by benefit type:
Our long-term debt is denominated in various currencies, with both fixed and variable interest rates. Long-term debt is carried at the
principal amount borrowed, including unamortized discounts, hedge accounting valuation adjustments and fair value adjustments,
when applicable.
The following table lists our total debt outstanding at December 31, 2017 and 2016. The interest rates presented in the
following table are the range of contractual rates in effect at December 31, 2017, including fixed and variable-rates:
2017
Net Deposits
2016
Net Deposits
Plus a Minimum
Highest Contract
Plus a Minimum
Return
Value Attained
$
99 $
1
63
$
17
-
68
Highest Contract
Value Attained
16
1
68
Return
91 $
1
63
0%-4.5%
Average attained age of contract holders by product
Range of guaranteed minimum return rates
0%-4.5%
The following summarizes GMDB liability related to variable annuity contracts, excluding assumed reinsurance:
Years Ended December 31,
(in millions)
Balance, beginning of year
Reserve increase (decrease)
Benefits paid
Balance, end of year
Changes in reserves related to unrealized appreciation of investments
2017
402
(14)
(42)
6
352
$
$
2016
491
(32)
(57)
-
402
$
$
2015
420
127
(56)
-
491
$
$
Assumptions used to determine the GMDB liability include interest rates, which vary by year of issuance and products; mortality rates,
which are based upon actual experience modified to allow for variations in policy form; lapse rates, which are based upon actual
experience modified to allow for variations in policy form; investment returns, using assumptions from a randomly generated model;
and asset growth assumptions, which include a reversion to the mean methodology, similar to that applied for DAC.
We regularly evaluate estimates used to determine the GMDB liability and adjust the additional liability balance, with a related charge
or credit to Policyholder benefits and losses incurred, if actual experience or other evidence suggests that earlier assumptions should
be revised.
GMWB
Certain of our variable annuity contracts contain optional GMWB benefits and, to a lesser extent, guaranteed minimum accumulation
benefits, which are not currently offered. With a GMWB, the contract holder can monetize the excess of the guaranteed amount over
the account value of the contract only through a series of withdrawals that do not exceed a specific percentage per year of the
guaranteed amount. If, after the series of withdrawals, the account value is exhausted, the contract holder will receive a series of
At December 31, 2017
(in millions)
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable
Junior subordinated debt
AIG Japan Holdings Kabushiki Kaisha
AIGLH notes and bonds payable
AIGLH junior subordinated debt
Total AIG general borrowings
AIG borrowings supported by assets:(a)
MIP notes payable
Series AIGFP matched notes and bonds payable
GIAs, at fair value
Notes and bonds payable, at fair value
Total AIG borrowings supported by assets
Total debt issued or guaranteed by AIG
Debt not guaranteed by AIG:
Other subsidiaries notes, bonds, loans and
mortgages payable
Debt of consolidated investments(b)
Total debt not guaranteed by AIG
Total long term debt
Range of
Interest Rate(s)
Maturity
Date(s)
Balance at
Balance at
December 31,
December 31,
2017
2016
0% - 8.13%
2018 - 2097
$
20,339
$
19,432
4.88% - 8.63%
0.28% - 0.44%
6.63% - 7.50%
7.57% - 8.50%
2.72% - 2.95%
1.21% - 1.30%
0.50% - 7.62%
0.50% - 9.97%
2037 - 2058
2020 - 2021
2025 - 2029
2030 - 2046
2018
2046 - 2047
2018 - 2053
2018 - 2040
1.40% - 1.57%
2018
0% - 9.31%
2018 - 2065
841
334
281
361
22,156
356
21
2,707
181
3,265
25,421
190
6,029
6,219
843
330
281
361
21,247
1,099
32
2,934
494
4,559
25,806
735
4,371
5,106
$
31,640
$
30,912
(a) AIG Parent guarantees all such debt, except for MIP notes payable and Series AIGFP matched notes and bonds payable, which are direct obligations of AIG
Parent. Collateral posted to third parties was $2.0 billion and $2.2 billion at December 31, 2017 and December 31, 2016, respectively. This collateral primarily consists
of securities of the U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties.
(b) At December 31, 2017, includes debt of consolidated investment vehicles related to real estate investments of $2.5 billion, affordable housing partnership investments
of $1.8 billion and other securitization vehicles of $1.7 billion. At December 31, 2016, includes debt of consolidated investment vehicles related to real estate
investments of $1.9 billion, affordable housing partnership investments of $1.7 billion and other securitization vehicles of $771 million.
264
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
265
1011252ai_financials.indd 265
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 The following table presents maturities of long-term debt (including unamortized original issue discount, hedge accounting
valuation adjustments and fair value adjustments, when applicable), excluding $6.0 billion in borrowings of debt of
consolidated investments:
16. Contingencies, Commitments and Guarantees
ITEM 8 | Notes to Consolidated Financial Statements | 15 . De b t
ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
Total
2018
2019
2020
2021
2022
Thereafter
Year Ending
In the normal course of business, various contingent liabilities and commitments are entered into by AIG and our subsidiaries. In
addition, AIG Parent guarantees various obligations of certain subsidiaries.
December 31, 2017
(in millions)
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable
Junior subordinated debt
AIG Japan Holdings Kabushiki Kaisha
AIGLH notes and bonds payable
AIGLH junior subordinated debt
Total AIG general borrowings
AIG borrowings supported by assets:
MIP notes payable
Series AIGFP matched notes and
bonds payable
GIAs, at fair value
Notes and bonds payable, at fair value
Total AIG borrowings supported by assets
Total debt issued or guaranteed by AIG
Other subsidiaries notes, bonds, loans
$
20,339 $ 1,107 $
998 $ 1,343 $ 1,496 $ 1,507 $
841
334
281
361
22,156
-
-
-
-
1,107
356
356
21
2,707
181
3,265
25,421
-
506
126
988
2,095
-
-
-
-
998
-
-
265
-
265
1,263
-
115
-
-
1,458
-
219
-
-
1,715
-
-
-
-
1,507
-
30
-
30
1,488
-
202
-
202
1,917
-
47
-
47
1,554
-
-
-
-
13,888
841
-
281
361
15,371
21
1,657
55
1,733
17,104
-
17,104
and mortgages payable
Total
190
190
-
-
-
-
$
25,611 $ 2,285 $ 1,263 $ 1,488 $ 1,917 $ 1,554 $
Uncollateralized and collateralized notes, bonds, loans and mortgages payable consisted of the following:
At December 31, 2017
(in millions)
AIG general borrowings
Other subsidiaries notes, bonds, loans and mortgages payable*
Total
*
AIG does not guarantee any of these borrowings.
Uncollateralized
Notes/Bonds/Loans
Payable
334
-
334
$
$
$
$
Collateralized
Loans and
Mortgages Payable
- $
190
190
$
Total
334
190
524
AIGLH JUNIOR SUBORDINATED DEBENTURES (FORMERLY, LIABILITIES CONNECTED TO TRUST
PREFERRED STOCK)
In connection with our acquisition of AIG Life Holdings, Inc. (AIGLH) in 2001, we entered into arrangements with AIGLH with respect
to outstanding AIGLH capital securities. In 1996, AIGLH issued capital securities through a trust to institutional investors and funded
the trust with AIGLH junior subordinated debentures issued to the trust with the same terms as the capital securities.
On July 11, 2013, the AIGLH junior subordinated debentures were distributed to holders of the capital securities, the capital securities
were cancelled and the trusts were dissolved. At December 31, 2017, the junior subordinated debentures outstanding consisted of
$113 million of 8.5 percent junior subordinated debentures due July 2030, $211 million of 8.125 percent junior subordinated
debentures due March 2046 and $37 million of 7.57 percent junior subordinated debentures due December 2045, each guaranteed
by AIG Parent.
CREDIT FACILITIES
We maintain a committed, revolving syndicated credit facility (the Facility) as a potential source of liquidity for general corporate
purposes. The Facility provides for aggregate commitments by the bank syndicate to provide unsecured revolving loans and/or
standby letters of credit of up to $4.5 billion without any limits on the type of borrowings and is scheduled to expire in June 2022.
At December 31, 2017
(in millions)
Syndicated Credit Facility
Size
4,500
$
Available
Amount
4,500
$
Expiration
June 2022
Effective
Date
6/27/2017
Although AIG cannot currently quantify its ultimate liability for unresolved litigation and investigation matters, including those referred
to below, it is possible that such liability could have a material adverse effect on AIGs consolidated financial condition or its
consolidated results of operations or consolidated cash flows for an individual reporting period.
LEGAL CONTINGENCIES
In the normal course of business, AIG and our subsidiaries are, like others in the insurance and financial services
Overview.
industries in general, subject to regulatory and government investigations and actions, and litigation and other forms of dispute
resolution in a large number of proceedings pending in various domestic and foreign jurisdictions. Certain of these matters involve
potentially significant risk of loss due to potential for significant jury awards and settlements, punitive damages or other penalties.
Many of these matters are also highly complex and seek recovery on behalf of a class or similarly large number of plaintiffs. It is
therefore inherently difficult to predict the size or scope of potential future losses arising from these matters.
reinsurance operations, litigation and arbitration concerning the scope of coverage under insurance and reinsurance contracts, and
litigation and arbitration in which our subsidiaries defend or indemnify their insureds under insurance contracts, are generally
considered in the establishment of our loss reserves. Separate and apart from the foregoing matters involving insurance and
reinsurance coverage, AIG, our subsidiaries and their respective officers and directors are subject to a variety of additional types of
legal proceedings brought by holders of AIG securities, customers, employees and others, alleging, among other things, breach of
contractual or fiduciary duties, bad faith and violations of federal and state statutes and regulations. With respect to these other
categories of matters not arising out of claims for insurance or reinsurance coverage, we establish reserves for loss contingencies
when it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated.
unable to determine whether a loss is probable or to reasonably estimate the amount of such a loss and, therefore, the potential
future losses arising from legal proceedings may exceed the amount of liabilities that we have recorded in our financial statements
covering these matters. While such potential future charges could be material, based on information currently known to management,
management does not believe, other than may be discussed below, that any such charges are likely to have a material adverse effect
on our financial position or results of operation.
In many instances, we are
In our insurance and
Additionally, from time to time, various regulatory and governmental agencies review the transactions and practices of AIG and our
subsidiaries in connection with industry-wide and other inquiries into, among other matters, the business practices of current and
former operating insurance subsidiaries. We have cooperated, and will continue to cooperate, in producing documents and other
information in response to such requests.
AIGs Subprime Exposure, AIGFP Credit Default Swap Portfolio and Related Matters
AIG, AIG Financial Products Corp. and related subsidiaries (collectively AIGFP), and certain directors and officers of AIG, AIGFP and
other AIG subsidiaries have been named in various actions relating to our exposure to the U.S. residential subprime mortgage market,
unrealized market valuation losses on AIGFPs super senior credit default swap portfolio, losses and liquidity constraints relating to
our securities lending program and related disclosure and other matters (Subprime Exposure Issues).
As noted below, all of the actions relating to the Subprime Exposure Issues have been resolved.
Consolidated 2008 Securities Litigation. On May 19, 2009, a consolidated class action complaint, resulting from the consolidation
of eight purported securities class actions filed between May 2008 and January 2009, was filed against AIG and certain directors and
officers of AIG and AIGFP, AIGs outside auditors, and the underwriters of various securities offerings in the United States District
Court for the Southern District of New York (SDNY) in In re American International Group, Inc. 2008 Securities Litigation (the
Consolidated 2008 Securities Litigation), asserting claims under the Securities Exchange Act of 1934, as amended (the Exchange
Act), and claims under the Securities Act of 1933, as amended (the Securities Act), for allegedly materially false and misleading
statements in AIGs public disclosures from March 16, 2006 to September 16, 2008 relating to, among other things, the Subprime
Exposure Issues.
In 2014, lead plaintiff, AIG and AIGs outside auditor accepted mediators proposals to settle the Consolidated 2008 Securities
Litigation against all defendants. On October 22, 2014, AIG paid the settlement amount of $960 million. On March 20, 2015, the Court
issued an Order and Final Judgment approving the class settlement and dismissing the action with prejudice, and the AIG settlement
became final on June 29, 2015.
266
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
267
1011252ai_financials.indd 266
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 consolidated investments:
December 31, 2017
(in millions)
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable
Junior subordinated debt
AIG Japan Holdings Kabushiki Kaisha
AIGLH notes and bonds payable
AIGLH junior subordinated debt
Total AIG general borrowings
AIG borrowings supported by assets:
MIP notes payable
Series AIGFP matched notes and
bonds payable
GIAs, at fair value
Notes and bonds payable, at fair value
Total AIG borrowings supported by assets
Total debt issued or guaranteed by AIG
Other subsidiaries notes, bonds, loans
and mortgages payable
Total
$
20,339 $ 1,107 $
998 $ 1,343 $ 1,496 $ 1,507 $
13,888
22,156
1,107
998
1,458
1,715
1,507
15,371
-
-
-
-
-
356
356
841
334
281
361
21
2,707
181
3,265
25,421
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
841
-
281
361
1,657
21
55
1,733
17,104
-
-
506
126
988
2,095
265
265
1,263
30
30
1,488
202
202
1,917
47
47
1,554
190
190
$
25,611 $ 2,285 $ 1,263 $ 1,488 $ 1,917 $ 1,554 $
17,104
Uncollateralized and collateralized notes, bonds, loans and mortgages payable consisted of the following:
The following table presents maturities of long-term debt (including unamortized original issue discount, hedge accounting
valuation adjustments and fair value adjustments, when applicable), excluding $6.0 billion in borrowings of debt of
16. Contingencies, Commitments and Guarantees
ITEM 8 | Notes to Consolidated Financial Statements | 15 . De b t
ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
Total
2018
2019
2020
2021
2022
Thereafter
Year Ending
In the normal course of business, various contingent liabilities and commitments are entered into by AIG and our subsidiaries. In
addition, AIG Parent guarantees various obligations of certain subsidiaries.
115
219
LEGAL CONTINGENCIES
Although AIG cannot currently quantify its ultimate liability for unresolved litigation and investigation matters, including those referred
to below, it is possible that such liability could have a material adverse effect on AIGs consolidated financial condition or its
consolidated results of operations or consolidated cash flows for an individual reporting period.
Other subsidiaries notes, bonds, loans and mortgages payable*
At December 31, 2017
(in millions)
AIG general borrowings
Total
*
AIG does not guarantee any of these borrowings.
PREFERRED STOCK)
Uncollateralized
Notes/Bonds/Loans
Collateralized
Loans and
Payable
Mortgages Payable
$
$
334
-
334
$
$
- $
190
190
$
Total
334
190
524
AIGLH JUNIOR SUBORDINATED DEBENTURES (FORMERLY, LIABILITIES CONNECTED TO TRUST
In connection with our acquisition of AIG Life Holdings, Inc. (AIGLH) in 2001, we entered into arrangements with AIGLH with respect
to outstanding AIGLH capital securities. In 1996, AIGLH issued capital securities through a trust to institutional investors and funded
the trust with AIGLH junior subordinated debentures issued to the trust with the same terms as the capital securities.
On July 11, 2013, the AIGLH junior subordinated debentures were distributed to holders of the capital securities, the capital securities
were cancelled and the trusts were dissolved. At December 31, 2017, the junior subordinated debentures outstanding consisted of
$113 million of 8.5 percent junior subordinated debentures due July 2030, $211 million of 8.125 percent junior subordinated
debentures due March 2046 and $37 million of 7.57 percent junior subordinated debentures due December 2045, each guaranteed
by AIG Parent.
CREDIT FACILITIES
At December 31, 2017
(in millions)
Syndicated Credit Facility
We maintain a committed, revolving syndicated credit facility (the Facility) as a potential source of liquidity for general corporate
purposes. The Facility provides for aggregate commitments by the bank syndicate to provide unsecured revolving loans and/or
standby letters of credit of up to $4.5 billion without any limits on the type of borrowings and is scheduled to expire in June 2022.
Available
Size
Amount
Expiration
Effective
Date
$
4,500
$
4,500
June 2022
6/27/2017
In the normal course of business, AIG and our subsidiaries are, like others in the insurance and financial services
Overview.
industries in general, subject to regulatory and government investigations and actions, and litigation and other forms of dispute
resolution in a large number of proceedings pending in various domestic and foreign jurisdictions. Certain of these matters involve
potentially significant risk of loss due to potential for significant jury awards and settlements, punitive damages or other penalties.
Many of these matters are also highly complex and seek recovery on behalf of a class or similarly large number of plaintiffs. It is
In our insurance and
therefore inherently difficult to predict the size or scope of potential future losses arising from these matters.
reinsurance operations, litigation and arbitration concerning the scope of coverage under insurance and reinsurance contracts, and
litigation and arbitration in which our subsidiaries defend or indemnify their insureds under insurance contracts, are generally
considered in the establishment of our loss reserves. Separate and apart from the foregoing matters involving insurance and
reinsurance coverage, AIG, our subsidiaries and their respective officers and directors are subject to a variety of additional types of
legal proceedings brought by holders of AIG securities, customers, employees and others, alleging, among other things, breach of
contractual or fiduciary duties, bad faith and violations of federal and state statutes and regulations. With respect to these other
categories of matters not arising out of claims for insurance or reinsurance coverage, we establish reserves for loss contingencies
In many instances, we are
when it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated.
unable to determine whether a loss is probable or to reasonably estimate the amount of such a loss and, therefore, the potential
future losses arising from legal proceedings may exceed the amount of liabilities that we have recorded in our financial statements
covering these matters. While such potential future charges could be material, based on information currently known to management,
management does not believe, other than may be discussed below, that any such charges are likely to have a material adverse effect
on our financial position or results of operation.
Additionally, from time to time, various regulatory and governmental agencies review the transactions and practices of AIG and our
subsidiaries in connection with industry-wide and other inquiries into, among other matters, the business practices of current and
former operating insurance subsidiaries. We have cooperated, and will continue to cooperate, in producing documents and other
information in response to such requests.
AIGs Subprime Exposure, AIGFP Credit Default Swap Portfolio and Related Matters
AIG, AIG Financial Products Corp. and related subsidiaries (collectively AIGFP), and certain directors and officers of AIG, AIGFP and
other AIG subsidiaries have been named in various actions relating to our exposure to the U.S. residential subprime mortgage market,
unrealized market valuation losses on AIGFPs super senior credit default swap portfolio, losses and liquidity constraints relating to
our securities lending program and related disclosure and other matters (Subprime Exposure Issues).
As noted below, all of the actions relating to the Subprime Exposure Issues have been resolved.
Consolidated 2008 Securities Litigation. On May 19, 2009, a consolidated class action complaint, resulting from the consolidation
of eight purported securities class actions filed between May 2008 and January 2009, was filed against AIG and certain directors and
officers of AIG and AIGFP, AIGs outside auditors, and the underwriters of various securities offerings in the United States District
Court for the Southern District of New York (SDNY) in In re American International Group, Inc. 2008 Securities Litigation (the
Consolidated 2008 Securities Litigation), asserting claims under the Securities Exchange Act of 1934, as amended (the Exchange
Act), and claims under the Securities Act of 1933, as amended (the Securities Act), for allegedly materially false and misleading
statements in AIGs public disclosures from March 16, 2006 to September 16, 2008 relating to, among other things, the Subprime
Exposure Issues.
In 2014, lead plaintiff, AIG and AIGs outside auditor accepted mediators proposals to settle the Consolidated 2008 Securities
Litigation against all defendants. On October 22, 2014, AIG paid the settlement amount of $960 million. On March 20, 2015, the Court
issued an Order and Final Judgment approving the class settlement and dismissing the action with prejudice, and the AIG settlement
became final on June 29, 2015.
266
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
267
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
Individual Securities Litigations. Between November 18, 2011 and February 9, 2015, eleven separate, though similar, securities
actions (Individual Securities Litigations) were filed in or transferred to the SDNY, asserting claims substantially similar to those in the
Consolidated 2008 Securities Litigation against AIG and certain directors and officers of AIG and AIGFP. Two of the actions were
voluntarily dismissed, and the remaining nine have now been settled.
from AIG, AIG intends to assert defenses thereto. A reversal of the Court of Federal Claims June 17, 2015 decision and judgment and
a final determination that the United States is liable for damages, together with a final determination that AIG is obligated to indemnify
the United States for any such damages, could have a material adverse effect on our business, consolidated financial condition and
results of operations.
Starr International Litigation
Tax Litigation.
On November 21, 2011, Starr International Company, Inc. (SICO) filed a complaint against the United States in the United States
Court of Federal Claims (the Court of Federal Claims), bringing claims, both individually and on behalf of the classes defined below
and derivatively on behalf of AIG (the SICO Treasury Action). The complaint challenges the governments assistance of AIG, pursuant
to which AIG entered into a credit facility with the Federal Reserve Bank of New York (the FRBNY, and such credit facility, the FRBNY
Credit Facility) and the United States received an approximately 80 percent ownership in AIG. The complaint alleges that the interest
rate imposed on AIG and the appropriation of approximately 80 percent of AIGs equity was discriminatory, unprecedented, and
inconsistent with liquidity assistance offered by the government to other comparable firms at the time and violated the Equal
Protection, Due Process, and Takings Clauses of the U.S. Constitution.
In the SICO Treasury Action, the only claims naming AIG as a party (as a nominal defendant) are derivative claims on behalf of AIG.
On September 21, 2012, SICO made a pre-litigation demand on our Board demanding that we pursue the derivative claims or allow
SICO to pursue the claims on our behalf. On January 9, 2013, our Board unanimously refused SICOs demand in its entirety and on
January 23, 2013, counsel for the Board sent a letter to counsel for SICO describing the process by which our Board considered and
refused SICOs demand and stating the reasons for our Boards determination.
On March 11, 2013, SICO filed a second amended complaint in the SICO Treasury Action alleging that its demand was wrongfully
refused. On June 26, 2013, the Court of Federal Claims granted AIGs and the United States motions to dismiss SICOs derivative
claims in the SICO Treasury Action due to our Boards refusal of SICOs demand and denied the United States motion to dismiss
SICOs direct, non-derivative claims.
On March 11, 2013, the Court of Federal Claims in the SICO Treasury Action granted SICOs motion for class certification of two
classes with respect to SICOs non-derivative claims: (1) persons and entities who held shares of AIG Common Stock on or before
September 16, 2008 and who owned those shares on September 22, 2008 (the Credit Agreement Shareholder Class); and
(2) persons and entities who owned shares of AIG Common Stock on June 30, 2009 and were eligible to vote those shares at AIGs
June 30, 2009 annual meeting of shareholders (the Reverse Stock Split Shareholder Class). SICO has provided notice of class
certification to potential members of the classes, who, pursuant to a court order issued on April 25, 2013, had to return opt-in consent
forms by September 16, 2013 to participate in either class. 286,908 holders of AIG Common Stock during the two class periods have
opted into the classes.
On June 15, 2015, the Court of Federal Claims issued its opinion and order in the SICO Treasury Action. The Court found that the
United States exceeded its statutory authority by exacting approximately 80 percent of AIGs equity in exchange for the FRBNY Credit
Facility, but that AIG shareholders suffered no damages as a result. SICO argued during trial that the two classes are entitled to a
total of approximately $40 billion in damages, plus interest. The Court also found that the United States was not liable to the Reverse
Stock Split Class in connection with the reverse stock split vote at the June 30, 2009 annual meeting of shareholders.
On June 17, 2015, the Court of Federal Claims entered judgment stating that the Credit Agreement Shareholder Class shall prevail
on liability due to the Government's illegal exaction, but shall recover zero damages, and that the Reverse Stock Split Shareholder
Class shall not prevail on liability or damages. SICO filed a notice of appeal of the July 2, 2012 dismissal of SICOs unconstitutional
conditions claim, the June 26, 2013 dismissal of SICOs derivative claims, the Courts June 15, 2015 opinion and order, and the
Courts June 17, 2015 judgment to the United States Court of Appeals for the Federal Circuit. The United States filed a notice of cross
appeal of the Courts July 2, 2012 opinion and order denying in part its motion to dismiss, the Courts June 26, 2013 opinion and order
denying its motion to dismiss SICOs direct claims, the Courts June 15, 2015 opinion and order, and the Courts June 17, 2015
judgment to the United States Court of Appeals for the Federal Circuit. On May 9, 2017, the Court of Appeals for the Federal Circuit:
(i) vacated the Court of Federal Claims judgment on the Credit Agreement Shareholder Class and remanded with instructions for
dismissal of that class, and (ii) affirmed the finding of no liability with respect to the Reverse Stock Split Class.
On October 6, 2017, SICO filed a petition for writ of certiorari with the United States Supreme Court.
In the Court of Federal Claims, the United States has alleged, as an affirmative defense in its answer, that AIG is obligated to
indemnify the FRBNY and its representatives, including the Federal Reserve Board of Governors and the United States (as the
FRBNYs principal), for any recovery in the SICO Treasury Action.
AIG believes that any indemnification obligation would arise only if: (a) SICO prevails on its appeal and ultimately receives an award
of damages; (b) the United States then commences an action against AIG seeking indemnification; and (c) the United States is
successful in such an action through any appellate process. If SICO prevails on its claims and the United States seeks indemnification
We are party to pending tax litigation before the Southern District of New York. For additional information see Note 23 to the
Consolidated Financial Statements.
COMMITMENTS
We occupy leased space in many locations under various long-term leases and have entered into various leases covering the long-
term use of data processing equipment.
The following table presents the future minimum lease payments under operating leases at December 31, 2017:
(in millions)
2018
2019
2020
2021
2022
Remaining years after 2022
Total
$
$
243
179
137
95
59
120
833
Rent expense was $269 million, $331 million and $327 million for the years ended December 31, 2017, 2016 and 2015, respectively.
OTHER COMMITMENTS
In the normal course of business, we enter into commitments to invest in limited partnerships, private equity funds and hedge funds
and to purchase and develop real estate in the U.S. and abroad. These commitments totaled $3.2 billion at December 31, 2017.
GUARANTEES
Subsidiaries
We have issued unconditional guarantees with respect to the prompt payment, when due, of all present and future payment
obligations and liabilities of AIGFP and of AIG Markets arising from transactions entered into by AIG Markets.
In connection with AIGFPs business activities, AIGFP has issued, in a limited number of transactions, standby letters of credit or
similar facilities to equity investors of structured leasing transactions in an amount equal to the termination value owing to the equity
investor by the lessee in the event of a lessee default (the equity termination value). The total amount outstanding at December 31,
2017 was $139 million. In those transactions, AIGFP has agreed to pay such amount if the lessee fails to pay. The amount payable by
AIGFP is, in certain cases, partially offset by amounts payable under other instruments typically equal to the present value of
scheduled payments to be made by AIGFP. In the event that AIGFP is required to make a payment to the equity investor, the lessee is
unconditionally obligated to reimburse AIGFP. To the extent that the equity investor is paid the equity termination value from the
standby letter of credit and/or other sources, including payments by the lessee, AIGFP takes an assignment of the equity investors
rights under the lease of the underlying property. Because the obligations of the lessee under the lease transactions are generally
economically defeased, lessee bankruptcy is the most likely circumstance in which AIGFP would be required to pay without
reimbursement.
AIG Parent files a consolidated federal income tax return with certain subsidiaries and acts as an agent for the consolidated tax group
when making payments to the Internal Revenue Service (IRS). AIG Parent and its subsidiaries have adopted, pursuant to a written
agreement, a method of allocating consolidated federal income taxes. Under an Amended and Restated Tax Payment Allocation
Agreement dated June 6, 2011 between AIG Parent and one of its Bermuda-domiciled insurance subsidiaries, AIG Life of Bermuda,
Ltd. (AIGB), AIG Parent has agreed to indemnify AIGB for any tax liability (including interest and penalties) resulting from adjustments
made by the IRS or other appropriate authorities to taxable income, special deductions or credits in connection with investments
made by AIGB in certain affiliated entities.
268
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
269
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
Individual Securities Litigations. Between November 18, 2011 and February 9, 2015, eleven separate, though similar, securities
actions (Individual Securities Litigations) were filed in or transferred to the SDNY, asserting claims substantially similar to those in the
Consolidated 2008 Securities Litigation against AIG and certain directors and officers of AIG and AIGFP. Two of the actions were
voluntarily dismissed, and the remaining nine have now been settled.
from AIG, AIG intends to assert defenses thereto. A reversal of the Court of Federal Claims June 17, 2015 decision and judgment and
a final determination that the United States is liable for damages, together with a final determination that AIG is obligated to indemnify
the United States for any such damages, could have a material adverse effect on our business, consolidated financial condition and
results of operations.
Starr International Litigation
Tax Litigation.
On November 21, 2011, Starr International Company, Inc. (SICO) filed a complaint against the United States in the United States
Court of Federal Claims (the Court of Federal Claims), bringing claims, both individually and on behalf of the classes defined below
and derivatively on behalf of AIG (the SICO Treasury Action). The complaint challenges the governments assistance of AIG, pursuant
to which AIG entered into a credit facility with the Federal Reserve Bank of New York (the FRBNY, and such credit facility, the FRBNY
Credit Facility) and the United States received an approximately 80 percent ownership in AIG. The complaint alleges that the interest
rate imposed on AIG and the appropriation of approximately 80 percent of AIGs equity was discriminatory, unprecedented, and
inconsistent with liquidity assistance offered by the government to other comparable firms at the time and violated the Equal
We are party to pending tax litigation before the Southern District of New York. For additional information see Note 23 to the
Consolidated Financial Statements.
COMMITMENTS
We occupy leased space in many locations under various long-term leases and have entered into various leases covering the long-
term use of data processing equipment.
Protection, Due Process, and Takings Clauses of the U.S. Constitution.
The following table presents the future minimum lease payments under operating leases at December 31, 2017:
In the SICO Treasury Action, the only claims naming AIG as a party (as a nominal defendant) are derivative claims on behalf of AIG.
On September 21, 2012, SICO made a pre-litigation demand on our Board demanding that we pursue the derivative claims or allow
SICO to pursue the claims on our behalf. On January 9, 2013, our Board unanimously refused SICOs demand in its entirety and on
January 23, 2013, counsel for the Board sent a letter to counsel for SICO describing the process by which our Board considered and
refused SICOs demand and stating the reasons for our Boards determination.
On March 11, 2013, SICO filed a second amended complaint in the SICO Treasury Action alleging that its demand was wrongfully
refused. On June 26, 2013, the Court of Federal Claims granted AIGs and the United States motions to dismiss SICOs derivative
claims in the SICO Treasury Action due to our Boards refusal of SICOs demand and denied the United States motion to dismiss
SICOs direct, non-derivative claims.
On March 11, 2013, the Court of Federal Claims in the SICO Treasury Action granted SICOs motion for class certification of two
classes with respect to SICOs non-derivative claims: (1) persons and entities who held shares of AIG Common Stock on or before
September 16, 2008 and who owned those shares on September 22, 2008 (the Credit Agreement Shareholder Class); and
(2) persons and entities who owned shares of AIG Common Stock on June 30, 2009 and were eligible to vote those shares at AIGs
June 30, 2009 annual meeting of shareholders (the Reverse Stock Split Shareholder Class). SICO has provided notice of class
certification to potential members of the classes, who, pursuant to a court order issued on April 25, 2013, had to return opt-in consent
forms by September 16, 2013 to participate in either class. 286,908 holders of AIG Common Stock during the two class periods have
opted into the classes.
On June 15, 2015, the Court of Federal Claims issued its opinion and order in the SICO Treasury Action. The Court found that the
United States exceeded its statutory authority by exacting approximately 80 percent of AIGs equity in exchange for the FRBNY Credit
Facility, but that AIG shareholders suffered no damages as a result. SICO argued during trial that the two classes are entitled to a
total of approximately $40 billion in damages, plus interest. The Court also found that the United States was not liable to the Reverse
Stock Split Class in connection with the reverse stock split vote at the June 30, 2009 annual meeting of shareholders.
On June 17, 2015, the Court of Federal Claims entered judgment stating that the Credit Agreement Shareholder Class shall prevail
on liability due to the Government's illegal exaction, but shall recover zero damages, and that the Reverse Stock Split Shareholder
Class shall not prevail on liability or damages. SICO filed a notice of appeal of the July 2, 2012 dismissal of SICOs unconstitutional
conditions claim, the June 26, 2013 dismissal of SICOs derivative claims, the Courts June 15, 2015 opinion and order, and the
Courts June 17, 2015 judgment to the United States Court of Appeals for the Federal Circuit. The United States filed a notice of cross
appeal of the Courts July 2, 2012 opinion and order denying in part its motion to dismiss, the Courts June 26, 2013 opinion and order
denying its motion to dismiss SICOs direct claims, the Courts June 15, 2015 opinion and order, and the Courts June 17, 2015
judgment to the United States Court of Appeals for the Federal Circuit. On May 9, 2017, the Court of Appeals for the Federal Circuit:
(i) vacated the Court of Federal Claims judgment on the Credit Agreement Shareholder Class and remanded with instructions for
dismissal of that class, and (ii) affirmed the finding of no liability with respect to the Reverse Stock Split Class.
On October 6, 2017, SICO filed a petition for writ of certiorari with the United States Supreme Court.
In the Court of Federal Claims, the United States has alleged, as an affirmative defense in its answer, that AIG is obligated to
indemnify the FRBNY and its representatives, including the Federal Reserve Board of Governors and the United States (as the
FRBNYs principal), for any recovery in the SICO Treasury Action.
AIG believes that any indemnification obligation would arise only if: (a) SICO prevails on its appeal and ultimately receives an award
of damages; (b) the United States then commences an action against AIG seeking indemnification; and (c) the United States is
successful in such an action through any appellate process. If SICO prevails on its claims and the United States seeks indemnification
(in millions)
2018
2019
2020
2021
2022
Remaining years after 2022
Total
$
$
243
179
137
95
59
120
833
Rent expense was $269 million, $331 million and $327 million for the years ended December 31, 2017, 2016 and 2015, respectively.
OTHER COMMITMENTS
In the normal course of business, we enter into commitments to invest in limited partnerships, private equity funds and hedge funds
and to purchase and develop real estate in the U.S. and abroad. These commitments totaled $3.2 billion at December 31, 2017.
GUARANTEES
Subsidiaries
We have issued unconditional guarantees with respect to the prompt payment, when due, of all present and future payment
obligations and liabilities of AIGFP and of AIG Markets arising from transactions entered into by AIG Markets.
In connection with AIGFPs business activities, AIGFP has issued, in a limited number of transactions, standby letters of credit or
similar facilities to equity investors of structured leasing transactions in an amount equal to the termination value owing to the equity
investor by the lessee in the event of a lessee default (the equity termination value). The total amount outstanding at December 31,
2017 was $139 million. In those transactions, AIGFP has agreed to pay such amount if the lessee fails to pay. The amount payable by
AIGFP is, in certain cases, partially offset by amounts payable under other instruments typically equal to the present value of
scheduled payments to be made by AIGFP. In the event that AIGFP is required to make a payment to the equity investor, the lessee is
unconditionally obligated to reimburse AIGFP. To the extent that the equity investor is paid the equity termination value from the
standby letter of credit and/or other sources, including payments by the lessee, AIGFP takes an assignment of the equity investors
rights under the lease of the underlying property. Because the obligations of the lessee under the lease transactions are generally
economically defeased, lessee bankruptcy is the most likely circumstance in which AIGFP would be required to pay without
reimbursement.
AIG Parent files a consolidated federal income tax return with certain subsidiaries and acts as an agent for the consolidated tax group
when making payments to the Internal Revenue Service (IRS). AIG Parent and its subsidiaries have adopted, pursuant to a written
agreement, a method of allocating consolidated federal income taxes. Under an Amended and Restated Tax Payment Allocation
Agreement dated June 6, 2011 between AIG Parent and one of its Bermuda-domiciled insurance subsidiaries, AIG Life of Bermuda,
Ltd. (AIGB), AIG Parent has agreed to indemnify AIGB for any tax liability (including interest and penalties) resulting from adjustments
made by the IRS or other appropriate authorities to taxable income, special deductions or credits in connection with investments
made by AIGB in certain affiliated entities.
268
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
269
1011252ai_financials.indd 269
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
Asset Dispositions
We are subject to financial guarantees and indemnity arrangements in connection with the completed sales of businesses pursuant to
our asset disposition plan. The various arrangements may be triggered by, among other things, declines in asset values, the
occurrence of specified business contingencies, the realization of contingent liabilities, developments in litigation or breaches of
representations, warranties or covenants provided by us. These arrangements are typically subject to various time limitations, defined
by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to
contractual limitations, while in other cases such limitations are not specified or are not applicable.
We are unable to develop a reasonable estimate of the maximum potential payout under certain of these arrangements. Overall, we
believe that it is unlikely we will have to make any material payments related to completed sales under these arrangements, and no
material liabilities related to these arrangements have been recorded in the Consolidated Balance Sheets.
Other
For additional discussion on commitments and guarantees associated with VIEs see Note 10 to the Consolidated Financial
Statements.
For additional disclosures about derivatives see Note 11 to the Consolidated Financial Statements.
For additional disclosures about guarantees of outstanding debt see Note 25 to the Consolidated Financial Statements.
17. Equity
SHARES OUTSTANDING
The following table presents a rollforward of outstanding shares:
Common
Treasury Common Stock
Stock Issued
Stock
Outstanding
1,906,671,492
(530,744,521) 1,375,926,971
-
-
371,806
371,806
(182,382,160)
(182,382,160)
1,906,671,492
(712,754,875) 1,193,916,617
1,906,671,492
(712,754,875) 1,193,916,617
-
-
2,069,110
2,069,110
(200,649,886)
(200,649,886)
Year Ended December 31, 2015
Shares, beginning of year
Shares issued
Shares repurchased
Shares, end of year
Year Ended December 31, 2016
Shares, beginning of year
Shares issued
Shares repurchased
Shares, end of year
Year Ended December 31, 2017
Shares, beginning of year
Shares issued
Shares repurchased
Shares, end of year
DIVIDENDS
Dividends are payable on AIG Common Stock only when, as and if declared by our Board of Directors in its discretion, from funds
legally available for this purpose. In considering whether to pay a dividend on or purchase shares of AIG Common Stock, our Board of
Directors considers a number of factors, including, but not limited to: the capital resources available to support our insurance
operations and business strategies, AIGs funding capacity and capital resources in comparison to internal benchmarks, expectations
for capital generation, rating agency expectations for capital, regulatory standards for capital and capital distributions, and such other
factors as our Board of Directors may deem relevant.
The following table presents record date, payment date and dividends paid per share on AIG Common Stock:
Record Date
December 8, 2017
September 15, 2017
June 14, 2017
March 15, 2017
December 8, 2016
September 15, 2016
June 13, 2016
March 14, 2016
December 7, 2015
September 14, 2015
June 11, 2015
March 12, 2015
Payment Date
December 22, 2017
September 29, 2017
June 28, 2017
March 29, 2017
December 22, 2016
September 29, 2016
June 27, 2016
March 28, 2016
December 21, 2015
September 28, 2015
June 25, 2015
March 26, 2015
REPURCHASE OF AIG COMMON STOCK
Dividends Paid
Per Share
$
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.28
0.28
0.125
0.125
The following table presents repurchases of AIG Common Stock and warrants to purchase shares of AIG Common Stock:
Years Ended December 31,
(in millions)
Aggregate repurchases of common stock
Total number of common shares repurchased
Aggregate repurchases of warrants
Total number of warrants repurchased(b)
$
$
2017
100
3 $
-
2016
2015 (a)
6,275 $
11,460 $
10,691
201
309 $
17
182
-
-
1,906,671,492
(911,335,651)
995,335,841
(a) The total number of shares of AIG Common Stock repurchased in 2015 includes (but the aggregate purchase price does not include) approximately 3.5 million shares of
AIG Common Stock received in January 2015 upon the settlement of an accelerated stock repurchase (ASR) agreement executed in the fourth quarter of 2014.
1,906,671,492
(911,335,651)
995,335,841
(b) In 2017, we repurchased 185,000 warrants to purchase shares of AIG Common Stock.
-
-
3,386,462
3,386,462
(99,677,646)
(99,677,646)
1,906,671,492
(1,007,626,835)
899,044,657
Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG
Common Stock through a series of actions. On May 3, 2017, our Board of Directors authorized an additional increase of $2.5 billion to
its previous share repurchase authorization. As of December 31, 2017, approximately $2.3 billion remained under our share
repurchase authorization. Shares may be repurchased from time to time in the open market, private purchases, through forward,
derivative, accelerated repurchase or automatic repurchase transactions or otherwise (including through the purchase of warrants).
Certain of our share repurchases have been and may from time to time be effected through Exchange Act Rule 10b5-1 repurchase
plans.
The timing of any future repurchases will depend on market conditions, our business and strategic plans, financial condition, results of
operations, liquidity and other factors.
270
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
271
1011252ai_financials.indd 270
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 16 . C o n ti ng e nc ie s, Co m m it m en t s a n d Gu ara n te es
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
Asset Dispositions
We are subject to financial guarantees and indemnity arrangements in connection with the completed sales of businesses pursuant to
our asset disposition plan. The various arrangements may be triggered by, among other things, declines in asset values, the
occurrence of specified business contingencies, the realization of contingent liabilities, developments in litigation or breaches of
representations, warranties or covenants provided by us. These arrangements are typically subject to various time limitations, defined
by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to
contractual limitations, while in other cases such limitations are not specified or are not applicable.
We are unable to develop a reasonable estimate of the maximum potential payout under certain of these arrangements. Overall, we
believe that it is unlikely we will have to make any material payments related to completed sales under these arrangements, and no
material liabilities related to these arrangements have been recorded in the Consolidated Balance Sheets.
Other
Statements.
For additional discussion on commitments and guarantees associated with VIEs see Note 10 to the Consolidated Financial
For additional disclosures about derivatives see Note 11 to the Consolidated Financial Statements.
For additional disclosures about guarantees of outstanding debt see Note 25 to the Consolidated Financial Statements.
Common
Treasury Common Stock
Stock Issued
Stock
Outstanding
1,906,671,492
(530,744,521) 1,375,926,971
371,806
371,806
(182,382,160)
(182,382,160)
1,906,671,492
(712,754,875) 1,193,916,617
1,906,671,492
(712,754,875) 1,193,916,617
2,069,110
2,069,110
(200,649,886)
(200,649,886)
DIVIDENDS
Dividends are payable on AIG Common Stock only when, as and if declared by our Board of Directors in its discretion, from funds
legally available for this purpose. In considering whether to pay a dividend on or purchase shares of AIG Common Stock, our Board of
Directors considers a number of factors, including, but not limited to: the capital resources available to support our insurance
operations and business strategies, AIGs funding capacity and capital resources in comparison to internal benchmarks, expectations
for capital generation, rating agency expectations for capital, regulatory standards for capital and capital distributions, and such other
factors as our Board of Directors may deem relevant.
The following table presents record date, payment date and dividends paid per share on AIG Common Stock:
Record Date
December 8, 2017
September 15, 2017
June 14, 2017
March 15, 2017
December 8, 2016
September 15, 2016
June 13, 2016
March 14, 2016
December 7, 2015
September 14, 2015
June 11, 2015
March 12, 2015
Payment Date
December 22, 2017
September 29, 2017
June 28, 2017
March 29, 2017
December 22, 2016
September 29, 2016
June 27, 2016
March 28, 2016
December 21, 2015
September 28, 2015
June 25, 2015
March 26, 2015
REPURCHASE OF AIG COMMON STOCK
$
Dividends Paid
Per Share
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.28
0.28
0.125
0.125
The following table presents repurchases of AIG Common Stock and warrants to purchase shares of AIG Common Stock:
Years Ended December 31,
(in millions)
Aggregate repurchases of common stock
Total number of common shares repurchased
Aggregate repurchases of warrants
Total number of warrants repurchased(b)
$
$
2017
6,275 $
100
3 $
-
2016
11,460 $
201
309 $
17
2015 (a)
10,691
182
-
-
1,906,671,492
(911,335,651)
995,335,841
(a) The total number of shares of AIG Common Stock repurchased in 2015 includes (but the aggregate purchase price does not include) approximately 3.5 million shares of
AIG Common Stock received in January 2015 upon the settlement of an accelerated stock repurchase (ASR) agreement executed in the fourth quarter of 2014.
1,906,671,492
(911,335,651)
995,335,841
(b) In 2017, we repurchased 185,000 warrants to purchase shares of AIG Common Stock.
3,386,462
3,386,462
(99,677,646)
(99,677,646)
1,906,671,492
(1,007,626,835)
899,044,657
Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG
Common Stock through a series of actions. On May 3, 2017, our Board of Directors authorized an additional increase of $2.5 billion to
its previous share repurchase authorization. As of December 31, 2017, approximately $2.3 billion remained under our share
repurchase authorization. Shares may be repurchased from time to time in the open market, private purchases, through forward,
derivative, accelerated repurchase or automatic repurchase transactions or otherwise (including through the purchase of warrants).
Certain of our share repurchases have been and may from time to time be effected through Exchange Act Rule 10b5-1 repurchase
plans.
The timing of any future repurchases will depend on market conditions, our business and strategic plans, financial condition, results of
operations, liquidity and other factors.
The following table presents a rollforward of outstanding shares:
17. Equity
SHARES OUTSTANDING
Year Ended December 31, 2015
Shares, beginning of year
Shares issued
Shares repurchased
Shares, end of year
Year Ended December 31, 2016
Shares, beginning of year
Shares issued
Shares repurchased
Shares, end of year
Year Ended December 31, 2017
Shares, beginning of year
Shares issued
Shares repurchased
Shares, end of year
-
-
-
-
-
-
270
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
271
1011252ai_financials.indd 271
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents a rollforward of Accumulated other comprehensive income:
Unrealized Appreciation
(Depreciation) of Fixed
Unrealized
Maturity Securities
Appreciation
Foreign
Retirement
on Which Other-Than-
(Depreciation)
Currency
Plan
Temporary Credit
of All Other
Translation
Liabilities
(in millions)
Balance, January 1, 2015, net of tax
Impairments Were Taken
$
1,043 $
Investments
Adjustments
Adjustment
12,327 $
(1,784) $
(969) $
(488)
(10,519)
Change in unrealized
depreciation of investments
Change in deferred policy
acquisition costs adjustment and other
Change in future policy benefits
Change in foreign currency
translation adjustments
Change in net actuarial gain
Change in prior service credit
Change in deferred tax asset (liability)
Total other comprehensive income (loss)
Noncontrolling interests
Balance, December 31, 2015, net of tax
Change in unrealized
appreciation (depreciation) of investments
Change in deferred policy
acquisition costs adjustment and other
Change in future policy benefits
Change in foreign currency
translation adjustments
Change in net actuarial loss
Change in prior service credit
Change in deferred tax asset
Total other comprehensive income (loss)
Noncontrolling interests
Balance, December 31, 2016, net of tax
Change in unrealized
appreciation of investments
Change in deferred policy
acquisition costs adjustment and other
Change in future policy benefits
Change in foreign currency
translation adjustments
Change in net actuarial gain
Change in prior service cost
Change in deferred tax asset (liability)
Total other comprehensive income
Noncontrolling interests
Balance, December 31, 2017, net of tax
$
$
$
-
-
-
(1,129)
-
-
29
(1,100)
(5)
(2,879) $
-
-
-
93
-
-
157
250
-
1,265
1,112
-
-
-
1,380
(6,762)
(1)
5,566 $
931
286
(676)
-
-
-
298
839
-
6,405 $
(2,629) $
3,668
(1,282)
(1,102)
-
-
-
4
1,288
-
-
-
-
547
-
-
(8)
539
-
7,693 $
(2,090) $
(146)
92
-
-
-
195
(347)
-
696 $
(326)
(19)
-
-
-
-
75
(270)
-
426 $
394
23
-
-
-
-
(50)
367
-
793 $
The following table presents the other comprehensive income (loss) reclassification adjustments for the years ended
December 31, 2017, 2016 and 2015:
Unrealized Appreciation
(Depreciation) of Fixed
Unrealized
Maturity Securities
Appreciation
Foreign
Retirement
on Which Other-
(Depreciation)
Currency
Plan
Than-Temporary Credit
of All Other
Translation
Liabilities
Impairments Were Taken
Investments
Adjustments
Adjustment
Total
(471) $
(7,068) $
(1,129) $
285 $
(8,383)
1,074
(8,142)
(1,380)
(1,129)
(29)
111
174
51
1,256
(9,639)
(1,553)
(347) $
(6,762) $
(1,100) $
123 $
(8,086)
(222) $
1,769 $
93 $
(344) $
1,296
(270) $
839 $
250 $
(126) $
693
467 $
2,052 $
547 $
24 $
3,090
1,228
541
(298)
768
1,284
(4)
(171)
1,180
93
(157)
(173)
(47)
116
(577)
(95)
723
547
8
119
78
2,367
132
71
(542)
(195)
123
(345)
(75)
50
417
50
-
-
-
(in millions)
December 31, 2015
Unrealized change arising during period
Less: Reclassification adjustments
included in net income
Total other comprehensive income (loss),
before income tax expense (benefit)
Less: Income tax expense (benefit)
Total other comprehensive income (loss),
net of income tax expense (benefit)
December 31, 2016
Unrealized change arising during period
Less: Reclassification adjustments
included in net income
Total other comprehensive income (loss),
before income tax expense (benefit)
Less: Income tax benefit
Total other comprehensive income (loss),
net of income tax benefit
December 31, 2017
Unrealized change arising during period
Less: Reclassification adjustments
included in net income
Total other comprehensive income,
before income tax expense
Less: Income tax expense (benefit)
Total other comprehensive income,
$
$
$
$
$
net of income tax expense (benefit)
$
367 $
1,288 $
539 $
41 $
2,235
Total
10,617
(11,007)
1,119
1,204
(1,129)
413
(239)
1,553
(8,086)
(6)
2,537
605
267
(676)
93
(151)
(22)
577
693
-
3,230
4,062
(1,259)
(1,102)
547
110
9
(132)
2,235
-
5,465
-
-
-
-
413
(239)
(51)
123
-
(846) $
-
-
-
-
(151)
(22)
47
(126)
-
(972) $
-
-
-
-
110
9
(78)
41
-
(931) $
272
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
273
1011252ai_financials.indd 272
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents a rollforward of Accumulated other comprehensive income:
Unrealized Appreciation
(Depreciation) of Fixed
Unrealized
Maturity Securities
Appreciation
Foreign
Retirement
on Which Other-Than-
(Depreciation)
Currency
Plan
Temporary Credit
of All Other
Translation
Liabilities
(in millions)
Impairments Were Taken
Investments
Adjustments
Adjustment
Balance, January 1, 2015, net of tax
$
1,043 $
12,327 $
(1,784) $
(969) $
Balance, December 31, 2015, net of tax
$
696 $
5,566 $
(2,879) $
(846) $
Change in unrealized
depreciation of investments
Change in deferred policy
acquisition costs adjustment and other
Change in future policy benefits
Change in foreign currency
translation adjustments
Change in net actuarial gain
Change in prior service credit
Change in deferred tax asset (liability)
Total other comprehensive income (loss)
Noncontrolling interests
Change in unrealized
appreciation (depreciation) of investments
Change in deferred policy
acquisition costs adjustment and other
Change in future policy benefits
Change in foreign currency
translation adjustments
Change in net actuarial loss
Change in prior service credit
Change in deferred tax asset
Total other comprehensive income (loss)
Noncontrolling interests
Change in unrealized
appreciation of investments
Change in deferred policy
acquisition costs adjustment and other
Change in future policy benefits
Change in foreign currency
translation adjustments
Change in net actuarial gain
Change in prior service cost
Change in deferred tax asset (liability)
Total other comprehensive income
Noncontrolling interests
(488)
(10,519)
(146)
92
1,265
1,112
195
(347)
(326)
(19)
1,380
(6,762)
(1)
931
286
(676)
75
(270)
298
839
394
23
3,668
(1,282)
(1,102)
(50)
367
1,288
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,129)
(1,100)
29
(5)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
93
157
250
547
(8)
539
Total
10,617
(11,007)
1,119
1,204
(1,129)
413
(239)
1,553
(8,086)
(6)
2,537
605
267
(676)
93
(151)
(22)
577
693
-
3,230
4,062
(1,259)
(1,102)
547
110
9
(132)
2,235
-
5,465
-
-
-
-
-
-
-
-
-
-
-
-
-
-
413
(239)
(51)
123
(151)
(22)
47
(126)
110
9
(78)
41
-
Balance, December 31, 2016, net of tax
$
426 $
6,405 $
(2,629) $
(972) $
Balance, December 31, 2017, net of tax
$
793 $
7,693 $
(2,090) $
(931) $
The following table presents the other comprehensive income (loss) reclassification adjustments for the years ended
December 31, 2017, 2016 and 2015:
Unrealized Appreciation
(Depreciation) of Fixed
Maturity Securities
on Which Other-
Than-Temporary Credit
Impairments Were Taken
Unrealized
Appreciation
(Depreciation)
of All Other
Investments
Foreign
Currency
Translation
Adjustments
Retirement
Plan
Liabilities
Adjustment
Total
(471) $
(7,068) $
(1,129) $
285 $
(8,383)
71
(542)
(195)
1,074
(8,142)
(1,380)
-
(1,129)
(29)
111
174
51
1,256
(9,639)
(1,553)
(347) $
(6,762) $
(1,100) $
123 $
(8,086)
(222) $
1,769 $
93 $
(344) $
1,296
123
(345)
(75)
1,228
-
(171)
1,180
541
(298)
93
(157)
(173)
(47)
116
(577)
(270) $
839 $
250 $
(126) $
693
467 $
2,052 $
547 $
24 $
3,090
50
417
50
768
1,284
(4)
-
547
8
(95)
723
119
78
2,367
132
(in millions)
December 31, 2015
Unrealized change arising during period
Less: Reclassification adjustments
included in net income
Total other comprehensive income (loss),
before income tax expense (benefit)
Less: Income tax expense (benefit)
Total other comprehensive income (loss),
net of income tax expense (benefit)
December 31, 2016
Unrealized change arising during period
Less: Reclassification adjustments
included in net income
Total other comprehensive income (loss),
before income tax expense (benefit)
Less: Income tax benefit
Total other comprehensive income (loss),
net of income tax benefit
December 31, 2017
Unrealized change arising during period
Less: Reclassification adjustments
included in net income
Total other comprehensive income,
before income tax expense
Less: Income tax expense (benefit)
Total other comprehensive income,
$
$
$
$
$
net of income tax expense (benefit)
$
367 $
1,288 $
539 $
41 $
2,235
272
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
273
1011252ai_financials.indd 273
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
ITEM 8 | Notes to Consolidated Financial Statements | 18 . E a rni n gs P er S har e
The following table presents the effect of the reclassification of significant items out of Accumulated other comprehensive
income on the respective line items in the Consolidated Statements of Income:
18. Earnings Per Share (EPS)
Years Ended December 31,
(in millions)
Unrealized appreciation (depreciation) of fixed
maturity securities on which other-than-temporary
credit impairments were taken
Amount Reclassified
from Accumulated Other
Comprehensive Income
2017
2016
2015
Affected Line Item in the
Consolidated Statements of Income
The basic EPS computation is based on the weighted average number of common shares outstanding, adjusted to reflect all stock
dividends and stock splits. The diluted EPS computation is based on those shares used in the basic EPS computation plus shares
that would have been outstanding assuming issuance of common shares for all dilutive potential common shares outstanding and
adjusted to reflect all stock dividends and stock splits.
Investments
Total
$
50 $
50
123 $
123
71
71
Other realized capital gains
Unrealized appreciation (depreciation) of all other
investments
Investments
Deferred acquisition costs adjustment
Future policy benefits
Total
Change in retirement plan liabilities adjustment
463
305
-
768
935
293
-
1,228
1,054
3
17
1,074
Other realized capital gains
Amortization of deferred policy acquisition costs
Policyholder benefits and losses incurred
Prior-service credit
Actuarial losses
Total
Total reclassifications for the period
5
214
15
(100)
(103)
(186)
(95)
111
(171)
723 $ 1,180 $ 1,256
*
*
$
* These Accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note 21 to the Consolidated Financial
Statements.
The following table presents the computation of basic and diluted EPS:
Years Ended December 31,
(dollars in millions, except per share data)
Numerator for EPS:
Income (loss) from continuing operations
Less: Net income from continuing operations attributable to noncontrolling interests
Income (loss) attributable to AIG common shareholders from continuing operations
Income (loss) from discontinued operations, net of income tax expense
Net income (loss) attributable to AIG common shareholders
(6,084) $
(849) $
Denominator for EPS:
Weighted average shares outstanding basic
Dilutive shares
Weighted average shares outstanding diluted(a)(b)
Income (loss) per common share attributable to AIG:
Basic:
Diluted:
Income (loss) from continuing operations
Income from discontinued operations
Income (loss) attributable to AIG
Income (loss) from continuing operations
Income from discontinued operations
Income (loss) attributable to AIG
2017
2016
2015
(6,060) $
(259) $
(6,088)
28
4
500
(759)
(90)
930,561,286
1,091,085,131
1,299,825,350
-
-
34,639,533
930,561,286
1,091,085,131
1,334,464,883
(6.54) $
- $
(6.54) $
(6.54) $
- $
(6.54) $
(0.70) $
(0.08) $
(0.78) $
(0.70) $
(0.08) $
(0.78) $
2,222
26
2,196
-
2,196
1.69
1.69
1.65
1.65
-
-
$
$
$
$
$
$
$
$
(a) Shares in the diluted EPS calculation represent basic shares for 2017 and 2016 due to the net losses in those periods. The shares excluded from the calculation were
22,412,682 shares and 30,326,772 shares for the years ended December 31, 2017 and 2016, respectively.
(b) Dilutive shares included our share-based employee compensation plans and a weighted average portion of the warrants issued to AIG shareholders as part of AIGs
recapitalization in January 2011. The number of shares excluded from diluted shares outstanding were 1.7 million, 0.2 million and 0.2 million for the years ended
December 31, 2017, 2016 and 2015, respectively, because the effect of including those shares in the calculation would have been anti-dilutive.
274
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
275
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Years Ended December 31,
(in millions)
Unrealized appreciation (depreciation) of fixed
maturity securities on which other-than-temporary
credit impairments were taken
Unrealized appreciation (depreciation) of all other
Investments
Total
investments
Investments
Deferred acquisition costs adjustment
Future policy benefits
Total
Change in retirement plan liabilities adjustment
Prior-service credit
Actuarial losses
Total
Statements.
Amount Reclassified
from Accumulated Other
Comprehensive Income
2017
2016
2015
50
123
463
305
-
768
5
(100)
(95)
935
293
-
15
(186)
(171)
71
71
3
17
*
*
214
(103)
111
1,228
1,074
Total reclassifications for the period
$
723 $ 1,180 $ 1,256
* These Accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note 21 to the Consolidated Financial
The following table presents the effect of the reclassification of significant items out of Accumulated other comprehensive
income on the respective line items in the Consolidated Statements of Income:
18. Earnings Per Share (EPS)
ITEM 8 | Notes to Consolidated Financial Statements | 17 . E q ui t y
ITEM 8 | Notes to Consolidated Financial Statements | 18 . E a rni n gs P er S har e
Affected Line Item in the
Consolidated Statements of Income
The basic EPS computation is based on the weighted average number of common shares outstanding, adjusted to reflect all stock
dividends and stock splits. The diluted EPS computation is based on those shares used in the basic EPS computation plus shares
that would have been outstanding assuming issuance of common shares for all dilutive potential common shares outstanding and
adjusted to reflect all stock dividends and stock splits.
$
50 $
123 $
Other realized capital gains
The following table presents the computation of basic and diluted EPS:
1,054
Other realized capital gains
Amortization of deferred policy acquisition costs
Policyholder benefits and losses incurred
Years Ended December 31,
(dollars in millions, except per share data)
Numerator for EPS:
Income (loss) from continuing operations
Less: Net income from continuing operations attributable to noncontrolling interests
Income (loss) attributable to AIG common shareholders from continuing operations
Income (loss) from discontinued operations, net of income tax expense
Net income (loss) attributable to AIG common shareholders
Denominator for EPS:
Weighted average shares outstanding basic
Dilutive shares
Weighted average shares outstanding diluted(a)(b)
Income (loss) per common share attributable to AIG:
Basic:
Income (loss) from continuing operations
Income from discontinued operations
Income (loss) attributable to AIG
Diluted:
Income (loss) from continuing operations
Income from discontinued operations
Income (loss) attributable to AIG
2017
2016
2015
(6,060) $
(259) $
28
(6,088)
4
500
(759)
(90)
(6,084) $
(849) $
2,222
26
2,196
-
2,196
930,561,286
1,091,085,131
1,299,825,350
-
-
34,639,533
930,561,286
1,091,085,131
1,334,464,883
(6.54) $
- $
(6.54) $
(6.54) $
- $
(6.54) $
(0.70) $
(0.08) $
(0.78) $
(0.70) $
(0.08) $
(0.78) $
1.69
-
1.69
1.65
-
1.65
$
$
$
$
$
$
$
$
(a) Shares in the diluted EPS calculation represent basic shares for 2017 and 2016 due to the net losses in those periods. The shares excluded from the calculation were
22,412,682 shares and 30,326,772 shares for the years ended December 31, 2017 and 2016, respectively.
(b) Dilutive shares included our share-based employee compensation plans and a weighted average portion of the warrants issued to AIG shareholders as part of AIGs
recapitalization in January 2011. The number of shares excluded from diluted shares outstanding were 1.7 million, 0.2 million and 0.2 million for the years ended
December 31, 2017, 2016 and 2015, respectively, because the effect of including those shares in the calculation would have been anti-dilutive.
274
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
275
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 19 . S t at u t or y F i na n cia l Da ta a n d Re s tr i c ti on s
ITEM 8 | Notes to Consolidated Financial Statements | 19 . S t at u t or y F i na n cia l Da ta a n d Re s tr i c ti on s
19. Statutory Financial Data and Restrictions
The following table presents statutory net income (loss) and capital and surplus for our General Insurance companies and
our Life and Retirement companies in accordance with statutory accounting practices:
(in millions)
Years Ended December 31,
Statutory net income (loss)(a)(b)(c):
General Insurance companies:
Domestic(c)
Foreign
Total General Insurance companies
Life and Retirement companies:
Domestic
Foreign
Total Life and Retirement companies
At December 31,
Statutory capital and surplus(a)(b)(c):
General Insurance companies:
Domestic(c)
Foreign
Total General Insurance companies
Life and Retirement companies:
Domestic
Foreign
Total Life and Retirement companies
Aggregate minimum required statutory capital and surplus:
General Insurance companies:
Domestic
Foreign
Total General Insurance companies
Life and Retirement companies:
Domestic
Foreign
Total Life and Retirement companies
2017
2016
2015
(622) $
(333)
(955) $
932 $
21
953 $
260 $
(1,326)
(1,066) $
2,252 $
47
2,299 $
1,444
594
2,038
2,200
(5)
2,195
21,514 $
11,695
33,209 $
11,872 $
446
12,318 $
5,307 $
6,166
11,473 $
3,148 $
121
3,269 $
21,665
12,587
34,252
12,314
490
12,804
5,183
7,257
12,440
3,088
234
3,322
$
$
$
$
$
$
$
$
$
$
$
$
(a)Excludes discontinued operations and other divested businesses. Statutory capital and surplus and net income (loss) with respect to foreign operations are as of
November 30.
(b)In aggregate, the 2016 General Insurance companies and Life and Retirement companies statutory net income increased by $479 million and the 2016 General
Insurance companies and Life and Retirement companies statutory capital and surplus decreased by $305 million, compared to the amounts previously reported in our
Annual Report on Form 10-K for the year ended December 31, 2016, due to finalization of statutory filings.
(c) General Insurance companies recognized $200 million of capital contributions from AIG Parent in their statutory financial statements as of December 31, 2016 related to
the reserve strengthening in the fourth quarter. This capital contribution was received in February 2017.
Our insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or
permitted by domestic and foreign insurance regulatory authorities. The principal differences between statutory financial statements
and financial statements prepared in accordance with U.S. GAAP for domestic companies are that statutory financial statements do
not reflect DAC, some bond portfolios may be carried at amortized cost, investment impairments are determined in accordance with
statutory accounting practices, assets and liabilities are presented net of reinsurance, policyholder liabilities are generally valued
using more conservative assumptions and certain assets are non-admitted.
For domestic insurance subsidiaries, aggregate minimum required statutory capital and surplus is based on the greater of the RBC
level that would trigger regulatory action or minimum requirements per state insurance regulation. Capital and surplus requirements of
our foreign subsidiaries differ from those prescribed in the U.S., and can vary significantly by jurisdiction. At both December 31, 2017
and 2016, all domestic and foreign insurance subsidiaries individually exceeded the minimum required statutory capital and surplus
requirements and all domestic insurance subsidiaries individually exceeded RBC minimum required levels.
At December 31, 2017 and 2016, our domestic insurance subsidiaries used the following permitted practices that resulted in reported
statutory surplus or risk-based capital that is significantly different from the statutory surplus or risk based capital that would have
been reported had NAIC statutory accounting practices or the prescribed regulatory accounting practices of their respective state
regulator been followed in all respects:
In 2015, a domestic life insurance subsidiary domiciled in Texas adopted a permitted statutory accounting practice to report
derivatives used to hedge interest rate risk on product-related embedded derivatives at amortized cost instead of fair value. In
2017, the permitted practice was expanded to include additional derivative instruments utilized for the same purpose and to also
include an additional domestic life insurance subsidiary domiciled in Texas. This permitted practice resulted in an increase in the
statutory surplus of our subsidiaries of $407 million and $645 million at December 31, 2017 and 2016, respectively.
In 2016, certain domestic property and casualty subsidiaries domiciled in New York, Pennsylvania and Delaware applied a
permitted practice to present the inception date effects of the 2017 adverse loss development cover in their 2016 statutory-basis
financial statements. This permitted practice resulted in an increase in the subsidiaries aggregate surplus as of December 31,
2016 of $1.1 billion.
As described in Note 13, our domestic property and casualty insurance subsidiaries domiciled in New York, Pennsylvania and
Delaware discount non-tabular workers compensation reserves based on applicable prescribed or approved regulations, or in the
case of our Delaware subsidiary, based on a permitted practice. This practice did not have a material impact on our statutory
surplus, statutory net income (loss) or risk-based capital.
The NAIC Model Regulation Valuation of Life Insurance Policies (Regulation XXX) requires U.S. life insurers to establish additional
statutory reserves for term life insurance policies with long-term premium guarantees and universal life policies with secondary
guarantees (ULSGs). In addition, NAIC Actuarial Guideline 38 (Guideline AXXX) clarifies the application of Regulation XXX as to
these guarantees, including certain ULSGs.
Domestic life insurance subsidiaries manage the capital impact of statutory reserve requirements under Regulation XXX and
Guideline AXXX through unaffiliated and affiliated reinsurance transactions. The affiliated life insurers providing reinsurance capacity
for such transactions are fully licensed insurance companies and are not formed under captive insurance laws. One of these affiliated
reinsurance arrangements, under which certain Regulation XXX and Guideline AXXX reserves related to new and in-force business
were ceded to an affiliated U.S. life insurer, was recaptured effective December 31, 2016 and these reserves were ceded to an
unaffiliated reinsurer.
Under the other intercompany reinsurance arrangement, certain Regulation XXX and Guideline AXXX reserves related to a closed
block of in-force business are ceded to an affiliated off-shore life insurer, which is licensed as a class E insurer under Bermuda law.
Bermuda law permits the off-shore life insurer to record an asset that effectively reduces the statutory reserves for the assumed
reinsurance to the level that would be required under U.S. GAAP. Letters of credit are used to support the credit for reinsurance
provided by the affiliated off-shore life insurer.
For additional information regarding these letters of credit see Note 8.
SUBSIDIARY DIVIDEND RESTRICTIONS
Payments of dividends to us by our insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities. With
respect to our domestic insurance subsidiaries, the payment of any dividend requires formal notice to the insurance department in
which the particular insurance subsidiary is domiciled. For example, unless permitted by the Superintendent of Financial Services,
property casualty companies domiciled in New York generally may not pay dividends to shareholders that, in any 12-month period,
exceed the lesser of 10 percent of such companys statutory policyholders surplus or 100 percent of its adjusted net investment
income, for the previous year, as defined. Generally, less severe restrictions applicable to both property casualty and life insurance
companies exist in most of the other states in which our insurance subsidiaries are domiciled. Under the laws of many states, an
insurer may pay a dividend without prior approval of the insurance regulator when the amount of the dividend is below certain
regulatory thresholds. Other foreign jurisdictions may restrict the ability of our foreign insurance subsidiaries to pay dividends. Various
other regulatory restrictions also limit cash loans and advances to us by our subsidiaries.
Largely as a result of these restrictions, approximately $44.8 billion of the statutory capital and surplus of our consolidated insurance
subsidiaries were restricted from transfer to AIG Parent without prior approval of state insurance regulators at December 31, 2017.
To our knowledge, no AIG insurance company is currently on any regulatory or similar watch list with regard to solvency.
276
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
277
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 19 . S t at u t or y F i na n cia l Da ta a n d Re s tr i c ti on s
ITEM 8 | Notes to Consolidated Financial Statements | 19 . S t at u t or y F i na n cia l Da ta a n d Re s tr i c ti on s
19. Statutory Financial Data and Restrictions
The following table presents statutory net income (loss) and capital and surplus for our General Insurance companies and
our Life and Retirement companies in accordance with statutory accounting practices:
(in millions)
Years Ended December 31,
Statutory net income (loss)(a)(b)(c):
General Insurance companies:
Total General Insurance companies
Life and Retirement companies:
Total Life and Retirement companies
At December 31,
Statutory capital and surplus(a)(b)(c):
General Insurance companies:
Total General Insurance companies
Life and Retirement companies:
Domestic(c)
Foreign
Domestic
Foreign
Domestic(c)
Foreign
Domestic
Foreign
Domestic
Foreign
Domestic
Foreign
November 30.
Total General Insurance companies
Life and Retirement companies:
Total Life and Retirement companies
Total Life and Retirement companies
Aggregate minimum required statutory capital and surplus:
General Insurance companies:
2017
2016
2015
(622) $
(333)
(955) $
932 $
21
953 $
260 $
(1,326)
(1,066) $
2,252 $
47
2,299 $
1,444
594
2,038
2,200
(5)
2,195
$
$
$
$
$
$
$
$
$
$
$
$
21,514 $
11,695
33,209 $
11,872 $
446
12,318 $
5,307 $
6,166
11,473 $
3,148 $
121
3,269 $
21,665
12,587
34,252
12,314
490
12,804
5,183
7,257
12,440
3,088
234
3,322
(a)Excludes discontinued operations and other divested businesses. Statutory capital and surplus and net income (loss) with respect to foreign operations are as of
(b)In aggregate, the 2016 General Insurance companies and Life and Retirement companies statutory net income increased by $479 million and the 2016 General
Insurance companies and Life and Retirement companies statutory capital and surplus decreased by $305 million, compared to the amounts previously reported in our
Annual Report on Form 10-K for the year ended December 31, 2016, due to finalization of statutory filings.
(c) General Insurance companies recognized $200 million of capital contributions from AIG Parent in their statutory financial statements as of December 31, 2016 related to
the reserve strengthening in the fourth quarter. This capital contribution was received in February 2017.
Our insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or
permitted by domestic and foreign insurance regulatory authorities. The principal differences between statutory financial statements
and financial statements prepared in accordance with U.S. GAAP for domestic companies are that statutory financial statements do
not reflect DAC, some bond portfolios may be carried at amortized cost, investment impairments are determined in accordance with
statutory accounting practices, assets and liabilities are presented net of reinsurance, policyholder liabilities are generally valued
using more conservative assumptions and certain assets are non-admitted.
For domestic insurance subsidiaries, aggregate minimum required statutory capital and surplus is based on the greater of the RBC
level that would trigger regulatory action or minimum requirements per state insurance regulation. Capital and surplus requirements of
our foreign subsidiaries differ from those prescribed in the U.S., and can vary significantly by jurisdiction. At both December 31, 2017
and 2016, all domestic and foreign insurance subsidiaries individually exceeded the minimum required statutory capital and surplus
requirements and all domestic insurance subsidiaries individually exceeded RBC minimum required levels.
At December 31, 2017 and 2016, our domestic insurance subsidiaries used the following permitted practices that resulted in reported
statutory surplus or risk-based capital that is significantly different from the statutory surplus or risk based capital that would have
been reported had NAIC statutory accounting practices or the prescribed regulatory accounting practices of their respective state
regulator been followed in all respects:
In 2015, a domestic life insurance subsidiary domiciled in Texas adopted a permitted statutory accounting practice to report
derivatives used to hedge interest rate risk on product-related embedded derivatives at amortized cost instead of fair value. In
2017, the permitted practice was expanded to include additional derivative instruments utilized for the same purpose and to also
include an additional domestic life insurance subsidiary domiciled in Texas. This permitted practice resulted in an increase in the
statutory surplus of our subsidiaries of $407 million and $645 million at December 31, 2017 and 2016, respectively.
In 2016, certain domestic property and casualty subsidiaries domiciled in New York, Pennsylvania and Delaware applied a
permitted practice to present the inception date effects of the 2017 adverse loss development cover in their 2016 statutory-basis
financial statements. This permitted practice resulted in an increase in the subsidiaries aggregate surplus as of December 31,
2016 of $1.1 billion.
As described in Note 13, our domestic property and casualty insurance subsidiaries domiciled in New York, Pennsylvania and
Delaware discount non-tabular workers compensation reserves based on applicable prescribed or approved regulations, or in the
case of our Delaware subsidiary, based on a permitted practice. This practice did not have a material impact on our statutory
surplus, statutory net income (loss) or risk-based capital.
The NAIC Model Regulation Valuation of Life Insurance Policies (Regulation XXX) requires U.S. life insurers to establish additional
statutory reserves for term life insurance policies with long-term premium guarantees and universal life policies with secondary
guarantees (ULSGs). In addition, NAIC Actuarial Guideline 38 (Guideline AXXX) clarifies the application of Regulation XXX as to
these guarantees, including certain ULSGs.
Domestic life insurance subsidiaries manage the capital impact of statutory reserve requirements under Regulation XXX and
Guideline AXXX through unaffiliated and affiliated reinsurance transactions. The affiliated life insurers providing reinsurance capacity
for such transactions are fully licensed insurance companies and are not formed under captive insurance laws. One of these affiliated
reinsurance arrangements, under which certain Regulation XXX and Guideline AXXX reserves related to new and in-force business
were ceded to an affiliated U.S. life insurer, was recaptured effective December 31, 2016 and these reserves were ceded to an
unaffiliated reinsurer.
Under the other intercompany reinsurance arrangement, certain Regulation XXX and Guideline AXXX reserves related to a closed
block of in-force business are ceded to an affiliated off-shore life insurer, which is licensed as a class E insurer under Bermuda law.
Bermuda law permits the off-shore life insurer to record an asset that effectively reduces the statutory reserves for the assumed
reinsurance to the level that would be required under U.S. GAAP. Letters of credit are used to support the credit for reinsurance
provided by the affiliated off-shore life insurer.
For additional information regarding these letters of credit see Note 8.
SUBSIDIARY DIVIDEND RESTRICTIONS
Payments of dividends to us by our insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities. With
respect to our domestic insurance subsidiaries, the payment of any dividend requires formal notice to the insurance department in
which the particular insurance subsidiary is domiciled. For example, unless permitted by the Superintendent of Financial Services,
property casualty companies domiciled in New York generally may not pay dividends to shareholders that, in any 12-month period,
exceed the lesser of 10 percent of such companys statutory policyholders surplus or 100 percent of its adjusted net investment
income, for the previous year, as defined. Generally, less severe restrictions applicable to both property casualty and life insurance
companies exist in most of the other states in which our insurance subsidiaries are domiciled. Under the laws of many states, an
insurer may pay a dividend without prior approval of the insurance regulator when the amount of the dividend is below certain
regulatory thresholds. Other foreign jurisdictions may restrict the ability of our foreign insurance subsidiaries to pay dividends. Various
other regulatory restrictions also limit cash loans and advances to us by our subsidiaries.
Largely as a result of these restrictions, approximately $44.8 billion of the statutory capital and surplus of our consolidated insurance
subsidiaries were restricted from transfer to AIG Parent without prior approval of state insurance regulators at December 31, 2017.
To our knowledge, no AIG insurance company is currently on any regulatory or similar watch list with regard to solvency.
276
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
277
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 19 . S t at u t or y F i na n cia l Da ta a n d Re s tr i c ti on s
ITEM 8 | Notes to Consolidated Financial Statements | 20 . S h are - Ba se d C o m pe ns a ti o n P la ns
PARENT COMPANY DIVIDEND RESTRICTIONS
At December 31, 2017, our ability to pay dividends is not subject to any significant contractual restrictions, but remains subject to
regulatory restrictions.
For additional information about our ability to pay dividends to our shareholders see Note 17 herein.
20. Share-Based Compensation Plans
The following table presents our total share-based compensation expense:
Years Ended December 31,
(in millions)
Share-based compensation expense - pre-tax*
Share-based compensation expense - after tax
2017
$ 353
229
2016
$ 237
154
2015
$ 365
237
* We recognized $141 million, $105 million and $147 million for immediately vested stock-settled awards issued to retirement eligible employees in 2017, 2016 and 2015,
respectively. We also recognized $40 million of excess tax benefits due to share settlements occurring in 2017.
EMPLOYEE PLANS
The Company sponsors several Long Term Incentive (LTI) programs under the AIG 2013 Long Term Incentive Plan and its successor
plan, the AIG Long Term Incentive Plan (each as applicable, the LTIP), which are governed by the AIG 2013 Omnibus Incentive Plan
(Omnibus Plan). The Omnibus Plan replaced the AIG 2010 Stock Incentive Plan (2010 Plan) as of May 15, 2013 but does not affect
the terms and conditions of any award issued under the 2010 Plan. The Omnibus Plan is currently the only plan under which share-
settled awards can be made. Our share-settled awards are settled with previously acquired shares held in AIGs treasury.
AIG 2013 Omnibus Incentive Plan
The Omnibus Plan was adopted at the 2013 Annual Meeting of Shareholders and provides for the grants of share-based awards to
our employees and non-employee directors. The total number of shares that may be granted under the Omnibus Plan (the reserve) is
the sum of 1) 45 million shares of AIG Common Stock, plus 2) the number of authorized shares that remained available for issuance
under the 2010 Plan when the Omnibus Plan became effective, plus 3) the number of shares of AIG Common Stock relating to
outstanding awards under the 2010 Plan at the time the Omnibus Plan became effective that subsequently are forfeited, expired,
terminated or otherwise lapse or are settled in cash. Each share-based unit granted under the Omnibus Plan reduces the number of
shares available for future grants by one share. However, shares with respect to awards that are forfeited, expired or settled for cash,
and shares withheld for taxes on awards (other than options and stock appreciation rights awards) are returned to the reserve.
During 2017, performance share units (PSUs), restricted stock units (RSUs), stock options and deferred stock units (DSUs)
(collectively, units) were granted under the Omnibus Plan and 42,780,716 shares are available for future grants as of December 31,
2017. Units are issued to employees as part of our long-term incentive program, generally in March of any given year, and are also
issued for off-cycle grants, which are made from time to time during the year generally as sign-on awards to new hires or as a result
of a change in employee status.
AIG 2010 Stock Incentive Plan
The 2010 Plan was adopted at the 2010 Annual Meeting of Shareholders. The total number of shares of AIG Common Stock that
could be granted under the 2010 Plan was 60 million. During 2013, we granted PSUs, DSUs and RSUs under the 2010 Plan. Each
PSU, DSU and RSU awarded reduced the number of shares available for future grants by one share. Subsequent to the adoption of
the Omnibus Plan in May 2013, no additional grants were made under the 2010 Plan.
AIG Long Term Incentive Plan
LTI Awards
The LTIP provides for an annual award to certain employees, including our senior executive officers and other highly compensated
employees. In 2017, each award recipient was granted PSUs and/or RSUs, and in 2013 through 2016, each award recipient was
granted PSUs.
The number of PSUs issued on the grant date (the target) provides the opportunity for the LTIP participant to receive shares of AIG
Common Stock based on AIG achieving specified performance goals at the end of a three-year performance period. These
performance goals are pre-established by AIGs Compensation and Management Resources Committee (CMRC) for each annual
grant and may differ from year to year. The actual number of PSUs earned can vary from zero to 200 percent of the target for the
2017 awards, or zero to 150 percent of the target for the 2013 through 2016 awards, depending on AIGs performance relative to a
specified peer group. RSUs are earned based on continued service by the participant. For the 2017 awards, vesting occurs on
January 1 of the year immediately following the end of the three-year performance period. For awards granted prior to 2017, vesting
occurs in three equal installments beginning on January 1 of the year immediately following the end of a performance period and
January 1 of each of the next two years. Recipients must be employed at each vesting date to be entitled to share delivery, except
upon the occurrence of an accelerated vesting event, such as an involuntary termination without cause, disability, retirement eligibility
or death during the vesting period.
LTI awards granted in 2015 and thereafter accrue dividend equivalent units (DEUs) in the form of additional PSUs and/or RSUs
whenever a cash dividend is declared on shares of AIG Common Stock; the DEUs are subject to the same vesting terms and
conditions as the underlying unit.
Unit Valuation
The value of each award is based on the nature of the performance goals and the price per unit is fixed as of the grant date. PSUs
granted in 2017 and 2016 are measured based on AIGs relative total shareholder return (TSR). PSUs granted in 2015 and 2014 are
measured based on AIGs relative TSR and credit default swap (CDS) spread, weighted 75 percent and 25 percent, respectively.
PSUs granted in 2013 are measured based on AIGs relative TSR and relative growth in tangible book value per common share
(TBVPS) (excluding accumulated other comprehensive income) weighted 50 percent each.
The fair value of RSUs as well as PSUs earned based on AIGs CDS spreads and relative TBVPS was based on the closing price of
AIG Common Stock on the grant date. However, PSUs granted in 2014 and 2013 that vest based on these goals were discounted by
the present value of estimated dividends to be paid during the respective vesting periods as these awards do not accrue dividends or
DEUs. The fair value of PSUs to be earned based on AIGs relative TSR was determined on the grant date using a Monte Carlo
simulation.
The following table presents the assumptions used to estimate the fair value of PSUs that vest based on AIGs TSR:
Expected dividend yield(a)
Expected volatility(b)
Risk-free interest rate(c)
2017
2.37 %
17.58 %
2.00 %
2016
2.17 %
24.55 %
1.30 %
2015
1.78 %
22.71 %
1.01 %
(a) The dividend yield is the projected annualized AIG dividend yield estimated by Bloomberg Professional service as of the valuation date.
(b) The expected volatility is based on the historical volatility of the stock price for the 360 most recent trading days prior to the valuation date estimated by Bloomberg
Professional service.
(c) The risk-free interest rate is the continuously compounded interest rate for the term between the valuation date and the end of the performance period that is assumed
to be constant and equal to the interpolated value between the closest data points on the U.S. dollar LIBOR-swap curve as of the valuation date.
Modification of LTI awards
During the fourth quarter of 2017, the Company modified certain outstanding LTI awards by concurrently issuing service-based RSUs
and canceling some previously granted PSUs. The change applied to most recipients who participate in the 2015, 2016 and 2017 LTI
awards, excluding certain of the Companys most senior executives.
to certain active employees, which vest in installments over a period of up to three years. We incurred incremental compensation
expense of $142 million as a result of these actions. We recognized $71 million in 2017 and the remainder will be recognized through
December 2020.
In addition, the Company also issued supplemental RSU grants
278
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
279
1011252ai_financials.indd 278
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 19 . S t at u t or y F i na n cia l Da ta a n d Re s tr i c ti on s
ITEM 8 | Notes to Consolidated Financial Statements | 20 . S h are - Ba se d C o m pe ns a ti o n P la ns
PARENT COMPANY DIVIDEND RESTRICTIONS
At December 31, 2017, our ability to pay dividends is not subject to any significant contractual restrictions, but remains subject to
regulatory restrictions.
For additional information about our ability to pay dividends to our shareholders see Note 17 herein.
20. Share-Based Compensation Plans
The following table presents our total share-based compensation expense:
Years Ended December 31,
(in millions)
Share-based compensation expense - pre-tax*
Share-based compensation expense - after tax
EMPLOYEE PLANS
* We recognized $141 million, $105 million and $147 million for immediately vested stock-settled awards issued to retirement eligible employees in 2017, 2016 and 2015,
respectively. We also recognized $40 million of excess tax benefits due to share settlements occurring in 2017.
2017
2016
2015
$ 353
$ 237
$ 365
229
154
237
The Company sponsors several Long Term Incentive (LTI) programs under the AIG 2013 Long Term Incentive Plan and its successor
plan, the AIG Long Term Incentive Plan (each as applicable, the LTIP), which are governed by the AIG 2013 Omnibus Incentive Plan
(Omnibus Plan). The Omnibus Plan replaced the AIG 2010 Stock Incentive Plan (2010 Plan) as of May 15, 2013 but does not affect
the terms and conditions of any award issued under the 2010 Plan. The Omnibus Plan is currently the only plan under which share-
settled awards can be made. Our share-settled awards are settled with previously acquired shares held in AIGs treasury.
AIG 2013 Omnibus Incentive Plan
The Omnibus Plan was adopted at the 2013 Annual Meeting of Shareholders and provides for the grants of share-based awards to
our employees and non-employee directors. The total number of shares that may be granted under the Omnibus Plan (the reserve) is
the sum of 1) 45 million shares of AIG Common Stock, plus 2) the number of authorized shares that remained available for issuance
under the 2010 Plan when the Omnibus Plan became effective, plus 3) the number of shares of AIG Common Stock relating to
outstanding awards under the 2010 Plan at the time the Omnibus Plan became effective that subsequently are forfeited, expired,
terminated or otherwise lapse or are settled in cash. Each share-based unit granted under the Omnibus Plan reduces the number of
shares available for future grants by one share. However, shares with respect to awards that are forfeited, expired or settled for cash,
The number of PSUs issued on the grant date (the target) provides the opportunity for the LTIP participant to receive shares of AIG
Common Stock based on AIG achieving specified performance goals at the end of a three-year performance period. These
performance goals are pre-established by AIGs Compensation and Management Resources Committee (CMRC) for each annual
grant and may differ from year to year. The actual number of PSUs earned can vary from zero to 200 percent of the target for the
2017 awards, or zero to 150 percent of the target for the 2013 through 2016 awards, depending on AIGs performance relative to a
specified peer group. RSUs are earned based on continued service by the participant. For the 2017 awards, vesting occurs on
January 1 of the year immediately following the end of the three-year performance period. For awards granted prior to 2017, vesting
occurs in three equal installments beginning on January 1 of the year immediately following the end of a performance period and
January 1 of each of the next two years. Recipients must be employed at each vesting date to be entitled to share delivery, except
upon the occurrence of an accelerated vesting event, such as an involuntary termination without cause, disability, retirement eligibility
or death during the vesting period.
LTI awards granted in 2015 and thereafter accrue dividend equivalent units (DEUs) in the form of additional PSUs and/or RSUs
whenever a cash dividend is declared on shares of AIG Common Stock; the DEUs are subject to the same vesting terms and
conditions as the underlying unit.
Unit Valuation
The value of each award is based on the nature of the performance goals and the price per unit is fixed as of the grant date. PSUs
granted in 2017 and 2016 are measured based on AIGs relative total shareholder return (TSR). PSUs granted in 2015 and 2014 are
measured based on AIGs relative TSR and credit default swap (CDS) spread, weighted 75 percent and 25 percent, respectively.
PSUs granted in 2013 are measured based on AIGs relative TSR and relative growth in tangible book value per common share
(TBVPS) (excluding accumulated other comprehensive income) weighted 50 percent each.
The fair value of RSUs as well as PSUs earned based on AIGs CDS spreads and relative TBVPS was based on the closing price of
AIG Common Stock on the grant date. However, PSUs granted in 2014 and 2013 that vest based on these goals were discounted by
the present value of estimated dividends to be paid during the respective vesting periods as these awards do not accrue dividends or
DEUs. The fair value of PSUs to be earned based on AIGs relative TSR was determined on the grant date using a Monte Carlo
simulation.
The following table presents the assumptions used to estimate the fair value of PSUs that vest based on AIGs TSR:
Expected dividend yield(a)
Expected volatility(b)
Risk-free interest rate(c)
2017
2.37 %
17.58 %
2.00 %
2016
2.17 %
24.55 %
1.30 %
2015
1.78 %
22.71 %
1.01 %
(a) The dividend yield is the projected annualized AIG dividend yield estimated by Bloomberg Professional service as of the valuation date.
and shares withheld for taxes on awards (other than options and stock appreciation rights awards) are returned to the reserve.
(b) The expected volatility is based on the historical volatility of the stock price for the 360 most recent trading days prior to the valuation date estimated by Bloomberg
During 2017, performance share units (PSUs), restricted stock units (RSUs), stock options and deferred stock units (DSUs)
(collectively, units) were granted under the Omnibus Plan and 42,780,716 shares are available for future grants as of December 31,
2017. Units are issued to employees as part of our long-term incentive program, generally in March of any given year, and are also
issued for off-cycle grants, which are made from time to time during the year generally as sign-on awards to new hires or as a result
The 2010 Plan was adopted at the 2010 Annual Meeting of Shareholders. The total number of shares of AIG Common Stock that
could be granted under the 2010 Plan was 60 million. During 2013, we granted PSUs, DSUs and RSUs under the 2010 Plan. Each
PSU, DSU and RSU awarded reduced the number of shares available for future grants by one share. Subsequent to the adoption of
the Omnibus Plan in May 2013, no additional grants were made under the 2010 Plan.
Professional service.
(c) The risk-free interest rate is the continuously compounded interest rate for the term between the valuation date and the end of the performance period that is assumed
to be constant and equal to the interpolated value between the closest data points on the U.S. dollar LIBOR-swap curve as of the valuation date.
Modification of LTI awards
During the fourth quarter of 2017, the Company modified certain outstanding LTI awards by concurrently issuing service-based RSUs
and canceling some previously granted PSUs. The change applied to most recipients who participate in the 2015, 2016 and 2017 LTI
awards, excluding certain of the Companys most senior executives.
In addition, the Company also issued supplemental RSU grants
to certain active employees, which vest in installments over a period of up to three years. We incurred incremental compensation
expense of $142 million as a result of these actions. We recognized $71 million in 2017 and the remainder will be recognized through
December 2020.
1011252ai_financials.indd 279
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AIG | 2017 Form 10-K
279
of a change in employee status.
AIG 2010 Stock Incentive Plan
AIG Long Term Incentive Plan
LTI Awards
granted PSUs.
278
AIG | 2017 Form 10-K
The LTIP provides for an annual award to certain employees, including our senior executive officers and other highly compensated
employees. In 2017, each award recipient was granted PSUs and/or RSUs, and in 2013 through 2016, each award recipient was
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 20 . S h are - Ba se d C o m pe ns a ti o n P la ns
ITEM 8 | Notes to Consolidated Financial Statements | 20 . S h are - Ba se d C o m pe ns a ti o n P la ns
The following table summarizes outstanding share-settled LTI awards(a):
As of or for the Year
Ended December 31, 2017(b)
Unvested, beginning of year
Granted
Vested(c)
Forfeited
Number of Units
Weighted Average
Grant-Date Fair Value
2017 LTI
2016 LTI
2015 LTI
2014 LTI
2013 LTI
2017 LTI 2016 LTI 2015 LTI 2014 LTI 2013 LTI
- 2,588,598 2,176,555 1,732,616 1,581,904
$
- $ 51.12 $ 55.52 $ 48.88 $ 38.03
3,996,978
2,806
-
122,378
-
(971,945)
(182,938)
(201,256)
(957,045)
(968,930)
(84,987)
(138,263)
(121,456)
(74,638)
(36,764)
64.83
64.09
65.24
36.49
60.29
51.10
-
59.04
55.01
48.57
48.89
49.02
-
37.98
39.14
Unvested, at modification date
2,940,046 2,270,203 1,853,843
823,311
576,210
$ 65.07 $ 50.37 $ 55.17 $ 48.81 $ 38.04
The weighted average grant-date fair value of stock options granted during 2017 was $10.54. As of December 31, 2017, we
recognized $7.3 million of expense, while $19 million was unrecognized and is expected to be amortized up to 2.75 years.
NON-EMPLOYEE PLAN
Our non-employee directors, who serve on our Board of Directors, receive share-based compensation in the form of fully vested
DSUs with delivery deferred until retirement from the Board. DSUs granted in 2017, 2016 and 2015 accrue DEUs equal to the
amount of any regular quarterly dividend that would have been paid by AIG if the shares of AIG Common Stock underlying the DSUs
had been outstanding.
respectively, under the 2013 Plan, and recognized expense of $2.0 million, $2.4 million and $1.9 million, respectively.
In 2017, 2016 and 2015, we granted to non-employee directors 32,067, 41,974 and 32,342 DSUs,
Cancelled at modification date
(1,082,417) (2,951,417) (2,229,873)
Granted at modification date
1,082,417 2,646,866 2,094,629
Sub-total, net impact of modification
-
(304,551)
(135,244)
Vested - post-modification(c)
Forfeited - post-modification
Unvested, end of year(d)
(766,931)
(495,222)
(424,788)
-
(2,685)
(2,023)
-
-
-
-
-
-
-
-
-
-
67.47
62.13
-
64.01
-
52.00
62.13
55.01
62.13
62.13
54.56
62.13
56.33
61.82
62.13
-
-
-
-
-
-
-
-
-
-
2,173,115 1,467,745 1,291,788
823,311
576,210
$ 62.78 $ 60.90 $ 60.02 $ 48.81 $ 38.04
21. Employee Benefits
PENSION PLANS
(a) Excludes stock options and DSUs, which are discussed under Stock Options and Non-Employee Plan, respectively.
We offer various defined benefit plans to eligible employees.
(b) Except for the 2013 and 2014 LTI award, PSUs represent target amount granted, and does not reflect potential increases or decreases that could result from the final
outcome of the performance goals for the respective awards, which is determined in the quarter after the applicable performance period ends.
(c) Also reflects units that vest as a result of an accelerated vesting event that occurred prior to the specified vesting date.
(d) At December 31, 2017, the total unrecognized compensation cost for outstanding LTI awards was $237 million and the weighted-average and expected period of years
over which that cost is expected to be recognized are 1.02 years and 3 years.
Stock Option Awards
The Company issued 2.5 million stock options to two senior executives who joined the Company in 2017. The options vest in
installments based on a combination of service requirements of up to three years and/or AIG stock price achieving specified hurdles,
and will expire in 2024. The fair value of the options were estimated on the grant date using the Black Scholes model for the time-
vesting options, and a Monte Carlo simulation for the hurdle-vesting options using the assumptions noted in the following table.
The following weighted-average assumptions were used for stock options granted:
Expected annual dividend yield(a)
Expected volatility(b)
Risk-free interest rate(c)
Expected term(d)
(a)The dividend yield is based on the current quarterly dividend payment of $0.32 and the Valuation Date stock price.
(b)The expected volatility is the 1080-day implied volatility as seen in the open marketplace on the Valuation Date.
(c) The risk-free interest rate range is 1.76 percent to 2.14 percent.
(d)The contractual term of the option is 7 years from the grant date.
The following table provides a rollforward of stock option activity:
2017
2.03 %
20.96 %
1.94 %
4.5 years
As of or for the Year
Ended December 31, 2017
Outstanding, beginning of year
Granted
Exercised
Forfeited or expired
Outstanding, end of year
Exercisable, end of year
Weighted Average
Remaining
Intrinsic Values
Units
Exercise Price
Contractual Life
(in millions)
Weighted Average
Aggregate
-
$
2,500,000
-
-
2,500,000
-
$
$
-
62.90
-
-
62.90
-
6.48
-
$
$
-
-
The U.S. AIG Retirement Plan (the qualified plan) is a noncontributory defined benefit plan that is subject to the provisions of ERISA.
U.S. salaried employees who are employed by a participating company on or before December 1, 2014 and who have completed
12 months of continuous service are eligible to participate in the plan. Effective April 1, 2012, the qualified plan was converted to a
cash balance formula comprised of pay credits based on six percent of a plan participants annual compensation (subject to IRS
limitations) and annual interest credits. Employees can take their vested benefits when they leave AIG as a lump sum or an annuity
option after completing at least three years of service. Employees satisfying certain age and service requirements (i.e., grandfathered
employees) remain covered under the average pay formula that was in effect prior to the conversion to the cash balance formula.
The final average pay formula is based upon a percentage of final average compensation multiplied by years of credited service, up
to 44 years. Grandfathered employees will receive the higher of the benefit under the cash balance formula or the final average pay
formula at retirement. Non-U.S. defined benefit plans generally are either based on the employees years of credited service and
compensation in the years preceding retirement or on points accumulated based on the employees job grade and other factors
during each year of service.
In the U.S. we also sponsor non-qualified unfunded defined benefit plans, such as the AIG Non-Qualified Retirement Income Plan
(AIG NQRIP) for certain employees, including key executives, designed to supplement pension benefits provided by the qualified
plan. The AIG NQRIP provides a benefit equal to the reduction in benefits under the qualified plan as a result of federal tax limitations
on compensation and benefits payable.
Plan Freeze
Effective January 1, 2016, the U.S. defined benefit pension plans were frozen. Consequently, these plans are closed to new
participants and current participants no longer earn benefits. However, interest credits continue to accrue on the existing cash
balance accounts and participants are continuing to accrue years of service for purposes of vesting and early retirement eligibility and
subsidies as they continue to be employed by AIG.
POSTRETIREMENT PLANS
We also provide postretirement medical care and life insurance benefits in the U.S. and in certain non-U.S. countries. Eligibility in the
various plans generally is based upon completion of a specified period of eligible service and attaining a specified age. Overseas,
benefits vary by geographic location.
U.S. postretirement medical and life insurance benefits are based upon the employee attaining the age of 55 and having a minimum
of ten years of service. Eligible employees who have medical coverage can enroll in retiree medical upon termination of employment.
Medical benefits are contributory, while the life insurance benefits generally are non-contributory. Retiree medical contributions vary
from none for pre-1989 retirees to actual premium payments reduced by certain subsidies for post-1992 retirees. These contributions
are subject to adjustment annually. Other cost sharing features of the medical plan include deductibles, coinsurance and Medicare
coordination. Effective April 1, 2012, the retiree medical employer subsidy for the AIG postretirement plan was eliminated for
employees who were not grandfathered. Additionally, new employees hired after December 31, 2012 are not eligible for retiree life
insurance.
280
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
281
1011252ai_financials.indd 280
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 20 . S h are - Ba se d C o m pe ns a ti o n P la ns
ITEM 8 | Notes to Consolidated Financial Statements | 20 . S h are - Ba se d C o m pe ns a ti o n P la ns
The following table summarizes outstanding share-settled LTI awards(a):
As of or for the Year
Ended December 31, 2017(b)
Unvested, beginning of year
Granted
Vested(c)
Forfeited
Number of Units
Weighted Average
Grant-Date Fair Value
2017 LTI
2016 LTI
2015 LTI
2014 LTI
2013 LTI
2017 LTI 2016 LTI 2015 LTI 2014 LTI 2013 LTI
- 2,588,598 2,176,555 1,732,616 1,581,904
$
- $ 51.12 $ 55.52 $ 48.88 $ 38.03
3,996,978
2,806
-
122,378
(971,945)
(182,938)
(201,256)
(957,045)
(968,930)
(84,987)
(138,263)
(121,456)
(74,638)
(36,764)
48.57
48.89
49.02
-
37.98
39.14
Unvested, at modification date
2,940,046 2,270,203 1,853,843
823,311
576,210
$ 65.07 $ 50.37 $ 55.17 $ 48.81 $ 38.04
The weighted average grant-date fair value of stock options granted during 2017 was $10.54. As of December 31, 2017, we
recognized $7.3 million of expense, while $19 million was unrecognized and is expected to be amortized up to 2.75 years.
NON-EMPLOYEE PLAN
Our non-employee directors, who serve on our Board of Directors, receive share-based compensation in the form of fully vested
DSUs with delivery deferred until retirement from the Board. DSUs granted in 2017, 2016 and 2015 accrue DEUs equal to the
amount of any regular quarterly dividend that would have been paid by AIG if the shares of AIG Common Stock underlying the DSUs
had been outstanding. In 2017, 2016 and 2015, we granted to non-employee directors 32,067, 41,974 and 32,342 DSUs,
respectively, under the 2013 Plan, and recognized expense of $2.0 million, $2.4 million and $1.9 million, respectively.
2,173,115 1,467,745 1,291,788
823,311
576,210
$ 62.78 $ 60.90 $ 60.02 $ 48.81 $ 38.04
-
-
-
-
-
-
-
-
-
-
21. Employee Benefits
PENSION PLANS
(a) Excludes stock options and DSUs, which are discussed under Stock Options and Non-Employee Plan, respectively.
We offer various defined benefit plans to eligible employees.
Cancelled at modification date
(1,082,417) (2,951,417) (2,229,873)
Granted at modification date
1,082,417 2,646,866 2,094,629
Sub-total, net impact of modification
(304,551)
(135,244)
-
-
(766,931)
(495,222)
(424,788)
(2,685)
(2,023)
Vested - post-modification(c)
Forfeited - post-modification
Unvested, end of year(d)
-
-
-
-
-
-
-
-
-
-
-
64.83
64.09
65.24
67.47
62.13
64.01
-
-
36.49
60.29
51.10
52.00
62.13
55.01
62.13
62.13
-
59.04
55.01
54.56
62.13
56.33
61.82
62.13
(b) Except for the 2013 and 2014 LTI award, PSUs represent target amount granted, and does not reflect potential increases or decreases that could result from the final
outcome of the performance goals for the respective awards, which is determined in the quarter after the applicable performance period ends.
(c) Also reflects units that vest as a result of an accelerated vesting event that occurred prior to the specified vesting date.
(d) At December 31, 2017, the total unrecognized compensation cost for outstanding LTI awards was $237 million and the weighted-average and expected period of years
over which that cost is expected to be recognized are 1.02 years and 3 years.
Stock Option Awards
The Company issued 2.5 million stock options to two senior executives who joined the Company in 2017. The options vest in
installments based on a combination of service requirements of up to three years and/or AIG stock price achieving specified hurdles,
and will expire in 2024. The fair value of the options were estimated on the grant date using the Black Scholes model for the time-
vesting options, and a Monte Carlo simulation for the hurdle-vesting options using the assumptions noted in the following table.
The following weighted-average assumptions were used for stock options granted:
Expected annual dividend yield(a)
Expected volatility(b)
Risk-free interest rate(c)
Expected term(d)
(a)The dividend yield is based on the current quarterly dividend payment of $0.32 and the Valuation Date stock price.
(b)The expected volatility is the 1080-day implied volatility as seen in the open marketplace on the Valuation Date.
(c) The risk-free interest rate range is 1.76 percent to 2.14 percent.
(d)The contractual term of the option is 7 years from the grant date.
The following table provides a rollforward of stock option activity:
2017
2.03 %
20.96 %
1.94 %
4.5 years
As of or for the Year
Ended December 31, 2017
Outstanding, beginning of year
Granted
Exercised
Forfeited or expired
Outstanding, end of year
Exercisable, end of year
Weighted Average
Remaining
Intrinsic Values
Units
Exercise Price
Contractual Life
(in millions)
Weighted Average
Aggregate
2,500,000
2,500,000
-
-
-
-
$
$
$
62.90
62.90
-
-
-
-
6.48
-
$
$
-
-
The U.S. AIG Retirement Plan (the qualified plan) is a noncontributory defined benefit plan that is subject to the provisions of ERISA.
U.S. salaried employees who are employed by a participating company on or before December 1, 2014 and who have completed
12 months of continuous service are eligible to participate in the plan. Effective April 1, 2012, the qualified plan was converted to a
cash balance formula comprised of pay credits based on six percent of a plan participants annual compensation (subject to IRS
limitations) and annual interest credits. Employees can take their vested benefits when they leave AIG as a lump sum or an annuity
option after completing at least three years of service. Employees satisfying certain age and service requirements (i.e., grandfathered
employees) remain covered under the average pay formula that was in effect prior to the conversion to the cash balance formula.
The final average pay formula is based upon a percentage of final average compensation multiplied by years of credited service, up
to 44 years. Grandfathered employees will receive the higher of the benefit under the cash balance formula or the final average pay
formula at retirement. Non-U.S. defined benefit plans generally are either based on the employees years of credited service and
compensation in the years preceding retirement or on points accumulated based on the employees job grade and other factors
during each year of service.
In the U.S. we also sponsor non-qualified unfunded defined benefit plans, such as the AIG Non-Qualified Retirement Income Plan
(AIG NQRIP) for certain employees, including key executives, designed to supplement pension benefits provided by the qualified
plan. The AIG NQRIP provides a benefit equal to the reduction in benefits under the qualified plan as a result of federal tax limitations
on compensation and benefits payable.
Plan Freeze
Effective January 1, 2016, the U.S. defined benefit pension plans were frozen. Consequently, these plans are closed to new
participants and current participants no longer earn benefits. However, interest credits continue to accrue on the existing cash
balance accounts and participants are continuing to accrue years of service for purposes of vesting and early retirement eligibility and
subsidies as they continue to be employed by AIG.
POSTRETIREMENT PLANS
We also provide postretirement medical care and life insurance benefits in the U.S. and in certain non-U.S. countries. Eligibility in the
various plans generally is based upon completion of a specified period of eligible service and attaining a specified age. Overseas,
benefits vary by geographic location.
U.S. postretirement medical and life insurance benefits are based upon the employee attaining the age of 55 and having a minimum
of ten years of service. Eligible employees who have medical coverage can enroll in retiree medical upon termination of employment.
Medical benefits are contributory, while the life insurance benefits generally are non-contributory. Retiree medical contributions vary
from none for pre-1989 retirees to actual premium payments reduced by certain subsidies for post-1992 retirees. These contributions
are subject to adjustment annually. Other cost sharing features of the medical plan include deductibles, coinsurance and Medicare
coordination. Effective April 1, 2012, the retiree medical employer subsidy for the AIG postretirement plan was eliminated for
employees who were not grandfathered. Additionally, new employees hired after December 31, 2012 are not eligible for retiree life
insurance.
280
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
281
1011252ai_financials.indd 281
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
The following table presents the funded status of the plans reconciled to the amount reported in the Consolidated Balance
Sheets. The measurement date for most of the non-U.S. defined benefit pension and postretirement plans is November 30,
consistent with the fiscal year end of the sponsoring companies. For all other plans, measurement occurs as of
December 31.
As of or for the Years Ended
December 31,
(in millions)
Change in projected benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid:
AIG assets
Plan assets
Plan amendment
Curtailments
Settlements
Foreign exchange effect
Other
Projected benefit obligation, end of year
Change in plan assets:
Fair value of plan assets, beginning
of year
Actual return on plan assets, net of expenses
AIG contributions
Benefits paid:
AIG assets
Plan assets
Settlements
Foreign exchange effect
Dispositions
Other
Fair value of plan assets, end of year
Funded status, end of year
Amounts recognized in the balance
sheet:
Assets
Liabilities
Total amounts recognized
Pre-tax amounts recognized in Accumulated
other comprehensive income:
Net gain (loss)
Prior service (cost) credit
Total amounts recognized
$
$
$
$
$
$
$
Pension
Postretirement
U.S. Plans*
2017
2016
Non-U.S. Plans*
2017
2016
U.S. Plans
2017
2016
Non-U.S. Plans
2016
2017
4,948 $
11
166
372
5,324
19
181
118
(19)
(161)
-
-
(226)
-
-
5,091 $
(24)
(332)
-
-
(338)
-
-
4,948
3,843 $
584
329
4,359
154
24
(19)
(161)
(226)
-
-
-
$
4,350 $
(741) $ (1,105) $
(24)
(332)
(338)
-
-
-
3,843
$
1,246 $ 1,146 $
29
16
(29)
(10)
(26)
-
(7)
(12)
37
(42)
31
21
98
(12)
(35)
1
(2)
(16)
19
(5)
$
1,202 $ 1,246 $
$
803 $
67
60
(10)
(26)
(12)
19
-
(26)
875 $
(327) $
773 $
19
71
(12)
(35)
(16)
6
(4)
1
803 $
(443) $
$
196 $ 208
2
7
(2)
2
6
-
(13)
-
-
-
-
-
(1)
(14)
-
-
(1)
-
-
(4)
190 $ 196
- $
-
13
-
-
14
$
$
(13)
-
-
-
-
-
- $
(14)
-
-
-
-
-
-
$
(190) $ (196) $
- $
$
-
(1,105)
(741)
(741) $ (1,105) $
68 $
(395)
(327) $
53 $
(496)
(443) $
- $
$
-
(196)
(190)
(190) $ (196) $
80 $
3
3
(2)
(1)
-
(6)
-
-
1
(15)
63 $
75
3
3
-
(1)
-
-
-
-
-
-
80
- $
-
1
-
-
1
(1)
-
-
-
-
-
- $
(63) $
(1)
-
-
-
-
-
-
(80)
- $
(63)
(63) $
-
(80)
(80)
$ (1,373) $ (1,405) $
-
-
$ (1,373) $ (1,405) $
(170) $
(22)
(192) $
(251) $
(28)
(279) $
17 $
1
18 $
17
2
19
$
$
(11) $
5
(6) $
(15)
-
(15)
The following table presents the accumulated benefit obligations for U.S. and non-U.S. pension benefit plans:
At December 31,
(in millions)
U.S. pension benefit plans
Non-U.S. pension benefit plans
2017
5,091
1,188
$
$
2016
4,948
1,215
$
$
Defined benefit plan obligations in which the projected benefit obligation was in excess of the related plan assets and the
accumulated benefit obligation was in excess of the related plan assets were as follows:
At December 31,
PBO Exceeds Fair Value of Plan Assets
ABO Exceeds Fair Value of Plan Assets
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
U.S. Plans
Non-U.S. Plans
U.S. Plans
Non-U.S. Plans
2017
2016
2017
2016
2017
2016
2017
2016
$
5,091 $
4,948 $
1,054 $
1,121 $
5,091 $
4,948 $
991 $
5,091
4,350
4,948
3,843
979
596
1,016
545
5,091
4,350
4,948
3,843
979
596
1,029
1,009
536
The following table presents the components of net periodic benefit cost with respect to pensions and other postretirement
benefits:
Years Ended December 31,
Pension
Postretirement
(in millions)
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
U.S. Plans
Non-U.S. Plans
U.S. Plans
Non-U.S. Plans
Components of net periodic benefit
cost:
Service cost
*
Interest cost
Amortization of prior service credit
Amortization of net (gain) loss
Net periodic benefit cost (credit)
Curtailment gain
Settlement loss
Net benefit cost (credit)
Total recognized in Accumulated other
Total recognized in net periodic benefit
cost and other comprehensive
$
$
Expected return on assets
(292)
(295)
$
11 $
19 $
$
29 $
31 $
$
2 $
2 $
$
3 $
3 $
166
(266)
26
(63)
-
-
181
25
(67)
-
-
60
149
(3) $
82 $
192
220
(22)
92
187
(179)
-
8
$
$
16
(24)
-
12
33
(6)
1
21
(26)
-
7
33
(6)
2
43
25
(25)
(2)
9
50
(1)
1
50
$
$
(1)
(1)
6
-
6
-
-
7
-
(1)
(4)
(1)
-
(12)
(11)
(1)
(1)
3
-
1
6
-
(2)
3
-
-
1
7
-
-
5
8
-
-
2
-
-
2
$
$
3
3
-
-
5
-
-
5
28 $
29 $
6 $
(5) $
4 $
7 $
comprehensive income (loss)
32 $
(82) $
143
87 $ (101) $
38
(2) $
(7) $
12
9 $
1 $
(9)
income (loss)
$
35 $
(164) $
135
$
59 $ (130) $
(12)
$
(8) $
(2) $
10
$
5 $
(6) $
(14)
* Reflects administrative fees for the U.S. pension plans.
*
Includes non-qualified unfunded plans of which the aggregate projected benefit obligation was $272 million and $278 million for the U.S. at December 31, 2017 and
2016, respectively, and $211 million and $199 million for the non-U.S at December 31, 2017 and 2016, respectively.
282
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
283
1011252ai_financials.indd 282
3/9/18 6:11 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
The following table presents the funded status of the plans reconciled to the amount reported in the Consolidated Balance
Sheets. The measurement date for most of the non-U.S. defined benefit pension and postretirement plans is November 30,
The following table presents the accumulated benefit obligations for U.S. and non-U.S. pension benefit plans:
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
consistent with the fiscal year end of the sponsoring companies. For all other plans, measurement occurs as of
As of or for the Years Ended
Pension
Postretirement
U.S. Plans*
Non-U.S. Plans*
U.S. Plans
2017
2016
2017
2016
2017
2016
Non-U.S. Plans
2016
2017
At December 31,
(in millions)
U.S. pension benefit plans
Non-U.S. pension benefit plans
2017
5,091
1,188
$
$
2016
4,948
1,215
$
$
December 31.
December 31,
(in millions)
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid:
AIG assets
Plan assets
Plan amendment
Curtailments
Settlements
Foreign exchange effect
Other
of year
AIG contributions
Benefits paid:
AIG assets
Plan assets
Settlements
Foreign exchange effect
Dispositions
Other
Change in projected benefit obligation:
Benefit obligation, beginning of year
$
4,948 $
5,324
$
1,246 $ 1,146 $
196 $ 208
$
80 $
29
16
(29)
(10)
(26)
-
(7)
(12)
37
(42)
67
60
(10)
(26)
(12)
19
-
(26)
31
21
98
(12)
(35)
1
(2)
(16)
19
(5)
19
71
(12)
(35)
(16)
(4)
6
1
2
6
-
-
-
-
-
-
-
-
-
-
-
(13)
(14)
(1)
(4)
(15)
-
13
14
(13)
(14)
(1)
3
3
(2)
(1)
(6)
-
-
-
1
-
1
-
-
-
-
-
2
7
(2)
(1)
-
-
-
-
-
-
-
-
-
-
-
-
75
3
3
-
(1)
-
-
-
-
-
-
80
-
-
1
(1)
-
-
-
-
-
-
(80)
-
(80)
(80)
Projected benefit obligation, end of year
$
5,091 $
4,948
$
1,202 $ 1,246 $
190 $ 196
$
63 $
Change in plan assets:
Fair value of plan assets, beginning
Actual return on plan assets, net of expenses
$
3,843 $
4,359
$
803 $
773 $
- $
$
- $
Fair value of plan assets, end of year
4,350 $
3,843
$
875 $
803 $
- $
$
- $
(741) $ (1,105) $
(327) $
(443) $
(190) $ (196) $
(63) $
Funded status, end of year
Amounts recognized in the balance
sheet:
Assets
Liabilities
Total amounts recognized
(741) $ (1,105) $
(327) $
(443) $
(190) $ (196) $
(63) $
- $
-
$
68 $
53 $
- $
-
$
- $
(741)
(1,105)
(395)
(496)
(190)
(196)
(63)
$
$
$
$
Pre-tax amounts recognized in Accumulated
other comprehensive income:
Net gain (loss)
Prior service (cost) credit
Total amounts recognized
$ (1,373) $ (1,405) $
(170) $
(251) $
17 $
-
(22)
(28)
1
$ (1,373) $ (1,405) $
(192) $
(279) $
18 $
17
2
19
$
$
(11) $
5
(6) $
(15)
-
(15)
*
Includes non-qualified unfunded plans of which the aggregate projected benefit obligation was $272 million and $278 million for the U.S. at December 31, 2017 and
2016, respectively, and $211 million and $199 million for the non-U.S at December 31, 2017 and 2016, respectively.
11
166
372
19
181
118
(19)
(161)
(24)
(332)
(226)
(338)
584
329
(19)
(161)
(226)
154
24
(24)
(332)
(338)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Defined benefit plan obligations in which the projected benefit obligation was in excess of the related plan assets and the
accumulated benefit obligation was in excess of the related plan assets were as follows:
At December 31,
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
PBO Exceeds Fair Value of Plan Assets
Non-U.S. Plans
ABO Exceeds Fair Value of Plan Assets
Non-U.S. Plans
U.S. Plans
2017
5,091 $
5,091
4,350
2016
4,948 $
4,948
3,843
2017
1,054 $
979
596
2016
1,121 $
1,016
545
U.S. Plans
2017
5,091 $
5,091
4,350
2016
4,948 $
4,948
3,843
2017
991 $
979
596
2016
1,029
1,009
536
The following table presents the components of net periodic benefit cost with respect to pensions and other postretirement
benefits:
Years Ended December 31,
Pension
Postretirement
(in millions)
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
U.S. Plans
Non-U.S. Plans
U.S. Plans
Non-U.S. Plans
Components of net periodic benefit
cost:
Service cost
*
Interest cost
Expected return on assets
Amortization of prior service credit
Amortization of net (gain) loss
Curtailment gain
Settlement loss
Net benefit cost (credit)
Total recognized in Accumulated other
comprehensive income (loss)
Total recognized in net periodic benefit
cost and other comprehensive
$
$
Net periodic benefit cost (credit)
(63)
(67)
$
11 $
19 $
$
29 $
31 $
$
2 $
2 $
$
3 $
3 $
166
(266)
-
26
-
60
181
-
25
149
(292)
(295)
-
(179)
192
220
(22)
92
187
-
8
$
$
16
(24)
-
12
33
(6)
1
21
(26)
-
7
33
(6)
2
28 $
29 $
43
25
(25)
(2)
9
50
(1)
1
50
(12)
(11)
6
-
(1)
(1)
6
-
-
7
-
(1)
(4)
(1)
-
5
8
-
-
2
-
-
2
$
$
$
$
(3) $
82 $
6 $
(5) $
3
-
(1)
1
6
(2)
-
3
-
-
1
7
-
-
4 $
7 $
3
3
-
(1)
-
5
-
-
5
32 $
(82) $
143
87 $ (101) $
38
(2) $
(7) $
12
9 $
1 $
(9)
income (loss)
$
35 $
(164) $
135
$
59 $ (130) $
(12)
$
(8) $
(2) $
10
$
5 $
(6) $
(14)
* Reflects administrative fees for the U.S. pension plans.
282
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
283
1011252ai_financials.indd 283
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
The estimated net loss and prior service cost that will be amortized from Accumulated other comprehensive income into net periodic
benefit cost over the next fiscal year are $35 million and $2 million, respectively, for our combined defined benefit pension plans. For
the defined benefit postretirement plans, the estimated amortization from Accumulated other comprehensive income for net loss and
prior service credit that will be amortized into net periodic benefit cost over the next fiscal year is a $3 million credit in the aggregate.
As of 2016, interest cost for pension and postretirement benefits for our U.S. plans and largest non-U.S. plans is measured by
applying the specific spot rates along the yield curve to the plans corresponding discounted cash flows that comprise the obligation
(the Spot Rate Approach). This method provides a more precise measurement of interest cost by aligning the timing of the plans
discounted cash flows to the corresponding spot rates on the yield curve. Previously, interest cost was measured utilizing a single
weighted-average discount rate derived from the yield curve used to measure the benefit obligations.
A 100 basis point increase in the discount rate or expected long-term rate of return would decrease the 2018 pension expense by
approximately $4 million and $51 million, respectively, with all other items remaining the same. Conversely, a 100 basis point
decrease in the discount rate or expected long-term rate of return would increase the 2018 pension expense by approximately
$23 million and $51 million, respectively, with all other items remaining the same.
ASSUMPTIONS
The following table presents the weighted average assumptions used to determine the net periodic benefit costs:
For the Year Ended December 31, 2017
For the Year Ended December 31, 2016
For the Year Ended December 31, 2015
Discount rate
Rate of compensation increase
Expected return on assets
Discount rate
Rate of compensation increase
Expected return on assets
Discount rate
Rate of compensation increase
Expected return on assets
Pension
Postretirement
U.S. Plans
Non-U.S. Plans*
U.S. Plans
Non-U.S. Plans*
4.15 %
N/A
7.00%
4.33 %
N/A
7.00 %
3.94 %
3.40 %
7.25 %
1.50 %
2.50%
2.92%
2.17 %
2.64 %
3.28 %
2.33 %
2.89 %
3.33 %
4.01 %
N/A
N/A
4.21 %
N/A
N/A
3.77 %
N/A
N/A
3.95 %
3.38%
N/A
4.09 %
3.43 %
N/A
4.04 %
3.29 %
N/A
*
The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of the subsidiaries providing such benefits.
The following table summarizes the weighted average assumptions used to determine the benefit obligations:
Discount Rate Methodology
December 31, 2017
Discount rate
Rate of compensation increase
December 31, 2016
Discount rate
Rate of compensation increase
Pension
Postretirement
U.S. Plans
Non-U.S. Plans(a)
U.S. Plans
Non-U.S. Plans(a)
3.61 %
N/A
4.14 %
N/A
(b)
(b)
1.60 %
2.27 %
1.50 %
2.50 %
3.53 %
N/A
4.02 %
N/A
3.59 %
3.00 %
3.95 %
3.38 %
(a) The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of each of the subsidiaries providing such benefits.
(b) Compensation increases are no longer applicable due to the plan freeze that became effective January 1, 2016.
The following table summarizes assumed health care cost trend rates for the U.S. plans:
The projected benefit cash flows under the U.S. AIG Retirement Plan were discounted using the spot rates derived from the Mercer
U.S. Pension Discount Yield Curve at December 31, 2017 and 2016, which resulted in a single discount rate that would produce the
same liability at the respective measurement dates. The discount rates were 3.61 percent at December 31, 2017 and 4.15 percent at
December 31, 2016. The methodology was consistently applied for the respective years in determining the discount rates for the other
U.S. pension plans.
In general, the discount rates for the non-U.S. plans were developed using a similar methodology to the U.S. AIG Retirement plan, by
using country-specific Mercer Yield Curves.
The projected benefit obligation for AIGs Japan pension plans represents approximately 50 percent and 54 percent of the total
projected benefit obligations for our non-U.S. pension plans at December 31, 2017 and 2016, respectively. The weighted average
discount rate of 0.66 percent and 0.47 percent at December 31, 2017 and 2016, respectively, was selected by reference to the Mercer
Yield Curve for Japan.
At December 31,
Following year:
Medical (before age 65)
Medical (age 65 and older)
Ultimate rate to which cost increase is assumed to decline
Year in which the ultimate trend rate is reached:
Medical (before age 65)
Medical (age 65 and older)
2017
2016
Plan Assets
6.12%
5.00%
4.50%
2038
2038
6.31%
5.00%
4.50%
2038
2038
The investment strategy with respect to assets relating to our U.S. and non-U.S. pension plans is designed to achieve investment
returns that will provide for the benefit obligations of the plans over the long term, limit the risk of short-term funding shortfalls
and maintain liquidity sufficient to address cash needs. Accordingly, the asset allocation strategy is designed to maximize the
investment rate of return while managing various risk factors, including, but not limited to, volatility relative to the benefit obligations,
liquidity, diversification and concentration, and incorporates the risk/return profile applicable to each asset class.
There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at December 31, 2017 or 2016.
A one percent point change in the assumed healthcare cost trend rate would have the following effect on our postretirement
benefit obligations:
U.S. Pension Plan
At December 31,
(in millions)
U.S. plans
Non-U.S. plans
$
$
One Percent
Increase
2017
4
14
$
$
2016
4
19
One Percent
Decrease
2017
(4)
(10)
$
$
2016
(3)
(14)
$
$
Our postretirement plans provide benefits primarily in the form of defined employer contributions rather than defined employer
benefits. Changes in the assumed healthcare cost trend rate have a minimal impact for U.S. plans because for post-1992 retirees,
benefits are fixed dollar amounts based on service at retirement. Our non-U.S. postretirement plans are not subject to caps.
The assets of the qualified plan are monitored by the AIG U.S. Investment Committee and actively managed by the investment
managers, which involves allocating the plans assets among approved asset classes within ranges as permitted by the strategic
allocation. The long-term strategic asset allocation historically has been reviewed and revised approximately every three years.
Beginning in 2016, the investment strategy focus is on de-risking the Plan via regular monitoring. This was implemented through
liability driven investing and the adoption of the glide path approach, where the glide path defines the target allocation for the Return-
Seeking portion of the portfolio (i.e., growth assets) based on the funded ratio. Under this approach, the allocation to growth assets is
reduced and the allocation to liability-hedging assets is increased as the Plans funded ratio increases in accordance with the defined
glide path.
284
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
285
1011252ai_financials.indd 284
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
The estimated net loss and prior service cost that will be amortized from Accumulated other comprehensive income into net periodic
benefit cost over the next fiscal year are $35 million and $2 million, respectively, for our combined defined benefit pension plans. For
the defined benefit postretirement plans, the estimated amortization from Accumulated other comprehensive income for net loss and
prior service credit that will be amortized into net periodic benefit cost over the next fiscal year is a $3 million credit in the aggregate.
As of 2016, interest cost for pension and postretirement benefits for our U.S. plans and largest non-U.S. plans is measured by
applying the specific spot rates along the yield curve to the plans corresponding discounted cash flows that comprise the obligation
(the Spot Rate Approach). This method provides a more precise measurement of interest cost by aligning the timing of the plans
discounted cash flows to the corresponding spot rates on the yield curve. Previously, interest cost was measured utilizing a single
weighted-average discount rate derived from the yield curve used to measure the benefit obligations.
A 100 basis point increase in the discount rate or expected long-term rate of return would decrease the 2018 pension expense by
approximately $4 million and $51 million, respectively, with all other items remaining the same. Conversely, a 100 basis point
decrease in the discount rate or expected long-term rate of return would increase the 2018 pension expense by approximately
$23 million and $51 million, respectively, with all other items remaining the same.
The following table presents the weighted average assumptions used to determine the net periodic benefit costs:
For the Year Ended December 31, 2017
Discount rate
Rate of compensation increase
Expected return on assets
For the Year Ended December 31, 2016
Discount rate
Rate of compensation increase
Expected return on assets
For the Year Ended December 31, 2015
Discount rate
Rate of compensation increase
Expected return on assets
Pension
Postretirement
U.S. Plans
Non-U.S. Plans*
U.S. Plans
Non-U.S. Plans*
4.15 %
N/A
7.00%
4.33 %
N/A
7.00 %
3.94 %
3.40 %
7.25 %
1.50 %
2.50%
2.92%
2.17 %
2.64 %
3.28 %
2.33 %
2.89 %
3.33 %
4.01 %
N/A
N/A
4.21 %
N/A
N/A
3.77 %
N/A
N/A
3.95 %
3.38%
N/A
4.09 %
3.43 %
N/A
4.04 %
3.29 %
N/A
*
The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of the subsidiaries providing such benefits.
The following table summarizes the weighted average assumptions used to determine the benefit obligations:
Discount Rate Methodology
Pension
Postretirement
U.S. Plans
Non-U.S. Plans(a)
U.S. Plans
Non-U.S. Plans(a)
3.61 %
N/A
4.14 %
N/A
(b)
(b)
1.60 %
2.27 %
1.50 %
2.50 %
3.53 %
N/A
4.02 %
N/A
3.59 %
3.00 %
3.95 %
3.38 %
(a) The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of each of the subsidiaries providing such benefits.
(b) Compensation increases are no longer applicable due to the plan freeze that became effective January 1, 2016.
The following table summarizes assumed health care cost trend rates for the U.S. plans:
The projected benefit cash flows under the U.S. AIG Retirement Plan were discounted using the spot rates derived from the Mercer
U.S. Pension Discount Yield Curve at December 31, 2017 and 2016, which resulted in a single discount rate that would produce the
same liability at the respective measurement dates. The discount rates were 3.61 percent at December 31, 2017 and 4.15 percent at
December 31, 2016. The methodology was consistently applied for the respective years in determining the discount rates for the other
U.S. pension plans.
In general, the discount rates for the non-U.S. plans were developed using a similar methodology to the U.S. AIG Retirement plan, by
using country-specific Mercer Yield Curves.
The projected benefit obligation for AIGs Japan pension plans represents approximately 50 percent and 54 percent of the total
projected benefit obligations for our non-U.S. pension plans at December 31, 2017 and 2016, respectively. The weighted average
discount rate of 0.66 percent and 0.47 percent at December 31, 2017 and 2016, respectively, was selected by reference to the Mercer
Yield Curve for Japan.
Ultimate rate to which cost increase is assumed to decline
Year in which the ultimate trend rate is reached:
2017
2016
Plan Assets
6.12%
5.00%
4.50%
2038
2038
6.31%
5.00%
4.50%
2038
2038
The investment strategy with respect to assets relating to our U.S. and non-U.S. pension plans is designed to achieve investment
returns that will provide for the benefit obligations of the plans over the long term, limit the risk of short-term funding shortfalls
and maintain liquidity sufficient to address cash needs. Accordingly, the asset allocation strategy is designed to maximize the
investment rate of return while managing various risk factors, including, but not limited to, volatility relative to the benefit obligations,
liquidity, diversification and concentration, and incorporates the risk/return profile applicable to each asset class.
There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at December 31, 2017 or 2016.
A one percent point change in the assumed healthcare cost trend rate would have the following effect on our postretirement
U.S. Pension Plan
Our postretirement plans provide benefits primarily in the form of defined employer contributions rather than defined employer
benefits. Changes in the assumed healthcare cost trend rate have a minimal impact for U.S. plans because for post-1992 retirees,
benefits are fixed dollar amounts based on service at retirement. Our non-U.S. postretirement plans are not subject to caps.
One Percent
Increase
2017
2016
$
$
4
14
$
$
4
19
One Percent
Decrease
2017
(4)
(10)
$
$
2016
(3)
(14)
$
$
The assets of the qualified plan are monitored by the AIG U.S. Investment Committee and actively managed by the investment
managers, which involves allocating the plans assets among approved asset classes within ranges as permitted by the strategic
allocation. The long-term strategic asset allocation historically has been reviewed and revised approximately every three years.
Beginning in 2016, the investment strategy focus is on de-risking the Plan via regular monitoring. This was implemented through
liability driven investing and the adoption of the glide path approach, where the glide path defines the target allocation for the Return-
Seeking portion of the portfolio (i.e., growth assets) based on the funded ratio. Under this approach, the allocation to growth assets is
reduced and the allocation to liability-hedging assets is increased as the Plans funded ratio increases in accordance with the defined
glide path.
ASSUMPTIONS
December 31, 2017
Discount rate
December 31, 2016
Discount rate
Rate of compensation increase
Rate of compensation increase
At December 31,
Following year:
Medical (before age 65)
Medical (age 65 and older)
Medical (before age 65)
Medical (age 65 and older)
benefit obligations:
At December 31,
(in millions)
U.S. plans
Non-U.S. plans
284
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
285
1011252ai_financials.indd 285
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 The following table presents the asset allocation percentage by major asset class for the U.S. qualified plan and the target
allocation for 2017 based on the plans funded status at December 31, 2017:
ASSETS MEASURED AT FAIR VALUE
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
At December 31,
Asset class:
Equity securities
Fixed maturity securities
Other investments
Total
Target
2018
Actual
2017
Actual
2016
46 %
44 %
10 %
100 %
45 %
36 %
19 %
100 %
43 %
36 %
21 %
100 %
The expected long-term rate of return for the plan was 7.0 percent for both 2017 and 2016. The expected rate of return is an
aggregation of expected returns within each asset class category, weighted for the investment mix of the assets. The combination of
the expected asset return and any contributions made by us are expected to maintain the plans ability to meet all required benefit
obligations. The expected asset return for each asset class was developed based on an approach that considers key fundamental
drivers of the asset class returns in addition to historical returns, current market conditions, asset volatility and the expectations for
future market returns.
Non-U.S. Pension Plans
The assets of the non-U.S. pension plans are held in various trusts in multiple countries and are invested primarily in equities and
fixed maturity securities to maximize the long-term return on assets for a given level of risk.
The following table presents the asset allocation percentage by major asset class for non-U.S. pension plans and the target
allocation:
At December 31,
Asset class:
Equity securities
Fixed maturity securities
Other investments
Cash and cash equivalents
Total
Target
2018
Actual
2017
Actual
2016
30 %
52 %
17 %
1 %
100 %
49 %
32 %
13 %
6 %
100 %
44 %
36 %
14 %
6 %
100 %
The assets of AIGs Japan pension plans represent approximately 56 percent of total non-U.S. assets at December 31 for both 2017
and 2016. The expected long term rate of return was 2.43 percent and 2.61 percent, for 2017 and 2016, respectively, and is evaluated
by the Japanese Pension Investment Committee on a quarterly and annual basis along with various investment managers, and is
revised to achieve the optimal allocation to meet targeted funding levels if necessary. In addition, the funding policy is revised in
accordance with local regulation every five years.
The expected weighted average long-term rate of return for all our non-U.S. pension plans was 2.92 percent and 3.28 percent for the
years ended December 31, 2017 and 2016, respectively. It is an aggregation of expected returns within each asset class that was
generally developed based on the building block approach that considers historical returns, current market conditions, asset volatility
and the expectations for future market returns.
The following table presents information about our plan assets and indicates the level of the fair value measurement based
on the observability of the inputs used. The inputs and methodology used in determining the fair value of these assets are
consistent with those used to measure our assets as discussed in Note 5 herein.
U.S. Plans
Non-U.S. Plans
Level 1
Level 2 Level 3
Total
Level 1 Level 2 Level 3
Total
Cash and cash equivalents
$
397 $
- $
- $
397
$
51 $
- $
- $
51
(in millions)
At December 31, 2017
Assets:
Equity securities:
U.S.(a)
International(b)
Fixed maturity securities:
U.S. investment grade(c)
International investment grade(c)
U.S. and international high yield(d)
Mortgage and other asset-backed
securities(e)
Other fixed maturity securities
Other investment types(g):
Direct private equity(f)
Insurance contracts
Total
At December 31, 2016
Assets:
Equity securities:
U.S.(a)
International(b)
Fixed maturity securities:
U.S. investment grade(c)
International investment grade(c)
U.S. and international high yield(d)
Mortgage and other asset-backed
securities(e)
Other fixed maturity securities
Other investment types(g):
Direct private equity(f)
Insurance contracts
Total
1,300
265
1,300
265
362
64
1,006
12
1,018
-
-
-
-
204
212
142
20
218
1
-
-
-
-
-
21
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
838
377
204
212
142
-
15
20
839
377
218
-
-
-
24
21
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
97
171
16
90
186
13
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
113
108
-
-
-
-
-
-
-
-
426
97
171
16
113
874
356
90
186
13
108
803
298
58
1,174
2
1,176
$ 1,443 $ 1,414 $
26 $ 2,883
$
348 $
347 $ 108 $
$ 1,962 $ 1,584 $
27 $ 3,573
$
413 $
348 $ 113 $
Cash and cash equivalents
$
228 $
- $
- $
228
$
50 $
- $
- $
50
(a) Includes passive and active U.S. Large Cap and Small Cap strategies, as well as mutual funds, and exchange traded funds.
(b) Includes investments in companies in emerging and developed markets.
(c) Represents investments in U.S. and non-U.S. government issued bonds, U.S. government agency or sponsored agency bonds, and investment grade corporate bonds.
(d) Consists primarily of investments in securities or debt obligations that have a rating below investment grade.
(e) Comprised primarily of investments in U.S. asset backed securities and collateralized loan obligations.
(f) Comprised of private capital financing including private debt and private equity securities.
(g) Excludes investments that are measured at fair value using the NAV per share (or its equivalent), which totaled $777 million and $960 million at December 31, 2017 and
2016, respectively.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these
securities. Based on our investment strategy, we had no significant concentrations of risks at December 31, 2017.
The U.S. pension plan holds a group annuity contract with U.S. Life, one of our subsidiaries, which totaled $20 million and $21 million
at December 31, 2017 and 2016, respectively.
286
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
287
1011252ai_financials.indd 286
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
The following table presents the asset allocation percentage by major asset class for the U.S. qualified plan and the target
ASSETS MEASURED AT FAIR VALUE
allocation for 2017 based on the plans funded status at December 31, 2017:
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
The following table presents information about our plan assets and indicates the level of the fair value measurement based
on the observability of the inputs used. The inputs and methodology used in determining the fair value of these assets are
consistent with those used to measure our assets as discussed in Note 5 herein.
Target
2018
Actual
2017
Actual
2016
46 %
44 %
10 %
100 %
45 %
36 %
19 %
100 %
43 %
36 %
21 %
100 %
Target
2018
Actual
2017
Actual
2016
30 %
52 %
17 %
1 %
49 %
32 %
13 %
6 %
44 %
36 %
14 %
6 %
100 %
100 %
100 %
At December 31,
Asset class:
Equity securities
Fixed maturity securities
Other investments
Total
future market returns.
Non-U.S. Pension Plans
allocation:
At December 31,
Asset class:
Equity securities
Fixed maturity securities
Other investments
Cash and cash equivalents
Total
and the expectations for future market returns.
The expected long-term rate of return for the plan was 7.0 percent for both 2017 and 2016. The expected rate of return is an
aggregation of expected returns within each asset class category, weighted for the investment mix of the assets. The combination of
the expected asset return and any contributions made by us are expected to maintain the plans ability to meet all required benefit
obligations. The expected asset return for each asset class was developed based on an approach that considers key fundamental
drivers of the asset class returns in addition to historical returns, current market conditions, asset volatility and the expectations for
The assets of the non-U.S. pension plans are held in various trusts in multiple countries and are invested primarily in equities and
fixed maturity securities to maximize the long-term return on assets for a given level of risk.
The following table presents the asset allocation percentage by major asset class for non-U.S. pension plans and the target
The assets of AIGs Japan pension plans represent approximately 56 percent of total non-U.S. assets at December 31 for both 2017
and 2016. The expected long term rate of return was 2.43 percent and 2.61 percent, for 2017 and 2016, respectively, and is evaluated
by the Japanese Pension Investment Committee on a quarterly and annual basis along with various investment managers, and is
revised to achieve the optimal allocation to meet targeted funding levels if necessary. In addition, the funding policy is revised in
accordance with local regulation every five years.
The expected weighted average long-term rate of return for all our non-U.S. pension plans was 2.92 percent and 3.28 percent for the
years ended December 31, 2017 and 2016, respectively. It is an aggregation of expected returns within each asset class that was
(in millions)
At December 31, 2017
Assets:
Cash and cash equivalents
Equity securities:
U.S.(a)
International(b)
Fixed maturity securities:
U.S. investment grade(c)
International investment grade(c)
U.S. and international high yield(d)
Mortgage and other asset-backed
securities(e)
Other fixed maturity securities
Other investment types(g):
Direct private equity(f)
Insurance contracts
Total
At December 31, 2016
Assets:
Cash and cash equivalents
Equity securities:
U.S.(a)
International(b)
Fixed maturity securities:
U.S. investment grade(c)
International investment grade(c)
U.S. and international high yield(d)
Mortgage and other asset-backed
securities(e)
Other fixed maturity securities
Other investment types(g):
Direct private equity(f)
Insurance contracts
U.S. Plans
Non-U.S. Plans
Level 1
Level 2 Level 3
Total
Level 1 Level 2 Level 3
Total
$
397 $
- $
- $
397
$
51 $
- $
- $
51
1,300
265
-
-
-
-
-
-
-
-
-
1,006
204
212
142
-
-
20
$ 1,962 $ 1,584 $
-
-
12
-
-
-
-
1,300
265
1,018
204
212
142
-
-
362
-
-
-
-
-
15
-
15
20
27 $ 3,573
-
-
413 $
$
-
64
-
97
171
-
16
-
-
-
-
-
-
-
-
-
-
113
348 $ 113 $
-
426
-
97
171
-
16
-
113
874
$
228 $
- $
- $
228
$
50 $
- $
- $
50
838
377
-
-
-
-
-
-
-
1
-
1,174
-
218
-
-
-
21
-
-
2
-
-
-
-
839
377
1,176
-
218
-
-
-
298
-
-
-
-
-
24
-
24
21
26 $ 2,883
-
-
348 $
$
-
58
-
90
186
-
13
-
-
-
-
-
-
-
-
-
-
108
347 $ 108 $
-
356
-
90
186
-
13
-
108
803
generally developed based on the building block approach that considers historical returns, current market conditions, asset volatility
Total
$ 1,443 $ 1,414 $
(a) Includes passive and active U.S. Large Cap and Small Cap strategies, as well as mutual funds, and exchange traded funds.
(b) Includes investments in companies in emerging and developed markets.
(c) Represents investments in U.S. and non-U.S. government issued bonds, U.S. government agency or sponsored agency bonds, and investment grade corporate bonds.
(d) Consists primarily of investments in securities or debt obligations that have a rating below investment grade.
(e) Comprised primarily of investments in U.S. asset backed securities and collateralized loan obligations.
(f) Comprised of private capital financing including private debt and private equity securities.
(g) Excludes investments that are measured at fair value using the NAV per share (or its equivalent), which totaled $777 million and $960 million at December 31, 2017 and
2016, respectively.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these
securities. Based on our investment strategy, we had no significant concentrations of risks at December 31, 2017.
The U.S. pension plan holds a group annuity contract with U.S. Life, one of our subsidiaries, which totaled $20 million and $21 million
at December 31, 2017 and 2016, respectively.
286
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
287
1011252ai_financials.indd 287
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Changes in Level 3 Fair Value Measurements
The following table presents changes in our U.S. and non-U.S. Level 3 plan assets measured at fair value:
The expected future benefit payments, net of participants contributions, with respect to the defined benefit pension plans
and other postretirement benefit plans, are as follows:
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
At December 31, 2017
Beginning
Unrealized
Transfers
Transfers
Net
Balance
Realized and
of year
Gains (Losses)
Purchases
Sales
Issuances
Settlements
In
Out
Changes in
Unrealized Gains
(Losses) on
Instruments Held
at End of year
Balance
at End
of year
(in millions)
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade
Direct private equity
Total
Non-U.S. Plan Assets:
Other fixed maturity securities
Insurance contracts
Total
At December 31, 2016
(in millions)
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade
Direct private equity
Total
Non-U.S. Plan Assets:
Other fixed maturity securities
Insurance contracts
Total
$
$
$
$
$
$
$
$
2
$
24
26
$
-
$
108
108
$
- $
(3)
(3) $
- $
4
4 $
Net
17 $
1
(7) $
(7)
18 $
(14) $
- $
1
1 $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
12
15
27
-
113
113
Balance
Realized and
Beginning
Unrealized
Transfers
Transfers
of year
Gains (Losses)
Purchases
Sales
Issuances
Settlements
In
Out
Balance
at End
of year
9
$
28
37
$
-
$
95
95
$
1 $
(4)
(3) $
- $
12
12 $
2 $
(10) $
4
(4)
6 $
(14) $
- $
1
1 $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
- $
- $
2
(2)
2 $
(2) $
2
24
26
-
108
108
$
$
$
$
$
$
$
$
2
(1)
1
-
-
-
Changes in
Unrealized Gains
(Losses) on
Instruments Held
at End of year
-
(4)
(4)
-
-
-
Transfers of Level 1 and Level 2 Assets
Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period,
consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted
with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction
volume and frequency are indicative of an active market. We had no material transfers between Level 1 and Level 2 during the years
ended December 31, 2017 and 2016.
Transfers of Level 3 Assets
We record transfers of assets into or out of Level 3 at their fair values as of the end of each reporting period, consistent with the date
of the determination of fair value. During the year ended December 31, 2017, we had no transfers in or out of Level 3.
EXPECTED CASH FLOWS
Funding for the qualified plan ranges from the minimum amount required by ERISA to the maximum amount that would be deductible
for U.S. tax purposes. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the
maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. There are no
minimum required cash contributions in 2018 for the AIG Retirement Plan. The non-qualified and postretirement plans benefit
payments are deductible when paid to participants.
Our annual pension contribution in 2018 is expected to be approximately $64 million for our U.S. and non-U.S. pension plans. This
estimate is subject to change, since contribution decisions are affected by various factors including our liquidity, market performance
and managements discretion.
Pension
U.S.
Plans
Non-U.S.
Plans
Postretirement
U.S.
Plans
Non-U.S.
Plans
$
291 $
$
13 $
287
297
294
291
1,407
36
40
42
43
41
235
13
13
13
13
60
1
1
1
2
2
11
(in millions)
2018
2019
2020
2021
2022
2023-2027
DEFINED CONTRIBUTION PLANS
We sponsor several defined contribution plans for U.S. employees that provide for pre-tax salary reduction contributions by
employees. The most significant plan is the AIG Incentive Savings Plan, for which the matching contribution is 100 percent of the first
six percent of a participants contributions, subject to the IRS-imposed limitations. Effective January 1, 2016, participants in the AIG
Incentive Savings Plan receive an additional fully vested, non-elective, non-discretionary contribution equal to three percent of the
participants annual base compensation for the plan year, paid each pay period regardless of whether the participant currently
contributes to the plan, and subject to the IRS-imposed limitations. Our pre-tax expenses associated with these plans were $209
million, $236 million and $166 million in 2017, 2016 and 2015, respectively.
22. Ownership
A Schedule 13G/A filed on February 14, 2018 reports aggregate ownership of 57,556,990 shares, or approximately 6.4 percent
(based on the AIG Common Stock outstanding) of AIG Common Stock as of December 31, 2017, by Capital Research Global
Investors, a division of Capital Research and Management Company.
A Schedule 13G/A filed on February 12, 2018 reports aggregate ownership of 61,323,039 shares, or approximately 6.8 percent
(based on the AIG Common Stock outstanding) of AIG Common Stock as of December 31, 2017, by The Vanguard Group, Inc. and
various subsidiaries thereof.
A Schedule 13G/A filed on February 8, 2018 reports aggregate ownership of 64,406,363 shares, or approximately 7.2 percent (based
on the AIG Common Stock outstanding) of AIG Common Stock as of December 31, 2017, by Blackrock, Inc. and various subsidiaries
thereof.
The calculation of ownership interest for purposes of the AIG Tax Asset Protection Plan and Article 13 of our Restated Certificate of
Incorporation is different than beneficial ownership for Schedule 13G.
23. Income Taxes
U.S. TAX REFORM OVERVIEW
On December 22, 2017, the U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the Tax Act). The Tax
Act reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts numerous other changes impacting AIG
and the insurance industry.
Changes specific to the insurance industry include the calculation of insurance tax reserves and related transition adjustments,
amortization of specified policy acquisition expenses, treatment of separate account dividends received deductions, and computation
of pro-ration adjustments. Provisions of the Tax Act with broader application include reductions or elimination of deductions for certain
items, e.g., reductions to corporate dividends received deductions, disallowance of entertainment expenses, and limitations on the
deduction of certain executive compensation costs. These provisions, generally, will result in an increase in AIGs taxable income in
the years beginning after December 31, 2017.
288
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
289
1011252ai_financials.indd 288
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
ITEM 8 | Notes to Consolidated Financial Statements | 21 . E m pl o ye e B e n ef i t s
Changes in Level 3 Fair Value Measurements
The following table presents changes in our U.S. and non-U.S. Level 3 plan assets measured at fair value:
Net
Balance
Realized and
At December 31, 2017
Beginning
Unrealized
Transfers
Transfers
of year
Gains (Losses)
Purchases
Sales
Issuances
Settlements
In
Out
17 $
1
(7) $
(7)
- $
- $
- $
- $
18 $
(14) $
- $
- $
- $
- $
- $
1
1 $
- $
-
- $
- $
- $
- $
- $
- $
- $
- $
- $
-
-
-
-
(in millions)
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade
Direct private equity
Non-U.S. Plan Assets:
Other fixed maturity securities
Insurance contracts
Total
Total
(in millions)
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade
Direct private equity
Non-U.S. Plan Assets:
Insurance contracts
Total
Total
$
$
$
$
$
$
$
$
2
$
24
26
$
-
$
108
108
$
28
37
95
95
$
$
- $
(3)
(3) $
- $
4
4 $
Net
1 $
(4)
(3) $
- $
12
12 $
At December 31, 2016
Beginning
Unrealized
Transfers
Transfers
of year
Gains (Losses)
Purchases
Sales
Issuances
Settlements
In
Out
Balance
Realized and
9
$
2 $
(10) $
- $
4
(4)
6 $
(14) $
- $
- $
- $
- $
-
- $
- $
-
- $
Other fixed maturity securities
-
$
- $
1
1 $
- $
-
- $
- $
- $
- $
- $
- $
2
(2)
- $
2 $
(2) $
Transfers of Level 1 and Level 2 Assets
-
-
-
-
-
-
-
-
Changes in
Unrealized Gains
(Losses) on
Instruments Held
at End of year
Balance
at End
of year
2
(1)
1
-
-
-
Changes in
Unrealized Gains
(Losses) on
Instruments Held
at End of year
Balance
at End
of year
-
(4)
(4)
-
-
-
12
15
27
-
113
113
2
24
26
-
108
108
$
$
$
$
$
$
$
$
Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period,
consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted
with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction
volume and frequency are indicative of an active market. We had no material transfers between Level 1 and Level 2 during the years
The expected future benefit payments, net of participants contributions, with respect to the defined benefit pension plans
and other postretirement benefit plans, are as follows:
(in millions)
2018
2019
2020
2021
2022
2023-2027
$
Pension
Postretirement
$
U.S.
Plans
291 $
287
297
294
291
1,407
Non-U.S.
Plans
36
40
42
43
41
235
U.S.
Plans
13 $
13
13
13
13
60
Non-U.S.
Plans
1
1
1
2
2
11
DEFINED CONTRIBUTION PLANS
We sponsor several defined contribution plans for U.S. employees that provide for pre-tax salary reduction contributions by
employees. The most significant plan is the AIG Incentive Savings Plan, for which the matching contribution is 100 percent of the first
six percent of a participants contributions, subject to the IRS-imposed limitations. Effective January 1, 2016, participants in the AIG
Incentive Savings Plan receive an additional fully vested, non-elective, non-discretionary contribution equal to three percent of the
participants annual base compensation for the plan year, paid each pay period regardless of whether the participant currently
contributes to the plan, and subject to the IRS-imposed limitations. Our pre-tax expenses associated with these plans were $209
million, $236 million and $166 million in 2017, 2016 and 2015, respectively.
22. Ownership
A Schedule 13G/A filed on February 14, 2018 reports aggregate ownership of 57,556,990 shares, or approximately 6.4 percent
(based on the AIG Common Stock outstanding) of AIG Common Stock as of December 31, 2017, by Capital Research Global
Investors, a division of Capital Research and Management Company.
A Schedule 13G/A filed on February 12, 2018 reports aggregate ownership of 61,323,039 shares, or approximately 6.8 percent
(based on the AIG Common Stock outstanding) of AIG Common Stock as of December 31, 2017, by The Vanguard Group, Inc. and
various subsidiaries thereof.
A Schedule 13G/A filed on February 8, 2018 reports aggregate ownership of 64,406,363 shares, or approximately 7.2 percent (based
on the AIG Common Stock outstanding) of AIG Common Stock as of December 31, 2017, by Blackrock, Inc. and various subsidiaries
thereof.
The calculation of ownership interest for purposes of the AIG Tax Asset Protection Plan and Article 13 of our Restated Certificate of
Incorporation is different than beneficial ownership for Schedule 13G.
We record transfers of assets into or out of Level 3 at their fair values as of the end of each reporting period, consistent with the date
of the determination of fair value. During the year ended December 31, 2017, we had no transfers in or out of Level 3.
23. Income Taxes
U.S. TAX REFORM OVERVIEW
Funding for the qualified plan ranges from the minimum amount required by ERISA to the maximum amount that would be deductible
for U.S. tax purposes. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the
maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. There are no
minimum required cash contributions in 2018 for the AIG Retirement Plan. The non-qualified and postretirement plans benefit
payments are deductible when paid to participants.
Our annual pension contribution in 2018 is expected to be approximately $64 million for our U.S. and non-U.S. pension plans. This
estimate is subject to change, since contribution decisions are affected by various factors including our liquidity, market performance
and managements discretion.
On December 22, 2017, the U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the Tax Act). The Tax
Act reduces the statutory rate of U.S. federal corporate income tax to 21 percent and enacts numerous other changes impacting AIG
and the insurance industry.
Changes specific to the insurance industry include the calculation of insurance tax reserves and related transition adjustments,
amortization of specified policy acquisition expenses, treatment of separate account dividends received deductions, and computation
of pro-ration adjustments. Provisions of the Tax Act with broader application include reductions or elimination of deductions for certain
items, e.g., reductions to corporate dividends received deductions, disallowance of entertainment expenses, and limitations on the
deduction of certain executive compensation costs. These provisions, generally, will result in an increase in AIGs taxable income in
the years beginning after December 31, 2017.
ended December 31, 2017 and 2016.
Transfers of Level 3 Assets
EXPECTED CASH FLOWS
288
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
289
1011252ai_financials.indd 289
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax
Act. SAB 118 addresses situations where accounting for certain income tax effects of the Tax Act under ASC 740 may be incomplete
upon issuance of an entitys financial statements and provides a one-year measurement period from the enactment date to complete
the accounting under ASC 740. In accordance with SAB 118, a company must reflect the following:
Income tax effects of those aspects of the Tax Act for which accounting under ASC 740 is complete
Provisional estimate of income tax effects of the Tax Act to the extent accounting is incomplete but a reasonable estimate is
determinable
If a provisional estimate cannot be determined, ASC 740 should still be applied on the basis of tax law provisions that were in
effect immediately before the enactment of the Tax Act.
Consistent with current income tax accounting requirements, we have remeasured our deferred tax assets and liabilities with
reference to the statutory income tax rate of 21 percent and taking into consideration other provisions of the Tax Act. As of December
31, 2017, we had not fully completed our accounting for the tax effects of the Tax Act. Our provision for income taxes for the period
ended December 31, 2017, is based in part on a reasonable estimate of the effects on existing deferred tax balances and of certain
provisions of the Tax Act. To the extent a reasonable estimate of the impact of certain provisions was determinable, we recorded
provisional estimates as a component of our provision for income taxes on continuing operations. To the extent a reasonable
estimate of the impact of certain provisions was not determinable, we have not recorded any adjustments and have continued
accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before enactment of the Tax Act.
The Tax Act includes provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on
the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax (BEAT)
under which taxes are imposed on certain base eroding payment to affiliated foreign companies. Consistent with accounting
guidance, we will treat BEAT as an in period tax charge when incurred in future periods for which no deferred taxes need to be
provided and have made an accounting policy election to treat GILTI taxes in a similar manner. Accordingly, no provision for income
taxes related to GILTI or BEAT was recorded as of December 31, 2017.
For the period ended December 31, 2017, we recognized a provisional estimate of income tax effects of the Tax Act of $6.7 billion,
including a tax charge of $6.7 billion attributable to the reduction in the U.S. corporate income tax rate and tax benefit of $38 million
related to the deemed repatriation tax.
Tax effects for which a reasonable estimate can be determined
Deemed Repatriation Tax
The Tax Act requires companies to pay a one-time transition tax, net of tax credits related to applicable foreign taxes paid, on
In the determination of
previously untaxed current and accumulated earnings and profits (E&P) of certain of our foreign subsidiaries.
the deemed repatriation tax, we reviewed estimated post-1986 E&P of certain material relevant foreign subsidiaries, and any related
non-U.S. income tax paid on such earnings. Based on this analysis, we were able to determine a reasonable estimate and we have
recorded a provisional estimate tax benefit of $38 million. While the IRS has issued some guidance on the calculation of the deemed
repatriation tax, there are still certain aspects of the calculation that require further clarification. We are continuing to gather additional
information to more precisely compute the amount of deemed repatriation tax.
Other Provisions
The Tax Act modified computations of insurance reserves for both life and general insurance companies. For life insurance
companies, tax reserves are now computed with reference to NAIC reserves. For general insurance companies, the Tax Act extends
the discount period for certain long-tail lines of business from 10 years to 24 years and increases the discount rate, replacing the
applicable federal rate for a higher-yield corporate bond rate, and eliminates the election allowing companies to use their historical
loss payment patterns for loss reserve discounting. Adjustments related to the differences in insurance reserves balances computed
under the old tax law versus the Tax Act have to be taken into income over eight years by both life and general insurance companies.
Accordingly, at December 31, 2017, these changes give rise to new deferred tax liabilities. We have recorded a provisional estimate
of $1.9 billion with respect to such deferred tax liabilities. This increase in deferred tax liabilities is offset by an increase in the deferred
tax asset related to insurance reserves as a result of applying the new provisions of the Tax Act.
Provisions Impacting Projections of Taxable Income and Valuation Allowance Considerations
Certain provisions of the Tax Act impact our projections of future taxable income used in analyzing realizability of our U.S. tax attribute
deferred tax asset. As discussed above, there are specific insurance industry provisions, including changes in computations of
insurance reserves, amortization of specified policy acquisition expenses, and treatment of separate account dividends received
deduction. Provisional estimates have been included in our future taxable income projections for these insurance industry specific
provisions to reflect application of the new tax law.
Because we have made provisional estimates related to the impact of certain aspects of the Tax Act on our future taxable income,
corresponding determination of the need for a valuation allowance is also provisional. Generally, the Tax Act provisions result in an
increase in our taxable income and, thus, accelerate utilization of our tax attribute deferred tax asset. Accordingly, we do not currently
anticipate that our reliance on provisional estimates would have a material impact on our determination of the realizability of our
deferred tax assets.
Tax effects for which no estimate can be determined
Our accounting for the following elements of the Tax Act is incomplete and we continued accounting for them in accordance with ASC
740 on the basis of the tax laws in effect before enactment of the Tax Act.
The Tax Act may affect the results in certain investments and partnerships in which we are a non-controlling interest owner. The
information needed to determine a provisional estimate is not currently available (such as for interest deduction limitations in those
entities and the changed definition of a U.S. Shareholder). Accordingly, no provisional estimates were recorded.
Due to minimal formal guidance issued from state and local jurisdictions, provisional estimates have not been recorded for the impact
of any state and local corporate income tax implications of the Tax Act. Guidance from state and local jurisdictions is expected during
2018 and the impact, if any, will be recorded at the appropriate time.
EFFECTIVE TAX RATE
The following table presents income (loss) from continuing operations before income tax expense (benefit) by U.S. and
foreign location in which such pre-tax income (loss) was earned or incurred:
Years Ended December 31,
(in millions)
U.S.
Foreign
Total
2017
1,940
(474)
1,466
2016
1,041
(1,115)
(74)
$
$
2015
1,950
1,331
3,281
$
$
$
$
290
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
291
1011252ai_financials.indd 290
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax
Other Provisions
Act. SAB 118 addresses situations where accounting for certain income tax effects of the Tax Act under ASC 740 may be incomplete
upon issuance of an entitys financial statements and provides a one-year measurement period from the enactment date to complete
the accounting under ASC 740. In accordance with SAB 118, a company must reflect the following:
Income tax effects of those aspects of the Tax Act for which accounting under ASC 740 is complete
Provisional estimate of income tax effects of the Tax Act to the extent accounting is incomplete but a reasonable estimate is
If a provisional estimate cannot be determined, ASC 740 should still be applied on the basis of tax law provisions that were in
effect immediately before the enactment of the Tax Act.
Consistent with current income tax accounting requirements, we have remeasured our deferred tax assets and liabilities with
determinable
The Tax Act modified computations of insurance reserves for both life and general insurance companies. For life insurance
companies, tax reserves are now computed with reference to NAIC reserves. For general insurance companies, the Tax Act extends
the discount period for certain long-tail lines of business from 10 years to 24 years and increases the discount rate, replacing the
applicable federal rate for a higher-yield corporate bond rate, and eliminates the election allowing companies to use their historical
loss payment patterns for loss reserve discounting. Adjustments related to the differences in insurance reserves balances computed
under the old tax law versus the Tax Act have to be taken into income over eight years by both life and general insurance companies.
Accordingly, at December 31, 2017, these changes give rise to new deferred tax liabilities. We have recorded a provisional estimate
of $1.9 billion with respect to such deferred tax liabilities. This increase in deferred tax liabilities is offset by an increase in the deferred
tax asset related to insurance reserves as a result of applying the new provisions of the Tax Act.
reference to the statutory income tax rate of 21 percent and taking into consideration other provisions of the Tax Act. As of December
Provisions Impacting Projections of Taxable Income and Valuation Allowance Considerations
31, 2017, we had not fully completed our accounting for the tax effects of the Tax Act. Our provision for income taxes for the period
ended December 31, 2017, is based in part on a reasonable estimate of the effects on existing deferred tax balances and of certain
provisions of the Tax Act. To the extent a reasonable estimate of the impact of certain provisions was determinable, we recorded
provisional estimates as a component of our provision for income taxes on continuing operations. To the extent a reasonable
estimate of the impact of certain provisions was not determinable, we have not recorded any adjustments and have continued
accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before enactment of the Tax Act.
The Tax Act includes provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on
the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax (BEAT)
under which taxes are imposed on certain base eroding payment to affiliated foreign companies. Consistent with accounting
guidance, we will treat BEAT as an in period tax charge when incurred in future periods for which no deferred taxes need to be
provided and have made an accounting policy election to treat GILTI taxes in a similar manner. Accordingly, no provision for income
taxes related to GILTI or BEAT was recorded as of December 31, 2017.
For the period ended December 31, 2017, we recognized a provisional estimate of income tax effects of the Tax Act of $6.7 billion,
including a tax charge of $6.7 billion attributable to the reduction in the U.S. corporate income tax rate and tax benefit of $38 million
related to the deemed repatriation tax.
Tax effects for which a reasonable estimate can be determined
Deemed Repatriation Tax
The Tax Act requires companies to pay a one-time transition tax, net of tax credits related to applicable foreign taxes paid, on
previously untaxed current and accumulated earnings and profits (E&P) of certain of our foreign subsidiaries.
In the determination of
the deemed repatriation tax, we reviewed estimated post-1986 E&P of certain material relevant foreign subsidiaries, and any related
non-U.S. income tax paid on such earnings. Based on this analysis, we were able to determine a reasonable estimate and we have
recorded a provisional estimate tax benefit of $38 million. While the IRS has issued some guidance on the calculation of the deemed
repatriation tax, there are still certain aspects of the calculation that require further clarification. We are continuing to gather additional
information to more precisely compute the amount of deemed repatriation tax.
Certain provisions of the Tax Act impact our projections of future taxable income used in analyzing realizability of our U.S. tax attribute
deferred tax asset. As discussed above, there are specific insurance industry provisions, including changes in computations of
insurance reserves, amortization of specified policy acquisition expenses, and treatment of separate account dividends received
deduction. Provisional estimates have been included in our future taxable income projections for these insurance industry specific
provisions to reflect application of the new tax law.
Because we have made provisional estimates related to the impact of certain aspects of the Tax Act on our future taxable income,
corresponding determination of the need for a valuation allowance is also provisional. Generally, the Tax Act provisions result in an
increase in our taxable income and, thus, accelerate utilization of our tax attribute deferred tax asset. Accordingly, we do not currently
anticipate that our reliance on provisional estimates would have a material impact on our determination of the realizability of our
deferred tax assets.
Tax effects for which no estimate can be determined
Our accounting for the following elements of the Tax Act is incomplete and we continued accounting for them in accordance with ASC
740 on the basis of the tax laws in effect before enactment of the Tax Act.
The Tax Act may affect the results in certain investments and partnerships in which we are a non-controlling interest owner. The
information needed to determine a provisional estimate is not currently available (such as for interest deduction limitations in those
entities and the changed definition of a U.S. Shareholder). Accordingly, no provisional estimates were recorded.
Due to minimal formal guidance issued from state and local jurisdictions, provisional estimates have not been recorded for the impact
of any state and local corporate income tax implications of the Tax Act. Guidance from state and local jurisdictions is expected during
2018 and the impact, if any, will be recorded at the appropriate time.
EFFECTIVE TAX RATE
The following table presents income (loss) from continuing operations before income tax expense (benefit) by U.S. and
foreign location in which such pre-tax income (loss) was earned or incurred:
Years Ended December 31,
(in millions)
U.S.
Foreign
Total
2017
1,940
(474)
1,466
2016
1,041
(1,115)
(74)
$
$
2015
1,950
1,331
3,281
$
$
$
$
290
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
291
1011252ai_financials.indd 291
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The following table presents the income tax expense (benefit) attributable to pre-tax income (loss) from continuing
operations:
Years Ended December 31,
(in millions)
Foreign and U.S. components of actual income tax expense:
Foreign:
Current
Deferred
U.S.:
Current
Deferred
Total
2017
2016
2015
$
$
209
25
427
6,865
7,526
$
$
436
(121)
140
(270)
185
$
$
391
(95)
429
334
1,059
Our actual income tax (benefit) expense differs from the statutory U.S. federal amount computed by applying the federal
income tax rate due to the following:
2017
2016
2015
Pre-Tax
Tax
Percent of
Pre-Tax
Tax
Percent of
Tax
Percent of
Years Ended December 31,
Income
Expense/
Pre-Tax
Income
Expense/
Pre-Tax
Pre-Tax
Expense/
Pre-Tax
(dollars in millions)
(Loss)
(Benefit)
Income (Loss)
(Loss)
(Benefit)
Income (Loss)
Income
(Benefit)
Income
$
1,476 $
517
35.0 % $
(159) $
(56)
35.0 % $
3,281 $
1,148
35.0 %
U.S. federal income tax at statutory
rate
Adjustments:
Tax exempt interest
Uncertain tax positions
Reclassifications from accumulated
other comprehensive income
Dispositions of Subsidiaries
Tax Attribute Restoration
Non-controlling Interest
Non-deductible transfer pricing
charges
Dividends received deduction
Effect of foreign operations
Share-based compensation
payments excess tax deduction
State income taxes
Impact of Tax Act
Other
Effect of discontinued operations
Valuation allowance:
Continuing operations
Consolidated total amounts
1,476
Amounts attributable to discontinued
(111)
660
(184)
17
-
(7)
35
(90)
69
(40)
(9)
6,687
(58)
3
43
7,532
(7.5)
44.7
(12.5)
1.2
-
(0.5)
2.4
(6.1)
4.7
(2.7)
(0.6)
453.0
(3.9)
0.2
2.9
510.3
(178)
268
(132)
118
(164)
(81)
102
(75)
234
-
23
-
13
35
83
190
111.9
(168.6)
83.0
(74.2)
103.1
50.9
(64.2)
47.2
(147.2)
-
(14.5)
-
(8.2)
(22.0)
(52.2)
(119.5)
(195)
195
(5.9)
5.9
(127)
(3.9)
-
-
-
97
(72)
(58)
-
34
-
(73)
-
3,281
110
1,059
-
-
-
3.0
(2.2)
(1.8)
-
1.0
-
(2.2)
-
3.4
32.3
(159)
For the year ended December 31, 2017, the effective tax rate on income from continuing operations was not meaningful. The effective
tax rate differs from the 2017 statutory tax rate of 35 percent primarily due to tax charges of $6.7 billion associated with the enactment
of the Tax Act discussed above, $660 million of tax charges and related interest associated with increases in uncertain tax positions
primarily related to cross border financing transactions and other open tax issues, $69 million associated with the effect of foreign
operations, and $35 million of non-deductible transfer pricing charges, partially offset by tax benefits of $201 million of tax exempt
income, $184 million of reclassifications from accumulated other comprehensive income to income from continuing operations related
to the disposal of available for sale securities, and $40 million of excess tax deductions related to share based compensation
payments recorded through the income statement in accordance with relevant accounting literature. Effect of foreign operations is
primarily related to losses incurred in our European operations taxed at a statutory tax rate lower than 35 percent and other foreign
taxes.
For the year ended December 31, 2016, the effective tax rate on loss from continuing operations was not meaningful. The effective
tax rate on loss from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax charges of $234 million
associated with effect of foreign operations, $216 million of tax charges and related interest associated with increases in uncertain tax
positions related to cross border financing transactions, $118 million related to disposition of subsidiaries, $102 million related to non-
deductible transfer pricing charges, and $83 million related to increases in the deferred tax asset valuation allowances associated
with U.S. federal and certain foreign jurisdictions, partially offset by tax benefits of $253 million of tax exempt income, $164 million
associated with a portion of the U.S. Life Insurance companies capital loss carryforwards previously treated as expired that was
restored and utilized, $116 million related to the impact of an agreement reached with the Internal Revenue Service (IRS) related to
certain tax issues under audit, and $132 million of reclassifications from accumulated other comprehensive income to income from
continuing operations related to the disposal of available for sale securities. Effect of foreign operations is primarily related to foreign
exchange losses incurred by our foreign subsidiaries related to the weakening of the British pound following the Brexit vote taxed at a
statutory tax rate lower than 35 percent.
For the year ended December 31, 2015, the effective tax rate on income from continuing operations was 32.3 percent. The effective
tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax benefits of $195
million associated with tax exempt interest income, $127 million related to reclassifications from accumulated other comprehensive
income to income from continuing operations related to the disposal of available for sale securities, $58 million associated with the
effect of foreign operations, and $109 million related to the partial completion of the IRS examination covering tax year 2006, partially
offset by $324 million of tax charges and related interest associated with increases in uncertain tax positions related to cross border
financing transactions, and $110 million related to increases in the deferred tax asset valuation allowances associated with certain
foreign jurisdictions.
As a result of the Tax Act, the majority of accumulated foreign earnings that were previously untaxed will become subject to a one-
time deemed repatriation tax. Going forward, certain foreign earnings of our foreign affiliates will be exempt from U.S. tax upon
repatriation. Notwithstanding the changes, U.S. tax on foreign exchange gain or loss and certain non-U.S. withholding taxes will
continue to be applicable upon future repatriations of foreign earnings.
For the year ended December 31, 2017, our repatriation assumptions with respect to certain operations in Canada, South Africa, as
well as European and Asia Pacific regions remain unchanged and related foreign earnings remain indefinitely reinvested. Due to a
change in the legal entity ownership through a contribution of certain affiliates to AIG International Holdings GmbH, our repatriation
assumptions related to certain operations in the Far East, Latin America, Bermuda and Middle East region have changed and related
foreign earnings are now considered to be indefinitely reinvested. These earnings relate to ongoing operations and have been
reinvested in active business operations. Deferred taxes have been provided on earnings of non-U.S. affiliates whose earnings are
not indefinitely reinvested.
operations
10
6
60.0
(85)
5
(5.9)
-
-
-
Amounts attributable to continuing
operations
$
1,466 $
7,526
513.4 % $
(74) $
185
(250.0)% $
3,281 $
1,059
32.3 %
292
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
293
1011252ai_financials.indd 292
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The following table presents the income tax expense (benefit) attributable to pre-tax income (loss) from continuing
Years Ended December 31,
Foreign and U.S. components of actual income tax expense:
2017
2016
2015
$
$
$
209
25
427
6,865
7,526
$
$
436
(121)
140
(270)
185
391
(95)
429
334
$
1,059
Our actual income tax (benefit) expense differs from the statutory U.S. federal amount computed by applying the federal
income tax rate due to the following:
2017
2016
2015
Pre-Tax
Tax
Percent of
Pre-Tax
Tax
Percent of
Tax
Percent of
Years Ended December 31,
Income
Expense/
Pre-Tax
Income
Expense/
Pre-Tax
Pre-Tax
Expense/
Pre-Tax
(dollars in millions)
(Loss)
(Benefit)
Income (Loss)
(Loss)
(Benefit)
Income (Loss)
Income
(Benefit)
Income
$
1,476 $
517
35.0 % $
(159) $
(56)
35.0 % $
3,281 $
1,148
35.0 %
(111)
660
(184)
17
-
(7)
35
(90)
69
(40)
(9)
(58)
3
6,687
43
7,532
(7.5)
44.7
(12.5)
1.2
-
(0.5)
2.4
(6.1)
4.7
(2.7)
(0.6)
453.0
(3.9)
0.2
2.9
510.3
(178)
268
(132)
118
(164)
(81)
102
(75)
234
23
-
-
13
35
83
190
111.9
(168.6)
83.0
(74.2)
103.1
50.9
(64.2)
47.2
(147.2)
-
-
(14.5)
(8.2)
(22.0)
(52.2)
(119.5)
(195)
195
(5.9)
5.9
(127)
(3.9)
97
(72)
(58)
34
(73)
-
-
-
-
-
-
-
-
-
-
3.0
(2.2)
(1.8)
-
1.0
-
(2.2)
-
3.4
32.3
-
Consolidated total amounts
1,476
(159)
3,281
110
1,059
10
6
60.0
(85)
5
(5.9)
-
$
1,466 $
7,526
513.4 % $
(74) $
185
(250.0)% $
3,281 $
1,059
32.3 %
operations:
(in millions)
Foreign:
Current
Deferred
U.S.:
Current
Deferred
Total
U.S. federal income tax at statutory
rate
Adjustments:
Tax exempt interest
Uncertain tax positions
Reclassifications from accumulated
other comprehensive income
Dispositions of Subsidiaries
Tax Attribute Restoration
Non-controlling Interest
Non-deductible transfer pricing
charges
Dividends received deduction
Effect of foreign operations
Share-based compensation
payments excess tax deduction
State income taxes
Impact of Tax Act
Other
Effect of discontinued operations
Valuation allowance:
Continuing operations
Amounts attributable to discontinued
Amounts attributable to continuing
operations
operations
For the year ended December 31, 2017, the effective tax rate on income from continuing operations was not meaningful. The effective
tax rate differs from the 2017 statutory tax rate of 35 percent primarily due to tax charges of $6.7 billion associated with the enactment
of the Tax Act discussed above, $660 million of tax charges and related interest associated with increases in uncertain tax positions
primarily related to cross border financing transactions and other open tax issues, $69 million associated with the effect of foreign
operations, and $35 million of non-deductible transfer pricing charges, partially offset by tax benefits of $201 million of tax exempt
income, $184 million of reclassifications from accumulated other comprehensive income to income from continuing operations related
to the disposal of available for sale securities, and $40 million of excess tax deductions related to share based compensation
payments recorded through the income statement in accordance with relevant accounting literature. Effect of foreign operations is
primarily related to losses incurred in our European operations taxed at a statutory tax rate lower than 35 percent and other foreign
taxes.
For the year ended December 31, 2016, the effective tax rate on loss from continuing operations was not meaningful. The effective
tax rate on loss from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax charges of $234 million
associated with effect of foreign operations, $216 million of tax charges and related interest associated with increases in uncertain tax
positions related to cross border financing transactions, $118 million related to disposition of subsidiaries, $102 million related to non-
deductible transfer pricing charges, and $83 million related to increases in the deferred tax asset valuation allowances associated
with U.S. federal and certain foreign jurisdictions, partially offset by tax benefits of $253 million of tax exempt income, $164 million
associated with a portion of the U.S. Life Insurance companies capital loss carryforwards previously treated as expired that was
restored and utilized, $116 million related to the impact of an agreement reached with the Internal Revenue Service (IRS) related to
certain tax issues under audit, and $132 million of reclassifications from accumulated other comprehensive income to income from
continuing operations related to the disposal of available for sale securities. Effect of foreign operations is primarily related to foreign
exchange losses incurred by our foreign subsidiaries related to the weakening of the British pound following the Brexit vote taxed at a
statutory tax rate lower than 35 percent.
For the year ended December 31, 2015, the effective tax rate on income from continuing operations was 32.3 percent. The effective
tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax benefits of $195
million associated with tax exempt interest income, $127 million related to reclassifications from accumulated other comprehensive
income to income from continuing operations related to the disposal of available for sale securities, $58 million associated with the
effect of foreign operations, and $109 million related to the partial completion of the IRS examination covering tax year 2006, partially
offset by $324 million of tax charges and related interest associated with increases in uncertain tax positions related to cross border
financing transactions, and $110 million related to increases in the deferred tax asset valuation allowances associated with certain
foreign jurisdictions.
As a result of the Tax Act, the majority of accumulated foreign earnings that were previously untaxed will become subject to a one-
time deemed repatriation tax. Going forward, certain foreign earnings of our foreign affiliates will be exempt from U.S. tax upon
repatriation. Notwithstanding the changes, U.S. tax on foreign exchange gain or loss and certain non-U.S. withholding taxes will
continue to be applicable upon future repatriations of foreign earnings.
For the year ended December 31, 2017, our repatriation assumptions with respect to certain operations in Canada, South Africa, as
well as European and Asia Pacific regions remain unchanged and related foreign earnings remain indefinitely reinvested. Due to a
change in the legal entity ownership through a contribution of certain affiliates to AIG International Holdings GmbH, our repatriation
assumptions related to certain operations in the Far East, Latin America, Bermuda and Middle East region have changed and related
foreign earnings are now considered to be indefinitely reinvested. These earnings relate to ongoing operations and have been
reinvested in active business operations. Deferred taxes have been provided on earnings of non-U.S. affiliates whose earnings are
not indefinitely reinvested.
292
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
293
1011252ai_financials.indd 293
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The following table presents the components of the net deferred tax assets (liabilities):
December 31,
(in millions)
Deferred tax assets:
Losses and tax credit carryforwards
Basis differences on investments
Life policy reserves
Accruals not currently deductible, and other
Investments in foreign subsidiaries
Loss reserve discount
Loan loss and other reserves
Unearned premium reserve reduction
Fixed assets and intangible assets
Other
Employee benefits
Total deferred tax assets
Deferred tax liabilities:
Deferred policy acquisition costs
Unrealized gains related to available for sale debt securities
Total deferred tax liabilities
Net deferred tax assets before valuation allowance
Valuation allowance
Net deferred tax assets (liabilities)
2017
2016
$
$
11,931
2,133
1,996
532
159
526
34
566
442
731
601
19,651
(2,313)
(2,151)
(4,464)
15,187
(1,374)
13,813
$
$
16,448
4,985
3,040
1,128
103
1,151
39
924
478
710
1,171
30,177
(3,790)
(2,844)
(6,634)
23,543
(2,831)
20,712
The following table presents our U.S. consolidated income tax group tax losses and credits carryforwards as of December
31, 2017.
December 31, 2017
(in millions)
Net operating loss carryforwards
Capital loss carryforwards
Foreign tax credit carryforwards
Other carryforwards
Total AIG U.S. consolidated income tax group tax losses and credits
carryforwards on a tax return basis
Unrecognized tax benefit
Total AIG U.S. consolidated income tax group tax losses and credits
carryforwards on a U.S. GAAP basis*
*
Includes other carryforwards, e.g. general business credits, of $118 million on a U.S. GAAP basis.
$
Gross
35,592 $
305
Expiration
Periods
2028-2037
2022
2018-2022
Various
Tax
Effected
7,474
64
4,481
1,154
13,173
(2,543)
$
10,630
We have U.S. federal consolidated net operating loss and tax credit carryforwards of approximately $10.6 billion. The carryforward
periods for our foreign tax credits begin to expire in 2019. As detailed in the Assessment of Deferred Tax Asset Valuation Allowance
section of this footnote, we determined that it is more likely than not that our U.S. federal consolidated tax attribute carryforwards will
be realized prior to their expiration.
ASSESSMENT OF DEFERRED TAX ASSET VALUATION ALLOWANCE
The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive
and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be
realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative
evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation
allowance is not needed.
Our framework for assessing the recoverability of the deferred tax asset requires us to consider all available evidence, including:
the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
the sustainability of recent operating profitability of our subsidiaries;
the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;
the carryforward period for the net operating loss, capital loss and foreign tax credit carryforwards, including the effect of reversing
prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss of the
taxable temporary differences; and
deferred tax asset.
In performing our assessment of the recoverability of the deferred tax asset under this framework, we consider tax laws governing the
utilization of the net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. Under U.S. tax
law, a company generally must use its net operating loss carryforwards before it can use its foreign tax credit carryforwards, even
though the carryforward period for the foreign tax credit is shorter than for the net operating loss. Our U.S. federal consolidated
income tax group includes both life companies and non-life companies. While the U.S. taxable income of our non-life companies can
be offset by the net operating loss carryforwards, only a portion (no more than 35 percent) of the U.S. taxable income of our life
companies can be offset by those net operating loss carryforwards. The remaining tax liability of our life companies can be offset by
the foreign tax credit carryforwards. Accordingly, we utilize both the net operating loss and foreign tax credit carryforwards
concurrently which enables us to realize our tax attributes prior to expiration. As of December 31, 2017, based on all available
evidence, it is more likely than not that the U.S. net operating loss and foreign tax credit carryforwards will be utilized prior to
expiration and, thus, no valuation allowance has been established.
Estimates of future taxable income, including income generated from prudent and feasible actions and tax planning strategies could
change in the near term, perhaps materially, which may require us to consider any potential impact to our assessment of the
recoverability of the deferred tax asset. Such potential impact could be material to our consolidated financial condition or results of
operations for an individual reporting period.
For the year ended December 31, 2017, recent changes in market conditions, including interest rate fluctuations, impacted the
unrealized tax gains and losses in the U.S. life insurance companies available for sale securities portfolio, resulting in a deferred tax
liability related to net unrealized tax capital gains. As of June 30, 2017, based on all available evidence, we concluded that the
valuation allowance should be released. As a result, for the six-month period ended June 30, 2017, we released $468 million of
valuation allowance associated with the unrealized tax losses in the U.S. life insurance companies available for sale securities
portfolio, all of which was allocated to other comprehensive income. As of December 31, 2017, we continue to be in an overall
unrealized tax gain position with respect to the U.S. life insurance companies available for sale securities portfolio and thus
concluded no valuation allowance is necessary in the U.S. life insurance companies available for sale securities portfolio.
For the year ended December 31, 2017, recent changes in market conditions, including interest rate fluctuations, impacted the
unrealized tax gains and losses in the U.S. non-life companies available for sale securities portfolio, resulting in a deferred tax liability
related to net unrealized tax capital gains. As of June 30, 2017, based on all available evidence, we concluded that the valuation
allowance should be released. As a result, for the six-month period ended June 30, 2017, we released $260 million of valuation
allowance associated with the unrealized tax losses in the U.S. non-life companies available for sale securities portfolio, all of which
was allocated to other comprehensive income. As of December 31, 2017, we continue to be in an overall unrealized tax gain position
with respect to the U.S. non-life companies available for sale securities portfolio and thus concluded no valuation allowance is
necessary in the U.S. non-life companies available for sale securities portfolio.
During the year ended December 31, 2017, we recognized a net increase of $43 million in our deferred tax asset valuation allowance
associated with certain foreign jurisdictions, primarily attributable to current year activity.
During the year ended December 31, 2017, we recognized a $26 million decrease in our deferred tax asset valuation allowance
associated with certain state jurisdictions, primarily as a result of the beneficial impact of tax law changes enacted in the third quarter
of 2017. We also recognized a $634 million decrease in our deferred tax asset valuation allowance associated with certain state
jurisdictions, primarily attributable to a corresponding reduction in state and local deferred tax assets.
294
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
295
1011252ai_financials.indd 294
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The following table presents the components of the net deferred tax assets (liabilities):
December 31,
(in millions)
Deferred tax assets:
Losses and tax credit carryforwards
Basis differences on investments
Life policy reserves
Accruals not currently deductible, and other
Investments in foreign subsidiaries
Loss reserve discount
Loan loss and other reserves
Unearned premium reserve reduction
Fixed assets and intangible assets
Other
Employee benefits
Total deferred tax assets
Deferred tax liabilities:
Deferred policy acquisition costs
Unrealized gains related to available for sale debt securities
Total deferred tax liabilities
Net deferred tax assets before valuation allowance
Valuation allowance
Net deferred tax assets (liabilities)
The following table presents our U.S. consolidated income tax group tax losses and credits carryforwards as of December
31, 2017.
December 31, 2017
(in millions)
Net operating loss carryforwards
Capital loss carryforwards
Foreign tax credit carryforwards
Other carryforwards
Total AIG U.S. consolidated income tax group tax losses and credits
carryforwards on a tax return basis
Unrecognized tax benefit
Total AIG U.S. consolidated income tax group tax losses and credits
carryforwards on a U.S. GAAP basis*
*
Includes other carryforwards, e.g. general business credits, of $118 million on a U.S. GAAP basis.
Gross
Effected
$
35,592 $
305
Tax
7,474
64
4,481
1,154
13,173
(2,543)
$
10,630
2017
2016
$
11,931
$
2,133
1,996
532
159
526
34
566
442
731
601
19,651
(2,313)
(2,151)
(4,464)
15,187
(1,374)
13,813
$
$
16,448
4,985
3,040
1,128
103
1,151
39
924
478
710
1,171
30,177
(3,790)
(2,844)
(6,634)
23,543
(2,831)
20,712
Expiration
Periods
2028-2037
2022
2018-2022
Various
We have U.S. federal consolidated net operating loss and tax credit carryforwards of approximately $10.6 billion. The carryforward
periods for our foreign tax credits begin to expire in 2019. As detailed in the Assessment of Deferred Tax Asset Valuation Allowance
section of this footnote, we determined that it is more likely than not that our U.S. federal consolidated tax attribute carryforwards will
be realized prior to their expiration.
ASSESSMENT OF DEFERRED TAX ASSET VALUATION ALLOWANCE
The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive
and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be
realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative
evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation
allowance is not needed.
Our framework for assessing the recoverability of the deferred tax asset requires us to consider all available evidence, including:
the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
the sustainability of recent operating profitability of our subsidiaries;
the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;
the carryforward period for the net operating loss, capital loss and foreign tax credit carryforwards, including the effect of reversing
taxable temporary differences; and
prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss of the
deferred tax asset.
In performing our assessment of the recoverability of the deferred tax asset under this framework, we consider tax laws governing the
utilization of the net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. Under U.S. tax
law, a company generally must use its net operating loss carryforwards before it can use its foreign tax credit carryforwards, even
though the carryforward period for the foreign tax credit is shorter than for the net operating loss. Our U.S. federal consolidated
income tax group includes both life companies and non-life companies. While the U.S. taxable income of our non-life companies can
be offset by the net operating loss carryforwards, only a portion (no more than 35 percent) of the U.S. taxable income of our life
companies can be offset by those net operating loss carryforwards. The remaining tax liability of our life companies can be offset by
the foreign tax credit carryforwards. Accordingly, we utilize both the net operating loss and foreign tax credit carryforwards
concurrently which enables us to realize our tax attributes prior to expiration. As of December 31, 2017, based on all available
evidence, it is more likely than not that the U.S. net operating loss and foreign tax credit carryforwards will be utilized prior to
expiration and, thus, no valuation allowance has been established.
Estimates of future taxable income, including income generated from prudent and feasible actions and tax planning strategies could
change in the near term, perhaps materially, which may require us to consider any potential impact to our assessment of the
recoverability of the deferred tax asset. Such potential impact could be material to our consolidated financial condition or results of
operations for an individual reporting period.
For the year ended December 31, 2017, recent changes in market conditions, including interest rate fluctuations, impacted the
unrealized tax gains and losses in the U.S. life insurance companies available for sale securities portfolio, resulting in a deferred tax
liability related to net unrealized tax capital gains. As of June 30, 2017, based on all available evidence, we concluded that the
valuation allowance should be released. As a result, for the six-month period ended June 30, 2017, we released $468 million of
valuation allowance associated with the unrealized tax losses in the U.S. life insurance companies available for sale securities
portfolio, all of which was allocated to other comprehensive income. As of December 31, 2017, we continue to be in an overall
unrealized tax gain position with respect to the U.S. life insurance companies available for sale securities portfolio and thus
concluded no valuation allowance is necessary in the U.S. life insurance companies available for sale securities portfolio.
For the year ended December 31, 2017, recent changes in market conditions, including interest rate fluctuations, impacted the
unrealized tax gains and losses in the U.S. non-life companies available for sale securities portfolio, resulting in a deferred tax liability
related to net unrealized tax capital gains. As of June 30, 2017, based on all available evidence, we concluded that the valuation
allowance should be released. As a result, for the six-month period ended June 30, 2017, we released $260 million of valuation
allowance associated with the unrealized tax losses in the U.S. non-life companies available for sale securities portfolio, all of which
was allocated to other comprehensive income. As of December 31, 2017, we continue to be in an overall unrealized tax gain position
with respect to the U.S. non-life companies available for sale securities portfolio and thus concluded no valuation allowance is
necessary in the U.S. non-life companies available for sale securities portfolio.
During the year ended December 31, 2017, we recognized a net increase of $43 million in our deferred tax asset valuation allowance
associated with certain foreign jurisdictions, primarily attributable to current year activity.
During the year ended December 31, 2017, we recognized a $26 million decrease in our deferred tax asset valuation allowance
associated with certain state jurisdictions, primarily as a result of the beneficial impact of tax law changes enacted in the third quarter
of 2017. We also recognized a $634 million decrease in our deferred tax asset valuation allowance associated with certain state
jurisdictions, primarily attributable to a corresponding reduction in state and local deferred tax assets.
294
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
295
1011252ai_financials.indd 295
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The following table presents the net deferred tax assets (liabilities) at December 31, 2017 and 2016 on a U.S. GAAP basis:
December 31,
(in millions)
Net U.S. consolidated return group deferred tax assets
Net deferred tax assets (liabilities) in accumulated other comprehensive income
Valuation allowance
Subtotal
Net foreign, state and local deferred tax assets
Valuation allowance
Subtotal
Subtotal - Net U.S., foreign, state and local deferred tax assets
Net foreign, state and local deferred tax liabilities
Total AIG net deferred tax assets (liabilities)
2017
$ 15,603
(2,070)
(86)
13,447
1,874
(1,288)
586
14,033
(220)
$ 13,813
2016
$ 24,134
(2,384)
(874)
20,876
2,413
(1,957)
456
21,332
(620)
$ 20,712
DEFERRED TAX ASSET VALUATION ALLOWANCE OF U.S. CONSOLIDATED FEDERAL INCOME TAX
GROUP
At December 31, 2017 and 2016, our U.S. consolidated income tax group had net deferred tax assets after valuation allowance of
$13.4 billion and $20.9 billion, respectively. At December 31, 2017 and 2016, our U.S. consolidated income tax group had valuation
allowances of $86 million and $874 million, respectively.
DEFERRED TAX ASSET FOREIGN, STATE AND LOCAL
At December 31, 2017 and 2016, we had net deferred tax assets (liabilities) of $366 million and $(164) million, respectively, related to
foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns.
At December 31, 2017 and 2016, we had deferred tax asset valuation allowances of $1.3 billion and $2.0 billion, respectively, related
to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns. We maintained
these valuation allowances following our conclusion that we could not demonstrate that it was more likely than not that the related
deferred tax assets will be realized. This was primarily due to factors such as cumulative losses in recent years and the inability to
demonstrate profits within the specific jurisdictions over the relevant carryforward periods.
TAX EXAMINATIONS AND LITIGATION
We file a consolidated U.S. federal income tax return with our eligible U.S. subsidiaries. Income earned by subsidiaries operating
outside the U.S. is taxed, and income tax expense is recorded, based on applicable U.S. and foreign law.
The statute of limitations for all tax years prior to 2000 has expired for our consolidated federal income tax return. We are currently
under examination for the tax years 2000 through 2010.
On March 20, 2008, we received a Statutory Notice of Deficiency (Notice) from the IRS for years 1997 to 1999. The Notice asserted
that we owe additional taxes and penalties for these years primarily due to the disallowance of foreign tax credits associated with
cross-border financing transactions. The transactions that are the subject of the Notice extend beyond the period covered by the
Notice, and the IRS has administratively challenged the later periods. The IRS has also administratively challenged other cross-
border transactions in later years. We have paid the assessed tax plus interest and penalties for 1997 to 1999. On February 26, 2009,
we filed a complaint in the United States District Court for the Southern District of New York (Southern District) seeking a refund of
approximately $306 million in taxes, interest and penalties paid with respect to the 1997 taxable year. We allege that the IRS
improperly disallowed foreign tax credits and that our taxable income should be reduced as a result of the 2005 restatement of our
consolidated financial statements.
We also filed an administrative refund claim on September 9, 2010 for our 1998 and 1999 tax years.
On August 1, 2012, we filed a motion for partial summary judgment related to the disallowance of foreign tax credits associated with
cross border financing transactions in the Southern District of New York. The Southern District of New York denied our summary
judgment motion and upon AIGs appeal, the U.S. Court of Appeals for the Second Circuit (the Second Circuit) affirmed the denial.
AIGs petition for certiorari to the U.S. Supreme Court from the decision of the Second Circuit was denied on March 7, 2016. As a
result, the case has been remanded back to the Southern District of New York for a jury trial.
In January 2018, the parties reached non-binding agreements in principle on issues presented in the dispute and are currently
reviewing the computations reflecting the settlement terms. The resolution is not final and is subject to various reviews. The litigation
has been stayed pending the outcome of the review process. We can provide no assurance regarding the outcome of any such
litigation or whether binding compromised settlements with the parties will ultimately be reached. We currently believe that we have
adequate reserves for the potential liabilities that may result from these matters.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
The following table presents a reconciliation of the beginning and ending balances of the total amounts of gross
unrecognized tax benefits:
Years Ended December 31,
(in millions)
Gross unrecognized tax benefits, beginning of year
Increases in tax positions for prior years
Decreases in tax positions for prior years
Increases in tax positions for current year
Lapse in statute of limitations
Settlements
Activity of discontinued operations
Gross unrecognized tax benefits, end of year
2017
2016
2015
$
4,530
$ 4,331
$
4,395
210
(33)
-
-
-
-
235
(39)
3
-
-
-
162
(209)
(4)
(13)
-
-
$
4,707
$ 4,530
$
4,331
At December 31, 2017, 2016 and 2015, our unrecognized tax benefits, excluding interest and penalties, were $4.7 billion, $4.5 billion
and $4.3 billion, respectively. The activity for the year includes increases for amounts associated with cross border financing
transactions and the impact of settlement discussions with the IRS related to certain other open tax issues unrelated to the cross
border financing transactions. With respect to cross border financing transactions, the increase is the result of consideration of recent
court decisions upholding the disallowance of foreign tax credits claimed by other corporate entities not affiliated with AIG in addition
to the agreement reached in the fourth quarter of 2017 by the parties in the cross border financing dispute to pursue a potential
settlement.
At December 31, 2017, 2016 and 2015, our unrecognized tax benefits related to tax positions that, if recognized, would not affect the
effective tax rate because they relate to such factors as the timing, rather than the permissibility, of the deduction were $28 million,
$66 million and $115 million, respectively. Accordingly, at December 31, 2017, 2016 and 2015, the amounts of unrecognized tax
benefits that, if recognized, would favorably affect the effective tax rate were $4.7 billion, $4.4 billion and $4.2 billion, respectively.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2017, 2016, and
2015, we had accrued liabilities of $2.0 billion, $1.2 billion, and $1.2 billion, respectively, for the payment of interest (net of the federal
benefit) and penalties. For the years ended December 31, 2017, 2016, and 2015, we accrued expense of $776 million, $26 million
and $156 million, respectively, for the payment of interest and penalties. The current year activity is primarily related to a decrease in
the expected federal benefit of interest due to the U.S. corporate tax rate reduction and to an increase in interest and penalties
associated with cross border financing transactions.
We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next 12 months by as much as $3.9
billion, principally as a result of potential resolutions or settlements of prior years tax items. The prior years tax items include
unrecognized tax benefits related to the deductibility of certain expenses and matters related to cross border financing transactions.
Listed below are the tax years that remain subject to examination by major tax jurisdictions:
At December 31, 2017
Major Tax Jurisdiction
United States
Australia
France
Japan
Korea
Singapore
United Kingdom
Open Tax Years
2000-2016
2013-2016
2015-2016
2011-2016
2012-2016
2012-2016
2015-2016
296
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
297
1011252ai_financials.indd 296
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
ITEM 8 | Notes to Consolidated Financial Statements | 23 . In co m e Ta xe s
The following table presents the net deferred tax assets (liabilities) at December 31, 2017 and 2016 on a U.S. GAAP basis:
Net U.S. consolidated return group deferred tax assets
Net deferred tax assets (liabilities) in accumulated other comprehensive income
Net foreign, state and local deferred tax assets
Subtotal - Net U.S., foreign, state and local deferred tax assets
Net foreign, state and local deferred tax liabilities
Total AIG net deferred tax assets (liabilities)
December 31,
(in millions)
Valuation allowance
Subtotal
Valuation allowance
Subtotal
GROUP
2017
$ 15,603
(2,070)
(86)
13,447
1,874
(1,288)
586
14,033
(220)
$ 13,813
2016
$ 24,134
(2,384)
(874)
20,876
2,413
(1,957)
456
21,332
(620)
$ 20,712
DEFERRED TAX ASSET VALUATION ALLOWANCE OF U.S. CONSOLIDATED FEDERAL INCOME TAX
At December 31, 2017 and 2016, our U.S. consolidated income tax group had net deferred tax assets after valuation allowance of
$13.4 billion and $20.9 billion, respectively. At December 31, 2017 and 2016, our U.S. consolidated income tax group had valuation
allowances of $86 million and $874 million, respectively.
DEFERRED TAX ASSET FOREIGN, STATE AND LOCAL
At December 31, 2017 and 2016, we had net deferred tax assets (liabilities) of $366 million and $(164) million, respectively, related to
foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns.
At December 31, 2017 and 2016, we had deferred tax asset valuation allowances of $1.3 billion and $2.0 billion, respectively, related
to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns. We maintained
these valuation allowances following our conclusion that we could not demonstrate that it was more likely than not that the related
deferred tax assets will be realized. This was primarily due to factors such as cumulative losses in recent years and the inability to
demonstrate profits within the specific jurisdictions over the relevant carryforward periods.
TAX EXAMINATIONS AND LITIGATION
We file a consolidated U.S. federal income tax return with our eligible U.S. subsidiaries. Income earned by subsidiaries operating
outside the U.S. is taxed, and income tax expense is recorded, based on applicable U.S. and foreign law.
The statute of limitations for all tax years prior to 2000 has expired for our consolidated federal income tax return. We are currently
under examination for the tax years 2000 through 2010.
On March 20, 2008, we received a Statutory Notice of Deficiency (Notice) from the IRS for years 1997 to 1999. The Notice asserted
that we owe additional taxes and penalties for these years primarily due to the disallowance of foreign tax credits associated with
cross-border financing transactions. The transactions that are the subject of the Notice extend beyond the period covered by the
Notice, and the IRS has administratively challenged the later periods. The IRS has also administratively challenged other cross-
border transactions in later years. We have paid the assessed tax plus interest and penalties for 1997 to 1999. On February 26, 2009,
we filed a complaint in the United States District Court for the Southern District of New York (Southern District) seeking a refund of
approximately $306 million in taxes, interest and penalties paid with respect to the 1997 taxable year. We allege that the IRS
improperly disallowed foreign tax credits and that our taxable income should be reduced as a result of the 2005 restatement of our
consolidated financial statements.
We also filed an administrative refund claim on September 9, 2010 for our 1998 and 1999 tax years.
On August 1, 2012, we filed a motion for partial summary judgment related to the disallowance of foreign tax credits associated with
cross border financing transactions in the Southern District of New York. The Southern District of New York denied our summary
judgment motion and upon AIGs appeal, the U.S. Court of Appeals for the Second Circuit (the Second Circuit) affirmed the denial.
AIGs petition for certiorari to the U.S. Supreme Court from the decision of the Second Circuit was denied on March 7, 2016. As a
result, the case has been remanded back to the Southern District of New York for a jury trial.
In January 2018, the parties reached non-binding agreements in principle on issues presented in the dispute and are currently
reviewing the computations reflecting the settlement terms. The resolution is not final and is subject to various reviews. The litigation
has been stayed pending the outcome of the review process. We can provide no assurance regarding the outcome of any such
litigation or whether binding compromised settlements with the parties will ultimately be reached. We currently believe that we have
adequate reserves for the potential liabilities that may result from these matters.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
The following table presents a reconciliation of the beginning and ending balances of the total amounts of gross
unrecognized tax benefits:
Years Ended December 31,
(in millions)
Gross unrecognized tax benefits, beginning of year
Increases in tax positions for prior years
Decreases in tax positions for prior years
Increases in tax positions for current year
Lapse in statute of limitations
Settlements
Activity of discontinued operations
Gross unrecognized tax benefits, end of year
2017
4,530
210
(33)
-
-
-
-
4,707
2016
$ 4,331
235
(39)
3
-
-
-
$ 4,530
$
$
$
$
2015
4,395
162
(209)
-
(4)
(13)
-
4,331
At December 31, 2017, 2016 and 2015, our unrecognized tax benefits, excluding interest and penalties, were $4.7 billion, $4.5 billion
and $4.3 billion, respectively. The activity for the year includes increases for amounts associated with cross border financing
transactions and the impact of settlement discussions with the IRS related to certain other open tax issues unrelated to the cross
border financing transactions. With respect to cross border financing transactions, the increase is the result of consideration of recent
court decisions upholding the disallowance of foreign tax credits claimed by other corporate entities not affiliated with AIG in addition
to the agreement reached in the fourth quarter of 2017 by the parties in the cross border financing dispute to pursue a potential
settlement.
At December 31, 2017, 2016 and 2015, our unrecognized tax benefits related to tax positions that, if recognized, would not affect the
effective tax rate because they relate to such factors as the timing, rather than the permissibility, of the deduction were $28 million,
$66 million and $115 million, respectively. Accordingly, at December 31, 2017, 2016 and 2015, the amounts of unrecognized tax
benefits that, if recognized, would favorably affect the effective tax rate were $4.7 billion, $4.4 billion and $4.2 billion, respectively.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2017, 2016, and
2015, we had accrued liabilities of $2.0 billion, $1.2 billion, and $1.2 billion, respectively, for the payment of interest (net of the federal
benefit) and penalties. For the years ended December 31, 2017, 2016, and 2015, we accrued expense of $776 million, $26 million
and $156 million, respectively, for the payment of interest and penalties. The current year activity is primarily related to a decrease in
the expected federal benefit of interest due to the U.S. corporate tax rate reduction and to an increase in interest and penalties
associated with cross border financing transactions.
We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next 12 months by as much as $3.9
billion, principally as a result of potential resolutions or settlements of prior years tax items. The prior years tax items include
unrecognized tax benefits related to the deductibility of certain expenses and matters related to cross border financing transactions.
Listed below are the tax years that remain subject to examination by major tax jurisdictions:
At December 31, 2017
Major Tax Jurisdiction
United States
Australia
France
Japan
Korea
Singapore
United Kingdom
Open Tax Years
2000-2016
2013-2016
2015-2016
2011-2016
2012-2016
2012-2016
2015-2016
296
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
297
1011252ai_financials.indd 297
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 24 . Q u art er l y F in a n cia l I n f or ma ti o n (U n au di t e d )
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
24. Quarterly Financial Information (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
March 31,
June 30,
September 30,
December 31,
Three Months Ended
25. Information Provided in Connection with Outstanding Debt
The following Condensed Consolidating Financial Statements reflect the results of AIG Life Holdings, Inc. (AIGLH), a holding
company and a wholly owned subsidiary of AIG. AIG provides a full and unconditional guarantee of all outstanding debt of AIGLH.
(dollars in millions, except per share data)
2017
2016
2017
2016
2017
2016
2017
2016
Total revenues
$
12,632 $
11,779 $
12,502 $
14,724 $
11,751 $
12,854 $
12,635 $
13,010
CONDENSED CONSOLIDATING BALANCE SHEETS
Income (loss) from continuing
operations before income taxes*
Income (loss) from discontinued
operations, net of income taxes
Net income (loss)
Net income (loss) from
continuing operations attributable
to noncontrolling interests
Net income (loss) attributable to AIG*
$
Income (loss) per common share
1,727
(214)
1,667
2,858
(2,803)
-
1,211
(47)
(203)
8
1,118
(10)
1,924
(1)
(1,713)
737
3
436
875
(3,455)
(3)
(6,672)
(36)
(2,506)
26
(20)
(12)
11
26
(26)
(12)
535
1,185 $
(183) $
1,130 $
1,913 $
(1,739) $
462 $
(6,660) $
(3,041)
attributable to AIG:
Basic:
Income (loss) from continuing
operations
Income (loss) from discontinued
operations
Diluted:
Income (loss) from continuing
operations
Income (loss) from discontinued
operations
Weighted average shares
outstanding:
Basic
Diluted
Noteworthy quarterly items -
(income) expense:
Other-than-temporary
impairments
Net (gain) loss on sale of
divested businesses
Federal and foreign valuation
allowance for deferred tax assets
Net (gain) loss on extinguishment of
debt
Prior year unfavorable (favorable)
development
Restructuring and other costs
Impact of Tax Act
$
$
$
$
1.21 $
(0.12) $
1.21 $
1.73 $
(1.91) $
0.43 $
(7.33) $
(2.93)
- $
(0.04) $
0.01 $
(0.01) $
- $
- $
- $
(0.03)
1.18 $
(0.12) $
1.18 $
1.69 $
(1.91) $
0.42 $
(7.33) $
(2.93)
- $
(0.04) $
0.01 $
(0.01) $
- $
- $
- $
(0.03)
980,777,243 1,156,548,459
925,751,084 1,113,587,927
908,667,044 1,071,295,892
908,115,499 1,023,886,592
1,005,315,030 1,156,548,459
948,248,771 1,140,045,973
908,667,044 1,102,400,770
908,115,499 1,023,886,592
68
100
(13)
(1)
61
181
-
204
2
(37)
83
(66)
188
-
67
60
(8)
(4)
391
47
-
108
(225)
35
7
7
90
-
88
13
24
1
901
31
-
102
37
145
(128)
(241)
(194)
(2)
(14)
273
210
-
40
(1)
212
154
6,687
87
(2)
5,574
206
-
*
For the three months ended December 31, 2016, we recorded out of period adjustments related to prior periods that increased Net loss attributable to AIG by $154
million, increased AIGs Loss from continuing operations before income taxes by $12 million and decreased adjusted pre-tax income by $1 million. The out of period
adjustments are primarily related to income tax liabilities and ceded loss adjustment expenses. Had these adjustments, which were determined not to be material, been
recorded in their appropriate periods, Net income attributable to AIG for the three-month periods ended September 30, 2016, June 30, 2016 and March 31, 2016 would
have decreased by $65 million, increased by $66 million and increased by $19 million, respectively.
(in millions)
December 31, 2017
Assets:
Short-term investments
Other investments(a)
Total investments
Cash
Loans to subsidiaries(b)
Assets held for sale
Total assets
Liabilities:
Insurance liabilities
Long-term debt
Loans from subsidiaries(b)
Liabilities held for sale
Total liabilities
Investment in consolidated subsidiaries(b)
Other assets, including deferred income taxes
Other liabilities, including intercompany balances(a)
Total AIG shareholders equity
Non-redeemable noncontrolling interests
Total equity
Total liabilities and equity
December 31, 2016
Assets:
Short-term investments
Other investments(a)
Total investments
Cash
Loans to subsidiaries(b)
Assets held for sale
Total assets
Liabilities:
Insurance liabilities
Long-term debt
Loans from subsidiaries(b)
Liabilities held for sale
Total liabilities
Investment in consolidated subsidiaries(b)
Other assets, including deferred income taxes
Other liabilities, including intercompany balances(a)
Total AIG shareholders equity
Non-redeemable noncontrolling interests
Total equity
Total liabilities and equity
American
International
Group, Inc.
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
Reclassifications
Other
and
Consolidated
$
2,541 $
- $
11,559 $
(3,714) $
99,703 $
30,549 $
479,911 $
(111,862) $
498,301
- $
- $
282,105 $
- $
65,171
29,764
99,703 $
30,549 $
479,911 $
(111,862) $
4,424 $
- $
13,218 $
(5,340) $
$
$
$
$
$
$
6,004
8,545
35,004
40,135
16,016
3
-
21,557
12,458
517
34,532
65,171
-
-
7,154
11,578
34,692
42,582
24,099
2
-
21,405
14,671
577
36,653
76,300
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20
30,359
170
642
143
785
29,764
34
27,309
239
642
194
836
26,746
305,902
317,461
2,339
517
159,594
9,441
112,275
35,004
438,825
40,549
537
41,086
-
-
-
308,719
321,937
1,832
576
-
140,743
7,199
8,865
103,975
34,691
6,106
428,757
42,972
558
43,530
-
-
-
-
-
-
-
-
-
-
-
-
(3,714)
(35,521)
(70,494)
(2,133)
(6,028)
(35,521)
(41,549)
(70,313)
(70,313)
(5,340)
(35,268)
(69,891)
(4,059)
(9,572)
(35,268)
(44,840)
(69,718)
(69,718)
76,300
26,746
$
112,953 $
27,582 $
472,287 $
(114,558) $
10,386
311,906
322,292
2,362
173,647
-
-
-
-
-
-
-
-
282,105
31,640
118,848
432,593
65,171
537
65,708
498,301
12,302
315,873
328,175
1,868
161,022
7,199
275,120
30,912
109,268
6,106
421,406
76,300
558
76,858
498,264
112,953 $
27,582 $
472,287 $
(114,558) $
498,264
- $
- $
275,120 $
- $
298
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
299
(a) Includes intercompany derivative positions, which are reported at fair value before credit valuation adjustment.
(b) Eliminated in consolidation.
1011252ai_financials.indd 298
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 24 . Q u art er l y F in a n cia l I n f or ma ti o n (U n au di t e d )
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
24. Quarterly Financial Information (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
March 31,
June 30,
September 30,
December 31,
Three Months Ended
25. Information Provided in Connection with Outstanding Debt
The following Condensed Consolidating Financial Statements reflect the results of AIG Life Holdings, Inc. (AIGLH), a holding
company and a wholly owned subsidiary of AIG. AIG provides a full and unconditional guarantee of all outstanding debt of AIGLH.
(dollars in millions, except per share data)
2017
2016
2017
2016
2017
2016
2017
2016
Total revenues
$
12,632 $
11,779 $
12,502 $
14,724 $
11,751 $
12,854 $
12,635 $
13,010
CONDENSED CONSOLIDATING BALANCE SHEETS
Income (loss) from continuing
operations before income taxes*
Income (loss) from discontinued
operations, net of income taxes
Net income (loss)
Net income (loss) from
continuing operations attributable
to noncontrolling interests
Net income (loss) attributable to AIG*
$
Income (loss) per common share
attributable to AIG:
Basic:
Income (loss) from continuing
$
$
$
$
Income (loss) from discontinued
Income (loss) from continuing
Income (loss) from discontinued
Weighted average shares
operations
Diluted:
operations
operations
outstanding:
Basic
Diluted
Noteworthy quarterly items -
(income) expense:
Other-than-temporary
impairments
Net (gain) loss on sale of
divested businesses
Federal and foreign valuation
allowance for deferred tax assets
Net (gain) loss on extinguishment of
debt
Prior year unfavorable (favorable)
development
Restructuring and other costs
Impact of Tax Act
1,727
(214)
1,667
2,858
(2,803)
875
(3,455)
-
1,211
(47)
(203)
8
1,118
(10)
1,924
(1)
(1,713)
(3)
(6,672)
(36)
(2,506)
737
3
436
26
(20)
(12)
11
26
(26)
(12)
535
1,185 $
(183) $
1,130 $
1,913 $
(1,739) $
462 $
(6,660) $
(3,041)
operations
1.21 $
(0.12) $
1.21 $
1.73 $
(1.91) $
0.43 $
(7.33) $
(2.93)
(in millions)
December 31, 2017
Assets:
Short-term investments
Other investments(a)
Total investments
Cash
Loans to subsidiaries(b)
Investment in consolidated subsidiaries(b)
Other assets, including deferred income taxes
Assets held for sale
Total assets
Liabilities:
- $
(0.04) $
0.01 $
(0.01) $
- $
- $
- $
(0.03)
Insurance liabilities
1.18 $
(0.12) $
1.18 $
1.69 $
(1.91) $
0.42 $
(7.33) $
(2.93)
- $
(0.04) $
0.01 $
(0.01) $
- $
- $
- $
(0.03)
980,777,243 1,156,548,459
925,751,084 1,113,587,927
908,667,044 1,071,295,892
908,115,499 1,023,886,592
1,005,315,030 1,156,548,459
948,248,771 1,140,045,973
908,667,044 1,102,400,770
908,115,499 1,023,886,592
68
100
(13)
(1)
61
181
-
204
2
(37)
83
(66)
188
-
67
60
(8)
(4)
391
47
-
108
(225)
35
7
7
90
-
88
13
24
1
901
31
-
102
37
145
(128)
(241)
(194)
(2)
(14)
273
210
-
40
(1)
212
154
6,687
87
(2)
5,574
206
-
*
For the three months ended December 31, 2016, we recorded out of period adjustments related to prior periods that increased Net loss attributable to AIG by $154
million, increased AIGs Loss from continuing operations before income taxes by $12 million and decreased adjusted pre-tax income by $1 million. The out of period
adjustments are primarily related to income tax liabilities and ceded loss adjustment expenses. Had these adjustments, which were determined not to be material, been
recorded in their appropriate periods, Net income attributable to AIG for the three-month periods ended September 30, 2016, June 30, 2016 and March 31, 2016 would
have decreased by $65 million, increased by $66 million and increased by $19 million, respectively.
Long-term debt
Other liabilities, including intercompany balances(a)
Loans from subsidiaries(b)
Liabilities held for sale
Total liabilities
Total AIG shareholders equity
Non-redeemable noncontrolling interests
Total equity
Total liabilities and equity
December 31, 2016
Assets:
Short-term investments
Other investments(a)
Total investments
Cash
Loans to subsidiaries(b)
Investment in consolidated subsidiaries(b)
Other assets, including deferred income taxes
Assets held for sale
Total assets
Liabilities:
Insurance liabilities
Long-term debt
Other liabilities, including intercompany balances(a)
Loans from subsidiaries(b)
Liabilities held for sale
Total liabilities
Total AIG shareholders equity
Non-redeemable noncontrolling interests
Total equity
Total liabilities and equity
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
$
2,541 $
- $
11,559 $
(3,714) $
6,004
8,545
3
35,004
40,135
16,016
-
-
-
20
-
30,359
170
-
305,902
317,461
2,339
517
-
159,594
-
-
(3,714)
-
(35,521)
(70,494)
(2,133)
-
10,386
311,906
322,292
2,362
-
-
173,647
-
99,703 $
30,549 $
479,911 $
(111,862) $
498,301
- $
- $
282,105 $
21,557
12,458
517
-
34,532
65,171
-
642
143
-
-
785
29,764
-
65,171
29,764
9,441
112,275
35,004
-
438,825
40,549
537
41,086
- $
-
(6,028)
(35,521)
-
(41,549)
(70,313)
-
(70,313)
99,703 $
30,549 $
479,911 $
(111,862) $
4,424 $
- $
13,218 $
(5,340) $
7,154
11,578
2
34,692
42,582
24,099
-
-
-
34
-
27,309
239
-
308,719
321,937
1,832
576
-
140,743
7,199
-
(5,340)
-
(35,268)
(69,891)
(4,059)
-
282,105
31,640
118,848
-
-
432,593
65,171
537
65,708
498,301
12,302
315,873
328,175
1,868
-
-
161,022
7,199
112,953 $
27,582 $
472,287 $
(114,558) $
498,264
- $
- $
275,120 $
21,405
14,671
577
-
36,653
76,300
-
642
194
-
-
836
26,746
-
76,300
26,746
8,865
103,975
34,691
6,106
428,757
42,972
558
43,530
- $
-
(9,572)
(35,268)
-
(44,840)
(69,718)
-
(69,718)
$
112,953 $
27,582 $
472,287 $
(114,558) $
275,120
30,912
109,268
-
6,106
421,406
76,300
558
76,858
498,264
$
$
$
$
$
$
298
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
299
(a) Includes intercompany derivative positions, which are reported at fair value before credit valuation adjustment.
(b) Eliminated in consolidation.
1011252ai_financials.indd 299
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
Year Ended December 31, 2015
Revenues:
Other income
Total revenues
Expenses:
Other interest expense
Loss on extinguishment of debt
Other expenses
Total expenses
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income (loss)
Less:
Net income from continuing operations attributable to
noncontrolling interests
Net income (loss) attributable to AIG
$
2,196 $
1,907 $
3,989 $
(5,896) $
*
Eliminated in consolidation.
Equity in earnings of consolidated subsidiaries
*
$
3,954 $
1,936 $
- $
(5,890) $
88
4,042
1,049
703
1,178
2,930
1,112
(1,086)
2,198
(2)
2,196
-
-
1,936
58
-
44
102
1,834
(73)
1,907
1,907
-
-
58,953
58,953
302
46
52,374
52,722
6,231
2,218
4,013
2
4,015
26
(714)
(6,604)
(128)
7
(587)
(708)
(5,896)
(5,896)
(5,896)
-
-
-
-
58,327
58,327
1,281
756
53,009
55,046
3,281
1,059
2,222
-
2,222
26
2,196
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
(in millions)
Year Ended December 31, 2017
Revenues:
*
Equity in earnings of consolidated subsidiaries
Other income
Total revenues
Expenses:
Interest expense
Loss on extinguishment of debt
Other expenses
Total expenses
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income (loss)
Less:
Net income from continuing operations attributable to
noncontrolling interests
Net income (loss) attributable to AIG
Year Ended December 31, 2016
Revenues:
*
Equity in earnings of consolidated subsidiaries
$
$
Other income
Total revenues
Expenses:
Interest expense
Loss on extinguishment of debt
Other expenses
Total expenses
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Loss from discontinued operations, net of income taxes
Net income (loss)
Less:
Net income (loss) from continuing operations attributable to
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
$
(149) $
1,978 $
- $
(1,829) $
891
742
949
2
952
1,903
(1,161)
4,922
(6,083)
(1)
(6,084)
-
1,978
50
-
2
52
1,926
(3)
1,929
-
1,929
48,802
48,802
176
(7)
46,116
46,285
2,517
2,607
(90)
5
(85)
(173)
(2,002)
(7)
-
(179)
(186)
(1,816)
-
(1,816)
-
(1,816)
-
-
28
-
28
(6,084) $
1,929 $
(113) $
(1,816) $
(6,084)
(1,269) $
(197) $
- $
1,466 $
516
(753)
988
77
295
1,360
(2,113)
(1,301)
(812)
(37)
(849)
5
(192)
51
-
16
67
(259)
(21)
(238)
-
(238)
52,875
52,875
227
(3)
51,819
52,043
832
1,507
(675)
(53)
(728)
(1,029)
437
(6)
-
(1,023)
(1,029)
1,466
-
1,466
-
1,466
-
49,520
49,520
1,168
(5)
46,891
48,054
1,466
7,526
(6,060)
4
(6,056)
-
52,367
52,367
1,260
74
51,107
52,441
(74)
185
(259)
(90)
(349)
500
(849)
noncontrolling interests
-
-
500
-
Net income (loss) attributable to AIG
$
(849) $
(238) $
(1,228) $
1,466 $
300
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
301
1011252ai_financials.indd 300
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
Year Ended December 31, 2015
Revenues:
*
Equity in earnings of consolidated subsidiaries
Other income
Total revenues
Expenses:
Other interest expense
Loss on extinguishment of debt
Other expenses
Total expenses
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income (loss)
Less:
Net income from continuing operations attributable to
$
3,954 $
1,936 $
- $
(5,890) $
88
4,042
1,049
703
1,178
2,930
1,112
(1,086)
2,198
(2)
2,196
-
1,936
58
-
44
102
1,834
(73)
1,907
-
1,907
58,953
58,953
302
46
52,374
52,722
6,231
2,218
4,013
2
4,015
(714)
(6,604)
(128)
7
(587)
(708)
(5,896)
-
(5,896)
-
(5,896)
noncontrolling interests
-
-
26
-
Net income (loss) attributable to AIG
$
2,196 $
1,907 $
3,989 $
(5,896) $
*
Eliminated in consolidation.
-
58,327
58,327
1,281
756
53,009
55,046
3,281
1,059
2,222
-
2,222
26
2,196
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
American
International
Group, Inc.
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
Reclassifications
Other
and
Consolidated
-
49,520
49,520
1,168
(5)
46,891
48,054
1,466
7,526
(6,060)
4
(6,056)
28
(6,084) $
1,929 $
(113) $
(1,816) $
(6,084)
-
52,367
52,367
1,260
74
51,107
52,441
(74)
185
(259)
(90)
(349)
500
(849)
Year Ended December 31, 2017
(in millions)
Revenues:
Equity in earnings of consolidated subsidiaries
*
Other income
Total revenues
Expenses:
Interest expense
Other expenses
Total expenses
Loss on extinguishment of debt
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income (loss)
Less:
Net income from continuing operations attributable to
noncontrolling interests
Net income (loss) attributable to AIG
Year Ended December 31, 2016
Revenues:
Equity in earnings of consolidated subsidiaries
*
$
$
Other income
Total revenues
Expenses:
Interest expense
Other expenses
Total expenses
Loss on extinguishment of debt
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Loss from discontinued operations, net of income taxes
Net income (loss)
Less:
Net income (loss) from continuing operations attributable to
noncontrolling interests
$
(149) $
1,978 $
- $
(1,829) $
891
742
949
2
952
1,903
(1,161)
4,922
(6,083)
(1)
(6,084)
-
-
516
(753)
988
77
295
1,360
(2,113)
(1,301)
(812)
(37)
(849)
-
1,978
50
-
2
52
1,926
(3)
1,929
1,929
-
-
-
-
5
(192)
51
-
16
67
(259)
(21)
(238)
(238)
48,802
48,802
176
(7)
46,116
46,285
2,517
2,607
(90)
5
(85)
28
52,875
52,875
227
(3)
51,819
52,043
832
1,507
(675)
(53)
(728)
500
(173)
(2,002)
(7)
-
(179)
(186)
(1,816)
(1,816)
(1,816)
(1,029)
437
(6)
-
(1,023)
(1,029)
1,466
1,466
1,466
-
-
-
-
-
-
(1,269) $
(197) $
- $
1,466 $
Net income (loss) attributable to AIG
$
(849) $
(238) $
(1,228) $
1,466 $
300
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
301
1011252ai_financials.indd 301
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31, 2017
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Total comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to AIG
Year Ended December 31, 2016
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Total comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to AIG
Year Ended December 31, 2015
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Total comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to AIG
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
(in millions)
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
$
$
$
$
$
$
(6,084) $
1,929 $
(85) $
(1,816) $
2,235
(3,849)
-
7,851
9,780
-
17,857
17,772
28
(25,708)
(27,524)
-
(6,056)
2,235
(3,821)
28
(3,849) $
9,780 $
17,744
$
(27,524) $
(3,849)
(849) $
(238) $
(728) $
1,466 $
(349)
693
(156)
-
4,080
3,842
-
52,153
51,425
500
(156) $
3,842 $
50,925
2,196 $
1,907 $
(8,080)
(5,884)
-
2,320
4,227
-
4,015
54,757
58,772
20
$
$
(56,233)
(54,767)
-
(54,767) $
(5,896) $
(57,083)
(62,979)
-
693
344
500
(156)
2,222
(8,086)
(5,864)
20
(5,884) $
4,227 $
58,752
$
(62,979) $
(5,884)
Year Ended December 31, 2017
Net cash (used in) provided by operating activities
$
36 $
1,413 $
(7,426) $
(2,608) $
(8,585)
Cash flows from investing activities:
Sales of investments
Sales of divested businesses, net
Purchase of investments
Loans to subsidiaries net
Contributions from (to) subsidiaries - net
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayments of long-term debt
Purchase of common stock
Intercompany loans - net
Cash dividends paid
Other, net
Net cash (used in) financing activities
Effect of exchange rate changes on cash
Change in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
Year Ended December 31, 2016
Net cash (used in) provided by operating activities
2,112 $
1,707 $
2,515 $
(3,951) $
2,383
Cash flows from investing activities:
Sales of investments
Sales of divested businesses, net
Purchase of investments
Loans to subsidiaries net
Contributions from (to) subsidiaries - net
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayments of long-term debt
Purchase of common stock
Intercompany loans - net
Cash dividends paid
Other, net
Net cash (used in) provided by financing activities
(11,303)
(1,789)
Effect of exchange rate changes on cash
Change in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
$
2 $
34 $
1,832 $
- $
3 $
20 $
2,339 $
- $
$
$
5,821
40
(2,465)
199
2,446
-
1,990
(183)
7,848
1,505
(1,724)
(6,275)
(63)
(1,172)
(154)
(7,883)
-
1
2
-
5,769
2,160
(1,002)
1,525
1,637
-
(789)
(141)
9,159
3,831
(1,996)
(11,460)
3
(1,372)
(309)
(32)
34
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5)
(5)
(1,422)
(1,422)
(14)
34
(63)
(3)
(1,723)
(82)
116
75,228
752
(64,539)
63
-
(121)
108
(1,955)
9,536
1,851
(1,974)
-
(199)
(1,186)
(200)
(1,708)
(28)
374
1,832
133
81,560
649
(80,668)
(3)
-
385
(2,300)
(879)
(1,256)
2,123
(2,023)
-
(1,522)
(2,228)
2,799
(851)
52
460
1,479
(107)
(3,758)
3,758
(262)
(2,446)
(2,708)
262
2,608
2,446
5,316
(11,685)
11,685
(1,522)
(1,637)
(3,159)
1,522
3,951
1,637
7,110
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
77,291
792
(63,246)
(121)
2,098
(2,143)
14,671
3,356
(3,698)
(6,275)
(1,172)
2,092
(5,697)
(28)
361
1,868
133
2,362
75,644
2,809
(69,985)
385
(3,089)
(1,020)
4,744
5,954
(4,082)
(11,460)
(1,372)
4,127
(6,833)
52
346
1,629
(107)
1,868
302
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
303
1011252ai_financials.indd 302
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
(in millions)
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
Year Ended December 31, 2017
Net cash (used in) provided by operating activities
$
36 $
1,413 $
(7,426) $
(2,608) $
(8,585)
(in millions)
Year Ended December 31, 2017
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Year Ended December 31, 2016
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Year Ended December 31, 2015
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Total comprehensive income attributable to noncontrolling interests
$
$
$
$
$
$
-
-
-
693
(156)
4,080
3,842
2,196 $
1,907 $
(8,080)
(5,884)
2,320
4,227
-
-
-
17,857
17,772
28
52,153
51,425
500
4,015
54,757
58,772
20
$
$
(25,708)
(27,524)
(56,233)
(54,767)
-
-
-
(5,896) $
(57,083)
(62,979)
Total comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to AIG
(156) $
3,842 $
50,925
(54,767) $
Total comprehensive income attributable to noncontrolling interests
(6,084) $
1,929 $
(85) $
(1,816) $
2,235
(3,849)
7,851
9,780
(6,056)
2,235
(3,821)
28
Comprehensive income (loss) attributable to AIG
(3,849) $
9,780 $
17,744
$
(27,524) $
(3,849)
(849) $
(238) $
(728) $
1,466 $
(349)
Comprehensive income (loss) attributable to AIG
(5,884) $
4,227 $
58,752
$
(62,979) $
(5,884)
693
344
500
(156)
2,222
(8,086)
(5,864)
20
Cash flows from investing activities:
Sales of investments
Sales of divested businesses, net
Purchase of investments
Loans to subsidiaries net
Contributions from (to) subsidiaries - net
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayments of long-term debt
Purchase of common stock
Intercompany loans - net
Cash dividends paid
Other, net
Net cash (used in) financing activities
Effect of exchange rate changes on cash
Change in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
Year Ended December 31, 2016
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Sales of investments
Sales of divested businesses, net
Purchase of investments
Loans to subsidiaries net
Contributions from (to) subsidiaries - net
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayments of long-term debt
Purchase of common stock
Intercompany loans - net
Cash dividends paid
Other, net
5,821
40
(2,465)
199
2,446
-
1,990
(183)
7,848
1,505
(1,724)
(6,275)
(63)
(1,172)
(154)
(7,883)
-
1
2
-
-
-
-
-
-
-
-
(5)
(5)
-
-
-
-
(1,422)
-
(1,422)
-
(14)
34
-
75,228
752
(64,539)
63
-
(121)
108
(1,955)
9,536
1,851
(1,974)
-
(199)
(1,186)
(200)
(1,708)
(28)
374
1,832
133
(3,758)
-
3,758
(262)
(2,446)
-
-
-
(2,708)
-
-
-
262
2,608
2,446
5,316
-
-
-
-
3 $
20 $
2,339 $
- $
77,291
792
(63,246)
-
-
(121)
2,098
(2,143)
14,671
3,356
(3,698)
(6,275)
-
(1,172)
2,092
(5,697)
(28)
361
1,868
133
2,362
2,112 $
1,707 $
2,515 $
(3,951) $
2,383
$
$
5,769
2,160
(1,002)
1,525
1,637
-
(789)
(141)
9,159
3,831
(1,996)
(11,460)
3
(1,372)
(309)
-
-
-
-
-
-
-
-
-
-
(63)
-
(3)
(1,723)
-
81,560
649
(80,668)
(3)
-
385
(2,300)
(879)
(1,256)
2,123
(2,023)
-
(1,522)
(2,228)
2,799
(851)
52
460
1,479
(107)
(11,685)
-
11,685
(1,522)
(1,637)
-
-
-
(3,159)
-
-
-
1,522
3,951
1,637
7,110
-
-
-
-
75,644
2,809
(69,985)
-
-
385
(3,089)
(1,020)
4,744
5,954
(4,082)
(11,460)
-
(1,372)
4,127
(6,833)
52
346
1,629
(107)
1,868
Net cash (used in) provided by financing activities
(11,303)
(1,789)
Effect of exchange rate changes on cash
Change in cash
Cash at beginning of year
Change in cash of businesses held for sale
-
(32)
34
-
-
(82)
116
-
Cash at end of year
$
2 $
34 $
1,832 $
- $
302
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
303
1011252ai_financials.indd 303
3/13/18 3:29 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181011252ai_financials_co8_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
Year Ended December 31, 2015
Net cash (used in) provided by operating activities
$
4,443 $
2,314 $
1,112 $
(4,992) $
2,877
SUPPLEMENTARY DISCLOSURE OF CONDENSED CONSOLIDATING CASH FLOW INFORMATION
Cash flows from investing activities:
Sales of investments
Purchase of investments
Loans to subsidiaries net
Contributions to subsidiaries
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayments of long-term debt
Intercompany loans - net
Purchase of common stock
Cash dividends paid to shareholders
Other, net
7,767
(1,881)
(83)
565
-
2,300
(175)
8,493
5,540
(6,504)
(201)
(10,691)
(1,028)
(44)
-
-
-
-
-
-
-
-
-
(114)
3
-
(2,178)
-
Net cash (used in) provided by financing activities
(12,928)
(2,289)
Effect of exchange rate changes on cash
Change in cash
Cash at beginning of year
Cash at end of year
-
8
26
-
25
91
$
34 $
116 $
1,479 $
69,726
(68,261)
367
-
1,457
(1,137)
(1,334)
818
1,327
(3,187)
(86)
-
(2,814)
2,707
(2,053)
(39)
(162)
1,641
(4,877)
4,877
(284)
(565)
-
-
-
(849)
-
-
284
-
4,992
565
5,841
-
-
-
- $
72,616
(65,265)
-
-
1,457
1,163
(1,509)
8,462
6,867
(9,805)
-
(10,691)
(1,028)
3,228
(11,429)
(39)
(129)
1,758
1,629
(in millions)
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
Cash (paid) received during the year ended December 31,
2017 for:
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
Interest:
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
Cash (paid) received during the year ended December 31,
2016 for:
Interest:
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
Cash (paid) received during the year ended December 31,
2015 for:
Interest:
Third party
*
Intercompany
Taxes:
Income tax authorities
Intercompany
$
$
$
$
$
$
(948) $
(48) $
(286) $
- $
(1,282)
-
(1)
1
(329) $
614
(215) $
(614)
- $
(544)
(975) $
(52) $
(304) $
- $
(1,331)
$
$
$
-
-
-
-
-
-
-
-
(15) $
479
2
-
(11) $
829
(2)
(478) $
(479)
-
(500) $
(829)
-
-
-
-
-
-
-
-
-
-
-
-
- $
(493)
- $
(511)
(1,030) $
(59) $
(279) $
- $
(1,368)
AMERICAN INTERNATIONAL GROUP, INC. (AS GUARANTOR) SUPPLEMENTARY DISCLOSURE OF
NON-CASH ACTIVITIES:
Years Ended December 31,
(in millions)
Intercompany non-cash financing and investing activities:
Capital contributions
Dividends received in the form of securities
Return of capital
Fixed maturity securities received in exchange for equity securities
Non-cash financing/investing activities:
Non-cash consideration received from sale of shares of AerCap
Non-cash consideration received from sale of United Guaranty
2017
2016
2015
$
259 $
3,245 $
735
26
-
-
-
5,234
440
-
-
1,101
494
2,326
-
-
-
500
304
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
305
1011252ai_financials.indd 304
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
ITEM 8 | Notes to Consolidated Financial Statements | 25 . In f or ma ti o n P r o vi d e d in C o n ne ct i on w ith O u ts ta n di n g De b t
Year Ended December 31, 2015
Cash flows from investing activities:
Sales of investments
Purchase of investments
Loans to subsidiaries net
Contributions to subsidiaries
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayments of long-term debt
Intercompany loans - net
Purchase of common stock
Cash dividends paid to shareholders
Other, net
Effect of exchange rate changes on cash
Change in cash
Cash at beginning of year
Cash at end of year
Net cash (used in) provided by financing activities
(12,928)
(2,289)
Net cash (used in) provided by operating activities
$
4,443 $
2,314 $
1,112 $
(4,992) $
2,877
7,767
(1,881)
(83)
565
-
2,300
(175)
8,493
5,540
(6,504)
(201)
(10,691)
(1,028)
(44)
-
8
26
-
-
-
-
-
-
-
-
-
3
-
-
-
25
91
(114)
(2,178)
69,726
(68,261)
367
-
1,457
(1,137)
(1,334)
818
1,327
(3,187)
(86)
-
(2,814)
2,707
(2,053)
(39)
(162)
1,641
(4,877)
4,877
(284)
(565)
(849)
284
4,992
565
5,841
-
-
-
-
-
-
-
-
-
72,616
(65,265)
-
-
1,457
1,163
(1,509)
8,462
6,867
(9,805)
-
(10,691)
(1,028)
3,228
(11,429)
(39)
(129)
1,758
1,629
$
34 $
116 $
1,479 $
- $
SUPPLEMENTARY DISCLOSURE OF CONDENSED CONSOLIDATING CASH FLOW INFORMATION
(in millions)
(As Guarantor)
AIGLH
Subsidiaries
Eliminations
AIG
Cash (paid) received during the year ended December 31,
2017 for:
American
International
Group, Inc.
Reclassifications
Other
and
Consolidated
Interest:
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
Cash (paid) received during the year ended December 31,
2016 for:
Interest:
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
Cash (paid) received during the year ended December 31,
2015 for:
Interest:
*
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
$
$
$
$
$
$
(948) $
(48) $
(286) $
-
(1)
1
(329) $
614
$
-
-
(215) $
(614)
(975) $
(52) $
(304) $
2
(15) $
479
-
-
-
$
(2)
(478) $
(479)
(1,030) $
(59) $
(279) $
-
(11) $
829
-
-
-
$
-
(500) $
(829)
- $
-
- $
-
- $
-
- $
-
- $
-
- $
-
(1,282)
-
(544)
-
(1,331)
-
(493)
-
(1,368)
-
(511)
-
AMERICAN INTERNATIONAL GROUP, INC. (AS GUARANTOR) SUPPLEMENTARY DISCLOSURE OF
NON-CASH ACTIVITIES:
Years Ended December 31,
(in millions)
Intercompany non-cash financing and investing activities:
Capital contributions
Dividends received in the form of securities
Return of capital
Fixed maturity securities received in exchange for equity securities
Non-cash financing/investing activities:
Non-cash consideration received from sale of shares of AerCap
Non-cash consideration received from sale of United Guaranty
2017
2016
2015
$
259 $
3,245 $
735
26
-
-
-
5,234
-
440
-
1,101
494
2,326
-
-
500
-
304
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
305
1011252ai_financials.indd 305
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 ITEM 8 | Notes to Consolidated Financial Statements | 26 . S u bs e qu e nt E ven ts
26. Subsequent Events
Part II
DIVIDENDS DECLARED AND SHARE REPURCHASE AUTHORIZATION
On February 8, 2018, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
29, 2018 to shareholders of record on March 15, 2018.
ITEM 9 | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
ACQUISITION OF BUSINESS
None.
On January 21, 2018, we entered into an agreement to purchase Validus Holdings, Ltd. (Validus), a leading provider of reinsurance,
primary insurance, and asset management services, for approximately $5.6 billion in cash. The transaction is expected to close mid-
2018 and is subject to customary closing conditions, including, among others, obtaining the relevant regulatory approvals (including
the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and receipt of the approval of the Bermuda Monetary Authority, the New Hampshire Department of Insurance, the
Prudential Regulatory Authority, Lloyds, the Texas Department of Insurance and the Swiss Financial Market Supervisory Authority)
and obtaining the approval of the shareholders of Validus.
approved, and recommended that Validus shareholders approve, an amendment to Validus bye-laws that would reduce the Validus
shareholder vote required to approve a merger with another company (including the transaction) from the affirmative vote of three-
fourths of those voting at a general meeting of the shareholders to the affirmative vote of a majority of those voting at such general
meeting (the Bye-Law Amendment).
aggregate voting power of the common stock of Validus, Validus must then obtain the affirmative vote of a majority of its shareholders
voting at a general meeting to approve and adopt the transaction.
obtain the affirmative vote of three-fourths of its shareholders voting at a general meeting to approve and adopt the transaction.
If the Bye-Law Amendment is approved by holders of a majority in voting power of the
In connection with the transaction, the board of directors of Validus
If the Bye-Law Amendment is not so approved, then Validus must
REINSURANCE TRANSACTIONS
In February 2018, we closed a series of affiliated reinsurance transactions impacting the Legacy Portfolio. These transactions were
designed to consolidate the bulk of the Legacy Insurance Run-Off Lines into a single legal entity, DSA Reinsurance Company, Ltd.
(DSA Re), a Bermuda domiciled composite reinsurer, 100 percent owned by AIG. The transactions include the cession of
approximately $32 billion of reserves from the Legacy Life and Retirement Run-off Lines and approximately $5 billion of reserves from
the Legacy General Insurance Run-off Lines relating to business written by multiple AIG legal entities. This represented over 80
percent of the insurance reserves in the Legacy Portfolio as of December 31, 2017. DSA Re will have approximately $40 billion of
invested assets, managed by AIG Investments and will become AIGs main run-off reinsurer with its own dedicated management
team.
Following the close of the DSA Re transactions, Eaglestone Reinsurance Company will continue to reinsure the AIG property casualty
pool companies for their asbestos liabilities and benefit from the retroactive reinsurance agreement entered into with NICO in 2011.
As part of the transaction, AIG Parent has provided DSA Re with a CMA that requires AIG Parent to restore capital of each of the long
term business fund and general business accounts of DSA Re to a specified minimum enhanced capital ratio measured for each fund
on a quarterly basis. We will maintain the CMA so long as we have more than 50 percent voting control of DSA Re.
ITEM 9A | Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted
under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. In
connection with the preparation of this Annual Report on Form 10-K, an evaluation was carried out by AIG management, with the
participation of AIGs Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2017. Based on this
evaluation, AIGs Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2017.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of AIG is responsible for establishing and maintaining adequate internal control over financial reporting. AIGs internal
control over financial reporting is a process, under the supervision of AIGs Chief Executive Officer and Chief Financial Officer,
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of AIGs financial
statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
AIG management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2017 based on the criteria established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
AIG management has concluded that, as of December 31, 2017, our internal control over financial reporting was effective based on
the criteria articulated in the 2013 Internal Control Integrated Framework issued by the COSO. The effectiveness of our internal
control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that have occurred during the quarter ended December
31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
306
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
307
1011252ai_financials.indd 306
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
26. Subsequent Events
29, 2018 to shareholders of record on March 15, 2018.
ACQUISITION OF BUSINESS
ITEM 8 | Notes to Consolidated Financial Statements | 26 . S u bs e qu e nt E ven ts
Part II
DIVIDENDS DECLARED AND SHARE REPURCHASE AUTHORIZATION
On February 8, 2018, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March
ITEM 9 | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On January 21, 2018, we entered into an agreement to purchase Validus Holdings, Ltd. (Validus), a leading provider of reinsurance,
primary insurance, and asset management services, for approximately $5.6 billion in cash. The transaction is expected to close mid-
2018 and is subject to customary closing conditions, including, among others, obtaining the relevant regulatory approvals (including
the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and receipt of the approval of the Bermuda Monetary Authority, the New Hampshire Department of Insurance, the
Prudential Regulatory Authority, Lloyds, the Texas Department of Insurance and the Swiss Financial Market Supervisory Authority)
and obtaining the approval of the shareholders of Validus.
In connection with the transaction, the board of directors of Validus
approved, and recommended that Validus shareholders approve, an amendment to Validus bye-laws that would reduce the Validus
shareholder vote required to approve a merger with another company (including the transaction) from the affirmative vote of three-
fourths of those voting at a general meeting of the shareholders to the affirmative vote of a majority of those voting at such general
meeting (the Bye-Law Amendment).
If the Bye-Law Amendment is approved by holders of a majority in voting power of the
aggregate voting power of the common stock of Validus, Validus must then obtain the affirmative vote of a majority of its shareholders
voting at a general meeting to approve and adopt the transaction.
If the Bye-Law Amendment is not so approved, then Validus must
obtain the affirmative vote of three-fourths of its shareholders voting at a general meeting to approve and adopt the transaction.
REINSURANCE TRANSACTIONS
In February 2018, we closed a series of affiliated reinsurance transactions impacting the Legacy Portfolio. These transactions were
designed to consolidate the bulk of the Legacy Insurance Run-Off Lines into a single legal entity, DSA Reinsurance Company, Ltd.
(DSA Re), a Bermuda domiciled composite reinsurer, 100 percent owned by AIG. The transactions include the cession of
approximately $32 billion of reserves from the Legacy Life and Retirement Run-off Lines and approximately $5 billion of reserves from
the Legacy General Insurance Run-off Lines relating to business written by multiple AIG legal entities. This represented over 80
percent of the insurance reserves in the Legacy Portfolio as of December 31, 2017. DSA Re will have approximately $40 billion of
invested assets, managed by AIG Investments and will become AIGs main run-off reinsurer with its own dedicated management
team.
Following the close of the DSA Re transactions, Eaglestone Reinsurance Company will continue to reinsure the AIG property casualty
pool companies for their asbestos liabilities and benefit from the retroactive reinsurance agreement entered into with NICO in 2011.
As part of the transaction, AIG Parent has provided DSA Re with a CMA that requires AIG Parent to restore capital of each of the long
term business fund and general business accounts of DSA Re to a specified minimum enhanced capital ratio measured for each fund
on a quarterly basis. We will maintain the CMA so long as we have more than 50 percent voting control of DSA Re.
None.
ITEM 9A | Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted
under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. In
connection with the preparation of this Annual Report on Form 10-K, an evaluation was carried out by AIG management, with the
participation of AIGs Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2017. Based on this
evaluation, AIGs Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2017.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of AIG is responsible for establishing and maintaining adequate internal control over financial reporting. AIGs internal
control over financial reporting is a process, under the supervision of AIGs Chief Executive Officer and Chief Financial Officer,
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of AIGs financial
statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
AIG management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2017 based on the criteria established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
AIG management has concluded that, as of December 31, 2017, our internal control over financial reporting was effective based on
the criteria articulated in the 2013 Internal Control Integrated Framework issued by the COSO. The effectiveness of our internal
control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that have occurred during the quarter ended December
31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
306
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
307
1011252ai_financials.indd 307
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Part III
ITEM 10 | Directors, Executive Officers and Corporate Governance
All information required by Items 10, 11, 12, 13 and 14 of this Form 10-K is incorporated by reference from the definitive proxy
statement for AIGs 2018 Annual Meeting of Shareholders, which will be filed with the SEC not later than 120 days after the close of
the fiscal year pursuant to Regulation 14A.
Exhibit Index
Exhibit
Number
2
Description
Location
Plan of acquisition, reorganization, arrangement,
liquidation or succession
ITEM 11 | Executive Compensation
See Item 10 herein.
ITEM 12 | Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
See Item 10 herein.
ITEM 13 | Certain Relationships and Related Transactions, and
Director Independence
See Item 10 herein.
ITEM 14 | Principal Accounting Fees and Services
3
3(i)
3(ii)
4
See Item 10 herein.
Part IV
ITEM 15 | Exhibits, Financial Statement Schedules
(a) Financial Statements and Schedules. See accompanying Index to Financial Statements.
Certificate and of Election to Exercise
(b) Exhibits. See accompanying Exhibit Index.
ITEM 16 | Form 10-K Summary
None.
9
Voting Trust Agreement
None.
308
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
309
1011252ai_financials.indd 308
3/9/18 6:12 PM
(1) Master Transaction Agreement, dated as of
Incorporated by reference to Exhibit 2.1 to AIGs
December 8, 2010, among AIG, ALICO Holdings LLC,
Current Report on Form 8-K filed with the SEC on
AIA Aurora LLC, the Federal Reserve Bank of New
December 8, 2010 (File No. 1-8787).
York, the United States Department of the Treasury and
the AIG Credit Facility Trust
(2) Stock Purchase Agreement dated as of August 15,
Incorporated by reference to Exhibit 2.1 to AIGs
2016 between American International Group, Inc. and
Current Report on Form 8-K filed with the SEC on
Arch Capital Group Ltd.
August 16, 2016 (File No. 1-8787).
(3) First Amendment to Stock Purchase Agreement,
Incorporated by reference to Exhibit 10.51 to AIGs
dated as of December 29, 2016 between American
Annual Report on Form 10-K for the year ended
International Group, Inc. and Arch Capital Group Ltd.
December 31, 2016 (File No. 1-8787).
(4) Agreement and Plan of Merger, by and among AIG,
Incorporated by reference to Exhibit 2.1 to AIGs
Venus Holdings Limited and Validus Holdings, Ltd.,
Current Report on Form 8-K filed with the SEC on
January 22, 2018 (File No. 1-8787).
Amended and Restated Certificate of Incorporation of
Incorporated by reference to Exhibit 3.1 to AIGs
dated January 21, 2018
Articles of incorporation and by-laws
AIG
AIG By-laws, amended November 16, 2015
Incorporated by reference to Exhibit 3.1 to AIGs
Instruments defining the rights of security holders,
Certain instruments defining the rights of holders of
including indentures
Current Report on Form 8-K filed with the SEC on June
28, 2017 (File No. 1-8787).
Current Report on Form 8-K filed with the SEC on
November 16, 2015 (File No. 1-8787).
long-term debt securities of AIG and its subsidiaries
are omitted pursuant to Item 601(b)(4)(iii) of
Regulation S-K. AIG hereby undertakes to furnish to
the Commission, upon request, copies of any such
instruments.
(1) Credit Agreement, dated as of September 22, 2008,
Incorporated by reference to Exhibit 99.1 to AIGs
between AIG and Federal Reserve Bank of New York
Current Report on Form 8-K filed with the SEC on
September 26, 2008 (File No. 1-8787).
(2) Warrant Agreement (including Form of Warrant),
Incorporated by reference to Exhibit 10.1 to AIGs
dated as of January 6, 2011, between AIG and Wells
Current Report on Form 8-K filed with the SEC on
Fargo Bank, N.A., as Warrant Agent
January 7, 2011 (File No. 1-8787).
(3) Tax Asset Protection Plan, dated as of March 9,
Incorporated by reference to Exhibit 4.1 to AIGs
2011, between AIG and Wells Fargo Bank, N.A., as
Current Report on Form 8-K filed with the SEC on
Rights Agent, including as Exhibit A the forms of Rights
March 9, 2011 (File No. 1-8787).
(4) Amendment No. 1, dated as of January 8, 2014, to
Incorporated by reference to Exhibit 4.1 to AIGs
Tax Asset Protection Plan, between AIG and Wells
Current Report on Form 8-K filed with the SEC on
Fargo Bank, National Association, as Rights Agent
January 8, 2014 (File No. 1-8787).
(5) Amendment No. 2, dated as of December 14, 2016,
Incorporated by reference to Exhibit 4.1 to AIGs
to Tax Asset Protection Plan, between AIG and Wells
Current Report on Form 8-K filed with the SEC on
Fargo Bank, National Association, as Rights Agent
December 14, 2016 (File No. 1-8787).
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Exhibit Index
ITEM 10 | Directors, Executive Officers and Corporate Governance
Exhibit
Number
2
All information required by Items 10, 11, 12, 13 and 14 of this Form 10-K is incorporated by reference from the definitive proxy
statement for AIGs 2018 Annual Meeting of Shareholders, which will be filed with the SEC not later than 120 days after the close of
the fiscal year pursuant to Regulation 14A.
3
3(i)
3(ii)
4
9
Description
Plan of acquisition, reorganization, arrangement,
liquidation or succession
(1) Master Transaction Agreement, dated as of
December 8, 2010, among AIG, ALICO Holdings LLC,
AIA Aurora LLC, the Federal Reserve Bank of New
York, the United States Department of the Treasury and
the AIG Credit Facility Trust
(2) Stock Purchase Agreement dated as of August 15,
2016 between American International Group, Inc. and
Arch Capital Group Ltd.
(3) First Amendment to Stock Purchase Agreement,
dated as of December 29, 2016 between American
International Group, Inc. and Arch Capital Group Ltd.
(4) Agreement and Plan of Merger, by and among AIG,
Venus Holdings Limited and Validus Holdings, Ltd.,
dated January 21, 2018
Articles of incorporation and by-laws
Amended and Restated Certificate of Incorporation of
AIG
AIG By-laws, amended November 16, 2015
Instruments defining the rights of security holders,
including indentures
(1) Credit Agreement, dated as of September 22, 2008,
between AIG and Federal Reserve Bank of New York
(2) Warrant Agreement (including Form of Warrant),
dated as of January 6, 2011, between AIG and Wells
Fargo Bank, N.A., as Warrant Agent
(3) Tax Asset Protection Plan, dated as of March 9,
2011, between AIG and Wells Fargo Bank, N.A., as
Rights Agent, including as Exhibit A the forms of Rights
Certificate and of Election to Exercise
(4) Amendment No. 1, dated as of January 8, 2014, to
Tax Asset Protection Plan, between AIG and Wells
Fargo Bank, National Association, as Rights Agent
(5) Amendment No. 2, dated as of December 14, 2016,
to Tax Asset Protection Plan, between AIG and Wells
Fargo Bank, National Association, as Rights Agent
Voting Trust Agreement
Location
Incorporated by reference to Exhibit 2.1 to AIGs
Current Report on Form 8-K filed with the SEC on
December 8, 2010 (File No. 1-8787).
Incorporated by reference to Exhibit 2.1 to AIGs
Current Report on Form 8-K filed with the SEC on
August 16, 2016 (File No. 1-8787).
Incorporated by reference to Exhibit 10.51 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2016 (File No. 1-8787).
Incorporated by reference to Exhibit 2.1 to AIGs
Current Report on Form 8-K filed with the SEC on
January 22, 2018 (File No. 1-8787).
Incorporated by reference to Exhibit 3.1 to AIGs
Current Report on Form 8-K filed with the SEC on June
28, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 3.1 to AIGs
Current Report on Form 8-K filed with the SEC on
November 16, 2015 (File No. 1-8787).
Certain instruments defining the rights of holders of
long-term debt securities of AIG and its subsidiaries
are omitted pursuant to Item 601(b)(4)(iii) of
Regulation S-K. AIG hereby undertakes to furnish to
the Commission, upon request, copies of any such
instruments.
Incorporated by reference to Exhibit 99.1 to AIGs
Current Report on Form 8-K filed with the SEC on
September 26, 2008 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
January 7, 2011 (File No. 1-8787).
Incorporated by reference to Exhibit 4.1 to AIGs
Current Report on Form 8-K filed with the SEC on
March 9, 2011 (File No. 1-8787).
Incorporated by reference to Exhibit 4.1 to AIGs
Current Report on Form 8-K filed with the SEC on
January 8, 2014 (File No. 1-8787).
Incorporated by reference to Exhibit 4.1 to AIGs
Current Report on Form 8-K filed with the SEC on
December 14, 2016 (File No. 1-8787).
None.
Part III
See Item 10 herein.
See Item 10 herein.
See Item 10 herein.
See Item 10 herein.
Part IV
ITEM 11 | Executive Compensation
ITEM 12 | Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
ITEM 13 | Certain Relationships and Related Transactions, and
Director Independence
ITEM 14 | Principal Accounting Fees and Services
ITEM 15 | Exhibits, Financial Statement Schedules
(a) Financial Statements and Schedules. See accompanying Index to Financial Statements.
(b) Exhibits. See accompanying Exhibit Index.
ITEM 16 | Form 10-K Summary
None.
308
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
309
1011252ai_financials.indd 309
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 10
Material contracts
(1) AIG Executive Deferred Compensation Plan*
(2) AIG Supplemental Incentive Savings Plan*
(3) Amended and Restated American General
Supplemental Thrift Plan (December 31, 1998)*
(4) AIG Amended and Restated Executive Severance
Plan*
(5) Assurance Agreement, by AIG in favor of eligible
employees, dated as of June 27, 2005, relating to
certain obligations of Starr International Company, Inc.*
(6) AIG Amended and Restated 2007 Stock Incentive
Plan*
(7) AIG Form of Stock Option Award Agreement*
(8) AIG Amended and Restated Form of Non-Employee
Director Deferred Stock Units Award Agreement*
(9) Memorandum of Understanding, dated
November 25, 2009, between AIG, Maurice R.
Greenberg, Howard I. Smith, C.V. Starr and Star
International Company, Inc.
(10) Master Investment and Credit Agreement, dated as
of November 25, 2008, among Maiden Lane III LLC, the
Federal Reserve Bank of New York, AIG and the Bank
of New York Mellon
(11) Asset Purchase Agreement, dated as of
December 12, 2008, among the Sellers party thereto,
AIG Securities Lending Corp., AIG, Maiden Lane II LLC
and the Federal Reserve Bank of New York
(12) AIG Credit Facility Trust Agreement, dated as of
January 16, 2009, among the Federal Reserve Bank of
New York and Jill M. Considine, Chester B. Feldberg
and Douglas L. Foshee, as Trustees
(13) Fourth Amended and Restated Credit Agreement,
dated as of June 27, 2017, among AIG, the subsidiary
borrowers party thereto, the lenders party thereto,
JPMorgan Chase Bank, N.A., as Administrative Agent,
and each Several L/C Agent party thereto
(14) American International Group, Inc. 2010 Stock
Incentive Plan*
(15) AIG Amended Form of 2010 Stock Incentive Plan
DSU Award Agreement*
(16) Release and Restrictive Covenant Agreement
between AIG and Peter Hancock*
(17) Non-Competition and Non-Solicitation Agreement
between AIG and Peter Hancock, dated February 8,
2010*
Incorporated by reference to Exhibit 4(a) to AIGs
Registration Statement on Form S-8 (File No. 333-
101640).
Incorporated by reference to Exhibit 4(b) to AIGs
Registration Statement on Form S-8 (File No. 333-
101640).
Incorporated by reference to Exhibit 10.15 to American
General Corporations Annual Report on Form 10-K for
the year ended December 31, 2000 (File No. 1-7981).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
September 26, 2008 (File No. 1-8787).
Incorporated by reference to Exhibit 10(6) to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005 (File No. 1-8787).
Incorporated by reference to Exhibit 10.62 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2008 (File No. 1-8787).
Incorporated by reference to Exhibit 10.A to AIGs
Registration Statement on Form S-8 (File No. 333-
148148).
Incorporated by reference to Exhibit 10.69 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2008 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
November 25, 2009 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
December 2, 2008 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
December 15, 2008 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIG's
Current Report on Form 8-K filed with the SEC on
January 23, 2009 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on June
27, 2017 (File No. 1-8787).
Incorporated by reference to AIGs Definitive Proxy
Statement, dated April 12, 2010 (Filed No. 1-8787).
Incorporated by reference to Exhibit 10.14 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2012 (File No. 1-8787).
Incorporated by reference to Exhibit 99.3 to AIGs
Current Report on Form 8-K filed with the SEC on
February 8, 2010 (File No. 1-8787).
Incorporated by reference to Exhibit 99.4 to AIGs
Current Report on Form 8-K filed with the SEC on
February 8, 2010 (File No. 1-8787).
(18) Letter Agreement, dated August 14, 2013, between
Incorporated by reference to Exhibit 10.2 to AIGs
AIG and Kevin Hogan*
Quarterly Report on Form 10-Q for the quarter ended
(19) Non-Solicitation and Non-Disclosure Agreement,
Incorporated by reference to Exhibit 10.3 to AIGs
dated August 14, 2013, between AIG and Kevin Hogan*
Quarterly Report on Form 10-Q for the quarter ended
(20) Introductory Bonus Agreement, dated August 14,
Incorporated by reference to Exhibit 10.4 to AIGs
2013, between AIG and Kevin Hogan*
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 (File No. 1-8787).
March 31, 2015 (File No. 1-8787).
March 31, 2015 (File No. 1-8787).
(21) Executive Officer Form of Release and Restrictive
Incorporated by reference to Exhibit 10.5 to AIGs
Covenant Agreement*
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016 (File No. 1-8787).
(22) AIG Non-Qualified Retirement Income Plan (as
Incorporated by reference to Exhibit 10.1 to AIGs
(23) AIG Supplemental Executive Retirement Plan (as
Incorporated by reference to Exhibit 10.2 to AIGs
amended)*
amended)*
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015 (File No. 1-8787).
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015 (File No. 1-8787).
General Corporations Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (File No. 1-
7981).
(24) American General Corporation Supplemental
Incorporated by reference to Exhibit 10.1 to American
Executive Retirement Plan*
(25) Amendment Number One to the American General
Incorporated by reference to Exhibit 10.73 to AIGs
Corporation Supplemental Executive Retirement Plan*
Annual Report on Form 10-K for the year ended
December 31, 2012 (File No. 1-8787).
(26) Amendment Number Two to the American General
Incorporated by reference to Exhibit 10.74 to AIGs
Corporation Supplemental Executive Retirement Plan*
Annual Report on Form 10-K for the year ended
December 31, 2012 (File No. 1-8787).
(27) Master Transaction Agreement, dated as of April
Incorporated by reference to Exhibit 10.6 to AIGs
19, 2011, by and among American Home Assurance
Quarterly Report on Form 10-Q for the quarter ended
Company, Chartis Casualty Company (f/k/a American
March 31, 2011 (File No. 1-8787).
International South Insurance Company), Chartis
Property Casualty Company (f/k/a AIG Casualty
Company), Commerce and Industry Insurance
Company, Granite State Insurance Company, Illinois
National Insurance Co., National Union Fire Insurance
Company of Pittsburgh, Pa., New Hampshire Insurance
Company, The Insurance Company of the State of
Pennsylvania, Chartis Select Insurance Company (f/k/a
AIG Excess Liability Insurance Company Ltd.), Chartis
Specialty Insurance Company (f/k/a American
International Specialty Lines Insurance Company),
Landmark Insurance Company, Lexington Insurance
Company, AIU Insurance Company, American
International Reinsurance Company, Ltd. and American
Home Assurance Company, National Union Fire
Insurance Company of Pittsburgh, Pa., New Hampshire
Insurance Company and Chartis Overseas Limited
acting as members of the Chartis Overseas Association
as respects business written or assumed by or from
affiliated companies of Chartis Inc. (collectively, the
Reinsureds), Eaglestone Reinsurance Company and
National Indemnity Company
310
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
311
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 10
Material contracts
Annual Report on Form 10-K for the year ended
December 31, 2008 (File No. 1-8787).
Registration Statement on Form S-8 (File No. 333-
148148).
December 31, 2008 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
November 25, 2009 (File No. 1-8787).
(1) AIG Executive Deferred Compensation Plan*
Incorporated by reference to Exhibit 4(a) to AIGs
Registration Statement on Form S-8 (File No. 333-
(2) AIG Supplemental Incentive Savings Plan*
Incorporated by reference to Exhibit 4(b) to AIGs
Registration Statement on Form S-8 (File No. 333-
101640).
101640).
(3) Amended and Restated American General
Supplemental Thrift Plan (December 31, 1998)*
Incorporated by reference to Exhibit 10.15 to American
General Corporations Annual Report on Form 10-K for
the year ended December 31, 2000 (File No. 1-7981).
(4) AIG Amended and Restated Executive Severance
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
September 26, 2008 (File No. 1-8787).
(5) Assurance Agreement, by AIG in favor of eligible
Incorporated by reference to Exhibit 10(6) to AIGs
employees, dated as of June 27, 2005, relating to
Quarterly Report on Form 10-Q for the quarter ended
certain obligations of Starr International Company, Inc.*
March 31, 2005 (File No. 1-8787).
(6) AIG Amended and Restated 2007 Stock Incentive
Incorporated by reference to Exhibit 10.62 to AIGs
Plan*
Plan*
(7) AIG Form of Stock Option Award Agreement*
Incorporated by reference to Exhibit 10.A to AIGs
(8) AIG Amended and Restated Form of Non-Employee
Incorporated by reference to Exhibit 10.69 to AIGs
Director Deferred Stock Units Award Agreement*
Annual Report on Form 10-K for the year ended
(9) Memorandum of Understanding, dated
November 25, 2009, between AIG, Maurice R.
Greenberg, Howard I. Smith, C.V. Starr and Star
International Company, Inc.
(10) Master Investment and Credit Agreement, dated as
Incorporated by reference to Exhibit 10.1 to AIGs
of November 25, 2008, among Maiden Lane III LLC, the
Current Report on Form 8-K filed with the SEC on
Federal Reserve Bank of New York, AIG and the Bank
December 2, 2008 (File No. 1-8787).
of New York Mellon
(11) Asset Purchase Agreement, dated as of
Incorporated by reference to Exhibit 10.1 to AIGs
December 12, 2008, among the Sellers party thereto,
Current Report on Form 8-K filed with the SEC on
AIG Securities Lending Corp., AIG, Maiden Lane II LLC
December 15, 2008 (File No. 1-8787).
and the Federal Reserve Bank of New York
(12) AIG Credit Facility Trust Agreement, dated as of
Incorporated by reference to Exhibit 10.1 to AIG's
January 16, 2009, among the Federal Reserve Bank of
Current Report on Form 8-K filed with the SEC on
New York and Jill M. Considine, Chester B. Feldberg
January 23, 2009 (File No. 1-8787).
and Douglas L. Foshee, as Trustees
(13) Fourth Amended and Restated Credit Agreement,
Incorporated by reference to Exhibit 10.1 to AIGs
dated as of June 27, 2017, among AIG, the subsidiary
Current Report on Form 8-K filed with the SEC on June
borrowers party thereto, the lenders party thereto,
27, 2017 (File No. 1-8787).
JPMorgan Chase Bank, N.A., as Administrative Agent,
and each Several L/C Agent party thereto
(14) American International Group, Inc. 2010 Stock
Incorporated by reference to AIGs Definitive Proxy
Incentive Plan*
Statement, dated April 12, 2010 (Filed No. 1-8787).
(15) AIG Amended Form of 2010 Stock Incentive Plan
Incorporated by reference to Exhibit 10.14 to AIGs
DSU Award Agreement*
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2012 (File No. 1-8787).
(16) Release and Restrictive Covenant Agreement
Incorporated by reference to Exhibit 99.3 to AIGs
between AIG and Peter Hancock*
Current Report on Form 8-K filed with the SEC on
February 8, 2010 (File No. 1-8787).
(17) Non-Competition and Non-Solicitation Agreement
Incorporated by reference to Exhibit 99.4 to AIGs
between AIG and Peter Hancock, dated February 8,
Current Report on Form 8-K filed with the SEC on
2010*
February 8, 2010 (File No. 1-8787).
Incorporated by reference to Exhibit 10.2 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.3 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.4 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.5 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.2 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to American
General Corporations Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (File No. 1-
7981).
Incorporated by reference to Exhibit 10.73 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2012 (File No. 1-8787).
Incorporated by reference to Exhibit 10.74 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2012 (File No. 1-8787).
Incorporated by reference to Exhibit 10.6 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2011 (File No. 1-8787).
(18) Letter Agreement, dated August 14, 2013, between
AIG and Kevin Hogan*
(19) Non-Solicitation and Non-Disclosure Agreement,
dated August 14, 2013, between AIG and Kevin Hogan*
(20) Introductory Bonus Agreement, dated August 14,
2013, between AIG and Kevin Hogan*
(21) Executive Officer Form of Release and Restrictive
Covenant Agreement*
(22) AIG Non-Qualified Retirement Income Plan (as
amended)*
(23) AIG Supplemental Executive Retirement Plan (as
amended)*
(24) American General Corporation Supplemental
Executive Retirement Plan*
(25) Amendment Number One to the American General
Corporation Supplemental Executive Retirement Plan*
(26) Amendment Number Two to the American General
Corporation Supplemental Executive Retirement Plan*
(27) Master Transaction Agreement, dated as of April
19, 2011, by and among American Home Assurance
Company, Chartis Casualty Company (f/k/a American
International South Insurance Company), Chartis
Property Casualty Company (f/k/a AIG Casualty
Company), Commerce and Industry Insurance
Company, Granite State Insurance Company, Illinois
National Insurance Co., National Union Fire Insurance
Company of Pittsburgh, Pa., New Hampshire Insurance
Company, The Insurance Company of the State of
Pennsylvania, Chartis Select Insurance Company (f/k/a
AIG Excess Liability Insurance Company Ltd.), Chartis
Specialty Insurance Company (f/k/a American
International Specialty Lines Insurance Company),
Landmark Insurance Company, Lexington Insurance
Company, AIU Insurance Company, American
International Reinsurance Company, Ltd. and American
Home Assurance Company, National Union Fire
Insurance Company of Pittsburgh, Pa., New Hampshire
Insurance Company and Chartis Overseas Limited
acting as members of the Chartis Overseas Association
as respects business written or assumed by or from
affiliated companies of Chartis Inc. (collectively, the
Reinsureds), Eaglestone Reinsurance Company and
National Indemnity Company
310
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
311
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 (28) AIG 2013 Long-Term Incentive Plan (as amended)*
(29) Form of 2013 Long-Term Incentive Plan
Performance Share Units Award Agreement*
(30) Form of 2015 Performance Share Units Award
Agreement*
(31) AIG Clawback Policy*
(32) AIG 2013 Short-Term Incentive Plan*
(33) Form of 2013 Short-Term Incentive Plan Award
Letter*
(34) AIG Annual Short-Term Incentive Plan (as
amended)*
(35) AIG 2013 Omnibus Incentive Plan*
(36) Description of Non-Management Director
Compensation*
(37) AIG 2012 Executive Severance Plan (as amended)*
(38) Revolving Credit Agreement, dated as of December
16, 2013 by and among AIG, AerCap Ireland Capital
Limited, AerCap Holdings N.V., AerCap Ireland Limited
and certain subsidiaries of AerCap Holdings N.V., as
guarantors
(39) Nomination Agreement, dated February 11, 2016,
by and among High River Limited Partnership, Icahn
Partners Master Fund LP, Icahn Partners LP, Carl C.
Icahn and American International Group, Inc.
(40) Investor Rights Agreement, dated as of December
31, 2016, between American International Group, Inc.
and Arch Capital Group Ltd. Group Ltd.
(41) Amendment No. 1 to the Investor Rights
Agreement, dated as of June 8, 2017, among Arch
Capital Group Ltd., American International Group, Inc.
American Home Assurance Company, Lexington
Insurance Company and National Union Fire Insurance
Company of Pittsburgh, Pa.
(42) Form of AIG 2013 Omnibus Incentive Plan Non-
Employee Director DSU Award Agreement*
Incorporated by reference to Exhibit 10.35 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
Incorporated by reference to Exhibit 10.5 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.3 to AIGs
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
Incorporated by reference to Exhibit 10.5 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2014 (File No. 1-8787).
Incorporated by reference to Exhibit 10.5 of AIGs
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
Incorporated by reference to Exhibit 10.43 on AIGs
Annual Report on Form 10-K for the year ended
December 31, 2016 (File No. 1-8787).
Incorporated by reference to Appendix B in AIGs
Definitive Proxy Statement on Schedule 14A, dated
April 4, 2013 (File No. 1-8787).
Incorporated by reference to Compensation of
Directors in AIGs Definitive Proxy Statement on
Schedule 14A, dated May 19, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 of AIGs
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2016 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
December 16, 2013 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIG's
Current Report on Form 8-K filed with the SEC on
February 11, 2016 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
June 12, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
June 12, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.52 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2016 (File No. 1-8787).
(43) Aggregate Excess of Loss Reinsurance Agreement,
Incorporated by reference to Exhibit 10.1 to AIG's
dated January 20, 2017, by and between AIG Assurance
Current Report on Form 8-K filed with the SEC on
Company, AIG Property Casualty Company, AIG
February 14, 2017 (File No. 1-8787).
Specialty Insurance Company, AIU Insurance Company,
American Home Assurance Company, Commerce and
Industry Insurance Company, Granite State Insurance
Company, Illinois National Insurance Co., Lexington
Insurance Company, National Union Fire Insurance
Company of Pittsburgh, Pa., New Hampshire Insurance
Company and The Insurance Company Of The State Of
Pennsylvania and National Indemnity Company
(portions of this exhibit have been redacted pursuant to
a request for confidential treatment).
(44) Trust Agreement, dated January 20, 2017, by and
Incorporated by reference to Exhibit 10.2 to AIG's
among National Union Fire Insurance Company of
Current Report on Form 8-K filed with the SEC on
Pittsburgh, Pa., National Indemnity Company, and Wells
February 14, 2017 (File No. 1-8787).
Fargo Bank, National Association (portions of this exhibit
have been redacted pursuant to a request for
confidential treatment).
(45) Parental Guarantee Agreement, dated January 20,
Incorporated by reference to Exhibit 10.3 to AIG's
2017, by Berkshire Hathaway Inc. in favor of National
Current Report on Form 8-K filed with the SEC on
Union Fire Insurance Company of Pittsburgh, Pa.
February 14, 2017 (File No. 1-8787).
(46) American International Group, Inc. Long Term
Incorporated by reference to Exhibit 10.1 to AIGs
Incentive Plan*
Current Report on Form 8-K filed with the SEC on
March 17, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
March 17, 2017 (File No. 1-8787).
(47) Form of AIG Long Term Incentive Award
Agreement*
(48) Letter Agreement between American International
Incorporated by reference to Exhibit 10.3 to AIGs
Group, Inc. and Peter D. Hancock, dated March 17,
Current Report on Form 8-K filed with the SEC on
2017*
March 17, 2017 (File No. 1-8787).
(49) Letter Agreement, dated November 3, 2010,
Incorporated by reference to Exhibit 10.7 to AIGs
between AIG and Siddhartha Sankaran*
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 (File No. 1-8787).
(50) Non-Competition, Non-Solicitation and Non-
Incorporated by reference to Exhibit 10.8 to AIGs
Disclosure Agreement, dated November 5, 2010,
Quarterly Report on Form 10-Q for the quarter ended
between AIG and Siddhartha Sankaran*
March 31, 2017 (File No. 1-8787).
(51) Letter Agreement, dated July 22, 2015, between
Incorporated by reference to Exhibit 10.9 to AIGs
AIG and Douglas A. Dachille*
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 (File No. 1-8787).
(52) Non-Solicitation and Non-Disclosure Agreement,
Incorporated by reference to Exhibit 10.10 to AIGs
dated July 22, 2015, between AIG and Douglas A.
Quarterly Report on Form 10-Q for the quarter ended
Dachille*
March 31, 2017 (File No. 1-8787).
(53) Letter Agreement, dated May 14, 2017, between
Incorporated by reference to Exhibit 10.1 to AIGs
American International Group, Inc. and Brian
Current Report on Form 8-K filed with the SEC on
Duperreault*
May 15, 2017 (File No. 1-8787).
(54) Form of Stock Option Award Agreement, between
Incorporated by reference to Exhibit 10.2 to AIGs
American International Group, Inc. and Brian
Current Report on Form 8-K filed with the SEC on
Duperreault*
May 15, 2017 (File No. 1-8787).
(55) Letter Agreement, dated July 3, 2017, between
Incorporated by reference to Exhibit 10.1 to AIGs
American International Group, Inc. and Peter Zaffino*
Current Report on Form 8-K filed with the SEC on
July 6, 2017 (File No. 1-8787).
312
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
313
1011252ai_financials.indd 312
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Agreement*
(31) AIG Clawback Policy*
Letter*
amended)*
(28) AIG 2013 Long-Term Incentive Plan (as amended)*
Incorporated by reference to Exhibit 10.35 to AIGs
(29) Form of 2013 Long-Term Incentive Plan
Incorporated by reference to Exhibit 10.2 to AIGs
Performance Share Units Award Agreement*
Current Report on Form 8-K filed with the SEC on
(30) Form of 2015 Performance Share Units Award
Incorporated by reference to Exhibit 10.5 to AIGs
Annual Report on Form 10-K for the year ended
December 31, 2015 (File No. 1-8787).
March 27, 2013 (File No. 1-8787).
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 (File No. 1-8787).
Incorporated by reference to Exhibit 10.3 to AIGs
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2014 (File No. 1-8787).
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
Annual Report on Form 10-K for the year ended
December 31, 2016 (File No. 1-8787).
Definitive Proxy Statement on Schedule 14A, dated
April 4, 2013 (File No. 1-8787).
Directors in AIGs Definitive Proxy Statement on
Schedule 14A, dated May 19, 2017 (File No. 1-8787).
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2016 (File No. 1-8787).
(32) AIG 2013 Short-Term Incentive Plan*
Incorporated by reference to Exhibit 10.5 to AIGs
(33) Form of 2013 Short-Term Incentive Plan Award
Incorporated by reference to Exhibit 10.5 of AIGs
(34) AIG Annual Short-Term Incentive Plan (as
Incorporated by reference to Exhibit 10.43 on AIGs
(35) AIG 2013 Omnibus Incentive Plan*
Incorporated by reference to Appendix B in AIGs
(36) Description of Non-Management Director
Incorporated by reference to Compensation of
Compensation*
(37) AIG 2012 Executive Severance Plan (as amended)*
Incorporated by reference to Exhibit 10.1 of AIGs
(38) Revolving Credit Agreement, dated as of December
Incorporated by reference to Exhibit 10.1 to AIGs
16, 2013 by and among AIG, AerCap Ireland Capital
Current Report on Form 8-K filed with the SEC on
Limited, AerCap Holdings N.V., AerCap Ireland Limited
December 16, 2013 (File No. 1-8787).
and certain subsidiaries of AerCap Holdings N.V., as
guarantors
(39) Nomination Agreement, dated February 11, 2016,
Incorporated by reference to Exhibit 10.1 to AIG's
by and among High River Limited Partnership, Icahn
Current Report on Form 8-K filed with the SEC on
Partners Master Fund LP, Icahn Partners LP, Carl C.
February 11, 2016 (File No. 1-8787).
Icahn and American International Group, Inc.
(40) Investor Rights Agreement, dated as of December
Incorporated by reference to Exhibit 10.1 to AIGs
31, 2016, between American International Group, Inc.
Current Report on Form 8-K filed with the SEC on
and Arch Capital Group Ltd. Group Ltd.
June 12, 2017 (File No. 1-8787).
(41) Amendment No. 1 to the Investor Rights
Agreement, dated as of June 8, 2017, among Arch
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
Capital Group Ltd., American International Group, Inc.
June 12, 2017 (File No. 1-8787).
American Home Assurance Company, Lexington
Insurance Company and National Union Fire Insurance
Company of Pittsburgh, Pa.
(42) Form of AIG 2013 Omnibus Incentive Plan Non-
Incorporated by reference to Exhibit 10.52 to AIGs
Employee Director DSU Award Agreement*
Annual Report on Form 10-K for the year ended
December 31, 2016 (File No. 1-8787).
(43) Aggregate Excess of Loss Reinsurance Agreement,
dated January 20, 2017, by and between AIG Assurance
Company, AIG Property Casualty Company, AIG
Specialty Insurance Company, AIU Insurance Company,
American Home Assurance Company, Commerce and
Industry Insurance Company, Granite State Insurance
Company, Illinois National Insurance Co., Lexington
Insurance Company, National Union Fire Insurance
Company of Pittsburgh, Pa., New Hampshire Insurance
Company and The Insurance Company Of The State Of
Pennsylvania and National Indemnity Company
(portions of this exhibit have been redacted pursuant to
a request for confidential treatment).
(44) Trust Agreement, dated January 20, 2017, by and
among National Union Fire Insurance Company of
Pittsburgh, Pa., National Indemnity Company, and Wells
Fargo Bank, National Association (portions of this exhibit
have been redacted pursuant to a request for
confidential treatment).
(45) Parental Guarantee Agreement, dated January 20,
2017, by Berkshire Hathaway Inc. in favor of National
Union Fire Insurance Company of Pittsburgh, Pa.
(46) American International Group, Inc. Long Term
Incentive Plan*
(47) Form of AIG Long Term Incentive Award
Agreement*
Incorporated by reference to Exhibit 10.1 to AIG's
Current Report on Form 8-K filed with the SEC on
February 14, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.2 to AIG's
Current Report on Form 8-K filed with the SEC on
February 14, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.3 to AIG's
Current Report on Form 8-K filed with the SEC on
February 14, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
March 17, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
March 17, 2017 (File No. 1-8787).
(48) Letter Agreement between American International
Group, Inc. and Peter D. Hancock, dated March 17,
2017*
Incorporated by reference to Exhibit 10.3 to AIGs
Current Report on Form 8-K filed with the SEC on
March 17, 2017 (File No. 1-8787).
(49) Letter Agreement, dated November 3, 2010,
between AIG and Siddhartha Sankaran*
Incorporated by reference to Exhibit 10.7 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 (File No. 1-8787).
(50) Non-Competition, Non-Solicitation and Non-
Disclosure Agreement, dated November 5, 2010,
between AIG and Siddhartha Sankaran*
Incorporated by reference to Exhibit 10.8 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 (File No. 1-8787).
(51) Letter Agreement, dated July 22, 2015, between
AIG and Douglas A. Dachille*
Incorporated by reference to Exhibit 10.9 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 (File No. 1-8787).
(52) Non-Solicitation and Non-Disclosure Agreement,
dated July 22, 2015, between AIG and Douglas A.
Dachille*
Incorporated by reference to Exhibit 10.10 to AIGs
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 (File No. 1-8787).
(53) Letter Agreement, dated May 14, 2017, between
American International Group, Inc. and Brian
Duperreault*
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
May 15, 2017 (File No. 1-8787).
(54) Form of Stock Option Award Agreement, between
American International Group, Inc. and Brian
Duperreault*
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
May 15, 2017 (File No. 1-8787).
(55) Letter Agreement, dated July 3, 2017, between
American International Group, Inc. and Peter Zaffino*
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
July 6, 2017 (File No. 1-8787).
312
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
313
1011252ai_financials.indd 313
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 (56) Non-Solicitation and Non-Disclosure Agreement,
dated July 5, 2017, between American International
Group, Inc. and Peter Zaffino*
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
July 6, 2017 (File No. 1-8787).
(57) Form of Stock Option Award Agreement, between
American International Group, Inc. and Peter Zaffino*
(58) Letter Agreement, dated June 28, 2017, between
American International Group, Inc. and Seraina Macia*
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
July 6, 2017 (File No. 1-8787).
Incorporated by reference to Exhibit 10.1 to AIGs
Current Report on Form 8-K filed with the SEC on
July 18, 2017 (File No. 1-8787).
(59) Non-Solicitation and Non-Disclosure Agreement,
dated July 12, 2017, between American International
Group, Inc. and Seraina Macia*
Incorporated by reference to Exhibit 10.2 to AIGs
Current Report on Form 8-K filed with the SEC on
July 18, 2017 (File No. 1-8787).
(60) Form of Long Term Incentive Stock Option Award
Agreement*
Filed herewith.
Included in Note 18 to Consolidated Financial
Statements.
Filed herewith.
Filed herewith.
Filed herewith.
Included on signature page and filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
11
12
21
23
24
31
32
99.02
101
Statement re: Computation of Per Share Earnings
Computation of Ratios of Earnings to Fixed Charges
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting
Firm
Powers of attorney
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications**
Securities Registered pursuant to Section 12(b) of the
Act
Interactive data files pursuant to Rule 405 of
Regulation S-T: (i) the Consolidated Balance Sheets as
of December 31, 2017 and December 31, 2016, (ii) the
Consolidated Statements of Income for the three years
ended December 31, 2017, (iii) the Consolidated
Statements of Equity for the three years ended
December 31, 2017, (iv) the Consolidated Statements of
Cash Flows for the three years ended December 31,
2017, (v) the Consolidated Statements of
Comprehensive Income (Loss) for the three years ended
December 31, 2017 and (vi) the Notes to the
Consolidated Financial Statements.
*
This exhibit is a management contract or a compensatory plan or arrangement.
** This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 16th of
February, 2018.
AMERICAN INTERNATIONAL GROUP, INC.
By
/S/ BRIAN DUPERREAULT
(Brian Duperreault, President and Chief Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian
Duperreault and Siddhartha Sankaran, and each of them severally, his or her true and lawful attorney-in-fact, with full power of
substitution and resubstitution, to sign in his or her name, place and stead, in any and all capacities, to do any and all things and
execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this
Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities indicated on the 16th of February, 2018.
SIGNATURE
TITLE
President, Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President Deputy Chief Financial Officer and
Group Controller
(Principal Accounting Officer)
/S/ BRIAN DUPERREAULT
(Brian Duperreault)
/S/ SIDDHARTHA SANKARAN
(Siddhartha Sankaran)
/S/ ELIAS F. HABAYEB
(Elias F. Habayeb)
/S/ W. DON CORNWELL
(W. Don Cornwell)
/S/ PETER R. FISHER
(Peter R. Fisher)
/S/ JOHN H. FITZPATRICK
(John H. Fitzpatrick)
/S/ WILLIAM G. JURGENSEN
(William G. Jurgensen)
/S/ CHRISTOPHER S. LYNCH
(Christopher S. Lynch)
Director
Director
Director
Director
Director
314
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
315
1011252ai_financials.indd 314
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 (56) Non-Solicitation and Non-Disclosure Agreement,
Incorporated by reference to Exhibit 10.1 to AIGs
dated July 5, 2017, between American International
Current Report on Form 8-K filed with the SEC on
Group, Inc. and Peter Zaffino*
July 6, 2017 (File No. 1-8787).
(57) Form of Stock Option Award Agreement, between
Incorporated by reference to Exhibit 10.2 to AIGs
American International Group, Inc. and Peter Zaffino*
Current Report on Form 8-K filed with the SEC on
July 6, 2017 (File No. 1-8787).
(58) Letter Agreement, dated June 28, 2017, between
Incorporated by reference to Exhibit 10.1 to AIGs
American International Group, Inc. and Seraina Macia*
Current Report on Form 8-K filed with the SEC on
July 18, 2017 (File No. 1-8787).
(59) Non-Solicitation and Non-Disclosure Agreement,
Incorporated by reference to Exhibit 10.2 to AIGs
dated July 12, 2017, between American International
Current Report on Form 8-K filed with the SEC on
Group, Inc. and Seraina Macia*
July 18, 2017 (File No. 1-8787).
Statement re: Computation of Per Share Earnings
Included in Note 18 to Consolidated Financial
11
12
21
23
24
31
32
99.02
101
(60) Form of Long Term Incentive Stock Option Award
Filed herewith.
Agreement*
Computation of Ratios of Earnings to Fixed Charges
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting
Filed herewith.
Statements.
Filed herewith.
Filed herewith.
Firm
Powers of attorney
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications**
Filed herewith.
Filed herewith.
Securities Registered pursuant to Section 12(b) of the
Filed herewith.
Act
Interactive data files pursuant to Rule 405 of
Filed herewith.
Regulation S-T: (i) the Consolidated Balance Sheets as
of December 31, 2017 and December 31, 2016, (ii) the
Consolidated Statements of Income for the three years
ended December 31, 2017, (iii) the Consolidated
Statements of Equity for the three years ended
December 31, 2017, (iv) the Consolidated Statements of
Cash Flows for the three years ended December 31,
2017, (v) the Consolidated Statements of
Comprehensive Income (Loss) for the three years ended
December 31, 2017 and (vi) the Notes to the
Consolidated Financial Statements.
*
This exhibit is a management contract or a compensatory plan or arrangement.
** This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 16th of
February, 2018.
AMERICAN INTERNATIONAL GROUP, INC.
By
/S/ BRIAN DUPERREAULT
(Brian Duperreault, President and Chief Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian
Duperreault and Siddhartha Sankaran, and each of them severally, his or her true and lawful attorney-in-fact, with full power of
substitution and resubstitution, to sign in his or her name, place and stead, in any and all capacities, to do any and all things and
execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this
Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Included on signature page and filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities indicated on the 16th of February, 2018.
SIGNATURE
TITLE
/S/ BRIAN DUPERREAULT
(Brian Duperreault)
/S/ SIDDHARTHA SANKARAN
(Siddhartha Sankaran)
/S/ ELIAS F. HABAYEB
(Elias F. Habayeb)
/S/ W. DON CORNWELL
(W. Don Cornwell)
/S/ PETER R. FISHER
(Peter R. Fisher)
/S/ JOHN H. FITZPATRICK
(John H. Fitzpatrick)
/S/ WILLIAM G. JURGENSEN
(William G. Jurgensen)
/S/ CHRISTOPHER S. LYNCH
(Christopher S. Lynch)
President, Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President Deputy Chief Financial Officer and
Group Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
314
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
315
1011252ai_financials.indd 315
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 /S/ SAMUEL J. MERKSAMER
(Samuel J. Merksamer)
/S/ HENRY S. MILLER
(Henry S. Miller)
/S/ LINDA A. MILLS
(Linda A. Mills)
/S/ SUZANNE NORA JOHNSON
(Suzanne Nora Johnson)
/S/ RONALD A. RITTENMEYER
(Ronald A. Rittenmeyer)
/S/ DOUGLAS M. STEENLAND
(Douglas M. Steenland)
/S/ THERESA M. STONE
(Theresa M. Stone)
Director
Director
Director
Director
Director
Director
Director
Summary of Investments Other than Investments in Related Parties
U.S. government and government sponsored entities
$
5,334 $
5,458 $
Obligations of states, municipalities and political subdivisions
At December 31, 2017
(in millions)
Fixed maturities:
Non-U.S. governments
Public utilities
All other corporate debt securities
Mortgage-backed, asset-backed and collateralized
Total fixed maturity securities
Equity securities and mutual funds:
Common stock:
Public utilities
Banks, trust and insurance companies
Industrial, miscellaneous and all other
Total common stock
Preferred stock
Mutual funds
Total equity securities and mutual funds
Mortgage and other loans receivable, net of allowance
Other invested assets
Short-term investments, at cost (approximates fair value)
Derivative assets(b)
Total investments
Schedule I
Amount at
which shown in
Cost(a)
Fair Value
the Balance Sheet
17,377
15,116
17,654
110,565
72,187
238,233
1
924
326
1,251
504
139
1,894
37,023
20,682
10,386
922
18,644
15,716
18,870
117,215
75,861
251,764
1
1,126
483
1,610
533
154
2,297
37,766
20,824
10,386
922
$
309,140
$
323,959 $
5,458
18,644
15,716
18,870
117,215
75,861
251,764
1
1,126
483
1,610
533
154
2,297
37,023
20,822
10,386
922
323,214
(a) Original cost of equity securities and fixed maturities is reduced by other-than-temporary impairment charges, and, as to fixed maturity securities, reduced by
repayments and adjusted for amortization of premiums or accretion of discounts.
(b) The balance is reported in Other assets.
316
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
317
1011252ai_financials.indd 316
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Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
/S/ SAMUEL J. MERKSAMER
(Samuel J. Merksamer)
/S/ HENRY S. MILLER
(Henry S. Miller)
/S/ LINDA A. MILLS
(Linda A. Mills)
/S/ SUZANNE NORA JOHNSON
(Suzanne Nora Johnson)
/S/ RONALD A. RITTENMEYER
(Ronald A. Rittenmeyer)
/S/ DOUGLAS M. STEENLAND
(Douglas M. Steenland)
/S/ THERESA M. STONE
(Theresa M. Stone)
Director
Director
Director
Director
Director
Director
Director
Summary of Investments Other than Investments in Related Parties
At December 31, 2017
(in millions)
Fixed maturities:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Public utilities
All other corporate debt securities
Mortgage-backed, asset-backed and collateralized
Total fixed maturity securities
Equity securities and mutual funds:
Common stock:
Public utilities
Banks, trust and insurance companies
Industrial, miscellaneous and all other
Total common stock
Preferred stock
Mutual funds
Total equity securities and mutual funds
Mortgage and other loans receivable, net of allowance
Other invested assets
Short-term investments, at cost (approximates fair value)
Derivative assets(b)
Total investments
Cost(a)
Fair Value
$
5,334 $
5,458 $
17,377
15,116
17,654
110,565
72,187
238,233
1
924
326
1,251
504
139
1,894
37,023
20,682
10,386
922
309,140
$
18,644
15,716
18,870
117,215
75,861
251,764
1
1,126
483
1,610
533
154
2,297
37,766
20,824
10,386
922
323,959 $
$
Schedule I
Amount at
which shown in
the Balance Sheet
5,458
18,644
15,716
18,870
117,215
75,861
251,764
1
1,126
483
1,610
533
154
2,297
37,023
20,822
10,386
922
323,214
(a) Original cost of equity securities and fixed maturities is reduced by other-than-temporary impairment charges, and, as to fixed maturity securities, reduced by
repayments and adjusted for amortization of premiums or accretion of discounts.
(b) The balance is reported in Other assets.
316
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
317
1011252ai_financials.indd 317
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Condensed Financial Information of Registrant
Balance Sheets Parent Company Only
Condensed Financial Information of Registrant (Continued)
Statements of Income Parent Company Only
December 31,
(in millions)
Assets:
Short-term investments
Other investments
Total investments
Cash
Loans to subsidiaries*
Due from affiliates - net*
Intercompany tax receivable*
Deferred income taxes
Investments in consolidated subsidiaries*
Other assets
Total assets
Liabilities:
Due to affiliate*
Intercompany tax payable*
Deferred tax liabilities
Notes and bonds payable
Junior subordinated debt
MIP notes payable
Series AIGFP matched notes and bonds payable
Loans from subsidiaries*
Other liabilities (includes intercompany derivative liabilities of $63 in 2017 and $419 in 2016)
Total liabilities
AIG Shareholders equity:
Common stock
Treasury stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total AIG shareholders equity
Total liabilities and equity
*
Eliminated in consolidation.
See accompanying Notes to Condensed Financial Information of Registrant.
Schedule II
2017
2016
$
2,541
6,004
8,545
3
35,004
1,585
3,058
11,030
40,135
343
99,703
4,340
4,577
-
20,339
841
356
21
517
3,541
34,532
4,766
(47,595)
81,078
21,457
5,465
65,171
99,703
$
$
$
4,424
7,154
11,578
2
34,692
3,460
5,129
15,169
42,582
341
112,953
6,083
4,152
-
19,432
843
1,099
31
577
4,436
36,653
4,766
(41,471)
81,064
28,711
3,230
76,300
112,953
$
$
$
$
Years Ended December 31,
(in millions)
Revenues:
Equity in undistributed net income (loss) of consolidated subsidiaries(a)
Dividend income from consolidated subsidiaries(a)
Interest income(b)
Net realized capital gains (losses)
Other income
Expenses:
Interest expense
Net loss on extinguishment of debt
Net (gain) loss on sale of divested businesses(c)
Other expenses
Income (loss) from continuing operations before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Loss from discontinued operations
Net income (loss) attributable to AIG Parent Company
(a) Eliminated in consolidation.
Schedule II
2017
2016
2015
$
(2,375) $
(8,633) $
(2,929)
2,226
656
46
189
949
2
30
922
(1,161)
4,922
(6,083)
(1)
7,364
411
2
103
988
77
(690)
985
(2,113)
(1,301)
(812)
(37)
6,883
342
(587)
333
1,049
703
11
1,167
1,112
(1,086)
2,198
(2)
$
(6,084) $
(849) $
2,196
(b)
Includes interest income on intercompany borrowings of $512 million, $294 million and $163 million on December 31, 2017, 2016 and 2015, respectively,
eliminated in consolidation.
(c) Primarily includes pre-tax gain of $697 million on the sale of United Guaranty on December 31, 2016.
See accompanying Notes to Condensed Financial Information of Registrant.
Condensed Financial Information of Registrant (Continued)
Statements of Comprehensive Income Parent Company Only
Years Ended December 31,
(in millions)
Net income
Other comprehensive income
Total comprehensive loss attributable to AIG
See accompanying Notes to Condensed Financial Information of Registrant.
Schedule II
2017
2016
2015
(6,084) $
(849) $
2,196
2,235
693
(3,849) $
(156) $
(8,080)
(5,884)
$
$
318
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
319
1011252ai_financials.indd 318
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Condensed Financial Information of Registrant
Balance Sheets Parent Company Only
Condensed Financial Information of Registrant (Continued)
Statements of Income Parent Company Only
December 31,
(in millions)
Assets:
Short-term investments
Other investments
Total investments
Cash
Loans to subsidiaries*
Due from affiliates - net*
Intercompany tax receivable*
Deferred income taxes
Other assets
Total assets
Liabilities:
Due to affiliate*
Intercompany tax payable*
Deferred tax liabilities
Notes and bonds payable
Junior subordinated debt
MIP notes payable
Investments in consolidated subsidiaries*
Total liabilities
AIG Shareholders equity:
Common stock
Treasury stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total AIG shareholders equity
Total liabilities and equity
*
Eliminated in consolidation.
See accompanying Notes to Condensed Financial Information of Registrant.
Series AIGFP matched notes and bonds payable
Loans from subsidiaries*
Other liabilities (includes intercompany derivative liabilities of $63 in 2017 and $419 in 2016)
$
$
$
Schedule II
2017
2016
$
2,541
6,004
8,545
3
$
$
35,004
1,585
3,058
11,030
40,135
343
99,703
4,340
4,577
-
20,339
841
356
21
517
3,541
34,532
4,766
(47,595)
81,078
21,457
5,465
65,171
99,703
4,424
7,154
11,578
2
34,692
3,460
5,129
15,169
42,582
341
112,953
6,083
4,152
-
19,432
843
1,099
31
577
4,436
36,653
4,766
(41,471)
81,064
28,711
3,230
76,300
112,953
$
$
Years Ended December 31,
(in millions)
Revenues:
Equity in undistributed net income (loss) of consolidated subsidiaries(a)
Dividend income from consolidated subsidiaries(a)
Interest income(b)
Net realized capital gains (losses)
Other income
Expenses:
Interest expense
Net loss on extinguishment of debt
Net (gain) loss on sale of divested businesses(c)
Other expenses
Income (loss) from continuing operations before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Loss from discontinued operations
Net income (loss) attributable to AIG Parent Company
(a) Eliminated in consolidation.
Schedule II
2017
2016
2015
(2,375) $
2,226
656
46
189
949
2
30
922
(1,161)
4,922
(6,083)
(1)
(6,084) $
(8,633) $
7,364
411
2
103
988
77
(690)
985
(2,113)
(1,301)
(812)
(37)
(849) $
(2,929)
6,883
342
(587)
333
1,049
703
11
1,167
1,112
(1,086)
2,198
(2)
2,196
$
$
(b)
Includes interest income on intercompany borrowings of $512 million, $294 million and $163 million on December 31, 2017, 2016 and 2015, respectively,
eliminated in consolidation.
(c) Primarily includes pre-tax gain of $697 million on the sale of United Guaranty on December 31, 2016.
See accompanying Notes to Condensed Financial Information of Registrant.
Condensed Financial Information of Registrant (Continued)
Statements of Comprehensive Income Parent Company Only
Years Ended December 31,
(in millions)
Net income
Other comprehensive income
Total comprehensive loss attributable to AIG
See accompanying Notes to Condensed Financial Information of Registrant.
Schedule II
2017
(6,084) $
2,235
(3,849) $
$
$
2016
(849) $
693
(156) $
2015
2,196
(8,080)
(5,884)
318
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
319
1011252ai_financials.indd 319
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Condensed Financial Information of Registrant (Continued)
Statements of Cash Flows Parent Company Only
Years Ended December 31,
(in millions)
Net cash provided by operating activities
Cash flows from investing activities:
Sales and maturities of investments
Sales of divested businesses
Purchase of investments
Net change in short-term investments
Contributions to subsidiaries - net
Mortgage and other loan receivables - originations and purchases
Payments received on mortgages and other loan receivables
Loans to subsidiaries - net
Other, net
Net cash provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayment of long-term debt
Cash dividends paid
Loans from subsidiaries - net
Purchase of Common Stock
Other, net
Net cash used in financing activities
Change in cash
Cash at beginning of year
Cash at end of year
Supplementary disclosure of cash flow information:
(in millions)
Cash (paid) received during the period for:
Interest:
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
Intercompany non-cash financing and investing activities:
Capital contributions
Return of capital
Dividends received in the form of securities
Fixed maturity securities received in exchange for equity securities
Non-cash financing/investing activities
Non-cash consideration received from sale of shares of AerCap
Non-cash consideration received from sale of United Guaranty
See accompanying Notes to Condensed Financial Information of Registrant.
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
American International Group, Inc.s (the Registrant) investments in consolidated subsidiaries are stated at cost plus equity in
undistributed income of consolidated subsidiaries. The accompanying condensed financial statements of the Registrant should be
read in conjunction with the consolidated financial statements and notes thereto of American International Group, Inc. and
subsidiaries included in the Registrants 2017 Annual Report on Form 10-K for the year ended December 31, 2017 (Annual Report on
Form 10-K) filed with the Securities and Exchange Commission on February 16, 2018.
The Registrant includes in its Statement of Income dividends from its subsidiaries and equity in undistributed income (loss) of
consolidated subsidiaries, which represents the net income (loss) of each of its wholly-owned subsidiaries.
Certain prior period amounts have been reclassified to conform to the current period presentation.
The five-year debt maturity schedule is incorporated by reference from Note 15 to Consolidated Financial Statements.
The Registrant files a consolidated federal income tax return with certain subsidiaries and acts as an agent for the consolidated tax
group when making payments to the Internal Revenue Service. The Registrant and its subsidiaries have adopted, pursuant to a
written agreement, a method of allocating consolidated Federal income taxes. Amounts allocated to the subsidiaries under the written
agreement are included in Due from affiliates in the accompanying Condensed Balance Sheets.
Income taxes in the accompanying Condensed Balance Sheets are composed of the Registrants current and deferred tax assets, the
consolidated groups current income tax receivable and deferred taxes related to tax attribute carryforwards of AIGs U.S.
consolidated income tax group.
For additional information see Note 23 to the Consolidated Financial Statements.
The consolidated U.S. deferred tax asset for net operating loss, capital loss and tax credit carryforwards are recorded by the Parent
Company, which files the consolidated U.S. Federal income tax return, and are not allocated to its subsidiaries. Generally, as, and if,
the consolidated net operating losses and other tax attribute carryforwards are utilized, the intercompany tax balance will be settled
with the subsidiaries.
Schedule II
2015
4,443
7,609
-
(1,881)
2,300
565
-
158
(83)
(175)
8,493
5,540
(6,504)
(1,028)
(201)
(10,691)
(44)
(12,928)
8
26
34
2017
36 $
2016
2,112 $
$
5,714
40
(2,465)
1,990
2,446
-
107
199
(183)
7,848
1,505
(1,724)
(1,172)
(63)
(6,275)
(154)
(7,883)
1
2
3 $
5,598
2,160
(1,002)
(789)
1,637
(85)
171
1,525
(56)
9,159
3,831
(1,996)
(1,372)
3
(11,460)
(309)
(11,303)
(32)
34
2 $
$
$
Years Ended December 31,
2017
2016
2015
(948)$
-
(329)
614
259
26
735
-
-
-
(975)$
2
(15)
479
3,245
-
5,234
440
-
1,101
(1,030)
-
(11)
829
494
-
2,326
-
500
-
320
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
321
1011252ai_financials.indd 320
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Condensed Financial Information of Registrant (Continued)
Statements of Cash Flows Parent Company Only
Mortgage and other loan receivables - originations and purchases
Payments received on mortgages and other loan receivables
Years Ended December 31,
(in millions)
Net cash provided by operating activities
Cash flows from investing activities:
Sales and maturities of investments
Sales of divested businesses
Purchase of investments
Net change in short-term investments
Contributions to subsidiaries - net
Loans to subsidiaries - net
Other, net
Net cash provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayment of long-term debt
Cash dividends paid
Loans from subsidiaries - net
Purchase of Common Stock
Other, net
Net cash used in financing activities
Change in cash
Cash at beginning of year
Cash at end of year
(in millions)
Interest:
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
Capital contributions
Return of capital
Intercompany non-cash financing and investing activities:
Dividends received in the form of securities
Fixed maturity securities received in exchange for equity securities
Non-cash financing/investing activities
Non-cash consideration received from sale of shares of AerCap
Non-cash consideration received from sale of United Guaranty
See accompanying Notes to Condensed Financial Information of Registrant.
2017
2016
$
36 $
2,112 $
5,714
40
(2,465)
1,990
2,446
-
107
199
(183)
7,848
1,505
(1,724)
(1,172)
(63)
(6,275)
(154)
(7,883)
1
2
(329)
614
259
26
735
-
-
-
-
5,598
2,160
(1,002)
(789)
1,637
(85)
171
1,525
(56)
9,159
3,831
(1,996)
(1,372)
3
(11,460)
(309)
(11,303)
(32)
34
2
(15)
479
3,245
5,234
440
-
-
1,101
$
3 $
2 $
$
(948)$
(975)$
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
American International Group, Inc.s (the Registrant) investments in consolidated subsidiaries are stated at cost plus equity in
undistributed income of consolidated subsidiaries. The accompanying condensed financial statements of the Registrant should be
read in conjunction with the consolidated financial statements and notes thereto of American International Group, Inc. and
subsidiaries included in the Registrants 2017 Annual Report on Form 10-K for the year ended December 31, 2017 (Annual Report on
Form 10-K) filed with the Securities and Exchange Commission on February 16, 2018.
The Registrant includes in its Statement of Income dividends from its subsidiaries and equity in undistributed income (loss) of
consolidated subsidiaries, which represents the net income (loss) of each of its wholly-owned subsidiaries.
Certain prior period amounts have been reclassified to conform to the current period presentation.
The five-year debt maturity schedule is incorporated by reference from Note 15 to Consolidated Financial Statements.
The Registrant files a consolidated federal income tax return with certain subsidiaries and acts as an agent for the consolidated tax
group when making payments to the Internal Revenue Service. The Registrant and its subsidiaries have adopted, pursuant to a
written agreement, a method of allocating consolidated Federal income taxes. Amounts allocated to the subsidiaries under the written
agreement are included in Due from affiliates in the accompanying Condensed Balance Sheets.
Income taxes in the accompanying Condensed Balance Sheets are composed of the Registrants current and deferred tax assets, the
consolidated groups current income tax receivable and deferred taxes related to tax attribute carryforwards of AIGs U.S.
consolidated income tax group.
For additional information see Note 23 to the Consolidated Financial Statements.
The consolidated U.S. deferred tax asset for net operating loss, capital loss and tax credit carryforwards are recorded by the Parent
Company, which files the consolidated U.S. Federal income tax return, and are not allocated to its subsidiaries. Generally, as, and if,
the consolidated net operating losses and other tax attribute carryforwards are utilized, the intercompany tax balance will be settled
with the subsidiaries.
Schedule II
2015
4,443
7,609
-
(1,881)
2,300
565
-
158
(83)
(175)
8,493
5,540
(6,504)
(1,028)
(201)
(10,691)
(44)
(12,928)
8
26
34
Supplementary disclosure of cash flow information:
Cash (paid) received during the period for:
Years Ended December 31,
2017
2016
2015
(1,030)
-
(11)
829
494
-
2,326
-
500
-
320
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
321
1011252ai_financials.indd 321
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Gross
Amount
Ceded to
Other
Companies
Assumed
from Other
Companies
Net Amount
1,061,095
202,402
321
859,014
- %
1,025,653
174,363
339
851,629
30,285
11.1 %
$
$
$
$
$
$
$
$
30,205
5,053
35,258
33,970
4,609
38,579
37,698
5,233
-
-
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,533
809
8,342
7,561
789
8,350
7,604
756
-
-
-
$
$
$
$
$
$
$
$
3,084
285
3,369
2,824
123
2,947
-
-
2,972
7
-
25,756
4,529
-
-
-
29,233
3,943
33,176
33,066
4,484
1,051,571
177,025
372
874,918
42,931
$
8,360
$
2,979
$
37,550
Schedule IV
Percent of
Amount
Assumed
to Net
12.0 %
6.3
-
- %
9.7 %
3.1
-
8.9 %
- %
9.0 %
0.2
-
7.9 %
Supplementary Insurance Information
Reinsurance
Schedule III
At December 31, 2017 and 2016
At December 31, 2017, 2016 and 2015 and for the years then ended
(in millions)
2017
Long-duration insurance in force
Premiums:
General Insurance companies
Life and Retirement companies
Other
Total
2016
Long-duration insurance in force
Premiums:
General Insurance companies
Life and Retirement companies
Other
Total
2015
Long-duration insurance in force
Premiums:
General Insurance companies
Life and Retirement companies
Other
Total
Liability
for Unpaid
Losses and
Loss
Adjustment
Expenses,
Deferred
Policy
Acquisition
Future Policy
Costs
Benefits
Unearned
Premiums
$
$
$
2,587
8,407
-
10,994
2,563
8,466
13
$
$
$
73,530
44,615
5,680
123,825
71,926
41,383
5,972
18,795
$
-
235
19,030
19,348
-
286
$
$
11,042
$
119,281
$
19,634
$
Policy
and
Contract
Claims
-
851
9
860
-
836
11
847
Losses
Amortization
and Loss
Expenses
Incurred,
Benefits
of Deferred
Policy
Acquisition
Costs
21,642
$
3,765
$
8,607
1,076
2,239
33,564
25,103
6,945
743
3,351
36,142
22,873
7,745
854
3,604
$
$
$
$
743
(296)
76
4,288
4,121
613
(321)
108
4,521
4,319
794
21
102
$
$
$
$
Other
Operating
Expenses
Net
Premiums
Written(b)
$
$
$
$
$
5,100
2,296
-
-
7,396
5,967
2,700
-
-
8,667
6,848
3,607
-
-
25,438
-
314
4
25,756
28,393
-
819
21
29,233
32,199
-
668
199
$
$
$
$
$
$
$
$
$
Segment (in millions)
2017
General Insurance companies
Life and Retirement companies
Other(a)
2016
General Insurance companies
Life and Retirement companies
Other(a)
For the years ended December 31, 2017, 2016 and 2015
Segment (in millions)
2017
General Insurance
Life and Retirement
Other Operations(a)
Legacy Operations
2016
General Insurance
Life and Retirement
Other Operations(a)
Legacy Operations
2015
General Insurance
Life and Retirement
Other Operations(a)
Legacy Operations
$
$
$
$
$
$
Premiums
and
Policy
Fees
Net
Investment
Income
26,026 $
6,844
712
727
34,309 $
29,586 $
4,878
1,845
816
37,125 $
30,922 $
5,677
1,641
1,170
3,668
7,816
(81)
2,776
14,179
3,554
7,622
(24)
2,913
14,065
3,746
7,541
(162)
2,928
39,410 $
14,053
$
35,076
$
5,236
$
10,455
$
33,066
(a) Includes consolidation and elimination entries.
(b) Balances reflect the segment changes discussed in Note 3 Segment Information to the Consolidated Financial Statements.
322
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
323
1011252ai_financials.indd 322
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Supplementary Insurance Information
Reinsurance
At December 31, 2017 and 2016
At December 31, 2017, 2016 and 2015 and for the years then ended
Schedule III
Schedule IV
(in millions)
2017
Long-duration insurance in force
Premiums:
General Insurance companies
Life and Retirement companies
Other
Total
2016
Long-duration insurance in force
Premiums:
General Insurance companies
Life and Retirement companies
Other
Total
2015
Long-duration insurance in force
Premiums:
General Insurance companies
Life and Retirement companies
Other
Total
Gross
Amount
1,061,095
30,205
5,053
-
35,258
1,025,653
33,970
4,609
-
38,579
1,051,571
37,698
5,233
-
42,931
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Ceded to
Other
Companies
202,402
7,533
809
-
8,342
174,363
7,561
789
-
8,350
177,025
7,604
756
-
8,360
$
$
$
$
$
$
$
$
$
Assumed
from Other
Companies
Net Amount
Percent of
Amount
Assumed
to Net
321
3,084
285
-
3,369
339
2,824
123
-
2,947
372
2,972
7
-
2,979
$
$
$
$
$
$
$
$
$
859,014
- %
25,756
4,529
-
30,285
851,629
29,233
3,943
-
33,176
874,918
33,066
4,484
-
37,550
12.0 %
6.3
-
11.1 %
- %
9.7 %
3.1
-
8.9 %
- %
9.0 %
0.2
-
7.9 %
11,042
$
119,281
$
19,634
$
Acquisition
Future Policy
Costs
Benefits
Unearned
Premiums
Liability
for Unpaid
Losses and
Loss
Adjustment
Expenses,
73,530
44,615
5,680
123,825
71,926
41,383
5,972
743
(296)
76
4,288
4,121
613
(321)
108
4,521
4,319
794
21
102
$
$
$
$
$
$
$
Deferred
Policy
2,587
8,407
-
10,994
2,563
8,466
13
8,607
1,076
2,239
33,564
25,103
6,945
743
3,351
36,142
22,873
7,745
854
3,604
$
$
$
$
$
$
$
Losses
Amortization
and Loss
Expenses
Incurred,
Benefits
of Deferred
Policy
Acquisition
Costs
21,642
$
3,765
$
$
$
$
$
$
$
$
$
$
Policy
and
Contract
Claims
-
851
9
860
-
836
11
847
18,795
$
-
235
19,030
19,348
-
286
Other
Operating
Expenses
Net
Premiums
Written(b)
5,100
2,296
7,396
5,967
2,700
8,667
6,848
3,607
-
-
-
-
-
-
25,438
-
314
4
25,756
28,393
-
819
21
29,233
32,199
-
668
199
$
$
$
$
$
$
$
(a) Includes consolidation and elimination entries.
(b) Balances reflect the segment changes discussed in Note 3 Segment Information to the Consolidated Financial Statements.
39,410 $
14,053
$
35,076
$
5,236
$
10,455
$
33,066
322
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
323
1011252ai_financials.indd 323
3/9/18 6:12 PM
Segment (in millions)
2017
General Insurance companies
Life and Retirement companies
Other(a)
2016
Other(a)
General Insurance companies
Life and Retirement companies
For the years ended December 31, 2017, 2016 and 2015
Segment (in millions)
2017
General Insurance
Life and Retirement
Other Operations(a)
Legacy Operations
2016
General Insurance
Life and Retirement
Other Operations(a)
Legacy Operations
2015
General Insurance
Life and Retirement
Other Operations(a)
Legacy Operations
Premiums
and
Policy
Fees
Net
Investment
Income
26,026 $
6,844
712
727
34,309 $
29,586 $
4,878
1,845
816
37,125 $
30,922 $
5,677
1,641
1,170
3,668
7,816
(81)
2,776
14,179
3,554
7,622
(24)
2,913
14,065
3,746
7,541
(162)
2,928
$
$
$
$
$
$
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Valuation and Qualifying Accounts
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
For the years ended December 31, 2017, 2016 and 2015
Schedule V
(in millions)
2017
Allowance for mortgage and
other loans receivable
Allowance for premiums and
insurances balances receivable
Allowance for reinsurance assets
Federal and foreign valuation
allowance for deferred tax assets
2016
Allowance for mortgage and
other loans receivable
Allowance for premiums and
insurances balances receivable
Allowance for reinsurance assets
Federal and foreign valuation
allowance for deferred tax assets
2015
Allowance for mortgage and
other loans receivable
Allowance for premiums and
insurances balances receivable
Allowance for reinsurance assets
Federal and foreign valuation
Additions
Balance,
Charged to
Beginning
Costs and
Reclassified
to Assets of
Businesses
Divested
of year
Expenses
Charge Offs
Held for Sale
Businesses
Other
Changes*
Balance,
End of year
$
297 $
49 $
(25) $
- $
- $
1 $
322
262
207
2,831
36
33
43
(58)
(50)
-
-
-
-
(8)
-
-
4
(3)
236
187
(1,500)
1,374
$
308 $
(7) $
(15) $
- $
- $
11 $
297
333
272
3,012
26
(23)
83
(88)
(34)
-
(2)
(8)
-
(7)
-
-
-
-
262
207
(264)
2,831
$
271 $
58 $
(29) $
- $
3 $
5 $
308
431
258
35
90
(120)
(67)
-
-
-
-
-
-
(13)
(9)
333
272
1,163
3,012
allowance for deferred tax assets
1,739
110
-
*
Includes recoveries of amounts previously charged off and reclassifications to/from other accounts.
Years Ended December 31,
(in millions, except ratios)
Earnings:
Pre-tax income (loss)(a):
Add Fixed charges
Fixed charges:
Interest expense
Pre-tax income , excluding fixed charges
Portion of rent expense representing interest
Interest credited to policy and contract holders
Total fixed charges
Total fixed charges, excluding interest credited to
policy and contract holders
Ratio of earnings to fixed charges:
Ratio of earnings to fixed charges, excluding interest
credited to policy and contract holders(b):
Ratio
Coverage deficiency
Ratio
Coverage deficiency
Exhibit 12
2017
2016
2015
2014
2013
$
$
$
$
$
1,095 $
(109) $
2,471 $
9,106 $
1,538
1,656
1,716
2,911
7,942
4,279
2,633 $
1,547 $
4,187 $ 12,017 $
12,221
1,149 $
1,220 $
1,227 $
2,034 $
3,292
90
299
110
326
109
380
157
720
138
849
1,538 $
1,656 $
1,716 $
2,911 $
4,279
1,239 $
1,330 $
1,336 $
2,191 $
3,430
1.71
n/a $
n/a
(109)
2.13
n/a
1.16
n/a
2.44
n/a
3.13
n/a
4.13
n/a
5.48
n/a
2.86
n/a
3.56
n/a
(a) From continuing operations, excluding undistributed earnings (loss) from equity method investments and capitalized interest.
(b) The Ratio of earnings to fixed charges, excluding interest credited to policy and contract holders, removes interest credited to guaranteed investment contract (GIC)
policyholders and guaranteed investment agreement (GIA) contract holders. Such interest expenses are also removed from earnings used in this calculation. GICs and
GIAs are entered into by our subsidiaries. The proceeds from GICs and GIAs are invested in a diversified portfolio of securities, primarily investment grade bonds. The
assets acquired yield rates greater than the rates on the related policyholders obligation or contract, with the intent of earning a profit from the spread.
324
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
325
1011252ai_financials.indd 324
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
Valuation and Qualifying Accounts
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
For the years ended December 31, 2017, 2016 and 2015
Schedule V
(in millions)
2017
Allowance for mortgage and
other loans receivable
Allowance for premiums and
insurances balances receivable
Allowance for reinsurance assets
Federal and foreign valuation
allowance for deferred tax assets
2016
Allowance for mortgage and
other loans receivable
Allowance for premiums and
insurances balances receivable
Allowance for reinsurance assets
Federal and foreign valuation
allowance for deferred tax assets
2015
Allowance for mortgage and
other loans receivable
Allowance for premiums and
insurances balances receivable
Allowance for reinsurance assets
Federal and foreign valuation
Balance,
Charged to
Beginning
Costs and
Additions
Reclassified
to Assets of
of year
Expenses
Charge Offs
Held for Sale
Businesses
Changes*
End of year
Businesses
Divested
Other
Balance,
$
297 $
49 $
(25) $
- $
- $
1 $
322
4
(3)
236
187
(1,500)
1,374
$
308 $
(7) $
(15) $
- $
- $
11 $
297
(88)
(34)
(2)
(8)
-
-
262
207
(264)
2,831
$
271 $
58 $
(29) $
- $
3 $
5 $
308
431
258
35
90
(120)
(67)
(13)
(9)
333
272
1,163
3,012
262
207
2,831
333
272
3,012
36
33
43
26
(23)
83
(58)
(50)
-
-
-
-
-
-
-
-
-
-
(8)
(7)
-
-
-
-
-
-
-
allowance for deferred tax assets
1,739
110
*
Includes recoveries of amounts previously charged off and reclassifications to/from other accounts.
Years Ended December 31,
(in millions, except ratios)
Earnings:
Pre-tax income (loss)(a):
Add Fixed charges
Pre-tax income , excluding fixed charges
Fixed charges:
Interest expense
Portion of rent expense representing interest
Interest credited to policy and contract holders
Total fixed charges
Total fixed charges, excluding interest credited to
policy and contract holders
Ratio of earnings to fixed charges:
Ratio
Coverage deficiency
Ratio of earnings to fixed charges, excluding interest
credited to policy and contract holders(b):
Ratio
Coverage deficiency
Exhibit 12
2017
2016
2015
2014
2013
$
$
$
$
$
1,095 $
1,538
2,633 $
(109) $
1,656
1,547 $
2,471 $
1,716
4,187 $ 12,017 $
9,106 $
2,911
7,942
4,279
12,221
1,149 $
90
299
1,538 $
1,220 $
110
326
1,656 $
1,227 $
109
380
1,716 $
2,034 $
157
720
2,911 $
3,292
138
849
4,279
1,239 $
1,330 $
1,336 $
2,191 $
3,430
1.71
n/a $
n/a
(109)
2.13
n/a
1.16
n/a
2.44
n/a
3.13
n/a
4.13
n/a
5.48
n/a
2.86
n/a
3.56
n/a
(a) From continuing operations, excluding undistributed earnings (loss) from equity method investments and capitalized interest.
(b) The Ratio of earnings to fixed charges, excluding interest credited to policy and contract holders, removes interest credited to guaranteed investment contract (GIC)
policyholders and guaranteed investment agreement (GIA) contract holders. Such interest expenses are also removed from earnings used in this calculation. GICs and
GIAs are entered into by our subsidiaries. The proceeds from GICs and GIAs are invested in a diversified portfolio of securities, primarily investment grade bonds. The
assets acquired yield rates greater than the rates on the related policyholders obligation or contract, with the intent of earning a profit from the spread.
324
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
325
1011252ai_financials.indd 325
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500
American International Group, Inc., and Subsidiaries
Subsidiaries of Registrant
As of December 31, 2017
American International Group, Inc.
AIG Capital Corporation
AIG Global Asset Management Holdings Corp.
AIG Asset Management (Europe) Limited
AIG Asset Management (U.S.), LLC
AIG Global Real Estate Investment Corp.
Mt. Mansfield Company, Inc.
AIG Employee Services, Inc.
AIG Federal Savings Bank
AIG Financial Products Corp.
AIG Matched Funding Corp.
AIG-FP Pinestead Holdings Corp.
AIG Life Insurance Company (Switzerland) Ltd
AIG Markets, Inc.
AIG Technologies, Inc.
AIG Shared Services Corporation
AIUH LLC
AIG Property Casualty Inc.
AIG Claims, Inc.
AIG PC Global Services, Inc.
AIG Property Casualty International, LLC
AIG Egypt Insurance Company S.A.E.
AIG Europe Holdings Limited
AIG International Holdings GmbH
AIG APAC HOLDINGS PTE. LTD.
AIG Asia Pacific Insurance Pte. Ltd.
AIG Australia Limited
AIG Insurance Hong Kong Limited
AIG Insurance New Zealand Limited
AIG Malaysia Insurance Berhad
AIG Philippines Insurance, Inc.
AIG Vietnam Insurance Company Limited
PT AIG Insurance Indonesia
Thai CIT Holding Company Limited
AIG Insurance (Thailand) Public Company Limited
AIG Canada Holdings Inc.
AIG Insurance Company of Canada
AIG Holdings Europe Limited
AIG Europe Limited
AIG Germany Holding GmbH
AIG Israel Insurance Company Ltd
AIG Life Limited
Avondhu Limited
Laya Healthcare Limited
AIG Investments UK Limited
AIG MEA Holdings Limited
AIG CIS Investments, LLC
AIG Insurance Company, JSC
AIG Insurance Limited
AIG MEA Limited
AIG Kenya Insurance Company Limited
AIG Uganda Limited
Private Joint-Stock Company AIG Ukraine Insurance Company
Johannesburg Insurance Holdings (Proprietary) Limited
AIG Life South Africa Limited
Exhibit 21
Percentage
of Voting
Securities
held by
Immediate
Parent
(1)
(2)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
95.08
100
100
100
100
100
100
100
100
100
100
74.45
49
51
100
100
100
100
100
100
100
100
100
100
100
99.99
100
100
100
66.67
100
100
100
100
(4)
(5)
Jurisdiction of
Incorporation or
Organization
Delaware
Delaware
Delaware
England and Wales
Delaware
Delaware
Vermont
Delaware
The United States
Delaware
Delaware
Delaware
Switzerland
Delaware
New Hampshire
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Egypt
England and Wales
Switzerland
Singapore
Singapore
Australia
Hong Kong
New Zealand
Malaysia
Philippines
Vietnam
Indonesia
Thailand
Thailand
Canada
Canada
England and Wales
England
Germany
Israel
England
Jersey
Ireland
England and Wales
United Arab Emirates
Russian Federation
Russian Federation
Sri Lanka
United Arab Emirates
Kenya
Uganda
Ukraine
South Africa
South Africa
As of December 31, 2017
AIG South Africa Limited
AIG Japan Holdings Kabushiki Kaisha
AIG General Insurance Co., Ltd.
American Home Assurance Co., Ltd.
AIG Latin America Investments, S.L.
AIG Brazil Holding I, LLC
AIG Seguros Brasil S.A.
AIG Insurance Company-Puerto Rico
AIG Latin America I.I.
AIG Seguros Mexico, S.A. de C.V.
AIG Seguros Uruguay S.A.
American International Overseas Limited
Chartis Takaful Enaya B.S.C. (c)
American International Underwriters del Ecuador S.A.
AIG-Metropolitana Cia de Seguros y Reaseguros S.A.
Inversiones Segucasai, C.A.
C.A. de Seguros American International
Underwriters Adjustment Company, Inc.
AIG MEA Investments and Services, LLC
AIG Lebanon SAL
CHARTIS Investment Holdings (Private) Limited
Chartis Kazakhstan Insurance Company Joint Stock Company
AIG Property Casualty Europe Financing Limited
AIG Travel, Inc.
AIG Travel Assist, Inc.
AIG Travel Asia Pacific Pte. Ltd.
AIG Travel EMEA Limited
Travel Guard Group, Inc.
American International Reinsurance Company, Ltd.
AIG Property Casualty U.S., Inc.
AIG Aerospace Insurance Services, Inc.
AIG Assurance Company
AIG Property Casualty Company
AIG Specialty Insurance Company
AIU Insurance Company
American Home Assurance Company
AIG Insurance Company China Limited
Commerce and Industry Insurance Company
Eaglestone Reinsurance Company
Granite State Insurance Company
Illinois National Insurance Co.
Lexington Insurance Company
Pine Street Real Estate Holdings Corp.
National Union Fire Insurance Company of Pittsburgh, Pa.
American International Overseas Association
American International Realty Corp.
National Union Fire Insurance Company of Vermont
New Hampshire Insurance Company
Risk Specialists Companies Insurance Agency, Inc.
The Insurance Company of the State of Pennsylvania
AM Holdings LLC
American Security Life Insurance Company Limited
Blackboard U.S. Holdings, Inc.
Blackboard Services, LLC
Hamilton Customer Care Insurance Services, LLC
Hamilton Specialty Insurance Company
Hamilton Insurance Company
DSA Reinsurance Company Ltd.
Jurisdiction of
Incorporation or
Organization
South Africa
Japan
Japan
Japan
Spain
Delaware
Brazil
Puerto Rico
Puerto Rico
Mexico
Uruguay
Bermuda
Bahrain
Ecuador
Ecuador
Venezuela
Venezuela
Panama
Delaware
Lebanon
Sri Lanka
Kazakhstan
England
Delaware
Delaware
Singapore
Pennsylvania
Wisconsin
Bermuda
Delaware
Georgia
Illinois
Illinois
New York
New York
China
New York
Illinois
Illinois
Delaware
Pennsylvania
New Hampshire
Pennsylvania
Bermuda
Delaware
Vermont
Illinois
Massachusetts
Illinois
Delaware
Liechtenstein
Delaware
Delaware
Delaware
Delaware
Delaware
Bermuda
Percentage
of Voting
Securities
held by
Immediate
Parent
(1)
90.56
(6)
(7)
32.06
100
93.72
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
78
100
100
100
100
100
100
100
100
100
100
100
100
100
(8)
Travel Guard Group Canada, Inc./Groupe Garde Voyage du Canada, Inc.
Canada
England and Wales
326
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
327
1011252ai_financials.indd 326
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 American International Group, Inc., and Subsidiaries
Subsidiaries of Registrant
As of December 31, 2017
American International Group, Inc.
AIG Capital Corporation
AIG Global Asset Management Holdings Corp.
AIG Asset Management (Europe) Limited
AIG Asset Management (U.S.), LLC
AIG Global Real Estate Investment Corp.
Mt. Mansfield Company, Inc.
AIG Employee Services, Inc.
AIG Federal Savings Bank
AIG Financial Products Corp.
AIG Matched Funding Corp.
AIG-FP Pinestead Holdings Corp.
AIG Life Insurance Company (Switzerland) Ltd
AIG Markets, Inc.
AIG Technologies, Inc.
AIG Shared Services Corporation
AIUH LLC
AIG Property Casualty Inc.
AIG Claims, Inc.
AIG PC Global Services, Inc.
AIG Property Casualty International, LLC
AIG Egypt Insurance Company S.A.E.
AIG Europe Holdings Limited
AIG International Holdings GmbH
AIG APAC HOLDINGS PTE. LTD.
AIG Asia Pacific Insurance Pte. Ltd.
AIG Australia Limited
AIG Insurance Hong Kong Limited
AIG Insurance New Zealand Limited
AIG Malaysia Insurance Berhad
AIG Philippines Insurance, Inc.
AIG Vietnam Insurance Company Limited
PT AIG Insurance Indonesia
Thai CIT Holding Company Limited
AIG Insurance (Thailand) Public Company Limited
AIG Canada Holdings Inc.
AIG Insurance Company of Canada
AIG Holdings Europe Limited
AIG Europe Limited
AIG Germany Holding GmbH
AIG Israel Insurance Company Ltd
AIG Life Limited
Avondhu Limited
Laya Healthcare Limited
AIG Investments UK Limited
AIG MEA Holdings Limited
AIG CIS Investments, LLC
AIG Insurance Company, JSC
AIG Insurance Limited
AIG MEA Limited
AIG Uganda Limited
AIG Kenya Insurance Company Limited
Private Joint-Stock Company AIG Ukraine Insurance Company
Johannesburg Insurance Holdings (Proprietary) Limited
AIG Life South Africa Limited
England and Wales
95.08
Exhibit 21
Percentage
of Voting
Securities
held by
Immediate
Parent
(1)
(2)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
49
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99.99
66.67
74.45
(4)
(5)
Jurisdiction of
Incorporation or
Organization
England and Wales
Delaware
Delaware
Delaware
Delaware
Delaware
Vermont
Delaware
The United States
Delaware
Delaware
Delaware
Switzerland
Delaware
New Hampshire
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Egypt
Switzerland
Singapore
Singapore
Australia
Hong Kong
New Zealand
Malaysia
Philippines
Vietnam
Indonesia
Thailand
Thailand
Canada
Canada
England
Germany
Israel
England
Jersey
Ireland
England and Wales
England and Wales
United Arab Emirates
Russian Federation
Russian Federation
Sri Lanka
United Arab Emirates
Kenya
Uganda
Ukraine
South Africa
South Africa
As of December 31, 2017
AIG South Africa Limited
AIG Japan Holdings Kabushiki Kaisha
AIG General Insurance Co., Ltd.
American Home Assurance Co., Ltd.
AIG Latin America Investments, S.L.
AIG Brazil Holding I, LLC
AIG Seguros Brasil S.A.
AIG Insurance Company-Puerto Rico
AIG Latin America I.I.
AIG Seguros Mexico, S.A. de C.V.
AIG Seguros Uruguay S.A.
American International Overseas Limited
Chartis Takaful Enaya B.S.C. (c)
American International Underwriters del Ecuador S.A.
AIG-Metropolitana Cia de Seguros y Reaseguros S.A.
Inversiones Segucasai, C.A.
C.A. de Seguros American International
Underwriters Adjustment Company, Inc.
AIG MEA Investments and Services, LLC
AIG Lebanon SAL
CHARTIS Investment Holdings (Private) Limited
Chartis Kazakhstan Insurance Company Joint Stock Company
AIG Property Casualty Europe Financing Limited
AIG Travel, Inc.
AIG Travel Assist, Inc.
AIG Travel Asia Pacific Pte. Ltd.
AIG Travel EMEA Limited
Travel Guard Group Canada, Inc./Groupe Garde Voyage du Canada, Inc.
Travel Guard Group, Inc.
American International Reinsurance Company, Ltd.
AIG Property Casualty U.S., Inc.
AIG Aerospace Insurance Services, Inc.
AIG Assurance Company
AIG Property Casualty Company
AIG Specialty Insurance Company
AIU Insurance Company
American Home Assurance Company
AIG Insurance Company China Limited
Commerce and Industry Insurance Company
Eaglestone Reinsurance Company
Granite State Insurance Company
Illinois National Insurance Co.
Lexington Insurance Company
Pine Street Real Estate Holdings Corp.
National Union Fire Insurance Company of Pittsburgh, Pa.
American International Overseas Association
American International Realty Corp.
National Union Fire Insurance Company of Vermont
New Hampshire Insurance Company
Risk Specialists Companies Insurance Agency, Inc.
The Insurance Company of the State of Pennsylvania
AM Holdings LLC
American Security Life Insurance Company Limited
Blackboard U.S. Holdings, Inc.
Blackboard Services, LLC
Hamilton Customer Care Insurance Services, LLC
Hamilton Specialty Insurance Company
Hamilton Insurance Company
DSA Reinsurance Company Ltd.
Jurisdiction of
Incorporation or
Organization
South Africa
Japan
Japan
Japan
Spain
Delaware
Brazil
Puerto Rico
Puerto Rico
Mexico
Uruguay
Bermuda
Bahrain
Ecuador
Ecuador
Venezuela
Venezuela
Panama
Delaware
Lebanon
Sri Lanka
Kazakhstan
England
Delaware
Delaware
Singapore
England and Wales
Canada
Wisconsin
Bermuda
Delaware
Georgia
Illinois
Pennsylvania
Illinois
New York
New York
China
New York
Pennsylvania
Illinois
Illinois
Delaware
New Hampshire
Pennsylvania
Bermuda
Delaware
Vermont
Illinois
Massachusetts
Illinois
Delaware
Liechtenstein
Delaware
Delaware
Delaware
Delaware
Delaware
Bermuda
(1)
(6)
(7)
(8)
Percentage
of Voting
Securities
held by
Immediate
Parent
100
100
100
100
100
100
90.56
100
100
100
100
100
100
100
32.06
100
93.72
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
78
100
100
100
100
100
100
100
100
100
100
100
100
100
326
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
327
1011252ai_financials.indd 327
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 As of December 31, 2017
LSTREET I, LLC
MG Reinsurance Limited
SAFG Retirement Services, Inc.
AIG Life Holdings, Inc.
AGC Life Insurance Company
AIG Life of Bermuda, Ltd.
American General Life Insurance Company
SunAmerica Asset Management, LLC
The United States Life Insurance Company in the City of New York
The Variable Annuity Life Insurance Company
Valic Retirement Services Company
SunAmerica Life Reinsurance Company
Jurisdiction of
Incorporation or
Organization
Delaware
Vermont
Delaware
Texas
Missouri
Bermuda
Texas
Delaware
New York
Texas
Texas
Missouri
Percentage
of Voting
Securities
held by
Immediate
Parent
(1)
100
100
100
100
100
100
100
100
100
100
100
100
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Percentages include directors' qualifying shares.
Substantially all subsidiaries listed are consolidated in the accompanying financial statements. Certain subsidiaries have been omitted from the
tabulation. The omitted subsidiaries, when considered in the aggregate, do not constitute a significant subsidiary.
Also owned 10 percent by AIG Matched Funding Corp.
Also owned 25.55 percent by PT Tiara Citra Cemerlang.
Also owned 48.99 percent by AIG Asia Pacific Insurance Pte. Ltd.
Also owned 9.44 percent by AIG Brazil Holding II, LLC.
Also owned 19.72 percent by AIG Latin America Investments, S.L.
Also owned 12 percent by New Hampshire Insurance Company and 10 percent by American Home Assurance Company.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No.333-204165) and Form
S-8 (No.333-31346, No.333-68640, No.333-101640, No.333-148148, No.333-168679, No.333-188634 and No.333-219180) of
American International Group, Inc. of our report dated February 16, 2018 relating to the financial statements, financial
statement schedules and the effectiveness of internal control over financial reporting, which appears in the Annual Report on
Form 10-K.
Exhibit 23
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2018
328
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
329
1011252ai_financials.indd 328
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 As of December 31, 2017
LSTREET I, LLC
MG Reinsurance Limited
SAFG Retirement Services, Inc.
AIG Life Holdings, Inc.
AGC Life Insurance Company
AIG Life of Bermuda, Ltd.
American General Life Insurance Company
SunAmerica Asset Management, LLC
The Variable Annuity Life Insurance Company
Valic Retirement Services Company
SunAmerica Life Reinsurance Company
The United States Life Insurance Company in the City of New York
Jurisdiction of
Incorporation or
Organization
Delaware
Vermont
Delaware
Texas
Missouri
Bermuda
Texas
Delaware
New York
Texas
Texas
Missouri
Percentage
of Voting
Securities
held by
Immediate
Parent
(1)
100
100
100
100
100
100
100
100
100
100
100
100
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Percentages include directors' qualifying shares.
Substantially all subsidiaries listed are consolidated in the accompanying financial statements. Certain subsidiaries have been omitted from the
tabulation. The omitted subsidiaries, when considered in the aggregate, do not constitute a significant subsidiary.
Also owned 10 percent by AIG Matched Funding Corp.
Also owned 25.55 percent by PT Tiara Citra Cemerlang.
Also owned 48.99 percent by AIG Asia Pacific Insurance Pte. Ltd.
Also owned 9.44 percent by AIG Brazil Holding II, LLC.
Also owned 19.72 percent by AIG Latin America Investments, S.L.
Also owned 12 percent by New Hampshire Insurance Company and 10 percent by American Home Assurance Company.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No.333-204165) and Form
S-8 (No.333-31346, No.333-68640, No.333-101640, No.333-148148, No.333-168679, No.333-188634 and No.333-219180) of
American International Group, Inc. of our report dated February 16, 2018 relating to the financial statements, financial
statement schedules and the effectiveness of internal control over financial reporting, which appears in the Annual Report on
Form 10-K.
Exhibit 23
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2018
328
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
329
1011252ai_financials.indd 329
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 Exhibit 31
CERTIFICATIONS
I, Siddhartha Sankaran, certify that:
CERTIFICATIONS
I, Brian Duperreault, certify that:
1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
Date: February 16, 2018
1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
Date: February 16, 2018
/S/ BRIAN DUPERREAULT
Brian Duperreault
President and Chief Executive Officer
/S/ SIDDHARTHA SANKARAN
Siddhartha Sankaran
Executive Vice President and
Chief Financial Officer
330
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
331
1011252ai_financials.indd 330
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 CERTIFICATIONS
I, Brian Duperreault, certify that:
Exhibit 31
CERTIFICATIONS
I, Siddhartha Sankaran, certify that:
1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the
equivalent functions):
information; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
Date: February 16, 2018
1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
Date: February 16, 2018
/S/ BRIAN DUPERREAULT
Brian Duperreault
President and Chief Executive Officer
/S/ SIDDHARTHA SANKARAN
Siddhartha Sankaran
Executive Vice President and
Chief Financial Officer
330
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
331
1011252ai_financials.indd 331
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 CERTIFICATION
In connection with this Annual Report on Form 10-K of American International Group, Inc. (the Company) for the year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Brian Duperreault,
President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
In connection with this Annual Report on Form 10-K of American International Group, Inc. (the Company) for the year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Siddhartha Sankaran,
Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that to my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: February 16, 2018
Date: February 16, 2018
Exhibit 32
CERTIFICATION
/S/ BRIAN DUPERREAULT
Brian Duperreault
President and Chief Executive Officer
/S/ SIDDHARTHA SANKARAN
Siddhartha Sankaran
Executive Vice President and
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or
as a separate disclosure document.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or
as a separate disclosure document.
332
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
333
1011252ai_financials.indd 332
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 In connection with this Annual Report on Form 10-K of American International Group, Inc. (the Company) for the year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Brian Duperreault,
President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
CERTIFICATION
1934; and
the Company.
Date: February 16, 2018
In connection with this Annual Report on Form 10-K of American International Group, Inc. (the Company) for the year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Siddhartha Sankaran,
Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that to my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: February 16, 2018
Exhibit 32
CERTIFICATION
/S/ BRIAN DUPERREAULT
Brian Duperreault
President and Chief Executive Officer
/S/ SIDDHARTHA SANKARAN
Siddhartha Sankaran
Executive Vice President and
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or
as a separate disclosure document.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or
as a separate disclosure document.
332
AIG | 2017 Form 10-K
AIG | 2017 Form 10-K
333
1011252ai_financials.indd 333
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, Par Value $2.50 Per Share
Warrants (expiring January 19, 2021)
5.75% Series A-2 Junior Subordinated Debentures
4.875% Series A-3 Junior Subordinated Debentures
Stock Purchase Rights
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Exhibit 99.02
334
AIG | 2017 Form 10-K
1011252ai_financials.indd 334
3/9/18 6:12 PM
Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com09-Mar-181011252ai_financials_T1011252aisanjfs5.sa1.com/Sandy/1011252aitmurrayAl WallersteinA I G_2230CMYK8.2500 X 10.7500 COMMENT ON
REGULATION G
Throughout this Annual Report, AIG presents its financial condition and results of operations in the way it believes will be most meaningful and
representative of its business results. Some of the measurements AIG uses are “non-GAAP financial measures” under Securities and Exchange
Commission rules and regulations. GAAP is the acronym for “accounting principles generally accepted in the United States.” The non-GAAP financial
measures AIG presents may not be comparable to similarly-named measures reported by other companies. The reconciliations of such measures to the
most comparable GAAP measures in accordance with Regulation G are included within this Annual Report, AIG’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2017 (included herein) or in the Fourth Quarter 2017 Financial Supplement available in the Investors section of AIG’s
website, www.aig.com.
CORE, GENERAL INSURANCE, LIFE AND RETIREMENT AND LEGACY ADJUSTED ATTRIBUTED EQUITY is an attribution of total AIG
Adjusted Shareholders’ Equity to these segments based on our internal capital model, which incorporates the segments’ respective risk profiles. Adjusted
Attributed Equity represents our best estimates based on current facts and circumstances and will change over time.
CORE, GENERAL INSURANCE, LIFE AND RETIREMENT AND LEGACY RETURN ON EQUITY — ADJUSTED AFTER-TAX INCOME
(ADJUSTED RETURN ON ATTRIBUTED EQUITY) is used to show the rate of return on Adjusted Attributed Equity. Adjusted Return on Attributed
Equity is derived by dividing actual or annualized Adjusted After-tax Income by Average Adjusted Attributed Equity.
ADJUSTED AFTER-TAX INCOME ATTRIBUTABLE TO CORE, GENERAL INSURANCE, LIFE AND RETIREMENT AND LEGACY is derived
by subtracting attributed interest expense and income tax expense from Adjusted Pre-tax Income. Attributed debt and the related interest expense is
calculated based on our internal capital model. Tax expense or benefit is calculated based on an internal attribution methodology that considers among
other things the taxing jurisdiction in which the segments conduct business, as well as the deductibility of expenses in those jurisdictions.
PREMIUMS AND DEPOSITS includes direct and assumed amounts received and earned on traditional life insurance policies, group benefit policies
and life-contingent payout annuities, as well as deposits received on universal life, investment-type annuity contracts and mutual funds.
335
AIG | 2017 Annual Report CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Annual Report may include, and officers and representatives of 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 “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “focused on achieving,” “view,” “target,” “goal” 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; negative impacts on customers, business partners and other
stakeholders; the occurrence of catastrophic events, both natural and man-made; significant legal, regulatory or governmental proceedings; the timing
and applicable requirements of any regulatory framework to which AIG is subject, including 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; AIG’s
ability to successfully manage Legacy portfolios; AIG’s ability to successfully reduce costs and expenses and make business and organizational changes
without negatively impacting client relationships or its competitive position; AIG’s ability to successfully dispose of, monetize and/or acquire businesses
or assets, including AIG’s ability to successfully consummate the purchase of Validus Holdings, Ltd.; judgments concerning the recognition of deferred
tax assets; judgments concerning estimated restructuring charges and estimated cost savings; and such other factors discussed in Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part I, Item 1A. Risk Factors in AIG’s Annual Report
on Form 10-K for the year ended December 31, 2017.
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.
336
AIG | 2017 Annual Report NON-GAAP
RECONCILIATION
Reconciliations of Adjusted Return on Equity
($ in millions)
CORE:
Adjusted pre-tax income (loss)
Interest expense (benefit) on attributed financial debt
Adjusted pre-tax income (loss) including attributed interest expenses
Income tax expense (benefit)
Adjusted after-tax income (loss)
Ending adjusted attributed equity
Average adjusted attributed equity
Adjusted return on attributed equity
LIFE AND RETIREMENT:
Adjusted pre-tax income (loss)
Interest expense (benefit) on attributed financial debt
Adjusted pre-tax income (loss) including attributed interest expenses
Income tax expense (benefit)
Adjusted after-tax income (loss)
Ending adjusted attributed equity
Average adjusted attributed equity
Adjusted return on attributed equity
Reconciliations of Premiums and Deposits
($ in millions)
LIFE AND RETIREMENT:
Premiums
Deposits
Other
Total premiums and deposits
Twelve Months Ended December 31,
2017
2016
2015
408
(122)
530
120
410
$
$
$
$
$
2,851
(214)
3,065
800
2,265
47,651
$ 53,519
51,319
$
58,912
0.8 %
3.8
%
$
$
$
$
$
1,688
(159)
1,847
466
1,381
$ 39,931
$ 43,826
3.2 %
$
$
$
$
3,831
23
3,808
1,242
$ 2,566
$ 20,304
$ 20,687
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,428
92
3,336
1,041
2,295
20,547
21,269
12.4 %
10.8 %
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Twelve Months Ended December 31,
2017
2016
2015
$ 4,046
$
2,288
$
3,054
$ 22,681
$ 26,294
$ 26,706
$
731
$
722
$
638
$ 27,458
$ 29,304
$ 30,398
337
AIG | 2017 Annual Report Intentionally left blank
338
AIG | 2017 Annual Report SHAREHOLDER
INFORMATION
Corporate Headquarters
American International Group, Inc.
175 Water Street
New York, NY 10038
(212) 770-7000
Stock Market Listings
New York and Tokyo Stock Exchanges
NYSE common stock trading symbol: AIG
SEC Certifications
The certifications by the Chief Executive Officer
and the Chief Financial Officer of AIG, required
under Section 302 of the Sarbanes-Oxley Act
of 2002, were filed as exhibits to AIG’s Annual
Report on Form 10-K for the year ended
December 31, 2017, and are included herein.
NYSE Certification
The Chief Executive Officer of AIG made an
unqualified certification to the NYSE with respect
to AIG’s compliance with the NYSE Corporate
Governance Listing Standards in July 2017.
Annual Meeting of Shareholders
The 2018 Annual Meeting of Shareholders
will be held on Wednesday, May 9, 2018, at
11:00 a.m., at 175 Water Street, New York, NY.
Shareholder Assistance
Visit the AIG corporate website at www.aig.com.
Requests for copies of the Annual Report to
Shareholders and Annual Report on Form 10-K
for the year ended December 31, 2017, should
be directed to:
Investor Relations
American International Group, Inc.
175 Water Street
New York, NY 10038
(212) 770-6293
Transfer Agent and Registrar
EQ Shareowner Services
PO Box 64854
St. Paul, MN 55164-0854
(888) 899-8293
shareowneronline.com
Courier Service Address
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
Duplicate Mailings/Householding
A shareholder who receives multiple copies
of AIG’s proxy materials and Annual Report
may eliminate duplicate report mailings by
contacting AIG’s transfer agent.
AIG | 2017 Annual Report
339
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AMERICAN INTERNATIONAL GROUP, INC.
175 Water Street
New York, NY 10038
www.aig.com