American International Group, Inc. New · NYSE:AIG
American International Group, Inc. New — American International Group — Investor Presentation (January 2016)
52 slides from American International Group, Inc. New's investor presentation, Jan 26, 2016
Slide 1: Strategic Actions to Maximize Shareholder Value
Strategic Actions to Maximize Shareholder Value January 26, 2016
Slide 2: Cautionary Statement Regarding Forward Looking Information and Other Matters
Cautionary Statement Regarding Forward Looking Information and Other Matters This document and the remarks made within this presentation may include, and officers and representatives of American International Group, Inc. (AIG) may from time to time make, projections, goals, assumptions and statement
Slide 3: Vision for AIG
Vision for AIG Douglas M. Steenland, Non-Executive Chairman “AIG is committed to serving all its stakeholders by: i) delivering first quartile total shareholder return to its shareholders, ii) providing risk expertise and dependable long-term balance sheet strength for its customers, iii) having a c
Slide 4: AIG Announces Actions to Create a Leaner, More Profitable and Focused Insurer
AIG Announces Actions to Create a Leaner, More Profitable and Focused Insurer 2016-2017 Board Approved Actions • Return at least $25 bn of capital to shareholders • Pursue an active divestiture program, including initially the 19.9% IPO of UGC as first step towards full separation and sale of AIG Ad
Slide 5: Return Significant Capital to Our Shareholders in 2016-2017
Return Significant Capital to Our Shareholders in 2016-2017 Return at least $25 bn of capital to shareholders through dividends and share repurchases Capital return goal can be achieved notwithstanding strengthening of reserves in 4Q’15 Projected Sources for 2016-2017 Capital Return Goal ($ bn) $25
Slide 6: Divestitures – No Sacred Cows
Divestitures – No Sacred Cows Specific actions taken and a clear framework for future transactions Announced Divestitures UGC – planned IPO of up to 19.9% in mid-2016, subject to regulatory and GSE approval, as first step towards full separation AIG Advisor Group – announced sale to Lightyear Ca
Slide 7: Substantial Expense Reductions
Substantial Expense Reductions Reduce GOE by an additional ~$1.6 bn by 2017 (~$1.4 bn net of reinvestments), while preserving our focus on customers and strong controls Gross reductions represent 14% of 2015 GOE over two-year period Operating GOE (1) ($ bn) ~$1.6 bn expense reduction $11.9 $11.1 $0.
Slide 8: Specific Actions to Improve Commercial P&C Loss Ratio
Specific Actions to Improve Commercial P&C Loss Ratio Recent investments in systems and analytic tools enable us to pursue more aggressive initiatives Expand and optimize the use of reinsurance and other risk mitigating strategies Address unprofitable single and two-product clients Accelerate
Slide 9: Organizational Transparency
Organizational Transparency Modular operating model and new Legacy Portfolio to enhance transparency and accountability New Legacy Portfolio to consist of non-strategic assets, including tax attribute DTA, businesses and products AIG intends to exit and select low returning legacy insurance products
Slide 10: Clear and Achievable Financial Targets
Clear and Achievable Financial Targets Consolidated Operating ROE of ~9% by 2017, reflecting 10.3 - 10.7% in the Operating Portfolio Legacy Portfolio (1) is a source of capital release totaling ~$9 bn by 2017 10.3 - 10.7% 9.3 - 9.7% Operating Portfolio Operating ROE '16E (2) Operating ROE '17E (2) 8
Slide 11: Our Actions Maximize Value for Shareholders
Our Actions Maximize Value for Shareholders A near-term break-up of AIG would detract from shareholder value Less capital would be available for distribution to shareholders because of loss of diversification benefits Loss of value from DTA, including ability to utilize foreign tax credits Non
Slide 12: Appendix – Supporting Materials
Appendix – Supporting Materials General Operating Expense Reductions Page 13 Commercial Insurance – Operating Actions Page 14 Consumer Insurance – Operating Actions Page 15 Legacy Portfolio – Background Page 16 Allocation of Shareholders' Equity to Operating and Legacy Portfolios Page 17
Slide 13: General Operating Expense Reductions
General Operating Expense Reductions Actions have been announced or are planned to drive Operating GOE reductions Action Taken to Date or Currently Underway Will Start Being Realized in Early 2016 Reduced staff by ~300 of top 1,400 employees, ~$250 mm annual run rate savings beginning in Q1 2016
Slide 14: Commercial Insurance – Operating Actions
Commercial Insurance – Operating Actions Actions to sharpen Commercial focus will improve profitability Expand current utilization of Commercial GPW for Clients Purchasing at Least One U.S. Casualty Policy reinsurance and other risk Reinsurance mitigating strategies to further Take Action Maintain
Slide 15: Consumer Insurance – Operating Actions
Consumer Insurance – Operating Actions Actions to sharpen Consumer focus will improve profitability Absorb impact of proposed DOL(1) U.S. Retirement rules; invest in most attractive post- DOL opportunities across the market Number of Countries Selling Expand on successes in High Net Personal Ins
Slide 16: Legacy Portfolio – Background
Legacy Portfolio – Background With $17 bn of equity in the Legacy Portfolio generating an ROE of ~3% to 5%(1), the goal is to release an additional ~$6 bn of capital by 2017 (for a total release of ~$9 bn) Legacy Portfolio’s 2016 Actions Actively seek to release capital in the Legacy Portfolio thr
Slide 17: Allocation of Shareholders' Equity to Operating and Legacy Portfolios
Allocation of Shareholders' Equity to Operating and Legacy Portfolios Operating Portfolio – Shareholders' Equity Excluding AOCI ($ bn) (4.6) (15.6) 73.8 53.6 Combined Life & Non-Life Businesses Impact of Pushdown of Parent Debt Operating Shareholders' Equity Insurance Companies Reported in Legacy to
Slide 18: Capital Position and Framework
Capital Position and Framework We manage leverage, coverage and liquidity at the Parent and the operating subsidiaries to target levels while meeting the constraints from multiple regulatory and rating agencies Business Unit Capital / Liquidity ($ bn) Capital / Liquidity Targets 4Q 2015 Target Comme
Slide 19: Fourth Quarter 2015 Prior Year Development
Fourth Quarter 2015 Prior Year Development AIG strengthened Non-Life reserves by $3.6 bn, or 6% of its $58.3 bn (1) carried reserves as of September 30, 2015. Accident years 2005-2014 represent $2.3 bn, resulting in an increase in the overall accident year loss ratio in this period by 0.7 points on
Slide 20: U.S. Casualty Actions Related to Prior Year Development
U.S. Casualty Actions Related to Prior Year Development AIG has taken significant actions to mitigate U.S. Casualty exposures since 2011, and in 2016 AIG has aggressively accelerated the pace of remediation and exits from targeted underperforming sub-segments U.S. U.S. Casualty Accident Casualty Yea
Slide 21: Continued Improvement in AIG Commercial Accident Year Loss Ratio
Continued Improvement in AIG Commercial Accident Year Loss Ratio AIG’s Commercial Accident Year Loss Ratio improvement trajectory continues despite the reserve strengthening. Total Commercial Accident Year Loss Ratio Adjusted for Prior Year Development (1) 80% 76.9% 75% 75.7% Accident Year Loss Rati
Slide 22: Diversification Represents an Important Source of Value for AIG's Shareholders
Diversification Represents an Important Source of Value for AIG’s Shareholders Shareholders have much more to lose from underestimating diversification benefits than to gain from actions that reduce diversification such as separating AIG’s businesses Insurance is by its nature a risk aggregation b
Slide 23: DTAs are an Important Source of Liquidity and Capital Supporting Capital Management
DTAs are an Important Source of Liquidity and Capital Supporting Capital Management Key Facts Tax attribute DTAs are principally composed of net operating loss deductions (NOLs) and credits for foreign taxes paid (FTCs) As of 12/31/15, AIG estimates that it has tax attribute DTAs totaling approx
Slide 24: Impact of Potential Separation on DTA
Impact of Potential Separation on DTA A separation of AIG’s life business would impair the value of AIG’s tax attribute DTAs ‒ Without Life income, FTCs generally cannot be used as credits since NOLs must be used first ‒ Without Life income, NOL usage would slow down, reducing the value of the tax
Slide 25: Utilization of Tax Attributes
Utilization of Tax Attributes AIG's projected use of attributes is based upon steps intended to maximize use of FTCs in 2016 and 2017 – Use of FTCs and NOLs is impacted by business and planning strategies that accelerate approximately $11 billion of income into 2016 and 2017 above projected life b
Slide 26: Utilization of Tax Attributes (continued)
Utilization of Tax Attributes (continued) In general, a tax attribute is valuable if it: – Is used to shelter regular business income and any growth initiatives that would otherwise be subject to tax currently – Is used to shelter income generated by an income acceleration strategy that produces o
Slide 27: AIG's Regulatory Environment
AIG’s Regulatory Environment Global insurance enterprises are subject to group-wide consolidated supervision by one of its primary regulators. Therefore, even if AIG were no longer designated as a non-bank SIFI, it would still be subject to the remaining layers of regulation AIG is regulated by
Slide 28: AIG's Regulatory Environment (continued)
AIG’s Regulatory Environment (continued) Supervision by the Federal Reserve as a non-bank SIFI requires AIG to incur modest incremental costs (estimated at $100-150 million annually), but even if designation as a SIFI were eliminated, consolidated group-wide supervision under any regulator will re
Slide 29: AIG's Risk Profile
AIG’s Risk Profile AIG has a lower risk profile than other non-bank SIFIs across key metrics Total Assets ($ bn) Total Gross Notional Derivatives ($ bn) (1) 878 757 497 405 428 186 AIG MetLife Prudential AIG MetLife Prudential Leverage Ratio (x) (2) VA Assets / Total Equity (3) 3.6x 11.3x 8.5x 2.4x
Slide 30: Selected FSOC Stage 1 Metrics – AIG vs. Peers (YE 2015)
Selected Financial Stability Oversight Council (“FSOC”) Stage 1 Metrics – AIG vs. Peers (YE 2015) Denotes that value exceeds the FSOC Stage 1 criteria Source: AIG estimates of FSOC metrics using company filings; AIG estimates may not be the same as or correspond exactly with FSOC or peer company cal
Slide 31: AIG in 2015: A Simplified Company
AIG in 2015: A Simplified Company Financial Position (in US$ billions, unless otherwise stated) 176 96 98 107 90 1,048 5 13 11 3 549 516 497 49 91 85 96 87 31 29 2007 2012 2014 2015 2007 2012 2014 2015 2007 2012 2014 2015 Shareholders' Equity (ex. AOCI) AOCI Total Debt Total Assets Shareholders’ Equ
Slide 32: AIG in 2015: A Simplified Company (Cont'd)
AIG in 2015: A Simplified Company (Cont’d) (in US$ billions, unless otherwise stated) 2,655 43 38 19 14 193 188 186 (2) 2007 2012 2014 2015 2008 2012 2014 2015 Total Gross Notional Derivatives (1) CDS with AIG as Reference Entity (3) 82 8 13 3 2 2 8 0 1 0 0 0 2007 2012 2014 2015 2007 2012 2014 2015
Slide 33: AIG in 2015: A Simplified Company (Cont'd)
AIG in 2015: A Simplified Company (Cont’d) The wind-down of AIGFP Net Notional Exposures (in US$ billions, unless otherwise stated) 13 52 1,450 4 3 12 101 44 21 1 2 0 2008 2012 2014 2015 2008 2012 2014 2015 2008 2012 2014 2015 Market Derivatives Multi-Sector CDS Corporate Arbitrage 35,200 245 0 0 0
Slide 34: 2015 Short- and Long-Term Incentive Compensation
2015 Short- and Long-Term Incentive Compensation Incentive compensation aligned with creating value for shareholders Weighting / Category Metric Rationale Short-Term Incentives 30% Business Profitability • Normalized Insurance Company • Reward executional excellence reflected in profitability of our
Slide 35: Strong Alignment Across Organization
Strong Alignment Across Organization Significant long-term component of CEO and Executive Leadership Team (ELT) compensation 2015 Compensation Mix 51% Portion related 63% to CDS spread 13% 16% 31% 25% 18% 12% CEO ELT (Average) Base Salary STI (Target) LTI (Target) 28
Slide 36: Potential Risks to Meeting Our Objectives
Potential Risks to Meeting Our Objectives (1) Macroeconomic environment impacting operations or investments External Catastrophe activity P&C pricing environment affecting the timing and magnitude of underwriting P&C improvements Underwriting Tail-risk uncertainty in U.S. long-tail reserves
Slide 37: Board and Governance
Board and Governance AIG
Slide 38: Board Composition Aligned with Business Needs
Board Composition Aligned with Business Needs Highly Engaged and Balanced Board with Current Board of Directors Substantial & Diverse Expertise Necessary to Evaluate and Oversee Strategic Action Plan George L. Miles John H. Fitzpatrick Director Since 2005 Director Since 2011 Key Attributes Deep ex
Slide 39: AIG's Executive Leadership Team
AIG’s Executive Leadership Team Peter D. Hancock, President and CEO Jeffrey Hurd, Chief Operating Officer • Recognized authority on risk management, who has • Leader in executing transformative organizational change focused entire 30-year career on financial services • Has been with AIG for 18 years
Slide 40: Board Policies Foster Independence & Accountability
Board Policies Foster Independence & Accountability Independent Chairman is required by by-laws Robust Duties for Independent Chairman Independent Chairman role is refreshed regularly – Annual review of Independent Chairman Oversee Board meeting agenda preparation – Chairman generally does not
Slide 41: Robust Committee Design to Facilitate Dialogue and Efficiency
Robust Committee Design to Facilitate Dialogue and Efficiency Committee Structure Committee structure organized around key strategic issues to oversee management and decision making process Frequent meetings helped to shepherd AIG Risk & Capital Audit through crisis period and continue Committ
Slide 42: Board of Directors Full Professional History
Board of Directors Full Professional History W. Don Cornwell Mr. Cornwell is the former Chairman of the Board and Chief Executive Officer of Granite Broadcasting Corporation, serving from 1988 until his retirement in August 2009, and Vice Chairman until December 2009. Mr. Cornwell spent 17 years at
Slide 43: Board of Directors Full Professional History
Board of Directors Full Professional History Peter D. Hancock Mr. Hancock has been AIG’s President and Chief Executive Officer since September 2014, when he also joined the Board of Directors. Previously, he served as AIG’s Executive Vice President—Property and Casualty Insurance and joined AIG in F
Slide 44: Board of Directors Full Professional History
Board of Directors Full Professional History Samuel J. Merksamer Mr. Merksamer is a Managing Director of Icahn Capital LP, a subsidiary of Icahn Enterprises L.P., a diversified holding company engaged in multiple business segments, where he has been employed since 2008. Mr. Merksamer is a director o
Slide 45: Board of Directors Full Professional History
Board of Directors Full Professional History Robert S. Miller Mr. Miller has been President, Chief Executive Officer and a director of International Automotive Components Group S.A. since August 2015. He has also been Chairman of MidOcean Partners, a leading middle market private equity firm, since
Slide 46: Board of Directors Full Professional History
Board of Directors Full Professional History Ronald A. Rittenmeyer Mr. Rittenmeyer has served as Chairman of the Board and Chief Executive Officer of Millennium Health since April 2016. Mr. Rittenmeyer is the former Chairman, President and Chief Executive Officer of Expert Global Solutions, Inc. (fo
Slide 47: Summary of March 16, 2016 Updates to January Presentation
Summary of March 16, 2016 Updates to January 26 Presentation Slide 4 – AIG Announces Actions to Create a Leaner, More Slide 17 - Allocation of Shareholders' Equity to Operating and Profitable and Focused Insurer: Updated the percentage of Legacy Portfolios (continued): capital allocated to legac
Slide 48: Glossary of Non-GAAP Financial Measures and Non-GAAP Reconciliations
Glossary of Non-GAAP Financial Measures and Non-GAAP Reconciliations 41
Slide 49: Glossary of Non-GAAP Financial Measures
Glossary of Non-GAAP Financial Measures AIG 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 w
Slide 50: Glossary of Non-GAAP Financial Measures (continued)
Glossary of Non-GAAP Financial Measures (continued) AIG Normalized Return on Equity, Excluding AOCI and DTA further adjusts Return on Equity – After-tax Operating Income, excluding AOCI and DTA for the effects of certain volatile or market related items. Normalized Return on Equity, Excluding AOCI
Slide 51: Glossary of Non-GAAP Financial Measures (continued)
Glossary of Non-GAAP Financial Measures (continued) Commercial Insurance: Institutional Markets; Consumer Insurance: Retirement and Life Pre-tax operating income is derived by excluding the following items from pre-tax income: – changes in fair value of securities used to hedge guaranteed living b
Slide 52: Non-GAAP Reconciliations
Non-GAAP Reconciliations ($ in Billions) FY 2014 FY 2015 Total general operating expenses, Operating basis $11.9 $11.1 Loss adjustment expenses, reported as policyholder benefits and losses incurred (1.7) (1.6) Advisory fee expenses 1.3 1.3 Non-deferrable insurance commissions 0.5 0.5 Direct marketi
American International Group — Investor Presentation (January 2016) on 6ix