American International Group, Inc. New · NYSE:AIG
American International Group, Inc. New — American International Group — Investor Presentation (May 2016)
52 slides from American International Group, Inc. New's investor presentation, May 25, 2016
Slide 1: Strategic Actions to Maximize Shareholder Value
Strategic Actions to Maximize Shareholder Value January 26, 2016 EXHIBIT 99.1
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 “Today, AIG announces steps to narrow its focus, improve its financial performance, and return capital to shareholders. While we take these steps to maximize shareholder value, we continue to think holistically about all of our stakeholders. Importantly, we are committed to being our
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 $25 bn of capital to shareholders Pursue an active divestiture program, including initially the 19.9% IPO of UGC as first step towards full separation and sale of AIG Adviso
Slide 5: Return Significant Capital to Our Shareholders in 2016-2017
Return Significant Capital to Our Shareholders in 2016-2017 Projected Sources for 2016-2017 Capital Return Goal ($ bn) 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 (3)
Slide 6: Divestitures – No Sacred Cows
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 Capital and PSP Investments; expected closing in 2Q 2016, subject to regulatory approval Divestitures – No Sacred Cows Announced
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) Selected 2016-2017 Actions Continue to con
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 micro-
Slide 9: Organizational Transparency
Organizational Transparency Operating Portfolio Legacy Portfolio (1) Objectives Value-maximization and capital release from monetizing or running off non-strategic assets Operating ROE improvement across modular, focused business units Notes: (1) Legacy Portfolio assets may evolve over time. (2) Cou
Slide 10: Clear and Achievable Financial Targets
Clear and Achievable Financial Targets Operating Portfolio Legacy Portfolio (1) Consolidated ~$14 bn $23 bn 10.3 - 10.7% 9.3 - 9.7% ~9% 8.4 - 8.9% (2) (2) Notes: (1) Legacy Portfolio assets may evolve over time. (2) Normalized operating ROE excluding AOCI & DTA, a non-GAAP financial measure. Operati
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-bank
Slide 12: Appendix – Supporting Materials
Appendix – Supporting Materials General Operating Expense ReductionsPage 13 Commercial Insurance – Operating ActionsPage 14 Consumer Insurance – Operating ActionsPage 15 Legacy Portfolio – BackgroundPage 16 Allocation of Shareholders' Equity to Operating and Legacy PortfoliosPage 17 Capital Position
Slide 13: General Operating Expense Reductions
Actions have been announced or are planned to drive Operating GOE reductions General Operating Expense 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 Add
Slide 14: Commercial Insurance – Operating Actions
Client Focus Refine our focus on client segmentation Successful execution in these areas and other AIG-wide initiatives expected to produce the following benefits by 2017: ~+$1.2 bn PTOI Accident year loss ratio (1) improvement of 6 points Portfolio “Exits” Exit or remediate targeted sub-segments of
Slide 15: Consumer Insurance – Operating Actions
Actions to sharpen Consumer focus will improve profitability Leverage Successes Japan Reinsurance Expand on successes in High Net Worth and Service businesses Reduce Footprint Successful execution in these areas and other AIG-wide initiatives expected to produce the following benefit by 2017: ~+$0.8
Slide 16: 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 ~$9 bn) Legacy Management Skills and Expertise Issues Execution expertise as evidenced by the wind down of AIG Financial Products an
Slide 17: Allocation of Shareholders' Equity to Operating and Legacy Portfolios
Allocation of Shareholders' Equity to Operating and Legacy Portfolios Operating Portfolio – Shareholders' Equity Excluding AOCI ($ bn) Legacy Portfolio – Shareholders' Equity Excluding AOCI ($ bn) (1) (2) (1) (2) (3) Notes: (1) December 31, 2015 AIG Shareholders’ Equity (excluding AOCI) as reported
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: P&C Reserve Strengthening Detail
AIG continues to broaden and enhance methods and assumptions to better inform the Company’s best estimate for reserves with the objective of mitigating the degree of volatility around the selected best estimate. Of the $3.6 billion reserve strengthening: 35% is attributable to accident years 2004 an
Slide 20: Reduced exposure in long-tailed U.S. Casualty
Reduced exposure in long-tailed U.S. Casualty will assist in reducing reserve estimation volatility. 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 reme
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. Notes: (1) Accident year loss ratio adjusted for prior year development represents reported accident year loss ratios adjuste
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 bus
Slide 23: DTAs are an Important Source of Liquidity and Capital
DTAs are an Important Source of Liquidity and Capital Supporting Capital Management 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 approximately $16.7
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 attri
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 busin
Slide 26: Utilization of Tax Attributes (continued)
24b 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 off
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 the
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 $100-150 million annually), but even if designation as a SIFI were eliminated, consolidated group-wide supervision under any regulator will requ
Slide 29: AIG’s Risk Profile
AIG’s Risk Profile Total Assets ($ bn) Total Gross Notional Derivatives ($ bn) (1) Leverage Ratio (x) (2) VA Assets / Total Equity (3) Source: Company filings. Notes: Figures are as of December 31, 2015. (1) Calculated as sum of the gross notional amounts of derivative assets and liabilities. AIG da
Slide 30: Selected FSOC Stage 1 Metrics – AIG vs. Peers
Selected Financial Stability Oversight Council (“FSOC”) Stage 1 Metrics – AIG vs. Peers (YE 2015) 26a Amended May 25, 2016 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
Slide 31: AIG in 2015: A Simplified Company
AIG in 2015: A Simplified Company Notes: All figures are as of Dec 31 unless otherwise stated. (1) Calculated as Total Debt / Shareholders’ Equity. (2) Calculated as Total Assets ex. Separate Account Assets / Shareholders’ Equity. (3) Based on 2-year Adjusted Bloomberg beta as of the period end, usi
Slide 32: AIG in 2015: A Simplified Company (Cont’d)
AIG in 2015: A Simplified Company (Cont’d) Notes: All figures are as of Dec 31 unless otherwise stated. (1) Calculated as sum of the gross notional amounts of derivative assets and liabilities. 2007 data based on 10-K disclosure, excludes non-material and undisclosed non-AIGFP derivatives. 2012, 201
Slide 33: AIG in 2015: The wind-down of AIGFP
AIG in 2015: A Simplified Company (Cont’d) Notes: All figures are as of Dec 31 unless otherwise stated. 2007 data not available. 2008 figures are approximate. 26d Added March 31, 2016 The wind-down of AIGFP Net Notional Exposures (in US$ billions, unless otherwise stated) –99% –92% Market Derivative
Slide 34: 2015 Short- and Long-Term Incentive Compensation
2015 Short- and Long-Term Incentive Compensation Weighting / Category Metric Rationale Short-Term Incentives 30% Business Profitability Reward short-term profitability of the insurance businesses, normalized Normalized Insurance Company PTOI Reward executional excellence reflected in profitability o
Slide 35: Strong Alignment Across Organization
Strong Alignment Across Organization 2015 Compensation Mix Significant long-term component of CEO and Executive Leadership Team (ELT) compensation 16% 13% 28
Slide 36: Potential Risks to Meeting Our Objectives
Potential Risks to Meeting Our Objectives (1) Macroeconomic environment impacting operations or investments Catastrophe activity External P&C Underwriting P&C pricing environment affecting the timing and magnitude of underwriting improvements Tail-risk uncertainty in U.S. long-tail reserves Operatio
Slide 37: Board and Governance
Board and Governance AIG
Slide 38: Highly Engaged and Balanced Board
Highly Engaged and Balanced Board with Substantial & Diverse Expertise Necessary to Evaluate and Oversee Strategic Action Plan Key Attributes Deep experience in business transformations and strategic restructurings Experience managing large, complex, international institutions Strong risk oversight
Slide 39: AIG’s Executive Leadership Team
AIG’s Executive Leadership Team 32 Peter D. Hancock, President and CEO Douglas Dachille, Chief Investment Officer Philip Fasano, Chief Information Officer Martha Gallo, Chief Auditor Kevin Hogan, CEO, Consumer Jeffrey Hurd, Chief Operating Officer Thomas Russo, General Counsel Alessa Quane, Chief Ri
Slide 40: Robust Duties for Independent Chairman
Robust Duties for Independent Chairman Oversee Board meeting agenda preparation Chair Board meetings and Independent Directors executive sessions Lead CEO review process and management succession Regular interaction with the CEO including the discussion of strategic initiatives and their implementat
Slide 41: Committee Structure
Committee structure organized around key strategic issues to oversee management and decision making process Frequent meetings helped to shepherd AIG through crisis period and continue Committee chairs regularly coordinate with one another to ensure appropriate information sharing All committees prov
Slide 42: John H. Fitzpatrick
John H. Fitzpatrick Mr. Fitzpatrick has been Chairman of White Oak Global Advisors, an asset management firm lending to small and medium sized companies since September 2015, and Chairman of Oak Street Management Co., LLC, an insurance / management consulting company, and Oak Family Advisors, LLC, a
Slide 43: Peter D. Hancock
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 February 2010 as Executive Vice President, Fin
Slide 44: Henry S. Miller
Henry S. Miller Mr. Miller co-founded and has been Chairman of Marblegate Asset Management, LLC since 2009. Mr. Miller was co-founder, Chairman and a Managing Director of Miller Buckfire & Co., LLC, an investment bank, from 2002 to 2011 and Chief Executive Officer from 2002 to 2009. Prior to foundin
Slide 45: Linda A. Mills
Linda A. Mills Ms. Mills is the former Corporate Vice President of Operations for Northrop Grumman Corporation, with responsibility for driving effective operations to enable top performance, innovation and affordability. During her 12 years with Northrop Grumman, Ms. Mills held a number of position
Slide 46: Theresa M. Stone
Theresa M. Stone Ms. Stone is the former Executive Vice President and Treasurer of the Massachusetts Institute of Technology (MIT), serving from February 2007 until October 2011. In her role as Executive Vice President and Treasurer, Ms. Stone served as MIT’s Chief Financial Officer and was also res
Slide 47: Summary of March 16, 2016 Updates to January Presentation
Summary of March 16, 2016 Updates to January 26 Presentation 40 Slide 4 – AIG Announces Actions to Create a Leaner, More Profitable and Focused Insurer: Updated the percentage of capital allocated to legacy portfolios to 24% from 28% Slide 7 – Substantial Expense Reductions: Updated Operating GOE fo
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 42 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 wi
Slide 50: Glossary of Non-GAAP Financial Measures (continued)
Glossary of Non-GAAP Financial Measures (continued) 43 Pre-tax operating income: includes both underwriting income and loss and net investment income, but excludes net realized capital gains and losses, other income and expense — net, and non-operating litigation reserves and settlements. Underwriti
Slide 51: Glossary of Non-GAAP Financial Measures (continued)
Glossary of Non-GAAP Financial Measures (continued) 44 Pre-tax operating income and loss is derived by excluding the following items from pre-tax income and loss: loss on extinguishment of debt net realized capital gains and losses changes in benefit reserves and DAC, VOBA and SIA related to net rea
Slide 52: Non-GAAP Reconciliations
Non-GAAP Reconciliations Notes: (1) Represents U.S. tax attributes related to net operating loss carryforwards and foreign tax credits. (2) Represents transfer of the equity associated with discontinued/run-off businesses (primarily Life Insurance Companies run-off portfolios and pre-2012 structured
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