American International Group, Inc. New · NYSE:AIG
American International Group, Inc. New — American International Group — Q2 2016 Earnings Presentation
37 slides from American International Group, Inc. New's earnings presentation, Aug 30, 2016
Slide 1: Investor Presentation
Investor Presentation August 30, 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 the announced agreement to sell 100% of UGC to Arch Capital Group Ltd. and the complete
Slide 5: Clear and Achievable Financial Targets
Clear and Achievable Financial Targets Normalized 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 Normalized ROE '16E (2) Normalized ROE '17E (2) 8.4 - 8.9%
Slide 6: Progress On Financial Targets
Progress On Financial Targets FY 2016 YTD Objective Selected 2Q Actions Target June 30, 2016 Reduce 6% Reduction 11%1 The expense decline in 2Q16 reflected our actions to reduce GOE, (~$700mm) ($637mm) employee-related expenses and professional fees Operating Basis Increase Normalized ROE benefi
Slide 7: Reducing Exposure to Market Sensitive Assets
Reducing Exposure to Market Sensitive Assets Market Sensitive Assets as a % Annualized Return on Market Sensitive Assets of Total Invested Assets* 10.8% 10.7% 11.0% 10.8% 14.1% 9.4% 9.2% 8.9% 10.5% 10.2% 8.0% 7.1% 8.1% 7.4% 4.3% (0.5%) (2.4%) (12.5%) 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 2Q14
Slide 8: Impact of Low Interest Rate Environment
Impact of Low Interest Rate Environment Business Impacted Considerations for Inforce ALM Key Actions for New Business Assets generally longer than liabilities so limited Long-tail Casualty Continued focus on pricing, risk selection and rate impact Variable Annuities Interest rate risk on livin
Slide 9: 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) (As
Slide 10: General Operating Expense, Operating Basis, Reductions
General Operating Expense, Operating Basis, Reductions Targeting $1.6B of Gross GOE, Operating Basis, Reductions or $1.4B of Net GOE Reductions, Operating Basis, by 2017 from GOE, Operating Basis, of $11.1B for full year 2015 ($ in Millions) 1H’15 vs. 1H’16 11% $5,726 $5,668 $58 $31 $5,031 $356 $25
Slide 11: Organizational Transparency
Organizational Transparency Modular operating model and new Legacy Portfolio to enhance transparency and accountability New Legacy Portfolio to consist of non-strategic assets, including tax attribute DTA, businesses and products AIG intends to exit and select low returning legacy insurance products
Slide 12: Divestitures – No Sacred Cows
Divestitures – No Sacred Cows Specific actions taken and a clear framework for future transactions Announced Divestitures UGC – Agreed to sell 100% of UGC to Arch Capital Group Ltd. in August 2016 AIG Advisor Group – completed sale to Lightyear Capital and PSP Investments in May 2016 Strategic F
Slide 13: Accident Year Loss Ratio
Continued Improvement in Commercial Insurance Property Casualty Accident Year Loss Ratio, As Adjusted Commercial Insurance Property Casualty Accident Year Loss Ratio, As Adjusted, (Adjusted For 2012-2015 Prior Year Development) 80% 76.9% 75% Accident Year Loss Ratio 70.0% 70% 1H16 67.9% AY LR as 67.
Slide 14: Commercial Insurance – Property Casualty Accident Year Loss Ratio, As Adjusted, Dispersion
Commercial Insurance – Property Casualty Accident Year Loss Ratio, As Adjusted, Dispersion1 2015 Accident Year Loss Ratio, As Adjusted REMEDIATE 91% MAINTAIN AND IMPROVE FY15 AYLR Product Set 3 66% GROW FY15 AYLR 41% FY15 AYLR Product Set 2 Product Set 1 0 Net Premiums Earned ($BN) ~$20 Period Produ
Slide 15: 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 16: Consumer Insurance – Operating Actions
Consumer Insurance – Operating Actions Actions to sharpen Consumer focus will improve profitability Absorb impact of DOL(1) rules; invest U.S. Retirement in most attractive post-DOL opportunities across the market Number of Countries Selling Expand on successes in High Net Personal Insurance Lev
Slide 17: Reserves – Non-Life Insurance Companies
Reserves – Non-Life Insurance Companies Business Mix Shift Away from Long-Tail Casualty Lines and Accelerated Commutation of Legacy Portfolios (Especially 2005 and Prior) Are Expected to Reduce Reserve Variability Total Net Reserves $62.5 Billion at June 30, 2016 By Accident Year By Line of Business
Slide 18: Deferred Tax Assets
Deferred Tax Assets Diversified Operating Platform Allows For Utilization of Valuable Tax Attributes As of 12/31/14 As of 12/31/15 Gross Deferred Gross Deferred ($ in Billions) Type Utilization/Expiration Attributes Tax Asset Attributes Tax Asset Utilize against Non-Life Insurance Companies, Corpo
Slide 19: 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 20: 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) 943 796 510 401 427 184 AIG MetLife Prudential AIG MetLife Prudential Leverage Ratio (x) (2) VA Assets / Total Equity (3) 9.3x 8.0x 2.7x 2.1x 4
Slide 21: Strong Capital Position
Strong Capital Position Capital Structure ($ in Billions) Capital Return ($ in Millions) 2Q16 1H’16 $112.2 Share repurchases $2,762 $6,248 $109.4 $1.3 $0.9 Warrant repurchases 90 263 $17.9 $20.8 Dividends paid 350 713 Total $3,202 $7,224 $90.2 $90.5 Risk Based Capital Ratios2 Domestic Life Domestic
Slide 22: Parent Liquidity
Parent Liquidity ($ in Billions) Changes in Parent Liquidity Targeted Range $6-8B $0.8 $0.5 $2.81 $7.1 $6.7 Unencumbered Includes: ($3.2) Non-Life = ~$1.0B ($0.9) ($0.4) Unencumbered Securities $4.1 Life = ~$0.7B Securities Tax Pmts = ~$1.1B $4.7 Cash & S/T Cash & S/T Inv. $3.0 Inv. $2.0 Balance at
Slide 23: Book Value Per Share, Ex. AOCI & DTA, Including Dividend Growth
Book Value Per Share, Ex. AOCI & DTA, Including Dividend Growth Growth of 5% in 2Q16 (4% in 1H’16) Book Value Per Common Share, ex. AOCI & DTA, including Dividend Growth $1.07 $0.18 $61.78 $0.70 ($0.08) ($0.12) $0.98 $59.05 March 31, Operating Non-operating Utilization of Accretive Warrant Dividends
Slide 24: Normalized Return On Equity Expansion
Normalized Return On Equity Expansion Underwriting Improvement, Expense Management and Active Capital Management Drives Normalized ROE Expansion Normalized Return On Equity 1.2% 8.8% 1.6% (0.4%) (0.3%) 6.7% 2Q15 Operating Capital 2 Alternative Other, net 2Q16 Improvement1 Assets 1) Primarily represe
Slide 25: Life Insurance Companies – Invested Assets
Life Insurance Companies – Invested Assets Total Cash & Invested Assets as of June 30, 2016 - $213.7 billion (1) Total Portfolio Composition Bond Portfolio - $173.1 billion CMBS By Agency Credit Rating By NAIC Ratings RMBS 5% CDO/ABS NA 12% 6% B <1% 3% Equities <B 2, 36% BB AAA <1% 8% Other invested
Slide 26: Non-Life Insurance Companies – Invested Assets
Non-Life Insurance Companies – Invested Assets Total Cash & Invested Assets as of June 30, 2016 - $115.7 billion (1) Total Portfolio Composition Bond Portfolio - $89.0 billion - by Agency Credit Rating CMBS NA CDO/ABS 3% B <1% 7% RMBS 3% Equities <B 9% 2% BB 3% 8% AAA 17% Other invested assets 9% Co
Slide 27: Enhanced Debt Maturity Profile
Enhanced Debt Maturity Profile Liability Management Actions Have Improved Maturity Profile and Reduced Weighted Average Coupon to 4.46% As of 6/30/2016 – Total Notional Amount: $22.2 Billion / Weighted Average Coupon: 4.46% ($ in Millions) 5,000 100% 4,000 80% 3,000 60% 2,000 1 40% 1,000 1 1 20% 0 0
Slide 28: Glossary of Non-GAAP Financial Measures and Non-GAAP Reconciliations
Glossary of Non-GAAP Financial Measures and Non-GAAP Reconciliations 28
Slide 29: Glossary of Non-GAAP Financial Measures
Glossary of Non-GAAP Financial Measures AIG We use certain of our operating performance measures, as discussed beginning in the next paragraph below, to define our forward-looking financial targets as described on pages 4, 5, 6, 10 and 13. Our financial targets are provided based on management’s est
Slide 30: Glossary of Non-GAAP Financial Measures
Glossary of Non-GAAP Financial Measures AIG Return on Equity – After-tax Operating Income Excluding AOCI and Return on Equity – After-tax Operating Income Excluding AOCI and DTA are used to show the rate of return on shareholders’ equity. We believe these measures are useful to investors because t
Slide 31: 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 32: Non-GAAP Reconciliations
Non-GAAP Reconciliations General operating expenses, Operating basis FY 2014 FY 2015 1H'15 1H'16 ($ in Millions) Total General operating expenses, Operating basis $11,940 $11,141 $5,726 $5,031 Loss adjustment expenses, reported as policyholder benefits and losses incurred (1,667) (1,632) (851) (691)
Slide 33: Non-GAAP Reconciliation – Pre-tax and After-tax Operating Income
Non-GAAP Reconciliation – Pre-tax and After-tax Operating Income 2Q15 2Q16 Reconciliations of Pre-tax and After-tax Operating Income Tax Tax ($ in millions) Pre-tax Effect After-tax Pre-tax Effect After-tax Operating income, excluding noncontrolling interests $2,868 $985 $1,883 $1,620 $503 $1,117 No
Slide 34: Non-GAAP Reconciliation – Book Value Per Common Share and Return On Equity
Non-GAAP Reconciliation – Book Value Per Common Share and Return On Equity Book Value Per Common Share Dec. 31, 2015 March 31, 2016 June 30, 2016 ($ in Millions, Except Per Share Data) Total AIG shareholders’ equity (a) $89,658 $88,518 $89,946 Less: Accumulated other comprehensive income (AOCI) (2,5
Slide 35: Non-GAAP Reconciliation – Accident Year Combined Ratio, as Adjusted
Non-GAAP Reconciliation – Accident Year Combined Ratio, as Adjusted Property Casualty Mortgage Guaranty Personal Insurance Accident Year Combined Ratio, As Adjusted 2Q15 1Q16 2Q16 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 1H'16 2Q15 2Q16 2Q15 2Q16 Loss ratio 70.8 68.2 75.0 84.1 80.5 71.9 71.6 86.2 71.
Slide 36: Non-GAAP Reconciliation – Normalized ROE, Ex. AOCI & DTA
Non-GAAP Reconciliation – Normalized ROE, Ex. AOCI & DTA1 2Q15 2Q16 ($ in m illions) Pre-tax Tax Effect After-tax ROE Pre-tax Tax Effect After-tax ROE ROE – After-tax operating incom e (loss), ex. AOCI & DTA $2,868 $985 $1,893 9.3% $1,620 $503 $1,113 6.7% Adjustm ents to arrive at Norm alized ROE, e
Slide 37: American International Group, Inc. (AIG) is a leading global insurance organization
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, mortgage insurance and other financial services to customers in more than 100 countries and jurisdi
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