AIG 10-K diff: FY 2023-12-31 → FY 2024-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+138 paragraphs −185 paragraphs ~138 changed
FY 2023-12-31 (earlier)
ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
Risk Factor Summary
The following is a summary of the material risks and uncertainties that could adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Market Conditions• Deterioration of economic conditions, geopolitical tensions, changes in market conditions or weakening in global capital markets may materially affect our businesses, results of operations, financial condition and liquidity.
• Changes in interest rates have materially and adversely affected and may continue to materially and adversely affect our profitability.Reserves and Exposures• The amount and timing of insurance and reinsurance liability claims are difficult to predict and such claims may exceed the related liability for unpaid losses and loss adjustment expenses or future policy benefits, or the liabilities associated with certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value.
• Reinsurance may be unavailable or too expensive relative to its benefit, and may not be adequate to protect us against losses.• Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events as well as mass torts.
• Climate change may adversely affect our business and financial condition.
• Concentration of our insurance, reinsurance and other risk exposures may have adverse effects.• Fortitude Re may fail to perform its obligations and the accounting treatment of our reinsurance agreements with Fortitude Re leads to volatility in our results of operations.• Losses due to nonperformance or defaults by counterparties may materially and adversely affect the value of our investments, our profitability and sources of liquidity.
Investment Portfolio and Concentration of Investments
• Our investment portfolio is concentrated in certain segments of the economy, and the performance and value of our investment portfolio are subject to a number of risks and uncertainties.• We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of Blackstone, BlackRock or any other investment manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on AIG Common Stock.
• Our valuation of investments and derivatives involves the application of methodologies and assumptions to derive estimates, which may differ from actual experience and could result in changes to investment valuations that may materially adversely affect our business, results of operations, financial condition and liquidity or lead to volatility in our net income.Liquidity, Capital and Credit
• AIG Parent’s ability to access funds from our subsidiaries is limited, and our sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by our subsidiaries.
• We may not be able to generate cash to meet our needs due to the illiquidity of some of our investments.
• A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity.
Business and Operations• No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake.
• Pricing for our products is subject to our ability to adequately assess risks and estimate related losses.
• Guarantees within certain of our Life and Retirement products may increase the volatility of our results.
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ITEM 1A | Risk Factors• Our risk management policies, standards and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses, results of operations, financial condition and liquidity.• Our foreign operations expose us to risks that may affect our operations.• We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity.• Third parties 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 may experience difficulty in marketing and distributing products through our current and future distribution channels and the use of third parties may result in additional liabilities.• Our restructuring initiatives may not yield our expected reductions in expenses and improvements in operational and organizational efficiency.• Business or asset acquisitions and dispositions may expose us to certain risks.• Significant legal or regulatory proceedings may adversely affect our business, results of operations or financial condition.• Increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social and governance matters, including governmental responses to such matters, may adversely affect our reputation or otherwise adversely impact our business and results of operations.
• An epidemic, pandemic or other health crisis could materially and adversely affect our business results of operations, financial condition and liquidity. COVID-19 (including variants) has adversely affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity.• We may not be able to protect our intellectual property and may be subject to infringement claims.
Regulation
• Our businesses are heavily regulated and changes in laws and regulations may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability.
• New laws and regulations or new interpretations of current laws and regulations, both domestically and internationally, may affect our businesses, results of operations, financial condition and ability to compete effectively.
• An “ownership change” could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income.• New and proposed changes to tax laws could increase our corporate taxes or make some of our products less attractive to consumers.Estimates and Assumptions
• Estimates or assumptions used in the preparation of financial statements and modeled results used in various areas of our business may differ materially from actual experience.
• Changes in accounting principles and financial reporting requirements may impact our consolidated results of operations and financial condition.• If our businesses do not perform well and/or their estimated fair values decline, we may be required to recognize an impairment of our goodwill or establish an additional valuation allowance against the deferred income tax assets, which could have a material adverse effect on our results of operations and financial condition.Employees and Competition
• Employee error and misconduct may be difficult to detect and prevent and may result in reputational damage and significant losses.
• Competition for employees in our industry is intense, and managing key employee succession is critical to our success. We may not be able to attract and retain the key employees and other highly skilled employees we need to support our businesses.
• We face intense competition in each of our business lines, and technological changes may present new and intensified challenges to our businesses.16
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ITEM 1A | Risk Factors
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 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 above and beyond a risk’s singular impact.
MARKET CONDITIONSDeterioration of economic conditions, geopolitical tensions, changes in market conditions 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, including a recessionary environment, poor capital markets performance and market volatility have in the past led to, and may in the future lead to, among other consequences, a poor operating environment, erosion of consumer and investor confidence, reduced business volumes, deteriorating liquidity, declines in asset valuations and impacts on policyholder behavior that could influence reserve valuations.
Key ways in which we have in the past been, and could in the future be, negatively affected by economic conditions include:
• increases in policy withdrawals, lapses, surrenders and cancellations and other impacts from changes in policyholder behavior compared to that assumed in pricing;• increased loss payments and loss costs due to inflation;
• increased challenges to insurance policy terms and conditions, such as standard exclusions;
• increases in costs associated with third-party reinsurance, or decreased ability to obtain reinsurance on acceptable terms;
• the increased likelihood of, or increased magnitude of, asset impairments caused by market fluctuations, deterioration in collateral values or credit deterioration of borrowers; and• reduced premium and deposits.
Adverse economic conditions may result from a variety of factors including domestic and global economic and political developments, including elevated interest rates, plateauing or decreasing economic growth and business activity, recessions, social inflation, inflationary or deflationary pressures in developed economies, including the United States, civil unrest, pandemics, geopolitical tensions, foreign investment restrictions, or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by the United States and other countries or the conflict in Israel and the surrounding areas, and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains.
These and other market, economic, regulatory and political factors, including the prolonged effects of elevated inflation, turmoil in the global banking sector and related macroeconomic uncertainty, and domestic and international political tension, including any potential U.S. government shutdown, have had and could continue to have a material adverse effect on our businesses, results of operations, financial condition, capital and liquidity in many ways, including:• lower levels of consumer demand for and ability to afford our products and commercial business activities that have decreased and may continue to decrease revenues and profitability and thus impair goodwill, deferred tax assets or other long-term assets;• increased credit impairments, downgrades and losses across single or numerous asset classes due to lower collateral values or deteriorating cash flow and profitability by borrowers that could lead to higher defaults on the Company’s investment portfolio, especially in geographic, industry or investment sectors where the Company has higher concentrations of exposure, such as real estate related borrowings, and widening of credit spreads that could reduce investment asset valuations, decrease fee income and increase statutory capital requirements;• increased market volatility and uncertainty that could decrease liquidity, increase borrowing costs and limit access to capital markets;• the reduction of investment income generated by our investment portfolio;
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ITEM 1A | Risk Factors
• disruption to our business operations in countries experiencing geopolitical tensions as well as increased costs associated with meeting customer needs in such regions;• increased costs related to our direct and third-party support services, labor and financing, increased credit risk and decreased sales as a result of inflationary pressures; and
• limitations on business activities and increased compliance risks with respect to economic sanctions regulations relating to jurisdictions in which our businesses operate or we have operations.In addition, if our investment managers, including Blackstone Inc. (Blackstone) and BlackRock, Inc. (BlackRock), or any other investment managers we engage, fail to react appropriately to difficult market or economic conditions, our investment portfolio could incur material losses.
Changes in interest rates have materially and adversely affected and may continue to materially and adversely affect our profitability.
Global interest rates increased steadily in 2022 and 2023, including in the United States, and in some cases, have risen rapidly after an extended period at or near historic lows.
We are exposed primarily to the following risks arising from or exacerbated by fluctuations in interest rates:
• mismatch between the expected duration of our liabilities and our assets;
• impairment to our ability to earn the returns or spreads assumed in the pricing and the reserving for our products;
• changes in certain statutory reserve or capital requirements that are based on formulas or models that consider interest rates or prescribed interest rates, such as cash flow testing reserves;
• changes in the costs of derivatives we use for hedging or increases in the volume of hedging we do;
• an increase in policy loans, surrenders and withdrawals as interest rates rise;
• loss from reduced fee income, and changes in the fair values of Market Risk Benefits (MRBs) and embedded derivatives;
• the reinvestment risk associated with more prepayments on mortgage-backed securities and other fixed income securities in decreasing interest rate environments and fewer prepayments in increasing interest rate environments;
• volatility in our generally accepted accounting principles (GAAP) results of operations driven by interest rate-related components of liabilities and equity market-related components of optional guaranteed benefits and the cost of associated hedges in low interest rate environments; and
• increased financing and refinancing costs, in particular with respect to our corporate debt instruments.
Changes in interest rates have had and could continue to have a material adverse effect on the value of our investment portfolio. For example, increases in interest rates have impacted, and may continue to impact, our investment portfolio by decreasing the estimated fair values of the fixed income securities that constitute a substantial portion of our investment portfolio as well as the alternative investments in our investment portfolio. This in turn has increased and could continue to increase the unrealized loss positions in our portfolio and adversely affect our ability to realize our deferred tax assets, thereby materially and adversely affecting our business, results of operations, financial condition and liquidity. Furthermore, changes in interest rates and credit spreads have led to decreasing the average account value of our separate accounts thereby negatively impacting the fee income we earn.
In periods of rapidly increasing interest rates or sustained periods of elevated interest rates, such as the current interest rate environment, we may not be able to purchase, in a timely manner, the investments in our general account with yields sufficient to fund the higher crediting rates necessary to keep interest rate sensitive products that we offer competitive. Therefore, we may need to accept a lower investment spread and, thus, lower profitability, or face a decline in sales and greater loss of existing contracts and related assets. Policy loans, surrenders and withdrawals also tend to increase as policyholders seek investments with higher perceived returns in higher interest rate environments. These impacts may continue to result in significant cash outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by interest rate volatility, which could result in realized investment losses when selling assets in an unrealized loss position.
Conversely, the sustained low interest rates we experienced through early 2022 negatively affected and, should a low interest rate environment return, could in the future negatively affect the performance of our investments and reduce the level of investment income earned on our investment portfolios, resulting in net investment spread compression. We experience lower investment income as well as lower sales of new Life and Retirement insurance products, including interest rate sensitive products, and policies when a low or declining U.S. interest rate environment persists, and/or interest rates turn negative, and these effects can persist so long as the investments purchased and products issued remain outstanding, even after rates have risen. We may also experience lower investment income if we are forced to reinvest cash flows from investments at rates below the average yield of our existing portfolios. Due to practical and capital markets limitations, we have in the past not been and may in the future not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities. Low levels of interest rates have in the past and could in the future continue to 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.
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AIG | 2023 Form 10-KTABLE OF CONTENTS
ITEM 1A | Risk FactorsIn addition, fluctuations in interest rates may expose us to the risk of increases in certain statutory reserve requirements that are based on formulas or models that consider interest rates, which would reduce statutory capital, and increases in capital requirements and the amount of assets we must maintain to support statutory reserves, which would reduce surplus.
The primary source of our exposure to credit spreads is in the value of our fixed income securities. If credit spreads widen significantly, we could be exposed to higher levels of defaults and impairments. If credit spreads tighten significantly, it could result in reduced net investment income and, in turn, reduced profitability associated with new purchases of fixed maturity securities.
Tightening credit spreads would reduce the discount rates used in the principles-based statutory reserve calculation, potentially increasing statutory reserve requirements and, in turn, reducing statutory surplus. Although these effects on bond fund valuation and reserve discount rates run in offsetting directions for either credit spread widening or narrowing, it is possible for one of them to outweigh the other under certain market conditions. Any of these risks could cause an adverse effect on our business, results of operations, financial condition and liquidity.RESERVES AND EXPOSURESThe amount and timing of insurance and reinsurance liability claims are difficult to predict and such claims may exceed the related liability for unpaid losses and loss adjustment expenses or future policy benefits, or the liabilities associated with certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value.
We regularly review the adequacy of the established liability for unpaid losses and loss adjustment expenses and future policy benefits, as well as liabilities associated with certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value. We also conduct extensive analyses of our reserves and embedded derivatives during the year. Our liability for unpaid losses and loss adjustment expenses, future policy benefits and embedded derivatives, however, has and may develop adversely and materially impact our businesses, results of operations, financial condition and liquidity.
For General Insurance, estimation of ultimate net losses, loss expenses and the liability for unpaid losses and loss adjustment expenses is a complex process, particularly for both long-tail and medium-tail liability lines of business. There is also greater uncertainty in establishing reserves with respect to new business, particularly new business involving 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 unexpected events, such as pandemics or geopolitical conflicts. 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, the liability for unpaid losses and loss adjustment expenses has been and may continue to be significantly affected by changes in loss cost trends or loss development factors that were relied upon in setting the liability for unpaid losses and loss adjustment expenses. 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, or other social or economic factors affecting claims, including judicial and legislative actions, and changes in the tort 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, establishment and ongoing calculations of reserves for future policy benefits and related reinsurance assets as well as embedded derivatives and MRBs is a complex process with significant judgmental inputs, assumptions and modeling techniques, in each case yielding corresponding results which may be inaccurate or incorrect. We make assumptions regarding mortality, morbidity, discount rates, persistency and policyholder behavior at various points, including at the time of issuance and in subsequent reporting periods. An increase in the valuation of the liability could result to the extent emerging and actual experience deviates from these assumptions. The inputs and assumptions used in connection with calculations of reserves for future policy benefits are inherently uncertain. Experience may develop adversely such that additional reserves must be established or the value of MRBs or embedded derivatives may increase. Adverse experience could arise out of a number of factors, including, but not limited to, a severe short-term event, such as a pandemic or changes to policyholder behavior during stressed economic periods, or due to mis-estimation of long-term assumptions such as mortality, interest rates, credit spreads, equity market levels and volatility and persistency assumptions. Certain variables, such as policyholder behavior, are difficult to estimate and can have a significant impact on future policy benefits, MRBs and embedded derivatives. We review and update actuarial assumptions at least annually, typically in the third quarter for reserves, MRBs and embedded derivatives. Additionally, we regularly carry out cash flow testing for statutory reporting. If actual experience or revised future expectations result in projected future losses, we may be required to record additional liabilities through a charge to policyholder benefit expense, net realized gains or losses, or changes in market risk benefits in the then-current period, which could negatively affect our business, results of operations, financial condition and liquidity.
For additional information on reserve development, see Part II, Item 7. MD&A – Insurance Reserves.For additional information on our loss reserves, see Part II, Item 7. MD&A – Critical Accounting Estimates – Loss Reserves and Note 13 to the Consolidated Financial Statements.AIG | 2023 Form 10-K
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ITEM 1A | Risk FactorsFor additional information regarding these products, see Item 1. Business – Regulation, Part II, Item 7. MD&A – Critical Accounting Estimates – Market Risk Benefits, and Notes 13 and 14 to the Consolidated Financial Statements.
Reinsurance may be unavailable or too expensive relative to its benefit, and may not be adequate to protect us against losses.
Our subsidiaries are major purchasers of third-party 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 the subsidiaries for the reinsured portion of the risk. Market conditions beyond our control have impacted and may in the future 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 is typically more difficult or costly to obtain after a year or consecutive years with a large number of major catastrophes, the likelihood of which may be exacerbated by climate change. We have been and may, at certain times be, (i) forced to incur additional costs for reinsurance, (ii) unable to obtain sufficient reinsurance on acceptable terms, or (iii) unable to obtain reinsurance for certain parts of our business. In instances where reinsurance is more costly, insufficient on acceptable terms or unavailable, we have had to, and will in the future have to accept an increase in exposure to risk, reduce or stop writing certain lines of business written by our subsidiaries or seek alternatives in line with our risk limits, or a combination thereof.
Additionally, we are exposed to credit risk with respect to our subsidiaries’ reinsurers to the extent the reinsurance receivable is not secured, or is inadequately secured by collateral or does not benefit from other credit enhancements. We also bear the risk that a reinsurer is, or may be, unwilling to pay amounts we have recorded as reinsurance recoverables for any reason, including that (i) the terms of the reinsurance contract do not reflect the intent of the parties to the contract or there is a disagreement between the parties as to their intent, or (ii) the terms of the contract cannot be legally enforced. In addition, we bear the risk that (i) the terms of the contract are interpreted by a court or arbitration panel differently than expected, (ii) the reinsurance transaction performs differently than we anticipated compared to the original structure, terms or conditions, or (iii) 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, the inability or unwillingness of such reinsurers to make timely payments under the terms of our contracts or payments in an amount equal to our reinsurance recoverable, or the risk that the reinsurance transaction does not operate as intended, including due to a change in laws and regulations or on account of court or arbitration panel interpretations, could have a material adverse effect on our results of operations and liquidity.
Moreover, 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.
Our Life and Retirement companies also utilize intercompany reinsurance arrangements to provide capital benefits to their affiliated cedants. They have also pursued, and may continue to pursue, reinsurance transactions with external parties and permitted practices to manage the capital impact of statutory reserve requirements under applicable reserving rules, including principle-based reserving (PBR). The application of actuarial guidelines and PBR involves numerous interpretations. If state insurance departments do not agree with our interpretations or if regulations change with respect to our ability to manage the capital impact of certain statutory reserve requirements, the statutory reserve requirements of our Life and Retirement companies could increase, or the ability of our Life and Retirement companies to take reserve credit for reinsurance transactions could be reduced or eliminated. Additionally, if the ratings of our Life and Retirement companies decline, we could incur higher costs to obtain reinsurance, each of which could adversely affect sales of our products and our financial condition or results of operations.
The availability of private sector reinsurance for terrorism is limited and we currently have limited reinsurance coverage for terrorist attacks. While we benefit from the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which provides U.S. government risk assistance to the insurance industry to manage the exposure to terrorism incidents, TRIPRA has specific program limits and does not cover losses in certain lines of business such as personal property and personal casualty. We also rely on the government sponsored and government arranged terrorism reinsurance programs, including pools, in force in applicable non-U.S. jurisdictions. The realization of these risks may materially and adversely affect our business, results of operations and financial condition.For additional information on our reinsurance recoverable, see Part II, Item 7. MD&A – Enterprise Risk Management – Insurance Risks – Reinsurance Activities – Reinsurance Recoverable.
Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events as well as mass torts.
Events such as hurricanes, windstorms, hailstorms, flooding, earthquakes, landslides, wildfires, solar storms, earth sinking, tsunamis, war or other military action, acts of terrorism, explosions and fires, cyberattacks, product defects, pandemics and other highly contagious diseases, mass torts, civil unrest and other catastrophes have adversely affected our business in the past and could do so in the future.20
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ITEM 1A | Risk Factors
Catastrophic events, and any relevant regulations, have in the past and could in the future result in losses in any business in which we operate, and could expose us to:
• widespread claim costs associated with property, casualty, general liability, bodily injury, workers’ compensation, accident and health, travel, business interruption, cyber and mortality and morbidity claims, among others;• 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;
• revenue loss due to decline in customer base;• 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
• significant disruptions to our physical infrastructure, systems and operations.
Natural and man-made catastrophic events are generally unpredictable. Our exposure to catastrophe-related loss depends on various factors, including the frequency and severity of the catastrophes, the availability of reinsurance, 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. For example, modeling for terrorism, cyber events and pandemics is more difficult and may be less reliable.
In addition, legislative and regulatory initiatives and court decisions following major catastrophes (both natural and man-made), as well as mass torts, have required and could in the future 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 and unanticipated claims; or impose other restrictions, which would reduce our ability to mitigate exposure. These initiatives could impair our cash flows and, without regulatory relief, could reduce our subsidiaries’ capital ratios.
For additional information on potential catastrophic events, including a sensitivity analysis of our exposure to certain catastrophes, see Part II, Item 7. MD&A – Enterprise Risk Management – Insurance Risks.
For information regarding the effects of climate change on our business, see Reserves and Exposures – “Climate change may adversely affect our business and financial condition” below.
For information regarding the effects of the COVID-19 pandemic on our business, see Business and Operations – “An epidemic, pandemic or other health crisis could materially and adversely affect our business results of operations, financial condition and liquidity. COVID-19 (including variants) has adversely affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity.” below.
Climate change may adversely affect our business and financial condition.
Climate change, indicated by higher concentrations of greenhouse gases, a warming atmosphere and ocean, wildfires, diminished snow and ice, and a rise in sea levels, appears to have contributed to an increase in the frequency and severity of natural disasters and the creation of uncertainty as to future trends and exposures. As such, climate change presents significant financial implications for AIG in areas such as underwriting, claims and investments, as well as risk capacity, financial reserving and operations.
Climate change presents challenges to our ability to effectively underwrite, model and price catastrophe risk particularly if the frequency and severity of catastrophic events such as pandemics, hurricanes, tornadoes, heatwaves, floods, wildfires and windstorms and other natural disasters continue to increase. For example, losses resulting from actual policy experience may be adverse as compared to the assumptions made in product pricing as well as mortality assumptions and our ability to mitigate our exposure may be reduced.
Climate change-related risks may also adversely impact the value of the securities that we hold or lead to credit risk of other counterparties we transact business with, including reinsurers. Our reputation or corporate brand could also be negatively impacted as a result of changing customer or societal perceptions of organizations that we either insure or invest in due to their actions (or lack thereof) with respect to climate change, as well as political initiatives or other stakeholder expectations with respect thereto. Any policies adopted by investors to address changing societal perceptions on climate change could result in increased compliance costs to our businesses and changes to our corporate governance and risk management practices, and may affect the type of assets we hold in our investment portfolio.
In addition, lawmakers and regulators have imposed and may continue to impose new requirements or issue new guidance aimed at addressing or mitigating climate change-related risks and efforts undertaken in response thereto. Additional actions by foreign governments, regulators and international standard setters have and could result in substantial expansions of the regulations, guidance or expectations to which we may be subject. It is also possible that the laws, regulations and guidance adopted in U.S. state, U.S. federal or foreign jurisdictions regarding climate change-related risks will differ from one another, and that they could be inconsistent with the laws and regulations of other jurisdictions in which we operate.
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ITEM 1A | Risk FactorsAdditionally, litigation related to climate change has increased in recent years. Many lawsuits center on enforcement or interpretation of environmental laws and regulations, often seeking to use litigation as a tool to influence governmental and corporate climate policies. Other cases seek damages for contribution to climate change or for insufficient disclosure around material financial risks. Increased litigation of this nature could trigger losses under liability policies, such as casualty and directors’ and officers’ insurance policies, increase our liabilities and affect the viability of certain of our business lines.
In addition, severe weather and other effects of climate change result in more frequent and more severe damages, leading to lawsuits. Indirect climate change effects are also seen in litigation over flooding, mudslides and other severe weather that results in injury or damage, as well as in construction defect litigation, chemical release lawsuits, and workers’ compensation claims. Litigation related to climate change may, through increased claims from our customers and adverse impacts to the value of the securities that we hold, adversely impact our business and results of operations.We have also faced and may continue to face business continuity risk as a result of climate change-related incidents that may disrupt business operations, including extreme weather events. We cannot predict the long-term impacts of climate change on our business and results of operations.
For information regarding risks associated with other catastrophic events, see Reserves and Exposures – “Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events” above.
Concentration of our insurance, reinsurance and other risk exposures may have adverse effects.We are exposed to risks as a result of concentrations in our insurance and reinsurance policies, investments, derivatives and other obligations that we undertake for customers and counterparties. Further, any risk management arrangements we employ to manage concentration risks, whether directly or through third parties, may not be available on acceptable terms or may prove to be ineffective. Our risk exposures under insurance and reinsurance policies, derivatives and other obligations are, from time to time, compounded by risk exposure assumed in our investment business. 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.
In addition, the separation of our Life and Retirement business, if completed, could increase the materiality of these potential concentrations in the remaining portfolio. For additional information on risks associated with the separation of the Life and Retirement business from AIG, see Business Operations – “No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake” below.
Also see Part II, Item 7. MD&A – Business Segment Operations – General Insurance – Business Strategy and – Business Segment Operations – General Insurance – Industry and Economic Factors, and Part II, Item 7. MD&A – Business Segment Operations – Life and Retirement – Business Strategy and – Business Segment Operations – Life and Retirement – Industry and Economic Factors.
Fortitude Re may fail to perform its obligations and the accounting treatment of our reinsurance agreements with Fortitude Re leads to volatility in our results of operations.
As of December 31, 2023, approximately $27.6 billion of reserves from AIG’s Life and Retirement Run-Off Lines and approximately $3.0 billion of reserves from AIG’s General Insurance Run-Off Lines, related to business written by multiple AIG subsidiaries, had been ceded to Fortitude Re under reinsurance transactions. These reserve balances are fully collateralized pursuant to the terms of the reinsurance transactions. Our subsidiaries continue to remain primarily liable to policyholders under the business reinsured with Fortitude Re. As a result, if Fortitude Re is unable to successfully operate, or other issues arise that affect its financial condition or ability to satisfy or perform its obligations to our subsidiaries, we could experience a material adverse effect on our results of operations, financial condition and liquidity to the extent the amount of collateral posted in respect of our reinsurance receivable is inadequate. Further, as is customary in similar reinsurance agreements, upon the occurrence of certain termination and recapture triggers, our subsidiaries may elect or may be required to recapture the business ceded under such reinsurance agreements, which would result in a substantial increase to our net insurance liabilities and statutory capital requirements and may require us to raise capital to recapture such ceded business. These termination and recapture triggers include Fortitude Re becoming insolvent or being placed into liquidation, rehabilitation, conservatorship, supervision, receivership, bankruptcy or similar proceedings, certain regulatory ratios falling below certain thresholds, and, in the case of those reinsurance agreements made with Life and Retirement, Fortitude Re’s failure to perform under the reinsurance agreements, or its entry into certain transactions without receiving the consent of Corebridge.
As the reinsurance transactions between AIG and Fortitude Re are structured as modified coinsurance (modco) for the Life and Retirement Run-Off Lines and loss portfolio transfer arrangements with funds withheld for the General Insurance Run-Off Lines, the manner in which we account for these reinsurance arrangements has led, and will continue to lead, to volatility in our results of operations. In modco and funds withheld arrangements, the investments supporting the reinsurance agreements, and which reflect the majority of the consideration that is paid to the reinsurer for entering into the transaction, are withheld by, and therefore continue to reside on the balance sheet of, the ceding company (i.e., AIG and its subsidiaries) thereby creating a potential obligation for the
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ITEM 1A | Risk Factorsceding company to pay the reinsurer (i.e., Fortitude Re) at a later date. Additionally, as our applicable insurance subsidiaries maintain ownership of these investments, AIG will maintain its existing accounting for these assets (e.g., the changes in fair value of available for sale securities will be recognized within other comprehensive income). AIG has established a funds withheld payable to Fortitude Re while simultaneously establishing a reinsurance asset representing reserves for the insurance coverage that Fortitude Re has assumed. The funds withheld payable contains an embedded derivative and changes in fair value of the embedded derivative related to the funds withheld payable are recognized in earnings through realized gains (losses). This embedded derivative is considered a total return swap with contractual returns that are attributable to various assets and liabilities associated with these reinsurance agreements. As a result of changes in the fair value of the embedded derivative, we experience volatility in our GAAP net income.
For additional information on our exposure to credit risk of reinsurers, see Reserves and Exposures – “Reinsurance may be unavailable or too expensive relative to its benefit, and may not be adequate to protect us against losses” above.Losses due to nonperformance or defaults by counterparties may materially and adversely affect the value of our investments, our profitability and sources of liquidity.We are exposed to credit risk arising from exposures to various counterparties related to investments, derivatives, premiums receivable, certain General Insurance businesses and reinsurance recoverables. These counterparties include, but are not limited to, issuers of fixed income and equity securities we hold, borrowers of loans we hold, customers, plan sponsors, trading counterparties, counterparties under swaps and other derivatives instruments, reinsurers, corporate and governmental entities whose payments or performance we insure, joint venture partners, clearing agents, exchanges, clearing houses, custodians, brokers and dealers, commercial banks, investment banks, intra-group counterparties with respect to derivatives and other third parties, financial intermediaries and institutions and guarantors. These counterparties may default on their obligations to us due to bankruptcy, insolvency, receivership, financial distress, lack of liquidity, adverse economic conditions, operational failure, fraud, government intervention and other reasons. In addition, for exchange-traded derivatives, such as futures, options as well as "cleared" over-the-counter derivatives, we are generally exposed to the credit risk of the relevant central counterparty clearing house and futures commission merchants through which we clear derivatives. Defaults by these counterparties on their obligations to us could have a material adverse effect on the value of our investments, business, financial condition, results of operations and liquidity.An insolvency of, or the appointment of a receiver to rehabilitate or liquidate, a significant competitor could negatively impact our business if such appointment were to impact consumer confidence in our products and services. Additionally, if the underlying assets supporting the structured securities we invest in are expected to default or actually default on their payment obligations, our securities may incur losses.In addition, our exposure to credit risk may be exacerbated in periods of market or credit stress, as derivative counterparties take a more conservative view of their acceptable credit exposure to us, resulting in reduced capacity to execute derivative-based hedges.INVESTMENT PORTFOLIO AND CONCENTRATION OF INVESTMENTS
Our investment portfolio is concentrated in certain segments of the economy, and the performance and value of our investment portfolio are subject to a number of risks and uncertainties.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 consolidated investment portfolio. For example, we have significant holdings of real estate and real estate-related investments, including residential mortgage- backed, commercial mortgage-backed and other asset-backed securities and residential and commercial (including office) mortgage loans. We also have significant exposures to financial institutions and, in particular, to money center banks and global banks, certain industries, such as energy and utilities, the U.S. federal, state and local government issuers and authorities, and global 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 the valuation of our investments to the extent they are concentrated in such segments. Our ability to sell assets in such segments may be limited.
Our investments are also subject to market risks and uncertainties, including, in addition to interest rate risk, changes in the level of credit spreads, currency rates, and commodity and equity prices, each of which has affected and will continue to affect the value of investments in our investment portfolio as well as the performance of, and returns generated by, such investments. For information regarding risks associated with interest rate volatility, see Market Conditions above.Furthermore, our alternative investment portfolio, which is subject to volatility in equity markets, includes investments for which changes in fair value are reported through pre-tax income. An economic downturn or decline in the capital markets has had and could continue to have a material adverse effect on our investment income, including as a result of decreases in the fair value of alternative investments.AIG | 2023 Form 10-K
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ITEM 1A | Risk FactorsWe rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of Blackstone, BlackRock or any other investment manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on AIG Common Stock.
In 2021, AIG entered into a long-term investment management relationship with Blackstone, pursuant to which Blackstone is initially managing $50 billion of Corebridge’s existing investment portfolio, with that amount increasing to an aggregate of $92.5 billion by the third quarter of 2027. In addition, beginning in April 2022, certain AIG and Corebridge insurance company subsidiaries entered into investment management agreements with BlackRock and as of December 31, 2023, BlackRock manages $135 billion of our investment portfolio, consisting of liquid fixed income and certain private placement assets, including $76 billion of Corebridge assets. In addition, liquid fixed income assets associated with the Fortitude Re funds withheld asset portfolio were separately transferred to BlackRock for management.
As part of the arrangements with Blackstone, Blackstone is serving as exclusive external investment manager for certain of Corebridge's current and future insurance company subsidiaries for certain asset classes, which has led to an increase in investment management fees payable by us as compared to expenses we have historically incurred for similar services. Under the arrangements with Blackstone, there are provisions that require minimum management fees to be paid to Blackstone to the extent actual amounts charged to the Corebridge insurance company subsidiaries are below such minimums. Also, the exclusivity provisions and termination provisions that are part of these arrangements with Blackstone may prevent certain of our Corebridge subsidiaries from retaining other external investment managers with respect to the subject asset classes who may produce better returns on investments than Blackstone. In addition, pursuant to the relevant agreements with Blackstone, if such agreements are terminated for reasons other than certain specified reasons, Corebridge could be required to continue paying investment advisory fees to Blackstone regardless of the termination. Corebridge may not have the funds available to pay any such fees and its insurance company subsidiaries may not be able or permitted to pay dividends or make other distributions to Corebridge in an amount sufficient to pay any such fees or at all. Any requirement to pay such fees could adversely affect our business, results of operations, financial condition and liquidity.
In addition, Blackstone and BlackRock are generally compensated based solely on our assets which they manage, rather than by investment return targets, and as a result, Blackstone and BlackRock are not directly incentivized to maximize investment returns. Our investment portfolio’s returns have benefited historically from investment opportunities and general market conditions that may not currently exist and may not be repeated. There can be no guarantee that Blackstone, BlackRock or any other investment manager we engage will be able to achieve any particular returns or generate investment opportunities with attractive, risk-adjusted returns for our investment portfolio in the future. If Blackstone or BlackRock is unable to effectively manage our portfolio, due to the concentration of assets in our portfolio that are managed by Blackstone and BlackRock, such inability could adversely affect our business, results of operations, financial condition and liquidity.
Additionally, from time to time, we consider and engage in discussions with external asset managers about managing other assets in our investment portfolio that are currently managed by us. If we increase the amount of assets in our investment portfolio managed by external asset managers, it may lead to an increase in investment advisory fees payable by us. In addition, we may become more reliant on our external asset managers, and such increased dependence may reduce our internal capabilities and expertise or expose us to greater risk, including the risk that external asset managers may fail to meet our performance expectations or otherwise experience disruptions or losses.
Our valuation of investments and derivatives involves the application of methodologies and assumptions to derive estimates, which may differ from actual experience and could result in changes to investment valuations that may materially adversely affect our business, results of operations, financial condition and liquidity or lead to volatility in our net income.
It has been and may continue to be difficult to value certain of our investments or derivatives that are not actively traded. There also 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 other disposition may have a material adverse effect on our business, results of operations, financial condition and liquidity.
For information regarding volatility in accounting as it relates to Fortitude Re, see Reserves and Exposures – “Fortitude Re may fail to perform its obligations and the accounting treatment of our reinsurance agreements with Fortitude Re leads to volatility in our results of operations” above.
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ITEM 1A | Risk FactorsLIQUIDITY, CAPITAL AND CREDIT
AIG Parent’s ability to access funds from our subsidiaries is limited, and our sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by our subsidiaries.
As a holding company, AIG Parent depends on dividends and other payments from its subsidiaries to fund operations, pay dividends, repurchase shares, meet debt service obligations and meet the capital and liquidity needs of our subsidiaries. The majority of our investments are held by our regulated subsidiaries. Any inability by our subsidiaries to make dividend or other payments in an amount sufficient to enable AIG Parent to meet its cash requirements could have an adverse effect on our operations or our business, results of operations, financial condition, capital and liquidity.
The ability of our subsidiaries to pay dividends to AIG Parent in the future will depend on their earnings, capital levels, tax considerations, covenants contained in any financing or other agreements, applicable regulatory restrictions and rating agency requirements. In addition, such payments could be limited as a result of claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and employees. Additionally, our insurance subsidiaries may be limited in their ability to make dividend payments to AIG Parent in the future because of the need to meet their obligations or to support their own capital levels or because of regulatory limits and restrictions or changes in, or interpretations of, regulatory or rating agency standards.
Our decision to pursue strategic changes or transactions in our business and operations may also subject our subsidiaries’ dividend plans to heightened regulatory scrutiny and could make obtaining regulatory approvals for extraordinary distributions by our subsidiaries, if required, more difficult. We are also subject to certain other restrictions on our capital from time to time.
If our liquidity is insufficient to meet our needs, we may need to have recourse to third-party financing, external capital markets or other sources of liquidity, which may not be available or could be 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. If AIG Parent is unable to satisfy a capital need of a subsidiary, the credit rating agencies could downgrade the subsidiary’s financial strength ratings or the subsidiary could become insolvent or, in certain cases, could be seized by its regulator.In the ordinary course of our business, we are required to post collateral for our insurance company subsidiaries from time to time. If our reinsurance liabilities increase, we may be required to post additional collateral for insurance company clients that we reinsure. In addition, we may be required to post additional collateral due to regulatory changes from time to time, which could adversely impact our business, financial condition, results of operations and cash flows.For additional information on our liquidity, see Part II, Item 7. MD&A – Liquidity and Capital Resources.For additional information on rating agency requirements, see Liquidity, Capital and Credit – “A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity” below.We may not be able to generate cash to meet our needs due to the illiquidity of some of our investments.
We have a diversified investment portfolio. However, economic conditions as well as adverse capital market conditions, including a lack of buyers, the inability of potential buyers to obtain financing on reasonable terms, volatility, credit spread changes, interest rate changes, foreign currency exchange rates and/or declines in collateral values have in the past impacted, and may in the future impact, the liquidity and value of our investments.We have investments in certain securities, including certain fixed income structured and privately placed securities as well as investments in private equity funds and hedge funds, mortgage loans, finance receivables and real estate, that are less liquid than other types of securities. Collectively, investments in these assets had a carrying value of $68 billion at December 31, 2023. If it became necessary to sell such assets in a stressed market environment, the prices achieved in any sale of such securities may be lower than their carrying value, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Adverse changes in the valuation of real estate and real estate-linked assets, volatility or deterioration of capital markets and widening credit spreads have in the past, and may in the future, materially adversely affect the liquidity and the value of our investment portfolios, including our residential and commercial mortgage related securities portfolios.
In the event additional liquidity is required by one or more of our companies, it may be difficult for us to generate additional liquidity by selling, pledging or otherwise monetizing these or other of our investments at reasonable prices and time frames.
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ITEM 1A | Risk FactorsA downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity.Downgrades of the Insurer Financial Strength (IFS) ratings of our insurance companies could (i) prevent these companies from selling, or make it more difficult for them to succeed in selling, products and services, (ii) make it more difficult for them to obtain new reinsurance or obtain it on reasonable pricing terms, and/or (iii) result in increased policy cancellations, lapses and surrenders, termination of, or increased collateral posting obligations under, assumed reinsurance contracts, or return of premiums.
A downgrade in AIG Parent’s credit ratings could result in a downgrade of the IFS ratings of our insurance or reinsurance subsidiaries. Similarly, under credit rating agency policies, a downgrade of the IFS ratings of our insurance and reinsurance subsidiaries could also result in a downgrade in AIG Parent’s credit ratings.
In addition, a downgrade of our long-term debt ratings could 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 cause counterparties to limit or reduce their exposure to us and thus reduce our ability to manage our market risk exposures effectively.These events could adversely affect our business, results of operations, financial condition and liquidity.
For additional information on rating agency actions, see Part II, Item 7. MD&A – Liquidity and Capital Resources – Credit Ratings and – Financial Strength Ratings.
BUSINESS AND OPERATIONSNo assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake.
Since September of 2022 when AIG closed on the initial public offering Corebridge’s common stock, we have been selling down our ownership interest. As of December 31, 2023, AIG holds 52.2 percent of Corebridge common stock. While we currently intend to sell down our remaining ownership interest in Corebridge over time, there can be no guarantee as to the timing or pricing thereof.
The separation of our Life and Retirement business involves a number of risks, including (i) unanticipated developments that may delay, prevent or otherwise adversely affect our ability to continue the separation, including an economic downturn or unfavorable capital markets conditions; (ii) significant costs and disruption or distraction of management from AIG’s other business operations, whether or not a separation is completed; (iii) rating agency actions; (iv) unforeseen losses, liabilities or asset impairments arising from the disposition; (v) challenges associated with disentangling certain operations; and (vi) if we are successful in separating the business, increased concentration of our business operations.
In addition, the separation of our Life and Retirement business, or a significant delay in our ability to continue to separate the business, has caused and could continue to cause the emergence or exacerbate the effects of many of the other risks noted herein, including: (i) the risk of indemnity claims or breach of contract claims that could be made against us in connection with divested businesses; (ii) changes in our deferred tax assets and liabilities; (iii) our ability to utilize certain tax loss and credit carryforwards to offset future taxable income; (iv) competition for employees and managing retention of key employees; (v) maintaining relationships with certain key distributors; (vi) concentration of our insurance and other risk exposures; and (vii) increased exposure to certain risks related to deriving revenue from non-U.S. sources.
We believe that the separation of our Life and Retirement business allows us and Corebridge to pursue distinct strategies appropriate to our respective markets. However, there can be no assurance that we will realize any or all of the expected strategic, financial, operational or other benefits of the separation. Our business, results of operations and financial condition may be materially and adversely impacted if we are unable to realize the anticipated expense reductions and organizational improvements of the separation and any related restructuring activities, or if implementing these initiatives harms our relationships with customers or employees or our competitive position. Additionally, we continue to have a significant equity ownership position in Corebridge, and changes in the market price of Corebridge common stock may have a material impact on us.
Pricing for our products is subject to our ability to adequately assess risks and estimate related losses.
Our business is dependent on our ability to price our products effectively and charge appropriate premiums, policy fees and other charges. Pricing adequacy depends on a number of factors and assumptions, including proper evaluation of insurance risks, our expense levels, expected net investment income to be realized, our response to rate actions taken by competitors, legal and regulatory developments, the ability to obtain regulatory approval for rate changes and inflation. Management establishes target returns for each product based upon the factors described above, certain underwriting assumptions and capital requirements, including statutory, GAAP and economic capital models. We monitor and manage pricing and sales to achieve target returns on new
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ITEM 1A | Risk Factors
business, but we may not be able to achieve those returns due to the factors discussed above. Additionally, the property and casualty insurance markets are historically cyclical and experience periods of relatively strong premium rates followed by periods of increased competition that push premium rates down. Inadequate pricing and the difference between estimated results of the above factors compared to actual results could have a material adverse effect on the profitability of our operations and our financial condition.
Guarantees within certain of our Life and Retirement products may increase the volatility of our results.
Certain of our annuity and life insurance products include features that guarantee a certain level of benefits, including guaranteed minimum death benefits, guaranteed living benefits, including guaranteed minimum income benefits, and products with guaranteed interest crediting rates, including crediting rate guarantees tied to the performance of various market indices. Many of these features are accounted for at fair value as either MRBs or embedded derivatives under GAAP, and they have significant exposure to capital markets and insurance risks. An increase in valuation of liabilities associated with the guaranteed features results in a decrease in our profitability and depending on the magnitude of any such increase, could materially and adversely affect our financial condition, including our capitalization, as well as our financial strength ratings.
We employ a capital markets hedging strategy to partially offset the economic impacts of movements in equity, interest rate and credit markets, however, our hedging strategy may not effectively offset movements in our GAAP equity or our statutory surplus and capital requirements and may otherwise be insufficient in relation to our obligations. Furthermore, we are subject to the risk that changes in policyholder behavior or actual levels of mortality/longevity as compared to assumptions in pricing and reserving, combined with adverse market events, could produce losses not addressed by the risk management techniques employed. These factors, individually or collectively, may have a material adverse effect on our business, financial condition, results of operations or liquidity including our ability to receive dividends from our operating companies.
Changes in interest rates result in changes to the fair value liability. All else being equal, higher interest rates generally decrease the fair value of our liabilities, which increases our earnings, while low interest rates generally increase the fair value of our liabilities, which decreases our earnings. A prolonged low interest rate environment or a prolonged period of widening credit spreads may also subject us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for our liabilities, lowering their statutory surplus, which would adversely affect their ability to pay dividends. In addition, it may also increase the perceived value of our benefits to our policyholders, which in turn may lead to a higher than expected benefit utilization and lower than expected surrender rates of those products over time as compared to pricing assumptions.
Differences between the change in fair value of the GAAP MRBs and embedded derivatives, as well as associated statutory and tax liabilities, and the value of the related hedging portfolio may occur and can be caused by movements in the level of equity, interest rate and credit markets, market volatility, policyholder behavior and mortality/longevity rates that differ from our assumptions and our inability to purchase hedging instruments at prices consistent with the desired risk and return trade-off. In addition, we may sometimes choose not to hedge or fully mitigate these risks, based on economic considerations and other factors. The occurrence of one or more of these events has in the past resulted in, and could in the future result in, an increase in the fair value of liabilities associated with the guaranteed benefits without an offsetting increase in the value of our hedges, or a decline in the value of our hedges without an offsetting decline in our liabilities, thus reducing our results of operations and shareholders’ equity.
For additional information on these products, see Item 1. Business – Regulation, Part II, Item 7. MD&A – Critical Accounting Estimates – Market Risk Benefits and Notes 13 and 14 to the Consolidated Financial Statements.Our risk management policies, standards and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses, results of operations, financial condition and liquidity.We have developed and continue to enhance enterprise-wide risk management policies, standards and procedures to identify, monitor and mitigate risk to which we are exposed. Our risk management policies, standards and procedures may not be sufficiently comprehensive and may not identify or adequately protect us from every risk to which we are exposed. Many of our methods of identifying, measuring, underwriting and managing risks are based upon our study and use of historical market, applicant, customer, employee and bad actor behavior or statistics based on historical models. As a result, these methods may not accurately predict future exposures from events such as a major financial market disruption as the result of a natural or man-made disaster (for example, a severe climate-related event or terrorist attack), that could be significantly different than the historical measures indicate, and which could also result in a substantial change in policyholder behavior and claims levels not previously observed. We have and will continue to enhance our underwriting processes, including, from time to time, considering and integrating newly available sources of data to confirm and refine our traditional underwriting methods. Our efforts at implementing these improvements may not, however, be fully successful, which may adversely affect our competitive position. We have also introduced new product features designed to limit our risk and taken actions on in-force business, which may not be fully successful in limiting or eliminating risk. We may take additional actions on our in-force business, including adjusting crediting rates and cost of insurance, which may not be fully successful in maintaining profitability and which may result in litigation. Moreover, our hedging programs and reinsurance strategies that are designed to manage market risk and mortality risk rely on assumptions regarding our assets, liabilities, general market factors and the creditworthiness of our counterparties that could prove to be incorrect or inadequate. Our hedging programs utilize various derivative instruments, including but not limited to equity options, futures contracts, interest rate swaps and swaptions, as well as other hedging
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ITEM 1A | Risk Factorsinstruments, which may not effectively or completely reduce our risk; and assumptions underlying models used to measure accumulations and support reinsurance purchases may prove inaccurate and could leave us exposed to larger than expected catastrophe losses in a given year. In addition, our current business continuity and disaster recovery plans may not be sufficient to reduce the impact of pandemics, a major cyber attack, including ransomware, and other natural or man-made catastrophic events that are beyond our anticipated thresholds or impact tolerances. Other risk management methods depend upon the evaluation of information regarding markets, clients, or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record and verify large numbers of transactions and events in each jurisdiction in which we operate. Jurisdictions have unique requirements with respect to artificial intelligence and environmental, social and governance matters, which may impact the efficacy of our standardized risk management tools and techniques and therefore our policies and procedures may not be fully effective. Accordingly, our risk management policies and procedures may not adequately mitigate the risks to our business, results of operations, financial condition and liquidity.
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 and new risks emerge, including risks posed by the rapidly developing technology associated with artificial intelligence and the implementation thereof within our operations, by our third-party vendors and by competitors and unanticipated challenges with respect thereto. 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. The effectiveness of our risk management strategies may be limited, resulting in losses, because of market stress, unanticipated financial market movements or unanticipated claims experience from adverse mortality, morbidity or policyholder behavior. In addition, there can be no assurance that we can effectively review and monitor all risks or that all of our employees will understand and follow (or comply with) our risk management policies and procedures.
Our foreign operations expose us to risks that may affect our operations.
AIG provides insurance solutions that help businesses and individuals in approximately 190 countries and jurisdictions protect their assets and manage risks through AIG operations and network partners. A substantial portion of our business is conducted outside the United States, and we intend to continue to grow our business in strategic markets. Operations outside the United States have in the past been, and may in the future be, affected by elevated climate risks, regional economic downturns, changes in foreign currency exchange rates, political events or upheaval, sanctions policies, nationalization and other restrictive government or regulatory actions, which could also affect our other operations.
AIG subsidiaries operating in foreign jurisdictions must satisfy local regulatory requirements and it is possible that these 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.
AIG is subject to myriad regulations which govern items such as sanctions, bribery and anti-money laundering, for which failure to comply could expose us to significant penalties. The USA Patriot Act of 2011 requires companies to know certain information about their clients and to monitor their transactions for suspicious activities. The Foreign Corrupt Practices Act makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Also, the Department of the Treasury’s Office of Foreign Assets Control administers regulations that restrict or prohibit dealings involving certain organizations, individuals and countries. The UK, the EU, Japan and other jurisdictions maintain similar laws and regulations. Although we have policies and controls in place that are designed to ensure compliance with these laws, if those controls are ineffective and/or an employee or third party fails to comply with applicable laws and regulations, we could suffer civil and criminal penalties, including disgorgement, and our business and our reputation could be adversely affected.We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity.We use information technology systems, infrastructure and networks and other operational systems to store, retrieve, evaluate and use customer, employee and company data and information. Our business is highly dependent on our ability to access these systems and networks to perform necessary business functions. In the event of a natural disaster, unauthorized access, a terrorist attack, a major cyber attack or other disruption, our systems, networks, and data may be inaccessible to our employees, customers or business partners for an extended period of time, and we may be unable to meet our business obligations and regulatory requirements for an extended period of time if our data or systems are disabled, manipulated, destroyed or otherwise compromised. Additionally, some of our technology systems are older, legacy-type systems that are less efficient and require an ongoing commitment of significant resources to maintain or upgrade. Some of these systems cannot be fully protected because of the inability to implement the latest security patches. Supply chain disruptions or delays could prevent us from maintaining and implementing changes, updates and upgrades to our systems and networks in a timely manner or at all. System and network failures or outages could compromise our
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ITEM 1A | Risk Factorsability to perform business functions in a timely manner, which could harm our ability to conduct business, hurt our relationships with our business partners and customers and expose us to legal claims as well as regulatory investigations and sanctions, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Some of these technology systems also rely upon third-party systems and services, which themselves may rely on the systems and services of other third parties. Problems caused by, or occurring in relation to, our third-party providers’ systems and services, including those resulting from breakdowns or other disruptions in information technology services provided by our third-party providers and the other third-parties on which they rely, our inability to acquire third-party services on commercially acceptable terms, failure of a third-party provider to perform as anticipated or in compliance with applicable laws or regulations, inability of a third-party provider to provide the required volumes of services or our third-party providers experiencing cyberattacks or data breaches, could materially and adversely affect our business, results of operations, financial condition and liquidity.
Like other global companies, the systems and networks we maintain and third-party systems and networks we use have in the past been, and may in the future be, subject to or targets of unauthorized or fraudulent access, including physical or electronic break-ins or unauthorized tampering, as well as attempted cybersecurity threats such as “denial of service” attacks, phishing, automated attacks, and other disruptive attacks, including ransomware. Cyber threats are constantly evolving and the techniques used in these attacks change, develop and evolve rapidly, including the use of emerging technologies, such as broader forms of artificial intelligence and quantum computing by nation state threat actors and criminal organizations. The new cyber risks introduced by these changes in technology require us to devote significant attention to identification, assessment and analysis of the risks and implementation of corresponding preventative measures. Additionally, the frequency and sophistication of such threats continue to increase and often become further heightened in connection with geopolitical tensions. Also, like other global companies, we have an increasing challenge of retaining and attracting highly qualified personnel to assist us in combatting these security threats.
There is no assurance that our cybersecurity measures, including information security and technology policies and standards, administrative, technical and physical controls and other actions by us or contracted third-parties designed as preventative, will provide fully effective protection from threats to our data, systems and networks, including malware and computer virus attacks, ransomware, unauthorized access, business e-mail compromise, misuse, denial-of-service attacks, system failures and other disruptions. AIG maintains insurance to cover operational risks, such as cyber risk and technology outages, but this insurance may not cover all costs associated with the consequences of information systems or personal, confidential or proprietary information being compromised. In the case of a successful ransomware attack in which our data and information systems are compromised and applicable restore control processes to restore access are not effective, our information could be held hostage until a ransom, which may be significant, is paid. In some cases, such a compromise may not be immediately detected which may make it difficult to restore critical services, mitigate damage to assets and maintain the integrity and security of data including our policyholder, employee, agent, and other confidential information processed through our systems and networks.
Additionally, since we rely heavily on information technology and systems (which increasingly will include the use of artificial intelligence) and on the integrity and timeliness of data to run our businesses and service our customers, any such security event and resulting compromise of systems or data may impede or interrupt our business operations and our ability to service our customers, and otherwise may materially and adversely affect our business, results of operations, financial condition and liquidity.
There can be no assurance that any actions taken by us to evaluate and enhance our information security and technology systems and processes, including third-party systems and services on which we rely, as well as changes designed to update and enhance our protective measures to address new threats, will decrease the risk of a system or process failure or may create a gap in the associated security measures during the change period. Any such system or process failure or security measures gap could materially and adversely affect our business, results of operations, financial condition and liquidity.
We routinely transmit, receive and store personal, confidential and proprietary information by secured email and other electronic means. Although we attempt to keep such information confidential and secure, 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. Failure to secure or appropriately handle personal, confidential or proprietary information could cause a loss of data or compromised data integrity, give rise to remediation or other expenses, expose us to liability under U.S. and international laws and regulations, and subject us to litigation, investigations, sanctions, and regulatory and law enforcement action, and result in reputational harm and loss of business, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Furthermore, certain of our businesses are subject to compliance with laws and regulations enacted by U.S. federal and state governments, the EU 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 variety of applicable privacy and information security laws and regulations exposes us to heightened regulatory scrutiny, requires us to incur significant technical, legal and other expenses in an effort to ensure and maintain compliance and will continue to impact our business in the future by increasing legal, operational and compliance costs. While we have taken steps to comply with privacy and information security laws, we cannot guarantee that our efforts will meet the evolving standards imposed by data protection authorities. If we are found not to be in compliance with these
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ITEM 1A | Risk Factorsprivacy and security laws and regulations, we may be subject to additional potential private consumer, business partner or securities litigation, regulatory inquiries, and governmental investigations and proceedings, including class-actions. Any such developments may damage our reputation and subject us to material fines and other monetary penalties and damages, divert management’s time and attention, and lead to enhanced regulatory oversight, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity. Additionally, we expect that developments in privacy and cybersecurity worldwide will increase the financial and reputational implications following a significant breach of our or our third-party suppliers’ information technology systems. For additional information on data protection and cybersecurity regulations, see Item 1. Business – Regulation – Privacy, Data Protection, Cybersecurity and Artificial Intelligence Requirements, and Part II, Item 7. MD&A – Enterprise Risk Management – Operational Risk Management – Cybersecurity Risk.Third parties 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 used and will continue to use outsourcing strategies and third-party providers to transform operational and back office processes and deliver contracted services in a broad range of areas. Such areas include, but are not limited to, administration or servicing of certain policies and contracts, finance, actuarial, information technology services related to infrastructure, and investment advisory and management services for certain funds, plans and retail advisory programs we offer, as well as our own investments. In addition, we have engaged with BlackRock for use of its investment management and risk analytics technology platform, Aladdin. The implementation of Aladdin is comprised of multiple workstreams that are complex and require significant time and resource prioritization. While we have achieved key milestones in the implementation of the technology, there could be delays due to lack of sufficient resources to execute on a timely basis, inefficiencies stemming from changes that may be required to the program or sequencing, failure to meet operational and financial targets due to additional priorities or other factors. These risks may impair our ability to achieve anticipated improvements in our businesses may disrupt or may otherwise harm our operations which could materially and adversely affect our businesses, financial condition and operations.
Further, we have engaged Blackstone and BlackRock to serve as our investment managers for the majority of AIG’s investment assets. For information regarding our reliance on Blackstone and BlackRock as a third-party investment managers, see Investment Portfolio and Concentration of Investments – “We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of Blackstone, BlackRock or any other asset manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on AIG Common Stock” above.
Some of the third-party providers we use are located outside the U.S., which exposes us to business disruptions and political risks inherent to conducting business outside of the U.S. We periodically negotiate provisions and renewals of these relationships, and there can be no assurance that such terms will remain acceptable to us, such third parties or regulators. If such third-party providers experience disruptions, fail to meet applicable licensure requirements, do not perform as anticipated or in compliance with applicable laws and regulations, terminate or fail to renew our relationships, or such third-party providers in turn rely on services from another third-party provider, who experiences such disruptions, licensure failures, nonperformance or noncompliance, termination or non- renewal of its contractual relationships, we may experience operational difficulties, an inability to meet obligations (including, but not limited to, contractual, legal, regulatory or policyholder obligations), a loss of business, increased costs or reputational harm, compromises to our data integrity, or suffer other negative consequences, all of which may have a material adverse effect on our business, consolidated results of operations, liquidity and financial condition. Third parties performing regulated activities on our behalf, such as sales and servicing of insurance products, pose a heightened risk as we may be held accountable for third-party conduct that is not in compliance with applicable law.For information regarding cyber risk arising from third-party providers, see Business and Operations – “We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity” above.
We may experience difficulty in marketing and distributing products through our current and future distribution channels and the use of third parties may result in additional liabilities.
We maintain relationships with a number of key distributors, which results in certain distributor concentration. Distributors have in the past, and may in the future, elect to renegotiate the terms of existing relationships, such that those terms may not remain attractive or acceptable to us, limit the products they sell, including the types of products offered by us, or otherwise reduce or terminate their distribution relationships with us, with or without cause. This could be due to various reasons, such as industry consolidation of distributors or other industry changes that increase the competition for access to distributors, developments in laws or regulations that affect our business or industry, including the marketing and sale of our products and services, adverse developments in our business, the distribution of products with features that do not meet minimum thresholds set by the distributor, strategic decisions that impact our business, adverse rating agency actions or concerns about market-related risks.30
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ITEM 1A | Risk FactorsAlternatively, renegotiated terms may not be attractive or acceptable to distributors, or we may terminate one or more distribution agreements due to, for example, a loss of confidence in, or a change in control of, one of the third-party distributors. An interruption or reduction in certain key relationships could materially affect our ability to market our products and could materially and adversely affect our business, results of operations, financial condition and liquidity.
Key distribution partners could merge, consolidate, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts. An increase in bank, wirehouse and broker-dealer consolidation activity could increase competition for access to distributors, result in greater distribution expenses and impair our ability to market certain of our products through these channels.Also, if we are unsuccessful in attracting, retaining and training key distribution partners, or are unable to maintain our distribution relationships, our sales could decline, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, substantially all of our distributors are permitted to sell our competitors’ products. If our competitors offer products that are more attractive than ours or pay higher commission rates to the distribution partners than we do or for other reasons outside of our control, these distribution partners could concentrate their efforts in selling our competitors’ products instead of ours.In addition, we can, in certain circumstances, be held responsible for the actions of our third-party distributors, including broker- dealers, registered representatives, insurance agents and agencies, marketing organizations, and their respective employees, agents and representatives, in connection with the marketing and sale of our products by such parties, including the security of their operations and their handling of confidential information and personal data, in a manner that is deemed not compliant with applicable laws and regulations. This is particularly acute with respect to unaffiliated distributors where we may not be able to directly monitor or control the manner in which our products are sold through third-party firms despite our risk assessment, training and compliance programs. Further, misconduct by employees, agents and representatives of our broker-dealer subsidiaries in the sale of our products could also result in violations of laws by us or our subsidiaries, regulatory sanctions and serious reputational or financial harm to us. The precautions we take to prevent and detect the foregoing activities may not be effective. If our products are distributed to customers for whom they are unsuitable or distributed in a manner alleged to be inappropriate, or third-party distributors experience a security or data breach due to deficient operational controls, we could suffer reputational and/or other financial harm to our business.
For information regarding suitability standards, see Item 1. Business – Regulation – Regulatory Regimes – United States.
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 focus on our operating model and associated initiatives. Actual costs to implement these initiatives may exceed our estimates or we may be unable to fully implement and execute these initiatives as planned. 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 business rationalizations, technology enhancements, business process outsourcing, workforce reductions, modifications to our operating model and other actions, which depend on a number of factors, some of which are beyond our control.
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 including any financial accommodations required by regulators, our ability to satisfy such terms, conditions and accommodations, 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. For example, there can be no certainty as to the sale of our remaining stake in Corebridge nor the timing, pricing or terms thereof.
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 and dispositions 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. We have also provided and may provide financial guarantees and indemnities in connection with the businesses we have sold or may sell, as described in
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ITEM 1A | Risk Factorsgreater detail in Note 17 to the Consolidated Financial Statements. Additionally, difficulties or delays in separating a divested business from our existing infrastructure, systems and operations could reduce the anticipated economic, strategic or other benefits of such transaction. 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 regarding the risks associated with AIG’s separation of its Life and Retirement business, see Business and Operations – “No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake” above.Significant legal or regulatory proceedings may adversely affect our business, results of operations or financial condition.In the normal course of business, 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 and reinsurance contracts.
Additionally, from time to time, various regulatory and governmental agencies review the transactions and practices of AIG and our subsidiaries in connection with company-specific matters, or industry-wide and other inquiries into, among other matters, the business practices of current and former operating insurance subsidiaries. Such reviews, investigations, inquiries or examinations have and could lead to extended delays to, or prohibitions of, such transactions or practices, or develop into administrative, civil or criminal proceedings or enforcement actions, in which remedies could include fines, penalties, restitution or alterations to our business practices, and could result in additional expenses, limitations on certain business activities and reputational damage.
AIG, our subsidiaries and their respective officers and directors are also subject to, or may become 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, indemnification and violations of federal and state statutes and regulations. Certain of these matters may also 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 them, and developments in these matters could have a material adverse effect on our consolidated financial condition or consolidated results of operations.
For information regarding certain legal proceedings, see Notes 17 and 23 to the Consolidated Financial Statements.
Increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social and governance matters, including governmental responses to such matters, may adversely affect our reputation or otherwise adversely impact our business and results of operations.
There is increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders on companies’ governance, risk oversight, disclosures, plans, policies and practices regarding environmental, social and governance matters, including those related to environmental stewardship, climate change, diversity, equity and inclusion, racial justice and workplace conduct. These standards and expectations may also, as a whole, reflect diverging or conflicting values or policy objectives.
Governmental actions to mitigate climate and other risks related to environmental, social and governance matters could have an adverse effect on our business and results of operations. Internationally and at the U.S. federal and state levels, regulators have imposed and likely will continue to impose requirements and guidance related to environmental, social and governance matters, which may conflict with one another, impose additional costs on us and expose us to new or additional risks, including financial, regulatory, litigation, reputational and operational risks. See Business – Regulation – Climate Change.
Certain organizations that provide information to investors have developed ratings for evaluating companies on their approach to different environmental, social and governance matters, and unfavorable ratings of our company or our industries may lead to negative investor sentiment and the diversion of investment to other companies or industries. We may not be able to meet environmental, social, governance or sustainability targets, goals, plans, standards or expectations (including any previously announced climate target, goal or plan), whether established or set by us or third parties, due to a variety of factors, including regulatory or other developments, changes to the methodologies, assumptions and estimates that underlie our climate- and other sustainability-related targets, goals and strategy, or the actions of or information provided by third parties outside of our control, who may apply standards, methodologies, practices and policies that differ from ours. If we are unable to meet such targets, goals, plans, standards or expectations, it could result in adverse publicity, reputational harm, or loss of customer and/ or investor confidence, which could adversely affect our business and results of operations.
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ITEM 1A | Risk FactorsFor information on the effects of climate change on our business, see Reserves and Exposures – “Climate change may adversely affect our business and financial condition” above.An epidemic, pandemic or other health crisis could materially and adversely affect our business results of operations, financial condition and liquidity. COVID-19 (including variants) has adversely affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity.
Public health crises have previously resulted in significant societal disruption, economic uncertainty, volatility in business and consumer confidence and global economic slowdowns. The COVID-19 pandemic, in particular, and related governmental response measures introduced by various national and local governmental authorities (such as restrictions on social activity, travel, movement and certain economic activity) caused significant societal disruption, volatility in the capital markets, disruptions in the labor market, supply chain disruption, significant impacts on commercial real estate due to the increase in remote working arrangements, mortality increases as compared to pricing expectations and most recently, an inflationary environment, which have had adverse economic impacts on our business in various ways.
For example, we have experienced increased claim volumes; adverse effects resulting from our exposure to certain industries, such as brick-and-mortar retail and commercial office space resulting from remote work, and difficulties in arriving at accurate valuations thereof, which has caused or may cause impairment of the estimates and assumptions used to run our businesses or resulting in greater variability and subjectivity in our investment decisions; and increased difficulty and cost in obtaining reinsurance coverage.
In addition, COVID-19 adversely affected our premiums and deposits in some of our insurance lines, including our Life and Retirement products. Further, our policies with premium adjustment features tied to exposure levels, as is the case in certain specialty and casualty lines, have in certain cases been be triggered, resulting in premium reductions. It is also possible that class actions and other proceedings may in the future be filed against us, our insureds, or others, seeking coverage for COVID 19-related losses or alleging bad-faith denials of coverage for such losses.
If these effects are prolonged, or if new COVID-19 variants emerge, a periodic spike in COVID-19 occurs or an unrelated epidemic emerges which requires reimplementation of the response measures outlined above, the markets and economies in which we operate may experience heightened stress and further volatility, which may exacerbate the impacts of COVID-19 set out above and may materially adversely affect our business, results of operations and financial condition. In addition, remote or hybrid work may negatively impact our culture and employees’ morale, which could result in greater turnover, lower productivity and greater operational risks.We may not be able to protect our intellectual property and may be subject to infringement claims.Effective intellectual property rights protection, including in the form of contractual rights, copyright, trademark, patent and trade secret laws, may be unavailable, limited, or subject to change in some countries where we do or plan to do business. Third parties may infringe or misappropriate our intellectual property. We have, and may in the future, litigate to protect our intellectual property. Any such litigation may be costly and may not be successful. Additionally, third parties may have patents or other protections that could be infringed by our products, methods, processes or services or which could limit our ability to offer certain product features. Consequently, we have in the past been and may in the future be subject to costly litigation in the event that another party alleges that we infringe upon their intellectual property rights. Any such intellectual property litigation could prove to be both costly and unsuccessful result in significant expense, damages, and in some circumstances we could be enjoined from providing certain products or services to our customers. Alternatively, we could be required to enter into costly licensing arrangements with third parties to resolve infringement or contractual disputes. The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could harm our reputation and have a material adverse effect on our business and our ability to compete.REGULATION
Our businesses are heavily regulated and changes in laws and regulations may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability.Our operations generally, and our insurance and reinsurance subsidiaries in particular, are subject to extensive and potentially conflicting laws and regulations in the jurisdictions in which we operate. Our business and financial condition are also subject to supervision and regulation by authorities in the various jurisdictions in which we do business. Federal, state and foreign regulators also periodically review and investigate our insurance and reinsurance businesses, including AIG-specific and industry-wide practices. The primary purpose of insurance regulation is the protection of our insurance and reinsurance contract holders. The extent of regulation on our insurance and reinsurance business varies across the jurisdictions in which we operate, but generally is governed by laws that delegate regulatory, supervisory and administrative authority to insurance departments and similar regulatory agencies. The laws and regulations that apply to our business and operations generally grant regulatory agencies and/or self-regulatory organizations broad rulemaking and enforcement powers, including the power to regulate the issuance, sale and distribution of our products, the manner in which we underwrite our policies, the delivery of our services, the nature or extent of disclosures that we give
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ITEM 1A | Risk Factorsour customers, the compensation of our distribution partners, the manner in which we handle claims on our policies and the administration of our policies and contracts, as well as the power to limit or restrict our business for failure to comply with applicable laws and regulations. Our Life and Retirement companies and their distributors are also subject to laws and regulations governing the standard of care applicable to sales of our products, the provision of advice to our customers and the manner in which certain conflicts of interest arising from or related to such sales or giving of advice are to be addressed. In addition, federal and state securities laws and regulations apply to certain of our insurance products that are considered ‘securities’ under such laws, including our variable annuity contracts, variable life insurance policies and the separate accounts that issue them, as well as our broker-dealer, investment advisor and mutual fund operations.
We strive to comply with laws and regulations applicable to our businesses, operations and legal entities, including maintenance of all required licenses and approvals. The application of and compliance with such laws and regulations may be subject to interpretation, evolving industry practices and regulatory expectations that could result in increased compliance costs. The relevant authorities may not agree with our interpretation of these laws and regulations, including, for example, our implementation of new or revised requirements related to the classification of debt securities that do not qualify as bonds, or with our policies and procedures adopted to address evolving industry practices or meet regulatory expectations. Such authorities’ interpretations and views may also change from time to time. It is also possible that the laws, regulations and interpretations across various jurisdictions in which we do business may conflict with one another and affect how we do business in the United States and globally. If we are found not to have complied with applicable legal or regulatory requirements, these authorities could preclude or temporarily suspend us from carrying on some or all of our activities, impose substantial administrative penalties such as fines or require corrective actions, which individually or in the aggregate could interrupt our operations and materially and adversely affect our reputation, business, results of operations and financial condition. Additionally, when such authorities’ interpretation of new or revised requirements related to capital, accounting treatment and/or valuation manual or reserving (such as PBR) materially differs from ours, we have incurred or may incur higher operating costs, or sales of products subject to such requirements or treatment may be affected.
Regulators in jurisdictions in which we do business have adopted RBC, solvency and liquidity standards applicable to insurers and reinsurers operating in their jurisdiction. Failure to comply with such capital (including, in the U.S., RBC), solvency, liquidity and similar requirements, or as otherwise may be agreed by us or one of our insurance company subsidiaries with an insurance regulator, would generally permit the insurance regulator to take certain regulatory actions that could materially impact the affected company’s operations. Those actions range from requiring an insurer to submit a plan describing how it would regain a specified RBC or solvency ratio to a mandatory regulatory takeover of the company. The NAIC adopted in 2020, and the IAIS is developing and testing for implementation beginning in 2025, methodologies for assessing group-wide regulatory capital, which might evolve into more formal group-wide prescribed capital requirements on certain insurance companies and/or their holding companies that may augment state-law RBC standards, and similar international 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 insurance and reinsurance subsidiaries. Furthermore, efforts to address systemic risks within the financial services industry, including insurance services, may lead regulators to 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. In addition to the regulation of specific activities, the Financial Stability Oversight Council has authority under Dodd-Frank to determine that certain nonbank financial companies be designated as nonbank SIFIs subject to supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards, and recently adopted revised guidance and procedures intended to govern any such designations. We cannot predict the effect that any such initiatives or heightened standards may have on our business, results of operations, liquidity and financial condition.
There has also been increased regulatory scrutiny of the use of “big data” techniques, machine learning, predictive models and artificial intelligence, including in the insurance industry. Certain insurance regulators are developing, or have developed, regulations or guidance applicable to insurance companies that use artificial intelligence, “big data” techniques, machine learning and predictive models in their operations. We cannot predict what, if any, regulatory actions may be taken in the future with regard to “big data,” artificial intelligence, machine learning or predictive models, but any limitations or restrictions could have a material impact on our business, processes, results of operations and financial condition.
We also cannot predict the impact that 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, including, without limitation, Solvency II and European Data Protection Board Cross Border Data Transfer in the EU, and standard-setting initiatives by the FSB and the IAIS, including, but not limited to, the IAIS’ Common Framework for the Supervision of IAIGs, its holistic framework for the assessment and mitigation of systemic risk and the development and refinement of a risk-based global ICS, may significantly alter our business practices. For example, regulators have imposed and may continue to impose new requirements or issue new guidance aimed at addressing or mitigating climate change-related risks. 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 also 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 in which we operate, including the United States.For additional information on our regulatory environment, see Item 1. Business – Regulation.34
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For information regarding the effects of regulations related to climate change on our business, see Reserves and Exposures – “Climate change may adversely affect our business and financial condition” above.For information regarding the regulatory response to the COVID-19 pandemic, see Business and Operations – “An epidemic, pandemic or other health crisis could materially and adversely affect our business results of operations, financial condition and liquidity. COVID-19 (including variants) has adversely affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity.” above .New laws and regulations or new interpretations of current laws and regulations, both domestically and internationally, may affect our businesses, results of operations, financial condition and ability to compete effectively.Legislators, regulators and self-regulatory organizations have in the past, and may in the future, periodically consider various proposals that may affect or restrict, among other things, our business practices and activities, product designs and distribution relationships, how we market, sell or service certain products we offer, the investment assets we hold and our investment management practices, our capital, reserving and accounting requirements, or the profitability of certain of our businesses.
Further, new laws and regulations may affect or significantly limit 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 into. These proposals or changes in legislation or regulation could also impose additional taxes on a limited subset of financial institutions and insurance companies (either based on size, activities, geography or other criteria), 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 uncertain whether and how these and other such proposals or changes in legislation or regulation would apply to us, those who sell or service our products, or our competitors or how they could impact our ability to compete effectively, as well as our business, consolidated results of operations, liquidity and financial condition.An “ownership change” could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income.As of December 31, 2023, on a U.S. GAAP basis, AIG Parent had U.S. federal net operating loss carryforwards of approximately $22.0 billion. 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. In general, an ownership change will occur when the percentage of AIG Parent's ownership (measured by value) by one or more “5-percent shareholders” (as defined in the Internal Revenue Code) has increased by more than 50 percentage points 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 utilization of 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 (AFR) (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 of the Internal Revenue Code would be dependent on the value of our equity and the AFR 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.
New and proposed changes to tax laws could increase our corporate taxes or make some of our products less attractive to consumers.
The Inflation Reduction Act of 2022, includes a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with average profits over $1 billion over a three-year period. Although the U.S. Treasury and the Internal Revenue Service issued interim CAMT guidance during 2023, many details and specifics of application of the CAMT remain subject to future guidance. We are subject to CAMT for 2023. Our estimated CAMT liability will continue to be refined based on future guidance.
New tax laws outside the U.S., in particular those enacted in response to proposals by the Organisation for Economic Cooperation and Development, could make substantive changes to the global international tax regime. Such changes could increase our global tax costs. AIG continues to monitor and assess the impact of such proposals.Finally, it is possible that tax laws will be further changed either in a technical corrections bill or entirely new legislation. 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. New or proposed changes to tax laws may have a material adverse effect on our business, consolidated results of operations, liquidity and financial condition, as the impact of 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 Note 23 to the Consolidated Financial Statements.
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ITEM 1A | Risk Factors
ESTIMATES AND ASSUMPTIONS
Estimates or assumptions 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 Note 1 to the Consolidated Financial Statements and 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, models developed internally or with inputs from third parties. Therefore, actual results may differ from these estimates and models, possibly in the near term, and could have a material effect on our financial statements.
In addition, we employ models to price products, calculate reserves and future policy benefits and value assets and execute hedging strategies, as well as to assess risk and determine statutory capital requirements, among other uses. These models are complex and rely on estimates and projections that are inherently uncertain, may use incomplete, outdated or incorrect data or assumptions and may not operate as intended. To the extent that any of our operating practices and procedures do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such differences may negatively impact our business, reputation, results of operations, and financial condition. For our Life and Retirement companies, significant changes in policyholder behavior assumptions such as lapses, surrenders and withdrawal rates as well as the amount of withdrawals, fund performance, equity market returns and volatility, interest rate levels, the health habits of the insured population, technologies and treatments for disease or disability, the economic environment, or other factors could negatively impact our assumptions and estimates. To the extent that any of our modeling practices do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such errors may negatively impact our business, reputation, results of operations and financial condition.Changes in accounting principles and financial reporting requirements may impact our consolidated results of operations and financial condition.Our financial statements are prepared in accordance with U.S. GAAP, which are 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 adoption of new or revised accounting standards has in the past, and may in the future impact, our reported consolidated results of operations, liquidity and reported financial condition and may cause investors to perceive greater volatility in our financial results, negatively impacting our level of investor interest and investment.For information regarding the impact of accounting pronouncements that have been issued but are not yet required to be implemented, see Note 2 to the Consolidated Financial Statements.If our businesses do not perform well and/or their estimated fair values decline, we may be required to recognize an impairment of our goodwill or establish an additional valuation allowance against the deferred income tax assets, which could have a material adverse effect on our results of operations and financial condition.
Goodwill represents the excess of the amounts we paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. We test goodwill at least annually for impairment and conduct interim qualitative assessments on a periodic basis. Impairment testing is performed based upon estimates of the fair value of the “reporting unit” to which the goodwill relates. In 2023, 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. Our goodwill balance was $3.5 billion at December 31, 2023. If it is determined that goodwill has been impaired, we must write down goodwill by the amount of the impairment, with a corresponding charge to net income (loss). These write-downs could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. For additional information on goodwill impairment, see Part II, Item 7. MD&A – Critical Accounting Estimates – Goodwill Impairment and Note 12 to the Consolidated Financial Statements.
Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. As of December 31, 2023, we had net deferred tax assets, after valuation allowance, of $14.1 billion, related to federal, foreign, and state and local jurisdictions. If, based on available evidence, it is more likely than not that the deferred tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to net income, which such action we have taken from time to time. Such charges could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. For additional information on deferred tax assets, see Part II, Item 7. MD&A – Critical Accounting Estimates – Income Taxes and Note 23 to the Consolidated Financial Statements.
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ITEM 1A | Risk Factors
EMPLOYEES AND COMPETITION
Employee error and misconduct may be difficult to detect and prevent and may result in reputational damage and significant losses.There have been a number of cases involving fraud or other misconduct by employees in recent years and we are exposed to the risk that employee fraud or misconduct could occur. Our informational technology, human resources and compliance departments work collaboratively to monitor for fraud and conduct extensive training for employees. However, employee fraud or misconduct may still occur. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain proper internal authorization, misuse of customer or proprietary/confidential information, or failure to comply with regulatory requirements or our internal policies may result in losses and/or reputational damage.Competition for employees in our industry is intense, and managing key employee succession is critical to our success. We may not be able to attract and retain the key employees and other highly skilled employees we need to support our businesses.Our success depends, in large part, on our ability to retain and attract key and other highly skilled employees. Due to the intense competition in our industry for key employees, we may be unable to retain or hire 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 employees 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 replacements. Our business and consolidated results of operations could be materially adversely affected if we are unsuccessful in retaining and attracting key employees.
In addition, we would be adversely affected if we fail to adequately plan for the succession of our Chief Executive Officer, other members of 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.We face intense competition in each of our business lines, and technological changes may present new and intensified challenges to 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.
General Insurance and Life and Retirement compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Reductions of our credit ratings or IFS 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, counterparties and distribution relationships. A decline in our position as to any one or more of these factors could adversely affect our profitability.
Technological advancements and innovation in the insurance industry, including those related to evolving customer preferences, the digitization of insurance products and services, data ingestion and exchange with trading partners, acceleration of automated underwriting, and use of artificial intelligence and electronic processes present competitive risks. Technological advancements and innovation are occurring in distribution, underwriting, recordkeeping, advisory, marketing, claims and operations at a rapid pace, and that pace may increase, particularly as companies increasingly use data analytics and technology as part of their business strategy. If we are unable to effectively implement these technological advancements in our business, including the use of artificial intelligence, in a way that matches or exceeds our competitors, we may suffer competitive harm as a result, which could adversely impact our reputation, results of operations and financial condition. For further discussion on regulatory developments with respect to emerging technologies, see – Regulation below.
Further, additional costs may also be incurred in order to implement changes to automate procedures critical to our distribution channels in order to increase flexibility of access to our services and products. While we seek opportunities to leverage technological advancements and innovation for our customers’ benefit, our business and results of operations could be materially and adversely affected if external technological advancements or innovation, or the regulation of 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.
FY 2024-12-31 (later)
ITEM 1A | Risk Factors
ITEM 1A | Risk Factors
Risk Factor Summary
The following is a summary of the material risks and uncertainties that could adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Market Conditions• Deterioration of economic conditions, geopolitical tensions, changes in market conditions or weakening in global capital markets have and may continue to materially affect our businesses, results of operations, financial condition and liquidity.Reserves and Exposures• The amount and timing of insurance liability claims are difficult to predict and such claims may exceed the related liability for unpaid losses and loss adjustment expenses.
• Reinsurance may be unavailable or too expensive relative to its benefit and may not be adequate to protect us against losses.• Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events as well as mass torts.
• Climate change may adversely affect our business and financial condition.
• Concentration of our insurance, reinsurance and other risk exposures may have adverse effects.• Losses due to nonperformance or defaults by counterparties may materially and adversely affect the value of our investments, our profitability and sources of liquidity.
Investment Portfolio and Concentration of Investments
• Our investment portfolio is concentrated in certain segments of the economy, and the performance and value of our investment portfolio are subject to a number of risks and uncertainties.• We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of any investment manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our Common Stock.
• Our valuation of investments involves the application of methodologies and assumptions to derive estimates, which may differ from actual experience and could result in changes to investment valuations that may materially adversely affect our business, results of operations, financial condition and liquidity or lead to volatility in our net income.Liquidity, Capital and Credit
• AIG Parent’s ability to access funds from our subsidiaries is limited, and our sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by our subsidiaries.
• We may not be able to generate cash to meet our needs due to the illiquidity of some of our investments.
• A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity.
Business and Operations• Our risk management policies, standards and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses, results of operations, financial condition and liquidity.• Pricing for our products is subject to our ability to adequately assess risks and estimate related losses.• We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity.• Our foreign operations expose us to risks that may affect our operations.• Third parties 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.12
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ITEM 1A | Risk Factors• We may experience difficulty in marketing and distributing products through our current and future distribution channels and the use of third parties may result in additional liabilities.• Our restructuring initiatives may not yield expected reductions in expenses and/or improvements in operational and organizational efficiency.• Business or asset acquisitions and dispositions may expose us to certain risks.• We are subject to risks from our continuing equity market exposure to Corebridge. There can be no assurances that the anticipated benefits of our sales of Corebridge stock will be achieved.• Significant legal or regulatory proceedings may adversely affect our business, results of operations or financial condition.• Increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social, governance and sustainability matters, including governmental responses to such matters, may adversely affect our reputation or otherwise adversely impact our business and results of operations.
• An epidemic, pandemic or other health crisis could materially and adversely affect our business, results of operations, financial condition or liquidity.• We may not be able to protect our intellectual property and may be subject to infringement claims.
Regulation
• Our businesses are heavily regulated and changes in laws and regulations may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability.
• New laws and regulations or new interpretations of current laws and regulations, both domestically and internationally, may affect our businesses, results of operations, financial condition and ability to compete effectively.
• An “ownership change” could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income.• New and proposed changes to tax laws could increase our corporate taxes.Estimates and Assumptions
• Estimates or assumptions used in the preparation of financial statements and modeled results used in various areas of our business may differ materially from actual experience.
• Changes in accounting principles and financial reporting requirements may impact our consolidated results of operations and financial condition.• If our businesses do not perform well and/or their estimated fair values decline, we may be required to recognize an impairment of our goodwill or establish an additional valuation allowance against the related deferred income tax assets, which could have a material adverse effect on our results of operations and financial condition.Employees and Competition
• Employee error and misconduct may be difficult to detect and prevent and may result in reputational damage and significant losses.
• Competition for employees in our industry is intense, and managing key employee succession is critical to our success. We may not be able to attract and retain the key employees and other highly skilled employees we need to support our businesses.
• We face intense competition in each of our business lines, and technological changes may present new and intensified challenges to our businesses.AIG | 2024 Form 10-K
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ITEM 1A | Risk Factors
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 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 above and beyond a risk’s singular impact.
MARKET CONDITIONSDeterioration of economic conditions, geopolitical tensions, changes in market conditions or weakening in global capital markets have and may continue to 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, including a recessionary environment, poor capital markets performance, market volatility, volatility in interest rate levels and inflation have in the past led to, and may in the future lead to, among other consequences, a poor operating environment, erosion of consumer and investor confidence, reduced business volumes, deteriorating liquidity and declines in asset valuations.
Key ways in which we have been, and could be, negatively affected by economic conditions include:• increased loss payments and loss costs due to inflation;
• increased challenges to insurance policy terms and conditions, such as standard exclusions;
• increases in costs associated with third-party reinsurance, or decreased ability to obtain reinsurance on acceptable terms;
• the increased likelihood of, or increased magnitude of, asset impairments caused by market fluctuations, deterioration in collateral values or credit deterioration of borrowers; and• reduced premiums.
Adverse economic conditions may result from a variety of factors including domestic and global economic and political developments, including changes in interest rate levels, plateauing or decreasing economic growth and business activity, recessions, social inflation, inflationary or deflationary pressures in developed economies, including the United States, civil unrest, pandemics, geopolitical tensions, changes to international trade and/or tariff policies, foreign investment restrictions, or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by the United States and other countries, or the conflict in Israel and the surrounding areas, and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains.
These and other market, economic, regulatory and political factors, including the effects of inflation, macroeconomic uncertainty, domestic and international political tensions, disruption to our business operations in countries exposed to geopolitical risk, natural disasters and the increased costs associated with meeting customer needs in such regions, adverse impacts resulting from changes to international trade and tariff policies, and any potential U.S. government shutdown, have had and could continue to have a material adverse effect on our businesses, results of operations, financial condition, capital and liquidity in many ways, including:• lower levels of consumer demand for and ability to afford our products and commercial business activities that have decreased and may continue to decrease revenues and profitability and thus impair goodwill, deferred tax assets or other long-term assets;• increased credit impairments, downgrades and losses across single or numerous asset classes due to lower collateral values or deteriorating cash flow and profitability by borrowers that could lead to higher defaults on the Company’s investment portfolio, especially in geographic, industry or investment sectors where the Company has higher concentrations of exposure, and widening of credit spreads that could reduce investment asset valuations and increase statutory capital requirements;• increased market volatility and uncertainty that could decrease liquidity, increase borrowing costs and limit access to capital markets;• the reduction of investment income generated by, or the market value of, our investment portfolio;• increased costs related to our direct and third-party support services, labor and financing, increased credit risk and decreased sales as a result of inflationary pressures; and
• limitations on business activities and increased compliance risks with respect to economic sanctions regulations relating to jurisdictions in which our businesses operate or we have operations.14
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ITEM 1A | Risk FactorsWe are exposed to certain risks arising from or exacerbated by fluctuations in interest rates, such as the mismatch between the expected duration of our liabilities and our assets, changes in certain statutory reserve or capital requirements that are based on formulas or models that consider interest rates or prescribed interest rates, increased financing and refinancing costs, in particular with respect to our corporate debt instruments; and lower investment income on our floating rate investments that will adjust to lower coupons if short-term rates decrease. Changes in interest rates have had and could continue to have a material adverse effect on the value of our investment portfolio. For example, increases in interest rates have impacted, and may continue to impact, our investment portfolio by decreasing the estimated fair values of the fixed income securities that constitute a substantial portion of our investment portfolio as well as the alternative investments in our investment portfolio. This in turn has increased and could continue to increase the unrealized loss positions in our portfolio which could materially and adversely affect our business, results of operations, financial condition and liquidity. Should a low interest rate environment return, it could in the future negatively affect the performance of our investments and reduce the level of investment income earned on our investment portfolios.
In addition, if our investment managers fail to react appropriately to difficult market or economic conditions, our investment portfolio could incur material losses.RESERVES AND EXPOSURESThe amount and timing of insurance liability claims are difficult to predict and such claims may exceed the related liability for unpaid losses and loss adjustment expenses.
We regularly review the adequacy of the established liability for unpaid losses and loss adjustment expenses. We also conduct extensive analyses of our reserves during the year. Our liability for unpaid losses and loss adjustment expenses, however, has and may develop adversely and materially impact our businesses, results of operations, financial condition and liquidity.
Estimation of ultimate net losses, loss expenses and the liability for unpaid losses and loss adjustment expenses is a complex process, particularly for both long-tail and medium-tail liability lines of business. There is also greater uncertainty in establishing reserves with respect to new business, particularly new business involving 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 unexpected events, such as pandemics or geopolitical conflicts. These emerging issues may increase the size or number of claims beyond our intent at the time of underwriting 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, the liability for unpaid losses and loss adjustment expenses has been and may continue to be significantly affected by changes in loss cost trends or loss development factors that we relied upon in setting the liability for unpaid losses and loss adjustment expenses. 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, or other social or economic factors affecting claims, including judicial and legislative actions, and changes in the tort 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.
We review and update actuarial assumptions at least annually, typically in the third quarter for reserves. If actual experience or revised future expectations result in projected future losses, we may be required to record additional liabilities through a charge to net realized gains or losses in the then-current period, which could negatively affect our business, results of operations, financial condition and liquidity. For additional information on reserve development, see Part II, Item 7. MD&A – Insurance Reserves.For additional information on our loss reserves, see Part II, Item 7. MD&A – Critical Accounting Estimates – Loss Reserves and Note 13 to the Consolidated Financial Statements.Reinsurance may be unavailable or too expensive relative to its benefit and may not be adequate to protect us against losses.
Our subsidiaries are major purchasers of third-party 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 makes the reinsurer liable to our subsidiaries for the reinsured portion of the risk. Market conditions beyond our control have impacted and may in the future 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 is typically more difficult or costly to obtain after a year or consecutive years with a large number of major catastrophes, the severity and frequency of which have increased in recent years, and likelihood of which may be further exacerbated by climate change. We have been and may, at certain times be, (i) forced to incur additional costs for reinsurance, (ii) unable to obtain sufficient reinsurance on acceptable terms, or (iii) unable to obtain reinsurance for certain parts of our business. In instances where reinsurance is more costly, insufficient on acceptable terms or unavailable, we have had to, and will in the future have to accept an increase in exposure to risk, reduce or stop writing certain lines of business written by our subsidiaries or seek alternatives in line with our risk limits, or a combination thereof.
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ITEM 1A | Risk FactorsAdditionally, we are exposed to credit risk with respect to our subsidiaries’ reinsurers to the extent the reinsurance receivable is not secured, or is inadequately secured by collateral or does not benefit from other credit enhancements. We also bear the risk that a reinsurer is, or may be, unwilling to pay amounts we have recorded as reinsurance recoverables for any reason, including that (i) the terms of the reinsurance contract do not reflect the intent of the parties to the contract or there is a disagreement between the parties as to their intent, or (ii) the terms of the contract cannot be legally enforced. The insolvency of one or more of our reinsurers, the inability or unwillingness of such reinsurers to make timely payments under the terms of our contracts or payments in an amount equal to our reinsurance recoverable, or the risk that the reinsurance transaction does not operate as intended, including due to a change in laws and regulations or on account of court or arbitration panel interpretations, could have a material adverse effect on our results of operations and liquidity.
Moreover, the use of reinsurance placed in the capital markets or placed with alternative market reinsurers supported by capital market institutions, like private equity houses that fund single purpose reinsurance capital vehicles, may not provide the same levels of protection as traditional reinsurance transactions. Any disruption, volatility and uncertainty in these markets or with respect to these capital market participants or these types of alternative reinsurance structures may impact the protection provided by this type of reinsurance or 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.
The availability of private sector reinsurance for terrorism is limited and we currently have limited reinsurance coverage for terrorist attacks. While we benefit from the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which provides U.S. government risk assistance to the insurance industry to manage the exposure to terrorism incidents, TRIPRA has specific program limits and does not cover losses in certain lines of business such as personal property and personal casualty. We also rely on the government-sponsored and government-arranged terrorism reinsurance programs, including pools, in force in applicable non-U.S. jurisdictions. The realization of these risks may materially and adversely affect our business, results of operations and financial condition.For additional information on our reinsurance recoverable, see Part II, Item 7. MD&A – Enterprise Risk Management – Insurance Risks – Reinsurance Activities – Reinsurance Recoverable.
Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events as well as mass torts.
Events such as hurricanes, windstorms, hailstorms, flooding, earthquakes, landslides, wildfires, solar storms, earth sinking, tsunamis, war or other military action, acts of terrorism, explosions and fires, cyberattacks, product defects, pandemics and other highly contagious diseases, mass torts, civil unrest and other catastrophes have adversely affected our business in the past and could do so in the future.Catastrophic events, and legislative or regulatory responses thereto, have in the past and could in the future result in losses in any business in which we operate, and could expose us to:
• widespread claim costs associated with property, casualty, general liability, bodily injury, workers’ compensation, accident and health, travel, business interruption and cyber claims, among others;• 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;
• revenue loss due to decline in customer base;• 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;
• significant disruptions to our physical infrastructure, systems and operations; and
• widespread loss or corruption of personal or sensitive business data.
Natural and man-made catastrophic events are generally unpredictable. Our exposure to catastrophe-related loss depends on various factors, including the frequency and severity of the catastrophes, the availability of reinsurance, 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. For example, modeling for the more unpredictable and infrequent types of catastrophes, such as terrorism, cyber incidents and pandemics, is even more difficult and may be less reliable.
In addition, legislative and regulatory initiatives and court decisions following major catastrophes (both natural and man-made), as well as mass torts, have required and could in the future 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 and unanticipated claims; or impose other restrictions, which would reduce our ability to mitigate exposure. These initiatives could impair our cash flows and, without regulatory relief, could adversely impact our subsidiaries’ capital ratios.
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ITEM 1A | Risk FactorsFor additional information on potential catastrophic events, including a sensitivity analysis of our exposure to certain catastrophes, see Part II, Item 7. MD&A – Enterprise Risk Management – Insurance Risks.
For information regarding the effects of climate change on our business, see “Climate change may adversely affect our business and financial condition” below.
Climate change may adversely affect our business and financial condition.
Climate change, indicated by higher concentrations of greenhouse gases, a warming atmosphere and ocean, wildfires, diminished snow and ice, and a rise in sea levels, appears to have contributed to an increase in the frequency and severity of natural disasters and the creation of uncertainty as to future trends and exposures. As such, climate change presents significant financial implications for us in areas such as underwriting, claims and investments, as well as risk capacity, financial reserving and operations.
Climate change presents challenges to our ability to effectively underwrite, model and price catastrophe risk particularly if the frequency and severity of catastrophic events such as pandemics, hurricanes, tornadoes, heatwaves, floods, wildfires and windstorms and other natural disasters continues to increase. For example, losses resulting from actual policy experience may be adverse as compared to the assumptions made in product pricing and our ability to mitigate our exposure may be reduced.
Climate change-related risks may also adversely impact the value of the securities that we hold or lead to credit risk of other counterparties we transact business with, including reinsurers. Our reputation or corporate brand could also be negatively impacted as a result of changing customer or societal perceptions of organizations that we either insure or invest in due to their actions (or lack thereof) with respect to climate change, as well as political initiatives or other stakeholder expectations with respect thereto.
In addition, lawmakers and regulators at the federal, state and local levels have imposed and may continue to impose new requirements or issue new guidance aimed at addressing or mitigating climate change-related risks and efforts undertaken in response thereto. Additional actions by foreign governments, regulators and international standard setters have and could result in substantial expansions of the regulations, guidance or expectations to which we may be subject. It is also possible that the laws, regulations and guidance adopted in U.S. local, state, U.S. federal or foreign jurisdictions regarding climate change-related risks will differ from one another, and that they could be inconsistent with the laws and regulations of other jurisdictions in which we operate. This could result in us having to comply with differing or inconsistent laws, regulations and guidance across jurisdictions.
Additionally, litigation related to climate change has increased in recent years. Many lawsuits center on enforcement or interpretation of environmental laws and regulations, often seeking to use litigation as a tool to influence governmental and corporate climate policies. Other cases seek damages for contribution to climate change or for insufficient disclosure around material financial risks, which could cause us to experience increased claims under liability policies, such as casualty and directors’ and officers’ insurance policies, increase our liabilities and affect the viability of certain of our business lines.
In addition, severe weather and other effects of climate change result in more frequent and more severe damages, leading to lawsuits against our insureds. Indirect climate change effects are also seen in litigation over flooding, mudslides and other severe weather that results in injury or damage, as well as in construction defect litigation, chemical release lawsuits, and workers’ compensation claims. Litigation related to climate change may, through increased claims from our customers and adverse impacts to the value of the securities that we hold, adversely impact our business and results of operations.We have also faced and may continue to face business continuity risk as a result of climate change-related incidents that may disrupt business operations, including extreme weather events. We cannot predict the long-term impacts of climate change on our business and results of operations.
For information regarding risks associated with other catastrophic events, see Reserves and Exposures – “Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events” above.
Concentration of our insurance, reinsurance and other risk exposures may have adverse effects.We are exposed to risks as a result of concentrations in our insurance policies, investments, derivatives and other obligations that we undertake for customers and counterparties. Further, any risk management arrangements we employ to manage concentration risks, whether directly or through third parties, may not be available on acceptable terms or may prove to be ineffective. Our risk exposures under insurance policies, derivatives and other obligations are, from time to time, compounded by risk exposure assumed in the management of our investment portfolio. 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.
In addition, the deconsolidation for accounting purposes and ongoing divestment of our stake in Corebridge, could increase the materiality of these potential concentrations in the remaining portfolio. For additional information on risks associated with our continuing equity market exposure to Corebridge, see Business Operations – “We are subject to risks from our continuing equity market exposure to Corebridge. There can be no assurances that the anticipated benefits of our sales of Corebridge stock will be achieved” below.
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ITEM 1A | Risk FactorsAlso see Part II, Item 7. MD&A – Business Segment Operations – General Insurance – Business Strategy and – Industry and Economic Factors.Losses due to nonperformance or defaults by counterparties may materially and adversely affect the value of our investments, our profitability and sources of liquidity.We are exposed to credit risk arising from exposures to various counterparties related to investments, derivatives, premiums receivable, certain businesses and reinsurance recoverables. These counterparties include, but are not limited to, issuers of fixed income and equity securities we hold, borrowers of loans we hold, customers, plan sponsors, trading counterparties, counterparties under swaps and other derivatives instruments, reinsurers, corporate and governmental entities whose payments or performance we insure, joint venture partners, clearing agents, exchanges, clearing houses, custodians, brokers and dealers, commercial banks, investment banks, intra-group counterparties with respect to derivatives and other third parties, financial intermediaries and institutions and guarantors. These counterparties may default on their obligations to us due to bankruptcy, insolvency, receivership, financial distress, lack of liquidity, adverse economic conditions, operational failure, fraud, government intervention and other reasons. In addition, for exchange-traded derivatives, such as futures, options as well as "cleared" over-the-counter derivatives, we are generally exposed to the credit risk of the relevant central counterparty clearing house and futures commission merchants through which we clear derivatives. Defaults by these counterparties on their obligations to us could have a material adverse effect on the value of our investments, business, financial condition, results of operations and liquidity.An insolvency of, or the appointment of a receiver to rehabilitate or liquidate, a significant competitor could negatively impact our business if such appointment were to impact consumer confidence in our products and services. Additionally, if the underlying assets supporting the structured securities we invest in are expected to default or actually default on their payment obligations, our securities may incur losses.INVESTMENT PORTFOLIO AND CONCENTRATION OF INVESTMENTS
Our investment portfolio is concentrated in certain segments of the economy, and the performance and value of our investment portfolio are subject to a number of risks and uncertainties.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 consolidated investment portfolio. For example, we have significant holdings of real estate and real estate-related investments, including residential mortgage- backed securities (both U.S. government-sponsored enterprise-issued and Non-Agency issued), and commercial mortgage-backed securities and whole loans. We also have significant exposures to domestic and global financial institutions certain industries, such as consumer discretionary and non-discretionary, the U.S. federal, state and local government issuers and authorities, and various governments globally. Events or developments that have a negative effect on any particular industry, asset class, group of related industries or geographic region may adversely affect the valuation of our investments to the extent they are concentrated in such segments. Our ability to sell assets in such segments may be limited.
Our investments are also subject to market risks and uncertainties, including, in addition to interest rate risk, changes in the level of credit spreads, currency rates, and equity prices, each of which has affected and will continue to affect the value of investments in our investment portfolio as well as the performance of, and returns generated by, such investments. For information regarding risks associated with interest rate volatility, see Market Conditions above.Furthermore, our alternative investment portfolio, which is subject to volatility in equity markets, includes investments for which changes in fair value are reported through pre-tax income. An economic downturn or decline in the capital markets has had and could continue to have a material adverse effect on our investment income, including as a result of decreases in the fair value of alternative investments.We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of any investment manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our Common Stock.
We rely on external investment managers to manage the majority of our investment portfolio, consisting of liquid fixed income, certain private placement credit, certain private equity investments, commercial real estate-related equity investments and commercial mortgage loans.
Our investment managers are generally compensated based on the size of the investment portfolios that they manage, rather than based on investment profits or income; as a result, these investment managers are not directly incentivized to maximize investment returns. Our investment portfolio’s returns have benefited historically from investment opportunities and general market conditions that may not currently exist and may not be repeated. There can be no guarantee that any investment manager we engage will be able to achieve any particular returns or generate investment opportunities with attractive, risk-adjusted returns for our investment portfolio in the future. If any of our investment managers becomes unable to effectively manage our portfolio investments, the concentration of assets in our portfolio that are managed by it could adversely affect our business, results of operations, financial condition and liquidity.
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ITEM 1A | Risk FactorsIn addition, we have become more reliant on our external asset managers, and such increased dependence has and may reduce our internal capabilities and expertise or expose us to greater risk, including the risk that external asset managers may fail to meet our performance expectations or otherwise experience disruptions or losses.
Our valuation of investments involves the application of methodologies and assumptions to derive estimates, which may differ from actual experience and could result in changes to investment valuations that may materially adversely affect our business, results of operations, financial condition and liquidity or lead to volatility in our net income.
It has been and may continue to be difficult to value those of our investments or derivatives that are not actively traded. There also may be cases where, due to the financial environment or market conditions, normally active markets become inactive or less active, which can result in insufficient observable data. 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 other disposition may have a material adverse effect on our business, results of operations, financial condition and liquidity.LIQUIDITY, CAPITAL AND CREDIT
AIG Parent’s ability to access funds from our subsidiaries is limited, and our sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by our subsidiaries.
As a holding company, AIG Parent depends on dividends and other payments from its subsidiaries to fund operations, pay dividends, repurchase shares, meet debt service obligations and meet the capital and liquidity needs of our subsidiaries. The majority of our investments are held by our regulated subsidiaries. Any inability by our subsidiaries to make dividend or other payments in an amount sufficient to enable AIG Parent to meet its cash requirements could have an adverse effect on our operations or our business, results of operations, financial condition, capital and liquidity.
The ability of our subsidiaries to pay dividends to AIG Parent in the future will depend on their earnings, capital levels, tax considerations, covenants contained in any financing or other agreements, applicable regulatory restrictions and rating agency requirements. In addition, such payments could be limited as a result of claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and employees. Additionally, our insurance subsidiaries may be limited in their ability to make dividend payments to AIG Parent in the future because of the need to meet their obligations or to support their own capital levels or because of regulatory limits and restrictions or changes in, or interpretations of, regulatory or rating agency standards.
Our decision to pursue strategic changes or transactions in our business and operations may also subject our subsidiaries’ dividend plans to heightened regulatory scrutiny and could make obtaining regulatory approvals for extraordinary distributions by our subsidiaries, if required, more difficult. We are also subject to certain other restrictions on our capital from time to time.
If our liquidity is insufficient to meet our needs, we may need to have recourse to third-party financing, external capital markets or other sources of liquidity, which may not be available or could be 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. If AIG Parent is unable to satisfy a capital need of a subsidiary, the credit rating agencies could downgrade the subsidiary’s financial strength ratings or the subsidiary could become insolvent or, in certain cases, could be seized by its regulator.In the ordinary course of our business, we are required to post collateral for our insurance company subsidiaries from time to time. We may be required to post additional collateral due to regulatory changes from time to time, which could adversely impact our business, financial condition, results of operations and cash flows.For additional information on our liquidity, see Part II, Item 7. MD&A – Liquidity and Capital Resources.We may not be able to generate cash to meet our needs due to the illiquidity of some of our investments.
We have a diversified investment portfolio. However, economic conditions as well as adverse capital market conditions, including a lack of buyers, the inability of potential buyers to obtain financing on reasonable terms, volatility, credit spread changes, interest rate changes, foreign currency exchange rates and/or declines in collateral values have in the past impacted, and may in the future impact, the liquidity and value of our investments.We have investments in certain securities, including certain fixed income structured and privately placed securities as well as investments in private equity funds and hedge funds, mortgage loans and real estate, that are less liquid than other investments. If it became necessary to sell such assets in a stressed market environment, the prices achieved in any sale may be lower than their carrying value, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Adverse changes in the valuation of real estate and real estate-linked assets, volatility or deterioration of capital markets and widening
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ITEM 1A | Risk Factorscredit spreads have in the past, and may in the future, materially adversely affect the liquidity and the value of our investment portfolios.
In the event additional liquidity is required by one or more of our companies, it may be difficult for us to generate additional liquidity by selling, pledging or otherwise monetizing these or other of our investments at reasonable prices and time frames.A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity.Downgrades of the Insurer Financial Strength (IFS) ratings of our insurance companies could (i) prevent these companies from selling, or make it more difficult for them to succeed in selling, products and services, (ii) make it more difficult for them to obtain new reinsurance or obtain it on reasonable pricing terms, and/or (iii) result in increased policy cancellations or return of premiums. A downgrade of the IFS ratings of our insurance companies could result in a downgrade of AIG Parent’s credit ratings. In the event of a downgrade of AIG Parent’s credit ratings, our financing costs will increase and the availability of financing could be limited. A downgrade could also cause our derivative counterparties to limit or reduce their exposure to us and thus reduce our ability to manage our market risk exposures effectively.These events could adversely affect our business, results of operations, financial condition and liquidity.
For additional information on rating agency actions, see Part II, Item 7. MD&A – Liquidity and Capital Resources – Credit Ratings and – Financial Strength Ratings.
BUSINESS AND OPERATIONSOur risk management policies, standards and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses, results of operations, financial condition and liquidity.We have developed and continue to enhance enterprise-wide risk management policies, standards and procedures to identify, monitor and mitigate risk to which we are exposed. Our risk management policies, standards and procedures may not be sufficiently comprehensive and may not identify or adequately protect us from every risk to which we are exposed. Many of our methods of identifying, measuring, underwriting and managing risks are based upon our study and use of historical market, applicant, customer, employee and bad actor behavior or statistics based on historical models. As a result, these methods may not accurately predict future exposures from events such as a major financial market disruption as the result of a natural or man-made catastrophe, that could be significantly different than the historical measures indicate, and which could also result in claims levels not previously observed. We have and will continue to enhance our underwriting processes, including, from time to time, considering and integrating newly available sources of data to confirm and refine our traditional underwriting methods. Our efforts at implementing these improvements may not, however, be fully successful, which may adversely affect our competitive position. We have also introduced new product features designed to limit our risk and taken actions on in-force business, which may not be fully successful in limiting or eliminating risk. Moreover, our hedging programs and reinsurance strategies that are designed to manage risk rely on assumptions regarding our assets, liabilities, general market factors and the creditworthiness of our counterparties that could prove to be incorrect or inadequate. Our hedging programs utilize various derivative instruments, including but not limited to interest rate swaps, credit default swaps and foreign exchange forwards, as well as other hedging instruments, which may not effectively or completely reduce our risk. Assumptions underlying models used to measure accumulations and support reinsurance purchases may prove inaccurate and could leave us exposed to larger than expected catastrophe losses in any given period. In addition, our current business continuity and disaster recovery plans may not be sufficient to reduce the impact of pandemics, a major cyber-attack, including ransomware, and other natural or man-made catastrophic events. Other risk management methods depend upon the evaluation of information regarding markets, clients, or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record and verify large numbers of transactions and events in each jurisdiction in which we operate. Further, various jurisdictions have unique requirements with respect to AI and environmental, social and governance matters, which may impact the efficacy of our standardized risk management tools and techniques; therefore, our policies and procedures may not be fully effective. Accordingly, our risk management policies and procedures may not adequately mitigate the risks to our business, results of operations, financial condition and liquidity.
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, new risks emerge, including risks posed by the rapidly developing technology associated with AI and the implementation thereof within our operations, by our third-party vendors and by competitors, and unanticipated challenges with respect thereto. As a result, new products or new business strategies may present risks that are not appropriately identified, monitored or managed. The effectiveness of our risk management strategies may be limited, resulting in losses, because of market stress or unanticipated financial market movements. In addition, there can be no assurance
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ITEM 1A | Risk Factorsthat we can effectively review and monitor all risks or that all of our employees will understand, follow and comply with our risk management policies and procedures.
Pricing for our products is subject to our ability to adequately assess risks and estimate related losses.
Our business is dependent on our ability to price our products effectively and charge appropriate premiums and other charges. Pricing adequacy depends on a number of factors and assumptions, including proper evaluation of insurance risks, our expense levels, net investment income expected to be realized, our response to rate actions taken by competitors, legal and regulatory developments, the ability to obtain regulatory approval for rate changes and inflation. Management establishes target returns for each product based upon the factors described above, certain underwriting assumptions and capital requirements, including statutory, GAAP and economic capital models. We monitor and manage pricing and sales to achieve target returns on new business, but we may not be able to achieve those returns, including due to the factors discussed above. Additionally, the property and casualty insurance markets are historically cyclical and experience periods of relatively strong premium rates followed by periods of increased competition that push premium rates down. Inadequate pricing and the difference between estimated results and actual results could have a material adverse effect on the profitability of our operations and our financial condition.We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity.We use information technology systems, infrastructure, including energy supply, and networks and other operational systems to store, retrieve, evaluate and use customer, employee and company data and information. Our business is highly dependent on our ability to access these systems and networks to perform necessary business functions. In the event of a natural disaster, unauthorized access, a terrorist attack, a major cyber-attack or other disruption, our systems, networks, and data may be inaccessible to our employees, customers or business partners for an extended period of time, and we may be unable to meet our business obligations and regulatory requirements for an extended period of time if our data or systems are disabled, manipulated, destroyed or otherwise compromised. Additionally, some of our technology systems are older, legacy-type systems that are less efficient and require an ongoing commitment of significant resources to maintain or upgrade, and in some cases may not be able to be fully protected or to implement the latest security patches. Supply chain disruptions or delays could prevent us from maintaining and implementing changes, updates and upgrades to our systems and networks in a timely manner or at all. System and network failures or outages, including with respect to third parties, have and could compromise our ability to perform business functions in a timely manner, which could harm our ability to conduct business, hurt our relationships with our business partners and customers and expose us to legal claims as well as regulatory investigations and sanctions, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Some of these technology systems also rely upon third-party systems and services, which themselves may rely on the systems and services of other third parties. Problems caused by, or occurring in relation to, our third-party providers’ systems and services, including those resulting from breakdowns or other disruptions in information technology services provided by our third-party providers and the other third parties on which they rely, our inability to acquire third-party services on commercially acceptable terms, failure of a third-party provider to perform as anticipated or in compliance with applicable laws or regulations, inability of a third-party provider to provide the required volumes of services or our third-party providers experiencing cyberattacks or data breaches, could materially and adversely affect our business, results of operations, financial condition and liquidity.
Like other global companies, the systems and networks we maintain and third-party systems and networks we or our vendors use are currently, and may in the future continue to be, subject to or targets of unauthorized or fraudulent access, including physical or electronic break-ins or unauthorized tampering, as well as attempted cybersecurity threats such as “denial of service” attacks, phishing, automated attacks, and other disruptive attacks, including ransomware. Cyber threats are constantly evolving and the techniques used in these attacks change, develop and evolve rapidly, including the use of emerging technologies, such as advancing forms of artificial intelligence and quantum computing by nation state threat actors and criminal organizations. The new cyber risks introduced by these changes in technology, such as deepfake schemes, require us to devote significant attention to identification, assessment and analysis of the risks and implementation of corresponding preventative measures. Additionally, the frequency and sophistication of such threats continue to increase and often become further heightened in connection with geopolitical tensions. Also, like other global companies, we have an increasing challenge of retaining and attracting highly qualified personnel to assist us in combatting these security threats.
There is no assurance that our cybersecurity measures, including information security and technology policies and standards, administrative, technical and physical controls and other actions by us or contracted third-parties designed as preventative, will provide fully effective protection from threats to our data, systems and networks, including malware and computer virus attacks, ransomware, unauthorized access, business e-mail compromise, misuse, denial-of-service attacks, system failures and other disruptions. We maintain insurance to cover operational risks, such as cyber risk and technology outages, but this insurance may not cover all costs associated with the consequences of information systems or personal, confidential or proprietary information being compromised. In the case of a successful ransomware attack in which our data and information systems are compromised and
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ITEM 1A | Risk Factorsapplicable processes to restore access are not effective, our information could be held hostage until a ransom, which may be significant, is paid. In some cases, such a compromise may not be immediately detected which may make it difficult to restore critical services, mitigate damage to assets and maintain the integrity and security of data including our policyholder, employee, agent, and other confidential information processed through our systems and networks.
Additionally, since we rely heavily on information technology and systems (which is expected to increasingly include the use of artificial intelligence) and on the integrity and timeliness of data to run our businesses and service our customers, any such security event and resulting compromise of systems or data have and may impede or interrupt our business operations and our ability to service our customers, and may materially and adversely affect our business, results of operations, financial condition and liquidity.
There can be no assurance that any actions taken by us to evaluate and enhance our information security and technology systems and processes, including third-party systems and services on which we rely, as well as changes designed to update and enhance our protective measures to address new threats, will decrease the risk of a system or process failure; further, such changes may create a gap in the associated security measures during the change period. Any such system or process failure or security measures gap could materially and adversely affect our business, results of operations, financial condition and liquidity.
We routinely transmit, receive and store personal, confidential and proprietary information by secured email and other electronic means. Although we attempt to keep such information confidential and secure, we have been, and in the future 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. Failure to secure or appropriately handle personal, confidential or proprietary information could cause a loss of data or compromised data integrity, give rise to remediation or other expenses, expose us to liability under U.S. and international laws and regulations, subject us to litigation, investigations, sanctions, and regulatory and law enforcement action, and result in reputational harm and loss of business, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Furthermore, certain of our businesses are subject to compliance with laws and regulations enacted by U.S. federal and state governments, the EU 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 variety of applicable privacy and information security laws and regulations exposes us to heightened regulatory scrutiny, requires us to incur significant technical, legal and other expenses in an effort to ensure and maintain compliance and will continue to impact our business in the future by increasing legal, operational and compliance costs. While we have taken steps to comply with privacy and information security laws, we cannot guarantee that our efforts will meet the evolving standards imposed by data protection authorities. If we are found not to be in compliance with these privacy and security laws and regulations, we may be subject to additional potential private consumer, business partner or securities litigation, regulatory inquiries, and governmental investigations and proceedings, including class-actions. Any such developments may damage our reputation and subject us to material fines and other monetary penalties and damages, divert management’s time and attention, and lead to further enhanced regulatory oversight, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity. Additionally, we expect that developments in privacy and cybersecurity worldwide will increase the financial and reputational implications in the event of a significant breach of our or our third-party suppliers’ information technology systems. For additional information on data protection and cybersecurity regulations, see Item 1. Business – Regulation – Privacy, Data Protection, Cybersecurity and Artificial Intelligence Requirements, and Part II, Item 7. MD&A – Enterprise Risk Management – Operational Risk Management – Cybersecurity Risk.
Our foreign operations expose us to risks that may affect our operations.
Through our operations, licenses and authorizations and network partners, we provide insurance solutions that help businesses and individuals in approximately 200 countries and jurisdictions protect their assets and manage risks. A substantial portion of our business is conducted outside the United States, and we intend to continue to grow our business in strategic markets. Operations outside the United States have in the past been, and may in the future be, affected by elevated climate risks, regional economic downturns, changes in foreign currency exchange rates and foreign interest rates, political events or upheaval, sanctions policies, nationalization and other restrictive government or regulatory actions, which could also affect our other operations.
Our subsidiaries operating in foreign jurisdictions must satisfy local regulatory requirements and it is possible that these 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.
We are subject to myriad regulations which govern items such as sanctions, bribery and anti-money laundering, for which failure to comply could expose us to significant penalties. Laws and regulations aimed at preventing money laundering, which in some jurisdictions apply to insurance companies, create obligations to know certain information about clients and take steps to monitor for suspicious activities. The Foreign Corrupt Practices Act makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Also, the Department of the Treasury’s Office of Foreign Assets Control administers regulations that restrict or prohibit dealings involving certain organizations, individuals and
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ITEM 1A | Risk Factorscountries. The UK, the EU, Japan and other jurisdictions maintain similar laws and regulations. Although we have policies and controls in place that are designed to ensure compliance with these laws and regulations, if those controls are ineffective and/or an employee or third party fails to comply with applicable laws and regulations, we could suffer civil and criminal penalties, including disgorgement, and our business and our reputation could be adversely affected.Third parties 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 used and will continue to use outsourcing strategies and third-party providers to transform operational and back office processes and deliver contracted services in a broad range of areas. Such areas include, but are not limited to, administration or servicing of certain policies and contracts, finance, actuarial, information technology services related to infrastructure, and investment advisory and management services. The implementation of any technological advancements may be comprised of multiple workstreams that are complex and, have in the past and may in the future, require significant time and resource prioritization and result in delays due to the lack of sufficient resources to execute on a timely basis, inefficiencies stemming from changes that may be required to the program or sequencing, failure to meet operational and financial targets due to additional priorities or other factors. These risks may impair our ability to achieve anticipated improvements in our businesses may disrupt or may otherwise harm our operations which could materially and adversely affect our businesses, financial condition and operations.
Further, third-party investment managers manage the majority of our investment assets. For information regarding our reliance on third-party investment managers, see Investment Portfolio and Concentration of Investments – “We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of any investment manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our Common Stock” above.
Some of the third-party providers we use are located outside the U.S., which exposes us to business disruptions and political risks inherent to conducting business outside of the U.S. We periodically negotiate the terms of the provisions and renewal of these relationships, and there can be no assurance that such terms will remain acceptable to us, such third parties or regulators. If such third-party providers experience disruptions, fail to meet applicable licensure requirements, do not perform as anticipated or in compliance with applicable laws and regulations, terminate or fail to renew our relationships, or such third-party providers in turn rely on services from another third-party provider, who experiences such disruptions, licensure failures, nonperformance or noncompliance, termination or non- renewal of its contractual relationships, we may experience operational difficulties, an inability to meet obligations (including, but not limited to, contractual, legal, regulatory or policyholder obligations), a loss of business, increased costs or reputational harm, compromises to our data integrity, or suffer other negative consequences, all of which may have a material adverse effect on our business, consolidated results of operations, liquidity and financial condition. Third parties performing regulated activities on our behalf, such as sales and servicing of insurance products, pose a heightened risk as we may be held accountable for third-party conduct that fails to comply with applicable law.For information regarding cyber risk arising from third-party providers, see Business and Operations – “We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity” above.
We may experience difficulty in marketing and distributing products through our current and future distribution channels and the use of third parties may result in additional liabilities.
We maintain relationships with a number of key distributors, which results in certain distributor concentration. Distributors have in the past, and may in the future, elect to renegotiate the terms of existing relationships, such that those terms may not remain attractive or acceptable to us, limit the products they sell, including the types of products offered by us, or otherwise reduce or terminate their distribution relationships with us, with or without cause. This could be due to various reasons, such as industry consolidation of distributors or other industry changes that increase the competition for access to distributors, developments in laws or regulations that affect our business or industry, including the marketing and sale of our products and services, adverse developments in our business, the distribution of products with features that do not meet minimum thresholds set by the distributor, strategic decisions that impact our business, adverse rating agency actions or concerns about market-related risks.Alternatively, renegotiated terms may not be attractive or acceptable to distributors, or we may terminate one or more distribution agreements due to, for example, a loss of confidence in, or a change in control of, one of the third-party distributors. An interruption or reduction in certain key relationships could materially affect our ability to market our products and could materially and adversely affect our business, results of operations, financial condition and liquidity.
Key distribution partners could merge, consolidate, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts.
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ITEM 1A | Risk FactorsAlso, if we are unsuccessful in attracting, retaining and training key distribution partners, or are unable to maintain our distribution relationships, our sales could decline, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, substantially all of our distributors are permitted to sell our competitors’ products. If our competitors offer products that are more attractive than ours or pay higher commission rates to the distribution partners than we do or for other reasons outside of our control, these distribution partners could concentrate their efforts in selling our competitors’ products instead of ours.In addition, we can, in certain circumstances, be held responsible for the actions of our third-party distributors, including registered representatives, insurance agents and agencies, marketing organizations, and their respective employees, agents and representatives, in connection with the marketing and sale of our products by such parties, including the security of their operations and their handling of confidential information and personal data, in a manner that is deemed not compliant with applicable laws and regulations. This is particularly acute with respect to unaffiliated distributors where we may not be able to directly monitor or control the manner in which our products are sold through third-party firms despite our risk assessment, training and compliance programs. Further, misconduct by employees and agents in the sale of our products could also result in violations of laws by us or our subsidiaries, regulatory sanctions and serious reputational or financial harm to us. The precautions we take to prevent and detect the foregoing activities may not be effective. If our products are distributed in a manner alleged to be inappropriate, or third-party distributors experience a security or data breach due to deficient operational controls, we could suffer reputational and/or other financial harm to our business.
Our restructuring initiatives may not yield expected reductions in expenses and/or 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 focus on our operating model and associated initiatives. Actual costs to implement these initiatives may exceed our estimates or we may be unable to fully implement and execute these initiatives as planned. 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 business rationalizations, technology enhancements, business process outsourcing, workforce reductions, modifications to our operating model and other actions, which depend on a number of factors, some of which are beyond our control.
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 including any financial accommodations required by regulators, our ability to satisfy such terms, conditions and accommodations, 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. Additionally, difficulties or delays in separating a divested business from our existing infrastructure, systems and operations could reduce the anticipated economic, strategic or other benefits of such transaction. Acquisitions and dispositions 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 due to 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. We have also provided and may provide financial guarantees and indemnities in connection with the businesses we have sold or may sell, as described in greater detail in Note 15 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 regarding the risks associated with our continuing equity market exposure to Corebridge, see Business and Operations – “We are subject to risks from our continuing equity market exposure to Corebridge. There can be no assurances that the anticipated benefits of our sales of Corebridge stock will be achieved” above.
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ITEM 1A | Risk FactorsWe are subject to risks from our continuing equity market exposure to Corebridge. There can be no assurances that the anticipated benefits of our sales of Corebridge stock will be achieved.
Since September of 2022 when we closed on the initial public offering of Corebridge’s common stock, we have continued to sell down our interest in Corebridge. On June 9, 2024, we met the requirements for the deconsolidation of Corebridge for accounting purposes. For a detailed discussion of the deconsolidation, see Note 4 to the Consolidated Financial Statements.
Although Corebridge has been deconsolidated from our consolidated financial results, we continue to hold a significant stake in Corebridge's common stock. At the time of deconsolidation, we elected the fair value option to account for our remaining investment in Corebridge. From that date onward, the fair value change in Corebridge’s stock, and dividends received from Corebridge, are recognized in net investment income. As a result, a decline in the market value of Corebridge common stock may result in a decrease in our investment income and may have a material and adverse effect on our results and financial condition. There can be no assurances given as to the price, transaction costs, or timing of further Corebridge stock sales and, as a result, we may fail to realize the expected benefits of our sales of such stock if there are adverse movements in its market value prior to, or at the time of, such sales.
Further, the sale of our remaining Corebridge stock involves a number of divestment-related risks, including (i) unanticipated developments that may delay, prevent or otherwise adversely affect our ability to continue the full divestment, including an economic downturn or unfavorable capital markets conditions; (ii) unforeseen losses, liabilities or asset impairments arising from further dispositions; and (iii) challenges associated with the valuation of Corebridge and the Company as we seek to fully divest our investment in Corebridge.
In addition, the divestment of Corebridge, or a significant delay in our ability to continue to sell our Corebridge stock, has caused and could continue to cause the emergence, or exacerbate the effects of, many of the other risks discussed herein, including changes in our deferred tax assets and liabilities and our ability to utilize certain tax loss and credit carryforwards to offset future taxable income.Significant legal or regulatory proceedings may adversely affect our business, results of operations or financial condition.In the normal course of business, 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. 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.
Additionally, from time to time, various regulatory and governmental agencies review the transactions and practices of the Company and our subsidiaries in connection with company-specific matters, or industry-wide and other inquiries into, among other matters, the business practices of current and former operating insurance subsidiaries. Such reviews, investigations, inquiries or examinations have and could lead to extended delays to, or prohibitions of, such transactions or practices, or develop into administrative, civil or criminal proceedings or enforcement actions, in which remedies could include fines, penalties, restitution or alterations to our business practices, and could result in additional expenses, limitations on certain business activities and reputational damage.
We, our subsidiaries and their respective officers and directors are also subject to, or may become subject to, a variety of additional types of legal disputes brought by holders of our securities, customers, employees and others, alleging, among other things, breach of contractual or fiduciary duties, bad faith, indemnification and violations of federal and state statutes and regulations. Certain of these matters may also 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 them, and developments in these matters could have a material adverse effect on our consolidated financial condition or consolidated results of operations.
For information regarding certain legal proceedings, see Notes 15 and 21 to the Consolidated Financial Statements.
Increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social, governance and sustainability matters, including governmental responses to such matters, may adversely affect our reputation or otherwise adversely impact our business and results of operations.
There is increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders on companies’ governance, risk oversight, disclosures, plans, policies and practices regarding environmental, social, governance and sustainability matters, including those related to environmental stewardship, climate change, racial justice and workplace conduct. The requirements, standards and expectations of such stakeholders may also, as a whole, reflect diverging or conflicting values or policy objectives.
Governmental actions to mitigate climate and other risks related to environmental, social, governance and sustainability matters, or, conversely, to restrict actions companies may take in response to such risks, could have an adverse effect on our business and results of operations. Internationally and at the U.S. federal, state and local levels, regulators have imposed and likely will continue to impose requirements and guidance related to environmental, social, governance and sustainability matters, which will continue to
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ITEM 1A | Risk Factorsevolve and may conflict with one another, impose additional costs on us and expose us to new or additional risks, including financial, regulatory, litigation, reputational and operational risks. See Item 1. Business – Regulation – Climate Change .
Furthermore, certain organizations that provide information to investors have developed ratings for evaluating companies on their approach to different environmental, social and governance matters, and unfavorable ratings of our company or our industries may lead to negative investor sentiment and the diversion of investment to other companies or industries.
We may not be able to meet the requirements, standards or expectations of our various stakeholders on environmental, social, governance and sustainability issues, including with respect to any current or future targets, goals, plans, standards or expectations (including any previously announced climate target, goal or plan) on these matters, whether established or set by us or third parties, due to a variety of factors, including regulatory or other developments, changes to the methodologies, assumptions and estimates that underlie our climate- and other sustainability-related targets, goals and strategy, or the actions of or information provided by third parties outside of our control, who may apply standards, methodologies, practices and policies that differ from ours. If we are unable to meet such targets, goals, plans, standards or expectations, it could result in adverse publicity, reputational harm, or loss of customer and/ or investor confidence, which could adversely affect our business and results of operations. Conversely, actions we may take toward meeting such targets, goals, plans, standards or expectations could expose us to negative investor sentiment, regulatory scrutiny, adverse publicity or reputational harm.For information on the effects of climate change on our business, see Reserves and Exposures – “Climate change may adversely affect our business and financial condition” above.An epidemic, pandemic or other health crisis could materially and adversely affect our business, results of operations, financial condition or liquidity.
Public health crises and related governmental response measures, for example related to the COVID-19 pandemic, have resulted in significant societal disruption, economic uncertainty, volatility in business and consumer confidence and global economic slowdowns, which have adversely impacted our business and may again do so.
For example, we have experienced increased claim volumes; adverse effects resulting from our exposure to certain industries, and difficulties in arriving at accurate valuations thereof, which has caused or may cause impairment of the estimates and assumptions used to run our businesses or resulting in greater variability and subjectivity in our investment decisions; and increased difficulty and cost in obtaining reinsurance coverage.
If a public health crisis emerges the markets and economies in which we operate may experience heightened stress and further volatility, which may materially adversely affect our business, results of operations and financial condition. Legal proceedings, including class actions, could also be filed against us, our insureds, or others, seeking coverage for epidemic or pandemic-related losses or alleging bad faith denial of such coverage. In addition, remote or hybrid work may negatively impact our compliance efforts, culture and employees’ morale, which could result in greater turnover, lower productivity and greater operational risks.We may not be able to protect our intellectual property and may be subject to infringement claims.Effective intellectual property rights protection, including in the form of contractual rights, copyright, trademark, patent and trade secret laws, may be unavailable, limited, or subject to change in some countries where we do or plan to do business. Third parties may infringe or misappropriate our intellectual property. We have, and may in the future, litigate to protect our intellectual property. Any such litigation may be costly and may not be successful. Additionally, third parties may have patents or other protections that could be infringed by our products, methods, processes or services or which could limit our ability to offer certain product features. Consequently, we have in the past been and may in the future be subject to costly litigation in the event that another party alleges that we infringe upon their intellectual property rights. Any such intellectual property litigation could prove to be both costly and unsuccessful, result in significant expense, damages, and in some circumstances, we could be enjoined from providing certain products or services to our customers. Alternatively, we could be required to enter into costly licensing arrangements with third parties to resolve infringement or contractual disputes. The loss of intellectual property protection or the inability to secure or protect our intellectual property assets could harm our reputation and have a material adverse effect on our business and our ability to compete.REGULATION
Our businesses are heavily regulated and changes in laws and regulations 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 laws and regulations in the jurisdictions in which we operate. Our business and financial condition are also subject to supervision and regulation by authorities in the various jurisdictions in which we do business. Federal, state and foreign regulators also periodically review and investigate our insurance businesses, including Company-specific and industry-wide practices. The primary purpose of insurance regulation is the protection of insurance and reinsurance contract holders. The extent of regulation on our insurance business varies across the jurisdictions in which we operate, but generally is governed by laws that delegate regulatory, supervisory and
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AIG | 2024 Form 10-KTABLE OF CONTENTS
ITEM 1A | Risk Factorsadministrative authority to insurance departments and similar regulatory agencies. The laws and regulations that apply to our business and operations generally grant regulatory agencies and/or self-regulatory organizations broad rulemaking and enforcement powers, including the power to regulate the issuance, marketing, sale and distribution of our products, the manner in which we underwrite our policies, the delivery of our services, the nature or extent of disclosures that we give our customers, the compensation of our distribution partners, the manner in which we handle claims on our policies and the administration of our policies and contracts, as well as the power to limit or restrict our business for failure to comply with applicable laws and regulations.
We strive to comply with laws and regulations applicable to our businesses, operations and legal entities, including maintenance of all required licenses and approvals. The application of and compliance with such laws and regulations may be subject to interpretation, evolving industry practices and regulatory expectations that could result in increased compliance costs. The relevant authorities may not agree with our interpretation of these laws and regulations or with our policies and procedures adopted to address evolving industry practices or meet regulatory expectations. Such authorities’ interpretations and views may also change from time to time. It is also possible that the laws, regulations and interpretations across various jurisdictions in which we do business may conflict with one another, or affect how we do business beyond such jurisdictions’ borders, including in the United States and/or globally. If we are found not to have complied with applicable legal or regulatory requirements, these authorities could preclude or temporarily suspend us from carrying on some or all of our activities, impose substantial administrative penalties such as fines or require corrective actions, which individually or in the aggregate could interrupt our operations and materially and adversely affect our reputation, business, results of operations and financial condition. Additionally, in instances where such authorities’ interpretation of new or revised requirements related to capital, accounting treatment, valuation or reserving has materially differed, or may in the future materially differ from ours, we have incurred, and may again incur, higher operating costs, and sales of products subject to such requirements or treatment have been and may again be affected.
Regulators in jurisdictions in which we do business have adopted RBC, solvency and liquidity standards applicable to insurers operating in their jurisdiction. Failure to comply with such capital (including, in the U.S., RBC), solvency, liquidity and similar requirements, or as otherwise may be agreed by us or one of our insurance company subsidiaries with an insurance regulator, would generally permit the insurance regulator to take certain regulatory actions that could materially impact the affected company’s operations. Those actions range from requiring an insurer to submit a plan describing how it would regain a specified RBC or solvency ratio to a mandatory regulatory takeover of the company. The NAIC has adopted methodologies for assessing group-wide regulatory capital, which could evolve into more formal group-wide prescribed capital requirements on certain insurance companies and/or their holding companies that may augment jurisdictional RBC or solvency standards that apply at the legal entity level, and the basis for such capital calculations may differ, in whole or in part, from the statutory statements of our insurance subsidiaries used to calculate RBC. Furthermore, efforts to address systemic risks within the financial services industry, including insurance services, may lead regulators to apply new or heightened standards and safeguards for activities or practices that we and other insurers or other nonbank financial services companies engage in. The Financial Stability Oversight Council has authority under Dodd-Frank to determine that certain nonbank financial companies, including insurers, be designated as nonbank SIFIs subject to supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards, and has in place guidance and procedures intended to govern any such designations. We cannot predict the effect that any such initiatives or heightened standards may have on our business, results of operations, liquidity and financial condition.
There has also been increased regulatory scrutiny of the use of data, machine learning, predictive models and artificial intelligence, including in the insurance industry. Certain insurance regulators have developed, and others are developing, regulations or guidance applicable to insurance companies that use artificial intelligence, data analytics, machine learning and predictive models in their operations. We cannot predict the impact of the regulatory actions that have been or may in the future be taken with regard to data analytics, artificial intelligence, machine learning or predictive models, but any limitations or restrictions could have a material impact on our business, processes, results of operations and financial condition.
We also cannot predict the impact that laws and regulations adopted in foreign jurisdictions may have on our businesses, results of operations or cash flows, or on the financial markets generally. It is possible such laws, regulations or standards, including, without limitation, Solvency II and European Data Protection Board Cross Border Data Transfer, Corporate Sustainability Reporting Directive (CSRD), and Corporate Sustainability Due Diligence Directive (CSDDD) in the EU, and standard-setting initiatives by the FSB and the IAIS, including, but not limited to, the IAIS’ Common Framework for the Supervision of IAIGs, its global Insurance Capital Standard, which was recently adopted as a group-level prescribed capital requirement, and its holistic framework for the assessment and mitigation of systemic risk, may significantly alter our business practices. For example, regulators have imposed and may continue to impose new requirements, and regulators and other international organizations may continue to issue guidance, aimed at addressing or mitigating climate change-related risks. 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 also 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 in which we operate, including the United States.For additional information on our regulatory environment, see Item 1. Business – Regulation.AIG | 2024 Form 10-K
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ITEM 1A | Risk Factors
For information regarding the effects of regulations related to climate change on our business, see Reserves and Exposures – “Climate change may adversely affect our business and financial condition” above.For information regarding the regulatory response to the COVID-19 pandemic, see Business and Operations – “An epidemic, pandemic or other health crisis could materially and adversely affect our business, results of operations, financial condition or liquidity” above .New laws and regulations or new interpretations of current laws and regulations, both domestically and internationally, may affect our businesses, results of operations, financial condition and ability to compete effectively.Legislators, regulators, self-regulatory and other organizations have in the past, and may in the future, periodically consider various proposals that, if enacted, may affect or restrict, among other things, our business practices and activities, product designs and distribution relationships, how we market, sell or service certain products we offer, the investment assets we hold and our investment management practices, our capital, reserving and accounting requirements, or the profitability of certain of our businesses.
Further, new laws, regulations or guidance may affect or significantly limit our ability to conduct certain businesses at all, including restrictions on the type of activities in which financial institutions are permitted to engage. Changes in legislation or regulation could also impose additional taxes on a limited subset of financial institutions and insurance companies (either based on size, activities, geography or other criteria), 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 uncertain whether and how these and other changes in legislation or regulation would apply to us, those who sell or service our products, or our competitors or how they could impact our ability to compete effectively, as well as our business, consolidated results of operations, liquidity and financial condition.An “ownership change” could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income.Our ability to use U.S. federal net operating loss carryforwards 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. In general, an ownership change will occur when the percentage of AIG Parent's ownership (measured by value) by one or more “5-percent shareholders” (as defined in Section 382 of the Internal Revenue Code) has increased by more than 50 percentage points 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 utilization of 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 Internal Revenue Service (AFR) (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 of the Internal Revenue Code would be dependent on the value of our equity and the AFR 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 carryforwards could expire before we would be able to use them to offset future taxable income.
New and proposed changes to tax laws could increase our corporate taxes.
The Inflation Reduction Act of 2022 includes a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with average profits over $1 billion over a three-year period. While the U.S. Treasury and the Internal Revenue Service issued proposed regulations for CAMT during the third quarter of 2024, there are still certain details regarding the application of the CAMT that remain unclear and we continue to evaluate the impact of the proposed regulations along with any other guidance.
New tax laws outside the U.S., in particular those enacted in response to proposals by the Organisation for Economic Co-operation and Development, could make substantive changes to the global international tax regime. Such changes could increase our global tax costs. We continue to monitor and assess the impact of such proposals.Finally, it is possible that tax laws will be further changed either in a technical corrections bill or entirely new legislation. 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. New or proposed changes to tax laws may have a material adverse effect on our business, consolidated results of operations, liquidity and financial condition, as the impact of 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 Note 21 to the Consolidated Financial Statements.
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ITEM 1A | Risk Factors
ESTIMATES AND ASSUMPTIONS
Estimates or assumptions used in the preparation of financial statements and modeled results used in various areas of our business may differ materially from actual experience.Our consolidated financial statements are prepared in conformity with 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 Part II, Item 7. MD&A – Critical Accounting Estimates and in Note 1 to the Consolidated Financial Statements. 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, models developed internally or with inputs from third parties. Therefore, actual results may differ from these estimates and models, possibly in the near term, and could have a material effect on our financial statements.
In addition, we employ models to price products, calculate reserves and value assets and execute hedging strategies, as well as to assess risk and determine statutory capital requirements, among other uses. These models are complex and rely on estimates and projections that are inherently uncertain, may use incomplete, outdated or incorrect data or assumptions and may not operate as intended. To the extent that any of our operating practices and procedures do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such differences may negatively impact our business, reputation, results of operations, and financial condition. Additionally, if any of our modeling practices do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such errors may negatively impact our business, reputation, results of operations and financial condition.Changes in accounting principles and financial reporting requirements may impact our consolidated results of operations and financial condition.Our consolidated financial statements are prepared in accordance with U.S. GAAP, which are 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 adoption of new or revised accounting standards has in the past, and may in the future impact, our reported consolidated results of operations, liquidity and reported financial condition and may cause investors to perceive greater volatility in our financial results, negatively impacting our level of investor interest and investment.For information regarding the impact of accounting pronouncements that have been issued but are not yet required to be implemented, see Note 2 to the Consolidated Financial Statements.If our businesses do not perform well and/or their estimated fair values decline, we may be required to recognize an impairment of our goodwill or establish an additional valuation allowance against the related deferred income tax assets, which could have a material adverse effect on our results of operations and financial condition.
Goodwill represents the excess of the amounts we paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. We test goodwill at least annually for impairment and conduct interim qualitative assessments on a periodic basis. Impairment testing is performed based upon estimates of the fair value of the “reporting unit” to which the goodwill relates. In 2024, 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. If it is determined that goodwill has been impaired, we must write down goodwill by the amount of the impairment, with a corresponding charge to net income (loss). These write-downs could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. For additional information on goodwill impairment, see Part II, Item 7. MD&A – Critical Accounting Estimates – Goodwill Impairment and Note 12 to the Consolidated Financial Statements.
Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. If, based on available evidence, it is more likely than not that the deferred tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to net income, which such action we have taken from time to time. Such charges could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. For additional information on deferred tax assets, see Part II, Item 7. MD&A – Critical Accounting Estimates – Income Taxes and Note 21 to the Consolidated Financial Statements.
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29TABLE OF CONTENTS
ITEM 1A | Risk Factors
EMPLOYEES AND COMPETITION
Employee error and misconduct may be difficult to detect and prevent and may result in reputational damage and significant losses.We are exposed to the risk that employee fraud or misconduct could occur despite extensive training for employees and fraud monitoring. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain proper internal authorization, misuse of customer or proprietary/confidential information, or failure to comply with regulatory requirements or our internal policies may result in losses and/or reputational damage.Competition for employees in our industry is intense, and managing key employee succession is critical to our success. We may not be able to attract and retain the key employees and other highly skilled employees we need to support our businesses.Our success depends, in large part, on our ability to attract and retain key and other highly skilled employees. Due to the intense competition in our industry for key employees, we may be unable to retain or hire 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 employees 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 replacements. Our business and consolidated results of operations could be materially adversely affected if we are unsuccessful in retaining and attracting key employees.
In addition, we would be adversely affected if we fail to adequately plan for the succession of our Chief Executive Officer, other members of senior management and other key employees. While we have long-term compensation plans designed to retain our employees and succession plans, our compensation plans cannot guarantee that the services of these employees will continue to be available to us and our succession plans may not operate effectively.We face intense competition in each of our business lines, and technological changes may present new and intensified challenges to our businesses.Our businesses operate in highly competitive environments, both domestically and overseas. Our principal competitors are other property and casualty insurance organizations.
We compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Reductions of our credit ratings or IFS 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, counterparties and distribution relationships. A decline in our position as to any one or more of these factors could adversely affect our profitability.
Technological advancements and innovation in the insurance industry, including those related to evolving customer preferences, the digitization of insurance products and services, data ingestion and exchange with trading partners, acceleration of automated underwriting, and use of artificial intelligence and electronic processes present competitive risks. Technological advancements and innovation are occurring in distribution, underwriting, recordkeeping, advisory, marketing, claims and operations at a rapid pace, and that pace may increase, particularly as companies increasingly use data analytics and technology as part of their business strategy. If we are unable to effectively implement these technological advancements in our business, including the use of artificial intelligence, in a way that matches or exceeds our competitors, we may suffer competitive harm as a result, which could adversely impact our reputation, results of operations and financial condition. For further discussion on regulatory developments with respect to emerging technologies, see Regulation above.
Further, additional costs may also be incurred in order to implement changes to automate and digitize procedures critical to our distribution channels in order to increase flexibility of access to our services and products. While we seek opportunities to leverage technological advancements and innovation for our customers’ benefit, our business and results of operations could be materially and adversely affected if external technological advancements or innovation, or the regulation of technological advancements or innovation, limit our ability to retain existing business, write new business at adequate rates or on appropriate terms, or impact our ability to adapt or deploy current products as quickly and effectively as our competitors.
Item 7 · Management's Discussion & Analysis
+908 paragraphs −1494 paragraphs ~908 changed
FY 2023-12-31 (earlier)
ITEM 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Information and Factors That May Affect Future ResultsThis Annual Report on Form 10-K and other publicly available documents may include, and members of AIG management may from time to time make and discuss, statements which, to the extent they are not statements of historical or present fact, may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward‑looking statements are intended to provide management’s current expectations or plans for AIG’s future operating and financial performance, based on assumptions currently believed to be valid and accurate. Forward-looking statements are often preceded by, followed by or include words such as “will,” “believe,” “anticipate,” “expect,” “expectations,” “intend,” “plan,” “strategy,” “prospects,” “project,” “anticipate,” “should,” “guidance,” “outlook,” “confident,” “focused on achieving,” “view,” “target,” “goal,” “estimate” and other words of similar meaning in connection with a discussion of future operating or financial performance. These statements may include, among other things, projections, goals and assumptions that relate to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expense reduction efforts, the outcome of contingencies such as legal proceedings, anticipated organizational, business or regulatory changes, such as the separation of the Life and Retirement business from AIG, the effect of catastrophic events, both natural and man-made, and macroeconomic and/or geopolitical events, anticipated dispositions, monetization and/or acquisitions of businesses or assets, the successful integration of acquired businesses, management succession and retention plans, exposure to risk, trends in operations and financial results, and other statements that are not historical facts.
AIG | 2023 Form 10-K
43TABLE OF CONTENTSAll forward-looking statements involve risks, uncertainties and other factors that may cause AIG’s actual results and financial condition to differ, possibly materially, from the results and financial condition expressed or implied in the forward-looking statements. Factors that could cause AIG’s actual results to differ, possibly materially, from those in specific projections, targets, goals, plans, assumptions and other forward-looking statements include, without limitation:
• the impact of adverse developments affecting economic conditions in the markets in which AIG and its businesses operate in the U.S. and globally, including adverse developments related to financial market conditions, macroeconomic trends, fluctuations in interest rates and foreign currency exchange rates, inflationary pressures, including social inflation, pressures on the commercial real estate market, an economic slowdown or recession, any potential U.S. federal government shutdown and geopolitical events or conflicts, including the conflict between Russia and Ukraine and the conflict in Israel and the surrounding areas;
• occurrence of catastrophic events, both natural and man-made, including the effects of climate change, geopolitical events and conflicts and civil unrest;
• disruptions in the availability or accessibility of AIG's or a third party’s information technology systems, including hardware and software, infrastructure or networks, and the inability to safeguard the confidentiality and integrity of customer, employee or company data due to cyberattacks, data security breaches, or infrastructure vulnerabilities;
• AIG’s ability to successfully dispose of, monetize and/or acquire businesses or assets or successfully integrate acquired businesses, and the anticipated benefits thereof;
• AIG's ability to realize expected strategic, financial, operational or other benefits from the separation of Corebridge Financial, Inc. (Corebridge) as well as AIG’s equity market exposure to Corebridge;
• AIG's ability to effectively implement restructuring initiatives and potential cost-savings opportunities;
• AIG's ability to effectively implement technological advancements, including the use of artificial intelligence (AI), and respond to competitors' AI and other technology initiatives;
• the effectiveness of strategies to retain and recruit key personnel and to implement effective succession plans;
• concentrations in AIG’s investment portfolios;
• AIG’s reliance on third-party investment managers;
• changes in the valuation of AIG’s investments;
• AIG’s reliance on third parties to provide certain business and administrative services;• availability of adequate reinsurance or access to reinsurance on acceptable terms;• concentrations of AIG’s insurance, reinsurance and other risk exposures;
• nonperformance or defaults by counterparties, including Fortitude Reinsurance Company Ltd. (Fortitude Re);
• AIG's ability to adequately assess risk and estimate related losses as well as the effectiveness of AIG’s enterprise risk management policies and procedures, including with respect to business continuity and disaster recovery plans;• difficulty in marketing and distributing products through current and future distribution channels;• actions by rating agencies with respect to AIG’s credit and financial strength ratings as well as those of its businesses and subsidiaries;
• changes to sources of or access to liquidity;• changes in judgments concerning the recognition of deferred tax assets and the impairment of goodwill;• changes in judgments or assumptions concerning insurance underwriting and insurance liabilities;
• changes in accounting principles and financial reporting requirements;
• the effects of sanctions, including those related to the conflict between Russia and Ukraine, and the failure to comply with those sanctions;
• the effects of changes in laws and regulations, including those relating to the regulation of insurance, in the U.S. and other countries in which AIG and its businesses operate;
• changes to tax laws in the U.S. and other countries in which AIG and its businesses operate;• the outcome of significant legal, regulatory or governmental proceedings;• AIG’s ability to effectively execute on sustainability targets and standards;
• AIG’s ability to address evolving stakeholder expectations and regulatory requirements with respect to environmental, social and governance matters;• the impact of epidemics, pandemics and other public health crises and responses thereto; and
• such other factors discussed in:– Part I, Item 1A. Risk Factors of this Annual Report; and.
– this Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) of this Annual Report.
Forward-looking statements speak only as of the date of this report, or in the case of any document incorporated by reference, the date of that document. We are not under any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in any forward-looking statements is disclosed from time to time in other filings with the Securities and Exchange Commission (SEC).
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INDEX TO ITEM 7
Page
Use of Non-GAAP Measures46Critical Accounting Estimates48Executive Summary57Overview57Regulatory, Industry and Economic Factors58Consolidated Results of Operations60Business Segment Operations65General Insurance66
Life and Retirement
73Other Operations84Investments86Overview86
Investment Highlights in 2023
86Investment Strategies86Credit Ratings88Insurance Reserves96Loss Reserves96
Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and Market Risk Benefits
100Liquidity and Capital Resources104Overview104Liquidity and Capital Resources Highlights104
Liquidity and Capital Resources Highlights of Corebridge
106Analysis of Sources and Uses of Cash106Liquidity and Capital Resources of AIG Parent and Subsidiaries107Credit Facilities108Contractual Obligations109Off-Balance Sheet Arrangements and Commercial Commitments110Debt111Credit Ratings112Financial Strength Ratings112Regulation and Supervision113Dividends113Repurchases of AIG Common Stock113Dividend Restrictions113Enterprise Risk Management114Overview114Risk Governance Structure114Risk Appetite, Limits, Identification and Measurement114Credit Risk Management115Market Risk Management115Liquidity Risk Management117Operational Risk Management117Insurance Risks118Glossary122Acronyms124Throughout 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.AIG | 2023 Form 10-K
45TABLE OF CONTENTS
ITEM 7 | Use of Non-GAAP Measures
Use of Non-GAAP Measures
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 SEC 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.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.
Book value per common share, excluding accumulated other comprehensive income (loss) (AOCI) adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and deferred tax assets (DTA) (Adjusted book value per common share) is used to show the amount of our net worth on a per-common share basis after eliminating items that can fluctuate significantly from period to period including changes in fair value (1) of AIG’s available for sale securities portfolio, (2) of market risk benefits attributable to our own credit risk and (3) due to discount rates used to measure traditional and limited payment long-duration insurance contracts, 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. In addition, we adjust for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets held by AIG in support of Fortitude Re’s reinsurance obligations to AIG post deconsolidation of Fortitude Re (Fortitude Re funds withheld assets) since these fair value movements are economically transferred to Fortitude Re. 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. Adjusted book value per common share is derived by dividing total AIG common shareholders’ equity, excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets, and DTA (Adjusted common shareholders’ equity), by total common shares outstanding.
Return on common equity – Adjusted after-tax income excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and DTA (Adjusted return on common equity) is used to show the rate of return on common 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 (1) of AIG’s available for sale securities portfolio, (2) of market risk benefits attributable to our own credit risk and (3) due to discount rates used to measure traditional and limited payment long-duration insurance contracts, 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. In addition, we adjust for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets since these fair value movements are economically transferred to Fortitude Re. 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 common equity. Adjusted return on common equity is derived by dividing actual or annualized adjusted after-tax income attributable to AIG common shareholders by average Adjusted common shareholders’ equity.
Adjusted after-tax income attributable to AIG common shareholders is derived by excluding the tax effected adjusted pre-tax income (APTI) adjustments described below, dividends on preferred stock, noncontrolling interest on net realized gains (losses), other non-operating expenses 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 Cuts and Jobs Act.
Adjusted revenues exclude Net realized gains (losses), income from non-operating litigation settlements (included in Other income for GAAP purposes), changes in fair value of securities used to hedge guaranteed living benefits (included in Net investment income for GAAP purposes) and income from elimination of the international reporting lag. Adjusted revenues is a GAAP measure for our segments.
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ITEM 7 | Use of Non-GAAP MeasuresAdjusted pre-tax income is derived by excluding the items set forth below from income from continuing operations before income tax. This definition is consistent across our 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 segments. Excluded items include the following:
• changes in fair value of securities used to hedge guaranteed living benefits;
• net change in market risk benefits (MRBs);
• changes in benefit reserves related to net realized gains and losses;
• changes in the fair value of equity securities;• net investment income on Fortitude Re funds withheld assets;• following deconsolidation of Fortitude Re, net realized gains and losses on Fortitude Re funds withheld assets;• loss (gain) on extinguishment of debt;• all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication. Earned income on such economic hedges is reclassified from net realized gains and losses to specific APTI line items based on the economic risk being hedged (e.g. net investment income and interest credited to policyholder account balances);• income or loss from discontinued operations;
• net loss reserve discount benefit (charge);• pension expense related to lump sum payments to former employees;
• net gain or loss on divestitures and other;
• non-operating litigation reserves and settlements;
• restructuring and other costs related to initiatives designed to reduce operating expenses, improve efficiency and simplify our organization;
• 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;
• integration and transaction costs associated with acquiring or divesting businesses;
• losses from the impairment of goodwill;
• non-recurring costs associated with the implementation of non-ordinary course legal or regulatory changes or changes to accounting principles; and
• income from elimination of the international reporting lag.• 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 accident year combined ratios, as adjusted (Accident year loss ratio, ex-CAT and Accident year combined ratio, ex-CAT): both the accident year loss and accident year 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 catastrophe losses are generally weather or seismic events, in each case, having a net impact on AIG in excess of $10 million and man-made catastrophe losses, such as terrorism and civil disorders that exceed the $10 million threshold. We believe that 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 management’s 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, Federal Home Loan Bank (FHLB) funding agreements and mutual funds. We believe the measure of premiums and deposits is useful in understanding customer demand for our products, evolving product trends and our sales performance period over period.
Results from discontinued operations are excluded from all of these measures.
AIG | 2023 Form 10-K
47TABLE OF CONTENTSITEM 7 | Critical Accounting EstimatesCritical 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.
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:
• loss reserves;• valuation of future policy benefit liabilities and recognition of measurement gains and losses;
• valuation of MRBs related to guaranteed benefit features of variable annuity, fixed annuity and fixed index annuity products;
• valuation of embedded derivative liabilities for fixed index annuity and index universal life products;• reinsurance assets, including the allowance for credit losses and disputes;• goodwill impairment;• allowance for credit losses on certain investments, primarily on loans and available for sale fixed maturity securities;• fair value measurements of certain financial assets and financial liabilities; and
• income taxes, in particular the recoverability of our deferred tax asset and establishment of provisions for uncertain tax positions.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.
LOSS RESERVES
Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses, less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Because these estimates are subject to the outcome of future events and because loss trends vary and time is often required for changes in trends to be recognized and confirmed, changes in estimates are common.
The estimate of loss reserves relies on several key judgments:
• the determination of the actuarial methods 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.
Numerous assumptions are made in determining the best estimate of reserves for each line of business, in consideration of expected ultimate losses, loss cost trends and loss development factors, where appropriate. The importance of any one assumption can vary by both line of business and accident year. Because such assumptions may differ from actual experience, there is potential for significant variation in the development of loss reserves. This estimation uncertainty is particularly relevant for long-tail lines 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.Overview of Loss Reserving Process and Methods
Our loss reserves can generally be categorized into two distinct groups: short-tail reserves and long-tail reserves. Short-tail reserves consist 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, and UK/Europe Casualty and Financial Lines.
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ITEM 7 | Critical Accounting EstimatesShort-Tail Reserves
In short-tail lines of business, such as property or personal insurance, where the nature of these claims tends to be higher frequency with short reporting periods, with volatility arising from occasional severe events, the actual losses reported make up a greater proportion of the ultimate loss estimate. During the first few development quarters of an accident year, the expected ultimate losses generally reflect the average loss costs from a period of preceding accident quarters that have been adjusted for changes in rate and loss cost trends, mix of business, known exposure to unreported losses, or other factors affecting the particular line of business. For more mature quarters, specific loss development methods and/or frequency/severity methods may be used to determine the incurred but not reported (IBNR). IBNR for claims arising from catastrophic events or events of unusual severity would be determined taking into account information known by the claims department, using alternative techniques or expected percentages of ultimate loss emergence based on historical emergence of similar events or claim types.
Long-Tail Reserves
Estimation of loss reserves for our long-tail 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 more recent accident years generally provides limited statistical credibility of reported net losses on long-tail 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 loss reserves.
For our long-tail lines, we generally make actuarial and other assumptions with respect to the following:
• Loss cost trend factors, which are used to establish expected loss ratios for subsequent accident years based on the projected loss ratios for prior accident years.
• Expected loss ratios, which are used for the latest accident year and, in some cases, for accident years prior to the latest accident year. The expected loss ratio also generally reflects the average 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.
• Loss development factors, which 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, which are development factors used for certain long-tail lines of business 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.
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. 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 relevant factors. At the close of each quarter, the assumptions and data underlying the loss ratios are reviewed to determine whether they 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. The loss ratio is changed to reflect the revised estimate if this review suggests that the previously determined loss ratio is no longer appropriate and, generally, shorter tailed lines of business are more likely to experience changes than longer tailed lines for immature accident years unless the information is directionally unfavorable.We conduct a comprehensive loss reserve 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.
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ITEM 7 | Critical Accounting EstimatesThe reserve analysis, globally, 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 develop our best estimate 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. We consult with third-party specialists to help inform our judgments as needed. Through the execution 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.
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 (ERM) group.
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 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.
Actuarial and Other Methods for Our 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 groupings may change to reflect observed or emerging patterns within and across product lines, or to differentiate 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 insurance, 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 lines 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. 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. 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.
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 lines. 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.50
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ITEM 7 | Critical Accounting Estimates
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.
Where appropriate, supplemental analysis for the given line of business may be performed in addition to the above described techniques such as Shareholder Class Action suit analysis for Directors and Officers (D&O) coverages.
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.
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. Nevertheless, most of these legacy exposures have been heavily reinsured with very highly rated reinsurers.
The majority of our remaining 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.AIG | 2023 Form 10-K
51TABLE OF CONTENTS
ITEM 7 | Critical Accounting Estimates
Key Assumptions of our Actuarial Methods by Line of Business
Line of Business or Category
Key Assumptions
U.S. Workers’
Compensation
We generally use a combination of loss development and expected loss ratio methods for U.S. Workers’ Compensation as this is a long-tail line of 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 1 percentage point below to 2.5 percentage points above those indicated in the 2023 detailed valuation review. For excess of deductible business, in our judgment, it is reasonably possible that tail factors beyond twenty years could vary by 1.5 percentage points below to 3 percentage points above those indicated in the 2023 detailed valuation review.
U.S. Excess Casualty We utilize various loss cost trend assumptions for different segments of the portfolio. In our judgment, after evaluating the historical loss cost trends from prior accident years since the early 1990s, it is reasonably possible that actual loss cost trends applicable to the year-end 2023 detailed valuation review for U.S. Excess Casualty may range 5 percentage points lower or higher than this estimated loss trend. The loss cost trend assumption is critical for the U.S. Excess Casualty line of business due to the long-tail nature of the losses, and it 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 line 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.In our judgment, after evaluating the historical loss development factors from prior accident years since the early 1990s, it is reasonably possible 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 2023 detailed valuation 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.
Given the very long-tail nature of this business, the tail factor selection can also have material impact on our carried reserves. The sensitivity around tail selection may also be a proxy for the sensitivity of a calendar year impact of monetary inflation on unpaid losses. It is reasonably possible for the tail factors for Excess Casualty could vary by 2 percentage points below to 3.5 percentage points above those indicated in the 2023 detailed valuation review.U.S. Other Casualty
The key assumptions for other casualty lines are similar to U.S. 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 LinesThe loss cost trends for U.S. D&O liability business vary by year and subset. 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 possible that the actual variation in loss cost levels for these subsets could vary by approximately 10 percentage points lower or higher on a year-over-year basis than the assumptions actually utilized in the year-end 2023 reserve review. Because the 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 lines 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 possible 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 2023 reserve review.UK/Europe Casualty and
Financial Lines
Similar to U.S. business, UK/Europe 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, however the range of potential impacts is much lower than that of other lines of business noted above.
U.S. and UK/Europe
Property and Special
Risks
For shorter-tail lines such as Property and Special Risks, variance in outcomes for individual large claims or events typically has a greater impact on results than does changes in actuarial assumptions or methodology. This is because a greater proportion of the ultimate loss, at any stage of development, is composed of reported losses than IBNR reserves. These outcomes generally relate to unique characteristics of events such as catastrophes or losses with significant business interruption claims.
U.S., UK/Europe and Japan Personal Insurance 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.52
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ITEM 7 | Critical Accounting EstimatesThe 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 2023:
December 31, 2023 Increase (Decrease) to Loss Reserves Increase (Decrease) to Loss Reserves(in millions)
Loss cost trends: Loss development factors:
U.S. Excess Casualty: U.S. Excess Casualty:
5.0 percentage points increase $ 850 3.5 percentage points tail factor increase $ 1,2005.0 percentage points decrease (650) 2.0 percentage points tail factor decrease (750)U.S. Excess Casualty:
6-months slower 600
6-months faster (550)
U.S. Financial Lines (D&O) U.S. Financial Lines (D&O)10.0 percentage points increase 950 6-months slower 600
10.0 percentage points decrease (700) 6-months faster (550)U.S. Workers' Compensation:
Tail factor increase (a)800Tail factor decrease (b)
(550)
(a) Tail factor increase of 2.5 percentage points for guaranteed cost business and 3 percentage points for deductible business.
(b) Tail factor decrease of 1 percentage point for guaranteed cost business and 1.5 percentage points for deductible business.
For additional information on our reserving process and methodology, see Note 13 to the Consolidated Financial Statements.FUTURE POLICY BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS
Long-duration traditional products primarily include whole life insurance, term life insurance, and certain payout annuities for which the payment period is life-contingent, which include certain of our single premium immediate annuities including pension risk transfer (PRT) and structured settlements. In addition, these products also include accident and health, and long-term care (LTC) insurance. The LTC block is in run-off and has been fully reinsured with Fortitude Re.
Updating net premiums ratios (NPRs) – Remeasurement gains and losses: Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future benefits less the present value of future net premiums (portion of the gross premium required to provide for all benefits and expenses). The assumptions used to calculate the benefit liabilities are initially set when a policy is issued and an NPR is established. Benefit liabilities are subsequently remeasured periodically to reflect changes in policy assumptions and actual versus expected experience and are recognized as remeasurement gains and losses, a component of policyholder benefits. The assumptions include mortality, morbidity and persistency. These assumptions are typically consistent with pricing inputs at policy issuance. Liabilities are accreted using an upper-medium grade (low credit risk) fixed income instrument yield that is locked-in at policy issuance. The liabilities are remeasured at the balance sheet date using a current upper-medium grade yield with changes in the liabilities reported in Other comprehensive income (loss) (OCI).
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. Universal life account balances are reported in Policyholder contract deposits, while these additional liabilities related to universal life products are reported within Future policy benefits in the Consolidated Balance Sheets. These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale on accumulated assessments, with related changes recognized through Other comprehensive income (loss). The policyholder behavior assumptions for these liabilities include mortality, lapses and premium persistency. The capital market assumptions used for the liability for universal life secondary guarantees include discount rates and net earned rates.
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MARKET RISK BENEFITS
Annuity products offered by our Individual Retirement and Group Retirement segments offer guaranteed benefit features (collectively known as GMxBs). These guaranteed features include guaranteed minimum death benefits (GMDB) that are payable in the event of death and guaranteed minimum withdrawal benefits (GMWB) that guarantee lifetime withdrawals regardless of fixed account and separate account value performance. For additional information on these features, see Note 14 to the Consolidated Financial Statements.
GMxBs are recognized as MRBs and can be assets or liabilities, and represent the expected value of benefits in excess of the projected account value, with changes in fair value of MRBs recognized in the Consolidated Statements of Income (Loss) and the portion of the fair value change attributable to our own credit risk recognized in OCI.
Our exposure to the guaranteed amounts is equal to the amount by which the contract holder’s account balance is below the amount provided by the guaranteed feature. A deferred annuity contract may include more than one type of GMxB; 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 spouse’s 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 low interest rate environment generally increase our exposure to potential benefits under the guaranteed features, leading to an increase in the liabilities for those benefits.
For additional information on market risk management related to these product features, see Enterprise Risk Management – Insurance Risks – Life and Retirement Companies’ Key Risks – Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.
The valuation methodology and assumptions used to measure our GMxBs is presented in the following table:
Guaranteed Benefit
Feature
Reserving Methodology &
Key Assumptions
Fair Value Methodology
Guaranteed minimum benefits on annuity products are market risk benefits that are required to be measured at fair value with changes in the fair value of the liabilities recorded in changes in the fair value of market risk benefits, except for changes related to the Company's own credit risk which are recorded in AOCI. The fair value of these benefits is based on assumptions that a market participant would use in valuing these MRBs.
The Company applies a non-option-based approach for variable products, and an option-based approach for fixed index and fixed products. Under the non-option-based approach, a portion of actual fees (i.e., attributed fees) is determined such that the present value of expected benefits less attributed fees is zero at issue. This calculated ratio is locked in and utilized in each policy valuation going forward and results in an MRB value of zero at policy issue. Under the option-based approach, the MRB value at issue represents the present value of expected benefits after account value exhaustion. There is no calculated attributed fee ratio under this approach; as such, the calculated MRB liability at inception requires an equal and offsetting adjustment to the underlying host contract. Consistent with the non-option-based approach, this results in no gains or losses recognized upon policy issuance.
The fair value of the market risk benefits, which are Level 3 assets and liabilities, is based on a risk-neutral framework and incorporates actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts.
For additional information on how we value for MRBs, see Note 14 to the Consolidated Financial Statements, and for information on fair value measurement of these MRBs, including how we incorporate our own non-performance risk, see Note 5 to the Consolidated Financial Statements.
Key
Assumptions
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 subject to judgment and based primarily on our historical experience; and
• in applying asset growth assumptions for the valuation of MRBs, we use market-consistent assumptions calibrated to observable interest rate and equity option prices.
For the fixed index annuity GMxB liability, policyholder funds are projected assuming growth equal to current option values for the current crediting period followed by option budgets for all subsequent crediting periods. Policyholder fund growth projected assuming credited rates are expected to be maintained at a target pricing spread, subject to guaranteed minimums.
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VALUATION OF EMBEDDED DERIVATIVES FOR FIXED INDEX ANNUITY AND INDEX UNIVERSAL LIFE PRODUCTS
Fixed index annuity and life products provide growth potential based in part on the performance of market indices. Certain fixed index annuity products offer optional guaranteed benefit features similar to those offered on variable annuity products. Policyholders may elect to rebalance among the various accounts within the product at specified renewal dates. At the end of each index term, we generally have the opportunity to re-price the index component by establishing different participation rates or caps on index credited rates. The index crediting feature of these products results in the recognition of an embedded derivative that is required to be bifurcated from the host contract and carried at fair value with changes in the fair value of the liabilities recorded in Net realized gains (losses). Option pricing models are used to estimate fair value, taking into account assumptions for future index growth rates, volatility of the index, future interest rates, and our ability to adjust the participation rate and the cap on index credited rates in light of market conditions and policyholder behavior assumptions.
For additional information on market risk management related to these product features, see Enterprise Risk Management – Insurance Risks – Life and Retirement Companies’ Key Risks – Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.
The following table summarizes the sensitivity of changes in certain assumptions for MRBs, liability for Future policyholder benefits, net of reinsurance and embedded derivatives related to index-linked interest credited features, measured as the related hypothetical impact for the December 31, 2023 balances and the resulting hypothetical impact on pre-tax income and OCI, before hedging:
December 31, 2023
Increase (Decrease) Due to Changes in MRBs, Liability for Future Policyholder Benefits, and Embedded Derivatives Related to Index-Linked Interest Credited Features
Pre-Tax Income Other Comprehensive Income (Loss) Impact
(in millions)
Assumptions:
Equity Return (a)
Effect of an increase by 20%
$ 157 $ 153
Effect of a decrease by 20%
(238) (126)
Interest Rate (b)
Effect of an increase by 1%
2,323 2,920
Effect of a decrease by 1% (3,087) (3,514)
(a) Represents the net impact of a 20 percent increase or decrease in the S&P 500 index.
(b) Represents the net impact of one percent parallel shift in the yield curve.
The sensitivities of 20 percent and one 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 to value other applicable liabilities. Changes different from those illustrated may occur in any period and by different products.
The change in pre-tax income due to variances in equity returns or interest rates reflects the impact to MRBs using the at-issue Non-performance Risk Adjustment (NPA) and the change in embedded derivatives related to index-linked interest credit features. The change in OCI due to equity returns solely reflects the impact on MRBs due to changes in the NPA, while the change in OCI due to interest rates also reflects the impact to the Liability for future policyholder benefits, net of reinsurance.
The analysis of MRBs and embedded derivatives 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 MRBs and embedded derivative liabilities.
For additional information on guaranteed benefit features of our variable annuities and the related hedging program, see Notes 5, 9, 13 and 14 to the Consolidated Financial Statements.
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ITEM 7 | Critical Accounting EstimatesREINSURANCE ASSETS
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. 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. The estimation of reinsurance recoverables involves a significant amount of judgment. Reinsurance assets include reinsurance recoverables 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. For additional information on reinsurance, see Note 8 to the Consolidated Financial Statements.GOODWILL IMPAIRMENT
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. A qualitative assessment may be performed, considering whether events or circumstances exist that lead to a determination that it is not more likely than not that the fair value of an operating segment is less than its carrying value. If management elects to perform a quantitative assessment to determine recoverability of carrying value or is compelled to do so based on the results of a qualitative assessment, the estimate of fair value involves applying one or a combination of common valuation approaches. These include discounted expected future cash flows, market-based earnings multiples and external appraisals, among other methods, all of which require management judgment and are subject to uncertainty, primarily as it relates to assumptions around business growth, earnings projections, and cost of capital.
For additional information on goodwill impairment, see Part I, Item 1A. Risk Factors – Estimates and Assumptions and Note 12 to the Consolidated Financial Statements.ALLOWANCE FOR CREDIT LOSSES ON CERTAIN INVESTMENTS
We maintain an allowance for the expected lifetime credit losses of commercial and residential mortgage loans and available for sale securities. The sufficiency of this allowance is reviewed quarterly using both quantitative and qualitative considerations, which are subject to risks and uncertainties. These considerations and the overall methodology used to estimate the allowance for credit losses are discussed in more detail in Note 6 and Note 7 to the Consolidated Financial Statements for available for sale securities and Commercial and residential loans, respectively.
FAIR VALUE MEASUREMENTS OF CERTAIN FINANCIAL ASSETS AND FINANCIAL 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. We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant unobservable inputs in their valuation. We consider unobservable inputs to be those for which market data is not available. Our assessment of the significance of a particular input to the fair value measurement of an asset or liability requires judgment.
For additional information about the valuation methodologies of financial instruments measured at fair value, see Note 5 to the Consolidated Financial Statements.INCOME TAXES
Deferred income taxes represent the tax effect of the differences between the amounts recorded in our Consolidated Financial Statements and the tax basis of assets and liabilities. Our assessment of net deferred income taxes represents management’s best estimate of the tax consequences of various events and transactions, which can themselves be based on other accounting estimates, resulting in incremental uncertainty in the estimation process.
Deferred Tax Asset RecoverabilityThe 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. As such, changes in tax laws in countries where we transact business can impact our deferred tax asset valuation allowance. We consider multiple factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net operating losses, foreign tax credits, realized capital loss and other carryforwards. These factors include forecasts of future income for each of our businesses, which incorporate forecasts of future statutory income for our insurance companies, 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
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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. In performing our assessment of recoverability, we consider tax laws governing the utilization of net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. These tax laws are subject to change, resulting in incremental uncertainty in our assessment of recoverability.Uncertain Tax Positions
Uncertain tax positions represent AIG’s liability for income taxes on tax years subject to review by the Internal Revenue Service (IRS) or other tax authorities. 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 to be realized upon settlement. The completion of review, or the expiration of federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes.For a discussion of our framework for assessing the recoverability of our deferred tax asset and other tax topics, 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.Adoption of Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the Financial Accounting Standards Board (FASB) issued an accounting standard update with the objective of making targeted improvements to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity.
The Company adopted the targeted improvements to the accounting for long-duration contracts (the standard or LDTI) on January 1, 2023, with a transition date of January 1, 2021 (as described in additional detail below).
The Company adopted the standard using the modified retrospective transition method relating to liabilities for traditional and limited payment contracts and deferred policy acquisition costs associated therewith, while the Company adopted the standard in relation to MRBs on a retrospective basis. Based upon this transition method, as of the January 1, 2021 transition date (Transition Date), the impact of the adoption of the standard was a net decrease to beginning AOCI of $2.2 billion and a net increase to beginning Retained earnings of $933 million.
The net increase in Retained earnings resulted from:
• The reclassification of the cumulative effect of non-performance adjustments related to our products in Individual Retirement and Group Retirement operating segments that are currently measured at fair value (e.g., living benefit guarantees associated with variable annuities),
Partially offset by:
• A reduction from the difference between the fair value and carrying value of benefits not previously measured at fair value (e.g., death benefit guarantees associated with variable annuities).
The net decrease in AOCI resulted from:
• The reclassification of the cumulative effect of non-performance adjustments discussed above,
• Changes to the discount rate which will most significantly impact our Life Insurance and Institutional Markets segments,
Partially offset by:
• The removal of Deferred policy acquisition costs, Unearned revenue reserves, Sales inducement assets and certain future policyholder benefit balances recorded in AOCI related to changes in unrealized appreciation (depreciation) on investments.
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ITEM 7 | Executive SummaryREGULATORY, INDUSTRY AND ECONOMIC FACTORSRussia/Ukraine Conflict
The Russia/Ukraine conflict began in February 2022. The conflict has and may continue to have a significant impact on the global macroeconomic and geopolitical environments, including increased volatility in capital and commodity markets, rapid changes to regulatory conditions around the globe including the use of sanctions, operational challenges for multinational corporations, inflationary pressures and an increased risk of cybersecurity incidents.
The conflict is evolving and has the potential to adversely affect our business and results of operations from an investment, underwriting and operational perspective. While we believe we have taken appropriate actions to minimize related risk, we continue to monitor potential exposure and operational impacts, as well as any actual and potential claims activity. The ultimate impact will depend on future developments that are uncertain and cannot be predicted, including scope, severity and duration, the governmental, legislative and regulatory actions taken (including the application of sanctions), and court decisions, if any, rendered in response to those actions.
Impact of Changes in the Interest Rate Environment and Equity Markets
Certain key U.S. benchmark rates continued to rise during 2023 as markets reacted to heightened inflation measures, geopolitical risk, and the Board of Governors of the Federal Reserve System implementing multiple increases to short term interest rates. The yield pick of new investments over sales, maturities and paydowns and redemptions, excluding Fortitude Re, averaged 195 basis points during 2023. This combined with resetting of coupon rates on floating rate securities and loans has steadily improved the overall portfolio yields. However, the key benchmark rates remain highly volatile. We actively manage our exposure to the interest rate environment through portfolio construction 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, but we may not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities.
Equity Markets
Our financial results are impacted by the performance of equity markets, which impacts the performance of our alternative investment portfolio, fee income and net amount at risk. For instance, in our variable annuity separate accounts, mutual fund assets and brokerage and advisory assets, we generally earn fee income based on the account value, which fluctuates with the equity markets as a significant amount of these assets are invested in equity funds. The impact of equity market returns, both increases and decreases, is reflected in our results due to the impact on the account value and the fair values of equity-exposed securities.
In Life and Retirement, hedging costs could also be significantly impacted by changes in the level of equity markets as rebalancing and option costs are tied to the equity market volatility. These hedging costs are partially offset by our rider fees that are tied to the level of the Chicago Board Options Exchange Volatility Index. As rebalancing and option costs increase or decrease, the rider fees will increase or decrease partially offsetting the hedging costs incurred.
Market and other economic factors may result in increased credit impairments, downgrades and losses across single or numerous asset classes due to lower collateral values or deteriorating cash flow and profitability by borrowers could lead to higher defaults on our investment portfolio, especially in geographic, industry or investment sectors where we have higher concentrations of exposure, such as real estate related borrowings. These factors can also cause widening of credit spreads which could reduce investment asset valuations, decrease fee income and increase statutory capital requirements, as well as reduce the availability of investments that are attractive from a risk-adjusted perspective.
Alternative investments include private equity funds which are generally reported on a one-quarter lag. Accordingly, changes in valuations driven by equity market conditions during the fourth quarter of 2023 may impact the private equity investments in the alternative investments portfolio in the first quarter of 2024.
Annuity Sales and Surrenders
The rising rate environment and our partnership with Blackstone Inc. and its investment advisory affiliates (Blackstone) have provided a strong tailwind for fixed and fixed index annuity sales, however, higher interest rates have also resulted in an increase in surrenders. Rising interest rates could continue to create the potential for increased sales, but could also drive higher surrenders relative to what we have already experienced. Fixed annuities have surrender charge periods, generally in the three-to-seven year range. Fixed index annuities have surrender charge periods, generally in the five-to-ten year range, and within our Group Retirement segment, certain of our fixed investment options are subject to other withdrawal restrictions, which may help mitigate increased early surrenders in a rising rate environment. In addition, older contracts that have higher minimum interest rates and continue to be attractive to 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 closely monitor surrenders of fixed annuities as contracts with lower minimum interest rates come out of the surrender charge period.
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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 and we attempt to maintain profitability of the overall business in light of the interest rate environment. A rising interest rate environment results in improved yields on new investments and improves margins for our Life and Retirement business while also making certain products, such as fixed annuities, more attractive to potential customers. However, the rising rate environment has resulted in lower values on general and separate account assets, mutual fund assets and brokerage and advisory assets that hold investments in fixed income assets.
For additional information on our investment and asset-liability management strategies, see Investments.
For investment-oriented products, including universal life insurance, and variable, fixed and fixed index annuities, 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 guided by specific contract provisions designed to allow crediting rates to be reset at pre-established intervals and subject to minimum crediting rate guarantees. We expect to continue to adjust crediting rates on in-force business, as appropriate, to be responsive to changing rate environments. As interest rates rise, we may need to raise crediting rates on in-force business for competitive and other reasons, potentially offsetting a portion of the additional investment income resulting from investing in a higher interest rate environment.
Of the aggregate fixed account values of our Individual Retirement and Group Retirement annuity products, 54 percent were crediting at the contractual minimum guaranteed interest rate as of December 31, 2023. The percentage of fixed account values of our annuity products that are currently crediting at rates above one percent were 50 percent and 55 percent as of December 31, 2023 and 2022, respectively. In the universal life products in our Life Insurance business, 59 percent and 62 percent of the account values were crediting at the contractual minimum guaranteed interest rate as of December 31, 2023 and 2022, respectively. These businesses continue to focus on pricing discipline and strategies to manage the minimum guaranteed interest crediting rates offered on new sales in the context of regulatory requirements and competitive positioning.
General Insurance
Our net investment income is significantly impacted by market interest rates as well as the deployment of asset allocation strategies to manage duration, enhance yield and manage interest rate risk. As interest rates increase, so too does our ability to reinvest future cash inflows from premiums, as well as sales and maturities of existing investments, at more favorable rates. For additional information on our investment and asset-liability management strategies, see Investments.
While the impact of rising interest rates on our General Insurance segment increases the benefit of investment income, the current and medium-term inflationary environment may also translate into higher loss cost trends. We monitor these trends closely, particularly loss cost trend uncertainty, to ensure that not only our pricing, but also our loss reserving assumptions are proactive to, and considerate of, current and future economic conditions.
For our General Insurance segment loss reserves, rising interest rates may favorably impact the statutory net loss reserve discount for workers’ compensation and its associated amortization.Impact of Currency Volatility
Currency volatility remains acute. Strengthening of the U.S. dollar against the Euro, British pound and the Japanese yen (the Major Currencies) impacts income for our 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, especially as a result of central bank responses to inflation, concerns regarding future economic growth and other macroeconomic factors, and such fluctuations will affect net premiums written growth trends reported in U.S. dollars, as well as financial statement line item comparability.AIG | 2023 Form 10-K
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ITEM 7 | Executive SummaryGeneral 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, Percentage ChangeRate for 1 USD 2023 2022 2021 2023 vs 2022 2022 vs 2021
Currency:
GBP 0.81 0.81 0.73 — % 11 %
EUR 0.93 0.95 0.84 (2) % 13 %
JPY 139.79 129.67 108.92 8 % 19 %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.Consolidated Results of OperationsThe following section provides a comparative discussion of our consolidated results of operations on a reported basis for the three-year period ended December 31, 2023. Factors that relate primarily to a specific business are discussed in more detail within the business segment operations section.
For information regarding the critical accounting estimates that affect our results of operations, see Critical Accounting Estimates.The following table presents our consolidated results of operations and other key financial metrics:
Years Ended December 31, Percentage Change(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021Revenues:Premiums $ 33,254 $ 31,856 $ 31,285 4 % 2 %
Policy fees 2,797 2,913 3,005 (4) (3)Net investment income:Net investment income - excluding Fortitude Re funds withheld assets 13,048 10,824 12,641 21 (14)
Net investment income - Fortitude Re funds withheld assets 1,544 943 1,971 64 (52)
Total net investment income 14,592 11,767 14,612 24 (19)Net realized gains (losses):Net realized gains (losses) - excluding Fortitude Re funds withheld assets and embedded derivative (2,306) 69 1,871 NM (96)
Net realized gains (losses) on Fortitude Re funds withheld assets (295) (486) 1,003 39 NM
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative (2,007) 7,481 (603) NM NM
Total net realized gains (losses) (4,608) 7,064 2,271 NM 211
Other income 767 850 984 (10) (14)
Total revenues 46,802 54,450 52,157 (14) 4Benefits, losses and expenses:Policyholder benefits and losses incurred (including remeasurement losses of $342, $304 and $247 for the years ended December 31, 2023, 2022 and 2021, respectively)
24,755 22,176 23,785 12 (7)
Change in the fair value of market risk benefits, net 2 (958) (447) NM (114)
Interest credited to policyholder account balances 4,424 3,744 3,570 18 5
Amortization of deferred policy acquisition costs 4,808 4,557 4,524 6 1
General operating and other expenses 8,499 9,122 8,728 (7) 5
Interest expense 1,136 1,125 1,305 1 (14)
(Gain) loss on extinguishment of debt (37) 303 389 NM (22)
Net (gain) loss on divestitures and other (643) 82 (3,044) NM NM
Total benefits, losses and expenses 42,944 40,151 38,810 7 3
Income from continuing operations before income tax expense (benefit) 3,858 14,299 13,347 (73) 7
Income tax expense (benefit):
Current 491 517 (45) (5) NM
Deferred (511) 2,508 2,486 NM 1
Income tax expense (benefit) (20) 3,025 2,441 NM 24
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ITEM 7 | Consolidated Results of OperationsYears Ended December 31, Percentage Change
(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021
Income from continuing operations 3,878 11,274 10,906 (66) 3
Loss from discontinued operations, net of income taxes — (1) — NM NM
Net income 3,878 11,273 10,906 (66) 3
Less: Net income attributable to noncontrolling interests 235 1,046 539 (78) 94
Net income attributable to AIG 3,643 10,227 10,367 (64) (1)
Less: Dividends on preferred stock 29 29 29 — —
Net income attributable to AIG common shareholders $ 3,614 $ 10,198 $ 10,338 (65) % (1) %
Years Ended December 31, 2023 2022 2021
Return on common equity 8.6 % 20.7 % 16.0 %
Adjusted return on common equity 9.0 % 7.1 % 9.2 %
(in millions, except per common share data) December 31, 2023 December 31, 2022Balance sheet data:Total assets $ 539,306 $ 522,228
Short-term and long-term debt 19,796 21,299
Debt of consolidated investment entities 2,591 5,880
Total AIG shareholders’ equity 45,351 40,970
Book value per common share 65.14 55.15
Adjusted book value per common share 76.65 75.90NET INCOME (LOSS) ATTRIBUTABLE TO AIG COMMON SHAREHOLDERSYears Ended December 31, 2023 and 2022 ComparisonNet income (loss) attributable to AIG common shareholders decreased $6.6 billion due to the following, on a pre-tax basis:
• a decrease in Net realized gains on Fortitude Re funds withheld embedded derivative of $9.5 billion driven by interest rate movement partially offset by lower Net realized losses on Fortitude Re funds withheld assets of $191 million; and
• a decrease in Net realized gains excluding Fortitude Re funds withheld assets and embedded derivative of $2.4 billion, driven by a $2.3 billion decrease in derivative and hedge activity and gains on Index-linked interest credited embedded derivatives, net of related hedges.
The decrease in Net income (loss) attributable to AIG common shareholders was partially offset by the following, on a pre-tax basis:
• an increase in Net investment income of $2.8 billion primarily driven by higher income on available for sale fixed maturity securities of $2.0 billion and an increase in the fair value of fixed maturity securities where we elected the fair value option of $1.2 billion as a result of the higher interest rate environment and an increase in interest income on mortgages and other loans of $525 million, partially offset by lower returns on our alternative investments of $670 million;
• an increase in underwriting income in General Insurance of $301 million, reflecting lower catastrophe losses and premium growth with improvement in the accident year loss ratio, as adjusted, primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions partially offset by lower net favorable prior year reserve development and higher expense ratio;
• a decrease in income attributable to noncontrolling interest of $811 million primarily driven by the decrease in the noncontrolling interest on Corebridge as a result of a decline in net income at Corebridge compared to 2022 and lower ownership by AIG of Corebridge common stock;
• an increase in Net (gain) loss on divestitures and other from a loss of $82 million in 2022 to a gain of $643 million in 2023, primarily due to the sale of Laya Healthcare Limited (Laya); and
• a decrease in general operating expenses.
The $3.0 billion decrease in income tax expense was primarily attributable to lower income from continuing operations.
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ITEM 7 | Consolidated Results of OperationsYears Ended December 31, 2022 and 2021 Comparison
Net income (loss) attributable to AIG common shareholders decreased $140 million due to the following, on a pre-tax basis:
• lower net gains on divestitures and other due to loss of $82 million in 2022 compared with net gains on divestitures and other in 2021 due to the recognition of $3.0 billion gain from the sale of the Affordable Housing portfolio and $102 million gain from the sale of certain assets of the Retail Mutual Funds business in 2021;
• lower net investment income of $2.8 billion primarily driven by lower returns on our alternative investments of $1.9 billion and declines in fair value of fixed maturity securities where we elected the fair value option of $810 million as a result of the higher rate environment and negative equity market performance;
• a decrease in Net realized gains excluding Fortitude Re funds withheld assets and embedded derivative of $1.8 billion, driven by losses on sales of securities of $1.1 billion and sales of alternative investments and real estate of $795 million, unfavorable movement in the allowance for credit losses on fixed maturity securities and loans of $421 million and absence of realized gains related to Affordable Housing portfolio sale in 2021 of $219 million, partially offset by a $856 million increase in derivative and hedge activity and gains on Index-linked interest credited embedded derivatives, net of related hedges;
• a decrease in Net realized gains on Fortitude Re funds withheld assets of $1.5 billion driven by losses on sales of available for sale fixed maturity securities of $1.0 billion and sales of alternative investments of $194 million and $162 million decrease in derivative and hedge activity; and
• higher income attributable to noncontrolling interest of $507 million driven by the sale of 9.9 percent interest of Corebridge to Blackstone in December 2021 and the 12.4 percent initial public offering (IPO) of Corebridge in September 2022.
The decrease in Net income (loss) attributable to AIG common shareholders was partially offset by the following, on a pre-tax basis:
• an increase in Net realized gains on Fortitude Re funds withheld embedded derivative of $8.1 billion driven by interest rate movements;
• higher underwriting income in General Insurance of $1.1 billion, including $86 million attributable to eliminating the international reporting lag, reflecting the continued earn-in of positive rate change, strong renewal retentions and new business production, as well as increased favorable prior year development and lower catastrophe losses. Underwriting income was negatively impacted by unfavorable movements in foreign exchange. For additional information on the elimination of the international reporting lag, see Note 1 to the to the Consolidated Financial Statements; and
• lower interest expense of $180 million primarily driven by interest savings of $225 million from $9.4 billion debt repurchases, through cash tender offers and debt redemptions in 2022 as well as $92 million from $3.6 billion of debt repurchases, through cash tender offers and debt redemptions in 2021, as well as interest savings of $100 million on debt borrowing due to the sale of Affordable Housing in 2021. These decreases are partially offset by interest expense of $240 million on $6.5 billion Corebridge senior unsecured notes, $1.5 billion draw down on the Corebridge 3-Year Delayed Draw Term Loan Agreement (the DDTL Facility) and $1.0 billion junior subordinated debt issued by Corebridge in 2022.
The $584 million increase in income tax expense was primarily attributable to higher income from continuing operations.INCOME TAX EXPENSE ANALYSISFor the years ended December 31, 2023, 2022 and 2021, the effective tax rate on income (loss) from continuing operations was (0.5) percent, 21.2 percent and 18.3 percent, respectively.
For additional information, see Note 23 to the Consolidated Financial Statements.
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ITEM 7 | Consolidated Results of OperationsNON-GAAP RECONCILIATIONSThe following table presents a reconciliation of Book value per common share to Adjusted book value per common share, which is a non-GAAP measure. For additional information, see Use of Non-GAAP Measures.December 31,(in millions, except per common share data) 2023 2022 2021
Total AIG shareholders' equity $ 45,351 $ 40,970 $ 66,068
Preferred equity 485 485 485
Total AIG common shareholders' equity 44,866 40,485 65,583
Less: Deferred tax assets 4,313 4,518 5,221
Less: Accumulated other comprehensive income (loss) (14,037) (22,616) 5,071
Add: Cumulative unrealized gains and losses related to Fortitude Re funds withheld assets (1,791) (2,862) 2,791
Subtotal: AOCI plus cumulative unrealized gains and losses related to Fortitude Re funds withheld assets (12,246) (19,754) 2,280
Adjusted common shareholders' equity $ 52,799 $ 55,721 $ 58,082
Total common shares outstanding 688.8 734.1 818.7
Book value per common share $ 65.14 $ 55.15 $ 80.11
Adjusted book value per common share 76.65 75.90 70.94
The following table presents a reconciliation of Return on common equity to Adjusted return on common equity, which is a non-GAAP measure. For additional information, see Use of Non-GAAP Measures.
Years Ended December 31,
(dollars in millions) 2023 2022 2021
Actual or annualized net income (loss) attributable to AIG common shareholders $ 3,614 $ 10,198 $ 10,338
Actual or annualized adjusted after-tax income attributable to AIG common shareholders 4,921 4,036 4,934
Average AIG common shareholders' equity $ 41,930 $ 49,338 $ 64,445
Less: Average DTA 4,322 4,796 7,025
Less: Average AOCI (19,499) (13,468) 7,240
Add: Average cumulative unrealized gains and losses related to Fortitude Re funds withheld assets (2,475) (1,053) 3,200
Subtotal: AOCI plus cumulative unrealized gains and losses related to Fortitude Re funds withheld assets (17,024) (12,415) 4,040
Average adjusted AIG common shareholders' equity $ 54,632 $ 56,957 $ 53,380
Return on common equity 8.6 % 20.7 % 16.0 %
Adjusted return on common equity 9.0 % 7.1 % 9.2 %
The following table presents a reconciliation of revenues to adjusted revenues:
Years Ended December 31,
(in millions) 2023 2022 2021
Revenues $ 46,802 $ 54,450 $ 52,157
Changes in fair value of securities used to hedge guaranteed living benefits (55) (55) (60)
Changes in the fair value of equity securities (94) 53 237
Other (income) expense - net 27 29 24
Net investment income on Fortitude Re funds withheld assets (1,544) (943) (1,971)
Net realized (gains) losses on Fortitude Re funds withheld assets 295 486 (1,003)
Net realized (gains) losses on Fortitude Re funds withheld embedded derivative 2,007 (7,481) 603
Net realized (gains) losses (a)
2,536 195 (1,705)
Non-operating litigation reserves and settlements (1) (49) —
Net impact from elimination of international reporting lag (b)
(4) (978) —
Adjusted revenues $ 49,969 $ 45,707 $ 48,282
(a) Includes all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets.
(b) For additional information, see Note 1 to the Consolidated Financial Statements.
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ITEM 7 | Consolidated Results of OperationsThe following table presents a reconciliation of pre-tax income (loss)/net income (loss) attributable to AIG to adjusted pre-tax income (loss)/adjusted after-tax income (loss) attributable to AIG:Years Ended December 31, 2023 2022 2021
(in millions, except per common share data) Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (f)
After Tax Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (f)
After Tax Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (f)After TaxPre-tax income/net income, including noncontrolling interests $ 3,858 $ (20) $ — $ 3,878 $ 14,299 $ 3,025 $ — $ 11,273 $ 13,347 $ 2,441 $ — $ 10,906
Noncontrolling interests (235) (235) (1,046) (1,046) (539) (539)
Pre-tax income/net income attributable to AIG $ 3,858 $ (20) $ (235) $ 3,643 $ 14,299 $ 3,025 $ (1,046) $ 10,227 $ 13,347 $ 2,441 $ (539) $ 10,367
Dividends on preferred stock 29 29 29
Net income attributable to AIG common shareholders $ 3,614 $ 10,198 $ 10,338
Changes in uncertain tax positions and other tax adjustments (a)
230 — (230) 22 — (22) 998 — (998)
Deferred income tax valuation allowance (releases) charges (b)
357 — (357) 25 — (25) (718) — 718
Changes in fair value of securities used to hedge guaranteed living benefits 16 3 — 13 (30) (6) — (24) (61) (13) — (48)
Change in the fair value of market risk benefits, net (C)
2 — — 2 (958) (202) — (756) (447) (94) — (353)
Changes in benefit reserves related to net realized gains (losses) (6) (1) — (5) (14) (3) — (11) 15 3 — 12
Changes in the fair value of equity securities (94) (20) — (74) 53 11 — 42 237 49 — 188
(Gain) loss on extinguishment of debt (37) (8) — (29) 303 64 — 239 389 82 — 307
Net investment income on Fortitude Re funds withheld assets (1,544) (324) — (1,220) (943) (198) — (745) (1,971) (414) — (1,557)
Net realized losses on Fortitude Re funds withheld assets 295 62 — 233 486 102 — 384 (1,003) (211) — (792)
Net realized (gains) losses on Fortitude Re funds withheld embedded derivative 2,007 422 — 1,585 (7,481) (1,571) — (5,910) 603 126 — 477
Net realized (gains) losses (d)
2,496 534 — 1,962 173 38 — 135 (1,744) (368) — (1,376)
Loss from discontinued operations — 1 —
Net loss (gain) on divestitures and other (643) 247 — (890) 82 17 — 65 (3,044) (650) — (2,394)
Non-operating litigation reserves and settlements 1 — — 1 (41) (9) — (32) 3 1 — 2
Favorable prior year development and related amortization changes ceded under retroactive reinsurance agreements (62) (13) — (49) (160) (34) — (126) (186) (39) — (147)
Net loss reserve discount (benefit) charge 195 41 — 154 (703) (148) — (555) (193) (40) — (153)
Pension expense related to a one-time lump sum payment to former employees 84 18 — 66 60 13 — 47 34 7 — 27
Integration and transaction costs associated with acquiring or divesting businesses 252 53 — 199 194 41 — 153 83 18 — 65
Restructuring and other costs 553 116 — 437 570 120 — 450 433 91 — 342
Non-recurring costs related to regulatory or accounting changes 40 8 — 32 37 8 — 29 68 15 — 53
Net impact from elimination of international reporting lag (e)
(12) (3) — (9) (127) (27) — (100) — — — —
Noncontrolling interests (f)
(514) (514) 599 599 223 223
Adjusted pre-tax income/Adjusted after-tax income attributable to AIG common shareholders $ 7,401 $ 1,702 $ (749) $ 4,921 $ 5,800 $ 1,288 $ (447) $ 4,036 $ 6,563 $ 1,284 $ (316) $ 4,934
Weighted average diluted shares outstanding
725.2 787.9 864.9
Income per common share attributable to AIG common shareholders (diluted)
$ 4.98 $ 12.94 $ 11.95
Adjusted after-tax income per common share attributable to AIG common shareholders (diluted)
$ 6.79 $ 5.12 $ 5.70
(a) The year ended December 31, 2021 includes the completion of audit activity by the IRS.
(b) The year ended December 31, 2023 includes a valuation allowance release and the year ended December 31, 2021 includes a valuation allowance establishment, related to a portion of certain tax attribute carryforwards of AIG's U.S. federal consolidated income tax group, as well as valuation allowance changes in certain foreign jurisdictions.
(c) Includes realized gains and losses on certain derivative instruments used for non-qualifying (economic) hedging.
(d) Includes all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets.
(e) For additional information, see Note 1 to the Consolidated Financial Statements.
(f) Includes the portion of equity interest of non-operating income of Corebridge and consolidated investment entities that AIG does not own.
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ITEM 7 | Consolidated Results of OperationsPRE-TAX INCOME (LOSS) COMPARISONPre-tax income (loss) was $3.9 billion, $14.3 billion and $13.3 billion in the years ended December 31, 2023, 2022 and 2021, respectively.
For the main drivers impacting AIG’s results of operations, see Net Income (Loss) Attributable to AIG Common Shareholders above.ADJUSTED PRE-TAX INCOME (LOSS) COMPARISONAdjusted pre-tax income (loss) was $7.4 billion, $5.8 billion and $6.6 billion in the years ended December 31, 2023, 2022 and 2021, respectively.For the main drivers impacting AIG’s adjusted pre-tax income (loss), see Business Segment Operations.Business Segment OperationsOur business operations consist of 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. Other Operations is primarily comprised of corporate, our institutional asset management business and consolidation and eliminations.
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) 2023 2022 2021
General Insurance
North America - Underwriting income (loss) $ 1,207 $ 648 $ (47)
International - Underwriting income 1,142 1,400 1,102
Net investment income 3,022 2,382 3,304
General Insurance 5,371 4,430 4,359
Life and Retirement
Individual Retirement 2,310 1,676 2,297
Group Retirement 758 786 1,258
Life Insurance 358 521 453
Institutional Markets 379 334 546
Life and Retirement 3,805 3,317 4,554
Other Operations
Other Operations before consolidation and eliminations (1,765) (1,542) (1,418)
Consolidation and eliminations (10) (405) (932)
Other Operations (1,775) (1,947) (2,350)
Adjusted pre-tax income $ 7,401 $ 5,800 $ 6,563
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ITEM 7 | Business Segment Operations | General Insurance
General InsuranceGeneral Insurance is managed by our geographic markets of North America and International. Our global presence is underpinned by our multinational capabilities to provide Commercial Lines and Personal Insurance products within these geographic markets.PRODUCTS AND DISTRIBUTIONNorth America consists of insurance businesses in the United States, Canada and Bermuda, and our global reinsurance business, AIG Re.
International consists of regional insurance businesses in Japan, the United Kingdom, Europe, Middle East and Africa (EMEA region), Asia Pacific, Latin America and Caribbean, and China. International also includes the results of Talbot Holdings Ltd. (Talbot) as well as AIG’s Global Specialty business.
Property: Products include commercial and industrial property, including business interruption, as well as package insurance products and services that cover exposures to man-made and natural disasters.
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, mergers and acquisitions, fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions insurance.Specialty: Products include marine, energy-related property insurance products, aviation, political risk, trade credit, trade finance and portfolio solutions, as well as our global reinsurance business AIG Re and Crop Risk Services, Inc. (CRS) which includes multi-peril and hail coverages.
On July 3, 2023, AIG completed the sale of CRS to American Financial Group, Inc. (AFG) and in substance, AIG exited the crop business. AIG recognized a pre-tax gain of $72 million for the year ended December 31, 2023 . For periods prior to the sale of CRS, the underwriting results are included in adjusted pre-tax income of General Insurance – North America.
On November 1, 2023, AIG completed the sale of Validus Re, including AlphaCat Managers Ltd. and Talbot Treaty reinsurance business to RenaissanceRe Holdings Ltd. (RenaissanceRe). For periods prior to the sale of Validus Re, the underwriting results are included in adjusted pre-tax income of General Insurance – North America.For additional information, see Note 1 to the Consolidated Financial Statements.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.
Personal Lines: Products include personal auto and personal property in selected markets, comprehensive extended warranty, device protection insurance, home warranty and related services, and insurance for high net-worth individuals offered through Private Client Select (PCS) in the U.S. that covers auto, homeowners, umbrella, yacht, fine art and collections.
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 global platform enables writing multinational and cross-border risks in both Commercial Lines and Personal Insurance.
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ITEM 7 | Business Segment Operations | General InsuranceBUSINESS STRATEGY
Profitable Growth: Build on our high-quality portfolio by focusing on targeted growth through continued underwriting discipline, improved retentions and new business development. Deploy capital efficiently to act opportunistically and achieve growth in profitable lines, geographies and customer segments, while taking a disciplined underwriting approach to exposure management, terms and conditions and rate change to achieve our risk/return hurdles. Continue to be open to inorganic growth opportunities in profitable markets and segments to expand our capabilities and footprint.Reinsurance Optimization: Strategically partner with reinsurers to effectively manage exposure to losses arising from frequency of large catastrophic events and severity from individual risk losses. We strive to 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: Continue to enhance portfolio optimization through strength of underwriting framework and guidelines as well as clear communication of risk appetite and rate adequacy. 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.COMPETITION AND CHALLENGES
General Insurance operates in a highly competitive industry against global, national and local insurers and reinsurers and underwriting syndicates in specific market areas and product types. Insurance companies compete through a combination of risk acceptance criteria, product pricing, service levels and terms and conditions. We serve our business and individual customers on a global basis – from the largest multinational corporations to local businesses and individuals. General Insurance seeks to differentiate itself in the markets where we participate by providing leading expertise and insight to clients, distribution partners and other stakeholders, delivering underwriting excellence and value-driven insurance solutions and providing high quality, tailored end-to-end support to stakeholders. In doing so, we leverage our world-class global franchise, multinational capabilities, balance sheet strength and financial flexibility.
Our challenges include:
• ensuring adequate business pricing given passage of time to reporting and settlement for insurance business, particularly with respect to long-tail Commercial Lines exposures;
• impact of social and economic inflation on claim frequency and severity; and
• volatility in claims arising from natural and man-made catastrophes and other aggregations of risk exposure.
INDUSTRY AND ECONOMIC FACTORSThe results of General Insurance for the year ended December 31, 2023 reflect continued strong performance from our Commercial Lines portfolio and focused execution on our portfolio management strategies within Personal Insurance. Across our North America and International Commercial Lines of business we have seen increased demand for our insurance products with continued positive rate change and improvement in terms and conditions. We continue to monitor the impact of inflation, ongoing labor force and supply chain disruptions and volatile commodity prices, among other factors, on rate adequacy and loss cost trends. Similarly, we are monitoring the responsive monetary policy actions taken or anticipated to be taken by central banks, to curb inflation and the corresponding impact on market interest rates.
General Insurance – North America
North America Commercial remains in a firm market amidst a backdrop of increasing claims severity due to elevated economic and social inflation, as well as a higher frequency and severity of natural catastrophe losses over recent years. While market discipline continues to support price increases across most lines, we are seeing capacity move back into the market in certain segments given the improved pricing levels which is putting pressure on rates. We have focused on retaining our best accounts which has led to improving retention across the portfolio. These retention rates are often coupled with an exposure limit management strategy to reduce volatility within the portfolio. We continue to proactively identify segment growth areas as market conditions warrant through effective portfolio management, while non-renewing unprofitable business.
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.
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ITEM 7 | Business Segment Operations | General InsuranceGeneral Insurance – International
We are continuing to pursue growth in our most profitable lines of business and diversify our portfolio across all regions by expanding key business lines while remaining a market leader in key developed and developing markets. Overall, Commercial Lines continue to show positive rate change, particularly in our Property, Casualty, Marine and Energy portfolios and across international markets where market events or withdrawal of capability and capacity have favorably impacted pricing. We are maintaining our underwriting discipline, reducing gross and net limits where appropriate, utilizing reinsurance to reduce volatility, as well as continuing our risk selection strategy to improve 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 and portfolio diversity.GENERAL INSURANCE RESULTS
Years Ended December 31, Change(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021Underwriting results:Net premiums written $ 26,719 $ 25,512 $ 25,890 5 % (1) %
Increase in unearned premiums (1,628) (172) (833) NM 79
Net premiums earned 25,091 25,340 25,057 (1) 1Losses and loss adjustment expenses incurred (a)14,775 15,407 16,097 (4) (4)Acquisition expenses:Amortization of deferred policy acquisition costs 3,623 3,533 3,530 3 —
Other acquisition expenses 1,279 1,365 1,373 (6) (1)
Total acquisition expenses 4,902 4,898 4,903 — —
General operating expenses 3,065 2,987 3,002 3 —
Underwriting income 2,349 2,048 1,055 15 94
Net investment income 3,022 2,382 3,304 27 (28)
Adjusted pre-tax income $ 5,371 $ 4,430 $ 4,359 21 % 2 %Loss ratio (a)58.9 60.8 64.2 (1.9) (3.4)
Acquisition ratio 19.5 19.3 19.6 0.2 (0.3)
General operating expense ratio 12.2 11.8 12.0 0.4 (0.2)
Expense ratio 31.7 31.1 31.6 0.6 (0.5)Combined ratio (a)90.6 91.9 95.8 (1.3) (3.9)Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted:Catastrophe losses and reinstatement premiums (4.3) (5.0) (5.4) 0.7 0.4Prior year development, net of reinsurance and prior year premiums1.4 1.8 0.6 (0.4) 1.2
Accident year loss ratio, as adjusted 56.0 57.6 59.4 (1.6) (1.8)
Accident year combined ratio, as adjusted 87.7 88.7 91.0 (1.0) (2.3)(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, Percentage Change in U.S. dollars Percentage Change in Original Currency
(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021 2023 vs 2022 2022 vs 2021
North America $ 13,464 $ 12,364 $ 11,733 9 % 5 % 9 % 6 %
International 13,255 13,148 14,157 1 (7) 3 2
Total net premiums written $ 26,719 $ 25,512 $ 25,890 5 % (1) % 6 % 4 %
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ITEM 7 | Business Segment Operations | General InsuranceThe following tables present General Insurance accident year catastrophes (a) by geography and number of events:
(dollars in millions) # of
Events
North America International
TotalYears Ended December 31, 2023Flooding, rainstorms and other 3 $ 18 $ 84 $ 102
Windstorms and hailstorms 26 450 258 708
Winter storms 2 32 13 45
Wildfires 2 144 19 163
Earthquakes 1 20 29 49
Reinstatement premiums 32 (1) 31
Total catastrophe-related charges 34 $ 696 $ 402 $ 1,098Years Ended December 31, 2022Flooding, rainstorms and other 3 $ 53 $ 105 $ 158
Windstorms and hailstorms 18 531 206 737
Winter storms 5 154 53 207
Earthquakes 1 — 19 19Russia / Ukraine N/A (b)10 97 107
Reinstatement premiums 53 31 84
Total catastrophe-related charges 27 $ 801 $ 511 $ 1,312
Years Ended December 31, 2021
Flooding, rainstorms and other 7 $ 136 $ 136 $ 272
Windstorms and hailstorms 10 541 72 613
Winter storms 3 283 64 347
Wildfires 4 67 — 67
Earthquakes 1 — 19 19
Civil unrest 1 20 19 39
Reinstatement premiums 7 13 20
Total catastrophe-related charges 26 $ 1,054 $ 323 $ 1,377(a) Natural catastrophe losses are generally weather or seismic events, in each case, having a net impact on AIG in excess of $10 million and man-made catastrophe losses, such as terrorism and civil unrest that exceed the $10 million threshold.
(b) As the Russia/Ukraine conflict continues to evolve the number of events is yet to be determined.AIG | 2023 Form 10-K
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ITEM 7 | Business Segment Operations | General Insurance
NORTH AMERICA RESULTSYears Ended December 31, Change(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021Underwriting results:Net premiums written $ 13,464 $ 12,364 $ 11,733 9 % 5 %
Increase in unearned premiums (1,543) (293) (744) (427) 61
Net premiums earned 11,921 12,071 10,989 (1) 10Losses and loss adjustment expenses incurred (a)7,288 8,096 8,134 (10) —Acquisition expenses:Amortization of deferred policy acquisition costs 1,671 1,585 1,333 5 19
Other acquisition expenses 539 520 440 4 18
Total acquisition expenses 2,210 2,105 1,773 5 19
General operating expenses 1,216 1,222 1,129 — 8
Underwriting income (loss) $ 1,207 $ 648 $ (47) 86 % NM %Loss ratio (a)61.1 67.1 74.0 (6.0) (6.9)
Acquisition ratio 18.5 17.4 16.1 1.1 1.3
General operating expense ratio 10.2 10.1 10.3 0.1 (0.2)
Expense ratio 28.7 27.5 26.4 1.2 1.1Combined ratio (a)89.8 94.6 100.4 (4.8) (5.8)Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums(5.7) (6.5) (9.5) 0.8 3.0Prior year development, net of reinsurance and prior year premiums3.8 1.0 1.2 2.8 (0.2)
Accident year loss ratio, as adjusted 59.2 61.6 65.7 (2.4) (4.1)
Accident year combined ratio, as adjusted 87.9 89.1 92.1 (1.2) (3.0)(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.
Business and Financial HighlightsNet Premiums Written Comparison for the Years Ended December 31, 2023 and 2022Net premiums written increased by $1.1 billion primarily due to:
• growth in Commercial Lines ($533 million), particularly in AIG Re and Property driven by continued positive rate change, higher renewal retentions and strong new business production, partially offset by decreases in Crop as a consequence of the CRS sale and Financial Lines; and
• growth in Personal Insurance ($567 million) driven by PCS resulting from changes in our reinsurance program, partially offset by decreases in Travel and Warranty.
Net Premiums Written Comparison for the Years Ended December 31, 2022 and 2021
Net premiums written increased by $631 million primarily due to growth in Commercial Lines ($673 million), particularly in Property, Casualty and AIG Re, driven by continued positive rate change, higher renewal retentions and strong new business production, as well as growth in CRS driven by higher commodity prices, partially offset by a decrease in Financial Lines due to volatility in capital markets and uncertain economic conditions.
This increase was partially offset by lower production in Personal Insurance ($42 million), particularly in Warranty as well as underwriting actions taken in PCS to improve profitability, partially offset by an increase in Travel.Underwriting Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022Underwriting income increased by $559 million primarily due to:
• improvement in the accident year loss ratio, as adjusted (2.4 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions;
• higher net favorable prior year reserve development (2.8 points or $340 million), primarily due to lower unfavorable development in Financial Lines, partially offset by lower favorable development in Casualty; and
• lower catastrophe losses (0.8 points or $105 million).
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ITEM 7 | Business Segment Operations | General InsuranceThis increase was partially offset by
• a higher expense ratio of 1.2 points reflecting a higher acquisition ratio (1.1 points) primarily driven by changes in business mix as well as an increase in general operating expense ratio (0.1 points).
Underwriting Income (Loss) Comparison for the Years Ended December 31, 2022 and 2021
Underwriting income of $648 million in 2022 compared to an underwriting loss of $47 million in 2021 primarily reflected:
• premium growth with improvement in the accident year loss ratio, as adjusted (4.1 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions; and
• lower catastrophe losses (3.0 points or $253 million).
This improvement was partially offset by:
• higher expense ratio of 1.1 points reflecting a higher acquisition ratio (1.3 points) primarily driven by changes in business mix and reinsurance, partially offset by a lower general operating expense ratio (0.2 points) resulting from continued general expense discipline as we grow the portfolio; and
• lower net favorable prior year reserve development in 2022 compared to 2021 (0.2 points or $34 million), primarily due to lower favorable development in PCS and higher unfavorable development within Financial Lines, partially offset by higher favorable development in Property, Casualty and CRS.
INTERNATIONAL RESULTSYears Ended December 31, Change(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021Underwriting results:Net premiums written $ 13,255 $ 13,148 $ 14,157 1 % (7) %
(Increase) decrease in unearned premiums (85) 121 (89) NM NM
Net premiums earned 13,170 13,269 14,068 (1) (6)
Losses and loss adjustment expenses incurred 7,487 7,311 7,963 2 (8)Acquisition expenses:Amortization of deferred policy acquisition costs 1,952 1,948 2,197 — (11)
Other acquisition expenses 740 845 933 (12) (9)
Total acquisition expenses 2,692 2,793 3,130 (4) (11)
General operating expenses 1,849 1,765 1,873 5 (6)
Underwriting income $ 1,142 $ 1,400 $ 1,102 (18) % 27 %
Loss ratio 56.8 55.1 56.6 1.7 (1.5)
Acquisition ratio 20.4 21.0 22.2 (0.6) (1.2)
General operating expense ratio 14.0 13.3 13.3 0.7 —
Expense ratio 34.4 34.3 35.5 0.1 (1.2)
Combined ratio 91.2 89.4 92.1 1.8 (2.7)Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted:Catastrophe losses and reinstatement premiums (3.0) (3.7) (2.3) 0.7 (1.4)
Prior year development, net of reinsurance and prior year premiums (0.7) 2.5 0.1 (3.2) 2.4
Accident year loss ratio, as adjusted 53.1 53.9 54.4 (0.8) (0.5)
Accident year combined ratio, as adjusted 87.5 88.2 89.9 (0.7) (1.7)
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ITEM 7 | Business Segment Operations | General InsuranceBusiness and Financial HighlightsNet Premiums Written Comparison for the Years Ended December 31, 2023 and 2022Net premiums written, excluding the impact of foreign exchange ($317 million), increased by $424 million due to:
• growth in Commercial Lines ($370 million), notably in Property and Specialty driven by continued positive rate change and strong new business production, partially offset by a decrease in Financial Lines; and
• growth in Personal Insurance ($54 million) driven by Personal Auto and Individual Travel, partially offset by lower production in PCS.
Net Premiums Written Comparison for the Years Ended December 31, 2022 and 2021
Net premiums written, excluding the impact of foreign exchange ($1,287 million), increased by $278 million due to growth in Commercial Lines ($417 million), notably Specialty, Property and Casualty driven by continued positive rate change and strong new business production.
This increase was partially offset by lower production in Personal Insurance ($139 million), where declines in Warranty and Personal Auto were partially offset by growth in Travel and Accident & Health.Underwriting Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022Underwriting income decreased by $258 million primarily due to:
• net unfavorable prior year reserve development of $95 million in 2023 compared to net favorable development in 2022 of $349 million (3.2 points or $444 million), primarily as a result of lower favorable development in Specialty and Personal Auto, unfavorable development in Property and higher unfavorable development in Casualty, partially offset by favorable development in Financial Lines; and
• a higher expense ratio (0.1 points) reflecting an increase in the general operating expense ratio (0.7 points), partially offset by a lower acquisition ratio (0.6 points) primarily driven by changes in business mix and improved commission terms.
This decrease was partially offset by:
• improvement in the accident year loss ratio, as adjusted (0.8 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions; and
• lower catastrophe losses (0.7 points or $109 million).
Underwriting Income (Loss) Comparison for the Years Ended December 31, 2022 and 2021
Underwriting income increased by $298 million primarily due to:
• higher net favorable prior year reserve development in 2022 compared to 2021 (2.4 points or $346 million), primarily as a result of lower unfavorable development in Financial Lines and higher favorable development in Specialty, partially offset by lower favorable development in Accident & Health;
• a lower expense ratio (1.2 points) from a lower acquisition ratio (1.2 points) primarily driven by changes in business mix, improved commission terms and reinsurance program changes; and
• improvement in the accident year loss ratio, as adjusted (0.5 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions.
These increases were partially offset by higher catastrophe losses (1.4 points or $188 million).
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Life and Retirement
Life and Retirement consists of four operating segments: Individual Retirement, Group Retirement, Life Insurance and Institutional Markets. We offer a broad portfolio of products in the U.S. through a multichannel distribution network and life and health products in the UK.
PRODUCTS AND DISTRIBUTION
Fixed Annuities: Products include single premium fixed annuities, immediate annuities and deferred income annuities. Certain fixed deferred annuity products offer optional income protection features. The fixed annuities product line maintains an industry-leading position in the U.S. bank distribution channel and has broadened into the regional broker-dealer, wirehouse, and independent agent channels by leveraging our scale and investment capabilities.
Fixed Index Annuities: Products include fixed index annuities that provide growth potential based in part on the performance of a market index as well as optional living guaranteed features that provide lifetime income protection. Fixed index annuities are distributed primarily through banks, broker-dealers, independent marketing organizations and independent insurance agents.
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.
Group Retirement: Known in the marketplace as Corebridge Retirement Services. Services and products consist of recordkeeping, plan administration, financial planning and advisory solutions offered to employer defined contribution plans and their participants, along with proprietary and limited non-proprietary annuities and advisory and brokerage products offered outside of plans.
Retirement Services offers its products and services through The Variable Annuity Life Insurance Company (VALIC) and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company.
Retirement Services employee financial professionals have the ability to serve clients throughout their financial journey from the workplace through retirement via our integrated financial planning model. Our financial professionals serve in-plan clients by providing enrollment support, education and financial guidance and serve out-of-plan clients with financial planning, annuity products, brokerage and advisory offerings.
Life Insurance : In the U.S., products primarily include term life and universal life insurance distributed through independent marketing organizations, independent insurance agents, financial advisors and direct marketing. International operations primarily include the distribution of life and health products in the UK and Ireland. Corebridge previously announced agreements to sell Laya and AIG Life Limited (AIG Life). The sale of Laya closed on October 31, 2023 and the AIG Life sale is expected to close in the first half of 2024.
Institutional Markets: Products primarily include stable value wrap products, structured settlement and pension risk transfer annuities (direct and assumed reinsurance), corporate- and bank-owned life insurance, high net worth products and guaranteed investment contracts (GICs). Institutional Markets products are primarily distributed through specialized marketing and consulting firms and structured settlement brokers.
FHLB Funding Agreements: Funding agreements are issued by our U.S. Life and Retirement companies to FHLBs in their respective districts at fixed or floating rates over specified periods, which can be prepaid at our discretion. Proceeds are generally invested in fixed income securities and other suitable investments to generate spread income. These investment contracts do not have mortality or morbidity risk and are similar to GICs.
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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 wealth accumulation and guaranteed income products by maintaining an innovative suite of fixed, variable and fixed index annuity products, while also managing risk from guarantee features through risk-mitigating product design and well-developed economic hedging capabilities.
Group Retirement continues to enhance its technology platform to improve the customer experience for plan sponsors and individual participants. Retirement Services’ self-service tools paired with its employee financial advisors provide a compelling service platform. Group Retirement’s strategy also involves providing financial planning services for its clients and meeting their need for income in retirement. In this role, Group Retirement’s clients may invest in assets in which AIG or a third party is custodian.
Life Insurance in the U.S. will continue to position itself for growth and changing market dynamics while continuing to execute strategies to enhance returns. Our focus is on materializing success from a multi-year effort of building state-of-the-art platforms and underwriting innovations, which are expected to bring process improvements and cost efficiencies.
Institutional Markets continues to grow its assets under management across multiple product lines, including stable value wrap, GICs and pension risk transfer annuities. Our growth strategy is transactional 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. 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 support our cash and liquidity needs under various operating scenarios.
Deliver Value Creation and Manage Capital by striving to deliver solid earnings and returns on capital through disciplined pricing, sustainable underwriting improvements, expense efficiency, and diversification of risk, while optimizing capital allocation and efficiency within insurance entities to enhance return on common equity.
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 banks and other life insurance and mutual fund 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:
• managing a rising rate environment. While a rising rate environment improves yields on new investment, improves margins on our business, and increases sales in certain products such as fixed annuities, it may also result in increased competition for certain products resulting in a need to increase crediting rates, and has resulted in lower separate account asset values for investments in fixed income which has reduced fee income;
• increased competition in our primary markets, including aggressive pricing of annuities by competitors, increased competition and consolidation of employer groups in the group retirement planning market, and competitors with different profitability targets in the pension risk transfer space as well as other product lines;
• increasingly complex new and proposed regulatory requirements, which have affected industry growth and costs; and
• upgrading our technology and underwriting processes while managing general operating expenses.
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INDUSTRY AND ECONOMIC FACTORS
Individual Retirement
Increasing life expectancy and reduced expectations for traditional retirement income from defined benefit programs are leading Americans to seek additional financial security as they approach retirement. The strong demand for fixed index and fixed annuities with guaranteed living benefit features has attracted increased competition in this product space. In response to the ever changing interest rate environment we have developed guaranteed living benefits for variable, fixed index and fixed annuities with margins that are less sensitive to the level of interest rates. Changes in the capital markets (interest rate environment, credit spreads, equity markets, volatility) can have a significant impact on sales, surrender rates, investment returns, guaranteed income features, and net investment spreads in the annuity industry.
Group Retirement
Group Retirement competes in the defined contribution market under the Retirement Services brand. Retirement Services 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, Retirement Services is investing in a client- focused technology platform to support improved compliance and self-service functionality. Retirement Services’ model pairs self-service tools with its employee financial advisors who provide individual plan participants with enrollment support and comprehensive financial planning services.
Changes in the interest rates, credit spreads and equity market environment can have a significant impact on investment returns, fee income, advisory and other income, guaranteed income features, and net investment spreads, and a moderate impact on sales and surrender rates.
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, and to supplement retirement income.
In response to consumer needs and a changing interest rate environment, our Life Insurance product portfolio will continue to promote products with less long-duration interest rate risk and mitigate exposure to products that have long-duration interest rate risk through sales levels and hedging strategies.
As life insurance ownership remains at historical lows in the U.S., 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 (direct and assumed reinsurance) as corporate plan sponsors look to transfer asset or liability, longevity, administrative and operational risks associated with their defined benefit plans.
Changes in interest rates and credit spreads can have a significant impact on investment returns and net investment spreads, impacting organic growth opportunities.
For additional information on the separation of Life and Retirement, see Part I, Item 1A. Risk Factors – Business and Operations – “No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake” and Note 1 to the Consolidated Financial Statements.
For additional information on the impact of market interest rate movement on our Life and Retirement business, see Executive Summary – Regulatory, Industry and Economic Factors – Impact of Changes in the Interest Rate Environment and Equity Markets .
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IMPACT OF LDTI ADOPTION
The following table presents the impacts in connection with the adoption of LDTI on our previously reported APTI results for our Life and Retirement segment:
Year Ended December 31, 2022 Year Ended December 31, 2021
As Previously Reported Effect of Change Updated Balances Post-Adoption of LDTI As Previously Reported Effect of Change Updated Balances Post-Adoption of LDTI
(in millions)
Adjusted revenues:
Premiums $ 5,508 $ (2) $ 5,506 $ 6,029 $ 26 $ 6,055
Policy fees 2,972 (59) 2,913 3,051 (46) 3,005
Total adjusted revenues 17,654 (61) 17,593 19,594 (20) 19,574
Benefits and expenses:
Policyholder benefits 7,659 (583) 7,076 8,379 (596) 7,783
Interest credited to policyholder account balances 3,681 44 3,725 3,565 11 3,576
Amortization of deferred policy acquisition costs 1,130 (109) 1,021 973 (15) 958
Non deferrable insurance commissions 640 (73) 567 672 (63) 609
Total benefits and expenses 14,997 (721) 14,276 15,683 (663) 15,020
Adjusted pre-tax income 2,657 660 3,317 3,911 643 4,554
LIFE AND RETIREMENT RESULTSYears Ended December 31, Change(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021
Adjusted revenues:
Premiums $ 8,101 $ 5,506 $ 6,055 47 % (9) %
Policy fees 2,797 2,913 3,005 (4) (3)
Net investment income 9,786 8,347 9,521 17 (12)
Advisory fee and other income 797 827 993 (4) (17)
Total adjusted revenues 21,481 17,593 19,574 22 (10)
Benefits and expenses:
Policyholder benefits 9,811 7,076 7,783 39 (9)
Interest credited to policyholder account balances 4,391 3,725 3,576 18 4
Amortization of deferred policy acquisition costs 1,061 1,021 958 4 7
Non deferrable insurance commissions 589 567 609 4 (7)
Advisory fee expenses 261 266 322 (2) (17)
General operating expenses 1,559 1,598 1,642 (2) (3)
Interest expense 4 23 130 (83) (82)
Total benefits and expenses 17,676 14,276 15,020 24 (5)
Adjusted pre-tax income $ 3,805 $ 3,317 $ 4,554 15 % (27) %
Our insurance companies generate significant revenues from investment activities. As a result, the operating segments in Life and Retirement are significantly impacted by 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.
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7
INDIVIDUAL RETIREMENT RESULTS
Years Ended December 31, Change
(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021
Adjusted revenues:
Premiums $ 213 $ 235 $ 195 (9) % 21 %
Policy fees 708 741 797 (4) (7)
Net investment income 4,917 3,898 4,338 26 (10)
Advisory fee and other income 426 451 592 (6) (24)
Total adjusted revenues 6,264 5,325 5,922 18 (10)
Benefits and expenses:
Policyholder benefits 204 285 305 (28) (7)
Interest credited to policyholder account balances 2,269 1,916 1,789 18 7
Amortization of deferred policy acquisition costs 567 519 447 9 16
Non deferrable insurance commissions 355 351 396 1 (11)
Advisory fee expenses 141 141 189 — (25)
General operating expenses 416 426 438 (2) (3)
Interest expense 2 11 61 (82) (82)
Total benefits and expenses 3,954 3,649 3,625 8 1
Adjusted pre-tax income $ 2,310 $ 1,676 $ 2,297 38 % (27) %
Fixed annuities base net investment spread:
Base yield* 5.05 % 4.03 % 3.94 % 102 bps 9 bps
Cost of funds 2.95 2.69 2.64 26 5
Fixed annuities base net investment spread 2.10 % 1.34 % 1.30 % 76 bps 4 bps
Variable and fixed index annuities base net investment spread:
Base yield* 4.66 % 3.89 % 3.83 % 77 bps 6 bps
Cost of funds 1.93 1.52 1.40 41 12
Variable and fixed index annuities base net investment spread 2.73 % 2.37 % 2.43 % 36 bps (6) bps
* Includes returns from base portfolio including accretion and income (loss) from certain other invested assets.Business and Financial HighlightsAdjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022
Adjusted pre-tax income increased $634 million primarily due to higher net investment income, net of interest credited ($666 million) driven by higher base portfolio income, net of interest credited ($774 million) due to improved base yields and growth in invested assets driven by higher sales, plus higher yield enhancement income ($27 million), partially offset by lower alternative investment income ($135 million).
This increase was partially offset by lower policy and advisory fee income, net of advisory fee expenses ($58 million), primarily due to lower average variable annuity separate account asset values driven by negative net flows.
Adjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2022 and 2021
Adjusted pre-tax income decreased $621 million primarily due to:
• lower net investment income, net of interest credited ($567 million) primarily driven by lower alternative investment income ($401 million), lower yield enhancement income ($285 million), partially offset by higher base portfolio income, net of interest credited ($119 million); and
• lower policy and advisory fee income, net of advisory fee expenses ($149 million), primarily due to a decrease in variable annuity separate account assets driven by negative equity market performance and sale of retail mutual funds to Touchstone.
Partially offset by:
• lower interest expense on debt borrowings due to sale of Affordable Housing ($50 million); and
• lower non-deferred commissions ($45 million) due to a decrease in variable annuity separate account assets.
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INDIVIDUAL RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET FLOWS
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.
Net flows for annuity products in Individual Retirement represent premiums and deposits less death, surrender and other withdrawal benefits.
The following table presents a reconciliation of Individual Retirement GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions) 2023 2022 2021
Premiums $ 213 $ 235 $ 195
Deposits 17,971 14,900 13,732
Other (13) (15) (11)
Premiums and deposits $ 18,171 $ 15,120 $ 13,916
The following table presents Individual Retirement premiums and deposits and net flows by product line:
Years Ended December 31, Premiums and Deposits Net Flows
(in millions) 2023 2022 2021 2023 2022 2021
Fixed annuities $ 7,880 $ 5,695 $ 3,011 $ (1,870) $ (441) $ (2,396)
Fixed index annuities 8,505 6,316 5,621 5,632 4,522 4,072
Variable annuities 1,786 3,109 5,025 (3,429) (1,671) (864)
Retail mutual funds — — 259 — — (1,402)
Total $ 18,171 $ 15,120 $ 13,916 $ 333 $ 2,410 $ (590)
Premiums and Deposits and Net Flow Comparison for the Years Ended December 31, 2023 and 2022
Fixed Annuities Net outflows increased by $1.4 billion over the prior year, primarily due to higher surrenders and withdrawals of ($3.5 billion) and death benefits of ($85 million). Partially offset by higher premiums and deposits of ($2.2 billion) due to strong sales execution as interest rates rose.
Fixed Index Annuities Net inflows increased ($1.1 billion) primarily due to higher premiums and deposits ($2.2 billion) due to strong sales execution as interest rates rose, partially offset by higher surrenders and withdrawals ($1.0 billion) and higher death benefits ($69 million).
Variable Annuities Net outflows increased ($1.8 billion) primarily due to lower premiums and deposits of ($1.3 billion) due to market volatility, and higher surrenders and withdrawals of ($496 million), partially offset by lower death benefits of ($61 million).
Premiums and Deposits and Net Flow Comparison for the Years Ended December 31, 2022 and 2021
Fixed Annuities Net outflows decreased ($2.0 billion) over the prior year, primarily due to higher premiums and deposits ($2.7 billion) due to competitive pricing and higher interest rates and lower death benefits ($300 million), partially offset by higher surrenders and withdrawals of ($1.0 billion).
Variable Annuities Net outflows increased ($807 million) primarily due to lower premiums and deposits ($1.9 billion), due to market volatility; partially offset by lower surrenders and withdrawals ($993 million) and lower death benefits of ($116 million).
Fixed Index Annuities Net inflows increased by ($450 million) primarily due to higher premiums and deposits of ($695 million), due to competitive pricing and higher interest rates; partially offset by higher surrenders and withdrawals ($193 million) and higher death benefits ($52 million).
Retail Mutual Funds There were no flows in 2022 due to the Touchstone sale in the second quarter of 2021. For additional information regarding the sale of certain assets of the AIG Life and Retirement Retail Mutual Funds business, see Note 1 to the Consolidated Financial Statements.
The following table presents surrenders rates:
Years Ended December 31, 2023 2022 2021
Fixed annuities 16.3 % 9.2 % 7.2 %
Fixed index annuities 6.7 4.8 4.7
Variable annuities 7.8 6.5 7.2
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The following table presents account value for fixed annuities and variable and fixed index annuities by surrender charge category:
At December 31, 2023 2022
(in millions) Fixed Annuities Fixed Index Annuities Variable Annuities Fixed Annuities Fixed Index Annuities Variable Annuities
No surrender charge $ 21,793 $ 1,727 $ 29,819 $ 24,889 $ 2,270 $ 27,037
Greater than 0% - 2% 1,023 3,326 6,717 1,783 1,353 6,962
Greater than 2% - 4% 2,844 6,413 5,799 2,256 4,532 5,081
Greater than 4% 21,766 28,128 11,014 18,905 25,196 12,082
Non-surrenderable (a)
2,474 — 1,156 2,453 — 1,155
Total account value (b)
$ 49,900 $ 39,594 $ 54,505 $ 50,286 $ 33,351 $ 52,317
(a) The non-surrenderable portion of variable annuities relates to funding agreements.
(b) Includes payout immediate annuities and funding agreements.
Individual Retirement annuities are typically subject to a three- to ten-year surrender charge period, depending on the product. For fixed and fixed index annuities, the proportion of account value subject to surrender charge at December 31, 2023 increased compared to December 31, 2022 primarily due to growth in business. The increase in the proportion of account value with no surrender charge for variable annuities as of December 31, 2023 compared to December 31, 2022 was principally due to normal aging of business.
GROUP RETIREMENT RESULTS
Years Ended December 31, Change
(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021
Adjusted revenues:
Premiums $ 20 $ 19 $ 22 5 % (14) %
Policy fees 406 415 480 (2) (14)
Net investment income 1,999 2,005 2,410 — (17)
Advisory fee and other income 309 305 337 1 (9)
Total adjusted revenues 2,734 2,744 3,249 — (16)
Benefits and expenses:
Policyholder benefits 31 35 31 (11) 13
Interest credited to policyholder account balances 1,182 1,147 1,159 3 (1)
Amortization of deferred policy acquisition costs 82 80 78 3 3
Non deferrable insurance commissions 124 123 112 1 10
Advisory fee expenses 118 124 133 (5) (7)
General operating expenses 438 443 443 (1) —
Interest expense 1 6 35 (83) (83)
Total benefits and expenses 1,976 1,958 1,991 1 (2)
Adjusted pre-tax income $ 758 $ 786 $ 1,258 (4) % (38) %
Base net investment spread:
Base yield* 4.27 % 4.04 % 4.11 % 23 bps (7) bps
Cost of funds 2.76 2.60 2.62 16 (2)
Base net investment spread 1.51 % 1.44 % 1.49 % 7 bps (5) bps
* Includes returns from base portfolio including accretion and income (loss) from certain other invested assets.
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Business and Financial Highlights
Adjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022
Adjusted pre-tax income decreased $28 million primarily due to:
• lower net investment income, net of interest credited ($41 million) primarily driven by lower alternative investment income ($73 million), partially offset by higher base portfolio income, net of interest credited ($29 million).
Adjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2022 and 2021
Adjusted pre-tax income decreased $472 million primarily due to:
• lower net investment income, net of interest credited ($393 million) primarily driven by lower alternative investment income ($224 million), lower yield enhancement income ($158 million) and higher base portfolio income, net of interest credited ($11 million); and
• lower policy and advisory fee income, net of advisory fee expenses of ($88 million) due to lower fee based assets under administration as a result of lower equity market performance.
These decreases were partially offset by lower interest expense on debt borrowings due to sale of Affordable Housing ($29 million).
GROUP RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET FLOWS
Premiums and deposits are a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits received on investment-type annuity contracts, FHLB funding agreements 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. Client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts, are not included in net flows, but do contribute to growth in assets under administration and advisory fee income.
The following table presents a reconciliation of Group Retirement GAAP premiums to premiums and deposits and net flows:
Years Ended December 31,
(in millions) 2023 2022 2021
Premiums $ 20 $ 19 $ 22
Deposits 8,063 7,923 7,744
Premiums and deposits*
$ 8,083 $ 7,942 $ 7,766
Net Flows $ (6,302) $ (3,111) $ (3,208)
* Excludes client deposits into advisory and brokerage accounts of $2.4 billion, $2.1 billion and $2.5 billion for the years ended December 31, 2023, 2022 and 2021, respectively.
Premiums and Deposits and Net Flow Comparison for the Years Ended December 31, 2023 and 2022
Net outflows were ($3.2 billion) higher compared to the prior year primarily due to higher surrenders and withdrawals ($3.4 billion), partially offset by higher premiums and deposits ($141 million) and lower death and payout annuity benefits ($65 million). Large plan acquisitions and surrenders resulted in lower net flows of ($1.4 billion) compared to the prior year. Excluding large plan acquisitions and surrenders, net outflows were concentrated in products with higher contractual guaranteed minimum crediting rates.
Premiums and Deposits and Net Flow Comparison for the Years Ended December 31, 2022 and 2021
Net outflows decreased ($97 million) primarily due to higher premiums and deposits ($176 million), partially offset by higher death and payout annuity benefits of ($30 million), and higher surrenders and withdrawals of ($49 million). In general, net outflows are concentrated in fixed annuity products with higher contractual guaranteed minimum crediting rates. Large plan acquisitions and surrenders resulted in higher net flows of ($121 million) compared to the prior year.
The following table presents Group Retirement surrenders rates:
Years Ended December 31, 2023 2022 2021
Surrender rates 12.9 % 9.5 % 8.8 %
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The following table presents account value for Group Retirement annuities by surrender charge category:
(in millions) 2023 (a)
2022 (b)
No surrender charge (b)
$ 70,500 $ 69,885
Greater than 0% - 2% 1,251 454
Greater than 2% - 4% 1,698 435
Greater than 4% 5,757 6,281
Non-surrenderable 490 945
Total account value (c)
$ 79,696 $ 78,000
(a) Excludes mutual fund assets under administration of $27.8 billion and $24.0 billion at December 31, 2023 and 2022, respectively.
(b) Group Retirement amounts in this category include account values in the general account of approximately $4.1 billion and $4.5 billion at December 31, 2023 and 2022, respectively, which are subject to 20 percent annual withdrawal limitations at the participant level and account value in the general account of $5.3 billion and $5.8 billion at December 31, 2023 and 2022, respectively, which are subject to 20 percent annual withdrawal limitations at the plan level.
(c) Includes payout immediate annuities and funding agreements.
Group Retirement annuity deposits are typically subject to a four- to seven-year surrender charge period, depending on the product. At December 31, 2023, Group Retirement annuity account value with no surrender charge increased compared to December 31, 2022 primarily due to increases in assets under management from higher equity markets partially offset by negative net flows. At December 31, 2022, Group Retirement annuity account value with no surrender charge decreased compared to December 31, 2021 primarily due to decline in assets under management from lower equity markets.
LIFE INSURANCE RESULTS
Years Ended December 31, Change
(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021
Adjusted revenues:
Premiums $ 2,261 $ 2,339 $ 2,064 (3) % 13 %
Policy fees 1,488 1,563 1,541 (5) 1
Net investment income 1,283 1,393 1,619 (8) (14)
Other income 60 69 62 (13) 11
Total adjusted revenues 5,092 5,364 5,286 (5) 1
Benefits and expenses:
Policyholder benefits 3,278 3,352 3,264 (2) 3
Interest credited to policyholder account balances 340 342 354 (1) (3)
Amortization of deferred policy acquisition costs 403 415 427 (3) (3)
Non deferrable insurance commissions 91 73 79 25 (8)
Advisory fee expenses 2 1 — 100 NM
General operating expenses 620 656 684 (5) (4)
Interest expense — 4 25 NM (84)
Total benefits and expenses 4,734 4,843 4,833 (2) —
Adjusted pre-tax income $ 358 $ 521 $ 453 (31) % 15 %
Business and Financial Highlights
Adjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022
Adjusted pre-tax income decreased $163 million primarily due to:
• lower net investment income ($110 million), driven by lower alternative investment and yield enhancement income ($103 million) primarily due to lower equity partnership performance and reduced gains on calls, and lower base portfolio income ($7 million); and
• lower premiums and fees, net of policyholder benefits, excluding actuarial assumptions update ($73 million), primarily due to international life, partially offset by favorable domestic mortality.
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Adjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2022 and 2021
Adjusted pre-tax income increased $68 million primarily due to:
• higher premiums and policy fees, net of policyholder benefits, excluding actuarial assumptions update ($232 million), primarily due to favorable mortality; and
• lower general operating expenses ($28 million).
Partially offsetting this increase was:
• lower net investment income ($226 million), primarily driven by lower alternative investment and yield enhancement income ($262 million) primarily due to lower equity partnership performance and reduced gains on calls, partially offset by higher base portfolio income ($36 million); and
• lower net favorable impact from the review and update of actuarial assumptions ($23 million).
LIFE INSURANCE GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Life Insurance represent amounts received on traditional life insurance policies, primarily term life and international life and health. 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.
Premiums and deposits, excluding the effect of foreign exchange, increased $59 million in the year ended December 31, 2023 compared to the same period in 2022 and increased $145 million in the year ended December 31, 2022 compared to the same period in 2021 primarily due to growth in international life premiums.
The following table presents a reconciliation of Life Insurance GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions) 2023 2022 2021
Premiums $ 2,261 $ 2,339 $ 2,064
Deposits 1,583 1,600 1,635
Other* 904 732 953
Premiums and deposits $ 4,748 $ 4,671 $ 4,652
* Other principally consists of adding back ceded premiums to reflect the gross premiums and deposits.
INSTITUTIONAL MARKETS RESULTS
Years Ended December 31, Change
(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021
Adjusted revenues:
Premiums $ 5,607 $ 2,913 $ 3,774 92 % (23) %
Policy fees 195 194 187 1 4
Net investment income 1,587 1,051 1,154 51 (9)
Other income 2 2 2 — —
Total adjusted revenues 7,391 4,160 5,117 78 (19)
Benefits and expenses:
Policyholder benefits 6,298 3,404 4,183 85 (19)
Interest credited to policyholder account balances 600 320 274 88 17
Amortization of deferred policy acquisition costs 9 7 6 29 17
Non deferrable insurance commissions 19 20 22 (5) (9)
General operating expenses 85 73 77 16 (5)
Interest expense 1 2 9 (50) (78)
Total benefits and expenses 7,012 3,826 4,571 83 (16)
Adjusted pre-tax income $ 379 $ 334 $ 546 13 % (39) %
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Business and Financial Highlights
Adjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022
Adjusted pre-tax income increased $45 million primarily due to:
• higher premiums primarily on new pension risk transfer business ($2.7 billion); and
• higher net investment income ($536 million) primarily driven by higher base portfolio income.
Partially offset by:
• higher policyholder benefits (including interest accretion) primarily on new pension risk transfer business ($2.9 billion); and
• higher interest credited on policyholder account balances, primarily related to the GIC business ($280 million).
Adjusted Pre-Tax Income (Loss) Comparison for the Years Ended December 31, 2022 and 2021
Adjusted pre-tax income decreased $212 million primarily due to:
• lower net investment income ($103 million) primarily driven by lower alternative investment income ($145 million) and lower yield enhancement income ($89 million) partially offset by higher base portfolio income ($131 million);
• lower premiums primarily on new pension risk transfer business ($861 million); and
• higher interest credited on policyholder account balances, primarily related to the GIC business ($46 million).
Partially offsetting these decreases was a reduction in policyholder benefits and losses incurred (including interest accretion) primarily on new pension risk transfer business ($779 million).
INSTITUTIONAL MARKETS GAAP PREMIUMS AND PREMIUMS AND DEPOSITS
Premiums for Institutional Markets primarily represent amounts received on pension risk transfer or structured settlement annuities with life contingencies. Premiums increased $2.7 billion in the year ended December 31, 2023 compared to the same period in 2022 and decreased $861 million in the year ended December 31, 2022 compared to the same period in 2021 primarily driven by the transactional nature of the pension risk transfer business (direct and assumed reinsurance).
Premiums and deposits for Institutional Markets is a non-GAAP financial measure that includes direct and assumed premiums as well as deposits received on investment-type annuity contracts. Deposits primarily include GICs, FHLB funding agreements and structured settlement annuities with no life contingencies.
Premiums and deposits increased $5.0 billion in the year ended December 31, 2023, compared to the same period in 2022 primarily due to higher premiums on pension risk transfer business and higher deposits on new GICs. Premiums and deposits decreased $632 million in the year ended December 31, 2022 compared to the same period in 2021 primarily due to lower premiums on pension risk transfer business, partially offset by deposits of structured settlement annuities.
The following table presents a reconciliation of Institutional Markets GAAP premiums to premiums and deposits:
Years Ended December 31,
(in millions) 2023 2022 2021
Premiums $ 5,607 $ 2,913 $ 3,774
Deposits 3,695 1,382 1,158
Other* 31 30 25
Premiums and deposits $ 9,333 $ 4,325 $ 4,957
* Other principally consists of adding back ceded premiums to reflect the gross premiums and deposits.
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ITEM 7 | Business Segment Operations | Other OperationsOther OperationsOther Operations primarily consists of income from assets held by AIG Parent and other corporate subsidiaries, deferred tax assets related to tax attributes, corporate expenses and intercompany eliminations, our institutional asset management business and results of our consolidated investment entities, General Insurance portfolios in run-off as well as the historical results of our legacy insurance lines ceded to Fortitude Re.OTHER OPERATIONS RESULTS
Years Ended December 31, Change(in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021
Adjusted revenues:
Premiums $ 68 $ 85 $ 186 (20) % (54) %
Net investment income:
Interest and dividends 385 353 169 9 109
Alternative investments (72) 516 919 NM (44)
Other investment income (loss) 11 (129) 65 NM NM
Investment expenses (37) (26) (41) (42) 37
Total net investment income 287 714 1,112 (60) (36)
Other income 26 28 40 (7) (30)
Total adjusted revenues 381 827 1,338 (54) (38)Benefits, losses and expenses:Policyholder benefits and losses incurred 15 30 250 (50) (88)
Interest credited to policyholder account balances — — 1 NM NM
Acquisition expenses:
Amortization of deferred policy acquisition costs — 5 37 NM (86)
Other acquisition expenses (3) (1) (1) (200) —
Total acquisition expenses (3) 4 36 NM (89)
General operating expenses:
Corporate and Other 965 1,119 1,137 (14) (2)
Asset Management 35 45 72 (22) (38)
Amortization of intangible assets 27 40 40 (33) —
Total General operating expenses 1,027 1,204 1,249 (15) (4)
Interest expense:
Corporate and Other 958 908 1,032 6 (12)
Asset Management* 149 223 188 (33) 19
Total interest expense 1,107 1,131 1,220 (2) (7)
Total benefits, losses and expenses 2,146 2,369 2,756 (9) (14)
Adjusted pre-tax loss before consolidation and eliminations (1,765) (1,542) (1,418) (14) (9)
Consolidation and eliminations (10) (405) (932) 98 57
Adjusted pre-tax loss $ (1,775) $ (1,947) $ (2,350) 9 % 17 %
Adjusted pre-tax income (loss) by activities:
Corporate and Other $ (1,651) $ (2,053) $ (2,329) 20 % 12 %
Asset Management (114) 511 911 NM (44)
Consolidation and eliminations (10) (405) (932) 98 57
Adjusted pre-tax loss $ (1,775) $ (1,947) $ (2,350) 9 % 17 %
* Interest – Asset Management primarily represents interest expense on consolidated investment entities of $139 million, $217 million and $182 million in the years ended December 31, 2023, 2022 and 2021, respectively.
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ITEM 7 | Business Segment Operations | Other OperationsYEARS ENDED DECEMBER 31, 2023 AND 2022 COMPARISONAdjusted pre-tax loss before consolidation and eliminations of $1.8 billion in 2023 compared to $1.5 billion in 2022, an increase of $223 million, was primarily due to:
• lower net investment income associated with consolidated investment entities of $708 million and the absence of $56 million mark to market gain on the 2.46 percent equity interest in Fortitude Group Holdings, LLC, partially offset by the absence of mark to market losses of $272 million on our investment in collateralized loan obligations (CLO) and higher income on AIG Parent portfolio of $139 million due to higher yields;
• lower corporate general operating expenses of $154 million primarily driven by a reduction in employee related costs of $12 million and other operating expenses of $142 million; and
• lower interest expense of $24 million primarily driven by interest savings of $136 million from $11.0 billion debt repurchases, through cash tender offers and debt redemption and maturity in 2022 and 2023, lower interest expense of $74 million associated with consolidated investments entities as a result of deconsolidation and paydowns on debt, partially offset by interest expense of $183 million on the $6.5 billion Corebridge senior unsecured notes, $1.5 billion draw down on the DDTL Facility and $1.0 billion junior subordinated debt issued by Corebridge in 2022.
Adjusted pre-tax loss on consolidation and eliminations of $10 million in 2023 compared to $405 million in 2022, a decrease of $395 million, was primarily due to the elimination of the insurance companies’ net investment income from their investment in the consolidated investment entities of $419 million .
YEARS ENDED DECEMBER 31, 2022 AND 2021 COMPARISON
Adjusted pre-tax loss before consolidation and eliminations of $1.5 billion in 2022 compared to $1.4 billion in 2021, decrease of $124 million was primarily due to:
• lower net investment income associated with consolidated investment entities of $382 million partially offset by higher income on AIG Parent portfolio of $94 million due to higher yields and $56 million mark to market gain on the 2.46 percent equity interest in Fortitude Group Holdings, LLC;
• lower underwriting loss attributable to lower catastrophe losses of $38 million and absence of unfavorable prior year development ($86 million in 2021) within Other Operations Run-Off, primarily Blackboard U.S. Holdings, Inc. (Blackboard);
• lower corporate interest expense primarily driven by interest savings of $225 million from $9.4 billion debt repurchases, through cash tender offers, and debt redemption in 2022 as well as $92 million from $3.6 billion of debt redemptions and debt repurchases, through cash tender offers in 2021, partially offset by interest expense of $240 million on $6.5 billion Corebridge senior unsecured notes, $1.5 billion draw down on the DDTL Facility and $1.0 billion junior subordinated debt issued by Corebridge in 2022; and
• lower corporate and other general operating expenses of $45 million primarily driven by decreases in employment costs of $254 million partially offset by higher professional fees of $209 million.
Adjusted pre-tax loss on consolidation and eliminations of $405 million in 2022 compared to $932 million in 2021, a decrease of $527 million, was primarily due to the elimination of the insurance companies’ net investment income from their investment in the consolidated investment entities of $520 million.
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ITEM 7 | Investments
Investments
OVERVIEWOur investment strategies are tailored to the specific business needs of each segment by targeting an asset allocation mix that supports estimated cash flows of our outstanding liabilities and provides diversification from an asset class, sector, issuer, and geographic perspective. The primary objectives are generation of investment income, preservation of capital, liquidity management and growth of surplus. The majority of assets backing our insurance liabilities consist of fixed maturity securities.
Inflation remains elevated relative to the Federal Reserve target however it has decreased over the past several quarters. Interest rates also remain elevated although credit spreads have narrowed for most asset classes as recession concerns began to recede and the likelihood for a soft landing increased.
Our Investment Management Agreements with Blackstone Inc.
In 2021, AIG entered into a long-term asset management relationship with Blackstone Inc. and its investment advisory affiliates (Blackstone), pursuant to which Blackstone initially managed $50 billion of Corebridge’s existing investment portfolio, with that amount increasing to an aggregate of $92.5 billion by the third quarter of 2027. As of December 31, 2023, Blackstone manages $55 billion in book value of assets in Corebridge's investment portfolio. As these assets run-off, we expect Blackstone to reinvest primarily in Blackstone-originated investments across a range of asset classes, including private and structured credit, and commercial and residential real estate securitized and whole loans. We continue to manage asset allocation and portfolio-level risk management decisions with respect to any assets managed by Blackstone, ensuring that we maintain a consistent level of oversight across our entire investment portfolio considering our asset-liability matching needs, risk appetite and capital positions.Our Investment Management Agreements with BlackRock, Inc.Since April 2022, AIG and Corebridge insurance company subsidiaries have entered into separate investment management agreements with BlackRock, Inc. and its investment advisory affiliates (BlackRock). Substantially all investment management agreements contemplated for AIG insurance company subsidiaries have been executed. A small number of insurance companies remain under discussion and expect to be resolved in 2024. As of December 31, 2023, BlackRock manages $135 billion of our investment portfolio, consisting of liquid fixed income and certain private placement assets, including $76 billion of Corebridge assets. In addition, liquid fixed income assets associated with the Fortitude Re funds withheld asset portfolio were separately transferred to BlackRock for management in 2022.
For additional information, see Note 1 to the Consolidated Financial Statements.
INVESTMENT HIGHLIGHTS IN 2023• Blended investment yields on new investments are higher than blended rates on investments that were sold, matured or called during this period. We continued to make investments in structured securities and other fixed maturity securities with attractive risk-adjusted return characteristics to improve yields and increase net investment income.• The higher interest rate environment has contributed to higher income in the base portfolio for the twelve months ended December 31, 2023 compared to the same period in the prior year. Total Net investment income increased for the twelve months ended December 31, 2023 compared to the same period in the prior year, primarily due to higher returns in our fixed maturity securities, mortgage and other loans, short-term investments and hedge fund portfolios, partially offset by lower income in our private equity portfolio.INVESTMENT STRATEGIES
Investment strategies are assessed at the segment level and involve considerations that include local and general market and economic conditions, duration and cash flow management, risk appetite and volatility constraints, rating agency and regulatory capital considerations, tax, regulatory and legal investment limitations, and, as applicable, environmental, social and governance considerations.
Some of our key investment strategies are as follows:
• Our fundamental strategy across the portfolios is to seek investments with similar duration and cash flow characteristics to the associated insurance liabilities to the extent practicable.
• We seek to purchase investments that offer enhanced yield through illiquidity premiums, such as private placements and commercial mortgage loans, which also add portfolio diversification. These assets typically afford credit protections through covenants, ability to customize structures that meet our insurance liability needs, and deeper due diligence given information access.86
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ITEM 7 | Investments• Given our global presence, we seek investments that provide diversification from investments available in local markets. To the extent we purchase these investments, we generally hedge any currency risk using derivatives, which could provide opportunities to earn higher risk adjusted returns compared to investments in the functional currency.
• AIG Parent, included in Other Operations, actively manages its assets and liabilities, counterparties and duration. AIG Parent’s liquidity sources are held primarily in the form of cash and short-term investments. This strategy allows us to both diversify our sources of liquidity and reduce the cost of maintaining sufficient liquidity.• Within the U.S., the Life and Retirement and General Insurance investments are generally split between reserve backing and surplus portfolios.– Insurance reserves are backed mainly by investment grade fixed maturity securities that meet our duration, risk-return, capital, tax, liquidity, credit quality and diversification objectives. We assess asset classes based on their fundamental underlying risk factors, including credit (public and private), commercial real estate and residential real estate, regardless of whether such investments are bonds, loans, or structured products.
– Surplus investments seek to enhance portfolio returns and are generally comprised of a mix of fixed maturity investment grade and below investment grade securities and various alternative asset classes, including private equity, real estate equity, and hedge funds. Over the past few years, hedge fund investments have been reduced.• Outside of the U.S., fixed maturity securities held by our insurance companies consist primarily of investment-grade securities generally denominated in the currencies of the countries in which we operate.
• We also utilize derivatives to manage our asset and liability duration as well as currency exposures.
Asset-Liability ManagementThe investment strategy within the General Insurance companies focuses on growth of surplus, maintenance of sufficient liquidity for unanticipated insurance claims, and preservation of capital. General Insurance invests 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. Fixed maturity securities of the General Insurance companies have an average duration of 3.9 years, with an average of 4.1 years for North America and 3.5 years for International.While invested assets backing reserves of the General Insurance companies are primarily invested in conventional liquid fixed maturity securities, we have continued to allocate to asset classes that offer higher yields through structural and illiquidity premiums, particularly in our North America operations. In addition, we continue to invest in both fixed rate and floating rate asset-backed investments to manage our exposure to potential changes in interest rates and inflation. We seek to diversify the portfolio across asset classes, sectors and issuers to mitigate idiosyncratic portfolio risks.
In addition, a portion of the surplus of General Insurance companies is invested in a diversified portfolio of alternative investments that seek to balance liquidity, volatility and growth of surplus. 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.The investment strategy of the Life and Retirement companies is to provide net investment income to back liabilities that result in stable distributable earnings and enhance portfolio value, subject to asset-liability management, capital, liquidity and regulatory constraints.
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 maintain a diversified, high-to-medium quality portfolio of 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 that, to the extent practicable, match the duration characteristics of the liabilities. We seek to diversify the portfolio across asset classes, sectors, and issuers to mitigate idiosyncratic portfolio risks. The investment portfolio of each product line is tailored to the specific characteristics of its insurance liabilities, and as a result, duration varies between distinct portfolios. The interest rate environment has a direct impact on the asset-liability management profile of the businesses, and changes in the interest rate environment may result in the need to lengthen or shorten the duration of the portfolio. In a rising rate environment, we may shorten the duration of the investment portfolio.
Fixed maturity securities of the Life and Retirement companies’ domestic operations have an average duration of 6.9 years.
In addition, the Life and Retirement companies seek to enhance surplus portfolio returns through investments in a diversified portfolio of alternative investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved returns in excess of the fixed maturity portfolio returns.
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National Association of Insurance Commissioners (NAIC) Designations of Fixed Maturity Securities
The Securities Valuation Office (SVO) of the 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. NAIC Designations for non-agency Residential Mortgage Backed Securities (RMBS) and Commercial Mortgage Backed Securities (CMBS) are calculated using third party modeling results provided through the NAIC. 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 AIG subsidiaries’ 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 fixed maturity securities where no NAIC Designation is assigned or able to be calculated using third-party data, the NAIC Designation category used in the first table below reflects an internal rating.
The NAIC Designations presented below do not reflect the added granularity to the designation categories adopted by the NAIC in 2020, which further subdivide each category of fixed maturity securities by appending letter modifiers to the numerical designations.
For a full description of the composite AIG credit ratings, see Credit Ratings below.
The following table presents the fixed maturity security portfolio categorized by NAIC Designation, at fair value:
December 31, 2023
(in millions)
NAIC Designation 1 2 Total Investment Grade 3 4 5 6 Total Below Investment Grade Total
Other fixed maturity securities $ 89,907 $ 68,456 $ 158,363 $ 6,301 $ 4,827 $ 618 $ 78 $ 11,824 $ 170,187
Mortgage-backed, asset-backed and collateralized 58,639 7,221 65,860 367 399 54 21 841 66,701
Total* $ 148,546 $ 75,677 $ 224,223 $ 6,668 $ 5,226 $ 672 $ 99 $ 12,665 $ 236,888
* Excludes $86 million of fixed maturity securities for which no NAIC Designation is available.
The following table presents the fixed maturity security portfolio categorized by composite AIG credit rating, at fair value:
December 31, 2023
(in millions)
Composite AIG Credit Rating AAA/AA/A BBB Total Investment Grade BB B CCC and Lower Total Below Investment Grade Total
Other fixed maturity securities $ 91,753 $ 66,103 $ 157,856 $ 6,458 $ 5,039 $ 834 $ 12,331 $ 170,187
Mortgage-backed, asset-backed and collateralized 53,344 7,990 61,334 555 591 4,221 5,367 66,701
Total* $ 145,097 $ 74,093 $ 219,190 $ 7,013 $ 5,630 $ 5,055 $ 17,698 $ 236,888
* Excludes $86 million of fixed maturity securities for which no NAIC Designation is available.
CREDIT RATINGS
At December 31, 2023, approximately 89 percent of our fixed maturity securities were held by our domestic entities. Approximately 92 percent of these securities were rated investment grade by one or more of the principal rating agencies.
Moody’s Investors Service Inc. (Moody’s), Standard & Poor’s 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 group closely reviews the credit quality of the foreign portfolio’s non-rated fixed maturity securities. At December 31, 2023, approximately 93 percent of such investments were either rated investment grade or, on the basis of analysis of our investment managers, were equivalent from a credit standpoint to securities rated investment grade. Approximately 27 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: (i) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the NAIC Designation assigned by the NAIC SVO (99 percent of total fixed maturity securities), or (ii) our 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 information regarding credit risks associated with Investments, see Enterprise Risk Management – Credit Risk Management.
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The following table presents the composite AIG credit ratings of our fixed maturity securities calculated on the basis of their fair value*:
Available for Sale Other Total
(in millions) December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022
Rating:
Other fixed maturity securities
AAA $ 7,668 $ 13,477 $ 38 $ 36 $ 7,706 $ 13,513
AA 38,349 31,061 955 810 39,304 31,871
A 44,511 45,618 231 244 44,742 45,862
BBB 64,765 63,173 1,339 1,043 66,104 64,216
Below investment grade 11,693 16,538 467 432 12,160 16,970
Non-rated 178 175 6 4 184 179
Total $ 167,164 $ 170,042 $ 3,036 $ 2,569 $ 170,200 $ 172,611
Mortgage-backed, asset-backed and collateralized
AAA $ 16,477 $ 20,729 $ 212 $ 253 $ 16,689 $ 20,982
AA 27,411 15,706 745 659 28,156 16,365
A 8,145 7,186 359 289 8,504 7,475
BBB 7,262 6,857 729 578 7,991 7,435
Below investment grade 5,248 5,509 109 125 5,357 5,634
Non-rated 26 127 51 12 77 139
Total $ 64,569 $ 56,114 $ 2,205 $ 1,916 $ 66,774 $ 58,030
Total
AAA $ 24,145 $ 34,206 $ 250 $ 289 $ 24,395 $ 34,495
AA 65,760 46,767 1,700 1,469 67,460 48,236
A 52,656 52,804 590 533 53,246 53,337
BBB 72,027 70,030 2,068 1,621 74,095 71,651
Below investment grade 16,941 22,047 576 557 17,517 22,604
Non-rated 204 302 57 16 261 318
Total $ 231,733 $ 226,156 $ 5,241 $ 4,485 $ 236,974 $ 230,641
* On August 1, 2023, Fitch downgraded the U.S. government’s credit rating from AAA to AA+. This resulted in the composite AIG Credit Rating for both U.S. government securities and agency mortgage-backed securities to transition from AAA to AA+.Available-for-Sale Investments
The following table presents the fair value of our available-for-sale securities:(in millions) December 31, 2023 December 31, 2022Bonds available for sale:U.S. government and government sponsored entities $ 5,616 $ 6,619
Obligations of states, municipalities and political subdivisions 10,663 12,099
Non-U.S. governments 12,453 13,485
Corporate debt 138,432 137,839Mortgage-backed, asset-backed and collateralized:RMBS 20,444 18,817
CMBS 14,128 14,193
CLO/ABS 29,997 23,104
Total mortgage-backed, asset-backed and collateralized 64,569 56,114
Total bonds available for sale* $ 231,733 $ 226,156
* At December 31, 2023 and 2022, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled $17.1 billion and $22.3 billion, respectively.
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ITEM 7 | InvestmentsThe following table presents the fair value of our aggregate credit exposures to non-U.S. governments for our fixed maturity securities:
(in millions) December 31, 2023 December 31, 2022
Canada $ 1,411 $ 1,312
Germany 929 856
Japan 699 812
France 677 636
United Kingdom 478 446
Indonesia 451 514
Chile 404 401
Mexico 374 379
Israel 337 368
Korea, Republic of 318 238
Other 6,412 7,589
Total $ 12,490 $ 13,551The following table presents the fair value of our aggregate European credit exposures by major sector for our fixed maturity securities:December 31, 2023 December 31, 2022 Total(in millions) Sovereign Financial Institution Non-Financial Corporates Structured Products Total
Euro-Zone countries:Germany $ 929 $ 269 $ 2,360 $ — $ 3,558 $ 3,422
France 677 1,705 1,088 12 3,482 2,919
Netherlands 167 912 1,006 43 2,128 2,060
Belgium 35 299 936 41 1,311 1,256
Ireland 9 46 429 679 1,163 1,167
Spain 10 260 627 217 1,114 684
Luxembourg 18 303 321 — 642 1,025
Italy 17 93 531 — 641 491
Denmark 227 78 136 — 441 374
Finland 19 63 36 — 118 97
Other Euro-Zone 234 26 39 — 299 276
Total Euro-Zone $ 2,342 $ 4,054 $ 7,509 $ 992 $ 14,897 $ 13,771Remainder of Europe:United Kingdom $ 478 $ 4,259 $ 8,499 $ 782 $ 14,018 $ 12,492
Switzerland 20 559 781 — 1,360 1,449
Guernsey — — — 624 624 —
Norway 252 85 221 — 558 607
Sweden 130 193 105 — 428 433
Russian Federation 2 — 33 — 35 34
Other - Remainder of Europe 31 180 44 48 303 470
Total - Remainder of Europe $ 913 $ 5,276 $ 9,683 $ 1,454 $ 17,326 $ 15,485
Total $ 3,255 $ 9,330 $ 17,192 $ 2,446 $ 32,223 $ 29,256
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ITEM 7 | InvestmentsInvestments in Municipal BondsAt December 31, 2023, the U.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality tax-exempt bonds with 98 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:December 31, 2023
(in millions) State General Obligation Local General Obligation Revenue Total Fair Value December 31, 2022 Total Fair Value
California $ 526 $ 415 $ 1,420 $ 2,361 $ 2,599
New York 42 163 1,779 1,984 2,207
Texas 16 340 567 923 1,168
Illinois 81 57 587 725 832
Massachusetts 206 20 269 495 597
Ohio 16 — 355 371 334
Pennsylvania 58 2 300 360 391
Georgia 83 48 188 319 354
New Jersey 9 2 252 263 308
Washington 85 17 154 256 279
Florida 4 — 236 240 337
Virginia 8 — 213 221 277
Missouri — — 184 184 193All other states301 157 1,503 1,961 2,223Total$ 1,435 $ 1,221 $ 8,007 $ 10,663 $ 12,099Investments in Corporate Debt Securities
The following table presents the fair value of our available for sale corporate debt securities by industry categories:
Industry Category(in millions) December 31, 2023 December 31, 2022Financial institutions:Money center/Global bank groups $ 8,744 $ 8,234
Regional banks – other 456 418
Life insurance 2,439 2,207
Securities firms and other finance companies 555 354
Insurance non-life 4,937 5,067
Regional banks – North America 5,279 5,832
Other financial institutions 18,300 16,491
Utilities 19,643 18,863
Communications 8,799 8,676
Consumer noncyclical 16,973 17,973
Capital goods 6,194 6,745
Energy 11,091 10,357
Consumer cyclical 8,682 10,963
Basic materials 4,632 4,715
Other 21,708 20,944
Total* $ 138,432 $ 137,839
* At December 31, 2023 and 2022, approximately 92 percent and 89 percent, respectively, of these investments were rated investment grade.
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ITEM 7 | InvestmentsInvestments in RMBS
The following table presents the fair value of AIG’s RMBS available for sale securities:(in millions) December 31, 2023 December 31, 2022
Agency RMBS $ 7,045 $ 8,126
Alt-A RMBS 4,844 4,400
Subprime RMBS 1,649 1,819
Prime non-agency 3,132 2,064
Other housing related 3,774 2,408Total RMBS (a)(b)$ 20,444 $ 18,817
(a) Includes approximately $4.1 billion and $4.4 billion at December 31, 2023 and 2022, respectively, of certain RMBS that had experienced deterioration in credit quality since their origination. This excludes impact of U.S. debt downgrade of Fannie Mae and Freddie Mac. For additional information on purchased credit deteriorated securities, see Note 6 to the Consolidated Financial Statements.
(b) The weighted average expected life was seven years at both December 31, 2023 and December 31, 2022.
Our investments guidelines for investing in RMBS, CLO and other asset-backed securities (ABS) 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.Investments in CMBS
The following table presents the fair value of our CMBS available for sale securities:(in millions) December 31, 2023 December 31, 2022
CMBS (traditional) $ 12,205 $ 12,401
Agency 1,434 1,219
Other 489 573
Total $ 14,128 $ 14,193
The fair value of CMBS holdings remained stable during the year ended December 31, 2023. The majority of our investments in CMBS are in tranches that contain substantial credit protection features through collateral subordination. The majority of CMBS holdings are traditional conduit transactions, broadly diversified across property types and geographical areas.Investments in CLO/ABS
The following table presents the fair value of our CLO/ABS available for sale securities by collateral type:(in millions) December 31, 2023 December 31, 2022Collateral Type:ABS $ 15,762 $ 12,168
Bank loans 14,104 10,818
Other 131 118
Total $ 29,997 $ 23,104
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ITEM 7 | InvestmentsUnrealized Losses of Fixed Maturity Securities
The following table shows the aging of the unrealized losses of fixed maturity 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, 2023 Less Than or Equal Greater Than 20% Greater Than 50%to 20% of Cost (b)
to 50% of Cost (b)
of Cost (b)
Total
Aging (a)
Unrealized Unrealized Unrealized Unrealized
(dollars in millions) Cost (c)
Loss Items (d)
Cost (c)
Loss Items (d)
Cost (c)
Loss Items (d)
Cost (c)
Loss Items (d)
Investment grade bonds0-6 months $ 11,208 $ 475 1,847 $ 2,993 $ 866 192 $ 6 $ 3 — $ 14,207 $ 1,344 2,039
7-11 months 17,683 766 2,750 2,307 656 166 4 2 — 19,994 1,424 2,916
12 months or more 112,619 9,943 16,579 37,388 10,511 3,214 344 188 23 150,351 20,642 19,816
Total $ 141,510 $ 11,184 21,176 $ 42,688 $ 12,033 3,572 $ 354 $ 193 23 $ 184,552 $ 23,410 24,771Below investment grade bonds0-6 months $ 2,417 $ 96 716 $ 145 $ 51 44 $ 14 $ 11 19 $ 2,576 $ 158 779
7-11 months 756 29 179 56 17 9 2 2 2 814 48 190
12 months or more 7,637 481 2,443 949 266 177 56 38 15 8,642 785 2,635
Total $ 10,810 $ 606 3,338 $ 1,150 $ 334 230 $ 72 $ 51 36 $ 12,032 $ 991 3,604Total bonds0-6 months $ 13,625 $ 571 2,563 $ 3,138 $ 917 236 $ 20 $ 14 19 $ 16,783 $ 1,502 2,818
7-11 months 18,439 795 2,929 2,363 673 175 6 4 2 20,808 1,472 3,106
12 months or more 120,256 10,424 19,022 38,337 10,777 3,391 400 226 38 158,993 21,427 22,451
Total (d)
$ 152,320 $ 11,790 24,514 $ 43,838 $ 12,367 3,802 $ 426 $ 244 59 $ 196,584 $ 24,401 28,375(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.
(c) For bonds, represents amortized cost net of allowance.
(d) Item count is by CUSIP by subsidiary.The allowance for credit losses was $9 million for investment grade bonds and $153 million for below investment grade bonds as of December 31, 2023.Commercial Mortgage LoansAt December 31, 2023, we had direct commercial mortgage loan exposure of $38.0 billion.The following table presents the commercial mortgage loan exposure by location and class of loan based on amortized cost:
Number of Loans Class Percent of Total
(dollars in millions) Apartments Offices Retail Industrial Hotel Others TotalDecember 31, 2023State:New York 78 $ 1,508 $ 4,172 $ 488 $ 440 $ 101 $ — $ 6,709 18 %
California 62 829 1,123 157 1,309 621 12 4,051 11
New Jersey 78 2,316 80 358 753 — 32 3,539 9
Texas 42 894 884 145 280 18 — 2,221 6
Florida 48 729 107 507 106 535 — 1,984 5
Massachusetts 19 662 750 542 22 — — 1,976 5
Illinois 21 609 467 3 44 — 20 1,143 3
Colorado 17 308 93 179 70 168 — 818 2
Pennsylvania 20 151 133 249 218 23 — 774 2
Ohio 22 141 10 161 431 — — 743 2
Other states 127 2,787 457 675 943 173 47 5,082 13
Foreign 78 4,195 1,432 842 1,751 414 335 8,969 24
Total* 612 $ 15,129 $ 9,708 $ 4,306 $ 6,367 $ 2,053 $ 446 $ 38,009 100 %
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ITEM 7 | Investments
Number of Loans Class Percent of Total
(dollars in millions) Apartments Offices Retail Industrial Hotel Others TotalDecember 31, 2022State:New York 81 $ 1,571 $ 4,502 $ 490 $ 404 $ 104 $ — $ 7,071 19 %
California 59 847 1,068 170 1,316 656 13 4,070 11
New Jersey 65 2,154 163 439 497 11 32 3,296 9
Texas 47 857 998 153 184 143 — 2,335 6
Massachusetts 16 576 443 521 23 — — 1,563 4
Florida 57 491 119 362 199 391 — 1,562 4
Illinois 22 584 623 3 46 — 21 1,277 4
Ohio 23 145 10 168 544 — — 867 2
Pennsylvania 18 75 133 255 223 23 — 709 2
Washington, D.C. 9 483 116 — — 17 — 616 2
Other states 139 2,239 494 842 961 278 19 4,833 13
Foreign 93 4,575 1,606 413 1,609 404 322 8,929 24
Total* 629 $ 14,597 $ 10,275 $ 3,816 $ 6,006 $ 2,027 $ 407 $ 37,128 100 %* Does not reflect allowance for credit losses.
For additional information on commercial mortgage loans, see Note 7 to the Consolidated Financial Statements.
Net Realized Gains and Losses
The following table presents the components of Net realized gains (losses):Years Ended December 31, 2023 2022 2021(in millions) Excluding Fortitude Re Funds Withheld Assets Fortitude Re Funds Withheld Assets Total Excluding Fortitude Re Funds Withheld Assets Fortitude Re Funds Withheld Assets Total Excluding Fortitude Re Funds Withheld Assets Fortitude Re Funds Withheld Assets TotalSales of fixed maturity securities $ (929) $ (133) $ (1,062) $ (871) $ (311) $ (1,182) $ 211 $ 717 $ 928
Intent to sell — — — (66) — (66) — — —
Change in allowance for credit losses on fixed maturity securities (211) (9) (220) (184) (32) (216) 19 7 26
Change in allowance for credit losses on loans (167) (62) (229) (55) (47) (102) 163 9 172
Foreign exchange transactions 101 19 120 (20) (5) (25) 22 (5) 17
Index-linked interest credited embedded derivatives, net of related hedges (784) — (784) (119) — (119) (5) — (5)
All other derivatives and hedge accounting* (374) (105) (479) 1,230 (134) 1,096 260 28 288
Sales of alternative investments and real estate investments 98 (2) 96 193 43 236 988 237 1,225
Other (40) (3) (43) (39) — (39) 213 10 223
Net realized gains (losses) – excluding Fortitude Re funds withheld embedded derivative (2,306) (295) (2,601) 69 (486) (417) 1,871 1,003 2,874
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative — (2,007) (2,007) — 7,481 7,481 — (603) (603)
Net realized gains (losses) $ (2,306) $ (2,302) $ (4,608) $ 69 $ 6,995 $ 7,064 $ 1,871 $ 400 $ 2,271
* Derivative activity related to hedging MRBs is recorded in Change in the fair value of MRBs, net. For additional disclosures about MRBs, see Note 14 to the Consolidated Financial Statements.
Net realized losses excluding Fortitude Re funds withheld assets in the year ended December 31, 2023 compared to Net realized gains excluding Fortitude Re funds withheld assets in 2022 were primarily due to lower derivative gains in the current period compared to the prior year period. Lower Net realized gains excluding Fortitude Re funds withheld assets in the year ended December 31, 2022 compared to 2021 were primarily due to losses on sales of securities compared to gains in 2021.
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ITEM 7 | InvestmentsIndex-linked interest credited embedded derivatives, net of related hedges, reflected higher losses in the year ended December 31, 2023 compared to 2022 and higher losses in the year ended December 31, 2022 compared to 2021. Fair value gains or losses in the hedging portfolio are typically not fully offset by increases or decreases in liabilities due to the non-performance or “own credit” risk adjustment used in the valuation of index-linked interest credited embedded derivatives, which are not hedged as part of our economic hedging program, and other risk margins used for valuation that cause the embedded derivatives to be less sensitive to changes in market rates than the hedge portfolio.Net realized gains (losses) on Fortitude Re funds withheld assets primarily reflect changes in the valuation of the modified coinsurance and funds withheld assets. Increases in the valuation of these assets result in losses to AIG as the appreciation on the assets under those reinsurance arrangements must be transferred to Fortitude Re. Decreases in valuation of the assets result in gains to AIG as the depreciation on the assets under those reinsurance arrangements must be transferred to Fortitude Re. For additional information on the impact of the funds withheld arrangements with Fortitude Re, see Note 8 to the Consolidated Financial Statements.For additional information on market risk management related to these product features, see Enterprise Risk Management – Insurance Risks – Life and Retirement Companies’ Key Risks – Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs. For additional information on the economic hedging target and the impact to pre-tax income of this program, see Insurance Reserves – Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and Market Risk Benefits – Variable Annuity Guaranteed Benefits and Hedging Results.For additional information on our investment portfolio, see Note 6 to the Consolidated Financial Statements.
Change in Unrealized Gains and Losses on InvestmentsThe change in net unrealized gains and losses on investments in the year ended December 31, 2023 was primarily attributable to a change in the fair value of fixed maturity securities. For the year ended December 31, 2023, net unrealized gains were $8.5 billion due to narrowing of credit spreads.
The change in net unrealized gains and losses on investments in the year ended December 31, 2022 was primarily attributable to decreases in the fair value of fixed maturity securities. For the year ended December 31, 2022, net unrealized losses were $47.7 billion due to an increase in interest rates and spreads.For additional information on our investment portfolio, see Note 6 to the Consolidated Financial Statements.AIG | 2023 Form 10-K
95TABLE OF CONTENTSITEM 7 | Insurance Reserves
Insurance Reserves
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 (a) :December 31, 2023 December 31, 2022
(in millions) Net liability for unpaid losses and loss adjustment expenses Reinsurance recoverable on unpaid losses and loss adjustment expenses Gross liability for unpaid losses and loss adjustment expenses Net liability for unpaid losses and loss adjustment expenses Reinsurance recoverable on unpaid losses and loss adjustment expenses Gross liability for unpaid losses and loss adjustment expensesGeneral Insurance:U.S. Workers' Compensation (net of discount) $ 2,655 $ 4,099 $ 6,754 $ 2,684 $ 4,319 $ 7,003
U.S. Excess Casualty 3,321 3,272 6,593 3,638 3,701 7,339
U.S. Other Casualty 4,112 3,676 7,788 3,858 3,872 7,730
U.S. Financial Lines 5,672 1,622 7,294 5,899 1,773 7,672
U.S. Property and Special Risks 4,403 1,494 5,897 6,815 3,295 10,110
U.S. Personal Insurance 767 2,163 2,930 794 2,052 2,846
UK/Europe Casualty and Financial Lines 7,447 1,951 9,398 6,984 1,538 8,522
UK/Europe Property and Special Risks 2,913 1,665 4,578 2,717 1,464 4,181
UK/Europe and Japan Personal Insurance 1,483 671 2,154 1,628 592 2,220Other product lines (b)5,416 5,182 10,598 5,999 4,834 10,833Unallocated loss adjustment expenses (b)1,298 841 2,139 1,418 927 2,345
Total General Insurance 39,487 26,636 66,123 42,434 28,367 70,801
Other Operations Run-Off:
U.S. run-off long tail insurance lines (net of discount) 283 3,360 3,643 239 3,427 3,666
Other run-off product lines 228 60 288 245 59 304
Blackboard U.S. Holdings, Inc. 91 119 210 134 135 269
Unallocated loss adjustment expenses 15 114 129 13 114 127
Total Other Operations Run-Off 617 3,653 4,270 631 3,735 4,366
Total $ 40,104 $ 30,289 $ 70,393 $ 43,065 $ 32,102 $ 75,167
(a) Includes net loss reserve discount of $1.2 billion and $1.3 billion at December 31, 2023 and 2022, respectively. For information regarding loss reserve discount, see Note 13 to the Consolidated Financial Statements.
(b) Other product lines and Unallocated loss adjustment expenses includes Gross liability for unpaid losses and loss adjustment expense and Reinsurance recoverable on unpaid losses and loss adjustment expense for the Fortitude Re reinsurance of $2.9 billion at both December 31, 2023 and 2022, respectively.Prior Year DevelopmentThe following table summarizes incurred (favorable) unfavorable prior year development net of reinsurance by segment:Years Ended December 31,(in millions) 2023 2022 2021General Insurance:North America $ (484) $ (196) $ (194)
International 93 (322) (7)
Total General Insurance* $ (391) $ (518) $ (201)
Other Operations Run-Off (7) (5) 86
Total prior year favorable development $ (398) $ (523) $ (115)
* Includes the amortization attributed to the deferred gain at inception from the National Indemnity Company (NICO) adverse development reinsurance agreement of $164 million, $167 million and $193 million for the years ended December 31, 2023, 2022 and 2021, respectively. Consistent with our definition of APTI, the amount excludes the portion of (favorable)/unfavorable prior year reserve development for which we have ceded the risk under the NICO reinsurance agreements of $(158) million, $(174) million and $(249) million for the years ended December 31, 2023, 2022 and 2021, respectively. Also excludes the related changes in amortization of the deferred gain, which were $(83) million, $85 million and $(3) million over those same periods.
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ITEM 7 | Insurance ReservesNet Loss Development – 2023In the twelve months ended December 31, 2023, we recognized favorable prior year loss reserve development of $398 million. The key components of this development were:
North America• Favorable development on U.S. Workers' Compensation business reflecting a continuation of favorable loss cost trends in guaranteed cost and excess segments across most accident years.
• Favorable development in U.S. Excess Casualty driven by favorable development on the Excess Construction Runoff Portfolio.
• Favorable development in U.S. Other Casualty reflecting favorable experience in construction defect and construction wraps as well as guaranteed cost auto and general liability.
• Favorable development in U.S. Property and Special risks reflecting favorable development on prior year catastrophes in the 2017-2021 accident years, offset by adverse development on prior year catastrophes in the 2022 accident year.
• Unfavorable development in U.S. Financial Lines due to unfavorable development on High Attaching Excess D&O, M&A, Primary National D&O, Cyber data privacy claims, and Architects & Engineers, partially offset by favorable development on Primary Private Not for Profit D&O and Financial Institutions D&O.
• Amortization benefit related to the deferred gain on the adverse development cover.• Favorable development in U.S. Personal Insurance due to favorable development on prior year catastrophes across several events primarily in the 2017-2020 accident years.
International• Unfavorable development in UK/Europe Casualty and Financial Lines reflecting unfavorable development in auto liability in Europe and UK and in UK D&O and Commercial Professional Indemnity business, partially offset by favorable development in Financial Institutions Professional Indemnity and D&O in Europe and UK and Cyber and Commercial Personal Indemnity in Europe.
• Unfavorable development in UK/Europe Property and Special Risks driven by unfavorable development on prior year catastrophes.• Favorable development on Japan Professional Indemnity driven by personal auto and A&H business.• Favorable development in Other product lines driven primarily by Global Specialty.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 additional information on prior year development by line of business, see Note 13 to the Consolidated Financial Statements. For information regarding actuarial methods employed for major classes of business, see Critical Accounting Estimates.
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, 2023
(in millions) Total 2022 2021 & Prior
General Insurance North America:
U.S. Workers' Compensation $ (190) $ (30) $ (160)
U.S. Excess Casualty (48) — (48)
U.S. Other Casualty (134) 28 (162)
U.S. Financial Lines 37 (20) 57
U.S. Property and Special Risks (7) 64 (71)
U.S. Personal Insurance (66) 12 (78)
Other Product Lines (76) (54) (22)
Total General Insurance North America $ (484) $ — $ (484)
General Insurance International:
UK/Europe Casualty and Financial Lines $ 165 $ (39) $ 204
UK/Europe Property and Special Risks 81 165 (84)
UK/Europe and Japan Personal Insurance (57) (35) (22)
Other product lines (96) 65 (161)
Total General Insurance International $ 93 $ 156 $ (63)
Other Operations Run-Off (7) — (7)
Total Prior Year (Favorable) Unfavorable Development $ (398) $ 156 $ (554)
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ITEM 7 | Insurance ReservesNet Loss Development – 2022In the twelve months ended December 31, 2022, we recognized favorable prior year loss reserve development of $523 million. The key components of this development were:
North America• Favorable development in U.S Workers' Compensation reflecting continued favorable loss experience across most accident years particularly for excess and guaranteed cost segments.
• Favorable development in U.S. Excess Casualty particularly in lead and mid-excess retail segments.
• Favorable development in U.S. Other Casualty in the Commercial Auto, General Liability and Construction Wraps business.
• Amortization benefit related to the deferred gain on the adverse development cover.
• Unfavorable development driven by U.S. Financial Lines driven by unfavorable severity trends in Excess and Primary D&O and Excess and Financial Institutions Errors and Omissions (E&O), partially offset by favorable results in Employment Practices Liability Insurance (EPLI).International• Favorable development on Global Specialty across all products in all regions.• Favorable development in International Personal Lines particularly with Auto and A&H coverages in Japan as well as favorable experience recognized in Europe and the UK.• Unfavorable development in Casualty in Europe Excess Casualty and French Auto as well as large loss experience in the UK, partially offset by favorable experience in Asia Pacific Casualty.
• Unfavorable development in Financial Lines primarily in the UK for M&A, Commercial PI and Commercial D&O.Net Loss Development – 2021
In the twelve months ended December 31, 2021, we recognized favorable prior year loss reserve development of $115 million. The key components of this development were:
North America
• Strong favorable development in Personal Insurance, primarily attributable to subrogation recovery related to the 2017 and 2018 California wildfires partially offset by the impact of dropping below the attachment point of our 2018 catastrophe aggregate treaty, which also adversely impacted our U.S. Property and Special Risk Commercial Lines.
• Favorable development on U.S. Workers' Compensation and short-tailed commercial lines within Other Product Lines, reflecting lower frequency and severity in recent calendar years.
• Amortization benefit related to the deferred gain on the adverse development cover.
• Reserve strengthening within U.S. Financial Lines, reflecting higher severity of claims in Directors & Officers, principally from accident years 2018 and prior, and cyber risk from accident years 2019 and 2020.
International
• Favorable development on short-tailed International Commercial Lines and Personal Insurance, reflecting lower frequency and severity of claims.
• Reserve strengthening on International Financial Lines, reflecting higher severity of claims, the majority of which is from accident years 2018 and prior.
Other Operations
• Unfavorable development primarily attributed to the Blackboard insurance portfolio due to increased severity on reported claims.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.Significant Reinsurance Agreements
In the first quarter of 2017, we entered into an adverse development reinsurance agreement with NICO, 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. We account for this transaction as retroactive reinsurance. This transaction resulted in a gain, which under GAAP retroactive reinsurance accounting is deferred and amortized into income over the settlement period. NICO created a collateral trust account as security for their claim payment obligations to us, into which they deposited the consideration paid under the agreement, and Berkshire Hathaway Inc. has provided a parental guarantee to secure NICO’s obligations under the agreement.
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ITEM 7 | Insurance ReservesFor a description of AIG’s catastrophe reinsurance protection for 2023, see Enterprise Risk Management – Insurance Risks – General Insurance Companies’ Key Risks – Natural Catastrophe Risk.The table below shows the calculation of the deferred gain on the adverse development reinsurance agreement, the effect of discounting of loss reserves and amortization of the deferred gain.(in millions) December 31, 2023 December 31, 2022 December 31, 2021Gross Covered LossesCovered reserves before discount $ 10,849 $ 12,537 $ 14,398
Inception to date losses paid 30,157 28,667 27,023Attachment point (25,000) (25,000) (25,000)Covered losses above attachment point $ 16,006 $ 16,204 $ 16,421Deferred Gain DevelopmentCovered losses above attachment ceded to NICO (80%) $ 12,805 $ 12,963 $ 13,137Consideration paid including interest (10,188) (10,188) (10,188)Pre-tax deferred gain before discount and amortization 2,617 2,775 2,949Discount on ceded losses (a)(1,104) (1,254) (953)
Pre-tax deferred gain before amortization 1,513 1,521 1,996
Inception to date amortization of deferred gain at inception (1,428) (1,264) (1,097)Inception to date amortization attributed to changes in deferred gain (b)64 (52) (30)
Deferred gain liability reflected in AIG's balance sheet $ 149 $ 205 $ 869(a) The accretion of discount and a reduction in effective interest rates is offset by changes in estimates of the amount and timing of future recoveries.
(b) Excluded from APTI.
The following table presents the rollforward of activity in the deferred gain from the adverse development reinsurance agreement:
Years Ended December 31,(in millions) 2023 2022 2021
Balance at beginning of year, net of discount $ 205 $ 869 $ 1,297(Favorable) unfavorable prior year reserve development ceded to NICO (a)(158) (174) (249)Amortization attributed to deferred gain at inception (b)(164) (167) (193)Amortization attributed to changes in deferred gain (c)116 (22) 56
Changes in discount on ceded loss reserves 150 (301) (42)
Balance at end of year, net of discount $ 149 $ 205 $ 869(a) Prior year reserve development ceded to NICO under the retroactive reinsurance agreement is deferred under GAAP.
(b) Represents amortization of the deferred gain recognized in APTI.
(c) Excluded from APTI.The lines of business subject to this agreement include those with longer tails, which carry a higher degree of uncertainty. Since inception, there have been periods of unfavorable prior year development, with more recent favorable development. This agreement will continue to reduce the impact of volatility in the development on our ultimate loss estimates over time. The agreement has resulted in lower capital charges for reserve risks at our U.S. insurance subsidiaries. In addition, net investment income declined as a result of lower invested assets.
Fortitude Re was established during the first quarter of 2018 in a series of reinsurance transactions related to our run-off operations. Those reinsurance transactions were designed to consolidate most of our insurance run-off lines into a single legal entity. As of December 31, 2023, approximately $27.6 billion of reserves from our Life and Retirement Run-Off Lines and approximately $3.0 billion of reserves from our General Insurance Run-Off Lines related to business written by multiple wholly-owned AIG subsidiaries, had been ceded to Fortitude Re under these reinsurance transactions.
AIG | 2023 Form 10-K
99TABLE OF CONTENTSITEM 7 | Insurance Reserves
LIFE AND ANNUITY FUTURE POLICY BENEFITS, POLICYHOLDER CONTRACT DEPOSITS AND MARKET RISK BENEFITS
The following section provides discussion of life and annuity future policy benefits, policyholder contract deposits and market risk benefits.
Update of Actuarial Assumptions and Models
The life insurance companies review and update actuarial assumptions at least annually, generally in the third quarter.
Investment-oriented products
The life insurance companies review and update assumptions used to value our universal life product with secondary guarantees at least annually. These benefit reserves are also adjusted to reflect the changes in the fair value of available-for-sale securities with an offset to OCI. DAC and related items (which may include VOBA, deferred sales inducements and unearned revenue reserves) are amortized on a constant level basis.
The life insurance companies also review assumptions related to variable annuities, fixed annuities, and fixed index annuities guaranteed benefits that are accounted for as MRBs or embedded derivatives and measured at fair value. The fair value of these MRBs or embedded derivatives is based on actuarial assumptions, including policyholder behavior, as well as capital market assumptions.
Traditional long-duration products
For traditional long-duration products discussed below, which includes whole life insurance, term life insurance, accident and health insurance, PRT, and life-contingent single premium immediate annuities and structured settlements, cash flow assumptions are reviewed at least annually to determine any changes in the liability for future policy benefits. DAC and related items (which may include VOBA) are amortized on a constant level basis.
The net impacts to pre-tax income and adjusted pre-tax income because of the update of actuarial assumptions for the years ended December 31, 2023, 2022 and 2021 are shown in the following tables.
The following table presents the increase in pre-tax income resulting from the annual update of actuarial assumptions in the life insurance companies, by line item as reported in Results of Operations:
Years Ended December 31,
(in millions) 2023 2022 2021
Premiums — — $ (41)
Policyholder benefits and losses incurred $ 22 $ 29 $ 89
Increase in adjusted pre-tax income 22 29 48
Change in fair value of market risk benefits, net 7 105 (17)
Net realized gains (losses) (7) (2) —
Increase in pre-tax income $ 22 $ 132 $ 31
The following table presents the increase in adjusted pre-tax income resulting from the annual update of actuarial assumptions for the life insurance companies, by segment and product line:
Years Ended December 31,
(in millions) 2023 2022 2021
Life and Retirement:
Individual Retirement
Fixed annuities $ 1 $ — $ —
Total Individual Retirement 1 — —
Life Insurance 19 25 48
Institutional Markets 2 4 —
Total increase in adjusted pre-tax income from update of assumptions* $ 22 $ 29 $ 48
* There was no impact to adjusted pre-tax income due to the annual update of actuarial assumptions on liabilities ceded to Fortitude Re as these liabilities are 100 percent ceded.
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ITEM 7 | Insurance Reserves
Update of Actuarial Assumptions Impact to Pre-tax Income (Loss)
The life insurance companies recognized favorable impacts to pre-tax income of $22 million, $132 million and $31 million for the years ended December 31, 2023, 2022 and 2021, respectively, attributable to the annual actuarial assumption review. For the year ended December 31, 2023, the assumption update impacts were primarily driven by updates to the portfolio yield assumption, refinements to the modeling for universal life with secondary guarantees and similar features, and mortality assumption updates, partially offset by updated premium assumptions, and other refinements on life insurance products. For the year ended December 31, 2022, the assumption update impacts were driven by updates to the relationship between projected equity growth and interest rates, and updates to premium and withdrawal assumption for annuities, partially offset by updated investments spreads on life insurance products. For the year ended December 31, 2021, the assumption update impacts were mainly due to updated lapse and mortality expectations for annuities, along with updates to mortality assumptions on traditional life products and updated universal life product reserving methodology.
Update of Actuarial Assumptions Impact to Adjusted Pre-tax Income (Loss)
We recognized favorable impacts to adjusted pre-tax operating income of $22 million, $29 million and $48 million for the years ended December 31, 2023, 2022 and 2021, respectively, attributable to the annual actuarial assumption review. For the year ended December 31, 2023, the assumption update impacts were primarily driven by updates to the portfolio yield assumption, refinements to the modeling for universal life with secondary guarantees and similar features, and mortality assumption updates, partially offset by updated premium assumptions, and other refinements on life insurance products. For the year ended December 31, 2022, the assumption update impacts were primarily driven by modeling refinements to reflect actual versus expected asset data related to calls and capital gains for life insurance products. For the year ended December 31, 2021, the assumption update impacts were primarily driven by updates to mortality assumptions on traditional life products and updated universal life product reserving methodology.
Variable Annuity Guaranteed Benefits and Hedging Results
Our Individual Retirement and Group Retirement businesses offer variable annuity products with riders that provide guaranteed benefits. The liabilities are accounted for as MRBs and measured at fair value. The fair value of the MRBs 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 GMWBs, including exposures to changes in interest rates, equity prices, credit spreads and volatility. The hedging program includes all in-force GMWB policies and utilizes derivative instruments, including but not limited to equity options, futures contracts and interest rate swap and option contracts, as well as fixed maturity securities.
For additional information on market risk management related to these product features, see Enterprise Risk Management – Insurance Risks – Life and Retirement Companies’ Key Risks – Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.
Differences in Valuation of MRBs 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 GAAP valuation of the MRBs, creating volatility in our net income (loss) primarily due to the following:
• The MRBs include both the GMWB riders and the GMDB riders while the hedge program is targeting the economic risks of just the GMWB rider;
• The hedge program is designed to offset moves in the GMWB economic liability and therefore has a lower sensitivity to equity market changes than the MRBs;
• The economic hedge target includes 100 percent of the GMWB rider fees in present value calculations;
• The GAAP valuation reflects those fees attributed to the MRBs, such that the initial value at contract issue equals zero. Since the MRB includes GMWBs and GMDBs, these attributed fees are typically larger than just the GMWB rider fees;
• The economic hedge target uses best estimate actuarial assumptions and excludes explicit risk margins used for GAAP valuation, such as margins for policyholder behavior, mortality, and volatility; and
• The economic hedge target excludes our own credit risk changes (non-performance adjustments) used in the GAAP valuation, which are recognized in OCI. The GAAP valuation has different sensitivities to movements in interest rates and other market factors, and to changes from actuarial assumption updates, than the economic hedge target.
For additional information on our valuation methodology for MRBs, see Note 5 to the Consolidated Financial Statements.
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ITEM 7 | Insurance Reserves
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 generally 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 GAAP MRBs and the value of our economic hedge target:
(in millions) December 31, 2023 December 31, 2022
Reconciliation of market risk benefits and economic hedge target:
Market risk benefits liability, net $ 1,340 $ 1,657
Exclude non-performance risk adjustment (826) (479)
Market risk benefits liability, excluding NPA 514 1,178
Adjustments for risk margins and differences in valuation 522 (281)
Economic hedge target liability $ 1,036 $ 897
Impact on Pre-tax Income (Loss)
The impact on our pre-tax income (loss) of variable annuity guaranteed benefits and related hedging results includes changes in the fair value of MRBs, and changes in the fair value of related derivative hedging instruments, and along with attributed rider fees and net of benefits associated with MRBs are together recognized in Change in the fair value of MRBs, net, with the exception of our own credit risk changes, which are recognized in OCI. Changes in the fair value of MRBs, net are excluded from adjusted pre-tax income of Individual Retirement and Group Retirement.
The change in the fair value of the MRBs 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 GAAP MRBs and the fair value of the hedging portfolio, as discussed above. When corporate credit spreads widen, the change in the non-performance risk adjustment (NPA) spread generally reduces the fair value of the MRBs liabilities, resulting in a gain in AOCI, and when corporate credit spreads tighten, the change in the NPA spread generally increases the fair value of the MRBs liabilities, resulting in a loss in AOCI. 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.
Change in Economic Hedge Target
The increase in the economic hedge target liability in the year ended December 31, 2023 was primarily driven by higher equity markets partially offset by aging of the business and tightening credit spreads. The decrease in the economic hedge target liability in 2022 was primarily driven by higher interest rates and widening credit spreads, offset by lower equity markets.
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ITEM 7 | Insurance Reserves
The following table presents the impact on pre-tax income (loss) and other comprehensive income (loss) of Variable Annuity MRBs and Hedging:
Years Ended December 31, 2023 2022 2021
(in millions) MRB Liability* Hedge Assets Net MRB Liability* Hedge Assets Net MRB Liability* Hedge Assets Net
Issuances $ (1) $ — $ (1) $ (11) $ — $ (11) $ (21) $ — $ (21)
Interest accrual (43) (243) (286) (79) (283) (362) (70) (235) (305)
Attributed fees (866) — (866) (934) — (934) (880) — (880)
Expected claims 93 — 93 84 — 84 55 — 55
Effect of changes in interest rates 121 5 126 3,328 (2,746) 582 946 (868) 78
Effect of changes in interest rate volatility 76 (46) 30 (288) 140 (148) (80) 29 (51)
Effect of changes in equity markets 1,329 (832) 497 (1,499) 1,030 (469) 1,617 (942) 675
Effect of changes in equity index volatility 19 25 44 76 (32) 44 (56) 53 (3)
Actual outcome different from model expected outcome (181) — (181) (203) — (203) (147) — (147)
Effect of changes in future expected policyholder behavior — — — 87 — 87 (53) — (53)
Effect of changes in other future expected assumptions 115 — 115 16 — 16 36 — 36
Foreign exchange Impact 1 — 1 7 — 7 6 — 6
Total impact on balance before other and changes in our own credit risk 663 (1,091) (428) 584 (1,891) (1,307) 1,353 (1,963) (610)
Other (2) (43) (45) — 66 66 1 8 9
Effect of changes in our own credit risk (347) 49 (298) 1,206 (56) 1,150 275 73 348
Total income (loss) impact on market risk benefits 314 (1,085) (771) 1,790 (1,881) (91) 1,629 (1,882) (253)
Less: Impact on OCI (347) 59 (288) 1,206 (527) 679 275 (122) 153
Add: Fees net of claims and ceded premiums and benefits 761 — 761 847 — 847 851 — 851
Net impact on pre-tax income (loss) $ 1,422 $ (1,144) $ 278 $ 1,431 $ (1,354) $ 77 $ 2,205 $ (1,760) $ 445
Net change in value of economic hedge target and related hedges
Net impact on economic gains (losses) $ (512) $ 714 $ 109
* MRB Liability is partially offset by MRB Assets.
Year Ended December 31, 2023
Net impact on pre-tax income of $278 million was primarily driven by increases in equity markets and the impact of the London Inter-Bank Offered Rate to Secured Overnight Financing Rate (SOFR) transition.
With the transition of risk free rates to the SOFR curve, our discounting of fees has been reduced, resulting in a one-time favorable impact to the MRB liability.
On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In the year ended December 31, 2023, we had a net mark-to-market loss of approximately $512 million from our hedging activities related to our economic hedge target primarily driven by aging of the business and tightening credit spreads.
Year Ended December 31, 2022
Net impact on pre-tax loss of $77 million was primarily driven by fund basis changes that impacted our actual to expected model outcomes, lower equity markets and term structure moves in the interest rate volatility market, partially offset by increases in interest rates.
On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In the year ended December 31, 2022, we had a net mark-to-market gain of approximately $714 million from our hedging activities related to our economic hedge target primarily driven by widening credit spreads and update of actuarial assumptions.
Year Ended December 31, 2021
Net impact on pre-tax income of $445 million was mostly driven by higher equity markets.
On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In 2021, we had a net mark-to market gain of approximately $109 million from our hedging activities related to our economic hedge target primarily driven by higher equity markets, partially offset by losses from the review and update of actuarial assumptions.
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TABLE OF CONTENTSITEM 7 | Liquidity and Capital Resources
Liquidity and Capital Resources
OVERVIEW
Liquidity refers to the ability to generate sufficient cash resources to meet the cash requirements of our business operations and payment obligations.
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 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.For information regarding our liquidity risk framework, see Enterprise Risk Management – Risk Appetite, Limits, Identification and Measurement and Enterprise Risk Management – Liquidity Risk Management.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.For information regarding risks associated with our liquidity and capital resources, see Part I, Item 1A. – Risk Factors – Liquidity, Capital and Credit.
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, issuing preferred stock, paying dividends to our shareholders on the AIG Common Stock, par value $2.50 per share (AIG Common Stock), paying dividends to the holders of our Series A 5.85% Non-Cumulative Perpetual Preferred Stock (Series A Preferred Stock), and repurchases of AIG Common Stock.
On January 31, 2024, we announced that we will redeem all of the 20,000 outstanding shares of our Series A Preferred Stock and all 20,000,000 of the corresponding Depositary Shares (Depositary Shares), each representing a 1/1,000th interest in a share of Series A Preferred Stock, on March 15, 2024. The redemption price per share of Series A Preferred Stock will be $25,000 (equivalent to $25.00 per Depositary Share).LIQUIDITY AND CAPITAL RESOURCES HIGHLIGHTS
SOURCES
Liquidity to AIG Parent from SubsidiariesDuring the year ended December 31, 2023, our General Insurance companies distributed dividends of $3.4 billion to AIG Parent or applicable intermediate holding companies.
During the year ended December 31, 2023, Corebridge distributed $1.1 billion of dividends to AIG Parent in its capacity as a public company shareholder of Corebridge. Of this amount, $385 million consisted of quarterly cash dividends of $0.23 per share on Corebridge common stock, $264 million consisted of a special cash dividend of $0.62 per share on Corebridge common stock and $424 million consisted of a special cash dividend of $1.16 per share on Corebridge common stock.
Senior Notes Offering of AIG
In March 2023, AIG issued $750 million aggregate principal amount of 5.125% Notes Due 2033.
Sale of Crop Risk Services Business
On July 3, 2023, AIG completed the sale of CRS to AFG, for which AIG received gross proceeds, before deducting commissions, of $234 million.
Sale of Validus Re
On November 1, 2023, AIG completed the sale of Validus Re to RenaissanceRe and received $3.3 billion cash, including a pre-closing dividend of approximately $570 million from Validus Re.
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ITEM 7 | Liquidity and Capital ResourcesSecondary Offerings of Corebridge Shares by AIG
In June 2023, AIG sold 74.75 million shares of Corebridge common stock in a secondary offering at a public offering price of $16.25 per share. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $1.2 billion .
In November 2023, AIG sold 50 million shares of Corebridge common stock in a secondary offering at a public offering price of $20.50 per share. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $1.0 billion .
In December 2023, AIG sold 35 million shares of Corebridge common stock in a secondary offering at a public offering price of $20.50 per share. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $718 million .
Corebridge Share Repurchases from AIG
In June 2023, Corebridge repurchased 11 million shares of its common stock from AIG at a purchase price of $16.41 per share. The gross proceeds of the share repurchase to AIG were $180 million.
In December 2023, Corebridge repurchased 6.2 million shares of its common stock from AIG at a purchase price of $21.75 per share. The gross proceeds of the share repurchase to AIG were $135 million.USESAIG General Borrowings
During the year ended December 31, 2023, $2.2 billion of debt categorized as general borrowings matured, was repaid or redeemed as follows:
• Repaid £311 million aggregate principal amount of our 5.00% Notes due 2023, which was equivalent to approximately $388 million at the time of repayment.
• Redeemed $199 million aggregate principal amount of Validus Holdings, Ltd. (Validus) 8.875% Senior Notes due 2040 for a redemption price of 143.968 percent of the principal amount, plus accrued and unpaid interest, which totaled $289 million.
• Repurchased, through cash tender offers, approximately $1.6 billion aggregate principal amount of certain notes and debentures issued by AIG for an aggregate purchase price of approximately $1.5 billion.
We made interest payments on our general borrowings totaling $466 million during the year ended December 31, 2023.
AIG Dividends
During the year ended December 31, 2023:
• We made quarterly cash dividend payments of $365.625 per share on AIG’s Series A Preferred Stock totaling $29 million.
• We made cash dividend payments in the amount of $0.36 per share on AIG Common Stock for each of the three months ended December 31, 2023, September 30, 2023 and June 30, 2023 (an increase of 12.5 percent from prior dividend payments), and $0.32 per share for the three months ended March 31, 2023, totaling $997 million.
Repurchases of AIG Common Stock (a)
During the year ended December 31, 2023, AIG Parent repurchased approximately 51 million shares of AIG Common Stock, for an aggregate purchase price of approximately $3.0 billion.
(a) Pursuant to a Securities Exchange Act of 1934 (the Exchange Act) Rule 10b5-1 repurchase plan, from January 1, 2024 to February 8, 2024, AIG Parent repurchased approximately 10 million shares of AIG Common Stock for an aggregate purchase price of approximately $706 million.
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LIQUIDITY AND CAPITAL RESOURCES HIGHLIGHTS OF COREBRIDGE
SOURCES
Following the initial public offering, Corebridge liquidity, including its loan facilities, is not reflected in AIG Parent's liquidity.
Senior Notes Offerings of Corebridge
On September 15, 2023, Corebridge issued $500 million aggregate principal amount of its 6.050% Senior Notes due 2033 (the Corebridge Notes).
On December 8, 2023, Corebridge issued $750 million aggregate principal amount of its 5.750% Senior Notes due 2034 (the December Corebridge Notes).
Sale of Laya
On October 31, 2023, Corebridge completed the sale of Laya to AXA and received gross proceeds of €691 million ($731 million).
USES
Delayed Draw Term Loan Facility of Corebridge
Corebridge used the net proceeds of the issuance of the Corebridge Notes to repay $500 million of the $1.5 billion aggregate principal amount drawn under the DDTL Facility.
Corebridge used the net proceeds of the issuance of the December Corebridge Notes to repay $750 million of the $1.0 billion aggregate principal amount drawn under the DDTL Facility.
Corebridge Dividends
During the year ended December 31, 2023:
• Corebridge made quarterly cash dividend payments of $0.23 per share on Corebridge common stock, totaling $204 million to its public company shareholders other than AIG.
• Corebridge made a special cash dividend of $0.62 per share on Corebridge common stock, totaling $138 million to its public company shareholders other than AIG.
• Corebridge made a special cash dividend of $1.16 per share on Corebridge common stock, totaling $307 million to its public company shareholders other than AIG.
Repurchases of Corebridge Common Stock (a)
In June 2023, Corebridge repurchased 11 million shares of Corebridge common stock from AIG, for an aggregate purchase price of $180 million.
In December 2023, Corebridge repurchased 6.2 million shares of its common stock from AIG, for an aggregate purchase price of $135 million.
During the year ended December 31, 2023, Corebridge repurchased from shareholders other than AIG, approximately 9.3 million shares of Corebridge common stock for an aggregate purchase price of approximately $183 million.
(a) Pursuant to an Exchange Act Rule 10b5-1 repurchase plan, from January 1, 2024 to February 8, 2024, Corebridge repurchased from shareholders other than AIG, approximately 1.2 million shares of Corebridge Common Stock for an aggregate purchase price of approximately $27 million.ANALYSIS OF SOURCES AND USES OF CASH
Operating Cash Flow ActivitiesInsurance 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, effective management of our investment portfolio and operating expense discipline.
Interest payments totaled $1.1 billion, $1.1 billion and $1.3 billion in the years ended December 31, 2023, 2022 and 2021 , respectively. Excluding interest payments, AIG had operating cash inflows (outflows) of $7.3 billion, $5.3 billion and $7.6 billion in the years ended December 31, 2023, 2022 and 2021, respectively .Investing Cash Flow ActivitiesNet cash used in investing activities in the year ended December 31, 2023 was $7.0 billion compared to net cash used in investing activities of $3.6 billion in 2022 and $3.3 billion in 2021 .
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ITEM 7 | Liquidity and Capital ResourcesFinancing Cash Flow Activities
Net cash provided by financing activities in the year ended December 31, 2023 totaled $782 million, reflecting:• $997 million to pay dividends of $0.36 per share in the three months ended December 31, 2023, September 30, 2023 and June 30, 2023, and $0.32 per share for the three months ended March 31, 2023 on AIG Common Stock;
• $29 million to pay quarterly dividends of $365.625 per share on AIG’s Series A Preferred Stock;
• $3.0 billion to repurchase approximately 51 million shares of AIG Common Stock;• $204 million paid by Corebridge in the form of quarterly cash dividends on Corebridge common stock to shareholders other than AIG;
• $138 million paid by Corebridge in the form of a special cash dividend of $0.62 per share on Corebridge common stock to shareholders other than AIG;
• $307 million paid by Corebridge in the form of a special cash dividend of $1.16 per share on Corebridge common stock to shareholders other than AIG;
• $183 million paid by Corebridge to repurchase approximately 9 million shares of Corebridge common stock from shareholders other than AIG;
• $1.25 billion outflow from the repayment on the DDTL Facility;
• $322 million in net outflows from the issuance and repayment and cash tender of long-term debt; and
• $381 million in net outflows from the issuance and repayment of debt of consolidated investment entities.Net cash used in financing activities in the year ended December 31, 2022 totaled $602 million reflecting:
• $982 million to pay quarterly dividends of $0.32 per share on AIG Common Stock;
• $29 million to pay quarterly dividends of $365.625 per share on AIG’s Series A Preferred Stock;• $124 million paid by Corebridge in the form of cash dividends to shareholders other than AIG, of which $66 million paid after its IPO;• $5.2 billion to repurchase approximately 90 million shares of AIG Common Stock;• $1.5 billion inflow from drawdown on the DDTL Facility;
• $2.0 billion in net outflows from the issuance, repayment and cash tender of long-term debt; and
• $318 million in net outflows from the issuance and repayment of debt of consolidated investment entities.
Net cash used in financing activities in the year ended December 31, 2021 totaled $3.7 billion reflecting:
• $1.1 billion to pay a dividend of $0.32 per share per quarter on AIG Common Stock;
• $29 million to pay a dividend of $365.625 per share per quarter on AIG’s Series A Preferred Stock;
• $2.6 billion to repurchase approximately 50 million shares of AIG Common Stock;
• $4.0 billion in net outflows from the issuance, repayment and cash tender of long-term debt;
• $156 million in net outflows from the issuance and repayment of debt of consolidated investment entities; and
• $2.2 billion in net inflows from the sale of a 9.9 percent equity interest in Corebridge to an affiliate of Blackstone.LIQUIDITY AND CAPITAL RESOURCES OF AIG PARENT AND SUBSIDIARIES
AIG ParentAs of December 31, 2023 and December 31, 2022, respectively, AIG Parent and applicable intermediate holding companies had approximately $12.1 billion and $8.2 billion in liquidity sources held in the form of cash, short-term investments and AIG Parent's committed, revolving syndicated credit facility of $4.5 billion. Following the initial public offering, Corebridge liquidity, including its loan facilities, is not reflected in AIG Parent's liquidity. As a public company shareholder of Corebridge, AIG receives its pro rata share of dividends paid by Corebridge on Corebridge common stock. AIG Parent’s primary sources of liquidity are dividends, distributions, loans and other payments from subsidiaries and credit facilities. AIG Parent’s primary uses of liquidity are for debt service, capital and liability management, operating expenses and dividends on AIG Common Stock and Series A Preferred Stock.We expect to access the debt and preferred equity 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 or inorganic growth opportunities) or mitigate risks inherent to our business, we may develop plans to distribute such capital to shareholders via dividends or AIG Common Stock repurchase authorizations or deploy such capital towards liability management.AIG | 2023 Form 10-K
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ITEM 7 | Liquidity and Capital ResourcesInsurance Companies
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 insurance companies may require additional funding to meet capital or liquidity needs under certain circumstances. For example, large catastrophes may require us to provide additional support to the affected operations of our General Insurance companies, and a shift in interest rates may require us to provide support to the affected operations of our Life and Retirement companies.
Certain of our U.S. Life and Retirement insurance companies are members of the FHLBs in their respective distric ts. Our borrowings from FHLBs are non-puttable and are used to supplement liquidity or for other uses deemed appropriate by management. Our U.S. Life and Retirement companies had $5.7 billion and $4.6 billion which were due to FHLBs in their respective districts at December 31, 2023 and December 31, 2022, respectively, under funding agreements issued through our Individual Retirement, Group Retirement and Institutional Markets operating segments, which were reported in Policyholder contract deposits. Proceeds from funding agreements are generally invested in fixed income securities and other investments intended to generate spread income.
Certain of our U.S. Life and Retirement companies have securities lending programs that lend securities from their investment portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under these programs, these companies lend securities to financial institutions and receive cash as collateral equal to 102 percent of the fair value of the loaned securities. As of December 31, 2023 and December 31, 2022 we had no loans outstanding under these programs.
AIG Parent and/or certain subsidiaries are parties to several letter of credit agreements with various financial institutions, which issue letters of credit from time to time in support of our insurance companies. These letters of credit are subject to reimbursement by AIG Parent and/or certain subsidiaries in the event of a drawdown of these letters of credit. Letters of credit issued in support of the General Insurance companies totaled approximately $2.4 billion at December 31, 2023. Letters of credit issued in support of the Life and Retirement companies totaled approximately $151 million at December 31, 2023, which are subject to reimbursement by Corebridge with no recourse to AIG Parent.
Following the initial public offering of Corebridge, AIG owned less than 8 0 percent of Corebridge common stock, resulting in the tax deconsolidation of Corebridge from AIG. As such, as of September 15, 2022, AIG no longer receives tax sharing payments from Corebridge for tax liabilities of subsequent periods. With respect to historic tax periods and tax periods prior to the tax deconsolidation of Corebridge from AIG, Corebridge and AIG will make tax payments to each other pursuant to the Tax Matters Agreement, dated September 14, 2022.CREDIT FACILITIESAIG Parent maintains a committed, revolving syndicated credit facility (the Facility) with aggregate commitments by the bank syndicate to provide AIG Parent with unsecured revolving loans and/or standby letters of credit of up to $4.5 billion without any limits on the type of borrowings. The Facility is scheduled to expire in November 2026.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.As of December 31, 2023, a total of $4.5 billion remained available under the Facility.
Corebridge maintains a committed, revolving syndicated credit facility (the Corebridge Facility) with aggregate commitments by the bank syndicate to provide Corebridge with unsecured revolving loans and/or standby letters of credit of up to $2.5 billion without any limits on the type of borrowings and with no recourse to AIG Parent. The Corebridge Facility is scheduled to expire in May 2027.
As of December 31, 2023, a total of $2.5 billion remained available under the Corebridge Facility.
Corebridge also maintains the DDTL Facility, which is scheduled to mature in February 2025. As of December 31, 2023, a total of $250 million of borrowings are outstanding under the DDTL Facility, with no recourse to AIG Parent.
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ITEM 7 | Liquidity and Capital ResourcesCONTRACTUAL OBLIGATIONS
The following table summarizes material contractual obligations in total, and by remaining maturity:December 31, 2023 Payments due by Period
(in millions) Total Payments 2024 2025 - 2026 ThereafterLoss reserves (a)$ 72,730 $ 20,068 $ 20,721 $ 31,941
Insurance and investment contract liabilities (b)
319,395 26,774 48,996 243,625
Short-term and Long-term debt (c)
19,796 709 1,798 17,289
Interest payments on Short-term and Long-term debt 13,487 891 1,661 10,935
Total $ 425,408 $ 48,442 $ 73,176 $ 303,790(a) Represents loss reserves, undiscounted and gross of reinsurance.(b) Excludes insurance and investment contract liabilities associated with AIG Life that have been reclassified to held for sale.
(c) Does not reflect $2.6 billion of debt of consolidated investment entities, for which recourse is limited to the assets of the respective investment entities and for which there is no recourse to the general credit of AIG.Loss Reserves
Loss reserves relate to our General Insurance companies and represent estimates of future loss and loss adjustment expense payments based on historical loss development payment patterns. The amounts presented in the above table are undiscounted and therefore exceed the liability for unpaid losses and loss adjustment expenses, including allowance for credit losses, as presented on the Consolidated Balance Sheets. 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.
For additional information on loss reserves, see Critical Accounting Estimates – Loss Reserves and Note 13 to the Consolidated Financial Statements.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. The amounts presented in the above table are undiscounted and therefore exceed the liabilities for future policy benefits for life and accident and health insurance contracts, and policyholder contract deposits included in the Consolidated Balance Sheets. 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 Life and Retirement companies have adequate financial resources to meet the payments actually required under these obligations.
For additional information on loss reserves, see Critical Accounting Estimates – Loss Reserves and Notes 13 and 14 to the Consolidated Financial Statements.
Short-Term and Long-Term Debt and Interest Payments on Short-Term and Long-Term Debt
The amounts presented in the above table represent AIG's total short-term and long-term debt outstanding and associated future interest payments due on such debt.For additional information on outstanding debt, see – Debt.AIG | 2023 Form 10-K
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ITEM 7 | Liquidity and Capital Resources
OFF-BALANCE SHEET ARRANGEMENTS AND COMMERCIAL COMMITMENTS
In the normal course of business, AIG and our subsidiaries enter into commitments under which we may be required to make payments in the future on a contingent basis.
The following table summarizes Off-Balance Sheet Arrangements and Commercial Commitments in total, and by remaining maturity:December 31, 2023 Total AmountsCommittedAmount of Commitment Expiring
(in millions) 2024 2025 - 2026 ThereafterCommitments:Investment commitments $ 6,091 $ 3,104 $ 2,367 $ 620
Commitments to extend credit 4,640 1,540 2,681 419
Letters of credit 447 219 — 228Total (a)(b)$ 11,178 $ 4,863 $ 5,048 $ 1,267(a) Excludes guarantees, CMAs or other support arrangements between AIG consolidated entities.(b) Excludes commitments with respect to pension plans. The annual pension contribution for 2024 is expected to be approximately $59 million.Investment commitmentsWe enter into investment commitments in the normal course of business that are aligned with and support our investment strategies. These represent commitments to investment in private equity funds, hedge funds and other funds, as well as 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 based on the expected life cycle of the related funds, consistent with past trends of requirements for funding. These commitments are primarily made by insurance and real estate subsidiaries of the Company.We also enter into arrangements with variable interest entities (VIEs) and consolidate a VIE when we are the primary beneficiary of the entity.
For additional information on investment commitments and VIEs, see Note 10 to the Consolidated Financial Statements.
Commitments to extend credit
As part of our normal course of business lending operations, we enter into commitments to fund mortgage loans at certain interest rates and various other terms, within a stated period of time. Such commitments are legally binding and generally made by insurance subsidiaries of the Company.
Letters of credit
AIG is party to several letter of credit agreements with various financial institutions, which issue letters of credit from time to time for the benefit of third parties in support of our businesses. These letters of credit are subject to reimbursement by AIG in the event of a drawdown.
Indemnification agreementsFor information regarding our indemnification agreements, see Note 17 to the Consolidated Financial Statements.
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ITEM 7 | Liquidity and Capital Resources
DEBTAIG expects to service and repay general borrowings through maturing investments and dispositions of invested assets, future cash flows from operations, cash flows generated from invested assets, future debt or preferred stock issuances and other financing arrangements.
For additional information on GIAs and associated collateral posted, see Note 6 to the Consolidated Financial Statements.
The following table provides the rollforward of AIG’s total debt outstanding:
Year Ended December 31, 2023 Balance, Beginning of Year Issuances Maturities and Repayments Effect of Foreign Exchange Other Changes Balance, End of Year(in millions)Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable $ 10,242 $ 742 $ (1,975) $ 40 $ 30 $ 9,079
Junior subordinated debt 991 — — 1 — 992
AIG Japan Holdings Kabushiki Kaisha 273 — — (6) — 267
Validus notes and bonds payable 269 — (266) — (3) —
Total AIG general borrowings 11,775 742 (2,241) 35 27 10,338
AIG borrowings supported by assets:
AIG notes and bonds payable 81 — (62) — — 19
Series AIGFP matched notes and bonds payable 18 — — — — 18
Total AIG borrowings supported by assets 99 — (62) — — 37
Total debt issued or guaranteed by AIG 11,874 742 (2,303) 35 27 10,375
Corebridge debt:
CRBGLH notes and bonds payable (a)
200 — — — — 200
CRBGLH junior subordinated debt (a)
227 — — — — 227
Corebridge senior unsecured notes - not guaranteed by AIG 6,452 1,240 — — 10 7,702
Corebridge junior subordinated debt - not guaranteed by AIG 989 — — — — 989
DDTL facility - not guaranteed by AIG 1,500 — (1,250) — — 250
Total Corebridge debt 9,368 1,240 (1,250) — 10 9,368
GIAs, at fair value - supported by Corebridge assets (b)
56 — — — (3) 53
Other subsidiaries' notes, bonds, loans and mortgages payable - not guaranteed by AIG 1 — (1) — — —
Total Short-term and long-term debt $ 21,299 $ 1,982 $ (3,554) $ 35 $ 34 $ 19,796
Debt of consolidated investment entities - not guaranteed by AIG (c)
$ 5,880 $ 225 (606) 34 (2,942) (d)
$ 2,591
(a) We have entered into a guarantee reimbursement agreement with Corebridge and Corebridge Life Holdings, Inc. (CRBGLH) (formerly known as AIG Life Holdings, Inc.) which provides that Corebridge and CRBGLH will reimburse AIG for the full amount of any payment made by or on behalf of AIG pursuant to AIG’s guarantee of the CRBGLH notes and junior subordinated debt. We have also entered into a collateral agreement with Corebridge and CRBGLH which provides that in the event of: (i) a ratings downgrade of Corebridge or CRBGLH long-term unsecured indebtedness below specified levels or (ii) the failure by CRBGLH to pay principal and interest on the CRBGLH debt when due, Corebridge and CRBGLH must collateralize an amount equal to the sum of: (i) 100 percent of the principal amount outstanding, (ii) accrued and unpaid interest, and (iii) 100 percent of the net present value of scheduled interest payments through the maturity dates of the CRBGLH debt.
(b) Collateral posted to third parties was $63 million and $63 million at December 31, 2023 and 2022, 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.
(c) At December 31, 2023, includes debt of consolidated investment entities primarily related to real estate investments of $1.5 billion and other securitization vehicles of $1.1 billion. At December 31, 2022, includes debt of consolidated investment entities related to real estate investments of $1.5 billion and other securitization vehicles of $4.4 billion.
(d) Primarily relates to the sale of AIG Credit Management, LLC where certain consolidated investment entities were deconsolidated.
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ITEM 7 | Liquidity and Capital ResourcesDebt MaturitiesThe following table summarizes maturing short-term and long-term debt at December 31, 2023 of AIG for the next four quarters:First Quarter Second Quarter Third Quarter Fourth Quarter(in millions) 2024 2024 2024 2024 Total
AIG general borrowings $ 459 $ — $ — $ — $ 459
DDTL facility* 250 — — — 250
Total $ 709 $ — $ — $ — $ 709
* Corebridge has the ability to further continue this borrowing through February 25, 2025.CREDIT RATINGSCredit ratings estimate a company’s 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 the date of this filing. Figures in parentheses indicate the relative ranking of the ratings within the agency’s rating categories; that ranking refers only to the major rating category and not to the modifiers assigned by the rating agencies.Short-Term Debt Senior Long-Term Debt
Moody's S&P Moody's (a)
S&P (b)
Fitch (c)
American International Group, Inc.
P-2 (2nd of 4) A-2 (2nd of 5) Baa 2 (4th of 9) / Positive
BBB+ (4th of 9) /StableBBB+ (4th of 9) /
StableCorebridge Financial, Inc.
Baa 2 (4th of 9) / Stable
BBB+ (4th of 9) /
Stable
BBB+ (4th of 9) /
Stable(a) Moody’s appends numerical modifiers 1, 2 and 3 to the generic rating categories to show relative position within the rating categories.
(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 Inc. (Fitch) ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
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 a downgrade of AIG’s long-term senior debt ratings, certain AIG entities would be required to post additional collateral under some derivative and other transactions, or certain of the counterparties of such AIG entities would be permitted to terminate such transactions 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.
FINANCIAL STRENGTH RATINGS
Financial Strength ratings estimate an insurance company’s ability to pay its obligations under an insurance policy. The following table presents the ratings of our significant insurance subsidiaries as of the date of this filing.
A.M. Best S&P Fitch Moody’s
National Union Fire Insurance Company of Pittsburgh, Pa. A A+ A+ A2
Lexington Insurance Company A A+ A+ A2
American Home Assurance Company A A+ A+ A2American General Life Insurance Company A A+ A+ A2
The Variable Annuity Life Insurance Company A A+ A+ A2
United States Life Insurance Company in the City of New York A A+ A+ A2AIG Europe S.A. NR A+ NR A2
American International Group UK Ltd. A A+ NR A2
AIG General Insurance Co. Ltd. NR A+ NR NR112
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ITEM 7 | Liquidity and Capital Resources
On January 26, 2024, A.M. Best upgraded the Long-Term Issuer Credit Ratings (Long-Term ICR) of AIG General Insurance subsidiaries to ‘a+’ from ‘a’, the Long-Term ICR of AIG to ‘bbb+’ from ‘bbb’, and revised the outlook of the Long-Term ICRs to stable from positive. A.M. Best also affirmed the 'A' Financial Strength Rating of the AIG General Insurance subsidiaries with stable outlook.
On October 16, 2023, S&P revised the outlook for AIG and the core General Insurance subsidiaries to stable from negative and affirmed the ‘BBB+/A-2’ issuer credit ratings on AIG and the ‘A+’ insurer financial strength ratings on AIG's core General Insurance entities.
On July 11, 2023, Moody's changed the rating outlook for AIG and General Insurance subsidiaries to positive from stable and affirmed the 'A2' insurance financial strength rating of the General Insurance subsidiaries and the 'Baa2' senior unsecured debt rating of AIG.
On February 27, 2023, Fitch Ratings upgraded the Insurer Financial Strength Ratings of AIG General Insurance subsidiaries to 'A+' from 'A'.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 information regarding the effects of downgrades in our credit ratings and financial strength ratings, see Part I, Item 1A. Risk Factors – Liquidity, Capital and Credit – “A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance or reinsurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity” and Note 11 to the Consolidated Financial Statements.
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 Part I, Item 1. Business – Regulation and Part I, Item 1A. Risk Factors – Regulation.
DIVIDENDSOn February 13, 2024, our Board of Directors declared a cash dividend on AIG Common Stock of $0.36 per share, payable on March 28, 2024 to shareholders of record on March 14, 2024.
On February 13, 2024, our Board of Directors declared a cash dividend on AIG's Series A Preferred Stock of $365.625 per share, payable on March 15, 2024 to holders of record on February 29, 2024.
The payment of any future dividends will be at the discretion of our Board of Directors and will depend on various factors. For further detail on our dividends, see Note 18 to the Consolidated Financial Statements.REPURCHASES OF AIG COMMON STOCKOur Board of Directors has authorized the repurchase of shares of AIG Common Stock through a series of actions. On August 1, 2023, our Board of Directors authorized the repurchase of $7.5 billion of AIG Common Stock (inclusive of the approximately $2.15 billion of expected remaining authorization under the Board's prior share repurchase authorization). During the year ended December 31, 2023, AIG Parent repurchased approximately 51 million shares of AIG Common Stock for an aggregate purchase price of $3.0 billion. Pursuant to an Exchange Act Rule 10b5-1 repurchase plan, from January 1, 2024 to February 8, 2024, we repurchased approximately 10 million shares of AIG Common Stock for an aggregate purchase price of approximately $706 million. As of February 8, 2024, $5.5 billion remained under the Board's authorization.
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, as discussed further in Note 18 to the Consolidated Financial Statements.
DIVIDEND RESTRICTIONS
Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities.
For information regarding restrictions on payments of dividends by our subsidiaries, see Note 18 to the Consolidated Financial Statements.
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113TABLE OF CONTENTSITEM 7 | Enterprise Risk ManagementEnterprise Risk Management
OVERVIEWRisk management is an integral part of our business strategy and a key element of our approach to corporate governance. 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 oversees and integrates the risk management functions in each of our business units, providing senior management with a consolidated view of AIG’s major risk positions. ERM embeds risk management in our key day-to-day business processes. 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. For further information regarding the risks associated with our business and operations, see Part I, Item 1A. Risk Factors.
AIG employs a Three Lines of Defense model. AIG’s business leaders assume full accountability for the risks and controls in their segments, and ERM performs a review, challenge and oversight function. The third line consists of our Internal Audit Group that provides independent assurance to AIG’s Board of Directors.RISK GOVERNANCE STRUCTURE
Our risk governance structure is designed to foster the development and maintenance of a risk and control 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 business leaders, with the risk committees' oversight.Our Board of Directors oversees the management of risk through its Risk Committee and Audit Committee. Our Chief Risk Officer (CRO), a member of the Executive Leadership team, reports to both the Risk Committee and our Chairman and Chief Executive Officer. The AIG CRO chairs the Group Risk Committee (GRC), the senior management group responsible for assessing all significant risks on a global basis. The GRC is supported by management committees including the Business Unit Risk Committees and Legal Entity Risk Committees.RISK APPETITE, LIMITS, IDENTIFICATION AND MEASUREMENT
Risk Appetite Framework
Approved by our Board of Directors, AIG’s 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. Our risk tolerances take into consideration regulatory requirements, rating agency expectations, and business needs.
Risk LimitsA key component of our Risk Appetite Framework is the establishment and maintenance of tolerances and limits on material risks to meet AIG’s objectives. To support the monitoring and management of material risks, ERM employs a three-tiered hierarchy consisting of Board-level risk tolerances, AIG management level limits, and Business Unit and Legal Entity level limits. Board-level risk tolerances define the minimum level of consolidated capital and liquidity we should maintain, which are approved by the Board of Directors and monitored by the Risk Committee. AIG management level limits are risk type specific limits at the AIG consolidated level, which are approved by the AIG CRO with consultation from the GRC. Business unit and legal entity level limits address key risks identified for the business units and legal entities.Risk Identification and MeasurementWe conduct risk identification through multiple processes at the business unit and corporate level focused on capturing our material risks. A key initiative is our integrated bottom-up risk identification and assessment process which is conducted down to the product-line level. In addition, we perform an annual top-down risk assessment to identify top risks and assign owners to ensure these risks are appropriately addressed and managed. These processes are used as critical input to enhance and develop our analytics for measuring and assessing risks across the organization.
The internal capital framework quantifies our aggregate economic risk at a given confidence interval, after considering diversification benefits between risk factors and business lines. The stress testing framework assesses our aggregate exposure to our most significant financial and insurance risks. We use this information to support the assessment of resources needed at the AIG Parent level to support our subsidiaries and capital resources required to maintain consolidated company target capitalization levels.
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ITEM 7 | Enterprise Risk ManagementWe evaluate and manage risk in material topics as discussed below.
• Credit Risk Management
• Liquidity Risk Management• Insurance Risks• Market Risk Management
• Operational Risk Management• Business and Strategy RisksCREDIT RISK MANAGEMENT
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 counterparty’s credit ratings or a widening of its credit spreads.Direct and indirect credit exposures may arise from, but are not limited to, fixed income investments, equity securities, deposits, commercial paper investments, securities purchased under agreements to resell and repurchase agreements, corporate and consumer loans, leases, reinsurance and retrocessional insurance 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. Our credit risk framework incorporates risk identification and measurement, risk limits, risk delegations to authorized credit professionals throughout the company, and credit reserving. Credit reserving includes but is not limited to the development of a proper framework, policies and procedures for establishing accurate identification of (i) reserves for credit losses and (ii) other than temporary impairments for securities 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.
For additional information on our credit concentrations and credit exposures, see Investments – Credit Ratings – Available-for-Sale Investments.Derivative Transactions
We utilize derivatives principally to enable us to hedge exposure associated with changes in levels of interest rates, currencies, credit, commodities, equity prices and other risks. Credit risk associated with derivative counterparties exists for a derivative contract when that contract has a positive fair value to us. All derivative transactions must be transacted within counterparty limits that have been approved by ERM. We evaluate counterparty credit quality via an internal analysis that is consistent with the AIG Credit Policy and, where necessary, we require credit enhancements for certain transactions and enter into offsetting and netting arrangements.
For additional information related to derivative transactions, see Note 11 to the Consolidated Financial Statements.
MARKET RISK MANAGEMENTMarket 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 respective levels of volatility. We are exposed to market risks primarily within our insurance and capital markets activities, on both the asset and the liability sides of our balance sheet through on- and off-balance sheet exposures.Market risk is overseen at the corporate level within ERM through the CRO. Market risk is managed by our finance, treasury and investment management corporate functions, collectively, and in partnership with ERM. The scope and magnitude of our market risk exposures is monitored through multiple lenses that include economic, GAAP and statutory reporting frameworks at various levels of business consolidation, in a manner consistent with our risk appetite statement. This process aims to establish a comprehensive coverage of potential implications from adverse market risk developments. We use a number of approaches to measure market risk exposure including sensitivity analysis, scenario analysis and stress testing.AIG | 2023 Form 10-K
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ITEM 7 | Enterprise Risk Management
Market Risk SensitivitiesThe following table provides estimates of sensitivity to changes in yield curves, equity prices and foreign exchange (FX) rates on our financial instruments and excludes approximately $171.4 billion and $165.4 billion of insurance liabilities as of December 31, 2023 and December 31, 2022, respectively. AIG believes that the interest rate sensitivities of these insurance and other liabilities serve as an offset to the net interest rate risk of the financial assets presented in the table below. In addition, the table excludes $26.2 billion of interest rate sensitive assets and $2.1 billion of equity and alternative investments supporting the Fortitude Re funds withheld arrangements as the contractual returns related to the assets are transferred to Fortitude Re, as well as $29.5 billion of related funds withheld payables.Balance Sheet Exposure Economic Effect
(dollars in millions)December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022Sensitivity factor
100 bps parallel increase in all yield curves
Interest rate sensitive assets:
Fixed maturity securities$ 213,191 $ 205,860 $ (12,335) $ (11,728)Mortgage and other loans receivable (a)44,601 42,664 (1,790) (1,718)
Derivatives:
Interest rate contracts
(345) (1,116) (621) (631)
Equity contracts 1,274 402 (241) (62)
Other contracts 357 720 (27) (49)Total interest rate sensitive assets (b)$ 259,078 $ 248,530 $ (15,014) $ (14,188)Interest rate sensitive liabilities:Policyholder contract deposits - Investment-type contracts (a)
$ (138,619) $ (134,874) $ 5,933 $ 6,552
Market risk benefits and embedded derivatives
(12,790) (9,348) 2,600 1,970
Short-term and long-term debt (a)(c)
(19,102) (20,329) 1,375 1,316Total interest rate sensitive liabilities$ (170,511) $ (164,551) $ 9,908 $ 9,838Sensitivity factor
20% decline in equity prices and alternative investmentsDerivatives:
Equity contracts (d)
$ 1,274 $ 402 $ (446) $ 552Equity and alternative investments:
Real estate investments2,053 2,020 (411) (404)Private equity8,778 8,626 (1,755) (1,725)Hedge funds632 1,290 (126) (258)
Common equity 671 542 (134) (108)Other investments2,033 1,382 (407) (276)
Total derivatives, equity and alternative investments
$ 15,441 $ 14,262 $ (3,279) $ (2,219)
Market risk benefits and embedded derivatives $ (12,790) $ (9,348) $ (350) $ (1,008)
Total liabilities
$ (12,790) $ (9,348) $ (350) $ (1,008)Sensitivity factor
10% depreciation of all FX rates against the U.S. dollar
Foreign currency-denominated net asset position:British pound $ 1,617 $ 419 $ (162) $ (42)
Japan Yen 1,120 978 (112) (98)Euro964 47 (96) (5)All other foreign currencies2,330 2,367 (233) (236)
Total foreign currency-denominated net asset position (e)
$ 6,031 $ 3,811 $ (603) $ (381)
(a) The economic effect is the difference between the estimated fair value and the effect of a 100 bps parallel increase in all yield curves on the estimated fair value. The estimated fair values for Mortgage and other loans receivable, Policyholder contract deposits (Investment-type contracts) and Short-term and long-term debt were $45.4 billion, $130.2 billion and $18.2 billion at December 31, 2023, respectively. The estimated fair values for Mortgage and other loans receivable, Policyholder contract deposits (Investment-type contracts) and Long-term debt were $43.0 billion, $129.3 billion and $18.7 billion at December 31, 2022, respectively.
(b) At December 31, 2023, the analysis covered $259.1 billion of $290.5 billion interest-rate sensitive assets. As indicated above, excluded were $22.3 billion and $3.9 billion of fixed maturity securities and loans, respectively, supporting the Fortitude Re funds withheld arrangements. In addition, $3.1 billion of loans and $2.3 billion of assets across various asset categories were excluded due to modeling limitations. At December 31, 2022, the analysis covered $248.5 billion of $280.9 billion interest-rate sensitive assets. As indicated above, excluded were $23.0 billion and $4.1 billion of fixed maturity securities and loans, respectively, supporting the Fortitude Re funds withheld arrangements. In addition, $3.0 billion of loans and $2.6 billion of assets across various asset categories were excluded due to modeling limitations.
(c) At December 31, 2023 the analysis excluded $0.4 billion of CRBGLH borrowings and $0.3 billion of AIG Japan Holdings Kabushiki Kaisha loans. At December 31, 2022, the analysis excluded $0.4 billion of CRBGLH borrowings, $0.3 billion of Validus borrowings, $1 million of borrowings from Glatfelter and $0.3 billion of AIG Japan Holdings Kabushiki Kaisha loans.
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ITEM 7 | Enterprise Risk Management(d) 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.
(e) The majority of the foreign currency exposure is reported on a one quarter lag. Foreign currency-denominated net asset position reflects our aggregated non-U.S. dollar assets less our aggregated non-U.S. dollar liabilities on a GAAP basis, with certain adjustments.
Interest rate sensitivity is defined as the change in value with respect to a 100 basis point parallel shift up in the interest rate environment, calculated as: scenario value minus base value, where base value is the value 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 considering effects of correlation of changes in levels of interest rate with other key market risks or other assumptions used for calculating the values of our financial assets and liabilities.
We evaluate our equity price risk without considering effects of correlation of changes in equity prices with other key market risks or other assumptions used for calculating the values of our financial assets and liabilities, as the stress scenario does not reflect the impact of basis risk which we use in the development of our hedging strategy.For additional information on our three-tiered hierarchy of limits, see – Risk Appetite, Limits, Identification and Measurement – Risk Limits.
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 as they come due.
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 stress conditions. Liquidity risk drivers include market/monetization risk, cash flow mismatch risk, event funding risk, and financing risk.
Liquidity risk is monitored through comprehensive cash flow projections over varying time horizons that incorporate all relevant liquidity sources and uses and include known and likely cash inflows and outflows. We use several approaches to measure liquidity risk exposure including minimum liquidity limits, coverage ratios, coverage flow forecasts and stress testing.OPERATIONAL RISK MANAGEMENT
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, technology, compliance, third-party and business continuity risks, but 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.
The Operational Risk Management (ORM) function within ERM oversees adherence to the operational risk policy and risk and control framework.
ORM, working together with other control and assurance functions and first line Risk Control Owners through the risk and control framework, provides an independent view of operational risks for each of the business areas.Cybersecurity Risk
AIG, like other global companies, continues to witness the increased sophistication and activities of unauthorized parties attempting cyber and other computer-related penetrations such as “denial of service” attacks, phishing, untargeted but sophisticated and automated attacks, and other disruptive software in an effort to compromise systems, networks and obtain sensitive information.
ERM works closely with and supports the risk management practices of Information Technology, the Information Security Office and the business units and functions that form the lines of defense against the cybersecurity risks that we face.
For additional information regarding the privacy data protection and cybersecurity regulations to which we are subject, see Part I, Item 1. Business – Regulation – Privacy, Data Protection, Cybersecurity and Artificial Intelligence Requirements. For additional discussion of cybersecurity risks, see Part I, Item 1A. Risk Factors – Business and Operations. For additional information regarding our cybersecurity risk management as well as strategy and governance, please see Part 1, Item 1C. Cybersecurity.AIG | 2023 Form 10-K
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ITEM 7 | Enterprise Risk ManagementINSURANCE RISKS
Insurance risk is defined as the risk of actual claims experience and/or policyholder behavior being materially different than initially expected at the inception of an insurance contract. Uncertainties related to insurance risk can lead to deviations in magnitude and/or timing of prospective cash flows associated with our liabilities compared to what we expected.
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 processes and procedures, including but not limited to, pricing and risk selection models, pricing approval processes, pre-launch approval of product design, development, and distribution, underwriting approval processes and authorities, modeling and reporting of aggregations and limit concentrations at multiple levels, model risk management framework and validation processes, risk transfer tools, review and challenge of reserves, actuarial profitability and reserve reviews, management of the relationship between assets and liabilities, and experience monitoring and assumption updates.We closely manage insurance risk by monitoring and controlling the nature and geographic location of the risks in each underwritten line of business, concentrations in industries, the terms and conditions of the underwriting and the premiums we charge for taking on the risk. We analyze concentrations of risks using various modeling techniques, including both probability distributions (stochastic) and/or single-point estimates (deterministic) approaches.
Risk Measurement, Monitoring and Limits
We use several approaches to measure our insurance risk exposure including sensitivity and scenario analyses, stochastic methods, and experience studies. Additionally, there are risk-specific assessment tools, both internal and third-party, in place to better manage the variety of insurance risks to which we are exposed.
For additional information on our three-tiered hierarchy of limits, see – Risk Appetite, Limits, Identification and Measurement – Risk Limits.
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.
For General Insurance companies, risks primarily include loss reserves, underwriting, catastrophe exposure, single risk loss exposure, and reinsurance. 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, which we manage 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 – Loss Reserves.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.
Our business is exposed to various catastrophic events, including natural disasters, man-made catastrophes, or pandemic disease, in which multiple losses can occur and affect multiple lines of business in any calendar year, adversely affecting our business and operating results. Concentration of exposure in certain industries or geographies may cause us to suffer disproportionate losses.
Our business is exposed to loss events, such as fires or explosions, that have the potential to generate losses from a single insured client. The net risk to us is managed to acceptable limits established by the Chief Underwriting Officer through a combination of internal underwriting standards and external reinsurance.
Since we use reinsurance to limit our losses, we are exposed to risks associated with reinsurance including the recoverability 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, which is monitored through our credit risk management framework.118
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ITEM 7 | Enterprise Risk ManagementNatural 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, modifying our gross underwriting standards, 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 with adjustments applied to modeled losses to account for loss adjustment expenses, model biases, data quality and non-modeled risks.
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 policies to anticipate potential changes to our risk profile, pricing models and strategic planning and will continue to adapt to and evolve with the developing risk exposures attributed to climate change. In addition, we provide insurance products and services to help our clients be proactive against the threat of climate change.The table below details our modeled estimates of PML, net of reinsurance, on an annual aggregate basis. The 1-in-100 and 1-in-250 PMLs are the annual aggregate probable maximum losses with probability of 1 percent and 0.4 percent in a year, respectively. Estimates as of December 31, 2023 reflect our in-force portfolio for exposures as of October 1, 2023, and all inuring reinsurance covers as of December 31, 2023, except for the catastrophe reinsurance programs, which are as of January 1, 2024 and reflected as of such date.The following table presents an overview of annual aggregate modeled losses for world-wide all perils and exposures arising from our largest primarily modeled perils:At December 31, 2023 Net of Reinsurance Net of Reinsurance,After Tax (f)
Percent of Total Shareholders' Equity Percent of Total Shareholders' Equity Excluding AOCI
(in millions)
Exposures:
World-wide all peril (1-in-250) (a)$ 2,804 $ 2,215 4.9 % 3.7 %U.S. Hurricane (1-in-100) (b)962 760 1.7 1.3U.S. Earthquake (1-in-250) (c)1,022 807 1.8 1.4Japanese Typhoon (1-in-100) (d)277 219 0.5 0.4Japanese Earthquake (1-in-250) (e)219 173 0.4 0.3(a) The world-wide all peril loss estimate includes wildfire exposure.
(b) The U.S. hurricane loss estimate includes losses to Commercial and Personal Property from hurricane hazards of wind and storm surge.(c) The U.S. earthquake loss estimates represent exposure to Commercial and Personal Property, U.S. Workers’ Compensation and A&H business lines.(d) Japan Typhoon loss estimate represents exposure to Commercial and Personal Property.(e) Japan Earthquake loss estimate represents exposure to Commercial and Personal Property and A&H business lines.(f) Taxed at the statutory tax rate of 21 percent for both the U.S. and Japanese modeled losses. The majority of Japan exposures are ceded to our U.S. Pool.
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, and 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. These estimates are inherently uncertain and may not accurately reflect our net exposure, inclusive of credit risk, to these events.Our 2024 property catastrophe reinsurance program is a worldwide program providing both aggregate and per occurrence protection, with differing per occurrence and aggregate retentions for North America, Japan, and rest of world. In 2024, we purchased our North America property catastrophe reinsurance program with several coverage enhancements and unchanged attachment points of $500 million for the commercial portfolio and $300 million for Lexington Insurance Company and Programs business. For International, we reduced our Japan attachment point to $150 million and rest of world remained unchanged at $125 million.
We have also purchased property per risk covers that provide protection against large losses globally, which include those emanating from non-critical catastrophe events (all events except for named windstorm and earthquake) globally as well as critical catastrophe events (named windstorm and earthquake) outside North America.
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ITEM 7 | Enterprise Risk ManagementActual 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.
For additional information, see also Part 1, Item 1A. Risk Factors – Reserves and Exposures.Terrorism Risk
We actively monitor terrorism risk and manage exposures to losses from terrorist attacks. 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.
Our largest terrorism concentrations are in New York City, and estimated losses are largely driven by the Property and Workers’ Compensation lines of business. Our exposure to terrorism risk in the U.S. is mitigated by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) in addition to limited private reinsurance protections. TRIPRA covers certified terrorist attacks within the U.S. or U.S. missions and against certain U.S. carriers or vessels and excludes certain lines of business as specified by applicable law.
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
For Life and Retirement companies, risks include longevity risk, morbidity risk, mortality (including pandemic) risk, and policyholder behavior risk (including full and partial surrender lapses). The emergence of significant adverse experience compared to the experience we expected and priced for could require an adjustment to benefit reserves and/or DAC, which could have a material adverse effect on our consolidated financial results of operations for a particular period.
We manage risk through product design, experience monitoring, pricing and underwriting discipline, risk limits and thresholds, reinsurance and active monitoring and management of the alignment between risk and cash flow profiles of assets and liabilities, and hedging instruments.
For additional information on 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 – Market Risk Benefits. For additional information on business risks, see Part I, Item 1A. Risk Factors – Business and Operations.
Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs
Our Individual and Group Retirement businesses offer variable and fixed index annuity products with guaranteed living benefit (GLB) riders that guarantee a certain level of lifetime benefits. Under current GAAP rules, variable and certain index annuity GLBs are accounted for as embedded derivatives measured at fair value, with changes in the fair value recorded in Other realized gains (losses). GLB features subject the Life and Retirement companies to market risk, including exposure to changes in levels of interest rates, equity prices, credit spreads and market volatility.
Risk mitigation features of our variable annuity product designs include GLB rider fees indexed to a broad equity market volatility index, required minimum allocations to fixed accounts to reduce overall equity exposure, and for some of the variable annuity products, the utilization of volatility control funds.
We utilize asset liability management and hedging programs to manage economic exposure to market risks that are not fully mitigated through product designs. Our hedging program utilizes an economic hedge target established via a stochastic projection for policyholder behavior in conjunction with market scenarios calibrated to observable equity and interest option prices, which represents our estimate of the underlying economic risks in the embedded derivatives.
In designing the hedging portfolio for our variable annuity hedging program, we make assumptions that are used in projections of future performance of the underlying mutual funds elected by the variable annuity policyholders. Basis risk exists due to the variance between funds returns projected under these assumptions and actual fund returns, which may result in variances between changes in the value of the hedging portfolio and changes in the economic value of the hedge liability target. Our hedging programs associated with index annuity and index universal life products are designed to manage market risk associated with the index crediting strategies offered on these product platforms.
To manage the capital market exposures embedded within the economic liability hedge targets, 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 corresponding sensitivities in the associated economic hedge targets, within internally defined threshold limits.
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ITEM 7 | Enterprise Risk Management
Our hedging programs utilize various derivative instruments, including but not limited to equity options, futures contracts, interest rate swaps and swaptions. In addition, within the variable annuities hedging program, we purchase certain fixed income securities classified as available for sale.
The hedging programs are monitored on a daily basis to ensure that the economic liability hedge targets and the associated derivative portfolios stay within the threshold limits, pursuant to the approved hedging strategies. In addition, monthly stress tests are performed to determine the program’s effectiveness relative to the applicable limits, under an array of combined severe market stresses in equity prices, interest rates, volatility and credit spreads. Finally, hedging strategies are reviewed regularly to gauge their effectiveness in managing our market exposures in the context of our overall risk appetite.
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 Future Policy Benefits, Policyholder Contract Deposits and Market Risk Benefits – Variable Annuity Guaranteed Benefits and Hedging Results.Reinsurance Activities
We purchase reinsurance for our insurance and reinsurance operations. Reinsurance facilitates insurance risk management (retention, volatility, concentrations) and capital planning. We may purchase reinsurance on a pooled basis.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, death events, or single policy level 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 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.
Reinsurance Recoverable
AIG’s reinsurance recoverable assets are comprised of paid losses recoverable, ceded loss reserves, ceded reserves for unearned premiums, and Life and Annuity reinsurance recoverables (ceded policy and claim reserves and policyholder contract deposits).At December 31, 2023, total reinsurance recoverable assets were $67.5 billion. These assets include general reinsurance paid losses recoverable of $4.6 billion, ceded loss reserves of $30.4 billion including reserves for IBNR claims, and ceded reserves for unearned premiums of $4.3 billion, as well as life reinsurance recoverable of $28.2 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, 2023 reflects a reasonable estimate of the ultimate losses recoverable. Actual losses may, however, differ from the reserves currently ceded.
At December 31, 2023, we held $70.1 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.
At December 31, 2023, we had no significant reinsurance recoverable due from any individual reinsurer that was financially troubled. Reduced profitability associated with lower interest rates, market volatility and catastrophe losses (including COVID-19), could potentially result in reduced capacity or rating downgrades for some reinsurers. The Reinsurance Credit Department, in conjunction with the credit executives within ERM, reviews these developments, monitors compliance with credit triggers that may require AIG's reinsurer to post collateral, and seeks to use other appropriate means to mitigate any material risks arising from these developments.For additional information on reinsurance recoverable, see Critical Accounting Estimates – Reinsurance Assets.AIG | 2023 Form 10-K
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Glossary
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 (Accident year combined ratio, ex-CAT) 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 (Accident year loss ratio, ex-CAT) 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.Adjusted revenues exclude Net realized gains (losses), income from non-operating litigation settlements (included in Other income for GAAP purposes), changes in fair value of securities used to hedge guaranteed living benefits (included in Net investment income for GAAP purposes) and income from elimination of the international reporting lag. Adjusted revenues is a GAAP measure for our segments.
Assets under administration include assets under management and Group Retirement mutual fund assets that we sell or administer.Attritional losses are losses recorded in the current accident year, which are not catastrophe losses.AUM 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 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 (loss) (AOCI) adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and deferred tax assets (DTA) (Adjusted book value per common share) is a non-GAAP measure and is used to show the amount of our net worth on a per-common share basis. Adjusted book value per common share is derived by dividing total AIG common shareholders’ equity, excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and DTA (Adjusted common 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.
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.Credit Valuation Adjustment (CVA)/Non-Performance Risk Adjustment (NPA) The CVA/NPA adjusts the valuation of derivatives to account for nonperformance risk of our counterparty with respect to all net derivative assets positions. The CVA/NPA 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.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.
DSI Deferred Sales Inducements 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.
Expense ratio Sum of acquisition expenses and general operating expenses, divided by net premiums earned.
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GlossaryGeneral 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.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.
Loan-to-value ratio Principal amount of loan amount divided by appraised value of collateral securing the loan.
Loss Adjustment Expenses The expenses directly attributed to settling and paying claims of insureds and include, but are not limited to, legal fees, adjuster’s 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.
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.MRB Market risk benefit is an amount that a policyholder would receive in addition to the account balance upon the occurrence of a specific event or circumstance, such as death, annuitization, or periodic withdrawal that involves protection from capital market risk.Natural catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and man-made catastrophe losses, such as terrorism and civil disorders that exceed 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 interests 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 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, FHLB funding agreements and mutual funds.Prior year development See Loss reserve development .
RBC Risk-Based Capital A formula designed to measure the adequacy of an insurer’s statutory surplus compared to the risks inherent in its business.
Reinstatement premiums Premiums on an insurance policy over and above the initial premium imposed at the beginning of the policy payable to reinsurers or receivable from insurers to restore coverage limits that have been reduced or exhausted as a result of reinsured losses under certain excess of loss reinsurance contracts.
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.Reinsurance recoverables are comprised of paid losses recoverable, ceded loss reserves, ceded reserves for unearned premiums, and Life and Annuity reinsurance recoverables (ceded policy and claim reserves and policyholder contract deposits).Retroactive reinsurance See Deferred gain on retroactive reinsurance .AIG | 2023 Form 10-K
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GlossaryReturn on common equity – Adjusted after-tax income excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and DTA (Adjusted return on common equity) is a non-GAAP measure and is used to show the rate of return on common shareholders’ equity. Adjusted return on common equity is derived by dividing actual or annualized adjusted after-tax income attributable to AIG common shareholders by average Adjusted common shareholders’ equity.Subrogation The amount of recovery for claims we have paid our policyholders, generally from a negligent third party or such party’s 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 future pre-tax profits from in-force policies of acquired businesses discounted at yields applicable at the time of purchase. VOBA is reported in DAC in the Consolidated Balance Sheets.
AcronymsA&H Accident and Health Insurance GMWB Guaranteed Minimum Withdrawal Benefits
ABS Asset-Backed Securities ISDA International Swaps and Derivatives Association, Inc.
APTI Adjusted pre-tax income Moody's Moody's Investors' Service Inc.
AUM Assets Under Management MRBs Market Risk Benefits
CDS Credit Default Swap NAIC National Association of Insurance Commissioners
CLO Collateralized Loan Obligations NM Not Meaningful
CMBS Commercial Mortgage-Backed Securities ORR Obligor Risk Ratings
ERM Enterprise Risk Management RMBS Residential Mortgage-Backed Securities
FASB Financial Accounting Standards Board S&P Standard & Poor's Financial Services LLC
GAAP Accounting Principles Generally Accepted in the United States of America SEC Securities and Exchange Commission
GIA Guaranteed Investment Agreements URR Unearned Revenue Reserve
GIC Guaranteed Investment Contracts VIE Variable Interest Entity
GMDB Guaranteed Minimum Death Benefits
FY 2024-12-31 (later)
ITEM 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Information and Factors That May Affect Future ResultsThis Annual Report on Form 10-K and other publicly available documents may include, and members of management may from time to time make and discuss, statements which, to the extent they are not statements of historical or present fact, may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward‑looking statements are intended to provide management’s current expectations or plans for future operating and financial performance, based on assumptions currently believed to be valid and accurate. Forward-looking statements are often preceded by, followed by or include words such as “will,” “believe,” “anticipate,” “expect,” “expectations,” “intend,” “plan,” “strategy,” “prospects,” “project,” “anticipate,” “should,” “guidance,” “outlook,” “confident,” “focused on achieving,” “view,” “target,” “goal,” “estimate” and other words of similar meaning in connection with a discussion of future operating or financial performance. These statements may include, among other things, projections, goals and assumptions that relate to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expense reduction efforts, the outcome of contingencies such as legal proceedings, anticipated organizational, business or regulatory changes, the effect of catastrophic events, both natural and man-made, and macroeconomic and/or geopolitical events, anticipated dispositions, monetization and/or acquisitions of businesses or assets, the successful integration of acquired businesses, management succession and retention plans, exposure to risk, trends in operations and financial results, and other statements that are not historical facts.
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35TABLE OF CONTENTSAll forward-looking statements involve risks, uncertainties and other factors that may cause actual results and financial condition to differ, possibly materially, from the results and financial condition expressed or implied in the forward-looking statements. Factors that could cause actual results to differ, possibly materially, from those in specific projections, targets, goals, plans, assumptions and other forward-looking statements include, without limitation:
• the impact of adverse developments affecting economic conditions in the markets in which we operate in the U.S. and globally, including financial market conditions, macroeconomic trends, fluctuations in interest rates and foreign currency exchange rates, inflationary pressures, including social inflation, pressures on the commercial real estate market, and an economic slowdown or recession and geopolitical events or conflicts;
• the occurrence of catastrophic events, both natural and man-made, which may be exacerbated by the effects of climate change;
• disruptions in the availability or accessibility of our or a third party’s information technology systems, including hardware and software, infrastructure or networks, and the inability to safeguard the confidentiality and integrity of customer, employee or company data due to cyberattacks, data security breaches or infrastructure vulnerabilities;
• our ability to effectively implement technological advancements, including the use of artificial intelligence (AI), and respond to competitors' AI and other technology initiatives;
• the effects of changes in laws and regulations, including those relating to privacy, data protection, cybersecurity and AI, and the regulation of insurance, in the U.S. and other countries in which we operate;
• our ability to successfully dispose of, monetize and/or acquire businesses or assets or successfully integrate acquired businesses, and the anticipated benefits thereof;
• concentrations in our investment portfolios, including our continuing equity market exposure to Corebridge Financial, Inc. (Corebridge);
• our reliance on third-party investment managers;
• changes in the valuation of our investments;
• our reliance on third parties to provide certain business and administrative services;• availability of adequate reinsurance or access to reinsurance on acceptable terms;• our ability to adequately assess risk and estimate related losses as well as the effectiveness of our enterprise risk management policies and procedures;
• changes in judgments or assumptions concerning insurance underwriting and insurance liabilities;
• concentrations of our insurance, reinsurance and other risk exposures;
• nonperformance or defaults by counterparties;
• the effectiveness of strategies to retain and recruit key personnel and to implement effective succession plans;• difficulty in marketing and distributing products through current and future distribution channels;• actions by rating agencies with respect to our credit and financial strength ratings as well as those of its businesses and subsidiaries;• changes in judgments concerning the recognition of deferred tax assets and the impairment of goodwill;• our ability to address evolving global stakeholder expectations and regulatory requirements with respect to environmental, social and governance matters;
• the effects of sanctions and the failure to comply with those sanctions;
• our ability to effectively implement restructuring initiatives and potential cost-savings opportunities;
• changes to sources of or access to liquidity;
• changes in accounting principles and financial reporting requirements or their applicability to us;
• changes to tax laws in the U.S. and other countries in which we operate;• the outcome of significant legal, regulatory or governmental proceedings;• our ability to effectively execute on sustainability targets and standards;• the impact of epidemics, pandemics and other public health crises and responses thereto; and
• such other factors discussed in:– Part I, Item 1A. Risk Factors of this Annual Report;
– this Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) of this Annual Report; and
– our other filings with the Securities and Exchange Commission (SEC).
Forward-looking statements speak only as of the date of this report, or in the case of any document incorporated by reference, the date of that document. We are not under any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in any forward-looking statements is disclosed from time to time in other filings with the SEC.
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INDEX TO ITEM 7
Page
Use of Non-GAAP Measures38Critical Accounting Estimates40Executive Summary47Overview47Regulatory, Industry and Economic Factors47Consolidated Results of Operations48Business Segment Operations53General Insurance54Other Operations61Investments62Overview62
Investment Highlights in 2024
62Investment Strategies62Credit Ratings68Insurance Reserves70Loss Reserves70Liquidity and Capital Resources74Overview74Liquidity and Capital Resources Highlights74Analysis of Sources and Uses of Cash75Liquidity and Capital Resources of AIG Parent and Subsidiaries76Credit Facilities77Contractual Obligations77Off-Balance Sheet Arrangements and Commercial Commitments78Debt79Credit Ratings79Financial Strength Ratings80Regulation and Supervision80Dividends80Repurchases of AIG Common Stock80Dividend Restrictions81Enterprise Risk Management81Overview81Risk Governance Structure81Risk Appetite, Limits, Identification and Measurement81Credit Risk Management82Market Risk Management82Liquidity Risk Management84Operational Risk Management84
Business and Strategy Risks
84Insurance Risks85Glossary88Acronyms90Throughout 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.AIG | 2024 Form 10-K
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ITEM 7 | Use of Non-GAAP Measures
Use of Non-GAAP Measures
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 SEC 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.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 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.
Book value per share, excluding investments related cumulative unrealized gains and losses recorded in Accumulated other comprehensive income (loss) (AOCI) adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets (collectively, Investments AOCI) (Adjusted book value per share) is used to show the amount of our net worth on a per share basis after eliminating the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions. In addition, we adjust for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets held by AIG in support of Fortitude Re’s reinsurance obligations to AIG (Fortitude Re funds withheld assets) since these fair value movements are economically transferred to Fortitude Re. Adjusted book value per share is derived by dividing total AIG common shareholders’ equity, excluding Investments AOCI (AIG adjusted common shareholders' equity) by total common shares outstanding.
Book Value per share, excluding Goodwill, Value of business acquired (VOBA), Value of distribution channel acquired (VODA) and Other intangible assets (Tangible book value per share) is used to provide a useful measure of the realizable shareholder value on a per share basis. Tangible book value per share is derived by dividing Total AIG common shareholders’ equity, excluding intangible assets (AIG tangible common shareholders’ equity) by total common shares outstanding.
Book Value per share, excluding Investments AOCI, Goodwill, VOBA, VODA and Other intangible assets (Adjusted tangible book value per share) is used to provide a useful measure of the realizable shareholder value on a per share basis after eliminating the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions and Fortitude Re funds withheld assets since these fair value movements are economically transferred to Fortitude Re. Adjusted tangible book value per share is derived by dividing AIG adjusted common equity, excluding intangible assets, (AIG adjusted tangible common shareholders’ equity) by total common shares outstanding.
Book value per share, excluding Investments AOCI, deferred tax assets (DTA) and AIG’s ownership interest in Corebridge (Core operating book value per share) is used to show the amount of our net worth on a per share basis after eliminating Investments AOCI, DTA and AIG’s ownership interest in Corebridge. We believe this measure is useful to investors because it eliminates the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions. We also exclude the portion of DTA representing U.S. tax attributes related to net operating loss carryforwards (NOLs), corporate alternative minimum tax credits (CAMTCs) and foreign tax credits (FTCs) that have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year attribute utilization. As NOLs, CAMTCs and FTCs are utilized, the corresponding portion of the DTA utilized is included. We exclude AIG’s ownership interest in Corebridge since it is not a core long-term investment for AIG. Core operating book value per share is derived by dividing total AIG common shareholders’ equity, excluding Investments AOCI, DTA and AIG’s ownership interest in Corebridge (AIG core operating shareholders’ equity) by total common shares outstanding.
Return on equity – Adjusted after-tax income excluding Investments AOCI (Adjusted return on equity) is used to show the rate of return on common shareholders’ equity excluding Investments AOCI. We believe this measure is useful to investors because it eliminates the fair value of investments which can fluctuate significantly from period to period due to changes in market conditions. Adjusted return on equity is derived by dividing actual or, for interim periods, annualized adjusted after-tax income attributable to AIG common shareholders by average AIG adjusted common shareholders’ equity.
Return on Equity – Adjusted After-tax Income, Excluding Goodwill, VOBA, VODA and Other Intangible assets (Return on tangible equity) is used to show the return on AIG tangible common shareholder’s equity, which we believe is a useful measure of realizable shareholder value. We exclude Goodwill, VOBA, VODA and Other intangible assets from AIG common shareholders’ equity to derive AIG tangible common shareholders’ equity. Return on AIG tangible common equity is derived by dividing actual or, for interim periods, annualized adjusted after-tax income attributable to AIG common shareholders by average AIG tangible common shareholders' equity.
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ITEM 7 | Use of Non-GAAP MeasuresReturn on equity – Adjusted after-tax income excluding Investments AOCI, DTA and AIG’s ownership interest in Corebridge (Core operating return on equity) is used to show the rate of return on common shareholders’ equity excluding Investments AOCI, DTA and AIG’s ownership interest in Corebridge. We believe this measure is useful to investors because it eliminates the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions. We also exclude the portion of DTA representing U.S. tax attributes related to NOLs, CAMTCs and FTCs that have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year attribute utilization. As NOLs, CAMTCs and FTCs are utilized, the corresponding portion of the DTA utilized is included. We exclude AIG’s ownership interest in Corebridge since it is not a core long-term investment for AIG. We believe this metric will provide investors with greater insight as to the underlying profitability of our property and casualty business. Core operating return on equity is derived by dividing actual or, for interim periods, annualized adjusted after-tax income attributable to AIG common shareholders by average AIG core operating shareholders’ equity.
Adjusted pre-tax income (APTI) is derived by excluding the items set forth below from income from continuing operations before income tax:
• changes in the fair values of equity securities, AIG's investment in Corebridge and gain on sale of shares;• net investment income on Fortitude Re funds withheld assets;• net realized gains and losses on Fortitude Re funds withheld assets;• loss (gain) on extinguishment of debt;• all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication. Earned income on such economic hedges is reclassified from net realized gains and losses to specific APTI line items based on the economic risk being hedged (e.g. net investment income);• income or loss from discontinued operations;
• net loss reserve discount benefit (charge);• net results of businesses in run-off;• pension expense related to lump sum payments to former employees;
• net gain or loss on divestitures and other;
• non-operating litigation reserves and settlements;
• restructuring and other costs related to initiatives designed to reduce operating expenses, improve efficiency and simplify our organization;
• 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;
• integration and transaction costs associated with acquiring or divesting businesses;
• losses from the impairment of goodwill;
• non-recurring costs associated with the implementation of non-ordinary course legal or regulatory changes or changes to accounting principles; and
• income from elimination of the international reporting lag.Adjusted after-tax income attributable to AIG common shareholders is derived by excluding the tax effected APTI adjustments described above, dividends on preferred stock and preferred stock redemption premiums, noncontrolling interest on net realized gains (losses), other non-operating expenses 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 Cuts and Jobs Act.
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.
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39TABLE OF CONTENTSITEM 7 | Use of Non-GAAP Measures
Accident year loss and accident year combined ratios, as adjusted (Accident year loss ratio, ex-CAT and Accident year combined ratio, ex-CAT): both the accident year loss and accident year 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 catastrophe losses are generally weather or seismic events, in each case, having a net impact on AIG in excess of $10 million and man-made catastrophe losses, such as terrorism and civil disorders that exceed the $10 million threshold. We believe that 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 management’s control. We also exclude prior year development to provide transparency related to current accident year results.
Results from discontinued operations, including Corebridge, are excluded from all of these measures.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.
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:
• loss reserves;• reinsurance assets, including the allowance for credit losses and disputes;• allowance for credit losses on certain investments, primarily on loans and available for sale fixed maturity securities;• fair value measurements of certain financial assets and financial liabilities;
• income taxes, in particular the recoverability of our deferred tax asset and establishment of provisions for uncertain tax positions; and
• goodwill impairment.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.
LOSS RESERVES
Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses, less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Because these estimates are subject to the outcome of future events and because loss trends vary and time is often required for changes in trends to be recognized and confirmed, changes in estimates are common.
The estimate of loss reserves relies on several key judgments:
• the determination of the actuarial methods 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.
Numerous assumptions are made in determining the best estimate of reserves for each line of business, in consideration of expected ultimate losses, loss cost trends and loss development factors, where appropriate. The importance of any one assumption can vary by both line of business and accident year. Because such assumptions may differ from actual experience, there is potential for significant variation in the development of loss reserves. This estimation uncertainty is particularly relevant for long-tail lines 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.40
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ITEM 7 | Critical Accounting EstimatesOverview of Loss Reserving Process and Methods
Our loss reserves can generally be categorized into two distinct groups: short-tail reserves and long-tail reserves. Short-tail reserves consist principally of U.S. Property and Special Risks, UK/Europe Property and Special Risks, U.S. Personal Insurance, and UK/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, and UK/Europe Casualty and Financial Lines.Short-Tail Reserves
In short-tail lines of business, such as property or personal insurance, where the nature of these claims tends to be higher frequency with short reporting periods, with volatility arising from occasional severe events, the actual losses reported make up a greater proportion of the ultimate loss estimate. During the first few development quarters of an accident year, the expected ultimate losses generally reflect the average loss costs from a period of preceding accident quarters that have been adjusted for changes in rate and loss cost trends, mix of business, known exposure to unreported losses, or other factors affecting the particular line of business. For more mature quarters, specific loss development methods and/or frequency/severity methods may be used to determine the incurred but not reported (IBNR). IBNR for claims arising from catastrophic events or events of unusual severity would be determined taking into account information known by the claims department, using alternative techniques or expected percentages of ultimate loss emergence based on historical emergence of similar events or claim types.
Long-Tail Reserves
Estimation of loss reserves for our long-tail 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 more recent accident years generally provides limited statistical credibility of reported net losses on long-tail 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 loss reserves.
For our long-tail lines, we generally make actuarial and other assumptions with respect to the following:
• Loss cost trend factors, which are used to establish expected loss ratios for subsequent accident years based on the projected loss ratios for prior accident years.
• Expected loss ratios, which are used for the latest accident year and, in some cases, for accident years prior to the latest accident year. The expected loss ratio also generally reflects the average 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.
• Loss development factors, which 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, which are development factors used for certain long-tail lines of business 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.
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. 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 relevant factors. At the close of each quarter, the assumptions and data underlying the loss ratios are reviewed to determine whether they 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. The loss ratio is changed to reflect the revised estimate if this review suggests that the previously determined loss ratio is no longer appropriate and, generally, shorter tailed lines of business are more likely to experience changes than longer tailed lines for immature accident years unless the information is directionally unfavorable.AIG | 2024 Form 10-K
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ITEM 7 | Critical Accounting EstimatesWe conduct a comprehensive loss reserve 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, globally, 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 develop our best estimate 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. We consult with third-party specialists to help inform our judgments as needed. Through the execution 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.
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 (ERM) group.
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 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.
Actuarial and Other Methods for Our 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 groupings may change to reflect observed or emerging patterns within and across product lines, or to differentiate 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 insurance, 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 lines 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. 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. 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.
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 lines. 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.42
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ITEM 7 | Critical Accounting Estimates
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.
Where appropriate, supplemental analysis for the given line of business may be performed in addition to the above described techniques such as Shareholder Class Action suit analysis for Directors and Officers (D&O) coverages.
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.
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. Nevertheless, most of these legacy exposures have been heavily reinsured with very highly rated reinsurers.
The majority of our remaining 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.AIG | 2024 Form 10-K
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ITEM 7 | Critical Accounting Estimates
Key Assumptions of our Actuarial Methods by Line of Business
Line of Business or Category
Key Assumptions
U.S. Workers’
Compensation
We generally use a combination of loss development and expected loss ratio methods for U.S. Workers’ Compensation as this is a long-tail line of 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 1 percentage point below to 2.5 percentage points above those indicated in the 2024 detailed valuation review. For excess of deductible business, in our judgment, it is reasonably possible that tail factors beyond twenty years could vary by 1.5 percentage points below to 3 percentage points above those indicated in the 2024 detailed valuation review.
U.S. Excess Casualty We utilize various loss cost trend assumptions for different segments of the portfolio. In our judgment, after evaluating the historical loss cost trends from prior accident years since the early 1990s, it is reasonably possible that actual loss cost trends applicable to the year-end 2024 detailed valuation review for U.S. Excess Casualty may range 5 percentage points lower or higher than this estimated loss trend. The loss cost trend assumption is critical for the U.S. Excess Casualty line of business due to the long-tail nature of the losses, and it 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 line 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.In our judgment, after evaluating the historical loss development factors from prior accident years since the early 1990s, it is reasonably possible 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 2024 detailed valuation 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.
Given the very long-tail nature of this business, the tail factor selection can also have material impact on our carried reserves. The sensitivity around tail selection may also be a proxy for the sensitivity of a calendar year impact of monetary inflation on unpaid losses. It is reasonably possible for the tail factors for Excess Casualty could vary by 2 percentage points below to 3.5 percentage points above those indicated in the 2024 detailed valuation review.U.S. Other Casualty
The key assumptions for other casualty lines are similar to U.S. 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 LinesThe loss cost trends for U.S. D&O liability business vary by year and subset. 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 possible that the actual variation in loss cost levels for these subsets could vary by approximately 10 percentage points lower or higher on a year-over-year basis than the assumptions actually utilized in the year-end 2024 reserve review. Because the 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 lines 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 possible 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 2024 reserve review.UK/Europe Casualty and
Financial Lines
Similar to U.S. business, UK/Europe 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, however the range of potential impacts is much lower than that of other lines of business noted above.
U.S. and UK/Europe
Property and Special
Risks
For shorter-tail lines such as Property and Special Risks, variance in outcomes for individual large claims or events typically has a greater impact on results than does changes in actuarial assumptions or methodology. This is because a greater proportion of the ultimate loss, at any stage of development, is composed of reported losses than IBNR reserves. These outcomes generally relate to unique characteristics of events such as catastrophes or losses with significant business interruption claims.
U.S., UK/Europe and Japan Personal Insurance 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.44
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ITEM 7 | Critical Accounting EstimatesThe 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 2024:
December 31, 2024 Increase (Decrease) to Loss Reserves Increase (Decrease) to Loss Reserves(in millions)
Loss cost trends: Loss development factors:
U.S. Excess Casualty: U.S. Excess Casualty:
5.0 percentage points increase $ 850 3.5 percentage points tail factor increase $ 1,2005.0 percentage points decrease (600) 2.0 percentage points tail factor decrease (750)U.S. Excess Casualty:
6-months slower 600
6-months faster (550)
U.S. Financial Lines (D&O) U.S. Financial Lines (D&O)10.0 percentage points increase 850 6-months slower 600
10.0 percentage points decrease (600) 6-months faster (500)U.S. Workers' Compensation:
Tail factor increase (a)900Tail factor decrease (b)
(550)
(a) Tail factor increase of 2.5 percentage points for guaranteed cost business and 3 percentage points for deductible business.
(b) Tail factor decrease of 1 percentage point for guaranteed cost business and 1.5 percentage points for deductible business.
For additional information on our reserving process and methodology, see Note 13 to the Consolidated Financial Statements.REINSURANCE ASSETS
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. 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. The estimation of reinsurance recoverables involves a significant amount of judgment. Reinsurance assets include reinsurance recoverables 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. For additional information on reinsurance, see Note 8 to the Consolidated Financial Statements.ALLOWANCE FOR CREDIT LOSSES ON CERTAIN INVESTMENTS
We maintain an allowance for the expected lifetime credit losses of commercial and residential mortgage loans and available for sale securities. The sufficiency of this allowance is reviewed quarterly using both quantitative and qualitative considerations, which are subject to risks and uncertainties. These considerations and the overall methodology used to estimate the allowance for credit losses are discussed in more detail in Note 6 and Note 7 to the Consolidated Financial Statements for available for sale securities and Commercial and residential loans, respectively.
FAIR VALUE MEASUREMENTS OF CERTAIN FINANCIAL ASSETS AND FINANCIAL 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. We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant unobservable inputs in their valuation. We consider unobservable inputs to be those for which market data is not available. Our assessment of the significance of a particular input to the fair value measurement of an asset or liability requires judgment.
For additional information about the valuation methodologies of financial instruments measured at fair value, see Note 5 to the Consolidated Financial Statements.AIG | 2024 Form 10-K
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ITEM 7 | Critical Accounting EstimatesINCOME TAXES
Deferred income taxes represent the tax effect of the differences between the amounts recorded in our Consolidated Financial Statements and the tax basis of assets and liabilities. Our assessment of net deferred income taxes represents management’s best estimate of the tax consequences of various events and transactions, which can themselves be based on other accounting estimates, resulting in incremental uncertainty in the estimation process.
Deferred Tax Asset RecoverabilityThe 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. As such, changes in tax laws in countries where we transact business can impact our deferred tax asset valuation allowance. We consider multiple factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net operating losses, foreign tax credits, realized capital loss and other carryforwards. These factors include forecasts of future income for each of our businesses, which incorporate forecasts of future statutory income for our insurance companies, 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. In performing our assessment of recoverability, we consider tax laws governing the utilization of net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. These tax laws are subject to change, resulting in incremental uncertainty in our assessment of recoverability.Uncertain Tax Positions
Uncertain tax positions represent AIG’s liability for income taxes on tax years subject to review by the Internal Revenue Service (IRS) or other tax authorities. 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 to be realized upon settlement. The completion of review, or the expiration of federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes.For a discussion of our framework for assessing the recoverability of our deferred tax asset and other tax topics, see Note 21 to the Consolidated Financial Statements.
GOODWILL IMPAIRMENT
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. A qualitative assessment may be performed, considering whether events or circumstances exist that lead to a determination that it is not more likely than not that the fair value of a segment is less than its carrying value. If management elects to perform a quantitative assessment to determine recoverability of carrying value or is compelled to do so based on the results of a qualitative assessment, the estimate of fair value involves applying one or a combination of common valuation approaches. These include discounted expected future cash flows, market-based earnings multiples and external appraisals, among other methods, all of which require management judgment and are subject to uncertainty, primarily as it relates to assumptions around business growth, earnings projections, and cost of capital.
For additional information on goodwill impairment, see Part I, Item 1A. Risk Factors – Estimates and Assumptions and Note 12 to the Consolidated Financial Statements.
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ITEM 7 | Executive SummaryExecutive 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.REGULATORY, INDUSTRY AND ECONOMIC FACTORSRegulatory Environment
Our operations around the world are subject to regulation by many different types of regulatory authorities, including insurance and securities regulators in the United States and abroad. The insurance and financial services industries are generally subject to close regulatory scrutiny and supervision.
For information regarding our regulation and supervision by different regulatory authorities in the United States and abroad, see Part I, Item 1. Business – Regulation and Part I, Item 1A. Risk Factors – Regulation and Note 21 to the Consolidated Financial Statements.
Impact of Changes in the Interest Rate E nvironment
Certain U.S. benchmark rates continued to fluctuate in 2024 as markets reacted to change in inflation trends, geopolitical risk and the decisions of the Board of Federal Reserve System. Our Net investment income is impacted by market interest rates as well as the deployment of asset allocation strategies to enhance yield, manage duration and interest rate risk. The changes in interest rates and credit spreads impact our ability to reinvest future cash flows at rates equal or greater than the rates on sales and maturities. For additional information on our investment and asset-liability management strategies, see Investments.Impact of Currency Volatility
Currency volatility remains acute. Strengthening of the U.S. dollar against the Euro, British pound and the Japanese yen (the Major Currencies) impacts income for our 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, especially as a result of central bank responses to inflation, concerns regarding future economic growth and other macroeconomic factors, and such fluctuations will affect net premiums written growth trends reported in U.S. dollars, as well as financial statement line item comparability.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, Percentage ChangeRate for 1 USD 2024 2023 2022 2024 vs 2023 2023 vs 2022
Major Currency:
GBP 0.78 0.81 0.81 (4) % — %
EUR 0.92 0.93 0.95 (1) % (2) %
JPY 150.61 139.79 129.67 8 % 8 %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.AIG | 2024 Form 10-K
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ITEM 7 | Consolidated Results of OperationsConsolidated Results of OperationsThe following section provides a comparative discussion of our consolidated results of operations on a reported basis for the three-year period ended December 31, 2024. Factors that relate primarily to a specific business are discussed in more detail within the business segment operations section.
For information regarding the critical accounting estimates that affect our results of operations, see Critical Accounting Estimates above.The following table presents our consolidated results of operations and other key financial metrics:
Years Ended December 31, Percentage Change(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022Revenues:Premiums $ 23,537 $ 25,564 $ 26,765 (8) % (4) %Net investment income:Net investment income - excluding Fortitude Re funds withheld assets 4,111 3,266 2,317 26 41
Net investment income - Fortitude Re funds withheld assets 144 180 53 (20) 240
Total net investment income 4,255 3,446 2,370 23 45Net realized gains (losses):Net realized losses - excluding Fortitude Re funds withheld assets and embedded derivative (434) (734) (207) 41 (255)
Net realized losses on Fortitude Re funds withheld assets (39) (71) (99) 45 28
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative (75) (273) 1,133 73 NM
Total net realized gains (losses) (548) (1,078) 827 49 NM
Other income 7 6 34 17 (82)
Total revenues 27,251 27,938 29,996 (2) (7)Benefits, losses and expenses:Losses and loss adjustment expenses incurred 14,567 15,393 15,461 (5) —
Amortization of deferred policy acquisition costs 3,425 3,771 3,545 (9) 6
General operating and other expenses 5,529 5,399 6,159 2 (12)
Interest expense 462 516 603 (10) (14)
(Gain) loss on extinguishment of debt 14 (37) 303 NM NM
Net (gain) loss on divestitures and other (616) 29 153 NM (81)
Total benefits, losses and expenses 23,381 25,071 26,224 (7) (4)
Income from continuing operations before income tax expense 3,870 2,867 3,772 35 (24)
Income tax expense:
Current 657 176 (452) 273 NM
Deferred 513 (50) 1,334 NM NM
Income tax expense 1,170 126 882 NM (86)
Income from continuing operations 2,700 2,741 2,890 (1) (5)
Income (loss) from discontinued operations, net of income taxes (3,626) 1,137 8,383 NM (86)
Net income (loss) (926) 3,878 11,273 NM (66)
Less: Net income attributable to noncontrolling interests 478 235 1,046 103 (78)
Net income (loss) attributable to AIG (1,404) 3,643 10,227 NM (64)
Less: Dividends on preferred stock and preferred stock redemption premiums 22 29 29 (24) —
Net income (loss) attributable to AIG common shareholders $ (1,426) $ 3,614 $ 10,198 NM % (65) %
Years Ended December 31, 2024 2023 2022
Return on equity (3.2) % 8.6 % 20.7 %
Adjusted return on equity 6.6 5.6 3.6
Return on tangible equity 8.1 8.5 N/A
Core operating return on equity 9.1 9.6 N/A
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ITEM 7 | Consolidated Results of Operations(in millions, except per share data) December 31, 2024 December 31, 2023Balance sheet data:Total assets $ 161,322 $ 539,306
Long-term debt 8,764 10,375
Debt of consolidated investment entities 158 231
Total AIG shareholders’ equity 42,521 45,351
Book value per share 70.16 65.14
Adjusted book value per share 73.79 78.50
Tangible book value per share 63.98 59.60
Adjusted tangible book value per share 67.62 72.96
Core operating book value per share 61.75 52.74NET INCOME (LOSS) ATTRIBUTABLE TO AIG COMMON SHAREHOLDERSYears Ended December 31, 2024 and 2023 Comparison
Net income (loss) attributable to AIG common shareholders decreased $5.0 billion due to the following:
• a decrease in Income (loss) from discontinued operations, net of income taxes of $4.8 billion as a result of the deconsolidation of Corebridge;
• a decrease in underwriting income driven by unfavorable prior year reserve development of $254 million, which does not reflect the benefit of recoveries under a retroactive adverse development cover, as well as the sales of AIG Re and Crop Risk Services, Inc. (CRS), partially offset by improved portfolio performance and growth;
• an increase in net income attributable to noncontrolling interest of $243 million primarily driven by Corebridge; and
• an increase in income tax expense of $1.0 billion as a result of higher income before taxes and discrete tax benefits in the prior year primarily related to a reduction in the valuation allowance and developments related to the potential resolution of an IRS audit matter.
The decrease in Net income (loss) attributable to AIG common shareholders was partially offset by the following:
• an increase in Net investment income of $809 million primarily driven by dividends received from Corebridge of $162 million and changes in its stock price and gain on sale of shares of $439 million, higher income on available for sale fixed maturity securities of $121 million and an increase in the fair value of equity securities of $96 million; and
• an increase in Net realized gains excluding Fortitude Re funds withheld assets and embedded derivative of $300 million, primarily driven by a $85 million decrease in losses from sales of securities, lower derivative and hedge activity losses of $103 million and a $132 million increase in foreign exchange gains, partially offset by lower sales on alternative investments of $45 million.Years Ended December 31, 2023 and 2022 ComparisonNet income (loss) attributable to AIG common shareholders decreased $6.6 billion due to the following:
• decrease in Income (loss) from discontinued operations, net of income taxes of $7.2 billion as a result of the decrease in net income of Corebridge;
• decrease in Net realized gains on Fortitude Re funds withheld embedded derivative of $1.4 billion driven by interest rate movements;
• decrease in Net realized gains excluding Fortitude Re funds withheld assets and embedded derivative of $527 million, driven by $324 million decrease in other derivative and hedge accounting, $142 million decrease in foreign exchange transactions and losses on sales of securities of $103 million; and
• decrease in Income tax expense of $756 million primarily attributable to lower income from continuing operations.
The decrease in Net income (loss) attributable to AIG common shareholders was partially offset by the following:
• higher net investment income of $1.1 billion primarily driven by higher income on available for sale fixed maturity securities of $884 million and an increase in fair value of fixed maturity securities where we elected the fair value option of $420 million as a result of the higher rate environment;
• lower income attributable to noncontrolling interest of $811 million driven by the decline in net income at Corebridge; and
• higher underwriting income in General Insurance of $387 million, including $86 million attributable to eliminating the international reporting lag, reflecting the continued earn-in of positive rate change, strong renewal retentions and new business production, as well as increased favorable prior year development and lower catastrophe losses. Underwriting income was negatively impacted by unfavorable movements in foreign exchange. For additional information on the elimination of the international reporting lag, see Note 1 to the to the Consolidated Financial Statements.
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ITEM 7 | Consolidated Results of OperationsINCOME TAX EXPENSE ANALYSISFor the years ended December 31, 2024, 2023 and 2022, the effective tax rate on income (loss) from continuing operations was 30.2 percent, 4.4 percent and 23.4 percent, respectively.
For additional information, see Note 21 to the Consolidated Financial Statements.NON-GAAP RECONCILIATIONSThe following table presents reconciliations of Book value per share to Adjusted book value per share, Tangible book value per share and Core operating book value per share, which are non-GAAP measures. For additional information, see Use of Non-GAAP Measures.December 31,(in millions, except per share data) 2024 2023 2022
Total AIG shareholders' equity $ 42,521 $ 45,351 $ 40,970
Preferred equity — 485 485
Total AIG common shareholders' equity 42,521 44,866 40,485
Less: Investments related AOCI (2,872) (10,994) (20,811)
Add: Cumulative unrealized gains and losses related to Fortitude Re funds withheld assets (667) (1,791) (2,862)
Subtotal: Investments AOCI (2,205) (9,203) (17,949)
AIG adjusted common shareholders' equity $ 44,726 $ 54,069 $ 58,434
Total AIG common shareholders' equity $ 42,521 $ 44,866 $ 40,485
Less Intangible Assets:
Goodwill 3,373 3,422 3,751
Value of distribution channel acquired 127 145 273
Other intangibles 243 249 415
Total intangibles assets 3,743 3,816 4,439
AIG tangible common shareholders' equity $ 38,778 $ 41,050 $ 36,046
AIG adjusted common shareholders' equity $ 44,726 $ 54,069 $ 58,434
Total intangibles assets 3,743 3,816 4,439
AIG adjusted tangible common shareholders' equity $ 40,983 $ 50,253 $ 53,995
Total AIG common shareholders' equity $ 42,521 $ 44,866 $ 40,485
Less: AIG's ownership interest in Corebridge 3,810 6,738 8,690
Less: Investments related AOCI - AIG (2,872) (3,084) (1,693)
Add: Cumulative unrealized gains and losses related to Fortitude Re funds withheld assets - AIG (667) (573) (682)
Subtotal: Investments AOCI - AIG (2,205) (2,511) (1,011)
Less: Deferred tax assets 3,489 4,313 4,518
AIG core operating shareholders' equity $ 37,427 $ 36,326 $ 28,288
Total common shares outstanding 606.1 688.8 734.1
Book value per share $ 70.16 $ 65.14 $ 55.15
Adjusted book value per share 73.79 78.50 79.60
Tangible book value per share 63.98 59.60 49.10
Adjusted tangible book value per share 67.62 72.96 73.55
Core operating book value per share 61.75 52.74 38.53
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ITEM 7 | Consolidated Results of OperationsThe following table presents reconciliations of Return on equity to Adjusted return on equity, Tangible return on equity and Core operating return on equity, which are non-GAAP measures. For additional information, see Use of Non-GAAP Measures.
Years Ended December 31,
(dollars in millions) 2024 2023 2022
Actual or annualized net income (loss) attributable to AIG common shareholders $ (1,426) $ 3,614 $ 10,198
Actual or annualized adjusted after-tax income attributable to AIG common shareholders $ 3,254 $ 3,205 $ 2,121
Average AIG common shareholders' equity $ 44,051 $ 41,930 $ 49,338
Less: Average investments AOCI (5,132) (14,836) (9,003)
Average AIG adjusted common shareholders' equity $ 49,183 $ 56,766 $ 58,341
Average AIG common shareholders' equity $ 44,051 $ 41,930
Less: Average intangibles 3,797 4,070
Average AIG tangible common shareholders' equity $ 40,254 $ 37,860
Average AIG common shareholders' equity $ 44,051 $ 41,930
Less: Average AIG's ownership interest in Corebridge 6,770 7,376
Less: Average Investments AOCI - AIG (2,351) (3,254)
Less: Average deferred tax assets 3,998 4,322
Average AIG core operating shareholders' equity $ 35,634 $ 33,486
Return on equity (3.2) % 8.6 % 20.7 %
Adjusted return on equity 6.6 5.6 3.6
Return on tangible equity 8.1 8.5 N/A
Core operating return on equity 9.1 9.6 N/AThe following table presents a reconciliation of pre-tax income (loss)/net income (loss) attributable to AIG to adjusted pre-tax income (loss)/adjusted after-tax income (loss) attributable to AIG:Years Ended December 31, 2024 2023 2022
(in millions, except per common share data) Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (a)
After Tax Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (a)
After Tax Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (a)After TaxPre-tax income/net income (loss), including noncontrolling interests $ 3,870 $ 1,170 $ — $ (926) $ 2,867 $ 126 $ — $ 3,878 $ 3,772 $ 882 $ — $ 11,273
Noncontrolling interests (a)
(478) (478) (235) (235) (1,046) (1,046)
Pre-tax income/net income (loss) attributable to AIG - including discontinued operations $ 3,870 $ 1,170 $ (478) $ (1,404) $ 2,867 $ 126 $ (235) $ 3,643 $ 3,772 $ 882 $ (1,046) $ 10,227
Dividends on preferred stock and preferred stock redemption premiums 22 29 29
Net income (loss) attributable to AIG common shareholders $ (1,426) $ 3,614 $ 10,198
Changes in uncertain tax positions and other tax adjustments
(239) — 239 176 — (176) (147) — 147
Deferred income tax valuation allowance releases (b)
30 — (30) 365 — (365) 174 — (174)
Changes in the fair values of equity securities, AIG's investment in Corebridge and gain on sale of shares (586) (123) — (463) (53) (11) — (42) (29) (6) — (23)
(Gain) loss on extinguishment of debt and preferred stock redemption premiums 14 3 — 26 (37) (8) — (29) 303 64 — 239
Net investment income on Fortitude Re funds withheld assets (144) (30) — (114) (180) (38) — (142) (53) (11) — (42)
Net realized losses on Fortitude Re funds withheld assets 39 8 — 31 71 15 — 56 99 21 — 78
Net realized losses on Fortitude Re funds withheld embedded derivative 75 16 — 59 273 57 — 216 (1,133) (238) — (895)
Net realized losses (c)
428 95 — 333 743 128 — 615 268 56 — 212
(Income) loss from discontinued operations 3,626 (1,137) (8,383)
Net gain on divestitures and other (616) (128) — (488) 29 149 — (120) 153 32 — 121
Non-operating litigation reserves and settlements — — — — 1 — — 1 (16) (3) — (13)
Unfavorable (favorable) prior year development and related amortization changes ceded under retroactive reinsurance agreements 105 22 — 83 (62) (13) — (49) (160) (34) — (126)
Net loss reserve discount (benefit) charge 226 47 — 179 195 41 — 154 (703) (148) — (555)
Net results of businesses in run-off (d)
111 24 — 87 31 7 — 24 (25) (5) — (20)
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ITEM 7 | Consolidated Results of OperationsYears Ended December 31, 2024 2023 2022
(in millions, except per common share data) Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (a)
After Tax Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (a)
After Tax Pre-tax Total Tax (Benefit) Charge Non- controlling Interests (a)
After Tax
Pension expense related to lump sum payments to former employees — — — — 71 15 — 56 59 12 — 47
Integration and transaction costs associated with acquiring or divesting businesses 39 8 — 31 6 1 — 5 12 3 — 9
Restructuring and other costs (e)
745 156 — 589 356 75 — 281 423 89 — 334
Non-recurring costs related to regulatory or accounting changes 18 4 — 14 22 5 — 17 26 5 — 21
Net impact from elimination of international reporting lag (f)
— — — — (12) (3) — (9) (127) (27) — (100)
Noncontrolling interests (a)
478 478 235 235 1,046 1,046
Adjusted pre-tax income/Adjusted after-tax income attributable to AIG common shareholders $ 4,324 $ 1,063 $ — $ 3,254 $ 4,321 $ 1,087 $ — $ 3,205 $ 2,869 $ 719 $ — $ 2,121
Weighted average diluted shares outstanding
657.3 725.2 787.9
Income (loss) per common share attributable to AIG common shareholders (diluted)
$ (2.17) $ 4.98 $ 12.94
Adjusted after-tax income per common share attributable to AIG common shareholders (diluted)
$ 4.95 $ 4.42 $ 2.69
(a) Noncontrolling interest primarily relates to Corebridge and is the portion of Corebridge earnings that AIG did not own. Corebridge is consolidated until June 9, 2024. The historical results of Corebridge owned by AIG are reflected in the Income (loss) from discontinued operations, net of income taxes.
(b) The year ended December 31, 2023 includes a valuation allowance release related to a portion of certain tax attribute carryforwards of AIG's U.S. federal consolidated income tax group, as well as valuation allowance changes in certain foreign jurisdictions.
(c) Includes all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets.
(d) In the fourth quarter of 2024, AIG realigned and began excluding the net results of run-off businesses previously reported in Other Operations from Adjusted pre-tax income. Historical results have been recast to reflect these changes.
(e) In the year ended December 31, 2024, Restructuring and other costs increased primarily as a result of employee-related costs, including severance, and real estate impairment charges.
(f) For additional information, see Note 1 to the Consolidated Financial Statements.PRE-TAX INCOME (LOSS) COMPARISONPre-tax income (loss) was $3.9 billion, $2.9 billion and $3.8 billion in the years ended December 31, 2024, 2023 and 2022, respectively.
For the main drivers impacting AIG’s results of operations, see – Net Income (Loss) Attributable to AIG Common Shareholders above.ADJUSTED PRE-TAX INCOME (LOSS) COMPARISONAdjusted pre-tax income (loss) was $4.3 billion, $4.3 billion and $2.9 billion in the years ended December 31, 2024, 2023 and 2022, respectively.For the main drivers impacting AIG’s adjusted pre-tax income (loss), see Business Segment Operations.52
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ITEM 7 | Consolidated Results of Operations
The following table presents a reconciliation of General Insurance and Other Operations Net investment income and other/pre-tax income (loss) to Net investment income and other, APTI basis/adjusted pre-tax income (loss):
Years Ended December 31, 2024 2023 2022
General Insurance Other Operations General Insurance Other Operations General Insurance Other Operations
(in millions) Net Investment Income and Other Pre-tax Income (Loss) Net Investment Income and Other Pre-tax Income (Loss) Net Investment Income and Other Pre-tax Income (Loss) Net Investment Income and Other Pre-tax Income (Loss) Net Investment Income and Other Pre-tax Income (Loss) Net Investment Income and Other Pre-tax Income (Loss)
Net investment income and other/Pre-tax income (loss) $ 3,215 $ 4,474 $ 1,047 $ (604) $ 3,150 $ 4,308 $ 302 $ (1,441) $ 2,474 $ 5,175 $ (70) $ (1,403)
Consolidation and Eliminations — — — — — — 13 — — — (14) —
Other income (expense) - net (31) — 18 — (49) — 39 — (51) — 1 —
Changes in the fair values of equity securities, AIG's investment in Corebridge and gain on sale of shares (73) (73) (513) (513) (84) (84) 31 31 (9) (9) (20) (20)
(Gain) loss on extinguishment of debt — — — 14 — — — (37) — — — 303
Net investment income on Fortitude Re funds withheld assets (44) (44) (100) (100) (4) (4) (176) (176) (6) (6) (47) (47)
Net realized losses on Fortitude Re funds withheld assets — 8 — 31 — 1 — 70 — — — 99
Net realized (gains) losses on Fortitude Re funds withheld embedded derivative — — — 75 — (18) — 291 — (70) — (1,063)
Net realized (gains) losses (7) 330 (1) 98 10 731 2 12 15 136 46 132
Net loss (gain) on divestitures and other — (522) — (94) — 18 — 11 — 15 — 138
Non-operating litigation reserves and settlements — — — — — — — 1 — (14) — (2)
Unfavorable (favorable) prior year development and related amortization changes ceded under retroactive reinsurance agreements — 101 — 4 — (42) — (20) — (197) — 37
Net loss reserve discount (benefit) charge — 226 — — — 195 — — — (703) — —
Net results of businesses in run-off — — (17) 111 — — (21) 31 — — (6) (25)
Pension expense related to lump sum payments to former employees — — — — — 60 — 11 — 31 — 28
Integration and transaction costs associated with acquiring or divesting businesses — — — 39 — 1 — 5 — 1 — 11
Restructuring and other costs — 459 — 286 — 195 — 161 — 172 — 251
Non-recurring costs related to regulatory or accounting changes — 18 — — — 22 — — — 26 — —
Net impact from elimination of international reporting lag — — — — (1) (12) — — (41) (127) — —
Net investment income and other, APTI basis/Adjusted pre-tax income (loss) $ 3,060 $ 4,977 $ 434 $ (653) $ 3,022 $ 5,371 $ 190 $ (1,050) $ 2,382 $ 4,430 $ (110) $ (1,561)Business Segment OperationsIn the fourth quarter of 2024, the Company realigned its organizational structure and the composition of its reportable segments to reflect changes in how the Company manages its operations, specifically the level at which its chief operating decision makers (CODMs) regularly review operating results and allocate resources. Our CODMs are the chief executive officer (CEO) and chief financial officer (CFO). The CODMs evaluate performance of the segments based on underwriting income (loss). The CODMs use this measure to benchmark AIG’s performance, assessing performance of the segments and in establishing management’s compensation.
As of December 31, 2024, AIG reports the results of its businesses through three segments and Other Operations. The three segments are North America Commercial, International Commercial and Global Personal. Other Operations predominantly consists of Net Investment Income from our AIG Parent liquidity portfolio, Corebridge dividend income, corporate General operating expenses, and Interest expense. Prior years’ presentations have been recast to conform to the new reportable segments. Our General Insurance business (General Insurance) consists of our three segments and the Net investment income related to our insurance operations.
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ITEM 7 | Business Segment Operations | General Insurance
General InsuranceCommercial Lines is managed by our geographic markets of North America and International, while Personal Insurance is managed globally. Our global presence is underpinned by our multinational capabilities to provide Commercial Lines and Personal Insurance products within these geographic markets.PRODUCTS AND DISTRIBUTIONNorth America Commercial consists of insurance businesses in the United States, Canada and Bermuda.
International Commercial consists of insurance businesses in Japan, the United Kingdom, Europe, Middle East and Africa (EMEA region), Asia Pacific, Latin America and Caribbean, and China. International Commercial also includes the results of Talbot Holdings Ltd. (Talbot) as well as AIG’s Global Specialty business.
Global Personal consists primarily of insurance businesses in the United States as well as Japan, the United Kingdom, Europe, Middle East and Africa (EMEA region), Asia Pacific, Latin America and Caribbean, and China.
Commercial Lines
Property & Short Tail: Products include commercial and industrial property, including business interruption, as well as package insurance products and services that cover exposures to man-made and natural disasters.
Casualty: 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, mergers and acquisitions, fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions insurance.Global Specialty: Products include marine, energy-related property insurance products, aviation, political risk, trade credit, trade finance and portfolio solutions.
On July 3, 2023, AIG completed the sale of CRS to American Financial Group, Inc. and in substance, AIG exited the crop business. For periods prior to the sale of CRS, the underwriting results are included in adjusted pre-tax income of General Insurance – North America Commercial.
On November 1, 2023, AIG completed the sale of Validus Reinsurance, Ltd. (Validus Re), including AlphaCat Managers Ltd. and Talbot Treaty reinsurance business to RenaissanceRe Holdings Ltd. (RenaissanceRe). For periods prior to the sale of Validus Re, the underwriting results are included in adjusted pre-tax income of General Insurance – North America Commercial.For additional information, see Note 1 to the Consolidated Financial Statements.Personal Insurance
Global Accident & Health: Products include group personal accident and business travel products for employees, associations and other organizations, and voluntary and sponsor-paid personal accident and supplemental health products for individuals.
On December 2, 2024, AIG completed the sale of its global individual personal travel insurance and assistance business to Zurich Insurance Group. The agreement includes the Travel Guard business and its servicing capabilities, excluding our travel insurance businesses in Japan and our AIG joint venture arrangement in India. Travel coverages offered through AIG’s Global Accident & Health business are also excluded from this agreement. For additional information, see Note 4 to the Consolidated Financial Statements.
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ITEM 7 | Business Segment Operations | General InsurancePersonal Lines: Products include personal auto and homeowners in selected markets, comprehensive extended warranty, device protection insurance, home warranty and related services, and insurance for high net-worth individuals offered through Private Client Select (PCS) in the U.S. that covers auto, homeowners, umbrella, yacht, fine art and collections.
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 global platform enables writing multinational and cross-border risks in both Commercial Lines and Personal Insurance.BUSINESS STRATEGY
Profitable Growth: Build on our high-quality portfolio by focusing on targeted growth through continued underwriting discipline, improved retentions and new business development. Deploy capital efficiently to act opportunistically and achieve growth in profitable lines, geographies and customer segments, while taking a disciplined underwriting approach to exposure management, terms and conditions and rate change to achieve our risk/return hurdles. Continue to be open to inorganic growth opportunities in profitable markets and segments to expand our capabilities and footprint.Underwriting Excellence: Continue to enhance portfolio optimization through strength of underwriting framework and guidelines as well as clear communication of risk appetite and rate adequacy. 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.Reinsurance Optimization: Strategically partner with reinsurers to effectively manage exposure to losses arising from frequency of large catastrophic events and severity from individual risk losses. We strive to 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.COMPETITION AND CHALLENGES
General Insurance operates in a highly competitive industry against global, national and local insurers and reinsurers and underwriting syndicates in specific market areas and product types. Insurance companies compete through a combination of risk acceptance criteria, product pricing, service levels and terms and conditions. We serve our business and individual customers on a global basis – from the largest multinational corporations to local businesses and individuals. General Insurance seeks to differentiate itself in the markets where we participate by providing leading expertise and insight to clients, distribution partners and other stakeholders, delivering underwriting excellence and value-driven insurance solutions and providing high quality, tailored end-to-end support to stakeholders. In doing so, we leverage our world-class global franchise, multinational capabilities, balance sheet strength and financial flexibility.
Our challenges include:
• ensuring adequate business pricing given passage of time to reporting and settlement for insurance business, particularly with respect to long-tail Commercial Lines exposures;
• impact of social and economic inflation on claim frequency and severity; and
• volatility in claims arising from natural and man-made catastrophes and other aggregations of risk exposure.
INDUSTRY AND ECONOMIC FACTORSThe results of General Insurance for the year ended December 31, 2024 reflect continued strong performance from our Commercial Lines portfolio and focused execution on our portfolio management strategies within Personal Insurance. Across North America Commercial and International Commercial we have seen increased demand for our insurance products and strong growth in new business. We continue to monitor the impact of inflation and other economic factors on rate adequacy and loss cost trends. Similarly, we are monitoring monetary policy actions taken or anticipated to be taken by central banks and the corresponding impact on market interest rates.
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ITEM 7 | Business Segment Operations | General InsuranceGeneral Insurance – North America Commercial
North America Commercial continues to pursue profitable growth. While market discipline continues to support price increases across most lines, we are seeing capacity move back into the market in certain segments given pricing levels which is putting pressure on rates. We have focused on retaining our best accounts which has led to strong retention across the portfolio. These retention rates are often coupled with an exposure limit management strategy to reduce volatility within the portfolio. We continue to proactively identify segment growth areas as market conditions warrant through effective portfolio management, while non-renewing unprofitable business.
General Insurance – International Commercial
We are continuing to pursue growth in our most profitable lines of business and diversify our portfolio across all regions by expanding key business lines while remaining a market leader in key developed and developing markets. We are maintaining our underwriting discipline, reducing gross and net limits where appropriate, utilizing reinsurance to reduce volatility, as well as continuing our risk selection strategy to improve profitability.
General Insurance – Global Personal
Global Personal serves individuals as well as group and corporate clients across a broad range of products, markets, and client profiles. Amid competitive market conditions, we continue to benefit from improved underwriting quality and portfolio diversity, as well as investment in expanded capabilities and strategic distribution partnerships.GENERAL INSURANCE RESULTS
Years Ended December 31, Change(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022Underwriting results:Net premiums written $ 23,902 $ 26,719 $ 25,512 (11) % 5 %
Increase in unearned premiums (445) (1,628) (172) 73 NM
Net premiums earned 23,457 25,091 25,340 (7) (1)Losses and loss adjustment expenses incurred (a)14,038 14,775 15,407 (5) (4)Acquisition expenses:Amortization of deferred policy acquisition costs 3,413 3,623 3,533 (6) 3
Other acquisition expenses 1,137 1,279 1,365 (11) (6)
Total acquisition expenses 4,550 4,902 4,898 (7) —
General operating expenses 2,952 3,065 2,987 (4) 3
Underwriting income 1,917 2,349 2,048 (18) 15
Net investment income 3,060 3,022 2,382 1 27
Adjusted pre-tax income $ 4,977 $ 5,371 $ 4,430 (7) % 21 %Loss ratio (a)59.8 58.9 60.8 0.9 (1.9)
Acquisition ratio 19.4 19.5 19.3 (0.1) 0.2
General operating expense ratio 12.6 12.2 11.8 0.4 0.4
Expense ratio 32.0 31.7 31.1 0.3 0.6Combined ratio (a)91.8 90.6 91.9 1.2 (1.3)Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted:Catastrophe losses and reinstatement premiums (5.0) (4.3) (5.0) (0.7) 0.7Prior year development, net of reinsurance and prior year premiums1.4 1.4 1.8 — (0.4)
Accident year loss ratio, as adjusted 56.2 56.0 57.6 0.2 (1.6)
Accident year combined ratio, as adjusted 88.2 87.7 88.7 0.5 (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.56
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ITEM 7 | Business Segment Operations | General InsuranceThe following table presents General Insurance net premiums written by segment, showing change on both reported and constant dollar basis:
Years Ended December 31, Percentage Change in U.S. dollars Percentage Change in Original Currency
(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022 2024 vs 2023 2023 vs 2022
North America Commercial $ 8,452 $ 11,432 $ 10,899 (26) % 5 % (26) % 5 %
International Commercial 8,364 8,168 7,877 2 4 3 5
Global Personal 7,086 7,119 6,736 — 6 2 10
Total net premiums written $ 23,902 $ 26,719 $ 25,512 (11) % 5 % (10) % 6 %
The following tables present General Insurance accident year catastrophes (a) by segment and number of events:
(dollars in millions) # of Events North America Commercial International
Commercial
Global Personal Total
Years Ended December 31, 2024
Flooding, rainstorms and other 3 $ 2 $ 98 $ — $ 100
Windstorms and hailstorms 17 700 133 135 968
Winter storms 2 44 1 7 52
Wildfires 1 41 — — 41
Earthquakes 1 — 7 — 7
Reinstatement premiums 12 (2) — 10
Total catastrophe-related charges 24 $ 799 $ 237 $ 142 $ 1,178Years Ended December 31, 2023Flooding, rainstorms and other 3 $ 10 $ 72 $ 20 $ 102
Windstorms and hailstorms 26 396 186 126 708
Winter storms 2 24 4 17 45
Wildfires 2 131 19 13 163
Earthquakes 1 20 29 — 49
Reinstatement premiums 31 (1) 1 31
Total catastrophe-related charges 34 $ 612 $ 309 $ 177 $ 1,098Years Ended December 31, 2022Flooding, rainstorms and other 3 $ 53 $ 103 $ 2 $ 158
Windstorms and hailstorms 18 484 137 116 737
Winter storms 5 141 21 45 207
Earthquakes 1 — 16 3 19Russia / Ukraine N/A (b)10 97 — 107
Reinstatement premiums 51 31 2 84
Total catastrophe-related charges 27 $ 739 $ 405 $ 168 $ 1,312(a) Natural catastrophe losses are generally weather or seismic events, in each case, having a net impact on AIG in excess of $10 million and man-made catastrophe losses, such as terrorism and civil unrest that exceed the $10 million threshold.
(b) As the Russia/Ukraine conflict continues to evolve the number of events is yet to be determined.NORTH AMERICA COMMERCIAL RESULTSYears Ended December 31, Change(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022Underwriting results:Net premiums written $ 8,452 $ 11,432 $ 10,899 (26) % 5 %
Increase in unearned premiums (280) (1,199) (455) 77 (164)
Net premiums earned 8,172 10,233 10,444 (20) (2)Losses and loss adjustment expenses incurred (a)5,713 6,323 7,218 (10) (12)Acquisition expenses:Amortization of deferred policy acquisition costs 824 1,371 1,381 (40) (1)
Other acquisition expenses 222 231 174 (4) 33
Total acquisition expenses 1,046 1,602 1,555 (35) 3
General operating expenses 865 953 927 (9) 3
Underwriting income $ 548 $ 1,355 $ 744 (60) % 82 %
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ITEM 7 | Business Segment Operations | General Insurance
Years Ended December 31, Change
(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022Loss ratio (a)69.9 61.8 69.1 8.1 (7.3)
Acquisition ratio 12.8 15.7 14.9 (2.9) 0.8
General operating expense ratio 10.6 9.3 8.9 1.3 0.4
Expense ratio 23.4 25.0 23.8 (1.6) 1.2Combined ratio (a)93.3 86.8 92.9 6.5 (6.1)Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums(9.7) (5.9) (6.9) (3.8) 1.0Prior year development, net of reinsurance and prior year premiums1.5 3.7 0.7 (2.2) 3.0
Accident year loss ratio, as adjusted 61.7 59.6 62.9 2.1 (3.3)
Accident year combined ratio, as adjusted 85.1 84.6 86.7 0.5 (2.1)(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 HighlightsNet Premiums Written Comparison for the Years Ended December 31, 2024 and 2023
Net premiums written decreased by $3.0 billion driven by the sales of AIG Re and CRS, partially offset by growth in Casualty.Net Premiums Written Comparison for the Years Ended December 31, 2023 and 2022Net premiums written increased by $533 million, particularly in AIG Re and Property driven by continued positive rate change, higher renewal retentions and strong new business production, partially offset by decreases in Crop as a consequence of the CRS sale and Financial Lines.
Underwriting Income (Loss) Comparison for the Years Ended December 31, 2024 and 2023
Underwriting income decreased by $807 million primarily due to:
• lower net favorable prior year development (2.2 points or $252 million), primarily from Casualty which turned unfavorable driven by a large settlement of a legacy mass tort claim with most of the gross loss in accident years covered under the adverse development cover, partially offset by Financial Lines which turned favorable and higher favorable development in Property;
• higher Catastrophe losses (3.8 points or $187 million); and
• the sales of AIG Re and CRS.
This decrease was partially offset by a lower expense ratio (1.6 points) reflecting a lower acquisition ratio (2.9 points), partially offset by an increase in general operating expense ratio (1.3 points), primarily driven by changes in business mix including the impact from the sales of AIG Re and CRS.Underwriting Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022Underwriting income increased by $611 million primarily due to:
• improvement in the accident year loss ratio, as adjusted (3.3 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions;
• higher net favorable prior year reserve development (3.0 points or $327 million), primarily due to lower unfavorable development in Financial Lines, partially offset by lower favorable development in Casualty; and
• lower catastrophe losses (1.0 points or $127 million).
This increase was partially offset by:
• a higher expense ratio (1.2 points) reflecting a higher acquisition ratio (0.8 points) primarily driven by changes in business mix as well as an increase in general operating expense ratio (0.4 points).
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ITEM 7 | Business Segment Operations | General InsuranceINTERNATIONAL COMMERCIAL RESULTSYears Ended December 31, Change(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022Underwriting results:Net premiums written $ 8,364 $ 8,168 $ 7,877 2 % 4 %
Increase in unearned premiums (219) (204) (176) (7) (16)
Net premiums earned 8,145 7,964 7,701 2 3
Losses and loss adjustment expenses incurred 4,463 4,641 4,301 (4) 8Acquisition expenses:Amortization of deferred policy acquisition costs 1,018 943 938 8 1
Other acquisition expenses 342 350 378 (2) (7)
Total acquisition expenses 1,360 1,293 1,316 5 (2)
General operating expenses 1,095 1,028 945 7 9
Underwriting income $ 1,227 $ 1,002 $ 1,139 22 % (12) %
Loss ratio 54.8 58.3 55.8 (3.5) 2.5
Acquisition ratio 16.7 16.2 17.1 0.5 (0.9)
General operating expense ratio 13.4 12.9 12.3 0.5 0.6
Expense ratio 30.1 29.1 29.4 1.0 (0.3)
Combined ratio 84.9 87.4 85.2 (2.5) 2.2Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted:Catastrophe losses and reinstatement premiums (2.9) (3.9) (5.0) 1.0 1.1
Prior year development, net of reinsurance and prior year premiums 1.0 (1.8) 1.6 2.8 (3.4)
Accident year loss ratio, as adjusted 52.9 52.6 52.4 0.3 0.2
Accident year combined ratio, as adjusted 83.0 81.7 81.8 1.3 (0.1)Business and Financial HighlightsNet Premiums Written Comparison for the Years Ended December 31, 2024 and 2023
Net premiums written, excluding the unfavorable impact of foreign exchange ($16 million), increased by $212 million primarily due to growth in Property, Specialty and Casualty driven by strength of renewal retentions and new business production, partially offset by the sale of AIG Re and lower production in Financial Lines.Net Premiums Written Comparison for the Years Ended December 31, 2023 and 2022Net premiums written, excluding the unfavorable impact of foreign exchange ($79 million), increased by $370 million primarily due to growth in Property and Specialty driven by continued positive rate change and strong new business production, partially offset by a decrease in Financial Lines.
Underwriting Income (Loss) Comparison for the Years Ended December 31, 2024 and 2023
Underwriting income increased by $225 million primarily due to:
• net favorable prior year reserve development of $73 million in 2024 compared to net unfavorable prior year reserve development of $140 million in 2023 (2.8 points or $213 million), primarily as a result of Specialty and Property which turned favorable and lower unfavorable development within Casualty, partially offset by Financial Lines development which turned unfavorable; and
• lower catastrophe losses (1.0 points or $72 million).
This increase was partially offset by:
• a higher expense ratio (1.0 points) reflecting an acquisition ratio (0.5 points) and general operating expense ratio (0.5 points) primarily driven by changes in business mix; and
• a higher accident year loss ratio, as adjusted (0.3 points) due to changes in business mix.Underwriting Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022Underwriting income decreased by $137 million primarily due to:
• net unfavorable prior year reserve development of $140 million in 2023 compared to net favorable development in 2022 of $135 million (3.4 points or $275 million), primarily as a result of lower favorable development in Specialty, unfavorable development in Property and higher unfavorable development in Casualty, partially offset by favorable development in Financial Lines; and
• a higher accident year loss ratio, as adjusted (0.2 points) due to changes in business mix.
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This decrease was partially offset by:
• lower catastrophe losses (1.1 points or $96 million); and
• a lower expense ratio (0.3 points) reflecting a lower acquisition ratio (0.9 points) primarily driven by changes in business mix and improved commission terms, partially offset by an increase in the general operating expense ratio (0.6 points).
GLOBAL PERSONAL RESULTSYears Ended December 31, Change(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022
Underwriting results:
Net premiums written $ 7,086 $ 7,119 $ 6,736 — % 6 %
(Increase) decrease in unearned premiums 54 (225) 459 NM NM
Net premiums earned 7,140 6,894 7,195 4 (4)
Losses and loss adjustment expenses incurred 3,862 3,811 3,888 1 (2)
Acquisition expenses:
Amortization of deferred policy acquisition costs 1,571 1,309 1,214 20 8
Other acquisition expenses 573 698 813 (18) (14)
Total acquisition expenses 2,144 2,007 2,027 7 (1)
General operating expenses 992 1,084 1,115 (8) (3)
Underwriting income (loss) $ 142 $ (8) $ 165 NM % NM %
Loss ratio 54.1 55.3 54.0 (1.2) 1.3
Acquisition ratio 30.0 29.1 28.2 0.9 0.9
General operating expense ratio 13.9 15.7 15.5 (1.8) 0.2
Expense ratio 43.9 44.8 43.7 (0.9) 1.1
Combined ratio 98.0 100.1 97.7 (2.1) 2.4
Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums (2.0) (2.6) (2.3) 0.6 (0.3)
Prior year development, net of reinsurance and prior year premiums 1.6 1.8 3.8 (0.2) (2.0)
Accident year loss ratio, as adjusted 53.7 54.5 55.5 (0.8) (1.0)
Accident year combined ratio, as adjusted 97.6 99.3 99.2 (1.7) 0.1Business and Financial HighlightsNet Premiums Written Comparison for the Years Ended December 31, 2024 and 2023
Net premiums written, excluding the unfavorable impact of foreign exchange ($199 million), increased by $166 million primarily due to Personal Auto and PCS, partially offset by lower production in Warranty.
Net Premiums Written Comparison for the Years Ended December 31, 2023 and 2022
Net premiums written, excluding the unfavorable impact of foreign exchange ($240 million), increased by $623 million primarily due to PCS resulting from changes in our reinsurance program.
Underwriting Income (Loss) Comparison for the Years Ended December 31, 2024 and 2023
Underwriting income increased by $150 million primarily due to:
• improvement in the accident year loss ratio, as adjusted (0.8 points) primarily driven by changes in business mix along with continued positive rate change;
• a lower expense ratio (0.9 points) reflecting a lower general operating expense ratio (1.8 points), partially offset by higher acquisition ratio (0.9 points) primarily driven by change in business mix; and
• lower catastrophe losses (0.6 points or $35 million).
Underwriting Income (Loss) Comparison for the Years Ended December 31, 2023 and 2022
Underwriting income decreased by $173 million primarily due to:
• lower net favorable prior year reserve development (2.0 points or $156 million), primarily in Personal Auto;
• a higher expense ratio of (1.1 points) reflecting a higher acquisition ratio (0.9 points) as well as increase in general operating expense ratio (0.2 points) primarily driven by changes in business mix; and
• higher catastrophe losses (0.3 points or $9 million).
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This decrease was partially offset by:
• improvement in the accident year loss ratio, as adjusted (1.0 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions.Other OperationsOther Operations predominantly consists of Net Investment Income from our AIG Parent liquidity portfolio, Corebridge dividend income, corporate General operating expenses, and Interest expense.OTHER OPERATIONS RESULTS
Years Ended December 31, Change(in millions) 2024 2023 2022 2024 vs 2023 2023 vs 2022
Net investment income and other $ 434 $ 190 $ (110) 128 % NM %Benefits, losses and expenses:Corporate and other general operating expenses 623 698 850 (11) (18)
Amortization of intangible assets 18 27 40 (33) (33)
Interest expense 445 498 624 (11) (20)
Total benefits, losses and expenses 1,086 1,223 1,514 (11) (19)
Adjusted pre-tax loss before consolidation and eliminations (652) (1,033) (1,624) 37 36
Consolidation and eliminations (1) (17) 63 94 NM
Adjusted pre-tax loss* $ (653) $ (1,050) $ (1,561) 38 % 33 %
* In the fourth quarter of 2024, AIG realigned and began excluding the net results of run-off businesses previously reported in Other Operations from Adjusted pre-tax income. Historical results have been recast to reflect these changes.
YEARS ENDED DECEMBER 31, 2024 AND 2023 COMPARISON
Adjusted pre-tax loss before consolidation and eliminations was $652 million in 2024 compared to $1.0 billion in 2023, a decrease of $381 million, primarily due to:
• higher net investment income and other of $244 million due to dividend income from Corebridge in 2024 compared to $0 in 2023 and on AIG Parent portfolio due to higher yields and higher average balance;
• lower corporate general operating expenses of $75 million primarily driven by employee related costs and other operating expenses; and
• lower interest expense of $53 million primarily driven by interest savings from $3.5 billion debt repurchases, through cash tender offers and debt redemption and maturity in 2023 and 2024, offset by interest expense of $10 million on $750 million Senior unsecured debt issued in the first quarter of 2023.YEARS ENDED DECEMBER 31, 2023 AND 2022 COMPARISONAdjusted pre-tax loss before consolidation and eliminations of $1.0 billion in 2023 compared to $1.6 billion in 2022, a decrease of $591 million, was primarily due to:
• higher net investment income and other of $300 million primarily driven by AIG Parent portfolio due to higher yields and higher average balance;
• lower corporate general operating expenses of $152 million primarily driven by a reduction in employee related costs and other operating expenses; and
• lower interest expense of $126 million primarily driven by interest savings from $11.0 billion debt repurchases, through cash tender offers and debt redemption and maturity in 2022 and 2023.
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ITEM 7 | Investments
Investments
OVERVIEWOur investment strategies are tailored to the specific business needs of each segment by targeting an asset allocation mix that supports estimated cash flow needs of our outstanding liabilities and provides diversification from an asset class, sector, issuer, and geographic perspective. The primary objectives are generation of investment income, preservation of capital, liquidity management and growth of surplus. The majority of assets backing our insurance liabilities consist of fixed maturity securities.Our Investment Management Agreements with BlackRock, Inc.Since April 2022, AIG insurance company subsidiaries have entered into separate investment management agreements with BlackRock, Inc. and its investment advisory affiliates (BlackRock). As of December 31, 2024, BlackRock manages $62 billion of our investment portfolio, consisting of liquid fixed income, certain private placements and private equity assets. In addition, liquid fixed income assets associated with the Fortitude Re funds withheld asset portfolio were separately transferred to BlackRock for management in 2022.
INVESTMENT HIGHLIGHTS IN 2024• Blended investment yields on new investments are higher than blended rates on investments that were sold, matured or called during this period. We continued to make investments in structured securities and other fixed maturity securities with attractive risk-adjusted return characteristics to improve yields and increase net investment income.• Total Net investment income increased for the year ended December 31, 2024 compared to the same period in the prior year, primarily due to dividend income from AIG's equity in Corebridge, higher income on available for sale fixed maturity securities and short term instruments, partially offset by mortgage loans.INVESTMENT STRATEGIES
Investment strategies are assessed at the segment level and involve considerations that include local and general market and economic conditions, duration and cash flow management, risk appetite and volatility constraints, rating agency and regulatory capital considerations, tax, regulatory and legal investment limitations, and, as applicable, environmental, social and governance considerations.
Some of our key investment strategies are as follows:
• Our fundamental strategy across the portfolios is to seek investments with similar duration and cash flow characteristics to the associated insurance liabilities to the extent practicable.
• We seek to purchase investments that offer enhanced yield through illiquidity premiums, such as private placements and commercial mortgage loans, which also add portfolio diversification. These assets typically afford credit protections through covenants, ability to customize structures that meet our insurance liability needs, and deeper due diligence given information access.• Given our global presence, we seek investments that provide diversification from investments available in local markets. To the extent we purchase these investments, we generally hedge any currency risk using derivatives, which could provide opportunities to earn higher risk adjusted returns compared to investments in the functional currency.
• AIG Parent, included in Other Operations, actively manages its assets and liabilities, counterparties and duration. AIG Parent’s liquidity sources are held primarily in the form of cash and short-term investments. This strategy allows us to both diversify our sources of liquidity and reduce the cost of maintaining sufficient liquidity.• Within the U.S., General Insurance investments are generally split between reserve backing and surplus portfolios.– Insurance reserves are backed mainly by investment grade fixed maturity securities that meet our duration, risk-return, capital, tax, liquidity, credit quality and diversification objectives. We assess asset classes based on their fundamental underlying risk factors, including credit (public and private), commercial real estate and residential real estate, regardless of whether such investments are bonds, loans, or structured products.
– Surplus investments seek to enhance portfolio returns and are generally comprised of a mix of fixed maturity investment grade and below investment grade securities and various alternative asset classes, including private equity, real estate equity, and hedge funds. Over the past few years, hedge fund investments have been reduced.62
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ITEM 7 | Investments• Outside of the U.S., fixed maturity securities held by our insurance companies consist primarily of investment-grade securities generally denominated in the currencies of the countries in which we operate.
• We also utilize derivatives to manage our asset and liability duration as well as currency exposures.
Asset-Liability ManagementThe investment strategy within the General Insurance companies focuses on growth of surplus, maintenance of sufficient liquidity for unanticipated insurance claims, and preservation of capital. General Insurance invests 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. Fixed maturity securities of the General Insurance companies have an average duration of 3.8 years, with an average of 4.2 years for North America and 3.0 years for International.While invested assets backing reserves of the General Insurance companies are primarily invested in conventional liquid fixed maturity securities, we have continued to allocate to asset classes that offer higher yields through structural and illiquidity premiums, particularly in our North America operations. In addition, we continue to invest in both fixed rate and floating rate asset-backed investments to manage our exposure to potential changes in interest rates and inflation. We seek to diversify the portfolio across asset classes, sectors and issuers to mitigate idiosyncratic portfolio risks.
In addition, a portion of the surplus of General Insurance companies is invested in a diversified portfolio of alternative investments that seek to balance liquidity, volatility and growth of surplus. 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.Available-for-Sale Investments
The following table presents the fair value of our available-for-sale securities:(in millions) December 31, 2024 December 31, 2023Bonds available for sale:U.S. government and government sponsored entities $ 3,267 $ 4,395
Obligations of states, municipalities and political subdivisions 3,143 4,833
Non-U.S. governments 8,107 8,396
Corporate debt 31,826 32,346Mortgage-backed, asset-backed and collateralized:RMBS 8,604 6,207
CMBS 3,926 4,147
CLO/ABS 5,133 4,918
Total mortgage-backed, asset-backed and collateralized 17,663 15,272
Total bonds available for sale* $ 64,006 $ 65,242
* At December 31, 2024 and 2023, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled $3.6 billion and $5.2 billion, respectively.
The following table presents the fair value of our aggregate credit exposures to non-U.S. governments for our fixed maturity securities:
(in millions) December 31, 2024 December 31, 2023
Canada $ 1,384 $ 1,340
Germany 834 929
Japan 555 699
United Kingdom 416 478
France 360 430
Australia 335 314
Israel 312 201
Korea, Republic of 268 293
Malaysia 220 183
Denmark 205 227
Other 3,242 3,326
Total $ 8,131 $ 8,420
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ITEM 7 | InvestmentsThe following table presents the fair value of our aggregate European credit exposures by major sector for our fixed maturity securities:December 31, 2024 December 31, 2023 Total(in millions) Sovereign Financial Institution Non-Financial Corporates Structured Products Total
Euro-Zone countries:France $ 360 $ 1,136 $ 481 $ 12 $ 1,989 $ 2,068
Germany 834 223 750 56 1,863 2,042
Netherlands 164 448 297 26 935 940
Ireland 9 57 112 406 584 231
Italy 21 88 260 — 369 420
Spain 9 149 110 53 321 353
Denmark 205 45 7 — 257 297
Belgium 33 123 73 13 242 276
Luxembourg 17 60 80 — 157 227
Finland 9 63 6 1 79 95
Other Euro-Zone 226 24 35 14 299 194
Total Euro-Zone $ 1,887 $ 2,416 $ 2,211 $ 581 $ 7,095 $ 7,143Remainder of Europe:United Kingdom $ 416 $ 1,228 $ 1,379 $ 239 $ 3,262 $ 3,696
Switzerland 15 186 283 — 484 589
Sweden 117 144 30 — 291 342
Norway 64 37 9 — 110 150
Jersey (Channel Islands) 3 11 9 71 94 5
Other - Remainder of Europe 37 3 8 2 50 31
Total - Remainder of Europe $ 652 $ 1,609 $ 1,718 $ 312 $ 4,291 $ 4,813
Total $ 2,539 $ 4,025 $ 3,929 $ 893 $ 11,386 $ 11,956Investments in Municipal BondsAt December 31, 2024, the U.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality tax-exempt bonds with 98 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:December 31, 2024
(in millions) State General Obligation Local General Obligation Revenue Total Fair Value December 31, 2023 Total Fair Value
California $ 196 $ 135 $ 385 $ 716 $ 903
New York 37 72 313 422 746
Texas 1 138 126 265 490
Massachusetts 50 13 136 199 209
Florida 1 — 142 143 227
Pennsylvania 51 — 82 133 203
Connecticut 42 3 80 125 109
Illinois 5 33 72 110 301
Georgia 50 4 25 79 159
Hawaii 68 — 6 74 89
Oregon 13 41 17 71 83
Washington 5 11 45 61 140
New Jersey 1 2 55 58 200All other states54 20 613 687 974Total$ 574 $ 472 $ 2,097 $ 3,143 $ 4,833
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ITEM 7 | InvestmentsInvestments in Corporate Debt Securities
The following table presents the fair value of our available for sale corporate debt securities by industry categories:
Industry Category(in millions) December 31, 2024 December 31, 2023Financial institutions:Money center/Global bank groups $ 3,642 $ 5,153
Regional banks – other 2,129 222
Life insurance 728 617
Securities firms and other finance companies 669 296
Insurance non-life 494 938
Regional banks – North America 1,314 2,029
Other financial institutions 4,116 3,152
Utilities 2,659 2,989
Communications 1,844 2,111
Consumer noncyclical 2,715 3,436
Capital goods 1,715 1,552
Energy 1,702 1,672
Consumer cyclical 3,284 3,049
Basic materials 1,838 1,141
Other 2,977 3,989
Total* $ 31,826 $ 32,346
* At December 31, 2024 and 2023, approximately 88 percent and 90 percent, respectively, of these investments were rated investment grade.Investments in RMBS
The following table presents the fair value of AIG’s RMBS available for sale securities:(in millions) December 31, 2024 December 31, 2023
Agency RMBS $ 4,978 $ 2,827
Alt-A RMBS 1,620 1,338
Subprime RMBS 291 323
Prime non-agency 850 580
Other housing related 865 1,139Total RMBS (a)(b)$ 8,604 $ 6,207
(a) Includes approximately $1.3 billion at both December 31, 2024 and 2023, of certain RMBS that had experienced deterioration in credit quality since their origination. This excludes impact of U.S. debt downgrade of Fannie Mae and Freddie Mac. For additional information on purchased credit deteriorated securities, see Note 6 to the Consolidated Financial Statements.
(b) The weighted average expected life was six years and seven years at December 31, 2024 and December 31, 2023, respectively.
Our investments guidelines for investing in RMBS, collateralized loan obligations (CLO) and other asset-backed securities (ABS) 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.Investments in CMBS
The following table presents the fair value of our CMBS available for sale securities:(in millions) December 31, 2024 December 31, 2023
CMBS (traditional) $ 3,102 $ 3,604
Agency 574 488
Other 250 55
Total $ 3,926 $ 4,147
The fair value of CMBS holdings remained stable during the year ended December 31, 2024. The majority of our investments in CMBS are in tranches that contain substantial credit protection features through collateral subordination. The majority of CMBS holdings are traditional conduit transactions, broadly diversified across property types and geographical areas.
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ITEM 7 | InvestmentsInvestments in CLO/ABS
The following table presents the fair value of our CLO/ABS available for sale securities by collateral type:(in millions) December 31, 2024 December 31, 2023Collateral Type:ABS $ 2,445 $ 1,827
Bank loans 2,688 3,090
Other — 1
Total $ 5,133 $ 4,918Unrealized Losses of Fixed Maturity Securities
The following table shows the aging of the unrealized losses of fixed maturity 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, 2024 Less Than or Equal Greater Than 20% Greater Than 50%to 20% of Cost (b)
to 50% of Cost (b)
of Cost (b)
Total
Aging (a)
Unrealized Unrealized Unrealized Unrealized
(dollars in millions) Cost (c)
Loss Items (d)
Cost (c)
Loss Items (d)
Cost (c)
Loss Items (d)
Cost (c)
Loss Items (d)
Investment grade bonds0-6 months $ 19,725 $ 343 5,027 $ 100 $ 26 5 $ — $ — 1 $ 19,825 $ 369 5,033
7-11 months 399 13 159 29 7 4 — — — 428 20 163
12 months or more 17,254 1,537 4,879 2,970 854 537 294 171 24 20,518 2,562 5,440
Total $ 37,378 $ 1,893 10,065 $ 3,099 $ 887 546 $ 294 $ 171 25 $ 40,771 $ 2,951 10,636Below investment grade bonds0-6 months $ 2,078 $ 36 1,179 $ 3 $ 1 7 $ 2 $ 2 11 $ 2,083 $ 39 1,197
7-11 months 57 3 34 2 1 5 1 1 2 60 5 41
12 months or more 998 79 572 121 32 38 8 7 6 1,127 118 616
Total $ 3,133 $ 118 1,785 $ 126 $ 34 50 $ 11 $ 10 19 $ 3,270 $ 162 1,854Total bonds0-6 months $ 21,803 $ 379 6,206 $ 103 $ 27 12 $ 2 $ 2 12 $ 21,908 $ 408 6,230
7-11 months 456 16 193 31 8 9 1 1 2 488 25 204
12 months or more 18,252 1,616 5,451 3,091 886 575 302 178 30 21,645 2,680 6,056
Total
$ 40,511 $ 2,011 11,850 $ 3,225 $ 921 596 $ 305 $ 181 44 $ 44,041 $ 3,113 12,490(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.
(c) For bonds, represents amortized cost net of allowance.
(d) Item count is by CUSIP by subsidiary.The allowance for credit losses was $4 million for investment grade bonds and $34 million for below investment grade bonds as of December 31, 2024.Commercial Mortgage LoansAt December 31, 2024, we had direct commercial mortgage loan exposure of $3.3 billion.The following table presents the commercial mortgage loan exposure by location and class of loan based on amortized cost:
Number of Loans Class Percent of Total
(dollars in millions) Apartments Offices Retail Industrial Hotel Others TotalDecember 31, 2024State:California 21 $ 97 $ 247 $ 30 $ 56 $ 32 $ — $ 462 14 %
New York 19 43 217 70 20 32 — 382 12
Texas 19 78 201 2 31 22 — 334 10
Massachusetts 9 94 156 49 7 — — 306 9
Florida 11 68 — 62 8 38 — 176 5
New Jersey 18 78 — 43 — 10 131 4
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ITEM 7 | Investments
Number of Loans Class Percent of Total
(dollars in millions) Apartments Offices Retail Industrial Hotel Others TotalPennsylvania 10 18 52 29 18 — 117 4
Illinois 6 88 20 — — — — 108 3
Ohio 5 62 — 29 — — — 91 3
Washington 5 49 — — — 11 — 60 2
Other states 31 134 33 63 49 6 — 285 8
Foreign 36 278 182 98 69 117 109 853 26
Total* 190 $ 1,087 $ 1,108 $ 432 $ 301 $ 258 $ 119 $ 3,305 100 %
December 31, 2023State:California 21 $ 89 $ 277 $ 32 $ 58 $ 33 $ — $ 489 13 %
New York 19 43 208 77 20 32 — 380 10
Texas 21 77 255 2 44 — — 378 10
Massachusetts 9 96 128 50 7 — — 281 7
New Jersey 21 111 8 20 55 — 10 204 5
Florida 11 60 — 64 9 38 — 171 4
Illinois 6 88 26 — — — — 114 3
Ohio 6 63 3 30 — — — 96 4
Pennsylvania 8 14 39 36 5 — — 94 2
Colorado 7 17 32 32 — 6 — 87 2
Other states 37 206 20 64 40 16 — 346 9
Foreign 47 403 227 111 222 122 111 1,196 31
Total* 213 $ 1,267 $ 1,223 $ 518 $ 460 $ 247 $ 121 $ 3,836 100 %* Does not reflect allowance for credit losses.
For additional information on commercial mortgage loans, see Note 7 to the Consolidated Financial Statements.
Net Realized Gains and Losses
The following table presents the components of Net realized gains (losses):Years Ended December 31, 2024 2023 2022(in millions) Excluding Fortitude Re Funds Withheld Assets Fortitude Re Funds Withheld Assets Total Excluding Fortitude Re Funds Withheld Assets Fortitude Re Funds Withheld Assets Total Excluding Fortitude Re Funds Withheld Assets Fortitude Re Funds Withheld Assets TotalSales of fixed maturity securities $ ( 583 ) $ ( 36 ) $ ( 619 ) $ ( 668 ) $ ( 67 ) $ ( 735 ) $ ( 565 ) $ ( 83 ) $ ( 648 )
Intent to sell — — — — — — ( 66 ) — ( 66 )
Change in allowance for credit losses on fixed maturity securities ( 25 ) — ( 25 ) ( 44 ) — ( 44 ) ( 72 ) — ( 72 )
Change in allowance for credit losses on loans ( 23 ) — ( 23 ) ( 28 ) 3 ( 25 ) 19 ( 3 ) 16
Foreign exchange transactions 256 ( 9 ) 247 124 5 129 266 ( 10 ) 256
All other derivatives and hedge accounting ( 62 ) 7 ( 55 ) ( 165 ) ( 8 ) ( 173 ) 159 ( 3 ) 156
Sales of alternative investments ( 16 ) — ( 16 ) 29 — 29 15 — 15
Other 19 ( 1 ) 18 18 ( 4 ) 14 37 — 37
Net realized losses – excluding Fortitude Re funds withheld embedded derivative ( 434 ) ( 39 ) ( 473 ) ( 734 ) ( 71 ) ( 805 ) ( 207 ) ( 99 ) ( 306 )
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative — ( 75 ) ( 75 ) — ( 273 ) ( 273 ) — 1,133 1,133
Net realized gains (losses) $ ( 434 ) $ ( 114 ) $ ( 548 ) $ ( 734 ) $ ( 344 ) $ ( 1,078 ) $ ( 207 ) $ 1,034 $ 827
Lower Net realized losses excluding Fortitude Re funds withheld assets in the year ended December 31, 2024 compared to 2023 were primarily due to lower losses on sales of fixed maturity securities and lower derivatives losses compared to the prior year period. Higher Net realized losses excluding Fortitude Re funds withheld assets in the year ended December 31, 2023 compared to 2022 were primarily due to lower derivative gains in 2023 compared to 2022.
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ITEM 7 | InvestmentsNet realized gains (losses) on Fortitude Re funds withheld assets primarily reflect changes in the valuation of the modified coinsurance and funds withheld assets. Increases in the valuation of these assets result in losses to AIG as the appreciation on the assets under those reinsurance arrangements must be transferred to Fortitude Re. Decreases in valuation of the assets result in gains to AIG as the depreciation on the assets under those reinsurance arrangements must be transferred to Fortitude Re. For additional information on the impact of the funds withheld arrangements with Fortitude Re, see Note 8 to the Consolidated Financial Statements.For additional information on our investment portfolio, see Note 6 to the Consolidated Financial Statements.
Change in Unrealized Gains and Losses on InvestmentsThe change in net unrealized gains and losses on investments in the year ended December 31, 2024 was primarily attributable to a change in the fair value of fixed maturity securities. For the year ended December 31, 2024, net unrealized gains were $692 million due to lower interest rates and narrowing of credit spreads.
The change in net unrealized gains and losses on investments in the year ended December 31, 2023 was primarily attributable to a change in the fair value of fixed maturity securities. For the year ended December 31, 2023, net unrealized gains were $2.5 billion primarily due to widening of credit spreads.For additional information on our investment portfolio, see Note 6 to the Consolidated Financial Statements.CREDIT RATINGS
At December 31, 2024, approximately 61 percent of our fixed maturity securities were held by our U.S. entities. Approximately 90 percent of these securities were rated investment grade by one or more of the principal rating agencies.
Moody’s Investors Service Inc. (Moody’s), Standard & Poor’s 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. We closely monitor the credit quality of the foreign portfolio’s non-rated fixed maturity securities. At December 31, 2024, approximately 94 percent of such investments were either rated investment grade or, on the basis of analysis of our investment managers, were equivalent from a credit standpoint to securities rated investment grade. Approximately 24 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: (i) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the NAIC Designation assigned by the NAIC SVO (96 percent of total fixed maturity securities), or (ii) our 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 information regarding credit risks associated with Investments, see Enterprise Risk Management – Credit Risk Management.
The following table presents the composite AIG credit ratings of our fixed maturity securities calculated on the basis of their fair value:
Available for Sale Other Total
(in millions) December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023
Rating:
Other fixed maturity securities
AAA $ 5,254 $ 5,625 $ 13 $ 16 $ 5,267 $ 5,641
AA 9,599 12,775 80 145 9,679 12,920
A 14,420 14,758 114 73 14,534 14,831
BBB 12,839 12,992 145 96 12,984 13,088
Below investment grade 4,171 3,653 4 — 4,175 3,653
Non-rated 60 167 — — 60 167
Total $ 46,343 $ 49,970 $ 356 $ 330 $ 46,699 $ 50,300
Mortgage-backed, asset-backed and collateralized
AAA $ 8,757 $ 6,650 $ 134 $ 77 $ 8,891 $ 6,727
AA 6,765 6,065 89 108 6,854 6,173
A 482 614 49 29 531 643
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Available for Sale Other Total
(in millions) December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023
BBB 470 517 88 81 558 598
Below investment grade 1,189 1,426 29 30 1,218 1,456
Non-rated — — — 8 — 8
Total $ 17,663 $ 15,272 $ 389 $ 333 $ 18,052 $ 15,605
Total
AAA $ 14,011 $ 12,275 $ 147 $ 93 $ 14,158 $ 12,368
AA 16,364 18,840 169 253 16,533 19,093
A 14,902 15,372 163 102 15,065 15,474
BBB 13,309 13,509 233 177 13,542 13,686
Below investment grade 5,360 5,079 33 30 5,393 5,109
Non-rated 60 167 — 8 60 175
Total $ 64,006 $ 65,242 $ 745 $ 663 $ 64,751 $ 65,905
National Association of Insurance Commissioners (NAIC) Designations of Fixed Maturity Securities
The Securities Valuation Office (SVO) of the 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. NAIC Designations for non-agency Residential Mortgage Backed Securities (RMBS) and Commercial Mortgage Backed Securities (CMBS) are calculated using third party modeling results provided through the NAIC. 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 AIG subsidiaries’ 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 fixed maturity securities where no NAIC Designation is assigned or able to be calculated using third-party data, the NAIC Designation category used in the first table below reflects an internal rating.
The NAIC Designations presented below do not reflect the added granularity to the designation categories adopted by the NAIC in 2020, which further subdivide each category of fixed maturity securities by appending letter modifiers to the numerical designations.
The following table presents the fixed maturity security portfolio categorized by NAIC Designation, at fair value:
December 31, 2024
(in millions)
NAIC Designation 1 2 Total Investment Grade 3 4 5 6 Total Below Investment Grade Total
Other fixed maturity securities $ 29,357 $ 13,063 $ 42,420 $ 2,430 $ 1,552 $ 171 $ 65 $ 4,218 $ 46,638
Mortgage-backed, asset-backed and collateralized 17,249 535 17,784 102 128 — 38 268 18,052
Total* $ 46,606 $ 13,598 $ 60,204 $ 2,532 $ 1,680 $ 171 $ 103 $ 4,486 $ 64,690
* Excludes $61 million of fixed maturity securities for which no NAIC Designation is available.
The following table presents the fixed maturity security portfolio categorized by composite AIG credit rating, at fair value:
December 31, 2024
(in millions)
Composite AIG Credit Rating AAA/AA/A BBB Total Investment Grade BB B CCC and Lower Total Below Investment Grade Total
Other fixed maturity securities $ 29,481 $ 12,983 $ 42,464 $ 2,208 $ 1,765 $ 201 $ 4,174 $ 46,638
Mortgage-backed, asset-backed and collateralized 16,275 558 16,833 48 103 1,068 1,219 18,052
Total* $ 45,756 $ 13,541 $ 59,297 $ 2,256 $ 1,868 $ 1,269 $ 5,393 $ 64,690
* Excludes $61 million of fixed maturity securities for which no NAIC Designation is available.
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TABLE OF CONTENTSITEM 7 | Insurance Reserves
Insurance Reserves
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 (a) :December 31, 2024 December 31, 2023
(in millions) Net Loss Reserves Reinsurance Recoverable Gross Loss Reserves Net Loss Reserves Reinsurance Recoverable Gross Loss ReservesGeneral Insurance:North America Commercial:
U.S. Workers' Compensation (net of discount) $ 2,293 $ 3,916 $ 6,209 $ 2,655 $ 4,099 $ 6,754
U.S. Excess Casualty 3,208 3,139 6,347 3,321 3,272 6,593
U.S. Other Casualty 4,387 3,416 7,803 4,112 3,676 7,788
U.S. Financial Lines 5,422 1,614 7,036 5,672 1,622 7,294
U.S. Property and Special Risks 4,297 1,233 5,530 4,403 1,494 5,897Other product lines (b)3,747 2,947 6,694 2,776 2,656 5,432
Total North America Commercial 23,354 16,265 39,619 22,939 16,819 39,758
International Commercial:
UK/Europe Casualty and Financial Lines 7,280 1,952 9,232 7,447 1,951 9,398
UK/Europe Property and Special Risks 2,355 1,761 4,116 2,913 1,665 4,578
Other product lines (b)
1,630 1,230 2,860 1,726 1,652 3,378
Total International Commercial 11,265 4,943 16,208 12,086 5,268 17,354
Global Personal:
U.S. Personal Insurance 836 2,048 2,884 767 2,163 2,930
UK/Europe and Japan Personal Insurance 1,269 670 1,939 1,483 671 2,154
Other product lines (b)
983 776 1,759 914 874 1,788
Total Global Personal 3,088 3,494 6,582 3,164 3,708 6,872Unallocated loss adjustment expenses (b)1,804 744 2,548 1,298 841 2,139
Total General Insurance 39,511 25,446 64,957 39,487 26,636 66,123
Other Operations 631 3,580 4,211 617 3,653 4,270
Total $ 40,142 $ 29,026 $ 69,168 $ 40,104 $ 30,289 $ 70,393
(a) Includes net loss reserve discount of $1.2 billion and $1.2 billion at December 31, 2024 and 2023, respectively. For information regarding loss reserve discount, see Note 13 to the Consolidated Financial Statements.
(b) Other product lines and Unallocated loss adjustment expenses includes Gross liability for unpaid losses and loss adjustment expense and Reinsurance recoverable on unpaid losses and loss adjustment expense for the Fortitude Re reinsurance of $2.7 billion and $2.9 billion at December 31, 2024 and 2023, respectively.Prior Year DevelopmentThe following table summarizes incurred (favorable) unfavorable prior year development net of reinsurance by segment and major lines of business:Years Ended December 31,(in millions) 2024 2023 2022General Insurance:North America Commercial:
U.S. Workers' Compensation $ (261) $ (190) $ (419)
U.S. Excess Casualty 228 (48) (8)
U.S. Other Casualty (25) (134) (167)
U.S. Financial Lines (43) 37 658
U.S. Property and Special Risks 8 (7) (106)
Other Product Lines (63) (65) (94)
Total North America Commercial $ (156) $ (407) $ (136)
International Commercial:
UK/Europe Casualty and Financial Lines $ 170 $ 165 $ 82
UK/Europe Property and Special Risks (35) 81 (153)
Other Product Lines (234) (98) (38)
Total International Commercial $ (99) $ 148 $ (109)
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ITEM 7 | Insurance ReservesYears Ended December 31,
(in millions) 2024 2023 2022
Global Personal:
U.S. Personal Insurance $ (27) $ (66) $ (33)
UK/Europe and Japan Personal Insurance (47) (57) (111)
Other Product Lines (39) (9) (129)
Total Global Personal $ (113) $ (132) $ (273)
Total General Insurance* $ (368) $ (391) $ (518)
Other Operations Run-Off 1 (7) (5)
Total prior year favorable development $ (367) $ (398) $ (523)
* Includes the amortization attributed to the deferred gain at inception from the National Indemnity Company (NICO) adverse development reinsurance agreement of $136 million, $164 million and $167 million for the years ended December 31, 2024, 2023 and 2022, respectively. Consistent with our definition of APTI, the amount excludes the portion of (favorable)/unfavorable prior year reserve development for which we have ceded the risk under the NICO reinsurance agreements of $289 million, $(158) million and $(174) million for the years ended December 31, 2024, 2023 and 2022, respectively. Also excludes the related changes in amortization of the deferred gain, which were $268 million, $(83) million and $85 million over those same periods.
Net Loss Development – 2024
In the year ended December 31, 2024, we recognized favorable prior year loss reserve development of $367 million. The key components of this development were:
North America Commercial
• Favorable development on our U.S. Workers' Compensation reflecting continued favorable loss experience.
• Adverse development on U.S. Excess Casualty driven by a large settlement of a legacy mass tort claim with the gross loss in accident years covered under the Adverse Development Cover and increased reserves related to claims emergence.
• Adverse development on U.S. Property and Special Risks reflecting development on prior year catastrophes offset by favorable loss experience in Retail and Wholesale Property.
• Favorable development on U.S. Financial Lines, reflecting favorable experience across most reserving classes, offset by unfavorable development in M&A and High Excess classes.
• Favorable development on U.S. Other Casualty, reflecting favorability across numerous Casualty reserving classes, partially offset by unfavorable development on Commercial Auto and Wholesale Primary General Liability.
• Amortization benefit related to the deferred gain on the adverse development cover.
International Commercial
• Favorable development on Other Product Lines, primarily driven by Global Specialty which saw favorable development across multiple lines.
• Adverse development on UK/Europe Casualty and Financial Lines driven by unfavorable development in UK Financial Lines partially offset by favorable development in EMEA Financial Lines, and unfavorable development in European Excess Casualty driven by claim-specific emergence on accident year 2016.
• Favorable development on UK/Europe Property and Special Risks reflecting favorable development across most segments and geographies.
Global Personal
• Favorable development on UK/Europe and Japan Personal Insurance primarily driven by Japan A&H and Auto, partially offset by unfavorable development in Personal Auto in EMEA.
• Favorable development in U.S. Personal Insurance and Other Product Lines due to favorable development on prior year catastrophes across several events, primarily in the 2019-2023 accident years.
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 additional information on prior year development by line of business, see Note 13 to the Consolidated Financial Statements. For information regarding actuarial methods employed for major classes of business, see Critical Accounting Estimates.Net Loss Development – 2023In the year ended December 31, 2023, we recognized favorable prior year loss reserve development of $398 million. The key components of this development were:
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ITEM 7 | Insurance Reserves
North America Commercial• Favorable development on U.S. Workers' Compensation business reflecting a continuation of favorable loss cost trends in guaranteed cost and excess segments across most accident years.
• Favorable development in U.S. Excess Casualty driven by favorable development on the Excess Construction Runoff Portfolio.
• Favorable development in U.S. Other Casualty reflecting favorable experience in construction defect and construction wraps as well as guaranteed cost auto and general liability.
• Favorable development in U.S. Property and Special risks reflecting favorable development on prior year catastrophes in the 2017-2021 accident years, offset by adverse development on prior year catastrophes in the 2022 accident year.
• Unfavorable development in U.S. Financial Lines due to unfavorable development on High Attaching Excess D&O, M&A, Primary National D&O, Cyber data privacy claims, and Architects & Engineers, partially offset by favorable development on Primary Private Not for Profit D&O and Financial Institutions D&O.
• Amortization benefit related to the deferred gain on the adverse development cover.International Commercial• Unfavorable development in UK/Europe Casualty and Financial Lines reflecting unfavorable development in auto liability in Europe and UK and in UK D&O and Commercial Professional Indemnity business, partially offset by favorable development in Financial Institutions Professional Indemnity and D&O in Europe and UK and Cyber and Commercial Personal Indemnity in Europe.
• Unfavorable development in UK/Europe Property and Special Risks driven by unfavorable development on prior year catastrophes.• Favorable development in Other product lines driven primarily by Global Specialty.Global Personal
• Favorable development, primarily in U.S. Personal Insurance, due to favorable development on prior year catastrophes across several events, primarily in the 2017-2020 accident years.
• Favorable development on Japan Personal Insurance driven by personal auto and A&H business.Net Loss Development – 2022In the year ended December 31, 2022, we recognized favorable prior year loss reserve development of $523 million. The key components of this development were:
North America Commercial• Favorable development in U.S Workers' Compensation reflecting continued favorable loss experience across most accident years particularly for excess and guaranteed cost segments.
• Favorable development in U.S. Excess Casualty particularly in lead and mid-excess retail segments.
• Favorable development in U.S. Other Casualty in the Commercial Auto, General Liability and Construction Wraps business.
• Amortization benefit related to the deferred gain on the adverse development cover.
• Unfavorable development driven by U.S. Financial Lines driven by unfavorable severity trends in Excess and Primary D&O and Excess and Financial Institutions Errors and Omissions (E&O), partially offset by favorable results in Employment Practices Liability Insurance (EPLI).International Commercial• Favorable development on Global Specialty across all products in all regions.• Unfavorable development in Casualty in Europe Excess Casualty and French Auto as well as large loss experience in the UK, partially offset by favorable experience in Asia Pacific Casualty.
• Unfavorable development in Financial Lines primarily in the UK for M&A, Commercial PI and Commercial D&O.Global Personal
• Favorable development in International Personal Lines, particularly with Auto and A&H coverages in Japan, as well as favorable experience recognized in Europe and the UK.
• Favorable development, primarily in U.S. Personal Insurance, due to favorable development on prior year catastrophes across several events, primarily in the 2017-2019 accident years.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.72
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ITEM 7 | Insurance ReservesSignificant Reinsurance Agreements
In the first quarter of 2017, we entered into an adverse development reinsurance agreement with NICO, 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. We account for this transaction as retroactive reinsurance. This transaction resulted in a gain, which under GAAP retroactive reinsurance accounting is deferred and amortized into income over the settlement period. NICO created a collateral trust account as security for their claim payment obligations to us, into which they deposited the consideration paid under the agreement, and Berkshire Hathaway Inc. has provided a parental guarantee to secure NICO’s obligations under the agreement.
For a description of AIG’s catastrophe reinsurance protection for 2024, see Part II, Item 7. MD&A – Enterprise Risk Management – Insurance Risks – Natural Catastrophe Risk.The table below shows the calculation of the deferred gain on the adverse development reinsurance agreement, the effect of discounting of loss reserves and amortization of the deferred gain.(in millions) December 31, 2024 December 31, 2023 December 31, 2022Gross Covered LossesCovered reserves before discount $ 9,823 $ 10,849 $ 12,537
Inception to date losses paid 31,545 30,157 28,667Attachment point (25,000) (25,000) (25,000)Covered losses above attachment point $ 16,368 $ 16,006 $ 16,204Deferred Gain DevelopmentCovered losses above attachment ceded to NICO (80%) $ 13,094 $ 12,805 $ 12,963Consideration paid including interest (10,188) (10,188) (10,188)Pre-tax deferred gain before discount and amortization 2,906 2,617 2,775Discount on ceded losses (a)(936) (1,104) (1,254)
Pre-tax deferred gain before amortization 1,970 1,513 1,521
Inception to date amortization of deferred gain at inception (1,564) (1,428) (1,264)Inception to date amortization attributed to changes in deferred gain (b)(122) 64 (52)
Deferred gain liability reflected in AIG's balance sheet $ 284 $ 149 $ 205(a) The accretion of discount and a reduction in effective interest rates is offset by changes in estimates of the amount and timing of future recoveries.
(b) Excluded from APTI.
The following table presents the rollforward of activity in the deferred gain from the adverse development reinsurance agreement:
Years Ended December 31,(in millions) 2024 2023 2022
Balance at beginning of year, net of discount $ 149 $ 205 $ 869(Favorable) unfavorable prior year reserve development ceded to NICO (a)289 (158) (174)Amortization attributed to deferred gain at inception (b)(136) (164) (167)Amortization attributed to changes in deferred gain (c)(186) 116 (22)
Changes in discount on ceded loss reserves 168 150 (301)
Balance at end of year, net of discount $ 284 $ 149 $ 205(a) Prior year reserve development ceded to NICO under the retroactive reinsurance agreement is deferred under GAAP.
(b) Represents amortization of the deferred gain recognized in APTI.
(c) Excluded from APTI.The lines of business subject to this agreement include those with longer tails, which carry a higher degree of uncertainty. Since inception, there have been periods of both favorable and unfavorable prior year development. This agreement will continue to reduce the impact of volatility in the development on our ultimate loss estimates over time.
Fortitude Re was established during the first quarter of 2018 in a series of reinsurance transactions related to our run-off operations. Those reinsurance transactions were designed to consolidate most of our insurance run-off lines into a single legal entity. As of December 31, 2024, $3.4 billion of reserves related to business written by multiple wholly-owned AIG subsidiaries, had been ceded to Fortitude Re under these reinsurance transactions.
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Liquidity and Capital Resources
OVERVIEW
Liquidity refers to the ability to generate sufficient cash resources to meet the cash requirements of our business operations and payment obligations.
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 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.For information regarding our liquidity risk framework, see Enterprise Risk Management – Liquidity Risk Management.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.For information regarding risks associated with our liquidity and capital resources, see Part I, Item 1A. – Risk Factors – Liquidity, Capital and Credit .
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, issuing preferred stock, paying dividends to our shareholders on AIG Common Stock, par value $2.50 per share (AIG Common Stock) and repurchases of AIG Common Stock.LIQUIDITY AND CAPITAL RESOURCES HIGHLIGHTS
SOURCES
Liquidity to AIG Parent from SubsidiariesDuring the year ended December 31, 2024, our General Insurance companies distributed dividends of $4.1 billion to AIG Parent or applicable intermediate holding companies.
Sales of Corebridge Shares by AIG
In June and July 2024, we sold an aggregate of approximately 31.9 million shares of Corebridge common stock in a secondary offering at a public offering price of $29.20 per share, which included 30 million shares initially offered and the partial exercise by the underwriters of their option to purchase additional shares. The aggregate gross proceeds to AIG Parent were approximately $932 million.
In August 2024, we sold approximately 8 million shares of Corebridge common stock to Corebridge at the per share purchase price of $24.90. The aggregate proceeds to AIG Parent were $200 million.
In September 2024, we sold 5 million shares of Corebridge common stock in a Rule 144 transaction at the per share purchase price of $26.86. The aggregate proceeds to AIG Parent were approximately $134 million.
In November 2024, we sold 30 million shares of Corebridge common stock in a secondary offering at a public offering price of $31.20 per share. The aggregate gross proceeds to AIG Parent were approximately $936 million.
In December 2024, we sold approximately 120 million shares of Corebridge common stock to Nippon Life Insurance Company at the per share purchase price of $31.47 per share. The aggregate proceeds to AIG Parent were approximately $3.8 billion.
Senior Notes Offering
In November 2024, AIG issued ¥77.1 billion aggregate principal amount of 1.580% Notes Due 2028, ¥10.3 billion aggregate principal amount of 1.757% Notes Due 2029 and ¥12.6 billion aggregate principal amount of 2.137% Notes Due 2034, which was equivalent to approximately $660 million at the time of the offering.
Sale of AIG's Travel Business
On December 2, 2024, AIG completed the sale of its global individual personal travel insurance and assistance business to Zurich Insurance Group and received $600 million cash, plus additional earn-out consideration.
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ITEM 7 | Liquidity and Capital ResourcesUSESGeneral Borrowings
During the year ended December 31, 2024, $2.0 billion of debt categorized as general borrowings matured, was repaid or redeemed, including:
• Repayment of $459 million aggregate principal amount of our 4.125% Notes due February 15, 2024.
• Redemption of €41.55 million aggregate principal amount of our Series A-3 Junior Subordinated Debentures, equivalent to approximately $46 million at the time of repayment.
• Redemption of $400 million face amount of our Zero Coupon Callable Notes Due 2047, for a redemption price of 135.631 percent of the face amount, which totaled approximately $543 million .
• Repurchased, through cash tender offers, approximately $1.13 billion aggregate principal amount of certain notes and debentures issued by AIG for an aggregate purchase price of approximately $1.14 billion .
We made interest payments on our general borrowings totaling $611 million during the year ended December 31, 2024.
Dividends
During the year ended December 31, 2024:
• We made a cash dividend payment of $365.625 per share on our Series A 5.85% Non-Cumulative Perpetual Preferred Stock (Series A Preferred Stock) for the three months ended March 31, 2024 totaling $7 million.
• We made cash dividend payments in the amount of $0.40 per share on AIG Common Stock for each of the three month periods ended December 31, 2024, September 30, 2024 and June 30, 2024 (an increase of 11 percent from prior dividend payments), and $0.36 per share for the three months ended March 31, 2024, totaling $1.0 billion.
Repurchases of Common Stock (a) and Redemption of Preferred Stock
During the year ended December 31, 2024, AIG Parent repurchased approximately 89 million shares of AIG Common Stock, for an aggregate purchase price of approximately $6.6 billion.
On March 15, 2024, we redeemed all 20,000 outstanding shares of our Series A Preferred Stock and all 20,000,000 of the corresponding Depositary Shares, each representing a 1/1,000th interest in a share of Series A Preferred Stock for an aggregate redemption price of $500 million, paid in cash.
(a) Pursuant to a Securities Exchange Act of 1934 (the Exchange Act) Rule 10b5-1 repurchase plan, from January 1, 2025 to February 7, 2025, AIG Parent repurchased approximately 13 million shares of AIG Common Stock for an aggregate purchase price of approximately $952 million.ANALYSIS OF SOURCES AND USES OF CASH
Operating Cash Flow ActivitiesInsurance 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, effective management of their investment portfolio and operating expense discipline.
Interest payments totaled $858 million, $1.1 billion and $1.1 billion in the years ended December 31, 2024, 2023 and 2022 , respectively. Excluding interest payments, AIG had operating cash inflows of $4.1 billion, $7.3 billion and $5.3 billion in the years ended December 31, 2024, 2023 and 2022, respectively, including outflows of $104 million, $710 million and $488 million from discontinued operations in the years ended December 31, 2024, 2023 and 2022, respectively.Investing Cash Flow ActivitiesNet cash provided by investing activities in the year ended December 31, 2024 was $1.7 billion, including $4.2 billion used in discontinued operations, compared to net cash used in investing activities of $7.0 billion, including $4.5 billion from discontinued operations, in 2023 and $3.6 billion, including $6.5 billion from discontinued operations, in 2022 .
Financing Cash Flow Activities
Net cash used in financing activities in the year ended December 31, 2024 totaled $5.1 billion , reflecting:
• $1.0 billion to pay dividends of $0.40 per share in each of the three month periods ended December 31, 2024, September 30, 2024 and June 30, 2024, and $0.36 per share for the three months ended March 31, 2024 on AIG Common Stock;
• $22 million to pay a first quarter dividend of $365.625 per share on AIG’s Series A Preferred Stock and redemption premiums;
• $6.7 billion to repurchase approximately 90 million shares of AIG Common Stock;
• $1.4 billion in net outflows from the issuance and repayment of long-term debt; and
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ITEM 7 | Liquidity and Capital Resources• $3.9 billion in net inflows from discontinued operations.
Net cash provided by financing activities in the year ended December 31, 2023 totaled $782 million reflecting:• $997 million to pay dividends of $0.36 per share in the three months ended December 31, 2023, September 30, 2023 and June 30, 2023, and $0.32 per share for the three months ended March 31, 2023 on AIG Common Stock;
• $29 million to pay quarterly dividends of $365.625 per share on AIG’s Series A Preferred Stock;
• $3.0 billion to repurchase approximately 51 million shares of AIG Common Stock;• $1.6 billion in net outflows from the issuance and repayment of long-term debt;
• $45 million in net outflows from the issuance and repayment of debt of consolidated investment entities; and
• $3.5 billion in net inflows from discontinued operations.Net cash used in financing activities in the year ended December 31, 2022 totaled $602 million reflecting:
• $982 million to pay quarterly dividends of $0.32 per share on AIG Common Stock;
• $29 million to pay quarterly dividends of $365.625 per share on AIG’s Series A Preferred Stock;• $5.2 billion to repurchase approximately 90 million shares of AIG Common Stock;• $9.4 billion in net outflows from the issuance, repayment and cash tender of long-term debt;
• $234 million in net outflows from the issuance and repayment of debt of consolidated investment entities; and
• $13.9 billion in net inflows from discontinued operations.LIQUIDITY AND CAPITAL RESOURCES OF AIG PARENT AND SUBSIDIARIES
AIG ParentAs of December 31, 2024 and 2023, respectively, AIG Parent and applicable intermediate holding companies had approximately $10.7 billion and $12.1 billion in liquidity sources held in the form of cash, short-term investments and AIG Parent's committed, revolving syndicated credit facility of $3.0 billion as of December 31, 2024 and $4.5 billion as of December 31, 2023. AIG Parent’s primary sources of liquidity are dividends, distributions, loans and other payments from subsidiaries and credit facilities. AIG Parent’s primary uses of liquidity are for debt service, capital and liability management, operating expenses and dividends on AIG Common Stock.We expect to access the debt and preferred equity 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 or inorganic growth opportunities) or mitigate risks inherent to our business, we may develop plans to distribute such capital to shareholders via dividends or AIG Common Stock repurchase authorizations or deploy such capital towards liability management.Insurance Companies
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. Certain of our insurance companies have access to Federal Home Loan Bank (FHLB) borrowings as an additional source of funding. The primary uses of liquidity are paid losses, reinsurance payments, interest payments, dividends, expenses, investment purchases and collateral requirements.
Our insurance companies may require additional funding to meet capital or liquidity needs under certain circumstances. For example, large catastrophes may require us to provide additional support to the affected operations of our insurance companies.
We are party to several letter of credit agreements with various financial institutions, which issue letters of credit from time to time in support of our insurance companies. These letters of credit are subject to reimbursement by us in the event of a drawdown of these letters of credit. Letters of credit issued in support of our insurance companies totaled approximately $2.3 billion at December 31, 2024.
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ITEM 7 | Liquidity and Capital ResourcesCREDIT FACILITIESWe maintain a syndicated, multicurrency revolving credit facility as a potential source of liquidity for general corporate purposes. On September 27, 2024, we amended and restated the five-year syndicated credit facility that was entered into on November 19, 2021 (the Previous Facility). The amended and restated five-year syndicated credit facility (the Facility) provides for aggregate commitments by the bank syndicate to provide AIG Parent with unsecured revolving loans and/or standby letters of credit of up to $3.0 billion (the Previous Facility was up to $4.5 billion). The Facility is scheduled to expire in September 2029 (the Previous Facility was scheduled to expire in November 2026).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.As of December 31, 2024, a total of $3.0 billion remained available under the Facility.CONTRACTUAL OBLIGATIONS
The following table summarizes material contractual obligations in total, and by remaining maturity:December 31, 2024 Payments due by Period
(in millions) Total Payments 2025 2026 - 2027 ThereafterLoss reserves (a)$ 71,279 $ 19,667 $ 20,308 $ 31,304
Long-term debt (b)
8,764 398 1,120 7,246
Interest payments on long-term debt 4,924 369 697 3,858
Total $ 84,967 $ 20,434 $ 22,125 $ 42,408(a) Represents loss reserves, undiscounted and gross of reinsurance.(b) Does not reflect $158 million of debt of consolidated investment entities, for which recourse is limited to the assets of the respective investment entities and for which there is no recourse to the general credit of AIG.Loss Reserves
Loss reserves relate to our General Insurance companies and represent estimates of future loss and loss adjustment expense payments based on historical loss development payment patterns. The amounts presented in the above table are undiscounted and therefore exceed the liability for unpaid losses and loss adjustment expenses, including allowance for credit losses, as presented on the Consolidated Balance Sheets. 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.
For additional information on loss reserves, see Critical Accounting Estimates – Loss Reserves and Note 13 to the Consolidated Financial Statements.Long-Term Debt and Interest Payments on Long-Term Debt
The amounts presented in the above table represent AIG's total long-term debt outstanding and associated future interest payments due on such debt.For additional information on outstanding debt, see – Debt.AIG | 2024 Form 10-K
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OFF-BALANCE SHEET ARRANGEMENTS AND COMMERCIAL COMMITMENTS
In the normal course of business, AIG and our subsidiaries enter into commitments under which we may be required to make payments in the future on a contingent basis.
The following table summarizes Off-Balance Sheet Arrangements and Commercial Commitments in total, and by remaining maturity:December 31, 2024 Total AmountsCommitted(in millions) 2025 2026 - 2027 ThereafterCommitments:Investment commitments $ 1,773 $ 1,084 $ 592 $ 97
Commitments to extend credit 258 125 102 31
Letters of credit 295 91 — 204Total (a)(b)$ 2,326 $ 1,300 $ 694 $ 332(a) Excludes guarantees, CMAs or other support arrangements between AIG consolidated entities.(b) Excludes commitments with respect to pension plans. The annual pension contribution for 2025 is expected to be approximately $53 million.Investment commitmentsWe enter into investment commitments in the normal course of business that are aligned with and support our investment strategies. These represent commitments to investment in private equity funds as well as commitments to purchase and develop real estate in the United States and abroad. The commitments to invest are called at the discretion of each fund, as needed for funding new investments or expenses of the fund, the timing of which is estimated based on the expected life cycle of the related funds, consistent with past trends of requirements for funding. These commitments are primarily made by insurance subsidiaries of the Company.We also enter into arrangements with variable interest entities (VIEs) and consolidate a VIE when we are the primary beneficiary of the entity.
For additional information on investment commitments and VIEs, see Note 10 to the Consolidated Financial Statements.
Commitments to extend credit
As part of our normal course of business lending operations, we enter into commitments to fund mortgage loans at certain interest rates and various other terms, within a stated period of time. Such commitments are legally binding and generally made by insurance subsidiaries of the Company.
Letters of credit
AIG is party to several letter of credit agreements with various financial institutions, which issue letters of credit from time to time for the benefit of third parties in support of our businesses. These letters of credit are subject to reimbursement by AIG in the event of a drawdown.
Indemnification agreementsFor information regarding our indemnification agreements, see Note 15 to the Consolidated Financial Statements.
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ITEM 7 | Liquidity and Capital Resources
DEBTWe expect to service and repay general borrowings through maturing investments and dispositions of invested assets, future cash flows from operations, cash flows generated from invested assets, future debt or preferred stock issuances and other financing arrangements.
The following table provides the rollforward of our total debt outstanding:
Year Ended December 31, 2024 Balance, Beginning of Year Issuances Maturities and Repayments Effect of Foreign Exchange Other Changes Balance, End of Year(in millions)General borrowings:
Notes and bonds payable $ 9,079 $ 660 $ (1,653) $ (85) $ (116) $ 7,885
Junior subordinated debt 992 — (393) — 3 602
AIG Japan Holdings Kabushiki Kaisha 267 — — (28) — 239
Total general borrowings 10,338 660 (2,046) (113) (113) 8,726
Borrowings supported by assets 37 — (1) — 1 37
Other subsidiaries' notes, bonds, loans and mortgages payable - not guaranteed by AIG — 1 — — — 1
Total long-term debt $ 10,375 $ 661 $ (2,047) $ (113) $ (112) $ 8,764
Debt of consolidated investment entities - not guaranteed by AIG (a)
$ 231 $ — (1) — (72) (b)
$ 158
(a) At December 31, 2024, includes debt of consolidated investment entities primarily related to real estate investments of $158 million. At December 31, 2023, includes debt of consolidated investment entities related to real estate investments of $79 million and other securitization vehicles of $152 million.
(b) Includes the effect of consolidating previously unconsolidated partnerships.Debt MaturitiesThe following table summarizes maturing long-term debt at December 31, 2024 of AIG for the next four quarters:First Quarter Second Quarter Third Quarter Fourth Quarter(in millions) 2025 2025 2025 2025 Total
General borrowings $ 239 $ 146 $ — $ — $ 385
Borrowings supported by assets — — — 12 12
Other subsidiaries' notes, bonds, loans and mortgages payable — — — 1 1
Total $ 239 $ 146 $ — $ 13 $ 398CREDIT RATINGSCredit ratings estimate a company’s 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 Parent as of the date of this filing. Figures in parentheses indicate the relative ranking of the ratings within the agency’s rating categories; that ranking refers only to the major rating category and not to the modifiers assigned by the rating agencies.Short-Term Debt Senior Long-Term Debt
Moody's S&P Moody's (a)
S&P (b)
Fitch (c)
American International Group, Inc.
P-2 (2nd of 4) A-2 (2nd of 5) Baa 2 (4th of 9) / Positive
BBB+ (4th of 9) /PositiveBBB+ (4th of 9) /
Stable(a) Moody’s appends numerical modifiers 1, 2 and 3 to the generic rating categories to show relative position within the rating categories.
(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 Inc. (Fitch) ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
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.AIG | 2024 Form 10-K
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In the event of a downgrade of our long-term senior debt ratings, certain AIG entities would be required to post additional collateral under some derivative and other transactions, or certain of the counterparties of such entities would be permitted to terminate such transactions 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.
FINANCIAL STRENGTH RATINGS
Financial Strength ratings estimate an insurance company’s ability to pay its obligations under an insurance policy. The following table presents the ratings of our significant insurance subsidiaries as of the date of this filing.
A.M. Best S&P Fitch Moody’s
National Union Fire Insurance Company of Pittsburgh, Pa. A A+ A+ A2
Lexington Insurance Company A A+ A+ A2
American Home Assurance Company A A+ A+ A2AIG Europe S.A. NR A+ NR A2
American International Group UK Ltd. A A+ NR A2
AIG General Insurance Co. Ltd. NR A+ NR NRIn February 2024, S&P revised its outlook on AIG Parent and its core General Insurance subsidiaries to positive from stable and affirmed the ‘BBB+/A-2’ issuer credit ratings on AIG Parent and ‘A+’ financial strength ratings on the core General Insurance entities.
On January 26, 2024, A.M. Best upgraded the Long-Term Issuer Credit Ratings (Long-Term ICR) of AIG General Insurance subsidiaries to ‘a+’ from ‘a’, the Long-Term ICR of AIG Parent to ‘bbb+’ from ‘bbb’, and revised the outlook of the Long-Term ICRs to stable from positive. A.M. Best also affirmed the 'A' Financial Strength Rating of the AIG General Insurance subsidiaries with stable outlook.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 information regarding the effects of downgrades in our credit ratings and financial strength ratings, see Part I, Item 1A. Risk Factors – Liquidity, Capital and Credit – “A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance or reinsurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity” and Note 11 to the Consolidated Financial Statements.
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 Part I, Item 1. Business – Regulation and Part I, Item 1A. Risk Factors – Regulation.
DIVIDENDSOn February 11, 2025, our Board of Directors declared a cash dividend on AIG Common Stock of $0.40 per share, payable on March 31, 2025 to shareholders of record on March 17, 2025.
The payment of any future dividends will be at the discretion of our Board of Directors and will depend on various factors. For further detail on our dividends, see Note 16 to the Consolidated Financial Statements.REPURCHASES OF AIG COMMON STOCKOur Board of Directors has authorized the repurchase of shares of AIG Common Stock through a series of actions. On April 30, 2024, the Board of Directors authorized the repurchase of $10.0 billion of AIG Common Stock (inclusive of the approximately $3.9 billion remaining under the Board's prior share repurchase authorization). During the year ended December 31, 2024, AIG Parent repurchased approximately 89 million shares of AIG Common Stock for an aggregate purchase price of $6.6 billion. Pursuant to an Exchange Act Rule 10b5-1 repurchase plan, from January 1, 2025 to February 7, 2025, we repurchased approximately 13 million shares of AIG Common Stock for an aggregate purchase price of approximately $952 million. As of February 7, 2025, $4.7 billion remained under the Board's authorization.
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, as discussed further in Note 16 to the Consolidated Financial Statements.
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DIVIDEND RESTRICTIONS
Payments of dividends to AIG Parent or intermediate holding companies by insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities.
For information regarding restrictions on payments of dividends by our subsidiaries, see Note 16 to the Consolidated Financial Statements.Enterprise Risk Management
OVERVIEWRisk management is an integral part of our business strategy and a key element of our approach to corporate governance. 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 ERM Department oversees and integrates the risk management functions in our business entities and embeds risk management in our day-to-day business processes, providing senior management with a consolidated view of AIG’s major risk positions. 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. For further information regarding the risks associated with our business and operations, see Part I, Item 1A. Risk Factors.
AIG employs a Three Lines model. AIG’s business leaders assume full accountability for the risks and controls in their segments, and ERM performs a review, challenge and oversight function. The third line consists of our Internal Audit Group that provides independent assurance to AIG’s Board of Directors.RISK GOVERNANCE STRUCTURE
Our risk governance structure is designed to foster the development and maintenance of a risk and control 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 business leaders, with the risk committees' oversight.Our Board of Directors oversees the management of risk through its Risk Committee and Audit Committee. Our Chief Risk Officer (CRO), a member of the Executive Leadership team, reports to both the Risk Committee and our Chairman and Chief Executive Officer. The AIG CRO chairs the Group Risk Committee (GRC), the senior management group responsible for assessing all significant risks on a global basis. The GRC is supported by management committees and Legal Entity Risk Committees.RISK APPETITE, LIMITS, IDENTIFICATION AND MEASUREMENT
Risk Appetite Framework
Approved by our Board of Directors, AIG’s 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. Our risk tolerances take into consideration regulatory requirements, rating agency expectations, and business needs.
Risk LimitsA key component of our Risk Appetite Framework is the establishment and maintenance of tolerances and limits on material risks to meet AIG’s objectives. As part of AIG's Risk Appetite Framework, AIG has defined, where relevant, a set of risk tolerances to ensure appropriate support of aggregate risk-taking. This includes identifying the appropriate set of metrics, and calibrating a specific tolerance level for each metric, as appropriate.Risk Identification and MeasurementWe conduct risk identification through multiple processes at the business entity and corporate level focused on capturing our material risks. A key initiative is our integrated bottom-up risk identification and assessment process which is conducted down to the product-line level. In addition, we perform an annual top-down risk assessment to identify top risks and assign owners to ensure these risks are appropriately addressed and managed. These processes are used as critical input to enhance and develop our analytics for measuring and assessing risks across the organization.
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ITEM 7 | Enterprise Risk ManagementThe internal capital framework quantifies our aggregate economic risk at a given confidence interval, after considering diversification benefits between risk factors and business lines. The stress testing framework assesses our aggregate exposure to our most significant financial and insurance risks. We use this information to support the assessment of resources needed by us to support our subsidiaries and capital resources required to maintain consolidated company target capitalization levels.We evaluate and manage risk in material topics as discussed below.
• Credit Risk Management
• Liquidity Risk Management• Business and Strategy Risks• Market Risk Management
• Operational Risk Management• Insurance RisksCREDIT RISK MANAGEMENT
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 counterparty’s credit ratings or a widening of its credit spreads.Direct and indirect credit exposures may arise from, but are not limited to, fixed income investments, equity securities, deposits, commercial paper investments, securities purchased under agreements to resell and repurchase agreements, corporate and consumer loans, leases, reinsurance and retrocessional insurance 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. AIG's credit risk management framework defines credit risk processes to identify, evaluate, risk rate, measure, manage and govern credit risk across the enterprise and to ensure the consistency of those processes.
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 parental or third-party guarantees, simultaneous payment provisions or collateral, including commercial bank-issued letters of credit, funds withheld accounts and cash or securities held in trust collateral accounts.
For additional information on our credit concentrations and credit exposures, see Investments – Investment Strategies – Available-for-Sale Investments.Derivative Transactions
We utilize derivatives principally to enable us to hedge exposure associated with changes in levels of interest rates, currencies, credit, commodities, equity prices and other risks. Credit risk associated with derivative counterparties exists for a derivative contract when that contract has a positive fair value to us. All derivative transactions must be transacted within counterparty limits that have been approved by ERM. We evaluate counterparty credit quality via an internal analysis that is consistent with the AIG Credit Policy and, where necessary, we require credit enhancements for certain transactions and enter into offsetting and netting arrangements.
For additional information related to derivative transactions, see Note 11 to the Consolidated Financial Statements.
MARKET RISK MANAGEMENTMarket risk is defined as the risk of adverse impact due to systemic movements in one or more of the following market risk drivers: interest rates, credit spreads, foreign exchange, equity and commodity prices, residential and commercial real estate values, inflation, and their respective levels of uncertainty. It can also be brought on by political turmoil, natural disasters, and terrorist attacks. We are exposed to market risks primarily within our insurance and capital markets activities, on both the asset and the liability sides of our balance sheet through on- and off-balance sheet exposures.Market risk is overseen at the corporate level within ERM through the CRO. Market risk is managed by our finance, treasury and investment management corporate functions, collectively, and in partnership with ERM. The scope and magnitude of our market risk exposures is monitored through multiple lenses that include economic, GAAP and statutory reporting frameworks at various levels of business consolidation, in a manner consistent with our risk appetite statement. This process aims to establish a comprehensive coverage of potential implications from adverse market risk developments. We use a number of approaches to measure market risk exposure including sensitivity analysis, scenario analysis and stress testing.82
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Market Risk SensitivitiesMost of our fixed income portfolio is reported as available-for-sale. Therefore, fair value changes will have a direct impact on Accumulated Other Comprehensive Income (Loss) (AOCI), but do not impact our net investment income revenue unless the assets are sold. Our short-term and long-term debt is reported at amortized cost and thus changes in interest rates do not impact the debt values reported on our financial statements. Their fair value, however, is sensitive to interest rates.
The following table provides estimates of sensitivity to changes in yield curves, equity prices and foreign exchange (FX) rates on our financial instruments. We aim to manage interest rate exposure of the investment portfolio such that valuation changes from interest rates are partially offset by changes in the economic value of insurance reserves. These exposures are regularly reviewed as part of AIG’s governance structure and limits are set accordingly. The table excludes $3.1 billion of interest rate sensitive assets supporting the Fortitude Re funds withheld arrangements as the contractual returns related to the assets are transferred to Fortitude Re, as well as $3.2 billion of related funds withheld payables.Balance Sheet Exposure Economic Effect
(dollars in millions)December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023Sensitivity factor
100 bps parallel increase in all yield curves
Interest rate sensitive assets:
Fixed maturity securities$ 61,408 $ 62,522 $ (2,248) $ (2,246)Mortgage and other loans receivable (a)3,057 3,670 (61) (87)Total interest rate sensitive assets (b)$ 64,465 $ 66,192 $ (2,309) $ (2,333)Interest rate sensitive liabilities:Long-term debt (a)(c)
(8,525) (10,108) 628 840Total interest rate sensitive liabilities$ (8,525) $ (10,108) $ 628 $ 840Sensitivity factor
20% decline in equity prices and alternative investmentsEquity and alternative investments:
Real estate investments$ 259 $ 211 $ (52) $ (42)Private equity3,586 3,723 (717) (745)Hedge funds187 411 (37) (82)
Common equity 704 665 (141) (133)Other investments5,796 2,022 (1,159) (404)
Total equity and alternative investments
$ 10,532 $ 7,032 $ (2,106) $ (1,406)Sensitivity factor
10% depreciation of all FX rates against the U.S. dollar
Foreign currency-denominated net asset position:British pound $ 1,233 $ 1,350 $ (123) $ (135)
Japan Yen 627 1,105 (63) (110)Euro1,165 1,101 (116) (110)All other foreign currencies2,941 2,328 (294) (233)
Total foreign currency-denominated net asset position (d)
$ 5,966 $ 5,884 $ (596) $ (588)
(a) The economic effect is the difference between the estimated fair value with and without a 100 bps parallel increase in all yield curves. The estimated fair values for Mortgage and other loans receivable and Long-term debt, excluding assets supporting Fortitude Re funds withheld assets, were $2.8 billion and $8.2 billion at December 31, 2024, respectively. The estimated fair values for Mortgage and other loans receivable and Long-term debt, excluding assets supporting Fortitude Re funds withheld assets, were $4.1 billion and $9.6 billion at December 31, 2023, respectively.
(b) At December 31, 2024, $568 million of Fixed maturity securities and $492 million of Mortgage and other loans receivable were excluded due to modeling limitations. At December 31, 2023, this amount was $566 million for Fixed maturity securities and $459 million for Mortgage and other loans receivable.
(c) At December 31, 2024 and 2023 the analysis excluded $239 million and $267 million, respectively, of AIG Japan Holdings Kabushiki Kaisha loans.
(d) Most of the foreign currency exposure is reported on a one quarter lag. Foreign currency-denominated net asset position reflects our aggregated non-U.S. dollar assets less our aggregated non-U.S. dollar liabilities on a GAAP basis.
Interest rate sensitivity is defined as the change in value with respect to a 100 basis point parallel shift up in the interest rate environment, calculated as: scenario value minus base value, where base value is the value 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. The hypothetical change is assumed to be instantaneous. This therefore also assumes that the interest rate risk profile of the company remains constant and doesn't reflect the impact of any potential portfolio duration repositioning while interest rates rise.
As a global company, AIG conducts business in multiple currencies. In general, we aim to match liabilities with assets of the same currency. For regulated insurance subsidiaries, we also try to mitigate statutory surplus or capital injection risk and capital surplus volatility in accordance with the entity’s statutory accounting framework. This often requires us to allocate capital in the liability’s currency mix or the functional currency of the entity. Derivatives may also be used.
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ITEM 7 | Enterprise Risk ManagementFor additional information on our three-tiered hierarchy of limits, see – Risk Appetite, Limits, Identification and Measurement – Risk Limits.
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 as they come due.
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.Liquidity risk drivers include market/monetization risk, cash flow mismatch risk, event funding risk, and financing risk.
Liquidity risk is monitored through comprehensive cash flow projections over varying time horizons that incorporate all relevant liquidity sources and uses and include known and likely cash inflows and outflows. We use several approaches to measure liquidity risk exposure including coverage flow forecasts and stress testing.OPERATIONAL RISK MANAGEMENT
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, technology, compliance, third-party and business continuity risks, but excludes business and strategy risks.Operational risk is inherent in our business entities 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.
ERM, working together with other control and assurance functions and first line Risk Control Owners through the risk and control framework, provides an independent view of operational risks for each of the business areas.Cybersecurity Risk
AIG, like other global companies, continues to witness the increased sophistication and activities of unauthorized parties attempting cyber and other computer-related penetrations such as “denial of service” attacks, phishing, untargeted but sophisticated and automated attacks, and other disruptive software in an effort to compromise systems, networks and obtain sensitive information.
ERM works closely with and supports the risk management practices of Information Technology, the Information Security Office and the business units and functions that form the lines of defense against the cybersecurity risks that we face.
For additional information regarding the privacy data protection and cybersecurity regulations to which we are subject, see Part I, Item 1. Business – Regulation – Privacy, Data Protection, Cybersecurity and Artificial Intelligence Requirements. For additional discussion of cybersecurity risks, see Part I, Item 1A. Risk Factors – Business and Operations. For additional information regarding our cybersecurity risk management as well as strategy and governance, please see Part 1, Item 1C. Cybersecurity.BUSINESS AND STRATEGY RISKS
Business and strategy risk encompasses those risks that stem from strategy risk, risk of legal and regulatory actions, risk of rating agency actions, reputational risk and intercompany dependencies. The major AIG strategy risks capture risk of losses due to the inability to implement appropriate business plans and strategies, make decisions, allocate resources or adapt to changes in the business environment. These risks include, but are not limited to pricing, distribution channels, acquisitions, and dispositions. The risk of legal and regulatory actions is defined as the risk that legal action or a change in regulation in the regions in which AIG does business will materially impact business operations, financial performance, and/or capital requirements. Risk drivers include, but are not limited to, adverse actions in legal or regulatory environment, and adverse actions or added complexity of accounting/tax standards. A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of AIG’s insurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition, and liquidity. Reputational risk events are typically linked to risk incidents, whether internal (e.g., data privacy breaches, fraud, etc.) or external (e.g., non-AIG insurance losses). The reputational impact may magnify the financial consequences of the original risk event (e.g., reduced sales in addition to fines).
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ITEM 7 | Enterprise Risk ManagementAIG generates multiple connections and dependencies among its affiliates and legal entities. Financial interconnections are utilized by AIG to support the funding requirements of the business units, optimize group capital deployment within the organization, offer comfort to policyholders, regulators, and rating agencies, provide credit support for higher financial strength ratings, manage exposures, distribute risk appropriately, and meet client or regulatory requirements. To conduct its businesses, AIG relies on operational capabilities of several AIG affiliates and corporate functions. The operational interconnections can be categorized as employees, management information systems, real estate, shared services, and intellectual property.
AIG monitors and reports on the above-mentioned risks through ongoing risk reporting to various committees, monitoring of capital positions, regular interaction with AIG businesses and functions, regulators, and rating agencies. AIG reputational risk protocols are incorporated into the overall risk management framework. On a regular basis, ERM performs Second Line Review and Challenge on many of these processes and approaches, including, but not limited to, budget and expense assumptions, pricing and reserving models, assumptions, and results. The Internal Audit Group performs audits on key processes and provides continuous monitoring on remediation of audit findings. Processes and controls are designed to respond proactively and in some cases, reactively, in an effective and consistent way.INSURANCE RISKS
Insurance risk is defined as the risk of actual claims experience and/or policyholder behavior being materially different than initially expected at the inception of an insurance contract. Uncertainties related to insurance risk can lead to deviations in magnitude and/or timing of prospective cash flows associated with our liabilities compared to what we expected.
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 processes and procedures, including but not limited to, pricing and risk selection models, pricing approval processes, pre-launch approval of product design, development, and distribution, underwriting approval processes and authorities, modeling and reporting of aggregations and limit concentrations at multiple levels, model risk management framework and validation processes, risk transfer tools, review and challenge of reserves, actuarial profitability and reserve reviews, management of the relationship between assets and liabilities, and experience monitoring and assumption updates.Risks primarily include loss reserves, underwriting, catastrophe exposure, single risk loss exposure, and reinsurance. 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, which we manage 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 – Loss Reserves.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.
Our business is exposed to various catastrophic events, including natural disasters, man-made catastrophes, or pandemic disease, in which multiple losses can occur and affect multiple lines of business in any calendar year, adversely affecting our business and operating results. Concentration of exposure in certain industries or geographies may cause us to suffer disproportionate losses.
Our business is exposed to loss events, such as fires or explosions, that have the potential to generate losses from a single insured client. The net risk to us is managed to acceptable limits established by the Chief Underwriting Officer through a combination of internal underwriting standards and external reinsurance.
Since we use reinsurance to limit our losses, we are exposed to risks associated with reinsurance including the recoverability 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, which is monitored through our credit risk management framework.We closely manage insurance risk by monitoring and controlling the nature and geographic location of the risks in each underwritten line of business, concentrations in industries, the terms and conditions of the underwriting and the premiums we charge for taking on the risk. We analyze concentrations of risks using various modeling techniques, including both probability distributions (stochastic) and/or single-point estimates (deterministic) approaches.
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ITEM 7 | Enterprise Risk ManagementRisk Measurement, Monitoring and Limits
We use several approaches to measure our insurance risk exposure including sensitivity and scenario analyses, stochastic methods, and experience studies. Additionally, there are risk-specific assessment tools in place to appropriately manage the variety of insurance risks to which we are exposed.
For additional information on our three-tiered hierarchy of limits, see – Risk Appetite, Limits, Identification and Measurement – Risk Limits.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, modifying our gross underwriting standards, 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 with adjustments applied to modeled losses to account for loss adjustment expenses, model biases, data quality and non-modeled risks.
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 policies to anticipate potential changes to our risk profile, pricing models and strategic planning and will continue to adapt to and evolve with the developing risk exposures attributed to climate change. In addition, we provide insurance products and services to help our clients be proactive against the threat of climate change.The table below details our modeled estimates of PML, net of reinsurance, on an annual aggregate basis. The 1-in-100 and 1-in-250 PMLs are the annual aggregate probable maximum losses with probability of 1 percent and 0.4 percent in a year, respectively. Estimates as of December 31, 2024 reflect our in-force portfolio for exposures as of July 1, 2024, and all inuring reinsurance covers as of December 31, 2024, except for the catastrophe reinsurance programs, which are as of January 1, 2025 and reflected as of such date.The following table presents an overview of annual aggregate modeled losses for world-wide all perils and exposures arising from our largest primarily modeled perils:At December 31, 2024 Net of Reinsurance Net of Reinsurance,After Tax (f)
Percent of Total Shareholders' Equity Percent of Total Shareholders' Equity Excluding AOCI
(in millions)
Exposures:
World-wide all peril (1-in-250) (a)$ 2,535 $ 2,002 4.7 % 4.0 %U.S. Hurricane (1-in-100) (b)932 736 1.7 1.5U.S. Earthquake (1-in-250) (c)830 655 1.5 1.3Japanese Typhoon (1-in-100) (d)278 220 0.5 0.4Japanese Earthquake (1-in-250) (e)242 191 0.4 0.4(a) The world-wide all peril loss estimate includes wildfire exposure.
(b) The U.S. hurricane loss estimate includes losses to Commercial and Personal Property from hurricane hazards of wind and storm surge.(c) The U.S. earthquake loss estimates represent exposure to Commercial and Personal Property, U.S. Workers’ Compensation and A&H lines of business.(d) Japan Typhoon loss estimate represents exposure to Commercial and Personal Property.(e) Japan Earthquake loss estimate represents exposure to Commercial and Personal Property and A&H lines of business.(f) Taxed at the statutory tax rate of 21 percent for both the U.S. and Japanese modeled losses. The majority of Japan exposures are ceded to our U.S. Pool.
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, and 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. These estimates are inherently uncertain and may not accurately reflect our net exposure, inclusive of credit risk, to these events.Our 2025 property catastrophe reinsurance program is a worldwide program providing both aggregate and per occurrence protection, with differing per occurrence and aggregate retentions for North America, Japan, and rest of world. In 2025, for North America Commercial portfolio, we maintained the $500 million retention and increased the vertical limit purchased by $500 million. For the North America Personal Lines portfolio, as a consequence of increasing the US personal lines portfolio’s contribution to the aggregate cover, we increased the retention to $200 million. We also increased vertical limit purchased and achieved several coverage
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ITEM 7 | Enterprise Risk Managementenhancements. For the International portfolio, we retained our core attachment points for Japan of $200 million and $125 million for rest of world.
We have also purchased property per risk covers that provide protection against large losses globally, which include those emanating from non-critical catastrophe events (all events except for named windstorm and earthquake) globally as well as critical catastrophe events (named windstorm and earthquake) outside North America.
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. For additional information, see also Part 1, Item 1A. Risk Factors – Reserves and Exposures.Terrorism Risk
We actively monitor terrorism risk and manage exposures to losses from terrorist attacks. 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.
Our largest terrorism concentrations are in New York City, and estimated losses are largely driven by the Property and Workers’ Compensation lines of business. Our exposure to terrorism risk in the U.S. is mitigated by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) in addition to limited private reinsurance protections. TRIPRA covers certified terrorist attacks within the U.S. or U.S. missions and against certain U.S. carriers or vessels and excludes certain lines of business as specified by applicable law.
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.Reinsurance Activities
We purchase reinsurance for our insurance and reinsurance operations. Reinsurance facilitates insurance risk management (retention, volatility, concentrations) and capital planning. We may purchase reinsurance on a pooled basis.Reinsurance is used primarily to manage overall capital adequacy and mitigate the insurance loss exposure related to certain events, such as natural and man-made catastrophes, death events, or single policy level 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 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.
Reinsurance Recoverable
AIG’s reinsurance recoverable assets are comprised of paid losses recoverable, ceded loss reserves, ceded reserves for unearned premiums, and Life and Annuity reinsurance recoverables (ceded policy and claim reserves and policyholder contract deposits).At December 31, 2024, total reinsurance recoverable assets were $38.0 billion. These assets include general reinsurance paid losses recoverable of $3.8 billion, ceded loss reserves of $29.1 billion including reserves for IBNR claims, and ceded reserves for unearned premiums of $4.3 billion, as well as life reinsurance recoverable of $0.8 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, 2024 reflects a reasonable estimate of the ultimate losses recoverable. Actual losses may, however, differ from the reserves currently ceded.
At December 31, 2024, we held $20.1 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.
At December 31, 2024, we had no significant reinsurance recoverable due from any individual reinsurer that was financially troubled. Reduced profitability associated with lower interest rates, market volatility and catastrophe losses (including COVID-19), could potentially result in reduced capacity or rating downgrades for some reinsurers. The Reinsurance Credit Department, in conjunction with the credit executives within ERM, reviews these developments, monitors compliance with credit triggers that may require AIG's reinsurer to post collateral, and seeks to use other appropriate means to mitigate any material risks arising from these developments.For additional information on reinsurance recoverable, see Critical Accounting Estimates – Reinsurance Assets.AIG | 2024 Form 10-K
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Glossary
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 (Accident year combined ratio, ex-CAT) 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 (Accident year loss ratio, ex-CAT) 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.Attritional losses are losses recorded in the current accident year, which are not catastrophe losses.Book Value per share, excluding Goodwill, Value of business acquired (VOBA), Value of distribution channel acquired (VODA) and Other intangible assets (Tangible book value per share) is used to provide a useful measure of the realizable shareholder value on a per share basis. Tangible book value per share is derived by dividing Total AIG common shareholders’ equity, excluding intangible assets (AIG tangible common shareholders’ equity) by total common shares outstanding.
Book value per share, excluding Investments AOCI, deferred tax assets (DTA) and AIG’s ownership interest in Corebridge (Core operating book value per share) is used to show the amount of our net worth on a per share basis after eliminating Investments AOCI, DTA and AIG’s ownership interest in Corebridge. We believe this measure is useful to investors because it eliminates the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions. We also exclude the portion of DTA representing U.S. tax attributes related to net operating loss carryforwards (NOLs), corporate alternative minimum tax credits (CAMTCs) and foreign tax credits (FTCs) that have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year attribute utilization. As NOLs, CAMTCs and FTCs are utilized, the corresponding portion of the DTA utilized is included. We exclude AIG’s ownership interest in Corebridge since it is not a core long-term investment for AIG. Core operating book value per share is derived by dividing total AIG common shareholders’ equity, excluding Investments AOCI, DTA and AIG’s ownership interest in Corebridge (AIG core operating shareholders’ equity) by total common shares outstanding.
Book Value per share, excluding Investments AOCI, Goodwill, VOBA, VODA and Other intangible assets (Adjusted tangible book value per share) is used to provide a useful measure of the realizable shareholder value on a per share basis after eliminating the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions and Fortitude Re funds withheld assets since these fair value movements are economically transferred to Fortitude Re. Adjusted tangible book value per share is derived by dividing AIG adjusted common equity, excluding intangible assets, (AIG adjusted tangible common shareholders’ equity) by total common shares outstanding.
Book value per share, excluding investments related cumulative unrealized gains and losses recorded in Accumulated other comprehensive income (loss) (AOCI) adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets (collectively, Investments AOCI) (Adjusted book value per share) is used to show the amount of our net worth on a per share basis after eliminating the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions. In addition, we adjust for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets held by AIG in support of Fortitude Re’s reinsurance obligations to AIG (Fortitude Re funds withheld assets) since these fair value movements are economically transferred to Fortitude Re. Adjusted book value per share is derived by dividing total AIG common shareholders’ equity, excluding Investments AOCI (AIG adjusted common 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.
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.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.88
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GlossaryDeferred 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.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.
Loan-to-value ratio Principal amount of loan amount divided by appraised value of collateral securing the loan.
Loss Adjustment Expenses The expenses directly attributed to settling and paying claims of insureds and include, but are not limited to, legal fees, adjuster’s 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.
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 losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and man-made catastrophe losses, such as terrorism and civil disorders that exceed 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 interests The portion of equity ownership in a consolidated subsidiary not attributable to the controlling parent company.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.Prior year development See Loss reserve development .
RBC Risk-Based Capital A formula designed to measure the adequacy of an insurer’s statutory surplus compared to the risks inherent in its business.
Reinstatement premiums Premiums on an insurance policy over and above the initial premium imposed at the beginning of the policy payable to reinsurers or receivable from insurers to restore coverage limits that have been reduced or exhausted as a result of reinsured losses under certain excess of loss reinsurance contracts.
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.Reinsurance recoverables are comprised of paid losses recoverable, ceded loss reserves, ceded reserves for unearned premiums.Retroactive reinsurance See Deferred gain on retroactive reinsurance .Return on Equity – Adjusted After-tax Income, Excluding Goodwill, VOBA, VODA and Other Intangible assets (Return on tangible equity) is used to show the return on AIG tangible common shareholder’s equity, which we believe is a useful measure of realizable shareholder value. We exclude Goodwill, VOBA, VODA and Other intangible assets from AIG common shareholders’ equity to derive AIG tangible common shareholders’ equity. Return on AIG tangible common equity is derived by dividing actual or, for interim periods, annualized adjusted after-tax income attributable to AIG common shareholders by average AIG tangible common shareholders' equity.
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GlossaryReturn on equity – Adjusted after-tax income excluding Investments AOCI (Adjusted return on equity) is used to show the rate of return on common shareholders’ equity excluding Investments AOCI. We believe this measure is useful to investors because it eliminates the fair value of investments which can fluctuate significantly from period to period due to changes in market conditions. Adjusted return on equity is derived by dividing actual or, for interim periods, annualized adjusted after-tax income attributable to AIG common shareholders by average AIG adjusted common shareholders’ equity.
Return on equity – Adjusted after-tax income excluding Investments AOCI, DTA and AIG’s ownership interest in Corebridge (Core operating return on equity) is used to show the rate of return on common shareholders’ equity excluding Investments AOCI, DTA and AIG’s ownership interest in Corebridge. We believe this measure is useful to investors because it eliminates the fair value of investments that can fluctuate significantly from period to period due to changes in market conditions. We also exclude the portion of DTA representing U.S. tax attributes related to NOLs, CAMTCs and FTCs that have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year attribute utilization. As NOLs, CAMTCs and FTCs are utilized, the corresponding portion of the DTA utilized is included. We exclude AIG’s ownership interest in Corebridge since it is not a core long-term investment for AIG. We believe this metric will provide investors with greater insight as to the underlying profitability of our property and casualty business. Core operating return on equity is derived by dividing actual or, for interim periods, annualized adjusted after-tax income attributable to AIG common shareholders by average AIG core operating shareholders’ equity.Subrogation The amount of recovery for claims we have paid our policyholders, generally from a negligent third party or such party’s insurer.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 future pre-tax profits from in-force policies of acquired businesses discounted at yields applicable at the time of purchase. VOBA is reported in DAC in the Consolidated Balance Sheets.
AcronymsA&H Accident and Health Insurance ISDA International Swaps and Derivatives Association, Inc.
ABS Asset-Backed Securities Moody's Moody's Investors' Service Inc.
APTI Adjusted pre-tax income NAIC National Association of Insurance Commissioners
CDS Credit Default Swap NM Not Meaningful
CLO Collateralized Loan Obligations ORR Obligor Risk Ratings
CMBS Commercial Mortgage-Backed Securities RMBS Residential Mortgage-Backed Securities
ERM Enterprise Risk Management S&P Standard & Poor's Financial Services LLC
FASB Financial Accounting Standards Board SEC Securities and Exchange Commission
GAAP Accounting Principles Generally Accepted in the United States of America VIE Variable Interest Entity