American International Group, Inc. Second Quarter 2013 Results Conference Call Presentation. August 2, 2013

Transcription

1 American International Group, Inc. Second Quarter 2013 Results Conference Call Presentation August 2, 2013

2 Cautionary Statement Regarding Projections and Other Information About Future Events This document and the remarks made within this presentation may include, and officers and representatives of American International Group, Inc. (AIG) may from time to time make, projections, goals, assumptions and statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These projections, goals, assumptions and statements are not historical facts but instead represent only AIG s belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG s control. These projections, goals, assumptions and statements include statements preceded by, followed by or including words such as believe, anticipate, expect, intend, plan, view, target or estimate. It is possible that AIG s actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG s actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include: changes in market conditions; the occurrence of catastrophic events, both natural and man-made; significant legal proceedings; the timing and applicable requirements of any new regulatory framework to which AIG is subject as a savings and loan holding company, as a systemically important financial institution, and as a global systemically important insurer; concentrations in AIG s investment portfolios; actions by credit rating agencies; judgments concerning casualty insurance underwriting and insurance liabilities; judgments concerning the recognition of deferred tax assets; and such other factors discussed in Part I, Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Part II, Item 1A. Risk Factors in AIG s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, in Part I, Item 2. MD&A in AIG s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and in Part II, Item 7. MD&A and Part I, Item 1A. Risk Factors in AIG s Annual Report on Form 10-K for the year ended December 31, AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. This document and the remarks made orally may also contain certain non-gaap financial measures. The reconciliation of such measures to the most comparable GAAP measures in accordance with Regulation G is included in the Second Quarter 2013 Financial Supplement available in the Investor Information section of AIG's corporate website, 2

3 Second Quarter 2013 Key Themes Highlights: Capital Management & Liquidity Noteworthy Items Declared cash dividend of $0.10/share; share repurchase authorization of $1 billion, both in Aug Reduced debt by $931 million through calls and tenders $1.3 billion of dividends and loan repayments As of August 1, 2013, the closing of the ILFC transaction has not occurred AIG Property Casualty Accident year loss ratio, as adjusted, of 61.9 continues to improve Positive rate change in 2Q13, with Global Commercial rates up 3.8% (+7.3% in U.S.) NPW growth of 4.0% from 2Q12 excluding foreign exchange and timing of reinsurance agreements CAT losses total $316 million Net unfavorable development of $154 million, including $142 million from Storm Sandy Mortgage Guaranty Earnings reflect new business growth (half of net premiums earned in 2Q13 was from business written after 2008) Growth in new insurance written (up 63% from 2Q12) with consistently high quality risks Delinquency ratio declined 80 bps from 1Q13 to 7.1% AIG Life and Retirement Strong variable annuity sales of $2.2 billion and retail mutual fund sales growth drove positive net flows; fixed annuity sales increased late in the quarter AUM increased 10% from the year ago period resulting in higher fee income Ongoing active crediting rate management continued to enhance profitability Earnings benefited from higher net investment income 3

4 Financial Highlights Net income in 2Q13 includes a deferred tax valuation allowance release of $752 million and litigation settlement income of $257 million, net of tax. Second Quarter ($ in millions, except per share amounts) Inc. (Dec.) Revenues $16,221 $17,315 7% Net income attributable to AIG 2,332 2,731 17% After-tax operating income attributable to AIG $1,678 $1,655 (1%) Diluted earnings per common share: Income from continuing operations $1.23 $ % Income from discontinued operations $0.10 $0.02 (80%) After-tax operating income attributable to AIG $0.96 $ % Book value per common share $60.58 $ % Book value per common share - Ex. AOCI $55.30 $ % ROE After-tax operating income (1) 7.0% 7.4% 1) Computed as Annualized After-tax operating income divided by Average AIG Shareholders' equity, excluding AOCI. 4

5 After-tax Operating Income Improved insurance operating results and strong investment returns drive results. Second Quarter ($ in millions, except per share amounts) Insurance operations AIG Property Casualty $936 $1,085 AIG Life and Retirement 933 1,151 Mortgage Guaranty (reported in Other) Total Insurance Operations 1,912 2,309 Direct Investment book Global Capital Markets (25) 175 Change in fair value of AIA (including realized gain) (493) - Change in fair value of Maiden Lane III 1,306 - Interest expense (392) (353) Corporate expenses (224) (253) Other (54) (1) Pre-tax operating income attributable to AIG 2,464 2,468 Income tax expense (779) (786) Other noncontrolling interest (7) (27) After-tax operating income attributable to AIG $1,678 $1,655 After-tax operating income per diluted common share $0.96 $1.12 5

6 Strong Capital Position Outstanding borrowings reflect $2.9 billion notional amount of hybrid calls and tenders year-to-date. Capital Structure ($ in billions, except per share data) Book Value Per Share Non-redeemable noncontrolling interests $124.1 $0.7 $119.2 $16.1 $14.6 $9.4 $6.5 $0.7 $70.0 $60.0 $50.0 $66.38 $8.51 $66.02 $4.77 Financial Debt (1) $40.0 AOCI Hybrids $98.0 $97.5 $30.0 $20.0 $57.87 $61.25 BVPS, ex AOCI Common Equity $10.0 Dec. 31, 2012 June 30, 2013 $0.0 Dec. 31, 2012 June 30, 2013 Leverage Ratios: Financial Debt + Hybrids / Capitalization 20.5% 17.7% Financial Debt / Capitalization 12.9% 12.3% 1) Includes AIG Loans, Mortgages, Notes and Bonds Payable, AIGLH Notes and Bonds Payable, and Liabilities connected to the trust preferred stock. 6

7 Financial Flexibility A Source of Strength $1,600 Insurance Company Distributions ($ in millions) ($ in billions) $1,342 $1,349 $1,337 Parent Cash, Short-Term Investments & Unencumbered Securities $12.6 $11.0 $1,200 $800 $440 $545 $2.9 Unencumbered Fixed Maturity Securities $400 $902 $792 $8.1 Cash & Short-term Investments $0 $75 3Q12 4Q12 1Q13 2Q13 AIG Property Casualty AIG Life and Retirement Dec. 31, 2012 June 30, 2013 Year-to-date insurance company distributions of $2.7 billion. Annual distributions expected to be $4 5 billion. Parent cash, short-term investments and unencumbered securities of $11.0 billion includes $5.4 billion allocated toward future maturities of liabilities and contingent liquidity stress needs of the Direct Investment book and Global Capital Markets as of June 30, AIG Parent also maintains available capacity of $3.6 billion under its syndicated credit facility and contingent liquidity facility. 7

8 AIG Property Casualty Financial Results Operating results demonstrate continued execution of strategic initiatives. ($ in millions) 2Q12 2Q13 Global Combined Ratios Net premiums written $9,095 $9,263 Net premiums earned 8,820 8,347 Underwriting income (loss) (217) (225) Calendar Year Accident Year, as adjusted (1) Net investment income 1,153 1,310 Operating income $936 $1, Q12 2Q13 2Q12 2Q13 Loss Ratio Acquisition Ratio GOE Ratio Net premiums written grew 2% reflecting growth of new business and rate increases, the timing of the recognition of ceded premiums written under excess of loss reinsurance agreements, partially offset by the negative effect of foreign exchange, which was largely driven by the strengthening of the U.S. dollar against the Japanese Yen. NPW growth was 4.0% excluding the excess of loss and foreign exchange effects. The accident year loss ratio, as adjusted, continued to improve, as a result of the shift to higher value business, enhanced risk selection, loss mitigation initiatives and improved pricing. Net investment income benefited from the strong performance of alternative investments and gains on fair value option securities. 1) The combined ratio, as adjusted, and loss ratio, as adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting. 8

9 Commercial Insurance Underwriting Results Commercial results reflect business mix shift, enhanced risk selection, and price increases. ($ in millions) $6,000 $4,000 $2,000 $0 Net Premiums Written $5,568 $5,876 $1,076 $1,114 $864 $882 $1,447 $1,770 $2,181 $2,110 2Q12 2Q13 Casualty Property Specialty Financial lines Combined Ratios Commercial Insurance continued to focus on growing higher value, profitable lines of business and geographies. Commercial Insurance rates increased +3.8% (+7.3% for the U.S.), led by U.S. Casualty at +9.4% and U.S. Property at +5.7%. Commercial NPW grew 5.5% from 2Q12. Excluding the timing of the recognition of ceded premiums written under excess of loss reinsurance agreements and foreign exchange effects, Commercial NPW grew 3.6%. Accident Year Loss Ratio, as adjusted (1) Calendar Year Accident Year, as adjusted (1) Q12 2Q13 2Q12 2Q Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Loss Ratio Acquisition Ratio GOE Ratio 1) The combined ratio, as adjusted, and loss ratio, as adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting. 9

10 Consumer Insurance Underwriting Results Consumer continues to implement global growth strategies across multiple distribution channels. ($ in millions) $4,000 $3,000 $2,000 $1,000 $0 Net Premiums Written $3,528 $3,390 $1,832 $1,745 $1,696 $1,645 2Q12 Accident & Health Combined Ratios 2Q13 Personal Lines Consumer NPW grew 4.7% from 2Q12 excluding foreign exchange and the excess of loss reinsurance change and declined 3.9% on a reported basis. Direct Marketing NPW grew 5% from 2Q12 and represented 16% of total Consumer NPW in 2Q13. The accident year loss ratio, as adjusted, in 2Q13 includes higher losses associated with a warranty retail program of 1.5 pts, which was largely offset by a decrease in amounts owed under a profit sharing arrangement for the same program. Accident Year Loss Ratio, as adjusted (1) Calendar Year Accident Year, as adjusted (1) Q12 2Q13 2Q12 2Q13 Loss Ratio Acquisition Ratio GOE Ratio Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 1) The combined ratio, as adjusted, and loss ratio, as adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting. 10

11 AIG Property Casualty Investments Returns driven by strong alternative investment income and gains on fair value option securities. Net investment income: Second Quarter ($ in millions) Inc./(Dec.) Interest and dividends $ 991 $ 939 (5%) Alternative investments % Other, net (1) % Net investment income $ 1,153 $ 1,310 14% Yield 3.68% 4.11% Total Cash & Invested Assets as of June 30, $125.9 billion (2) Total Portfolio Composition Bond Portfolio - $102.1 billion - by Agency Credit Rating RMBS 10% Corporate debt 26% CMBS CDO/ABS 2% 5% Equities 3% Other invested assets 10% Non-U.S. governments 16% States, municipalities, and political subdivisions 20% Loans 1% U.S. Governments 2% Cash and short-term investments 5% A 26% AA 30% BBB 12% AAA 22% <B 6% BB 2% B 2% 1) Includes income/loss from mutual funds, investment real estate, life settlement contracts and mark-to-market gains and losses, net of investment expenses. 2) Includes intercompany invested assets that are eliminated in consolidation. 11

12 Mortgage Guaranty Improving Trends Operating income of $73 million included a positive contribution from commutations, settlements and related reserve releases totaling $49 million. New Insurance Written (NIW) (1) ($ in billions) $16.0 Growth in New insurance written with high quality risk. $ % 10% Primary Delinquency (DQ) Ratio (%) (2) 10.3% 9.6% $12.0 9% 8.8% $8.0 $8.6 8% 7.9% $4.0 $3.2 7% 7.1% $0.0 2Q11 2Q12 2Q13 6% 2Q12 3Q12 4Q12 1Q13 2Q13 Average Vintage Year (2) FICO Score LTV Ratio 2Q Q Q (in 000s) 2Q12 3Q12 4Q12 1Q13 2Q13 DQ Count (2) ) New insurance written original principal balance of loans (First-lien). Includes $162 million, $50 million and $79 million of NIW from International business in 2Q13, 2Q12 and 2Q11, respectively 2) Domestic First-lien only. 12

13 AIG Life and Retirement Financial Results Results reflect strong sales, active spread management and higher investment income. ($ in millions) 2Q12 2Q13 Premiums and deposits $5,434 $6,765 Premiums Policy fees Net investment income 2,521 2,637 Advisory fee and other income Total revenues (1) 4,032 4,328 Benefits and expenses 3,099 3,177 Strong 2Q13 operating results were driven by robust sales of variable annuities, solid growth in fee income, effective spread management, and higher alternative investment income. Net investment income in 2Q13 included a fair value loss of $84 million in the PICC Group investment ($53 million loss for the first six months of 2013). Operating income $933 $1,151 1) Excluding net realized capital gains (losses). Life Insurance and A&H 12% Group Benefits 1% Assets Under Management Fixed Annuities 24% Institutional Markets 18% Group Retirement 30% Retirement Income Solutions 12% Retail Mutual Funds 3% AUM of $293.7 billion at June 30, 2013 increased 10% from the year-ago period driven by strong sales generated by our realigned distribution system, equity market performance and Institutional business asset gathering strategies. Net inflows in 2Q13 of $417 million improved substantially from the prior quarter and year-ago quarter due to variable annuity and retail mutual fund sales. Despite positive net flows in the quarter, AUM declined slightly from 1Q13 due to increases in interest rates and the resulting impact on general account asset values. 13

14 AIG Life and Retirement Retail & Institutional Results ($ in millions) $700 Retail Operating Income* $670 ($ in millions) $600 Institutional Operating Income* $525 $350 $535 $50 $251 $130 $343 $450 $300 $398 $123 $481 $172 $175 $224 $196 $150 $265 $295 $0 2Q12 2Q13 $0 2Q12 2Q13 Life Insurance and A&H Fixed Annuities Ret. Inc. Solutions Group Retirement Institutional Markets Retail operating income benefited from increased fee income from growth in account values, continued active spread management on interest rate-sensitive business and higher income on alternative investments. Institutional operating income was driven by active spread management and higher investment income. * Operating income is not separately presented for brokerage services and retail mutual funds included in the Retail operating segment and group benefits included in the Institutional operating segment. 14

15 AIG Life and Retirement Investments Net investment income: Second Quarter ($ in millions) Inc./(Dec.) Interest and dividends $ 2,361 $ 2,319 (2%) Alternative investments % Call and tender income % Other, net (1) (30) (172) N/M Net investment income $ 2,521 $ 2,637 5% Base Yield (2) 5.50% 5.35% Total Yield (3) 5.71% 5.83% Corporate debt 54% Total Cash & Invested Assets as of June 30, $196.8 billion (4) Total Portfolio Composition RMBS 12% CMBS 4% CDO/ABS 5% Loans 10% Non-U.S. governments 2% Other invested assets 6% Cash and short-term investments 4% States, municipalities, and political subdivisions 2% U.S. Governments 1% Bond Portfolio - $157.3 billion - by Agency Credit Rating 1) Includes income/loss from mutual funds, real estate, equity method investments and mark-to-market gains and losses, net of investment expenses. 2) Includes the investment return on surplus other than alternative investment or yield enhancement activities. Quarterly results are annualized. 3) Represents the base yields and the incremental effect to base yield on investments in hedge funds, private equity funds, gains on Maiden Lane II (in 2012) and income from calls and prepayment fees. Quarterly results are annualized. 4) Includes intercompany invested assets that are eliminated in consolidation. BBB 41% A 24% AA 10% AAA 12% BB 4% <B 7% B 2% 15

16 AIG Life and Retirement Base Yields and Spreads Base Yields (1) 5.70% 5.50% 5.30% 5.10% 4.90% 4.70% 3.40% 3.20% 3.00% 2.80% 2.60% 3.00% 2.50% 2.00% 1.50% 1.00% 5.50% 5.38% 5.33% 5.30% 5.35% 5.31% 5.25% 5.12% 5.12% 5.10% 5.23% 5.14% 5.01% 4.95% 4.85% 2Q12 3Q12 4Q12 1Q13 2Q13 Cost of Funds (2) 3.27% 3.26% 3.26% 3.10% 3.06% 3.13% 3.15% 3.14% 2.91% 2.89% 2Q12 3Q12 4Q12 1Q13 2Q13 Base Net Investment Spreads (1) 2.36% 2.18% 2.19% 1.97% 1.98% 1.96% 2.08% 1.75% 1.69% 1.75% 2Q12 3Q12 4Q12 1Q13 2Q13 Total Base Yield Fixed Annuities Group Retirement Overall base yields benefited from mortgage loan prepayments and increased accretion income principally related to structured securities, which were partially offset by the impact of investment purchases made at yields lower than the weighted average yield of the existing portfolio. Group retirement base yields also improved from 1Q13 due to an increase in allocated net investment income related to surplus assets. Active crediting rate management actions which included lowering renewal crediting rates and maintaining disciplined new business pricing also contributed to the improvement in net spreads. 1) Includes the investment return on surplus other than alternative investment or yield enhancement activities. 2) Excludes the amortization of sales inducement assets. 16

17 Q&A 17

18 Appendix 18

19 Direct Investment Book and Global Capital Markets ($ in billions) Direct Investment Book (1) Global Capital Markets (1) Assets $25.7 $8.6 Liabilities Net Asset Value $3.9 $4.8 Legacy Matched Assets & Liabilities AIG Hedging & Market Derivatives (2) Legacy AIGFP CDS Portfolio Stable Value Wraps Go Forward Hedging Platform Third-Party Derivatives Notional ($ bn) -- $92 Multi- Sector Corporate Arbitrage $4 $12 $8 $24 Weighted Average Life (Years) Strategy Income generated through realization of intrinsic value Assets managed to ensure liabilities can be met as they come due, even under stress scenarios Primarily hedges of DIB assets and liabilities Bulk of risk related to interest rates, foreign exchange and equities has been hedged Income generated through realization of intrinsic value Remaining credit risk viewed as attractive riskreward Since 4Q 2012, notional value of $10 billion has been novated to AIG Life and Retirement Further novations are expected to occur over time Clearing house for operating company hedging and risk management needs Note: As of June 30, ) The DIB consists of a portfolio of assets and liabilities held directly by AIG Parent in the Matched Investment Program (MIP) and certain non-derivative assets and liabilities of AIGFP. The DIB and GCM are included in AIG s Other Operations. 2) The overall hedging activity for the assets and liabilities of the DIB is executed by GCM. The value of hedges related to the non-derivative assets and liabilities of AIGFP in the DIB is included within the assets and liabilities and operating results of GCM and is not included within the DIB operating results, assets or liabilities. 19

20 Direct Investment Book Long-Term Debt Maturities ($ in billions) $25 90% 80% 80% $20 $15 $10 $5 $0 $19.4 $18.4 $1.2 $1.1 $16.2 $5.8 $1.1 $ % $5.6 $0.8 $12.6 $5.0 $0.6 $4.5 $3.5 $3.5 35% $8.3 $4.1 $3.5 $0.5 $8.9 $3.5 26% $8.2 $3.5 $3.9 $3.8 $6.6 16% $0.3 $5.6 0% $4.4 $3.5 $3.2 5% $0.4 as of 6/30/ $0.3 70% 60% 50% 40% 30% 20% 10% 0% MIP notes payable GIAs, at f air value % Maturing Series AIGFP matched notes and bonds payable Notes and bonds payable, at f air value 20

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