10-QPeriod: Q3 FY2017

AMERICAN INTERNATIONAL GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 3, 2017For Securities:AIG

Summary

AMERICAN INTERNATIONAL GROUP, INC. (AIG) reported a net loss attributable to AIG common shareholders of $1.74 billion for the third quarter of 2017, or a loss of $1.91 per diluted share. This contrasts with a net income of $462 million, or $0.43 per diluted share, in the same period of the prior year. The significant loss was primarily driven by substantial catastrophe losses amounting to $3.0 billion pre-tax, stemming from Hurricanes Harvey, Irma, and Maria, as well as the earthquake in Mexico. Additionally, unfavorable prior year loss reserve development, particularly in the Liability and Financial Lines segment, and higher net realized capital losses contributed to the negative results. Despite these challenges, AIG continued to execute on its strategic initiatives, including cost reductions and portfolio optimization, which led to lower general operating and other expenses. The company also noted a positive net adjustment from actuarial assumption updates, partially offsetting the negative impacts. For the nine months ended September 30, 2017, AIG reported a net income attributable to common shareholders of $576 million, or $0.61 per diluted share, a significant decrease from $2.19 billion, or $1.92 per diluted share, in the same period of 2016. The year-to-date decline was also impacted by higher catastrophe losses, increased unfavorable prior year loss reserve development, and a loss on the sale of divested businesses, partly offset by lower operating expenses and improved net investment income. AIG continues to manage its capital, returning $20.3 billion to shareholders through dividends and repurchases from January 1, 2016, to September 30, 2017, and has announced plans for further organizational restructuring to streamline its operations.

Financial Highlights

37 data points
Beta

Revenue

$11.75B

Net Income

-$1.74B

-14.8% Net Margin

EPS (Diluted)

$-1.91

Total Assets

$503.07B

Cash & Equivalents

$2.43B

Free Cash Flow

$174.00M

Financial Statements
Beta
Revenue$11.75B
SG&A Expenses$2.15B
Operating Income$569.00M
Interest Expense$290.00M
Net Income-$1.74B
EPS (Basic)$-1.91
EPS (Diluted)$-1.91
Shares Outstanding (Basic)908.67M
Shares Outstanding (Diluted)908.67M

Key Highlights

  • 1AIG reported a significant net loss of $1.74 billion for Q3 2017, largely due to $3.0 billion in pre-tax catastrophe losses from Hurricanes Harvey, Irma, Maria, and the Mexico earthquake.
  • 2Unfavorable prior year loss reserve development, primarily in Liability and Financial Lines, negatively impacted results.
  • 3Net investment income decreased by 10% year-over-year for the quarter, influenced by lower invested assets and reduced income from alternative investments.
  • 4General operating and other expenses were reduced by 15% year-over-year for the quarter, reflecting ongoing efficiency programs and business divestitures.
  • 5The company's book value per common share stood at $80.62 as of September 30, 2017, a slight increase from $76.66 at December 31, 2016.
  • 6AIG repaid or redeemed $2.8 billion in debt during the first nine months of 2017 and repurchased approximately $6.3 billion of its common stock.
  • 7The company announced plans to reorganize its Commercial Insurance and Consumer Insurance segments into General Insurance and Life and Retirement, respectively, effective in the fourth quarter of 2017.

Frequently Asked Questions

The primary driver of AIG's net loss of $1.74 billion in the third quarter of 2017 was the significant pre-tax catastrophe losses of $3.0 billion, primarily from Hurricanes Harvey, Irma, and Maria, and the earthquake in Mexico. Unfavorable prior year loss reserve development and higher net realized capital losses also contributed to the loss.

AIG's underwriting performance deteriorated significantly in the third quarter of 2017. The Commercial Insurance segment reported a pre-tax operating loss of $2.86 billion, compared to a pre-tax operating income of $685 million in the prior year's quarter. This was largely due to higher catastrophe losses and unfavorable prior year loss reserve development, which pushed combined ratios well above 100% for both Liability and Financial Lines and Property and Special Risks.

AIG noted that the sustained low interest rate environment continues to negatively impact sales of interest-rate sensitive products and profitability due to lower reinvestment yields. While the company actively manages its exposure through portfolio selection and asset-liability management, including hedging strategies, a sustained low rate environment puts margin pressure on existing products and makes it challenging to profitably price new ones. For some in-force business, future premium receipts invested at lower rates may not meet future policy liabilities.

AIG is focused on executing strategic initiatives to improve operating performance. These include cost reductions through lower general operating and other expenses, portfolio optimization by exiting underperforming or non-core businesses, and streamlining organizational structure. The company is also investing in technology and underwriting capabilities to enhance efficiency and client experience.