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American International Group, Inc.Fourth Quarter 2012 ResultsConference Call Presentation
February 22nd, 2013
2
Cautionary Statement Regarding Projections and Other Information About Future EventsThis 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 1995. 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 and, if such a determination is made, as a systemically important financial institution (SIFI); 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; judgments concerning deferred policy acquisition costs recoverability; and such other factors as are discussed in Part I, Item 1A. Risk Factors and in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of AIG’s Annual Report on Form 10-K for the year ended December 31, 2012.
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 Fourth Quarter 2012 Financial Supplement available in the Investor Information section of AIG's corporate website, www.aig.com.
3
Fourth Quarter 2012 Key ThemesHighlights: Noteworthy Items
Strategic Activities
Sold remaining AIA shares for $6.5 billion (realized gain of $240 million)
Entered into agreement to sell up to 90% of ILFC; recorded as held-for-sale
Strategic investment of $500 million in PICC Group through life companies
Department of the Treasury sale of remaining shares of AIG
Liquidity and Capital Parent liquidity of $16.1 billion reflects AIA share sale
Insurance company distributions of $1.3 billion in 4Q12 and $5.3 billion for the full year ($1.0 billion was contributed to AIG Property Casualty in 4Q12)
AIG Property Casualty
Accident year loss ratio of 63.3%, as adjusted, continues to improve
Global Commercial rates +6.0% (+8.6% in the U.S.)
Catastrophe losses of $2.0 billion mostly attributable to Storm Sandy
Increased acquisition expenses and investments in the business in line with strategic initiatives
AIG Life and Retirement
Results benefit from active net investment spread management, strong alternative investment returns, growth in assets under management and continued expense discipline
Variable annuity sales up 50% from 4Q11
Significantly lower fixed annuity sales versus 4Q11 and an increase in large group surrenders at VALIC negatively impacted net flows
Mortgage Guaranty
Growth in new insurance written (up 63% from 4Q11)
Delinquency ratio declined 80 bps from 3Q12 to 8.8%
Results reflect a lengthening of foreclosure timelines and a change in estimated ultimate cure rate, both of which negatively impacted loss reserves.
4
Fourth Quarter
($ in millions, except per share amounts) 2011 2012Inc.
(Dec.)
Revenues $16,376 $15,854 (3%)
Net income (loss) attributable to AIG 21,479 (3,958) NM
After-tax operating income attributable to AIG $1,471 $290 (80%)
Diluted earnings (loss) per common share:
Income from continuing operations $11.26 $0.25 (98%)
Income (loss) from discontinued operations $0.05 ($2.93) NM
After-tax operating income attributable to AIG $0.77 $0.20 (74%)
Book value per common share $53.53 $66.38 24%
Book value per common share - Ex. AOCI $50.11 $57.87 15%
Financial HighlightsGAAP results for 4Q12 reflect a $4.4 billion ($2.97 per share) net loss on ILFC sale.
1) Reflects a U.S. consolidated income tax group deferred tax asset valuation allowance release of $19.3 billion ($10.14 per share).2) Adjusted to reflect reclassification of income taxes from Accumulated other comprehensive income to Additional paid-in capital.
(1)
(1)
(2)
5
After-tax Operating Income (Loss)
Fourth Quarter
($ in millions, except per share amounts) 2011 2012
Insurance operations
AIG Property Casualty $367 ($945)
AIG Life and Retirement 912 1,090
Mortgage Guaranty (reported in Other) (25) (45)
Total Insurance Operations 1,254 100
Direct Investment book (27) 509
Global Capital Markets 46 300
Change in fair value of AIA (including realized gain in 2012) 1,021 240
Change in fair value of Maiden Lane III 208 -
Interest expense (364) (408)
Corporate expenses and eliminations (470) (356)
Pre-tax operating income attributable to AIG 1,668 385
Income tax (expense) / benefit (77) (87)
Noncontrolling interest – Treasury (96) -
Other noncontrolling interest (24) (8)
After-tax operating income attributable to AIG $1,471 $290
After-tax operating income per diluted common share $0.77 $0.20
Insurance operating results reflect Storm Sandy losses of $2.0 billion.
6
Deferred Tax Asset OverviewAIG has substantial tax attribute carryforwards that are available under U.S. tax law to offset future U.S. federal income tax obligations. Amounts are presented on a U.S. GAAP basis.
As of 12/31/11 As of 12/31/12
($ in billions) TypeGross
AttributesDeferred
Tax AssetGross
AttributesDeferred
Tax Asset Utilization/Limitations
Net Operating
Loss Carryforward
Non-Life
& Life$45.2 $15.8 $39.5 $13.8
Use against AIG P&C, ILFC, UGC, AIG L&R and AIG Parent income
Limited use (35%) against AIG L&R taxable income
2025–2031 Expiration
Capital LossCarryforward
Valuation Allowance
Life $20.8 $7.3
($7.2)
$16.6 $5.8
($5.1)
Can only apply against capital gains from AIG L&R
2013–2014 Expiration
Foreign Tax Credits General $4.2 $4.7
Limited to tax on lower of taxable income or foreign source income
2015–2022 Expiration
Other Deferred Tax
Liabilities($1.8) ($2.5)
Net Deferred Tax Assets $18.3 $16.7
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$50.11$57.87
$3.42
$8.51
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2011 2012
AOCI
BVPS, ex AOCI
$53.53
$66.38
+24%
(2)
Book Value Per Share
$101.5 $98.0
$14.6 $16.1
$9.3 $9.4 $9.4
$1.0
2011 2012
Non-controlling interestHybrids
Financial Debt
Common Equity
(1)
$134.8$124.5
Capital Structure($ in billions, except per share data)As of Dec. 31,
Strong Capital Position
1) Includes AIG Loans, Mortgages, Notes and Bonds Payable, SAFG Inc. Notes and Bonds Payable, and Liabilities connected to the trust preferred stock.2) Adjusted to reflect reclassification of income taxes from Accumulated other comprehensive income to Additional paid-in capital.3) The inclusion of fleet RBC measures is intended solely for the information of investors and is not intended for the purpose of ranking any insurance
company or for use in connection with any marketing, advertising or promotional activities. Amounts for 2012 are estimated.4) Excludes redeemable noncontrolling interest.
Risk Based Capital Ratios(3)
Year-end AIG Property Casualty
AIG Life and Retirement
2011 430% 520%
2012 394% 510%
Leverage Ratios: 2011 2012
Financial Debt + Hybrids / Capitalization(4) 18.9% 20.5%
Financial Debt / Capitalization(4) 11.6% 12.9%
8
$1,000$519
$902
$1,606
$807$440
0
500
1,000
1,500
2,000
2,500
3,000
1Q12 2Q12 3Q12 4Q12
AIG Property Casualty AIG Life and Retirement
Insurance Company Distributions($ in millions)
$2,606
$1,326
$75
$1,342
*
$5.3 billionGross YTD
$9.8$7.1
$12.6
$3.2
$3.5
$3.0$1.0
$1.0
$0.5
Dec. 31,2011
Sept. 30, 2012
Dec. 31, 2012
Available capacity under Contingent Liquidity FacilitiesAvailable capacity under Syndicated Credit FacilityCash & Short-term investments
Parent Liquidity($ in billions)
$14.0
$11.6
$16.1
Financial Flexibility – A Source of Strength
* Represents non-cash distribution of municipal securities
Distributions exclude a $1.0 billion capital contribution to AIG Property Casualty in 4Q12 following Storm Sandy.
Future annual distributions expected to be $4 – 5 billion.
Parent liquidity reflects the sale of AIA shares in the fourth quarter.
9
14.1 17.3 14.1 17.318.5 20.2 18.5 20.2
74.587.6
69.3 63.3
0
20
40
60
80
100
120
140
4Q11 4Q12 4Q11 4Q12GOE Ratio Acquisition Ratio Loss Ratio
Global Combined Ratios
Calendar Year Accident Year, as adjusted(1)
107.1 101.9
125.1
100.8
AIG Property Casualty – Financial Results
1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discount.
($ in millions) 4Q11 4Q12
Net premiums written $7,848 $7,809
Net premiums earned 8,962 8,613
Underwriting loss (636) (2,162)
Net investment income 1,003 1,217
Operating income (loss) $367 ($945)
Accident year loss ratio, as adjusted, continued to decline, reflecting shift to higher value business, enhanced risk selection tools and improved pricing.
Acquisition ratio increased due to the shift to higher value business and investments in direct marketing.
General Operating Expense (GOE) ratio increased due to strategic initiatives, severance and other personnel costs.
Underwriting results in 4Q12 reflect Storm Sandy losses of $2.0 billion.
10
$2,165 $1,846
$477 $709
$839 $849
$943 $1,006
0
1,000
2,000
3,000
4,000
5,000
4Q11 4Q12Casualty Property Specialty Financial lines
Net Premiums Written($ in millions)
$4,424 $4,410
11.9 14.0 11.9 14.014.9 15.5 14.9 15.5
80.3100.9
76.9 66.4
020406080
100120140
4Q11 4Q12 4Q11 4Q12
GOE Ratio Acquisition Ratio Loss Ratio
Calendar Year Accident Year, as adjusted(1)
107.1
Combined Ratios
103.7
130.4
95.9
Commercial Insurance – Underwriting Results
Note: In the fourth quarter of 2012 certain environmental business written prior to 2004 was transferred from Commercial Insurance to the Other category. All periods presented have been revised to align with this change.1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium
adjustments and the impact of reserve discount.
Commercial results reflect mix shift, enhanced risk selection, and price increases.
Accident Year Loss Ratio(1)
75.371.3
73.776.9
70.367.3
70.866.4
60
64
68
72
76
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Global Commercial Insurance rates increased +6.0% (+8.6% for the U.S.), led by U.S. Property at +14.6% and U.S. Workers’ Compensation at +12.4%.
Commercial Insurance continues to demonstrate underwriting discipline, focusing resources on higher value, profitable lines of business and geographies.
Property net premiums written increased due to rate increases, changes to the reinsurance program and reduced catastrophe bond purchases.
11
$1,623 $1,647
$1,804 $1,748
0
1,000
2,000
3,000
4,000
4Q11 4Q12Accident & Health Personal Lines
Net Premiums Written($ in millions)
$3,427 $3,395
Consumer Insurance – Underwriting Results
Combined Ratios
15.5 16.4 15.5 16.4
23.9 26.9 23.9 26.9
59.467.9
57.7 58.0
0
20
40
60
80
100
120
4Q11 4Q12 4Q11 4Q12GOE Ratio Acquisition Ratio Loss Ratio
Calendar Year Accident Year, as adjusted(1)
98.8 97.1111.2
101.3
Consumer results reflect continued execution of global strategies.
Accident Year Loss Ratio(1)
60.059.1 58.9
57.758.4
59.1
57.7 58.0
56
57
58
59
60
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Represents 41% of total AIG Property Casualty NPW for 2012, reflecting growth across the business using multiple distribution channels.
Direct Marketing was 15% of Consumer NPW in 2012.
1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discount.
12
AIG Property Casualty – Investments
December 31, 2012Invested Assets - $129.3 billion(2)
Obligations of states,
municipalities, and political subdivisions
22%
Non-U.S. governments
17%
Corporate debt27%
Structured securities
11%
Alternatives10%
Cash and short-term
investments7%
Equities, Trading &
other6%
1) Includes income/loss from mutual funds, real estate, equity method investments and mark-to-market gains and losses, net of investment expenses.2) Excludes intercompany assets.
Obligations of states,
municipalities, and political subdivisions
26%
Non-U.S. governments
18%Corporate
debt26%
Structured securities
9%
Alternatives10%
Cash and short-term
investments4%
Equities, Trading &
other7%
December 31, 2011Invested Assets - $125.0 billion(2)
Net investment income:($ in millions)
Fourth Quarter2011 2012 Inc./(Dec.) 2011
Full Year2012 Inc./(Dec.)
Interest and dividends $ 963 $ 968 1% $ 3,742 $ 3,949 6%
Alternative investments
Other, net(1)
(86) 157
126 92
NM
(27%)
371
235
484
387
30%
65%
Net investment income $ 1,003 $ 1,217 21% $ 4,348 $ 4,820 11%
Yield 3.19% 3.79% 3.51% 3.81%
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$166.2 $179.1 $189.8 $203.7
$50.8$54.4 $51.4
$57.3$14.0$15.0 $15.7
$19.0$10.4
0
50
100
150
200
250
300
2009 2010 2011 2012
Stable value wraps
Group & Retail mutual funds
Separate account
General account
Assets Under Management(As of Dec. 31, $ in billions)
$256.9
$290.4
$248.5$231.0
AIG Life and Retirement – Financial Results
Operating income in 4Q12 reflects strong alternative investment income, a $57 million gain on PICC Group investment, active net investment spread management, growth in assets under management and continued expense discipline.
4Q12 results include a loss recognition charge on legacy long-term care business of $61 million and a net favorable DAC and reserve unlocking of $41 million.
Year ago quarter reflected a favorable legal settlement of $202 million, net, partially offset by a $105 million increase in IBNR reserves.
Total AUM of $290.4 billion, up 13% from a year ago due to strong fixed income and equity markets and the novation of stable value wrap business from AIG Global Capital Markets.
Negative net flows in 4Q12 of $844 million reflected lower fixed annuity deposits and an increase in large group surrenders at VALIC, partially offset by strong variable annuity and retail mutual fund net flows.
Variable annuity sales increased 50% from 4Q11 to $1.2 billion.
Results reflect active management of net investment spreads.
Operating income($ in millions) 4Q11 4Q12
Life Insurance $157 $171
Retirement Services 755 919
Total $912 $1,090
14
AIG Life and Retirement – Investments
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 and
income from calls and prepayment fees. Quarterly results are annualized.4) Excludes intercompany assets.
Obligations of states,
municipalities, and political subdivisions
1%Non-U.S.
governments1%
Corporate debt59%
Structured securities
19%
Alternatives7%
Loans9%
Cash and short-term
investments2%
Equities, Trading &
other2%
December 31, 2011Invested Assets - $189.8 billion(4)
December 31, 2012Invested Assets - $203.7 billion(4)
Obligations of states,
municipalities, and political subdivisions
1%Non-U.S.
governments2%
Corporate debt57%
Structured securities
20%
Alternatives6%
Loans8%
Cash and short-term
investments4%
Equities, Trading &
other2%
Net investment income: Fourth Quarter Full Year($ in millions) 2011 2012 Inc./(Dec.) 2011 2012 Inc./(Dec.)Interest and dividends $ 2,372 $ 2,316 (2%) $ 9,043 $ 9,650 7%Alternative investments 31 332 NM 842 954 13%Call and tender income 24 42 75% 222 146 (34%)
Other, net(1) (55) 25 NM (225) (32) (86%)
Net investment income $ 2,372 $ 2,715 14% $ 9,882 $ 10,718 8% Base Yield(2) 5.44% 5.33% 5.34% 5.43% Total Yield(3) 5.33% 6.09% 5.63% 6.04%
15
AIG Life and Retirement – Base Yields and Spreads
Base Yields(1)
5.28% 5.30% 5.33%
5.17%5.11%
5.08% 5.13% 5.17%
4.99% 5.04%
4.50%
4.70%
4.90%
5.10%
5.30%
5.50%
4Q11 1Q12 2Q12 3Q12 4Q12
VALIC Western National
Base Net Investment Spreads(1)
1.66%
1.90%1.95%
1.81%1.73%
1.80%
1.95% 1.99%
1.83%1.92%
1.20%
1.42%
1.64%
1.86%
2.08%
4Q11 1Q12 2Q12 3Q12 4Q12
VALIC Western National
1) Includes the investment return on surplus other than alternative investment or yield enhancement activities.
Western National base net investment spreads increased sequentially reflecting a slight increase in base yield and a slight decline in crediting rates.
VALIC base net investment spreads declined sequentially reflecting lower base yields driven by both lower reinvestment yields and the repositioning of the portfolio to improve credit quality.
At December 31, 2012, a total of 63% of fixed annuity and universal life account values are at contractual minimum guaranteedcrediting rates vs. 45% at December 31, 2011.
16
Mortgage Guaranty – Results
13.9%
11.4%10.3%
9.6%8.8%
8.0%
10.0%
12.0%
14.0%
16.0%
4Q11 1Q12 2Q12 3Q12 4Q12
Primary Delinquency (DQ) Ratio (%)
DQ Aging 4Q11 1Q12 2Q12 3Q12 4Q12
% Over 12Mos
47% 44% 42% 40% 39%
Growth in New insurance written reflects consistently high quality risks.
$3.3
$7.1
$11.6
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
4Q10 4Q11 4Q12
New Insurance Written (NIW)(1)
($ in billions)
Vintage YearAverage
FICO Score LTV Ratio
2010 760 90
2011 757 91
2012 758 91
4Q12 operating loss of $45 million reflects a lengthening of foreclosure timelines and a change in estimated ultimate cure rate, both of which negatively impacted loss reserves.
1) New insurance written – original principal balance of loans (First-lien).
17
Q&A
18
Appendix
19
Legacy AIGFP: What We’ve AccomplishedAIG will continue to de-risk the legacy AIGFP portfolio while ensuring the firm retains the maximum economic benefit possible.
Net Notional Exposures ($ in billions)
Derivatives Book
December 31, % Reduction
2008(1) 2011 2012 2008 –2012
2011 –2012
Market Derivatives ~1,450 131 101 93% 23%
Multi-sector CDS ~13 6 4 69% 33%
Corporate Arbitrage ~52 12 12 77% 0%
Regulatory Capital CDS
~245 7 0 >99% >99%
Stable Value Wraps ~40 20 10 75% 50%
Total Legacy Derivatives (4) ~$1,800 $176 $127 93% 28%
1) 2008 net notional amounts are approximate. 2) The Gross Vega is calculated as the sum of all the individual positions’ absolute vegas as if each position is not hedged. Although AIGFP’s books are almost completely hedged on a net Vega basis, the Gross Vega
measure will help monitor how well the volatility risk is being eliminated. The interest rate option vega denotes the change in value due to a 0.1% increase in normal volatility. For other derivatives (i.e., Equity, Commodity and FX option), vega denotes the change in value due to a 1% increase in lognormal volatility.
3) Gross ATE measures the impact of a three-notch downgrade. 2008 Gross ATE includes $1.3 billion attributable to Guaranteed Investment Contracts (GICs). 4) Excludes $16.5 billion and $10.2 billion of intercompany derivatives in 2012 and 2011, respectively.
(1)
1.25
0.010
0.5
1
1.5
2008 2012
99% Reduction
Gross Vega ($ in billions)(2)
35,200
1,600 -
10,000
20,000
30,000
40,000
2008 2012
95% Reduction
Position Count
10.4
0.30
5
10
15
2008 2012
97% Reduction
Gross Additional Termination Events (ATE) ($ in billions)(3)
20
Legacy AIGFP: Where We’re GoingActively managing the portfolio for maximum profit contribution and with limited risk.
TypeEstimatedAverage
LifeDescription
Market Derivatives
5.7 years
AIG Derisking Activities and Portfolio Hedging - ~$73 billion: Aggregate Value at Risk on Market Derivatives is effectively zero at a 95% confidence level Derivatives primarily facilitate hedging of the assets and liabilities of the DIB program as well as
affiliate companies’ ordinary course risk management activity
7.9 years
3rd Party Client Trades - ~$28 billion: Aggregate Value at Risk on Market Derivatives is effectively zero at a 95% confidence level Third-party trades primarily intermediated and represent ~$28 billion of total remaining notional Bulk of remaining trades expected to remain until maturity as they have been intermediated to
preserve economic value or provide attractive funding
StableValueWraps
4.9 years No material realized losses even through market stress of 2008 During Q4 2012, Stable Value Wraps with a notional value of $8 billion were novated to AIG Life &
Retirement and further novations are expected during 2013
Multi-sector CDS 5.8 years
$782 million profit contribution since 12/31/08 Managed to retain significant future upside
- Where economics are compelling will continue to unwind trades
Corporate Arbitrage 3.2 years
$1.91 billion profit contribution since 12/31/08 Vast majority of notional has been intermediated to preserve economics while eliminating contingent
liquidity Third-party credit review confirms no expected losses even in stress scenarios
Regulatory Capital
CDS0.6 years
$251 million profit contribution since 12/31/08 on termination of related mezzanine and hedges Less than $100 million in total notional remains. Expected to terminate or completely amortize
during 2013
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.
AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available in every jurisdiction, and insurance coverage is governed by actual policy language. Certain products and services may be provided by independent third parties. Insurance products may be distributed through affiliated or unaffiliated entities. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.
