|AIG Announces Actions Executing Strategy of Leaner, More Profitable and Focused Insurer|
The Board of Directors has committed to return at least
In addition, the Board approved a number of organizational changes,
including the creation of nine “modular” business units with greater
end-to-end accountability, each with its own specific financial metrics.
AIG will create a new “legacy” portfolio to hold non-strategic assets
and has appointed
In related operational actions, AIG also announced targeted expense
“With these actions, AIG has taken another major step in simplifying our
organization to be a leaner, more profitable insurer, while continuing
to return capital to shareholders and improve shareholder returns,” said
President and CEO
“AIG is committed to serving all its stakeholders by delivering first quartile total shareholder returns to its shareholders; providing risk expertise and dependable long-term balance sheet strength for its customers; having a culture of strict adherence to both the letter and spirit of regulatory requirements; and maintaining an environment that attracts and retains world-class employees.
“After careful consideration, AIG believes that a full breakup in the near term would detract from, not enhance, shareholder value. A lack of diversification benefits would reduce capital available for distribution, and there would be a loss of tax benefits. Being a non-bank SIFI is not currently a binding constraint on return of capital,” said Mr. Steenland.
AIG is committed to returning at least
IPO of up to 19.9% of
AIG will pursue an initial public offering of
AIG has announced the sale of
“Modular” Business Units
AIG is overhauling its management model to improve transparency,
accountability and operating performance improvement throughout the
organization. The new structure, composed initially of nine “modular”
business units within AIG’s Commercial and Consumer segments, will
decentralize decision-making, provide more accountability to business
leaders, and allow for migration to a more variable cost structure. The
reorganization will give AIG options to retain and grow the businesses,
or take public or sell the units if they don’t adequately contribute to
financial targets, or if it becomes apparent that they are worth more
outside of AIG than within, or if they represent an efficient means of
returning capital to shareholders. The Company could consider the
separation of even the larger modular units of its Commercial and
Consumer segments over time with utilization of the DTA, contingent on
improvements in the credit risk profile and operating performance.
Within AIG’s Commercial segment, the modular business units will be
Liability and Financial Lines; Property and Special Risks; U.S.
Commercial; and Europe Commercial. Inside the Consumer segment, the
modular units will be U.S. Individual Retirement; U.S. Group Retirement;
Life, Health and Disability;
New “Legacy” Portfolio Management
The Company will create a new “legacy” portfolio composed of
non-strategic assets and businesses that it intends to exit or run off.
This portfolio will be managed in a way to monetize assets in a timely
manner in order to return capital to shareholders. The Company will also
introduce new disclosures later in 2016 to clarify sources of financial
returns and enhance focus on a goal of releasing
AIG is also undertaking further substantial expense reductions of
Aggressive actions will be taken to improve the Commercial P&C accident
year loss ratio by addressing unprofitable clients purchasing one or two
products, expanding and optimizing the use of reinsurance, and exiting
or remediating targeted segments of underperforming portfolios. These
actions are expected to result in accident year loss ratio improvement
of six percentage points by 2017. In addition, we will undertake actions
to sharpen our consumer focus and improve profitability, including
narrowing our footprint in
AIG has set a consolidated normalized ROE target of ~9% by 2017, reflecting 10.3% to 10.7% in the operating portfolio. The increase will be driven by the operating improvements, capital actions and profitable growth outlined in the strategic plan. At the same time, legacy assets and liabilities will release low-earning capital over time.
Mr. Hancock concluded, “We have set substantial financial goals for AIG and will continue to improve shareholder return by thoughtfully managing the trade-off between book value per share growth and improving ROE. By overhauling the way the company is organized and creating modular, self-sufficient businesses, we will drive substantial operating performance improvements and maximize value for shareholders.”
The presentation of the strategic plan will be made at the investor
update scheduled for
For a video interview with
Cautionary Statement Regarding Forward Looking Information and Other Matters
This press release includes 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 “will,”
“believe,” “anticipate,” “expect,” “intend,” “plan,” “view,” “target,”
"goal" 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 nonbank 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; judgments concerning
estimated restructuring charges and estimated cost savings; completion
of the year end audit process; 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 quarterly period ended
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 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 Appendix to this press release.
Nothing in this press release or in any oral statements made in connection with this press release is intended to constitute, nor shall it be deemed to constitute, an offer of any securities for sale or the solicitation of an offer to purchase any securities in any jurisdiction.
COMMENT ON REGULATION G
Throughout this press release, including the financial highlights, AIG
presents its financial condition and results of operations in the way it
believes will be most meaningful and representative of its business
results. Some of the measurements AIG uses are “non-GAAP financial
Book Value Per Share Excluding Accumulated Other Comprehensive Income (AOCI) and Book Value Per Share Excluding AOCI and Deferred Tax Assets (DTA) are used to show the amount of AIG's net worth on a per-share basis. AIG believes these measures are useful to investors because they eliminate the effect of non-cash items that can fluctuate significantly from period to period, including changes in fair value of AIG’s available for sale securities portfolio, foreign currency translation adjustments and U.S. tax attribute deferred tax assets. Deferred tax assets represent U.S. tax attributes related to net operating loss carryforwards and foreign tax credits. Amounts are estimates based on projections of full-year attribute utilization. Book Value Per Share Excluding AOCI is derived by dividing Total AIG shareholders' equity, excluding AOCI, by Total common shares outstanding. Book Value Per Share Excluding AOCI and DTA is derived by dividing Total AIG shareholders' equity, excluding AOCI and DTA, by Total common shares outstanding.
Return on Equity – After-tax Operating Income Excluding AOCI and Return on Equity – After-tax Operating Income Excluding AOCI and DTA are used to show the rate of return on shareholders’ equity. AIG believes these measures are useful to investors because they eliminate the effect of non-cash items that can fluctuate significantly from period to period, including changes in fair value of available for sale securities portfolio, foreign currency translation adjustments and U.S. tax attribute deferred tax assets. Deferred tax assets represent U.S. tax attributes related to net operating loss carryforwards and foreign tax credits. Amounts are estimates based on projections of full-year attribute utilization. Return on Equity – After-tax Operating Income Excluding AOCI is derived by dividing actual or annualized after-tax operating income attributable to AIG by average AIG shareholders’ equity, excluding average AOCI. Return on Equity – After-tax Operating Income Excluding AOCI and DTA is derived by dividing actual or annualized after-tax operating income attributable to AIG by average AIG shareholders’ equity, excluding average AOCI and DTA.
Normalized Return on Equity, Excluding AOCI and DTA further adjusts Return on Equity – After-tax Operating Income, Excluding AOCI and DTA for the effects of certain volatile or market-related items. Normalized Return on Equity, Excluding AOCI and DTA is derived by excluding the following tax adjusted effects from Return on Equity – After-tax Operating Income, Excluding AOCI and DTA: catastrophe losses compared to expectations; alternative investment returns compared to expectations; DIB/GCM returns compared to expectations; fair value changes on PICC investments; update of actuarial assumptions; net reserve discount change; Life insurance IBNR death claim charge; and prior year loss reserve development.
Normalized Return on Equity, Excluding AOCI and DTA – Operating and Legacy Portfolios further adjust Normalized Return on Equity, Excluding AOCI and DTA for the allocation to the operating businesses of Corporate GOE, Parent Financial Debt and the related Interest Expense.
AIG uses the following operating performance measures because it believes they enhance the understanding of the underlying profitability of continuing operations and trends of AIG’s business segments. AIG believes they also allow for more meaningful comparisons with AIG’s insurance competitors. When AIG uses these measures, reconciliations to the most comparable GAAP measure are provided, on a consolidated basis.
After-tax operating income attributable to AIG is derived by excluding
the following items from net income attributable to AIG: income or loss
from discontinued operations; income and loss from divested businesses
(including gain on the sale of
Operating revenue excludes Net realized capital gains (losses), Aircraft leasing revenues, income from non-operating litigation settlements (included in Other income for GAAP purposes) and changes in fair values of fixed maturity securities designated to hedge living benefit liabilities, net of interest expense (included in Net investment income for GAAP purposes).
General operating expenses, operating basis, is derived by making the following adjustments to general operating and other expenses: include (i) loss adjustment expenses, reported as policyholder benefits and losses incurred and (ii) certain investment and other expenses reported as net investment income, and exclude (i) advisory fee expenses, (ii) non-deferrable insurance commissions, (iii) direct marketing and acquisition expenses, net of deferrals, (iv) non-operating litigation reserves and (v) other expense related to a retroactive reinsurance agreement. AIG uses general operating expenses, operating basis, because it believes it provides a more meaningful indication of ordinary course of business operating costs.
AIG uses the following operating performance measures within its
Pre-tax operating income: includes both underwriting income and loss and net investment income, but excludes net realized capital gains and losses, other income and expense — net, and non-operating litigation reserves and settlements. Underwriting income and loss is derived by reducing net premiums earned by losses and loss adjustment expenses incurred, acquisition expenses and general operating expenses.
Ratios: AIG, along with most property and casualty insurance companies,
uses the loss ratio, the expense ratio and the combined ratio as
measures of underwriting performance. These ratios are relative
measurements that describe, for every
Accident year loss and combined ratios, as adjusted: both the accident
year loss and combined ratios, as adjusted, exclude catastrophe losses
and related reinstatement premiums, prior year development, net of
premium adjustments, and the impact of reserve discounting. Catastrophe
losses are generally weather or seismic events having a net impact in
Pre-tax operating income is derived by excluding the following items from pre-tax income: non-operating litigation reserves and settlements; changes in fair values of fixed maturity securities designated to hedge living benefit liabilities (net of interest expense); net realized capital gains and losses; and changes in benefit reserves and DAC, VOBA and SIA related to net realized capital gains and losses.
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 and mutual funds.
Corporate and Other
Pre-tax operating income and loss is derived by excluding the following
items from pre-tax income and loss: non-operating litigation reserves
and settlements; reserve development related to non-operating run-off
insurance business; loss on extinguishment of debt; net realized capital
gains and losses; changes in benefit reserves and DAC, VOBA and SIA
related to net realized capital gains and losses; income and loss from
divested businesses, including
Results from discontinued operations are excluded from all of these measures.
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AIG is the marketing name for the worldwide property-casualty, life and
retirement, and general insurance operations of
American International Group, Inc.