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American International Group 10-Q 2015
UNITED STATES

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

Commission File Number 1-8787

 

 

 

American International Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

13-2592361

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

175 Water Street, New York, New York

10038

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 770-7000

________________

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No ☐   

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑ 

Accelerated filer ☐ 

Non-accelerated filer ☐ 

Smaller reporting company ☐ 

 

 

(Do not check if a

smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐      No   

 

As of July 29, 2015, there were 1,293,886,920 shares outstanding of the registrant’s common stock.

  

 


 

AMERICAN INTERNATIONAL GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

June 30, 2015

Table of Contents

FORM 10-Q

 

Item Number
Description
Page
PART I — FINANCIAL INFORMATION
 

Item 1

Condensed Consolidated Financial Statements

2

 

Note 1.

Basis of Presentation

7

 

Note 2.

Summary of Significant Accounting Policies

8

 

Note 3.

Segment Information

11

 

Note 4.

Fair Value Measurements

13

 

Note 5.

Investments

32

 

Note 6.

Lending Activities

40

 

Note 7.

Variable Interest Entities

41

 

Note 8.

Derivatives and Hedge Accounting

44

 

Note 9.

Contingencies, Commitments and Guarantees

49

 

Note 10.

Equity

56

 

Note 11.

Earnings Per Share

61

 

Note 12.  

Employee Benefits

62

 

Note 13.

Income Taxes

63

 

Note 14.

Information Provided in Connection with Outstanding Debt

65

 

Note 15.

Subsequent Events

72

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of

  

 

Operations

73

 

·       Cautionary Statement Regarding Forward-Looking Information

73

 

·       Use of Non-GAAP Measures

76

 

·       Executive Overview

79

 

·       Results of Operations

92

 

·       Investments

129

 

·       Insurance Reserves

148

 

·       Liquidity and Capital Resources

158

 

·       Enterprise Risk Management

174

 

·       Critical Accounting Estimates

179

 

·       Regulatory Environment

180

 

·       Glossary

181

 

·       Acronyms

185

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

186  

Item 4

Controls and Procedures

186  

PART II — OTHER INFORMATION
 

Item 1

Legal Proceedings

187  

Item 1A

Risk Factors

187

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

187

Item 4

Mine Safety Disclosures

187

Item 6

Exhibits

187  

SIGNATURES
188  

  

 

1


 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

  

American International Group, Inc.

CONDENSED Consolidated Balance Sheets (unaudited)

 

June 30,

December 31,

(in millions, except for share data)

 

2015

 

2014

Assets:

 

 

 

 

Investments:

 

 

 

 

Fixed maturity securities:

 

 

 

 

Bonds available for sale, at fair value (amortized cost: 2015 - $242,917; 2014 - $243,307)

$

255,066

$

259,859

Other bond securities, at fair value (See Note 5)

 

16,598

 

19,712

Equity Securities:

 

 

 

 

Common and preferred stock available for sale, at fair value (cost: 2015 - $2,385; 2014 - $1,930)

 

4,755

 

4,395

Other common and preferred stock, at fair value (See Note 5)

 

1,323

 

1,049

Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2015 - $6; 2014 - $6)

 

27,143

 

24,990

Other invested assets (portion measured at fair value: 2015 - $9,389; 2014 - $9,394)

 

29,829

 

34,518

Short-term investments (portion measured at fair value: 2015 - $2,281; 2014 - $1,684)

 

13,865

 

11,243

Total investments

 

348,579

 

355,766

 

 

 

 

 

Cash

 

1,937

 

1,758

Accrued investment income

 

2,632

 

2,712

Premiums and other receivables, net of allowance

 

13,258

 

12,031

Reinsurance assets, net of allowance

 

21,361

 

21,959

Deferred income taxes

 

18,665

 

19,339

Deferred policy acquisition costs

 

10,270

 

9,827

Derivative assets, at fair value

 

1,256

 

1,604

Other assets, including restricted cash of $461 in 2015 and $2,025 in 2014

 

9,894

 

10,549

Separate account assets, at fair value

 

82,135

 

80,036

Total assets

$

509,987

$

515,581

Liabilities:

 

 

 

 

Liability for unpaid losses and loss adjustment expenses

$

72,939

$

77,260

Unearned premiums

 

22,786

 

21,324

Future policy benefits for life and accident and health insurance contracts

 

42,787

 

42,749

Policyholder contract deposits (portion measured at fair value: 2015 - $1,268; 2014 - $1,561)

 

124,480

 

124,613

Other policyholder funds (portion measured at fair value: 2015 - $8; 2014 - $8)

 

4,378

 

4,669

Derivative liabilities, at fair value

 

1,546

 

2,273

Other liabilities (portion measured at fair value: 2015 - $284; 2014 - $350)

 

23,934

 

24,168

Long-term debt (portion measured at fair value: 2015 - $4,269; 2014 - $5,466)

 

30,360

 

31,217

Separate account liabilities

 

82,135

 

80,036

Total liabilities

 

405,345

 

408,309

Contingencies, commitments and guarantees (see Note 9)

 

 

 

 

 

 

 

 

 

AIG shareholders’ equity:

 

 

 

 

Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2015 - 1,906,671,492 and

 

 

 

 

2014 - 1,906,671,492

 

4,766

 

4,766

Treasury stock, at cost; 2015 - 599,222,972 shares; 2014 - 530,744,521 shares

 

(23,165)

 

(19,218)

Additional paid-in capital

 

81,330

 

80,958

Retained earnings

 

33,707

 

29,775

Accumulated other comprehensive income

 

7,620

 

10,617

Total AIG shareholders’ equity

 

104,258

 

106,898

Non-redeemable noncontrolling interests

 

384

 

374

Total equity

 

104,642

 

107,272

Total liabilities and equity

$

509,987

$

515,581

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

2


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(dollars in millions, except per share data)

 

 

2015

 

 

2014

 

 

2015

 

 

2014

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Premiums

 

$

9,545

 

$

9,485

 

$

18,367

 

$

18,560

Policy fees

 

 

688

 

 

640

 

 

1,365

 

 

1,271

Net investment income

 

 

3,826

 

 

3,884

 

 

7,664

 

 

8,080

Net realized capital gains:

 

 

 

 

 

 

 

 

 

 

 

 

Total other-than-temporary impairments on available for sale securities

 

 

(148)

 

 

(32)

 

 

(235)

 

 

(82)

Portion of other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

fixed maturity securities recognized in Other comprehensive income (loss)

 

 

(4)

 

 

(16)

 

 

(14)

 

 

(20)

Net other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

securities recognized in net income

 

 

(152)

 

 

(48)

 

 

(249)

 

 

(102)

Other realized capital gains

 

 

278

 

 

210

 

 

1,716

 

 

112

Total net realized capital gains

 

 

126

 

 

162

 

 

1,467

 

 

10

Aircraft leasing revenue

 

 

-

 

 

489

 

 

-

 

 

1,602

Other income

 

 

1,514

 

 

1,476

 

 

2,811

 

 

2,776

Total revenues

 

 

15,699

 

 

16,136

 

 

31,674

 

 

32,299

Benefits, losses and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder benefits and losses incurred

 

 

7,100

 

 

6,771

 

 

13,651

 

 

13,568

Interest credited to policyholder account balances

 

 

942

 

 

963

 

 

1,877

 

 

1,918

Amortization of deferred policy acquisition costs

 

 

1,356

 

 

1,396

 

 

2,706

 

 

2,701

General operating and other expenses

 

 

3,090

 

 

3,714

 

 

6,039

 

 

6,738

Interest expense

 

 

316

 

 

463

 

 

656

 

 

942

Aircraft leasing expenses

 

 

-

 

 

489

 

 

-

 

 

1,585

Loss on extinguishment of debt

 

 

342

 

 

34

 

 

410

 

 

272

Net (gain) loss on sale of divested businesses

 

 

1

 

 

(2,174)

 

 

7

 

 

(2,178)

Total benefits, claims and expenses

 

 

13,147

 

 

11,656

 

 

25,346

 

 

25,546

Income from continuing operations before income tax expense

 

 

2,552

 

 

4,480

 

 

6,328

 

 

6,753

Income tax expense

 

 

777

 

 

1,474

 

 

2,077

 

 

2,088

Income from continuing operations

 

 

1,775

 

 

3,006

 

 

4,251

 

 

4,665

Income (loss) from discontinued operations, net of income tax expense

 

 

16

 

 

30

 

 

17

 

 

(17)

Net income

 

 

1,791

 

 

3,036

 

 

4,268

 

 

4,648

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 

(9)

 

 

(37)

 

 

-

 

 

(34)

Net income attributable to AIG

 

$

1,800

 

$

3,073

 

$

4,268

 

$

4,682

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share attributable to AIG:

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.34

 

$

2.11

 

$

3.16

 

$

3.24

Income (loss) from discontinued operations

 

$

0.01

 

$

0.02

 

$

0.01

 

$

(0.01)

Net income attributable to AIG

 

$

1.35

 

$

2.13

 

$

3.17

 

$

3.23

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.31

 

$

2.08

 

$

3.09

 

$

3.20

Income (loss) from discontinued operations

 

$

0.01

 

$

0.02

 

$

0.01

 

$

(0.01)

Net income attributable to AIG

 

$

1.32

 

$

2.10

 

$

3.10

 

$

3.19

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

1,329,157,366

 

 

1,442,397,111

 

 

1,347,452,833

 

 

1,450,776,629

Diluted

 

 

1,365,390,431

 

 

1,464,676,330

 

 

1,376,325,971

 

 

1,468,364,283

Dividends declared per common share

 

$

0.125

 

$

0.125

 

$

0.250

 

$

0.250

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

3


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED Consolidated Statements of Comprehensive Income (Loss) (unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(in millions)

 

 

2015

 

 

2014

 

 

2015

 

 

2014

Net income

 

$

1,791

 

$

3,036

 

$

4,268

 

$

4,648

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized appreciation (depreciation) of fixed maturity investments on

 

 

 

 

 

 

 

 

 

 

 

 

which other-than-temporary credit impairments were taken

 

 

(36)

 

 

26

 

 

(108)

 

 

115

Change in unrealized appreciation (depreciation) of all other investments

 

 

(2,991)

 

 

2,355

 

 

(2,452)

 

 

5,140

Change in foreign currency translation adjustments

 

 

(37)

 

 

47

 

 

(496)

 

 

(111)

Change in retirement plan liabilities adjustment

 

 

27

 

 

(2)

 

 

56

 

 

7

Other comprehensive income (loss)

 

 

(3,037)

 

 

2,426

 

 

(3,000)

 

 

5,151

Comprehensive income (loss)

 

 

(1,246)

 

 

5,462

 

 

1,268

 

 

9,799

Comprehensive loss attributable to noncontrolling interests

 

 

(9)

 

 

(37)

 

 

(3)

 

 

(34)

Comprehensive income (loss) attributable to AIG

 

$

(1,237)

 

$

5,499

 

$

1,271

 

$

9,833

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

4


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED CONSOLIDATED Statement of Equity  (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total AIG

 

redeemable

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Share-

 

Non-

 

 

 

 

Common

 

Treasury

 

Paid-in

 

Retained

Comprehensive

 

holders'

 

controlling

 

Total

(in millions)

 

Stock

 

Stock

 

Capital

 

Earnings

 

Income

 

Equity

 

Interests

 

Equity

Six Months Ended June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

4,766

$

(19,218)

$

80,958

$

29,775

$

10,617

$

106,898

$

374

$

107,272

Purchase of common stock

 

-

 

(3,947)

 

-

 

-

 

-

 

(3,947)

 

-

 

(3,947)

Net income (loss) attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

4,268

 

-

 

4,268

 

-

 

4,268

Dividends

 

-

 

-

 

-

 

(335)

 

-

 

(335)

 

-

 

(335)

Other comprehensive loss

 

-

 

-

 

-

 

-

 

(2,997)

 

(2,997)

 

(3)

 

(3,000)

Deferred income taxes

 

-

 

-

 

(12)

 

-

 

-

 

(12)

 

-

 

(12)

Net increase due to acquisitions

 

-

 

-

 

-

 

-

 

-

 

-

 

9

 

9

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

(3)

 

(3)

Other

 

-

 

-

 

384

 

(1)

 

-

 

383

 

7

 

390

Balance, end of period

$

4,766

$

(23,165)

$

81,330

$

33,707

$

7,620

$

104,258

$

384

$

104,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

4,766

$

(14,520)

$

80,899

$

22,965

$

6,360

$

100,470

$

611

$

101,081

Purchase of common stock

 

-

 

(1,849)

 

-

 

-

 

-

 

(1,849)

 

-

 

(1,849)

Net income (loss) attributable to AIG or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

-

 

-

 

-

 

4,682

 

-

 

4,682

 

(34)

 

4,648

Dividends

 

-

 

-

 

-

 

(361)

 

-

 

(361)

 

-

 

(361)

Other comprehensive income (loss)

 

-

 

-

 

-

 

-

 

5,151

 

5,151

 

-

 

5,151

Net decrease due to dispositions

 

-

 

-

 

-

 

-

 

-

 

-

 

(127)

 

(127)

Contributions from noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

9

 

9

Distributions to noncontrolling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

(37)

 

(37)

Other

 

-

 

-

 

68

 

-

 

-

 

68

 

(2)

 

66

Balance, end of period

$

4,766

$

(16,369)

$

80,967

$

27,286

$

11,511

$

108,161

$

420

$

108,581

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

5


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED Consolidated Statements of Cash Flows (unaudited)

Six Months Ended June 30,

 

 

 

 

(in millions)

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

Net income

$

4,268

$

4,648

(Income) loss from discontinued operations

 

(17)

 

17

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Noncash revenues, expenses, gains and losses included in income:

 

 

 

 

Net gains on sales of securities available for sale and other assets

 

(666)

 

(456)

Net (gain) loss on sale of divested businesses

 

7

 

(2,178)

Losses on extinguishment of debt

 

410

 

272

Unrealized (gains) losses in earnings - net

 

(1,425)

 

127

Equity in income from equity method investments, net of dividends or distributions

 

(715)

 

(687)

Depreciation and other amortization

 

2,410

 

2,343

Impairments of assets

 

471

 

259

Changes in operating assets and liabilities:

 

 

 

 

Insurance reserves

 

(420)

 

981

Premiums and other receivables and payables - net

 

(1,359)

 

(782)

Reinsurance assets and funds held under reinsurance treaties

 

573

 

(815)

Capitalization of deferred policy acquisition costs

 

(2,880)

 

(3,019)

Current and deferred income taxes - net

 

1,739

 

1,605

Other, net

 

(1,903)

 

(674)

Total adjustments

 

(3,758)

 

(3,024)

Net cash provided by operating activities

 

493

 

1,641

Cash flows from investing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Sales or distributions of:

 

 

 

 

Available for sale investments

 

14,144

 

12,191

Other securities

 

3,998

 

2,744

Other invested assets

 

6,218

 

1,925

Divested businesses, net

 

-

 

2,348

Maturities of fixed maturity securities available for sale

 

12,176

 

11,460

Principal payments received on and sales of mortgage and other loans receivable

 

2,470

 

1,646

Purchases of:

 

 

 

 

Available for sale investments

 

(24,198)

 

(22,186)

Other securities

 

(583)

 

(290)

Other invested assets

 

(1,743)

 

(2,236)

Mortgage and other loans receivable

 

(4,459)

 

(3,445)

Net change in restricted cash

 

1,462

 

(628)

Net change in short-term investments

 

(2,693)

 

498

Other, net

 

(1,506)

 

(365)

Net cash provided by investing activities

 

5,286

 

3,662

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Policyholder contract deposits

 

7,541

 

8,162

Policyholder contract withdrawals

 

(7,225)

 

(7,241)

Issuance of long-term debt

 

2,774

 

3,028

Repayments of long-term debt

 

(3,701)

 

(6,027)

Purchase of Common Stock

 

(3,743)

 

(1,849)

Dividends paid

 

(335)

 

(361)

Other, net

 

(877)

 

(1,514)

Net cash used in financing activities

 

(5,566)

 

(5,802)

Effect of exchange rate changes on cash

 

(34)

 

(3)

Net increase (decrease) in cash

 

179

 

(502)

Cash at beginning of year

 

1,758

 

2,241

Change in cash of businesses held-for-sale

 

-

 

88

Cash at end of period

$

1,937

$

1,827

 

Supplementary Disclosure of Condensed Consolidated Cash Flow Information

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

760

$

1,727

Taxes

$

338

$

482

Non-cash investing/financing activities:

 

 

 

 

Interest credited to policyholder contract deposits included in financing activities

$

1,826

$

1,937

Non-cash consideration received from sale of ILFC

$

-

$

4,586

Non-cash consideration received from sale of AerCap

$

500

$

-

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

6