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 September 30, 2017 |
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.) |
|
|
|
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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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☑ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☐ |
Emerging growth company ☐ |
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|
(Do not check if a smaller reporting company) |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 October 30, 2017, there were 898,959,371 shares outstanding of the registrant’s common stock.
AMERICAN INTERNATIONAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
September 30, 2017
Table of Contents
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FORM 10-Q |
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Item Number |
Description |
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Part I — Financial Information |
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Management’s Discussion and Analysis of Financial Condition and Results of |
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• Cautionary Statement Regarding Forward-Looking Information |
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• Glossary |
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• Acronyms |
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Part II — Other Information |
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Signatures |
187 |
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AIG | Third Quarter 2017 Form 10-Q 1
Part I – Financial Information
Item 1. | Financial Statements
American International Group, Inc.
Condensed Consolidated Balance Sheets (unaudited)
|
|
September 30, |
December 31, |
||
|
(in millions, except for share data) |
|
2017 |
|
2016 |
|
Assets: |
|
|
|
|
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Investments: |
|
|
|
|
|
Fixed maturity securities: |
|
|
|
|
|
Bonds available for sale, at fair value (amortized cost: 2017 - $224,143; 2016 - $232,241) |
$ |
237,771 |
$ |
241,537 |
|
Other bond securities, at fair value (See Note 6) |
|
12,653 |
|
13,998 |
|
Equity Securities: |
|
|
|
|
|
Common and preferred stock available for sale, at fair value (cost: 2017 - $1,274; 2016 - $1,697) |
|
1,707 |
|
2,078 |
|
Other common and preferred stock, at fair value (See Note 6) |
|
538 |
|
482 |
|
Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2017 - $5; 2016 - $11) |
|
36,089 |
|
33,240 |
|
Other invested assets (portion measured at fair value: 2017 - $6,503; 2016 - $6,946) |
|
22,590 |
|
24,538 |
|
Short-term investments (portion measured at fair value: 2017 - $2,603; 2016 - $3,341) |
|
9,775 |
|
12,302 |
|
Total investments |
|
321,123 |
|
328,175 |
|
|
|
|
|
|
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Cash |
|
2,433 |
|
1,868 |
|
Accrued investment income |
|
2,416 |
|
2,495 |
|
Premiums and other receivables, net of allowance |
|
11,156 |
|
10,465 |
|
Reinsurance assets, net of allowance |
|
34,429 |
|
21,901 |
|
Deferred income taxes |
|
20,954 |
|
21,332 |
|
Deferred policy acquisition costs |
|
10,938 |
|
11,042 |
|
Other assets, including restricted cash of $219 in 2017 and $193 in 2016 |
|
|
|
|
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(portion measured at fair value: 2017 - $900; 2016 - $1,809) |
|
10,324 |
|
10,815 |
|
Separate account assets, at fair value |
|
89,300 |
|
82,972 |
|
Assets held for sale |
|
- |
|
7,199 |
|
Total assets |
$ |
503,073 |
$ |
498,264 |
|
Liabilities: |
|
|
|
|
|
Liability for unpaid losses and loss adjustment expenses |
$ |
80,087 |
$ |
77,077 |
|
Unearned premiums |
|
20,135 |
|
19,634 |
|
Future policy benefits for life and accident and health insurance contracts |
|
44,055 |
|
42,204 |
|
Policyholder contract deposits (portion measured at fair value: 2017 - $3,988; 2016 - $3,058) |
|
134,514 |
|
132,216 |
|
Other policyholder funds (portion measured at fair value: 2017 - $0; 2016 - $5) |
|
3,678 |
|
3,989 |
|
Other liabilities (portion measured at fair value: 2017 - $1,220; 2016 - $2,016) |
|
27,253 |
|
26,296 |
|
Long-term debt (portion measured at fair value: 2017 - $2,998; 2016 - $3,428) |
|
31,039 |
|
30,912 |
|
Separate account liabilities |
|
89,300 |
|
82,972 |
|
Liabilities held for sale |
|
- |
|
6,106 |
|
Total liabilities |
|
430,061 |
|
421,406 |
|
Contingencies, commitments and guarantees (See Note 11) |
|
|
|
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|
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|
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AIG shareholders’ equity: |
|
|
|
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Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2017 - 1,906,671,492 and |
|
|
|
|
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2016 - 1,906,671,492 |
|
4,766 |
|
4,766 |
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Treasury stock, at cost; 2017 - 1,007,791,405 shares; 2016 - 911,335,651 shares of common stock |
|
(47,602) |
|
(41,471) |
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Additional paid-in capital |
|
80,976 |
|
81,064 |
|
Retained earnings |
|
28,389 |
|
28,711 |
|
Accumulated other comprehensive income |
|
5,939 |
|
3,230 |
|
Total AIG shareholders’ equity |
|
72,468 |
|
76,300 |
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Non-redeemable noncontrolling interests |
|
544 |
|
558 |
|
Total equity |
|
73,012 |
|
76,858 |
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Total liabilities and equity |
$ |
503,073 |
$ |
498,264 |
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See accompanying Notes to Condensed Consolidated Financial Statements. |
||||
AIG | Third Quarter 2017 Form 10-Q 2
American International Group, Inc.
Condensed Consolidated Statements of Income (Loss) (unaudited)
|
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(dollars in millions, except per share data) |
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2017 |
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2016 |
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2017 |
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2016 |
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Revenues: |
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|
|
|
|
|
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Premiums |
|
$ |
8,063 |
|
$ |
8,581 |
|
$ |
23,459 |
|
$ |
26,138 |
|
Policy fees |
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|
728 |
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|
646 |
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2,177 |
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2,029 |
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Net investment income |
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3,416 |
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3,783 |
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10,715 |
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10,479 |
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Net realized capital losses: |
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Total other-than-temporary impairments on available for sale securities |
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(66) |
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(58) |
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(138) |
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(332) |
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Portion of other-than-temporary impairments on available for sale |
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|
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fixed maturity securities recognized in Other comprehensive income |
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(8) |
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(14) |
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(57) |
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(36) |
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Net other-than-temporary impairments on available for sale |
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securities recognized in net income (loss) |
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(74) |
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(72) |
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(195) |
|
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(368) |
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Other realized capital losses |
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(848) |
|
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(693) |
|
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(911) |
|
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(461) |
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Total net realized capital losses |
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(922) |
|
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(765) |
|
|
(1,106) |
|
|
(829) |
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Other income |
|
|
466 |
|
|
609 |
|
|
1,640 |
|
|
1,540 |
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Total revenues |
|
|
11,751 |
|
|
12,854 |
|
|
36,885 |
|
|
39,357 |
|
Benefits, losses and expenses: |
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|
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|
|
|
|
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Policyholder benefits and losses incurred |
|
|
10,322 |
|
|
7,489 |
|
|
22,653 |
|
|
20,748 |
|
Interest credited to policyholder account balances |
|
|
867 |
|
|
887 |
|
|
2,683 |
|
|
2,798 |
|
Amortization of deferred policy acquisition costs |
|
|
912 |
|
|
1,018 |
|
|
3,135 |
|
|
3,625 |
|
General operating and other expenses |
|
|
2,149 |
|
|
2,536 |
|
|
6,774 |
|
|
8,125 |
|
Interest expense |
|
|
290 |
|
|
329 |
|
|
880 |
|
|
955 |
|
(Gain) loss on extinguishment of debt |
|
|
1 |
|
|
(14) |
|
|
(4) |
|
|
76 |
|
Net (gain) loss on sale of divested businesses |
|
|
13 |
|
|
(128) |
|
|
173 |
|
|
(351) |
|
Total benefits, losses and expenses |
|
|
14,554 |
|
|
12,117 |
|
|
36,294 |
|
|
35,976 |
|
Income (loss) from continuing operations before |
|
|
|
|
|
|
|
|
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income tax expense (benefit) |
|
|
(2,803) |
|
|
737 |
|
|
591 |
|
|
3,381 |
|
Income tax expense (benefit) |
|
|
(1,091) |
|
|
304 |
|
|
(18) |
|
|
1,170 |
|
Income (loss) from continuing operations |
|
|
(1,712) |
|
|
433 |
|
|
609 |
|
|
2,211 |
|
Income (loss) from discontinued operations, net of income tax expense |
|
|
(1) |
|
|
3 |
|
|
7 |
|
|
(54) |
|
Net income (loss) |
|
|
(1,713) |
|
|
436 |
|
|
616 |
|
|
2,157 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
|
|
26 |
|
|
(26) |
|
|
40 |
|
|
(35) |
|
Net income (loss) attributable to AIG |
|
$ |
(1,739) |
|
$ |
462 |
|
$ |
576 |
|
$ |
2,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share attributable to AIG: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(1.91) |
|
$ |
0.43 |
|
$ |
0.60 |
|
$ |
2.02 |
|
Income (loss) from discontinued operations |
|
$ |
- |
|
$ |
- |
|
$ |
0.01 |
|
$ |
(0.05) |
|
Net income (loss) attributable to AIG |
|
$ |
(1.91) |
|
$ |
0.43 |
|
$ |
0.61 |
|
$ |
1.97 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(1.91) |
|
$ |
0.42 |
|
$ |
0.59 |
|
$ |
1.97 |
|
Income (loss) from discontinued operations |
|
$ |
- |
|
$ |
- |
|
$ |
0.01 |
|
$ |
(0.05) |
|
Net income (loss) attributable to AIG |
|
$ |
(1.91) |
|
$ |
0.42 |
|
$ |
0.60 |
|
$ |
1.92 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
908,667,044 |
|
|
1,071,295,892 |
|
|
938,130,832 |
|
|
1,113,650,878 |
|
Diluted |
|
|
908,667,044 |
|
|
1,102,400,770 |
|
|
961,295,946 |
|
|
1,142,700,207 |
|
Dividends declared per common share |
|
$ |
0.32 |
|
$ |
0.32 |
|
$ |
0.96 |
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying Notes to Condensed Consolidated Financial Statements. |
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|||
AIG | Third Quarter 2017 Form 10-Q 3
American International Group, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
|
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(in millions) |
|
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2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Net income (loss) |
|
$ |
(1,713) |
|
$ |
436 |
|
$ |
616 |
|
$ |
2,157 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
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Change in unrealized appreciation (depreciation) of fixed maturity securities on |
|
|
|
|
|
|
|
|
|
|
|
|
|
which other-than-temporary credit impairments were taken |
|
|
97 |
|
|
217 |
|
|
330 |
|
|
(110) |
|
Change in unrealized appreciation of all other investments |
|
|
492 |
|
|
466 |
|
|
1,840 |
|
|
6,302 |
|
Change in foreign currency translation adjustments |
|
|
325 |
|
|
111 |
|
|
447 |
|
|
332 |
|
Change in retirement plan liabilities adjustment |
|
|
63 |
|
|
4 |
|
|
92 |
|
|
(4) |
|
Other comprehensive income |
|
|
977 |
|
|
798 |
|
|
2,709 |
|
|
6,520 |
|
Comprehensive income (loss) |
|
|
(736) |
|
|
1,234 |
|
|
3,325 |
|
|
8,677 |
|
Comprehensive income (loss) attributable to noncontrolling interests |
|
|
26 |
|
|
(26) |
|
|
40 |
|
|
(35) |
|
Comprehensive income (loss) attributable to AIG |
|
$ |
(762) |
|
$ |
1,260 |
|
$ |
3,285 |
|
$ |
8,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements. |
||||||||||||
AIG | Third Quarter 2017 Form 10-Q 4
American International Group, Inc.
Condensed Consolidated Statements of Equity (unaudited)
|
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|
|
|
|
|
|
|
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|
|
|
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Non- |
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|
|
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|
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|
|
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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 |
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
$ |
4,766 |
$ |
(41,471) |
$ |
81,064 |
$ |
28,711 |
$ |
3,230 |
$ |
76,300 |
$ |
558 |
$ |
76,858 |
|
Common stock issued under stock plans |
|
- |
|
140 |
|
(304) |
|
- |
|
- |
|
(164) |
|
- |
|
(164) |
|
Purchase of common stock |
|
- |
|
(6,275) |
|
- |
|
- |
|
- |
|
(6,275) |
|
- |
|
(6,275) |
|
Net income attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
|
- |
|
- |
|
- |
|
576 |
|
- |
|
576 |
|
40 |
|
616 |
|
Dividends |
|
- |
|
- |
|
- |
|
(884) |
|
- |
|
(884) |
|
- |
|
(884) |
|
Other comprehensive income |
|
- |
|
- |
|
- |
|
- |
|
2,709 |
|
2,709 |
|
- |
|
2,709 |
|
Current and deferred income taxes |
|
- |
|
- |
|
(4) |
|
- |
|
- |
|
(4) |
|
- |
|
(4) |
|
Net increase due to acquisitions and consolidations |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
78 |
|
78 |
|
Contributions from noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
13 |
|
13 |
|
Distributions to noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(131) |
|
(131) |
|
Other |
|
- |
|
4 |
|
220 |
|
(14) |
|
- |
|
210 |
|
(14) |
|
196 |
|
Balance, end of period |
$ |
4,766 |
$ |
(47,602) |
$ |
80,976 |
$ |
28,389 |
$ |
5,939 |
$ |
72,468 |
$ |
544 |
$ |
73,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
$ |
4,766 |
$ |
(30,098) |
$ |
81,510 |
$ |
30,943 |
$ |
2,537 |
$ |
89,658 |
$ |
552 |
$ |
90,210 |
|
Common stock issued under stock plans |
|
- |
|
86 |
|
(173) |
|
- |
|
- |
|
(87) |
|
- |
|
(87) |
|
Purchase of common stock |
|
- |
|
(8,506) |
|
- |
|
- |
|
- |
|
(8,506) |
|
- |
|
(8,506) |
|
Net income (loss) attributable to AIG or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests |
|
- |
|
- |
|
- |
|
2,192 |
|
- |
|
2,192 |
|
(35) |
|
2,157 |
|
Dividends |
|
- |
|
- |
|
- |
|
(1,051) |
|
- |
|
(1,051) |
|
- |
|
(1,051) |
|
Other comprehensive income (loss) |
|
- |
|
- |
|
- |
|
- |
|
6,520 |
|
6,520 |
|
- |
|
6,520 |
|
Current and deferred income taxes |
|
- |
|
- |
|
19 |
|
- |
|
- |
|
19 |
|
- |
|
19 |
|
Net increase due to acquisitions and consolidations |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
9 |
|
9 |
|
Contributions from noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
4 |
|
4 |
|
Distributions to noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(31) |
|
(31) |
|
Other |
|
- |
|
- |
|
(75) |
|
(7) |
|
- |
|
(82) |
|
3 |
|
(79) |
|
Balance, end of period |
$ |
4,766 |
$ |
(38,518) |
$ |
81,281 |
$ |
32,077 |
$ |
9,057 |
$ |
88,663 |
$ |
502 |
$ |
89,165 |
See accompanying Notes to Condensed Consolidated Financial Statements.
AIG | Third Quarter 2017 Form 10-Q 5
American International Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
|
|
Nine Months Ended September 30, |
|||
|
(in millions) |
|
2017 |
|
2016 |
|
Cash flows from operating activities: |
|
|
|
|
|
Net income |
$ |
616 |
$ |
2,157 |
|
(Income) loss from discontinued operations |
|
(7) |
|
54 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
Noncash revenues, expenses, gains and losses included in income (loss): |
|
|
|
|
|
Net gains on sales of securities available for sale and other assets |
|
(404) |
|
(1,125) |
|
Net (gain) loss on sale of divested businesses |
|
173 |
|
(351) |
|
(Gains) losses on extinguishment of debt |
|
(4) |
|
76 |
|
Unrealized losses in earnings - net |
|
251 |
|
1,396 |
|
Equity in (income) loss from equity method investments, net of dividends or distributions |
|
(338) |
|
50 |
|
Depreciation and other amortization |
|
2,806 |
|
2,814 |
|
Impairments of assets |
|
669 |
|
872 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
Insurance reserves |
|
4,448 |
|
700 |
|
Premiums and other receivables and payables - net |
|
300 |
|
347 |
|
Reinsurance assets and funds held under reinsurance treaties |
|
(12,705) |
|
(1,234) |
|
Capitalization of deferred policy acquisition costs |
|
(3,593) |
|
(3,598) |
|
Current and deferred income taxes - net |
|
(508) |
|
962 |
|
Other, net |
|
(899) |
|
(1,367) |
|
Total adjustments |
|
(9,804) |
|
(458) |
|
Net cash provided by (used in) operating activities |
|
(9,195) |
|
1,753 |
|
Cash flows from investing activities: |
|
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
|
Sales or distributions of: |
|
|
|
|
|
Available for sale securities |
|
27,733 |
|
22,077 |
|
Other securities |
|
2,647 |
|
3,367 |
|
Other invested assets |
|
4,396 |
|
5,255 |
|
Divested businesses, net |
|
605 |
|
- |
|
Maturities of fixed maturity securities available for sale |
|
22,126 |
|
18,210 |
|
Principal payments received on and sales of mortgage and other loans receivable |
|
3,932 |
|
4,435 |
|
Purchases of: |
|
|
|
|
|
Available for sale securities |
|
(38,717) |
|
(42,572) |
|
Other securities |
|
(355) |
|
(557) |
|
Other invested assets |
|
(2,359) |
|
(2,472) |
|
Mortgage and other loans receivable |
|
(6,517) |
|
(7,784) |
|
Net change in restricted cash |
|
(23) |
|
(49) |
|
Net change in short-term investments |
|
2,815 |
|
(855) |
|
Other, net |
|
(1,509) |
|
1,270 |
|
Net cash provided by investing activities |
|
14,774 |
|
325 |
|
Cash flows from financing activities: |
|
|
|
|
|
Proceeds from (payments for) |
|
|
|
|
|
Policyholder contract deposits |
|
13,164 |
|
13,584 |
|
Policyholder contract withdrawals |
|
(11,363) |
|
(9,986) |
|
Issuance of long-term debt |
|
2,405 |
|
11,430 |
|
Repayments of long-term debt |
|
(2,751) |
|
(7,683) |
|
Purchase of common stock |
|
(6,275) |
|
(8,506) |
|
Dividends paid |
|
(884) |
|
(1,051) |
|
Other, net |
|
578 |
|
915 |
|
Net cash used in financing activities |
|
(5,126) |
|
(1,297) |
|
Effect of exchange rate changes on cash |
|
(21) |
|
88 |
|
Net increase in cash |
|
432 |
|
869 |
|
Cash at beginning of year |
|
1,868 |
|
1,629 |
|
Change in cash of businesses held for sale |
|
133 |
|
- |
|
Cash at end of period |
$ |
2,433 |
$ |
2,498 |
|
|
|
|
|
|
|
Supplementary Disclosure of Condensed Consolidated Cash Flow Information |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
Interest |
$ |
1,046 |
$ |
1,009 |
|
Taxes |
$ |
490 |
$ |
208 |
|
Non-cash investing/financing activities: |
|
|
|
|
|
Interest credited to policyholder contract deposits included in financing activities |
$ |
2,494 |
$ |
2,691 |
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements. |
|
|
|
|
AIG | Third Quarter 2017 Form 10-Q 6
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 1. Basis of Presentation
American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 80 countries and jurisdictions. AIG companies serve commercial 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, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange (NYSE: AIG) and the Tokyo Stock Exchange. Unless the context indicates otherwise, the terms “AIG,” “we,” “us” or “our” mean American International Group, Inc. and its consolidated subsidiaries and the term “AIG Parent” means American International Group, Inc. and not any of its consolidated subsidiaries.
These unaudited Condensed Consolidated Financial Statements do not include all disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) and should be read in conjunction with the audited Consolidated Financial Statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016 (the 2016 Annual Report). The condensed consolidated financial information as of December 31, 2016 included herein has been derived from the audited Consolidated Financial Statements in the 2016 Annual Report.
Certain of our foreign subsidiaries included in the Condensed Consolidated Financial Statements report on different fiscal-period bases. The effect on our consolidated financial condition and results of operations of all material events occurring at these subsidiaries through the date of each of the periods presented in these Condensed Consolidated Financial Statements has been considered for adjustment and/or disclosure. In the opinion of management, these Condensed Consolidated Financial Statements contain normal recurring adjustments, including eliminations of material intercompany accounts and transactions, necessary for a fair statement of the results presented herein.
Interim-period operating results may not be indicative of the operating results for a full year. We evaluated the need to recognize or disclose events that occurred subsequent to September 30, 2017 and prior to the issuance of these Condensed Consolidated Financial Statements.
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. Accounting policies that we believe are most dependent on the application of estimates and assumptions are considered our critical accounting estimates and are related to the determination of:
• income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset;
• liability for unpaid losses and loss adjustment expenses (loss reserves);
• reinsurance assets;
• valuation of future policy benefit liabilities and timing and extent of loss recognition;
• valuation of liabilities for guaranteed benefit features of variable annuity products;
• estimated gross profits to value deferred policy acquisition costs for investment-oriented products;
• impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested assets, including investments in life settlements, and goodwill impairment;
• liability for legal contingencies; and
• fair value measurements of certain financial assets and liabilities.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of operations and cash flows could be materially affected.
AIG | Third Quarter 2017 Form 10-Q 7
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
2. Summary of Significant Accounting Policies
Accounting Standards Adopted During 2017
Derivative Contract Novations
In March 2016, the Financial Accounting Standards Board (FASB) issued an accounting standard that clarifies that a change in the counterparty (novation) to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.
Contingent Put and Call Options in Debt Instruments
In March 2016, the FASB issued an accounting standard that clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The standard requires an evaluation of embedded call (put) options solely on a four-step decision sequence that requires an entity to consider whether (1) the amount paid upon settlement is adjusted based on changes in an index, (2) the amount paid upon settlement is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount and (4) the put or call option is contingently exercisable.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.
Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued an accounting standard that eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods during which the investment had been held.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.
Interest Held through Related Parties that are under Common Control
In October 2016, the FASB issued an accounting standard that amends the consolidation analysis for a reporting entity that is the single decision maker of a variable interest entity (VIE). The new guidance will require the decision maker’s evaluation of its interests held through related parties that are under common control on a proportionate basis (rather than in their entirety) when determining whether it is the primary beneficiary of that VIE. The amendment does not change the characteristics of a primary beneficiary.
We adopted the standard on its required effective date of January 1, 2017. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows.
Future Application of Accounting Standards
Revenue Recognition
In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our other activities.
We have developed an implementation plan to adopt this standard using the modified retrospective approach on its required effective date of January 1, 2018. Our analysis of revenues indicates that substantially all of our revenues are from sources excluded from the scope of the standard. For those revenue sources within the scope of the standard, we do not expect material changes in the timing or measurement of revenues based upon our current interpretation of the guidance. We continue to refine our assessment of the impacts this standard is expected to have on our applicable revenue sources, financial statements and related disclosures. However, as substantially all of our revenue sources are excluded from the scope of the standard, we do not expect the adoption of the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
AIG | Third Quarter 2017 Form 10-Q 8
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued an accounting standard that will require equity investments that do not follow the equity method of accounting or are not subject to consolidation to be measured at fair value with changes in fair value recognized in earnings, while financial liabilities for which fair value option accounting has been elected, changes in fair value due to instrument-specific credit risk will be presented separately in other comprehensive income. The standard allows the election to record equity investments without readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes with changes in the carrying value of the equity investments recorded in earnings. The standard also updates certain fair value disclosure requirements for financial instruments carried at amortized cost.
We will adopt this standard on its effective date of January 1, 2018. Based on our initial review, substantially all of our assets and liabilities are not within the scope of the standard. We do not expect the adoption of the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Leases
In February 2016, the FASB issued an accounting standard that will require lessees with lease terms of more than 12 months to recognize a right of use asset and a corresponding lease liability on their balance sheets. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating leases or finance leases.
We plan to adopt the standard on its effective date of January 1, 2019 using a modified retrospective approach upon adoption. We are currently quantifying the expected recognition on our balance sheet for a right to use asset and a lease liability as required by the standard. We do not expect the impact of the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Financial Instruments - Credit Losses
In June 2016, the FASB issued an accounting standard that will change how entities account for credit losses for most financial assets, trade receivables and reinsurance receivables. The standard will replace the existing incurred loss impairment model with a new “current expected credit loss model” that generally will result in earlier recognition of credit losses. The standard will apply to financial assets subject to credit losses, including loans measured at amortized cost, reinsurance receivables and certain off-balance sheet credit exposures. Additionally, the impairment of available-for-sale debt securities, including purchased credit deteriorated securities, are subject to the new guidance and will be measured in a similar manner, except that losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will also require additional information to be disclosed in the footnotes.
The standard is effective on January 1, 2020, with early adoption permitted on January 1, 2019. We are continuing to develop our implementation plan to adopt the standard and are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures. While we expect an increase in our allowances for credit losses for the financial instruments within scope of the standard, given the objective of the new standard, the amount of any change will be dependent on our portfolios’ composition and quality at the adoption date as well as economic conditions and forecasts at that time.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued an accounting standard that addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide clarity on the treatment of eight specifically defined types of cash inflows and outflows. The standard is effective on January 1, 2018 using a retrospective transition method to each period presented or prospectively if adoption of an issue is impracticable.
We continue to refine our analysis of certain cash flow types and intend to adopt this standard on its required effective date of January 1, 2018. The standard addresses presentation in the statement of cash flows only and will have no effect on our reported consolidated financial condition, results of operations or required disclosures.
Intra-Entity Transfers of Assets Other than Inventory
In October 2016, the FASB issued an accounting standard that will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to a third party.
We plan to adopt the standard on its effective date of January 1, 2018 using a modified retrospective approach upon adoption. We are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.
AIG | Third Quarter 2017 Form 10-Q 9
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
Restricted Cash
In November 2016, the FASB issued an accounting standard that provides guidance on the presentation of restricted cash in the Statement of Cash Flows. Entities will be required to explain the changes during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows.
We plan to adopt the standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation of restricted cash in the Statement of Cash Flows only and will have no effect on our reported consolidated financial condition, results of operations or required disclosures.
Clarifying the Definition of a Business
In January 2017, the FASB issued an accounting standard that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The new standard will require an entity to evaluate if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar assets; if so, the set of transferred assets and activities is not a business. At a minimum, a set must include an input and a substantive process that together significantly contribute to the ability to create output.
The standard is effective on January 1, 2018, with early adoption permitted. We are evaluating the timing of adoption and are assessing the impact of the standard on our reported consolidated financial condition, results of operations and cash flows. Because the standard requires prospective adoption, the impact is dependent on future acquisitions, dispositions and those entities that we consolidate due to obtaining a controlling financial interest.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued an accounting standard that eliminates the requirement to calculate the implied fair value of goodwill, through a hypothetical purchase price allocation, to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity should also consider income tax effects from tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.
The standard is effective on January 1, 2020, with early adoption permitted on testing dates after January 1, 2017. We are evaluating the timing of our adoption. The impact of the standard will be dependent on the market conditions of the reporting units at the time of adoption.
Gains and Losses from the Derecognition of Nonfinancial Assets
In February 2017, the FASB issued an accounting standard that clarifies the scope and application of Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, to the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. The standard clarifies that a parent transferring its ownership interest in a consolidated subsidiary is within the scope of the accounting standard if substantially all of the fair value of the assets within that subsidiary are nonfinancial assets. The standard also clarifies that the derecognition of all businesses and nonprofit activities should be accounted for in accordance with the derecognition and deconsolidation guidance. The standard also eliminates the exception in the financial asset guidance for transfers of investments (including equity method investments) in real estate entities. An entity is required to apply the amendments in this update at the same time that it applies the amendments in revenues from contracts with customers.
The standard is effective on January 1, 2018 and may be applied retrospectively to each period presented or through a cumulative effect adjustment to retained earnings at the date of adoption (modified retrospective approach). We are evaluating the timing of adoption and are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.
Improving the Presentation of Net Periodic Pension and Postretirement Benefit Cost
In March 2017, the FASB issued an accounting standard that requires entities to report the service cost component of net periodic pension and postretirement benefit costs in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit costs are required to be separately presented in the income statement. The amendments also allow only the service cost component to be eligible for capitalization when applicable.
We will adopt this standard on its effective date of January 1, 2018 by retrospectively presenting the service cost and other components, and prospectively capitalizing the service cost component. The standard addresses presentation of net periodic benefit costs in the income statement and will have no effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
AIG | Third Quarter 2017 Form 10-Q 10
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies
Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued an accounting standard that shortens the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date. The standard does not require an accounting change for securities held at a discount, which continue to be amortized to maturity.
We plan to adopt the standard retrospectively on its effective date, January 1, 2019. We do not expect the standard to have a material impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Modification of Share-Based Payment Awards
In May 2017, the FASB issued an accounting standard that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.
We will prospectively adopt this standard on its effective date of January 1, 2018 and do not expect the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.
Derivatives and Hedging
In August 2017, the FASB issued an accounting standard that improves and expands hedge accounting for both financial and commodity risks. The provisions of the amendment are intended to better align the accounting with an entity’s risk management activities, enhance the transparency on how the economic results are presented in the financial statements and the footnote, and simplify the application of hedge accounting treatment.
The standard is effective on January 1, 2019, with early adoption permitted. We are evaluating the timing of adoption and are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures.
We report our results of operations consistent with the manner in which our chief operating decision makers review the business to assess performance and allocate resources.
We report our results of operations as follows:
· Commercial Insurance business is presented as two operating segments:
- Liability and Financial Lines
- Property and Special Risks
· Consumer Insurance business is presented as four operating segments:
- Individual Retirement
- Group Retirement
- Life Insurance
- Personal Insurance
· The Other Operations category consists of:
- Institutional Markets
- Income from assets held by AIG Parent and other corporate subsidiaries
- General operating expenses not attributable to specific reporting segments
- Interest expense
- United Guaranty Corporation (United Guaranty) — The sale of this business was completed on December 31, 2016
- AIG Fuji Life Insurance Company, Ltd. (Fuji Life) — The sale of this business was completed on April 30, 2017
· The Legacy Portfolio segment consists of:
- Legacy Property and Casualty Run-Off Insurance Lines
- Legacy Life Insurance Run-Off Lines
- Legacy Investments
AIG | Third Quarter 2017 Form 10-Q 11
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information
We evaluate segment performance based on operating revenues and pre-tax operating income (loss). Operating revenues and pre-tax operating income (loss) are derived by excluding certain items from total revenues and net income (loss) attributable to AIG, respectively. See the table below for the items excluded from operating revenues and pre-tax operating income (loss).
The following table presents AIG’s continuing operations by operating segment:
|
Three Months Ended September 30, |
2017 |
|
2016 |
||||||
|
|
|
|
|
Pre-Tax |
|
|
|
|
Pre-Tax |
|
|
|
Total |
|
Operating |
|
|
Total |
|
Operating |
|
(in millions) |
|
Revenues |
|
Income (Loss) |
|
|
Revenues |
|
Income (Loss) |
|
Commercial Insurance |
|
|
|
|
|
|
|
|
|
|
Liability and Financial Lines |
$ |
2,848 |
$ |
(257) |
|
$ |
3,379 |
$ |
948 |
|
Property and Special Risks |
|
1,744 |
|
(2,605) |
|
|
2,037 |
|
(263) |
|
Total Commercial Insurance |
|
4,592 |
|
(2,862) |
|
|
5,416 |
|
685 |
|
Consumer Insurance |
|
|
|
|
|
|
|
|
|
|
Individual Retirement |
|
1,343 |
|
718 |
|
|
1,380 |
|
920 |
|
Group Retirement |
|
702 |
|
249 |
|
|
717 |
|
214 |
|
Life Insurance |
|
1,000 |
|
112 |
|
|
921 |
|
(54) |
|
Personal Insurance |
|
2,909 |
|
(71) |
|
|
2,991 |
|
148 |
|
Total Consumer Insurance |
|
5,954 |
|
1,008 |
|
|
6,009 |
|
1,228 |
|
Other Operations |
|
1,218 |
|
(287) |
|
|
1,003 |
|
(164) |
|
Legacy Portfolio |
|
1,013 |
|
286 |
|
|
1,312 |
|
(99) |
|
AIG Consolidation and elimination |
|
(119) |
|
(1) |
|
|
(144) |
|
(6) |
|
Total AIG Consolidated revenues and pre-tax operating income |
|
12,658 |
|
(1,856) |
|
|
13,596 |
|
1,644 |
|
Reconciling Items from revenues and pre-tax operating income to |
|
|
|
|
|
|
|
|
|
|
revenues and pre-tax income (loss): |
|
|
|
|
|
|
|
|
|
|
Changes in fair value of securities used to hedge guaranteed |
|
|
|
|
|
|
|
|
|
|
living benefits |
|
26 |
|
26 |
|
|
17 |
|
17 |
|
Changes in benefit reserves and DAC, VOBA and SIA related to |
|
|
|
|
|
|
|
|
|
|
net realized capital gains |
|
- |
|
84 |
|
|
- |
|
(67) |
|
(Unfavorable) favorable prior year development and related amortization |
|
|
|
|
|
|
|
|
|
|
changes ceded under retroactive reinsurance agreements |
|
- |
|
7 |
|
|
- |
|
3 |
|
Gain (Loss) on extinguishment of debt |
|
- |
|
(1) |
|
|
- |
|
14 |
|
Net realized capital losses |
|
(922) |
|
(922) |
|
|
(765) |
|
(765) |
|
Gain (loss) from divested businesses |
|
- |
|
(13) |
|
|
- |
|
128 |
|
Non-operating litigation reserves and settlements |
|
1 |
|
- |
|
|
1 |
|
5 |
|
Net loss reserve discount (benefit) charge |
|
- |
|
(48) |
|
|
- |
|
(32) |
|
Pension expense related to a one-time lump sum payment to former employees |
|
- |
|
(49) |
|
|
- |
|
- |
|
Restructuring and other costs |
|
- |
|
(31) |
|
|
- |
|
(210) |
|
Other |
|
(12) |
|
- |
|
|
5 |
|
- |
|
Revenues and Pre-tax income (loss) |
$ |
11,751 |
$ |
(2,803) |
|
$ |
12,854 |
$ |
737 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
2017 |
|
2016 |
||||||
|
|
|
|
|
Pre-Tax |
|
|
|
|
Pre-Tax |
|
|
|
Total |
|
Operating |
|
|
Total |
|
Operating |
|
(in millions) |
|
Revenues |
|
Income (Loss) |
|
|
Revenues |
|
Income (Loss) |
|
Commercial Insurance |
|
|
|
|
|
|
|
|
|
|
Liability and Financial Lines |
$ |
8,443 |
$ |
903 |
|
$ |
10,118 |
$ |
2,332 |
|
Property and Special Risks |
|
5,365 |
|
(2,200) |
|
|
6,140 |
|
(44) |
|
Total Commercial Insurance |
|
13,808 |
|
(1,297) |
|
|
16,258 |
|
2,288 |
AIG | Third Quarter 2017 Form 10-Q 12
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information
|
Consumer Insurance |
|
|
|
|
|
|
|
|
|
|
Individual Retirement |
|
4,099 |
|
1,815 |
|
|
4,382 |
|
1,727 |
|
Group Retirement |
|
2,116 |
|
758 |
|
|
2,053 |
|
670 |
|
Life Insurance |
|
3,043 |
|
272 |
|
|
2,862 |
|
(27) |
|
Personal Insurance |
|
8,618 |
|
471 |
|
|
8,735 |
|
510 |
|
Total Consumer Insurance |
|
17,876 |
|
3,316 |
|
|
18,032 |
|
2,880 |
|
Other Operations |
|
3,207 |
|
(835) |
|
|
3,015 |
|
(565) |
|
Legacy Portfolio |
|
3,235 |
|
1,059 |
|
|
3,003 |
|
(94) |
|
AIG Consolidation and elimination |
|
(237) |
|
75 |
|
|
(406) |
|
- |
|
Total AIG Consolidated revenues and pre-tax operating income |
|
37,889 |
|
2,318 |
|
|
39,902 |
|
4,509 |
|
Reconciling Items from revenues and pre-tax operating income to |
|
|
|
|
|
|
|
|
|
|
revenues and pre-tax income: |
|
|
|
|
|
|
|
|
|
|
Changes in fair value of securities used to hedge guaranteed |
|
|
|
|
|
|
|
|
|
|
living benefits |
|
117 |
|
117 |
|
|
270 |
|
270 |
|
Changes in benefit reserves and DAC, VOBA and SIA related to |
|
|
|
|
|
|
|
|
|
|
net realized capital gains |
|
- |
|
195 |
|
|
- |
|
(91) |
|
(Unfavorable) favorable prior year development and related amortization |
|
|
|
|
|
|
|
|
|
|
changes ceded under retroactive reinsurance agreements |
|
- |
|
(258) |
|
|
- |
|
15 |
|
Gain (Loss) on extinguishment of debt |
|
- |
|
4 |
|
|
- |
|
(76) |
|
Net realized capital losses |
|
(1,106) |
|
(1,106) |
|
|
(829) |
|
(829) |
|
Gain (loss) from divested businesses |
|
- |
|
(173) |
|
|
- |
|
351 |
|
Non-operating litigation reserves and settlements |
|
17 |
|
86 |
|
|
42 |
|
43 |
|
Net loss reserve discount (benefit) charge |
|
- |
|
(283) |
|
|
- |
|
(323) |
|
Pension expense related to a one-time lump sum payment to former employees |
|
- |
|
(50) |
|
|
- |
|
- |
|
Restructuring and other costs |
|
- |
|
(259) |
|
|
- |
|
(488) |
|
Other |
|
(32) |
|
- |
|
|
(28) |
|
- |
|
Revenues and Pre-tax income |
$ |
36,885 |
$ |
591 |
|
$ |
39,357 |
$ |
3,381 |
We report a business as held-for-sale when management has approved the sale or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A business classified as held-for-sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized.
Assets and liabilities related to the businesses classified as held-for-sale are separately reported in our Consolidated Balance Sheets beginning in the period in which the business is classified as held-for-sale.
Fuji Life and AIG United Guaranty Insurance (Asia) Limited, both previously classified as held-for-sale, were sold on April 30, 2017 and July 1, 2017, respectively. At September 30, 2017, we had no businesses classified as held-for-sale.
On October 18, 2016, we entered into agreements to sell certain insurance operations to Fairfax Financial Holdings Limited (Fairfax). The agreements include the sale of our subsidiary operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey. Fairfax will also acquire renewal rights for the portfolios of local business written by our operations in Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia, and assume certain of our operating assets and employees. Total cash consideration to us is expected to be approximately $234 million. The transaction is closing on a country-by-country basis as the regulatory approvals are obtained. In the second quarter of 2017, the sale of operations in Turkey as well as the renewal rights in Bulgaria, the Czech Republic, Hungary, Poland and Slovakia were completed, which resulted in total cash proceeds of $48 million. In the third quarter of 2017, the sale of the operations in Colombia, Chile and Argentina were completed, which resulted in cash proceeds of $168 million. Substantially all of the operations and renewal rights that we agreed to sell Fairfax were sold at September 30, 2017.
AIG | Third Quarter 2017 Form 10-Q 13
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4. Held-For-Sale Classification
The following table summarizes the components of assets and liabilities held-for-sale on the Condensed Consolidated Balance Sheets at December 31, 2016*:
|
|
December 31, |
|
|
(in millions) |
|
2016 |
|
Assets: |
|
|
|
Fixed maturity securities |
$ |
6,045 |
|
Equity securities |
|
149 |
|
Mortgage and other loans receivable, net |
|
137 |
|
Other invested assets |
|
2 |
|
Short-term investments |
|
130 |
|
Cash |
|
133 |
|
Accrued investment income |
|
21 |
|
Premiums and other receivables, net of allowance |
|
351 |
|
Reinsurance assets, net of allowance |
|
8 |
|
Deferred policy acquisition costs |
|
471 |
|
Other assets |
|
273 |
|
Assets of businesses held for sale |
|
7,720 |
|
Less: Loss Accrual |
|
(521) |
|
Total assets held for sale |
$ |
7,199 |
|
Liabilities: |
|
|
|
Liability for unpaid losses and loss adjustment expenses |
$ |
402 |
|
Unearned premiums |
|
297 |
|
Future policy benefits for life and accident and health insurance contracts |
|
4,579 |
|
Other policyholder funds |
|
378 |
|
Other liabilities |
|
450 |
|
Total liabilities held for sale |
$ |
6,106 |
* Excludes net intercompany assets of $384 million at December 31, 2016, that are eliminated in consolidation.
Fair Value Measurements on a Recurring Basis
Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three “levels” based on the observability of valuation inputs:
• Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.
• Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
• Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
AIG | Third Quarter 2017 Form 10-Q 14
ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used:
|
September 30, 2017 |
|
|
|
|
|
|
Counterparty |
Cash |
|
|||
|
(in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Netting(b) |
Collateral |
|
Total |
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities |
$ |
1 |
$ |
2,383 |
$ |
- |
$ |
- |
$ |
- |
$ |
2,384 |
|
Obligations of states, municipalities and political subdivisions |
|
- |
|
16,460 |
|
2,371 |
|
- |
|
- |
|
18,831 |
|
Non-U.S. governments |
|
56 |
|
15,526 |
|
11 |
|
|||||