AIG Reports Second Quarter 2018 Results
Aug. 02, 2018
NEW YORK--(BUSINESS WIRE)--Aug 2, 2018--American International Group, Inc. (NYSE:AIG) today reported net income of $937 million, or $1.02 per diluted share, for the second quarter of 2018, compared to net income of $1.1 billion, or $1.19 per diluted share, in the prior-year quarter. Adjusted after-tax income was $961 million, or $1.05 per diluted share, for the second quarter of 2018, compared to adjusted after-tax income of $1.4 billion, or $1.53 per diluted share, in the prior-year quarter.
“We remain diligently focused on pursuing long-term, sustainable and profitable growth across AIG, and our diversified businesses provide flexibility and strength to execute on our strategy,” said Brian Duperreault, President and Chief Executive Officer. “In the second quarter, we continued to take actions across General Insurance to establish a culture of underwriting excellence and added stellar talent. Our efforts are taking hold and we remain committed to achieving an underwriting profit as we exit 2018. Solid results in Life & Retirement reflect an ongoing strategy to leverage our broad product expertise and distribution strengths.” Mr. Duperreault continued, “With the closing of the Validus acquisition in July, we have further enhanced our underwriting expertise and expanded our offerings. We also took actions to efficiently manage our Legacy liabilities with the partial sale of DSA Re, providing a path towards a standalone platform for managing run-off business. Moving forward, we will continue to look for opportunities to grow AIG and create long-term shareholder value.”
SECOND QUARTER 2018 HIGHLIGHTS
General Insurance Results – General Insurance has continued to execute its strategy to improve core underwriting performance. Second quarter adjusted pre-tax income of $568 million reflected lower net investment income, primarily driven by lower income from alternative investments. Underwriting results included catastrophe losses that were lower than expected and slightly favorable prior year loss reserve development. The loss ratio included a high frequency of severe losses that totaled $293 million (4.5 pts) which is more than double the long-term average, resulting in a second quarter loss ratio of 65.7, and an accident year loss ratio, as adjusted, of 65.4. Excluding the increase in severe losses, the second quarter accident year loss ratio, as adjusted, was in line with full year 2017 results. The second quarter expense ratio of 35.6 primarily reflected an increase in the North America acquisition ratio due to changes in Personal Insurance business mix towards lower loss ratio and higher commission businesses and an increase in general operating expenses related to strategic initiatives.
Life and Retirement Results – Life and Retirement produced solid results, reporting second quarter adjusted pre-tax income of $962 million. High levels of assets under administration in Individual Retirement and Group Retirement, due to strong equity market performance, drove growth in fee income. Growth of assets under management for Institutional Markets reflected the execution of opportunistic transactions over the last twelve months. Total net investment income increased due to higher invested assets, partially offset by lower alternative and other yield enhancement income. Total Individual Retirement net flows improved, excluding Retail Mutual Funds. Adjusted pre-tax income benefited from net actuarial adjustments of $51 million in Life and Individual Retirement.
Legacy – Second quarter adjusted pre-tax income of $134 million, compared to $431 million in the prior-year quarter reflected lower net investment income and lower income from fair value option assets, as well as the sale of the Life Settlement portfolio in 2017. On August 1, 2018 AIG announced the sale of 19.9% of DSA Re, which positions DSA Re to be a platform to provide solutions for insurance liabilities globally.
Net Investment Income –Second quarter net investment income from our insurance companies, including the Legacy insurance portfolios, decreased 12% from the prior-year quarter to $3.1 billion. The decline was primarily driven by lower investment returns on alternative investments, primarily driven by less robust private equity and hedge fund performance compared to last year, and a decline in income from securities for which the fair value option was elected as a result of credit spread widening and rising interest rates. Net investment income from our insurance companies including the Legacy insurance portfolios totaled $6.5 billion for the first six months of 2018, and is on track with our $13 billion full year guidance previously provided.
Restructuring Charge – In the second quarter, AIG recorded pre-tax non-operating restructuring costs of $200 million, primarily related to efficiency initiatives.
Liquidity and Capital – As of June 30, 2018, AIG Parent liquidity stood at approximately $9.3 billion. In the second quarter, AIG Parent received approximately $1.8 billion of distributions from insurance subsidiaries in the form of cash and fixed maturity securities, including tax sharing payments.
On July 18, 2018 AIG completed its acquisition of Validus Holdings, Ltd. for approximately $5.5 billion in cash.
In the second quarter, AIG repurchased 6.5 million common shares for $348 million and warrants for $2 million. From July 1 through August 2, 2018 AIG repurchased $149 million of additional common shares and $1 million of additional warrants. As of August 2, 2018, approximately $1.5 billion remained under the share repurchase authorization.
Book Value per Common Share – As of June 30, 2018, book value per common share was $68.65 compared to $72.49 at December 31, 2017. Book value per common share excluding accumulated other comprehensive income and deferred tax assets (Adjusted book value per common share) increased 2.2% to $57.34 in the second quarter.
All comparisons are against the second quarter of 2017, unless otherwise indicated. Refer to the AIG Second Quarter 2018 Financial Supplement, which is posted on AIG's website in the Investors section, for further information.Adjusted pre-tax income of $407 million included $160 million of severe losses and $107 million of catastrophe-related losses. Net favorable prior year loss reserve development of $54 million included $95 million of favorable prior year loss development from Commercial Lines which included the amortization of the deferred gain from the adverse development reinsurance coverage with National Indemnity Company, partially offset by $41 million of unfavorable prior year loss development in Personal Insurance primarily related to development from 2017 catastrophe losses. Net investment income decreased by $245 million primarily driven by lower alternative investment income. Net premiums written increased by 4%, largely due to lower ceded premiums driven by changes in the 2018 reinsurance programs and growth in the Travel business in Personal Insurance. Net premiums earned included a favorable adjustment of $115 million for multi-year policies related to earlier accident years. The decrease in the North America loss ratio was driven by lower catastrophe losses and favorable prior year loss reserve development. The accident year loss ratio, as adjusted, increased 7.0 points, reflecting the impact of higher severe losses (3.4 pts) and the impact of changes in our reinsurance program. Also, the second quarter of 2017 did not reflect the increased loss estimates which occurred in the second half of 2017. The increase in the expense ratio reflected a higher acquisition expense ratio driven by changes in Personal Insurance’s portfolio mix and an increase in general operating expenses related to strategic initiatives.
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