American International Group, Inc. · 1Q12 1Q13 Accident & Health Personal Lines. Consumer...
Transcript of American International Group, Inc. · 1Q12 1Q13 Accident & Health Personal Lines. Consumer...
American International Group, Inc.First Quarter 2013 Results
Conference Call Presentation
May 3, 2013
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Cautionary Statement Regarding Projections and Other Information About Future EventsThis document and the remarks made within this presentation may include, and officers and representatives of American International Group, Inc. (AIG) may from time to time make, projections, goals, assumptions and statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These projections, goals, assumptions and statements are not historical facts but instead represent only AIG’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG’s control. These projections, goals,assumptions and statements include statements preceded by, followed by or including words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “view,” “target” or “estimate”. It is possible that AIG’s actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG’s actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include: changes in market conditions; the occurrence of catastrophic events, both natural and man-made; significant legal proceedings; the timing and applicable requirements of any new regulatory framework to which AIG is subject as a savings and loan holding company and if such a determination is made, as a non-bank systemically important financial institution; 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; and such other factors as are discussed throughout Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in AIG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and in Part I, Item 1A. Risk Factors and in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of AIG’s Annual Report on Form 10-K for the year ended December 31, 2012.
AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. This document and the remarks made orally may also contain certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP measures in accordance with Regulation G is included in the First Quarter 2013 Financial Supplement available in the Investor Information section of AIG's corporate website, www.aig.com.
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First Quarter 2013 Key ThemesHighlights: Noteworthy Items
Liquidity and Capital
Parent liquidity of $15.0 billion
Dividends and loan repayments of $1.3 billion from AIG Life and Retirement
$2.1 billion in parent company liability management ($1.1 billion hybrid call and $1.0 billion in tender offers; annual interest savings of approximately $165 million)
AIG Property Casualty
Operating income growth driven by improved underwriting and strong investment returns
Accident year loss ratio, as adjusted, of 63.2 continues to improve
Positive rate change, with Global Commercial rates up 4.2% (+7.4% in U.S.)
NPW growth of 4% excluding the impact of reinsurance agreements and foreign exchange
Modest CAT losses of $41 million and favorable prior year development of $52 million
Expenses reflect business mix shift and investments in people, processes, and technology
Mortgage Guaranty
Earnings reflects new business growth (47% of earned premiums generated since 2009)
Growth in new insurance written (up 63%* from 1Q12) with consistently high quality risks
Delinquency ratio declined 90 bps from 4Q12 to 7.9%
AIG Life and Retirement
Strong equity markets drive improved investment returns and favorable impact on fee-based businesses
Continued active spread management improves earnings
Variable annuity deposits up 31% from 1Q12
Continued impact of low interest rates on base yields and fixed annuity sales
* Domestic first-lien
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First Quarter
($ in millions, except per share amounts) 2012 2013Inc.
(Dec.)
Revenues $17,497 $15,888 (9%)
Net income attributable to AIG 3,208 2,206 (31%)
After-tax operating income attributable to AIG $3,046 $1,982 (35%)
Diluted earnings per common share:
Income from continuing operations $1.68 $1.43 (15%)
Income from discontinued operations $0.03 $0.06 100%
After-tax operating income attributable to AIG $1.62 $1.34 (17%)
Book value per common share $57.68 $67.41 17%
Book value per common share - Ex. AOCI $53.11 $59.39 12%
ROE – After-tax operating income(1) 12.8% 9.2%
Financial Highlights
1) Computed as Annualized After-tax operating income divided by Average AIG Shareholders' equity, excluding AOCI.
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After-tax Operating Income
First Quarter
($ in millions, except per share amounts) 2012 2013
Insurance operations
AIG Property Casualty $1,043 $1,589
AIG Life and Retirement 1,311 1,394
Mortgage Guaranty (reported in Other) 8 41
Total Insurance Operations 2,362 3,024
Direct Investment Book (156) 329
Global Capital Markets 92 227
Change in fair value of AIA (including realized gain) 1,795 -
Change in fair value of Maiden Lane III 1,252 -
Interest expense (381) (397)
Corporate expenses and other (252) (322)
Pre-tax operating income attributable to AIG 4,712 2,861
Income tax expense (1,425) (854)
Noncontrolling interest – Treasury (208) -
Other noncontrolling interest (33) (25)
After-tax operating income attributable to AIG $3,046 $1,982
After-tax operating income per diluted common share $1.62 $1.34
Operating results benefit from strong investment returns and modest catastrophe losses.
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$57.87 $59.39
$8.51 $8.02
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Dec. 31, 2012 Mar. 31, 2013
AOCI
BVPS, ex AOCI$98.0 $99.5
$9.4 $7.4
$16.1 $15.6 $0.7 $0.7
Dec. 31, 2012 Mar. 31, 2013
Non-redeemable noncontrolling interests
Financial Debt
Hybrids
Common Equity
Strong Capital Position
Book Value Per ShareCapital Structure
$66.38
1) Includes AIG Loans, Mortgages, Notes and Bonds Payable, AIGLH Notes and Bonds Payable, and Liabilities connected to the trust preferred stock.2) The inclusion of fleet RBC measures is intended solely for the information of investors and is not intended for the purpose of ranking any insurance
company or for use in connection with any marketing, advertising or promotional activities.
(1)
($ in billions, except per share data)
Risk Based Capital Ratios(2)
December 31, AIG Property Casualty
AIG Life and Retirement
2011 430% 520%
2012 443% 532%
$124.1
Leverage Ratios: 2012 2013
Financial Debt + Hybrids / Capitalization 20.5% 18.7%
Financial Debt / Capitalization 12.9% 12.7%
$67.41$123.2
Outstanding borrowings reflect first quarter hybrid call and tender offers.
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$519$75
$902
$807
$440
0
200
400
600
800
1,000
1,200
1,400
1,600
2Q12 3Q12 4Q12 1Q13
AIG Property Casualty AIG Life and Retirement
$12.6
$9.1
$2.3
$3.0$3.0
$0.5$0.5
Dec. 31, 2012
Mar. 31, 2013
Available capacity under Contingent Liquidity Facility
Available capacity under Syndicated Credit Facility
Unencumbered Fixed Maturity Securities
Cash & Short-term Investments
Financial Flexibility – A Source of Strength
Parent LiquidityInsurance Company Distributions($ in millions) ($ in billions)
$1,326 $1,342
Annual distributions expected to be $4 – 5 billion.
Parent liquidity of $15.0 billion, includes $5.5 billion allocated toward future maturities of liabilities and contingent liquidity stress needs of the Direct Investment book and Global Capital Markets as of March 31, 2013.
Unencumbered securities consist of publicly traded intermediate-term investment grade rated fixed maturity securities. Fixed maturity securities consist of U.S. government and government sponsored entities securities, U.S. agency mortgage-backed securities, and corporate and municipal bonds.
Parent liquidity balance reflects subsidiary distributions and liability management actions during the quarter.
$16.1$15.0
$1,349
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AIG Property Casualty – Financial Results
Global Combined Ratios
Calendar Year Accident Year, as adjusted(1)
1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting.
($ in millions) 1Q12 1Q13
Net premiums written $8,820 $8,437
Net premiums earned 8,688 8,558
Underwriting income (loss) (180) 231
Net investment income 1,223 1,358
Operating income $1,043 $1,589
The accident year loss ratio, as adjusted, continued to improve, as a result of the shift to higher value business, enhanced risk selection tools, and improved pricing.
The decline in net premiums written reflects the impact of recognizing ceded premiums written under excess of loss reinsurance agreements at contract inception rather than ratably over the contract period, the timing of a catastrophe bond issued in 1Q13 and the negative effect of foreign exchange, which was largely driven by the strengthening of the U.S dollar against the Yen. NPW growth was 4% excluding these items.
Net investment income benefited from strong alternative returns and gains on fair value option securities.
Operating results demonstrate continued execution of strategic initiatives.
68.0 63.3 66.3 63.2
20.2 19.7 20.2 19.7
13.9 14.3 13.9 14.3
0
20
40
60
80
100
120
1Q12 1Q13 1Q12 1Q13Loss Ratio Acquisition Ratio GOE Ratio
102.1 100.497.3 97.2
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$2,352 $2,244
$972 $683
$990 $972
$909 $1,004
0
1,000
2,000
3,000
4,000
5,000
6,000
1Q12 1Q13Casualty Property Specialty Financial lines
72.3 64.9 70.3 65.4
18.016.3 18.0 16.3
11.411.0 11.4 11.0
0
20
40
60
80
100
120
1Q12 1Q13 1Q12 1Q13
Loss Ratio Acquisition Ratio GOE Ratio
Commercial Insurance – Underwriting Results
Calendar Year Accident Year, as adjusted(1)
101.7
1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting.
Combined Ratios
Commercial results reflect business mix shift, enhanced risk selection, and price increases.
99.7
Accident Year Loss Ratio, as adjusted(1)
71.373.7
76.9
70.367.3
70.866.4 65.4
60
64
68
72
76
2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
Net Premiums Written($ in millions)
$5,223 $4,903
Commercial Insurance continued to focus on growing higher value, profitable lines of business and geographies.
Commercial Insurance rates increased +4.2% (+7.4% for the U.S.), led by U.S. Property at +8.9% and U.S. Workers’ Compensation at +8.3%.
Commercial NPW grew 3.8% excluding the negative effect of recognizing ceded premiums written under excess of loss reinsurance agreements at contract inception and the timing of a catastrophe bond issued in 1Q13. These items impacted NPW for the Property line of business.
92.2 92.7
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$1,807 $1,793
$1,790 $1,739
0
1,000
2,000
3,000
4,000
1Q12 1Q13Accident & Health Personal Lines
Consumer Insurance – Underwriting Results
Combined Ratios
Consumer continues to implement global growth strategies across multiple distribution channels.
Accident Year Loss Ratio, as adjusted(1)
58.1 57.8 58.4 58.8
23.7 24.9 23.7 24.914.9 15.7 14.9 15.7
0
20
40
60
80
100
120
1Q12 1Q13 1Q12 1Q13Loss Ratio Acquisition Ratio GOE Ratio
59.1 58.957.7
58.459.1
57.7 58.058.8
56
57
58
59
60
2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
Calendar Year Accident Year, as adjusted(1)
96.7 97.0
Net Premiums Written($ in millions)
$3,597 $3,532 Consumer Insurance represented 42% of total AIG Property Casualty NPW in 1Q13.
Consumer Insurance NPW grew by 4.2% from the year ago quarter excluding reinsurance agreements and foreign exchange.
Direct Marketing was 16% of Consumer NPW in 1Q13.
1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting.
98.4 99.4
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AIG Property Casualty – Investments
December 31, 2012Invested Assets - $131.4 billion(2)
1) Includes income/loss from mutual funds, real estate, equity method investments and mark-to-market gains and losses, net of investment expenses.2) Includes intercompany invested assets that are eliminated in consolidation.
March 31, 2013Invested Assets - $128.8 billion(2)
Returns driven by strong alternative investment income and gains on fair value option securities.
Obligations of states,
municipalities, and political subdivisions
21%
Non-U.S. governments
17%
Corporate debt27%
Structured securities
11%
Alternatives10%
Cash and short-term
investments6%
Equities, Trading &
other8%
Obligations of states,
municipalities, and political subdivisions
21%
Non-U.S. governments
16%
Corporate debt27%
Structured securities
14%
Alternatives10%
Cash and short-term
investments5%
Equities, Trading &
other7%
Net investment income:($ in millions) 2012 2013 Inc./(Dec.)
Interest and dividends 990$ 936$ (5%)
Alternative investments 130 258 98%
Other, net(1) 103 164 59%
Net investment income 1,223$ 1,358$ 11%
Yield 3.90% 4.18%
First Quarter
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Mortgage Guaranty – Improving Trends
11.4%
10.3%
9.6%
8.8%
7.9%
6.0%
8.0%
10.0%
12.0%
1Q12 2Q12 3Q12 4Q12 1Q13
Primary Delinquency (DQ) Ratio (%)
(in 000s) 1Q12 2Q12 3Q12 4Q12 1Q13
DQ Count 78 71 67 63 57
Growth in New insurance written reflects consistently high quality risks.
$2.5
$6.5
$10.6
-
2.0
4.0
6.0
8.0
10.0
12.0
1Q11 1Q12 1Q13
New Insurance Written (NIW)(1)
($ in billions)
Vintage YearAverage
FICO Score LTV Ratio
2011 757 91
2012 758 91
1Q13 757 90
1Q13 operating income of $41 million reflects growing portion of premium from high quality business written since 2009 and declining losses from run-off of legacy exposure.
1) New insurance written – original principal balance of loans (First-lien).
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$191.7 $202.7
$56.0 $61.0$17.3
$20.8$12.4
Mar. 31, 2012 Mar. 31, 2013
Stable value wraps
Group Ret. & Retail mutual funds
Separate account
General account
AIG Life and Retirement – Financial Results
Operating income in 1Q13 reflects strong alternative investment income, active net investment spread management and growth in assets under management.
The year-ago quarter included a $246 million fair value gain on Maiden Lane II.
Total AUM of $296.9 billion increased 12% from a year ago due to strong fixed income and equity markets and the novation of stable value wrap business from Global Capital Markets. Further novations are expected for the remainder of 2013.
Net outflows in 1Q13 of $244 million improved from net outflows of $1.0 billion in 4Q12 reflecting improved net flows for all lines of business.
Variable annuity deposits increased 31% from 1Q12 to $1.4 billion.
Assets Under Management
Results reflect active management of net investment spreads and strong alternative investment income.
($ in billions)
($ in millions) 1Q12 1Q13
Premiums and deposits $5,560 $5,580
Premiums 614 620
Policy fees 584 615
Net investment income 2,885 2,877
Advisory fee and other income 304 393
Total revenues(1) 4,387 4,505
Benefits and expenses 3,076 3,111
Operating income $1,311 $1,394
$265.0$296.9
1) Excluding net realized capital gains (losses).
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AIG Life and Retirement – Revised Segment Structure
Definitions: Guaranteed Investment Contracts (GICs), Corporate-Owned Life Insurance (COLI), Bank-Owned Life Insurance (BOLI), Private Placement Variable Life and Annuities (PPVUL & PPVA).
The chart below shows the products under the previous operating segments and their mapping to the new operating segments.
New Operating Segments
Businesses Life Insurance and A&H Fixed Annuities Retirement Income
Solutions Group Retirement Institutional Markets
ProductsTerm InsuranceUniversal LifeA&H Products
Fixed AnnuityImmediate Annuity
Variable Annuity Indexed Annuity
Retail Mutual Funds Brokerage Services
Fixed AnnuityVariable Annuity Mutual Funds
Structured SettlementsTerminal Funding Annuity
GICs / COLI / BOLI PPVUL and PPVA
Stable Value Wraps
Group Benefits
American General Western National Sun America Retirement Markets
VALIC Other
Term InsuranceUniversal LifeA&H Products
Fixed Annuity Variable Annuity Fixed AnnuityVariable Annuity
Mutual Funds
GICs
Retail Mutual FundsBrokerage Services
Fixed Annuity Immediate Annuity
Variable Annuity Indexed Annuity
Indexed Annuity
Structured SettlementsTerminal Funding Annuity
PPVUL and PPVAGICs/COLI/BOLI
Stable Value Wraps
Structured Settlements Structured Settlements
Group Benefits
Previous Operating Segments
Life Insurance Retirement Services
InstitutionalRetail
Previous Business
Line Presentation
15
$325 $326
$213 $242
0
200
400
600
800
1Q12 1Q13
Group Retirement Institutional Markets
AIG Life and Retirement – Retail & Institutional Results
Retail operating income in 1Q13 benefitted from higher returns on alternative investments and mark to market securities, active spread management and the favorable impact of the equity markets on the variable annuity business.
Institutional operating income in 1Q13 also benefitted from active spread management and strong investment returns.
1Q12 results from Retail and Institutional included fair value gains on Maiden Lane II of $153 million and $93 million, respectively.
Retail Operating Income* Institutional Operating Income*
$213 $214
$380 $427
$166 $173
0
200
400
600
800
1,000
1Q12 1Q13
Life Insurance and A&H Fixed Annuities Ret. Inc. Solutions
$761$821
($ in millions)
$550 $573
($ in millions)
* Operating income is not separately presented for Brokerage services and retail mutual funds included in the Retail operating segment and Group benefits included in the Institutional operating segment.
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Net investment income:($ in millions) 2012 2013 Inc./(Dec.)Interest and dividends 2,385$ 2,307$ (3%)Alternative investments 282 489 73%Change in fair value of Maiden Lane II 246 - NMCall and tender income 12 51 325%
Other, net(1) (40) 30 NM
Net investment income 2,885$ 2,877$ - Base Yield(2) 5.50% 5.30% Total Yield(3) 6.51% 6.38%
First Quarter
AIG Life and Retirement – Investments
1) Includes income/loss from mutual funds, real estate, equity method investments and mark-to-market gains and losses, net of investment expenses.2) Includes the investment return on surplus other than alternative investment or yield enhancement activities. Quarterly results are annualized.3) Represents the base yields and the incremental effect to base yield on investments in hedge funds, private equity funds, gains on Maiden Lane II (in 2012)
and income from calls and prepayment fees. Quarterly results are annualized.4) Includes intercompany invested assets that are eliminated in consolidation.
December 31, 2012Invested Assets - $205.3 billion(4)
March 31, 2013Invested Assets - $204.1 billion(4)
Investment performance driven by strong alternative investment returns.
Obligations of states,
municipalities, and political subdivisions
2%Non-U.S.
governments2%
Corporate debt56%
Structured securities
19%
Alternatives6%
Loans9%
Cash and short-term
investments4%
Equities, Trading &
other2%
Obligations of states,
municipalities, and political subdivisions
2%Non-U.S.
governments2%
Corporate debt56%
Structured securities
20%
Alternatives6%
Loans9%
Cash and short-term
investments3%
Equities, Trading &
other2%
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AIG Life and Retirement – Base Yields and Spreads
Base Yields(1)
5.26% 5.31%5.12% 5.12% 5.10%
5.19% 5.23%5.01% 4.95% 4.85%
4.00%
4.40%
4.80%
5.20%
5.60%
6.00%
1Q12 2Q12 3Q12 4Q12 1Q13
Fixed Annuities Group Retirement
Base Net Investment Spreads(1)
2.13% 2.18%1.97% 1.98%
2.19%
1.91% 1.96%1.75% 1.69% 1.75%
1.00%
1.50%
2.00%
2.50%
3.00%
1Q12 2Q12 3Q12 4Q12 1Q13
Fixed Annuities Group Retirement
1) Includes the investment return on surplus other than alternative investment or yield enhancement activities.
Base yields are impacted by the current interest rate environment.
Continued disciplined spread management allowed net spreads to remain stable.
At March 31, 2013, a total of 73% of fixed annuity and universal life account values are at contractual minimum guaranteed crediting rates vs. 61% at December 31, 2012.
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Q&A
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Appendix
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Legacy AIGFP: What We’ve AccomplishedAIG will continue to de-risk the legacy AIGFP portfolio while ensuring the firm retains the maximum economic benefit possible.
Net Notional Exposures ($ in billions)
Derivatives BookDec. 31,2008(1)
Dec. 31,2012
Mar. 31,2013
% Reduction
2008 –2013
2012 –2013
Market Derivatives ~1,450 101 98 93% 3%
Multi-sector CDS ~13 4 4 69% 0%
Corporate Arbitrage ~52 12 12 77% 0%
Regulatory Capital CDS
~245 0 0 >99% 0%
Stable Value Wraps ~40 10 8 80% 20%
Total Legacy Derivatives(4) ~$1,800 $127 $122 93% 4%
1) 2008 net notional amounts are approximate. 2) The Gross Vega is calculated as the sum of all the individual positions’ absolute vegas as if each position is not hedged. Although AIGFP’s books are almost completely hedged on a net Vega basis, the Gross Vega
measure helps monitor how well the volatility risk is being eliminated. The interest rate option vega denotes the change in value due to a 0.1% increase in normal volatility. For other derivatives (i.e., Equity, Commodity and FX option), vega denotes the change in value due to a 1% increase in lognormal volatility.
3) Gross ATE measures the impact of a three-notch downgrade. 2008 Gross ATE includes $1.3 billion attributable to GICs. 4) Excludes $15.4 billion and $16.5 billion of intercompany derivatives in 2013 and 2012, respectively.
35,200
1,600 -
10,000
20,000
30,000
40,000
2008 2013
1.25
0.010
0.5
1
1.5
2008 2013
10.4
0.20
5
10
15
2008 2013
99% Reduction
98% Reduction
95% Reduction
Gross Vega ($ in billions)(2)
Gross Additional Termination Events (ATE) ($ in billions)(3)
Position Count
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Legacy AIGFP Derivatives: Largely Wound DownActively managing the portfolio for maximum profit contribution and with limited risk.
TypeEstimatedAverage
LifeDescription
Market Derivatives
5.5 years
AIG Derisking Activities and Portfolio Hedging - ~$73 billion: Bulk of risk related to interest rates, foreign exchange and equities has been hedged Derivatives primarily facilitate hedging of the assets and liabilities of the DIB program as well as affiliate companies’
ordinary course risk management activity
8.1 years
3rd Party Client Trades - ~$25 billion: Aggregate Value at Risk on Market Derivatives is effectively zero at a 95% confidence level Third-party trades primarily intermediated and represent ~$25 billion of total remaining notional Bulk of remaining trades expected to remain until maturity as they have been intermediated to preserve economic
value or provide attractive funding
StableValueWraps
5.2 years No material realized losses even through market stress of 2008 Since the fourth quarter 2012, Stable Value Wraps with a notional value of $10 billion were novated to AIG Life &
Retirement and further novations are expected during the remainder of 2013
Multi-sector CDS 5.9 years
$936 million profit contribution since 12/31/08 Managed to retain significant future upside
- Where economics are compelling will continue to unwind trades
Corporate Arbitrage 2.9 years
$1.92 billion profit contribution since 12/31/08 Vast majority of notional has been intermediated to preserve economics while eliminating contingent liquidity Third-party credit review confirms no expected losses even in stress scenarios
Regulatory Capital
CDS0.9 years
$251 million profit contribution since 12/31/08 on termination of related mezzanine and hedges Less than $30 million in total notional remains. Expected to terminate or completely amortize within one year