AMERICAN INTERNATIONAL GROUP, INC.

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AMERICAN INTERNATIONAL GROUP, INC. | Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/05/2022 | 08:36am EDT

Glossary and Acronyms of Selected Insurance Terms and References

Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), we use certain terms and abbreviations, which are summarized in the Glossary and Acronyms.

American International Group, Inc. (AIG) has incorporated into this discussion a number of cross-references to additional information included throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021 Annual Report) to assist readers seeking additional information related to a particular subject.

In this Quarterly Report on Form 10-Q, unless otherwise mentioned or unless the context indicates otherwise, we use the terms "AIG," "we," "us" and "our" to refer to American International Group, Inc., a Delaware corporation, and its consolidated subsidiaries. We use the term "AIG Parent" to refer solely to American International Group, Inc., and not to any of its consolidated subsidiaries.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q and other publicly available documents may include, and officers and representatives of AIG may from time to time make and discuss, statements which, to the extent they are not statements of historical or present fact, may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are intended to provide management's current expectations or plans for AIG's future operating and financial performance, based on assumptions currently believed to be valid or accurate. Forward-looking statements are often preceded by, followed by or include words such as "will," "believe," "anticipate," "expect," "expectations," "intend," "plan," "strategy," "prospects," "project," "anticipate," "should," "guidance," "outlook," "confident," "focused on achieving," "view," "target," "goal," "estimate" and other words of similar meaning in connection with a discussion of future operating or financial performance. These statements may include, among other things, projections, goals and assumptions that relate to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expense reduction efforts, the outcome of contingencies such as legal proceedings, anticipated organizational, business or regulatory changes, such as the separation of the Life and Retirement business from AIG, the effect of catastrophes, and macroeconomic and/or geopolitical events, anticipated dispositions, monetization and/or acquisitions of businesses or assets, or successful integration of acquired businesses, management succession and retention plans, exposure to risk, trends in operations and financial results, and other statements that are not historical facts.


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All forward-looking statements involve risks, uncertainties and other factors that may cause AIG's actual results and financial condition to differ, possibly materially, from the results and financial condition expressed or implied in the forward-looking statements. Factors that could cause AIG's actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include, without limitation:

?AIG's ability to continue to separate ?changes to the valuation of AIG's the Life and Retirement business, investments; including through an initial public ?actions by rating agencies with respect offering, and the impact separation may to AIG's credit and financial strength have on AIG, its businesses, employees, ratings as well as those of its contracts and customers;

                 businesses and subsidiaries;

?the effects of economic conditions in ?the impact of COVID-19 and its variants the markets in which AIG and its and responses thereto; businesses operate in the U.S. and ?the effectiveness of AIG's enterprise globally and any changes therein, risk management policies and procedures, including from the effects of financial including with respect to business market conditions, fluctuations in continuity and disaster recovery plans; interest rates and foreign currency ?changes in judgments concerning exchange rates and inflationary potential cost-saving opportunities; pressures, each of which may also be ?changes in judgments concerning the affected by geopolitical conflicts, recognition of deferred tax assets and including the conflict between Russia the impairment of goodwill; and Ukraine;

                             ?AIG's ability to effectively execute on

?the occurrence of catastrophic events, environmental, social and governance both natural and man-made, including targets and standards; geopolitical conflicts, pandemics, civil ?the requirements, which may change from unrest and the effects of climate time to time, of the global regulatory change;

                                  framework to which AIG is subject;

?the effects of sanctions related to the ?nonperformance or defaults by conflict between Russia and Ukraine and counterparties, including Fortitude failure to comply therewith;

             Reinsurance Company Ltd. (Fortitude Re);

?the impact of potential information ?AIG's ability to successfully dispose technology, cybersecurity or data of, monetize and/or acquire businesses security breaches, including as a result or assets or successfully integrate of supply chain disruptions,

             acquired businesses;
cyber-attacks or security                ?changes in judgments or assumptions

vulnerabilities, the likelihood of which concerning insurance underwriting and may increase due to extended remote insurance liabilities; business operations as a result of ?changes to our sources of or access to COVID-19;

                                liquidity;

?AIG's ability to effectively execute on ?significant legal, regulatory or the AIG 200 operational programs governmental proceedings; and designed to modernize AIG's operating ?such other factors discussed in: infrastructure and enhance user and -Part I, Item 2. MD&A of this Quarterly customer experiences, and AIG's ability Report on Form 10-Q; and to achieve anticipated cost savings from -Part I, Item 1A. Risk Factors and Part AIG 200;

                                 II, Item 7. MD&A of the 2021 Annual
?availability of reinsurance or access   Report.
to reinsurance on acceptable terms;
?the effectiveness of strategies to
recruit and retain key personnel and to
implement effective succession plans;
?concentrations in AIG's investment
portfolios, including as a result of our
asset management relationships with
Blackstone Inc. (Blackstone) and
BlackRock, Inc. (BlackRock);
?disruptions in the availability of
AIG's electronic data systems or those
of third parties;


The forward-looking statements speak only as of the date of this report, or in the case of any document incorporated by reference, the date of that document. We are not under any obligation (and expressly disclaim 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. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the Securities and Exchange Commission (SEC).


                                           AIG | First Quarter 2022 Form 10-Q 62

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INDEX TO ITEM 2
                                                                             Page
  Use of Non-GAAP Measures                                                   64
  Critical Accounting Estimates                                              66
  Executive Summary                                                          67
  Overview                                                                   67
  Operating Structure                                                        68
  Financial Performance Summary                                              69
  AIG's Outlook - Industry and Economic Factors                              71
  Consolidated Results of Operations                                         74
  Business Segment Operations                                                78
  General Insurance                                                          79
  Life and Retirement                                                        87
  Other Operations                                                          102
  Investments                                                               104
  Overview                                                                  104
  Investment Highlights in the First Quarter of 2022                        104
  Investment Strategies                                                     104
  Credit Ratings                                                            106
  Insurance Reserves                                                        114
  Loss Reserves                                                             114

Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC

                                                            118
  Liquidity and Capital Resources                                           123
  Overview                                                                  123
  Analysis of Sources and Uses of Cash                                      124
  Liquidity and Capital Resources of AIG Parent and Subsidiaries            125
  Credit Facilities                                                         127
  Contractual Obligations                                                   128
  Off-Balance Sheet Arrangements and Commercial Commitments                 128
  Debt                                                                      128
  Credit Ratings                                                            130
  Financial Strength Ratings                                                130

Rating Agency Actions Related to Corebridge Senior Note Offering and Other Recent Actions

                                                    131
  Regulation and Supervision                                                131
  Dividends                                                                 131
  Repurchases of AIG Common Stock                                           132
  Dividend Restrictions                                                     132
  Enterprise Risk Management                                                132
  Overview                                                                  132
  Regulatory Environment                                                    133
  Overview                                                                  133
  Glossary                                                                  134
  Acronyms                                                                  137



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                                               ITEM 2 | Use of Non-GAAP Measures



Use of Non-GAAP Measures

Throughout this MD&A, we present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are "non-GAAP financial measures" under SEC rules and regulations. GAAP is the acronym for "generally accepted accounting principles" in the United States. The non-GAAP financial measures we present may not be comparable to similarly-named measures reported by other companies.

We use the following operating performance measures because we believe they enhance the understanding of the underlying profitability of continuing operations and trends of our business segments. We believe they also allow for more meaningful comparisons with our insurance competitors. When we use these measures, reconciliations to the most comparable GAAP measure are provided on a consolidated basis in the Consolidated Results of Operations section of this MD&A.

Book value per common share, excluding accumulated other comprehensive income (loss) (AOCI) adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and deferred tax assets (DTA) (Adjusted book value per common share) is used to show the amount of our net worth on a per-common share basis after eliminating items that can fluctuate significantly from period to period including changes in fair value of AIG's available for sale securities portfolio, foreign currency translation adjustments and U.S. tax attribute deferred tax assets. This measure also eliminates the asymmetrical impact resulting from changes in fair value of our available for sale securities portfolio wherein there is largely no offsetting impact for certain related insurance liabilities. In addition, we adjust for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets held by AIG in support of Fortitude Re's reinsurance obligations to AIG post deconsolidation of Fortitude Re (Fortitude Re funds withheld assets) since these fair value movements are economically transferred to Fortitude Re. We exclude deferred tax assets representing U.S. tax attributes related to net operating loss carryforwards and foreign tax credits as they have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the DTA utilized is included in these book value per common share metrics. Adjusted book value per common share is derived by dividing total AIG common shareholders' equity, excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets, and DTA (Adjusted common shareholders' equity), by total common shares outstanding.

Return on common equity - Adjusted after-tax income excluding AOCI adjusted for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets and DTA (Adjusted return on common equity) is used to show the rate of return on common shareholders' equity. We believe this measure is useful to investors because it eliminates items that can fluctuate significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign currency translation adjustments and U.S. tax attribute deferred tax assets. This measure also eliminates the asymmetrical impact resulting from changes in fair value of our available for sale securities portfolio wherein there is largely no offsetting impact for certain related insurance liabilities. In addition, we adjust for the cumulative unrealized gains and losses related to Fortitude Re funds withheld assets since these fair value movements are economically transferred to Fortitude Re. We exclude deferred tax assets representing U.S. tax attributes related to net operating loss carryforwards and foreign tax credits as they have not yet been utilized. Amounts for interim periods are estimates based on projections of full-year attribute utilization. As net operating loss carryforwards and foreign tax credits are utilized, the portion of the DTA utilized is included in Adjusted return on common equity. Adjusted return on common equity is derived by dividing actual or annualized adjusted after-tax income attributable to AIG common shareholders by average Adjusted common shareholders' equity.

Adjusted after-tax income attributable to AIG common shareholders is derived by excluding the tax effected adjusted pre-tax income (APTI) adjustments described below, dividends on preferred stock, noncontrolling interest on net realized gains (losses), other non-operating expenses and the following tax items from net income attributable to AIG:

?deferred income tax valuation allowance releases and charges;

?changes in uncertain tax positions and other tax items related to legacy matters having no relevance to our current businesses or operating performance; and

?net tax charge related to the enactment of the Tax Cuts and Jobs Act (the Tax Act).

Adjusted revenues exclude Net realized gains (losses), income from non-operating litigation settlements (included in Other income for GAAP purposes) and changes in fair value of securities used to hedge guaranteed living benefits (included in Net investment income for GAAP purposes). Adjusted revenues is a GAAP measure for our segments.


                                           AIG | First Quarter 2022 Form 10-Q 64

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                                               ITEM 2 | Use of Non-GAAP Measures

Adjusted pre-tax income is derived by excluding the items set forth below from income from continuing operations before income tax. This definition is consistent across our segments. These items generally fall into one or more of the following broad categories: legacy matters having no relevance to our current businesses or operating performance; adjustments to enhance transparency to the underlying economics of transactions; and measures that we believe to be common to the industry. APTI is a GAAP measure for our segments. Excluded items include the following:

?changes in fair value of securities ?income or loss from discontinued used to hedge guaranteed living operations; benefits;

                                ?net loss reserve discount benefit

?changes in benefit reserves and (charge); deferred policy acquisition costs (DAC), ?pension expense related to lump sum value of business acquired (VOBA), and payments to former employees; deferred sales inducements (DSI) related ?net gain or loss on divestitures; to net realized gains and losses; ?non-operating litigation reserves and ?changes in the fair value of equity settlements; securities;

                              ?restructuring and other costs related

?net investment income on Fortitude Re to initiatives designed to reduce funds withheld assets;

                   operating expenses, improve efficiency

?following deconsolidation of Fortitude and simplify our organization; Re, net realized gains and losses on ?the portion of favorable or unfavorable Fortitude Re funds withheld assets; prior year reserve development for which ?loss (gain) on extinguishment of debt; we have ceded the risk under retroactive ?all net realized gains and losses reinsurance agreements and related except earned income (periodic

           changes in amortization of the deferred
settlements and changes in settlement    gain;
accruals) on derivative instruments used ?integration and transaction costs
for non-qualifying (economic) hedging or associated with acquiring or divesting
for asset replication. Earned income on  businesses;
such economic hedges is reclassified     ?losses from the impairment of goodwill;
from net realized gains and losses to    and
specific APTI line items based on the    ?non-recurring costs associated with the
economic risk being hedged (e.g. net     implementation of non-ordinary course
investment income and interest credited  legal or regulatory changes or changes
to policyholder account balances);       to accounting principles.


?General Insurance

-Ratios: We, along with most property and casualty insurance companies, use the loss ratio, the expense ratio and the combined ratio as measures of underwriting performance. These ratios are relative measurements that describe, for every $100 of net premiums earned, the amount of losses and loss adjustment expenses (which for General Insurance excludes net loss reserve discount), and the amount of other underwriting expenses that would be incurred. A combined ratio of less than 100 indicates underwriting income and a combined ratio of over 100 indicates an underwriting loss. Our ratios are calculated using the relevant segment information calculated under GAAP, and thus may not be comparable to similar ratios calculated for regulatory reporting purposes. The underwriting environment varies across countries and products, as does the degree of litigation activity, all of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product type and competition can have an effect on pricing and consequently on profitability as reflected in underwriting income and associated ratios.

-Accident year loss and accident year combined ratios, as adjusted (Accident year loss ratio, ex-CAT and Accident year combined ratio, ex-CAT): both the accident year loss and accident year combined ratios, as adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting. Natural catastrophe losses are generally weather or seismic events, in each case, having a net impact on AIG in excess of $10 million and man-made catastrophe losses, such as terrorism and civil disorders that exceed the $10 million threshold. We believe that as adjusted ratios are meaningful measures of our underwriting results on an ongoing basis as they exclude catastrophes and the impact of reserve discounting which are outside of management's control. We also exclude prior year development to provide transparency related to current accident year results.

?Life and Retirement

-Premiums and deposits: includes direct and assumed amounts received and earned on traditional life insurance policies, group benefit policies and life-contingent payout annuities, as well as deposits received on universal life, investment-type annuity contracts, Federal Home Loan Bank (FHLB) funding agreements and mutual funds. We believe the measure of premiums and deposits is useful in understanding customer demand for our products, evolving product trends and our sales performance period over period.

Results from discontinued operations are excluded from all of these measures.


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                                          ITEM 2 | Critical Accounting Estimates



Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment.

The accounting policies that we believe are most dependent on the application of estimates and assumptions, which are critical accounting estimates, are related to the determination of:


?loss reserves;
?future policy benefit reserves for life and accident and health insurance
contracts;
?liabilities for guaranteed benefit features of variable annuity, fixed annuity
and fixed index annuity products;
?embedded derivative liabilities for fixed index annuity and life products;
?estimated gross profits to value deferred acquisition costs and unearned
revenue for investment-oriented products;
?reinsurance assets, including the allowance for credit losses and disputes;
?goodwill impairment;
?allowance for credit losses on certain investments, primarily on loans and
available for sale fixed maturity securities;
?legal contingencies;
?fair value measurements of certain financial assets and financial liabilities;
and
?income taxes, in particular the recoverability of our deferred tax asset and
establishment of provisions for uncertain tax positions.


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.

For a complete discussion of our critical accounting estimates, see Part II, Item 7. MD&A - Critical Accounting Estimates in the 2021 Annual Report.


                                           AIG | First Quarter 2022 Form 10-Q 66

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                                                      ITEM 2 | Executive Summary



Executive Summary

Overview

This overview of the MD&A highlights selected information and may not contain all of the information that is important to current or potential investors in our securities. You should read this Quarterly Report on Form 10-Q, together with the 2021 Annual Report, in their entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

Separation of Life and Retirement Business and Relationship with Blackstone

On October 26, 2020, AIG announced its intention to separate its Life and Retirement business from AIG. On November 2, 2021, AIG and Blackstone completed the acquisition by Blackstone of a 9.9 percent equity stake in Corebridge Financial, Inc., formerly known as SAFG Retirement Services, Inc. (Corebridge), which is the holding company for AIG's Life and Retirement business, for $2.2 billion in an all cash transaction, subject to adjustment if the final pro forma adjusted book value is greater or lesser than the target pro forma adjusted book value. This resulted in a $629 million decrease to AIG's shareholders' equity in the fourth quarter of 2021. As part of the separation, most of AIG's investment operations were transferred to Corebridge or its subsidiaries as of December 31, 2021, and AIG entered into a long-term asset management relationship with Blackstone to manage an initial $50 billion of Life and Retirement's existing investment portfolio beginning in the fourth quarter of 2021, with that amount increasing by increments of $8.5 billion per year for five years beginning in the fourth quarter of 2022, for an aggregate of $92.5 billion. In addition, Blackstone designated one member of the Board of Directors of Corebridge, which currently consists of 11 directors. Pursuant to the definitive agreement, Blackstone will be required to hold its ownership interest in Corebridge following the completion of the separation of the Life and Retirement business, subject to exceptions permitting Blackstone to sell 25%, 67% and 75% of its shares after the first, second and third anniversaries, respectively, of the initial public offering of Corebridge (the IPO), with the transfer restrictions terminating in full on the fifth anniversary of the IPO. In the event that the IPO of Corebridge is not completed prior to November 2, 2023, Blackstone will have the right to require AIG to undertake the IPO, and in the event that the IPO has not been completed prior to November 2, 2024, Blackstone will have the right to exchange all or a portion of its ownership interest in Corebridge for shares of AIG's common stock on the terms set forth in the definitive agreement. On November 1, 2021, Corebridge declared a dividend payable to AIG Parent in the amount of $8.3 billion. In connection with such dividend, Corebridge issued a promissory note to AIG Parent in the amount of $8.3 billion, which is required to be paid to AIG Parent prior to the IPO of Corebridge. On April 5, 2022, Corebridge issued senior unsecured notes in the aggregate principal amount of $6.5 billion, the proceeds of which were used to repay a portion of the $8.3 billion promissory note previously issued by Corebridge to AIG. While we currently believe the IPO is the next step in the separation of the Life and Retirement business from AIG, no assurance can be given regarding the form that future separation transactions may take or the specific terms or timing thereof, or that a separation will in fact occur. Any separation transaction will be subject to the satisfaction of various conditions and approvals, including approval by the AIG Board of Directors, receipt of insurance and other required regulatory approvals, and satisfaction of any applicable requirements of the SEC.

On December 15, 2021, AIG and Blackstone Real Estate Income Trust (BREIT), a long-term, perpetual capital vehicle affiliated with Blackstone, completed the acquisition by BREIT of AIG's interests in a U.S. affordable housing portfolio for $4.9 billion, in an all cash transaction, resulting in a pre-tax gain of $3.0 billion. The historical results of the U.S. affordable housing portfolio were reported in our Life and Retirement operating segments.

For additional information regarding the debt issuance of Corebridge, see Note 16 to the Condensed Consolidated Financial Statements.

Our Investment Management Agreements with BlackRock

On March 28, 2022, we announced entry into a binding letter of intent with BlackRock pursuant to which certain of our insurance company subsidiaries would enter into separate investment management agreements with BlackRock (the BlackRock Arrangement). On April 28, 2022, certain of our insurance company subsidiaries entered into such investment management agreements, with the expectation that certain additional insurance company subsidiaries will enter into such investment management agreements over the coming months. Overall, we expect to transfer the management of up to $150 billion of our investment of liquid fixed income and certain private placement assets, including $90 billion of the Life and Retirement investment portfolio, over a period of 12 months in connection with the BlackRock Arrangement. The investment management agreements contain detailed investment guidelines and reporting requirements. These agreements also contain reasonable and customary representations and warranties, standard of care, expense reimbursement, liability, indemnity and other provisions. The investment management agreements continue unless terminated by either party on 45 days' notice or by us immediately for cause. We continue to be responsible for our overall investment


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                                                      ITEM 2 | Executive Summary

portfolio, including decisions surrounding asset allocation, risk composition and investment strategy. There can be no assurance that all of such investment management agreements will be entered into as contemplated, or at all.

OPERATING STRUCTURE

AIG reports the results of its businesses through three segments - General Insurance, Life and Retirement and Other Operations. General Insurance consists of two operating segments - North America and International. Life and Retirement consists of four operating segments - Individual Retirement, Group Retirement, Life Insurance and Institutional Markets. Other Operations is primarily comprised of corporate, our institutional asset management business and consolidation and eliminations.

Consistent with how we manage our business, our General Insurance North America operating segment primarily includes insurance businesses in the United States, Canada and Bermuda, and our global reinsurance business, AIG Re. Our General Insurance International operating segment includes regional insurance businesses in Japan, the United Kingdom, Europe, Middle East and Africa (EMEA region), Asia Pacific, Latin America and Caribbean, and China. International also includes the results of Talbot Holdings, Ltd. as well as AIG's Global Specialty business.

For additional information on our business segments, see Note 3 to the Condensed Consolidated Financial Statements, and for information regarding the separation of Life and Retirement, see Note 1 to the Condensed Consolidated Financial Statements.


Business Segments


  General Insurance                   Life and Retirement

  General Insurance is a leading      Life and Retirement is a unique franchise
  provider of insurance products and  that brings together a broad portfolio of
  services for commercial and         life insurance, retirement and
  personal insurance customers. It    institutional products offered through an
  includes one of the world's most    extensive, multichannel distribution
  far-reaching property casualty      network. It holds long-standing, leading
  networks. General Insurance offers  market positions in many of the markets it
  a broad range of products to        serves in the U.S. With its strong capital
  customers through a diversified,    position, customer-focused service, breadth
  multichannel distribution network.  of product expertise and deep distribution
  Customers value General Insurance's relationships across multiple channels,
  strong capital position, extensive  Life and Retirement is well positioned to
  risk management and claims          serve growing market needs.
  experience and its ability to be a
  market leader in critical lines of
  the insurance business.
       [[Image Removed: Picture                [[Image Removed: Picture
    1]][[Image Removed: Picture 2]]           3]][[Image Removed: Picture
                                              4]][[Image Removed: Picture
                                            5]][[Image Removed: Picture 6]]
  General Insurance includes the      Life and Retirement includes the following
  following major operating           major operating companies: American General
  companies: National Union Fire      Life Insurance Company (AGL); The Variable
  Insurance Company of Pittsburgh,    Annuity Life Insurance Company (VALIC); The
  Pa. (National Union); American Home United States Life Insurance Company in the
  Assurance Company (American Home);  City of New York (U.S. Life); Laya
  Lexington Insurance Company         Healthcare Limited and AIG Life Limited.
  (Lexington); AIG General Insurance
  Company, Ltd. (AIG Sonpo); AIG Asia
  Pacific Insurance, Pte, Ltd.; AIG
  Europe S.A.; American International
  Group UK Ltd.; Validus Reinsurance,
  Ltd. (Validus Re); Talbot Holdings
  Ltd. (Talbot); Western World
  Insurance Group, Inc. and
  Glatfelter Insurance Group
  (Glatfelter).


  Other Operations

  Other Operations primarily consists of income from assets held by AIG Parent
  and other corporate subsidiaries, deferred tax assets related to tax
  attributes, corporate expenses and intercompany eliminations, our institutional
  asset management business and results of our consolidated investment entities,
  General Insurance portfolios in run-off as well as the historical results of
  our legacy insurance lines ceded to Fortitude Re.



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                                                      ITEM 2 | Executive Summary

Financial Performance Summary



Net Income (Loss) Attributable to AIG Common Shareholders
Three Months Ended March 31,
(in millions)
                                  2022 and 2021 Comparison
[[Image Removed: Chart 4]]        Net income attributable to AIG common
                                  shareholders increased $384 million due to the
                                  following, on a pre-tax basis:
                                  ?an increase in Net realized gains on
                                  Fortitude Re funds withheld embedded
                                  derivative of $936 million driven by interest
                                  rate movements, partially offset by losses on
                                  Fortitude Re funds withheld assets of $140
                                  million in 2022 compared to a gain of $173
                                  million in 2021;
                                  ?an increase in Net realized gains excluding
                                  Fortitude Re funds withheld assets and
                                  embedded derivative of $546 million, driven by
                                  a $1.0 billion increase in derivative and
                                  hedge activity and gains on variable annuity
                                  embedded derivatives, net of hedging partially
                                  offset by losses on sales of securities of
                                  $201 million and unfavorable movement in the
                                  allowance for credit losses on fixed maturity
                                  securities and loans of $164 million;
                                  ?higher underwriting income in General
                                  Insurance ($373 million) from higher premiums
                                  marked by changes in business mix along with
                                  strong rate improvement, focused risk
                                  selection and improved terms and conditions,
                                  and significantly lower catastrophe losses;
                                  and
                                  ?lower interest expense of $79 million
                                  primarily driven by interest savings resulting
                                  from redemptions and cash tender offers of
                                  $3.6 billion of debt completed during 2021
                                  ($34 million) and interest savings from
                                  consolidated investment entities ($40
                                  million).
                                  The increase in Net income attributable to AIG
                                  common shareholders was partially offset by
                                  the following:
                                  ?lower net investment income ($420 million)
                                  primarily driven by lower returns on available
                                  for sale fixed maturity securities as a result
                                  of the higher interest rate environment (which
                                  led to lower call income) of $213 million and
                                  declines in fair value of fixed maturity
                                  securities of $217 million, where we elected
                                  the fair value option; and
                                  ?higher income attributable to noncontrolling
                                  interest ($342 million) driven by the sale of
                                  9.9 percent interest of Corebridge to
                                  Blackstone in December 2021 ($354 million).
                                  The $381 million increase in income tax
                                  expense was primarily attributable to higher
                                  income from continuing operations.
                                  For further discussion see Consolidated
                                  Results of Operations.


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                                                      ITEM 2 | Executive Summary


Adjusted Pre-Tax Income (Loss)*
Three Months Ended March 31,
(in millions)
                                  2022 and 2021 Comparison
[[Image Removed: Chart 4]]        Adjusted pre-tax income increased $258 million
                                  primarily due to higher underwriting income in
                                  General Insurance ($373 million) from higher
                                  premiums marked by changes in business mix
                                  along with strong rate improvement, focused
                                  risk selection and improved terms and
                                  conditions, significantly lower catastrophe
                                  losses, and net favorable prior year reserve
                                  development in 2022 compared to net adverse
                                  prior year reserve development in 2021.
                                  Partially offset by lower net investment
                                  income ($193 million) primarily driven by
                                  lower returns on available for sale fixed
                                  maturity securities as a result of the higher
                                  interest rate environment (which led to lower
                                  call income) of $132 million and declines in
                                  fair value of fixed maturity securities of $92
                                  million, where we elected the fair value
                                  option, partially offset by gains on other
                                  invested assets, primarily private equity
                                  funds, of $50 million and income on mortgage
                                  and other loans of $39 million.

*Non-GAAP measure - for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations.



General Operating and Other Expenses
Three Months Ended March 31,
(in millions)
                                  2022 and 2021 Comparison
[[Image Removed: Chart 1]]        General operating and other expenses increased
                                  $93 million primarily due to increases in
                                  professional fees inclusive of transaction
                                  costs and other acquisition expenses.
                                  General operating and other expenses in the
                                  three-months ended March 31, 2022 and 2021
                                  included approximately $93 million and $74
                                  million, respectively, of pre-tax
                                  restructuring and other costs which were
                                  primarily comprised of employee severance
                                  charges and other costs related to
                                  organizational simplification, operational
                                  efficiency, and business rationalization.




                                           AIG | First Quarter 2022 Form 10-Q 70

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                                                             TABLE OF CONTENTS

                                                      ITEM 2 | Executive Summary

AIG's Outlook - Industry and economic factors

Our business is affected by industry and economic factors such as interest rates, currency exchange rates, credit and equity market conditions, catastrophic claims events, regulation, tax policy, competition, and general economic, market and political conditions. We continued to operate under challenging market conditions in the first quarter of 2022, characterized by factors such as the impact of COVID-19 and the related governmental and societal responses, interest rate volatility, inflationary pressures, an uneven global economic recovery and global trade tensions. Responses by central banks and monetary authorities with respect to inflation, growth concerns and other macroeconomic factors have also affected global exchange rates and volatility.

Russia/Ukraine Conflict

The Russia/Ukraine conflict began in February 2022. The conflict has and may continue to have a significant impact on the global macroeconomic and geopolitical environments, including increased volatility in capital and commodity markets, rapid changes to regulatory conditions around the globe including the use of sanctions, operational challenges for multinational corporations, inflationary pressures and an increased risk of cybersecurity incidents.

The conflict is evolving and has the potential to adversely affect our business and results of operations from an investment, underwriting and operational perspective. While we believe we have taken appropriate actions to minimize related risk, we continue to monitor potential exposure and operational impacts, as well as any actual and potential claims activity. The ultimate impact will depend on future developments that are uncertain and cannot be predicted, including scope, severity and duration, the governmental, legislative and regulatory actions taken (including the application of sanctions), and court decisions, if any, rendered in response to those actions.

Impact of Changes in the Interest Rate Environment and Equity Markets

Key U.S. benchmark rates have continued to rise during the first quarter of 2022 as investors form opinions over elevated inflation measures, geopolitical risk, and the Board of Governors of the Federal Reserve System raising short term interest rates for the first time since 2018. As of March 31, 2022, increases in key rates have improved yields on new investments which are now closer to the runoff yield that we are experiencing on our existing portfolios. We actively manage our exposure to the interest rate environment through portfolio selection and asset-liability management, including spread management strategies for our investment-oriented products and economic hedging of interest rate risk from guarantee features in our variable and fixed index annuities, but we may not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities.

Equity Markets

Our financial results are impacted by the performance of equity markets. The impact of equity market returns, both increases and decreases, is reflected in our results almost immediately due to the impact on the fair values of equity exposed securities in our portfolio as well as separate account values in our Life and Retirement business. The reduction in separate account asset values impacts fee income as well as policyholder benefits and DAC on our variable annuity portfolio within the Life and Retirement segment. For instance, variable annuities earn fees based on the account value, which fluctuates with the equity markets as a significant amount of our separate account assets are invested in equity funds.

In Life and Retirement, hedging costs could also be significantly impacted by volatility in the equity markets as rebalancing and option costs are tied to the equity market volatility. These costs are mostly offset by rider fees that are tied to the level of the Chicago Board Options Exchange Volatility Index. As rebalancing and option costs increase or decrease, the rider fees will increase or decrease partially offsetting the hedging costs incurred.

Annuity Sales and Surrenders

The sustained low interest rate environment has a significant impact on the annuity industry. Low long-term interest rates put pressure on investment returns and customer facing rates, which may negatively affect sales of interest rate sensitive products and reduce future profits on certain existing fixed rate products. However, our disciplined pricing has helped to mitigate some of the pressure on investment spreads and remain competitive. Rapidly rising interest rates could create the potential for increased sales, but may also drive higher surrenders. Fixed annuities have surrender charge periods, generally in the three-to-seven year range. Fixed Index annuities have surrender charge periods, generally in the five-to-ten year range, and within our Group Retirement segment, certain of our fixed investment options are subject to other withdrawal restrictions, which may help mitigate increased early surrenders in a rising rate environment. In addition, older contracts that have higher minimum interest rates and continue to be attractive to contract holders have driven better than expected persistency in fixed annuities, although the reserves for such contracts have continued to decrease over time in amount and as a percentage of the total annuity portfolio. We closely monitor surrenders of fixed annuities as contracts with lower minimum interest rates come out of the surrender charge period. Changes in interest rates significantly impact the valuation of our liabilities for annuities with guaranteed living benefit features and the value of the related hedging portfolio.


71 AIG | First Quarter 2022 Form 10-Q
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                                                      ITEM 2 | Executive Summary

Reinvestment and Spread Management

We actively monitor fixed income markets, including the level of interest rates, credit spreads and the shape of the yield curve. We also frequently review our interest rate assumptions and actively manage the crediting rates used for new and in-force business. Business strategies continue to evolve and attempt to maintain profitability of the overall business in light of the interest rate environment. A low interest rate environment puts margin pressure on pricing of new business and on existing products, due to the challenge of investing new money or recurring premiums and deposits, and reinvesting investment portfolio cash flows, in the low interest rate environment. In addition, there is investment risk associated with future premium receipts from certain in-force business. Specifically, the investment of these future premium receipts may be at a yield below that required to meet future policy liabilities.

The contractual provisions for renewal of crediting rates and guaranteed minimum crediting rates included in our products has reduced spreads in a sustained low interest rate environment and thus reduces future profitability.

For additional information on our investment and asset-liability management strategies see Investments.

For investment-oriented products, including universal life insurance, and variable, fixed and fixed index annuities, in our Individual Retirement, Group Retirement, Life Insurance and Institutional Markets businesses, our spread management strategies include disciplined pricing and product design for new business, modifying or limiting the sale of products that do not achieve targeted spreads, using asset-liability management to match assets to liabilities to the extent practicable, and actively managing crediting rates to help mitigate some of the pressure on investment spreads. Renewal crediting rate management is done under contractual provisions that were designed to allow crediting rates to be reset at pre-established intervals in accordance with state and federal laws and subject to minimum crediting rate guarantees. We expect to continue to adjust crediting rates on in-force business, as appropriate, to mitigate the pressure on spreads from declining base yields, but our ability to lower crediting rates may be limited by the competitive environment, contractual minimum crediting rates, and provisions that allow rates to be reset only at pre-established intervals or under certain conditions. If and as interest rates rise, we may need to raise crediting rates on in-force business for competitive and other reasons, potentially offsetting a portion of the additional investment income resulting from investing in a higher interest rate environment.

Of the aggregate fixed account values of our Individual Retirement and Group Retirement annuity products, 69 percent were crediting at the contractual minimum guaranteed interest rate as of March 31, 2022. The percentage of fixed account values of our annuity products that are currently crediting at rates above one percent were 57 percent and 58 percent as of March 31, 2022 and December 31, 2021, respectively. In the universal life products in our Life Insurance business, 67 percent of the account values were crediting at the contractual minimum guaranteed interest rate as of both March 31, 2022 and December 31, 2021. These businesses continue to focus on pricing discipline and strategies to manage the minimum guaranteed interest crediting rates offered on new sales in the context of regulatory requirements and competitive positioning.

The following table presents fixed annuity and universal life account values of our Individual Retirement, Group Retirement and Life Insurance operating segments by contractual minimum guaranteed interest rate and current crediting rates, excluding balances ceded to Fortitude Re:


                                               Current Crediting Rates
March 31, 2022                                    1-50 Basis   More than 50
Contractual Minimum Guaranteed  At Contractual  Points Above   Basis Points
Interest Rate                          Minimum       Minimum  Above Minimum
(in millions)                        Guarantee     Guarantee      Guarantee    Total
Individual Retirement*
<=1%                            $       10,456   $     1,851  $      18,812 $ 31,119
> 1% - 2%                                4,428            27          1,678    6,133
> 2% - 3%                               10,184             -             18   10,202
> 3% - 4%                                8,045            40              6    8,091
> 4% - 5%                                  473             -              5      478
> 5% - 5.5%                                 34             -              4       38
Total Individual Retirement     $       33,620   $     1,918  $      20,523 $ 56,061
Group Retirement*
<=1%                            $        3,850   $     1,683  $       4,591 $ 10,124
> 1% - 2%                                6,316           411              7    6,734
> 2% - 3%                               14,648             -              -   14,648
> 3% - 4%                                  702             -              -      702
> 4% - 5%                                6,955             -              -    6,955
> 5% - 5.5%                                159             -              -      159
Total Group Retirement          $       32,630   $     2,094  $       4,598 $ 39,322


                                           AIG | First Quarter 2022 Form 10-Q 72

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                                                      ITEM 2 | Executive Summary

Universal life insurance
<=1%                           $      - $     - $      - $       -
> 1% - 2%                           104      24      355       483
> 2% - 3%                           246     540    1,209     1,995
> 3% - 4%                         1,388     207      186     1,781
> 4% - 5%                         3,052       2        -     3,054
> 5% - 5.5%                         228       -        -       228

Total universal life insurance $ 5,018 $ 773 $ 1,750 $ 7,541 Total

                          $ 71,268 $ 4,785 $ 26,871 $ 102,924
Percentage of total                  69 %     5 %     26 %     100 %


*Individual Retirement and Group Retirement amounts shown include fixed options within variable annuity products.

General Insurance

Our net investment income is significantly impacted by market interest rates as well as the deployment of asset allocation strategies to manage duration, enhance yield and interest rate risk. As interest rates increase, so too does our ability to reinvest future cash inflows from premiums, as well as sales and maturities of existing investments, at more favorable rates. For additional information on our investment and asset-liability management strategies see Investments.

The impact of low interest rates on our General Insurance segment reduces the benefit of investment income in our pricing. This leads to stronger requirements for underwriting profitability in all of our portfolios, particularly those for long-tail casualty business.

Although investing at lower interest rates puts pressure on our ability to adjust pricing to achieve profitability objectives, market conditions have been conducive to achieving our pricing targets. The pressure on pricing does not necessarily ease as interest rates rise, as the changes in interest rates are a lagging response to economic conditions of unemployment and inflation. We monitor these trends closely, particularly loss cost trend uncertainty, to ensure that not only our pricing, but also our loss reserving, assumptions are proactive to, and considerate of, current and future economic conditions.

For our General Insurance segment loss reserves, sustained low interest rates may unfavorably affect the statutory net loss reserve discount for workers' compensation and its associated amortization.

Impact of Currency Volatility

Currency volatility remains acute. This volatility affected income for those businesses with substantial international operations. In particular, growth trends in net premiums written reported in U.S. dollars can differ significantly from those measured in original currencies. The net effect on underwriting results, however, is significantly mitigated, as both revenues and expenses are similarly affected.

These currencies may continue to fluctuate, in either direction, especially as a result of central bank responses to inflation, concerns regarding future economic growth and other macroeconomic factors, and such fluctuations will affect net premiums written growth trends reported in U.S. dollars, as well as financial statement line item comparability.


General Insurance businesses are transacted in most major foreign currencies.
The following table presents the average of the quarterly weighted average
exchange rates of the Major Currencies, which have the most significant impact
on our businesses:

Three Months Ended March 31,                   Percentage
Rate for 1 USD                   2022   2021       Change
Currency:
GBP                              0.74   0.73            1 %
EUR                              0.88   0.82            7 %
JPY                            114.62 104.29           10 %

Unless otherwise noted, references to the effects of foreign exchange in the General Insurance discussion of results of operations are with respect to movements in the Major Currencies included in the preceding table.


73 AIG | First Quarter 2022 Form 10-Q
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                                     ITEM 2 | Consolidated Results of Operations


Consolidated Results of Operations

The following section provides a comparative discussion of our consolidated results of operations on a reported basis for the three-month periods ended March 31, 2022 and 2021. Factors that relate primarily to a specific business are discussed in more detail within the business segment operations section.

For information regarding the Critical Accounting Estimates that affect our results of operations see Critical Accounting Estimates in this MD&A and Part II, Item 7. MD&A - Critical Accounting Estimates in the 2021 Annual Report.


The following table presents our consolidated results of operations and other
key financial metrics:

Three Months Ended March 31,                                            Percentage
(in millions)                                         2022       2021       Change
Revenues:
Premiums                                        $    7,110 $    6,507            9 %
Policy fees                                            764        784          (3)
Net investment income:
Net investment income - excluding Fortitude Re
funds withheld assets                                2,946      3,171          (7)
Net investment income - Fortitude Re funds
withheld assets                                        291        486         (40)
Total net investment income                          3,237      3,657         (11)
Net realized gains (losses):
Net realized gains - excluding Fortitude Re
funds withheld
assets and embedded derivative                       1,241        695           79
Net realized gains (losses) on Fortitude Re
funds withheld assets                                (140)        173           NM
Net realized gains on Fortitude Re funds
withheld embedded derivative                         3,318      2,382           39
Total net realized gains                             4,419      3,250           36
Other income                                           278        256            9
Total revenues                                      15,808     14,454            9
Benefits, losses and expenses:
Policyholder benefits and losses incurred            5,255      5,139            2
Interest credited to policyholder account
balances                                               877        868            1
Amortization of deferred policy acquisition
costs                                                1,437      1,304           10
General operating and other expenses                 2,181      2,088            4
Interest expense                                       263        342         (23)
Gain on extinguishment of debt                           -        (8)           NM
Net gain on divestitures                              (40)        (7)        (471)
Total benefits, losses and expenses                  9,973      9,726            3
Income from continuing operations before income
tax expense                                          5,835      4,728           23
Income tax expense                                   1,179        798           48
Income from continuing operations                    4,656      3,930           18
Income (loss) from discontinued operations, net
of income taxes                                          -          -           NM
Net income                                           4,656      3,930           18
Less: Net income attributable to noncontrolling
interests                                              396         54           NM
Net income attributable to AIG                       4,260      3,876           10
Less: Dividends on preferred stock                       7          7            -
Net income attributable to AIG common
shareholders                                    $    4,253 $    3,869           10 %




                                                           March 31,     December 31,
(in millions, except per common share data)                     2022             2021
Balance sheet data:
Total assets                                               $ 573,513   $      596,112
Long-term debt                                                23,572           23,741
Debt of consolidated investment entities                       6,366            6,422
Total AIG shareholders' equity                                55,944           65,956
Book value per common share                                    69.30            79.97
Adjusted book value per common share                           70.72            68.83


                                           AIG | First Quarter 2022 Form 10-Q 74

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                                                             TABLE OF CONTENTS

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