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Variable Annuity Sales Rose: AIG

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American International Group Inc. says its life and retirement unit had problems with stock market turmoil and widening credit spreads in the first quarter, but the sales of individual variable annuities were strong.

The New York-based multi-line insurance giant gave its view of the COVID-19 situation when it released its latest earnings.

Brian Duperreault, AIG’s chief executive officer, said Monday, in comments included in the company’s earnings announcement for the first quarter, that COVID-19 may be the single largest catastrophic loss that the insurance industry has ever seen.

But AIG was in a strong financial position before the crisis began, and it continues to be in a strong position, Duperreault said.

“Our core businesses delivered strong results, building on the momentum we had coming into the year,” Duperreault said. “Life and Retirement delivered solid results despite unfavorable capital markets and continued low interest rates.”

Resources

AIG has withdrawn its previously issued earnings guidance.

“In Life and Retirement, we do not believe that the impact of COVID-19 will result in a material reduction of our long-term return profile,” Duperreault said.

AIG mentioned variable annuity results only in passing in its earnings release.

In a conference call presentation slidedeck, it said variable annuity product risk management and the variable annuity hedging program performed as expected.

Variable annuity premiums and deposits increased to $900 million, from $600 million, even as overall annuity premiums and deposits fell to $2.8 billion, from $3.8 billion.

Premiums and deposits fell to $600 million, from $1.8 billion, for fixed annuities, and to $1.3 billion, from $1.4 billion, for indexed annuities.

Earnings

AIG is reporting $1.7 billion in net income for the first quarter on $14 billion in revenue, up from $937 million in net income on $12 billion in revenue for the first quarter of 2019.

The “other comprehensive income” total, which includes adjustments for the market value of investments that have not been sold, written down or written off, amounted to a loss of $6 billion, compared with positive other comprehensive income of $3.5 billion for the year-earlier quarter.

Another measure of company earnings, “adjusted pre-tax income attributable to AIG common shareholders,” fell to $172 million, from $1.8 billion.

The company’s life and retirement unit is reporting $574 million in adjusted pretax income on $3.6 billion in revenue, compared with $924 million in adjusted pretax income on $3.3 billion in revenue for the year-earlier quarter.

Fund Flows

Here’s what AIG said happened to net flows of cash for several individual retirement products, in the United States, between the first quarter of 2019 and the latest quarter:

  • Indexed annuities: A $1.1 billion inflow (down from a $1.2 billion inflow)
  • Variable annuities: A $415 million outflow (compared with a $576 million outflow)
  • Fixed annuities: A $765 million outflow (compared with $211 million inflow)

Liquidity

The company said it had about $7.5 billion at the parent company level on March 31.

The $7.5 billion includes $1.3 billion borrowed from a $4.5 billion revolving syndicated credit facility, which is the equivalent of a corporate credit card.

The company has $1.5 billion in a fund it can use to buy back shares of common stock.

The AIG board has declared a quarterly cash dividend of 32 cents per share of AIG common stock, payable June 29 to investors who own shares of the company’s stock on June 15.

— Read Life and Annuity Issuers Tell Wall Street About Interest Rate Winteron ThinkAdvisor.

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