# EDGAR Filing Document

**Accession Number:** 0000005272
**File Stem:** 0001104659-23-038376
**Filing Date:** 2023-3
**Character Count:** 533320
**Document Hash:** 0449f456ea059cda3e70661c51bef81b
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001104659-23-038376.hdr.sgml**: 20230329

**ACCESSION NUMBER**: 0001104659-23-038376

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230329

**DATE AS OF CHANGE**: 20230329

**EFFECTIVENESS DATE**: 20230329

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** AMERICAN INTERNATIONAL GROUP, INC.
- **CENTRAL INDEX KEY:** 0000005272
- **STANDARD INDUSTRIAL CLASSIFICATION:** FIRE, MARINE & CASUALTY INSURANCE [6331]
- **IRS NUMBER:** 132592361
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-08787
- **FILM NUMBER:** 23775922

**BUSINESS ADDRESS:**
- **STREET 1:** 1271 AVE OF THE AMERICAS
- **STREET 2:** FL 37
- **CITY:** NEW YORK
- **STATE:** NY
- **ZIP:** 10020-1304
- **BUSINESS PHONE:** 2127707000

**MAIL ADDRESS:**
- **STREET 1:** 1271 AVE OF THE AMERICAS
- **STREET 2:** FL 37
- **CITY:** NEW YORK
- **STATE:** NY
- **ZIP:** 10020-1304

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** AMERICAN INTERNATIONAL GROUP INC
- **DATE OF NAME CHANGE:** 19920703

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** AMERICAN INTERNATIONAL ENTERPRISES INC
- **DATE OF NAME CHANGE:** 19700507

### Attached PDF Documents

**Attachment 1:** `tm2310815-1_ars.pdf`

![img-0.jpeg](img-0.jpeg)

# Delivering Excellence

American International Group, Inc.
2022 Annual Report

# Our Purpose is to discover new potential by reimagining what AIG can do for you.

![img-1.jpeg](img-1.jpeg)

AIG 2022 ANNUAL REPORT

## 2022 FINANCIAL & STRATEGIC HIGHLIGHTS

### Delivered the strongest underwriting profitability AIG has ever achieved

#### COMBINED RATIO

![img-2.jpeg](img-2.jpeg)

#### UNDERWRITING INCOME

Nearly doubled to  
**\$2B**  
Increased by  
**\$1B or more**  
for two consecutive years  
Represented  
**\$7B**  
of cumulative improvement  
since 2016

### Completed the largest U.S. IPO in 2022

Established Corebridge brand,  
capital structure, leadership team  
and Board of Directors

![img-3.jpeg](img-3.jpeg)

Corebridge dividends paid to its shareholders post IPO

### Executed balanced capital management strategy

**\$6.1B**  
Capital returned to shareholders**\$5.1B** Common stock repurchases  
**\$1.0B** Dividends paid

**\$9.4B** Debt reduction

### Achieved AIG 200 target savings objective six months ahead of schedule

Executed on $1B of exit run-rate savings

Streamlined and modernized  
IT, operations, shared services  
and data infrastructure

Implemented Global Standard Commercial Underwriting Platform

### Revamped investment management structures and strategies

Leveraged Blackstone and  
BlackRock investment expertise  
and technology platforms to  
improve performance

Since 2021, AIG and  
Corebridge transferred  
asset management of:

**~\$150B** to BlackRock  
**~\$50B** to Blackstone

\* This is a non-GAAP financial measure. The definition and reconciliation of accident year combined ratio, as adjusted, to the most comparable GAAP measure are on pages 280 and 281 of this Annual Report and page 71 of the 2022 Form 10-K.

AIG 2022 ANNUAL REPORT 1

LETTER TO SHAREHOLDERS

## Dear AIG Shareholder:

I am very pleased to share AIG’s 2022 Annual Report with you, our valued shareholder. In this Annual Report, we highlight the journey AIG has been on for the past few years and our vision for the future.

![img-4.jpeg](img-4.jpeg)

**Peter Zaffino**

Chairman & Chief Executive Officer  
American International Group, Inc.  
(AIG)

2 AIG 2022 ANNUAL REPORT

## Excellent 2022 total shareholder return

Significantly outperformed the S&P 500 and reflects execution of balanced capital management priorities as well as AIG's well-received vision of the future

![img-5.jpeg](img-5.jpeg)

In this Annual Report, you will see our dedication to sustainable value creation, continuous improvement, balance sheet strength and quality outcomes for investors - all making AIG an attractive investment.

In a year defined by substantial, global macroeconomic headwinds, AIG remained focused and we made remarkable progress in our transformation in ways that benefitted all stakeholders, including our shareholders. AIG's 2022 accomplishments further solidified our foundation as we continue to position the company for future growth and as an industry and market leader.

Most importantly, the AIG narrative is about our commitment to delivering excellence in everything we do and building for long-term, profitable growth.

### Performing in a Complex Macroeconomic Environment

In 2022, AIG's total shareholder return (TSR) was approximately 14%, while the average S&P 500 TSR was down approximately 18%. Achieving this level of TSR in a tumultuous market environment is a major accomplishment in and of itself; and it was only one of AIG's many accomplishments.

Against a backdrop of devastating natural disasters occurring with increased frequency and severity, volatile equity markets, rising interest rates, global inflationary concerns, energy shortages and pricing surges, cybercrime, the Russia/Ukraine conflict, geopolitical unrest generally, and more, AIG - and the entire global business community - navigated a commercial

landscape that required agility and adaptability, strategic thoughtfulness, and conviction in execution.

As a result of the hard work and determination from our colleagues across the globe, we executed on multiple strategic priorities and entered 2023 with significant momentum. We are positioned to capitalize on growth opportunities and are developing a culture grounded in alignment around common goals, continuous improvement, high performance, underwriting and operational excellence, inclusiveness and integrity.

### Creating Value and Positioning AIG for Growth

Our commitment to continuous improvement is built into AIG's Purpose and Values and has been one of the guiding principles of our turnaround, transformation and future growth potential.

Improving the core business of AIG and truly transforming the company was something we knew could not be accomplished in a single year. It required a commitment to change across many areas of the company - underwriting, portfolio derisking, reinsurance, operational processes and other transformation, talent retention and development, expense management, digital optimization, relationships with distribution partners and clients, regulatory engagement, transparency in communication, and investments in our communities.

We also knew we had to be patient and have fortitude to stay the course - even pivoting while navigating a global pandemic - and that positive results would emerge over time.

AIG 2022 ANNUAL REPORT 3

## LETTER TO SHAREHOLDERS

![img-6.jpeg](img-6.jpeg)

### AIG and Corebridge Financial: two market-leading companies

AIG's successful IPO of Corebridge Financial in September 2022, which yielded $1.7 billion of gross proceeds, was the year's largest IPO in the U.S.

Today, AIG is a very different company. We are an industry and market leader, and we strive to set the standard in all that we do.

### Our 2022 Accomplishments

Over the course of 2022, we made progress on many fronts, reinforcing our reputation as a company that can deliver on multiple, complex priorities at the same time. I am very proud of what our global colleagues accomplished. Below are a few highlights.

1. Our most significant accomplishment was the completion of the initial public offering (IPO) of Corebridge Financial - the largest U.S. IPO in 2022 - in a market where external dynamics were extremely challenging.

2. We established a standalone capital structure for Corebridge while deleveraging AIG's balance sheet. These actions enhanced the strength of the balance sheets of both companies and set the foundation for financial flexibility and delivering on financial commitments made to our respective shareholders.

3. AIG returned over $6 billion to shareholders through $5.1 billion of AIG common stock repurchases and $1.0 billion of dividends. We finished the year with 734 million shares outstanding, a 10% decrease from the end of 2021. Corebridge paid approximately $300 million of dividends to its shareholders from the date of its IPO through year-end 2022.

4 AIG 2022 ANNUAL REPORT

4. Our General Insurance business delivered the strongest underwriting profitability AIG has ever achieved, as full year 2022 underwriting income nearly doubled from the prior year to $2.0 billion. This translates to more than $7 billion of cumulative improvement in our underwriting profitability since 2016.

5. The combined ratio of 91.9% and accident year combined ratio, as adjusted* (AYCR), of 88.7% improved 3.9 and 2.3 points, respectively, from the prior year. The latter marked the fulfillment of our goal to achieve a full year, sub-90 AYCR, following 18 consecutive quarters of improvement and four sub-90 quarters in 2022.

6. AIG 200, our multi-year effort to improve efficiency and enhance digital effectiveness, reached significant milestones, including achieving a modernized technology infrastructure and operational capabilities, while executing on exit run-rate savings of $1 billion six months ahead of schedule.

7. We changed the strategy and structure of our investment management groups at AIG and Corebridge, including through partnerships with Blackstone and BlackRock where we are leveraging their investment expertise and technology platforms to improve performance. Since 2021, we transferred management of approximately $50 billion and $150 billion of assets, respectively, to each of these partners.

> “We made progress on many fronts, reinforcing our reputation as a company that can deliver on multiple, complex priorities at the same time.”

8. In 2022, AIG was recognized as one of the 50 most community-minded companies in the United States by Points of Light, a nonpartisan, global nonprofit organization that inspires, equips and mobilizes millions of people to take action that changes the world.

### Leading the Industry with Expertise

The insurance industry has always been critical to the stability of the global economy. This is certainly true today in an increasingly complex environment. At AIG, we take great pride in offering exceptional risk solutions to our clients and distribution partners, while prudently managing our balance sheet and volatility.

### Over $7B of cumulative improvement in full year General Insurance underwriting income since 2016

![img-7.jpeg](img-7.jpeg)

AIG 2022 ANNUAL REPORT 5

## LETTER TO SHAREHOLDERS

We only need to analyze 2022's Hurricane Ian to understand the delicate, yet essential, relationship that insurance carriers, reinsurance providers and distribution partners have with businesses and individuals across the globe. Hurricane Ian was a tragic event on a human level that also left devastating physical damage. From a humanitarian perspective, AIG rapidly deployed significant resources to the affected areas and provided immediate support and infrastructure to help individuals, businesses and communities rebuild.

Hurricane Ian also proved to be a catalyst that changed market dynamics even more significantly than expected. It ultimately led to shifts in the market that required the industry to rethink capital deployment, reinsurance strategies and the commensurate changes that needed to take place in the primary market. The unprecedented levels of natural catastrophes on a global scale also significantly impacted the reinsurance market and retrocessional capacity. This has resulted in an increased cost of capital for the industry, which impacted almost all lines of business and territories, regardless of loss experience. In addition, very little new capital entered the market.

AIG navigated the complex renewal season extremely well. We knew we were in a strong position heading into January 1, given the improved quality of our global

portfolio, coupled with our considerable efforts to reduce our gross portfolio peak exposures, as well as the strong partnerships we have with reinsurance companies.

### AIG Your Ally from Now to NextTM

While AIG was transforming its core business, we were also transforming the company's culture.

AIG is a Purpose-driven and Values-based company, and our commitment to our Purpose and Values emerges most clearly in our culture and how we demonstrate allyship with our stakeholders. For our clients, distribution partners, colleagues, communities and more-we help improve and strengthen where they are today and strive to help them achieve a more successful future.

We are their allies from now to next.

One of AIG's greatest examples of allyship is our title sponsorship of the AIG Women's Open. AIG is proud to be the title sponsor of one of the most prestigious and celebrated championships in women's golf. We became the title sponsor of the AIG Women's Open in 2019 because we appreciate the sport, we appreciate the athletes, and most importantly, we see an opportunity to create meaningful, significant and positive change through our leadership. This sponsorship, and our

### Key drivers on the path to double-digit adjusted return on common equity*

- Continued momentum on underwriting profitability
- Leaner operating model and expense savings
- Execution on capital management priorities
- Separation of Life & Retirement business
- Stronger net investment income due to higher re-investment rates

6 AIG 2022 ANNUAL REPORT

partnership with The R&A to raise the profile of gender equity and gender pay equity, has permeated throughout our company, and has become a meaningful driver behind our core value of being an ally. Through our partnership with The R&A, we are elevating the women's game of golf and recognizing, highlighting and rewarding the achievements of these elite athletes.

### Our Vision for the Future

AIG's turnaround, along with the transformation of our core operations, was impressive for many reasons. We significantly improved the company, tackling issues that had not been previously addressed, and the most important part of the progress we made was building a core foundation that will enable us to continue to improve in the future. Having fundamentally changed every part of the company and delivered exceptional performance on our underwriting and operational priorities, we have a renewed sense of purpose and strong momentum. AIG is very well positioned for 2023 and beyond.

As we look ahead, AIG's next chapter will be focused on growing attractive businesses and continuing to shift our portfolio to deliver the best solutions for our clients while achieving improved risk-adjusted returns. We will continuously reposition our portfolio through our underwriting actions and prudent capital deployment.

The culture of underwriting excellence that we have created and our broad capabilities to solve risk issues, coupled with well-capitalized insurance subsidiaries and a strong balance sheet, provide AIG with significant flexibility. Additionally, our extensive insight into the current and evolving risk issues that clients and distribution partners face every day and ability to connect across the world through our global footprint provides us with a competitive advantage.

We continue to work towards the deconsolidation and an eventual full separation of Corebridge while we reposition AIG to operate as one, global property & casualty and personal insurance company. Our goal is to have a simpler and leaner operating model for AIG with optimized key end-to-end processes and workflows that allow us to efficiently deliver high-quality solutions and products to our clients and distribution partners.

A top priority for AIG in 2023 is to make significant progress towards reaching a 10% or greater adjusted return on common equity,* which we will achieve through continued improvement in underwriting results, expense reductions from AIG 200, implementing a new operating model for AIG, ongoing expense discipline, continued execution of the capital management actions we accelerated in 2022, and improvement in our net

"Having fundamentally changed every part of the company and delivered exceptional performance on our underwriting and operational priorities, we have a renewed sense of purpose and strong momentum."

![img-8.jpeg](img-8.jpeg)

AIG 2022 ANNUAL REPORT 7

## LETTER TO SHAREHOLDERS

investment income as we continue to reposition our investment portfolio at more attractive re-investment rates.

Capital management will be a significant area of focus throughout 2023. We are committed to returning appropriate levels of capital to shareholders through share repurchases and dividend payments. In addition to ordinary-course return of capital, we also expect to use net proceeds from Corebridge secondary offerings in 2023 to accelerate our capital management strategy, with share repurchases being our primary focus. Our target count for shares outstanding remains 600-650 million and our target leverage ratio remains 20-25% post deconsolidation of Corebridge.

Overall, I am extremely proud of what we have accomplished, particularly in 2022. What our teams have achieved is remarkable and unprecedented in our industry. Our journey to become a top-performing company, delivering excellence in all that we do, will continue to be our driving force as we focus on long-term, sustainable value creation for our shareholders.

On behalf of our colleagues around the world, thank you for your ongoing trust and confidence in AIG.

Sincerely,

**Peter Zaffino**

Chairman & Chief Executive Officer
American International Group, Inc.
(AIG)

"Our journey to become a top-performing company, delivering excellence in all that we do, will continue to be our driving force as we focus on long-term, sustainable value creation for our shareholders."

* These are non-GAAP financial measures. The definitions and reconciliations of accident year combined ratio, as adjusted, and adjusted return on common equity to the most comparable GAAP measures are on pages 45, 46, 66 and 71 of the 2022 Form 10-K.

8 AIG 2022 ANNUAL REPORT

RISK EXPERTISE

## Paving the way to a better digital experience with AIG

Across the insurance industry, digital transformation is a critical strategic objective.

In 2020, AIG began implementing an improved, comprehensive technology infrastructure to support underwriting excellence and make doing business with AIG easier and more intuitive. By early 2023, AIG reached a significant milestone in our digital journey with the launch of a refreshed AIG.com website and reimagined myAIG Broker Portal.

The new AIG.com design enables more effective communication and fosters stronger, more efficient engagement with clients, distribution partners, shareholders and other stakeholders. It features a simplified navigation and refreshed appearance, with enhanced multimedia content and a more tightly connected network of AIG global websites. Users have dynamic access to financial information, AIG’s risk expertise, insurance offerings, career information and other important content.

AIG.com is also the digital access point for the new myAIG Broker Portal, a one-stop gateway for brokers and agents. With it, account and policy information, loss runs, status across the insurance lifecycle process, document hub and other AIG applications and tools can be seamlessly accessed on a self-service basis.

The myAIG Broker Portal serves as the digital front door to AIG’s e-commerce ecosystem, providing brokers access to important middle-to-back-office enhancements in our commercial underwriting platform, as well as other digital improvements. AIG’s capabilities are designed to fulfill brokers’ needs for critical client policy and account information, ease of access, and overall efficiency in policy submission and renewal and claims processing.

AIG’s digital transformation progress reinforces our strong brand, as well as what differentiates AIG, including our expertise, capabilities and world class talent.

![img-0.jpeg](img-0.jpeg)

AIG 2023 ANNUAL REPORT 9

RISK EXPERTISE

![img-1.jpeg](img-1.jpeg)

## Harnessing real-world experience to help clients reduce risk

AIG's underwriters and risk consulting teams serve as allies to our clients and distribution partners to help them identify ways to mitigate risk and build resiliency.

The experience of our global colleagues spans multiple industries and regions-giving them unique insight to identify exposures and develop loss control programs.

As part of AIG's commitment to underwriting excellence, potential exposures are evaluated prior to offering insurance coverages, such as property, casualty, cyber and specialty. The data collected depends on the type of coverage being sought, ranging from sprinkler system quality to vulnerabilities in computer networks. This detailed analysis allows AIG underwriters to accurately assess potential exposures, predict loss relative to AIG's capacity and risk appetite, and ultimately determine whether the deployment of capital meets AIG's underwriting standards.

Once insured, clients work with AIG's underwriting and risk consulting teams on an ongoing basis to help clients improve strategies to prevent or reduce losses, manage costs, decrease business interruption, and enhance their underwriting profile. These efforts often include: devising wildfire defense strategies in emergency situations; providing assistance during a cyber breach or suspected breach; and making preferred vendors available when needed. AIG also offers clients training in areas like workplace safety, accident investigation, cybersecurity and various other risk management topics.

Working with clients to mitigate risk helps strengthen our relationships, increase retention and reduce claims, which can lower costs for both the client and AIG.

10 AIG 2022 ANNUAL REPORT

# Expanding Lexington's reach in the excess & surplus market

AIG's excess & surplus (E&S) carrier, Lexington Insurance Company, historically has been known for insuring larger, complex risks in the U.S. commercial market. Over the last three years, Lexington has expanded its risk appetite and expertise to provide insurance solutions for the critical middle and small commercial markets.

Diversifying its markets to include midsize and smaller commercial enterprises helps Lexington reduce the volatility that a large-client concentration can pose while pursuing disciplined, sustainable growth. Market diversification also allows Lexington to maximize engagement with its broker partners and their clients, who gain more certainty and resilience with tailored insurance solutions.

Lexington's market expansion began in 2019 with its introduction of property products for midsize and smaller enterprises. In 2020, Lexington added builders risk products to its property portfolio and its E&S affiliate, Western World Insurance Company, focused its contract-bind business on Main Street accounts.

Building on that success, Lexington entered the financial lines middle market in 2021 with LexPro, which provides management liability insurance solutions for privately held firms. Lexington then launched Lexington Midmarket Casualty in 2022. This business unit provides general liability coverage for midsize and smaller enterprises in the construction, manufacturing, retail, real estate and other business sectors.

Lexington's diversification of its products to accommodate large as well as midsize and smaller enterprises-along with its focus on the wholesale broker channel-reflects Lexington's continued commitment to address market needs, strengthen distributor relationships and deliver differentiated value to its broker partners and their clients. Lexington's unique value proposition is its ability to solve insurance problems from Main Street to Wall Street.

![img-2.jpeg](img-2.jpeg)

AIG 2022 ANNUAL REPORT 11

RISK EXPERTISE

## Growing our businesses across the globe amid shifting risks

AIG remains a strong strategic partner to clients worldwide as we expand our global presence amid a shifting risk landscape-driven by technological, regulatory and social change.

In 2022, we strategically advanced growth in AIG’s commercial specialty, marine, energy and property lines, and accident and health in personal lines.

Diversifying AIG’s portfolio of global clients is another business priority. While maintaining sustainable growth in AIG’s large corporate and multinational accounts, we are introducing new growth in the small and medium-sized business market in certain jurisdictions with tailored product offerings and fast, efficient distribution platforms.

Global product innovation is also key, as clients shift from tangible to intangible assets. AIG evaluates 21st century

exposures-such as intellectual property, digital ledger technology, AI and robotics-to deepen our understanding of emerging technologies likely to reshape risk and create innovative insurance products to meet clients’ evolving needs.

To further identify and mitigate potential exposures, AIG monitors changes in regulations, laws and litigation practices worldwide. Our global footprint, combined with local regulatory and legislative knowledge, helps us advise clients of potential coverage gaps and efficiently adapt products from other geographies.

AIG is well positioned for continued profitable growth in the global market by providing insightful, expert advice and delivering value to our clients, distribution partners and other stakeholders.

![img-3.jpeg](img-3.jpeg)

12 AIG 2022 ANNUAL REPORT

CORPORATE RESPONSIBILITY

![img-4.jpeg](img-4.jpeg)

## Integrating AIG’s Purpose and Values into daily activities and behaviors

At AIG, we are results oriented and believe that focusing on how we achieve positive outcomes creates an aligned and inclusive culture that enables further success.

We introduced our new Purpose and Values in 2022 to guide our actions as a company and as individuals. With input from colleagues worldwide, these principles represent who AIG is, what we stand for, and how we can better serve our many stakeholders.

Our Purpose is to discover new potential, which defines what we seek to achieve-from strong, consistent financial performance to ethical corporate conduct. Our Values support our Purpose by encouraging behaviors that drive change and are visible in our day-to-day activities, attitudes and processes.

By creating a culture rooted in our Purpose and Values, AIG was able to realize positive progress in 2022, including executing our strategy for profitable growth, prioritizing capital management, advancing AIG 200, completing the Corebridge IPO and more. Our colleagues established clear expectations and collaborated across teams to reach these goals, while acting with integrity-taking pride in

their work and holding themselves accountable for the outcomes.

Our commitment to excellence was recognized by a leading international finance publication, *Institutional Investor*, which named Peter Zaffino Insurance Sector Best CEO Overall and ranked AIG first in Insurance Sector Overall in its 2023 All-American Executive Team survey.

AIG’s Values also extend to lifting up the communities where our colleagues work and live. In 2022, AIG earned a coveted place on The Civic 50 for the first time. This prestigious list recognizes the 50 most community-minded companies in the United States, based on their use of time, skills and resources to drive social impact in their communities and company.

Unifying under one set of clear and directive Purpose and Values empowers AIG colleagues to be conduits of positive change in our company, industry and societies at large-delivering exceptional client service, enhanced shareholder value and a better experience for everyone we serve.

AIG 2022 ANNUAL REPORT 13

CORPORATE RESPONSIBILITY

## Promoting equity in golf, business and society

AIG drives positive change by showing allyship to women in highly visible ways.

Our title sponsorship of the AIG Women's Open, one of five major championships in women's golf, delivers a clear message: exceptional achievements of women deserve equitable recognition-on the golf course, in the workplace and in society at large.

In 2022, AIG helped to continue to raise the profile of women's golf on many levels. The AIG Women's Open marked the first time a women's major championship was played at Muirfield, an iconic course in Scotland. In addition, AIG and The R&A, our partner in organizing the event, set a new benchmark with a $7.3 million prize fund-doubling the purse since AIG became the title sponsor.

Supporting gender and gender pay equity in sports also promotes gender and gender pay equity in business. On a golf course, women have equal opportunity to discuss important matters in an informal setting, which builds lasting relationships and strengthens networks.

To help women advance in golf, AIG became the 2022 presenting partner of the PGA Women's Golf Clinics, which feature a full day of golf instruction tailored to women, led by female PGA/LPGA certified coaches.

AIG's commitment to gender equity was also reflected in strong, improving gender representation across our global operations in 2022, with women representing more than 50% of all hires and promotions. AIG also sets the tone at the top, with equal representation of men and women on the Board of Directors.

Leading by example, AIG will continue to be an ally to women and champion gender and gender pay equity on and off the golf course.

![img-5.jpeg](img-5.jpeg)

14 AIG 2022 ANNUAL REPORT

# Supporting long-term career growth and satisfaction at AIG

AIG's progress and innovation relies on a strong talent base that is fortified with long-term career growth and satisfaction. We encourage 'growing in place,' which is career mobility within AIG. This provides flexibility for colleagues to pursue their interests and expand their talents in different roles across various parts of the organization.

Essential to this growth is offering ways to bridge professional and technical skill gaps, especially to under-represented talent. Colleagues frequently access AIG's virtual catalog of thousands of learning modules: more than 87,000 courses and 560,000 LinkedIn Learning videos were voluntarily completed in 2022.

AIG's culture of allyship also inspires colleagues to support one another's professional development-both formally and informally-with training, sponsorship, mentoring and networking opportunities. Forums in which colleagues help to lift one another up include AIG's Accelerated Leadership Development (ALD) Program, General Insurance Professional Associate (PA) Program, Global Sponsorship Program, Employee Resource Groups (ERGs) and the AIG Academy.

Such professional journeys include a colleague who started their AIG career in the mailroom during college, then worked in areas such as underwriting, claims and finance before becoming a leader of AIG's Distribution team. Another credits their AIG career growth in part to management training, which included high-level mentorship and coaching from senior management.

An environment of belonging is critical to sustaining a committed and dedicated workforce and long-lasting teams. At AIG, we aim to foster a workplace where colleagues feel respected, valued and free to express their individual opinions, needs and ambitions. This starts with conscious inclusion and hinges on managers leading by example. To that end, AIG has provided training to the majority of global managers on how to recognize unconscious biases and take mindful, proactive steps to change those behaviors-and our efforts continue.

AIG's proactive actions help provide dynamic, fulfilling careers for colleagues and, as a result, quality outcomes for our stakeholders.

![img-6.jpeg](img-6.jpeg)

AIG 2022 ANNUAL REPORT 15

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16 AIG 2022 ANNUAL REPORT

**UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**

# **FORM 10-K**

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-8787

![img-7.jpeg](img-7.jpeg)

# **American International Group, Inc.**

(Exact name of registrant as specified in its charter)

**Delaware**

(State or other jurisdiction of incorporation or organization)

**1271 Avenue of the Americas, New York, New York**

(Address of principal executive offices)

**13-2592361**

(I.R.S. Employer Identification No.)

**10020**

(Zip Code)

**Registrant's telephone number, including area code: (212) 770-7000**

# **Securities registered pursuant to Section 12(b) of the Act:**

| Title of each class | Trading Symbol | Name of each exchange on which registered |
| --- | --- | --- |
| Common Stock, Par Value $2.50 Per Share | AIG | New York Stock Exchange |
| 4.875% Series A-3 Junior Subordinated Debentures | AIG 67EU | New York Stock Exchange |
| Depository Shares Each Representing a 1/1,000th Interest in a Share of Series A 5.85% Non-Cumulative Perpetual Preferred Stock | AIG PRA | New York Stock Exchange |

# **Securities registered pursuant to Section 12(g) of the Act: None**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑

Non-accelerated filer ☐

Accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

As of June 30, 2022, the aggregate market value of the registrant's voting and nonvoting common equity held by nonaffiliates was approximately $35,300,000,000.

As of February 10, 2023, 737,247,384 shares of the registrant's Common Stock, $2.50 par value per share, were outstanding.

# **DOCUMENTS INCORPORATED BY REFERENCE**

# **Document of the Registrant**

# **Form 10-K Reference Locations**

Portions of the registrant's definitive proxy statement for the 2023 Annual Meeting of Shareholders

Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14

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# AMERICAN INTERNATIONAL GROUP, INC.

# ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2022

# TABLE OF CONTENTS

# FORM 10-K

| Item Number | Description | Page |
| --- | --- | --- |
| Part I |  |  |
| ITEM 1 | Business | 2 |
|  | • Our Global Business Overview | 2 |
|  | • Operating Structure | 4 |
|  | • Human Capital Management | 5 |
|  | • Regulation | 7 |
|  | • Available Information about AIG | 14 |
| ITEM 1A | Risk Factors | 15 |
| ITEM 1B | Unresolved Staff Comments | 39 |
| ITEM 2 | Properties | 39 |
| ITEM 3 | Legal Proceedings | 39 |
| ITEM 4 | Mine Safety Disclosures | 39 |
| Part II |  |  |
| ITEM 5 | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 40 |
| ITEM 6 | [Reserved] | 41 |
| ITEM 7 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 42 |
|  | • Cautionary Statement Regarding Forward-Looking Information and Factors That May Affect Future Results | 42 |
|  | • Use of Non-GAAP Measures | 45 |
|  | • Critical Accounting Estimates | 47 |
|  | • Executive Summary | 60 |
|  | • Consolidated Results of Operations | 64 |
|  | • Business Segment Operations | 68 |
|  | • Investments | 87 |
|  | • Insurance Reserves | 96 |
|  | • Liquidity and Capital Resources | 108 |
|  | • Enterprise Risk Management | 117 |
|  | • Glossary | 129 |
|  | • Acronyms | 131 |
| ITEM 7A | Quantitative and Qualitative Disclosures About Market Risk | 132 |
| ITEM 8 | Financial Statements and Supplementary Data | 133 |
|  | Reference to Financial Statements and Schedules | 133 |
| ITEM 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 256 |
| ITEM 9A | Controls and Procedures | 256 |
| ITEM 9B | Other Information | 256 |
| ITEM 9C | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 256 |
| Part III |  |  |
| ITEM 10 | Directors, Executive Officers and Corporate Governance | 257 |
| ITEM 11 | Executive Compensation | 257 |
| ITEM 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 257 |
| ITEM 13 | Certain Relationships and Related Transactions, and Director Independence | 257 |
| ITEM 14 | Principal Accountant Fees and Services | 257 |
| Part IV |  |  |
| ITEM 15 | Exhibits and Financial Statement Schedules | 257 |
| ITEM 16 | Form 10-K Summary | 261 |
| Signatures |  | 262 |

AIG | 2022 Form 10-K

1

# Part I

## ITEM 1 | Business

![img-0.jpeg](img-0.jpeg)

**Maximizing Industry  
Leadership and  
Global Footprint**

**Creating Value through  
Profitable Growth and a  
Culture of Underwriting and  
Operational Excellence**

### **American International Group, Inc. (AIG)**

is a leading global insurance organization. We provide a wide range of property casualty insurance, life insurance, retirement solutions and other financial services to customers in approximately 70 countries and jurisdictions. These diverse offerings include products and services that help businesses and individuals protect their assets, manage risks and provide for retirement security. AIG common stock is listed on the New York Stock Exchange.

In 2022, AIG delivered strong financial results while executing on strategic imperatives such as our capital management plan; the initial public offering (IPO) of Corebridge Financial, Inc. (NYSE: CRBG); and achieved the exit run-rate savings goal of AIG 200, our global, multi-year effort focused on positioning AIG for the future. Despite global challenges, AIG achieved a sub-100 combined ratio in every quarter of 2022 as a result of disciplined underwriting, new business development and improved retention across the portfolio.

*In this Annual Report, unless otherwise mentioned or unless the context indicates otherwise, we use the terms “AIG,” the “Company,” “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.*

2

AIG | 2022 Form 10-K

ITEM 1 | Business

## About AIG

**World-Class Insurance Franchises** that are among the leaders in their geographies and segments, providing differentiated service and expertise.

**Breadth of Loyal Customers** including millions of clients and policyholders ranging from multi-national Fortune 500 companies to individuals throughout the world.

**Broad and Long-Standing Distribution Relationships** with brokers, agents, advisors, banks and other distributors strengthened through AIG's dedication to quality.

**Highly Engaged Global Workforce** of more than 26,000 colleagues committed to excellence who are providing services in approximately 70 countries and jurisdictions.

**Balance Sheet Strength and Financial Flexibility** as demonstrated by $40 billion in shareholders' equity and AIG Parent liquidity sources of $8.2 billion as of December 31, 2022.

## 2022 Highlights

### Path to the Future

Completion of IPO of Corebridge Financial, Inc. (Corebridge), the largest U.S. IPO in 2022, which created two standalone, market-leading companies

Strategic partnership with BlackRock, Inc. (BlackRock) to manage up to $60 billion of assets for AIG and up to $90 billion for Corebridge. As of December 31, 2022, $162 billion of assets have been transferred

AIG 200: Achieved exit run-rate savings goal of $1 billion six months ahead of schedule. We continue to execute on our multi-year effort to modernize operating infrastructure and enhance client and distribution partner experiences

### Continued Progress on Capital Management Initiatives

Reduced general borrowings by $9.4 billion

Repurchased $5.1 billion of AIG's common stock, par value $2.50 per share (AIG Common Stock) and paid $1.0 billion of dividends

### Strong General Insurance Performance Resulting from Significant Improvement in Underwriting Income

General Insurance achieved $2.0 billion in underwriting income, up 94 percent year over year

2022 combined ratio of 91.9 compared to 95.8 in 2021, and sub-100 in every quarter of 2022

2022 accident year combined ratio, as adjusted(a) of 88.7 improved 2.3 points compared to 91.0 in 2021

### Successful Completion of Corebridge IPO

AIG closed IPO, representing 12.4 percent of Corebridge's common stock. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $1.7 billion. After consideration of underwriting discounts, commissions and other related expenses payable by AIG, AIG recorded a $608 million increase in AIG's shareholder's equity

Following the IPO, AIG owns approximately 77.7 percent of the outstanding common stock of Corebridge

Corebridge established capital structure and paid $297 million of dividends to its shareholders in 2022, post IPO

(a) Non-GAAP measure - for reconciliation of non-GAAP to GAAP measure, see Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

AIG | 2022 Form 10-K

3

ITEM 1 | Business

## 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.

For additional information on our business segments, see Part II, Item 7. MD&A and Note 3 to the Consolidated Financial Statements, and for information regarding the separation of Life and Retirement and bankruptcy filing of AIG Financial Products Corp., see Note 1 to the Consolidated Financial Statements.

### Business Segments

#### General Insurance

**General Insurance** is a leading provider of insurance products and services for commercial and personal insurance customers. It includes one of the world's most far-reaching property casualty networks. General Insurance offers a broad range of products to customers through a diversified, multichannel distribution network. Customers value General Insurance's strong capital position, extensive risk management and claims experience and its ability to be a market leader in critical lines of the insurance business.

![img-1.jpeg](img-1.jpeg)

General Insurance includes the following major operating companies: National Union Fire Insurance Company of Pittsburgh, Pa. (National Union); American Home Assurance Company (American Home); Lexington Insurance Company (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).

#### Life and Retirement

**Life and Retirement** is a unique franchise that brings together a broad portfolio of life insurance, retirement and institutional products offered through an extensive, multichannel distribution network. It holds long-standing, leading market positions in many of the markets it serves in the U.S. With its strong capital position, customer-focused service, breadth of product expertise and deep distribution relationships across multiple channels, Life and Retirement is well positioned to serve growing market needs.

![img-2.jpeg](img-2.jpeg)

Life and Retirement includes the following major operating companies: American General Life Insurance Company (AGL); The Variable Annuity Life Insurance Company (VALIC); The United States Life Insurance Company in the City of New York (U.S. Life); Laya Healthcare Limited and AIG Life Limited.

#### 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 Reinsurance Company Ltd. (Fortitude Re).

4

AIG | 2022 Form 10-K

ITEM 1 | Business

## How We Generate Revenues and Profitability

We earn revenues primarily from insurance premiums, policy fees and income from investments.

Our expenses consist of policyholder benefits and losses incurred, interest credited to policyholders, commissions and other costs of selling and servicing our products, interest expense and general operating expenses.

Our profitability is dependent on our ability to properly price and manage risk on insurance and annuity products, including establishing loss reserves, to manage our portfolio of investments effectively and to control costs through expense discipline.

*For additional information on loss reserves and prior year loss development, see Part II, Item 7. MD&A - Critical Accounting Estimates - Loss Reserves, Part II, Item 7. MD&A - Insurance Reserves - Unpaid Losses and Loss Adjustment Expenses (Loss Reserves), and Note 12 to the Consolidated Financial Statements.*

*For additional information on investment strategies, see Part II, Item 7. MD&A - Investments.*

## Human Capital Management

Our people are our greatest strength. To this end, we place significant focus on human capital management; namely retaining, developing and attracting high caliber talent and fostering an inclusive environment in which we actively seek and embrace diverse thinking.

At December 31, 2022, we had approximately 26,200 employees based in approximately 50 countries, of which 34 percent are located in North America, 43 percent are in the Asia Pacific region and the remaining 23 percent are in the European, Middle East and Africa (EMEA) region and Latin America.

We believe that we foster a constructive and healthy work environment for our employees. The key programs and initiatives that are designed to attract, develop and retain our diverse workforce include:

**Competitive Compensation and Benefits.** Under the oversight of the Compensation and Management Resources Committee of our Board of Directors (CMRC), we seek to align compensation with individual and Company performance and provide the appropriate market-competitive incentives to attract, retain and motivate employees to achieve outstanding results.

Management and the CMRC engage the services of third-party compensation consultants to help monitor the competitiveness of our incentive programs. We provide a performance-driven compensation structure that consists of base salary and, for eligible employees, short- and long-term incentives. We also offer comprehensive benefits to support the health, wellness, work-life balance and retirement preparedness/savings needs of our employees, including subsidized health care plans, life and disability insurance, wellness and mental health benefits, legal assistance plan, paid time off, paid volunteer time off, 2:1 matching grants for eligible charitable donations, parental and bonding leave and both matching and Company 401(k) contributions for eligible employees.

**Health and Safety.** The health and safety of our employees is a priority. Occupational safety and health is a shared responsibility between employees and corporate stakeholders, which we implement through our Global Safety and Environment policy. We take appropriate measures to prevent workplace injuries and illnesses, to provide a safe and healthy work environment, and to meet regulatory and duty of care responsibilities regarding the health, safety and welfare of employees engaging in AIG business activities.

We offer numerous benefits and wellness programs focused on the physical, social and financial wellness of our employees. Nearly every country in which we operate has an Employee Assistance Program (EAP), which provides employees with confidential counselling, mental health resources and information to help employees and their dependents through times of stress and anxiety. In many countries where local market and regulations permit, our EAP and other programs also offer work-life balance assistance, eldercare advice, bereavement support, and legal and financial guidance.

The AIG Compassionate Colleagues Fund (the Fund) enables the Company and its employees to provide direct relief to help eligible colleagues overcome unforeseen financial hardships. The Fund has helped more than 730 employees overcome serious financial hardships and disasters. In each of 2021 and 2022, AIG made a $2 million contribution to the Fund, and additional amounts were contributed by our colleagues through voluntary donations and our 2:1 matching grants program. Employees in approximately 19 countries have contributed to the Fund and employees in 8 countries have received relief.

AIG | 2022 Form 10-K

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ITEM 1 | Business

**Talent Development.** Equipping our people with the skills and capabilities to be successful and contribute to AIG is another priority. We do this by giving our employees access to meaningful tools and resources to assist in their professional development no matter where they are in their career paths.

AIG offers numerous learning opportunities to support the development of its employees. All online learning programs are accessible through a global learning management system, *Your Learning Journey*. Through these programs, employees can increase their insurance and business knowledge, build critical job skills and earn continuing education credits.

Alongside online courses, AIG offers a series of live, interactive learning opportunities designed to reinforce the Company's culture of excellence. These programs focus on providing employees with a strong foundation of core skills including communication, collaboration, coaching, change agility and problem solving.

Managers and leaders are critical in developing AIG's talent for organizational success. To assess leadership skills and capabilities, we use distinct leadership assessment tools, including 360 degree feedback, which develops self-awareness and builds personalized leadership development goals. Our *Leading Transformation* program enhances our senior leaders' ability to navigate and drive change and transformation to successfully achieve business objectives and build culture.

AIG places a strong emphasis on diversity and inclusion in its learning programs. We have delivered conscious inclusion training to over 59 percent of people managers to build their awareness of bias and its impact on team members and to hone their empathy skills to support diverse teams. In addition, the Company also released *Hiring & Developing Top Talent*, an eLearning series for people managers and talent acquisition professionals focused on exploring hidden bias in talent acquisition and development.

In addition to live courses and online training, AIG also offers tuition and certification training reimbursement to encourage employees to enhance their education and skills.

The Company also places significant importance on promoting internal talent and succession planning. Accordingly, we use a globally consistent streamlined process to support succession planning and talent development for each of our functions and operating segments. This approach helps identify a pipeline of diverse talent for positions at all levels of the organization and the actions needed to support their development. In 2022, 36 percent of all our open positions were filled with internal talent.

**Diversity, Equity and Inclusion (DEI).** AIG is committed to creating an inclusive workplace focused on attracting, retaining and developing diverse talent that fosters a culture of belonging for all employees. As of December 31, 2022, 53 percent of our global workforce were female and 31 percent of our U.S. workforce is ethnically diverse. In addition, management periodically reports to the CMRC on our various human capital management initiatives and metrics, including DEI.

AIG sponsors over 125 Employee Resource Groups (ERGs), which are groups of employees who come together based on a shared interest in a specific dimension of diversity in more than 40 countries to enhance allyship and inclusion across the organization. AIG's global ERG network spans 13 different dimensions of diversity and is open to all employees. The ERGs are key to supporting a culture of inclusion and belonging at AIG and do so by connecting colleagues, supporting mental health wellness, promoting intersectionality, and giving back to our communities. AIG also provides DEI learning courses to educate, equip and engage employees, including conscious inclusion training for people managers, DEI microlearning and sessions on authentic leadership.

To support the attraction and development of diverse talent, AIG took several proactive steps in 2022, including enhancing partnerships with diverse organizations. Additionally, AIG's Accelerated Leadership Development program matches mid-level underrepresented talent in AIG's leadership pipeline with senior executive mentors who coach them on essential senior management and executive leadership skills.

6

AIG | 2022 Form 10-K

ITEM 1 | Business

# Regulation

## GENERAL

Our (re)insurance subsidiaries are subject to extensive regulation and supervision in the jurisdictions in which our (re)insurance businesses are located or operate. Insurance regulatory authorities in those jurisdictions are the primary regulators for those businesses; however, our operations are subject to regulation by many different types of regulatory authorities, including insurance, securities, derivatives and investment advisory regulators in the United States and abroad.

Insurance regulators, other regulatory authorities, law enforcement agencies, and other governmental authorities from time to time make inquiries and conduct examinations or investigations regarding our compliance, as well as compliance by other companies in our industry, with applicable laws. In addition, regulation, legislation and administrative policies that are not limited in application solely to the insurance market may significantly affect the insurance industry and certain of our operations, including regulation, legislation and administrative policies related to privacy, cybersecurity, government sanctions, pensions, age and sex discrimination, financial services, securities, taxation and climate change. *See Item 1A. Risk Factors - Regulation - Our businesses are heavily regulated and changes in laws and regulations may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability.*

We expect that the U.S. and international regulations applicable to us and our regulated entities will continue to evolve for the foreseeable future. *See Item 1A. Risk Factors - Regulation - New laws and regulations or new interpretations of current laws and regulations, both domestically and internationally, may affect our businesses, results of operations, financial condition and ability to compete effectively.*

## FINANCIAL, MARKET CONDUCT & CORPORATE GOVERNANCE OVERSIGHT

The method of insurance regulation of our (re)insurance subsidiaries varies, but generally has its source in statutes that delegate regulatory and supervisory powers to a state insurance official (in the United States) or another governmental agency (outside the United States). The regulation and supervision relate primarily to the financial condition of the (re)insurers, corporate conduct and market conduct activities. In general, such regulation is for the protection of policyholders rather than the creditors or equity owners of these companies. Financial, market conduct and corporate conduct oversight varies by jurisdiction, but can include activities such as:

1. (a) approval of policy language and rates;
2. (b) advertising practices;
3. (c) establishing minimum capital and liquidity requirements;
4. (d) licensing of insurers and their agents;
5. (e) requiring registration and periodic reporting by (re)insurance companies that are licensed in the jurisdiction;
6. (f) evaluating and, in some cases, requiring regulatory approval of, certain transactions between (re)insurance company subsidiaries and their affiliates;
7. (g) imposing restrictions and limitations on the amount of dividends or other distributions payable by a (re)insurance company;
8. (h) enforcing rules related to outsourcing of material functions;
9. (i) requiring deposits of securities for the benefit of policyholders;
10. (j) establishing requirements for acceptability of reinsurers and credit for reinsurance;
11. (k) establishing requirements for reserves; and
12. (l) enterprise risk management (including technology risk management) and corporate governance requirements.

Our (re)insurance subsidiaries are generally subject to laws and regulations that prescribe the type, quality and concentration of investments they can make and permissible investment practices, such as derivatives, securities lending and repurchase transactions. In non-U.S. jurisdictions, our (re)insurance subsidiaries may also be subject to laws requiring certain amounts and types of local investment. In addition, certain affiliates of our (re)insurance affiliates are themselves subject to laws and regulations concerning the investment advisory and investment management services they provide to our (re)insurance subsidiaries and other clients with respect to such investments.

Insurance laws in many jurisdictions also provide that no person, corporation or other entity may acquire control of an insurance company, or a controlling interest in (or prescribed percentage of capital of) any direct or indirect parent company of an insurance company, without the prior approval of, or notice to, such insurance company's domiciliary insurance regulator.

AIG | 2022 Form 10-K

7

ITEM 1 | Business

As a holding company with no significant business operations of its own, AIG Parent depends on dividends from our subsidiaries to meet our obligations. U.S. state insurance laws typically provide that dividends in excess of certain prescribed limits are considered to be extraordinary dividends and require prior approval or non-disapproval from the applicable insurance regulator. Outside the U.S., (re)insurers, subject to certain exceptions, are permitted to pay dividends subject to maintaining prescribed capital and solvency requirements and ensuring that dividends are made out of profits/retained earnings.

Further, as part of their regulatory oversight processes, insurance regulators conduct periodic examinations of our (re)insurance subsidiaries. Such examinations can cover a broad scope of the (re)insurance subsidiary's operations, including the financial strength of the (re)insurance subsidiary; sales, marketing and claims handling practices; risk management; capital and liquidity management; and information technology operations (including emerging technology risks).

Insurance and securities regulators and other law enforcement agencies and attorneys general also, from time to time, make inquiries, issue data calls and conduct examinations or investigations regarding compliance with insurance and other laws or for informational purposes that can be company-specific or part of a broader industry-wide effort.

There can be no assurance that any noncompliance with such applicable laws, regulations or guidance would not have a material adverse effect on our business or results of operations.

## REGULATORY REGIMES

### United States

#### States

At the state-level, the National Association of Insurance Commissioners (NAIC) is a standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. The NAIC is not a regulator, but, with assistance from the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews and coordinate regulatory oversight. Model laws and regulations promulgated by the NAIC become effective in a state once formally adopted and are subject to revision by each state. Examples of NAIC models adopted, in substantial part, by all states include:

- The Risk-Based Capital (RBC) for Insurers Model Act, which incorporates an RBC formula calculated in accordance with instructions updated annually by the NAIC that is designed to measure the adequacy of an insurer's total adjusted capital, as calculated pursuant to the RBC formula, in relation to certain risks inherent in its business, and authorizes certain regulatory actions regarding insurers whose RBC levels fall below specific thresholds. The NAIC has adopted, or is considering, several changes impacting how RBC is calculated, including initiatives aimed at a comprehensive review of the RBC investment framework as well as a proposed modeling methodology to determine RBC for collateralized loan obligations to replace the use of rating agency ratings. The RBC levels of each of our U.S. domiciled (re)insurance companies exceeded each of these specific thresholds as of December 31, 2022. In addition to RBC requirements, the insurance laws of our domiciliary states prescribe certain minimum capital and surplus requirements for insurance companies. If any of our (re)insurance entities fell below prescribed levels of statutory capital and surplus, it would be our intention to provide appropriate capital or other types of support to that entity. For additional information, see Part II, Item 7. MD&A - Liquidity and Capital Resources - Liquidity and Capital Resources of AIG Parent and Subsidiaries - Insurance Companies.
- The Insurance Holding Company System Regulatory Act and the Insurance Holding Company System Model Regulation (together, the Holding Company Models) include: provisions authorizing insurance commissioners to act as global group-wide supervisors for internationally active insurance groups and participate in international supervisory colleges; standards for transactions between a domestic (re)insurance company and its affiliates and regulatory approval requirements for certain of such transactions; requirements for obtaining regulatory approval for acquiring control of a domestic (re)insurance company; and the requirement that the ultimate controlling person of a U.S. insurer file an annual enterprise risk report with its lead state regulator identifying risks likely to have a material adverse effect upon the financial condition or liquidity of its licensed insurers or the insurance holding company system as a whole, among other requirements. The New York State Department of Financial Services (NYDFS) is AIG's lead U.S.-state regulator, and leads AIG's Supervisory College meetings of AIG's key global regulatory bodies.
- The Risk Management and Own Risk and Solvency Assessment Model Act, which requires that insurers maintain a risk management framework, conduct an internal own risk and solvency assessment of the insurer's material risks in normal and stressed environments, and submit annual Own Risk and Solvency Assessment (ORSA) summary reports to the insurance group's lead U.S.-state regulator.
- The Corporate Governance Annual Disclosure Model Act (CGAD), which requires insurers to submit an annual filing regarding their corporate governance structure, policies and practices.
- And, specific to our life insurance subsidiaries, a new Valuation Manual approved by the NAIC, which contains a principle-based reserving (PBR) approach to life insurance company reserves. PBR is designed to tailor the reserving process to more closely reflect the risks of specific products rather than the factor-based approach employed historically.

8

AIG | 2022 Form 10-K

ITEM 1 | Business

The NAIC also provides standardized insurance industry accounting and reporting guidance through the NAIC Accounting Manual, which establishes statutory accounting principles applicable to (re)insurance companies. Statutory accounting principles promulgated by the NAIC may be modified by individual state laws, regulations and permitted practices granted by our domiciliary insurance regulators.

The NAIC has recently undertaken a multi-pronged effort to determine whether additional standards, safeguards or disclosures are required in connection with certain investments by U.S. insurance companies, including related party investments, structured securities and other complex assets.

In December 2020, the NAIC amended the Holding Company Models to incorporate a Liquidity Stress Testing (LST) requirement for large life insurers based on a set of scope criteria and a Group Capital Calculation (GCC) requirement. These amendments require the ultimate controlling person of every U.S. insurer that is scoped into the LST framework to submit LST results to the insurance group's lead state insurance regulator on an annual basis. In addition, these amendments require the ultimate controlling person of every U.S. insurer to submit GCC reports to the insurance group's lead state insurance regulator on an annual basis unless an exemption applies. The NAIC has proposed that provisions of the December 2020 amendments to the Holding Company Models that authorize the GCC and LST will become accreditation standards effective as of January 1, 2026, and, if this occurs, states will be required to adopt significant elements of the Holding Company Models that authorize the GCC and LST by January 1, 2026 to remain accredited by the NAIC.

In recent years, insurance regulators have also emphasized the investigation of alleged improper insurance pricing and sales practices by insurers, including, for example, race-based underwriting or sales practices, misleading sales presentations by insurance agents, targeting of the elderly or other vulnerable adults, and the suitability of products for potential customers.

U.S. states have state insurance guaranty associations in which insurers doing business in the state are required by law to be members. Member insurers may be assessed by the associations for certain obligations of insolvent insurance companies to policyholders and claimants. The aggregate assessments levied against us have not been material to our financial condition in any of the past three years.

## Federal

At the U.S. federal level, AIG is impacted by the activities of policymakers and by the laws and regulations enforced by various federal agencies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), signed into law in 2010, brought about extensive changes to financial regulation in the United States and established the Federal Insurance Office (FIO) to serve as the central insurance authority in the federal government. While not serving a regulatory function, FIO performs certain duties related to the business of insurance and has authority to collect information on the insurance industry and recommend prudential standards. In addition, FIO monitors market access issues, represents the United States in international insurance forums and has authority to determine if certain regulations are preempted by covered agreements. FIO's approval is required to subject a financial company whose largest U.S. subsidiary is an insurer to the special orderly liquidation process outside the federal bankruptcy code, administered by the FDIC pursuant to Dodd-Frank. U.S. insurance subsidiaries of any such financial company, however, would be subject to rehabilitation and liquidation proceedings under state insurance laws.

FIO also assists the Secretary of the Treasury in administering the U.S. Terrorism Risk Insurance Act (TRIA), enacted in 2002 to support insurance coverage for certain terrorist acts in the U.S. The program was continued under the Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA) through December 31, 2027 and is intended to provide reinsurance coverage from the federal government in limited circumstances for certified acts of terrorism that exceed a certain threshold of industry losses.

Title I of Dodd-Frank established the Financial Stability Oversight Council (Council), which is authorized to determine that certain nonbank financial companies be designated as nonbank systemically important financial institutions (SIFIs) subject to supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards. Designation by the Council of any nonbank SIFI is subject to certain statutory and regulatory standards and to the Council's guidance. The Council may also recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or practices that insurers or other nonbank financial services companies engage in.

Title V of Dodd-Frank authorizes the United States to enter into covered agreements with foreign governments or regulatory entities regarding the business of insurance and reinsurance. On September 22, 2017, the U.S. and the European Union (EU) entered into such an agreement, and on December 18, 2018, the U.S. signed a covered agreement with the United Kingdom (UK), which is similar to the agreement with the EU. Under the agreements, AIG will be supervised at the worldwide group level only by its relevant U.S. insurance supervisors, and will generally not have to satisfy EU Solvency II group capital, reporting and governance requirements for its worldwide group. U.S. state regulators have five years from the dates the covered agreements were signed to adopt reinsurance collateral reforms and a group capital assessment, which has led a number of states to adopt the NAIC's GCC well in advance of the January 1, 2026 target implementation date.

AIG | 2022 Form 10-K

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ITEM 1 | Business

Title VII of Dodd-Frank provides for significantly increased regulation of, and restrictions on, derivatives markets and transactions that have affected various activities of insurance and other financial services companies, including (i) regulatory reporting for swaps, including security-based swaps, (ii) mandated clearing through central counterparties and execution through regulated swap execution facilities for certain swaps (other than security-based swaps and (iii) margin and collateral requirements).

AIG Federal Savings Bank, our trust-only federal thrift subsidiary, is supervised and regulated by the Office of the Comptroller of the Currency.

## International

In the UK, the Prudential Regulation Authority (PRA) is the lead prudential supervisor for our UK insurance operations and the Financial Conduct Authority has oversight of AIG's insurance operations for consumer protection and competition matters.

In the EU, various Directives and Regulations affect our international (re)insurance operations. The Luxembourg insurance regulator, the Commissariat aux Assurances, is the insurance regulator for AIG Europe SA, which serves our European Economic Area (EEA) and Swiss policyholders. In addition, financial companies that operate in the EU are subject to a range of regulations enforced by the national regulators in each member state in which that firm operates. Solvency II governs the insurance industry's solvency framework for the EU, including minimum capital and solvency requirements, governance requirements, risk management and public reporting standards.

AIG's operating (re)insurance subsidiaries in Bermuda are regulated by the Bermuda Monetary Authority (BMA). Bermuda's Insurance Act 1978, the applicable Codes of Conduct and related regulations impose solvency and liquidity standards and auditing and reporting requirements on Bermuda (re)insurance companies and grant the BMA powers to supervise, investigate and intervene in the affairs of (re)insurance companies. A variety of requirements and restrictions are imposed on our Bermuda operating (re)insurance subsidiaries including: periodic financial reporting; corporate governance framework; solvency and financial performance; compliance with minimum enhanced capital requirements; and minimum solvency margins and liquidity ratios (the latter for general business (re)insurers); and limitations on dividends and distributions.

The Monetary Authority of Singapore (MAS) supervises AIG's insurance subsidiary in Singapore. It has broad authority under the Insurance Act 1966 to regulate insurance business in Singapore as well as insurers, insurance intermediaries and related institutions. Our Singapore insurance operations are subject to minimum capital and solvency requirements as well as financial reporting, corporate governance and conduct of business requirements. The MAS has authority to conduct inspections and investigations on insurers and to administer sanctions for regulatory non-compliance. Our Singapore insurance subsidiary holds insurance entities in the Asia Pacific region. The MAS holds the Chief Executive of the Singapore insurance subsidiary principally responsible for the management and conduct of the business of the subsidiary, including the business of its subsidiaries and overseas branches.

The Japan Financial Services Agency (JFSA) regulates AIG's operating insurance subsidiaries and insurance holding company in Japan. The JFSA has extensive authority under the Insurance Business Act and related regulations to oversee licensing, sales practices, business conduct, investments, reserves and solvency, amongst other matters. Our Japanese insurance operations are required to maintain a minimum solvency margin ratio (SMR), which is a measure of capital adequacy. The failure to maintain an appropriate SMR, or comply with other similar indicators of financial health, could result in the JFSA imposing corrective actions on our operations.

## FSB and IAIS

The Financial Stability Board (FSB) consists of representatives of national financial authorities of the G20 countries. The FSB is not a regulator but is focused primarily on promoting international financial stability. The FSB has issued a series of frameworks and recommendations to address such issues as systemic financial risk, financial group supervision, capital and solvency standards, effective recovery and resolution regimes, corporate governance including compensation, and a number of related issues associated with responses to the financial crisis.

The International Association of Insurance Supervisors (IAIS) represents insurance regulators and supervisors of more than 200 jurisdictions (including regions and states) in nearly 140 countries and seeks to promote globally consistent insurance industry supervision. The IAIS is not a regulator, but one of its activities is to develop insurance regulatory standards for use by local authorities across the globe. For example, the IAIS has adopted ComFrame, a Common Framework for the Supervision of Internationally Active Insurance Groups (IAIGs). ComFrame assists regulators in addressing an IAIG's risks by providing supervisory standards for areas such as group supervision, governance and internal controls, enterprise risk management, and recovery and resolution planning. We currently meet the criteria set forth to identify an IAIG, and the NYDFS, as our group-wide supervisor, has publicly disclosed us as an IAIG on the IAIS' register of IAIGs.

In addition, the FSB has charged the IAIS with developing a framework for measuring and mitigating systemic risks posed by the insurance sector, and in response the IAIS developed an enhanced set of supervisory policy measures for the assessment and mitigation of systemic risk in the insurance sector (Holistic Framework), with implementation beginning in 2020. The Holistic Framework recognizes that systemic risk can emanate from specific activities and exposures arising from either sector-wide trends or

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concentrations in individual insurers. In light of the IAIS adoption of the Holistic Framework, the FSB decided in December 2022 to discontinue the annual identification of Global Systemically Important Insurers in favor of instead applying the Holistic Framework to inform the FSB's consideration of systemic risk in insurance.

As part of ComFrame, the IAIS is developing a risk-based global insurance capital standard (ICS) applicable to IAIGs, with the purpose of creating a common language for supervisory discussions of group solvency of IAIGs. The IAIS has adopted ICS Version 2.0 for a five-year monitoring phase, with an initial phase that commenced January 2020. During the initial phase, ICS Version 2.0 is used for confidential reporting to group-wide supervisors and discussion in supervisory colleges, but will not trigger supervisory action. At the conclusion of the five-year monitoring period, the IAIS has agreed to a second phase of implementation, whereby the ICS will be applied as a group-wide prescribed capital requirement, defined as a solvency control level above which the supervisor does not intervene on capital adequacy grounds. However, in recognition that the United States and other interested jurisdictions are developing an alternative approach to a group capital calculation that utilizes an aggregation methodology of available capital and required capital of all insurance group members (Aggregation Method or AM), the IAIS is assessing whether the AM provides comparable outcomes to ICS Version 2.0, including by collecting data from interested jurisdictions. The IAIS aims to be in a position by the end of the monitoring phase to assess whether the AM provides substantially the same outcome as the ICS, in which case it will be considered an outcome-equivalent approach to the ICS.

The standards issued by the FSB and/or the IAIS are not binding on the United States or other jurisdictions around the world unless and until the appropriate local governmental bodies or regulators adopt laws or regulations implementing such standards.

## PRIVACY, DATA PROTECTION AND CYBERSECURITY

We are subject to various laws and regulations that require financial institutions and other businesses to protect and safeguard personal and other sensitive information and provide notice of their practices relating to the collection, disclosure and other processing of personal information. We also are subject to U.S. federal and state laws and regulations requiring notification to affected individuals and regulators of a data breach(es). Below we highlight a few key privacy, data protection and cybersecurity laws and regulations.

In October 2017, the NAIC adopted the Insurance Data Security Model Law (NAIC Data Security Model Law), which, among other things, requires insurers, insurance producers and other entities required to be licensed under state insurance laws to develop and maintain a written information security program, conduct risk assessments, and oversee the data security practices of third-party service providers. As of December 31, 2022, more than 20 jurisdictions had adopted the NAIC Data Security Model Law. In addition, on March 1, 2019, the NYDFS's cybersecurity regulation became fully effective, requiring covered financial institutions, including insurance entities licensed in New York, to, among other things, implement a cybersecurity program designed to protect information systems. New York released proposed amendments to its cybersecurity regulation in 2022, which include additional obligations for large insurers including enhanced and updated governance, risk assessment, and technology requirements, new notification obligations, and clarifying changes regarding enforcement.

The State of California enacted the California Consumer Privacy Act of 2018 (CCPA), which was effective as of January 1, 2020, and imposed significant and often first-of-their-kind privacy obligations on businesses handling data related to California residents. The law has a number of exceptions as a result of amendments; however, it does not apply to personal information collected, processed, sold, or disclosed pursuant to the federal Gramm-Leach-Bliley Act (GLBA) and implementing regulations or the California Financial Information Privacy Act (FIPA). These amendments reduce the impact of the law on AIG in some, but not all, areas. In addition, exemptions for personal information obtained in the context of certain business-to-business communications or transactions and for personal information pertaining to employees, agents and similar categories of individuals sunset on January 1, 2023. The California Privacy Rights Act (CPRA) passed in November 2020 became effective January 1, 2023 and amends the CCPA to create additional privacy rights and obligations in California. Colorado, Connecticut, Utah and Virginia also enacted comprehensive consumer data privacy laws and many other states have proposed similar laws.

These privacy laws impose requirements on covered businesses that are similar to those imposed by the CCPA with respect to privacy notices, data subject rights and data security standards.

In March 2022, the SEC released several proposed rules enhancing disclosure requirements for registered companies covering cybersecurity risk and management. If enacted, the proposed rules would, among other things, require disclosure by registrants of any material cybersecurity incident on Form 8-K within four business days of determining that the incident the registrant has experienced is material. They would also require periodic disclosures of, among other things, (i) details on the company's cybersecurity policies and procedures, (ii) cybersecurity governance and oversight policies, including the board of directors' oversight of cybersecurity risks and (iii) details of any cybersecurity incident that was previously disclosed on Form 8-K, as well as any undisclosed incidents that were non-material, but have become material in the aggregate.

The EU General Data Protection Regulation (GDPR) took effect in May 2018. The GDPR's scope extends to entities established within the EEA (i.e., EU member states plus Iceland, Liechtenstein and Norway) and to certain entities not established in the EEA (in certain instances, if they solicit or target individuals in the EU by offering goods or services to EEA data subjects or monitoring the personal behavior of EEA data subjects (e.g., in an online context)). The GDPR was also onshored in the UK through the European

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Union (Withdrawal) Act 2018, with adjustments as provided in the Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019. Sanctions for non-compliance with the GDPR are onerous, with the potential for fines of up to 4 percent of global revenue for the most serious infringements of the GDPR.

We have sought to address the GDPR's requirements by demonstrating accountability for compliance with the GDPR's principles relating to processing of personal data, maintaining records of processing and completing mandatory Data Protection Impact Assessments in connection with higher risk data processing activities.

The GDPR imposes requirements on the transfer of personal data outside of the EEA, including via Standard Contractual Clauses supplemented by an assessment and due diligence of the legal and regulatory landscape of the jurisdiction of the data importer, the channels used to transmit personal data and the processors or subprocessors that may process personal data.

The EEA and the UK have also taken steps to regulate the use of data and algorithms used for the purpose of artificial intelligence and automated decision-making. In April 2021, the European Commission published its Proposal for a Regulation on a European approach for Artificial Intelligence (Artificial Intelligence Act), which recommends a risk-based approach to restricting, regulating and permitting different AI systems. European countries, and supranational political organizations like the EU and the Council of Europe, are expected to take an active role in regulating AI in ways that may impact the insurance industry in the future. Insurance regulators in the United States have also shown interest in the use of external data, algorithms and artificial intelligence in insurance practices, including underwriting, marketing, and claims practices.

We also are subject to other international laws and regulations that require financial institutions and other businesses to protect personal and other sensitive information and provide notice of their practices relating to the collection, disclosure and other processing of personal information and to obtain consent for specific processing activities. We are also subject to laws and regulations requiring notification to affected individuals and regulators of security breaches and laws and regulations regarding data localization and the cross-border transfer of information.

## Climate Change and ESG

In recent years, regulators in the United States and in other major countries in which we operate have increased their scrutiny on financial institutions' and other companies' risk oversight, disclosures and practices in connection with climate change and other Environmental, Social and Governance (ESG) issues. Throughout 2022, there have been active and significant regulatory developments on these issues in the form of newly proposed, issued or implemented rules, regulations and frameworks regarding climate change and other ESG issues that impose, or will impose once effective, new requirements, including requirements related to climate change-related governance, risk management, disclosures, stress testing and scenario planning. For example, in March 2022, the SEC released proposed rule changes on climate-related disclosure. The proposed rule changes would require registrants, including public issuers such as us, to include certain climate-related disclosures in registration statements and periodic reports. These proposed disclosures include information about climate-related risks that are reasonably likely to have a material impact on the registrant's business, results of operations, or financial condition, and include a new note to their audited financial statements that provides certain climate-related metrics and impacts on a line-item basis. The required information about climate-related risks also would include disclosure of a registrant's greenhouse gas emissions (including Scope 3 emissions), information about climate-related targets and goals, and transition plan, if any, and would require extensive attestation requirements. If adopted as proposed, the rule changes are expected to result in additional compliance and reporting costs. It is possible that some ESG rules enacted in international jurisdictions where AIG operates could impact AIG Parent. We continue to actively monitor the regulatory landscape surrounding these issues.

## U.S. SECURITIES, INVESTMENT ADVISER, BROKER-DEALER AND INVESTMENT COMPANY REGULATION

Our investment products and services are subject to applicable federal and state securities, investment advisory, fiduciary, including the Employee Retirement Income Security Act of 1974, as amended (ERISA), and other laws and regulations. The principal U.S. regulators of these operations include the SEC, FINRA, Commodity Futures Trading Commission (CFTC), Municipal Securities Rulemaking Board, state securities commissions, state insurance departments and the Department of Labor (DOL).

Our variable life insurance, variable annuity and mutual fund products generally are subject to regulation as 'securities' under applicable federal securities laws, except where exempt. Such regulation includes registration of the offerings of these products with the SEC, unless exempt from such registration, and requirements of distribution participants to be registered as broker-dealers, as well as recordkeeping, reporting, and other requirements. This regulation also involves the registration of mutual funds and other investment products offered by our businesses, and the separate accounts through which our variable life insurance and variable annuity products are issued, as investment companies under the Investment Company Act of 1940, as amended (Investment Company Act), except where exempt. The Investment Company Act imposes requirements relating to compliance, corporate governance, disclosure, recordkeeping, registration and other matters. In addition, the offering of these products may involve filing and other requirements under the securities laws of the states and other jurisdictions where offered, including the District of Columbia and Puerto Rico. Our separate account investment products are also subject to applicable state insurance regulation.

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We have several subsidiaries that are registered as broker-dealers under the Securities Exchange Act of 1934, as amended (Exchange Act) and are members of FINRA, and/or are registered as investment advisers under the Investment Advisers Act of 1940, as amended (Advisers Act). Certain of these broker-dealers and investment advisers are involved in our life and annuity product sales, including participating in their distribution and/or serving as an investment adviser to mutual funds that underlie variable products offered by us. Certain of these broker-dealers and investment advisers are also involved in the management of the investment portfolios of our (re)insurance subsidiaries and other affiliates. In addition to registration requirements, the Exchange Act, the Advisers Act, and the regulations thereunder, impose various compliance, disclosure, qualification, recordkeeping, reporting requirements and subject these subsidiaries and their operations to examination. State securities laws also impose filing and other requirements on broker-dealers, investment advisers and/or their licensed representatives, except where exempt.

Further, our licensed sales professionals appointed with certain of our broker-dealer and/or investment adviser subsidiaries and our other employees, insofar as they sell products that are securities, including wholesale and retail activity, are subject to the Exchange Act and to examination requirements and regulation by the SEC, FINRA and state securities commissioners. Regulation and examination requirements also extend to our subsidiaries that employ or control those individuals.

## INTERNATIONAL SECURITIES, INVESTMENT ADVISER, BROKER-DEALER AND INVESTMENT COMPANY REGULATION

We operate investment-related businesses in, among other jurisdictions, the UK and Ireland. These businesses may advise on and market investment management products and services, investment funds and separately managed accounts. The regulatory authorities for these businesses include securities, investment advisory, financial conduct and other regulators that typically oversee such issues as: (1) company licensing; (2) the approval of individuals with positions of responsibility; (3) conduct of business to customers, including sales practices; (4) solvency and capital adequacy; (5) fund product approvals and related disclosures; and (6) securities, commodities and related laws, among other items. We also participate in investment-related joint ventures in jurisdictions outside the United States, primarily in Europe and Asia. In some cases, our international investment operations are also subject to U.S. securities laws and regulations.

### ERISA

We provide products and services to certain employee benefit plans that are subject to ERISA and/or the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). Plans subject to ERISA include certain pension and profit-sharing plans and welfare plans, including health, life and disability plans. As a result, our activities are subject to the restrictions imposed by ERISA and the Internal Revenue Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that fiduciaries may not cause a covered plan to engage in certain prohibited transactions. The applicable provisions of ERISA and the Internal Revenue Code are subject to enforcement by the DOL, the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation.

### STANDARD OF CARE DEVELOPMENTS

We and our distributors are subject to laws and regulations regarding the standard of care applicable to sales of our products and the provision of advice to our customers. In recent years, many of these laws and regulations have been revised or reexamined while others have been newly adopted, such as:

- DOL Fiduciary Rule - In June 2020, the DOL issued final guidance on the definition of a "fiduciary" for purposes of transactions with ERISA qualified plans, related plan participants and Individual Retirement Accounts (IRAs). The DOL's final rule confirmed use of a five-part test for determining who is an investment advice fiduciary, and also confirmed related exemptions. In December 2020, the DOL issued the final version of a new prohibited transaction exemption, for parties that qualify as investment advice fiduciaries. The DOL is reviewing issues relating to its regulation of fiduciary investment advice and may take further regulatory actions. We continue to monitor developments with respect to the definition of fiduciary "investment advice" to ERISA plans and IRAs and to prohibited transactions exemptions.
- SEC Best Interest Regulation - On June 30, 2020, Regulation Best Interest (Regulation BI), which establishes new rules regarding the standard of care a broker must meet when making a recommendation to a retail customer in connection with the sale of a security or other covered recommendation, and Form CRS, which requires enhanced disclosure by broker-dealers and investment advisers regarding client relationships and certain conflicts of interest issues, became effective. Both had been adopted by the SEC in June 2019 as part of a package of final rulemakings and interpretations, at the same time as the SEC issued two interpretations under the Investment Advisers Act of 1940. The first interpretation addressed the standard of conduct applicable to SEC-registered investment advisers, including details regarding the fiduciary duty owed to clients, required disclosures and the adviser's continuous monitoring obligations. The second interpretation clarified when investment advice would be considered "solely incidental" to brokerage activity for purposes of the broker-dealer exclusion from SEC investment adviser registration. These two SEC interpretations became effective in July 2019.

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- FINRA Standard of Care Development - Effective June 30, 2020, The Financial Industry Regulatory Authority (FINRA) Rule 2111 was amended to provide that FINRA's suitability requirements do not apply to recommendations that are subject to Regulation BI. This amendment was intended to mitigate any potential confusion regarding which standard of conduct applies to retail consumers. FINRA's suitability rules still apply to recommendations that are not covered by Regulation BI, such as recommendations to institutional customers.
- New York Standard of Care Developments - in July 2018, NYDFS adopted a best interest standard of care regulation applicable to annuity and life insurance transactions through issuance of the First Amendment to Insurance Regulation 187 - Suitability and Best Interests in Life Insurance and Annuity Transactions (Regulation 187). As amended, Regulation 187 requires producers to act in their client's best interest when making point-of-sale and in-force recommendations, and to deliver to the client the written basis for the recommendation, as well as the facts and analysis to support the recommendation. The amended regulation also imposes additional duties on life insurance companies in relation to these transactions, such as requiring insurers to establish and maintain procedures designed to prevent financial exploitation and abuse. The amended Regulation 187 was previously challenged in court, but was upheld by the State of New York Court of Appeals, which is New York's highest state court, in October 2022.
- State Standard of Care Developments (Other than New York) - In February 2020, the NAIC adopted revisions to its Suitability in Annuity Transactions Model Regulation (#275) (NAIC Suitability Model) implementing a best interest standard of care applicable to sales and recommendations of annuities. The amended NAIC Suitability Model conforms in large part to Regulation BI, providing that all recommendations by agents and insurers must be in the best interest of the consumer under known circumstances at the time an annuity recommendation is made, without placing agents' or insurers' financial interests ahead of the consumer's interest in making a recommendation. A majority of states have adopted amendments to their suitability rules based on the NAIC Suitability Model revisions, and we expect that a substantial majority of states will do so or consider adopting their own standards of conduct which could be broader than the NAIC Suitability Model.

We continue to closely follow these legislative and regulatory activities as changes in standard of care requirements and have evaluated the impact of these requirements on us and our customers, distribution partners and financial advisers. We have made significant investments to implement and enhance tools, processes and procedures, where needed, to comply with the final rules and interpretations. These efforts and enhancements have resulted in increased compliance costs and may impact sales results and increase regulatory and litigation risk.

## FEDERAL RETIREMENT LEGISLATION

In December 2022, Congress enacted comprehensive retirement legislation within the Consolidated Appropriations Act, 2023. The provisions drew from the House's proposed Securing a Strong Retirement Act of 2022, the Senate Finance Committee's proposed Enhancing American Retirement Now (EARN) Act, and the Senate HELP Committee's proposed Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act, collectively known as "SECURE 2.0". The provisions enacted may impact our products and services, including changes to required minimum distribution rules, available investment options in annuity products, and contribution limits.

## Available Information about AIG

Our corporate website is www.aig.com. We make available free of charge, through the Investors section of our corporate website, the reports that we file or furnish with the Securities and Exchange Commission (SEC) (including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A, any amendments to each of those reports and filings, and other disclosure), corporate governance information (including our Code of Business Conduct and Ethics and any amendments of or waivers from the Code of Business Conduct and Ethics), and select press releases. Additionally, all of our reports filed with the SEC are available on the SEC's website at sec.gov.

Except for the documents specifically incorporated by reference into this Annual Report on Form 10-K, information contained on our website or that can be accessed through our website is not incorporated by reference into this Annual Report on Form 10-K. Reference to our website is made as an inactive textual reference.

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# ITEM 1A | Risk Factors

# Risk Factor Summary

The following is a summary of the material risks and uncertainties that could adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.

# Market Conditions

- Deterioration of economic conditions, geopolitical tensions, changes in market conditions or weakening in global capital markets may materially affect our businesses, results of operations, financial condition and liquidity.
- Changes in interest rates have materially and adversely affected and may continue to materially and adversely affect our profitability.

# Reserves and Exposures

- The amount and timing of insurance and reinsurance liability claims are difficult to predict and such claims may exceed the related liability for unpaid losses and loss adjustment expenses or future policy benefits, or the liabilities associated with certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value.
- Reinsurance may be unavailable or too expensive relative to its benefit, and may not be adequate to protect us against losses.
- Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events.
- Climate change may adversely affect our business and financial condition.
- Concentration of our insurance, reinsurance and other risk exposures may have adverse effects.
- Fortitude Re may fail to perform its obligations and the accounting treatment of our reinsurance agreements with Fortitude Re leads to volatility in our results of operations.
- We may be required to accelerate the amortization of DAC and record additional liabilities for future policy benefits.
- Losses due to nonperformance or defaults by counterparties may materially and adversely affect the value of our investments, our profitability and sources of liquidity.

# Investment Portfolio and Concentration of Investments

- Our investment portfolio is concentrated in certain segments of the economy, and the performance and value of our investment portfolio are subject to a number of risks and uncertainties.
- We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of Blackstone, BlackRock or any other investment manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on AIG Common Stock.
- Our valuation of investments and derivatives involves the application of methodologies and assumptions to derive estimates, which may differ from actual experience and could result in changes to investment valuations that may materially adversely affect our business, results of operations, financial condition and liquidity or lead to volatility in our net income.

# Liquidity, Capital and Credit

- AIG Parent's ability to access funds from our subsidiaries is limited, and our sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by our subsidiaries.
- We may not be able to generate cash to meet our needs due to the illiquidity of some of our investments.
- A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance or reinsurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity.
- Changes in the method for determining LIBOR and the continuing phase out of LIBOR and uncertainty related to LIBOR replacement rates may affect our business, results of operations, financial condition and liquidity.

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## Business and Operations

- No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake.
- Pricing for our products is subject to our ability to adequately assess risks and estimate related losses.
- Guarantees within certain of our Life and Retirement products may increase the volatility of our results.
- Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses, results of operations, financial condition and liquidity.
- Our foreign operations expose us to risks that may affect our operations.
- We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity.
- Third parties we rely upon to provide certain business and administrative services on our behalf may not perform as anticipated, which could have an adverse effect on our business and results of operations.
- We may experience difficulty in marketing and distributing products through our current and future distribution channels and the use of third parties may result in additional liabilities.
- Failure to effectively execute an AIG 200 could have a material effect on our operations or financial condition.
- Business or asset acquisitions and dispositions may expose us to certain risks.
- Significant legal or regulatory proceedings may adversely affect our business, results of operations or financial condition.
- Increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social and governance (ESG) matters may adversely affect our reputation or otherwise adversely impact our business and results of operations.
- COVID-19 has adversely affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity, and its ultimate impact will depend on future developments that are uncertain and cannot be predicted.
- We may not be able to protect our intellectual property and may be subject to infringement claims.

## Employees and Competition

- Employee error and misconduct may be difficult to detect and prevent and may result in reputational damage and significant losses.
- Competition for employees in our industry is intense, and managing key employee succession is critical to our success. We may not be able to retain and attract key employees and other highly skilled employees we need to support our businesses.
- We face intense competition in each of our business lines, and technological changes may present new and intensified challenges to our businesses.

## Regulation

- Our businesses are heavily regulated and changes in laws and regulations may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability.
- New laws and regulations or new interpretations of current laws and regulations, both domestically and internationally, may affect our businesses, results of operations, financial condition and ability to compete effectively.
- An "ownership change" could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income.
- New and proposed changes to tax laws could increase our corporate taxes or make some of our products less attractive to consumers.

## Estimates and Assumptions

- Estimates or assumptions used in the preparation of financial statements and modeled results used in various areas of our business may differ materially from actual experience.
- Changes in accounting principles and financial reporting requirements will impact our consolidated results of operations and financial condition.
- If our businesses do not perform well and/or their estimated fair values decline, we may be required to recognize an impairment of our goodwill or establish an additional valuation allowance against the deferred income tax assets, which could have a material adverse effect on our results of operations and financial condition.

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## Risk Factors

Investing in AIG involves risk. In deciding whether to invest in AIG, you should carefully consider the following risk factors. Any of these risk factors could have a significant or material adverse effect on our businesses, results of operations, financial condition or liquidity. They could also cause significant fluctuations and volatility in the trading price of our securities. Readers should not consider any descriptions of these factors to be a complete set of all potential risks that could affect AIG. These factors should be considered carefully together with the other information contained in this report and the other reports and materials filed by us with the SEC. Further, many of these risks are interrelated and could occur under similar business and economic conditions, and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others. Such a combination could materially increase the severity of the impact of these risks on our businesses, results of operations, financial condition and liquidity above and beyond a risk's singular impact.

### MARKET CONDITIONS

**Deterioration of economic conditions, geopolitical tensions, changes in market conditions or weakening in global capital markets may materially affect our businesses, results of operations, financial condition and liquidity.**

Our businesses are highly dependent on global economic and market conditions. Weaknesses in economic conditions, including a recessionary environment, poor capital markets performance and market volatility have in the past led, and may in the future lead to, among other consequences, a poor operating environment, erosion of consumer and investor confidence, reduced business volumes, deteriorating liquidity, declines in asset valuations and impacts on policyholder behavior that could influence reserve valuations. Further, if our investment managers, including Blackstone and BlackRock, or any other asset managers we engage, fail to react appropriately to difficult market or economic conditions, our investment portfolio could incur material losses.

Key ways in which have in the past been, and could in the future be, negatively affected by economic conditions include:

- increases in policy withdrawals, lapses, surrenders and cancellations and other impacts from changes in policyholder behavior compared to that assumed in pricing;
- increased loss payments and loss costs due to inflation;
- write-offs of deferred policy acquisition costs;
- increases in liability for future policy benefits due to loss recognition on certain long-duration insurance and reinsurance contracts;
- increases in costs associated with third-party reinsurance, or decreased ability to obtain reinsurance on acceptable terms; and
- the increased likelihood of, or increased magnitude of, asset impairments caused by market fluctuations deterioration in collateral values or credit deterioration of borrowers.

Adverse economic conditions may result from a variety of factors including domestic and global economic and political developments, including rising interest rates, plateauing or decreasing economic growth and business activity, recessions, inflationary or deflationary pressures in developed economies, including the United States, civil unrest, pandemics, including disruptions caused by COVID-19, geopolitical tensions, foreign investment restrictions, or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by the United States and other countries, and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains.

These and other market, economic, regulatory and political factors, including the impact of any new or prolonged government financial stimulus package or the expiration or suspension thereof, have and could have a material adverse effect on our businesses, results of operations, financial condition, capital and liquidity in many ways, including:

- lower levels of consumer demand for and ability to afford our products and commercial business activities that have decreased and may continue to decrease revenues and profitability and thus impair goodwill, deferred tax assets or other long-term assets;
- increased credit impairments, downgrades and losses across single or numerous asset classes due to lower collateral values or deteriorating cash flow and profitability by borrowers that could lead to higher defaults on the Company's investment portfolio, especially in geographic, industry or investment sectors where the Company has higher concentrations of exposure, such as real estate related borrowings and widening of credit spreads that could reduce investment asset valuations, decrease fee income and increase statutory capital requirements;
- increased market volatility and uncertainty that could decrease liquidity, increase borrowing costs and limit access to capital markets;
- the reduction of investment income generated by our investment portfolio;

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- disruption to our business operations in countries experiencing geopolitical tensions as well as increased costs associated with meeting customer needs in such regions;
- increased costs related to our direct and third-party support services, labor and financing, increased credit risk and decreased sales as a result of inflationary pressures; and
- limitations on business activities and increased compliance risks with respect to economic sanctions regulations relating to jurisdictions in which our businesses operate or we have operations.

**Changes in interest rates have materially and adversely affected and may continue to materially and adversely affect our profitability.** Global interest rates have been increasing, including in the United States, and in some cases, have risen rapidly after an extended period at or near historic lows.

We are exposed primarily to the following risks arising from or exacerbated by fluctuations in interest rates:

- mismatch between the expected duration of our liabilities and our assets;
- impairment to our ability to earn the returns or spreads assumed in the pricing and the reserving for our products;
- changes in certain statutory reserve or capital requirements that are based on formulas or models that consider interest rates or prescribed interest rates, such as cash flow testing reserves;
- changes in the costs of derivatives we use for hedging or increases in the volume of hedging we do as interest rates change;
- loss related to an increase in policy loans, surrenders and withdrawals following a rise in interest rates;
- loss from reduced fee income, increased guaranteed benefit costs and accelerated deferred policy acquisition costs (DAC) amortization arising from fluctuations in the variable product separate account values associated with fixed income investment options due to increased interest rates or credit spread widening;
- the reinvestment risk associated with more prepayments on mortgage-backed securities and other fixed income securities in decreasing interest rate environments and fewer prepayments in increasing interest rate environments;
- volatility in our GAAP results of operations driven by interest rate-related components of liabilities and equity market-related components of optional guaranteed benefits and the cost of associated hedges in low interest rate environments; and
- increased financing and refinancing costs, in particular with respect to our corporate debt instruments.

Changes in interest rates have had and could continue to have a material adverse effect on the value of our investment portfolio, for example, by decreasing the estimated fair values of the fixed income securities that constitute a substantial portion of our investment portfolio. This in turn has increased and could continue to increase the unrealized loss positions in our portfolio and adversely affect our ability to realize our deferred tax assets, thereby materially and adversely affecting our business, results of operations, financial condition and liquidity. Furthermore, changes in interest rates and credit spreads have led to decreasing the average account value of our separate accounts thereby negatively impacting the fee income we earn.

In periods of rapidly increasing interest rates, such as the current interest rate environment, we may not be able to purchase, in a timely manner, the investments in our general account with yields sufficient to fund the higher crediting rates necessary to keep interest rate sensitive products that we offer competitive. Therefore, we may need to accept a lower investment spread and, thus, lower profitability, or face a decline in sales and greater loss of existing contracts and related assets. Policy loans, surrenders and withdrawals also tend to increase as policyholders seek investments with higher perceived returns as interest rates rise. These impacts may continue to result in significant cash outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in interest rates, which could result in realized investment losses when selling assets in an unrealized loss position. Further, the increase in interest rates has and could continue to have a material adverse effect on the value of our investment portfolio, for example, by decreasing the fair values of the fixed income and alternative investment securities that constitute a substantial portion of our investment portfolio as well as the alternative investments in our investment portfolio. This in turn could adversely affect our ability to realize our deferred tax assets.

Conversely, sustained low interest rates as we have experienced in recent years have negatively affected and could in the future negatively affect the performance of our investments and reduce the level of investment income earned on our investment portfolios, resulting in net investment spread compression. We experience lower investment income as well as lower sales of new Life and Retirement insurance products, including interest rate sensitive products, and policies when a low or declining U.S. interest rate environment persists, and/or interest rates turn negative, and these effects can persist so long as the investments purchased and products issued remain outstanding, even after rates have risen. We may also experience lower investment income if we are forced to reinvest cash flows from investments at rates below the average yield of our existing portfolios. Due to practical and capital markets limitations, we have in the past not been and may in the future not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities. Low levels of interest rates have in the past and could in the future continue to impair our ability to earn the returns assumed in the pricing and the reserving for our products at the time they were sold and issued.

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In addition, fluctuations in interest rates may expose us to the risk of increases in certain statutory reserve requirements that are based on formulas or models that consider interest rates, which would reduce statutory capital, and increases in capital requirements and the amount of assets we must maintain to support statutory reserves, which would reduce surplus.

The primary source of our exposure to credit spreads is in the value of our fixed income securities. If credit spreads widen significantly, we could be exposed to higher levels of defaults and impairments. If credit spreads tighten significantly, it could result in reduced net investment income and, in turn, reduced profitability associated with new purchases of fixed maturity securities. Tightening credit spreads would reduce the discount rates used in the principles-based statutory reserve calculation, potentially increasing statutory reserve requirements and, in turn, reducing statutory surplus. Although these effects on bond fund valuation and reserve discount rates run in offsetting directions for either credit spread widening or narrowing, it is possible for one of them to outweigh the other under certain market conditions. Any of these risks could cause an adverse effect on our business, results of operations, financial condition and liquidity.

## RESERVES AND EXPOSURES

**The amount and timing of insurance and reinsurance liability claims are difficult to predict and such claims may exceed the related liability for unpaid losses and loss adjustment expenses or future policy benefits, or the liabilities associated with certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value.**

We regularly review the adequacy of the established liability for unpaid losses and loss adjustment expenses and future policy benefits, as well as liabilities associated with certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value. We also conduct extensive analyses of our reserves and embedded derivatives during the year. Our liability for unpaid losses and loss adjustment expenses, future policy benefits and embedded derivatives, however, has and may develop adversely and materially impact our businesses, results of operations, financial condition and liquidity.

For General Insurance, estimation of ultimate net losses, loss expenses and the liability for unpaid losses and loss adjustment expenses is a complex process, particularly for both long-tail and medium-tail liability lines of business. There is also greater uncertainty in establishing reserves with respect to new business, particularly new business involving recently introduced product lines. In these cases, there is less historical experience or knowledge and less data upon which the actuaries can rely. Estimating reserves is further complicated by unexpected claims or unintended coverages that emerge due to unexpected events, such as pandemics or geopolitical conflicts. These emerging issues may increase the size or number of claims beyond our underwriting intent and may not become apparent for many years after a policy is issued.

While we use a number of analytical reserve development techniques to project future loss development, the liability for unpaid losses and loss adjustment expenses has been and may continue to be significantly affected by changes in loss cost trends or loss development factors that were relied upon in setting the liability for unpaid losses and loss adjustment expenses. These changes in loss cost trends or loss development factors could be due to changes in actual versus expected claims and losses, difficulties in predicting changes, such as changes in inflation, unemployment, or other social or economic factors affecting claims, including judicial and legislative actions, and changes in the tort environment. Any deviation in loss cost trends or in loss development factors might not be identified for an extended period of time after we record the initial loss reserve estimates for any accident year or number of years.

For Life and Retirement, establishment and ongoing calculations of future policy benefits and related reinsurance assets is a complex process, with significant judgmental inputs, assumptions and modeling techniques. The inputs and assumptions used in connection with calculations of reserves for future policy benefits are inherently uncertain. Experience may develop adversely such that additional reserves must be established or the value of embedded derivatives may increase. Adverse experience could arise out of a number of factors, including, but not limited to, severe short-term events, such as a pandemic or changes to policyholder behavior during stressed economic periods, or due to misestimation of long-term assumptions such as mortality, interest rates, credit spreads, equity market levels and volatility and persistency assumptions. Certain variables, such as policyholder behavior, are difficult to estimate and can have a significant impact on reserves and embedded derivatives. Life and Retirement reviews and updates actuarial assumptions at least annually, typically in the third quarter for reserves and embedded derivatives. Additionally, Life and Retirement regularly carries out loss recognition testing for generally accepted accounting principles (GAAP) reporting and cash flow testing for statutory reporting.

*For additional information on reserve development, see Part II, Item 7. MD&A - Insurance Reserves.*

*For additional information on our loss reserves, see Part II, Item 7. MD&A - Critical Accounting Estimates - Loss Reserves and Note 12 to the Consolidated Financial Statements.*

*For additional information regarding these products, see Notes 12 and 13 to the Consolidated Financial Statements, Item 1. Business - Regulation, and Part II, Item 7. MD&A - Critical Accounting Estimates - Guaranteed Benefit Features of Variable Annuity, Fixed Annuity and Fixed Index Annuity Products.*

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# **Reinsurance may be unavailable or too expensive relative to its benefit, and may not be adequate to protect us against losses.**

Our subsidiaries are major purchasers of third-party reinsurance and we use reinsurance as part of our overall risk management strategy. Our reinsurance business also purchases retrocessional reinsurance, which allows a reinsurer to cede to another company all or part of the reinsurance obligations originally assumed by the reinsurer. While reinsurance does not discharge our subsidiaries from their obligation to pay claims for losses insured or reinsured under our policies, it does make the reinsurer liable to the subsidiaries for the reinsured portion of the risk. Market conditions beyond our control may impact the availability and cost of reinsurance or retrocessional reinsurance and could have a material adverse effect on our business, results of operations and financial condition. For example, reinsurance is typically more difficult or costly to obtain after a year or consecutive years with a large number of major catastrophes. We have been and may, at certain times be, (i) forced to incur additional costs for reinsurance, (ii) unable to obtain sufficient reinsurance on acceptable terms, or (iii) unable to obtain reinsurance for certain parts of our business. In instances where reinsurance is insufficient or unavailable, we would have to accept an increase in exposure to risk, reduce or stop writing certain lines of business written by our subsidiaries or seek alternatives in line with our risk limits, or a combination thereof.

Additionally, we are exposed to credit risk with respect to our subsidiaries' reinsurers to the extent the reinsurance receivable is not secured, or is inadequately secured, by collateral or does not benefit from other credit enhancements. We also bear the risk that a reinsurer is, or may be, unwilling to pay amounts we have recorded as reinsurance recoverables for any reason, including that (i) the terms of the reinsurance contract do not reflect the intent of the parties to the contract or there is a disagreement between the parties as to their intent, or (ii) the terms of the contract cannot be legally enforced. We also bear the risk that (i) the terms of the contract are interpreted by a court or arbitration panel differently than expected, (ii) the reinsurance transaction performs differently than we anticipated compared to the original structure, terms or conditions, or (iii) a change in laws and regulations, or in the interpretation of the laws and regulations, materially impacts a reinsurance transaction. The insolvency of one or more of our reinsurers, the inability or unwillingness of such reinsurers to make timely payments under the terms of our contracts or payments in an amount equal to our reinsurance recoverable, or the risk that the reinsurance transaction does not operate as intended, including due to a change in laws and regulations or on account of court or arbitration panel interpretations, could have a material adverse effect on our results of operations and liquidity.

Additionally, the use of reinsurance placed in the capital markets may not provide the same levels of protection as traditional reinsurance transactions. Any disruption, volatility and uncertainty in these markets, such as following a major catastrophic event, may limit our ability to access such markets on terms favorable to us or at all. Also, to the extent that we intend to use structures based on an industry loss index or other non-indemnity trigger rather than on actual losses incurred by us, we could be subject to residual risk.

Our Life and Retirement companies also utilize intercompany reinsurance arrangements to provide capital benefits to their affiliated cedants. They have and may continue to pursue reinsurance transactions and permitted practices to manage the capital impact of statutory reserve requirements under applicable reserving rules, including PBR. The application of actuarial guidelines and PBR involves numerous interpretations. If state insurance departments do not agree with our interpretations or if regulations change with respect to our ability to manage the capital impact of certain statutory reserve requirements, the statutory reserve requirements of our Life and Retirement companies could increase, or the ability of our Life and Retirement companies to take reserve credit for reinsurance transactions could be reduced or eliminated. Additionally, if the ratings of our Life and Retirement companies decline, we could incur higher costs to obtain reinsurance, each of which could adversely affect sales of our products and our financial condition or results of operations.

The availability of private sector reinsurance for terrorism is limited and we currently have limited reinsurance coverage for terrorist attacks. While we benefit from the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which provides U.S. government risk assistance to the insurance industry to manage the exposure to terrorism incidents, TRIPRA has specific program limits and does not cover losses in certain lines of business such as personal property and personal casualty. We also rely on the government sponsored and government arranged terrorism reinsurance programs, including pools, in force in applicable non-U.S. jurisdictions.

*For additional information on our reinsurance recoverable, see Part II, Item 7. MD&A - Enterprise Risk Management - Insurance Risks - Reinsurance Activities - Reinsurance Recoverable.*

# **Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events.**

Events such as hurricanes, windstorms, hailstorms, flooding, earthquakes, landslides, wildfires, solar storms, earth sinking, tsunamis, war or other military action, acts of terrorism, explosions and fires, cyberattacks, product defects, pandemics and other highly contagious diseases, mass torts, civil unrest and other catastrophes have adversely affected our business in the past and could do so in the future.

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Catastrophic events, and any relevant regulations, could result in losses in any business in which we operate, and could expose us to:

- widespread claim costs associated with property, workers' compensation, accident and health, travel, business interruption, cyber and mortality and morbidity claims;
- loss resulting from a decline in the value of our invested assets;
- limitations on our ability to recover deferred tax assets;
- loss resulting from actual policy experience that is adverse compared to the assumptions made in product pricing;
- revenue loss due to decline in customer base;
- declines in value and/or losses with respect to companies and other entities whose securities we hold and counterparties we transact business with and have credit exposure to, including reinsurers; and
- significant disruptions to our physical infrastructure, systems and operations.

Natural and man-made catastrophic events are generally unpredictable. Our exposure to catastrophe-related loss depends on various factors, including the frequency and severity of the catastrophes, the availability of reinsurance, the rate of inflation and the value and geographic or other concentrations of insured companies and individuals. Vendor models and proprietary assumptions and processes that we use to manage catastrophe exposure may prove to be ineffective due to incorrect assumptions or estimates. For example, modeling for terrorism, cyber events and pandemics is more difficult and may be less reliable.

In addition, legislative and regulatory initiatives and court decisions following major catastrophes (both natural and man-made) have required and could require us to pay the insured beyond the provisions of the original insurance policy and may prohibit the application of a deductible, resulting in inflated and unanticipated claims; or impose other restrictions after the occurrence of a major catastrophe, which would reduce our ability to mitigate exposure. These initiatives could impair our cash flows and, without regulatory relief, could reduce our subsidiaries' capital ratios.

For additional information on potential catastrophic events, including a sensitivity analysis of our exposure to certain catastrophes, see Part II, Item 7. MD&A - Enterprise Risk Management - Insurance Risks.

For information regarding the effects of climate change on our business, see Reserves and Exposures - “Climate change may adversely affect our business and financial condition” below.

For information regarding the effects of the COVID-19 pandemic on our business, see Business and Operations - “COVID-19 has affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity, and its ultimate impact will depend on future developments that are uncertain and cannot be predicted” below.

Climate change may adversely affect our business and financial condition.

Climate change, indicated by higher concentrations of greenhouse gases, a warming atmosphere and ocean, wildfires, diminished snow and ice, and a rise in sea levels, appears to have contributed to an increase in the frequency and severity of natural disasters and the creation of uncertainty as to future trends and exposures. As such, climate change presents significant financial implications for AIG in areas such as underwriting, claims and investments, as well as risk capacity, financial reserving and operations.

Climate change presents challenges to our ability to effectively underwrite, model and price catastrophe risk particularly if the frequency and severity of catastrophic events such as pandemics, hurricanes, tornadoes, floods, wildfires and windstorms and other natural disasters continue to increase. For example, losses resulting from actual policy experience may be adverse as compared to the assumptions made in product pricing as well as mortality assumptions and our ability to mitigate our exposure may be reduced.

Climate change-related risks may also adversely impact the value of the securities that we hold or lead to credit risk of other counterparties we transact business with, including reinsurers. Our reputation or corporate brand could also be negatively impacted as a result of changing customer or societal perceptions of organizations that we either insure or invest in due to their actions (or lack thereof) with respect to climate change. Any policies adopted by investors to address changing societal perceptions on climate change could result in increased compliance costs to our businesses and changes to our corporate governance and risk management practices, and may affect the type of assets we hold in our investment portfolio.

In addition, lawmakers and regulators have imposed and may continue to impose new requirements or issue new guidance aimed at addressing or mitigating climate change-related risks and efforts undertaken in response thereto. Additional actions by foreign governments, regulators and international standard setters could result in substantial additional regulation to which we may be subject. It is also possible that the laws and regulations adopted in U.S. state, U.S. federal or foreign jurisdictions regarding climate change-related risks will differ from one another, and that they could be inconsistent with the laws and regulations of other jurisdictions in which we operate.

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ITEM 1A | Risk Factors

Additionally, litigation related to climate change has increased in recent years. Many lawsuits center on enforcement or interpretation of environmental laws and regulations, often seeking to use litigation as a tool to influence governmental and corporate climate policies. Other cases seek damages for contribution to climate change or for insufficient disclosure around material financial risks. Increased litigation of this nature could trigger losses under liability policies, such as casualty and directors' and officers' insurance policies, increase our liabilities and affect the viability of certain of our business lines.

In addition, severe weather and other effects of climate change result in more frequent and more severe damages, leading to lawsuits. Wildfires in the western U.S., resulting in significant litigation liability for utility companies, are an example of this. Indirect climate change effects are also seen in litigation over flooding, mudslides and other severe weather that results in injury or damage, as well as in construction defect litigation, chemical release lawsuits, and workers' compensation claims. Litigation related to climate change may, through increased claims from our customers and adverse impacts to the value of the securities that we hold, adversely impact our business and results of operations.

We have also faced and may continue to face business continuity risk as a result of climate change-related incidents that may disrupt business operations, including extreme weather events. We cannot predict the long-term impacts of climate change on our business and results of operations.

*For information regarding risks associated with other catastrophic events, see Reserves and Exposures - 'Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of natural and man-made catastrophic events' above.*

### **Concentration of our insurance, reinsurance and other risk exposures may have adverse effects.**

We are exposed to risks as a result of concentrations in our insurance and reinsurance policies, investments, derivatives and other obligations that we undertake for customers and counterparties. We manage these risks related to concentration by monitoring the accumulation of our exposures to factors such as exposure type and size, industry, geographic region, counterparty and other factors. We also seek to use third-party reinsurance, hedging and other arrangements to limit or offset exposures that exceed our retention and risk appetite limits. In certain circumstances, however, these risk management arrangements may not be available on acceptable terms or may prove to be ineffective. Our risk exposures under insurance and reinsurance policies, derivatives and other obligations are, from time to time, compounded by risk exposure assumed in our investment business. Also, our exposure for certain single risk coverages and other coverages may be so large that adverse experience compared to our expectations may have a material adverse effect on our consolidated results of operations or result in additional statutory capital requirements for our subsidiaries.

In addition, the separation of our Life and Retirement business, if completed, could increase the materiality of these potential concentrations in the remaining portfolio. *For additional information on risks associated with the separation of the Life and Retirement business from AIG, see Business Operations - 'No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake' below.*

*Also see Part II, Item 7. MD&A - Business Segment Operations - General Insurance - Business Strategy and - Outlook - Industry and Economic Factors, and Part II, Item 7. MD&A - Business Segment Operations - Life and Retirement - Business Strategy and - Outlook - Industry and Economic Factors.*

### **Fortitude Re may fail to perform its obligations and the accounting treatment of our reinsurance agreements with Fortitude Re leads to volatility in our results of operations.**

As of December 31, 2022, approximately $29.0 billion of reserves from AIG's Life and Retirement Run-Off Lines and approximately $3.2 billion of reserves from AIG's General Insurance Run-Off Lines, related to business written by multiple wholly-owned AIG subsidiaries, had been ceded to Fortitude Re under reinsurance transactions. These reserve balances are fully collateralized pursuant to the terms of the reinsurance transactions. Our subsidiaries continue to remain primarily liable to policyholders under the business reinsured with Fortitude Re. As a result, if Fortitude Re is unable to successfully operate, or other issues arise that affect its financial condition or ability to satisfy or perform its obligations to our subsidiaries, we could experience a material adverse effect on our results of operations, financial condition and liquidity to the extent the amount of collateral posted in respect of our reinsurance receivable is inadequate. Further, as is customary in similar reinsurance agreements, upon the occurrence of certain termination and recapture triggers, our subsidiaries may elect or may be required to recapture the business ceded under such reinsurance agreements, which would result in a substantial increase to our insurance liabilities and statutory capital requirements and may require us to raise capital to recapture such ceded business. These termination and recapture triggers include Fortitude Re becoming insolvent or being placed into liquidation, rehabilitation, conservatorship, supervision, receivership, bankruptcy or similar proceedings, certain regulatory ratios falling below certain thresholds, and, in the case of those reinsurance agreements made with Life and Retirement, Fortitude Re's failure to perform under the reinsurance agreements, or its entry into certain transactions without receiving the consent of Corebridge.

As the reinsurance transactions between AIG and Fortitude Re are structured as modified coinsurance (modco) for the Life and Retirement Run-Off Lines and loss portfolio transfer arrangements with funds withheld for the General Insurance Run-Off Lines, the manner in which we account for these reinsurance arrangements has led, and will continue to lead, to volatility in our results of operations. In modco and funds withheld arrangements, the investments supporting the reinsurance agreements, and which reflect

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the majority of the consideration that would be paid to the reinsurer for entering into the transaction, are withheld by, and therefore continue to reside on the balance sheet of, the ceding company (i.e., AIG and its subsidiaries) thereby creating an obligation for the ceding company to pay the reinsurer (i.e., Fortitude Re) at a later date. Additionally, as our applicable insurance subsidiaries maintain ownership of these investments, AIG will maintain its existing accounting for these assets (e.g., the changes in fair value of available for sale securities will be recognized within other comprehensive income). AIG has established a funds withheld payable to Fortitude Re while simultaneously establishing a reinsurance asset representing reserves for the insurance coverage that Fortitude Re has assumed. The funds withheld payable contains an embedded derivative and changes in fair value of the embedded derivative related to the funds withheld payable are recognized in earnings through realized gains (losses). This embedded derivative is considered a total return swap with contractual returns that are attributable to various assets and liabilities associated with these reinsurance agreements. As a result of changes in the fair value of the embedded derivative, we experience volatility in our GAAP net income.

*For additional information on our exposure to credit risk of reinsurers, see Reserves and Exposures - “Reinsurance may be unavailable or too expensive relative to its benefit, and may not be adequate to protect us against losses” above.*

### **We may be required to accelerate the amortization of DAC and record additional liabilities for future policy benefits.**

We incur significant costs in connection with acquiring new and renewal insurance business. DAC represents deferred costs that are incremental and directly related to the successful acquisition of new business or renewal of existing business. The recovery of these costs is generally dependent upon the future profitability of the related business, but DAC amortization varies based on the type of contract. For long-duration traditional business, DAC is generally amortized in proportion to premium revenue and varies with lapse experience. Actual lapses in excess of expectations have and may result in an acceleration of DAC amortization, and therefore, adversely impact our results of operations.

DAC for investment-oriented products is generally amortized in proportion to actual and estimated gross profits. Estimated gross profits are affected by a number of factors, including levels of current and expected interest rates, net investment income (which is net of investment expenses) and credit spreads, net realized gains and losses, fees, surrender rates, mortality experience, policyholder behavior experience and equity market returns and volatility. If actual and/or future estimated gross profits are less than originally expected, then the amortization of these costs would be accelerated in the period this is determined and would result in a lower-than-expected profitability, potentially impacting our ability to achieve our financial goals. Additionally, this would also result in a decrease in expected future profitability and an acceleration of the amortization of DAC, and therefore lower than expected pre-tax income earned during the then current period.

We also periodically review products for potential loss recognition events, principally long-duration products. This review involves estimating the future profitability of in-force business and requires significant management judgment about assumptions including, but not limited to, mortality, morbidity, persistency, maintenance expenses and investment returns, including net realized gains (losses). If actual experience or revised future expectations result in projected future losses, we may be required to amortize any remaining DAC and record additional liabilities through a charge to policyholder benefit expense in the then current period, which could negatively affect our business, results of operations, financial condition and liquidity.

*For additional information on DAC and future policy benefits, see Part II, Item 7. MD&A - Critical Accounting Estimates and Notes 12 and 13 to the Consolidated Financial Statements.*

*For additional information on changes to accounting standards for long-duration insurance contracts, see Estimates and Assumptions - “Changes in accounting principles and financial reporting requirements will impact our consolidated results of operations and financial condition.”*

### **Losses due to nonperformance or defaults by counterparties may materially and adversely affect the value of our investments, our profitability and sources of liquidity.**

We are exposed to credit risk arising from exposures to various counterparties related to investments, derivatives, premiums receivable, certain General Insurance businesses and reinsurance recoverables. These counterparties include, but are not limited to, issuers of fixed income and equity securities we hold, borrowers of loans we hold, customers, plan sponsors, trading counterparties, counterparties under swaps and other derivatives instruments, reinsurers, corporate and governmental entities whose payments or performance we insure, joint venture partners, clearing agents, exchanges, clearing houses, custodians, brokers and dealers, commercial banks, investment banks, intra-group counterparties with respect to derivatives and other third parties, financial intermediaries and institutions and guarantors. These counterparties may default on their obligations to us due to bankruptcy, insolvency, receivership, financial distress, lack of liquidity, adverse economic conditions, operational failure, fraud, government intervention and other reasons. In addition, for exchange-traded derivatives, such as futures, options as well as “cleared” over-the-counter derivatives, we are generally exposed to the credit risk of the relevant central counterparty clearing house and futures commission merchants through which we clear derivatives. Defaults by these counterparties on their obligations to us could have a material adverse effect on the value of our investments, business, financial condition, results of operations and liquidity.

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An insolvency of, or the appointment of a receiver to rehabilitate or liquidate, a significant competitor could negatively impact our business if such appointment were to impact consumer confidence in our products and services. Additionally, if the underlying assets supporting the structured securities we invest in are expected to default or actually default on their payment obligations, our securities may incur losses.

In addition, our exposure to credit risk may be exacerbated in periods of market or credit stress, as derivative counterparties take a more conservative view of their acceptable credit exposure to us, resulting in reduced capacity to execute derivative-based hedges.

## INVESTMENT PORTFOLIO AND CONCENTRATION OF INVESTMENTS

**Our investment portfolio is concentrated in certain segments of the economy, and the performance and value of our investment portfolio are subject to a number of risks and uncertainties.**

Our results of operations and financial condition have in the past been, and may in the future be, adversely affected by the degree of concentration in our consolidated investment portfolio. For example, we have holdings of real estate and real estate-related investments, including residential mortgage-backed, commercial mortgage-backed and other asset-backed securities and residential and commercial mortgage loans. We also have significant exposures to financial institutions and, in particular, to money center banks and global banks, certain industries, such as energy and utilities, the U.S. federal, state and local government issuers and authorities, and global financial institutions, governments and corporations. Events or developments that have a negative effect on any particular industry, asset class, group of related industries or geographic region may adversely affect the valuation of our investments to the extent they are concentrated in such segments. Our ability to sell assets in such segments may be limited.

Our investments are also subject to market risks and uncertainties, including, in addition to interest rate risk, changes in the level of credit spreads, currency rates, and commodity and equity prices, each of which has affected and will continue to affect the value of investments in our investment portfolio as well as the performance of, and returns generated by, such investments. *For information regarding risks associated with interest rate volatility, see Market Conditions - “Changes in interest rates have materially and adversely affected and may continue to materially and adversely affect our profitability” above.*

Furthermore, our alternative investment portfolio, which is subject to volatility in equity markets, includes investments for which changes in fair value are reported through pre-tax income. An economic downturn or decline in the capital markets has had and could continue to have a material adverse effect on our investment income, including as a result of decreases in the fair value of alternative investments.

**We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of Blackstone, BlackRock or any other investment manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on AIG Common Stock.** In 2021, AIG entered into a long-term investment management relationship with Blackstone, pursuant to which Blackstone is initially managing $50 billion of Corebridge’s existing investment portfolio, with that amount increasing to an aggregate of $92.5 billion over the next five years. In addition, beginning in April 2022, certain AIG and Corebridge insurance company subsidiaries have entered into investment management agreements with BlackRock, pursuant to which BlackRock is managing over $150 billion of our investments in liquid fixed income and certain private placement assets, including over $90 billion of the Corebridge investment portfolio.

As part of the arrangements with Blackstone, Blackstone is serving as exclusive external investment manager for certain of Corebridge’s insurance company subsidiaries for certain asset classes, which has led to an increase in investment management fees payable by us as compared to expenses we have historically incurred for similar services. Under the arrangements with Blackstone, there are provisions that require minimum management fees to be paid to Blackstone to the extent actual amounts charged to the Corebridge insurance company subsidiaries are below such minimums. Also, the exclusivity provisions and termination provisions that are part of these arrangements with Blackstone may prevent our Corebridge subsidiaries from retaining other external investment managers with respect to the subject asset classes who may produce better returns on investments than Blackstone. In addition, pursuant to the relevant agreements with Blackstone, if such agreements are terminated for reasons other than certain specified reasons, Corebridge could be required to continue paying investment advisory fees to Blackstone regardless of the termination. Corebridge may not have the funds available to pay any such fees and its insurance company subsidiaries may not be able or permitted to pay dividends or make other distributions to Corebridge in an amount sufficient to pay any such fees or at all. Any requirement to pay such fees could adversely affect our business, results of operations, financial condition and liquidity.

If Blackstone or BlackRock are unable to effectively manage our portfolio, the concentration of assets in our portfolio that are managed by Blackstone and BlackRock could adversely affect our business, results of operations, financial condition and liquidity.

In addition, Blackstone and BlackRock are generally compensated based solely on our assets which they manage, rather than by investment return targets, and as a result, Blackstone and BlackRock are not directly incentivized to maximize investment return targets. Our investment portfolio’s returns have benefited historically from investment opportunities and general market conditions that may not currently exist and may not be repeated. There can be no guarantee that Blackstone, BlackRock or any other investment

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manager we engage will be able to achieve any particular returns or generate investment opportunities with attractive, risk-adjusted returns for our investment portfolio in the future.

**Our valuation of investments and derivatives involves the application of methodologies and assumptions to derive estimates, which may differ from actual experience and could result in changes to investment valuations that may materially adversely affect our business, results of operations, financial condition and liquidity or lead to volatility in our net income.**

During periods of market disruption, it has been and may continue to be difficult to value certain of our investments or derivatives if trading becomes less frequent and/or market data becomes less observable. There may be cases where certain assets in normally active markets with significant observable data become inactive with insufficient observable data due to the financial environment or market conditions in effect at that time. As a result, valuations may include inputs and assumptions that are less observable or require greater estimation and judgment as well as valuation methods that are more complex. These values may not be realized in a market transaction, may not reflect the value of the asset and may change very rapidly as market conditions change and valuation assumptions are modified. Decreases in value and/or an inability to realize that value in a market transaction or other disposition may have a material adverse effect on our business, results of operations, financial condition and liquidity.

*For information regarding volatility in accounting as it relates to Fortitude Re, see Reserves and Exposures - “Fortitude Re may fail to perform its obligations and the accounting treatment of our reinsurance agreements with Fortitude Re leads to volatility in our results of operations” above.*

## LIQUIDITY, CAPITAL AND CREDIT

**AIG Parent’s ability to access funds from our subsidiaries is limited, and our sources of liquidity may be insufficient to meet our needs, including providing capital that may be required by our subsidiaries.** As a holding company, AIG Parent depends on dividends and other payments from its subsidiaries to fund operations, pay dividends, meet debt service obligations and meet the capital and liquidity needs of our subsidiaries. The majority of our investments are held by our regulated subsidiaries. Any inability by our subsidiaries to make dividend or other payments in an amount sufficient to enable AIG Parent to meet its cash requirements could have an adverse effect on our operations or our business, results of operations, financial condition, capital and liquidity.

The ability of our subsidiaries to pay dividends to us in the future will depend on their earnings, capital levels, tax considerations, covenants contained in any financing or other agreements, applicable regulatory restrictions and rating agency requirements. In addition, such payments could be limited as a result of claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and employees. Additionally, our insurance subsidiaries may be limited in their ability to make dividend payments to AIG Parent in the future because of the need to meet their obligations or to support their own capital levels or because of regulatory limits and restrictions or changes in, or interpretations of, regulatory or rating agency standards.

Our decision to pursue strategic changes or transactions in our business and operations may also subject our subsidiaries’ dividend plans to heightened regulatory scrutiny and could make obtaining regulatory approvals for extraordinary distributions by our subsidiaries, if required, more difficult. We are also subject to certain other restrictions on our capital from time to time.

If our liquidity is insufficient to meet our needs, we may need to have recourse to third-party financing, external capital markets or other sources of liquidity, which may not be available or could be expensive. The availability and cost of any additional financing at any given time depends on a variety of factors, including general market conditions, the volume of trading activities, the overall availability of credit, regulatory actions and our credit ratings and credit capacity. It is also possible that, as a result of such recourse to external financing, customers, lenders or investors could develop a negative perception of our long- or short-term financial prospects. If AIG Parent is unable to satisfy a capital need of a subsidiary, the credit rating agencies could downgrade the subsidiary’s financial strength ratings or the subsidiary could become insolvent or, in certain cases, could be seized by its regulator.

In the ordinary course of our business, we are required to post collateral for our insurance company subsidiaries from time to time. If our reinsurance liabilities increase, we may be required to post additional collateral for insurance company clients that we reinsure. In addition, we may be required to post additional collateral due to regulatory changes from time to time, which could adversely impact our business, financial condition, results of operations and cash flows.

*For additional information on our liquidity, see Part II, Item 7. MD&A - Liquidity and Capital Resources.*

*For additional information on rating agency requirements, see Liquidity, Capital and Credit - “A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance or reinsurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity” below.*

AIG | 2022 Form 10-K

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ITEM 1A | Risk Factors

# **We may not be able to generate cash to meet our needs due to the illiquidity of some of our investments.**

We and our subsidiaries have a diversified investment portfolio. However, economic conditions as well as adverse capital market conditions, including a lack of buyers, the inability of potential buyers to obtain financing on reasonable terms, volatility, credit spread changes, interest rate changes, foreign currency exchange rates and/or declines in collateral values have in the past impacted, and may in the future impact, the liquidity and value of our investments.

We have investments in certain securities, including certain fixed income structured and privately placed securities as well as investments in private equity funds and hedge funds, mortgage loans, finance receivables and real estate that are less liquid than other types of securities. Collectively, investments in these assets had a carrying value of $66 billion at December 31, 2022. If it became necessary to sell such assets in a stressed market environment, the prices achieved in any sale of such securities may be lower than their carrying value, which could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Adverse changes in the valuation of real estate and real estate-linked assets, deterioration of capital markets and widening credit spreads have in the past, and may in the future, materially adversely affect the liquidity and the value of our investment portfolios, including our residential and commercial mortgage related securities portfolios.

In the event additional liquidity is required by one or more of our companies, it may be difficult for us to generate additional liquidity by selling, pledging or otherwise monetizing these or other of our investments at reasonable prices and time frames.

# **A downgrade by one or more of the rating agencies in the Insurer Financial Strength ratings of our insurance or reinsurance companies could limit their ability to write or prevent them from writing new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity.**

Downgrades of the Insurer Financial Strength (IFS) ratings of our insurance or reinsurance companies could (i) prevent these companies from selling, or make it more difficult for them to succeed in selling, products and services, (ii) make it more difficult for them to obtain new reinsurance or obtain it on reasonable pricing terms, and/or (iii) result in increased policy cancellations, lapses and surrenders, termination of, or increased collateral posting obligations under, assumed reinsurance contracts, or return of premiums.

A downgrade in AIG Parent's credit ratings could result in a downgrade of the IFS ratings of our insurance or reinsurance subsidiaries. Similarly, under credit rating agency policies, a downgrade of the IFS ratings of our insurance and reinsurance subsidiaries could also result in a downgrade in AIG Parent's credit ratings.

In addition, a downgrade of our long-term debt ratings could potentially increase our financing costs and limit the availability of financing. A downgrade would also require us to post additional collateral payments related to derivative transactions to which we are a party, and could cause counterparties to limit or reduce their exposure to us and thus reduce our ability to manage our market risk exposures effectively.

These events could adversely affect our business, results of operations, financial condition and liquidity.

*For additional information on rating agency actions, see Part II, Item 7. MD&A - Liquidity and Capital Resources - Credit Ratings and - Financial Strength Ratings.*

# **Changes in the method for determining LIBOR and the continuing phase out of LIBOR and uncertainty related to LIBOR replacement rates may affect our business, results of operations, financial condition and liquidity.**

We have assets, liabilities and obligations with interest rates tied to the London Interbank Offered Rate (LIBOR) for U.S. dollars and other certain remaining currencies. Starting January 1, 2022, all LIBOR settings either ceased to be provided by any administrator, or are no longer representative for all non-U.S. dollar LIBOR settings and one-week and two-month U.S. dollar (USD) LIBOR settings, and we expect the same will occur immediately after June 30, 2023 for the remaining USD LIBOR settings, absent subsequent action by the relevant authorities.

Significant recommendations as to alternative rates and as to protocols have been advanced by various regulators and market participants, including the Alternative Reference Rates Committee of the United States Federal Reserve (ARRC), the International Swaps and Derivatives Association (ISDA), and the UK FCA, and legislative action by the U.S. Congress and the State of New York, but there can be no assurance that the various recommendations or legislative action will be effective at preventing or mitigating disruption as a result of the transition. In particular, for U.S. dollar LIBOR, the ARRC has selected the Secured Overnight Financing Rate (SOFR) as its preferred replacement benchmark and has formally recommended, in limited cases, a term rate based on SOFR; both ARRC and ISDA have taken significant steps toward implementing various fallback provisions and protocols; and for British pound sterling, relevant authorities have promoted use of Sterling Overnight Index Average (SONIA) as a replacement for LIBOR. However, the market transition away from LIBOR to alternative reference rates, including SOFR or SONIA, is complex and could result in disruptions, among other things, due to differences between LIBOR (an unsecured forward-looking term rate) and alternative rates that are based on historical measures of overnight secured rates; due to failure of market participants to fully accept such alternative rates; or due to difficulties in amending legacy LIBOR contracts or implementing processes for determining new alternative rates.

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AIG | 2022 Form 10-K

ITEM 1A | Risk Factors

The consequences of LIBOR reform could adversely affect the market for LIBOR-based securities, the payment obligations under our existing LIBOR-based liabilities and our ability to issue funding agreements bearing a floating rate of interest, as well as the value of financial and insurance products tied to LIBOR, investment portfolio or the substantial amount of derivatives contracts we use to hedge our assets, insurance and other liabilities.

We cannot be certain that measures taken to address the transition from LIBOR will effectively mitigate potential risks related to such transition. In addition, we anticipate there may be additional risks to our current processes and information systems that will need to be identified and evaluated by us. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms could materially and adversely affect our business, results of operations, financial condition and liquidity.

## BUSINESS AND OPERATIONS

**No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake.** In September of 2022, AIG closed on the initial public offering of 12.4 percent of Corebridge's common stock. While we currently intend to sell down our ownership interest in Corebridge over time following expiration of our lock-up, there can be no guarantee as to the timing or pricing thereof.

Similar to other business dispositions, the separation of our Life and Retirement business involves a number of risks, including (i) unanticipated developments that may delay, prevent or otherwise adversely affect our ability to effect a separation; (ii) significant costs and disruption or distraction of management from AIG's other business operations, whether or not a separation is completed; (iii) rating agency actions; (iv) unforeseen losses, liabilities or asset impairments arising from the disposition; and (v) if we are successful in separating the business, increased concentration of our business operations.

In addition, the separation of our Life and Retirement business, or a significant delay in our ability to continue to separate the business, has and could continue to cause the emergence or exacerbate the effects of many of the other risks noted herein, including: (i) the risk of indemnity claims that could be made against us in connection with divested businesses; (ii) our ability to utilize certain tax loss and credit carryforwards to offset future taxable income going forward; (iii) competition for employees and managing retention of key employees; (iv) maintaining relationships with certain key distributors; (v) concentration of our insurance and other risk exposures; and (vi) increased exposure to certain risks related to deriving revenue from non-U.S. sources.

We believe that the separation of our Life and Retirement business allows us and Corebridge to pursue distinct strategies appropriate to our respective markets. However, there can be no assurance that we will realize any or all of the expected strategic, financial, operational or other benefits of the separation. Our businesses and results of operations may be negatively impacted if we are unable to realize the anticipated expense reductions and organizational improvements of the separation and any related restructuring activities, or if implementing these initiatives harms our relationships with customers or employees or our competitive position. A failure to realize expected benefits of the separation could result in a material adverse effect on our business, results of operations and financial condition. Additionally, we continue to have a significant equity ownership position in Corebridge, and changes in the market price of Corebridge common stock may have a material impact on us.

**Pricing for our products is subject to our ability to adequately assess risks and estimate related losses.** Our business is dependent on our ability to price our products effectively and charge appropriate premiums, policy fees and other charges. Pricing adequacy depends on a number of factors and assumptions, including proper evaluation of insurance risks, our expense levels, expected net investment income to be realized, our response to rate actions taken by competitors, legal and regulatory developments, the ability to obtain regulatory approval for rate changes and inflation. Management establishes target returns for each product based upon the factors described above, certain underwriting assumptions and capital requirements, including statutory, GAAP and economic capital models. We monitor and manage pricing and sales to achieve target returns on new business, but we may not be able to achieve those returns due to the factors discussed above. Inadequate pricing and the difference between estimated results of the above factors compared to actual results could have a material adverse effect on the profitability of our operations and our financial condition.

**Guarantees within certain of our Life and Retirement products may increase the volatility of our results.** Certain of our annuity and life insurance products include features that guarantee a certain level of benefits, including guaranteed minimum death benefits, guaranteed living benefits, including guaranteed minimum income benefits, and products with guaranteed interest crediting rates, including crediting rate guarantees tied to the performance of various market indices. Many of these features are accounted for at fair value as embedded derivatives under GAAP, and they have significant exposure to capital markets and insurance risks. An increase in valuation of liabilities associated with the guaranteed features results in a decrease in our profitability and depending on the magnitude of any such increase, could materially and adversely affect our financial condition, including our capitalization, as well as our financial strength ratings.

AIG | 2022 Form 10-K

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ITEM 1A | Risk Factors

We employ a capital markets hedging strategy to partially offset the economic impacts of movements in equity, interest rate and credit markets, however, our hedging strategy may not effectively offset movements in our GAAP equity or our statutory surplus and capital requirements and may otherwise be insufficient in relation to our obligations. Furthermore, we are subject to the risk that changes in policyholder behavior or actual levels of mortality/longevity as compared to assumptions in pricing and reserving, combined with adverse market events, could produce losses not addressed by the risk management techniques employed. These factors, individually or collectively, may have a material adverse effect on our business, financial condition, results of operations or liquidity including our ability to receive dividends from our operating companies.

Changes in interest rates result in changes to the fair value liability. All else being equal, higher interest rates generally decrease the fair value of our liabilities, which increases our earnings, while low interest rates generally increase the fair value of our liabilities, which decreases our earnings. A prolonged low interest rate environment or a prolonged period of widening credit spreads may also subject us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for our liabilities, lowering their statutory surplus, which would adversely affect their ability to pay dividends. In addition, it may also increase the perceived value of our benefits to our policyholders, which in turn may lead to a higher than expected benefit utilization and persistency of those products over time.

Differences between the change in fair value of the GAAP embedded derivatives, as well as associated statutory and tax liabilities, and the value of the related hedging portfolio may occur and can be caused by movements in the level of equity, interest rate and credit markets, market volatility, policyholder behavior and mortality/longevity rates that differ from our assumptions and our inability to purchase hedging instruments at prices consistent with the desired risk and return trade-off. In addition, we may sometimes choose not to hedge or fully mitigate these risks, based on economic considerations and other factors. The occurrence of one or more of these events has in the past resulted in, and could in the future result in, an increase in the fair value of liabilities associated with the guaranteed benefits without an offsetting increase in the value of our hedges, or a decline in the value of our hedges without an offsetting decline in our liabilities, thus reducing our results of operations and shareholders' equity.

*For additional information on these products, see Notes 12 and 13 to the Consolidated Financial Statements, Item 1. Business - Regulation and Part II, Item 7. MD&A - Critical Accounting Estimates - Guaranteed Benefit Features of Variable Annuity, Fixed Annuity and Fixed Index Annuity Products.*

**Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses, results of operations, financial condition and liquidity.** We have developed and continue to enhance enterprise-wide risk management policies and procedures to identify, monitor and mitigate risk and loss to which we are exposed. Our risk management policies and procedures may not be sufficiently comprehensive and may not identify or adequately protect us from every risk to which we are exposed. Many of our methods of identifying, measuring, underwriting and managing risks are based upon our study and use of historical market, applicant, customer, employee and bad actor behavior or statistics based on historical models. As a result, these methods may not accurately predict future exposures from events such as a major financial market disruption as the result of a natural or man-made disaster (for example, a climate-related event or terrorist attack), that could be significantly different than the historical measures indicate, and which could also result in a substantial change in policyholder behavior and claims levels not previously observed. We have and will continue to enhance our underwriting processes, including, from time to time, considering and integrating newly available sources of data to confirm and refine our traditional underwriting methods. Our efforts at implementing these improvements may not, however, be fully successful, which may adversely affect our competitive position. We have also introduced new product features designed to limit our risk and taken actions on in-force business, which may not be fully successful in limiting or eliminating risk. We may take additional actions on our in-force business, including adjusting crediting rates and cost of insurance, which may not be fully successful in maintaining profitability and which may result in litigation. Moreover, our hedging programs and reinsurance strategies that are designed to manage market risk and mortality risk rely on assumptions regarding our assets, liabilities, general market factors and the creditworthiness of our counterparties that could prove to be incorrect or inadequate. Our hedging programs utilize various derivative instruments, including but not limited to equity options, futures contracts, interest rate swaps and swaptions, as well as other hedging instruments, which may not effectively or completely reduce our risk; and assumptions underlying models used to measure accumulations and support reinsurance purchases may prove inaccurate and could leave us exposed to larger than expected catastrophe losses in a given year. In addition, our current business continuity and disaster recovery plans may not be sufficient to reduce the impact of pandemics, cyber risks, including ransomware, and other natural or man-made catastrophic events that are beyond our anticipated thresholds or impact tolerances. Other risk management methods depend upon the evaluation of information regarding markets, clients, or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record and verify large numbers of transactions and events in each jurisdiction in which we operate. Jurisdictions have unique requirements with respect to artificial intelligence and environmental, social and governance matters, which may impact the efficacy of our standardized risk management tools and techniques and therefore our policies and procedures may not be fully effective. Accordingly, our risk management policies and procedures may not adequately mitigate the risks to our business, results of operations, financial condition and liquidity.

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AIG | 2022 Form 10-K

ITEM 1A | Risk Factors

If our risk management policies and procedures are ineffective, we may suffer unexpected losses and could be materially adversely affected. As our businesses change and the markets in which we operate evolve and new risks emerge, including for example risks related to climate change or meeting regulatory and stakeholder expectations relating to ESG or cybersecurity issues, our risk management framework may not evolve at the same pace as those changes. As a result, there is a risk that new products or new business strategies may present risks that are not appropriately identified, monitored or managed. The effectiveness of our risk management strategies may be limited, resulting in losses, because of market stress, unanticipated financial market movements or unanticipated claims experience from adverse mortality, morbidity or policyholder behavior. In addition, there can be no assurance that we can effectively review and monitor all risks or that all of our employees will understand and follow (or comply with) our risk management policies and procedures.

**Our foreign operations expose us to risks that may affect our operations.** We provide insurance, reinsurance, investment and other financial products and services to both businesses and individuals in approximately 70 countries and jurisdictions. A substantial portion of our business is conducted outside the United States, and we intend to continue to grow our business in strategic markets. Operations outside the United States have in the past been, and may in the future be, affected by regional economic downturns, changes in foreign currency exchange rates, political events or upheaval, sanctions policies, nationalization and other restrictive government or regulatory actions, which could also affect our other operations.

AIG subsidiaries operating in foreign jurisdictions must satisfy local regulatory requirements and it is possible that local licenses may require AIG Parent to meet certain conditions. Licenses issued by foreign authorities to our subsidiaries are subject to modification and revocation. Consequently, our insurance subsidiaries could be prevented from conducting future business in some of the jurisdictions where they currently operate. Adverse actions from any single country could adversely affect our results of operations, depending on the magnitude of the event and our financial exposure at that time in that country.

AIG is subject to myriad regulations which govern items such as sanctions, bribery and anti-money laundering, for which failure to comply could expose us to significant penalties. The USA Patriot Act of 2011 requires companies to know certain information about their clients and to monitor their transactions for suspicious activities. The Foreign Corrupt Practices Act makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Also, the Department of the Treasury's Office of Foreign Assets Control administers regulations that restrict or prohibit dealings within U.S. jurisdictions involving certain organizations, individuals, countries, and financial products. The UK, the EU and other jurisdictions maintain similar laws and regulations. Although we have policies and controls in place that are designed to ensure compliance with these laws, if those controls are ineffective and/or an employee or third party fails to comply with applicable laws and regulations, we could suffer civil and criminal penalties, including disgorgement, and our business and our reputation could be adversely affected.

**We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity.** We use information technology systems, infrastructure and networks and other operational systems to store, retrieve, evaluate and use customer, employee, and company data and information. Our business is highly dependent on our ability to access these systems and networks to perform necessary business functions. In the event of a natural disaster, a computer virus, unauthorized access, a terrorist attack, cyber attack or other disruption, our systems and networks may be inaccessible to our employees, customers or business partners for an extended period of time, and we may be unable to meet our business obligations and regulatory requirements for an extended period of time if our data or systems are disabled, manipulated, destroyed or otherwise compromised. Additionally, some of our systems and networks are older, legacy-type systems that are less efficient and require an ongoing commitment of significant resources to maintain or upgrade. Supply chain disruptions or delays could prevent us from maintaining and implementing changes, updates and upgrades to our systems and networks in a timely manner or at all. System and network failures or outages could compromise our ability to perform business functions in a timely manner, which could harm our ability to conduct business, hurt our relationships with our business partners and customers and expose us to legal claims as well as regulatory investigations and sanctions, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity.

Some of these systems and networks also rely upon third-party systems and services, which themselves may rely on the systems and services of other third parties. Problems caused by, or occurring in relation to, our third-party providers' systems and services, including those resulting from breakdowns or other disruptions in information technology services provided by our third-party providers and the other third-parties on which they rely, our inability to acquire third-party services on commercially acceptable terms, failure of a third-party provider to perform as anticipated or in compliance with applicable laws or regulations, inability of a third-party provider to provide the required volumes of services or third-party providers experiences cyberattacks, security breaches or data breaches, could materially and adversely affect our business, results of operations, financial condition and liquidity.

AIG | 2022 Form 10-K

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ITEM 1A | Risk Factors

Like other global companies, the systems and networks we maintain and third-party systems and networks we use have in the past been, and may in the future be, subject to or targets of unauthorized or fraudulent access, including physical or electronic break-ins or unauthorized tampering, as well as attempted cyber and other security threats and other computer-related penetrations such as “denial of service” attacks, phishing, untargeted but sophisticated and automated attacks, and other disruptive software, including ransomware. The frequency and sophistication of such threats continue to increase and often become further heightened in connection with geopolitical tensions. Also, like other global companies, we have an increasing challenge of retaining and attracting highly qualified personnel to assist us in combatting these security threats.

We continuously monitor and develop our information security and technology operations in an effort to prevent, detect, address and mitigate the risk of threats to our data, systems and networks, including malware and computer virus attacks, ransomware, unauthorized access, business e-mail compromise, misuse, denial-of-service attacks, system failures and disruptions, both independently and through contracts with third parties. There is no assurance that our security measures, including information security and technology policies and standards, administrative, technical and physical controls and other actions designed as preventative, will provide fully effective protection from such events. AIG maintains insurance to cover operational risks, such as cyber risk and technology outages, but this insurance may not cover all costs associated with the consequences of information systems or personal, confidential or proprietary information being compromised. In the case of a successful ransomware attack in which our data and information systems are compromised and applicable restore control processes to restore access are not effective, our information could be held hostage until a ransom, which may be significant, is paid. In some cases, such a compromise may not be immediately detected which may make it difficult to restore critical services, mitigate damage to assets and maintain the integrity and security of data including our policyholder, employee, agent, and other confidential information processed through our systems and networks.

Additionally, since we rely heavily on information technology and systems and on the integrity and timeliness of data to run our businesses and service our customers, any such security event and resulting compromise of systems or data may impede or interrupt our business operations and our ability to service our customers, and otherwise may materially and adversely affect our business, results of operations, financial condition and liquidity.

We are continuously evaluating and enhancing our information security and technology systems and processes, including third-party systems and services on which we rely. These continued enhancements and changes, as well as changes designed to update and enhance our protective measures to address new threats, may not decrease the risk of a system or process failure or may create a gap in the associated security measures during the change period. Any such system or process failure or security measures gap could materially and adversely affect our business, results of operations, financial condition and liquidity.

We routinely transmit, receive and store personal, confidential and proprietary information by email and other electronic means. Although we attempt to keep such information confidential and secure, we may be unable to do so in all events, especially with clients, vendors, service providers, counterparties and other third parties who may not have or use appropriate controls to protect personal, confidential or proprietary information. Failure to secure or appropriately handle personal, confidential or proprietary information could cause a loss of data or compromised data integrity, give rise to remediation or other expenses, expose us to liability under U.S. and international laws and regulations, and subject us to litigation, investigations, sanctions, and regulatory and law enforcement action, and result in reputational harm and loss of business, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.

Furthermore, certain of our businesses are subject to compliance with laws and regulations enacted by U.S. federal and state governments, the EU or other jurisdictions or enacted by various regulatory organizations or exchanges relating to the privacy and security of the information of clients, employees or others. The variety of applicable privacy and information security laws and regulations exposes us to heightened regulatory scrutiny, requires us to incur significant technical, legal and other expenses in an effort to ensure and maintain compliance and will continue to impact our business in the future by increasing legal, operational and compliance costs. While we have taken steps to comply with privacy and information security laws, we cannot guarantee that our efforts will meet the evolving standards imposed by data protection authorities. If we are found not to be in compliance with these privacy and security laws and regulations, we may be subject to additional potential private consumer, business partner or securities litigation, regulatory inquiries, and governmental investigations and proceedings, and we may incur damage to our reputation. Any such developments may subject us to material fines and other monetary penalties and damages, divert management’s time and attention, and lead to enhanced regulatory oversight, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity. Additionally, we expect that developments in privacy and cybersecurity worldwide will increase the financial and reputational implications following a significant breach of our or our third-party suppliers’ information technology systems. *For additional information on data protection and cybersecurity regulations, see Item 1. Business - Regulation - Privacy, Data Protection and Cybersecurity, and Part II, Item 7. MD&A - Enterprise Risk Management - Operational Risk Management - Cybersecurity Risk.*

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AIG | 2022 Form 10-K

ITEM 1A | Risk Factors

**Third parties we rely upon to provide certain business and administrative services on our behalf may not perform as anticipated, which could have an adverse effect on our business and results of operations.** We rely on the use of third-party providers to deliver contracted services in a broad range of areas, including administration of servicing of certain policies and contracts and investment assets, investment accounting, information technology and operational functions, finance and actuarial services, claims administration, human resources and information technology services related to infrastructure, application development and maintenance. In addition, we have engaged with BlackRock for use of its investment management and risk analytics technology, Aladdin. The implementation of Aladdin is comprised of multiple workstreams that are complex and require significant time and resource prioritization. While we have achieved key milestones in the implementation of the technology, there could be delays due to lack of sufficient resources to execute on a timely basis, inefficiencies stemming from changes that may be required to the program or sequencing, failure to meet operational and financial targets due to additional priorities or other factors. These risks may impair our ability to achieve anticipated improvements in our businesses or may otherwise harm our operations which could materially and adversely affect our businesses, financial condition and operations.

Further, we have engaged Blackstone and BlackRock to serve as our investment managers for certain asset classes. *For information regarding our reliance on Blackstone and BlackRock as a third-party asset managers, see Investment Portfolio and Concentration of Investments - “We rely on investment management and advisory arrangements with third-party investment managers for the majority of our investment portfolio. The historical performance of Blackstone, BlackRock or any other asset manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on AIG Common Stock” above.*

Some of the third-party providers we use are located outside the U.S., which exposes us to business disruptions and political risks inherent to conducting business outside of the U.S. We periodically negotiate provisions and renewals of these relationships, and there can be no assurance that such terms will remain acceptable to us, such third parties or regulators. If such third-party providers experience disruptions, fail to meet applicable licensure requirements, do not perform as anticipated or in compliance with applicable laws and regulations, terminate or fail to renew our relationships, or such third-party providers in turn rely on services from another third-party provider, who experiences such disruptions, licensure failures, nonperformance or noncompliance, termination or non-renewal of its contractual relationships, we may experience operational difficulties, an inability to meet obligations (including, but not limited to, contractual, legal, regulatory or policyholder obligations), a loss of business, increased costs or reputational harm, compromises to our data integrity, or suffer other negative consequences, all of which may have a material adverse effect on our business, consolidated results of operations, liquidity and financial condition. Third parties performing regulated activities on our behalf, such as sales and servicing of insurance products, pose a heightened risk as we may be held accountable for third-party conduct that is not in compliance with applicable law.

*For information regarding cyber risk arising from third-party providers, see Business and Operations - “We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our consolidated business, results of operations, financial condition and liquidity” above.*

**We may experience difficulty in marketing and distributing products through our current and future distribution channels and the use of third parties may result in additional liabilities.** Although we distribute our products through a wide variety of distribution channels, we maintain relationships with a number of key distributors, which results in certain distributor concentration. Distributors have in the past, and may in the future, elect to renegotiate the terms of existing relationships, such that those terms may not remain attractive or acceptable to us, limit the products they sell, including the types of products offered by us, or otherwise reduce or terminate their distribution relationships with us, with or without cause. This could be due to various reasons, such as industry consolidation of distributors or other industry changes that increase the competition for access to distributors, developments in laws or regulations that affect our business or industry, including the marketing and sale of our products and services, adverse developments in our business, the distribution of products with features that do not meet minimum thresholds set by the distributor, strategic decisions that impact our business, adverse rating agency actions or concerns about market-related risks.

Alternatively, renegotiated terms may not be attractive or acceptable to distributors, or we may terminate one or more distribution agreements due to, for example, a loss of confidence in, or a change in control of, one of the third-party distributors. An interruption or reduction in certain key relationships could materially affect our ability to market our products and could materially and adversely affect our business, results of operations, financial condition and liquidity.

Key distribution partners could merge, consolidate, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts. An increase in bank, wirehouse and broker-dealer consolidation activity could increase competition for access to distributors, result in greater distribution expenses and impair our ability to market certain of our products through these channels.

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ITEM 1A | Risk Factors

Also, if we are unsuccessful in attracting, retaining and training key distribution partners, or are unable to maintain our distribution relationships, our sales could decline, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, substantially all of our distributors are permitted to sell our competitors' products. If our competitors offer products that are more attractive than ours or pay higher commission rates to the distribution partners than we do or for other reasons outside of our control, these distribution partners could concentrate their efforts in selling our competitors' products instead of ours.

In addition, we can, in certain circumstances, be held responsible for the actions of our third-party distributors, including broker-dealers, registered representatives, insurance agents and agencies, marketing organizations, and their respective employees, agents and representatives, in connection with the marketing and sale of our products by such parties, including the security of their operations and their handling of confidential information and personal data, in a manner that is deemed not compliant with applicable laws and regulations. This is particularly acute with respect to unaffiliated distributors where we may not be able to directly monitor or control the manner in which our products are sold through third-party firms despite our training and compliance programs. Further, misconduct by employees, agents and representatives of our broker-dealer subsidiaries in the sale of our products could also result in violations of laws by us or our subsidiaries, regulatory sanctions and serious reputational or financial harm to us. The precautions we take to prevent and detect the foregoing activities may not be effective. If our products are distributed to customers for whom they are unsuitable or distributed in a manner alleged to be inappropriate, or third-party distributors experience a security or data breach due to deficient operational controls, we could suffer reputational and/or other financial harm to our business.

*For information regarding suitability standards, see Item 1. Business - Regulation - Regulatory Regimes - United States.*

**Failure to effectively execute on AIG 200 could have a material effect on our operations or financial condition.** In 2019, we announced AIG 200, our global, multi-year and enterprise-wide program involving transformational change across the Company. AIG 200 is comprised of ten operational programs mapped against four core objectives that are complex and require significant investment and resource prioritization. While we have already reached our exit run-rate savings goal associated with the program, we still may not fully achieve some or all of the expected benefits from these operational programs. In addition, there could be delays in execution across the programs, particularly with respect to implementation of technology platforms, lack of sufficient resources to execute on a timely basis, inefficiencies stemming from changes that may be required to programs or sequencing, failure to meet operational and financial targets due to additional priorities or other factors, and the inability to secure regulatory approvals, if and when needed. These risks may impair our ability to achieve anticipated improvements in our businesses or may otherwise harm our operations which could materially and adversely affect our businesses, financial condition and cash flow.

**Business or asset acquisitions and dispositions may expose us to certain risks.** The completion of any business or asset acquisition or disposition is subject to certain risks, including those relating to the receipt of required regulatory approvals, the terms and conditions of regulatory approvals including any financial accommodations required by regulators, our ability to satisfy such terms, conditions and accommodations, the occurrence of any event, change or other circumstances that could give rise to the termination of a transaction and the risk that parties may not be willing or able to satisfy the conditions to a transaction. As a result, there can be no assurance that any business or asset acquisition or disposition will be completed as contemplated, or at all, or regarding the expected timing of the completion of the acquisition or disposition. For example, there can be no certainty as to the sale of our remaining stake in Corebridge nor the timing, pricing or terms thereof.

Once we complete acquisitions or dispositions, there can be no assurance that we will realize the anticipated economic, strategic or other benefits of any transaction. For example, the integration of businesses we acquire may not be as successful as we anticipate or there may be undisclosed risks present in such businesses. Acquisitions involve a number of risks, including operational, strategic, financial, accounting, legal, compliance and tax risks. Difficulties integrating an acquired business may result in the acquired business performing differently than we expected (including through the loss of customers) or in our failure to realize anticipated expense-related efficiencies. Our existing businesses could also be negatively impacted by acquisitions. Risks resulting from future acquisitions may have a material adverse effect on our results of operations and financial condition. In connection with a business or asset disposition, we may also hold a concentrated position in securities of the acquirer as part of the consideration, which subjects us to risks related to the price of equity securities and our ability to monetize such securities. We have also provided and may provide financial guarantees and indemnities in connection with the businesses we have sold or may sell, as described in greater detail in Note 15 to the Consolidated Financial Statements. While we do not currently believe that claims under these indemnities will be material, it is possible that significant indemnity claims could be made against us. If such a claim or claims were successful, it could have a material adverse effect on our results of operations, cash flows and liquidity.

*For additional information regarding the risks associated with AIG's separation of its Life and Retirement business, see Business and Operations - 'No assurances can be given that the separation of our Life and Retirement business will be completed or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake' above.*

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**Significant legal or regulatory proceedings may adversely affect our business, results of operations or financial condition.** In the normal course of business, we face significant risk from regulatory and governmental investigations and civil actions, litigation and other forms of dispute resolution in various domestic and foreign jurisdictions. In our insurance and reinsurance operations, we frequently engage in litigation and arbitration concerning the scope of coverage under insurance and reinsurance contracts, and face litigation and arbitration in which our subsidiaries defend or indemnify their insureds under insurance and reinsurance contracts.

Additionally, from time to time, various regulatory and governmental agencies review the transactions and practices of AIG and our subsidiaries in connection with industry-wide and other inquiries into, among other matters, the business practices of current and former operating insurance subsidiaries. Such investigations, inquiries or examinations have and could develop into administrative, civil or criminal proceedings or enforcement actions, in which remedies could include fines, penalties, restitution or alterations in our business practices, and could result in additional expenses, limitations on certain business activities and reputational damage.

AIG, our subsidiaries and their respective officers and directors are also subject to, or may become subject to, a variety of additional types of legal disputes brought by holders of AIG securities, customers, employees and others, alleging, among other things, breach of contractual or fiduciary duties, bad faith, indemnification and violations of federal and state statutes and regulations. Certain of these matters may also involve potentially significant risk of loss due to the possibility of significant jury awards and settlements, punitive damages or other penalties. Many of these matters are also highly complex and seek recovery on behalf of a class or similarly large number of plaintiffs. It is therefore inherently difficult to predict the size or scope of potential future losses arising from them, and developments in these matters could have a material adverse effect on our consolidated financial condition or consolidated results of operations.

*For information regarding certain legal proceedings, see Notes 15 and 21 to the Consolidated Financial Statements.*

**Increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social and governance matters may adversely affect our reputation or otherwise adversely impact our business and results of operations.** There is increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders on ESG practices and disclosures, including those related to environmental stewardship, climate change, diversity, equity and inclusion, racial justice and workplace conduct. These standards and expectations may also, as a whole, reflect contrasting or conflicting values or agendas. Regulators have imposed and likely will continue to impose ESG-related rules and guidance, which may conflict with one another and impose additional costs on us or expose us to new or additional risks. Moreover, certain organizations that provide information to investors have developed ratings for evaluating companies on their approach to different ESG matters, and unfavorable ratings of our company or our industries may lead to negative investor sentiment and the diversion of investment to other companies or industries. In 2022, we committed to reaching net zero greenhouse gas emissions across our underwriting and investments portfolios by 2050, or sooner. If we are unable to meet targets, standards, or expectations, whether established by us or third parties, it could result in adverse publicity, reputational harm, or loss of customer and/or investor confidence, which could adversely affect our business and results of operations.

*For information on the effects of climate change on our business, see Reserves and Exposures - “Climate change may adversely affect our business and financial condition” above.*

**COVID-19 has adversely affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity, and its ultimate impact will depend on future developments that are uncertain and cannot be predicted.**

While the impacts from the COVID-19 pandemic are still evolving, it has caused significant societal disruption and has had adverse economic impacts on our business, such as volatility in the capital markets, disruptions in the labor market, supply chain disruption, mortality increases as compared to pricing expectations and most recently, an inflationary environment. We cannot estimate the full extent to which the pandemic may continue to cause or exacerbate certain risks to our global business, including those discussed herein.

Within our investment portfolio, there is exposure to certain segments of the economy, including real estate and real estate-related investments, which exposes us to negative impacts from the deferral of mortgage payments, renegotiated commercial mortgage loans or outright mortgage defaults and potential acceleration of macro trends such as work from home and online shopping, which may negatively impact certain industries, such as brick-and-mortar retail. Moreover, market volatility due to COVID-19 has created and may continue to create dislocations, decreases or variations in observable market activity or availability of information used in the valuation of our assets and liabilities, which could negatively impair the estimates and assumptions used to run our businesses or result in greater variability and subjectivity in our investment decisions.

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ITEM 1A | Risk Factors

Our insurance businesses have and may continue to experience increased claim volume. Beginning in March 2020 and continuing through 2022, we experienced an increase in mortality claims as compared to our historical pricing assumptions, which may continue until the COVID-19 pandemic subsides in its entirety, and decreased demand for certain of our insurance product lines. In addition, COVID-19 adversely affected our premiums and deposits in some of our insurance lines, including our Life and Retirement products. Further, our policies with premium adjustment features tied to exposure levels, as is the case in certain specialty and casualty lines, may be triggered, resulting in premium reductions. We may also incur higher expenses in our insurance businesses and higher legal costs as a result of coverage disputes, including class actions and other proceedings that have been or may in the future be filed against us, our insureds, or others, seeking coverage for COVID 19-related losses or alleging bad-faith denials of coverage for such losses.

Due to the scope, severity and extended duration of the pandemic, reinsurance has been and may be more difficult or costly to obtain in general or for certain types of coverage going forward. In addition, reinsurance terms and conditions may change whereby the coverage provided may not be the same or similar to the reinsurance terms and conditions currently available in the reinsurance market.

Certain pre-existing operational risks have been and may continue to be exacerbated, notably with respect to potential phishing or other cybersecurity-related events and our increased reliance on technology, including technology of our employees and service providers. Other pre-existing operational risks, such as privacy incidents, fraud, operational resilience and risks related to the operations and resiliency of our vendors, third-party providers and other counterparties, may also be exacerbated. In addition, remote or hybrid work may negatively impact our culture and employees' morale, which could result in greater turnover, lower productivity and greater operational risks.

Due to the evolving and disruptive nature of the COVID-19 pandemic, we could experience other potential impacts, including, but not limited to, potential impairment charges to the carrying amounts of goodwill, deferred tax assets, increased reserves to levels that are difficult to accurately estimate and increased morbidity and mortality expectations from longer term consequences of COVID-19 infections. Further, new and potentially unforeseen risks beyond those described above and in other risk factors herein may arise as a result of the pandemic and the actions taken by governmental and regulatory authorities to mitigate its impact.

**We may not be able to protect our intellectual property and may be subject to infringement claims.** Effective intellectual property rights protection, including in the form of contractual rights, copyright, trademark, patent and trade secret laws, may be unavailable, limited, or subject to change in some countries where we do or plan to do business. Third parties may infringe or misappropriate our intellectual property. We have, and may in the future, litigate to protect our intellectual property. Any such litigation may be costly and may not be successful. Additionally, third parties may have patents or other protections that could be infringed by our products, methods, processes or services or which could limit our ability to offer certain product features. Consequently, we may also be subject to costly litigation in the event that another party alleges that we infringe upon their intellectual property rights. Any such intellectual property litigation could prove to be both costly and unsuccessful result in significant expense, damages, and in some circumstances we could be enjoined from providing certain products or services to our customers. Alternatively, we could be required to enter into costly licensing arrangements with third parties to resolve infringement or contractual disputes. The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could harm our reputation and have a material adverse effect on our business and our ability to compete.

## EMPLOYEES AND COMPETITION

**Employee error and misconduct may be difficult to detect and prevent and may result in reputational damage and significant losses.** There have been a number of cases involving fraud or other misconduct by employees in recent years and we are exposed to the risk that employee fraud or misconduct could occur. Our informational technology, human resources and compliance departments work collaboratively to monitor for fraud and conduct extensive training for employees. However, employee fraud or misconduct may still occur. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain proper internal authorization, misuse of customer or proprietary/confidential information, or failure to comply with regulatory requirements or our internal policies may result in losses and/or reputational damage.

**Competition for employees in our industry is intense, and managing key employee succession is critical to our success. We may not be able to retain and attract key employees and other highly skilled employees we need to support our businesses.**

Our success depends, in large part, on our ability to retain and attract key and other highly skilled employees. Due to the intense competition in our industry for key employees, we may be unable to retain or hire such employees. In addition, we may experience higher than expected employee turnover and difficulty attracting new employees as a result of uncertainty from strategic actions and organizational and operational changes. Losing any of our key employees also could have a material adverse effect on our operations given their skills, knowledge of our business, years of industry experience and the potential difficulty of promptly finding qualified replacements. Our business and consolidated results of operations could be materially adversely affected if we are unsuccessful in retaining and attracting key employees.

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In addition, we would be adversely affected if we fail to adequately plan for the succession of our Chief Executive Officer, other members of senior management and other key employees. While we have succession plans and long-term compensation plans designed to retain our employees, our succession plans may not operate effectively and our compensation plans cannot guarantee that the services of these employees will continue to be available to us.

**We face intense competition in each of our business lines, and technological changes may present new and intensified challenges to our businesses.** Our businesses operate in highly competitive environments, both domestically and overseas. Our principal competitors are other large multinational insurance organizations, as well as banks, investment banks and other nonbank financial institutions.

General Insurance and Life and Retirement compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Reductions of our credit ratings or IFS ratings or negative publicity may make it more difficult to compete to retain existing customers and to maintain our historical levels of business with existing customers, counterparties and distribution relationships. A decline in our position as to any one or more of these factors could adversely affect our profitability.

Technological advancements and innovation in the insurance industry, including those related to evolving customer preferences, the digitization of insurance products and services, acceleration of automated underwriting, and electronic processes present competitive risks. Technological advancements and innovation are occurring in distribution, underwriting, recordkeeping, advisory, claims and operations at a rapid pace, and that pace may increase, particularly as companies increasingly use data analytics and technology as part of their business strategy. Additional costs may also be incurred in order to implement changes to automate procedures critical to our distribution channels in order to increase flexibility of access to our services and products. While we seek opportunities to leverage technological advancements and innovation for our customers' benefit, our business and results of operations could be materially and adversely affected if external technological advancements or innovation, or the regulation of technological advancements or innovation, limit our ability to retain existing business, write new business at adequate rates or on appropriate terms, render our insurance products less suitable or impact our ability to adapt or deploy current products as quickly and effectively as our competitors.

## REGULATION

**Our businesses are heavily regulated and changes in laws and regulations may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability.** Our operations generally, and our insurance and reinsurance subsidiaries in particular, are subject to extensive and potentially conflicting laws and regulations in the jurisdictions in which we operate. Our business and financial condition are also subject to supervision and regulation by authorities in the various jurisdictions in which we do business. Federal, state and foreign regulators also periodically review and investigate our insurance and reinsurance businesses, including AIG-specific and industry-wide practices. The primary purpose of insurance regulation is the protection of our insurance and reinsurance contract holders. The extent of regulation on our insurance and reinsurance business varies across the jurisdictions in which we operate, but generally is governed by laws that delegate regulatory, supervisory and administrative authority to insurance departments and similar regulatory agencies. The laws and regulations that apply to our business and operations generally grant regulatory agencies and/or self-regulatory organizations broad rulemaking and enforcement powers, including the power to regulate the issuance, sale and distribution of our products, the manner in which we underwrite our policies, the delivery of our services, the nature or extent of disclosures that we give our customers, the compensation of our distribution partners, the manner in which we handle claims on our policies and the administration of our policies and contracts, as well as the power to limit or restrict our business for failure to comply with applicable laws and regulations. Our Life and Retirement companies and their distributors are also subject to laws and regulations governing the standard of care applicable to sales of our products, the provision of advice to our customers and the manner in which certain conflicts of interest arising from or related to such sales or giving of advice are to be addressed. In addition, federal and state securities laws and regulations apply to certain of our insurance products that are considered 'securities' under such laws, including our variable annuity contracts, variable life insurance policies and the separate accounts that issue them, as well as our broker-dealer, investment advisor and mutual fund operations.

We strive to comply with laws and regulations applicable to our businesses, operations and legal entities, including maintenance of all required licenses and approvals. The application of and compliance with such laws and regulations may be subject to interpretation, evolving industry practices and regulatory expectations that could result in increased compliance costs. The relevant authorities may not agree with our interpretation of these laws and regulations, including, for example, our implementation of new or revised requirements related to capital, accounting treatment or reserving such as those governing PBR, or with our policies and procedures adopted to address evolving industry practices or meet regulatory expectations. Such authorities' interpretations and views may also change from time to time. It is also possible that the laws, regulations and interpretations across various jurisdictions in which we do business may conflict with one another and affect how we do business in the United States and globally. If we are found not to have complied with applicable legal or regulatory requirements, these authorities could preclude or temporarily suspend us from carrying on some or all of our activities, impose substantial administrative penalties such as fines or require corrective actions, which individually or in the aggregate could interrupt our operations and materially and adversely affect our reputation, business, results of operations and financial condition. Additionally, when such authorities' interpretation of new or revised requirements related to capital, accounting

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ITEM 1A | Risk Factors

treatment and/or valuation manual or reserving (such as PBR) materially differs from ours, we have incurred or may incur higher operating costs, or sales of products subject to such requirements or treatment may be affected.

Regulators in jurisdictions in which we do business have adopted RBC, solvency and liquidity standards applicable to insurers and reinsurers operating in their jurisdiction. Failure to comply with such capital (including, in the U.S., RBC), solvency, liquidity and similar requirements, or as otherwise may be agreed by us or one of our insurance company subsidiaries with an insurance regulator, would generally permit the insurance regulator to take certain regulatory actions that could materially impact the affected company's operations. Those actions range from requiring an insurer to submit a plan describing how it would regain a specified RBC or solvency ratio to a mandatory regulatory takeover of the company. The NAIC recently adopted, and the IAIS is developing and testing, methodologies for assessing group-wide regulatory capital, which might evolve into more formal group-wide capital requirements on certain insurance companies and/or their holding companies that may augment state-law RBC standards, and similar international standards, that apply at the legal entity level, and such capital calculations may be made, in whole or in part, on bases other than the statutory statements of our insurance and reinsurance subsidiaries. Furthermore, efforts to address systemic risks within the financial services industry, including insurance services, may lead regulators to apply new or heightened standards and safeguards for activities or practices that we and other insurers or other nonbank financial services companies, including insurers, engage in. In addition to the regulation of specific activities, the Financial Stability Oversight Council continues to have authority under Dodd-Frank to determine that certain nonbank financial companies be designated as nonbank SIFIs subject to supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards. We cannot predict the effect that any such initiatives or heightened standards may have on our business, results of operations, liquidity and financial condition.

We also cannot predict the impact that laws and regulations adopted in foreign jurisdictions may have on the financial markets generally or our businesses, results of operations or cash flows. It is possible such laws and regulations, and our satisfaction of the relevant criteria and standard-setting initiatives by the FSB and the IAIS, including, but not limited to, the IAIS' Common Framework for the Supervision of IAIGs, a holistic framework for the assessment and mitigation of systemic risk and the development and refinement of a risk-based global ICS, Solvency II and European Data Protection Board Cross Border Data Transfer in the EU, may significantly alter our business practices. For example, regulators have imposed and may continue to impose new requirements or issue new guidance aimed at addressing or mitigating climate change-related risks. They may also limit our ability to engage in capital or liability management, require us to raise additional capital, and impose burdensome requirements and additional costs. It is also possible that the laws and regulations adopted in foreign jurisdictions will differ from one another, and that they could be inconsistent with the laws and regulations of other jurisdictions in which we operate, including the United States.

*For additional information on our regulatory environment, see Item 1. Business - Regulation.*

*For information regarding the effects of regulations related to climate change on our business, see Reserves and Exposures - 'Climate change may adversely affect our business and financial condition' above.*

*For information regarding the regulatory response to the COVID-19 pandemic, see Business and Operations - 'COVID-19 has affected and may continue to adversely affect our global business, results of operations, financial condition and liquidity, and its ultimate impact will depend on future developments that are uncertain and cannot be predicted' above.*

**New laws and regulations or new interpretations of current laws and regulations, both domestically and internationally, may affect our businesses, results of operations, financial condition and ability to compete effectively.** Legislators, regulators and self-regulatory organizations have in the past, and may in the future, periodically consider various proposals that may affect or restrict, among other things, our business practices, product designs and distribution relationships, how we market, sell or service certain products we offer, our capital, reserving and accounting requirements, or the profitability of certain of our businesses.

Further, new laws and regulations may affect or significantly limit our ability to conduct certain businesses at all, including proposals relating to restrictions on the type of activities in which financial institutions are permitted to engage. These proposals or changes in legislation or regulation could also impose additional taxes on a limited subset of financial institutions and insurance companies (either based on size, activities, geography or other criteria), limit our ability to engage in capital or liability management, require us to raise additional capital, and impose burdensome requirements and additional costs. It is uncertain whether and how these and other such proposals or changes in legislation or regulation would apply to us, those who sell or service our products, or our competitors or how they could impact our ability to compete effectively, as well as our business, consolidated results of operations, liquidity and financial condition.

**An 'ownership change' could limit our ability to utilize tax loss and credit carryforwards to offset future taxable income.** As of December 31, 2022, on a U.S. GAAP basis, AIG Parent had U.S. federal net operating loss carryforwards of approximately $24.8 billion and $22 million in foreign tax credits. Our ability to use these tax attributes to offset future taxable income may be significantly limited if we experience an 'ownership change' as defined in Section 382 of the Internal Revenue Code. In general, an ownership change will occur when the percentage of AIG Parent's ownership (measured by value) by one or more '5-percent shareholders' (as defined in the Internal Revenue Code) has increased by more than 50 percentage points over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally will be subject to an annual limitation on its utilization of pre-ownership change tax loss

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and credit carryforwards equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (AFR) (subject to certain adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year. The limitation on our ability to utilize tax loss and credit carryforwards arising from an ownership change under Section 382 of the Internal Revenue Code would be dependent on the value of our equity and the AFR at the time of any ownership change. If we were to experience an “ownership change,” it is possible that a significant portion of our tax loss and credit carryforwards could expire before we would be able to use them to offset future taxable income.

AIG’s previous Tax Asset Protection Plan (the TAP Plan), which was designed to reduce the likelihood of an “ownership change,” was not extended and thus expired in accordance with its terms on December 11, 2022. The protective amendment (the Protective Amendment) to the Amended and Restated Certificate of Incorporation, which is designed to prevent certain transfers of AIG Common Stock that could result in an “ownership change,” will expire in accordance with its terms on May 13, 2023. If AIG were to experience an “ownership change,” it will no longer have the benefit of the TAP Plan or the Protective Amendment after their respective expiration dates, which would limit its ability to utilize its then remaining tax attributes to offset future tax liability.

**New and proposed changes to tax laws could increase our corporate taxes or make some of our products less attractive to consumers.** The recently enacted Inflation Reduction Act (the IRA), which establishes a new 15 percent corporate alternative minimum tax (CAMT) on adjusted book income (of corporations that have an average adjusted book income in excess of $1 billion over a three tax year period) for tax years beginning after December 31, 2022 may impact AIG’s after-tax earnings or cash flow. AIG may be required to pay tax equal to 15% of AIG’s pre-tax financial statement income, as adjusted by the IRA, despite AIG’s U.S. federal net operating loss carryforwards and foreign tax credits.

The IRA also includes a nondeductible 1% excise tax on the repurchase of corporate stock for transactions occurring in taxable years after December 31, 2022. The 1% excise tax on share repurchases would increase AIG’s cost of share repurchases.

The current U.S. administration and Congressional leadership have proposed additional changes to the U.S. corporate and international tax systems, as well as increasing the taxation of U.S. individuals, including capital gains taxation. An increase in the statutory U.S. federal corporate income tax rate will negatively impact AIG’s future after-tax earnings. The administration and Congressional leadership have also proposed changes to complex provisions in the U.S. international tax system, including the base erosion and anti-abuse tax (BEAT) and global intangible low-taxed income (GILTI). These changes could impact AIG’s after-tax earnings or cash flow. Furthermore, there is the possibility of further regulatory guidance on certain aspects of the BEAT and GILTI, which could impact the amounts recorded with respect to these international provisions, possibly materially. In addition to changing the taxation of corporations in general, there are proposals for increases in tax rates for individuals, capital gains, and changes to the estate tax. These changes could impact demand in the U.S. for life insurance and annuity contracts.

New tax laws outside the U.S., in particular those enacted in response to proposals by the Organisation for Economic Cooperation and Development, could make substantive changes to the global international tax regime. Such changes could increase our global tax costs. AIG continues to monitor and assess the impact of such proposals.

Finally, it is possible that tax laws will be further changed either in a technical corrections bill or entirely new legislation. It remains difficult to predict whether or when there will be any tax law changes or further guidance by the authorities in the U.S. or elsewhere in the world. New or proposed changes to tax laws may have a material adverse effect on our business, consolidated results of operations, liquidity and financial condition, as the impact of proposals on our business can vary substantially depending upon the specific changes or further guidance made and how the changes or guidance are implemented by the authorities.

*For additional information, see Part II, Item 7. MD&A - Consolidated Results of Operations - U.S. Tax Law Changes.*

## ESTIMATES AND ASSUMPTIONS

**Estimates or assumptions used in the preparation of financial statements and modeled results used in various areas of our business may differ materially from actual experience.** Our financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP), which requires the application of accounting policies that often involve a significant degree of judgment. The accounting policies that we consider most dependent on the application of estimates and assumptions, and therefore may be viewed as critical accounting estimates, are described in Item 7. MD&A - Critical Accounting Estimates. These accounting estimates require the use of assumptions, some of which are highly uncertain at the time of estimation. These estimates are based on judgment, current facts and circumstances, and, when applicable, internally developed models. Therefore, actual results may differ from these estimates, possibly in the near term, and could have a material effect on our financial statements.

In addition, we employ models to price products, calculate reserves and future policy benefits and value assets and execute hedging strategies, as well as to assess risk and determine statutory capital requirements, among other uses. These models are complex and rely on estimates and projections that are inherently uncertain, may use incomplete, outdated or incorrect data or assumptions and may not operate as intended. To the extent that any of our operating practices and procedures do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such differences may negatively impact our business,

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reputation, results of operations, and financial condition. For example, modeling for man-made catastrophes, such as terrorism and cyber events, is especially difficult and less reliable given such models are in the early stages of development and therefore, not widely adopted or available. For our Life and Retirement companies, significant changes in policyholder behavior assumptions such as lapses, surrenders and withdrawal rates as well as the amount of withdrawals, fund performance, equity market returns and volatility, interest rate levels, the health habits of the insured population, technologies and treatments for disease or disability, the economic environment, or other factors could negatively impact our assumptions and estimates. To the extent that any of our modeling practices do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such errors may negatively impact our business, reputation, results of operations and financial condition.

**Changes in accounting principles and financial reporting requirements will impact our consolidated results of operations and financial condition.** Our financial statements are prepared in accordance with U.S. GAAP, which are periodically revised. Accordingly, from time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board (FASB).

The FASB has revised the accounting standards for certain long-duration insurance contracts. The FASB issued Accounting Standards Update No. 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts, which became effective as of January 1, 2023 and significantly changes the accounting measurements and disclosures for long-duration insurance contracts, which primarily relates to our life and annuity products as well as certain accident and health products, among others. The implementation of these changes has imposed and will continue to impose special demands on us in the areas of governance, employee training, internal controls and disclosure and affect how we manage our business, all of which will impact our consolidated results of operations, liquidity and financial condition. In addition, implementation of the changes could impact our products, in-force management and asset liability management strategies and have other implications on operations and technology.

The adoption of this newly issued standard will, and other future accounting standards may, impact our reported consolidated results of operations, liquidity and reported financial condition and may cause investors to perceive greater volatility in our financial results, negatively impacting our level of investor interest and investment.

*For information regarding the impact of accounting pronouncements that have been issued but are not yet required to be implemented, see Note 2 to the Consolidated Financial Statements.*

**If our businesses do not perform well and/or their estimated fair values decline, we may be required to recognize an impairment of our goodwill or establish an additional valuation allowance against the deferred income tax assets, which could have a material adverse effect on our results of operations and financial condition.** Goodwill represents the excess of the amounts we paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. We test goodwill at least annually for impairment and conduct interim qualitative assessments on a periodic basis. Impairment testing is performed based upon estimates of the fair value of the “reporting unit” to which the goodwill relates. In 2022, for substantially all of the reporting units we elected to bypass the qualitative assessment of whether goodwill impairment may exist and, therefore, performed quantitative assessments that supported a conclusion that the fair value of all of the reporting units tested exceeded their book value. Our goodwill balance was $3.9 billion at December 31, 2022. If it is determined that goodwill has been impaired, we must write down goodwill by the amount of the impairment, with a corresponding charge to net income (loss). These write-downs could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. *For additional information on goodwill impairment, see Part II, Item 7. MD&A - Critical Accounting Estimates - Goodwill Impairment and Note 11 to the Consolidated Financial Statements.*

Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. As of December 31, 2022, we had net deferred tax assets, after valuation allowance, of $14.8 billion, related to federal, foreign, and state and local jurisdictions. If, based on available evidence, it is more likely than not that the deferred tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to net income, which such action we have taken from time to time. Such charges could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. *For additional information on deferred tax assets, see Part II, Item 7. MD&A - Critical Accounting Estimates - Income Taxes and Note 21 to the Consolidated Financial Statements.*

38

AIG | 2022 Form 10-K

ITEM 1B | Unresolved Staff Comments

## ITEM 1B | Unresolved Staff Comments

There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to periodic or current reports under the Exchange Act.

## ITEM 2 | Properties

We lease our corporate headquarters located at 1271 Avenue of the Americas, New York, New York. We operate from approximately 130 offices in the United States and approximately 250 offices in approximately 40 foreign countries. We own 12 office buildings in the United States.

Our General Insurance companies own offices in 10 foreign countries including Bermuda, Ecuador, Japan, Mexico, the UK and Venezuela. The remainder of the office space we use is leased. We believe that our leases and properties are sufficient for our current purposes.

### LOCATIONS OF CERTAIN ASSETS

As of December 31, 2022, approximately 8 percent of our consolidated assets were located outside the U.S. and Canada.

*For additional information on geographic locations, see Note 3 to the Consolidated Financial Statements.*

## ITEM 3 | Legal Proceedings

*For a discussion of legal proceedings, see Note 15 to the Consolidated Financial Statements, which is incorporated herein by reference.*

## ITEM 4 | Mine Safety Disclosures

Not applicable.

AIG | 2022 Form 10-K

39

ITEM 5 | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

# Part II

## ITEM 5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

AIG’s common stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange (NYSE: AIG). There were approximately 19,509 stockholders of record of AIG Common Stock as of February 10, 2023.

### Equity Compensation Plans

Our table of equity compensation plans will be included in the definitive proxy statement for AIG’s 2023 Annual Meeting of Shareholders. The definitive proxy statement will be filed with the SEC no later than 120 days after the end of AIG’s fiscal year pursuant to Regulation 14A.

### Purchases of Equity Securities

The following table provides information about purchases made by or on behalf of AIG or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934 (the Exchange Act)) of AIG Common Stock during the three months ended December 31, 2022:

| Period | Total Number of Shares Repurchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) |
| --- | --- | --- | --- | --- |
| October 1-31 | 4,698,357 | $51.97 | 4,698,357 | $4,329 |
| November 1-30 | 3,793,917 | 60.21 | 3,793,917 | 4,101 |
| December 1-31 | 4,896,176 | 62.59 | 4,896,176 | 3,794 |
| Total | 13,388,450 | $58.19 | 13,388,450 | $3,794 |

On May 3, 2022, the Board of Directors authorized the repurchase of $6.5 billion of AIG Common Stock (inclusive of the approximately $1.5 billion of expected remaining authorization upon expiration of the then-current 10b5-1 Plan as of May 20, 2022). As of December 31, 2022, approximately $3.8 billion remained under the authorization.

*For additional information on our share purchases, see Note 16 to the Consolidated Financial Statements.*

40

AIG | 2022 Form 10-K

ITEM 5 | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

## Common Stock Performance Graph

The following Performance Graph compares the cumulative total shareholder return on AIG Common Stock for a five-year period (December 31, 2017 to December 31, 2022) with the cumulative total return of the S&P's 500 stock index (which includes AIG), the S&P Property and Casualty Insurance Index and the S&P Life and Health Insurance Index.

### Value of $100 Invested on December 31, 2017

(All $ as of December 31st)

![img-0.jpeg](img-0.jpeg)

Dividend reinvestment has been assumed and returns have been weighted to reflect relative stock market capitalization.

|  | As of December 31, |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| AIG | $100.00 | $67.91 | $90.72 | $69.62 | $107.16 | $121.89 |
| S&P 500 | 100.00 | 95.62 | 125.72 | 148.85 | 191.58 | 156.88 |
| S&P 500 Property & Casualty Insurance Index | 100.00 | 95.31 | 119.97 | 128.31 | 153.05 | 181.93 |
| S&P 500 Life & Health Insurance | 100.00 | 79.23 | 97.60 | 88.35 | 120.76 | 133.25 |

## ITEM 6 | [Reserved]

AIG | 2022 Form 10-K

41

# ITEM 7 | Management's Discussion and Analysis of Financial Condition and Results of Operations

## Cautionary Statement Regarding Forward-Looking Information and Factors That May Affect Future Results

This Annual Report on Form 10-K and other publicly available documents may include, and members of AIG management 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 and 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 catastrophic events, both natural and man-made, and macroeconomic and/or geopolitical events, anticipated dispositions, monetization and/or acquisitions of businesses or assets, the 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.

---

42

AIG | 2022 Form 10-K

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 specific projections, goals, assumptions and forward-looking statements include, without limitation:

- • the effects of economic conditions in the markets in which AIG and its businesses operate in the U.S. and globally and any changes therein, including financial market conditions, macroeconomic trends, fluctuations in interest rates and foreign currency exchange rates, inflationary pressures and an economic slowdown or recession, each of which may also be affected by geopolitical events or conflicts, including the conflict between Russia and Ukraine;
- • the occurrence of catastrophic events, both natural and man-made, including geopolitical events and conflicts, civil unrest and the effects of climate change;
- • availability of adequate reinsurance or access to reinsurance on acceptable terms;
- • disruptions in the availability of AIG's or a third party's information technology infrastructure, including hardware and software, resulting from cyberattacks, data security breaches, or infrastructure vulnerabilities;
- • AIG's ability to realize expected strategic, financial, operational or other benefits from the separation of Corebridge Financial, Inc. (Corebridge) as well as AIG's equity market exposure to Corebridge;
- • concentrations of AIG's insurance, reinsurance and other risk exposures;
- • concentrations in AIG's investment portfolios;
- • AIG's reliance on third-party investment managers;
- • changes in the valuation of AIG's investments;
- • AIG's reliance on third parties to provide certain business and administrative services;
- • nonperformance or defaults by counterparties, including Fortitude Reinsurance Company Ltd. (Fortitude Re);
- • changes in judgments concerning potential cost-saving opportunities;
- • AIG's ability to effectively implement changes under AIG 200, including the ability to realize cost savings;
- • AIG's ability to adequately assess risk and estimate related losses as well as the effectiveness of AIG's enterprise risk management policies and procedures, including with respect to business continuity and disaster recovery plans;
- • difficulty in marketing and distributing products through current and future distribution channels;
- • the effectiveness of strategies to retain and recruit key personnel and to implement effective succession plans;
- • actions by rating agencies with respect to AIG's credit and financial strength ratings as well as those of its businesses and subsidiaries;
- • changes to sources of or access to liquidity;
- • changes in judgments concerning the recognition of deferred tax assets and the impairment of goodwill;
- • changes in judgments or assumptions concerning insurance underwriting and insurance liabilities;
- • changes in accounting principles and financial reporting requirements;
- • AIG's ability to successfully dispose of, monetize and/or acquire businesses or assets or successfully integrate acquired businesses;
- • the effects of sanctions, including those related to the conflict between Russia and Ukraine and the failure to comply with those sanctions;
- • the effects of changes in laws and regulations, including those relating to the regulation of insurance, in the U.S. and other countries in which AIG and its businesses operate;
- • changes to tax laws in the U.S. and other countries in which AIG and its businesses operate;
- • the outcome of significant legal, regulatory or governmental proceedings;
- • the impact of COVID-19 and its variants or other pandemics and responses thereto;
- • AIG's ability to effectively execute on environmental, social and governance targets and standards; and
- • such other factors discussed in:
  - - Part I, Item 1A. Risk Factors of this Annual Report; and
  - - this Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) of this Annual Report.

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 to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in any forward-looking statements is disclosed from time to time in other filings with the Securities and Exchange Commission (SEC).

AIG | 2022 Form 10-K

43

# INDEX TO ITEM 7

|  | Page |
| --- | --- |
| Use of Non-GAAP Measures | 45 |
| Critical Accounting Estimates | 47 |
| Executive Summary | 60 |
| Overview | 60 |
| AIG's Outlook - Industry and Economic Factors | 61 |
| Consolidated Results of Operations | 64 |
| Business Segment Operations | 68 |
| General Insurance | 69 |
| Life and Retirement | 75 |
| Other Operations | 85 |
| Investments | 87 |
| Overview | 87 |
| Investment Highlights in 2022 | 87 |
| Investment Strategies | 87 |
| Credit Ratings | 89 |
| Insurance Reserves | 96 |
| Loss Reserves | 96 |
| Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC | 100 |
| Liquidity and Capital Resources | 108 |
| Overview | 108 |
| Liquidity and Capital Resources Highlights | 109 |
| Analysis of Sources and Uses of Cash | 110 |
| Liquidity and Capital Resources of AIG Parent and Subsidiaries | 110 |
| Credit Facilities | 111 |
| Contractual Obligations | 112 |
| Off-Balance Sheet Arrangements and Commercial Commitments | 113 |
| Debt | 114 |
| Credit Ratings | 115 |
| Financial Strength Ratings | 115 |
| Regulation and Supervision | 116 |
| Dividends | 116 |
| Repurchases of AIG Common Stock | 116 |
| Dividend Restrictions | 116 |
| Enterprise Risk Management | 117 |
| Overview | 117 |
| Risk Governance Structure | 117 |
| Risk Appetite, Limits, Identification and Measurement | 117 |
| Credit Risk Management | 118 |
| Market Risk Management | 119 |
| Liquidity Risk Management | 122 |
| Operational Risk Management | 123 |
| Insurance Risks | 123 |
| Glossary | 129 |
| Acronyms | 131 |

Throughout the MD&A, we use certain terms and abbreviations, which are summarized in the Glossary and Acronyms.

We have incorporated into this discussion a number of cross-references to additional information included throughout this Annual Report to assist readers seeking additional information related to a particular subject.

44

AIG | 2022 Form 10-K

ITEM 7 | 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.

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

AIG | 2022 Form 10-K

45

ITEM 7 | 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 used to hedge guaranteed living benefits;
- changes in benefit reserves and deferred policy acquisition costs (DAC), value of business acquired (VOBA), and deferred sales inducements (DSI) related to net realized gains and losses;
- changes in the fair value of equity securities;
- net investment income on Fortitude Re funds withheld assets;
- following deconsolidation of Fortitude Re, net realized gains and losses on Fortitude Re funds withheld assets;
- loss (gain) on extinguishment of debt;
- all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication. Earned income on such economic hedges is reclassified from net realized gains and losses to specific APTI line items based on the economic risk being hedged (e.g. net investment income and interest credited to policyholder account balances);
- income or loss from discontinued operations;
- net loss reserve discount benefit (charge);
- pension expense related to lump sum payments to former employees;
- net gain or loss on divestitures and other;
- non-operating litigation reserves and settlements;
- restructuring and other costs related to initiatives designed to reduce operating expenses, improve efficiency and simplify our organization;
- the portion of favorable or unfavorable prior year reserve development for which we have ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain;
- integration and transaction costs associated with acquiring or divesting businesses;
- losses from the impairment of goodwill;
- non-recurring costs associated with the implementation of non-ordinary course legal or regulatory changes or changes to accounting principles; and
- income from elimination of the international reporting lag.

• **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.

46

AIG | 2022 Form 10-K

ITEM 7 | 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 benefits for life and accident and health insurance contracts;
- guaranteed benefit features of variable annuity, fixed annuity and fixed index annuity products;
- valuation of 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;
- 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.

### LOSS RESERVES

Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses, less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Because these estimates are subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed.

The estimate of loss reserves relies on several key judgments:

- the determination of the actuarial methods used as the basis for these estimates;
- the relative weights given to these models by product line;
- the underlying assumptions used in these models; and
- the determination of the appropriate groupings of similar product lines and, in some cases, the disaggregation of dissimilar losses within a product line.

Numerous assumptions are made in determining the best estimate of reserves for each line of business, in consideration of expected ultimate losses, loss cost trends and loss development factors, where appropriate. The importance of any one assumption can vary by both line of business and accident year. Because such assumptions may differ from actual experience, there is potential for significant variation in the development of loss reserves. This estimation uncertainty is particularly relevant for long-tail lines of business.

All of our methods to calculate net reserves include assumptions about estimated reinsurance recoveries and their collectability. Reinsurance collectability is evaluated independently of the reserving process and appropriate allowances for uncollectible reinsurance are established.

### Overview of Loss Reserving Process and Methods

Our loss reserves can generally be categorized into two distinct groups: short-tail reserves and long-tail reserves. Short-tail reserves consist principally of U.S. Property and Special Risks, Europe Property and Special Risks, U.S. Personal Insurance, and Europe and Japan Personal Insurance. Long-tail reserves include U.S. Workers' Compensation, U.S. Excess Casualty, U.S. Other Casualty, U.S. Financial Lines, and UK/Europe Casualty and Financial Lines.

AIG | 2022 Form 10-K

47

ITEM 7 | Critical Accounting Estimates

## Short-Tail Reserves

In short-tail lines of business, such as property or personal insurance, where the nature of these claims tends to be higher frequency with short reporting periods, with volatility arising from occasional severe events, the actual losses reported make up a greater proportion of the ultimate loss estimate. During the first few development quarters of an accident year, the expected ultimate losses generally reflect the average loss costs from a period of preceding accident quarters that have been adjusted for changes in rate and loss cost trends, mix of business, known exposure to unreported losses, or other factors affecting the particular line of business. For more mature quarters, specific loss development methods and/or frequency/severity methods may be used to determine the incurred but not reported (IBNR). IBNR for claims arising from catastrophic events or events of unusual severity would be determined in close collaboration with the claims department's knowledge of known information, using alternative techniques or expected percentages of ultimate loss emergence based on historical emergence of similar events or claim types.

## Long-Tail Reserves

Estimation of loss reserves for our long-tail business is a complex process and depends on a number of factors, including the product line and volume of business, as well as estimates of reinsurance recoveries. Experience in more recent accident years generally provides limited statistical credibility of reported net losses on long-tail business. That is because in the more recent accident years, a relatively low proportion of estimated ultimate net incurred losses are reported or paid. Therefore, IBNR reserves constitute a relatively high proportion of loss reserves.

For our long-tail lines, we generally make actuarial and other assumptions with respect to the following:

- Loss cost trend factors, which are used to establish expected loss ratios for subsequent accident years based on the projected loss ratios for prior accident years.
- Expected loss ratios, which are used for the latest accident year and, in some cases, for accident years prior to the latest accident year. The expected loss ratio also generally reflects the average loss ratio from prior accident years, adjusted for the loss cost trend and the effect of rate changes and other quantifiable factors on the loss ratio.
- Loss development factors, which are used to project the reported losses for each accident year to an ultimate basis. Generally, the actual loss development factors observed from prior accident years would be used as a basis to determine the loss development factors for the subsequent accident years.
- Tail factors, which are development factors used for certain long-tail lines of business to project future loss development for periods that extend beyond the available development data. The development of losses to the ultimate loss for a given accident year for these lines may take decades and the projection of ultimate losses for an accident year is very sensitive to the tail factors selected beyond a certain age.

We record quarterly changes in loss reserves for each product line of business. The overall change in our loss reserves is based on the sum of the changes for all product lines of business. The quarterly loss reserve changes are based on the estimated current loss ratio for each subset of coverage less any amounts paid. Also, any change in estimated ultimate losses from prior accident years deemed to be necessary based on the results of our latest detailed valuation reviews, large loss analyses, or other analytical techniques, either positive or negative, is reflected in the loss reserve and incurred losses for the current quarter. Differences between actual loss emergence in a given period and our expectations based on prior loss reserve estimates are used to monitor reserve adequacy between detailed valuation reviews and may also influence our judgment with respect to adjusting reserve estimates.

## Details of the Loss Reserving Process

The process of determining the current loss ratio for each product line of business is based on a variety of factors. These include considerations such as: prior accident year and policy year loss ratios; rate changes; and changes in coverage, reinsurance, or mix of business. Other considerations include actual and anticipated changes in external factors such as trends in loss costs, inflation, employment rates or unemployment duration or in the legal and claims environment. The current loss ratio for each product line of business is intended to represent our best estimate after reflecting all relevant factors. At the close of each quarter, the assumptions and data underlying the loss ratios are reviewed to determine whether they remain appropriate. This process includes a review of the actual loss experience in the quarter, actual rate changes achieved, actual changes in reinsurance, quantifiable changes in coverage or mix of business, and changes in other factors that may affect the loss ratio. The loss ratio is changed to reflect the revised estimate if this review suggests that the previously determined loss ratio is no longer appropriate and, generally, shorter tailed lines of business are more likely to experience changes than longer tailed lines for immature accident years unless the information is directionally unfavorable.

We conduct a comprehensive loss reserve detailed valuation review at least annually for each product line of business in accordance with Actuarial Standards of Practice. These standards provide that the unpaid loss estimate may be presented in a variety of ways, such as a point estimate, a range of estimates, a point estimate based on the expected value of several reasonable estimates, or a probability distribution of the unpaid loss amount. Our actuarial best estimate for each product line of business represents an expected value generally considering a range of reasonably possible outcomes.

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AIG | 2022 Form 10-K

ITEM 7 | Critical Accounting Estimates

The reserve analysis, globally, for each product line of business is performed by a credentialed actuarial team in collaboration with claims, underwriting, business unit management, risk management and senior management. Our actuaries consider the ongoing applicability of prior data groupings and update numerous assumptions, including the analysis and selection of loss development and loss trend factors. They also determine and select the appropriate actuarial or other methods used to develop our best estimate for each business product line, and may employ multiple methods and assumptions for each product line. These data groupings, accident year weights, method selections and assumptions necessarily change over time as business mix changes, development factors mature and become more credible and loss characteristics evolve. We consult with third-party specialists to help inform our judgments as needed. Through the execution of these detailed valuation reviews an actuarial best estimate of the loss reserve is determined. The sum of these estimates for each product line of business yields an overall actuarial best estimate for that line of business.

A critical component of our detailed valuation reviews is an internal peer review of our reserving analyses and conclusions, where actuaries independent of the initial review evaluate the reasonableness of assumptions used, methods selected, and weightings given to different methods. In addition, each detailed valuation review is subjected to a review and challenge process by specialists in our Enterprise Risk Management (ERM) group.

For certain product lines, we measure sensitivities and determine explicit ranges around the actuarial best estimate using multiple methodologies and varying assumptions. Where we have ranges, we use them to inform our selection of best estimates of loss reserves by product line of business. Our range of reasonable estimates is not intended to cover all possibilities or extreme values and is based on known data and facts at the time of estimation.

### Actuarial and Other Methods for Our Lines of Business

**Our actuaries determine the appropriate actuarial methods and segmentation.** This determination is based on a variety of factors including the nature of the losses associated with the product line of business, such as the frequency or severity of the claims. In addition to determining the actuarial methods, the actuaries determine the appropriate loss reserve groupings of data. This determination is a judgmental, dynamic process and refinements to the groupings are made every year. The groupings may change to reflect observed or emerging patterns within and across product lines, or to differentiate risk characteristics (for example, size of deductibles and extent of third-party claims specialists used by our insureds). As an example of reserve segmentation, we write many unique subsets of professional liability insurance, which cover different products, industry segments, and coverage structures. While for pricing or other purposes, it may be appropriate to evaluate the profitability of each subset individually, we believe it is appropriate to combine the subsets into larger groups for reserving purposes to produce a greater degree of credibility in the loss experience. This determination of data segmentation and related actuarial methods is assessed, reviewed and updated at least annually.

**The actuarial methods we use most commonly include paid and incurred loss development methods, expected loss ratio methods, including “Bornhuetter Ferguson” and “Cape Cod,” and frequency/severity models.** Loss development methods utilize the actual loss development patterns from prior accident years updated through the current year to project the reported losses to an ultimate basis for all accident years. We also use this information to update our current accident year loss selections. Loss development methods are generally most appropriate for lines of business that exhibit a stable pattern of loss development from one accident year to the next, and for which the components of the product line have similar development characteristics. Expected loss ratio methods rely on the application of an expected loss ratio to the earned premium for the product line of business to determine the liability for loss reserves and loss adjustment expenses. We generally use expected loss ratio methods in cases where the reported loss data lacked sufficient credibility to utilize loss development methods, such as for new product lines of business or for long-tail product lines at early stages of loss development. Frequency/severity models may be used where sufficient frequency counts are available to apply such approaches.

A key advantage of loss development methods is that they respond more quickly to any actual changes in loss costs for the product line of business. Therefore, if loss experience is unexpectedly deteriorating or improving, the loss development method gives full credibility to the changing experience. Expected loss ratio methods would be slower to respond to the change, as they would continue to give more weight to a prior expected loss ratio, until enough evidence emerged to modify the expected loss ratio to reflect the changing loss experience. On the other hand, loss development methods have the disadvantage of overreacting to changes in reported losses if the loss experience is anomalous due to the various key factors described above and the inherent volatility in some of the lines. For example, the presence or absence of large losses at the early stages of loss development could cause the loss development method to overreact to the favorable or unfavorable experience by assuming it is a fundamental shift in the development pattern. In these instances, expected loss ratio methods such as Bornhuetter Ferguson have the advantage of recognizing large losses without extrapolating unusual large loss activity onto the unreported portion of the losses for the accident year.

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ITEM 7 | Critical Accounting Estimates

The Cape Cod method is a hybrid between the loss development and Bornhuetter Ferguson methods, where the historic loss data and loss development factor assumptions are used to determine the expected loss ratio estimate in the Bornhuetter Ferguson method.

Where appropriate, supplemental analysis for the given line of business may be performed in addition to the above described techniques such as Shareholder Class Action (SCA) suit analysis for D&O coverages.

**Frequency/severity methods generally rely on the determination of an ultimate number of claims and an average severity for each claim for each accident year.** Multiplying the estimated ultimate number of claims for each accident year by the expected average severity of each claim produces the estimated ultimate loss for the accident year. Frequency/severity methods generally require a sufficient volume of claims in order for the average severity to be predictable. Average severity for subsequent accident years is generally determined by applying an estimated annual loss cost trend to the estimated average claim severity from prior accident years. In certain cases, a structural approach may also be used to predict the ultimate loss cost. Frequency/severity methods have the advantage that ultimate claim counts can generally be estimated more quickly and accurately than can ultimate losses. Thus, if the average claim severity can be accurately estimated, these methods can more quickly respond to changes in loss experience than other methods. However, for average severity to be predictable, the product line of business must consist of homogenous types of claims for which loss severity trends from one year to the next are reasonably consistent and where there are limited changes to deductible levels or limits. Generally these methods work best for high frequency, low severity product lines of business such as personal auto. However, frequency and severity metrics are also used to test the reasonability of results for other product lines of business and provide indications of underlying trends in the data. In addition, ultimate claim counts can be used as an alternative exposure measure to earned premiums in the Cape Cod method.

**The estimation of liability for loss reserves and loss adjustment expenses relating to asbestos and environmental pollution losses on insurance policies written many years ago is typically subject to greater uncertainty than other types of losses.** This is due to inconsistent court decisions, as well as judicial interpretations and legislative actions that in some cases have tended to broaden coverage beyond the original intent of such policies or have expanded theories of liability. In addition, reinsurance recoverable balances relating to asbestos and environmental loss reserves are subject to greater uncertainty due to the underlying age of the claim, underlying legal issues surrounding the nature of the coverage, and determination of proper policy period. For these reasons, these balances tend to be subject to increased levels of disputes and legal collection activity when actually billed. The insurance industry as a whole is engaged in extensive litigation over these coverage and liability issues and is thus confronted with a continuing uncertainty in its efforts to quantify these exposures.

We continue to receive claims asserting injuries and damages from toxic waste, hazardous substances, and other environmental pollutants and alleged claims to cover the cleanup costs of hazardous waste dump sites, referred to collectively as environmental claims, and indemnity claims asserting injuries from asbestos. The vast majority of these asbestos and environmental losses emanate from policies written in 1984 and prior years. Commencing in 1985, standard policies contained absolute exclusions for pollution-related damage and asbestos. The current environmental policies that we specifically price and underwrite for environmental risks on a claims-made basis have been excluded from the analysis. Nevertheless, most of these legacy exposures have been heavily reinsured with very highly rated reinsurers.

The majority of our remaining exposures for asbestos and environmental losses are related to excess casualty coverages, not primary coverages. The litigation costs are treated in the same manner as indemnity amounts, with litigation expenses included within the limits of the liability we incur. Individual significant loss reserves, where future litigation costs are reasonably determinable, are established on a case-by-case basis.

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ITEM 7 | Critical Accounting Estimates

## Key Assumptions of our Actuarial Methods by Line of Business

| Line of Business or Category | Key Assumptions |
| --- | --- |
| U.S. Workers' Compensation | We generally use a combination of loss development and expected loss ratio methods for U.S. Workers' Compensation as this is a long-tail line of business. The tail factor is typically the most critical assumption, and small changes in the selected tail factor can have a material effect on our carried reserves. For example, the tail factors beyond twenty years for guaranteed cost business could vary by 1 percentage point below to 2.5 percentage points above those indicated in the 2022 detailed valuation review. For excess of deductible business, in our judgment, it is reasonably possible that tail factors beyond twenty years could vary by 1.5 percentage points below to 3 percentage points above those indicated in the 2022 detailed valuation review. |
| U.S. Excess Casualty | We utilize various loss cost trend assumptions for different segments of the portfolio. In our judgment, after evaluating the historical loss cost trends from prior accident years since the early 1990s, it is reasonably possible that actual loss cost trends applicable to the year-end 2022 detailed valuation review for U.S. Excess Casualty may range 5 percentage points lower or higher than this estimated loss trend. The loss cost trend assumption is critical for the U.S. Excess Casualty line of business due to the long-tail nature of the losses, and it is applied across many accident years. Thus, there is the potential for the loss reserves with respect to a number of accident years (the expected loss ratio years) to be significantly affected by changes in loss cost trends that were initially relied upon in setting the loss reserves. These changes in loss trends could be attributable to changes in inflation or in the judicial environment, or in other social or economic conditions affecting losses. U.S. Excess Casualty is a long-tail line of business and any deviation in loss development factors might not be discernible for an extended period of time subsequent to the recording of the initial loss reserve estimates for any accident year. Mass tort claims in particular may develop over a very extended period and impact multiple accident years, so we usually select a separate pattern for them. Thus, there is the potential for the loss reserves with respect to a number of accident years to be significantly affected by changes in loss development factors that were initially relied upon in setting the reserves. In our judgment, after evaluating the historical loss development factors from prior accident years since the early 1990s, it is reasonably possible that the actual loss development factors could vary by an amount equivalent to a six month shift from those actually utilized in the year-end 2022 detailed valuation review. This would impact projections both for accident years where the selections were directly based on loss development methods as well as the a priori loss ratio assumptions for accident years with selections based on Bornhuetter Ferguson or Cape Cod methods. Similar to loss cost trends, these changes in loss development factors could be attributable to changes in inflation or in the judicial environment, or in other social or economic conditions affecting losses. Given the very long-tail nature of this business, the tail factor selection can also have material impact on our carried reserves. The sensitivity around tail selection may also be a proxy for the sensitivity of a calendar year impact of monetary inflation on unpaid losses. It is reasonably possible for the tail factors for Excess Casualty could vary by 2 percentage points below to 3.5 percentage points above those indicated in the 2022 detailed valuation review. |
| U.S. Other Casualty | The key assumptions for other casualty lines are similar to U.S. Excess Casualty, as the underlying business is long-tailed and can be subject to variability in loss cost trends and changes in loss development factors. These may differ significantly by line of business as coverages such as general liability, medical malpractice and environmental may be subject to different risk drivers. |
| U.S. Financial Lines | The loss cost trends for U.S. Directors and Officers (D&O) liability business vary by year and subset. After evaluating the historical loss cost levels from prior accident years since the early 1990s, including the potential effect of losses relating to the credit crisis, in our judgment, it is reasonably possible that the actual variation in loss cost levels for these subsets could vary by approximately 10 percentage points lower or higher on a year-over-year basis than the assumptions actually utilized in the year-end 2022 reserve review. Because the U.S. D&O business has exhibited highly volatile loss trends from one accident year to the next, there is the possibility of an exceptionally high deviation. In our analysis, the effects of loss cost trend assumptions affect the results through the a priori loss ratio assumptions used for the Bornhuetter Ferguson and Cape Cod methods, which impact the projections for the more recent accident years. The selected loss development factors are also an important assumption, but are less critical than for U.S. Excess Casualty. Because these lines are written on a claims made basis, the loss reporting and development tail is much shorter than for U.S. Excess Casualty. However, the high severity nature of the losses does create the potential for significant deviations in loss development patterns from one year to the next. Similar to U.S. Excess Casualty, after evaluating the historical loss development factors from prior accident years since the early 1990s, in our judgment, it is reasonably possible that actual loss development factors could change by an amount equivalent to a shift by six months from those actually utilized in the year-end 2022 reserve review. |
| UK/Europe Casualty and Financial Lines | Similar to U.S. business, UK/Europe Casualty and Financial Lines can be significantly impacted by loss cost trends and changes in loss development factors. The variation in such factors can differ significantly by product and region, however the range of potential impacts is much lower than that of other lines of business noted above. |

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ITEM 7 | Critical Accounting Estimates

| Line of Business or Category | Key Assumptions |
| --- | --- |
| U.S. and UK/Europe Property and Special Risks | For shorter-tail lines such as Property and Special Risks, variance in outcomes for individual large claims or events typically has a greater impact on results than does changes in actuarial assumptions or methodology. This is because a greater proportion of the ultimate loss, at any stage of development, is composed of reported losses than IBNR reserves. These outcomes generally relate to unique characteristics of events such as catastrophes or losses with significant business interruption claims. |
| U.S., UK/Europe and Japan Personal Insurance | Personal Insurance is short-tailed in nature similar to Property and Special Risks but less volatile. Variance in estimates can result from unique events such as catastrophes. In addition, some subsets of this business, such as auto liability, can be impacted by changes in loss development factors and loss cost trends. |

The following sensitivity analysis table summarizes the effect on the loss reserve position of using certain alternative loss cost trend (for accident years where we use expected loss ratio methods) or loss development factor assumptions rather than the assumptions actually used in determining our estimates in the year-end loss reserve analyses in 2022:

| December 31, 2022 (in millions) | Increase (Decrease) to Loss Reserves | Increase (Decrease) to Loss Reserves |
| --- | --- | --- |
| Loss cost trends: |  | Loss development factors: |
| U.S. Excess Casualty: |  | U.S. Excess Casualty: |
| 5.0 percentage points increase | $950 | 3.5 percentage points tail factor increase |
| 5.0 percentage points decrease | (700) | 2.0 percentage points tail factor decrease |
|  |  | U.S. Excess Casualty: |
|  |  | 6-months slower |
|  |  | 6-months faster |
|  |  | U.S. Financial Lines (D&O) |
| U.S. Financial Lines (D&O) |  | 6-months slower |
| 10.0 percentage points increase | 1,000 | 6-months faster |
| 10.0 percentage points decrease | (700) | U.S. Financial Lines (D&O) |
|  |  | 6-months slower |
|  |  | 6-months faster |
|  |  | U.S. Workers' Compensation: |
|  |  | Tail factor increase (a) |
|  |  | Tail factor decrease (b) |
|  |  | U.S. Workers' Compensation: |
|  |  | Tail factor increase (a) |
|  |  | Tail factor decrease (b) |
|  |  | 850 |
|  |  | (500) |

(a) Tail factor increase of 2.5 percentage points for guaranteed cost business and 3 percentage points for deductible business.

(b) Tail factor decrease of 1 percentage point for guaranteed cost business and 1.5 percentage points for deductible business.

For additional information on our reserving process and methodology, see Note 12 to the Consolidated Financial Statements.

## FUTURE POLICY BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS

**Long-duration traditional products** primarily include whole life insurance, term life insurance, and certain payout annuities for which the payment period is life-contingent, which include certain of our single premium immediate annuities including pension risk transfer (PRT) business and structured settlements. In addition, these products also include accident and health, and long-term care (LTC) insurance. The LTC block is in run-off and has been fully reinsured with Fortitude Re.

**For long-duration traditional business, a 'lock-in' principle applies.** Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future benefits less the present value of future net premiums (portion of the gross premium required to provide for all benefits and expenses). The assumptions used to calculate the benefit liabilities and DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs. The assumptions include mortality, morbidity, persistency, maintenance expenses, and investment returns. These assumptions are typically consistent with pricing inputs. The assumptions also include margins for adverse deviation, principally for key assumptions such as mortality and interest rates used to discount cash flows, to reflect uncertainty given that actual experience might deviate from these assumptions. Establishing margins at contract inception requires management judgment. The extent of the margin for adverse deviation may vary depending on the uncertainty of the cash flows, which is affected by the volatility of the business and the extent of our experience with the product.

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ITEM 7 | Critical Accounting Estimates

Loss recognition occurs if observed changes in actual experience or estimates result in projected future losses under loss recognition testing. To determine whether loss recognition exists, we determine whether a future loss is expected based on updated current best estimate assumptions. If loss recognition exists, the assumptions as of the loss recognition test date are locked-in and used in subsequent valuations and the net reserves continue to be subject to loss recognition testing. Because of the long-term nature of many of our liabilities subject to the “lock-in” principle, small changes in certain assumptions may cause large changes in the degree of reserve balances. In particular, changes in estimates of future invested asset returns have a large effect on the degree of reserve balances.

Groupings for loss recognition testing are consistent with our manner of acquiring, servicing, and measuring the profitability of the business and are applied by product groupings, that span across issuance years, including traditional life, payout annuities and LTC insurance. Once loss recognition has been recorded for a block of business, the old assumption set is replaced and the assumption set used for the loss recognition would then be subject to the lock-in principle. Our policy is to perform loss recognition testing net of reinsurance. The business ceded to Fortitude Re, is grouped separately. Since 100 percent of the risk has been ceded, no additional loss recognition events are expected to occur unless this business is recaptured.

Key judgments made in loss recognition testing include the following:

- To determine investment returns used in loss recognition tests, we project future cash flows on the assets supporting the liabilities. The duration of these assets is generally comparable to the duration of the liabilities and such assets are primarily comprised of diversified portfolio of high to medium quality fixed maturity securities, and may also include, to a lesser extent, alternative investments. Our projections include a reasonable allowance for investment expenses and expected credit losses over the projection horizon. A critical assumption in the projection of expected investment income is the assumed net rate of investment return at which excess cash flows are to be reinvested.
- For mortality assumptions, base future assumptions take into account industry and our historical experience, as well as expected mortality changes in the future. The latter judgment is based on a combination of historical mortality trends and industry observations, public health and demography specialists that were consulted by AIG’s actuaries and published industry information.
- For surrender rates, key judgments involve the correlation between expected increases/decreases in interest rates and increases/decreases in surrender rates. To support this judgment, we compare crediting rates on our products to expected rates on competing products under different interest rate scenarios.
- Significant unrealized appreciation on investments in a low interest rate environment may cause DAC to be adjusted and additional future policy benefit liabilities to be recorded through a charge directly to accumulated other comprehensive income (changes related to unrealized appreciation or depreciation of investments). These charges are included, net of tax, with the change in net unrealized appreciation of investments. In applying changes related to unrealized appreciation of investments, the Company overlays unrealized gains and other changes related to unrealized appreciation of investments onto loss recognition tests.

For additional information on impact of changes related to unrealized appreciation (depreciation) to investments, see Note 8 to the Consolidated Financial Statements.

For universal life policies with secondary guarantees, we recognize certain liabilities in addition to policyholder account balances. For universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are expected at contract inception, a liability is recognized based on a benefit ratio of (i) the present value of total expected payments, in excess of the account value, over the life of the contract, divided by (ii) the present value of total expected assessments over the life of the contract. Universal life account balances are reported in Policyholder contract deposits, while these additional liabilities related to universal life products are reported within Future Policy Benefits in the Consolidated Balance Sheets. These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale on accumulated assessments, with related changes recognized through Other comprehensive income (loss). The primary policyholder behavior assumptions for these liabilities include mortality, lapses and premium persistency. The primary capital market assumptions used for the liability for universal life secondary guarantees include discount rates and net earned rates.

For additional information on actuarial assumption updates, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Update of Actuarial Assumptions and Models - Investment-Oriented Products.

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ITEM 7 | Critical Accounting Estimates

## GUARANTEED BENEFIT FEATURES OF VARIABLE ANNUITY, FIXED ANNUITY AND FIXED INDEX ANNUITY PRODUCTS

Variable annuity products offered by our Individual Retirement and Group Retirement segments offer guaranteed benefit features. These guaranteed features include guaranteed minimum death benefits (GMDB) that are payable in the event of death and living benefits that guarantee lifetime withdrawals regardless of fixed account and separate account value performance. Living benefit features primarily include guaranteed minimum withdrawal benefits (GMWB).

*For additional information on these features, see Note 13 to the Consolidated Financial Statements.*

The liability for GMDB, which is recorded in future policy benefits, represents the expected value of benefits in excess of the projected account value, with the excess recognized ratably through Policyholder benefits over the accumulation period based on total expected assessments. The liabilities for variable annuity GMWB, which are recorded in Policyholder contract deposits, are accounted for as embedded derivatives measured at fair value, with changes in the fair value of the liabilities recorded in net realized gains (losses).

Certain of our fixed annuity and fixed index annuity contracts, which are not offered through separate accounts, contain optional GMWB benefits. Different versions of these GMWB riders contain different guarantee provisions. The liability for GMWB benefits in fixed annuity and fixed index annuity contracts for which the rider guarantee is considered to be clearly and closely related to the host contract are recorded in future policy benefits. This GMWB liability represents the expected value of benefits in excess of the projected account value, with the excess recognized ratably over the accumulation period based on total expected assessments, through Policyholder benefits. For rider guarantees in certain fixed index annuity contracts that are linked to equity indices that are considered to be embedded derivatives that are not clearly and closely related to the host contract, the GMWB liability is recorded in Policyholder contract deposits and measured at fair value, with changes in the fair value of the liabilities recorded in net realized gains (losses).

Our exposure to the guaranteed amounts is equal to the amount by which the contract holder's account balance is below the amount provided by the guaranteed feature. A deferred annuity contract may include more than one type of guaranteed benefit feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can generally only receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, i.e., the features are generally mutually exclusive (except a surviving spouse who has a rider to potentially collect both a GMDB upon their spouse's death and a GMWB during his or her lifetime). A policyholder cannot purchase more than one living benefit on one contract. Declines in the equity markets, increased volatility and a low interest rate environment increase our exposure to potential benefits under the guaranteed features, leading to an increase in the liabilities for those benefits.

*For sensitivity analysis which includes the sensitivity of reserves for guaranteed benefit features to changes in the assumptions for interest rates, equity returns, volatility, and mortality, see - Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products.*

*For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies' Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.*

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ITEM 7 | Critical Accounting Estimates

The reserving methodology and assumptions used to measure the liabilities of our two largest guaranteed benefit features are presented in the following table:

| Guaranteed Benefit Feature | Reserving Methodology & Key Assumptions |
| --- | --- |
| GMDB and Fixed Annuity and certain Fixed Index Annuity GMWB | We determine the GMDB liability at each balance sheet date by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected fee assessments. For certain fixed and fixed index annuity products, we determine the GMWB liability at each balance sheet date by estimating the expected withdrawal benefits once the projected account balance has been exhausted ratably over the accumulation period based on total expected assessments. These GMWB features are deemed to not be embedded derivatives as the GMWB feature is determined to be clearly and closely related to the host contract. The present value of the total expected excess payments (e.g., payments in excess of account value) over the life of contract divided by the present value of total expected assessments is referred to as the benefit ratio. The magnitude and direction of the change in reserves may vary over time based on the emergence of the benefit ratio and the level of assessments. For additional information on how we reserve for variable and fixed index annuity products with guaranteed benefit features, see Note 13 to the Consolidated Financial Statements. Key assumptions and projections include: - Interest credited that varies by year of issuance and products - Actuarially determined assumptions for mortality rates that are based upon industry and our historical experience modified to allow for variations in policy features and experience anomalies - Actuarially determined assumptions for lapse rates that are based upon industry and our historical experience modified to allow for variations in policy features and experience anomalies - Investment returns, based on stochastically generated scenarios - Asset returns that include a reversion to the mean methodology, similar to that applied for DAC In applying separate account asset growth assumptions for the variable annuity GMDB liability, we use a reversion to the mean methodology, the same as that applied to DAC. For the fixed index annuity GMWB liability, policyholder funds are projected assuming growth equal to current option values for the current crediting period followed by option budgets for all subsequent crediting periods. For the fixed annuity liability, policyholder fund growth projected assuming credited rates are expected to be maintained at a target pricing spread, subject to guaranteed minimums. |
| Variable Annuity and certain Fixed Index Annuity GMWB | GMWB living benefits on variable annuities and GMWB living benefits linked to equity indices on fixed index annuities are embedded derivatives that are required to be bifurcated from the host contract and carried at fair value with changes in the fair value of the liabilities recorded in realized gains (losses). The fair value of these embedded derivatives is based on assumptions that a market participant would use in valuing these embedded derivatives. For additional information on how we reserve for variable and fixed index annuity products with guaranteed benefit features, see Note 13 to the Consolidated Financial Statements, and for information on fair value measurement of these embedded derivatives, including how we incorporate our own non-performance risk, see Note 4 to the Consolidated Financial Statements. The fair value of the embedded derivatives, which are Level 3 liabilities, is based on a risk-neutral framework and incorporates actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts. Key assumptions include: - Interest rates - Equity market returns - Market volatility - Credit spreads - Equity / interest rate correlation - Policyholder behavior, including mortality, lapses, withdrawals and benefit utilization. Estimates of future policyholder behavior are subjective and based primarily on our historical experience - In applying asset growth assumptions for the valuation of GMWBs, we use market-consistent assumptions calibrated to observable interest rate and equity option prices - Allocation of fees between the embedded derivative and host contract |

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ITEM 7 | Critical Accounting Estimates

## VALUATION OF EMBEDDED DERIVATIVES FOR FIXED INDEX ANNUITY AND LIFE PRODUCTS

Fixed index annuity and life products provide growth potential based in part on the performance of a market index. Certain fixed index annuity products offer optional guaranteed benefit features similar to those offered on variable annuity products. Policyholders may elect to rebalance among the various accounts within the product at specified renewal dates. At the end of each index term, we generally have the opportunity to re-price the indexed component by establishing different participation rates or caps on equity index credited rates. The index crediting feature of these products results in the recognition of an embedded derivative that is required to be bifurcated from the host contract and carried at fair value with changes in the fair value of the liabilities recorded in Net realized gains (losses). Option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and our ability to adjust the participation rate and the cap on equity index credited rates in light of market conditions and policyholder behavior assumptions.

*For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies’ Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.*

## ESTIMATED GROSS PROFITS TO VALUE DEFERRED ACQUISITION COSTS AND UNEARNED REVENUE FOR INVESTMENT-ORIENTED PRODUCTS

Policy acquisition costs and policy issuance costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts related to universal life insurance and investment-type products, for example, variable, fixed and fixed index annuities (collectively, investment-oriented products) are generally deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the expected lives of the contracts, except in instances where significant negative gross profits are expected in one or more periods. Investment oriented products have a long duration and a disclosed crediting interest rate. Total gross profits include both actual gross profits and estimates of gross profits for future periods. Estimated gross profits include current and projected interest rates, net investment income and spreads, net realized gains and losses, fees, surrender rates, mortality experience and equity market returns and volatility. In estimating future gross profits, lapse assumptions require judgment and can have a material impact on DAC amortization. For fixed index annuity contracts, the future spread between investment income and interest credited to policyholders is a significant judgment, particularly in a low interest rate environment. We regularly evaluate our assumptions used for estimated gross profits. If the assumptions used for estimated gross profits change, DAC and related reserves, including VOBA, DSI, guaranteed benefit reserves and unearned revenue reserve (URR), are recalculated using the new assumptions, and any resulting adjustment is included in income. Updating such assumptions may result in acceleration of amortization in some products and deceleration of amortization in other products.

In estimating future gross profits for variable annuity products as of December 31, 2022 and 2021, a long-term annual asset growth assumption of 7.0 percent (before expenses that reduce the asset base from which future fees are projected) was applied to estimate the future growth in assets and related asset-based fees. In determining the asset growth rate, the effect of short-term fluctuations in the equity markets is partially mitigated through the use of a reversion to the mean methodology, whereby short-term asset growth above or below the long-term annual rate assumption impacts the growth assumption applied to the five-year period subsequent to the current balance sheet date. The reversion to the mean methodology allows us to maintain our long-term growth assumptions, while also giving consideration to the effect of actual investment performance. When actual performance significantly deviates from the annual long-term growth assumption, as evidenced by growth assumptions for the five-year reversion to the mean period falling below a certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or “unlock” the growth rate assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual growth assumption applied to subsequent periods.

*For additional information, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - DAC - Reversion to the Mean.*

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ITEM 7 | Critical Accounting Estimates

The following table summarizes the sensitivity of changes in certain assumptions for DAC and DSI, embedded derivatives and other reserves related to guaranteed benefits and URR, measured as the related hypothetical impact on December 31, 2022 balances and the resulting hypothetical impact on pre-tax income, before hedging.

| December 31, 2022 (in millions) | Increase (Decrease) in |  |  |  |  | Pre-Tax Income |
| --- | --- | --- | --- | --- | --- | --- |
|  | DAC/DSI Asset | Other Reserves Related to Guaranteed Benefits | Unearned Revenue Reserve | Embedded Derivatives Related to Guaranteed Benefits |  |  |
| Assumptions: |  |  |  |  |  |  |
| Net Investment Spread |  |  |  |  |  |  |
| Effect of an increase by 10 basis points | $142 | $(54) | $(4) | $(98) | $ | 298 |
| Effect of a decrease by 10 basis points | (151) | 54 | 2 | 101 |  | (308) |
| Equity Return (a) |  |  |  |  |  |  |
| Effect of an increase by 1% | 98 | (53) | - | (21) |  | 172 |
| Effect of a decrease by 1% | (96) | 62 | - | 30 |  | (188) |
| Volatility (b) |  |  |  |  |  |  |
| Effect of an increase by 1% | (3) | 24 | - | (51) |  | 24 |
| Effect of a decrease by 1% | 3 | (23) | - | 55 |  | (29) |
| Interest Rate (c) |  |  |  |  |  |  |
| Effect of an increase by 1% | - | - | - | (1,590) |  | 1,590 |
| Effect of a decrease by 1% | - | - | - | 2,070 |  | (2,070) |
| Mortality |  |  |  |  |  |  |
| Effect of an increase by 1% | (6) | 43 | - | (34) |  | (15) |
| Effect of a decrease by 1% | 7 | (43) | - | 34 |  | 16 |
| Lapse |  |  |  |  |  |  |
| Effect of an increase by 10% | (113) | (116) | (27) | (80) |  | 110 |
| Effect of a decrease by 10% | 117 | 120 | 27 | 73 |  | (103) |

(a) Represents the net impact of a one percent increase or decrease in long-term equity returns for GMB reserves and net impact of a one percent increase or decrease in the S&P 500 index on the value of the GMWB embedded derivative.

(b) Represents the net impact of a one percentage point increase or decrease in equity volatility.

(c) Represents the net impact of one percent parallel shift in the yield curve on the value of the GMWB embedded derivative. Does not represent interest rate spread compression on investment-oriented products.

The sensitivity ranges of 10 basis points, one percent and 10 percent are included for illustrative purposes only and do not reflect the changes in net investment spreads, equity return, volatility, interest rate, mortality or lapse used by AIG in its fair value analyses or estimates of future gross profits to value DAC and related reserves. Changes different from those illustrated may occur in any period and by different products.

The analysis of DAC, embedded derivatives and other reserves related to guaranteed benefits, and unearned revenue reserve is a dynamic process that considers all relevant factors and assumptions described above. We estimate each of the above factors individually, without the effect of any correlation among the key assumptions. An assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results. The effects on pre-tax income in the sensitivity analysis table above do not reflect the related effects from our economic hedging program, which utilizes derivative and other financial instruments and is designed so that changes in value of those instruments move in the opposite direction of changes in the guaranteed benefit embedded derivative liabilities.

*For additional information on guaranteed benefit features of our variable annuities and the related hedging program, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies' Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs, Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Variable Annuity Guaranteed Benefits and Hedging Results, and Notes 4, 8 and 13 to the Consolidated Financial Statements.*

*For additional information on actuarial assumption updates, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Update of Actuarial Assumptions and Models - Investment-Oriented Products.*

AIG | 2022 Form 10-K

57

ITEM 7 | Critical Accounting Estimates

## REINSURANCE ASSETS

In the ordinary course of business, our insurance companies may use both treaty and facultative reinsurance to minimize their net loss exposure to any single catastrophic loss event or to an accumulation of losses from a number of smaller events or to provide greater diversification of our businesses. Reinsurance assets include the balances due from reinsurance and insurance companies under the terms of our reinsurance agreements for paid and unpaid losses and loss adjustment expenses incurred, ceded unearned premiums and ceded future policy benefits for life and accident and health insurance contracts and benefits paid and unpaid. The estimation of reinsurance recoverables involves a significant amount of judgment. Reinsurance assets include reinsurance recoverables on unpaid losses and loss adjustment expenses that are estimated as part of our loss reserving process and, consequently, are subject to similar judgments and uncertainties as the estimation of gross loss reserves. *For additional information on reinsurance, see Note 7 to the Consolidated Financial Statements.*

## GOODWILL IMPAIRMENT

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is tested for impairment annually, or more frequently if circumstances indicate an impairment may have occurred. A qualitative assessment may be performed, considering whether events or circumstances exist that lead to a determination that it is not more likely than not that the fair value of an operating segment is less than its carrying value. If management elects to perform a quantitative assessment to determine recoverability of carrying value or is compelled to do so based on the results of a qualitative assessment, the estimate of fair value involves applying one or a combination of common valuation approaches. These include discounted expected future cash flows, market-based earnings multiples and external appraisals, among other methods, all of which require management judgment and are subject to uncertainty, primarily as it relates to assumptions around business growth, earnings projections, and cost of capital.

*For additional information on goodwill impairment, see Part I, Item 1A. Risk Factors - Estimates and Assumptions and Note 11 to the Consolidated Financial Statements.*

## ALLOWANCE FOR CREDIT LOSSES ON CERTAIN INVESTMENTS

We maintain an allowance for the expected lifetime credit losses of commercial and residential mortgage loans and available for sale securities. The sufficiency of this allowance is reviewed quarterly using both quantitative and qualitative considerations, which are subject to risks and uncertainties. These considerations and the overall methodology used to estimate the allowance for credit losses are discussed in more detail in Note 5 and Note 6 to the Consolidated Financial Statements for Available for sale securities and Commercial and residential loans, respectively.

## FAIR VALUE MEASUREMENTS OF CERTAIN FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs available in the marketplace used to measure the fair value. We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant unobservable inputs in their valuation. We consider unobservable inputs to be those for which market data is not available. Our assessment of the significance of a particular input to the fair value measurement of an asset or liability requires judgment.

*For additional information about the valuation methodologies of financial instruments measured at fair value, see Note 4 to the Consolidated Financial Statements.*

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ITEM 7 | Critical Accounting Estimates

## INCOME TAXES

Deferred income taxes represent the tax effect of the differences between the amounts recorded in our Consolidated Financial Statements and the tax basis of assets and liabilities. Our assessment of net deferred income taxes represents management's best estimate of the tax consequences of various events and transactions, which can themselves be based on other accounting estimates, resulting in incremental uncertainty in the estimation process.

### Deferred Tax Asset Recoverability

The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. As such, changes in tax laws in countries where we transact business can impact our deferred tax asset valuation allowance. We consider multiple factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net operating losses, foreign tax credits, realized capital loss and other carryforwards. These factors include forecasts of future income for each of our businesses, which incorporate forecasts of future statutory income for our insurance companies, and actual and planned business and operational changes, both of which include assumptions about future macroeconomic and AIG-specific conditions and events. We subject the forecasts to stresses of key assumptions and evaluate the effect on tax attribute utilization. We also apply stresses to our assumptions about the effectiveness of relevant prudent and feasible tax planning strategies. In performing our assessment of recoverability, we consider tax laws governing the utilization of net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. These tax laws are subject to change, resulting in incremental uncertainty in our assessment of recoverability.

### Uncertain Tax Positions

Uncertain tax positions represent AIG's liability for income taxes on tax years subject to review by the Internal Revenue Service (IRS) or other tax authorities. We determine whether it is more likely than not that a tax position will be sustained, based on technical merits, upon examination by the relevant taxing authorities before any part of the benefit can be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. The completion of review, or the expiration of federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes.

*For a discussion of our framework for assessing the recoverability of our deferred tax asset and other tax topics, see Note 21 to the Consolidated Financial Statements.*

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59

ITEM 7 | 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 Annual Report in its entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

*For additional information, see Note 1 to the Consolidated Financial Statements.*

### Separation of Life and Retirement Business

On September 19, 2022, AIG closed on the initial public offering (IPO) of 80 million shares of Corebridge Financial, Inc. (Corebridge) common stock at a public offering price of $21.00 per share, representing 12.4 percent of Corebridge's common stock. Corebridge is the holding company for AIG's Life and Retirement business. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $1.7 billion. After consideration of underwriting discounts, commissions and other related expenses payable by AIG, AIG recorded $608 million as an increase in AIG's shareholder's equity.

### Relationship with Blackstone Inc.

In November 2021, AIG and Blackstone Inc. (Blackstone) completed the acquisition by Blackstone of a 9.9 percent equity stake in Corebridge.

In 2021, AIG entered into a long-term asset management relationship with Blackstone, pursuant to which Blackstone is initially managing $50 billion of Corebridge's existing investment portfolio, with that amount increasing to an aggregate of $92.5 billion over the next five years.

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. The historical results of the U.S. affordable housing portfolio were reported in our Life and Retirement operating segments.

### Our Investment Management Agreements with BlackRock

Since April 2022, AIG and Corebridge insurance company subsidiaries have entered into separate investment management agreements with BlackRock. Certain additional insurance company subsidiaries will also enter into such investment management agreements over the coming months. We have since transferred the management of approximately $162 billion of our investments in liquid fixed income and certain private placement assets, including $98 billion of the Corebridge investment portfolio, to BlackRock under such investment management agreements as of December 31, 2022. 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 portfolio, including decisions surrounding asset allocation, risk composition and investment strategy.

### Sale of Certain AIG Life and Retirement Retail Mutual Funds Business

On July 16, 2021, AIG announced the closing of the sale of certain assets of Life and Retirement's Retail Mutual Funds business to Touchstone Investments (Touchstone), an indirect wholly-owned subsidiary of Western & Southern Financial Group. Upon closing, the twelve retail mutual funds managed by SunAmerica Asset Management, LLC (SAAMCo), with $6.8 billion in assets, were reorganized into Touchstone funds.

### Sale of Fortitude Holdings

On June 2, 2020, we completed the sale of a majority of the interests in Fortitude Group Holdings, LLC (Fortitude Holdings) to Carlyle FRL, L.P. (Carlyle FRL), an investment fund advised by an affiliate of The Carlyle Group Inc. (Carlyle), and T&D United Capital Co., Ltd. (T&D), a subsidiary of T&D Holdings, Inc., under the terms of a membership interest purchase agreement entered into on November 25, 2019 by and among AIG, Fortitude Holdings, Carlyle FRL, Carlyle, T&D and T&D Holdings, Inc. (the Majority Interest Fortitude Sale). As a result of completion of the Majority Interest Fortitude Sale, AIG received $2.2 billion of proceeds and recorded a total after-tax reduction to total AIG shareholders' equity of $4.3 billion related to the sale of the majority interest in and deconsolidation of Fortitude Holdings in the second quarter of 2020.

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ITEM 7 | 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 2022, characterized by factors such as the impact of COVID-19 and the related governmental and societal responses, rising interest rates, 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 continued to rise during 2022 as markets reacted to heightened inflation measures, geopolitical risk, and the Board of Governors of the Federal Reserve System implementing multiple increases to short term interest rates. As of December 31, 2022, due to increases in benchmark rates, combined with general widening of credit spreads, the yield on new investments has generally exceeded the yield on asset maturities and redemptions. The yield pick-up of new investments over the yields on asset maturities and redemptions averaged 70 basis points during 2022. This combined with resetting of coupon rates on floating rate securities and loans has steadily improved the overall portfolio yields. However, the key benchmark rates remain highly volatile. 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, which impacts the performance of our alternative investment portfolio, fee income, net amount at risk, policyholder benefits and DAC. For instance, in our variable annuity separate accounts, mutual fund assets and brokerage and advisory assets, we generally earn fee income based on the account value, which fluctuates with the equity markets as a significant amount of these assets are invested in equity funds. The impact of equity market returns, both increases and decreases, is reflected in our results due to the impact on the account value and the fair values of equity-exposed securities in our Life and Retirement investment portfolio.

In Life and Retirement, hedging costs could also be significantly impacted by changes in the level of equity markets as rebalancing and option costs are tied to the equity market volatility, and we may be required to post additional collateral when equity markets are higher. These hedging costs are mostly offset by our 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.

Alternative investments include private equity funds which are generally reported on a one-quarter lag. Accordingly, changes in valuations driven by equity market conditions during the fourth quarter of 2022 may impact the private equity investments in the alternative investments portfolio in the first quarter of 2023.

### Annuity Sales and Surrenders

The rising rate environment and our partnership with Blackstone have provided a strong tailwind for fixed annuity sales with sales in the three to five-year products significantly increasing. Continued rising interest rates could create the potential for increased sales, but also drives 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

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ITEM 7 | Executive Summary

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.

### 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 we attempt to maintain profitability of the overall business in light of the interest rate environment. A rising interest rate environment results in improved yields on new investments and improves margins for our Life and Retirement business while also making certain products, such as fixed annuities, more attractive to potential customers. However, the rising rate environment has resulted in lower values on general and separate accounts assets, mutual fund assets and brokerage and advisory assets that hold investments in fixed income assets.

*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 be responsive to a rising rate environment. 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, 64 percent were crediting at the contractual minimum guaranteed interest rate as of December 31, 2022. The percentage of fixed account values of our annuity products that are currently crediting at rates above one percent were 55 percent and 58 percent as of December 31, 2022 and 2021, respectively. In the universal life products in our Life Insurance business, 62 percent and 67 percent of the account values were crediting at the contractual minimum guaranteed interest rate as of December 31, 2022 and 2021, respectively. 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:**

| December 31, 2022 Contractual Minimum Guaranteed Interest Rate (in millions) | Current Crediting Rates |  |  |  |
| --- | --- | --- | --- | --- |
|  | At Contractual Minimum Guarantee | 1-50 Basis Points Above Minimum Guarantee | More than 50 Basis Points Above Minimum Guarantee | Total |
| Individual Retirement* |  |  |  |  |
| <=1% | $8,766 | $2,161 | $21,702 | $32,629 |
| > 1% - 2% | 4,208 | 24 | 2,195 | 6,427 |
| > 2% - 3% | 9,502 | - | 17 | 9,519 |
| > 3% - 4% | 7,630 | 40 | 6 | 7,676 |
| > 4% - 5% | 456 | - | 5 | 461 |
| > 5% - 5.5% | 33 | - | 4 | 37 |
| Total Individual Retirement | $30,595 | $2,225 | $23,929 | $56,749 |
| Group Retirement* |  |  |  |  |
| <=1% | $3,611 | $1,427 | $5,609 | $10,647 |
| > 1% - 2% | 5,628 | 727 | 150 | 6,505 |
| > 2% - 3% | 13,967 | 3 | - | 13,970 |
| > 3% - 4% | 666 | - | - | 666 |
| > 4% - 5% | 6,843 | - | - | 6,843 |
| > 5% - 5.5% | 154 | - | - | 154 |
| Total Group Retirement | $30,869 | $2,157 | $5,759 | $38,785 |

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ITEM 7 | Executive Summary

| December 31, 2022 Contractual Minimum Guaranteed Interest Rate (in millions) | Current Crediting Rates |  |  |  |
| --- | --- | --- | --- | --- |
|  | At Contractual Minimum Guarantee | 1-50 Basis Points Above Minimum Guarantee | More than 50 Basis Points Above Minimum Guarantee | Total |
| Universal life insurance |  |  |  |  |
| <=1% | $ - | $ - | $ - | $ - |
| > 1% - 2% | 1 | 129 | 352 | 482 |
| > 2% - 3% | 32 | 831 | 1,116 | 1,979 |
| > 3% - 4% | 1,368 | 180 | 195 | 1,743 |
| > 4% - 5% | 2,974 | - | - | 2,974 |
| > 5% - 5.5% | 223 | - | - | 223 |
| Total universal life insurance | $4,598 | $1,140 | $1,663 | $7,401 |
| Total | $66,062 | $5,522 | $31,351 | $102,935 |
| Percentage of total | 64% | 5% | 31% | 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 manage 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.*

While the impact of rising interest rates on our General Insurance segment increases the benefit of investment income, the current and medium-term inflationary environment may also translate into higher loss cost trends. 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, rising interest rates may favorably impact the statutory net loss reserve discount for workers' compensation and its associated amortization.

### Impact of Currency Volatility

Currency volatility remains acute. Strengthening of the U.S. dollar against the Euro, British pound and the Japanese yen (the Major Currencies) impacts income for our 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, 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:**

| Years Ended December 31, Rate for 1 USD | 2022 | 2021 | 2020 | Percentage Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Currency: |  |  |  |  |  |
| GBP | 0.81 | 0.73 | 0.78 | 11% | (6) % |
| EUR | 0.95 | 0.84 | 0.88 | 13% | (5) % |
| JPY | 129.67 | 108.92 | 107.23 | 19% | 2% |

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.

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ITEM 7 | 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 twelve-month period ended December 31, 2022. 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. For information regarding AIG's results of operations for the year ended December 31, 2020 and the year ended December 31, 2021 compared with the year ended December 31, 2020, see Part II, Item 7. MD&A - Consolidated Results of Operations of our 2021 Annual Report.*

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

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Percentage Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs. 2021 | 2021 vs. 2020 |
| Revenues: |  |  |  |  |  |
| Premiums | $31,857 | $31,259 | $28,523 | 2% | 10% |
| Policy fees | 2,972 | 3,051 | 2,917 | (3) | 5 |
| Net investment income: |  |  |  |  |  |
| Net investment income - excluding Fortitude Re funds withheld assets | 10,824 | 12,641 | 12,578 | (14) | 1 |
| Net investment income - Fortitude Re funds withheld assets | 943 | 1,971 | 1,053 | (52) | 87 |
| Total net investment income | 11,767 | 14,612 | 13,631 | (19) | 7 |
| Net realized gains (losses): |  |  |  |  |  |
| Net realized gains (losses) - excluding Fortitude Re funds withheld assets and embedded derivative | 1,996 | 1,751 | (56) | 14 | NM |
| Net realized gains (losses) on Fortitude Re funds withheld assets | (486) | 1,003 | 463 | NM | 117 |
| Net realized gains (losses) on Fortitude Re funds withheld embedded derivative | 7,481 | (603) | (2,645) | NM | 77 |
| Total net realized gains (losses) | 8,991 | 2,151 | (2,238) | 318 | NM |
| Other income | 850 | 984 | 903 | (14) | 9 |
| Total revenues | 56,437 | 52,057 | 43,736 | 8 | 19 |
| Benefits, losses and expenses: |  |  |  |  |  |
| Policyholder benefits and losses incurred | 22,771 | 24,388 | 24,806 | (7) | (2) |
| Interest credited to policyholder account balances | 3,709 | 3,557 | 3,622 | 4 | (2) |
| Amortization of deferred policy acquisition costs | 4,970 | 4,573 | 4,211 | 9 | 9 |
| General operating and other expenses | 9,195 | 8,790 | 8,396 | 5 | 5 |
| Interest expense | 1,125 | 1,305 | 1,457 | (14) | (10) |
| Loss on extinguishment of debt | 303 | 389 | 12 | (22) | NM |
| Net (gain) loss on divestitures and other | 82 | (3,044) | 8,525 | NM | NM |
| Total benefits, losses and expenses | 42,155 | 39,958 | 51,029 | 5 | (22) |
| Income (loss) from continuing operations before income tax expense (benefit) | 14,282 | 12,099 | (7,293) | 18 | NM |
| Income tax expense (benefit): |  |  |  |  |  |
| Current | 517 | (45) | 217 | NM | NM |
| Deferred | 2,489 | 2,221 | (1,677) | 12 | NM |
| Income tax expense (benefit) | 3,006 | 2,176 | (1,460) | 38 | NM |
| Income (loss) from continuing operations | 11,276 | 9,923 | (5,833) | 14 | NM |
| Income (loss) from discontinued operations, net of income taxes | (1) | - | 4 | NM | NM |
| Net income (loss) | 11,275 | 9,923 | (5,829) | 14 | NM |
| Less: Net income attributable to noncontrolling interests | 999 | 535 | 115 | 87 | 365 |
| Net income (loss) attributable to AIG | 10,276 | 9,388 | (5,944) | 9 | NM |
| Less: Dividends on preferred stock | 29 | 29 | 29 | - | - |
| Net income (loss) attributable to AIG common shareholders | $10,247 | $9,359 | $(5,973) | 9% | NM % |

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ITEM 7 | Consolidated Results of Operations

| Years Ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Return on common equity | 21.0% | 14.5% | (9.4)% |
| Adjusted return on common equity | 6.5% | 8.6% | 4.4% |
| (in millions, except per common share data) |  |  |  |
|  | December 31, 2022 | December 31, 2021 |  |
| Balance sheet data: |  |  |  |
| Total assets | $526,634 | $596,112 |  |
| Short-term and long-term debt | 21,299 | 23,741 |  |
| Debt of consolidated investment entities | 5,880 | 6,422 |  |
| Total AIG shareholders' equity | 40,002 | 65,956 |  |
| Book value per common share | 53.83 | 79.97 |  |
| Adjusted book value per common share | 73.87 | 68.83 |  |

## NET INCOME (LOSS) ATTRIBUTABLE TO AIG COMMON SHAREHOLDERS COMPARISON FOR 2022 AND 2021

Net income attributable to AIG common shareholders increased $888 million due to the following, on a pre-tax basis:

- an increase in Net realized gains on Fortitude Re funds withheld embedded derivative of $8.1 billion driven by interest rate movements, partially offset by losses on Fortitude Re funds withheld assets of $486 million in 2022 compared to a gain of $1.0 billion in 2021;
- higher underwriting income in General Insurance of $1.1 billion, including $86 million attributable to eliminating the international reporting lag, reflecting the continued earn-in of positive rate change, strong renewal retentions and new business production, as well as increased favorable prior year development and lower catastrophe losses. Underwriting income was negatively impacted by unfavorable movements in foreign exchange. For additional information on the elimination of the international reporting lag, see Note 1 to the Consolidated Financial Statements.
- lower interest expense of $180 million primarily driven by interest savings of $225 million from $9.4 billion debt repurchases, through cash tender offers and debt redemptions in 2022 as well as $92 million from $3.6 billion of debt repurchases, through cash tender offers and debt redemptions in 2021, as well as interest savings of $100 million on debt borrowing due to the sale of Affordable Housing in 2021. These decreases are partially offset by interest expense of $240 million on $6.5 billion Corebridge senior unsecured notes, $1.5 billion draw down on Corebridge DDTL facility and $1.0 billion junior subordinated debt issued by Corebridge in 2022.

The increase in Net income attributable to AIG common shareholders was partially offset by the following, on a pre-tax basis:

- lower net gains on divestitures and other due to loss of $82 million in 2022 compared with net gains on divestitures and other in 2021 due to the recognition of $3.0 billion gain from the sale of the Affordable Housing portfolio and $102 million gain from the sale of certain assets of the Retail Mutual Funds business in 2021.
- lower net investment income of $2.8 billion primarily driven by lower returns on our alternative investments of $1.9 billion and declines in fair value of fixed maturity securities where we elected the fair value option of $810 million as a result of the higher rate environment and negative equity market performance.
- higher income attributable to noncontrolling interest of $464 million driven by the sale of 9.9 percent interest of Corebridge to Blackstone in December 2021 and the 12.4 percent IPO of Corebridge in September 2022.
- a decrease in Net realized gains excluding Fortitude Re funds withheld assets and embedded derivative of $245 million, driven by a $2.9 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 $1.1 billion and sales of alternative investments and real estate of $795 million, unfavorable movement in the allowance for credit losses on fixed maturity securities and loans of $421 million and absence of realized gains related to Affordable Housing portfolio sale in 2021 of $219 million.

The $830 million increase in income tax expense was primarily attributable to higher income from continuing operations.

## INCOME TAX EXPENSE ANALYSIS

For the years ended December 31, 2022 and 2021, the effective tax rate on income (loss) from continuing operations was 21.0 percent and 18.0 percent, respectively.

For additional information, see Note 21 to the Consolidated Financial Statements.

AIG | 2022 Form 10-K

65

ITEM 7 | Consolidated Results of Operations

## U.S. TAX LAW CHANGES

On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) of 2022 (H.R. 5376), which finances climate and energy provisions and an extension of enhanced subsidies under the Affordable Care Act. Key provisions include a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with average profits over $1 billion over a three-year period, a 1 percent stock buyback tax, increased IRS enforcement funding, and Medicare's new ability to negotiate prescription drug prices. CAMT and the stock buyback tax are effective for tax years beginning after December 31, 2022. The tax provisions of IRA are not expected to have a material impact on AIG's financial results. However, the CAMT may impact our U.S. cash tax liabilities.

*For additional information, see Note 21 to the Consolidated Financial Statements.*

**The following table presents a reconciliation of Book value per common share to Adjusted book value per common share, which is a non-GAAP measure. For additional information, see Use of Non-GAAP Measures.**

| (in millions, except per common share data) | At December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Total AIG shareholders' equity | $40,002 | $65,956 | $66,362 |
| Preferred equity | 485 | 485 | 485 |
| Total AIG common shareholders' equity | 39,517 | 65,471 | 65,877 |
| Less: Deferred tax assets | 4,518 | 5,221 | 7,907 |
| Less: Accumulated other comprehensive income (loss) | (22,092) | 6,687 | 13,511 |
| Add: Cumulative unrealized gains and losses related to Fortitude Re funds withheld assets | (2,862) | 2,791 | 4,657 |
| Subtotal: AOCI plus cumulative unrealized gains and losses related to Fortitude Re funds withheld assets | (19,230) | 3,896 | 8,854 |
| Adjusted common shareholders' equity | $54,229 | $56,354 | $49,116 |
| Total common shares outstanding | 734.1 | 818.7 | 861.6 |
| Book value per common share | $53.83 | $79.97 | $76.46 |
| Adjusted book value per common share | 73.87 | 68.83 | 57.01 |

**The following table presents a reconciliation of Return on common equity to Adjusted return on common equity, which is a non-GAAP measure. For additional information, see Use of Non-GAAP Measures.**

| Years Ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| (dollars in millions) |  |  |  |
| Actual or annualized net income (loss) attributable to AIG common shareholders | $10,247 | $9,359 | $(5,973) |
| Actual or annualized adjusted after-tax income attributable to AIG common shareholders | 3,586 | 4,430 | 2,201 |
| Average AIG common shareholders' equity | $48,769 | $64,704 | $63,225 |
| Less: Average DTA | 4,739 | 7,025 | 8,437 |
| Less: Average AOCI | (12,551) | 9,096 | 7,529 |
| Add: Average cumulative unrealized gains and losses related to Fortitude Re funds withheld assets | (1,053) | 3,200 | 2,653 |
| Subtotal: AOCI plus cumulative unrealized gains and losses related to Fortitude Re funds withheld assets | (11,498) | 5,896 | 4,876 |
| Average adjusted AIG common shareholders' equity | $55,528 | $51,783 | $49,912 |
| Return on common equity | 21.0% | 14.5% | (9.4) % |
| Adjusted return on common equity | 6.5% | 8.6% | 4.4% |

**The following table presents a reconciliation of revenues to adjusted revenues:**

| Years Ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| (in millions) |  |  |  |
| Revenues | $56,437 | $52,057 | $43,736 |
| Changes in fair value of securities used to hedge guaranteed living benefits | (55) | (60) | (56) |
| Changes in the fair value of equity securities | 53 | 237 | (200) |
| Other (income) expense - net | 29 | 24 | (49) |
| Net investment income on Fortitude Re funds withheld assets | (943) | (1,971) | (1,053) |
| Net realized (gains) losses on Fortitude Re funds withheld assets | 486 | (1,003) | (463) |
| Net realized (gains) losses on Fortitude Re funds withheld embedded derivative | (7,481) | 603 | 2,645 |

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ITEM 7 | Consolidated Results of Operations

| Net realized (gains) losses (a) | (1,731) | (1,585) | 148 |
| --- | --- | --- | --- |
| Non-operating litigation reserves and settlements | (49) | - | (23) |
| Net impact from elimination of international reporting lag (b) | (978) | - | - |
| Adjusted revenues | $45,768 | $48,302 | $44,685 |

(a) Includes all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets.

(b) For additional information, see Note 1 to the Consolidated Financial Statements.

The following table presents a reconciliation of pre-tax income (loss)/net income (loss) attributable to AIG to adjusted pre-tax income (loss)/adjusted after-tax income (loss) attributable to AIG:

| Years Ended December 31, (in millions, except per common share data) | 2022 |  |  |  | 2021 |  |  |  | 2020 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Pre-tax | Total Tax (Benefit) Charge | Non-controlling Interests (a) | After Tax | Pre-tax | Total Tax (Benefit) Charge | Non-controlling Interests (a) | After Tax | Pre-tax | Total Tax (Benefit) Charge | Non-controlling Interests (a) | After Tax |
| Pre-tax income (loss)/net income (loss), including noncontrolling interests | $14,282 | $3,006 | $ - | $11,275 | $12,099 | $2,176 | $ - | $9,923 | $(7,293) | $(1,460) | $ - | $(5,829) |
| Noncontrolling interests |  |  | (999) | (999) |  |  | (535) | (535) |  |  | (115) | (115) |
| Pre-tax income (loss)/net income (loss) attributable to AIG | $14,282 | $3,006 | $(999) | $10,276 | $12,099 | $2,176 | $(535) | $9,388 | $(7,293) | $(1,460) | $(115) | $(5,944) |
| Dividends on preferred stock |  |  |  | 29 |  |  |  | 29 |  |  |  | 29 |
| Net income (loss) attributable to AIG common shareholders |  |  |  | $10,247 |  |  |  | $9,359 |  |  |  | $(5,973) |
| Changes in uncertain tax positions and other tax adjustments (a) |  | 22 | - | (22) |  | 998 | - | (998) |  | 132 | - | (132) |
| Deferred income tax valuation allowance (releases) charges (a) |  | 25 | - | (25) |  | (718) | - | 718 |  | 65 | - | (65) |
| Changes in fair value of securities used to hedge guaranteed living benefits | (30) | (6) | - | (24) | (61) | (13) | - | (48) | (41) | (9) | - | (32) |
| Changes in benefit reserves and DAC, VOBA and DSI related to net realized gains (losses) | 308 | 65 | - | 243 | 52 | 11 | - | 41 | (12) | (3) | - | (9) |
| Changes in the fair value of equity securities | 53 | 11 | - | 42 | 237 | 49 | - | 188 | (200) | (42) | - | (158) |
| Loss on extinguishment of debt | 303 | 64 | - | 239 | 389 | 82 | - | 307 | 12 | 2 | - | 10 |
| Net investment income on Fortitude Re funds withheld assets | (943) | (198) | - | (745) | (1,971) | (414) | - | (1,557) | (1,053) | (221) | - | (832) |
| Net realized (gains) losses on Fortitude Re funds withheld assets | 486 | 102 | - | 384 | (1,003) | (211) | - | (792) | (463) | (98) | - | (365) |
| Net realized (gains) losses on Fortitude Re funds withheld embedded derivative | (7,481) | (1,571) | - | (5,910) | 603 | 126 | - | 477 | 2,645 | 555 | - | 2,090 |
| Net realized (gains) losses (a) | (1,750) | (367) | - | (1,383) | (1,623) | (341) | - | (1,282) | 97 | 22 | - | 75 |
| (Income) loss from discontinued operations |  |  |  | 1 |  |  |  | - |  |  |  | (4) |
| Net loss (gain) on divestitures and other | 82 | 17 | - | 65 | (3,044) | (650) | - | (2,394) | 8,525 | 1,610 | - | 6,915 |
| Non-operating litigation reserves and settlements | (41) | (9) | - | (32) | 3 | 1 | - | 2 | (21) | (4) | - | (17) |
| Favorable prior year development and related amortization changes ceded under retroactive reinsurance agreements | (160) | (34) | - | (126) | (186) | (39) | - | (147) | (221) | (46) | - | (175) |
| Net loss reserve discount (benefit) charge | (703) | (148) | - | (555) | (193) | (40) | - | (153) | 516 | 109 | - | 407 |
| Pension expense related to a one-time lump sum payment to former employees | 60 | 13 | - | 47 | 34 | 7 | - | 27 | - | - | - | - |
| Integration and transaction costs associated with acquiring or divesting businesses | 194 | 41 | - | 153 | 83 | 18 | - | 65 | 12 | 3 | - | 9 |
| Restructuring and other costs | 570 | 120 | - | 450 | 433 | 91 | - | 342 | 435 | 91 | - | 344 |
| Non-recurring costs related to regulatory or accounting changes | 37 | 8 | - | 29 | 68 | 15 | - | 53 | 65 | 14 | - | 51 |
| Net impact from elimination of international reporting lag (a) | (127) | (27) | - | (100) | - | - | - | - | - | - | - | - |
| Noncontrolling interests (a) |  |  | 608 | 608 |  |  | 222 | 222 |  |  | 62 | 62 |
| Adjusted pre-tax income/Adjusted after-tax income attributable to AIG common shareholders | $5,140 | $1,134 | $(391) | $3,586 | $5,920 | $1,148 | $(313) | $4,430 | $3,003 | $720 | $(53) | $2,201 |
| Weighted average diluted shares outstanding (a) |  |  |  | 787.9 |  |  |  | 864.9 |  |  |  | 869.3 |
| Income (loss) per common share attributable to AIG common shareholders (diluted) (a) |  |  |  | $13.01 |  |  |  | $10.82 |  |  |  | $(6.88) |
| Adjusted after-tax income per common share attributable to AIG common shareholders (diluted) (a) |  |  |  | $4.55 |  |  |  | $5.12 |  |  |  | $2.52 |

(a) The years ended December 31, 2021 and 2020 include the completion of audit activity by the IRS. The year ended December 31, 2020 also includes the write-down of net operating loss deferred tax assets in certain foreign jurisdictions, which is offset by valuation allowance release.

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ITEM 7 | Consolidated Results of Operations

(b) The years ended December 31, 2021 and 2020 include valuation allowance established against a portion of certain tax attribute carryforwards of AIG's U.S. federal consolidated income tax group, as well as valuation allowance changes in certain foreign jurisdictions.
(c) Includes all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets.
(d) For additional information, see Note 1 to the Consolidated Financial Statements.
(e) Includes the portion of equity interest of non-operating income of Corebridge and consolidated investment entities that AIG does not own. Prior to June 2, 2020, noncontrolling interests was primarily due to the 19.9 percent investment in Fortitude Holdings by an affiliate of Carlyle, which occurred in the fourth quarter of 2018.
(f) For the year ended December 31, 2020, because we reported a net loss attributable to AIG common shareholders, all common stock equivalents are anti-dilutive and are therefore excluded from the calculation of diluted shares and diluted per share amounts. However, because we reported adjusted after-tax income attributable to AIG common shareholders, the calculation of adjusted after-tax income per diluted share attributable to AIG common shareholders includes 5,401,597 dilutive shares for the year ended December 31, 2020.

## PRE-TAX INCOME (LOSS) COMPARISON FOR 2022 AND 2021

Pre-tax income was $14.3 billion in 2022 compared to $12.1 billion in 2021.

For the main drivers impacting AIG's results of operations, see Net Income (Loss) Attributable to AIG Common Shareholders above.

## ADJUSTED PRE-TAX INCOME (LOSS) COMPARISON FOR 2022 AND 2021

Adjusted pre-tax income (loss) was $5.1 billion in 2022 compared to $5.9 billion in 2021.

For the main drivers impacting AIG's adjusted pre-tax income (loss), see Business Segment Operations - General Insurance, Business Segment Operations - Life and Retirement, and Business Segment Operations - Other Operations.

## Business Segment Operations

Our business operations consist of 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.

For information regarding AIG's results of operations for the year ended December 31, 2021 compared with the year ended December 31, 2020, see Part II, Item 7. MD&A - Business Segment Operations of our 2021 Annual Report.

The following table summarizes Adjusted pre-tax income (loss) from our business segment operations. See also Note 3 to the Consolidated Financial Statements.

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| General Insurance |  |  |  |
| North America - Underwriting income (loss) | $648 | $(47) | $(1,301) |
| International - Underwriting income | 1,400 | 1,102 | 277 |
| Net investment income | 2,382 | 3,304 | 2,925 |
| General Insurance | 4,430 | 4,359 | 1,901 |
| Life and Retirement |  |  |  |
| Individual Retirement | 1,222 | 1,939 | 1,938 |
| Group Retirement | 749 | 1,284 | 1,013 |
| Life Insurance | 337 | 106 | 142 |
| Institutional Markets | 349 | 582 | 438 |
| Life and Retirement | 2,657 | 3,911 | 3,531 |
| Other Operations |  |  |  |
| Other Operations before consolidation and eliminations | (1,542) | (1,418) | (1,963) |
| Consolidation and eliminations | (405) | (932) | (466) |
| Other Operations | (1,947) | (2,350) | (2,429) |
| Adjusted pre-tax income | $5,140 | $5,920 | $3,003 |

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ITEM 7 | Business Segment Operations | General Insurance

## General Insurance

General Insurance is managed by our geographic markets of North America and International. Our global presence is underpinned by our multinational capabilities to provide our Commercial Lines and Personal Insurance products within these geographic markets.

### PRODUCTS AND DISTRIBUTION

![img-0.jpeg](img-0.jpeg)

North America consists of insurance businesses in the United States, Canada and Bermuda, and our global reinsurance business, AIG Re.

![img-1.jpeg](img-1.jpeg)

International consists of 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.

**Property:** Products include commercial and industrial property, including business interruption, as well as package insurance products and services that cover exposures to man-made and natural disasters.

**Liability:** Products include general liability, environmental, commercial automobile liability, workers' compensation, excess casualty and crisis management insurance products. Casualty also includes risk-sharing and other customized structured programs for large corporate and multinational customers.

**Financial Lines:** Products include professional liability insurance for a range of businesses and risks, including directors and officers, mergers and acquisitions, fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions insurance.

**Specialty:** Products include marine, energy-related property insurance products, aviation, political risk, trade credit, trade finance and portfolio solutions, as well as our global reinsurance business AIG Re and Crop Risk Services which includes multi-peril and hail coverages.

**Accident & Health:** Products include voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations, as well as a broad range of travel insurance products and services for leisure and business travelers.

**Personal Lines:** Products include personal auto and personal property in selected markets, comprehensive extended warranty, device protection insurance, home warranty and related services, and insurance for high net-worth individuals offered through AIG's Private Client Group (PCG) in the U.S. that covers auto, homeowners, umbrella, yacht, fine art and collections.

General Insurance products in North America and International markets are distributed through various channels, including captive and independent agents, brokers, affinity partners, airlines and travel agents, and retailers. Our global platform enables writing multinational and cross-border risks in both Commercial Lines and Personal Insurance.

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ITEM 7 | Business Segment Operations | General Insurance

## BUSINESS STRATEGY

**Profitable Growth:** Build on our high-quality portfolio by focusing on targeted growth through continued underwriting discipline, improved retentions and new business development. Deploy capital efficiently to act opportunistically and achieve growth in profitable lines, geographies and customer segments, while taking a disciplined underwriting approach to exposure management, terms and conditions and rate change to achieve our risk/return hurdles. Continue to be open to inorganic growth opportunities in profitable markets and segments to expand our capabilities and footprint.

**Reinsurance Optimization:** Strategically partner with reinsurers to effectively manage exposure to losses arising from frequency of large catastrophic events and severity from individual risk losses. We strive to optimize our reinsurance program to manage volatility and protect the balance sheet from tail events and unpredictable net losses in support of our profitable growth objectives.

**Underwriting Excellence:** Continue to enhance portfolio optimization through strength of underwriting framework and guidelines as well as clear communication of risk appetite and rate adequacy. Empower and increase accountability of the underwriter and continue to integrate underwriting, claims and actuarial to enable better decision making. Focus on enhancing risk selection, driving consistent underwriting best practices and building robust monitoring standards to improve underwriting results.

## COMPETITION AND CHALLENGES

General Insurance operates in a highly competitive industry against global, national and local insurers and reinsurers and underwriting syndicates in specific market areas and product types. Insurance companies compete through a combination of risk acceptance criteria, product pricing, service levels and terms and conditions. We serve our business and individual customers on a global basis - from the largest multinational corporations to local businesses and individuals. General Insurance seeks to differentiate itself in the markets where we participate by providing leading expertise and insight to clients, distribution partners and other stakeholders, delivering underwriting excellence and value-driven insurance solutions and providing high quality, tailored end-to-end support to stakeholders. In doing so, we leverage our world-class global franchise, multinational capabilities, balance sheet strength and financial flexibility.

Our challenges include:

- ensuring adequate business pricing given passage of time to reporting and settlement for insurance business, particularly with respect to long-tail Commercial Lines exposures;
- impact of social and economic inflation on claim frequency and severity; and
- volatility in claims arising from natural and man-made catastrophes and other aggregations of risk exposure.

## OUTLOOK - INDUSTRY AND ECONOMIC FACTORS

Below is a discussion of the industry and economic factors impacting our operating segments:

The results of General Insurance for the twelve months ended December 31, 2022 reflect continued strong performance from our Commercial Lines portfolio and focused execution on our portfolio management strategies within Personal Insurance. Across our North America and International Commercial Lines of business we have seen increased demand for our insurance products with continued positive rate change and improvement in terms and conditions. We continue to monitor inflationary impacts resulting from government stimulus in recent years, ongoing labor force and supply chain disruptions and rising commodity prices, among other factors, on rate adequacy and loss cost trends. Similarly, we are monitoring the responsive monetary policy actions taken or anticipated to be taken by central banks, to curb inflation and the corresponding impact on market interest rates.

### General Insurance - North America

North America Commercial remains in a firm market amidst a backdrop of increasing claims severity due to elevated economic and social inflation, as well as a higher frequency and severity of natural catastrophe losses over recent years (which we believe to be in part connected to climate change). While market discipline continues to support price increases across most lines, we are seeing capacity move back into the market in certain segments given the improved pricing levels which is putting pressure on rates. We have focused on retaining our best accounts which has led to improving retention across the portfolio. These retention rates are often coupled with an exposure limit management strategy to reduce volatility within the portfolio. We continue to proactively identify segment growth areas as market conditions warrant through effective portfolio management, while non-renewing unprofitable business.

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ITEM 7 | Business Segment Operations | General Insurance

Personal Insurance growth prospects are supported by the need for full life cycle products and coverage, increases in personal wealth accumulation, and awareness of insurance protection and risk management. We compete in the high net worth market, accident and health insurance, travel insurance, and warranty services and will continue to expand our innovative products and services to distribution partners and clients.

## General Insurance - International

We are continuing to pursue growth in our most profitable lines of business and diversify our portfolio across all regions by expanding key business lines while remaining a market leader in key developed and developing markets. Overall, Commercial Lines continue to show positive rate change, particularly in our Financial Lines, Property, Energy and Marine portfolios and across international markets where market events or withdrawal of capability and capacity have favorably impacted pricing. We are maintaining our underwriting discipline, reducing gross and net limits where appropriate, utilizing reinsurance to reduce volatility, as well as continuing our risk selection strategy to improve profitability.

Personal Insurance focuses on individual customers, as well as group and corporate clients. Although market competition within Personal Insurance has increased, we continue to benefit from the underwriting quality and portfolio diversity.

## GENERAL INSURANCE RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Underwriting results: |  |  |  |  |  |
| Net premiums written | $25,512 | $25,890 | $22,959 | (1) % | 13% |
| (Increase) decrease in unearned premiums | (172) | (833) | 703 | 79 | NM |
| Net premiums earned | 25,340 | 25,057 | 23,662 | 1 | 6 |
| Losses and loss adjustment expenses incurred (a) | 15,407 | 16,097 | 16,803 | (4) | (4) |
| Acquisition expenses: |  |  |  |  |  |
| Amortization of deferred policy acquisition costs | 3,533 | 3,530 | 3,538 | - | - |
| Other acquisition expenses | 1,365 | 1,373 | 1,283 | (1) | 7 |
| Total acquisition expenses | 4,898 | 4,903 | 4,821 | - | 2 |
| General operating expenses | 2,987 | 3,002 | 3,062 | - | (2) |
| Underwriting income (loss) | 2,048 | 1,055 | (1,024) | 94 | NM |
| Net investment income | 2,382 | 3,304 | 2,925 | (28) | 13 |
| Adjusted pre-tax income | $4,430 | $4,359 | $1,901 | 2% | 129% |
| Loss ratio (a) | 60.8 | 64.2 | 71.0 | (3.4) | (6.8) |
| Acquisition ratio | 19.3 | 19.6 | 20.4 | (0.3) | (0.8) |
| General operating expense ratio | 11.8 | 12.0 | 12.9 | (0.2) | (0.9) |
| Expense ratio | 31.1 | 31.6 | 33.3 | (0.5) | (1.7) |
| Combined ratio (a) | 91.9 | 95.8 | 104.3 | (3.9) | (8.5) |
| Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted: |  |  |  |  |  |
| Catastrophe losses and reinstatement premiums | (5.0) | (5.4) | (10.3) | 0.4 | 4.9 |
| Prior year development, net of reinsurance and prior year premiums | 1.8 | 0.6 | 0.1 | 1.2 | 0.5 |
| Accident year loss ratio, as adjusted | 57.6 | 59.4 | 60.8 | (1.8) | (1.4) |
| Accident year combined ratio, as adjusted | 88.7 | 91.0 | 94.1 | (2.3) | (3.1) |

(a) Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.

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ITEM 7 | Business Segment Operations | General Insurance

The following table presents General Insurance net premiums written by operating segment, showing change on both reported and constant dollar basis:

| Years Ended December 31, (in millions) |  |  |  | Percentage Change in U.S. dollars |  | Percentage Change in Original Currency |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 | 2022 vs 2021 | 2021 vs 2020 | 2022 vs 2021 | 2021 vs 2020 |
| North America | $12,364 | $11,733 | $9,784 | 5% | 20% | 6% | 20% |
| International | 13,148 | 14,157 | 13,175 | (7) | 7 | 2 | 5 |
| Total net premiums written | $25,512 | $25,890 | $22,959 | (1) % | 13% | 4% | 11% |

The following tables present General Insurance accident year catastrophes$^{(a)}$ by geography and number of events:

| (in millions) | # of Events | North America | International | Total |
| --- | --- | --- | --- | --- |
| Years Ended December 31, 2022 |  |  |  |  |
| Flooding, rainstorms and other | 3 | $53 | $105 | $158 |
| Windstorms and hailstorms | 18 | 531 | 206 | 737 |
| Winter storms | 5 | 154 | 53 | 207 |
| Earthquakes | 1 | - | 19 | 19 |
| Russia / Ukraine | N/A (b) | 10 | 97 | 107 |
| Reinstatement premiums |  | 53 | 31 | 84 |
| Total catastrophe-related charges | 27 | $801 | $511 | $1,312 |
| Years Ended December 31, 2021 |  |  |  |  |
| Flooding, rainstorms and other | 7 | $136 | $136 | $272 |
| Windstorms and hailstorms | 10 | 541 | 72 | 613 |
| Winter storms | 3 | 283 | 64 | 347 |
| Wildfires | 4 | 67 | - | 67 |
| Earthquakes | 1 | - | 19 | 19 |
| Civil unrest | 1 | 20 | 19 | 39 |
| Reinstatement premiums |  | 7 | 13 | 20 |
| Total catastrophe-related charges | 26 | $1,054 | $323 | $1,377 |
| Years Ended December 31, 2020 |  |  |  |  |
| Flooding, rainstorms and other | 4 | $27 | $64 | $91 |
| Windstorms and hailstorms | 14 | 759 | 195 | 954 |
| Wildfires | 5 | 145 | 2 | 147 |
| Earthquakes | 2 | 35 | 12 | 47 |
| COVID-19 | N/A (c) | 703 | 390 | 1,093 |
| Civil unrest | 1 | 68 | 28 | 96 |
| Reinstatement premiums |  | (11) | 25 | 14 |
| Total catastrophe-related charges | 26 | $1,726 | $716 | $2,442 |

(a) 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 unrest that exceed the $10 million threshold.

(b) As the Russia/Ukraine conflict continues to evolve the number of events is yet to be determined.

(c) As COVID-19 continues to evolve, impacting many lines of business, the number of events is yet to be determined.

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ITEM 7 | Business Segment Operations | General Insurance

## NORTH AMERICA RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Underwriting results: |  |  |  |  |  |
| Net premiums written | $12,364 | $11,733 | $9,784 | 5% | 20% |
| (Increase) decrease in unearned premiums | (293) | (744) | 518 | 61 | NM |
| Net premiums earned | 12,071 | 10,989 | 10,302 | 10 | 7 |
| Losses and loss adjustment expenses incurred (a) | 8,096 | 8,134 | 8,720 | - | (7) |
| Acquisition expenses: |  |  |  |  |  |
| Amortization of deferred policy acquisition costs | 1,585 | 1,333 | 1,365 | 19 | (2) |
| Other acquisition expenses | 520 | 440 | 359 | 18 | 23 |
| Total acquisition expenses | 2,105 | 1,773 | 1,724 | 19 | 3 |
| General operating expenses | 1,222 | 1,129 | 1,159 | 8 | (3) |
| Underwriting income (loss) | $648 | $(47) | $(1,301) | NM % | 96% |
| Loss ratio (a) | 67.1 | 74.0 | 84.6 | (6.9) | (10.6) |
| Acquisition ratio | 17.4 | 16.1 | 16.7 | 1.3 | (0.6) |
| General operating expense ratio | 10.1 | 10.3 | 11.3 | (0.2) | (1.0) |
| Expense ratio | 27.5 | 26.4 | 28.0 | 1.1 | (1.6) |
| Combined ratio (a) | 94.6 | 100.4 | 112.6 | (5.8) | (12.2) |
| Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted: |  |  |  |  |  |
| Catastrophe losses and reinstatement premiums | (6.5) | (9.5) | (16.7) | 3.0 | 7.2 |
| Prior year development, net of reinsurance and prior year premiums | 1.0 | 1.2 | 1.2 | (0.2) | - |
| Adjustment for ceded premiums under reinsurance contracts and other | - | - | (0.1) | - | NM |
| Accident year loss ratio, as adjusted | 61.6 | 65.7 | 69.0 | (4.1) | (3.3) |
| Accident year combined ratio, as adjusted | 89.1 | 92.1 | 97.0 | (3.0) | (4.9) |

(a) Consistent with our definition of APTI, excludes net loss reserve discount and the portion of favorable or unfavorable prior year reserve development for which we have ceded the risk under retroactive reinsurance agreements and related changes in amortization of the deferred gain.

## Business and Financial Highlights

### Net Premiums Written Comparison for 2022 and 2021

Net premiums written increased by $631 million primarily due to growth in Commercial Lines ($673 million), particularly in Property, Casualty and AIG Re, driven by continued positive rate change, higher renewal retentions and strong new business production, as well as growth in Crop Risk Services driven by higher commodity prices, partially offset by a decrease in Financial Lines due to volatility in capital markets and uncertain economic conditions.

This increase was partially offset by lower production in Personal Insurance ($42 million), particularly in Warranty as well as underwriting actions taken in PCG to improve profitability, partially offset by an increase in Travel.

### Underwriting Income (Loss) Comparison for 2022 and 2021

Underwriting income of $648 million in 2022 compared to an underwriting loss of $47 million in 2021 primarily reflected:

- premium growth with improvement in the accident year loss ratio, as adjusted (4.1 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions; and
- lower catastrophe losses (3.0 points or $253 million).

This improvement was partially offset by:

- higher expense ratio of 1.1 points reflecting a higher acquisition ratio (1.3 points) primarily driven by changes in business mix and reinsurance, partially offset by a lower general operating expense ratio (0.2 points) resulting from continued general expense discipline as we grow the portfolio; and
- lower net favorable prior year reserve development in 2022 compared 2021 (0.2 points or $34 million), primarily due to lower favorable development in PCG and higher unfavorable development within Financial Lines, partially offset by higher favorable development in Property, Casualty and Crop Risk Services.

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## INTERNATIONAL RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Underwriting results: |  |  |  |  |  |
| Net premiums written | $13,148 | $14,157 | $13,175 | (7) % | 7% |
| (Increase) decrease in unearned premiums | 121 | (89) | 185 | NM | NM |
| Net premiums earned | 13,269 | 14,068 | 13,360 | (6) | 5 |
| Losses and loss adjustment expenses incurred | 7,311 | 7,963 | 8,083 | (8) | (1) |
| Acquisition expenses: |  |  |  |  |  |
| Amortization of deferred policy acquisition costs | 1,948 | 2,197 | 2,173 | (11) | 1 |
| Other acquisition expenses | 845 | 933 | 924 | (9) | 1 |
| Total acquisition expenses | 2,793 | 3,130 | 3,097 | (11) | 1 |
| General operating expenses | 1,765 | 1,873 | 1,903 | (6) | (2) |
| Underwriting income | $1,400 | $1,102 | $277 | 27% | 298% |
| Loss ratio | 55.1 | 56.6 | 60.5 | (1.5) | (3.9) |
| Acquisition ratio | 21.0 | 22.2 | 23.2 | (1.2) | (1.0) |
| General operating expense ratio | 13.3 | 13.3 | 14.2 | - | (0.9) |
| Expense ratio | 34.3 | 35.5 | 37.4 | (1.2) | (1.9) |
| Combined ratio | 89.4 | 92.1 | 97.9 | (2.7) | (5.8) |
| Adjustments for accident year loss ratio, as adjusted and accident year combined ratio, as adjusted: |  |  |  |  |  |
| Catastrophe losses and reinstatement premiums | (3.7) | (2.3) | (5.3) | (1.4) | 3.0 |
| Prior year development, net of reinsurance and prior year premiums | 2.5 | 0.1 | (0.7) | 2.4 | 0.8 |
| Accident year loss ratio, as adjusted | 53.9 | 54.4 | 54.5 | (0.5) | (0.1) |
| Accident year combined ratio, as adjusted | 88.2 | 89.9 | 91.9 | (1.7) | (2.0) |

## Business and Financial Highlights

### Net Premiums Written Comparison for 2022 and 2021

Net premiums written, excluding the impact of unfavorable foreign exchange ($1,287 million), increased by $278 million due to growth in Commercial Lines ($417 million), notably Specialty, Property and Casualty driven by continued positive rate change and strong new business production.

This increase was partially offset by lower production in Personal Insurance ($139 million), where declines in Warranty and Personal Auto were partially offset by growth in Travel and Accident & Health.

### Underwriting Income (Loss) Comparison for 2022 and 2021

Underwriting income increased by $298 million primarily due to:

- higher net favorable prior year reserve development in 2022 compared to 2021 (2.4 points or $346 million), primarily as a result of lower unfavorable development in Financial Lines and higher favorable development in Specialty, partially offset by lower favorable development in Accident & Health;
- a lower expense ratio (1.2 points) from a lower acquisition ratio (1.2 points) primarily driven by changes in business mix, improved commission terms and reinsurance program changes; and
- improvement in the accident year loss ratio, as adjusted (0.5 points) primarily driven by changes in business mix along with continued positive rate change, focused risk selection and improved terms and conditions.

These increases were partially offset by higher catastrophe losses (1.4 points or $188 million).

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## Life and Retirement

**Life and Retirement consists of four operating segments: Individual Retirement, Group Retirement, Life Insurance and Institutional Markets. We offer a broad portfolio of products in the U.S. through a multichannel distribution network and life and health products in the UK and Ireland.**

### PRODUCTS AND DISTRIBUTION

**Variable Annuities:** Products include variable annuities that offer a combination of growth potential, death benefit features and income protection features. Variable annuities are distributed primarily through banks, wirehouses, and regional and independent broker-dealers.

**Fixed Index Annuities:** Products include fixed index annuities that provide growth potential based in part on the performance of a market index as well as optional living guaranteed features that provide lifetime income protection. Fixed index annuities are distributed primarily through banks, broker-dealers, independent marketing organizations and independent insurance agents.

**Fixed Annuities:** Products include single premium fixed annuities, immediate annuities and deferred income annuities. Certain fixed deferred annuity products offer optional income protection features. The fixed annuities product line maintains an industry-leading position in the U.S. bank distribution channel by designing products collaboratively with banks and offering an efficient and flexible administration platform.

**Retail Mutual Funds:** Included our mutual fund offerings and related administration and servicing operations. Retail Mutual Funds were distributed primarily through broker-dealers. On July 16, 2021, the Company sold certain assets of the AIG Retail Mutual Funds business or otherwise liquidated.

**Group Retirement:** Products and services consist of record-keeping, plan administrative and compliance services, financial planning and advisory solutions offered to employer defined contribution plans and their participants, along with proprietary and non-proprietary annuities and advisory and brokerage products offered outside of plans.

AIG Retirement Services offers its products and services through The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company.

AIG Retirement Services employee financial advisors serve individual clients, including in-plan enrollment support and education, and comprehensive financial planning services.

**Life Insurance:** In the U.S., products primarily include term life and universal life insurance distributed through independent marketing organizations, independent insurance agents, financial advisors and direct marketing. International operations primarily include the distribution of life and health products in the UK and Ireland.

**Institutional Markets:** Products primarily include stable value wrap products, structured settlement and pension risk transfer annuities (direct and assumed reinsurance), corporate- and bank-owned life insurance, high net worth products and guaranteed investment contracts (GICs). Institutional Markets products are primarily distributed through specialized marketing and consulting firms and structured settlement brokers.

**FHLB Funding Agreements:** Funding agreements are issued by our U.S. Life and Retirement companies to FHLBs in their respective districts at fixed or floating rates over specified periods, which can be prepaid at our discretion. Proceeds are generally invested in fixed income securities and other suitable investments to generate spread income. These investment contracts do not have mortality or morbidity risk and are similar to GICs.

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## BUSINESS STRATEGY

**Deliver client-centric solutions through our unique franchise** by bringing together a broad portfolio of life insurance, retirement and institutional products offered through an extensive, multichannel distribution network. Life and Retirement focuses on ease of doing business, offering valuable solutions, and expanding and deepening its distribution relationships across multiple channels.

**Position market leading businesses to serve growing needs** by continually enhancing product solutions, service delivery and digital capabilities while using data and analytics in an innovative manner to improve customer experience.

**Individual Retirement** will continue to capitalize on the opportunity to meet consumer demand for guaranteed income by maintaining innovative variable and fixed index annuity products, while also managing risk from guarantee features through risk-mitigating product design and well-developed economic hedging capabilities.

Our fixed annuity products provide diversity in our annuity product suite by offering stable returns for retirement savings.

**Group Retirement** continues to enhance its technology platform to improve the customer experience for plan sponsors and individual participants. AIG Retirement Services' self-service tools paired with its employee financial advisors provide a compelling service platform. Group Retirement's strategy also involves providing financial planning services for its clients and meeting their need for income in retirement. In this advisory role, Group Retirement's clients may invest in assets in which AIG or a third-party is custodian.

**Life Insurance** in the U.S. will continue to position itself for growth and changing market dynamics while continuing to execute strategies to enhance returns. Our focus is on materializing success from a multi-year effort of building state-of-the-art platforms and underwriting innovations, which are expected to bring process improvements and cost efficiencies.

In the UK, AIG Life Limited will continue to focus on growing the business organically and through potential acquisition opportunities.

**Institutional Markets** continues to grow its assets under management across multiple product lines, including stable value wrap, GICs and pension risk transfer annuities. Our growth strategy is transactional and allows us to pursue select transactions that meet our risk-adjusted return requirements.

**Enhance Operational Effectiveness** by simplifying processes and operating environments to increase competitiveness, improve service and product capabilities and facilitate delivery of our target customer experience. We continue to invest in technology to improve operating efficiency and ease of doing business for our distribution partners and customers. We believe that simplifying our operating models will enhance productivity and support further profitable growth.

**Manage our Balance Sheet** through a rigorous approach to our products and portfolio. We match our product design and high-quality investments with our asset and liability exposures to support our cash and liquidity needs under various operating scenarios.

**Deliver Value Creation and Manage Capital** by striving to deliver solid earnings and returns on capital through disciplined pricing, sustainable underwriting improvements, expense efficiency, and diversification of risk, while optimizing capital allocation and efficiency within insurance entities to enhance return on common equity.

## COMPETITION AND CHALLENGES

Life and Retirement operates in the highly competitive insurance and financial services industry in the U.S. and select international markets, competing against various financial services companies, including banks and other life insurance and mutual fund companies. Competition is primarily based on product pricing and design, distribution, financial strength, customer service and ease of doing business.

Our business remains competitive due to its long-standing market leading positions, innovative products, distribution relationships across multiple channels, customer-focused service and strong financial ratings.

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Our primary challenges include:

- Managing a rising rate environment. While a rising rate environment improves yields on new investment, improves margins on our business, and increases sales in certain products such as fixed annuities, it may also result in increased competition for certain products resulting in a need to increase crediting rates, and has resulted in lower separate account asset values for investments in fixed income which has reduced fee income;
- increased competition in our primary markets, including aggressive pricing of annuities by competitors, increased competition and consolidation of employer groups in the group retirement planning market, and competitors with different profitability targets in the pension risk transfer space as well as other product lines;
- increasingly complex new and proposed regulatory requirements, which have affected industry growth and costs; and
- upgrading our technology and underwriting processes while managing general operating expenses.

## OUTLOOK-INDUSTRY AND ECONOMIC FACTORS

Below is a discussion of the industry and economic factors impacting our specific operating segments:

The worldwide health and economic impact of COVID-19 continues to evolve, influenced by the scope, severity and duration of the pandemic, including resurgences and variants of the virus as well as the distribution and effectiveness of vaccinations.

On December 15, 2021, AIG and 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. The historical results of the U.S. affordable housing portfolio were reported in our Life and Retirement operating segments.

For additional information on the separation of Life and Retirement please, see Note 1 to the Consolidated Financial Statements and Part I, Item 1A. Risk Factors - Business and Operations - “No assurances can be given that the separation of our Life and Retirement business will occur or as to the specific terms or timing thereof. In addition, we may not achieve the expected benefits of the separation and will have continuing equity market exposure to Corebridge until we fully divest our stake.”

### Individual Retirement

Increasing life expectancy and reduced expectations for traditional retirement income from defined benefit programs and fixed income securities are leading Americans to seek additional financial security as they approach retirement. The strong demand for fixed index and fixed annuities with guaranteed living benefit features has attracted increased competition in this product space. In response to the low interest rate environment that prevailed over the past several years we have developed guaranteed living benefits for variable, fixed index and fixed annuities with margins that are less sensitive to the level of interest rates.

Changes in the capital markets (interest rate environment, credit spreads, equity markets, volatility) can have a significant impact on sales, surrender rates, investment returns, guaranteed income features, and net investment spreads in the annuity industry.

### Group Retirement

Group Retirement competes in the defined contribution market under the AIG Retirement Services brand. AIG Retirement Services is a leading retirement plan provider in the U.S. for K-12 schools and school districts, higher education, healthcare, government and other not-for-profit institutions. The defined contribution market is a highly efficient and competitive market that requires support for both plan sponsors and individual participants. To meet this challenge, AIG Retirement Services is investing in a client-focused technology platform to support improved compliance and self-service functionality. AIG Retirement Services' model pairs self-service tools with its employee financial advisors who provide individual plan participants with enrollment support and comprehensive financial planning services.

Changes in the interest rates, credit spreads and equity market environment can have a significant impact on investment returns, fee income, advisory and other income, guaranteed income features, and net investment spreads, and a moderate impact on sales and surrender rates.

### Life Insurance

Consumers have a significant need for life insurance, whether it is used for income replacement for their surviving family, estate planning or wealth transfer. Additionally, consumers use life insurance to provide living benefits in case of chronic, critical or terminal illnesses, and to supplement retirement income.

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In response to consumer needs and a changing interest rate environment, our Life Insurance product portfolio will continue to promote products with less long-duration interest rate risk and mitigate exposure to products that have long-duration interest rate risk through sales levels and hedging strategies.

As life insurance ownership remains at historical lows in the U.S. and the UK, efforts to expand the reach and increase the affordability of life insurance are critical. The industry is investing in consumer-centric efforts to reduce traditional barriers to securing life protection by simplifying the sales and service experience. Digitally enabled processes and tools provide a fast, friendly and simple path to life insurance protection.

## Institutional Markets

Institutional Markets serves a variety of needs for corporate clients. Demand is driven by a number of factors including the macroeconomic and regulatory environment. We expect to see continued growth in the pension risk transfer market (direct and assumed reinsurance) as corporate plan sponsors look to transfer asset or liability, longevity, administrative and operational risks associated with their defined benefit plans.

Changes in interest rates and credit spreads can have a significant impact on investment returns and net investment spreads, impacting organic growth opportunities.

*For additional information on the impact of market interest rate movement on our Life and Retirement business, see Executive Summary - AIG’s Outlook - Industry and Economic Factors - Impact of Changes in the Interest Rate Environment and Equity Markets.*

## LIFE AND RETIREMENT RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Percentage Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Adjusted revenues: |  |  |  |  |  |
| Premiums | $5,508 | $6,029 | $4,624 | (9) % | 30% |
| Policy fees | 2,972 | 3,051 | 2,874 | (3) | 6 |
| Net investment income | 8,347 | 9,521 | 8,881 | (12) | 7 |
| Advisory fee and other income | 827 | 993 | 896 | (17) | 11 |
| Total adjusted revenues | 17,654 | 19,594 | 17,275 | (10) | 13 |
| Benefits, losses and expenses: |  |  |  |  |  |
| Policyholder benefits and losses incurred | 7,659 | 8,379 | 6,884 | (9) | 22 |
| Interest credited to policyholder account balances | 3,681 | 3,565 | 3,551 | 3 | - |
| Amortization of deferred policy acquisition costs | 1,130 | 973 | 632 | 16 | 54 |
| Non deferrable insurance commissions | 640 | 672 | 590 | (5) | 14 |
| Advisory fee expenses | 266 | 322 | 316 | (17) | 2 |
| General operating expenses | 1,598 | 1,642 | 1,616 | (3) | 2 |
| Interest expense | 23 | 130 | 155 | (82) | (16) |
| Total benefits, losses and expenses | 14,997 | 15,683 | 13,744 | (4) | 14 |
| Adjusted pre-tax income | $2,657 | $3,911 | $3,531 | (32) % | 11% |

*For additional information including the impact of actuarial assumptions on our Life and Retirement results, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Update of Actuarial Assumptions by Business Segment Impact to Adjusted Pre-tax Income (Loss).*

Our insurance companies generate significant revenues from investment activities. As a result, the operating segments in Life and Retirement are significantly impacted by variances in net investment income on the asset portfolios that support insurance liabilities and surplus.

*For additional information on our investment strategy, asset-liability management process and invested asset composition, see Investments.*

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## INDIVIDUAL RETIREMENT RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Adjusted revenues: |  |  |  |  |  |
| Premiums | $230 | $191 | $151 | 20% | 26% |
| Policy fees | 836 | 962 | 861 | (13) | 12 |
| Net investment income | 3,898 | 4,338 | 4,131 | (10) | 5 |
| Advisory fee and other income | 451 | 592 | 571 | (24) | 4 |
| Total adjusted revenues | 5,415 | 6,083 | 5,714 | (11) | 6 |
| Benefits and expenses: |  |  |  |  |  |
| Policyholder benefits and losses incurred | 626 | 536 | 397 | 17 | 35 |
| Interest credited to policyholder account balances | 1,877 | 1,787 | 1,751 | 5 | 2 |
| Amortization of deferred policy acquisition costs | 761 | 736 | 590 | 3 | 25 |
| Non deferrable insurance commissions | 351 | 397 | 334 | (12) | 19 |
| Advisory fee expenses | 141 | 189 | 205 | (25) | (8) |
| General operating expenses | 426 | 438 | 427 | (3) | 3 |
| Interest expense | 11 | 61 | 72 | (82) | (15) |
| Total benefits, losses and expenses | 4,193 | 4,144 | 3,776 | 1 | 10 |
| Adjusted pre-tax income | $1,222 | $1,939 | $1,938 | (37) % | - % |
| Fixed annuities base net investment spread: |  |  |  |  |  |
| Base yield* | 4.03% | 3.94% | 4.16% | 9 bps | (22) bps |
| Cost of funds | 2.60 | 2.58 | 2.63 | 2 | (5) |
| Fixed annuities base net investment spread | 1.43% | 1.36% | 1.53% | 7 bps | (17) bps |
| Variable and fixed index annuities base net investment spread: |  |  |  |  |  |
| Base yield* | 3.89% | 3.83% | 3.94% | 6 bps | (11) bps |
| Cost of funds | 1.46 | 1.32 | 1.31 | 14 | 1 |
| Variable and fixed index annuities base net investment spread | 2.43% | 2.51% | 2.63% | (8) bps | (12) bps |

* Includes returns from base portfolio including accretion and income (loss) from certain other invested assets.

## Business and Financial Highlights

### Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021

Adjusted pre-tax income decreased $717 million primarily due to:

- lower net investment income, net of interest credited ($530 million) primarily driven by lower alternative investment income ($401 million), lower yield enhancement income ($285 million), partially offset by higher base portfolio income, net of interest credited ($156 million);
- higher DAC amortization and policyholder benefits net of premiums, excluding the review and update of actuarial assumptions ($225 million) primarily due to lower variable annuity separate account returns; and
- lower policy and advisory fee income, net of advisory fee expenses ($219 million), primarily due to a decrease in variable annuity separate account assets driven by negative equity market performance and sale of retail mutual funds to Touchstone.

Partially offset by:

- net favorable impact from the review and update of actuarial assumptions ($184 million);
- lower interest expense on debt borrowings due to sale of Affordable Housing ($50 million); and
- lower non-deferred commissions ($46 million) due to a decrease in variable annuity separate account assets;

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## INDIVIDUAL RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET FLOWS

Premiums and deposits is a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits received on investment-type annuity contracts and mutual funds under administration.

Net flows for annuity products in Individual Retirement represent premiums and deposits less death, surrender and other withdrawal benefits. Net flows for mutual funds represent deposits less withdrawals.

The following table presents a reconciliation of Individual Retirement GAAP premiums to premiums and deposits:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Premiums | $230 | $191 | $151 |
| Deposits | 14,900 | 13,732 | 10,228 |
| Other | (10) | (7) | (9) |
| Premiums and deposits | $15,120 | $13,916 | $10,370 |

The following table presents Individual Retirement premiums and deposits and net flows by product line:

| Years Ended December 31, (in millions) | Premiums and Deposits |  |  | Net Flows |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 |
| Fixed Annuities | $5,695 | $3,011 | $2,535 | $(441) | $(2,396) | $(2,504) |
| Variable Annuities | 3,109 | 5,025 | 3,003 | (1,671) | (864) | (1,554) |
| Fixed Index Annuities | 6,316 | 5,621 | 4,096 | 4,522 | 4,072 | 2,991 |
| Retail Mutual Funds | - | 259 | 736 | - | (1,402) | (3,661) |
| Total | $15,120 | $13,916 | $10,370 | $2,410 | $(590) | $(4,728) |

### Premiums and Deposits and Net Flow Comparison for 2022 and 2021

**Fixed Annuities** Net outflows decreased ($2.0 billion) over the prior year, primarily due to higher premiums and deposits ($2.7 billion) due to competitive pricing and higher interest rates and lower death benefits ($300 million), partially offset by higher surrenders and withdrawals ($1.0 billion).

**Variable Annuities** Net outflows increased ($807 million) primarily due to lower premiums and deposits ($1.9 billion), due to market volatility; partially offset by lower surrenders and withdrawals ($993 million) and lower death benefits ($116 million).

**Fixed Index Annuities** Net inflows increased ($450 million) primarily due to higher premiums and deposits ($695 million), due to competitive pricing and higher interest rates; partially offset by higher surrenders and withdrawals ($193 million) and higher death benefits ($52 million).

**Retail Mutual Funds** There were no flows in 2022 due to the Touchstone sale in the second quarter of 2021. *For additional information regarding the sale of certain assets of the AIG Life and Retirement Retail Mutual Funds business, see Note 1 to the Consolidated Financial Statements.*

The following table presents surrenders as a percentage of average reserves:

| Years Ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Surrenders as a percentage of average reserves |  |  |  |
| Fixed annuities | 9.2% | 7.2% | 5.9% |
| Variable annuities | 6.6 | 7.3 | 6.2 |
| Fixed index annuities | 4.7 | 4.6 | 4.0 |

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The following table presents reserves for fixed annuities and variable and fixed index annuities by surrender charge category:

| At December 31, (in millions) | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Fixed Annuities | Fixed Index Annuities | Variable Annuities | Fixed Annuities | Fixed Index Annuities | Variable Annuities |
| No surrender charge | $24,937 | $2,274 | $28,315 | $26,419 | $2,009 | $34,030 |
| Greater than 0% - 2% | 1,786 | 1,355 | 7,272 | 2,091 | 1,681 | 10,926 |
| Greater than 2% - 4% | 2,260 | 4,539 | 5,268 | 2,424 | 4,195 | 9,884 |
| Greater than 4% | 18,941 | 25,238 | 12,623 | 16,443 | 22,489 | 13,219 |
| Non-surrenderable | 2,454 | - | - | 2,373 | - | - |
| Total reserves | $50,378 | $33,406 | $53,478 | $49,750 | $30,374 | $68,059 |

Individual Retirement annuities are typically subject to a three- to seven-year surrender charge period, depending on the product. For fixed annuities, the proportion of reserves subject to surrender charge at December 31, 2022 increased compared to December 31, 2021 primarily due to growth in business. For fixed index annuities, the proportion was slightly lower due to the aging of the business. The increase in the proportion of reserves with no surrender charge for variable annuities as of December 31, 2022 compared to December 31, 2021 was principally due to normal aging of business.

## GROUP RETIREMENT RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Adjusted revenues: |  |  |  |  |  |
| Premiums | $19 | $22 | $19 | (14) % | 16% |
| Policy fees | 451 | 522 | 443 | (14) | 18 |
| Net investment income | 2,005 | 2,410 | 2,236 | (17) | 8 |
| Advisory fee and other income | 305 | 337 | 272 | (9) | 24 |
| Total adjusted revenues | 2,780 | 3,291 | 2,970 | (16) | 11 |
| Benefits and expenses: |  |  |  |  |  |
| Policyholder benefits and losses incurred | 97 | 74 | 72 | 31 | 3 |
| Interest credited to policyholder account balances | 1,142 | 1,150 | 1,123 | (1) | 2 |
| Amortization of deferred policy acquisition costs | 96 | 61 | 7 | 57 | NM |
| Non deferrable insurance commissions | 123 | 111 | 117 | 11 | (5) |
| Advisory fee expenses | 124 | 133 | 111 | (7) | 20 |
| General operating expenses | 443 | 443 | 485 | - | (9) |
| Interest expense | 6 | 35 | 42 | (83) | (17) |
| Total benefits, losses and expenses | 2,031 | 2,007 | 1,957 | 1 | 3 |
| Adjusted pre-tax income | $749 | $1,284 | $1,013 | (42) % | 27% |
| Base net investment spread: |  |  |  |  |  |
| Base yield* | 4.04% | 4.11% | 4.26% | (7) bps | (15) bps |
| Cost of funds | 2.59 | 2.61 | 2.65 | (2) | (4) |
| Base net investment spread | 1.45% | 1.50% | 1.61% | (5) bps | (11) bps |

* Includes returns from base portfolio including accretion and income (loss) from certain other invested assets.

## Business and Financial Highlights

### Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021

Adjusted pre-tax income decreased $535 million primarily due to:

- lower net investment income, net of interest credited ($397 million) primarily driven by lower alternative investment income ($224 million), lower yield enhancement income ($158 million) and higher base portfolio income net of interest credited ($15 million);
- lower policy and advisory fee income, net of advisory fee expenses of ($94 million) due to lower fee based assets under administration as a result of lower equity market performance; and
- higher DAC and sales inducement amortization and higher policyholder benefits, net of premiums mostly due to lower equity market performance ($61 million).

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These decreases were partially offset by lower interest expense on debt borrowings due to sale of Affordable Housing ($29 million).

## GROUP RETIREMENT GAAP PREMIUMS, PREMIUMS AND DEPOSITS, SURRENDERS AND NET FLOWS

Premiums and deposits are a non-GAAP financial measure that includes, in addition to direct and assumed premiums, deposits received on investment-type annuity contracts, FHLB funding agreements and mutual funds under administration.

Net flows for annuity products included in Group Retirement represent premiums and deposits less death, surrender and other withdrawal benefits. Net flows for mutual funds represent deposits less withdrawals. Client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts, are not included in net flows, but do contribute to growth in assets under administration and advisory fee income.

The following table presents a reconciliation of Group Retirement GAAP premiums to premiums and deposits and net flows:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Premiums | $19 | $22 | $19 |
| Deposits | 7,923 | 7,744 | 7,477 |
| Premiums and deposits (a) | $7,942 | $7,766 | $7,496 |
| Net Flows | $(3,111) | $(3,208) | $(1,940) |

(a) Excludes client deposits into advisory and brokerage accounts of $2.1 billion, $2.5 billion and $1.4 billion for the years ended December 31, 2022, 2021 and 2020 respectively.

### Premiums and Deposits and Net Flow Comparison for 2022 and 2021

Net outflows decreased ($97 million) primarily due to higher premiums and deposits ($176 million), partially offset by higher death and payout annuity benefits of ($30 million), and higher surrenders and withdrawals of ($49 million). In general, net outflows are concentrated in fixed annuity products with higher contractual guaranteed minimum crediting rates. Large plan acquisitions and surrenders resulted in higher net flows of ($121 million) compared to the prior year.

The following table presents Group Retirement surrenders as a percentage of average reserves and mutual funds under administration:

| Years Ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Surrenders as a percentage of average reserves and mutual funds | 9.5% | 8.8% | 8.6% |

The following table presents reserves for Group Retirement annuities by surrender charge category:

| At December 31, (in millions) | 2022 (a) | 2021 (a) |
| --- | --- | --- |
| No surrender charge (b) | $70,111 | $81,132 |
| Greater than 0% - 2% | 456 | 716 |
| Greater than 2% - 4% | 436 | 857 |
| Greater than 4% | 6,316 | 6,197 |
| Non-surrenderable | 739 | 810 |
| Total reserves | $78,058 | $89,712 |

(a) Excludes mutual fund assets under administration of $24.0 billion and $28.8 billion at December 31, 2022 and 2021, respectively.

(b) Group Retirement amounts in this category include general account reserves of approximately $4.5 billion and $4.7 billion at December 31, 2022 and 2021, respectively, which are subject to 20 percent annual withdrawal limitations at the participant level and general account reserves of $5.8 billion and $5.7 billion at December 31, 2022 and 2021, respectively, which are subject to 20 percent annual withdrawal limitations at the plan level.

Group Retirement annuity deposits are typically subject to a five- to seven-year surrender charge period, depending on the product. At December 31, 2022, Group Retirement annuity reserves with no surrender charge decreased compared to December 31, 2021 primarily due to decline in assets under management from lower equity markets.

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AIG | 2022 Form 10-K

ITEM 7 | Business Segment Operations | Life and Retirement

## LIFE INSURANCE RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Percentage Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Adjusted revenues: |  |  |  |  |  |
| Premiums | $2,346 | $2,051 | $1,915 | 14% | 7% |
| Policy fees | 1,491 | 1,380 | 1,384 | 8 | - |
| Net investment income | 1,393 | 1,619 | 1,526 | (14) | 6 |
| Other income | 69 | 62 | 52 | 11 | 19 |
| Total adjusted revenues | 5,299 | 5,112 | 4,877 | 4 | 5 |
| Benefits and expenses: |  |  |  |  |  |
| Policyholder benefits and losses incurred | 3,555 | 3,636 | 3,569 | (2) | 2 |
| Interest credited to policyholder account balances | 342 | 354 | 373 | (3) | (5) |
| Amortization of deferred policy acquisition costs | 267 | 170 | 30 | 57 | 467 |
| Non deferrable insurance commissions | 137 | 137 | 108 | - | 27 |
| Advisory fee expenses | 1 | - | - | NM | NM |
| General operating expenses | 656 | 684 | 625 | (4) | 9 |
| Interest expense | 4 | 25 | 30 | (84) | (17) |
| Total benefits, losses and expenses | 4,962 | 5,006 | 4,735 | (1) | 6 |
| Adjusted pre-tax income | $337 | $106 | $142 | 218% | (25) % |

### Business and Financial Highlights

#### Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021

Adjusted pre-tax income increased $231 million primarily due to:

- higher premiums and policy fees, net of policyholder benefits, excluding actuarial assumptions update ($509 million), primarily due to favorable mortality; and
- lower general operating expenses ($28 million).

Partially offsetting this increase was:

- lower net investment income, net of interest credited ($214 million), primarily driven by lower alternative investment and yield enhancement income ($262 million) primarily due to lower equity partnership performance and reduced gains on calls, and higher base portfolio income, net of interest credited ($48 million); and
- lower net favorable impact from the review and update of actuarial assumptions ($82 million).

## LIFE INSURANCE GAAP PREMIUMS AND PREMIUMS AND DEPOSITS

Premiums for Life Insurance represent amounts received on traditional life insurance policies, primarily term life and international life and health. Premiums, excluding the effect of foreign exchange, increased $391 million in 2022 compared to 2021. Premiums and deposits for Life Insurance is a non-GAAP financial measure that includes direct and assumed premiums as well as deposits received on universal life insurance.

Premiums and deposits, excluding the effect of foreign exchange, increased $147 million in 2022 compared to 2021 primarily due to growth in international life premiums.

The following table presents a reconciliation of Life Insurance GAAP premiums to premiums and deposits:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Premiums | $2,346 | $2,051 | $1,915 |
| Deposits | 1,600 | 1,635 | 1,648 |
| Other* | 725 | 964 | 850 |
| Premiums and deposits | $4,671 | $4,650 | $4,413 |

* Other principally consists of adding back ceded premiums to reflect the gross premiums and deposits.

AIG | 2022 Form 10-K

83

ITEM 7 | Business Segment Operations | Life and Retirement

## INSTITUTIONAL MARKETS RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Percentage Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Adjusted revenues: |  |  |  |  |  |
| Premiums | $2,913 | $3,765 | $2,539 | (23) % | 48% |
| Policy fees | 194 | 187 | 186 | 4 | 1 |
| Net investment income | 1,051 | 1,154 | 988 | (9) | 17 |
| Other income | 2 | 2 | 1 | - | 100 |
| Total adjusted revenues | 4,160 | 5,108 | 3,714 | (19) | 38 |
| Benefits and expenses: |  |  |  |  |  |
| Policyholder benefits and losses incurred | 3,381 | 4,133 | 2,846 | (18) | 45 |
| Interest credited to policyholder account balances | 320 | 274 | 304 | 17 | (10) |
| Amortization of deferred policy acquisition costs | 6 | 6 | 5 | - | 20 |
| Non deferrable insurance commissions | 29 | 27 | 31 | 7 | (13) |
| General operating expenses | 73 | 77 | 79 | (5) | (3) |
| Interest expense | 2 | 9 | 11 | (78) | (18) |
| Total benefits, losses and expenses | 3,811 | 4,526 | 3,276 | (16) | 38 |
| Adjusted pre-tax income | $349 | $582 | $438 | (40) % | 33% |

### Business and Financial Highlights

#### Adjusted Pre-Tax Income (Loss) Comparison for 2022 and 2021

Adjusted pre-tax income decreased $233 million primarily due to:

- lower net investment income ($103 million) primarily driven by lower alternative investment income ($145 million) and lower yield enhancement income ($89 million) partially offset by higher base portfolio income ($131 million);
- lower premiums primarily on new pension risk transfer business ($852 million); and
- higher interest credited on policyholder account balances, primarily related to the GIC business ($46 million).

Partially offsetting these decreases was a reduction in policyholder benefits and losses incurred (including interest accretion) primarily on new pension risk transfer business ($752 million).

## INSTITUTIONAL MARKETS GAAP PREMIUMS AND PREMIUMS AND DEPOSITS

Premiums for Institutional Markets primarily represent amounts received on pension risk transfer or structured settlement annuities with life contingencies. Premiums decreased $852 million in 2022 compared to 2021 primarily driven by the transactional nature of the pension risk transfer business (direct and assumed reinsurance).

Premiums and deposits for Institutional Markets is a non-GAAP financial measure that includes direct and assumed premiums as well as deposits received on investment-type annuity contracts. Deposits primarily include GICs, FHLB funding agreements and structured settlement annuities with no life contingencies.

Premiums and deposits decreased $623 million in 2022 compared to 2021 primarily due to lower premiums on pension risk transfer business, partially offset by deposits of structured settlement annuities.

The following table presents a reconciliation of Institutional Markets GAAP premiums to premiums and deposits:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Premiums | $2,913 | $3,765 | $2,539 |
| Deposits | 1,382 | 1,158 | 2,281 |
| Other* | 30 | 25 | 26 |
| Premiums and deposits | $4,325 | $4,948 | $4,846 |

* Other principally consists of adding back ceded premiums to reflect the gross premiums and deposits.

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AIG | 2022 Form 10-K

ITEM 7 | Business Segment Operations | Other Operations

## 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.

### OTHER OPERATIONS RESULTS

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 | Percentage Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 vs 2021 | 2021 vs 2020 |
| Adjusted revenues: |  |  |  |  |  |
| Premiums | $85 | $186 | $233 | (54)% | (20)% |
| Policy fees | - | - | 43 | NM | NM |
| Net investment income: |  |  |  |  |  |
| Interest and dividends | 353 | 169 | 905 | 109 | (81) |
| Alternative investments | 516 | 919 | 82 | (44) | NM |
| Other investment income (loss) | (129) | 65 | 147 | NM | (56) |
| Investment expenses | (26) | (41) | (47) | 37 | 13 |
| Total net investment income | 714 | 1,112 | 1,087 | (36) | 2 |
| Other income | 28 | 40 | 22 | (30) | 82 |
| Total adjusted revenues | 827 | 1,338 | 1,385 | (38) | (3) |
| Benefits, losses and expenses: |  |  |  |  |  |
| Policyholder benefits and losses incurred | 30 | 250 | 816 | (88) | (69) |
| Interest credited to policyholder account balances | - | 1 | 89 | NM | (99) |
| Acquisition expenses: |  |  |  |  |  |
| Amortization of deferred policy acquisition costs | 5 | 37 | 50 | (86) | (26) |
| Other acquisition expenses | (1) | (1) | 1 | - | NM |
| Total acquisition expenses | 4 | 36 | 51 | (89) | (29) |
| General operating expenses: |  |  |  |  |  |
| Corporate and Other | 1,119 | 1,137 | 1,004 | (2) | 13 |
| Asset Management | 45 | 72 | 42 | (38) | 71 |
| Amortization of intangible assets | 40 | 40 | 40 | - | - |
| Total General operating expenses | 1,204 | 1,249 | 1,086 | (4) | 15 |
| Interest expense: |  |  |  |  |  |
| Corporate and Other | 908 | 1,032 | 1,148 | (12) | (10) |
| Asset Management* | 223 | 188 | 158 | 19 | 19 |
| Total interest expense | 1,131 | 1,220 | 1,306 | (7) | (7) |
| Total benefits, losses and expenses | 2,369 | 2,756 | 3,348 | (14) | (18) |
| Adjusted pre-tax loss before consolidation and eliminations | (1,542) | (1,418) | (1,963) | (9) | 28 |
| Consolidation and eliminations | (405) | (932) | (466) | 57 | (100) |
| Adjusted pre-tax loss | $(1,947) | $(2,350) | $(2,429) | 17% | 3% |
| Adjusted pre-tax income (loss) by activities: |  |  |  |  |  |
| Corporate and Other | $(2,053) | $(2,329) | $(2,041) | 12% | (14)% |
| Asset Management | 511 | 911 | 78 | (44) | NM |
| Consolidation and eliminations | (405) | (932) | (466) | 57 | (100) |
| Adjusted pre-tax loss | $(1,947) | $(2,350) | $(2,429) | 17% | 3% |

\* Interest - Asset Management primarily represents interest expense on consolidated investment entities of $217 million, $182 million and $148 million in 2022, 2021 and 2020, respectively.

AIG | 2022 Form 10-K

85

ITEM 7 | Business Segment Operations | Other Operations

## 2022 AND 2021 COMPARISON

Adjusted pre-tax loss before consolidation and eliminations of $1.5 billion in 2022 compared to $1.4 billion in 2021, decrease of $124 million was primarily due to:

- lower net investment income associated with consolidated investment entities of $382 million partially offset by higher income on AIG Parent portfolio of $94 million due to higher yields and $56 million mark to market gain on the 2.46 percent equity interest in Fortitude Group Holdings, LLC;
- lower underwriting loss attributable to lower catastrophe losses of $38 million and absence of unfavorable prior year development ($86 million in 2021) within Other Operations Run-Off, primarily Blackboard U.S. Holdings, Inc. (Blackboard);
- lower corporate interest expense primarily driven by interest savings of $225 million from $9.4 billion debt repurchases, through cash tender offers, and debt redemption in 2022 as well as $92 million from $3.6 billion of debt redemptions and debt repurchases, through cash tender offers in 2021, partially offset by interest expense of $240 million on $6.5 billion Corebridge senior unsecured notes, $1.5 billion draw down on Corebridge DDTL facility and $1.0 billion junior subordinated debt issued by Corebridge in 2022; and
- lower corporate and other general operating expenses of $45 million primarily driven by decreases in employment costs of $254 million partially offset by higher professional fees of $209 million.

Adjusted pre-tax loss on consolidation and eliminations of $405 million in 2022 compared to $932 million in 2021, a decrease of $527 million, was primarily due to the elimination of the insurance companies' net investment income from their investment in the consolidated investment entities of $520 million.

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AIG | 2022 Form 10-K

ITEM 7 | Investments

# Investments

# OVERVIEW

Our investment strategies are tailored to the specific business needs of each operating unit by targeting an asset allocation mix that supports estimated cash flows of our outstanding liabilities and provides diversification from an asset class, sector, issuer, and geographic perspective. The primary objectives are generation of investment income, preservation of capital, liquidity management and growth of surplus. The majority of assets backing our insurance liabilities consist of fixed maturity securities.

Over the past several quarters inflation has continued to remain elevated, which has led to the increases in interest rates by the Board of Governors of the Federal Reserve System in several years. This has also led to a significant rise in interest rates across the yield curve and a widening of credit spreads reflecting ongoing recession concerns.

# INVESTMENT HIGHLIGHTS IN 2022

- A significant rise in interest rates and widening of credit spreads resulted in net unrealized losses in our available for sale fixed security portfolio of $47.7 billion during 2022. Our Net unrealized gain of $18.1 billion as of December 31, 2021 decreased to a net unrealized loss of $29.7 billion on our available for sale portfolio as of December 31, 2022.
- We continued to make investments in structured securities and other fixed maturity securities with favorable risk compared to return characteristics to improve yields and increase net investment income.
- We experienced a decrease in net investment income in 2022 compared to the prior year due primarily to lower returns in our private equity and hedge funds compared to gains in the prior year, and lower income in our available for sale fixed security portfolio primarily driven by lower call and prepayment income, which was partially offset by higher income in base portfolio.
- Blended investment yields on new investments are higher than blended rates on investments that were sold, matured or called.

# INVESTMENT STRATEGIES

Investment strategies are assessed at the segment level and involve considerations that include local and general market and economic conditions, duration and cash flow management, risk appetite and volatility constraints, rating agency and regulatory capital considerations, tax, regulatory and legal investment limitations, and, as applicable, environmental, social and governance considerations.

Some of our key investment strategies are as follows:

- Our fundamental strategy across the portfolios is to seek investments with similar characteristics to the associated insurance liabilities to the extent practicable.
- We seek to purchase investments that offer enhanced yield through illiquidity premiums, such as private placements and commercial mortgage loans, which also add portfolio diversification. These assets typically afford credit protections through covenants, ability to customize structures that meet our insurance liability needs, and deeper due diligence given information access.
- Given our global presence, we seek investments that provide diversification from local markets. To the extent we purchase these investments, we generally hedge any currency risk using derivatives, which could provide opportunities to earn higher risk adjusted returns compared to investments in the functional currency.
- AIG Parent, included in Other Operations, actively manages its assets and liabilities, counterparties and duration. AIG Parent's liquidity sources are held primarily in the form of cash and short-term investments. This strategy allows us to both diversify our sources of liquidity and reduce the cost of maintaining sufficient liquidity.
- Within the U.S., the Life and Retirement and General Insurance investments are generally split between reserve backing and surplus portfolios.
  - Insurance reserves are backed mainly by investment grade fixed maturity securities that meet our duration, risk-return, tax, liquidity, credit quality and diversification objectives. We assess asset classes based on their fundamental underlying risk factors, including credit (public and private), commercial real estate and residential real estate, regardless of whether such investments are bonds, loans, or structured products.
  - Surplus investments seek to enhance portfolio returns and are generally comprised of a mix of fixed maturity investment grade and below investment grade securities and various alternative asset classes, including private equity, real estate equity, and hedge funds. Over the past few years, hedge fund investments have been reduced with more emphasis given to private equity, real estate and below investment grade credit.

AIG | 2022 Form 10-K

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ITEM 7 | Investments

- Outside of the U.S., fixed maturity securities held by our insurance companies consist primarily of investment-grade securities generally denominated in the currencies of the countries in which we operate.
- We also utilize derivatives to manage our asset and liability duration as well as currency exposures.

## Asset-Liability Management

The investment strategy within the General Insurance companies focuses on growth of surplus, maintenance of sufficient liquidity for unanticipated insurance claims, and preservation of capital. General Insurance invests primarily in fixed maturity securities issued by corporations, municipalities and other governmental agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and commercial mortgage loans. Fixed maturity securities of the General Insurance companies' North America operations have an average duration of 4.0 years. Fixed maturity securities of the General Insurance companies' International operations have an average duration of 3.2 years.

While invested assets backing reserves of the General Insurance companies are primarily invested in conventional liquid fixed maturity securities, we have continued to allocate to asset classes that offer higher yields through structural and illiquidity premiums, particularly in our North America operations. In addition, we continue to invest in both fixed rate and floating rate asset-backed investments to manage our exposure to potential changes in interest rates and inflation. We seek to diversify the portfolio across asset classes, sectors and issuers to mitigate idiosyncratic portfolio risks.

In addition, a portion of the surplus of General Insurance is invested in a diversified portfolio of alternative investments that seek to balance liquidity, volatility and growth of surplus. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved yields in excess of the fixed maturity portfolio yields and have provided added diversification to the broader portfolio.

The investment strategy of the Life and Retirement companies is to provide net investment income to back liabilities that result in stable distributable earnings and enhance portfolio value, subject to asset-liability management, capital, liquidity and regulatory constraints.

The Life and Retirement companies use asset-liability management as a primary tool to monitor and manage risk in their businesses. The Life and Retirement companies maintain a diversified, high-to-medium quality portfolio of fixed maturity securities issued by corporations, municipalities and other governmental agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and commercial mortgage loans that, to the extent practicable, match the duration characteristics of the liabilities. We seek to diversify the portfolio across asset classes, sectors, and issuers to mitigate idiosyncratic portfolio risks. The investment portfolio of each product line is tailored to the specific characteristics of its insurance liabilities, and as a result, duration varies between distinct portfolios. The interest rate environment has a direct impact on the asset-liability management profile of the businesses, and changes in the interest rate environment may result in the need to lengthen or shorten the duration of the portfolio. In a rising rate environment, we may shorten the duration of the investment portfolio.

Fixed maturity securities of the Life and Retirement companies' domestic operations have an average duration of 7.2 years.

In addition, the Life and Retirement companies seek to enhance surplus portfolio returns through investments in a diversified portfolio of alternative investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved returns in excess of the fixed maturity portfolio returns.

## National Association of Insurance Commissioners (NAIC) Designations of Fixed Maturity Securities

The Securities Valuation Office (SVO) of the NAIC evaluates the investments of U.S. insurers for statutory reporting purposes and assigns fixed maturity securities to one of six categories called NAIC Designations. In general, NAIC Designations of '1' highest quality, or '2' high quality, include fixed maturity securities considered investment grade, while NAIC Designations of '3' through '6' generally include fixed maturity securities referred to as below investment grade. NAIC Designations for non-agency residential mortgage backed securities (RMBS) and commercial mortgage backed securities (CMBS) are calculated using third party modeling results provided through the NAIC. These methodologies result in an improved NAIC Designation for such securities compared to the rating typically assigned by the three major rating agencies. The following tables summarize the ratings distribution of AIG subsidiaries' fixed maturity security portfolio by NAIC Designation, and the distribution by composite AIG credit rating, which is generally based on ratings of the three major rating agencies. For fixed maturity securities where no NAIC Designation is assigned or able to be calculated using third-party data, the NAIC Designation category used in the first table below reflects an internal rating.

The NAIC Designations presented below do not reflect the added granularity to the designation categories adopted by the NAIC in 2020, which further subdivide each category of fixed maturity securities by appending letter modifiers to the numerical designations.

*For a full description of the composite AIG credit ratings, see - Credit Ratings below.*

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ITEM 7 | Investments

The following table presents the fixed maturity security portfolio categorized by NAIC Designation, at fair value:

| December 31, 2022 (in millions) |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| NAIC Designation | 1 | 2 | Total Investment Grade | 3 | 4 | 5 | 6 | Total Below Investment Grade | Total |
| Other fixed maturity securities | $88,366 | $67,549 | $155,915 | $7,494 | $7,952 | $855 | $374 | $16,675 | $172,590 |
| Mortgage-backed, asset-backed and collateralized | 50,682 | 6,828 | 57,510 | 360 | 91 | 30 | 39 | 520 | 58,030 |
| Total* | $139,048 | $74,377 | $213,425 | $7,854 | $8,043 | $885 | $413 | $17,195 | $230,620 |

* Excludes $21 million of fixed maturity securities for which no NAIC Designation is available.

The following table presents the fixed maturity security portfolio categorized by composite AIG credit rating, at fair value:

| December 31, 2022 (in millions) |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Composite AIG Credit Rating | AAA/AA/A | BBB | Total Investment Grade | BB | B | CCC and Lower | Total Below Investment Grade | Total |
| Other fixed maturity securities | $91,247 | $64,215 | $155,462 | $7,669 | $8,155 | $1,304 | $17,128 | $172,590 |
| Mortgage-backed, asset-backed and collateralized | 44,823 | 7,435 | 52,258 | 537 | 428 | 4,807 | 5,772 | 58,030 |
| Total* | $136,070 | $71,650 | $207,720 | $8,206 | $8,583 | $6,111 | $22,900 | $230,620 |

* Excludes $21 million of fixed maturity securities for which no NAIC Designation is available.

## CREDIT RATINGS

At December 31, 2022, approximately 88 percent of our fixed maturity securities were held by our domestic entities. Approximately 89 percent of these securities were rated investment grade by one or more of the principal rating agencies.

Moody's Investors Service Inc. (Moody's), Standard & Poor's Financial Services LLC, a subsidiary of S&P Global Inc. (S&P), or similar foreign rating services rate a significant portion of our foreign entities' fixed maturity securities portfolio. Rating services are not available for some foreign-issued securities. Our Credit Risk Management department closely reviews the credit quality of the foreign portfolio's non-rated fixed maturity securities. At December 31, 2022, approximately 94 percent of such investments were either rated investment grade or, on the basis of our internal analysis, were equivalent from a credit standpoint to securities rated investment grade. Approximately 27 percent of the foreign entities' fixed maturity securities portfolio is comprised of sovereign fixed maturity securities supporting policy liabilities in the country of issuance.

### Composite AIG Credit Ratings

With respect to our fixed maturity securities, the credit ratings in the table below and in subsequent tables reflect: (i) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the NAIC Designation assigned by the NAIC SVO (99 percent of total fixed maturity securities), or (ii) our internal ratings when these investments have not been rated by any of the major rating agencies or the NAIC. The 'Non-rated' category in those tables consists of fixed maturity securities that have not been rated by any of the major rating agencies, the NAIC or us.

*For information regarding credit risks associated with Investments, see Enterprise Risk Management - Credit Risk Management.*

AIG | 2022 Form 10-K

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ITEM 7 | Investments

The following table presents the composite AIG credit ratings of our fixed maturity securities calculated on the basis of their fair value:

| (in millions) | Available for Sale |  | Other |  | Total |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 |
| Rating: |  |  |  |  |  |  |
| Other fixed maturity securities |  |  |  |  |  |  |
| AAA | $13,477 | $15,578 | $36 | $1,756 | $13,513 | $17,334 |
| AA | 31,061 | 39,110 | 810 | 282 | 31,871 | 39,392 |
| A | 45,618 | 57,346 | 244 | 160 | 45,862 | 57,506 |
| BBB | 63,173 | 83,192 | 1,043 | 461 | 64,216 | 83,653 |
| Below investment grade | 16,538 | 17,795 | 432 | 314 | 16,970 | 18,109 |
| Non-rated | 175 | 1,638 | 4 | - | 179 | 1,638 |
| Total | $170,042 | $214,659 | $2,569 | $2,973 | $172,611 | $217,632 |
| Mortgage-backed, asset-backed and collateralized |  |  |  |  |  |  |
| AAA | $20,729 | $27,144 | $253 | $232 | $20,982 | $27,376 |
| AA | 15,706 | 15,688 | 659 | 485 | 16,365 | 16,173 |
| A | 7,186 | 6,685 | 289 | 197 | 7,475 | 6,882 |
| BBB | 6,857 | 5,492 | 578 | 725 | 7,435 | 6,217 |
| Below investment grade | 5,509 | 7,508 | 125 | 1,462 | 5,634 | 8,970 |
| Non-rated | 127 | 26 | 12 | 204 | 139 | 230 |
| Total | $56,114 | $62,543 | $1,916 | $3,305 | $58,030 | $65,848 |
| Total |  |  |  |  |  |  |
| AAA | $34,206 | $42,722 | $289 | $1,988 | $34,495 | $44,710 |
| AA | 46,767 | 54,798 | 1,469 | 767 | 48,236 | 55,565 |
| A | 52,804 | 64,031 | 533 | 357 | 53,337 | 64,388 |
| BBB | 70,030 | 88,684 | 1,621 | 1,186 | 71,651 | 89,870 |
| Below investment grade | 22,047 | 25,303 | 557 | 1,776 | 22,604 | 27,079 |
| Non-rated | 302 | 1,664 | 16 | 204 | 318 | 1,868 |
| Total | $226,156 | $277,202 | $4,485 | $6,278 | $230,641 | $283,480 |

## Available-for-Sale Investments

The following table presents the fair value of our available-for-sale securities:

| (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Bonds available for sale: |  |  |
| U.S. government and government sponsored entities | $6,619 | $8,194 |
| Obligations of states, municipalities and political subdivisions | 12,099 | 14,527 |
| Non-U.S. governments | 13,485 | 16,330 |
| Corporate debt | 137,839 | 175,608 |
| Mortgage-backed, asset-backed and collateralized: |  |  |
| RMBS | 18,817 | 27,287 |
| CMBS | 14,193 | 15,809 |
| CLO/ABS | 23,104 | 19,447 |
| Total mortgage-backed, asset-backed and collateralized | 56,114 | 62,543 |
| Total bonds available for sale* | $226,156 | $277,202 |

\* At December 31, 2022 and 2021, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled $22.3 billion and $27.0 billion, respectively.

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The following table presents the fair value of our aggregate credit exposures to non-U.S. governments for our fixed maturity securities:

| (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Canada | $1,312 | $1,233 |
| Germany | 856 | 702 |
| Japan | 812 | 1,230 |
| France | 636 | 731 |
| Indonesia | 514 | 634 |
| United Kingdom | 446 | 1,031 |
| Australia | 441 | 275 |
| Chile | 401 | 511 |
| United Arab Emirates | 380 | 484 |
| Mexico | 379 | 481 |
| Other | 7,374 | 9,094 |
| Total | $13,551 | $16,406 |

The following table presents the fair value of our aggregate European credit exposures by major sector for our fixed maturity securities:

| (in millions) | December 31, 2022 |  |  |  |  | December 31, 2021 Total |
| --- | --- | --- | --- | --- | --- | --- |
|  | Sovereign | Financial Institution | Non-Financial Corporates | Structured Products | Total |  |
| Euro-Zone countries: |  |  |  |  |  |  |
| Germany | $856 | $223 | $2,343 | $ - | $3,422 | $3,610 |
| France | 636 | 1,276 | 1,007 | - | 2,919 | 3,870 |
| Netherlands | 193 | 833 | 999 | 35 | 2,060 | 2,652 |
| Belgium | 56 | 262 | 898 | 40 | 1,256 | 1,620 |
| Ireland | 9 | 12 | 357 | 789 | 1,167 | 1,958 |
| Luxembourg | 17 | 696 | 312 | - | 1,025 | 880 |
| Spain | 5 | 288 | 391 | - | 684 | 888 |
| Italy | 17 | 73 | 401 | - | 491 | 636 |
| Denmark | 175 | 69 | 130 | - | 374 | 518 |
| Finland | 31 | 30 | 36 | - | 97 | 150 |
| Other Euro-Zone | 253 | - | 23 | - | 276 | 379 |
| Total Euro-Zone | $2,248 | $3,762 | $6,897 | $864 | $13,771 | $17,161 |
| Remainder of Europe: |  |  |  |  |  |  |
| United Kingdom | $446 | $3,661 | $7,607 | $778 | $12,492 | $16,908 |
| Switzerland | 29 | 708 | 712 | - | 1,449 | 1,884 |
| Norway | 276 | 112 | 219 | - | 607 | 797 |
| Sweden | 181 | 150 | 102 | - | 433 | 537 |
| Jersey (Channel Islands) | 3 | 149 | 35 | 123 | 310 | 225 |
| Russian Federation | 2 | 1 | 31 | - | 34 | 359 |
| Other - Remainder of Europe | 55 | 27 | 78 | - | 160 | 261 |
| Total - Remainder of Europe | $992 | $4,808 | $8,784 | $901 | $15,485 | $20,971 |
| Total | $3,240 | $8,570 | $15,681 | $1,765 | $29,256 | $38,132 |

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## Investments in Municipal Bonds

At December 31, 2022, the U.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality tax-exempt bonds with 97 percent of the portfolio rated A or higher.

The following table presents the fair values of our available for sale U.S. municipal bond portfolio by state and municipal bond type:

| (in millions) | December 31, 2022 |  |  |  | December 31, 2021 Total Fair Value |
| --- | --- | --- | --- | --- | --- |
|  | State General Obligation | Local General Obligation | Revenue | Total Fair Value |  |
| California | $528 | $469 | $1,602 | $2,599 | $3,108 |
| New York | 50 | 204 | 1,953 | 2,207 | 2,765 |
| Texas | 32 | 442 | 694 | 1,168 | 1,416 |
| Illinois | 76 | 66 | 690 | 832 | 1,009 |
| Massachusetts | 245 | 20 | 332 | 597 | 666 |
| Pennsylvania | 62 | 2 | 327 | 391 | 397 |
| Georgia | 91 | 58 | 205 | 354 | 474 |
| Florida | 5 | - | 332 | 337 | 403 |
| Ohio | 8 | - | 326 | 334 | 488 |
| New Jersey | 13 | 2 | 293 | 308 | 282 |
| Washington | 104 | 6 | 169 | 279 | 359 |
| Virginia | 9 | - | 268 | 277 | 380 |
| Washington, D.C. | 10 | - | 207 | 217 | 293 |
| All other states (a) | 358 | 173 | 1,668 | 2,199 | 2,487 |
| Total (b)(c) | $1,591 | $1,442 | $9,066 | $12,099 | $14,527 |

(a) We did not have material credit exposure to the government of Puerto Rico.

(b) Excludes certain university and not-for-profit entities that issue their bonds in the corporate debt market. Includes industrial revenue bonds.

(c) Includes $327 million of pre-refunded municipal bonds.

## Investments in Corporate Debt Securities

The following table presents the fair value of our available for sale corporate debt securities by industry categories:

| Industry Category (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Financial institutions: |  |  |
| Money center/Global bank groups | $8,234 | $10,053 |
| Regional banks - other | 418 | 434 |
| Life insurance | 2,207 | 3,094 |
| Securities firms and other finance companies | 354 | 350 |
| Insurance non-life | 5,067 | 6,795 |
| Regional banks - North America | 5,832 | 7,228 |
| Other financial institutions | 16,491 | 18,255 |
| Utilities | 18,863 | 24,180 |
| Communications | 8,676 | 11,510 |
| Consumer noncyclical | 17,973 | 24,411 |
| Capital goods | 6,745 | 8,668 |
| Energy | 10,357 | 13,506 |
| Consumer cyclical | 10,963 | 13,279 |
| Basic | 4,715 | 6,041 |
| Other | 20,944 | 27,804 |
| Total* | $137,839 | $175,608 |

* At December 31, 2022 and 2021, approximately 89 percent and 90 percent, respectively, of these investments were rated investment grade.

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Our investments in the energy category, as a percentage of total investments in available-for-sale fixed maturities, was 4.6 percent and 4.9 percent, at December 31, 2022 and 2021, respectively. While the energy investments are primarily investment grade and are actively managed, the category continues to experience volatility that could adversely affect credit quality and fair value.

## Investments in RMBS

The following table presents the fair value of AIG's RMBS available for sale securities:

| (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Agency RMBS | $8,126 | $13,778 |
| Alt-A RMBS | 4,400 | 5,936 |
| Subprime RMBS | 1,819 | 2,329 |
| Prime non-agency | 2,064 | 3,058 |
| Other housing related | 2,408 | 2,186 |
| Total RMBS (a)(b) | $18,817 | $27,287 |

(a) Includes approximately $4.4 billion and $6.1 billion at December 31, 2022 and 2021, respectively, of certain RMBS that had experienced deterioration in credit quality since their origination. For additional information on Purchased Credit Deteriorated Securities, see Note 5 to the Consolidated Financial Statements.

(b) The weighted average expected life was seven years at December 31, 2022 and five years at December 31, 2021.

Our underwriting practices for investing in RMBS, other asset-backed securities (ABS) and CLOs take into consideration the quality of the originator, the manager, the servicer, security credit ratings, underlying characteristics of the mortgages, borrower characteristics, and the level of credit enhancement in the transaction.

## Investments in CMBS

The following table presents the fair value of our CMBS available for sale securities:

| (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| CMBS (traditional) | $12,401 | $13,091 |
| Agency | 1,219 | 1,627 |
| Other | 573 | 1,091 |
| Total | $14,193 | $15,809 |

The fair value of CMBS holdings remained stable during 2022. The majority of our investments in CMBS are in tranches that contain substantial protection features through collateral subordination. The majority of CMBS holdings are traditional conduit transactions, broadly diversified across property types and geographical areas.

## Investments in ABS/CLOs

The following table presents the fair value of our ABS/CLOs available for sale securities by collateral type:

| (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Collateral Type: |  |  |
| ABS | $12,168 | $10,532 |
| Bank loans | 10,818 | 8,899 |
| Other | 118 | 16 |
| Total | $23,104 | $19,447 |

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## Unrealized Losses of Fixed Maturity Securities

The following table shows the aging of the unrealized losses of fixed maturity securities, the extent to which the fair value is less than amortized cost or cost, and the number of respective items in each category:

| December 31, 2022 | Less Than or Equal to 20% of Cost (a) |  |  | Greater Than 20% to 50% of Cost (b) |  |  | Greater Than 50% of Cost (b) |  |  | Total |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Unrealized |  |  | Unrealized |  |  | Unrealized |  |  | Unrealized |  |  |
|  | Cost (c) | Loss | Items (e) | Cost (c) | Loss | Items (e) | Cost (c) | Loss | Items (e) | Cost (c) | Loss | Items (e) |
| Aging (a) |  |  |  |  |  |  |  |  |  |  |  |  |
| (dollars in millions) |  |  |  |  |  |  |  |  |  |  |  |  |
| Investment grade bonds |  |  |  |  |  |  |  |  |  |  |  |  |
| 0-6 months | $112,241 | $9,459 | 19,888 | $41,590 | $12,117 | 4,326 | $554 | $299 | 30 | $154,385 | $21,875 | 24,244 |
| 7-11 months | 28,548 | 2,548 | 3,358 | 3,779 | 1,002 | 221 | 20 | 12 | 1 | 32,347 | 3,562 | 3,580 |
| 12 months or more | 12,413 | 1,294 | 1,406 | 11,638 | 3,360 | 921 | 195 | 109 | 12 | 24,246 | 4,763 | 2,339 |
| Total | $153,202 | $13,301 | 24,652 | $57,007 | $16,479 | 5,468 | $769 | $420 | 43 | $210,978 | $30,200 | 30,163 |
| Below investment grade bonds |  |  |  |  |  |  |  |  |  |  |  |  |
| 0-6 months | $8,542 | $597 | 3,509 | $1,303 | $364 | 483 | $71 | $48 | 29 | $9,916 | $1,009 | 4,021 |
| 7-11 months | 4,321 | 227 | 1,432 | 187 | 45 | 58 | 8 | 6 | 5 | 4,516 | 278 | 1,495 |
| 12 months or more | 4,177 | 283 | 1,214 | 346 | 93 | 92 | 11 | 10 | 4 | 4,534 | 386 | 1,310 |
| Total | $17,040 | $1,107 | 6,155 | $1,836 | $502 | 633 | $90 | $64 | 38 | $18,966 | $1,673 | 6,826 |
| Total bonds |  |  |  |  |  |  |  |  |  |  |  |  |
| 0-6 months | $120,783 | $10,056 | 23,397 | $42,893 | $12,481 | 4,809 | $625 | $347 | 59 | $164,301 | $22,884 | 28,265 |
| 7-11 months | 32,869 | 2,775 | 4,790 | 3,966 | 1,047 | 279 | 28 | 18 | 6 | 36,863 | 3,840 | 5,075 |
| 12 months or more | 16,590 | 1,577 | 2,620 | 11,984 | 3,453 | 1,013 | 206 | 119 | 16 | 28,780 | 5,149 | 3,649 |
| Total (d) | $170,242 | $14,408 | 30,807 | $58,843 | $16,981 | 6,101 | $859 | $484 | 81 | $229,944 | $31,873 | 36,989 |

(a) Represents the number of consecutive months that fair value has been less than cost by any amount.

(b) Represents the percentage by which fair value is less than cost.

(c) For bonds, represents amortized cost net of allowance.

(d) The effect on Net income of unrealized losses after taxes will be mitigated upon realization because certain realized losses will result in current decreases in the amortization of certain DAC.

(e) Item count is by CUSIP by subsidiary.

The allowance for credit losses was $11 million for investment grade bonds and $175 million for below investment grade bonds as of December 31, 2022.

## Commercial Mortgage Loans

At December 31, 2022, we had direct commercial mortgage loan exposure of $37.1 billion.

The following table presents the commercial mortgage loan exposure by location and class of loan based on amortized cost:

| (dollars in millions) | Number of Loans | Class |  |  |  |  |  | Total | Percent of Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Apartments | Offices | Retail | Industrial | Hotel | Others |  |  |
| December 31, 2022 |  |  |  |  |  |  |  |  |  |
| State: |  |  |  |  |  |  |  |  |  |
| New York | 81 | $1,571 | $4,502 | $490 | $404 | $104 | $ - | $7,071 | 19% |
| California | 59 | 847 | 1,068 | 170 | 1,316 | 656 | 13 | 4,070 | 11 |
| New Jersey | 65 | 2,154 | 163 | 439 | 497 | 11 | 32 | 3,296 | 9 |
| Texas | 47 | 857 | 998 | 153 | 184 | 143 | - | 2,335 | 6 |
| Massachusetts | 16 | 576 | 443 | 521 | 23 | - | - | 1,563 | 4 |
| Florida | 57 | 491 | 119 | 362 | 199 | 391 | - | 1,562 | 4 |
| Illinois | 22 | 584 | 623 | 3 | 46 | - | 21 | 1,277 | 4 |
| Ohio | 23 | 145 | 10 | 168 | 544 | - | - | 867 | 2 |
| Pennsylvania | 18 | 75 | 133 | 255 | 223 | 23 | - | 709 | 2 |
| Washington, D.C. | 9 | 483 | 116 | - | - | 17 | - | 616 | 2 |
| Other states | 139 | 2,239 | 494 | 842 | 961 | 278 | 19 | 4,833 | 13 |
| Foreign | 93 | 4,575 | 1,606 | 413 | 1,609 | 404 | 322 | 8,929 | 24 |
| Total* | 629 | $14,597 | $10,275 | $3,816 | $6,006 | $2,027 | $407 | $37,128 | 100% |

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December 31, 2021

# **State:**

| New York | 94 | $2,217 | $4,329 | $450 | $438 | $103 | $ - | $7,537 | 21 | % |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| California | 62 | 817 | 1,293 | 239 | 553 | 761 | 13 | 3,676 | 10 |  |
| New Jersey | 48 | 2,092 | 30 | 462 | 225 | 11 | 33 | 2,853 | 8 |  |
| Texas | 49 | 630 | 1,133 | 167 | 187 | 144 | - | 2,261 | 6 |  |
| Florida | 60 | 469 | 152 | 368 | 214 | 281 | - | 1,484 | 4 |  |
| Massachusetts | 13 | 534 | 290 | 537 | 24 | - | - | 1,385 | 4 |  |
| Illinois | 24 | 554 | 626 | 9 | 50 | - | 21 | 1,260 | 5 |  |
| Pennsylvania | 22 | 78 | 144 | 477 | 76 | 25 | - | 800 | 2 |  |
| Washington, D.C. | 11 | 455 | 184 | - | - | 18 | - | 657 | 2 |  |
| Ohio | 25 | 167 | 10 | 175 | 289 | - | - | 641 | 2 |  |
| Other states | 155 | 1,852 | 598 | 975 | 686 | 329 | - | 4,440 | 12 |  |
| Foreign | 86 | 4,402 | 1,341 | 998 | 1,116 | 449 | 365 | 8,671 | 24 |  |
| Total* | 649 | $14,267 | $10,130 | $4,857 | $3,858 | $2,121 | $432 | $35,665 | 100 | % |

\* Does not reflect allowance for credit losses.

For additional information on commercial mortgage loans, see Note 6 to the Consolidated Financial Statements.

# **Net Realized Gains and Losses**

The following table presents the components of Net realized gains (losses):

| Years Ended December 31, (in millions) | 2022 |  |  | 2021 |  |  | 2020 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Excluding Fortitude Re Funds Withheld Assets | Fortitude Re Funds Withheld Assets | Total | Excluding Fortitude Re Funds Withheld Assets | Fortitude Re Funds Withheld Assets | Total | Excluding Fortitude Re Funds Withheld Assets | Fortitude Re Funds Withheld Assets | Total |
| Sales of fixed maturity securities | $(871) | $(311) | $(1,182) | $211 | $717 | $928 | $307 | $707 | $1,014 |
| Intent to sell | (66) | - | (66) | - | - | - | (3) | - | (3) |
| Change in allowance for credit losses on fixed maturity securities | (184) | (32) | (216) | 19 | 7 | 26 | (270) | (10) | (280) |
| Change in allowance for credit losses on loans | (55) | (47) | (102) | 163 | 9 | 172 | (105) | 2 | (103) |
| Foreign exchange transactions | (17) | (5) | (22) | 16 | (5) | 11 | 365 | 13 | 378 |
| Variable annuity embedded derivatives, net of related hedges | 1,221 | - | 1,221 | (39) | - | (39) | 166 | - | 166 |
| All other derivatives and hedge accounting | 1,814 | (134) | 1,680 | 179 | 28 | 207 | (672) | (249) | (921) |
| Sales of alternative investments and real estate investments | 193 | 43 | 236 | 988 | 237 | 1,225 | 143 | - | 143 |
| Other | (39) | - | (39) | 214 | 10 | 224 | 13 | - | 13 |
| Net realized gains (losses) - excluding Fortitude Re funds withheld embedded derivative | 1,996 | (486) | 1,510 | 1,751 | 1,003 | 2,754 | (56) | 463 | 407 |
| Net realized gains (losses) on Fortitude Re funds withheld embedded derivative | - | 7,481 | 7,481 | - | (603) | (603) | - | (2,645) | (2,645) |
| Net realized gains (losses) | $1,996 | $6,995 | $8,991 | $1,751 | $400 | $2,151 | $(56) | $(2,182) | $(2,238) |

Higher Net realized capital gains excluding Fortitude Re funds withheld assets in 2022 compared to the prior year were due primarily to higher derivative gains, which was partially offset by losses in sales of securities versus gains in the prior year.

Variable annuity embedded derivatives, net of related hedges, reflected higher gains in 2022 compared to the prior year. Fair value gains or losses in the hedging portfolio are typically not fully offset by increases or decreases in liabilities due to the non-performance or “own credit” risk adjustment used in the valuation of the variable annuities with GMWB embedded derivative, which are not hedged as part of our economic hedging program, and other risk margins used for valuation that cause the embedded derivatives to be less sensitive to changes in market rates than the hedge portfolio.

Net realized gains (losses) on Fortitude Re funds withheld assets primarily reflect changes in the valuation of the modified coinsurance and funds withheld assets. Increases in the valuation of these assets result in losses to AIG as the appreciation on the assets must under those reinsurance arrangements be transferred to Fortitude Re. Decreases in valuation of the assets result in gains to AIG as the depreciation on the assets under those reinsurance arrangements must be transferred to Fortitude Re. For

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additional information on the impact of the funds withheld arrangements with Fortitude Re, see Note 7 to the Consolidated Financial Statements.

For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies’ Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs. For additional information on the economic hedging target and the impact to pre-tax income of this program, see Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC - Variable Annuity Guaranteed Benefits and Hedging Results in this MD&A.

For additional information on our investment portfolio, see Note 5 to the Consolidated Financial Statements.

### Change in Unrealized Gains and Losses on Investments

The change in net unrealized gains and losses on investments in 2022 was primarily attributable to decrease in the fair value of fixed maturity securities. For 2022, net unrealized losses related to fixed maturity securities were $47.7 billion due to an increase in interest rates and spreads.

The change in net unrealized gains and losses on investments in 2021 was primarily attributable to movements in interest rates and spreads. For 2021, net unrealized losses related to fixed maturity securities were $9.3 billion due primarily to an increase in interest rates.

For additional information on our investment portfolio, see Note 5 to the Consolidated Financial Statements.

## Insurance Reserves

### LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LOSS RESERVES)

The following table presents the components of our gross and net loss reserves by segment and major lines of business$^{(a)}$:

| (in millions) | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Net liability for unpaid losses and loss adjustment expenses | Reinsurance recoverable on unpaid losses and loss adjustment expenses | Gross liability for unpaid losses and loss adjustment expenses | Net liability for unpaid losses and loss adjustment expenses | Reinsurance recoverable on unpaid losses and loss adjustment expenses | Gross liability for unpaid losses and loss adjustment expenses |
| General Insurance: |  |  |  |  |  |  |
| U.S. Workers’ Compensation (net of discount) $ | 2,684 | 4,319 | 7,003 | 3,282 | 5,216 | 8,498 |
| U.S. Excess Casualty | 3,638 | 3,701 | 7,339 | 3,850 | 4,195 | 8,045 |
| U.S. Other Casualty | 3,858 | 3,872 | 7,730 | 3,805 | 4,191 | 7,996 |
| U.S. Financial Lines | 5,899 | 1,773 | 7,672 | 5,356 | 1,893 | 7,249 |
| U.S. Property and Special Risks | 6,815 | 3,295 | 10,110 | 6,615 | 3,587 | 10,202 |
| U.S. Personal Insurance | 794 | 2,052 | 2,846 | 1,001 | 2,198 | 3,199 |
| UK/Europe Casualty and Financial Lines | 6,984 | 1,538 | 8,522 | 7,175 | 1,603 | 8,778 |
| UK/Europe Property and Special Risks | 2,717 | 1,464 | 4,181 | 2,631 | 1,492 | 4,123 |
| UK/Europe and Japan Personal Insurance | 1,628 | 592 | 2,220 | 1,962 | 608 | 2,570 |
| Other product lines (b) | 5,999 | 4,834 | 10,833 | 5,815 | 5,468 | 11,283 |
| Unallocated loss adjustment expenses (b) | 1,418 | 927 | 2,345 | 1,654 | 1,015 | 2,669 |
| Total General Insurance | 42,434 | 28,367 | 70,801 | 43,146 | 31,466 | 74,612 |
| Other Operations Run-Off: |  |  |  |  |  |  |
| U.S. run-off long tail insurance lines (net of discount) | 239 | 3,427 | 3,666 | 164 | 3,434 | 3,598 |
| Other run-off product lines | 245 | 59 | 304 | 264 | 61 | 325 |
| Blackboard U.S. Holdings, Inc. | 134 | 135 | 269 | 217 | 138 | 355 |
| Unallocated loss adjustment expenses | 13 | 114 | 127 | 22 | 114 | 136 |
| Total Other Operations Run-Off | 631 | 3,735 | 4,366 | 667 | 3,747 | 4,414 |
| Total | $43,065 | $32,102 | $75,167 | $43,813 | $35,213 | $79,026 |

(a) Includes net loss reserve discount of $1.3 billion and $876 million as of December 31, 2022 and 2021, respectively. For information regarding loss reserve discount, see Note 12 to the Consolidated Financial Statements.

(b) Other product lines and Unallocated loss adjustment expenses includes Gross liability for unpaid losses and loss adjustment expense and Reinsurance recoverable on unpaid losses and loss adjustment expense for the Fortitude Re reinsurance of $2.9 billion and $3.5 billion as of December 31, 2022 and 2021, respectively.

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## Prior Year Development

The following table summarizes incurred (favorable) unfavorable prior year development net of reinsurance by segment:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| General Insurance: |  |  |  |
| North America | $(196) | $(194) | $(157) |
| International | (322) | (7) | 81 |
| Total General Insurance* | $(518) | $(201) | $(76) |
| Other Operations Run-Off | (5) | 86 | 2 |
| Total prior year favorable development | $(523) | $(115) | $(74) |

* Includes the amortization attributed to the deferred gain at inception from the National Indemnity Company (NICO) adverse development reinsurance agreement of $167 million, $193 million and $211 million for the years ended December 31, 2022, 2021 and 2020, respectively. Consistent with our definition of APTI, the amount excludes the portion of (favorable)/unfavorable prior year reserve development for which we have ceded the risk under the NICO reinsurance agreements of $(174) million, $(249) million and $(228) million for the years ended December 31, 2022, 2021 and 2020, respectively. Also excludes the related changes in amortization of the deferred gain, which were $85 million, $(3) million and $25 million over those same periods.

### Net Loss Development - 2022

During 2022, we recognized favorable prior year loss reserve development of $523 million. The key components of this development were:

#### North America

- Favorable development in U.S. Workers' Compensation reflecting continued favorable loss experience across most accident years particularly for excess and guaranteed cost segments.
- Favorable development in U.S. Excess Casualty particularly in lead and mid-excess retail segments.
- Favorable development in U.S. Other Casualty in the Commercial Auto, General Liability and Construction Wraps business.
- Amortization benefit related to the deferred gain on the adverse development cover.
- Unfavorable development driven by U.S. Financial Lines driven by unfavorable severity trends in Excess and Primary D&O and Excess and Financial Institutions E&O, partially offset by favorable results in EPLI.

#### International

- Favorable development on Global Specialty across all products in all regions.
- Favorable development in International Personal Lines particularly with Auto and A&H coverages in Japan as well as favorable experience recognized in Europe and the UK.
- Unfavorable development in Casualty in Europe Excess Casualty and French Auto as well as large loss experience in the UK, partially offset by favorable experience in APAC Casualty.
- Unfavorable development in Financial Lines primarily in the UK for M&A, Commercial PI and Commercial D&O.

Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss adjustment expense ratios we selected.

For additional information on prior year development by line of business, see Note 12 to the Consolidated Financial Statements. For information regarding actuarial methods employed for major classes of business, see Critical Accounting Estimates.

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ITEM 7 | Insurance Reserves

The following tables summarize incurred (favorable) unfavorable prior year development net of reinsurance, by segment and major lines of business, and by accident year groupings:

| Year Ended December 31, 2022 (in millions) | Total | 2021 | 2020 & Prior |
| --- | --- | --- | --- |
| General Insurance North America: |  |  |  |
| U.S. Workers' Compensation | $(419) | $(27) | $(392) |
| U.S. Excess Casualty | (8) | - | (8) |
| U.S. Other Casualty | (167) | (2) | (165) |
| U.S. Financial Lines | 658 | (22) | 680 |
| U.S. Property and Special Risks | (106) | (207) | 101 |
| U.S. Personal Insurance | (33) | 17 | (50) |
| Other Product Lines | (121) | (45) | (76) |
| Total General Insurance North America | $(196) | $(286) | $90 |
| General Insurance International: |  |  |  |
| UK/Europe Casualty and Financial Lines | $82 | $(1) | $83 |
| UK/Europe Property and Special Risks | (153) | (29) | (124) |
| UK/Europe and Japan Personal Insurance | (111) | (69) | (42) |
| Other product lines | (140) | (85) | (55) |
| Total General Insurance International | $(322) | $(184) | $(138) |
| Other Operations Run-Off | (5) | - | (5) |
| Total Prior Year (Favorable) Unfavorable Development | $(523) | $(470) | $(53) |

#### Net Loss Development - 2021

During 2021, we recognized favorable prior year loss reserve development of $115 million. The key components of this development were:

##### North America

- Strong favorable development in Personal Insurance, primarily attributable to subrogation recovery related to the 2017 and 2018 California wildfires partially offset by the impact of dropping below the attachment point of our 2018 catastrophe aggregate treaty, which also adversely impacted our U.S. Property and Special Risk Commercial Lines.
- Favorable development on U.S. Workers Compensation and short-tailed commercial lines within Other Product Lines, reflecting lower frequency and severity in recent calendar years.
- Amortization benefit related to the deferred gain on the adverse development cover.
- Reserve strengthening within U.S. Financial Lines, reflecting higher severity of claims in Directors & Officers, principally from accident years 2018 and prior, and cyber risk from accident years 2019 and 2020.

##### International

- Favorable development on short-tailed International Commercial Lines and Personal Insurance, reflecting lower frequency and severity of claims.
- Reserve strengthening on International Financial Lines, reflecting higher severity of claims, the majority of which is from accident years 2018 and prior.

##### Other Operations

- Unfavorable development primarily attributed to the Blackboard insurance portfolio due to increased severity on reported claims.

We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for reinsurance recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the date of occurrence becomes available to us.

For information regarding the 2020 net loss development, see Part II, Item 7. MD&A - Insurance Reserves - Loss Reserves of our 2021 Annual Report.

#### Significant Reinsurance Agreements

In the first quarter of 2017, we entered into an adverse development reinsurance agreement with NICO, under which we transferred to NICO 80 percent of the reserve risk on substantially all of our U.S. Commercial long-tail exposures for accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the losses on subject business paid on or after January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25 billion. We account for this transaction as retroactive reinsurance. This

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transaction resulted in a gain, which under GAAP retroactive reinsurance accounting is deferred and amortized into income over the settlement period. NICO created a collateral trust account as security for their claim payment obligations to us, into which they deposited the consideration paid under the agreement, and Berkshire Hathaway Inc. has provided a parental guarantee to secure NICO's obligations under the agreement.

For a description of AIG's catastrophe reinsurance protection for 2021, see Enterprise Risk Management - Insurance Risks - General Insurance Companies' Key Risks - Natural Catastrophe Risk.

The table below shows the calculation of the deferred gain on the adverse development reinsurance agreement as of December 31, 2022, 2021 and 2020, showing the effect of discounting of loss reserves and amortization of the deferred gain.

| (in millions) | December 31, 2022 | December 31, 2021 | December 31, 2020 |
| --- | --- | --- | --- |
| Gross Covered Losses |  |  |  |
| Covered reserves before discount | $12,537 | $14,398 | $16,534 |
| Inception to date losses paid | 28,667 | 27,023 | 25,198 |
| Attachment point | (25,000) | (25,000) | (25,000) |
| Covered losses above attachment point | $16,204 | $16,421 | $16,732 |
| Deferred Gain Development |  |  |  |
| Covered losses above attachment ceded to NICO (80%) | $12,963 | $13,137 | $13,386 |
| Consideration paid including interest | (10,188) | (10,188) | (10,188) |
| Pre-tax deferred gain before discount and amortization | 2,775 | 2,949 | 3,198 |
| Discount on ceded losses (a) | (1,254) | (953) | (911) |
| Pre-tax deferred gain before amortization | 1,521 | 1,996 | 2,287 |
| Inception to date amortization of deferred gain at inception | (1,264) | (1,097) | (904) |
| Inception to date amortization attributed to changes in deferred gain (b) | (52) | (30) | (86) |
| Deferred gain liability reflected in AIG's balance sheet | $205 | $869 | $1,297 |

(a) The accretion of discount and a reduction in effective interest rates is offset by changes in estimates of the amount and timing of future recoveries.

(b) Excluded from APTI.

The following table presents the rollforward of activity in the deferred gain from the adverse development reinsurance agreement:

| Years Ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| (in millions) |  |  |  |
| Balance at beginning of year, net of discount | $869 | $1,297 | $1,381 |
| (Favorable) unfavorable prior year reserve development ceded to NICO (a) | (174) | (249) | (228) |
| Amortization attributed to deferred gain at inception (b) | (167) | (193) | (211) |
| Amortization attributed to changes in deferred gain (c) | (22) | 56 | 15 |
| Changes in discount on ceded loss reserves | (301) | (42) | 340 |
| Balance at end of year, net of discount | $205 | $869 | $1,297 |

(a) Prior year reserve development ceded to NICO under the retroactive reinsurance agreement is deferred under GAAP.

(b) Represents amortization of the deferred gain recognized in APTI.

(c) Excluded from APTI.

The lines of business subject to this agreement include those with longer tails, which carry a higher degree of uncertainty. Since inception, there have been periods of unfavorable prior year development, with more recent favorable development. This agreement will continue to reduce the impact of volatility in the development on our ultimate loss estimates over time. The agreement has resulted in lower capital charges for reserve risks at our U.S. insurance subsidiaries. In addition, net investment income declined as a result of lower invested assets.

Fortitude Re was established during the first quarter of 2018 in a series of reinsurance transactions related to our run-off operations. Those reinsurance transactions were designed to consolidate most of our insurance run-off lines into a single legal entity. As of December 31, 2022, approximately $29.0 billion of reserves from our Life and Retirement Run-Off Lines and approximately $3.2 billion of reserves from our General Insurance Run-Off Lines related to business written by multiple wholly-owned AIG subsidiaries, had been ceded to Fortitude Re under these reinsurance transactions.

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Of the Fortitude Re reinsurance agreements, the largest is the Amended and Restated Combination Coinsurance and Modified Coinsurance Agreement by and between our subsidiary AGL and Fortitude Re. Under this treaty, approximately $22.1 billion of AGL reserves as of December 31, 2022 were ceded to Fortitude Re representing a mix of life and annuity risks. Fortitude Re provides 100 percent reinsurance of the ceded risks. AGL retains the risk of collection of any third party reinsurance covering the ceded business. At effectiveness of the treaty, an amount equal to the aggregate ceded reserves was deposited by AGL into a modified coinsurance account of AGL to secure the obligations of Fortitude Re. Fortitude Re receives or makes quarterly payments that represent the net gain or loss under the treaty for the relevant quarter, including any net investment gain or loss on the assets in the modified coinsurance account. Since the effectiveness of the treaty, an AIG affiliate has served as portfolio manager of the vast majority of the assets in the modified coinsurance account. In December 2022, the management of most of the public fixed income securities in the modified coinsurance account was transitioned to BlackRock. In accordance with the terms of the treaty, following the third anniversary of the June 2, 2020 closing of the sale of our majority interest in Fortitude Group Holdings, L.L.C., Fortitude Re has increased rights to direct the appointment of investment managers to manage the assets in the modified coinsurance account.

## LIFE AND ANNUITY FUTURE POLICY BENEFITS, POLICYHOLDER CONTRACT DEPOSITS AND DAC

The following section provides discussion of life and annuity future policy benefits, policyholder contract deposits and deferred policy acquisition costs.

For information regarding 2020 life and annuity future policy benefits, policyholder contract deposits and deferred policy acquisition costs, see Part II, Item 7. MD&A - Insurance Reserves - Life and Annuity Future Policy Benefits, Policyholder Contract Deposits and DAC of our 2021 Annual Report.

### Update of Actuarial Assumptions and Models

The life insurance companies review and update actuarial assumptions at least annually, generally in the third quarter.

#### Investment-Oriented Products

The life insurance companies review and update estimated gross profit assumptions used to amortize DAC and related items (which may include VOBA, DSI and unearned revenue reserves) as well as assessments used to accrue guaranteed benefit reserves at least annually. Estimated gross profit projections include assumptions for investment-related returns and spreads (including investment expenses), product-related fees and expenses, mortality gains and losses, policyholder behavior and other factors. In estimating future gross profits, lapse assumptions require judgment and can have a material impact on DAC amortization. If the assumptions used for estimated gross profits change significantly, DAC and related reserves are recalculated using the new projections, and any resulting adjustment is included in income. Updating such projections may result in acceleration of amortization in some products and deceleration of amortization in other products.

The life insurance companies also review assumptions related to their respective GMWB living benefits that are accounted for as embedded derivatives and measured at fair value. The fair value of these embedded derivatives is based on actuarial assumptions, including policyholder behavior, as well as capital market assumptions.

Various assumptions were updated, including the following effective September 30, 2022, which continued to be our best estimate assumptions as of December 31, 2022:

- Expected lapses increased primarily due to the impact of higher interest rates for fixed annuities in Individual Retirement; and
- Interest rates and equity correlation used to generate risk neutral path for variable annuities in Individual Retirement and Group Retirement decreased resulting in a reduction of GMWB embedded derivatives.

For information regarding actuarial methods, see Critical Accounting Estimates - Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products.

#### Traditional long-duration products

For long-duration traditional products, which include whole life insurance, term life insurance, accident and health insurance, long-term care insurance, and life-contingent single premium immediate annuities and structured settlements, a “lock-in” principle applies. The assumptions used to calculate the benefit liabilities and DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs. A loss recognition event occurs when current liabilities together with expected future premiums are not sufficient to provide for all future benefits, expenses, and DAC amortization, net of reinsurance. A loss recognition event is driven by observed changes in actual experience or estimates differing significantly from “locked-in” assumptions. Underlying assumptions, including interest rates, are reviewed periodically and updated as appropriate for loss recognition testing purposes. As it relates to business ceded to Fortitude Re, as our accounting policy is to include reinsurance balances when performing loss recognition testing and as there will be no future profits recognized on this business, we will not incur any future loss recognition events related to business ceded to Fortitude Re, absent any decisions by us to recapture the business. The net increases (decreases) to pre-tax income and adjusted pre-tax income as a result of the update of actuarial assumptions for the years ended December 31, 2022, 2021 and 2020 are shown in the following tables.

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The following table presents the decrease in pre-tax income resulting from the update of actuarial assumptions in the life insurance companies, by line item as reported in Results of Operations:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Premiums | $ - | $(41) | $ - |
| Policy fees | (3) | (74) | (106) |
| Interest credited to policyholder account balances | (15) | (50) | (6) |
| Amortization of deferred policy acquisition costs | (56) | (139) | 225 |
| Non deferrable insurance commissions | - | - | 15 |
| Policyholder benefits and losses incurred | 17 | 138 | (235) |
| Decrease in adjusted pre-tax income | (57) | (166) | (107) |
| Change in DAC related to net realized gains and losses | (19) | 57 | (44) |
| Net realized gains (losses) | 70 | (100) | 142 |
| Decrease in pre-tax income | $(6) | $(209) | $(9) |

The following table presents the increase (decrease) in adjusted pre-tax income resulting from the update of actuarial assumptions for the life insurance companies, by segment and product line:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Life and Retirement: |  |  |  |
| Individual Retirement |  |  |  |
| Fixed annuities | $(83) | $(274) | $(77) |
| Variable and indexed annuities | (3) | 4 | 2 |
| Total Individual Retirement | (86) | (270) | (75) |
| Group Retirement | 2 | (2) | 68 |
| Life Insurance | 24 | 106 | (101) |
| Institutional Markets | 3 | - | 1 |
| Total decrease in adjusted pre-tax income from update of assumptions | $(57) | $(166) | $(107) |

In 2022, adjusted pre-tax income included a net unfavorable update of $57 million, primarily in fixed annuities driven by the impact of higher interest rates on expected lapses.

In 2021, adjusted pre-tax income included a net unfavorable update of 166 million, primarily in fixed annuities driven by changes to earned rates causing spread compression partially offset by favorable updates to full surrender assumptions, and updates to the Life Insurance reserves for universal life with secondary guarantees and similar features (excluding base policy liabilities and embedded derivatives) model.

The updates related to the update of actuarial assumptions in each period are discussed by business segment below.

## Update of Actuarial Assumptions by Business Segment Impact to Adjusted Pre-tax Income (Loss)

### Individual Retirement

The annual update of actuarial assumptions resulted in net unfavorable impact to adjusted pre-tax income of Individual Retirement of $86 million and $270 million in 2022 and 2021, respectively.

In 2022, in fixed annuities, the impact of higher interest rates on expected lapses resulted in a net unfavorable impact of $83 million. In 2021, the update of estimated gross profit assumptions resulted in a net unfavorable impact of $274 million which reflected lower projected investment earnings.

In 2022, in variable and index annuities, the update of assumptions resulted in a net unfavorable impact of $3 million due to a small model refinement. In 2021, the update of estimated gross profit assumptions resulted in a net favorable impact of $4 million, driven by lower assumed lapses. These updates were largely offset by lower projected investment earnings.

### Group Retirement

In 2022, in Group Retirement, the update of assumptions resulted in a net favorable impact of $2 million. In 2021, the update of estimated gross profit assumptions resulted in a net unfavorable impact of $2 million, driven primarily in the variable annuities line by lower projected investment earnings, largely offset by resetting the reversion to the mean rate.

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## Life Insurance

In 2022, in Life Insurance, the update of actuarial assumptions resulted in a net favorable impact of $24 million, primarily driven by modeling refinements to reflect actual vs expected asset data related to calls and capital gains. In 2021, for the update of actuarial assumptions resulted in a net favorable impact of $106 million, primarily driven by updates to the reserves for universal life with secondary guarantees and similar features (excluding base policy liabilities and embedded derivatives), which was partially offset by lower projected investment earnings and model updates involving reinsurance.

## Institutional Markets

In 2022, in Institutional Markets, the update of actuarial assumptions resulted in a net favorable impact of $3 million, primarily driven by updates to our corporate- and bank-owned life insurance products.

## Variable Annuity Guaranteed Benefits and Hedging Results

Our Individual Retirement and Group Retirement businesses offer variable annuity products with GMWB riders that provide guaranteed living benefit features. The liabilities for GMWBs are accounted for as embedded derivatives and measured at fair value. The fair value of the embedded derivatives may fluctuate significantly based on market interest rates, equity prices, credit spreads, market volatility, policyholder behavior and other factors.

In addition to risk-mitigating features in our variable annuity product design, we have an economic hedging program designed to manage market risk from GMWB, including exposures to changes in interest rates, equity prices, credit spreads and volatility. The hedging program utilizes derivative instruments, including but not limited to equity options, futures contracts and interest rate swap and option contracts, as well as fixed maturity securities.

*For additional information on market risk management related to these product features, see Enterprise Risk Management - Insurance Risks - Life and Retirement Companies’ Key Risks - Variable Annuity, Fixed Index Annuity and Index Universal Life Risk Management and Hedging Programs.*

## Differences in Valuation of Embedded Derivatives and Economic Hedge Target

The variable annuity hedging program utilizes an economic hedge target, which represents an estimate of the underlying economic risks in our GMWB riders. The economic hedge target differs from the GAAP valuation of the GMWB embedded derivatives, creating volatility in our net income (loss) primarily due to the following:

- The economic hedge target includes 100 percent of rider fees in present value calculations; the GAAP valuation reflects only those fees attributed to the embedded derivative such that the initial value at contract issue equals zero;
- The economic hedge target uses best estimate actuarial assumptions and excludes explicit risk margins used for GAAP valuation, such as margins for policyholder behavior, mortality, and volatility; and
- The economic hedge target excludes the non-performance or “own credit” risk adjustment used in the GAAP valuation, which reflects a market participant’s view of our claims-paying ability by incorporating a different spread (the NPA spread) to the curve used to discount projected benefit cash flows. Because the GAAP valuation includes the NPA spread and other explicit risk margins, it has different sensitivities to movements in interest rates and other market factors, and to changes from actuarial assumption updates, than the economic hedge target. *For additional information on our valuation methodology for embedded derivatives within policyholder contract deposits, see Note 4 to the Consolidated Financial Statements.*

The market value of the hedge portfolio compared to the economic hedge target at any point in time may be different and is not expected to be fully offsetting. In addition to the derivatives held in conjunction with the variable annuity hedging program, the Life and Retirement companies have cash and invested assets available to cover future claims payable under these guarantees. The primary sources of difference between the change in the fair value of the hedging portfolio and the economic hedge target include:

- Basis risk due to the variance between expected and actual fund returns, which may be either positive or negative;
- Realized volatility versus implied volatility;
- Actual versus expected changes in the hedge target driven by assumptions not subject to hedging, particularly policyholder behavior; and
- Risk exposures that we have elected not to explicitly or fully hedge.

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The following table presents a reconciliation between the fair value of the GAAP embedded derivatives and the value of our economic hedge target:

| (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Reconciliation of embedded derivatives and economic hedge target: |  |  |
| Embedded derivative liability | $677 | $2,472 |
| Exclude non-performance risk adjustment | (2,362) | (2,508) |
| Embedded derivative liability, excluding NPA | 3,039 | 4,980 |
| Adjustments for risk margins and differences in valuation | (2,142) | (2,172) |
| Economic hedge target liability | $897 | $2,808 |

#### Impact on Pre-tax Income (Loss)

The impact on our pre-tax income (loss) of variable annuity guaranteed living benefits and related hedging results includes changes in the fair value of the GMWB embedded derivatives, and changes in the fair value of related derivative hedging instruments, both of which are recorded in Net realized gains (losses). Realized gains (losses), as well as net investment income from changes in the fair value of fixed maturity securities used in the hedging program, are excluded from adjusted pre-tax income of Individual Retirement and Group Retirement.

The change in the fair value of the embedded derivatives and the change in the value of the hedging portfolio are not expected to be fully offsetting, primarily due to the differences in valuation between the economic hedge target, the GAAP embedded derivatives and the fair value of the hedging portfolio, as discussed above. When corporate credit spreads widen, the change in the NPA spread generally reduces the fair value of the embedded derivative liabilities, resulting in a gain, and when corporate credit spreads narrow or tighten, the change in the NPA spread generally increases the fair value of the embedded derivative liabilities, resulting in a loss. In addition to changes driven by credit market-related movements in the NPA spread, the NPA balance also reflects changes in business activity and in the net amount at risk from the underlying guaranteed living benefits.

The following table presents the net increase (decrease) to consolidated pre-tax income (loss) from changes in the fair value of the GMWB embedded derivatives and related hedges, excluding related DAC amortization:

| Years Ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| (in millions) |  |  |  |
| Change in fair value of embedded derivatives, excluding updated of actuarial assumptions and NPA | $2,671 | $2,289 | $(1,145) |
| Change in fair value of variable annuity hedging portfolio: |  |  |  |
| Fixed maturity securities* | 30 | 57 | 44 |
| Interest rate derivative contracts | (2,188) | (600) | 1,342 |
| Equity derivative contracts | 805 | (1,217) | (679) |
| Change in fair value of variable annuity hedging portfolio | (1,353) | (1,760) | 707 |
| Change in fair value of embedded derivatives, excluding updated of actuarial assumptions and NPA, net of hedging portfolio | 1,318 | 529 | (438) |
| Change in fair value of embedded derivatives due to NPA spread | 915 | (68) | 50 |
| Change in fair value of embedded derivatives due to change in NPA volume | (1,061) | (383) | 404 |
| Change in fair value of embedded derivatives due to update of actuarial assumptions | 79 | (60) | 194 |
| Total change due to update of actuarial assumptions and NPA | (67) | (511) | 648 |
| Net impact on pre-tax income (loss) | $1,251 | $18 | $210 |
| Impact to Condensed Consolidated Income Statement |  |  |  |
| Net investment income, net of related interest credited to policyholder account balances | $30 | $57 | $44 |
| Net realized gains (losses) | 1,221 | (39) | 166 |
| Net impact on pre-tax income (loss) | $1,251 | $18 | $210 |
| Net change in value of economic hedge target and related hedges |  |  |  |
| Net impact on economic gains (losses) | $714 | $109 | $295 |

\* The change in fair value of available-for-sale fixed maturity securities recognized as a component of other comprehensive income (loss) were losses of $527 million in 2022 due to higher interest rates and wider credit spreads. The change in fair value of available-for-sale fixed maturity securities recognized as a component of other comprehensive income (loss) were losses of $122 million in 2021, due to higher interest rates. The change in fair value of available-for-sale fixed maturity securities recognized as a component of other comprehensive income (loss) were gains of $217 million in 2020.

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The twelve-month period ended December 31, 2022 net impact on pre-tax income (loss) of $1.3 billion resulted from:

- $1.3 billion gain in the fair value of embedded derivatives excluding NPA, net of the hedging portfolio was driven by increases in interest rates, partially offset by lower equity markets.
- $146 million loss due to NPA was driven by the impact of higher interest rates that resulted in NPA volume losses from lower expected GMWB payments, partially offset by a widening of the NPA credit spread.
- $79 million gain from the review and update of actuarial assumptions.

On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In the twelve months ended December 31, 2022, we had a net mark-to-market gain of approximately $714 million from our hedging activities related to our economic hedge target primarily driven by widening credit spreads and update of actuarial assumptions.

The twelve-month period ended December 31, 2021 net impact on pre-tax income (loss) of $18 million resulted from:

- $529 million gain in the fair value of embedded derivatives excluding NPA, net of the hedging portfolio was driven by increases in interest rates and higher equity markets.
- $451 million loss due to NPA was driven by a tightening of the NPA credit spread, and the impact of higher interest rates that resulted in NPA volume losses from lower expected GMWB payments.
- $60 million loss from the review and update of actuarial assumptions

On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In the twelve months ended December 31, 2021, we had a net mark-to-market gain of approximately $109 million from our hedging activities related to our economic hedge target primarily driven by higher equity markets, partially offset by losses from the review and update of actuarial assumptions.

### Change in Economic Hedge Target

The decrease in the economic hedge target liability in 2022 was primarily driven by higher interest rates and widening credit spreads, offset by lower equity markets. The decrease in the economic hedge target liability in 2021 was primarily driven higher interest rates and rising equity markets, partially offset by losses from the review and update of actuarial assumptions.

### Change in Fair Value of the Hedging Portfolio

The changes in the fair value of the economic hedge target and, to a lesser extent, the embedded derivative valuation under GAAP, were offset in part by the following changes in the fair value of the variable annuity hedging portfolio:

- Changes in the fair value of interest rate derivative contracts, which included swaps, swaptions and futures, resulted in losses driven by higher interest rates in the years ended December 31, 2022 and 2021.
- Changes in the fair value of equity derivative contracts, which included futures and options, resulted in gains in 2022 driven by the decline in the equity market compared to losses in 2021, primarily due to gains in the equity market.
- Changes in the fair value of fixed maturity securities, primarily corporate bonds, are used as a capital-efficient way to economically hedge interest rate and credit spread-related risk. The change in the fair value of the corporate bond hedging program in 2022 reflected losses due to increases in interest rates and widening credit spreads. The change in the fair value of the corporate bond hedging program in 2021 reflected losses due to higher interest rates.

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# DAC

The following table summarizes the major components of the changes in DAC, including VOBA, within the Life and Retirement companies:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Balance, beginning of year | $8,086 | $7,316 | $8,119 |
| Initial allowance upon the adoption of the current expected credit loss accounting standard | - | - | 15 |
| Acquisition costs deferred | 1,001 | 1,010 | 910 |
| Amortization expense: |  |  |  |
| Update of assumptions included in adjusted pre-tax income | (56) | (139) | 225 |
| Related to realized gains and losses | (302) | (33) | 8 |
| All other operating amortization | (1,074) | (834) | (856) |
| Increase (decrease) in DAC due to foreign exchange | (77) | (10) | 18 |
| Change related to unrealized depreciation (appreciation) of investments | 5,633 | 776 | (1,123) |
| Balance, end of year (a) | $13,211 | $8,086 | $7,316 |

(a) DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments was $10.0 billion, $10.5 billion and $10.5 billion at December 31, 2022, 2021 and 2020, respectively.

The net impact to DAC amortization from the update of actuarial assumptions for estimated gross profits, including those reported within change in DAC related to net realized gains (losses), represented one percent and one percent of the DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments as of December 31, 2022 and 2021, respectively.

# **Reversion to the Mean**

The projected separate account returns on variable annuities use a reversion-to-the-mean (RTM) approach, under which we consider historical returns and adjust projected returns over an initial future period of five years so that returns converge to the long-term expected rate of return. As of December 31, 2022 and 2021, we assumed a 7% long-term expected rate of return. The criterion to review the five-year RTM anchor date is for the current RTM rate to be less than zero or more than double the long-term growth rate assumption for three consecutive months. When the anchor date is reset, the RTM rate is determined to be approximately one-half of the long-term rate. Should market returns be significantly out of line with our expectations there are caps and floors that if breached would trigger a reassessment of the long-term rate and the RTM rate.

*For additional discussion of assumptions related to our reversion to the mean methodology, see - Update of Actuarial Assumptions and Models and - Critical Accounting Estimates - Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products.*

# **DAC and Reserves Related to Unrealized Appreciation of Investments**

DAC and Reserves for universal life insurance and investment-oriented products are adjusted at each balance sheet date to reflect the change in DAC, unearned revenue, and benefit reserves with an offset to Other comprehensive income (loss) (OCI) as if securities available for sale had been sold at their stated aggregate fair value and the proceeds reinvested at current yields (changes related to unrealized appreciation (depreciation) of investments). Similarly, for long-duration traditional products, significant unrealized appreciation of investments in a sustained low interest rate environment may cause additional future policy benefit liabilities with an offset to OCI to be recorded.

Changes related to unrealized appreciation (depreciation) of investments related to DAC and unearned revenue generally move in the opposite direction of the change in unrealized appreciation of the available for sale securities portfolio, reducing the reported DAC and unearned revenue balance when market interest rates decline. Conversely, changes related to unrealized appreciation (depreciation) of investments related to benefit reserves generally move in the same direction as the change in unrealized appreciation of the available for sale securities portfolio, increasing reported future policy benefit liabilities balance when market interest rates decline.

Market conditions in 2022 drove a $40.2 billion decrease in the unrealized appreciation (depreciation) of the available for sale fixed maturity securities portfolio held to support the Life and Retirement businesses at December 31, 2022 compared to December 31, 2021. At December 31, 2022, the changes related to unrealized appreciation (depreciation) of investments reflected increases in amortized balances including DAC and unearned revenue reserves, while accrued liabilities such as policyholder benefit liabilities decreased $3.0 billion from December 31, 2021. Market conditions in the year ended December 31, 2021 drove a $7.4 billion decrease in the unrealized appreciation of available-for-sale fixed maturity securities portfolios held to support our insurance liabilities at December 31, 2021 compared to December 31, 2020. At December 31, 2021, the changes related to unrealized appreciation (depreciation) of investments reflected increases in amortized balances including DAC and unearned revenue reserves, while accrued liabilities such as policyholder benefit liabilities decreased $0.9 billion from December 31, 2020.

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## Reserves

The following table presents a rollforward of insurance reserves by operating segments for Life and Retirement, including future policy benefits, policyholder contract deposits, other policyholder funds, and separate account liabilities, as well as Retail Mutual Funds and Group Retirement mutual fund assets under administration:

| Years Ended December 31, (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Individual Retirement |  |  |  |
| Balance at beginning of year, gross | $148,492 | $148,837 | $144,753 |
| Premiums and deposits | 15,120 | 13,916 | 10,370 |
| Surrenders and withdrawals | (9,936) | (11,368) | (12,023) |
| Death and other contract benefits | (2,774) | (3,138) | (3,075) |
| Subtotal | 150,902 | 148,247 | 140,025 |
| Change in fair value of underlying assets and reserve accretion, net of policy fees | (14,085) | 5,457 | 7,285 |
| Cost of funds (a) | 1,804 | 1,683 | 1,675 |
| Other reserve changes | (1,054) | 114 | (148) |
| Less the sale of retail mutual fund assets | - | (7,009) | - |
| Balance at end of year | 137,567 | 148,492 | 148,837 |
| Reinsurance ceded | (305) | (308) | (313) |
| Total Individual Retirement insurance reserves and mutual fund assets | $137,262 | $148,184 | $148,524 |
| Group Retirement |  |  |  |
| Balance at beginning of year, gross | $118,492 | $110,651 | $102,049 |
| Premiums and deposits | 7,942 | 7,766 | 7,496 |
| Surrenders and withdrawals | (10,146) | (10,097) | (8,696) |
| Death and other contract benefits | (907) | (877) | (740) |
| Subtotal | 115,381 | 107,443 | 100,109 |
| Change in fair value of underlying assets and reserve accretion, net of policy fees | (14,530) | 10,240 | 9,644 |
| Cost of funds (a) | 1,129 | 1,138 | 1,125 |
| Other reserve changes | 112 | (329) | (227) |
| Balance at end of year | 102,092 | 118,492 | 110,651 |
| Total Group Retirement insurance reserves and mutual fund assets | $102,092 | $118,492 | $110,651 |
| Life Insurance |  |  |  |
| Balance at beginning of year, gross | $28,415 | $27,998 | $27,397 |
| Premiums and deposits | 4,236 | 4,229 | 4,046 |
| Surrenders and withdrawals | (552) | (487) | (484) |
| Death and other contract benefits | (513) | (592) | (557) |
| Subtotal | 31,586 | 31,148 | 30,402 |
| Change in fair value of underlying assets and reserve accretion, net of policy fees | (1,249) | (808) | (1,133) |
| Cost of funds (a) | 342 | 353 | 373 |
| Other reserve changes | (4,008) | (2,278) | (1,644) |
| Balance at end of year | 26,671 | 28,415 | 27,998 |
| Reinsurance ceded | (1,566) | (1,554) | (1,437) |
| Total Life Insurance reserves | $25,105 | $26,861 | $26,561 |
| Institutional Markets |  |  |  |
| Balance at beginning of year, gross | $30,264 | $27,342 | $23,673 |
| Premiums and deposits | 4,325 | 4,948 | 4,846 |
| Surrenders and withdrawals | (611) | (1,821) | (1,788) |
| Death and other contract benefits | (1,134) | (887) | (886) |
| Subtotal | 32,844 | 29,582 | 25,845 |
| Change in fair value of underlying assets and reserve accretion, net of policy fees | (79) | 741 | 823 |
| Cost of funds (a) | 320 | 274 | 304 |
| Other reserve changes | (431) | (333) | 370 |
| Balance at end of year | 32,654 | 30,264 | 27,342 |
| Reinsurance ceded | (44) | (45) | (45) |
| Total Institutional Markets reserves | $32,610 | $30,219 | $27,297 |

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ITEM 7 | Insurance Reserves

| (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Total insurance reserves and mutual fund assets |  |  |  |
| Balance at beginning of year, gross | $325,663 | $314,828 | $297,872 |
| Premiums and deposits | 31,623 | 30,859 | 26,758 |
| Surrenders and withdrawals | (21,245) | (23,773) | (22,991) |
| Death and other contract benefits | (5,328) | (5,494) | (5,258) |
| Subtotal | 330,713 | 316,420 | 296,381 |
| Change in fair value of underlying assets and reserve accretion, net of policy fees | (29,943) | 15,630 | 16,619 |
| Cost of funds (a) | 3,595 | 3,448 | 3,477 |
| Other reserve changes | (5,381) | (2,826) | (1,649) |
| Less the sale of retail mutual fund assets | - | (7,009) | - |
| Balance at end of year, excluding Fortitude Re reserves | 298,984 | 325,663 | 314,828 |
| Fortitude Re reserves (b) | 27,150 | 27,654 | 28,505 |
| Balance at end of year, including Fortitude Re reserves | 326,134 | 353,317 | 343,333 |
| Fortitude Re reinsurance ceded (b) | (27,150) | (27,654) | (28,505) |
| Reinsurance ceded | (1,915) | (1,907) | (1,795) |
| Total insurance reserves and mutual fund assets | $297,069 | $323,756 | $313,033 |

(a) Excludes amortization of deferred sales inducements.

(b) Includes amounts related to policies where AIG has partially ceded to other reinsurers and Fortitude Re.

# **Insurance reserves and Group Retirement mutual fund assets under administration, were comprised of the following balances:**

| (in millions) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Future policy benefits | $57,266 | $57,749 |
| Policyholder contract deposits | 158,966 | 156,844 |
| Other policyholder funds (a) | 1,015 | 833 |
| Separate account liabilities | 84,853 | 109,111 |
| Total insurance reserves | 302,100 | 324,537 |
| Mutual fund assets | 24,034 | 28,780 |
| Total insurance reserves and mutual fund assets | $326,134 | $353,317 |

(a) Excludes unearned revenue liability.

AIG | 2022 Form 10-K

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ITEM 7 | Liquidity and Capital Resources

# Liquidity and Capital Resources

## OVERVIEW

**Liquidity** refers to the ability to generate sufficient cash resources to meet the cash requirements of our business operations and payment obligations.

**Capital** refers to the long-term financial resources available to support the operation of our businesses, fund business growth, and cover financial and operational needs that arise from adverse circumstances. Our primary source of ongoing capital generation is derived from the profitability of our insurance subsidiaries. We must comply with numerous constraints on our capital positions. These constraints drive the requirements for capital adequacy at AIG and the individual businesses and are based on internally defined risk tolerances, regulatory requirements, rating agency and creditor expectations and business needs.

*For information regarding our liquidity risk framework, see Enterprise Risk Management - Risk Appetite, Limits, Identification and Measurement and Enterprise Risk Management - Liquidity Risk Management.*

We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations to policyholders, customers, creditors and debt-holders, including those arising from reasonably foreseeable contingencies or events. Nevertheless, some circumstances may cause our cash or capital needs to exceed projected liquidity or readily deployable capital resources.

*For information regarding risks associated with our liquidity and capital resources, see Part I, Item 1A. - Risk Factors - Liquidity, Capital and Credit.*

Depending on market conditions, regulatory and rating agency considerations and other factors, we may take various liability and capital management actions. Liability management actions may include, but are not limited to, repurchasing or redeeming outstanding debt, issuing new debt or engaging in debt exchange offers. Capital management actions may include, but are not limited to, issuing preferred stock, paying dividends to our shareholders on the AIG Common Stock, par value $2.50 per share (AIG Common Stock), paying dividends to the holders of our Series A 5.85% Non-Cumulative Perpetual Preferred Stock (Series A Preferred Stock), and repurchases of AIG Common Stock.

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ITEM 7 | Liquidity and Capital Resources

# LIQUIDITY AND CAPITAL RESOURCES HIGHLIGHTS

# SOURCES

# Liquidity to AIG Parent from Subsidiaries

During the twelve-month period ended December 31, 2022, our General Insurance companies distributed dividends of $1.9 billion to AIG Parent or applicable intermediate holding companies.

During the twelve-month period ended December 31, 2022, our Life and Retirement companies distributed $753 million of dividends to AIG Parent, of which $231 million were distributed to AIG Parent in its capacity as a public company shareholder of Corebridge after its IPO.

# Senior Note Offering 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 Parent in November 2021 (the Intercompany Note).

# Hybrid Offering of Corebridge

On August 23, 2022, Corebridge issued $1.0 billion aggregate principal amount of 6.875% Fixed-to-Fixed Reset Rate Junior Subordinated Notes due 2052, the proceeds of which were used to repay a portion of the Intercompany Note.

# Delayed Draw Term Loan Facility of Corebridge

On September 15, 2022, Corebridge borrowed $1.5 billion under its $1.5 billion 3-Year Delayed Draw Term Loan Agreement, a portion of which were used to repay the remainder of the Intercompany Note.

# Corebridge Initial Public Offering

On September 19, 2022, AIG closed on the initial public offering of 80 million shares of Corebridge common stock at a public offering price of $21.00 per share. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $1.7 billion.

# USES

# General Borrowings

During the twelve-month period ended December 31, 2022, $9.4 billion of debt categorized as general borrowings matured, was repaid or redeemed as follows:

- Redeemed €750 million aggregate principal amount of our 1.500% Notes due 2023 for a redemption price of 101.494 percent of the principal amount, plus accrued and unpaid interest.
- Repurchased, through cash tender offers, approximately $6.8 billion aggregate principal amount of certain notes and debentures issued or guaranteed by AIG for an aggregate purchase price of approximately $7.1 billion.
- Redeemed $750 million aggregate principal amount of our 3.900% Notes Due 2026 for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest.
- Redeemed approximately $522 million aggregate principal amount of our 3.750% Notes Due 2025 for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest.
- Redeemed $500 million aggregate principal amount of our 2.500% Notes Due 2025 for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest.

We made interest payments on our general borrowings totaling $729 million during the twelve-month period ended December 31, 2022 including interest payments made by AIG Parent on AIG Parent-issued debt instruments of $710 million.

# Dividends

During the twelve-month period ended December 31, 2022:

- We made cash dividend payments of $365.625 per share on AIG's Series A Preferred Stock totaling $29 million.
- We made cash dividend payments of $0.32 per share on AIG Common Stock totaling $982 million.
- Corebridge made cash dividend payments of $124 million in the aggregate to its shareholders other than AIG, of which $66 million was paid after its IPO.

# Repurchases of Common Stock

During the twelve-month period ended December 31, 2022, AIG Parent repurchased approximately 90 million shares of AIG Common Stock, for an aggregate purchase price of approximately $5.1 billion.

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ITEM 7 | Liquidity and Capital Resources

## ANALYSIS OF SOURCES AND USES OF CASH

### Operating Cash Flow Activities

Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits. The ability of insurance companies to generate positive cash flow is affected by the frequency and severity of losses under their insurance policies, policy retention rates, effective management of our investment portfolio and operating expense discipline.

Interest payments totaled $1.1 billion and $1.3 billion in the twelve-month periods ended December 31, 2022 and 2021. Excluding interest payments, AIG had operating cash inflows of $5.3 billion in the twelve-month period ended December 31, 2022 compared to operating cash inflows of $7.6 billion in the prior year.

### Investing Cash Flow Activities

Net cash used in investing activities in the twelve-month period ended December 31, 2022 was $3.6 billion compared to net cash used in investing activities of $3.3 billion in the prior year. Net cash used in investing activities in 2021 included approximately $4.7 billion of proceeds from divestitures.

### Financing Cash Flow Activities

Net cash used in financing activities in the twelve-month period ended December 31, 2022 totaled $676 million, reflecting:

- • \$982 million to pay a dividend of \$0.32 per share per quarter on AIG Common Stock;
- • \$29 million to pay a dividend of \$365.625 per share per quarter on AIG's Series A Preferred Stock;
- • \$124 million paid by Corebridge in the form of cash dividends to shareholders other than AIG, of which \$66 million paid after its IPO;
- • \$5.2 billion to repurchase approximately 90 million shares of AIG Common Stock;
- • \$1.5 billion inflow from drawdown by Corebridge on its 3-Year Delayed Draw Term Loan Agreement;
- • \$2.0 billion in net outflows from the issuance and repayment of long-term debt; and
- • \$318 million in net outflows from the issuance and repayment of debt of consolidated investment entities.

Net cash used in financing activities in the twelve-month period ended December 31, 2021 totaled $3.7 billion reflecting:

- • \$1.1 billion to pay a dividend of \$0.32 per share per quarter on AIG Common Stock;
- • \$29 million to pay a dividend of \$365.625 per share per quarter on AIG's Series A Preferred Stock;
- • \$2.6 billion to repurchase approximately 50 million shares of AIG Common Stock;
- • \$4.0 billion in net outflows from the issuance, repayment and cash tender of long-term debt;
- • \$156 million in net outflows from the issuance and repayment of debt of consolidated investment entities; and
- • \$2.2 billion in net inflows from the sale of a 9.9 percent equity interest in Corebridge to an affiliate of Blackstone.

*For information regarding cash flow activities for the year ended December 31, 2020, see Part II, Item 7. MD&A - Liquidity and Capital Resources - Analysis of Sources and Uses of Cash of our 2021 Annual Report.*

## LIQUIDITY AND CAPITAL RESOURCES OF AIG PARENT AND SUBSIDIARIES

### AIG Parent

As of December 31, 2022, AIG Parent and applicable intermediate holding companies had approximately $8.2 billion in liquidity sources held in the form of cash and short-term investments, and also includes AIG Parent's committed, revolving syndicated credit facility of $4.5 billion. As of December 31, 2021, AIG Parent and applicable intermediate holding companies had approximately $15.2 billion in liquidity sources held in the form of cash and short-term investments and publicly traded, investment grade rated fixed maturity securities, and also includes AIG Parent's committed, revolving syndicated credit facility of $4.5 billion. Following the initial public offering of Corebridge, Corebridge liquidity, including its loan facilities, is no longer reflected in AIG Parent's liquidity. As a public company shareholder of Corebridge, AIG receives its pro rata share of dividends paid by Corebridge on Corebridge common stock after its IPO. AIG Parent's primary sources of liquidity are dividends, distributions, loans and other payments from subsidiaries and credit facilities. AIG Parent's primary uses of liquidity are for debt service, capital and liability management, operating expenses and dividends on AIG Common Stock and Series A Preferred Stock.

We expect to access the debt and preferred equity markets from time to time to meet funding requirements as needed.

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