American International Group, Inc. First Quarter 2013 Results - - PowerPoint PPT Presentation

American International Group, Inc.

First Quarter 2013 Results Conference Call Presentation May 3, 2013

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Cautionary Statement Regarding Projections and Other Information About Future Events

This document and the remarks made within this presentation may include, and officers and representatives of American International Group, Inc. (AIG) may from time to time make, projections, goals, assumptions and statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These projections, goals, assumptions and statements are not historical facts but instead represent only AIG’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG’s control. These projections, goals, assumptions and statements include statements preceded by, followed by or including words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “view,” “target” or “estimate”. It is possible that AIG’s actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG’s actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include: changes in market conditions; the occurrence of catastrophic events, both natural and man-made; significant legal proceedings; the timing and applicable requirements of any new regulatory framework to which AIG is subject as a savings and loan holding company and if such a determination is made, as a non-bank systemically important financial institution; concentrations in AIG’s investment portfolios; actions by credit rating agencies; judgments concerning casualty insurance underwriting and insurance liabilities; judgments concerning the recognition of deferred tax assets; and such other factors as are discussed throughout Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in AIG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and in Part I, Item 1A. Risk Factors and in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of AIG’s Annual Report on Form 10-K for the year ended December 31, 2012. AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. This document and the remarks made orally may also contain certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP measures in accordance with Regulation G is included in the First Quarter 2013 Financial Supplement available in the Investor Information section of AIG's corporate website, www.aig.com.

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First Quarter 2013 Key Themes

Highlights: Noteworthy Items Liquidity and Capital

• Parent liquidity of $15.0 billion
• Dividends and loan repayments of $1.3 billion from AIG Life and Retirement
• $2.1 billion in parent company liability management ($1.1 billion hybrid call and $1.0 billion

in tender offers; annual interest savings of approximately $165 million) AIG Property Casualty

• Operating income growth driven by improved underwriting and strong investment returns
• Accident year loss ratio, as adjusted, of 63.2 continues to improve
• Positive rate change, with Global Commercial rates up 4.2% (+7.4% in U.S.)
• NPW growth of 4% excluding the impact of reinsurance agreements and foreign exchange
• Modest CAT losses of $41 million and favorable prior year development of $52 million
• Expenses reflect business mix shift and investments in people, processes, and technology

Mortgage Guaranty

• Earnings reflects new business growth (47% of earned premiums generated since 2009)
• Growth in new insurance written (up 63%* from 1Q12) with consistently high quality risks
• Delinquency ratio declined 90 bps from 4Q12 to 7.9%

AIG Life and Retirement

• Strong equity markets drive improved investment returns and favorable impact on fee-

based businesses

• Continued active spread management improves earnings
• Variable annuity deposits up 31% from 1Q12
• Continued impact of low interest rates on base yields and fixed annuity sales

* Domestic first-lien

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First Quarter ($ in millions, except per share amounts) 2012 2013 Inc. (Dec.) Revenues $17,497 $15,888 (9%) Net income attributable to AIG 3,208 2,206 (31%) After-tax operating income attributable to AIG $3,046 $1,982 (35%) Diluted earnings per common share: Income from continuing operations $1.68 $1.43 (15%) Income from discontinued operations $0.03 $0.06 100% After-tax operating income attributable to AIG $1.62 $1.34 (17%) Book value per common share $57.68 $67.41 17% Book value per common share - Ex. AOCI $53.11 $59.39 12% ROE – After-tax operating income(1) 12.8% 9.2%

Financial Highlights

1) Computed as Annualized After-tax operating income divided by Average AIG Shareholders' equity, excluding AOCI.

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After-tax Operating Income

First Quarter ($ in millions, except per share amounts) 2012 2013 Insurance operations AIG Property Casualty $1,043 $1,589 AIG Life and Retirement 1,311 1,394 Mortgage Guaranty (reported in Other) 8 41 Total Insurance Operations 2,362 3,024 Direct Investment Book (156) 329 Global Capital Markets 92 227 Change in fair value of AIA (including realized gain) 1,795

• Change in fair value of Maiden Lane III

1,252

• Interest expense

(381) (397) Corporate expenses and other (252) (322) Pre-tax operating income attributable to AIG 4,712 2,861 Income tax expense (1,425) (854) Noncontrolling interest – Treasury (208)

• Other noncontrolling interest

(33) (25) After-tax operating income attributable to AIG $3,046 $1,982 After-tax operating income per diluted common share $1.62 $1.34

Operating results benefit from strong investment returns and modest catastrophe losses.

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$57.87 $59.39 $8.51 $8.02 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

• Dec. 31, 2012
• Mar. 31, 2013

AOCI BVPS, ex AOCI $98.0 $99.5 $9.4 $7.4 $16.1 $15.6 $0.7 $0.7

• Dec. 31, 2012
• Mar. 31, 2013

Non-redeemable noncontrolling interests Financial Debt Hybrids Common Equity

Strong Capital Position

Book Value Per Share Capital Structure

$66.38

1) Includes AIG Loans, Mortgages, Notes and Bonds Payable, AIGLH Notes and Bonds Payable, and Liabilities connected to the trust preferred stock. 2) The inclusion of fleet RBC measures is intended solely for the information of investors and is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities. (1)

($ in billions, except per share data) Risk Based Capital Ratios(2) December 31, AIG Property Casualty AIG Life and Retirement 2011 430% 520% 2012 443% 532% $124.1 Leverage Ratios: 2012 2013 Financial Debt + Hybrids / Capitalization 20.5% 18.7% Financial Debt / Capitalization 12.9% 12.7% $67.41 $123.2

Outstanding borrowings reflect first quarter hybrid call and tender offers.

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$519 $75 $902 $807 $440 200 400 600 800 1,000 1,200 1,400 1,600 2Q12 3Q12 4Q12 1Q13 AIG Property Casualty AIG Life and Retirement $12.6 $9.1 $2.3 $3.0 $3.0 $0.5 $0.5

• Dec. 31,

2012

• Mar. 31,

2013 Available capacity under Contingent Liquidity Facility Available capacity under Syndicated Credit Facility Unencumbered Fixed Maturity Securities Cash & Short-term Investments

Financial Flexibility – A Source of Strength

Parent Liquidity Insurance Company Distributions

($ in millions) ($ in billions) $1,326 $1,342

• Annual distributions expected to be $4 – 5 billion.
• Parent liquidity of $15.0 billion, includes $5.5 billion allocated toward future maturities of liabilities and contingent liquidity stress

needs of the Direct Investment book and Global Capital Markets as of March 31, 2013.

• Unencumbered securities consist of publicly traded intermediate-term investment grade rated fixed maturity securities. Fixed maturity

securities consist of U.S. government and government sponsored entities securities, U.S. agency mortgage-backed securities, and corporate and municipal bonds.

Parent liquidity balance reflects subsidiary distributions and liability management actions during the quarter.

$16.1 $15.0 $1,349

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AIG Property Casualty – Financial Results

Global Combined Ratios

Calendar Year Accident Year, as adjusted(1)

1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting.

($ in millions) 1Q12 1Q13 Net premiums written $8,820 $8,437 Net premiums earned 8,688 8,558 Underwriting income (loss) (180) 231 Net investment income 1,223 1,358 Operating income $1,043 $1,589

• The accident year loss ratio, as adjusted, continued to improve, as a result of the shift to higher value business, enhanced risk

selection tools, and improved pricing.

• The decline in net premiums written reflects the impact of recognizing ceded premiums written under excess of loss reinsurance

agreements at contract inception rather than ratably over the contract period, the timing of a catastrophe bond issued in 1Q13 and the negative effect of foreign exchange, which was largely driven by the strengthening of the U.S dollar against the Yen. NPW growth was 4% excluding these items.

• Net investment income benefited from strong alternative returns and gains on fair value option securities.

Operating results demonstrate continued execution of strategic initiatives.

68.0 63.3 66.3 63.2 20.2 19.7 20.2 19.7 13.9 14.3 13.9 14.3 20 40 60 80 100 120 1Q12 1Q13 1Q12 1Q13 Loss Ratio Acquisition Ratio GOE Ratio 102.1 100.4 97.3 97.2

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$2,352 $2,244 $972 $683 $990 $972 $909 $1,004 1,000 2,000 3,000 4,000 5,000 6,000 1Q12 1Q13 Casualty Property Specialty Financial lines 72.3 64.9 70.3 65.4 18.0 16.3 18.0 16.3 11.4 11.0 11.4 11.0 20 40 60 80 100 120 1Q12 1Q13 1Q12 1Q13 Loss Ratio Acquisition Ratio GOE Ratio

Commercial Insurance – Underwriting Results

Calendar Year Accident Year, as adjusted(1) 101.7

1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting.

Combined Ratios Commercial results reflect business mix shift, enhanced risk selection, and price increases.

99.7

Accident Year Loss Ratio, as adjusted(1)

71.3 73.7 76.9 70.3 67.3 70.8 66.4 65.4 60 64 68 72 76 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Net Premiums Written

($ in millions) $5,223 $4,903

• Commercial Insurance continued to focus on growing higher

value, profitable lines of business and geographies.

• Commercial Insurance rates increased +4.2% (+7.4% for

the U.S.), led by U.S. Property at +8.9% and U.S. Workers’ Compensation at +8.3%.

• Commercial NPW grew 3.8% excluding the negative effect
• f recognizing ceded premiums written under excess of loss

reinsurance agreements at contract inception and the timing

• f a catastrophe bond issued in 1Q13. These items

impacted NPW for the Property line of business. 92.2 92.7

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$1,807 $1,793 $1,790 $1,739 1,000 2,000 3,000 4,000 1Q12 1Q13 Accident & Health Personal Lines

Consumer Insurance – Underwriting Results

Combined Ratios Consumer continues to implement global growth strategies across multiple distribution channels. Accident Year Loss Ratio, as adjusted(1)

58.1 57.8 58.4 58.8 23.7 24.9 23.7 24.9 14.9 15.7 14.9 15.7 20 40 60 80 100 120 1Q12 1Q13 1Q12 1Q13 Loss Ratio Acquisition Ratio GOE Ratio 59.1 58.9 57.7 58.4 59.1 57.7 58.0 58.8 56 57 58 59 60 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 Calendar Year Accident Year, as adjusted(1) 96.7 97.0

Net Premiums Written

($ in millions) $3,597 $3,532

• Consumer Insurance represented 42% of total AIG Property

Casualty NPW in 1Q13.

• Consumer Insurance NPW grew by 4.2% from the year ago

quarter excluding reinsurance agreements and foreign exchange.

• Direct Marketing was 16% of Consumer NPW in 1Q13.

1) Combined ratio and loss ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments and the impact of reserve discounting.

98.4 99.4

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AIG Property Casualty – Investments

December 31, 2012 Invested Assets - $131.4 billion(2)

1) Includes income/loss from mutual funds, real estate, equity method investments and mark-to-market gains and losses, net of investment expenses. 2) Includes intercompany invested assets that are eliminated in consolidation.

March 31, 2013 Invested Assets - $128.8 billion(2)

Returns driven by strong alternative investment income and gains on fair value option securities.

Obligations of states, municipalities, and political subdivisions 21%

Non-U.S. governments 17%

Corporate debt 27% Structured securities 11% Alternatives 10% Cash and short-term investments 6% Equities, Trading &

• ther

8% Obligations of states, municipalities, and political subdivisions 21%

Non-U.S. governments 16%

Corporate debt 27% Structured securities 14% Alternatives 10% Cash and short-term investments 5% Equities, Trading &

• ther

7%

Net investment income:

($ in millions) 2012 2013 Inc./(Dec.) Interest and dividends 990 $ 936 $ (5%) Alternative investments 130 258 98% Other, net(1) 103 164 59% Net investment income 1,223 $ 1,358 $ 11% Yield 3.90% 4.18% First Quarter

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Mortgage Guaranty – Improving Trends

11.4% 10.3% 9.6% 8.8% 7.9% 6.0% 8.0% 10.0% 12.0% 1Q12 2Q12 3Q12 4Q12 1Q13

Primary Delinquency (DQ) Ratio (%)

(in 000s) 1Q12 2Q12 3Q12 4Q12 1Q13 DQ Count 78 71 67 63 57

Growth in New insurance written reflects consistently high quality risks. $2.5 $6.5 $10.6

• 2.0

4.0 6.0 8.0 10.0 12.0 1Q11 1Q12 1Q13

New Insurance Written (NIW)(1)

($ in billions)

Vintage Year Average FICO Score LTV Ratio 2011 757 91 2012 758 91 1Q13 757 90

1Q13 operating income of $41 million reflects growing portion of premium from high quality business written since 2009 and declining losses from run-off of legacy exposure.

1) New insurance written – original principal balance of loans (First-lien).

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$191.7 $202.7 $56.0 $61.0 $17.3 $20.8 $12.4

• Mar. 31, 2012
• Mar. 31, 2013

Stable value wraps Group Ret. & Retail mutual funds Separate account General account

AIG Life and Retirement – Financial Results

• Operating income in 1Q13 reflects strong alternative

investment income, active net investment spread management and growth in assets under management.

• The year-ago quarter included a $246 million fair value

gain on Maiden Lane II.

• Total AUM of $296.9 billion increased 12% from a year

ago due to strong fixed income and equity markets and the novation of stable value wrap business from Global Capital Markets. Further novations are expected for the remainder of 2013.

• Net outflows in 1Q13 of $244 million improved from net
• utflows of $1.0 billion in 4Q12 reflecting improved net

flows for all lines of business.

• Variable annuity deposits increased 31% from 1Q12 to

$1.4 billion.

Assets Under Management Results reflect active management of net investment spreads and strong alternative investment income.

($ in billions) ($ in millions) 1Q12 1Q13 Premiums and deposits $5,560 $5,580 Premiums 614 620 Policy fees 584 615 Net investment income 2,885 2,877 Advisory fee and other income 304 393 Total revenues(1) 4,387 4,505 Benefits and expenses 3,076 3,111 Operating income $1,311 $1,394 $265.0 $296.9

1) Excluding net realized capital gains (losses).

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AIG Life and Retirement – Revised Segment Structure

Definitions: Guaranteed Investment Contracts (GICs), Corporate-Owned Life Insurance (COLI), Bank-Owned Life Insurance (BOLI), Private Placement Variable Life and Annuities (PPVUL & PPVA).

The chart below shows the products under the previous operating segments and their mapping to the new operating segments.

New Operating Segments Businesses Life Insurance and A&H Fixed Annuities Retirement Income Solutions Group Retirement Institutional Markets Products

Term Insurance Universal Life A&H Products Fixed Annuity Immediate Annuity Variable Annuity Indexed Annuity Retail Mutual Funds Brokerage Services Fixed Annuity Variable Annuity Mutual Funds Structured Settlements Terminal Funding Annuity GICs / COLI / BOLI PPVUL and PPVA Stable Value Wraps Group Benefits American General Western National Sun America Retirement Markets VALIC Other Term Insurance Universal Life A&H Products Fixed Annuity Variable Annuity Fixed Annuity Variable Annuity Mutual Funds GICs Retail Mutual Funds Brokerage Services Fixed Annuity Immediate Annuity Variable Annuity Indexed Annuity Indexed Annuity Structured Settlements Terminal Funding Annuity PPVUL and PPVA GICs/COLI/BOLI Stable Value Wraps Structured Settlements Structured Settlements Group Benefits

Previous Operating Segments Life Insurance Retirement Services Institutional Retail Previous Business Line Presentation

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$325 $326 $213 $242 200 400 600 800 1Q12 1Q13 Group Retirement Institutional Markets

AIG Life and Retirement – Retail & Institutional Results

• Retail operating income in 1Q13 benefitted from higher returns on alternative investments and mark to market securities, active

spread management and the favorable impact of the equity markets on the variable annuity business.

• Institutional operating income in 1Q13 also benefitted from active spread management and strong investment returns.
• 1Q12 results from Retail and Institutional included fair value gains on Maiden Lane II of $153 million and $93 million, respectively.

Retail Operating Income* Institutional Operating Income*

$213 $214 $380 $427 $166 $173 200 400 600 800 1,000 1Q12 1Q13 Life Insurance and A&H Fixed Annuities

• Ret. Inc. Solutions

$761 $821 ($ in millions) $550 $573 ($ in millions)

* Operating income is not separately presented for Brokerage services and retail mutual funds included in the Retail operating segment and Group benefits included in the Institutional operating segment.

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Net investment income:

($ in millions) 2012 2013 Inc./(Dec.) Interest and dividends 2,385 $ 2,307 $ (3%) Alternative investments 282 489 73% Change in fair value of Maiden Lane II 246

• NM

Call and tender income 12 51 325% Other, net(1) (40) 30 NM Net investment income 2,885 $ 2,877 $

• Base Yield(2)

5.50% 5.30% Total Yield(3) 6.51% 6.38% First Quarter

AIG Life and Retirement – Investments

1) Includes income/loss from mutual funds, real estate, equity method investments and mark-to-market gains and losses, net of investment expenses. 2) Includes the investment return on surplus other than alternative investment or yield enhancement activities. Quarterly results are annualized. 3) Represents the base yields and the incremental effect to base yield on investments in hedge funds, private equity funds, gains on Maiden Lane II (in 2012) and income from calls and prepayment fees. Quarterly results are annualized. 4) Includes intercompany invested assets that are eliminated in consolidation.

December 31, 2012 Invested Assets - $205.3 billion(4) March 31, 2013 Invested Assets - $204.1 billion(4)

Investment performance driven by strong alternative investment returns.

Obligations of states, municipalities, and political subdivisions 2% Non-U.S. governments 2% Corporate debt 56% Structured securities 19% Alternatives 6% Loans 9% Cash and short-term investments 4% Equities, Trading &

• ther

2% Obligations of states, municipalities, and political subdivisions 2% Non-U.S. governments 2% Corporate debt 56% Structured securities 20% Alternatives 6% Loans 9% Cash and short-term investments 3% Equities, Trading &

• ther

2%

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AIG Life and Retirement – Base Yields and Spreads

Base Yields(1)

5.26% 5.31% 5.12% 5.12% 5.10% 5.19% 5.23% 5.01% 4.95% 4.85% 4.00% 4.40% 4.80% 5.20% 5.60% 6.00% 1Q12 2Q12 3Q12 4Q12 1Q13 Fixed Annuities Group Retirement

Base Net Investment Spreads(1)

2.13% 2.18% 1.97% 1.98% 2.19% 1.91% 1.96% 1.75% 1.69% 1.75% 1.00% 1.50% 2.00% 2.50% 3.00% 1Q12 2Q12 3Q12 4Q12 1Q13 Fixed Annuities Group Retirement

1) Includes the investment return on surplus other than alternative investment or yield enhancement activities.

• Base yields are impacted by the current interest rate environment.
• Continued disciplined spread management allowed net spreads to remain stable.
• At March 31, 2013, a total of 73% of fixed annuity and universal life account values are at contractual minimum guaranteed

crediting rates vs. 61% at December 31, 2012.

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Q&A

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Appendix

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Legacy AIGFP: What We’ve Accomplished

AIG will continue to de-risk the legacy AIGFP portfolio while ensuring the firm retains the maximum economic benefit possible.

Net Notional Exposures ($ in billions) Derivatives Book

• Dec. 31,

2008(1)

• Dec. 31,

2012

• Mar. 31,

2013 % Reduction 2008 – 2013 2012 – 2013 Market Derivatives ~1,450 101 98 93% 3% Multi-sector CDS ~13 4 4 69% 0% Corporate Arbitrage ~52 12 12 77% 0% Regulatory Capital CDS ~245 >99% 0% Stable Value Wraps ~40 10 8 80% 20% Total Legacy Derivatives(4) ~$1,800 $127 $122 93% 4%

1) 2008 net notional amounts are approximate. 2) The Gross Vega is calculated as the sum of all the individual positions’ absolute vegas as if each position is not hedged. Although AIGFP’s books are almost completely hedged on a net Vega basis, the Gross Vega measure helps monitor how well the volatility risk is being eliminated. The interest rate option vega denotes the change in value due to a 0.1% increase in normal volatility. For other derivatives (i.e., Equity, Commodity and FX option), vega denotes the change in value due to a 1% increase in lognormal volatility. 3) Gross ATE measures the impact of a three-notch downgrade. 2008 Gross ATE includes $1.3 billion attributable to GICs. 4) Excludes $15.4 billion and $16.5 billion of intercompany derivatives in 2013 and 2012, respectively.

35,200 1,600

• 10,000

20,000 30,000 40,000 2008 2013 1.25 0.01 0.5 1 1.5 2008 2013 10.4 0.2 5 10 15 2008 2013 99% Reduction 98% Reduction 95% Reduction Gross Vega ($ in billions)(2) Gross Additional Termination Events (ATE) ($ in billions)(3) Position Count

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Legacy AIGFP Derivatives: Largely Wound Down

Actively managing the portfolio for maximum profit contribution and with limited risk.

Type Estimated Average Life Description Market Derivatives 5.5 years AIG Derisking Activities and Portfolio Hedging - ~$73 billion:

• Bulk of risk related to interest rates, foreign exchange and equities has been hedged
• Derivatives primarily facilitate hedging of the assets and liabilities of the DIB program as well as affiliate companies’
• rdinary course risk management activity

8.1 years 3rd Party Client Trades - ~$25 billion:

• Aggregate Value at Risk on Market Derivatives is effectively zero at a 95% confidence level
• Third-party trades primarily intermediated and represent ~$25 billion of total remaining notional
• Bulk of remaining trades expected to remain until maturity as they have been intermediated to preserve economic

value or provide attractive funding Stable Value Wraps 5.2 years

• No material realized losses even through market stress of 2008
• Since the fourth quarter 2012, Stable Value Wraps with a notional value of $10 billion were novated to AIG Life &

Retirement and further novations are expected during the remainder of 2013 Multi-sector CDS 5.9 years

• $936 million profit contribution since 12/31/08
• Managed to retain significant future upside
• Where economics are compelling will continue to unwind trades

Corporate Arbitrage 2.9 years

• $1.92 billion profit contribution since 12/31/08
• Vast majority of notional has been intermediated to preserve economics while eliminating contingent liquidity
• Third-party credit review confirms no expected losses even in stress scenarios

Regulatory Capital CDS 0.9 years

• $251 million profit contribution since 12/31/08 on termination of related mezzanine and hedges
• Less than $30 million in total notional remains. Expected to terminate or completely amortize within one year