UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

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

For the quarterly period ended March 31, ~~2018~~2019

Commission File Number 1-8787

American International Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-2592361
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

175 Water Street, New York, New York	10038
(Address of principal executive offices)	(Zip Code)

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

________________

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

~~(Do not check if a~~

~~smaller reporting 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

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
Warrants (expiring January 19, 2021)	AIG WS	New York Stock Exchange
5.75% Series A-2 Junior Subordinated Debentures	AIG 67BP	New York Stock Exchange
4.875% Series A-3 Junior Subordinated Debentures	AIG 67EU	New York Stock Exchange
Stock Purchase Rights		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

As of ~~April 30, 2018,~~May 2, 2019, there were ~~897,683,367~~869,753,584 shares outstanding of the registrant’s common stock.

AMERICAN INTERNATIONAL GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

March 31, 20182019

FORM 10-Q
Item Number	Description		Page
Part I — Financial Information
ITEM 1	Condensed Consolidated Financial Statements		2
	Note 1.	Basis of Presentation	8
	Note 2.	Summary of Significant Accounting Policies	9
	Note 3.	Segment Information	1211
	Note 4.4	~~Fair Value Measurements~~Business Combination	1413
	Note 5.	~~Investments~~Fair Value Measurements	2813
	Note 6.	~~Lending Activities~~Investments	3727
	Note 7.	~~Variable Interest Entities~~Lending Activities	3936
	Note 8.	~~Derivatives and Hedge Accounting~~Variable Interest Entities	4038
	Note 9.	~~Insurance Liabilities~~Derivatives and Hedge Accounting	4439
	Note 10.	~~Contingencies, Commitments and Guarantees~~Insurance Liabilities	4643
	Note 11.	~~Equity~~Contingencies, Commitments and Guarantees	4945
	Note 12.	~~Earnings Per Share~~Equity	5247
	Note 13.	~~Employee Benefits~~Earnings Per Share	5351
	Note 14.	~~Income Taxes~~Employee Benefits	5452
	Note 15.	Income Taxes	53
	Note 16.	Information Provided in Connection with Outstanding Debt	5856
	Note 1617.	Subsequent Events	6260
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of
	Operations		6361
	•· Cautionary Statement Regarding Forward-Looking Information		6361
	•· Use of Non-GAAP Measures		6563
	•· Critical Accounting Estimates		6765
	•· Executive Summary		6865
	•· Consolidated Results of Operations		7672
	•· Business Segment Operations		8076
	•· Investments		~~107~~102
	•· Insurance Reserves		~~119~~114
	•· Liquidity and Capital Resources		~~127~~122
	•· Enterprise Risk Management		~~140~~134
	•· Regulatory Environment		~~147~~134
	•· Glossary		~~148~~135
	•· Acronyms		~~151~~138
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		~~152~~139
ITEM 4	Controls and Procedures		~~152~~139
Part II — Other Information
ITEM 1	Legal Proceedings		~~153~~140
ITEM 1A	Risk Factors		~~153~~140
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		~~153~~140
ITEM 4	Mine Safety Disclosures		~~153~~140
ITEM 6	Exhibits		~~154~~141
Signatures			~~155~~142

AIG | First Quarter ~~2018~~2019 Form 10-Q 1

TABLE OF CONTENTS

Part I – Financial Information

Item 1. | Fin ancial Statements

American International Group, Inc.

Condensed Consolidated Balance Sheets (unaudited)

	March 31,		December 31,		March 31,		December 31,
(in millions, except for share data)		2018		2017		2019		2018
Assets:
Investments:
Fixed maturity securities:
Bonds available for sale, at fair value (amortized cost: 2018 - $225,352; 2017 - $225,461)	$	233,914	$	238,992
Other bond securities, at fair value (See Note 5)		12,397		12,772
Equity Securities:
Common and preferred stock available for sale, at fair value (cost: 2017 - $1,305)		-		1,708
Other common and preferred stock, at fair value (See Note 5)		1,725		589
Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2018 - $0; 2017 - $5)		38,540		37,023
Other invested assets (portion measured at fair value: 2018 - $6,232; 2017 - $6,248)		21,183		20,822
Short-term investments, including restricted cash of 2018 - $47; 2017 - $58
(portion measured at fair value: 2018 - $3,094; 2017 - $2,615)		14,616		10,386
Bonds available for sale, at fair value (amortized cost: 2019 - $228,608; 2018 - $225,780)					$	238,201	$	229,391
Other bond securities, at fair value (See Note 6)						11,511		11,415
Equity Securities, at fair value (See Note 6)						841		1,253
Mortgage and other loans receivable, net of allowance						43,834		43,135
Other invested assets (portion measured at fair value: 2019 - $5,759; 2018 - $5,894)						19,343		19,341
Short-term investments, including restricted cash of $251 in 2019 and $142 in 2018
(portion measured at fair value: 2019 - $4,040; 2018 - $3,015)						11,133		9,674
Total investments		322,375		322,292		324,863		314,209

Cash		2,103		2,362		2,565		2,873
Accrued investment income		2,390		2,356		2,482		2,389
Premiums and other receivables, net of allowance		11,107		10,248		12,655		11,011
Reinsurance assets, net of allowance		34,744		33,024		40,558		38,172
Deferred income taxes		14,558		14,033		14,545		15,221
Deferred policy acquisition costs		11,631		10,994		12,128		12,694
Other assets, including restricted cash of $221 in 2018 and $317 in 2017
(portion measured at fair value: 2018 - $774; 2017 - $922)		9,646		10,194
Other assets, including restricted cash of $363 in 2019 and $343 in 2018
(portion measured at fair value: 2019 - $951; 2018 - $973)						14,308		13,568
Separate account assets, at fair value		90,589		92,798		88,818		81,847
Total assets	$	499,143	$	498,301	$	512,922	$	491,984
Liabilities:
Liability for unpaid losses and loss adjustment expenses	$	78,098	$	78,393	$	82,496	$	83,639
Unearned premiums		20,038		19,030		20,812		19,248
Future policy benefits for life and accident and health insurance contracts		44,895		45,432		46,508		44,935
Policyholder contract deposits (portion measured at fair value: 2018 - $3,711; 2017 - $4,150)		138,153		135,602
Policyholder contract deposits (portion measured at fair value: 2019 - $4,878; 2018 - $4,116)						145,380		142,262
Other policyholder funds		3,473		3,648		3,493		3,568
Other liabilities (portion measured at fair value: 2018 - $1,158; 2017 - $1,124)		26,921		26,050
Long-term debt (portion measured at fair value: 2018 - $2,820; 2017 - $2,888)		33,619		31,640
Other liabilities (portion measured at fair value: 2019 - $1,421; 2018 - $1,265)						27,546		24,636
Long-term debt (portion measured at fair value: 2019 - $2,263; 2018 - $2,213)						35,776		34,540
Separate account liabilities		90,589		92,798		88,818		81,847
Total liabilities		435,786		432,593		450,829		434,675
*Contingencies, commitments and guarantees (See Note 10***)
*Contingencies, commitments and guarantees (See Note 11***)

AIG shareholders’ equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2018 - 1,906,671,492 and
2017 - 1,906,671,492		4,766		4,766
Treasury stock, at cost; 2018 - 1,008,989,984 shares; 2017 - 1,007,626,835 shares of common stock		(47,706)		(47,595)
Series A Non-cumulative preferred stock and additional paid in capital, $5.00 par value; 100,000,000 shares
authorized; shares issued: 2019 - 20,000 and 2018 - 0; liquidation preference $500						485		-
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2019 - 1,906,671,492 and
2018 - 1,906,671,492						4,766		4,766
Treasury stock, at cost; 2019 - 1,036,934,591 shares; 2018 - 1,040,062,063 shares of common stock						(48,999)		(49,144)
Additional paid-in capital		80,841		81,078		81,148		81,268
Retained earnings		22,671		21,457		21,259		20,884
Accumulated other comprehensive income		2,220		5,465
Accumulated other comprehensive income (loss)						2,128		(1,413)
Total AIG shareholders’ equity		62,792		65,171		60,787		56,361
Non-redeemable noncontrolling interests		565		537		1,306		948
Total equity		63,357		65,708		62,093		57,309
Total liabilities and equity	$	499,143	$	498,301	$	512,922	$	491,984

See accompanying Notes to Condensed Consolidated Financial Statements.	See accompanying Notes to Condensed Consolidated Financial Statements.				See accompanying Notes to Condensed Consolidated Financial Statements.

2 AIG | First Quarter ~~2018~~2019 Form 10-Q

TABLE OF CONTENTS

American International Group, Inc.

Condensed Consolidated Statements of Income (unaudited)

		Three Months Ended March 31,					Three Months Ended March 31,
(dollars in millions, except per share data)			2018		2017			2019		2018
Revenues:
Premiums		$	7,275	$	7,782		$	8,070	$	7,275
Policy fees			764		724			735		764
Net investment income			3,261		3,686			3,879		3,261
Net realized capital losses:
Total other-than-temporary impairments on available for sale securities			(75)		(39)			(80)		(75)
Portion of other-than-temporary impairments on available for sale
fixed maturity securities recognized in Other comprehensive income (loss)			(12)		(21)			(3)		(12)
Net other-than-temporary impairments on available for sale
securities recognized in net income			(87)		(60)			(83)		(87)
Other realized capital gains (losses)			68		(55)			(363)		68
Total net realized capital losses			(19)		(115)			(446)		(19)
Other income			431		555			218		431
Total revenues			11,712		12,632			12,456		11,712
Benefits, losses and expenses:
Policyholder benefits and losses incurred			5,667		6,047			6,679		5,667
Interest credited to policyholder account balances			916		910			940		916
Amortization of deferred policy acquisition costs			1,358		1,108			1,289		1,358
General operating and other expenses			2,271		2,443			2,053		2,271
Interest expense			277		298			349		277
(Gain) loss on extinguishment of debt			4		(1)			(2)		4
Net (gain) loss on sale of divested businesses			(8)		100
Net gain on sale of divested businesses								(6)		(8)
Total benefits, losses and expenses			10,485		10,905			11,302		10,485
Income from continuing operations before income tax expense	Income from continuing operations before income tax expense		1,227		1,727	Income from continuing operations before income tax expense		1,154		1,227
Income tax expense			277		516			217		277
Income from continuing operations			950		1,211			937		950
Income (loss) from discontinued operations, net of income tax expense			(1)		-
Loss from discontinued operations, net of income tax expense								-		(1)
Net income			949		1,211			937		949
Less:
Net income from continuing operations attributable to
noncontrolling interests			11		26			283		11
Net income attributable to AIG		$	938	$	1,185		$	654	$	938

Income per common share attributable to AIG:
Basic:
Income from continuing operations		$	1.03	$	1.21		$	0.75	$	1.03
Income from discontinued operations		$	-	$	-		$	-	$	-
Net income attributable to AIG		$	1.03	$	1.21		$	0.75	$	1.03
Diluted:
Income from continuing operations		$	1.01	$	1.18		$	0.75	$	1.01
Income from discontinued operations		$	-	$	-		$	-	$	-
Net income attributable to AIG		$	1.01	$	1.18		$	0.75	$	1.01
Weighted average shares outstanding:
Basic			907,951,597		980,777,243			875,383,084		907,951,597
Diluted			925,266,577		1,005,315,030			877,512,244		925,266,577
Dividends declared per common share		$	0.32	$	0.32

See accompanying Notes to Condensed Consolidated Financial Statements.	See accompanying Notes to Condensed Consolidated Financial Statements.					See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | First Quarter ~~2018~~2019 Form 10-Q 3

TABLE OF CONTENTS

American International Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

	Three Months Ended March 31,				Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Net income	$	949	$	1,211	$	937	$	949
Other comprehensive income (loss), net of tax
Change in unrealized appreciation (depreciation) of fixed maturity securities on which
other-than-temporary credit impairments were taken		(150)		114		676		(150)
Change in unrealized appreciation (depreciation) of all other investments		(2,708)		695		2,708		(2,708)
Change in foreign currency translation adjustments		158		(276)		164		158
Change in retirement plan liabilities adjustment		29		18		(1)		29
Change in fair value of liabilities under fair value option attributable to changes in own credit risk		2		-		-		2
Other comprehensive income (loss)		(2,669)		551		3,547		(2,669)
Comprehensive income (loss)		(1,720)		1,762		4,484		(1,720)
Comprehensive income attributable to noncontrolling interests		11		26		289		11
Comprehensive income (loss) attributable to AIG	$	(1,731)	$	1,736	$	4,195	$	(1,731)

See accompanying Notes to Condensed Consolidated Financial Statements.

4 AIG | First Quarter ~~2018~~2019 Form 10-Q

TABLE OF CONTENTS

American International Group, Inc.

Condensed Consolidated Statements of Equity (unaudited)

														Non-				Preferred														Non-
										Accumulated		Total AIG		redeemable			Stock and											Accumulated		Total AIG		redeemable
						Additional				Other		Share-		Non-			Additional							Additional				Other		Share-		Non-
		Common		Treasury		Paid-in		Retained	Comprehensive			holders'		controlling		Total		Paid-in		Common		Treasury		Paid-in		Retained	Comprehensive			holders'		controlling		Total
(in millions)		Stock		Stock		Capital		Earnings		Income		Equity		Interests		Equity		Capital		Stock		Stock		Capital		Earnings	Income (Loss)			Equity		Interests		Equity
Three Months Ended March 31, 2018
Three Months Ended March 31, 2019
Balance, beginning of year	$	4,766	$	(47,595)	$	81,078	$	21,457	$	5,465	$	65,171	$	537	$	65,708	$	-	$	4,766	$	(49,144)	$	81,268	$	20,884	$	(1,413)	$	56,361	$	948	$	57,309
Cumulative effect of change in accounting
principle, net of tax		-		-		-		568		(576)		(8)		-		(8)
Preferred stock issued																		485		-		-		-		-		-		485		-		485
Common stock issued under stock plans		-		186		(336)		-		-		(150)		-		(150)		-		-		145		(222)		-		-		(77)		-		(77)
Purchase of common stock		-		(298)		-		-		-		(298)		-		(298)		-		-		-		-		-		-		-		-		-
Net income attributable to AIG or
noncontrolling interests		-		-		-		938		-		938		11		949		-		-		-		-		654		-		654		283		937
Dividends		-		-		-		(289)		-		(289)		-		(289)		-		-		-		-		(278)		-		(278)		-		(278)
Other comprehensive income (loss)		-		-		-		-		(2,669)		(2,669)		-		(2,669)
Net increase due to acquisitions and consolidations		-		-		-		-		-		-		36		36
Other comprehensive income																		-		-		-		-		-		3,541		3,541		6		3,547
Current and deferred income taxes																		-		-		-		(1)		-		-		(1)		-		(1)
Net increase due to acquisitions
and consolidations																		-		-		-		-		-		-		-		108		108
Contributions from noncontrolling interests		-		-		-		-		-		-		10		10		-		-		-		-		-		-		-		12		12
Distributions to noncontrolling interests		-		-		-		-		-		-		(25)		(25)		-		-		-		-		-		-		-		(59)		(59)
Other		-		1		99		(3)		-		97		(4)		93		-		-		-		103		(1)		-		102		8		110
Balance, end of period	$	4,766	$	(47,706)	$	80,841	$	22,671	$	2,220	$	62,792	$	565	$	63,357	$	485	$	4,766	$	(48,999)	$	81,148	$	21,259	$	2,128	$	60,787	$	1,306	$	62,093

Three Months Ended March 31, 2017
Balance, beginning of year	$	4,766	$	(41,471)	$	81,064	$	28,711	$	3,230	$	76,300	$	558	$	76,858
Common stock issued under stock plans		-		139		(302)		-		-		(163)		-		(163)
Purchase of common stock		-		(3,585)		-		-		-		(3,585)		-		(3,585)
Net income attributable to AIG or
noncontrolling interests		-		-		-		1,185		-		1,185		26		1,211
Dividends		-		-		-		(307)		-		(307)		-		(307)
Other comprehensive income (loss)		-		-		-		-		551		551		-		551
Net increase due to acquisitions and consolidations		-		-		-		-		-		-		39		39
Contributions from noncontrolling interests		-		-		-		-		-		-		-		-
Distributions to noncontrolling interests		-		-		-		-		-		-		(37)		(37)
Other		-		2		84		2		-		88		12		100
Balance, end of period	$	4,766	$	(44,915)	$	80,846	$	29,591	$	3,781	$	74,069	$	598	$	74,667


Three Months Ended March 31, 2018
Balance, beginning of year	$	-	$	4,766	$	(47,595)	$	81,078	$	21,457	$	5,465	$	65,171	$	537	$	65,708
Cumulative effect of change in accounting
principle, net of tax		-		-		-		-		568		(576)		(8)		-		(8)
Common stock issued under stock plans		-		-		186		(336)		-		-		(150)		-		(150)
Purchase of common stock		-		-		(298)		-		-		-		(298)		-		(298)
Net income attributable to AIG or
noncontrolling interests		-		-		-		-		938		-		938		11		949
Dividends		-		-		-		-		(289)		-		(289)		-		(289)
Other comprehensive income (loss)		-		-		-		-		-		(2,669)		(2,669)		-		(2,669)
Net increase due to acquisitions
and consolidations		-		-		-		-		-		-		-		36		36
Contributions from noncontrolling interests		-		-		-		-		-		-		-		10		10
Distributions to noncontrolling interests		-		-		-		-		-		-		-		(25)		(25)
Other		-		-		1		99		(3)		-		97		(4)		93
Balance, end of period	$	-	$	4,766	$	(47,706)	$	80,841	$	22,671	$	2,220	$	62,792	$	565	$	63,357

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | First Quarter ~~2018~~2019 Form 10-Q 5

TABLE OF CONTENTS

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

	Three Months Ended March 31,				Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Cash flows from operating activities:
Net income	$	949	$	1,211	$	937	$	949
(Income) loss from discontinued operations		1		-
Loss from discontinued operations						-		1
Adjustments to reconcile net income to net cash used in operating activities:
Noncash revenues, expenses, gains and losses included in income:
Net gains on sales of securities available for sale and other assets		(120)		(112)		(22)		(120)
Net (gain) loss on sale of divested businesses		(8)		100
Net gain on sale of divested businesses						(6)		(8)
(Gains) losses on extinguishment of debt		4		(1)		(2)		4
Unrealized (gains) losses in earnings - net		268		(226)
Unrealized losses in earnings - net						367		268
Equity in income from equity method investments, net of dividends or distributions		(86)		(109)		(83)		(86)
Depreciation and other amortization		1,382		1,012		1,299		1,382
Impairments of assets		105		173		125		105
Changes in operating assets and liabilities:
Insurance reserves		137		401		596		137
Premiums and other receivables and payables - net		400		(189)		315		400
Reinsurance assets and funds held under reinsurance treaties		(1,706)		(12,237)		(2,495)		(1,706)
Capitalization of deferred policy acquisition costs		(1,397)		(1,201)		(1,420)		(1,397)
Current and deferred income taxes - net		250		446		167		250
Other, net		(1,117)		396		(754)		(1,117)
Total adjustments		(1,888)		(11,547)		(1,913)		(1,888)
Net cash used in operating activities		(938)		(10,336)		(976)		(938)
Cash flows from investing activities:
Proceeds from (payments for)
Sales or distributions of:
Available for sale securities		5,638		15,307		6,370		5,638
Other securities		1,385		888		1,034		1,385
Other invested assets		1,064		1,816		1,118		1,064
Divested businesses, net		6		24		-		6
Maturities of fixed maturity securities available for sale		5,347		7,145		4,957		5,347
Principal payments received on and sales of mortgage and other loans receivable		1,037		1,543		861		1,037
Purchases of:
Available for sale securities		(9,042)		(10,028)		(12,757)		(9,042)
Other securities		(384)		(185)		(287)		(384)
Other invested assets		(847)		(783)		(567)		(847)
Mortgage and other loans receivable		(2,490)		(2,181)		(1,504)		(2,490)
Net change in short-term investments		(3,040)		1,250		(1,221)		(3,040)
Other, net		(646)		(297)		17		(646)
Net cash provided by (used in) investing activities		(1,972)		14,499
Net cash used in investing activities						(1,979)		(1,972)
Cash flows from financing activities:
Proceeds from (payments for)
Policyholder contract deposits		7,069		4,002		5,629		7,069
Policyholder contract withdrawals		(4,160)		(3,682)		(4,195)		(4,160)
Issuance of long-term debt		3,039		151		1,449		3,039
Repayments of long-term debt		(1,327)		(602)		(589)		(1,327)
Issuance of preferred stock						485		-
Purchase of common stock		(298)		(3,585)		-		(298)
Dividends paid		(289)		(307)		(278)		(289)
Other, net		(1,548)		(25)		263		(1,548)
Net cash provided by (used in) financing activities		2,486		(4,048)
Net cash provided by financing activities						2,764		2,486
Effect of exchange rate changes on cash and restricted cash		58		(82)		12		58
Net increase (decrease) in cash and restricted cash		(366)		33
Net decrease in cash and restricted cash						(179)		(366)
Cash and restricted cash at beginning of year		2,737		2,107		3,358		2,737
Change in cash of businesses held for sale		-		52
Cash and restricted cash at end of period	$	2,371	$	2,192	$	3,179	$	2,371

6 AIG | First Quarter ~~2018~~2019 Form 10-Q

TABLE OF CONTENTS

American International Group, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)(continued)

Supplementary Disclosure of Condensed Consolidated Cash Flow Information

	Three Months Ended March 31,				Three Months Ended March 31,
		2018		2017
(in millions)						2019		2018
Cash	$	2,103	$	1,918	$	2,565	$	2,103
Restricted cash included in Short-term investments^*		47		61		251		47
Restricted cash included in Other assets^*		221		213		363		221
Total cash and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	2,371	$	2,192	$	3,179	$	2,371


Cash paid during the period for:
Interest	$	357	$	354	$	315	$	357
Taxes	$	28	$	68	$	50	$	28
Non-cash investing/financing activities:
Interest credited to policyholder contract deposits included in financing activities	$	825	$	824	$	878	$	825

* Includes funds held for tax sharing payments to AIG Parent, security deposits, ~~for certain leased aircraft and escrow funds, security deposits~~ and replacement reserve deposits related to our affordable housing investments.

See accompanying Notes to Condensed Consolidated Financial Statements.

AIG | First Quarter ~~2018~~2019 Form 10-Q 7

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 1. Basis of Presentation

1. Basis of Presentation

American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 80 countries and jurisdictions. AIG companies serve commercial and individual customers through one of the most extensive worldwide property‑casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG Common Stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange (NYSE: AIG) ~~and the Tokyo Stock Exchange.~~. Unless the context indicates otherwise, the terms “AIG,” “we,” “us” or “our” mean American International Group, Inc. and its consolidated subsidiaries and the term “AIG Parent” means American International Group, Inc. and not any of its consolidated subsidiaries.

These unaudited Condensed Consolidated Financial Statements do not include all disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) and should be read in conjunction with the audited Consolidated Financial Statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~2017~~2018 Annual Report). The condensed consolidated financial information as of December 31, ~~2017~~2018 included herein has been derived from the audited Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

Certain of our foreign subsidiaries included in the Condensed Consolidated Financial Statements report on ~~different fiscal-period bases.~~the basis of fiscal period ending November 30. The effect on our consolidated financial condition and results of operations of all material events occurring at these subsidiaries through the date of each of the periods presented in these Condensed Consolidated Financial Statements has been considered for adjustment and/or disclosure. In the opinion of management, these Condensed Consolidated Financial Statements contain normal recurring adjustments, including eliminations of material intercompany accounts and transactions, necessary for a fair statement of the results presented herein.

Interim-period operating results may not be indicative of the operating results for a full year. We evaluated the need to recognize or disclose events that occurred subsequent to March 31, ~~2018~~2019 and prior to the issuance of these Condensed Consolidated Financial Statements.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. Accounting policies that we believe are most dependent on the application of estimates and assumptions are considered our critical accounting estimates and are related to the determination of:

• liability for unpaid losses and loss adjustment expenses (loss reserves);

• reinsurance assets;

• valuation of future policy benefit liabilities and timing and extent of loss recognition;

• valuation of liabilities for guaranteed benefit features of variable annuity products;

• valuation of embedded derivatives for fixed index annuity and life products;

•estimated gross profits to value deferred policy acquisition costs for investment-oriented products;

• impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested assets, including investments in life settlements, and goodwill impairment;

• allowances for loan losses;

• liability for legal contingencies;

• fair value measurements of certain financial assets and liabilities; and

• income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset and ~~provisional~~ estimates associated with the Tax Act.

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.

8 AIG | First Quarter ~~2018~~2019 Form 10-Q

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 2. Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Accounting Standards Adopted During ~~2018~~2019

~~Revenue Recognition~~Leases

In ~~May 2014,~~February 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued an accounting standard that ~~supersedes most existing revenue recognition guidance. The standard excludes from its scope~~requires lessees with lease terms of more than 12 months to recognize a right of use asset and a corresponding lease liability on their balance sheets. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating leases or finance leases. Lessor accounting ~~for insurance contracts, leases, financial instruments, and~~remained largely the same, with the exception of certain ~~other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our other activities.~~specified changes.

We adopted the standard ~~using the modified retrospective approach~~ on its ~~required~~ effective date of January 1, ~~2018. Our analysis~~2019, using a modified retrospective approach and did not adjust prior comparative periods in accordance with the standard’s transition guidance. The majority of ~~revenues indicated that substantially all~~the Company’s lease obligations pertain to real estate utilized in the operation of our ~~revenues were from sources excluded from~~businesses. Consequently, the ~~scope~~primary impact of ~~the standard. For those revenue sources within the scope of the standard, there were no material changes~~adoption resulted in the ~~timing or measurement~~recognition of ~~revenues based upon the guidance. As substantially all~~discounted lease liabilities of $823 million and corresponding right-of-use assets of $724 million for operating leases pertaining to our ~~revenue sources were excluded from the scope of the standard, the adoption of the~~real estate portfolio, which are reflected in Other Liabilities and Other Assets, respectively. The standard did not have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~Premium Amortization on Purchased Callable Debt Securities

In ~~January 2016,~~March 2017, the FASB issued an accounting standard that ~~will require equity investments that do not follow~~shortens the ~~equity method of accounting or are not subject to consolidation~~amortization period for certain callable debt securities held at a premium by requiring the premium to be ~~measured at fair value with changes in fair value recognized in earnings, while financial liabilities for which fair value option accounting has been elected, changes in fair value due~~amortized to ~~instrument-specific credit risk will be presented separately in other comprehensive income.~~the earliest call date. The standard ~~allows the election~~does not require an accounting change for securities held at a discount, which continue to record equity investments without readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes with changes in the carrying value of the equity investments recorded in earnings. The standard also updates certain fair value disclosure requirements for financial instruments carried atbe amortized ~~cost.~~to maturity.

We adopted the standard using a modified retrospective approach on its effective date of January 1, ~~2018 using the modified retrospective approach.~~2019. The impact of the adoption is primarily related to the reclassification of unrealized gains of equity securities resulting in a net decrease to beginning Accumulated other comprehensive income and a corresponding net increase to beginning Retained earnings of $824 million.

~~Classification of Certain Cash Receipts and Cash Payments~~

In August 2016, the FASB issued an accounting standard that addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide clarity on the treatment of eight specifically defined types of cash inflows and outflows.

We adopted the standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation in the statement of cash flows only and did not have a material impact on our reported consolidated financial condition, results of operations or required disclosures.

~~Intra-Entity Transfers of Assets Other than Inventory~~

In October 2016, the FASB issued an accounting standard that will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to a third party.

~~We adopted the standard on its effective date of January 1, 2018 using a modified retrospective approach. The adoption of this~~ standard did not have a material impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

~~Restricted Cash~~Derivatives and Hedging

In November 2016, the FASB issued an accounting standard that provides guidance on the presentation of restricted cash in the Statement of Cash Flows. Entities will be required to explain the changes during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows.

We adopted the standard retrospectively on its effective date of January 1, 2018. The standard addresses presentation of restricted cash in the Statement of Cash Flows only and had no effect on our reported consolidated financial condition, results of operations or required disclosures.

~~AIG | First Quarter 2018 Form 10-Q~~9

~~TABLE OF CONTENTS~~

~~ITEM 1 |~~~~Notes to Condensed Consolidated Financial Statements (unaudited) |~~2. ~~Summary of Significant Accounting Policies~~

~~Gains and Losses from the Derecognition of Nonfinancial Assets~~

~~In February~~August 2017, the FASB issued an accounting standard that ~~clarifies the scope~~improves and expands hedge accounting for both financial and commodity risks. The provisions of the ~~derecognition guidance for~~standard are intended to better align the ~~sale, transfer and derecognition of non-financial assets to noncustomers that aligns~~accounting with an entity’s risk management activities, enhance the new revenue recognition principles. The standard also adds new accounting for partial sales of nonfinancial assets (including real estate) that requires an entity to derecognize a nonfinancial asset when it 1) ceases to have a controlling financial interesttransparency on how the economic results are presented in the ~~legal entity that holds~~financial statements and disclosures, and simplify the ~~asset based on the consolidation model and 2) transfers control~~application of ~~the asset based on the revenue recognition model.~~hedge accounting treatment.

We adopted ~~this~~the standard on its effective date of January 1, ~~2018 under the modified retrospective approach. Based on our evaluation, the~~2019. The standard did not have a material impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

~~Improving the Presentation of Net Periodic Pension and Postretirement Benefit Cost~~

In March 2017, the FASB issued an accounting standard that requires entities to report the service cost component of net periodic pension and postretirement benefit costs in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit costs are required to be separately presented in the income statement. The amendments also allow only the service cost component to be eligible for capitalization when applicable.

We adopted this standard on its effective date of January 1, 2018. The standard primarily addresses the presentation of the service cost component of net periodic benefit costs in the income statement. AIG’s U.S. pension plans are frozen and no longer accrue benefits, which are reflected as service costs. Therefore, the standard did not have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

~~Modification of Share-Based Payment Awards~~

In May 2017, the FASB issued an accounting standard that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.

We prospectively adopted this standard on its effective date of January 1, 2018 and the standard did not have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

In February 2018, the FASB issued an accounting standard that allows the optional reclassification of stranded tax effects within accumulated other comprehensive income to retained earnings that arise due to the enactment of the Tax Cuts and Jobs Act of 2017 (Tax Act). The amount of the reclassification would reflect the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the Tax Act and other income tax effects of the Tax Act on items remaining in accumulated other comprehensive income.

We adopted the standard effective January 1, 2018. The impact of the adoption of the standard resulted in an increase to beginning Accumulated other comprehensive income and a corresponding decrease to beginning Retained earnings of $248 million. For more information on the adoption of the Tax Act, see Note 14.

Future Application of Accounting Standards

~~Leases~~

In February 2016, the FASB issued an accounting standard that will require lessees with lease terms of more than 12 months to recognize a right of use asset and a corresponding lease liability on their balance sheets. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating leases or finance leases.

We plan to adopt the standard on its effective date of January 1, 2019 using a modified retrospective approach upon adoption. We are currently quantifying the expected recognition on our balance sheet for a right to use asset and a lease liability as required by the standard. We do not expect the impact of the standard to have a material effect on our reported consolidated financial condition, results of operations, cash flows or required disclosures.

10~~AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 1 |~~~~Notes to Condensed Consolidated Financial Statements (unaudited) |~~2. ~~Summary of Significant Accounting Policies~~

Financial Instruments - Credit Losses

In June 2016, the FASB issued an accounting standard that will change how entities account for credit losses for most financial assets, trade receivables and reinsurance receivables. The standard will replace the existing incurred loss impairment model with a new “current expected credit loss model” that generally will result in earlier recognition of credit losses. The standard will apply to financial assets subject to credit losses, including loans measured at amortized cost, reinsurance receivables and certain off-balance sheet credit exposures. Additionally, the impairment of available-for-sale debt securities, including purchased credit deteriorated securities, are subject to the new guidance and will be measured in a similar manner, except that losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will also require additional information to be disclosed in the footnotes.

~~The~~We plan to adopt the standard ison its effective ondate of January 1, ~~2020, with early adoption permitted on January 1, 2019.~~ 2020. We are continuing to develop our implementation plan to adopt the standard and are assessing the impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures. While we expect an increase in our allowances for credit losses for the financial instruments within scope of the standard, given the objective of the new standard, the amount of any change will be dependent on our portfolios’ composition and quality at the adoption date as well as economic conditions and forecasts at that time.

AIG | First Quarter 2019 Form 10-Q9

TABLE OF CONTENTS

ITEM 1 |Notes to Condensed Consolidated Financial Statements (unaudited) |2. Summary of Significant Accounting Policies

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued an accounting standard that eliminates the requirement to calculate the implied fair value of goodwill, through a hypothetical purchase price allocation, to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity should also consider income tax effects from tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

The standard is effective on January 1, 2020, with early adoption permitted. We are evaluating the timing of our adoption. Any impact of the standard will be dependent on the market conditions of the reporting units at the time of adoption.

~~Premium Amortization on Purchased Callable Debt Securities~~Targeted Improvements to the Accounting for Long-Duration Contracts

In ~~March 2017,~~August 2018, the FASB issued an accounting standard update with the objective of making targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The standard prescribes significant and comprehensive changes to recognition, measurement, presentation and disclosure as summarized below:

·Requires the review and if necessary update of future policy benefit assumptions at least annually for traditional and limited pay long duration contracts, with the recognition and separate presentation of any resulting re-measurement gain or loss (except for discount rate changes as noted below) in the income statement.

·Requires the discount rate assumption to be updated at the end of each reporting period using an upper medium grade (low-credit risk) fixed income instrument yield that ~~shortens~~maximizes the use of observable market inputs and recognizes the impact of changes to discount rates in other comprehensive income.

·Simplifies the amortization ~~period~~of deferred acquisition costs (DAC) to a constant level basis over the expected term of the related contracts with adjustments for ~~certain callable debt securities held~~unexpected terminations, but no longer requires an impairment test.

·Requires the measurement of all market risk benefits associated with deposit (or account balance) contracts at ~~a premium by requiring~~fair value through the ~~premium to~~income statement with the exception of instrument-specific credit risk changes, which will be ~~amortized to the earliest call date. The standard does not require an accounting change for securities held at a discount, which continue to be amortized to maturity.~~ recognized in other comprehensive income.

·Increased disclosures of disaggregated roll-forwards of policy benefits, account balances, market risk benefits, separate account liabilities and information about significant inputs, judgments and methods used in measurement and changes thereto and impact of those changes.

We plan to adopt the standard ~~retrospectively~~ on its effective date of January 1, ~~2019. We do not expect the standard to have a material impact on our reported consolidated financial condition, results of operations, cash flows or required disclosures.~~

~~Derivatives and Hedging~~

In August 2017, the FASB issued an accounting standard that improves and expands hedge accounting for both financial and commodity risks. The provisions of the amendment are intended to better align the accounting with an entity’s risk management activities, enhance the transparency on how the economic results are presented in the financial statements and the footnote, and simplify the application of hedge accounting treatment.

~~The standard is effective on January 1, 2019, with early adoption permitted.~~2021. We are evaluating the ~~timing~~method of adoption and ~~are assessing the~~ impact of the standard on our reported consolidated financial condition, results of operations, cash flows and required disclosures. The adoption of this standard is expected to have a significant impact on our consolidated financial condition, results of operations, cash flows and required disclosures, as well as systems, processes and controls.

RECLASSIFICATIONS

In the first quarter of 2019, we began reporting investment income from our non-insurance subsidiaries in Net investment income instead of Other income on a prospective basis to be consistent with how we report investment income from our General Insurance and Life and Retirement reporting segments. This reclassification has no impact to our consolidated statement of operations.

10AIG | First Quarter ~~2018~~2019 Form 10-Q11

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information

3. Segment Information

We report our results of operations consistent with the manner in which our chief operating decision makers review the business to assess performance and allocate resources, as ~~follows.~~follows:

General Insurance

General Insurance business is presented as two operating segments:

· North America — consists of insurance businesses in the United States, Canada and Bermuda.This also includes the results of Validus Reinsurance, Ltd., Western World Insurance Group, Inc. and Glatfelter Insurance Group. as of their respective acquisition dates.

· International— consists of insurance businesses in Japan, the United Kingdom, Europe, Asia Pacific, Latin America, Puerto Rico, Australia, the Middle East and Africa. This also includes the results of Talbot Holdings, Ltd. as of its acquisition date.

Results are presented before internal reinsurance transactions. North America and International operating segments consist of the following products:

– Commercial Lines — consists of Liability, Financial Lines, Property and Special Risks.

– Personal Insurance — consists of Personal Lines and Accident and Health.

Life and Retirement

Life and Retirement business is presented as four operating segments:

· Individual Retirement — consists of fixed annuities, fixed index annuities, variable annuities and retail mutual funds.

· Group Retirement — consists of group mutual funds, group ~~fixed annuities, group variable~~ annuities, individual annuity and investment products, and financial planning and advisory services.

· Life Insurance — primary products in the U.S. include term life and universal life insurance. International operations include distribution of life and health products in the UK and Ireland.

· Institutional Markets — consists of stable value wrap products, structured settlement and pension risk transfer annuities, corporate- and bank-owned life insurance and guaranteed investment contracts (GICs).

Other Operations

Other Operations category consists of:

· Income from assets held by AIG Parent and other corporate subsidiaries.

· General operating expenses not attributable to specific reporting segments.

· Interest expense.

· Blackboard— a ~~data-enabled, digital~~ subsidiary ~~that provides the~~focused on delivering commercial insurance ~~industry with alternative~~ solutions using digital technology, data analytics and automation.

Legacy Portfolio

Legacy Portfolio represents exited or discontinued product lines, policy forms or distribution channels. Effective February 2018, our Bermuda domiciled composite reinsurer, Fortitude Reinsurance Company Ltd. (Fortitude Re), is included in our Legacy Portfolio.

· ~~Fuji~~Legacy Life and Retirement Run-Off Lines — ~~consists~~Reserves consist of ~~term insurance,~~certain structured settlements, pension risk transfer annuities and single premium immediate annuities written prior to April 2012. Also includes exposures to whole life, ~~insurance, endowment policies~~long-term care and ~~annuities. The sale~~exited accident & health product lines.

·Legacy General Insurance Run-Off Lines — Reserves consist of ~~this business was completed on April 30, 2017.~~excess workers’ compensation, environmental exposures and exposures to other products within General Insurance that are no longer actively marketed. Also includes the remaining reserves in Eaglestone Reinsurance Company (Eaglestone).

·Legacy Investments — Includes investment classes that we have placed into run-off including holdings in direct investments as well as investments in global capital markets and global real estate.

12AIG | First Quarter ~~2018~~2019 Form 10-Q11

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 3. Segment Information

~~Legacy Portfolio~~

~~Legacy Portfolio segment consists of:~~

Legacy Insurance Lines represent exited or discontinued product lines, policy forms or distribution channels. Effective February 2018, our newly formed Bermuda domiciled composite reinsurer, DSA Reinsurance Company, Ltd. (DSA Re) is included in our Legacy Portfolio.

·~~Legacy General Insurance Run-Off Lines —~~ consists of asbestos and environmental exposures and other exposures within certain Property and Casualty profit centers no longer actively marketed, including excess workers’ compensation, environmental impairment liability, public entity liability, accident & health, physicians and surgeons professional liability, and various other workers’ compensation and general liability exposures.

·~~Legacy Life and Retirement Run-Off Lines —~~ include whole life, long-term care and exited accident & health product lines. Also includes certain structured settlement, pension risk transfer annuities and single premium immediate annuities written prior to April 2012.

·~~Legacy Investments~~ — ~~include investment classes that we have placed into run-off.~~

We evaluate segment performance based on adjusted revenues and adjusted pre-tax income (loss). Adjusted revenues and adjusted pre-tax income (loss) are derived by excluding certain items from total revenues and net income (loss) attributable to AIG, respectively. Beginning in the first quarter of 2019, on a prospective basis, the changes in the fair value of equity securities are excluded from adjusted pre-tax income (loss). For the items excluded from adjusted revenues and adjusted pre-tax income (loss) see the table below.

The following table presents AIG’s continuing operations by operating segment:

Three Months Ended March 31,	2018				2017				2019				2018
				Adjusted				Adjusted				Adjusted				Adjusted
		Total		Pre-tax		Total		Pre-tax		Total		Pre-tax		Total		Pre-tax
(in millions)		Revenues		Income (Loss)		Revenues		Income (Loss)		Revenues		Income (Loss)		Revenues		Income (Loss)
General Insurance
North America	$	3,340	$	320	$	3,840	$	828	$	4,098	$	934	$	3,340	$	320
International		4,104		190		3,698		233		3,704		334		4,104		190
Total General Insurance		7,444		510		7,538		1,061		7,802		1,268		7,444		510
Life and Retirement
Individual Retirement		1,361		499		1,373		539		1,351		508		1,361		499
Group Retirement		761		282		718		243		709		232		761		282
Life Insurance		1,061		52		1,013		54		1,073		116		1,061		52
Institutional Markets		277		59		599		62		1,071		68		277		59
Total Life and Retirement		3,460		892		3,703		898		4,204		924		3,460		892
Other Operations		150		(342)		474		(308)		203		(387)		150		(342)
Legacy Portfolio		836		145		1,084		342		706		112		836		145
AIG Consolidation and elimination		(62)		11		(64)		48		(161)		(70)		(62)		11
Total AIG Consolidated adjusted revenues and adjusted pre-tax income		11,828		1,216		12,735		2,041		12,754		1,847		11,828		1,216
Reconciling Items from adjusted pre-tax income to pre-tax income:
Changes in fair value of securities used to hedge guaranteed
living benefits		(77)		(77)		11		11		105		96		(77)		(77)
Changes in benefit reserves and DAC, VOBA and SIA related to
net realized capital gains		-		(31)		-		53		-		99		-		(31)
Changes in the fair value of equity securities										79		79		-		-
Other income (expense) - net		(11)		-		(9)		-		7		-		(11)		-
Gain (Loss) on extinguishment of debt		-		(4)		-		1		-		2		-		(4)
Net realized capital losses^*		(29)		(19)		(115)		(115)		(489)		(474)		(29)		(19)
Income (loss) from divested businesses		-		8		-		(100)		-		6		-		8
Non-operating litigation reserves and settlements		1		(13)		10		6		-		(1)		1		(13)
(Unfavorable) favorable prior year development and related amortization
changes ceded under retroactive reinsurance agreements		-		(34)		-		(14)		-		27		-		(34)
Net loss reserve discount benefit (charge)		-		205		-		25		-		(473)		-		205
Integration and transaction costs associated with acquired businesses										-		(7)		-		-
Restructuring and other costs		-		(24)		-		(181)		-		(47)		-		(24)
Revenues and Pre-tax income	$	11,712	$	1,227	$	12,632	$	1,727	$	12,456	$	1,154	$	11,712	$	1,227

* Includes all net realized capital 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.

12AIG | First Quarter ~~2018~~2019 Form 10-Q13

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) |4. ~~Fair Value Measurements~~Business Combination

4. Business Combination

On July 18, 2018, we completed the purchase of a 100 percent voting interest in Validus Holdings, Ltd. (Validus), a leading provider of reinsurance, primary insurance, and asset management services, for $5.5 billion in cash.

The purchase was accounted for under the acquisition method. Accordingly, the total purchase price was allocated to the estimated fair values of assets acquired and liabilities assumed. This allocation resulted in the purchase price exceeding the fair value of net assets acquired, which results in a difference recorded as goodwill. Goodwill generated from the acquisition is attributable to expected synergies from future growth and potential future monetization opportunities. Goodwill related to the purchase of Validus assigned to our General Insurance operating segments was $1.8 billion for North America and $157 million for International.

In addition, Validus participates in the market for insurance-linked securities (ILS) primarily through AlphaCat Managers, Ltd (AlphaCat Manager). AlphaCat Manager is an asset manager primarily for third party investors and in connection with the issuance of ILS invests in AlphaCat funds which are considered variable interest entities (VIEs). ILS are financial instruments for which the values are determined based on insurance losses caused primarily by natural catastrophes such as major earthquakes and hurricanes. We report the investment in AlphaCat funds, which is approximately $124 million at March 31, 2019, in Other Invested Assets in the Condensed Consolidated Balance Sheet.

The following unaudited summarized pro forma consolidated income statement information assumes that the acquisition of Validus occurred as of January 1, 2018. The pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable period and may not be indicative of the results that will be attained in the future.

	Three Months Ended March 31,
(in millions)		2019		2018*
Total revenues	$	12,456	$	12,242
Net income		937		951
Net income attributable to AIG		654		940

Income per common share attributable to AIG:
Basic:
Net income attributable to AIG		0.75		1.04
Diluted:
Net income attributable to AIG		0.75		1.02

* Pro forma adjustments were made to Validus external reporting results prior to the acquisition date for the deconsolidation of certain asset management entities consistent with AIG’s post acquisition accounting, which had no impact on Net income attributable to Validus.

4.5. Fair Value Measurements

Fair Value Measurements on a Recurring Basis

Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three “levels” based on the observability of valuation inputs:

• Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.

• Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

• Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability.

AIG | First Quarter 2019 Form 10-Q13

TABLE OF CONTENTS

ITEM 1 |Notes to Condensed Consolidated Financial Statements (unaudited) |5. Fair Value Measurements

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

14~~AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 1 |~~~~Notes to Condensed Consolidated Financial Statements (unaudited) |~~~~4. Fair Value Measurements~~

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used:

March 31, 2018							Counterparty		Cash
March 31, 2019																			Counterparty		Cash
(in millions)		Level 1		Level 2		Level 3		Netting^(a)	Collateral			Total		Level 1		Level 2		Level 3		Netting^(a)	Collateral			Total
Assets:
Bonds available for sale:
U.S. government and government sponsored entities	$	-	$	2,833	$	-	$	-	$	-	$	2,833	$	-	$	3,401	$	-	$	-	$	-	$	3,401
Obligations of states, municipalities and political subdivisions		-		15,550		2,261		-		-		17,811		-		13,786		2,136		-		-		15,922
Non-U.S. governments		25		15,689		9		-		-		15,723		15		15,256		3		-		-		15,274
Corporate debt		-		129,468		1,871		-		-		131,339		-		137,141		1,532		-		-		138,673
RMBS		-		20,050		15,839		-		-		35,889		-		19,959		14,045		-		-		34,004
CMBS		-		13,025		584		-		-		13,609		-		12,269		892		-		-		13,161
CDO/ABS		-		8,864		7,846		-		-		16,710		-		8,926		8,840		-		-		17,766
Total bonds available for sale		25		205,479		28,410		-		-		233,914		15		210,738		27,448		-		-		238,201
Other bond securities:
U.S. government and government sponsored entities		594		2,183		-		-		-		2,777		84		2,696		-		-		-		2,780
Non-U.S. governments		-		54		-		-		-		54		-		51		-		-		-		51
Corporate debt		-		1,784		19		-		-		1,803		-		1,745		-		-		-		1,745
RMBS		-		391		1,427		-		-		1,818		-		491		1,266		-		-		1,757
CMBS		-		493		73		-		-		566		-		315		84		-		-		399
CDO/ABS		-		603		4,776		-		-		5,379		-		530		4,249		-		-		4,779
Total other bond securities		594		5,508		6,295		-		-		12,397		84		5,828		5,599		-		-		11,511
Other equity securities^(b)		1,716		6		3		-		-		1,725
Mortgage and other loans receivable		-		-		-		-		-		-
Other invested assets^(c)		5		1		292		-		-		298
Equity securities														804		11		26		-		-		841
Other invested assets^(b)														-		86		591		-		-		677
Derivative assets:
Interest rate contracts		-		2,549		-		-		-		2,549		4		2,660		-		-		-		2,664
Foreign exchange contracts		-		792		3		-		-		795		-		1,106		1		-		-		1,107
Equity contracts		48		142		78		-		-		268		55		330		103		-		-		488
Credit contracts		-		-		2		-		-		2		-		-		1		-		-		1
Other contracts		-		-		17		-		-		17		-		-		13		-		-		13
Counterparty netting and cash collateral		-		-		-		(1,589)		(1,268)		(2,857)		-		-		-		(1,647)		(1,734)		(3,381)
Total derivative assets		48		3,483		100		(1,589)		(1,268)		774		59		4,096		118		(1,647)		(1,734)		892
Short-term investments		2,611		483		-		-		-		3,094		1,993		2,047		-		-		-		4,040
Separate account assets		85,362		5,227		-		-		-		90,589		84,260		4,558		-		-		-		88,818
Other assets														-		-		59		-		-		59
Total	$	90,361	$	220,187	$	35,100	$	(1,589)	$	(1,268)	$	342,791	$	87,215	$	227,364	$	33,841	$	(1,647)	$	(1,734)	$	345,039
Liabilities:
Policyholder contract deposits	$	-	$	15	$	3,696	$	-	$	-	$	3,711	$	-	$	-	$	4,878	$	-	$	-	$	4,878
Derivative liabilities:
Interest rate contracts		1		2,185		17		-		-		2,203		-		1,905		15		-		-		1,920
Foreign exchange contracts		-		1,213		4		-		-		1,217		-		850		-		-		-		850
Equity contracts		-		13		-		-		-		13		12		32		7		-		-		51
Credit contracts		-		12		252		-		-		264		-		17		223		-		-		240
Other contracts		-		-		5		-		-		5		-		-		5		-		-		5
Counterparty netting and cash collateral		-		-		-		(1,589)		(980)		(2,569)		-		-		-		(1,647)		(188)		(1,835)
Total derivative liabilities		1		3,423		278		(1,589)		(980)		1,133		12		2,804		250		(1,647)		(188)		1,231
Long-term debt		-		2,820		-		-		-		2,820		-		2,263		-		-		-		2,263
Other liabilities		25		-		-		-		-		25		105		85		-		-		-		190
Total	$	26	$	6,258	$	3,974	$	(1,589)	$	(980)	$	7,689	$	117	$	5,152	$	5,128	$	(1,647)	$	(188)	$	8,562

14AIG | First Quarter ~~2018~~2019 Form 10-Q15

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

December 31, 2017							Counterparty		Cash
December 31, 2018																			Counterparty		Cash
(in millions)		Level 1		Level 2		Level 3		Netting^(a)		Collateral		Total		Level 1		Level 2		Level 3		Netting^(a)		Collateral		Total
Assets:
Bonds available for sale:
U.S. government and government sponsored entities	$	201	$	2,455	$	-	$	-	$	-	$	2,656	$	53	$	3,207	$	-	$	-	$	-	$	3,260
Obligations of states, municipalities and political subdivisions		-		16,240		2,404		-		-		18,644		-		14,001		2,000		-		-		16,001
Non-U.S. governments		20		15,631		8		-		-		15,659		69		14,445		11		-		-		14,525
Corporate debt		-		133,003		1,173		-		-		134,176		-		129,836		864		-		-		130,700
RMBS		-		21,098		16,136		-		-		37,234		-		20,178		14,199		-		-		34,377
CMBS		-		13,217		624		-		-		13,841		-		11,784		917		-		-		12,701
CDO/ABS		-		8,131		8,651		-		-		16,782		-		8,725		9,102		-		-		17,827
Total bonds available for sale		221		209,775		28,996		-		-		238,992		122		202,176		27,093		-		-		229,391
Other bond securities:
U.S. government and government sponsored entities		238		2,564		-		-		-		2,802		11		2,654		-		-		-		2,665
Non-U.S. governments		-		57		-		-		-		57		-		45		-		-		-		45
Corporate debt		-		1,891		18		-		-		1,909		-		1,671		-		-		-		1,671
RMBS		-		421		1,464		-		-		1,885		-		424		1,290		-		-		1,714
CMBS		-		485		74		-		-		559		-		311		77		-		-		388
CDO/ABS		-		604		4,956		-		-		5,560		-		454		4,478		-		-		4,932
Total other bond securities		238		6,022		6,512		-		-		12,772		11		5,559		5,845		-		-		11,415
Equity securities available for sale:
Common stock		1,061		-		-		-		-		1,061
Preferred stock		18		515		-		-		-		533
Mutual funds		110		4		-		-		-		114
Total equity securities available for sale		1,189		519		-		-		-		1,708
Other equity securities		589		-		-		-		-		589
Mortgage and other loans receivable		-		-		5		-		-		5
Other invested assets^(c)		-		1		250		-		-		251
Equity securities														1,213		13		27		-		-		1,253
Other invested assets^(b)														-		341		587		-		-		928
Derivative assets:
Interest rate contracts		1		2,170		-		-		-		2,171		2		2,888		-		-		-		2,890
Foreign exchange contracts		-		827		4		-		-		831		-		1,159		5		-		-		1,164
Equity contracts		188		252		82		-		-		522		133		190		75		-		-		398
Credit contracts		-		-		1		-		-		1		-		-		1		-		-		1
Other contracts		-		-		20		-		-		20		-		-		15		-		-		15
Counterparty netting and cash collateral		-		-		-		(1,464)		(1,159)		(2,623)		-		-		-		(1,713)		(1,840)		(3,553)
Total derivative assets		189		3,249		107		(1,464)		(1,159)		922		135		4,237		96		(1,713)		(1,840)		915
Short-term investments		2,078		537		-		-		-		2,615		2,416		599		-		-		-		3,015
Separate account assets		87,141		5,657		-		-		-		92,798		77,202		4,645		-		-		-		81,847
Other assets														-		-		58		-		-		58
Total	$	91,645	$	225,760	$	35,870	$	(1,464)	$	(1,159)	$	350,652	$	81,099	$	217,570	$	33,706	$	(1,713)	$	(1,840)	$	328,822
Liabilities:
Policyholder contract deposits	$	-	$	14	$	4,136	$	-	$	-	$	4,150	$	-	$	-	$	4,116	$	-	$	-	$	4,116
Derivative liabilities:
Interest rate contracts		2		2,176		22		-		-		2,200		4		2,004		15		-		-		2,023
Foreign exchange contracts		-		1,241		4		-		-		1,245		-		858		-		-		-		858
Equity contracts		2		19		-		-		-		21		12		3		-		-		-		15
Credit contracts		-		14		263		-		-		277		-		8		228		-		-		236
Other contracts		-		-		5		-		-		5		-		-		6		-		-		6
Counterparty netting and cash collateral		-		-		-		(1,464)		(1,249)		(2,713)		-		-		-		(1,713)		(187)		(1,900)
Total derivative liabilities		4		3,450		294		(1,464)		(1,249)		1,035		16		2,873		249		(1,713)		(187)		1,238
Long-term debt		-		2,888		-		-		-		2,888		-		2,213		-		-		-		2,213
Other liabilities		46		43		-		-		-		89		16		11		-		-		-		27
Total	$	50	$	6,395	$	4,430	$	(1,464)	$	(1,249)	$	8,162	$	32	$	5,097	$	4,365	$	(1,713)	$	(187)	$	7,594

(a) Represents netting of derivative exposures covered by qualifying master netting agreements.

(b) As a result of the adoption of the Recognition and Measurement of Financial Assets and Financial Liabilities standard on January 1, 2018 (Financial Instruments Recognition and Measurement Standard), equity securities are no longer classified and accounted for as available for sale securities.

~~(c)~~ Excludes investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent), which totaled ~~$5.9~~$5.1 billion and ~~$6.0~~$5.0 billion as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

16AIG | First Quarter ~~2018~~2019 Form 10-Q15

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

Transfers of Level 1 and Level 2 Assets and Liabilities

Our policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market.

During the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, we transferred ~~$16~~$62 million and ~~$53~~$16 million, respectively, of securities issued by ~~Non-U.S.~~non-U.S. government entities from Level 1 to Level 2, because they are no longer considered actively traded. For similar reasons, during the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, we transferred ~~$191~~$51 million and ~~$63~~$191 million, respectively, of securities issued by the U.S. government and government sponsored entities from Level 1 to Level 2. We had no material transfers from Level 2 to Level 1 during the three-month periods ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Changes in Level 3 Recurring Fair Value Measurements

The following tables present changes during the three-month periods ended March 31, ~~2018~~2019 and ~~2017~~2018 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and liabilities in the Condensed Consolidated Balance Sheets at March 31, ~~2018~~2019 and ~~2017~~2018:

				Net																Changes in				Net												Changes in
				Realized and				Purchases,												Unrealized Gains				Realized and				Purchases,								Unrealized Gains
				Unrealized				Sales,								Reclassified				(Losses) Included				Unrealized				Sales,								(Losses) Included
		Fair Value		Gains (Losses)		Other		Issuances and		Gross		Gross				to Assets		Fair Value		in Income on		Fair Value		Gains (Losses)		Other		Issuances and		Gross		Gross		Fair Value		in Income on
		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		Divested		Held for		End		Instruments Held		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		End		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		in		out		Businesses		Sale		of Period		at End of Period		of Period		in Income		Income (Loss)		Net		In		Out		of Period		at End of Period
Three Months Ended March 31, 2018
Three Months Ended March 31, 2019
Assets:
Bonds available for sale:
Obligations of states,
municipalities and
political subdivisions	$	2,404	$	1	$	(75)	$	(69)	$	-	$	-	$	-	$	-	$	2,261	$	-
Obligations of states, municipalities
and political subdivisions																					$	2,000	$	(1)	$	97	$	24	$	29	$	(13)	$	2,136	$	-
Non-U.S. governments		8		(4)		4		1		-		-		-		-		9		-		11		-		-		(4)		-		(4)		3		-
Corporate debt		1,173		(57)		10		248		565		(68)		-		-		1,871		-		864		(3)		38		34		654		(55)		1,532		-
RMBS		16,136		266		5		(536)		-		(32)		-		-		15,839		-		14,199		227		24		(412)		23		(16)		14,045		-
CMBS		624		6		(17)		(23)		-		(6)		-		-		584		-		917		1		17		146		-		(189)		892		-
CDO/ABS		8,651		8		(88)		(710)		-		(15)		-		-		7,846		-		9,102		4		54		(45)		92		(367)		8,840		-
Total bonds available for sale		28,996		220		(161)		(1,089)		565		(121)		-		-		28,410		-		27,093		228		230		(257)		798		(644)		27,448		-
Other bond securities:
Corporate debt		18		1		-		-		-		-		-		-		19		-		-		-		-		-		-		-		-		-
RMBS		1,464		39		-		(76)		-		-		-		-		1,427		51		1,290		17		-		(41)		-		-		1,266		-
CMBS		74		(1)		-		(1)		1		-		-		-		73		(1)		77		4		-		3		-		-		84		3
CDO/ABS		4,956		89		-		(260)		-		(9)		-		-		4,776		8		4,478		68		-		(201)		-		(96)		4,249		24
Total other bond securities		6,512		128		-		(337)		1		(9)		-		-		6,295		58		5,845		89		-		(239)		-		(96)		5,599		27
Other equity securities^(a)		-		-		-		3		-		-		-		-		3		2
Equity securities																						27		-		-		-		-		(1)		26		-
Mortgage and other loans receivable		5		-		-		(5)		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Other invested assets		250		23		1		18		-		-		-		-		292		30		587		-		-		4		-		-		591		2
Other assets																						58		-		-		1		-		-		59		-
Total	$	35,763	$	371	$	(160)	$	(1,410)	$	566	$	(130)	$	-	$	-	$	35,000	$	90	$	33,610	$	317	$	230	$	(491)	$	798	$	(741)	$	33,723	$	29

				Net																Changes in				Net												Changes in
				Realized and				Purchases,												Unrealized Gains				Realized and				Purchases,								Unrealized Gains
				Unrealized				Sales,								Reclassified				(Losses) Included				Unrealized				Sales,								(Losses) Included
		Fair Value		(Gains) Losses		Other		Issuances and		Gross		Gross				to Liabilities		Fair Value		in Income on		Fair Value		(Gains) Losses		Other		Issuances and		Gross		Gross		Fair Value		in Income on
		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		Divested		Held for		End		Instruments Held		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		End		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		in		out		Businesses		Sale		of Period		at End of Period		of Period		in Income		Income (Loss)		Net		In		Out		of Period		at End of Period
Liabilities:
Policyholder contract deposits	$	4,136	$	(506)	$	-	$	66	$	-	$	-	$	-	$	-	$	3,696	$	604	$	4,116	$	569	$	-	$	193	$	-	$	-	$	4,878	$	(521)
Derivative liabilities, net:
Interest rate contracts		22		(3)		-		(2)		-		-		-		-		17		3		15		1		-		(1)		-		-		15		(1)
Foreign exchange contracts		-		(10)		-		11		-		-		-		-		1		3		(5)		(5)		-		9		-		-		(1)		(1)
Equity contracts		(82)		4		-		-		-		-		-		-		(78)		(4)		(75)		(16)		-		(5)		-		-		(96)		19
Credit contracts		262		(10)		-		(2)		-		-		-		-		250		10		227		(3)		-		(2)		-		-		222		4
Other contracts		(15)		(17)		-		20		-		-		-		-		(12)		17		(9)		(17)		-		18		-		-		(8)		17
Total derivative liabilities, net^(b)		187		(36)		-		27		-		-		-		-		178		29
Long-term debt^(c)		-		-		-		-		-		-		-		-		-		-
Total derivative liabilities, net^(a)																						153		(40)		-		19		-		-		132		38
Total	$	4,323	$	(542)	$	-	$	93	$	-	$	-	$	-	$	-	$	3,874	$	633	$	4,269	$	529	$	-	$	212	$	-	$	-	$	5,010	$	(483)

16AIG | First Quarter ~~2018~~2019 Form 10-Q17

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

				Net																Changes in				Net												Changes in
				Realized and				Purchases,												Unrealized Gains				Realized and				Purchases,								Unrealized Gains
				Unrealized				Sales,								Reclassified				(Losses) Included				Unrealized				Sales,								(Losses) Included
		Fair Value		Gains (Losses)		Other		Issuances and		Gross		Gross				to Assets		Fair Value		in Income on		Fair Value		Gains (Losses)		Other		Issuances and		Gross		Gross		Fair Value		in Income on
		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		Divested		Held for		End		Instruments Held		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		End		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		in		out		Businesses		Sale		of Period		at End of Period		of Period		in Income		Income (Loss)		Net		In		Out		of Period		at End of Period
Three Months Ended March 31, 2017
Three Months Ended March 31, 2018																					Three Months Ended March 31, 2018
Assets:
Bonds available for sale:
Obligations of states,
municipalities and
political subdivisions	$	2,040	$	2	$	(4)	$	21	$	-	$	(18)	$	-	$	-	$	2,041	$	-	$	2,404	$	1	$	(75)	$	(69)	$	-	$	-	$	2,261	$	-
Non-U.S. governments		17		-		-		(1)		-		-		-		-		16		-		8		(4)		4		1		-		-		9		-
Corporate debt		1,133		(4)		(3)		(13)		136		(170)		-		-		1,079		-		1,173		(57)		10		248		565		(68)		1,871		-
RMBS		16,906		289		151		(858)		8		(9)		-		-		16,487		-		16,136		266		5		(536)		-		(32)		15,839		-
CMBS		2,040		5		5		(348)		-		(699)		-		-		1,003		-		624		6		(17)		(23)		-		(6)		584		-
CDO/ABS		7,835		6		48		(102)		-		(32)		-		-		7,755		-		8,651		8		(88)		(710)		-		(15)		7,846		-
Total bonds available for sale		29,971		298		197		(1,301)		144		(928)		-		-		28,381		-		28,996		220		(161)		(1,089)		565		(121)		28,410		-
Other bond securities:
Corporate debt		17		1		-		-		-		-		-		-		18		1		18		1		-		-		-		-		19		-
RMBS		1,605		55		-		(125)		-		(33)		-		-		1,502		24		1,464		39		-		(76)		-		-		1,427		51
CMBS		155		-		-		(17)		-		(73)		-		-		65		1		74		(1)		-		(1)		1		-		73		(1)
CDO/ABS		5,703		173		-		(368)		-		-		-		-		5,508		70		4,956		89		-		(260)		-		(9)		4,776		8
Total other bond securities		7,480		229		-		(510)		-		(106)		-		-		7,093		96		6,512		128		-		(337)		1		(9)		6,295		58
Equity securities available for sale:
Common stock		-		-		-		8		-		-		-		-		8		-
Total equity securities available for sale		-		-		-		8		-		-		-		-		8		-
Other equity securities		-		-		-		-		-		-		-		-		-		-
Equity securities																						-		-		-		3		-		-		3		2
Mortgage and other loans receivable		11		-		-		-		-		-		-		-		11		-		5		-		-		(5)		-		-		-		-
Other invested assets		204		(1)		(5)		(17)		-		(1)		-		-		180		-		250		23		1		18		-		-		292		30
Other assets																						-		-		-		-		-		-		-		-
Total	$	37,666	$	526	$	192	$	(1,820)	$	144	$	(1,035)	$	-	$	-	$	35,673	$	96	$	35,763	$	371	$	(160)	$	(1,410)	$	566	$	(130)	$	35,000	$	90

				Net																Changes in				Net												Changes in
				Realized and				Purchases,												Unrealized Gains				Realized and				Purchases,								Unrealized Gains
				Unrealized				Sales,								Reclassified				(Losses) Included				Unrealized				Sales,								(Losses) Included
		Fair Value		(Gains) Losses		Other		Issuances and		Gross		Gross				to Liabilities		Fair Value		in Income on		Fair Value		(Gains) Losses		Other		Issuances and		Gross		Gross		Fair Value		in Income on
		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		Divested		Held for		End		Instruments Held		Beginning		Included		Comprehensive		Settlements,		Transfers		Transfers		End		Instruments Held
(in millions)		of Period		in Income		Income (Loss)		Net		in		out		Businesses		Sale		of Period		at End of Period		of Period		in Income		Income (Loss)		Net		In		Out		of Period		at End of Period
Liabilities:
Policyholder contract deposits	$	3,033	$	(45)	$	-	$	84	$	-	$	-	$	-	$	-	$	3,072	$	98	$	4,136	$	(506)	$	-	$	66	$	-	$	-	$	3,696	$	604
Derivative liabilities, net:
Interest rate contracts		38		(3)		-		(3)		-		-		-		-		32		3		22		(3)		-		(2)		-		-		17		3
Foreign exchange contracts		11		-		-		(5)		-		-		-		-		6		-		-		(10)		-		11		-		-		1		3
Equity contracts		(58)		(11)		-		7		-		-		-		-		(62)		5		(82)		4		-		-		-		-		(78)		(4)
Credit contracts		329		(15)		-		1		-		-		-		-		315		11		262		(10)		-		(2)		-		-		250		10
Other contracts		(11)		(19)		-		19		-		-		-		-		(11)		(1)		(15)		(17)		-		20		-		-		(12)		17
Total derivative liabilities, net^(b)		309		(48)		-		19		-		-		-		-		280		18
Long-term debt^(c)		71		12		-		(25)		-		-		-		-		58		(2)
Total derivative liabilities, net^(a)																						187		(36)		-		27		-		-		178		29
Total	$	3,413	$	(81)	$	-	$	78	$	-	$	-	$	-	$	-	$	3,410	$	114	$	4,323	$	(542)	$	-	$	93	$	-	$	-	$	3,874	$	633

(a) As a result of the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, equity securities are no longer classified and accounted for as available for sale securities.

~~(b)~~ Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.

~~(c) Includes guaranteed investment agreements (GIAs), notes, bonds, loans and mortgages payable.~~

18AIG | First Quarter ~~2018~~2019 Form 10-Q17

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above are reported in the Condensed Consolidated Statements of Income as follows:

		Net		Net Realized						Net		Net Realized
		Investment		Capital		Other				Investment		Capital		Other
(in millions)		Income	Gains (Losses)			Income		Total		Income	Gains (Losses)			Income		Total
Three Months Ended March 31, 2018
Three Months Ended March 31, 2019
Assets:
Bonds available for sale	$	282	$	(62)	$	-	$	220	$	242	$	(14)	$	-	$	228
Other bond securities		23		(4)		109		128		87		2		-		89
Other equity securities		-		-		-		-
Other invested assets		25		-		(2)		23		-		-		-		-
Three Months Ended March 31, 2017
Three Months Ended March 31, 2018
Assets:
Bonds available for sale	$	298	$	-	$	-	$	298	$	282	$	(62)	$	-	$	220
Other bond securities		75		6		148		229		23		(4)		109		128
Other equity securities		-		-		-		-
Other invested assets		-		(3)		2		(1)		25		-		(2)		23

		Net		Net Realized						Net		Net Realized
		Investment		Capital		Other				Investment		Capital		Other
(in millions)		Income	(Gains) Losses			Income		Total		Income	(Gains) Losses			Income		Total
Three Months Ended March 31, 2018
Three Months Ended March 31, 2019
Liabilities:
Policyholder contract deposits		-		(506)		-		(506)	$	-	$	569	$	-	$	569
Derivative liabilities, net		-		1		(37)		(36)		-		(24)		(16)		(40)
Long-term debt		-		-		-		-
Three Months Ended March 31, 2017
Three Months Ended March 31, 2018
Liabilities:
Policyholder contract deposits		-		(45)		-		(45)	$	-	$	(506)	$	-	$	(506)
Derivative liabilities, net		-		(7)		(41)		(48)		-		1		(37)		(36)
Long-term debt		-		-		12		12

18AIG | First Quarter ~~2018~~2019 Form 10-Q19

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

The following table presents the gross components of purchases, sales, issuances and settlements, net, shown above, for the three-month periods ended March 31, ~~2018~~2019 and ~~2017~~2018 related to Level 3 assets and liabilities in the Condensed Consolidated Balance Sheets:

						Issuances		Purchases, Sales,						Issuances		Purchases, Sales,
						and		Issuances and						and		Issuances and
(in millions)		Purchases		Sales		Settlements		Settlements, Net^(a)		Purchases		Sales		Settlements^(a)		Settlements, Net^(a)
Three Months Ended March 31, 2019
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions									$	47	$	(15)	$	(8)	$	24
Non-U.S. governments										-		-		(4)		(4)
Corporate debt										49		-		(15)		34
RMBS										307		(26)		(693)		(412)
CMBS										184		-		(38)		146
CDO/ABS										198		(156)		(87)		(45)
Total bonds available for sale										785		(197)		(845)		(257)
Other bond securities:
RMBS										-		-		(41)		(41)
CMBS										4		-		(1)		3
CDO/ABS										-		-		(201)		(201)
Total other bond securities										4		-		(243)		(239)
Equity securities										-		-		-		-
Mortgage and other loans receivable										-		-		-		-
Other invested assets										4		-		-		4
Other assets										-		-		1		1
Total assets									$	793	$	(197)	$	(1,087)	$	(491)
Liabilities:
Policyholder contract deposits									$	-	$	173	$	20	$	193
Derivative liabilities, net										(13)		-		32		19
Total liabilities									$	(13)	$	173	$	52	$	212
Three Months Ended March 31, 2018
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	15	$	-	$	(84)	$	(69)	$	15	$	-	$	(84)	$	(69)
Non-U.S. governments		2		-		(1)		1		2		-		(1)		1
Corporate debt		254		(3)		(3)		248		254		(3)		(3)		248
RMBS		233		(5)		(764)		(536)		233		(5)		(764)		(536)
CMBS		12		-		(35)		(23)		12		-		(35)		(23)
CDO/ABS		495		(851)		(354)		(710)		495		(851)		(354)		(710)
Total bonds available for sale		1,011		(859)		(1,241)		(1,089)		1,011		(859)		(1,241)		(1,089)
Other bond securities:
RMBS		1		(5)		(72)		(76)		1		(5)		(72)		(76)
CMBS		-		-		(1)		(1)		-		-		(1)		(1)
CDO/ABS		-		(4)		(256)		(260)		-		(4)		(256)		(260)
Total other bond securities		1		(9)		(329)		(337)		1		(9)		(329)		(337)
Other equity securities		3		-		-		3
Equity securities										3		-		-		3
Mortgage and other loans receivable		-		(5)		-		(5)		-		(5)		-		(5)
Other invested assets		22		-		(4)		18		22		-		(4)		18
Total assets	$	1,037	$	(873)	$	(1,574)	$	(1,410)	$	1,037	$	(873)	$	(1,574)	$	(1,410)
Liabilities:
Policyholder contract deposits	$	-	$	112	$	(46)	$	66	$	-	$	112	$	(46)	$	66
Derivative liabilities, net		(7)		-		34		27		(7)		-		34		27
Long-term debt^(b)		-		-		-		-
Total liabilities	$	(7)	$	112	$	(12)	$	93	$	(7)	$	112	$	(12)	$	93
Three Months Ended March 31, 2017
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	37	$	(5)	$	(11)	$	21
Non-U.S. governments		-		(1)		-		(1)
Corporate debt		-		-		(13)		(13)
RMBS		339		(244)		(953)		(858)
CMBS		39		(67)		(320)		(348)
CDO/ABS		13		-		(115)		(102)
Total bonds available for sale		428		(317)		(1,412)		(1,301)
Other bond securities:
RMBS		98		(167)		(56)		(125)
CMBS		-		(11)		(6)		(17)
CDO/ABS		-		-		(368)		(368)
Total other bond securities		98		(178)		(430)		(510)
Equity securities available for sale		8		-		-		8
Other equity securities		-		-		-		-
Mortgage and other loans receivable		-		-		-		-
Other invested assets		1		-		(18)		(17)
Total assets	$	535	$	(495)	$	(1,860)	$	(1,820)
Liabilities:
Policyholder contract deposits	$	-	$	70	$	14	$	84
Derivative liabilities, net		-		-		19		19
Long-term debt^(b)		-		-		(25)		(25)
Total liabilities	$	-	$	70	$	8	$	78

(a) There were no issuances during the three-month periods ended March 31, 2019 and 2018, ~~and 2017,~~ respectively.

~~(b) Includes GIAs, notes, bonds, loans and mortgages payable.~~

20AIG | First Quarter ~~2018~~2019 Form 10-Q19

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at March 31, ~~2018~~2019 and ~~2017~~2018 may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in unobservable long-dated volatilities).

Transfers of Level 3 Assets and Liabilities

We record transfers of assets and liabilities into or out of Level 3 classification at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. The Net realized and unrealized gains (losses) included in income or Other comprehensive income (loss) as shown in the table above excludes ~~$24~~$55 million and $8$24 million of net losses related to assets and liabilities transferred into Level 3 during the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, and includes $1 million of net ~~gains~~losses related to assets and liabilities transferred out of Level 3 ~~during~~in the three-month period ended March 31, ~~2017.~~2019.

Transfers of Level 3 Assets

During the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, transfers into Level 3 assets primarily included certain investments in private placement corporate debt, RMBS, CMBS and CDO/ABS. Transfers of private placement corporate debt and certain ABS into Level 3 assets were primarily the result of limited market pricing information that required us to determine fair value for these securities based on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated market liquidity. The transfers of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to decreases in market transparency and liquidity for individual security types.

During the three-month periods ended March 31, ~~2018~~2019 and ~~2017~~2018, transfers out of Level 3 assets primarily included private placement and other corporate debt, CMBS, RMBS, CDO/ABS and certain investments in municipal securities. Transfers of certain investments in municipal securities, corporate debt, RMBS, CMBS and CDO/ABS out of Level 3 assets were based on consideration of market liquidity as well as related transparency of pricing and associated observable inputs for these investments. Transfers of certain investments in private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of using observable pricing information that reflects the fair value of those securities without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market.

Transfers of Level 3 Liabilities

There were no significant transfers of derivative or other liabilities into or out of Level 3 for the three-month periods ended March 31, ~~2018~~2019 and ~~2017~~2018.

20AIG | First Quarter ~~2018~~2019 Form 10-Q21

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably available to us, such as data from independent third-party valuation service providers and from internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments (primarily CDO/ABS) may not be reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and liabilities:

	Fair Value at					Fair Value at
	March 31,		Valuation		Range	March 31,		Valuation		Range
(in millions)	2018		Technique	Unobservable Input^(b)	(Weighted Average)	2019		Technique	Unobservable Input^(b)	(Weighted Average)
Assets:

Obligations of states, municipalities
and political subdivisions	$	1,571	Discounted cash flow	Yield	3.82% - 4.51% (4.16%)	$	1,590	Discounted cash flow	Yield	3.59% - 4.58% (4.08%)

Corporate debt		1,638	Discounted cash flow	Yield	4.74% - 13.88% (9.31%)		530	Discounted cash flow	Yield	4.23% - 6.09% (5.16%)

RMBS^(a)		15,679	Discounted cash flow	Constant prepayment rate	3.71% - 12.82% (8.27%)		13,243	Discounted cash flow	Constant prepayment rate	3.63% - 12.64% (8.13%)
				Loss severity	40.73% - 75.96% (58.34%)				Loss severity	38.94% - 75.51% (57.22%)
				Constant default rate	3.23% - 8.25% (5.74%)				Constant default rate	2.17% - 7.14% (4.65%)
				Yield	2.99% - 5.33% (4.16%)				Yield	2.96% - 5.07% (4.01%)

CDO/ABS^(a)		5,200	Discounted cash flow	Yield	3.69% - 4.99% (4.34%)		4,554	Discounted cash flow	Yield	3.45% - 5.21% (4.33%)

CMBS		456	Discounted cash flow	Yield	2.82% - 6.34% (4.58%)		484	Discounted cash flow	Yield	2.81% - 5.81% (4.31%)
Liabilities:

Embedded derivatives within
Policyholder contract deposits:

Guaranteed minimum withdrawal benefits (GMWB)		1,601	Discounted cash flow	Equity volatility	6.45% - 50.55%		2,023	Discounted cash flow	Equity volatility	5.85% - 46.25%
				Base lapse rate	0.35% - 14.00%				Base lapse rate	0.16% - 12.60%
				Dynamic lapse multiplier	30.00% - 170.00%				Dynamic lapse multiplier	20.00% - 180.00%
				Mortality multiplier^(c)	40.00% - 153.00%				Mortality multiplier^(c)	40.00% - 153.00%
				Utilization	90.00% - 100.00%				Utilization	90.00% - 100.00%
				Equity / interest-rate correlation	20.00% - 40.00%				Equity / interest-rate correlation	20.00% - 40.00%

Index Annuities		1,517	Discounted cash flow	Lapse rate	0.50% - 40.00%		2,382	Discounted cash flow	Lapse rate	0.50% - 40.00%
				Mortality multiplier^(c)	42.00% - 162.00%				Mortality multiplier^(c)	42.00% - 162.00%
				Option Budget	1.00% - 4.00%				Option Budget	1.00% - 4.00%

Indexed Life		554	Discounted cash flow	Base lapse rate	2.00% - 19.00%		448	Discounted cash flow	Base lapse rate	0.00% - 13.00%
				Mortality rate	0.00% - 40.00%				Mortality rate	0.00% - 100.00%

22AIG | First Quarter ~~2018~~2019 Form 10-Q21

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements


		Fair Value at					Fair Value at
		December 31,	Valuation		Range		December 31,	Valuation		Range
(in millions)		2017	Technique	Unobservable Input^(b)	(Weighted Average)		2018	Technique	Unobservable Input^(b)	(Weighted Average)
Assets:

Obligations of states, municipalities
and political subdivisions	$	1,620	Discounted cash flow	Yield	3.55% - 4.32% (3.94%)	$	1,473	Discounted cash flow	Yield	3.91% - 5.00% (4.46%)

Corporate debt		1,086	Discounted cash flow	Yield	3.26% - 12.22% (7.74%)		445	Discounted cash flow	Yield	4.35% - 5.99% (5.17%)

RMBS^(a)		16,156	Discounted cash flow	Constant prepayment rate	3.97% - 13.42% (8.69%)		13,608	Discounted cash flow	Constant prepayment rate	4.58% - 14.00% (9.29%)
				Loss severity	43.15% - 77.15% (60.15%)				Loss severity	39.66% - 74.40% (57.03%)
				Constant default rate	3.31% - 8.30% (5.80%)				Constant default rate	2.46% - 7.39% (4.92%)
				Yield	2.73% - 5.19% (3.96%)				Yield	3.31% - 5.50% (4.40%)

CDO/ABS^(a)		5,254	Discounted cash flow	Yield	3.38% - 4.78% (4.08%)		5,461	Discounted cash flow	Yield	3.65% - 5.10% (4.37%)

CMBS		487	Discounted cash flow	Yield	2.22% - 7.77% (4.99%)		447	Discounted cash flow	Yield	3.29% - 6.07% (4.68%)
Liabilities:

Embedded derivatives within
Policyholder contract deposits:

GMWB		1,994	Discounted cash flow	Equity volatility	6.45% - 51.25%		1,943	Discounted cash flow	Equity volatility	6.05% - 47.65%
				Base lapse rate	0.35% - 14.00%				Base lapse rate	0.16% - 12.60%
				Dynamic lapse multiplier	30.00% - 170.00%				Dynamic lapse multiplier	20.00% - 180.00%
				Mortality multiplier^(c)	40.00% - 153.00%				Mortality multiplier^(c)	40.00% - 153.00%
				Utilization	90.00% - 100.00%				Utilization	90.00% - 100.00%
				Equity / interest-rate correlation	20.00% - 40.00%				Equity / interest-rate correlation	20.00% - 40.00%

Index Annuities		1,603	Discounted cash flow	Lapse rate	0.50% - 40.00%		1,778	Discounted cash flow	Lapse rate	0.50% - 40.00%
				Mortality multiplier^(c)	42.00% - 162.00%				Mortality multiplier^(c)	42.00% - 162.00%
				Option Budget	1.00% - 4.00%				Option Budget	1.00% - 3.00%

Indexed Life		515	Discounted cash flow	Base lapse rate	2.00% - 19.00%		374	Discounted cash flow	Base lapse rate	0.00% - 13.00%
				Mortality rate	0.00% - 40.00%				Mortality rate	0.00% - 100.00%

(a) Information received from third-party valuation service providers. The ranges of the unobservable inputs for constant prepayment rate, loss severity and constant default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the tranches purchased by us, because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to, purchase price, position in the waterfall, senior versus subordinated position and attachment points.

(b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities.

The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flow technique consist of one standard deviation in either direction from the value‑weighted average. The preceding table does not give effect to our risk management practices that might offset risks inherent in these Level 3 assets and liabilities.

Sensitivity to Changes in Unobservable Inputs

We consider unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset or liability. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following paragraphs provide a general description of sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently of changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply.

22AIG | First Quarter ~~2018~~2019 Form 10-Q23

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

Obligations of States, Municipalities and Political Subdivisions

The significant unobservable input used in the fair value measurement of certain investments in obligations of states, municipalities and political subdivisions is yield. In general, increases in the yield would decrease the fair value of investments in obligations of states, municipalities and political subdivisions.

Corporate Debt

Corporate debt securities included in Level 3 are primarily private placement issuances that are not traded in active markets or that are subject to transfer restrictions. Fair value measurements consider illiquidity and ~~non‑transferability.~~non-transferability. When observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit spreads, yields or price levels of publicly‑traded debt of the issuer or other comparable securities, considering illiquidity and structure. The significant unobservable input used in the fair value measurement of corporate debt is the yield. The yield is affected by the market movements in credit spreads and U.S. Treasury yields. In addition, the migration in credit quality of a given security generally has a corresponding effect on the fair value measurement of the security. For example, a downward migration of credit quality would increase spreads. Holding U.S. Treasury rates constant, an increase in corporate credit spreads would decrease the fair value of corporate debt.

RMBS and CDO/ABS

The significant unobservable inputs used in fair value measurements of RMBS and certain CDO/ABS valued by third‑party valuation service providers are constant prepayment rates (CPR), loss severity, constant default rates (CDR) and yield. A change in the assumptions used for the probability of default will generally be accompanied by a corresponding change in the assumption used for the loss severity and an inverse change in the assumption used for prepayment rates. In general, increases in CPR, loss severity, CDR and yield, in isolation, would result in a decrease in the fair value measurement. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship between the directional change of each input is not usually linear.

CMBS

The significant unobservable input used in fair value measurements for CMBS is the yield. Prepayment assumptions for each mortgage pool are factored into the yield. CMBS generally feature a lower degree of prepayment risk than RMBS because commercial mortgages generally contain a penalty for prepayment. In general, increases in the yield would decrease the fair value of CMBS.

Embedded derivatives within Policyholder contract deposits

Embedded derivatives reported within Policyholder contract deposits include GMWB within variable annuity products and interest crediting rates based on market indices within index annuities, indexed life and GICs. For any given contract, assumptions for unobservable inputs vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. The following unobservable inputs are used for valuing embedded derivatives measured at fair value:

• Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. Increases in assumed volatility will generally increase the fair value of both the projected cash flows from rider fees as well as the projected cash flows related to benefit ~~payments.~~payments. Therefore, the net change in the fair value of the liability may be either a decrease or an increase, depending on the relative changes in projected rider fees and projected benefit payments.

• Equity / interest rate correlation estimates the relationship between changes in equity returns and interest rates in the economic scenario generator used to value our GMWB embedded derivatives. In general, a higher positive correlation assumes that equity markets and interest rates move in a more correlated fashion, which generally increases the fair value of the liability.

• Base lapse rate assumptions are determined by company experience and are adjusted at the contract level using a dynamic lapse function, which reduces the base lapse rate when the contract is in-the-money (when the contract holder’s guaranteed value, as estimated by the company, is worth more than their underlying account value). Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. Increases in assumed lapse rates will generally decrease the fair value of the liability, as fewer policyholders would persist to collect guaranteed withdrawal amounts.

• Mortality rate assumptions, which vary by age and gender, are based on company experience and include a mortality improvement assumption. Increases in assumed mortality rates will decrease the fair value of the liability, while lower mortality rate assumptions will generally increase the fair value of the liability, because guaranteed payments will be made for a longer period of time.

24AIG | First Quarter ~~2018~~2019 Form 10-Q23

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

• Utilization assumptions estimate the timing when policyholders with a GMWB will elect to utilize their benefit and begin taking withdrawals. The assumptions may vary by the type of guarantee, tax-qualified status, the contract’s withdrawal history and the age of the policyholder. Utilization assumptions are based on company experience, which includes partial withdrawal behavior. Increases in assumed utilization rates will generally increase the fair value of the liability.

• Option budget estimates the expected long-term cost of options used to hedge exposures associated with equity price changes. The level of option budgets determines future costs of the options, which impacts the growth in account value and the valuation of embedded derivatives.

Investments in Certain Entities Carried at Fair Value Using Net Asset Value Per Share

The following table includes information related to our investments in certain other invested assets, including private equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring basis, we use the net asset value per share to measure fair value.

		March 31, 2018				December 31, 2017					March 31, 2019				December 31, 2018
			Fair Value			Fair Value						Fair Value			Fair Value
			Using NAV			Using NAV						Using NAV			Using NAV
			Per Share (or		Unfunded	Per Share (or			Unfunded			Per Share (or		Unfunded	Per Share (or			Unfunded
(in millions)	Investment Category Includes		its equivalent)		Commitments	its equivalent)			Commitments	Investment Category Includes		its equivalent)		Commitments	its equivalent)			Commitments
Investment Category
*Private equity funds:*
Leveraged buyout	Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired from the current shareholders, typically with the use of financial leverage	$	1,261	$	719	$	1,243	$	706	Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired from the current shareholders, typically with the use of financial leverage	$	970	$	1,378	$	847	$	1,327

Real Estate / Infrastructure	Investments in real estate properties and infrastructure positions, including power plants and other energy generating facilities		238		166		210		187	Investments in real estate properties and infrastructure positions, including power plants and other energy generating facilities		232		179		190		83

Venture capital	Early-stage, high-potential, growth companies expected to generate a return through an eventual realization event, such as an initial public offering or sale of the company		145		133		134		73	Early-stage, high-potential, growth companies expected to generate a return through an eventual realization event, such as an initial public offering or sale of the company		130		116		126		127

Distressed	Securities of companies that are in default, under bankruptcy protection, or troubled		109		43		113		42
Growth Equity										Funds that make investments in established companies for the purpose of growing their businesses		371		29		362		28

Mezzanine										Funds that make investments in the junior debt and equity securities of leveraged companies		218		97		211		75

Other	Includes multi-strategy, mezzanine and other strategies		492		198		428		219	Includes distressed funds that invest in securities of companies that are in default or under bankruptcy protection, as well as funds that have multi-strategy, and other strategies		623		285		514		307
Total private equity funds	Total private equity funds		2,245		1,259		2,128		1,227	Total private equity funds		2,544		2,084		2,250		1,947
*Hedge funds:*
Event-driven	Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations		1,074		-		1,128		-	Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations		815		-		787		-

Long-short	Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk		1,196		-		1,233		-	Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk		725		-		863		-

Macro	Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions		1,045		-		1,011		-	Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions		820		-		887		-

Distressed	Securities of companies that are in default, under bankruptcy protection or troubled		170		8		266		8	Securities of companies that are in default, under bankruptcy protection or troubled		18		-		21		8

Other	Includes investments held in funds that are less liquid, as well as other strategies which allow for broader allocation between public and private investments		204		3		231		4	Includes investments held in funds that are less liquid, as well as other strategies which allow for broader allocation between public and private investments		160		1		158		1
Total hedge funds			3,689		11		3,869		12			2,538		1		2,716		9
Total		$	5,934	$	1,270	$	5,997	$	1,239		$	5,082	$	2,085	$	4,966	$	1,956

24AIG | First Quarter ~~2018~~2019 Form 10-Q25

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

Private equity fund investments included above are not redeemable, because distributions from the funds will be received when underlying investments of the funds are liquidated. Private equity funds are generally expected to have ~~10-year~~10 -year lives at their inception, but these lives may be extended at the fund manager’s discretion, typically in one or ~~two-year~~two -year increments. At March 31, ~~2018,~~2019, assuming average original expected lives of 10 years for the funds, 5519 percent of the total fair value using net asset value per share (or its equivalent) presented above would have expected remaining lives of three years or less, 2343 percent between four and six years and 2238 percent between seven and 10 years.

The hedge fund investments included above, which are carried at fair value, are generally redeemable monthly ~~(26~~(35 percent), quarterly ~~(40~~(29 percent), semi-annually ~~(11~~(10 percent) and annually ~~(23~~(26 percent), with redemption notices ranging from one day to 180 days. At March 31, ~~2018,~~2019, investments representing approximately 5556 percent of the total fair value of these hedge fund investments had partial contractual redemption restrictions. These partial redemption restrictions are generally related to one or more investments held in the hedge funds that the fund manager deemed to be illiquid. The majority of these contractual restrictions, which may have been put in place at the fund’s inception or thereafter, have pre-defined end dates. The majority of these restrictions are generally expected to be lifted by the end of ~~2018.~~2019.

Fair Value Option

The following table presents the gains or losses recorded related to the eligible instruments for which we elected the fair value option:

Three Months Ended March 31,	Gain (Loss)				Gain (Loss)
(in millions)		2018		2017		2019		2018
Assets:
Bond and equity securities	$	23	$	349	$	355	$	23
Alternative investments^(a)		128		181		230		128
Liabilities:
Long-term debt^(b)		52		(15)		(60)		52
Total gain	$	203	$	515	$	525	$	203

(a) Includes certain hedge funds, private equity funds and other investment partnerships.

(b) Includes GIAs, notes, bonds and mortgages payable.

We recognized gains of $3 million during the three-month period ended March 31, 2017, attributable to the observable effect of changes in credit spreads on our own liabilities for which the fair value option was elected. We calculate the effect of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, our observable credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted.

As a result of the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, we are required to record unrealized gains and losses attributable to the observable effect of changes in credit spreads on our liabilities for which the fair value option was elected in Other Comprehensive Income. ~~The total unrealized gain recognized in Other Comprehensive Income for~~We calculate the ~~three-month period ended March 31, 2018 was $2 million.~~effect of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, our observable credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted.

The following table presents the difference between fair values and the aggregate contractual principal amounts of mortgage and other loans receivable and long-term debt for which the fair value option was elected:

	March 31, 2018						December 31, 2017						March 31, 2019						December 31, 2018
			Outstanding						Outstanding						Outstanding						Outstanding
(in millions)	Fair Value		Principal Amount		Difference		Fair Value		Principal Amount		Difference		Fair Value		Principal Amount		Difference		Fair Value		Principal Amount		Difference
Assets:
Mortgage and other loans receivable	$	-	$	-	$	-	$	5	$	5	$	-
Liabilities:
Long-term debt^*	$	2,820	$	2,311	$	509	$	2,888	$	2,280	$	608	$	2,263	$	1,685	$	578	$	2,213	$	1,653	$	560

* Includes GIAs, notes, bonds, loans and mortgages payable.

26AIG | First Quarter ~~2018~~2019 Form 10-Q25

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 4.5. Fair Value Measurements

FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS

The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the related impairment charges recorded during the periods presented:

		Assets at Fair Value							Impairment Charges					Assets at Fair Value							Impairment Charges
		Non-Recurring Basis							Three Months Ended March 31,					Non-Recurring Basis							Three Months Ended March 31,
(in millions)		Level 1		Level 2		Level 3		Total		2018		2017		Level 1		Level 2		Level 3		Total		2019		2018
March 31, 2018
March 31, 2019
Other investments	$	-	$	-	$	95	$	95	$	28	$	17	$	-	$	-	$	207	$	207	$	41	$	28
Investments in life settlements		-		-		-		-		-		41
Other assets^*		-		-		-		-		-		35
Total	$	-	$	-	$	95	$	95	$	28	$	93
December 31, 2017
Other investments	$	-	$	-	$	55	$	55
Investments in life settlements		-		-		-		-
Other assets		-		-		-		-						-		-		1		1		8		-
Total	$	-	$	-	$	55	$	55					$	-	$	-	$	208	$	208	$	49	$	28
December 31, 2018
Other investments													$	-	$	-	$	315	$	315
Other assets														-		-		11		11
Total													$	-	$	-	$	326	$	326

* Impairments in 2017 included $35 million related to other assets of $179 million that were reclassified to assets held for sale.

FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE

The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:

	Estimated Fair Value									Carrying	Estimated Fair Value									Carrying
(in millions)		Level 1		Level 2		Level 3		Total		Value		Level 1		Level 2		Level 3		Total		Value
March 31, 2018
March 31, 2019
Assets:
Mortgage and other loans receivable	$	-	$	114	$	38,558	$	38,672	$	38,540	$	-	$	107	$	44,870	$	44,977	$	43,834
Other invested assets		-		764		6		770		767		-		699		6		705		705
Short-term investments		-		11,522		-		11,522		11,522		-		7,093		-		7,093		7,093
Cash		2,103		-		-		2,103		2,103		2,565		-		-		2,565		2,565
Other assets												348		15		-		363		363
Liabilities:
Policyholder contract deposits associated
with investment-type contracts		-		373		121,648		122,021		117,265		-		337		119,312		119,649		122,616
Other liabilities		-		3,210		-		3,210		3,210		-		1,606		-		1,606		1,606
Long-term debt		-		24,488		4,507		28,995		30,799		1,044		24,384		8,432		33,860		33,513
December 31, 2017
December 31, 2018
Assets:
Mortgage and other loans receivable	$	-	$	117	$	37,644	$	37,761	$	37,018	$	-	$	105	$	43,522	$	43,627	$	43,135
Other invested assets		-		590		6		596		593		-		731		6		737		737
Short-term investments		-		7,771		-		7,771		7,771		-		6,659		-		6,659		6,659
Cash		2,362		-		-		2,362		2,362		2,873		-		-		2,873		2,873
Other assets												308		35		-		343		343
Liabilities:
Policyholder contract deposits associated
with investment-type contracts		-		387		121,809		122,196		114,326		-		339		121,035		121,374		120,602
Other liabilities		-		4,494		-		4,494		4,494		-		1,154		-		1,154		1,154
Long-term debt		-		23,930		4,313		28,243		28,752		-		22,822		8,775		31,597		32,327

26AIG | First Quarter ~~2018~~2019 Form 10-Q27

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

5.6. Investments

Securities Available for Sale

The following table presents the amortized cost or cost and fair value of our available for sale ~~securities~~^(a):securities:

										Other-Than-										Other-Than-
		Amortized		Gross		Gross				Temporary		Amortized		Gross		Gross				Temporary
		Cost or		Unrealized		Unrealized		Fair		Impairments		Cost or		Unrealized		Unrealized		Fair		Impairments
(in millions)		Cost		Gains		Losses		Value		in AOCI^(b)		Cost		Gains		Losses		Value		in AOCI^(a)
March 31, 2018
March 31, 2019
Bonds available for sale:
U.S. government and government sponsored entities	$	2,764	$	121	$	(52)	$	2,833	$	-	$	3,267	$	151	$	(17)	$	3,401	$	-
Obligations of states, municipalities and political subdivisions		16,943		941		(73)		17,811		-		14,952		1,013		(43)		15,922		-
Non-U.S. governments		15,350		570		(197)		15,723		-		14,799		600		(125)		15,274		-
Corporate debt		127,106		6,020		(1,787)		131,339		13		133,768		6,314		(1,409)		138,673		(24)
Mortgage-backed, asset-backed and collateralized:
RMBS		33,131		3,150		(392)		35,889		1,343		31,324		2,871		(191)		34,004		1,171
CMBS		13,558		273		(222)		13,609		29		12,895		355		(89)		13,161		31
CDO/ABS		16,500		284		(74)		16,710		26		17,603		287		(124)		17,766		17
Total mortgage-backed, asset-backed and collateralized		63,189		3,707		(688)		66,208		1,398		61,822		3,513		(404)		64,931		1,219
Total bonds available for sale^(c)		225,352		11,359		(2,797)		233,914		1,411
December 31, 2017
Total bonds available for sale^(b)											$	228,608	$	11,591	$	(1,998)	$	238,201	$	1,195
December 31, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	2,532	$	160	$	(36)	$	2,656	$	-	$	3,170	$	132	$	(42)	$	3,260	$	-
Obligations of states, municipalities and political subdivisions		17,377		1,297		(30)		18,644		-		15,421		701		(121)		16,001		4
Non-U.S. governments		15,059		717		(117)		15,659		-		14,376		451		(302)		14,525		-
Corporate debt		126,310		8,666		(800)		134,176		17		130,436		3,911		(3,647)		130,700		4
Mortgage-backed, asset-backed and collateralized:
RMBS		34,181		3,273		(220)		37,234		1,568		31,940		2,754		(317)		34,377		1,155
CMBS		13,538		408		(105)		13,841		42		12,673		242		(214)		12,701		31
CDO/ABS		16,464		370		(52)		16,782		29		17,764		228		(165)		17,827		17
Total mortgage-backed, asset-backed and collateralized		64,183		4,051		(377)		67,857		1,639		62,377		3,224		(696)		64,905		1,203
Total bonds available for sale^(c)		225,461		14,891		(1,360)		238,992		1,656
Equity securities available for sale:
Common stock		703		379		(21)		1,061		-
Preferred stock		504		29		-		533		-
Mutual funds		98		16		-		114		-
Total equity securities available for sale		1,305		424		(21)		1,708		-
Total	$	226,766	$	15,315	$	(1,381)	$	240,700	$	1,656
Total bonds available for sale^(b)											$	225,780	$	8,419	$	(4,808)	$	229,391	$	1,211

~~(b)~~ Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive ~~income.~~income (loss). Amount includes unrealized gains and losses on impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.

~~(c)~~(b) At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, bonds available for sale held by us that were below investment grade or not rated totaled ~~$30.4~~$29.1 billion and ~~$31.5~~$28.8 billion, respectively.

28AIG | First Quarter ~~2018~~2019 Form 10-Q27

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

Securities Available for Sale in a Loss Position

The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss ~~position~~^(a):position:

	Less than 12 Months				12 Months or More				Total				Less than 12 Months				12 Months or More				Total
				Gross				Gross				Gross				Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in millions)		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses
March 31, 2018
March 31, 2019
Bonds available for sale:
U.S. government and government sponsored entities	$	1,097	$	25	$	529	$	27	$	1,626	$	52	$	508	$	10	$	356	$	7	$	864	$	17
Obligations of states, municipalities and political
subdivisions		2,010		36		599		37		2,609		73		331		8		935		35		1,266		43
Non-U.S. governments		5,825		127		893		70		6,718		197		2,642		52		1,635		73		4,277		125
Corporate debt		38,072		1,263		6,701		524		44,773		1,787		16,010		520		21,874		889		37,884		1,409
RMBS		7,716		206		3,349		186		11,065		392		4,715		73		3,800		118		8,515		191
CMBS		6,105		133		1,347		89		7,452		222		1,524		20		2,796		69		4,320		89
CDO/ABS		3,127		34		831		40		3,958		74		7,121		99		1,554		25		8,675		124
Total bonds available for sale	$	63,952	$	1,824	$	14,249	$	973	$	78,201	$	2,797	$	32,851	$	782	$	32,950	$	1,216	$	65,801	$	1,998
December 31, 2017
December 31, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	770	$	23	$	332	$	13	$	1,102	$	36	$	574	$	13	$	873	$	29	$	1,447	$	42
Obligations of states, municipalities and political
subdivisions		586		6		646		24		1,232		30		1,965		51		1,530		70		3,495		121
Non-U.S. governments		3,511		54		857		63		4,368		117		3,851		149		2,422		153		6,273		302
Corporate debt		15,578		453		7,291		347		22,869		800		47,364		2,181		20,056		1,466		67,420		3,647
RMBS		6,212		99		3,790		121		10,002		220		5,231		94		5,641		223		10,872		317
CMBS		3,408		46		1,389		59		4,797		105		2,646		47		4,264		167		6,910		214
CDO/ABS		1,455		24		822		28		2,277		52		9,169		144		1,324		21		10,493		165
Total bonds available for sale		31,520		705		15,127		655		46,647		1,360	$	70,800	$	2,679	$	36,110	$	2,129	$	106,910	$	4,808
Equity securities available for sale:
Common stock		136		21		-		-		136		21
Mutual funds		1		-		-		-		1		-
Total equity securities available for sale		137		21		-		-		137		21
Total	$	31,657	$	726	$	15,127	$	655	$	46,784	$	1,381

At March 31, ~~2018,~~2019, we held ~~12,137~~10,388 individual fixed maturity securities that were in an unrealized loss position, of which ~~2,015~~4,656 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more. We did not recognize the unrealized losses in earnings on these fixed maturity securities at March 31, ~~2018~~2019 because we neither intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other available market data.

28AIG | First Quarter ~~2018~~2019 Form 10-Q29

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

Contractual Maturities of Fixed Maturity Securities Available for Sale

The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual maturity:

	Total Fixed Maturity Securities				Fixed Maturity Securities in a Loss				Total Fixed Maturity Securities				Fixed Maturity Securities in a Loss
	Available for Sale				Position Available for Sale				Available for Sale				Position Available for Sale
(in millions)		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
March 31, 2018
March 31, 2019
Due in one year or less	$	8,393	$	8,524	$	1,881	$	1,872	$	10,113	$	10,263	$	2,009	$	1,978
Due after one year through five years		46,987		48,261		11,548		11,232		46,478		47,484		11,419		11,088
Due after five years through ten years		42,637		42,973		22,337		21,507		44,185		45,355		15,183		14,787
Due after ten years		64,146		67,948		22,069		21,115		66,010		70,168		17,274		16,438
Mortgage-backed, asset-backed and collateralized		63,189		66,208		23,163		22,475		61,822		64,931		21,914		21,510
Total	$	225,352	$	233,914	$	80,998	$	78,201	$	228,608	$	238,201	$	67,799	$	65,801
December 31, 2017
December 31, 2018
Due in one year or less	$	7,932	$	8,071	$	1,526	$	1,515	$	9,539	$	9,674	$	2,322	$	2,294
Due after one year through five years		47,179		49,093		7,764		7,571		47,400		47,905		17,382		16,844
Due after five years through ten years		42,617		43,944		11,559		11,143		42,363		42,045		27,724		26,517
Due after ten years		63,550		70,027		9,705		9,342		64,101		64,862		35,319		32,980
Mortgage-backed, asset-backed and collateralized		64,183		67,857		17,453		17,076		62,377		64,905		28,971		28,275
Total	$	225,461	$	238,992	$	48,007	$	46,647	$	225,780	$	229,391	$	111,718	$	106,910

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

The following table presents the gross realized gains and gross realized losses from sales or maturities of our available for sale securities:

Three Months Ended March 31,										2019				2018
		2018				2017				Gross		Gross		Gross		Gross
		Gross		Gross		Gross		Gross	Realized
Three Months Ended March 31,	Realized						Realized
(in millions)		Gains		Losses		Gains		Losses		Gains		Losses		Gains		Losses
Fixed maturity securities	$	70	$	60	$	333	$	178	$	93	$	124	$	70	$	60
Equity securities		16		-		17		16		-		-		16		-
Total	$	86	$	60	$	350	$	194	$	93	$	124	$	86	$	60

For the ~~three-month~~three-month periods ended March 31, 2019 and 2018, ~~and 2017,~~ the aggregate fair value of available for sale securities sold was ~~$5.5~~$6.4 billion and ~~$15.8~~$5.5 billion, respectively, which resulted in net realized capital gains (losses) of ~~$26~~$(31) million and ~~$156~~$26 million, respectively.

30AIG | First Quarter ~~2018~~2019 Form 10-Q29

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

Other Securities Measured at Fair Value

The following table presents the fair value of other securities measured at fair value based on our election of the fair value option:

		March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
		Fair	Percent			Fair	Percent			Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total			Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	2,777	20	%	$	2,802	21	%	$	2,780	23	%	$	2,665	21	%
Non-U.S. governments		54	-			57	1			51	-			45	-
Corporate debt		1,803	13			1,909	14			1,745	14			1,671	13
Mortgage-backed, asset-backed and collateralized:
RMBS		1,818	13			1,885	14			1,757	14			1,714	14
CMBS		566	4			559	4			399	3			388	3
CDO/ABS and other collateralized^*		5,379	38			5,560	42			4,779	39			4,932	39
Total mortgage-backed, asset-backed and collateralized		7,763	55			8,004	60			6,935	56			7,034	56
Total fixed maturity securities		12,397	88			12,772	96			11,511	93			11,415	90
Equity securities		1,725	12			589	4			841	7			1,253	10
Total	$	14,122	100	%	$	13,361	100	%	$	12,352	100	%	$	12,668	100	%

* Includes ~~$220~~$164 million and ~~$251~~$178 million of U.S. government agency-backed ABS at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Other Invested Assets

The following table summarizes the carrying amounts of other invested assets:

		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Alternative investments^{(a) (b)}	$	11,125	$	11,308	$	8,711	$	8,966
Investment real estate^(c)		8,636		8,258		9,204		8,935
Aircraft asset investments^(d)		201		206
All other investments		1,221		1,050		1,428		1,440
Total	$	21,183	$	20,822	$	19,343	$	19,341

(a) At March 31, ~~2018,~~2019, included hedge funds of ~~$5.5~~$3.9 billion, private equity funds of ~~$5.2~~$4.4 billion, and affordable housing partnerships of ~~$483~~$392 million. At December 31, ~~2017,~~2018, included hedge funds of ~~$5.8~~$4.2 billion, private equity funds of ~~$5.0~~$4.3 billion, and affordable housing partnerships of ~~$543~~$438 million.

(b) ~~Approximately 69~~At March 31, 2019, approximately 72 percent of our hedge fund portfolio is available for redemption in ~~2018, an additional 31~~2019. The remaining 28 percent will be available for redemption between ~~2019~~2020 and 2027.

(c) Net of accumulated depreciation of ~~$556~~$633 million and ~~$515~~$598 million inat March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Net Investment Income

~~(d) Consists~~The following table presents the components of ~~investments in aircraft equipment held in~~Net investment income:

Three Months Ended March 31,
(in millions)		2019		2018
Available for sale fixed maturity securities, including short-term investments	$	2,653	$	2,610
Other fixed maturity securities		327		(21)
Equity securities		79		(32)
Interest on mortgage and other loans		498		450
Alternative investments^(a)		419		337
Real estate		69		31
Other investments		(52)		10
Total investment income		3,993		3,385
Investment expenses		114		124
Net investment income	$	3,879	$	3,261

(a) Includes income from hedge funds, private equity funds and affordable housing partnerships. Hedge funds are recorded as of the balance sheet date. Private equity funds are generally reported on a ~~consolidated trust.~~one-quarter lag.

30AIG | First Quarter ~~2018~~2019 Form 10-Q31

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

~~Net Investment Income~~

~~The following table presents the components of Net investment income:~~

Three Months Ended March 31,

(in millions)

2018

2017
Available for sale fixed maturity securities, including short-term investments

$
2,610
$
2,667
Other fixed maturity securities

(21)

134
Equity securities^(a)

(32)

5
Interest on mortgage and other loans

450

393
Alternative investments^(b)

337

448
Real estate

31

49
Other investments

10

116
Total investment income

3,385

3,812
Investment expenses

124

126
Net investment income

$
3,261
$
3,686

~~(a) Upon the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, the change in fair value of all equity securities is included in Net Investment Income.~~

(b) Includes income from hedge funds, private equity funds and affordable housing partnerships. Hedge funds for which we elected the fair value option are recorded as of the balance sheet date. Other hedge funds are generally reported on a one-month lag, while private equity funds are generally reported on a one-quarter lag.

Net Realized Capital Gains and Losses

The following table presents the components of Net realized capital gains (losses):

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Sales of fixed maturity securities	$	10	$	155	$	(31)	$	10
Sales of equity securities		16		1		-		16
Other-than-temporary impairments:
Severity		-		-
Change in intent		(49)		(1)		(3)		(49)
Foreign currency declines		(6)		(10)		(6)		(6)
Issuer-specific credit events		(32)		(57)		(71)		(32)
Adverse projected cash flows		-		-		(3)		-
Provision for loan losses		(24)		6		(24)		(24)
Foreign exchange transactions		53		159		(37)		53
Variable annuity embedded derivatives, net of related hedges		147		(389)		(261)		147
All other derivatives and hedge accounting		(225)		13		(72)		(225)
Impairments on investments in life settlements		-		(41)
Other		91		49		62		91
Net realized capital losses	$	(19)	$	(115)	$	(446)	$	(19)

Change in Unrealized Appreciation (Depreciation) of Investments

The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale securities and other investments:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	(4,969)	$	773	$	5,982	$	(4,969)
Equity securities^(a)		-		114
Other investments		(25)		(54)		(69)		(25)
Total increase (decrease) in unrealized appreciation (depreciation) of investments^(b)	$	(4,994)	$	833
Total increase (decrease) in unrealized appreciation (depreciation) of investments					$	5,913	$	(4,994)

~~(a) As a result of~~The following table summarizes the ~~adoption of~~unrealized gains and losses recognized in Net Investment Income during the ~~Financial Instruments Recognition and Measurement Standard~~reporting period on ~~January 1, 2018,~~ equity securities ~~are no longer classified and accounted for as available for sale securities.~~still held at the reporting date:

				Other Invested
(in millions)		Equities		Assets		Total
Three Months Ended March 31, 2019
Net gains and losses recognized during the period on equity securities	$	79	$	239	$	318
Less: Net gains and losses recognized during the period on equity securities sold
during the period		19		10		29
Unrealized gains and losses recognized during the reporting period on equity
securities still held at the reporting date	$	60	$	229	$	289
Three Months Ended March 31, 2018
Net gains and losses recognized during the period on equity securities	$	(31)	$	192	$	161
Less: Net gains and losses recognized during the period on equity securities sold
during the period		(8)		(1)		(9)
Unrealized gains and losses recognized during the reporting period on equity
securities still held at the reporting date	$	(23)	$	193	$	170

32AIG | First Quarter ~~2018~~2019 Form 10-Q31

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

~~(b) Excludes net unrealized losses attributable to businesses held for sale.~~

~~The following table summarizes the unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date*:~~

Three Months Ended March 31, 2018

Other Invested

(in millions)

Equities

Assets

Total
Net gains and losses recognized during the period on equity securities
$
(31)
$
192
$
161
Less: Net gains and losses recognized during the period on equity securities sold

during the period

(8)

(1)

(9)
Unrealized gains and losses recognized during the reporting period on equity

securities still held at the reporting date
$
(23)
$
193
$
170

* The table includes a gain of $72 million in Other Invested Assets and a loss of $31 million in Equities recorded during the three-month period ended March 31, 2018, as a result of the new Financial Instruments Recognition and Measurement Standard.

Evaluating Investments for Other-Than-Temporary Impairments

For a discussion of our policy for evaluating investments for other-than-temporary impairments see Note 6 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

Credit Impairments

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in earnings for available for sale fixed maturity securities:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Balance, beginning of year	$	526	$	1,098	$	-	$	526
Increases due to:
Credit impairments on new securities subject to impairment losses		14		17		68		14
Additional credit impairments on previously impaired securities		17		30		6		17
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(51)		(11)		(21)		(51)
Accretion on securities previously impaired due to credit^*		(148)		(188)		(53)		(148)
Balance, end of period	$	358	$	946	$	-	$	358

* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time.

Purchased Credit Impaired (PCI) Securities

We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both principal and interest. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining lives on an effective yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected future cash flows, which are discussed further below.

On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are recognized prospectively as adjustments to the accretable yield.

The following tables present information on our PCI securities, which are included in bonds available for sale:

(in millions)	At Date of Acquisition
Contractually required payments (principal and interest)	$	36,385
Cash flows expected to be collected^*		29,862
Recorded investment in acquired securities		20,156

* Represents undiscounted expected cash flows, including both principal and interest.

32AIG | First Quarter ~~2018~~2019 Form 10-Q33

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

~~The following tables present information on our PCI securities, which are included in bonds available for sale:~~

(in millions)
At Date of Acquisition
Contractually required payments (principal and interest)
$
36,711
Cash flows expected to be collected^*

30,121
Recorded investment in acquired securities

20,334

(in millions)	March 31, 2019		December 31, 2018
Outstanding principal balance	$	12,063	$	12,495
Amortized cost		8,307		8,646
Fair value		9,973		10,280

* Represents undiscounted expected cash flows, including both principal and interest.

(in millions)
March 31, 2018
December 31, 2017
Outstanding principal balance
$
14,253
$
14,718
Amortized cost

10,141

10,492
Fair value

11,977

12,293

The following table presents activity for the accretable yield on PCI securities:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Balance, beginning of period	$	7,501	$	7,498
Balance, beginning of year					$	7,210	$	7,501
Newly purchased PCI securities		23		88		12		23
Disposals		-		(18)
Accretion		(187)		(210)		(172)		(187)
Effect of changes in interest rate indices		206		21		(134)		206
Net reclassification from (to) non-accretable difference, including effects of prepayments		58		214		(115)		58
Balance, end of period	$	7,601	$	7,593	$	6,801	$	7,601

Pledged Investments

Secured Financing and Similar Arrangements

We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially similar securities. Our secured financing transactions also include those that involve the transfer of securities to financial institutions in exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us (pledged collateral) may be sold or repledged by the counterparties. These agreements are recorded at their contracted amounts plus accrued interest, other than those that are accounted for at fair value.

Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the securities transferred, respectively.

The following table presents the fair value of securities pledged to counterparties under secured financing transactions, including repurchase and securities lending agreements:

(in millions)		March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Fixed maturity securities available for sale	$	1,767	$	2,911	$	1,503	$	1,050
Other bond securities, at fair value	$	1,381	$	1,585	$	184	$	122

At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, amounts borrowed under repurchase and securities lending agreements totaled $~~3.2~~1.7 billion and $~~4.5~~1.2 billion, respectively.

34AIG | First Quarter ~~2018~~2019 Form 10-Q33

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

The following table presents the fair value of securities pledged under our repurchase agreements by collateral type and by remaining contractual maturity:

	Remaining Contractual Maturity of the Agreements												Remaining Contractual Maturity of the Agreements
(in millions)	Overnight and Continuous			up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total	Overnight and Continuous			up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total
March 31, 2018
March 31, 2019
Bonds available for sale:
Non-U.S. governments	$	-	$	94	$	18	$	-	$	-	$	112	$	41	$	-	$	-	$	-	$	-	$	41
Corporate debt		-		34		6		-		-		40		46		7		-		-		-		53
Other bond securities:
U.S. government and government sponsored entities		15		-		-		-		-		15		86		-		-		-		-		86
Non-U.S. governments		-		-		3		-		-		3		-		3		-		-		-		3
Corporate debt		-		93		18		-		-		111		-		63		32		-		-		95
Total	$	15	$	221	$	45	$	-	$	-	$	281	$	173	$	73	$	32	$	-	$	-	$	278

December 31, 2017
December 31, 2018
Bonds available for sale:
Non-U.S. governments	$	-	$	7	$	19	$	-	$	-	$	26	$	25	$	35	$	-	$	-	$	-	$	60
Corporate debt		-		13		35		-		-		48		51		55		-		-		-		106
Other bond securities:
U.S. government and government sponsored entities		44		-		-		-		-		44		11		-		-		-		-		11
Non-U.S. governments		-		-		11		-		-		11		-		3		-		-		-		3
Corporate debt		-		387		1,065		-		-		1,452		17		38		53		-		-		108
Total	$	44	$	407	$	1,130	$	-	$	-	$	1,581	$	104	$	131	$	53	$	-	$	-	$	288

The following table presents the fair value of securities pledged under our securities lending agreements by collateral type and by remaining contractual maturity:

	Remaining Contractual Maturity of the Agreements												Remaining Contractual Maturity of the Agreements
(in millions)		Overnight and Continuous		up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total		Overnight and Continuous		up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total
March 31, 2018
March 31, 2019
Bonds available for sale:
Non-U.S. governments	$	-	$	-	$	32	$	5	$	-	$	37
Corporate debt		-		235		1,224		119		-		1,578
Other bond securities:
Obligations of states, municipalities and political
subdivisions													$	-	$	77	$	55	$	-	$	-	$	132
Non-U.S. governments		-		-		7		-		-		7		-		19		23		-		-		42
Corporate debt		-		175		995		75		-		1,245		-		276		528		431		-		1,235
Total	$	-	$	410	$	2,258	$	199	$	-	$	2,867	$	-	$	372	$	606	$	431	$	-	$	1,409

December 31, 2017
December 31, 2018
Bonds available for sale:
Non-U.S. governments	$	-	$	-	$	18	$	-	$	-	$	18
Corporate debt		-		588		2,231		-		-		2,819
Other bond securities:
Obligations of states, municipalities and political
subdivisions													$	-	$	50	$	130	$	-	$	-	$	180
Non-U.S. governments		-		-		22		-		-		22		-		21		8		-		-		29
Corporate debt		-		-		56		-		-		56		-		330		345		-		-		675
Total	$	-	$	588	$	2,327	$	-	$	-	$	2,915	$	-	$	401	$	483	$	-	$	-	$	884

34AIG | First Quarter ~~2018~~2019 Form 10-Q35

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 5.6. Investments

We also enter into agreements in which securities are purchased by us under agreements to resell (reverse repurchase agreements), which are accounted for as secured financing transactions and reported as short-term investments or other assets, depending on their terms. These agreements are recorded at their contracted resale amounts plus accrued interest, other than those that are accounted for at fair value. In all reverse repurchase transactions, we take possession of or obtain a security interest in the related securities, and we have the right to sell or repledge this collateral received.

The following table presents information on the fair value of securities pledged to us under reverse repurchase agreements:

(in millions)		March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Securities collateral pledged to us	$	5,020	$	2,227	$	1,374	$	426
Amount sold or repledged by us	$	97	$	46		121		106

At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, amounts loaned under reverse repurchase agreements totaled ~~$5.0~~$1.4 billion and ~~$2.2 billion,~~$426 million, respectively.

We do not currently offset any secured financing transactions. All such transactions are collateralized and margined daily consistent with market standards and subject to enforceable master netting arrangements with rights of set off.

Insurance – Statutory and Other Deposits

The total carrying value of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities or other insurance-related arrangements, including certain annuity-related obligations and certain reinsurance treaties, was ~~$5.2~~$8.2 billion and ~~$4.9~~$7.9 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Other Pledges and Restrictions

Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the members to own stock in these FHLBs. We owned an aggregate of ~~$192~~$185 million and ~~$93~~$202 million of stock in FHLBs at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. In addition, our subsidiaries have pledged securities available for sale and residential loans associated with borrowings and funding agreements from FHLBs, with a fair value of ~~$4.5~~$4.6 billion and ~~$1.6~~$2.1 billion, respectively, at March 31, ~~2018~~2019 and ~~$2.7~~$4.2 billion and ~~$471 million,~~$2.1 billion, respectively, at December 31, ~~2017.~~2018.

Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade of our long-term debt ratings. The actual amount of collateral required to be posted to the counterparties in the event of such downgrades, and the aggregate amount of payments that we could be required to make, depend on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade. The fair value of securities pledged as collateral with respect to these obligations was approximately ~~$1.8 billion and $2.0~~$1.6 billion at both March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. This collateral primarily consists of securities of the U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties.

Investments held in escrow accounts or otherwise subject to restriction as to their use were ~~$242~~$262 million and ~~$255~~$273 million, comprised of bonds available for sale and short term investments at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

36AIG | First Quarter ~~2018~~2019 Form 10-Q35

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6.7. Lending Activities

6.7. Lending Activities

The following table presents the composition of Mortgage and other loans receivable, net:

	March 31,			December 31,	March 31,			December 31,
(in millions)		2018		2017		2019		2018
Commercial mortgages^*	$	29,699	$	28,596	$	33,665	$	32,882
Residential mortgages		5,811		5,398		6,500		6,532
Life insurance policy loans		2,203		2,295		2,124		2,147
Commercial loans, other loans and notes receivable		1,174		1,056		1,967		1,971
Total mortgage and other loans receivable		38,887		37,345		44,256		43,532
Allowance for credit losses		(347)		(322)		(422)		(397)
Mortgage and other loans receivable, net	$	38,540	$	37,023	$	43,834	$	43,135

* Commercial mortgages primarily represent loans for apartments, offices and retail properties, with exposures in New York and California representing the largest geographic concentrations (aggregating approximately 2223 percent and 1110 percent, respectively, at March 31, ~~2018,~~2019, and 2322 percent and 1211 percent, respectively, at December 31, ~~2017)~~2018).

Credit Quality of Commercial Mortgages

The following table presents debt service coverage ratios and loan-to-value ratios for commercial mortgages:

	Debt Service Coverage Ratios^(a)								Debt Service Coverage Ratios^(a)
(in millions)		>1.20X		1.00X - 1.20X		<1.00X		Total		>1.20X		1.00X - 1.20X		<1.00X		Total
March 31, 2018
March 31, 2019
Loan-to-Value Ratios^(b)
Less than 65%	$	17,506	$	2,121	$	349	$	19,976	$	20,054	$	2,274	$	247	$	22,575
65% to 75%		7,240		192		179		7,611		9,266		297		203		9,766
76% to 80%		943		-		-		943		838		20		20		878
Greater than 80%		885		211		73		1,169		244		96		106		446
Total commercial mortgages	$	26,574	$	2,524	$	601	$	29,699	$	30,402	$	2,687	$	576	$	33,665

December 31, 2017
December 31, 2018
Loan-to-Value Ratios^(b)
Less than 65%	$	18,000	$	1,525	$	351	$	19,876	$	19,204	$	2,543	$	250	$	21,997
65% to 75%		6,038		193		184		6,415		9,060		300		203		9,563
76% to 80%		569		40		-		609		476		20		15		511
Greater than 80%		1,416		206		74		1,696		596		103		112		811
Total commercial mortgages	$	26,023	$	1,964	$	609	$	28,596	$	29,336	$	2,966	$	580	$	32,882

(a) The debt service coverage ratio compares a property’s net operating income to its debt service payments, including principal and interest. Our weighted average debt service coverage ratio was ~~2.0X and 2.1X at~~1.9 X for both periods ended March 31, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

(b) The loan-to-value ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. Our weighted average loan-to-value ratio was 61 58 percent ~~and 57 percent at~~for both periods ended March 31, ~~2018,~~2019, and December 31, ~~2017, respectively.~~2018.

36AIG | First Quarter ~~2018~~2019 Form 10-Q37

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6.7. Lending Activities

The following table presents the credit quality performance indicators for commercial mortgages:

	Number															Percent		Number															Percent
	of	Class														of		of	Class														of
(dollars in millions)	Loans	Apartments			Offices		Retail	Industrial			Hotel		Others		Total^(c)	Total $		Loans	Apartments			Offices		Retail	Industrial			Hotel		Others		Total^(c)	Total $
March 31, 2018
March 31, 2019
Credit Quality Performance
Indicator:
In good standing	775	$	8,790	$	8,633	$	5,190	$	2,573	$	2,365	$	1,994	$	29,545	99	%	762	$	12,061	$	9,797	$	5,613	$	2,989	$	2,511	$	584	$	33,555	100	%
Restructured^(a)	5		-		115		23		-		16		-		154	1		2		-		94		-		-		16		-		110	-
90 days or less delinquent	-		-		-		-		-		-		-		-	-		-		-		-		-		-		-		-		-	-
>90 days delinquent or in
process of foreclosure	-		-		-		-		-		-		-		-	-		-		-		-		-		-		-		-		-	-
Total^(b)	780	$	8,790	$	8,748	$	5,213	$	2,573	$	2,381	$	1,994	$	29,699	100	%	764	$	12,061	$	9,891	$	5,613	$	2,989	$	2,527	$	584	$	33,665	100	%
Allowance for credit losses:
Specific		$	-	$	3	$	20	$	-	$	1	$	-	$	24	-	%		$	-	$	2	$	-	$	-	$	1	$	-	$	3	-	%
General			79		95		34		9		16		17		250	1				126		104		51		12		20		7		320	1
Total allowance for credit losses		$	79	$	98	$	54	$	9	$	17	$	17	$	274	1	%		$	126	$	106	$	51	$	12	$	21	$	7	$	323	1	%

December 31, 2017
December 31, 2018
Credit Quality Performance
Indicator:
In good standing	778	$	8,163	$	8,585	$	5,338	$	2,023	$	2,373	$	1,960	$	28,442	99	%	762	$	11,190	$	9,774	$	5,645	$	3,074	$	2,507	$	580	$	32,770	100	%
Restructured^(a)	5		-		115		23		-		16		-		154	1		2		-		96		-		-		16		-		112	-
90 days or less delinquent	-		-		-		-		-		-		-		-	-		-		-		-		-		-		-		-		-	-
>90 days delinquent or in
process of foreclosure	-		-		-		-		-		-		-		-	-		-		-		-		-		-		-		-		-	-
Total^(b)	783	$	8,163	$	8,700	$	5,361	$	2,023	$	2,389	$	1,960	$	28,596	100	%	764	$	11,190	$	9,870	$	5,645	$	3,074	$	2,523	$	580	$	32,882	100	%
Allowance for credit losses:
Specific		$	-	$	3	$	1	$	-	$	1	$	-	$	5	-	%		$	-	$	2	$	-	$	-	$	1	$	-	$	3	-	%
General			72		94		37		6		15		18		242	1				122		104		51		13		19		6		315	1
Total allowance for credit losses		$	72	$	97	$	38	$	6	$	16	$	18	$	247	1	%		$	122	$	106	$	51	$	13	$	20	$	6	$	318	1	%

(a) Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. For additional discussion of troubled debt restructurings see Note 7 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

(b) Does not reflect allowance for credit losses.

(c) Our commercial mortgage loan portfolio is current as to payments of principal and interest, for both periods presented. There were no significant amounts of nonperforming commercial mortgages (defined as those loans where payment of contractual principal or interest is more than 90 days past due) during any of the periods presented.

Allowance for Credit Losses

For a discussion of our accounting policy for evaluating Mortgage and other loans receivable for impairment see Note 7 to the Consolidated Financial Statements in the ~~2017~~2018 Annual ~~Report~~Report.

The following table presents a rollforward of the changes in the allowance for losses on Mortgage and other loans receivable:

Three Months Ended March 31,															2019						2018
		2018						2017								Commercial		Other				Commercial		Other
Three Months Ended March 31,			Commercial		Other				Commercial		Other
(in millions)			Mortgages		Loans		Total		Mortgages		Loans		Total			Mortgages		Loans		Total		Mortgages		Loans		Total
Allowance, beginning of year		$	247	$	75	$	322	$	194	$	103	$	297		$	318	$	79	$	397	$	247	$	75	$	322
Loans charged off			-		-		-		-		-		-			-		-		-		-		-		-
Recoveries of loans previously charged off	Recoveries of loans previously charged off		-		-		-		-		-		-	Recoveries of loans previously charged off		-		-		-		-		-		-
Net charge-offs			-		-		-		-		-		-			-		-		-		-		-		-
Provision for loan losses			27		(2)		25		13		(21)		(8)			5		20		25		27		(2)		25
Other			-		-		-		-		-		-			-		-		-		-		-		-
Allowance, end of period		$	274 ^*	$	73	$	347	$	207 ^*	$	82	$	289		$	323 ^*	$	99	$	422	$	274 ^*	$	73	$	347

* Of the total allowance, ~~$23~~$3 million and $7$23 million relate to individually assessed credit losses on ~~$82~~$148 million and ~~$266~~$82 million of commercial mortgages at March 31, 2019 and 2018, ~~and 2017,~~ respectively.

38AIG | First Quarter ~~2018~~2019 Form 10-Q37

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 6.7. Lending Activities

There were no loans modified in troubled debt restructurings during the three-month periods ended March 31, ~~2018~~2019, and March 31, ~~2017.~~2018.

7.8. Variable Interest Entities

We enter into various arrangements with variable interest entities (VIEs) in the normal course of business and consolidate the VIEs when we determine we are the primary beneficiary. This analysis includes a review of the VIE’s capital structure, related contractual relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and our involvement with the entity. When assessing the need to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed to expose the variable interest holders to.

The primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of our decision-making ability and our ability to influence activities that significantly affect the economic performance of the VIE.

Balance Sheet Classification and Exposure to Loss

The following table presents the total assets and total liabilities associated with our variable interests in consolidated VIEs, as classified in the Condensed Consolidated Balance Sheets:

(in millions)		Real Estate and Investment Entities^(d)		Securitization Vehicles^(e)		Affordable Housing Partnerships		Other		Total		Real Estate and Investment Entities^(d)		Securitization Vehicles^(e)		Affordable Housing Partnerships		Other		Total
March 31, 2018
March 31, 2019
Assets:
Bonds available for sale	$	-	$	8,484	$	-	$	-	$	8,484	$	-	$	8,285	$	-	$	-	$	8,285
Other bond securities		-		4,349		-		3		4,352		-		3,802		-		2		3,804
Mortgage and other loans receivable		-		2,759		-		-		2,759		-		3,593		-		-		3,593
Other invested assets		1,413		201		3,314		25		4,953		5,438		-		3,650		25		9,113
Other^(a)		308		1,492		309		84		2,193		603		2,064		459		72		3,198
Total assets^(b)	$	1,721	$	17,285	$	3,623	$	112	$	22,741	$	6,041	$	17,744	$	4,109	$	99	$	27,993
Liabilities:
Long-term debt	$	741	$	1,965	$	1,969	$	5	$	4,680	$	2,593	$	3,764	$	2,152	$	5	$	8,514
Other ^(c)		135		164		187		25		511		227		546		207		23		1,003
Total liabilities	$	876	$	2,129	$	2,156	$	30	$	5,191	$	2,820	$	4,310	$	2,359	$	28	$	9,517
December 31, 2017
December 31, 2018
Assets:
Bonds available for sale	$	-	$	9,632	$	-	$	-	$	9,632	$	-	$	7,662	$	-	$	-	$	7,662
Other bond securities		-		4,518		-		3		4,521		-		3,923		-		2		3,925
Mortgage and other loans receivable		-		2,290		-		-		2,290		-		3,693		-		-		3,693
Other invested assets		1,365		206		3,087		25		4,683		5,212		-		3,142		24		8,378
Other^(a)		302		1,481		350		85		2,218		580		1,581		394		70		2,625
Total assets^(b)	$	1,667	$	18,127	$	3,437	$	113	$	23,344	$	5,792	$	16,859	$	3,536	$	96	$	26,283
Liabilities:
Long-term debt	$	680	$	1,624	$	1,825	$	5	$	4,134	$	2,577	$	3,154	$	1,834	$	4	$	7,569
Other^(c)		144		244		181		26		595		227		165		159		24		575
Total liabilities	$	824	$	1,868	$	2,006	$	31	$	4,729	$	2,804	$	3,319	$	1,993	$	28	$	8,144

(a) Comprised primarily of Short-term investments and Other assets at March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

(b) The assets of each VIE can be used only to settle specific obligations of that VIE.

(d) At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, off-balance sheet exposure primarily consisting of commitments to real estate and investment entities was ~~$133 million~~$2.9 billion and ~~$86 million,~~$1.4 billion, respectively.

(e) At March 31, ~~2018~~2019 and December 31, ~~2017, $16.7~~2018, $16.9 billion and ~~$17.6~~$16.0 billion, respectively, of the total assets of consolidated securitization vehicles were owed to AIG Parent or its subsidiaries.

38AIG | First Quarter ~~2018~~2019 Form 10-Q39

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 7.8. Variable Interest Entities

We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as the referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by us generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to us, except in limited circumstances when we have provided a guarantee to the VIE’s interest holders.

The following table presents total assets of unconsolidated VIEs in which we hold a variable interest, as well as our maximum exposure to loss associated with these VIEs:

			Maximum Exposure to Loss									Maximum Exposure to Loss
		Total VIE		On-Balance		Off-Balance					Total VIE		On-Balance		Off-Balance
(in millions)		Assets		Sheet^(b)		Sheet			Total		Assets		Sheet^(b)		Sheet			Total
March 31, 2018
March 31, 2019
Real estate and investment entities^(a)	$	371,105	$	9,054	$	1,988		$	11,042	$	264,238	$	6,492	$	3,190		$	9,682
Affordable housing partnerships		4,146		669		-			669		3,650		544		-			544
Other		2,908		219		1,203	^(c)		1,422		5,365		327		-	^(c)		327
Total	$	378,159	$	9,942	$	3,191		$	13,133	$	273,253	$	7,363	$	3,190		$	10,553
December 31, 2017
December 31, 2018
Real estate and investment entities^(a)	$	380,030	$	9,253	$	2,043		$	11,296	$	309,598	$	6,820	$	2,501		$	9,321
Affordable housing partnerships		4,468		725		-			725		4,116		607		-			607
Other		2,703		254		1,205	^(c)		1,459		2,813		284		1,222	^(c)		1,506
Total	$	387,201	$	10,232	$	3,248		$	13,480	$	316,527	$	7,711	$	3,723		$	11,434

(a) Comprised primarily of hedge funds and private equity funds.

(b) At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, $~~9.6~~7.0 billion and ~~$9.8~~$7.4 billion, respectively, of our total unconsolidated VIE assets were recorded as Other invested assets.

(c) These amounts represent our estimate of the maximum exposure to loss under certain insurance policies issued to VIEs if a hypothetical loss occurred to the extent of the full amount of the insured value. Our insurance policies cover defined risks and our estimate of liability is included in our insurance reserves on the balance sheet.

For additional information on VIEs see Note 10 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

8.9. Derivatives and Hedge Accounting

We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment operations.

For a discussion of our accounting policies and procedures regarding derivatives and hedge accounting see Note 11 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

~~Our businesses use derivatives and other instruments as part of their financial risk management.~~ Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated with embedded derivatives contained in insurance contract liabilities, fixed maturity securities, outstanding medium‑ and long‑term notes as well as other interest rate sensitive assets and liabilities. Foreign exchange derivatives (principally foreign exchange forwards and options) are used to economically mitigate risk associated with non‑U.S. dollar denominated debt, net capital exposures, and foreign currency transactions. Equity derivatives are used to mitigate financial risk embedded in certain insurance liabilities. We use credit derivatives to manage our credit exposures. The derivatives are effective economic hedges of the exposures that they are meant to offset.

In addition to hedging activities, we also enter into derivative instruments with respect to investment operations, which may include, among other things, CDSs and purchases of investments with embedded derivatives, such as equity‑linked notes and convertible bonds.

40AIG | First Quarter ~~2018~~2019 Form 10-Q39

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 8.9. Derivatives and Hedge Accounting

The following table presents the notional amounts of our derivatives and the fair value of derivative assets and liabilities in the Condensed Consolidated Balance Sheets:

	March 31, 2018								December 31, 2017								March 31, 2019								December 31, 2018
	Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities
		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
(in millions)		Amount		Value		Amount		Value		Amount		Value		Amount		Value		Amount		Value		Amount		Value		Amount		Value		Amount		Value
Derivatives designated as
hedging instruments:^(a)
Interest rate contracts	$	10	$	-	$	866	$	21	$	-	$	-	$	838	$	15	$	-	$	-	$	830	$	14	$	10	$	-	$	866	$	19
Foreign exchange contracts		3,236		122		4,511		350		2,823		173		4,783		350		5,749		371		2,954		150		6,357		363		2,536		147
Equity contracts		-		-		-		-		-		-		159		19
Derivatives not designated
as hedging instruments:^(a)
Interest rate contracts		42,688		2,549		26,505		2,182		37,751		2,171		26,461		2,185		50,037		2,664		28,818		1,906		42,821		2,890		27,329		2,004
Foreign exchange contracts		8,471		673		11,543		867		6,305		658		11,093		895		13,113		736		4,108		700		11,134		801		5,434		711
Equity contracts		15,465		268		4,261		13		19,975		522		1,130		2		14,356		488		3,938		51		17,807		398		2,399		15
Credit contracts^(b)		9		2		1,412		264		4		1		1,365		277		3		1		1,441		240		8		1		1,406		236
Other contracts^(c)		38,518		17		59		5		39,829		20		59		5		39,096		13		57		5		39,070		15		58		6
Total derivatives, gross	$	108,397	$	3,631	$	49,157	$	3,702	$	106,687	$	3,545	$	45,888	$	3,748	$	122,354	$	4,273	$	42,146	$	3,066	$	117,207	$	4,468	$	40,028	$	3,138
Counterparty netting^(d)				(1,589)				(1,589)				(1,464)				(1,464)				(1,647)				(1,647)				(1,713)				(1,713)
Cash collateral^(e)				(1,268)				(980)				(1,159)				(1,249)				(1,734)				(188)				(1,840)				(187)
Total derivatives on condensed
consolidated balance sheets^(f)			$	774			$	1,133			$	922			$	1,035			$	892			$	1,231			$	915			$	1,238

(a) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.

(b) As of March 31, ~~2018~~2019 and December 31, ~~2017~~2018, included CDSs on super senior multi-sector CDOs with a net notional amount of ~~$661~~$580 million and ~~$685~~$592 million (fair value liability of ~~$245~~$217 million and ~~$254~~$224 million), respectively. The expected weighted average maturity as of March 31, 2018 is six years. Because of long-term maturities of the CDSs in the portfolio, we are unable to make reasonable estimates of the periods during which any payments would be made. However, the net notional amount represents the maximum exposure to loss on the portfolio. As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, there were no super senior corporate debt/CLOs remaining.

(d) Represents netting of derivative exposures covered by a qualifying master netting agreement.

(e) Represents cash collateral posted and received that is eligible for netting.

(f) Freestanding derivatives only, excludes ~~Embedded~~embedded derivatives. Derivative instrument assets and liabilities are recorded in Other Assets and Liabilities, respectively. Fair value of assets related to bifurcated ~~Embedded~~embedded derivatives was zero at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. Fair value of liabilities related to bifurcated ~~Embedded~~embedded derivatives was ~~$3.7~~$4.9 billion and $4.1 billion, respectively, at March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. A bifurcated ~~Embedded~~embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in variable annuity products, which include equity and interest rate components.

Collateral

We engage in derivative transactions that are not subject to a clearing requirement directly with unaffiliated third parties, in most cases, under International Swaps and Derivatives Association, Inc. (ISDA) Master Agreements. Many of the ISDA Master Agreements also include Credit Support Annex (CSA) provisions, which provide for collateral postings that may vary at various ratings and threshold levels. We attempt to reduce our risk with certain counterparties by entering into agreements that enable collateral to be obtained from a counterparty on an upfront or contingent basis. We minimize the risk that counterparties might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value and generally requiring additional collateral to be posted upon the occurrence of certain events or circumstances. In addition, certain derivative transactions have provisions that require collateral to be posted upon a downgrade of our long‑term debt ratings or give the counterparty the right to terminate the transaction. In the case of some of the derivative transactions, upon a downgrade of our long‑term debt ratings, as an alternative to posting collateral and subject to certain conditions, we may assign the transaction to an obligor with higher debt ratings or arrange for a substitute guarantee of our obligations by an obligor with higher debt ratings or take other similar action. The actual amount of collateral required to be posted to counterparties in the event of such downgrades, or the aggregate amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade.

Collateral posted by us to third parties for derivative transactions was ~~$2.7 billion and $2.9~~$1.7 billion at both March 31, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018. In the case of collateral posted under derivative transactions that are not subject to clearing, this collateral can generally be repledged or resold by the counterparties. Collateral provided to us from third parties for derivative transactions was ~~$1.4~~$1.9 billion and ~~$1.3~~$2.1 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. In the case of collateral provided to us under derivative transactions that are not subject to clearing, we generally can repledge or resell collateral.

40AIG | First Quarter ~~2018~~2019 Form 10-Q41

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 8.9. Derivatives and Hedge Accounting

Offsetting

We have elected to present all derivative receivables and derivative payables, and the related cash collateral received and paid, on a net basis on our Condensed Consolidated Balance Sheets when a legally enforceable ISDA Master Agreement exists between us and our derivative counterparty. An ISDA Master Agreement is an agreement governing multiple derivative transactions between two counterparties. The ISDA Master Agreement generally provides for the net settlement of all, or a specified group, of these derivative transactions, as well as transferred collateral, through a single payment, and in a single currency, as applicable. The net settlement provisions apply in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions governed by the ISDA Master Agreement.

Hedge Accounting

We designated certain derivatives entered into with third parties as fair value hedges of available for sale investment securities held by our insurance subsidiaries. The fair value hedges include foreign currency forwards and cross currency swaps designated as hedges of the change in fair value of foreign currency denominated available for sale securities attributable to changes in foreign exchange rates. We also designated certain interest rate swaps entered into with third parties as fair value hedges of fixed rate GICs attributable to changes in benchmark interest rates.

We use foreign currency denominated debt and cross-currency swaps as hedging instruments in net investment hedge relationships to mitigate the foreign exchange risk associated with our non-U.S. dollar functional currency foreign subsidiaries. For net investment hedge relationships where issued debt is used as a hedging instrument, we assess the hedge effectiveness and measure the amount of ineffectiveness based on changes in spot rates. For net investment hedge relationships that use derivatives as hedging instruments, we assess hedge effectiveness and measure hedge ineffectiveness using changes in forward rates. For the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, we recognized ~~losses~~gains (losses) of ~~$120~~$64 million and ~~$42~~$(120) million, respectively, included in Change in foreign currency translation adjustment in Other comprehensive income related to the net investment hedge relationships.

A qualitative methodology is utilized to assess hedge effectiveness for net investment hedges, while regression analysis is employed for all other hedges.

The following table presents the gain (loss) recognized in earnings on our derivative instruments in fair value hedging relationships in the Condensed Consolidated Statements of Income:

	Gains/(Losses) Recognized in Earnings for:				Including Gains/(Losses) Attributable to:						Gains/(Losses) Recognized in Earnings for:
	Hedging		Hedged		Hedge		Excluded				Hedging		Excluded		Hedged
(in millions)	Derivatives^(a)		Items		Ineffectiveness		Components		Other^(b)		Derivatives^(a)		Components^(b)		Items		Net Impact
Three Months Ended March 31, 2019
Interest rate contracts:
Realized capital gains/(losses)											$	-	$	-	$	-	$	-
Interest credited to policyholder account balances												5		-		(5)		-
Net investment income												(1)		-		1		-
Foreign exchange contracts:
Realized capital gains/(losses)												(8)		(14)		8		(14)
Three Months Ended March 31, 2018
Interest rate contracts:
Interest rate contracts:
Realized capital gains/(losses)	$	(8)	$	9	$	1	$	-	$	-	$	(8)	$	-	$	9	$	1
Foreign exchange contracts:
Interest credited to policyholder account balances												-		-		-		-
Net investment income												-		-		-		-
Foreign exchange contracts:
Realized capital gains/(losses)		(41)		8		-		(33)		-		(8)		(33)		8		(33)
Other income		-		-		-		-		-
Equity contracts:
Realized capital gains/(losses)		-		-		-		-		-
Three Months Ended March 31, 2017
Interest rate contracts:
Realized capital gains/(losses)	$	(1)	$	1	$	-	$	-	$	-
Foreign exchange contracts:
Realized capital gains/(losses)		52		(42)		-		10		-
Other income		-		1		-		-		1
Equity contracts
Realized capital gains/(losses)		(2)		-		-		(2)		-

(a) ~~The amounts presented do not include~~Gains and losses on derivative instruments designated and qualifying in fair value hedges that are included in the ~~periodic net coupon settlements~~assessment of ~~the derivative contract or the coupon income (expense) related to the hedged item.~~hedge effectiveness.

(b) ~~Represents accretion/amortization of opening~~Gains and losses on derivative instruments designated and qualifying in fair value ofhedges that are excluded from the ~~hedged item at inception~~assessment of hedge ~~relationship, amortization of basis adjustment~~effectiveness and recognized in earnings on hedged item following the discontinuation of hedge accounting, and the release of debt basis adjustment following the repurchase of issued debt that was part of previously-discontinued fair value hedge relationship.a mark-to-market basis.

42AIG | First Quarter ~~2018~~2019 Form 10-Q41

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 8.9. Derivatives and Hedge Accounting

Derivatives Not Designated as Hedging Instruments

The following table presents the effect of derivative instruments not designated as hedging instruments in the Condensed Consolidated Statements of Income:

	Gains (Losses)				Gains (Losses)
Three Months Ended March 31,	Recognized in Earnings				Recognized in Earnings
(in millions)		2018		2017		2019		2018
By Derivative Type:
Interest rate contracts	$	(398)	$	(152)	$	359	$	(398)
Foreign exchange contracts		(139)		(46)		(28)		(139)
Equity contracts		(73)		(314)		(208)		(73)
Credit contracts		11		15		(8)		11
Other contracts		17		18		16		17
Embedded derivatives		591		146		(449)		591
Total	$	9	$	(333)	$	(318)	$	9
By Classification:
Policy fees	$	17	$	20	$	17	$	17
Net investment income		(4)		(2)		(5)		(4)
Net realized capital losses		(13)		(384)		(334)		(13)
Other income		12		33		-		12
Policyholder benefits and claims incurred		(3)		-		4		(3)
Total	$	9	$	(333)	$	(318)	$	9

Credit Risk-Related Contingent Features

We estimate that at March 31, ~~2018,~~2019, based on our outstanding financial derivative transactions, a downgrade of our long-term senior debt ratings to BBB or BBB– by Standard & Poor’s Financial Services LLC, a subsidiary of S&P Global Inc., and/or a downgrade to Baa2 or Baa3 by Moody’s Investors’ Service, Inc. would permit counterparties to make additional collateral calls and permit certain counterparties to elect early termination of contracts, resulting in corresponding collateral postings and termination payments in the total amount of up to approximately ~~$81~~$63 million. The aggregate fair value of our derivatives that were in a net liability position and that contain such credit risk-related contingencies which can be triggered below our long-term senior debt ratings of BBB+ or Baa1 was approximately ~~$521~~$436 million and ~~$572~~$423 million at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The aggregate fair value of assets posted as collateral under these contracts at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, was approximately ~~$557~~$480 million and ~~$676~~$453 million, respectively.

Hybrid Securities with Embedded Credit Derivatives

We invest in hybrid securities (such as credit‑linked notes) with the intent of generating income, and not specifically to acquire exposure to embedded derivative risk. As is the case with our other investments in RMBS, CMBS, CDOs and ABS, our investments in these hybrid securities are exposed to losses only up to the amount of our initial investment in the hybrid security. Other than our initial investment in the hybrid securities, we have no further obligation to make payments on the embedded credit derivatives in the related hybrid securities.

We elect to account for our investments in these hybrid securities with embedded written credit derivatives at fair value, with changes in fair value recognized in Net investment income and Other income. Our investments in these hybrid securities are reported as Other bond securities in the Condensed Consolidated Balance Sheets. The fair values of these hybrid securities were ~~$4.2~~$3.8 billion and ~~$4.4~~$3.9 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. These securities have par amounts of ~~$8.9~~$8.3 billion and ~~$9.1~~$8.5 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and have remaining stated maturity dates that extend to 2052.

42AIG | First Quarter ~~2018~~2019 Form 10-Q43

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 9.10. Insurance Liabilities

9.10. Insurance Liabilities

Liability for Unpaid Losses and Loss Adjustment Expenses (Loss Reserves)

Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported (IBNR) and loss adjustment expenses (LAE), less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Any adjustments resulting from this review are reflected currently in pre-tax ~~income.~~income, except to the extent such adjustment impacts a deferred gain under a retroactive reinsurance agreement, in which case the ceded portion would be amortized into pre-tax income in subsequent periods. 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. Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are referred to as favorable development.

Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from policyholders of approximately ~~$12.3~~$12.7 billion and ~~$12.6~~$12.3 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. These recoverable amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through self-insured retentions, deductibles, retrospective programs, or captive arrangements, each referred to generically as “deductibles”), primarily for U.S. commercial casualty business. With respect to the deductible portion of the claim, we manage and pay the entire claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. Thus, these recoverable amounts represent a credit exposure to us. At ~~both~~ March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, we held collateral of approximately ~~$9.5~~$9.0 billion and $9.2 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust agreements.

The following table presents the roll-forward of activity in Loss Reserves:

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(in millions)		2018		2017		2019		2018
Liability for unpaid loss and loss adjustment expenses, beginning of period	$	78,393	$	77,077	$	83,639	$	78,393
Reinsurance recoverable		(26,708)		(15,532)		(31,690)		(26,708)
Net Liability for unpaid loss and loss adjustment expenses, beginning of period		51,685		61,545		51,949		51,685
Losses and loss adjustment expenses incurred:
Current year		4,698		4,300		4,805		4,698
Prior years, excluding discount and amortization of deferred gain		(40)		63		(15)		(40)
Prior years, discount charge (benefit)		(205)		(25)		497		(205)
Prior years, amortization of deferred gain on retroactive reinsurance(a)		(39)		(38)		(86)		(39)
Total losses and loss adjustment expenses incurred		4,414		4,300		5,201		4,414
Losses and loss adjustment expenses paid:
Current year		(610)		(571)		(344)		(610)
Prior years		(4,779)		(4,753)		(6,120)		(4,779)
Total losses and loss adjustment expenses paid		(5,389)		(5,324)		(6,464)		(5,389)
Other changes:
Foreign exchange effect		274		(105)		216		274
Retroactive reinsurance adjustment (net of discount)^(a)(b)		(97)		(11,199)		(190)		(97)
Reclassified to liabilities held for sale^(b)		-		(87)
Total other changes		177		(11,391)		26		177
Liability for unpaid loss and loss adjustment expenses, end of period:
Net liability for unpaid losses and loss adjustment expenses		50,887		49,130		50,712		50,887
Reinsurance recoverable		27,211		26,920		31,784		27,211
Total	$	78,098	$	76,050	$	82,496	$	78,098

(a) Includes ~~discount on~~$9 million and $5 million for the retroactive reinsurance ~~in the amount of $128 million and $1.7 billion~~agreement with NICO covering U.S. asbestos exposures for the three-month periods ended March 31, 2019 and 2018, ~~and 2017,~~ respectively.

(b) ~~Represents~~Includes change in ~~loss reserves included in our sale~~discount on retroactive reinsurance of ~~certain of our insurance operations to Fairfax Financial Holdings Limited (Fairfax)~~$(307) million and $128 million for the three-month ~~period~~periods ended March 31, ~~2017. Upon consummation of the sale, we retained a portion of these reserves through reinsurance arrangements.~~2019 and 2018, respectively.

44AIG | First Quarter ~~2018~~2019 Form 10-Q43

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 9.10. Insurance Liabilities

On January 20, 2017, we entered into an adverse development reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. (Berkshire), 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 paid 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. At NICO’s 80 percent share, NICO’s limit of liability under the contract is $20 billion. We account for this transaction as retroactive reinsurance. We paid total consideration, including interest, of $10.2 billion. The consideration was placed into a collateral trust account as security for NICO’s claim payment obligations, and Berkshire has provided a parental guarantee to secure the obligations of NICO under the agreement. The total paid claims subject to the agreement as of March 31, ~~2018~~2019 were below the attachment point.

Discounting of Loss Reserves

At March 31, ~~2018,~~2019, the loss reserves reflect a net loss reserve discount of $1.9 billion, including tabular and non-tabular calculations based upon the following assumptions:

Certain asbestos claims are discounted when allowed by the regulator and when payments are fixed and determinable, based on the investment yields of the companies and the payout pattern for the claims. At December 31, 2016, theThe discount for asbestos reserves ~~was~~has been fully amortized.

The tabular workers’ compensation discount is calculated based on a 3.5 percent interest rate and the mortality rate used in the 2007 U.S. Life Table.

The non-tabular workers’ compensation discount is calculated separately for companies domiciled in New York and Pennsylvania, and follows the statutory regulations (prescribed or permitted) for each state. For New York companies, the discount is based on a 5 percent interest rate and the companies’ own payout patterns. For the Pennsylvania companies, the statute specifies discount factors for accident years 2001 and prior, which are based on a 6 percent interest rate and an industry payout pattern. For accident years 2002 and subsequent, the discount is based on the payout patterns and investment yields of the companies.

In 2013, our Pennsylvania regulator approved use of a consistent discount rate (U.S. Treasury rate plus a liquidity premium) to all of our workers’ compensation reserves in our Pennsylvania-domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers compensation portfolios.

The discount consists of ~~$622~~$603 million of tabular discount and $1.3 billion of non-tabular discount for workers’ ~~compensation.~~compensation as of March 31, 2019. During the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, the benefit/(charge) from changes in discount of ~~$205~~$(473) million and ~~$25~~$205 million, respectively, were recorded as part of the policyholder benefits and losses incurred in the Consolidated Statement of Income.

The following table presents the components of the loss reserve discount discussed above:

	March 31, 2018						December 31, 2017						March 31, 2019						December 31, 2018
	North		Legacy Portfolio				North		Legacy Portfolio				North						North
	America		- General				America		- General				America						America
	Commercial		Insurance run-off				Commercial		Insurance run-off				Commercial			Legacy			Commercial			Legacy
(in millions)	Insurance		Insurance Lines			Total	Insurance		Insurance Lines			Total	Insurance			Portfolio		Total	Insurance			Portfolio		Total
U.S. workers' compensation	$	2,652	$	936	$	3,588	$	2,465	$	918	$	3,383	$	2,387	$	894	$	3,281	$	2,782	$	973	$	3,755
Retroactive reinsurance		(1,667)		-		(1,667)	��	(1,539)		-		(1,539)		(1,412)		-		(1,412)		(1,720)		-		(1,720)
Total reserve discount^*	$	985	$	936	$	1,921	$	926	$	918	$	1,844	$	975	$	894	$	1,869	$	1,062	$	973	$	2,035

* Excludes ~~$177~~$198 million and ~~$173~~$163 million of discount related to certain long tail liabilities in the United Kingdom at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

44AIG | First Quarter ~~2018~~2019 Form 10-Q45

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | 9.10. Insurance Liabilities

The following tables ~~presents~~present the net loss reserve discount benefit (charge):

Three Months Ended March 31,
2018

2017

North
Legacy Portfolio

North
Legacy Portfolio

America
- General

America
- General

Commercial
Insurance run-off

Commercial
Insurance run-off

(in millions)
Insurance
Insurance Lines

Total

Insurance
Insurance Lines

Total
Current accident year
$
19
$
-
$
19

$
32
$
-
$
32
Accretion and other adjustments

to prior year discount

45

(18)

27

(48)

(16)

(64)
Effect of interest rate changes

123

36

159

39

18

57
Net reserve discount

benefit (charge)

187

18

205

23

2

25
Change in discount on loss reserves

ceded under retroactive reinsurance

(128)

-

(128)

(1,655)

-

(1,655)
Net change in total reserve

discount^(a)
$
59
$
18
$
77

$
(1,632)
$
2
$
(1,630)

Three Months Ended March 31,	2019						2018
	North						North
	America						America
	Commercial		Legacy				Commercial		Legacy
(in millions)	Insurance		Portfolio			Total	Insurance		Portfolio			Total
Current accident year	$	24	$	-	$	24	$	19	$	-	$	19
Accretion and other adjustments to prior year discount		(251)		(13)		(264)		45		(18)		27
Effect of interest rate changes		(167)		(66)		(233)		123		36		159
Net reserve discount benefit (charge)		(394)		(79)		(473)		187		18		205
Change in discount on loss reserves ceded under
retroactive reinsurance		307		-		307		(128)		-		(128)
Net change in total reserve discount^(a)	$	(87)	$	(79)	$	(166)	$	59	$	18	$	77

(a) Excludes ~~$(5)~~$35 million and ~~$(1)~~$(5) million of discount related to certain long tail liabilities in the United Kingdom for the three-month periods ended March 31, 2019 and 2018, ~~and 2017,~~ respectively.

During the three-month period ended March 31, 2019, effective interest rates declined due to a decrease in the forward yield curve component of the discount rates. This decrease reflects a decline in U.S. Treasury rates. The decrease together with certain changes in payout pattern assumptions resulted in a decrease in the loss reserve discount by $233 million in the first quarter of 2019.

During the ~~first quarters of~~three-month period ended March 31, 2018, ~~and 2017,~~ effective interest rates increased due to an increase in the forward yield curve component of the discount ~~rates reflecting~~rates. This increase reflects an incline in U.S. Treasury ~~rates along~~rates. The increase together with ~~the~~certain changes in payout pattern ~~assumptions. This~~assumptions resulted in an increase in the loss reserve discount by $159 million in the first quarter ~~2018 and $57 million in first quarter 2017.~~of 2018.

~~10.~~11. Contingencies, Commitments and Guarantees

In the normal course of business, various contingent liabilities and commitments are entered into by AIG and our subsidiaries. In addition, AIG Parent guarantees various obligations of certain subsidiaries.

Although AIG cannot currently quantify its ultimate liability for unresolved litigation and investigation matters, including those referred to below, it is possible that such liability could have a material adverse effect on AIG’s consolidated financial condition or its consolidated results of operations or consolidated cash flows for an individual reporting period.

Legal Contingencies

Overview. In the normal course of business, AIG and our subsidiaries are, like others in the insurance and financial services industries in general, subject to regulatory and government investigations and actions, and litigation and other forms of dispute resolution in a large number of proceedings pending in various domestic and foreign jurisdictions. Certain of these matters involve potentially significant risk of loss due to potential for 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 these matters. In our insurance and reinsurance operations, litigation and arbitration concerning the scope of coverage under insurance and reinsurance contracts, and litigation and arbitration in which our subsidiaries defend or indemnify their insureds under insurance contracts, are generally considered in the establishment of our loss reserves. Separate and apart from the foregoing matters involving insurance and reinsurance coverage, AIG, our subsidiaries and their respective officers and directors are subject to a variety of additional types of legal proceedings brought by holders of AIG securities, customers, employees and others, alleging, among other things, breach of contractual or fiduciary duties, bad faith and violations of federal and state statutes and regulations. With respect to these other categories of matters not arising out of claims for insurance or reinsurance coverage, we establish reserves for loss contingencies when it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated. In many instances, we are unable to determine whether a loss is probable or to reasonably estimate the amount of such a loss and, therefore, the potential future losses arising from legal proceedings may exceed the amount of liabilities that we have recorded in our financial statements covering these matters. While such potential future charges could be material, based on information currently known to management, management does not believe, other than as may be discussed below, that any such charges are likely to have a material adverse effect on our financial position or results of operation.

46AIG | First Quarter ~~2018~~2019 Form 10-Q45

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~10.~~11. Contingencies, Commitments and Guarantees

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. We have cooperated, and will continue to cooperate, in producing documents and other information in response to such requests.

~~Starr International Litigation~~

On November 21, 2011, Starr International Company, Inc. (SICO) filed a complaint against the United States in the United States Court of Federal Claims (the Court of Federal Claims), bringing claims, both individually and on behalf of the classes defined below and derivatively on behalf of AIG (the SICO Treasury Action). The complaint challenges the government’s assistance of AIG, pursuant to which AIG entered into a credit facility with the Federal Reserve Bank of New York (the FRBNY, and such credit facility, the FRBNY Credit Facility) and the United States received an approximately 80 percent ownership in AIG. The complaint alleges that the interest rate imposed on AIG and the appropriation of approximately 80 percent of AIG’s equity was discriminatory, unprecedented, and inconsistent with liquidity assistance offered by the government to other comparable firms at the time and violated the Equal Protection, Due Process, and Takings Clauses of the U.S. Constitution.

In the SICO Treasury Action, the only claims naming AIG as a party (as a nominal defendant) are derivative claims on behalf of AIG. On September 21, 2012, SICO made a pre‑litigation demand on our Board demanding that we pursue the derivative claims or allow SICO to pursue the claims on our behalf. On January 9, 2013, our Board unanimously refused SICO’s demand in its entirety and on January 23, 2013, counsel for the Board sent a letter to counsel for SICO describing the process by which our Board considered and refused SICO’s demand and stating the reasons for our Board’s determination.

On March 11, 2013, SICO filed a second amended complaint in the SICO Treasury Action alleging that its demand was wrongfully refused. On June 26, 2013, the Court of Federal Claims granted AIG’s and the United States’ motions to dismiss SICO’s derivative claims in the SICO Treasury Action due to our Board’s refusal of SICO’s demand and denied the United States’ motion to dismiss SICO’s direct, non-derivative claims.

On March 11, 2013, the Court of Federal Claims in the SICO Treasury Action granted SICO’s motion for class certification of two classes with respect to SICO’s non‑derivative claims: (1) persons and entities who held shares of AIG Common Stock on or before September 16, 2008 and who owned those shares on September 22, 2008 (the Credit Agreement Shareholder Class); and (2) persons and entities who owned shares of AIG Common Stock on June 30, 2009 and were eligible to vote those shares at AIG’s June 30, 2009 annual meeting of shareholders (the Reverse Stock Split Shareholder Class). SICO has provided notice of class certification to potential members of the classes, who, pursuant to a court order issued on April 25, 2013, had to return opt‑in consent forms by September 16, 2013 to participate in either class. 286,908 holders of AIG Common Stock during the two class periods have opted into the classes.

On June 15, 2015, the Court of Federal Claims issued its opinion and order in the SICO Treasury Action. The Court found that the United States exceeded its statutory authority by exacting approximately 80 percent of AIG’s equity in exchange for the FRBNY Credit Facility, but that AIG shareholders suffered no damages as a result. SICO argued during trial that the two classes are entitled to a total of approximately $40 billion in damages, plus interest. The Court also found that the United States was not liable to the Reverse Stock Split Class in connection with the reverse stock split vote at the June 30, 2009 annual meeting of shareholders.

On June 17, 2015, the Court of Federal Claims entered judgment stating that “the Credit Agreement Shareholder Class shall prevail on liability due to the Government's illegal exaction, but shall recover zero damages, and that the Reverse Stock Split Shareholder Class shall not prevail on liability or damages.” SICO filed a notice of appeal of the July 2, 2012 dismissal of SICO’s unconstitutional conditions claim, the June 26, 2013 dismissal of SICO’s derivative claims, the Court’s June 15, 2015 opinion and order, and the Court’s June 17, 2015 judgment to the United States Court of Appeals for the Federal Circuit. The United States filed a notice of cross appeal of the Court’s July 2, 2012 opinion and order denying in part its motion to dismiss, the Court’s June 26, 2013 opinion and order denying its motion to dismiss SICO’s direct claims, the Court’s June 15, 2015 opinion and order, and the Court’s June 17, 2015 judgment to the United States Court of Appeals for the Federal Circuit. ~~On May 9, 2017, the Court of Appeals for the Federal Circuit: (i)~~ vacated the Court of Federal Claims judgment on the Credit Agreement Shareholder Class and remanded with instructions for dismissal of that class, and (ii) affirmed the finding of no liability with respect to the Reverse Stock Split Class.

On October 6, 2017, SICO filed a petition for writ of certiorari with the United States Supreme Court. On March 26, 2018, the Supreme Court denied SICO’s petition and the SICO Treasury Action has now concluded.

Tax Litigation

We are party to pending tax litigation before the Southern District of New York. For additional information see Note 1415 to the Condensed Consolidated Financial Statements.

~~AIG | First Quarter 2018 Form 10-Q~~47

~~TABLE OF CONTENTS~~

~~ITEM 1 |~~~~Notes to Condensed Consolidated Financial Statements (unaudited) |~~~~10. Contingencies, Commitments and Guarantees~~

Other Commitments

In the normal course of business, we enter into commitments to invest in limited partnerships, private equity funds and hedge funds and to purchase and develop real estate in the U.S. and abroad. These commitments totaled ~~$2.9~~$7.3 billion at March 31, ~~2018.~~2019.

Guarantees

Subsidiaries

We have issued unconditional guarantees with respect to the prompt payment, when due, of all present and future payment obligations and liabilities of AIG Financial Products Corp. and related subsidiaries (collectively AIGFP) and of AIG Markets arising from transactions entered into by AIG Markets.

In connection with AIGFP’s business activities, AIGFP has issued, in a limited number of transactions, standby letters of credit or similar facilities to equity investors of structured leasing transactions in an amount equal to the termination value owing to the equity investor by the lessee in the event of a lessee default (the equity termination value). The total amount outstanding at March 31, ~~2018~~2019 was ~~$85~~$82 million. In those transactions, AIGFP has agreed to pay such amount if the lessee fails to pay. The amount payable by AIGFP is, in certain cases, partially offset by amounts payable under other instruments typically equal to the present value of scheduled payments to be made by AIGFP. In the event that AIGFP is required to make a payment to the equity investor, the lessee is unconditionally obligated to reimburse AIGFP. To the extent that the equity investor is paid the equity termination value from the standby letter of credit and/or other sources, including payments by the lessee, AIGFP takes an assignment of the equity investor’s rights under the lease of the underlying property. Because the obligations of the lessee under the lease transactions are generally economically defeased, lessee bankruptcy is the most likely circumstance in which AIGFP would be required to pay without reimbursement.

AIG Parent files a consolidated federal income tax return with certain subsidiaries and acts as an agent for the consolidated tax group when making payments to the Internal Revenue Service (IRS). AIG Parent and its subsidiaries have adopted, pursuant to a written agreement, a method of allocating consolidated federal income taxes. Under an Amended and Restated Tax Payment Allocation Agreement dated June 6, 2011 between AIG Parent and one of its Bermuda-domiciled insurance subsidiaries, AIG Life of Bermuda, Ltd. (AIGB), AIG Parent has agreed to indemnify AIGB for any tax liability (including interest and penalties) resulting from adjustments made by the IRS or other appropriate authorities to taxable income, special deductions or credits in connection with investments made by AIGB in certain affiliated entities.

Asset Dispositions

We are subject to financial guarantees and indemnity arrangements in connection with the completed sales of businesses pursuant to our asset disposition plan. The various arrangements may be triggered by, among other things, declines in asset values, the occurrence of specified business contingencies, the realization of contingent liabilities, developments in litigation or breaches of representations, warranties or covenants provided by us. These arrangements are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or are not applicable.

We are unable to develop a reasonable estimate of the maximum potential payout under certain of these arrangements. Overall, we believe that it is unlikely we will have to make any material payments related to completed sales under these arrangements, and no material liabilities related to these arrangements have been recorded in the Condensed Consolidated Balance Sheets.

46AIG | First Quarter 2019 Form 10-Q

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ITEM 1 |Notes to Condensed Consolidated Financial Statements (unaudited) |11. Contingencies, Commitments and Guarantees

Other

•· For additional discussion on commitments and guarantees associated with VIEs see Note 8.~~Note 7 to the Condensed Consolidated Financial Statements.~~

•· For additional disclosures about derivatives see Note ~~8 to the Condensed Consolidated Financial Statements.~~9.

•· For additional disclosures about guarantees of outstanding debt of AIG Life Holdings, Inc. (AIGLH), see Note ~~15 to the Condensed Consolidated Financial Statements~~16. .

12. Equity

Shares Outstanding

Preferred Stock

On March 14, 2019, we issued 20,000 shares of 5.85 % Series A Non-Cumulative Preferred Stock (Series A Preferred Stock) (equivalent to 20,000,000 Depositary Shares, each representing a 1/1,000th interest in a share of Series A Preferred Stock), $5.00 par value and $25,000 liquidation preference per share (equivalent to $25 per Depositary Share). After underwriting discounts and expenses, we received net proceeds of approximately $485 million.

We may redeem the Series A Preferred Stock at our option, (a) in whole, but not in part, at any time prior to March 15, 2024, within 90 days after the occurrence of a “Rating Agency Event,” at a redemption price equal to $25,500 per share of the Series A Preferred Stock (equivalent to $25.50 per Depositary Share), plus an amount equal to any dividends per share that have been declared but not paid prior to the redemption date (but no amount due in respect of any dividends that have not been declared prior to such date), or (b) (i) in whole, but not in part, at any time prior to March 15, 2024, within 90 days after the occurrence of a “Regulatory Capital Event,” or (ii) in whole or in part, from time to time, on or after March 15, 2024, in each case, at a redemption price equal to $25,000 per share of the Series A Preferred Stock (equivalent to $25.00 per Depositary Share), plus an amount equal to any dividends per share that have been declared but not paid prior to the redemption date (but no amount due in respect of any dividends that have not been declared prior to such date).

A “Rating Agency Event” is generally defined to mean that any nationally recognized statistical rating organization within the meaning of Section 3(a)(62) of the Exchange Act that then publishes a rating for us amends, clarifies or changes the criteria it uses to assign equity credit to securities such as the Series A Preferred Stock, which amendment, clarification or change results in the shortening of the length of time the Series A Preferred Stock is assigned a particular level of equity credit by that rating agency as compared to the length of time it would have been assigned that level of equity credit by that rating agency or its predecessor on the initial issuance of the Series A Preferred Stock, or the lowering of the equity credit (including up to a lesser amount) assigned to the Series A Preferred Stock by that rating agency as compared to the equity credit assigned by that rating agency or its predecessor on the initial issuance of the Series A Preferred Stock. A “Regulatory Capital Event” is generally defined to mean our good faith determination that as a result of a change in law, rule or regulation, or a proposed change or an official judicial or administrative pronouncement, there is more than an insubstantial risk that the full liquidation preference of the Series A Preferred Stock would not qualify as capital (or a substantially similar concept) for purposes of any group capital standard to which we are or will be subject.

Holders of the Series A Preferred Stock will be entitled to receive dividend payments only when, as and if declared by our board of directors (or a duly authorized committee of the board). Dividends will be payable from the original date of issue at a rate of 5.85% per annum, payable quarterly, in arrears, on the fifteenth day of March, June, September and December of each year, beginning on June 15, 2019. Dividends on the Series A Preferred Stock will be non-cumulative.

In the event of any liquidation, dissolution or winding-up of the affairs of AIG, whether voluntary or involuntary, before any distribution or payment out of our assets may be made to or set aside for the holders of any junior stock, holders of the Series A Preferred Stock will be entitled to receive out of our assets legally available for distribution to our stockholders, an amount equal to $25,000 per share of Series A Preferred Stock (equivalent to $25.00 per Depositary Share), together with an amount equal to all declared and unpaid dividends (if any), but no amount in respect of any undeclared dividends prior to such payment date. Distributions will be made only to the extent of our assets that are available for distribution to stockholders (i.e., after satisfaction of all our liabilities to creditors, if any).

The Series A Preferred Stock does not have voting rights, except in limited circumstances, including in the case of certain dividend non-payments.

48AIG | First Quarter ~~2018~~2019 Form 10-Q47

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~11.~~12. Equity

~~11. Equity~~

~~Shares Outstanding~~Common Stock

The following table presents a rollforward of outstanding shares:

Three Months Ended March 31, 2018	Common	Treasury	Common Stock
Three Months Ended March 31, 2019				Common	Treasury	Common Stock
	Stock Issued	Stock	Outstanding	Stock Issued	Stock	Outstanding
Shares, beginning of year	1,906,671,492	(1,007,626,835)	899,044,657	1,906,671,492	(1,040,062,063)	866,609,429
Shares issued	-	4,021,554	4,021,554	-	3,127,472	3,127,472
Shares repurchased	-	(5,384,703)	(5,384,703)	-		-
Shares, end of period	1,906,671,492	(1,008,989,984)	897,681,508	1,906,671,492	(1,036,934,591)	869,736,901

Dividends

Dividends are payable on AIG Common Stock only when, as and if declared by our Board of Directors in its discretion, from funds legally available for this purpose. In considering whether to pay a dividend on or purchase shares of AIG Common Stock, our Board of Directors considers a number of factors, including, but not limited to: the capital resources available to support our insurance operations and business strategies, AIG’s funding capacity and capital resources in comparison to internal benchmarks, expectations for capital generation, rating agency expectations for capital, regulatory standards for capital and capital distributions, and such other factors as our Board of Directors may deem relevant. The payment of dividends is also subject to the terms of AIG’s outstanding Series A Preferred Stock, pursuant to which no dividends may be declared or paid on any AIG Common Stock unless the full dividends for the latest completed dividend period on all outstanding shares of Series A Preferred Stock have been declared and paid or provided for.

The following table presents declaration date, record date, payment date and dividends paid per share on AIG Common Stock:

			Dividends Paid
Declaration Date	Record Date	Payment Date	Per Share
February 13, 2019	March 15, ~~2018~~2019	March 29, ~~2018~~2019	0.32
February 8, 2018	March 15, ~~2017~~2018	March 29, ~~2017~~2018	0.32

For a discussion of restrictions on payments of dividends to AIG Parent by its subsidiaries see Note 19 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

Repurchase of AIG Common Stock

The following table presents repurchases of AIG Common Stock and warrants to purchase shares of AIG Common Stock:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Aggregate repurchases of common stock	$	298	$	3,585	$	-	$	298
Total number of common shares repurchased		5		56		-		5
Aggregate repurchases of warrants	$	2	$	-	$	-	$	2
Total number of warrants repurchased^*		-		-		-		-

* For the three-month ~~period~~periods ended March 31, 2018, we repurchased 97,553 warrants to purchase shares of AIG Common Stock. For the three-month periods ended March 31, 2019, we did not repurchase any warrants to purchase shares of AIG Common Stock..

Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG Common Stock through a series of actions. On ~~May 3, 2017,~~February 13, 2019, our Board of Directors authorized an additional increase of ~~$2.5~~approximately $1.5 billion to its previous share repurchase authorization. As of March 31, ~~2018, approximately~~2019, $2.0 billion remained under our share repurchase authorization. Shares may be repurchased from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise (including through the purchase of warrants). Certain of our share repurchases have been and may from time to time be effected through Exchange Act Rule 10b5-1 repurchase plans.

~~The timing of any future repurchases will depend on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and other factors.~~

48AIG | First Quarter ~~2018~~2019 Form 10-Q49

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ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~11.~~12. Equity

We did not repurchase any shares of AIG Common Stock during the three months ended March 31, 2019. The timing of any future repurchases will depend on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and other factors. The repurchase of AIG Common Stock is also subject to the terms of AIG’s outstanding Series A Preferred Stock, pursuant to which AIG may not (other than in limited circumstances) purchase, redeem or otherwise acquire AIG Common Stock unless the full dividends for the latest completed dividend period on all outstanding shares of Series A Preferred Stock have been declared and paid or provided for.

Accumulated Other Comprehensive Income

The following table presents a rollforward of Accumulated other comprehensive ~~income:~~income (loss):

		Unrealized Appreciation								Fair Value of				Unrealized Appreciation								Fair Value of
		(Depreciation) of Fixed		Unrealized						Liabilities Under				(Depreciation) of Fixed		Unrealized						Liabilities Under
		Maturity Securities on		Appreciation		Foreign		Retirement		Fair Value Option				Maturity Securities on		Appreciation		Foreign		Retirement		Fair Value Option
		Which Other-Than-		(Depreciation)		Currency		Plan		Attributable to				Which Other-Than-		(Depreciation)		Currency		Plan		Attributable to
		Temporary Credit		of All Other		Translation		Liabilities		Changes in				Temporary Credit		of All Other		Translation		Liabilities		Changes in
(in millions)		Impairments Were Taken		Investments		Adjustments		Adjustment		Own Credit Risk		Total		Impairments Were Taken		Investments		Adjustments		Adjustment		Own Credit Risk		Total
Balance, December 31, 2017, net of tax	$	793	$	7,693	$	(2,090)	$	(931)	$	-	$	5,465
Cumulative effect of change in
accounting principles		169		(285)		(284)		(183)		7		(576)
Change in unrealized depreciation of investments		(240)		(4,754)		-		-		-		(4,994)
Balance, December 31, 2018, net of tax													$	(38)	$	2,426	$	(2,725)	$	(1,086)	$	10	$	(1,413)
Change in unrealized appreciation of investments														849		5,064		-		-		-		5,913
Change in deferred policy acquisition costs
adjustment and other		30		634		-		-		-		664		(8)		(856)		-		-		-		(864)
Change in future policy benefits		-		741		-		-		-		741		-		(1,068)		-		-		-		(1,068)
Change in foreign currency translation adjustments		-		-		172		-		-		172		-		-		188		-		-		188
Change in net actuarial loss		-		-		-		16		-		16		-		-		-		1		-		1
Change in prior service credit		-		-		-		(4)		-		(4)		-		-		-		(1)		-		(1)
Change in deferred tax asset (liability)		60		671		(14)		17		-		734
Change in deferred tax liability														(165)		(432)		(24)		(1)		-		(622)
Change in fair value of liabilities under fair value
option attributable to changes in own credit risk		-		-		-		-		2		2		-		-		-		-		-		-
Total other comprehensive income (loss)		(150)		(2,708)		158		29		2		(2,669)		676		2,708		164		(1)		-		3,547
Noncontrolling interests		-		-		-		-		-		-		-		5		1		-		-		6
Balance, March 31, 2018, net of tax	$	812	$	4,700	$	(2,216)	$	(1,085)	$	9	$	2,220

Balance, December 31, 2016, net of tax	$	426	$	6,405	$	(2,629)	$	(972)	$	-	$	3,230
Change in unrealized appreciation of investments		143		690		-		-		-		833
Change in deferred policy acquisition costs
adjustment and other^*		32		38		-		-		-		70
Change in future policy benefits		-		(86)		-		-		-		(86)
Change in foreign currency translation adjustments		-		-		(304)		-		-		(304)
Change in net actuarial loss		-		-		-		25		-		25
Change in prior service cost		-		-		-		3		-		3
Change in deferred tax asset (liability)		(61)		53		28		(10)		-		10
Total other comprehensive income (loss)		114		695		(276)		18		-		551
Noncontrolling interests		-		-		-		-		-		-
Balance, March 31, 2017, net of tax	$	540	$	7,100	$	(2,905)	$	(954)	$	-	$	3,781
Balance, March 31, 2019, net of tax													$	638	$	5,129	$	(2,562)	$	(1,087)	$	10	$	2,128


Balance, December 31, 2017, net of tax	$	793	$	7,693	$	(2,090)	$	(931)	$	-	$	5,465
Cumulative effect of change in accounting
principles		169		(285)		(284)		(183)		7		(576)
Change in unrealized depreciation of investments		(240)		(4,754)		-		-		-		(4,994)
Change in deferred policy acquisition costs
adjustment and other		30		634		-		-		-		664
Change in future policy benefits		-		741		-		-		-		741
Change in foreign currency translation adjustments		-		-		172		-		-		172
Change in net actuarial loss		-		-		-		16		-		16
Change in prior service credit		-		-		-		(4)		-		(4)
Change in deferred tax asset (liability)		60		671		(14)		17		-		734
Change in fair value of liabilities under fair value
option attributable to changes in own credit risk		-		-		-		-		2		2
Total other comprehensive income (loss)		(150)		(2,708)		158		29		2		(2,669)
Noncontrolling interests		-		-		-		-		-		-
Balance, March 31, 2018, net of tax	$	812	$	4,700	$	(2,216)	$	(1,085)	$	9	$	2,220

* Includes net unrealized gains attributable to businesses held for sale.

50AIG | First Quarter ~~2018~~2019 Form 10-Q49

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~11.~~12. Equity

The following table presents the other comprehensive income reclassification adjustments for the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively:

		Unrealized Appreciation
		(Depreciation) of Fixed								Fair Value of				Unrealized Appreciation								Fair Value of
		Maturity Investments		Unrealized						Liabilities Under				(Depreciation) of Fixed		Unrealized						Liabilities Under
		on Which Other-Than-		Appreciation		Foreign		Retirement		Fair Value Option				Maturity Securities on		Appreciation		Foreign		Retirement		Fair Value Option
		Temporary Credit		(Depreciation)		Currency		Plan		Attributable to				Which Other-Than-		(Depreciation)		Currency		Plan		Attributable to
		Impairments Were		of All Other		Translation		Liabilities		Changes in				Temporary Credit		of All Other		Translation		Liabilities		Changes in
(in millions)		Recognized		Investments		Adjustments		Adjustment		Own Credit Risk		Total		Impairments Were Taken		Investments		Adjustments		Adjustment		Own Credit Risk		Total
March 31, 2019
Unrealized change arising during period													$	841	$	3,109	$	188	$	(5)	$	-	$	4,133
Less: Reclassification adjustments
included in net income														-		(31)		-		(5)		-		(36)
Total other comprehensive income (loss),
before income tax expense														841		3,140		188		-		-		4,169
Less: Income tax expense														165		432		24		1		-		622
Total other comprehensive income (loss),
net of income tax expense													$	676	$	2,708	$	164	$	(1)	$	-	$	3,547

March 31, 2018
Unrealized change arising during period	$	(208)	$	(3,386)	$	172	$	3	$	2	$	(3,417)	$	(208)	$	(3,386)	$	172	$	3	$	2	$	(3,417)
Less: Reclassification adjustments
included in net income		2		(7)		-		(9)		-		(14)		2		(7)		-		(9)		-		(14)
Total other comprehensive income (loss),
before income tax expense (benefit)		(210)		(3,379)		172		12		2		(3,403)		(210)		(3,379)		172		12		2		(3,403)
Less: Income tax expense (benefit)		(60)		(671)		14		(17)		-		(734)		(60)		(671)		14		(17)		-		(734)
Total other comprehensive income (loss),
net of income tax expense (benefit)	$	(150)	$	(2,708)	$	158	$	29	$	2	$	(2,669)	$	(150)	$	(2,708)	$	158	$	29	$	2	$	(2,669)

March 31, 2017
Unrealized change arising during period	$	190	$	835	$	(304)	$	18	$	-	$	739
Less: Reclassification adjustments
included in net income		15		193		-		(10)		-		198
Total other comprehensive income (loss),
before income tax expense (benefit)		175		642		(304)		28		-		541
Less: Income tax expense (benefit)		61		(53)		(28)		10		-		(10)
Total other comprehensive income (loss),
net of income tax expense (benefit)	$	114	$	695	$	(276)	$	18	$	-	$	551

The following table presents the effect of the reclassification of significant items out of Accumulated other comprehensive income on the respective line items in the Condensed Consolidated Statements of Income:

	Amount Reclassified						Amount Reclassified
	from Accumulated Other						from Accumulated Other
	Comprehensive Income						Comprehensive Income
	Three Months Ended March 31,					Affected Line Item in the	Three Months Ended March 31,					Affected Line Item in the
(in millions)			2018		2017	Condensed Consolidated Statements of Income			2019		2018	Condensed Consolidated Statements of Income
Unrealized appreciation (depreciation) of fixed maturity securities on which other-than-temporary credit impairments were taken

Investments		$	2	$	15	Other realized capital gains		$	-	$	2	Other realized capital gains
Total			2		15				-		2
Unrealized appreciation (depreciation) of
all other investments
Investments			24		140	Other realized capital gains			(31)		24	Other realized capital gains
Deferred acquisition costs adjustment			(31)		53	Amortization of deferred policy acquisition costs			-		(31)	Amortization of deferred policy acquisition costs
Future policy benefits			-		-	Policyholder benefits and losses incurred			-		-	Policyholder benefits and losses incurred
Total			(7)		193				(31)		(7)
Change in retirement plan liabilities adjustment
Prior-service credit			-		-	*			-		-	*
Actuarial losses			(9)		(10)	*			(5)		(9)	*
Total			(9)		(10)				(5)		(9)
Total reclassifications for the period		$	(14)	$	198			$	(36)	$	(14)

* These Accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note ~~13 to the Condensed Consolidated Financial Statements~~14.

50AIG | First Quarter ~~2018~~2019 Form 10-Q51

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~12.~~13. Earnings Per Share (EPS)

~~12.~~13. Earnings Per Share (EPS)

The basic EPS computation is based on the weighted average number of common shares outstanding, adjusted to reflect all stock dividends and stock splits. The diluted EPS computation is based on those shares used in the basic EPS computation plus shares that would have been outstanding assuming issuance of common shares for all dilutive potential common shares outstanding and adjusted to reflect all stock dividends and stock splits.

The following table presents the computation of basic and diluted EPS:

Three Months Ended March 31,
(dollars in millions, except per share data)			2018		2017		2019		2018
Numerator for EPS:
Income from continuing operations		$	950	$	1,211	$	937	$	950
Less: Net income from continuing operations attributable to noncontrolling interests	Less: Net income from continuing operations attributable to noncontrolling interests		11		26		283		11
Income attributable to AIG common shareholders from continuing operations	Income attributable to AIG common shareholders from continuing operations		939		1,185		654		939
Income (loss) from discontinued operations, net of income tax expense			(1)		-
Loss from discontinued operations, net of income tax expense							-		(1)
Net income attributable to AIG common shareholders		$	938	$	1,185	$	654	$	938
Denominator for EPS:
Weighted average shares outstanding — basic			907,951,597		980,777,243		875,383,084		907,951,597
Dilutive shares			17,314,980		24,537,787		2,129,160		17,314,980
Weighted average shares outstanding — diluted^(a)			925,266,577		1,005,315,030		877,512,244		925,266,577
Income per common share attributable to AIG:
Basic:
Income from continuing operations		$	1.03	$	1.21	$	0.75	$	1.03
Income from discontinued operations		$	-	$	-	$	-	$	-
Net income attributable to AIG		$	1.03	$	1.21	$	0.75	$	1.03
Diluted:
Income from continuing operations		$	1.01	$	1.18	$	0.75	$	1.01
Income (loss) from discontinued operations		$	-	$	-
Income from discontinued operations						$	-	$	-
Net income attributable to AIG		$	1.01	$	1.18	$	0.75	$	1.01

(a) Dilutive shares included our share‑based employee compensation plans and a weighted average portion of the warrants issued to AIG shareholders as part of AIG’s recapitalization in January 2011. The number of shares excluded from diluted shares outstanding was ~~0.7~~64.3 million and ~~1.8~~0.7 million for the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, because the effect of including those shares in the calculation would have been anti-dilutive.

52AIG | First Quarter ~~2018~~2019 Form 10-Q51

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~13.~~14. Employee Benefits

~~13.~~14. Employee Benefits

We sponsor various defined benefit pension plans, post-retirement medical and life insurance plans for eligible employees and retirees in the U.S. and certain non-U.S. countries.

The following table presents the components of net periodic benefit cost with respect to pensions and other postretirement benefits:

	Pension						Postretirement						Pension						Postretirement
		U.S.		Non-U.S.				U.S.		Non-U.S.				U.S.		Non-U.S.				U.S.		Non-U.S.
(in millions)		Plans		Plans		Total		Plans		Plans		Total		Plans		Plans		Total		Plans		Plans		Total
Three Months Ended March 31, 2019
Components of net periodic benefit cost:
Service cost													$	2	$	6	$	8	$	-	$	-	$	-
Interest cost														44		4		48		2		-		2
Expected return on assets														(57)		(5)		(62)		-		-		-
Amortization of prior service cost														-		-		-		-		-		-
Amortization of net loss														8		1		9		-		-		-
Net periodic benefit cost (credit)														(3)		6		3		2		-		2
Settlement gain														-		(4)		(4)		-		-		-
Net benefit cost (credit)													$	(3)	$	2	$	(1)	$	2	$	-	$	2
Three Months Ended March 31, 2018
Components of net periodic benefit cost:
Service cost	$	2	$	6	$	8	$	-	$	-	$	-	$	2	$	6	$	8	$	-	$	-	$	-
Interest cost		41		4		45		2		-		2		41		4		45		2		-		2
Expected return on assets		(71)		(7)		(78)		-		-		-		(71)		(7)		(78)		-		-		-
Amortization of prior service cost		-		1		1		-		-		-		-		1		1		-		-		-
Amortization of net loss		7		2		9		-		-		-		7		2		9		-		-		-
Net periodic benefit cost (credit)	$	(21)	$	6	$	(15)	$	2	$	-	$	2		(21)		6		(15)		2		-		2
Three Months Ended March 31, 2017
Components of net periodic benefit cost:
Service cost	$	6	$	8	$	14	$	-	$	1	$	1
Interest cost		43		4		47		2		1		3
Expected return on assets		(64)		(6)		(70)		-		-		-
Amortization of prior service cost		-		-		-		-		-		-
Amortization of net loss		7		3		10		-		-		-
Net periodic benefit cost (credit)	$	(8)	$	9	$	1	$	2	$	2	$	4
Settlement gain														-		-		-		-		-		-
Net benefit cost (credit)													$	(21)	$	6	$	(15)	$	2	$	-	$	2

For the three-month period ended March 31, ~~2018,~~2019, we did not make any contributions to the U.S. AIG Retirement Plan.

52AIG | First Quarter ~~2018~~2019 Form 10-Q53

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~14.~~15. Income Taxes

~~14.~~15. Income Taxes

U.S. Tax Reform Overview

During December 2017, the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provided guidance on accounting for the tax effects of the Tax Act. SAB 118 addressed situations where accounting for certain income tax effects of the Tax Act under ASC 740 may be incomplete upon issuance of an entity’s financial statements and provides a one-year measurement period from the enactment date to complete the accounting under ASC 740. In accordance with SAB 118, a company was required to reflect the following:

•~~Income tax effects of those aspects of the Tax Act for which accounting under ASC 740 is complete~~

•~~Provisional estimate of income tax effects of the Tax Act to the extent accounting is incomplete but a reasonable estimate is determinable~~

•~~If a provisional estimate cannot be determined, ASC 740 should still be applied on the basis of tax law provisions that were in effect immediately before the enactment of the Tax Act.~~

At December 31, 2017, we originally recorded a provisional estimate of income tax effects of the Tax Act of $6.7 billion, including a tax charge of $6.7 billion attributable to the reduction in the U.S. corporate income tax rate and tax benefit of $38 million related to the deemed repatriation tax. During the period ended March 31, 2018, we have not recorded any material adjustments to these provisional amounts. We continue to refine our analysis and calculations, which could impact the provisional estimates previously recorded. Accordingly, as of March 31, 2018, we have not fully completed our accounting for the tax effects of the Tax Act.

The Tax Act includes provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax (BEAT) under which taxes are imposed on certain base eroding payments to affiliated foreign companies. There are substantial uncertainties in the interpretation of BEAT and GILTI and, while certain formal guidance was issued by the U.S. tax authority, there are still aspects of the Tax Act that remain unclear and additional guidance is expected later in 2019. Such guidance may result in changes to the interpretations and assumptions we made and actions we may take, which may impact amounts recorded with respect to international provisions of the Tax Act, possibly materially. Consistent with accounting guidance, we treat BEAT as a period tax charge in the period the tax is incurred and have made an accounting policy election to treat GILTI taxes in a similar manner.

~~Tax effects for which a reasonable estimate can be determined~~

~~Deemed Repatriation Tax~~

The Tax Act requires companies to pay a one-time transition tax, net of tax credits related to applicable foreign taxes paid, on previously untaxed current and accumulated earnings and profits (E&P) of certain of our foreign subsidiaries. In the determination of the deemed repatriation tax, we reviewed estimated post-1986 E&P of certain material relevant foreign subsidiaries, and any related non-U.S. income tax paid on such earnings. We originally recorded a provisional estimated tax benefit of $38 million at December 31, 2017. While the IRS has issued some guidance on the calculation of the deemed repatriation tax, there are still certain aspects of the calculation that require further clarification. We are continuing to gather additional information to more precisely compute the amount of deemed repatriation tax. As we continue to refine our analysis, we will refine our calculations of the one-time transition tax, which could impact the provisional estimate previously recorded.

~~Other Provisions~~

The Tax Act modified computations of insurance reserves for both life and general insurance companies. For life insurance companies, tax reserves are now computed with reference to NAIC reserves. For general insurance companies, the Tax Act extends the discount period for certain long-tail lines of business from 10 years to 24 years and increases the discount rate, replacing the applicable federal rate for a higher-yield corporate bond rate, and eliminates the election allowing companies to use their historical loss payment patterns for loss reserve discounting. Adjustments related to the differences in insurance reserves balances computed under the old tax law versus the Tax Act have to be taken into income over eight years by both life and general insurance companies. At December 31, 2017, we recorded provisional estimates with respect to such items. As of March 31, 2018, these estimates remain provisional.

54~~AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 1 |~~~~Notes to Condensed Consolidated Financial Statements (unaudited) |~~~~14. Income Taxes~~

~~Provisions Impacting Projections of Taxable Income and Valuation Allowance Considerations~~

Certain provisions of the Tax Act impact our projections of future taxable income used in analyzing realizability of our U.S. tax attribute deferred tax asset. As discussed above, there are specific insurance industry provisions, including changes in computations of insurance reserves, amortization of specified policy acquisition expenses, and treatment of separate account dividends received deduction. Provisional estimates have been included in our future taxable income projections for these insurance industry specific provisions to reflect application of the new tax law.

Because we have made provisional estimates related to the impact of certain aspects of the Tax Act on our future taxable income, corresponding determination of the need for a valuation allowance is also provisional. Generally, the Tax Act provisions result in an increase in our taxable income and, thus, accelerate utilization of our tax attribute deferred tax asset. Accordingly, we do not currently anticipate that our reliance on provisional estimates would have a material impact on our determination of the realizability of our deferred tax assets.

~~In all cases, we will continue to refine our calculations as additional analysis is completed. Our estimates may also be impacted as additional guidance from taxing authorities is issued.~~

~~Tax effects for which no estimate can be determined~~

Our accounting for the following elements of the Tax Act is incomplete and we continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before enactment of the Tax Act.

The Tax Act may affect the results in certain investments and partnerships in which we are a non-controlling interest owner. The information needed to determine a provisional estimate is not currently available (such as for interest deduction limitations in those entities and the changed definition of a U.S. Shareholder). Accordingly, no provisional estimates were recorded.

Due to minimal formal guidance issued from state and local jurisdictions, provisional estimates have not been recorded for the impact of any state and local corporate income tax implications of the Tax Act. Guidance from state and local jurisdictions is expected during 2018 and the impact, if any, will be recorded when the related guidance is issued.

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

In February 2018, the FASB issued an accounting standard that allows the optional reclassification of stranded tax effects within accumulated other comprehensive income (AOCI) that arise due to the enactment of the Tax Act to retained earnings. We elected to early adopt the standard for the period ended March 31, 2018. As a result of adopting this standard, we reclassified $248 million from AOCI to retained earnings. The amount reclassified includes stranded effects related to the change in the U.S. federal corporate income tax rate on the gross temporary differences and related valuation allowances. The effect of the Tax Act on gross temporary differences related to AOCI is provisional. As we finalize the accounting for tax effects of the Tax Act on these items, additional reclassification adjustments may be recorded in future periods.

We use an item-by-item approach to release the stranded or disproportionate income tax effects in AOCI related to our available-for-sale securities. Under this approach, a portion of the disproportionate tax effects is assigned to each individual security lot at the date the amount becomes lodged. When the individual securities are sold, mature, or are otherwise impaired on an other-than-temporary basis, the assigned portion of the disproportionate tax effect is reclassified from AOCI to income from continuing operations.

Interim Tax Calculation Method

We use the estimated annual effective tax rate method in computing our interim tax provision. Certain items, including those deemed to be unusual, infrequent or that cannot be reliably estimated, are excluded from the estimated annual effective tax rate. In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions, and are recorded in the period in which the change occurs. While certain impacts of the Tax Act are included in our annual effective tax rate, we continue to refine our calculations as additional information becomes available, which may result in changes to the estimated annual effective tax rate.

~~AIG | First Quarter 2018 Form 10-Q~~55

~~TABLE OF CONTENTS~~

~~ITEM 1 |~~~~Notes to Condensed Consolidated Financial Statements (unaudited) |~~~~14. Income Taxes~~

Interim Tax Expense (Benefit)

For the three-month period ended March 31, 2019, the effective tax rate on income from continuing operations was 18.8 percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 21 percent primarily due to tax benefits associated with tax exempt income, reclassifications from accumulated other comprehensive income to income from continuing operations related to the disposal of available for sale securities, and valuation allowance activity related to certain foreign subsidiaries, partially offset by tax charges associated with the effect of foreign operations, state and local income taxes, a net tax charge related to the accrual of IRS interest, excess tax charges related to share based compensation payments recorded through the income statement, non-deductible transfer pricing charges, and U.S. tax imposed on GILTI earned by certain foreign subsidiaries. The effect of foreign operations is primarily related to income in our foreign operations taxed at statutory tax rates higher than 21 percent, other foreign taxes, and foreign income subject to U.S. taxation.

For the three-month period ended March 31, 2018, the effective tax rate on income from continuing operations was 22.6 percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 21 percent primarily due to tax charges related to income in our foreign operations taxed at statutory tax rates higher than 21 percent, tax on GILTI earned by certain foreign subsidiaries,valuation allowance activity related to certain foreign subsidiaries and non-deductible transfer pricing charges, partially offset by tax benefits associated with tax exempt income, reclassifications from accumulated other comprehensive income to income from continuing operations related to the disposal of available for sale securities and excess tax deductions related to share based compensation payments recorded through the income ~~statement in accordance with ASU 2016-09.~~statement.

For the three-month period ended March 31, 2017, the effective tax rate on income from continuing operations was 29.9 percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax benefits associated with tax exempt income, reclassifications from accumulated other comprehensive income to income from continuing operations related to the disposal of available for sale securities and excess tax deductions related to share based compensation payments recorded through the income statement in accordance with ASU 2016-09, partially offset by tax charges related to the disposition of subsidiaries and non-deductible transfer pricing charges.

As a result of the Tax Act, the majority of accumulated foreign earnings that were previously untaxed are subject to a one-time deemed repatriation tax. Going forward, certain foreign earnings of our foreign affiliates will be exempt from U.S. tax upon repatriation. Notwithstanding the changes, U.S. tax on foreign exchange gain or loss and certain non-U.S. withholding taxes will continue to be applicable upon future repatriations of foreign earnings. For the three-month period ended March 31, ~~2018,~~2019, we ~~still~~ consider our foreign earnings with respect to certain operations in Canada, South Africa, the Far East, Latin America, Bermuda as well as the European, Asia Pacific and Middle East regions to be indefinitely reinvested. These earnings relate to ongoing operations and have been reinvested in active business operations. Deferred taxes, if necessary, have been provided on earnings of non-U.S. affiliates whose earnings are not indefinitely reinvested.

AIG | First Quarter 2019 Form 10-Q53

TABLE OF CONTENTS

ITEM 1 |Notes to Condensed Consolidated Financial Statements (unaudited) |15. Income Taxes

Assessment of Deferred Tax Asset Valuation Allowance

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. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.

Our framework for assessing the recoverability of the deferred tax asset requires us to consider all available evidence, including:

• the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;

• the sustainability of recent operating profitability of our subsidiaries;

• the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;

• the carryforward period for the net operating loss, capital loss and foreign tax credit carryforwards, including the effect of reversing taxable temporary differences; and

• prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset.

In performing our assessment of the recoverability of the deferred tax asset under this framework, we consider tax laws governing the utilization of the net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. Under U.S. tax law, a company generally must use its net operating loss carryforwards before it can use its foreign tax credit carryforwards, even though the carryforward period for the foreign tax credit is shorter than for the net operating loss. Our U.S. federal consolidated income tax group includes both life companies and non-life companies. While the U.S. taxable income of our non-life companies can be offset by our net operating loss carryforwards, only a portion (no more than 35 percent) of the U.S. taxable income of our life companies can be offset by those net operating loss carryforwards. The remaining tax liability of our life companies can be offset by the foreign tax credit carryforwards. Accordingly, we utilize both the net operating loss and foreign tax credit carryforwards concurrently which enables us to realize our tax attributes prior to expiration. As of March 31, ~~2018,~~2019, based on all available evidence, it is more likely than not that the U.S. net operating loss and foreign tax credit carryforwards will be utilized prior to expiration and, thus, no valuation allowance has been established.

56~~AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 1 |~~~~Notes to Condensed Consolidated Financial Statements (unaudited) |~~~~14. Income Taxes~~

Estimates of future taxable income, including income generated from prudent and feasible actions and tax planning strategies and interpretations and assumptions related to the impact of the Tax Act could change in the near term, perhaps materially, which may require us to consider any potential impact to our assessment of the recoverability of the deferred tax asset. Such potential impact could be material to our consolidated financial condition or results of operations for an individual reporting period.

For the three-month period ended March 31, ~~2018,~~2019, recent changes in market conditions, including ~~rising~~ interest ~~rates,~~rate fluctuations, impacted the unrealized tax gains and losses in the U.S. Life Insurance Companies’ available for sale securities portfolio, resulting in a decrease to the deferred tax asset related to net unrealized tax capital losses. The deferred tax asset relates to the unrealized losses for which the carryforward period has not yet begun, and as such, when assessing its recoverability, we consider our ability and intent to hold the underlying securities to recovery. As of March 31, ~~2018,~~2019, based on all available evidence, we concluded that no valuation allowance is ~~necessary~~required. For the three-month period ended March 31, 2019, we released $290million of valuation allowance associated with the unrealized tax losses in the U.S. Life Insurance Companies’ available for sale securities ~~portfolio.~~portfolio, all of which was allocated to other comprehensive income.

For the three-month period ended March 31, ~~2018,~~2019, we recognized a net ~~increase~~decrease of ~~$30~~$38 million in our deferred tax asset valuation allowance associated with certain foreign ~~jurisdictions,~~subsidiaries, primarily attributable to changes in projections and current year activity.

54AIG | First Quarter 2019 Form 10-Q

TABLE OF CONTENTS

ITEM 1 |Notes to Condensed Consolidated Financial Statements (unaudited) |15. Income Taxes

Tax Examinations and Litigation

On August 1, 2012, we filed a motion for partial summary judgment related to the disallowance of foreign tax credits associated with cross border financing transactions in the Southern District of New York. The Southern District of New York denied our summary judgment motion and upon AIG’s appeal, the U.S. Court of Appeals for the Second Circuit (the Second Circuit) affirmed the denial. AIG’s petition for certiorari to the U.S. Supreme Court from the decision of the Second Circuit was denied on March 7, 2016. As a result, the case has been remanded back to the Southern District of New York for a jury trial.

In January 2018, the parties reached non-binding agreements in principle on issues presented in the dispute and are currently reviewing the computations reflecting the settlement terms. The resolution is not final and is subject to various reviews. The litigation has been stayed pending the outcome of the review process. We can provide no assurance regarding the outcome of any such litigation or whether binding compromised settlements with the parties will ultimately be reached. We currently believe that we have adequate reserves for the potential liabilities that may result from these matters.

Accounting for Uncertainty in Income Taxes

At both March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, our unrecognized tax benefits, excluding interest and penalties, were ~~$4.7~~$4.7 billion. At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, our unrecognized tax benefits related to tax positions that, if recognized, would not affect the effective tax rate because they relate to such factors as the timing, rather than the permissibility, of the deduction were ~~$52~~$45 million and ~~$28~~$38 million, respectively. Accordingly, at both March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were ~~$4.7~~$4.7 billion.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, we had accrued liabilities of ~~$2.1~~$2.3 billion and ~~$2.0~~$2.2 billion, respectively, for the payment of interest (net of the federal benefit) and penalties. For the three-month periods ended March 31, 2019 and 2018, ~~and 2017,~~ we accrued expense (benefit) of ~~$54~~$58 million and ~~$17~~$54 million, respectively, for the payment of interest and penalties.

We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next 12 months by as much as $3.9 billion, principally as a result of potential resolutions or settlements of prior years’ tax items. The prior years’ tax items include unrecognized tax benefits related to the deductibility of certain expenses and matters related to cross border financing transactions.

AIG | First Quarter ~~2018~~2019 Form 10-Q 5755

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~15.~~16. Information Provided in Connection with Outstanding Debt

~~15.~~16. Information Provided in Connection with Outstanding Debt

The following Condensed Consolidating Financial Statements reflect the results of Validus Holdings, Ltd. and AIG Life Holdings, Inc. (AIGLH), each a holding company and a wholly owned subsidiary of AIG. AIG provides a full and unconditional guarantee of the senior notes of Validus and all outstanding debt of AIGLH.

Condensed Consolidating Balance Sheets

		American										American
		International					Reclassifications					International		Validus						Reclassifications
		Group, Inc.				Other		and	Consolidated			Group, Inc.		Holdings,				Other		and	Consolidated
(in millions)	(As Guarantor)			AIGLH		Subsidiaries		Eliminations		AIG	(As Guarantor)			Ltd.		AIGLH		Subsidiaries		Eliminations		AIG
March 31, 2018
March 31, 2019
Assets:
Short-term investments^(a)	$	6,031	$	-	$	11,764	$	(3,179)	$	14,616	$	2,051	$	2	$	-	$	11,306	$	(2,226)	$	11,133
Other investments^(b)		4,814		-		302,945		-		307,759		3,750		-		-		309,980		-		313,730
Total investments		10,845		-		314,709		(3,179)		322,375		5,801		2		-		321,286		(2,226)		324,863
Cash		4		5		2,094		-		2,103		2		1		3		2,559		-		2,565
Loans to subsidiaries^(c)		34,747		-		579		(35,326)		-		35,221		-		-		608		(35,829)		-
Investment in consolidated subsidiaries^(c)		37,224		28,741		-		(65,965)		-		36,737		4,282		29,312		-		(70,331)		-
Other assets, including deferred income taxes^(d)		15,932		166		160,755		(2,188)		174,665		15,707		1,796		126		170,000		(2,135)		185,494
Total assets	$	98,752	$	28,912	$	478,137	$	(106,658)	$	499,143	$	93,468	$	6,081	$	29,441	$	494,453	$	(110,521)	$	512,922
Liabilities:
Insurance liabilities	$	-	$	-	$	284,657	$	-	$	284,657	$	-	$	-	$	-	$	298,689	$	-	$	298,689
Long-term debt		23,038		642		9,939		-		33,619		22,993		357		643		11,783		-		35,776
Other liabilities, including intercompany balances^(b)		12,343		133		110,443		(5,409)		117,510		9,080		221		133		111,293		(4,363)		116,364
Loans from subsidiaries^(c)		579		-		34,749		(35,328)		-		608		-		-		35,222		(35,830)		-
Total liabilities		35,960		775		439,788		(40,737)		435,786		32,681		578		776		456,987		(40,193)		450,829
Total AIG shareholders’ equity		62,792		28,137		37,784		(65,921)		62,792		60,787		5,503		28,665		36,160		(70,328)		60,787
Non-redeemable noncontrolling interests		-		-		565		-		565		-		-		-		1,306		-		1,306
Total equity		62,792		28,137		38,349		(65,921)		63,357		60,787		5,503		28,665		37,466		(70,328)		62,093
Total liabilities and equity	$	98,752	$	28,912	$	478,137	$	(106,658)	$	499,143	$	93,468	$	6,081	$	29,441	$	494,453	$	(110,521)	$	512,922

December 31, 2017
December 31, 2018
Assets:
Short-term investments^(a)	$	2,541	$	-	$	11,559	$	(3,714)	$	10,386	$	1,141	$	2	$	-	$	10,329	$	(1,798)	$	9,674
Other investments^(b)		6,004		-		305,902		-		311,906		3,377		-		-		301,158		-		304,535
Total investments		8,545		-		317,461		(3,714)		322,292		4,518		2		-		311,487		(1,798)		314,209
Cash		3		20		2,339		-		2,362		2		9		9		2,853		-		2,873
Loans to subsidiaries^(c)		35,004		-		517		(35,521)		-		34,963		-		-		615		(35,578)		-
Investment in consolidated subsidiaries^(c)		40,135		30,359		-		(70,494)		-		33,300		4,029		26,321		-		(63,650)		-
Other assets, including deferred income taxes^(d)		16,016		170		159,594		(2,133)		173,647		15,389		1,798		124		159,430		(1,839)		174,902
Total assets	$	99,703	$	30,549	$	479,911	$	(111,862)	$	498,301	$	88,172	$	5,838	$	26,454	$	474,385	$	(102,865)	$	491,984
Liabilities:
Insurance liabilities	$	-	$	-	$	282,105	$	-	$	282,105	$	-	$	-	$	-	$	293,652	$	-	$	293,652
Long-term debt		21,557		642		9,441		-		31,640		22,422		359		643		11,116		-		34,540
Other liabilities, including intercompany balances^(b)		12,458		143		112,275		(6,028)		118,848		8,774		228		144		100,974		(3,637)		106,483
Loans from subsidiaries^(c)		517		-		35,004		(35,521)		-		615		-		-		34,963		(35,578)		-
Total liabilities		34,532		785		438,825		(41,549)		432,593		31,811		587		787		440,705		(39,215)		434,675
Total AIG shareholders’ equity		65,171		29,764		40,549		(70,313)		65,171		56,361		5,251		25,667		32,732		(63,650)		56,361
Non-redeemable noncontrolling interests		-		-		537		-		537		-		-		-		948		-		948
Total equity		65,171		29,764		41,086		(70,313)		65,708		56,361		5,251		25,667		33,680		(63,650)		57,309
Total liabilities and equity	$	99,703	$	30,549	$	479,911	$	(111,862)	$	498,301	$	88,172	$	5,838	$	26,454	$	474,385	$	(102,865)	$	491,984

(a) At March 31, ~~2018,~~2019, includes restricted cash of ~~$15~~$8 million and ~~$32~~$243 million for American International Group, Inc. (As Guarantor) and Other Subsidiaries, respectively. At December 31, ~~2017,~~2018, includes restricted cash of $4$124 million and ~~$54~~$18 million for American International Group, Inc. (As Guarantor) and Other Subsidiaries, respectively.

(b) Includes intercompany derivative positions, which are reported at fair value before credit valuation adjustment.

(d) At March 31, ~~2018,~~2019, includes restricted cash of $1 million and ~~$220~~$362 million for American International Group, Inc. (As Guarantor) and Other Subsidiaries, respectively. At December 31, ~~2017,~~2018, includes restricted cash of $1 million and ~~$316~~$342 million for American International Group, Inc. (As Guarantor) and Other Subsidiaries, respectively.

5856 AIG | First Quarter ~~2018~~2019 Form 10-Q

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~15.~~16. Information Provided in Connection with Outstanding Debt

Condensed Consolidating Statements of Income


		American										American
		International						Reclassifications				International		Validus						Reclassifications
		Group, Inc.				Other		and		Consolidated		Group, Inc.		Holdings,				Other		and		Consolidated
(in millions)		(As Guarantor)		AIGLH		Subsidiaries		Eliminations		AIG		(As Guarantor)		Ltd.		AIGLH		Subsidiaries		Eliminations		AIG
Three Months Ended March 31, 2018
Revenues:
Equity in earnings of consolidated subsidiaries^*	$	1,033	$	722	$	-	$	(1,755)	$	-
Other income		258		-		11,512		(58)		11,712
Total revenues		1,291		722		11,512		(1,813)		11,712
Expenses:
Interest expense		220		12		48		(3)		277
Gain on extinguishment of debt		-		-		4		-		4
Other expenses		152		1		10,106		(55)		10,204
Total expenses		372		13		10,158		(58)		10,485
Income (loss) from continuing operations before income tax
expense (benefit)		919		709		1,354		(1,755)		1,227
Income tax expense (benefit)		(19)		3		293		-		277
Income (loss) from continuing operations		938		706		1,061		(1,755)		950
Loss from discontinued operations, net of income taxes		-		-		(1)		-		(1)
Net income (loss)		938		706		1,060		(1,755)		949
Less:
Net income (loss) from continuing operations attributable to
noncontrolling interests		-		-		11		-		11
Net income (loss) attributable to AIG	$	938	$	706	$	1,049	$	(1,755)	$	938
Three Months Ended March 31, 2017
Three Months Ended March 31, 2019
Revenues:
Equity in earnings of consolidated subsidiaries^*	$	1,462	$	600	$	-	$	(2,062)	$	-	$	708	$	207	$	700	$	-	$	(1,615)	$	-
Other income		196		-		12,382		54		12,632		287		1		-		12,208		(40)		12,456
Total revenues		1,658		600		12,382		(2,008)		12,632		995		208		700		12,208		(1,655)		12,456
Expenses:
Interest expense		242		12		46		(2)		298		246		-		13		94		(4)		349
Loss on extinguishment of debt		-		-		(1)		-		(1)		-		4		-		(6)		-		(2)
Other expenses		335		1		10,325		(53)		10,608		188		1		-		10,804		(38)		10,955
Total expenses		577		13		10,370		(55)		10,905		434		5		13		10,892		(42)		11,302
Income (loss) from continuing operations before income tax
expense (benefit)		1,081		587		2,012		(1,953)		1,727		561		203		687		1,316		(1,613)		1,154
Income tax expense (benefit)		(104)		(4)		624		-		516		(94)		-		(1)		312		-		217
Income (loss) from continuing operations		1,185		591		1,388		(1,953)		1,211		655		203		688		1,004		(1,613)		937
Income (loss) from discontinued operations, net of income taxes												(1)		-		-		1		-		-
Net income (loss)		1,185		591		1,388		(1,953)		1,211		654		203		688		1,005		(1,613)		937
Less:
Net income (loss) from continuing operations attributable to
noncontrolling interests		-		-		26		-		26		-		-		-		283		-		283
Net income (loss) attributable to AIG	$	1,185	$	591	$	1,362	$	(1,953)	$	1,185	$	654	$	203	$	688	$	722	$	(1,613)	$	654

Three Months Ended March 31, 2018
Revenues:
Equity in earnings of consolidated subsidiaries^*											$	1,033	$	-	$	722	$	-	$	(1,755)	$	-
Other income												258		-		-		11,512		(58)		11,712
Total revenues												1,291		-		722		11,512		(1,813)		11,712
Expenses:
Interest expense												220		-		12		48		(3)		277
Loss on extinguishment of debt												-		-		-		4		-		4
Other expenses												152		-		1		10,106		(55)		10,204
Total expenses												372		-		13		10,158		(58)		10,485
Income (loss) from continuing operations before income tax
expense (benefit)												919		-		709		1,354		(1,755)		1,227
Income tax expense (benefit)												(19)		-		3		293		-		277
Income (loss) from continuing operations												938		-		706		1,061		(1,755)		950
Loss from discontinued operations, net of income taxes												-		-		-		(1)		-		(1)
Net income (loss)												938		-		706		1,060		(1,755)		949
Less:
Net income (loss) from continuing operations attributable to
noncontrolling interests												-		-		-		11		-		11
Net income (loss) attributable to AIG											$	938	$	-	$	706	$	1,049	$	(1,755)	$	938

* Eliminated in consolidation.

AIG | First Quarter ~~2018~~2019 Form 10-Q 5957

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~15.~~16. Information Provided in Connection with Outstanding Debt

Condensed Consolidating Statements of Comprehensive Income

		American										American
		International						Reclassifications				International		Validus						Reclassifications
		Group, Inc.				Other		and		Consolidated		Group, Inc.		Holdings,				Other		and		Consolidated
(in millions)		(As Guarantor)		AIGLH		Subsidiaries		Eliminations		AIG	(As Guarantor)			Ltd.		AIGLH		Subsidiaries		Eliminations		AIG
Three Months Ended March 31, 2019
Net income (loss)											$	654	$	203	$	688	$	1,005	$	(1,613)	$	937
Other comprehensive income (loss)												3,541		1		5,308		9,175		(14,478)		3,547
Comprehensive income (loss)												4,195		204		5,996		10,180		(16,091)		4,484
Total comprehensive income attributable to noncontrolling interests												-		-		-		289		-		289
Comprehensive income (loss) attributable to AIG											$	4,195	$	204	$	5,996	$	9,891	$	(16,091)	$	4,195

Three Months Ended March 31, 2018
Net income (loss)	$	938	$	706	$	1,060	$	(1,755)	$	949	$	938	$	-	$	706	$	1,060	$	(1,755)	$	949
Other comprehensive income (loss)		(2,669)		4,950		14,655		(19,605)		(2,669)		(2,669)		-		4,950		14,655		(19,605)		(2,669)
Comprehensive income (loss)		(1,731)		5,656		15,715		(21,360)		(1,720)		(1,731)		-		5,656		15,715		(21,360)		(1,720)
Total comprehensive income attributable to noncontrolling interests		-		-		11		-		11		-		-		-		11		-		11
Comprehensive income (loss) attributable to AIG	$	(1,731)	$	5,656	$	15,704	$	(21,360)	$	(1,731)	$	(1,731)	$	-	$	5,656	$	15,704	$	(21,360)	$	(1,731)
Three Months Ended March 31, 2017
Net income (loss)	$	1,185	$	591	$	1,388	$	(1,953)	$	1,211
Other comprehensive income (loss)		551		4,660		51,030		(55,690)		551
Comprehensive income (loss)		1,736		5,251		52,418		(57,643)		1,762
Total comprehensive income attributable to noncontrolling interests		-		-		26		-		26
Comprehensive income (loss) attributable to AIG	$	1,736	$	5,251	$	52,392	$	(57,643)	$	1,736

6058 AIG | First Quarter ~~2018~~2019 Form 10-Q

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~15.~~16. Information Provided in Connection with Outstanding Debt

Condensed Consolidating Statements of Cash Flows

		American										American
		International						Reclassifications				International		Validus					Reclassifications
		Group, Inc.				Other		and		Consolidated		Group, Inc.		Holdings,				Other		and		Consolidated
(in millions)		(As Guarantor)		AIGLH		Subsidiaries		Eliminations		AIG	(As Guarantor)			Ltd.		AIGLH		Subsidiaries		Eliminations		AIG
Three Months Ended March 31, 2019
Net cash (used in) provided by operating activities											$	318	$	(8)	$	480	$	(665)	$	(1,101)	$	(976)
Cash flows from investing activities:
Sales of investments												864		-		-		13,840		(364)		14,340
Sales of divested businesses, net												-		-		-		-		-		-
Purchase of investments												(675)		-		-		(14,804)		364		(15,115)
Loans to subsidiaries - net												(10)		-		-		10		-		-
Contributions from (to) subsidiaries - net												(319)		-		-		-		319		-
Acquisition of businesses, net of cash and
restricted cash acquired												-		-		-		-		-		-
Net change in short-term investments												(1,020)		-		-		(201)		-		(1,221)
Other, net												(20)		-		-		37		-		17
Net cash (used in) provided by investing activities												(1,180)		-		-		(1,118)		319		(1,979)
Cash flows from financing activities:
Issuance of long-term debt												596		-		-		853		-		1,449
Repayments of long-term debt												-		-		-		(589)		-		(589)
Issuance of preferred stock												485		-		-		-		-		485
Purchase of common stock												-		-		-		-		-		-
Intercompany loans - net												(10)		-		-		10		-		-
Cash dividends paid												(278)		-		(486)		(615)		1,101		(278)
Other, net												(47)		-		-		2,063		(319)		1,697
Net cash (used in) provided by financing activities												746		-		(486)		1,722		782		2,764
Effect of exchange rate changes on cash and
restricted cash												-		-		-		12		-		12
Change in cash and restricted cash												(116)		(8)		(6)		(49)		-		(179)
Cash and restricted cash at beginning of year												127		9		9		3,213		-		3,358
Cash and restricted cash at end of period											$	11	$	1	$	3	$	3,164	$	-	$	3,179

Three Months Ended March 31, 2018
Net cash (used in) provided by operating activities	$	9	$	362	$	(501)	$	(808)	$	(938)	$	9	$	-	$	362	$	(501)	$	(808)	$	(938)
Cash flows from investing activities:
Sales of investments		1,322		-		15,830		(2,681)		14,471		1,322		-		-		15,830		(2,681)		14,471
Sales of divested businesses, net		-		-		6		-		6		-		-		-		6		-		6
Purchase of investments		(39)		-		(15,405)		2,681		(12,763)		(39)		-		-		(15,405)		2,681		(12,763)
Loans to subsidiaries - net		422		-		(60)		(362)		-		422		-		-		(60)		(362)		-
Contributions from (to) subsidiaries - net		153		-		-		(153)		-		153		-		-		-		(153)		-
Net change in short-term investments		(2,460)		-		(580)		-		(3,040)		(2,460)		-		-		(580)		-		(3,040)
Other, net		(79)		-		(567)		-		(646)		(79)		-		-		(567)		-		(646)
Net cash (used in) investing activities		(681)		-		(776)		(515)		(1,972)		(681)		-		-		(776)		(515)		(1,972)
Cash flows from financing activities:
Issuance of long-term debt		2,472		-		567		-		3,039		2,472		-		-		567		-		3,039
Repayments of long-term debt		(1,107)		-		(220)		-		(1,327)		(1,107)		-		-		(220)		-		(1,327)
Purchase of common stock		(298)		-		-		-		(298)		(298)		-		-		-		-		(298)
Intercompany loans - net		60		-		(422)		362		-		60		-		-		(422)		362		-
Cash dividends paid		(289)		(377)		(431)		808		(289)		(289)		-		(377)		(431)		808		(289)
Other, net		(154)		-		1,362		153		1,361		(154)		-		-		1,362		153		1,361
Net cash (used in) provided by financing activities		684		(377)		856		1,323		2,486		684		-		(377)		856		1,323		2,486
Effect of exchange rate changes on cash and restricted cash		-		-		58		-		58
Effect of exchange rate changes on cash and
restricted cash												-		-		-		58		-		58
Change in cash and restricted cash		12		(15)		(363)		-		(366)		12		-		(15)		(363)		-		(366)
Cash and restricted cash at beginning of year		8		20		2,709		-		2,737		8		-		20		2,709		-		2,737
Cash and restricted cash at end of period	$	20	$	5	$	2,346	$	-	$	2,371	$	20	$	-	$	5	$	2,346	$	-	$	2,371

Three Months Ended March 31, 2017
Net cash (used in) provided by operating activities	$	651	$	(23)	$	(10,915)	$	(49)	$	(10,336)
Cash flows from investing activities:
Sales of investments		2,699		-		26,482		(2,482)		26,699
Sales of divested businesses, net		-		-		24		-		24
Purchase of investments		(890)		-		(14,769)		2,482		(13,177)
Loans to subsidiaries - net		(56)		-		183		(127)		-
Contributions from (to) subsidiaries - net		206		-		-		(206)		-
Net change in short-term investments		1,477		-		(227)		-		1,250
Other, net		(5)		-		(292)		-		(297)
Net cash (used in) provided by investing activities		3,431		-		11,401		(333)		14,499
Cash flows from financing activities:
Issuance of long-term debt		-		-		151		-		151
Repayments of long-term debt		-		-		(602)		-		(602)
Purchase of common stock		(3,585)		-		-		-		(3,585)
Intercompany loans - net		(183)		-		56		127		-
Cash dividends paid		(307)		-		(49)		49		(307)
Other, net		-		-		89		206		295
Net cash (used in) provided by financing activities		(4,075)		-		(355)		382		(4,048)
Effect of exchange rate changes on cash and restricted cash		-		-		(82)		-		(82)
Change in cash and restricted cash		7		(23)		49		-		33
Cash and restricted cash at beginning of year		3		34		2,070		-		2,107
Change in cash of businesses held for sale		-		-		52		-		52
Cash and restricted cash at end of period	$	10	$	11	$	2,171	$	-	$	2,192

AIG | First Quarter ~~2018~~2019 Form 10-Q 6159

TABLE OF CONTENTS

ITEM 1 | Notes to Condensed Consolidated Financial Statements (unaudited) | ~~15.~~16. Information Provided in Connection with Outstanding Debt

Supplementary Disclosure of Condensed Consolidating Cash Flow Information

		American										American
		International						Reclassifications				International		Validus					Reclassifications
		Group, Inc.				Other		and		Consolidated		Group, Inc.		Holdings,				Other		and		Consolidated
(in millions)		(As Guarantor)		AIGLH		Subsidiaries		Eliminations		AIG	(As Guarantor)			Ltd.		AIGLH		Subsidiaries		Eliminations		AIG
March 31, 2019
Cash											$	2	$	1	$	3	$	2,559	$	-	$	2,565
Restricted cash included in Short-term investments												8		-		-		243		-		251
Restricted cash included in Other assets												1		-		-		362		-		363
Total cash and restricted cash shown in the Condensed
Consolidating Statements of Cash Flows											$	11	$	1	$	3	$	3,164	$	-	$	3,179

Cash (paid) received during the 2019 period for:
Interest:
Third party											$	(225)	$	(11)	$	(23)	$	(56)	$	-	$	(315)
Intercompany												(1)		-		-		1		-		-
Taxes:
Income tax authorities											$	(4)	$	-	$	-	$	(46)	$	-	$	(50)
Intercompany												194		-		-		(194)		-		-

March 31, 2018
Cash	$	4	$	5	$	2,094	$	-	$	2,103	$	4	$	-	$	5	$	2,094	$	-	$	2,103
Restricted cash included in Short-term investments		15		-		32		-		47		15		-		-		32		-		47
Restricted cash included in Other assets		1		-		220		-		221		1		-		-		220		-		221
Total cash and restricted cash shown in
the Condensed Consolidating Statements of Cash Flows	$	20	$	5	$	2,346	$	-	$	2,371
Total cash and restricted cash shown in the Condensed
Consolidating Statements of Cash Flows											$	20	$	-	$	5	$	2,346	$	-	$	2,371

Cash (paid) received during the 2018 period for:
Interest:
Third party	$	(260)	$	-	$	(97)	$	-	$	(357)	$	(260)	$	-	$	-	$	(97)	$	-	$	(357)
Intercompany		-		-		-		-		-		-		-		-		-		-		-
Taxes:
Income tax authorities	$	(9)	$	-	$	(19)	$	-	$	(28)	$	(9)	$	-	$	-	$	(19)	$	-	$	(28)
Intercompany		403		-		(403)		-		-		403		-		-		(403)		-		-

March 31, 2017
Cash	$	2	$	11	$	1,905	$	-	$	1,918
Restricted cash included in Short-term investments		7		-		54		-		61
Restricted cash included in Other assets		1		-		212		-		213
Total cash and restricted cash shown in
the Condensed Consolidating Statements of Cash Flows	$	10	$	11	$	2,171	$	-	$	2,192

Cash (paid) received during the 2017 period for:
Interest:
Third party	$	(288)	$	(23)	$	(43)	$	-	$	(354)
Intercompany		-		-		-		-		-
Taxes:
Income tax authorities	$	(14)	$	-	$	(54)	$	-	$	(68)
Intercompany		1,090		-		(1,090)		-		-

American International Group, Inc. (As Guarantor) Supplementary Disclosure of Non-Cash Activities:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Intercompany non-cash financing and investing activities:
Capital contributions	$	2,339	$	198	$	-	$	2,339
Dividends received in the form of securities		60		150		486		60
Return of capital		2,706		-		-		2,706

~~16.~~17. Subsequent Events

Dividends Declared

On May ~~2, 2018,~~6, 2019, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on June 28, ~~2018~~2019 to shareholders of record on June 14, ~~2018.~~2019.

6260 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Management’sDiscussion and Analysis of Financial Condition and Results of Operations

Glossary and Acronyms of Selected Insurance Terms and References

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

American International Group, Inc. (AIG) has incorporated into this discussion a number of cross-references to additional information included throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~2017~~2018 Annual Report) to assist readers seeking additional information related to a particular subject.

In this Quarterly Report on Form 10-Q, unless otherwise mentioned or unless the context indicates otherwise, we use the terms “AIG,” 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.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q and other publicly available documents may include, and officers and representatives of AIG may from time to time make and discuss, 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 a belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These projections, goals, assumptions and statements include statements preceded by, followed by or including words such as “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “focused on achieving,” “view,” “target,” ~~"goal"~~“goal” or “estimate.” These projections, goals, assumptions and statements may relate to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, anticipated organizational, business or regulatory changes, anticipated sales, monetization and/or acquisitions of businesses or assets, or successful integration of acquired businesses, management succession and retention plans, exposure to risk, trends in operations and financial results.

It is possible that our 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 our actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include:

•· changes in market and industry conditions;

•· ~~negative impacts on customers, business partners and other stakeholders;~~

•the occurrence of catastrophic events, both natural and man-made;

•· our ability to successfully reorganize our businesses and execute on our initiatives to improve our underwriting capabilities and reinsurance programs, as well as improve profitability, without negatively impacting client relationships or our competitive position;

•· our ability to successfully dispose of, monetize and/or acquire businesses or assets ~~including our ability to~~or successfully ~~consummate the purchase of Validus Holdings, Ltd.;~~integrate acquired businesses;

•· actions by credit rating agencies;

·changes in judgments concerning insurance underwriting and insurance liabilities;

•· changes in judgments concerning potential cost saving opportunities;

•· the impact of potential information technology, cybersecurity or data security breaches, including as a result of cyber-attacks or security vulnerabilities;

•· disruptions in the availability of our electronic data systems or those of third parties;

•· the effectiveness of our strategies to recruit and retain key personnel and our ability to implement effective succession plans;

·negative impacts on customers, business partners and other stakeholders;

·our ability to successfully manage Legacy portfolios;

•· concentrations in our investment portfolios;

•· ~~actions by credit rating agencies;~~

•the requirements, which may change from time to time, of the global regulatory framework to which we are ~~subject, including as a global systemically important insurer (G SII);~~subject;

•· significant legal, regulatory or governmental proceedings;

•· changes in judgments concerning the recognition of deferred tax ~~assets;~~assets and goodwill impairment; and

•· such other factors discussed in:

–Part I, Item 2. MD&A of this Quarterly Report on Form 10-Q; and

–Part I, Item 1A. Risk Factors and Part II, Item 7. MD&A of the ~~2017~~2018 Annual Report.

We are not under any obligation (and expressly disclaim any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

AIG | First Quarter ~~2018~~2019 Form 10-Q 6361

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INDEX TO ITEM 2
		Page
Use of Non-GAAP Measures		6563
Critical Accounting Estimates		6765
Executive Summary		6865
Overview		6865
Financial Performance Summary		7067
AIG's Outlook – Industry and Economic Factors		7269
Consolidated Results of Operations		7672
Business Segment Operations		8076
General Insurance		8177
Life and Retirement		9085
Other Operations		~~104~~99
Legacy Portfolio		~~105~~100
Investments		~~107~~102
Overview		~~107~~102
Investment Highlights in the First Quarter of ~~2018~~2019		~~107~~102
Investment Strategies		~~107~~102
Credit Ratings		~~109~~104
Impairments		~~115~~111
Insurance Reserves		~~119~~114
Loss Reserves		~~119~~114
Life and Annuity Reserves and DAC		~~122~~117
Liquidity and Capital Resources		~~127~~122
Overview		~~127~~122
Analysis of Sources and Uses of Cash		~~129~~124
Liquidity and Capital Resources of AIG Parent and Subsidiaries		~~130~~125
Credit Facilities		~~132~~127
Contractual Obligations		~~133~~128
Off-Balance Sheet Arrangements and Commercial Commitments		~~134~~129
Debt		~~136~~130
Credit Ratings		~~138~~132
Financial Strength Ratings		~~139~~133
Regulation and Supervision		~~139~~133
Dividends and Repurchases of AIG Common Stock		~~139~~133
~~Dividend~~ Restrictions on Dividends from Subsidiaries		~~140~~133
Enterprise Risk Management		~~140~~134
Overview		~~140~~134
~~Credit Risk Management~~		~~140~~
~~Market Risk Management~~		~~141~~
~~Liquidity Risk Management~~		~~145~~
Regulatory Environment		~~147~~134
Glossary		~~148~~135
Acronyms		~~151~~138

6462 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Use of Non-GAAP Measures

Use of Non-GAAP Measures

Throughout this MD&A, we present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are “non‑GAAP financial measures” under Securities and Exchange Commission 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.

Book value per common share, excluding accumulated other comprehensive income (AOCI) and Book value per common share, excluding AOCI and deferred tax assets (DTA) (Adjusted book value per common share) are used to show the amount of our net worth on a ~~per-share~~per-common share basis. We believe these measures are useful to investors because they eliminate 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. These measures also eliminate 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. 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. Book value per common share, excluding AOCI, is derived by dividing total AIG common shareholders’ equity, excluding AOCI, by total common shares outstanding. Adjusted book value per common share is derived by dividing total AIG common shareholders’ equity, excluding AOCI and DTA (Adjusted Common Shareholders’ Equity), by total common shares outstanding. The reconciliation to book value per common share, the most comparable GAAP measure, is presented in the Executive Summary section of this MD&A.

Return on common equity – Adjusted after-tax income excluding AOCI 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. 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 by average Adjusted Common Shareholders’ Equity. The reconciliation to return on common equity, the most comparable GAAP measure, is presented in the Executive Summary section of this MD&A.

Adjusted after-tax income attributable to AIG is derived by excluding the tax effected adjusted pre-tax income (APTI) adjustments described below 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 (Tax Act).;

and by excluding the net realized capital gains (losses) from noncontrolling interests.

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.

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

AIG | First Quarter ~~2018~~2019 Form 10-Q 6563

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ITEM 2 | Use of Non-GAAP Measures

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

•· changes in fair value of securities used to hedge guaranteed living benefits;

•· changes in benefit reserves and deferred policy acquisition costs (DAC), value of business acquired (VOBA), and sales inducement assets (SIA) related to net realized capital gains and losses;

•· changes in the fair value of equity securities;

·loss (gain) on extinguishment of debt;

•· all net realized capital 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 capital 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 a one-time lump sum payment to former employees;

•· income and loss from divested businesses;

•· non-operating litigation reserves and settlements;

•· restructuring and other costs related to initiatives designed to reduce operating expenses, improve efficiency and simplify our organization; ~~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.~~gain;

·integration and transaction costs associated with acquired businesses;

·losses from the impairment of goodwill; and

·non-recurring external costs associated with the implementation of non-ordinary course legal or regulatory changes or changes to accounting principles.

•· General Insurance

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

– Accident year loss and combined ratios, as adjusted: both the accident year loss and 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 and man-made catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and also include certain man-made events, such as terrorism and civil disorders that ~~meet~~exceed the $10 million threshold. We believe ~~the~~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.~~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.

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

6664 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Critical Accounting Estimates

Critical Acco unting 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;

· reinsurance assets;

· valuation of future policy benefit liabilities and timing and extent of loss recognition;

· valuation of liabilities for guaranteed benefit features of variable annuity products;

· valuation of embedded derivatives for fixed index annuity and life products;

·estimated gross profits to value deferred acquisition costs for investment-oriented products;

· impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other invested assets, including investments in life settlements, and goodwill impairment;

· allowances for loan losses;

·liability for legal contingencies;

· fair value measurements of certain financial assets and liabilities; and

· income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset and ~~provisional~~ estimates associated with the Tax Act.

~~For a complete discussion of our critical accounting estimates, see Part II, Item 7. MD&A — Critical Accounting Estimates in the 2017 Annual Report.~~

For a complete discussion of our critical accounting estimates, see Part II, Item 7. MD&A — Critical Accounting Estimates in the 2018 Annual Report.

~~AIG | First Quarter 2018 Form 10-Q~~67

~~TABLE OF CONTENTS~~

~~ITEM 2~~ |~~Executive Summary~~

Executive Summary

Overview

This overview of the MD&A highlights selected information and may not contain all of the information that is important to current or potential investors in our securities. You should read this Quarterly Report on Form 10-Q, together with the ~~2017~~2018 Annual Report, in their entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

On January 21, 2018, we entered into an agreement to purchase Validus Holdings, Ltd. (Validus), a leading provider of reinsurance, primary insurance, and asset management services, for $5.6 billion in cash. This transaction strengthens our global General Insurance business by expanding our current product portfolio through additional distribution channels and advancing the tools available to enhance underwriting. The transaction is expected to close mid-2018 and is subject to obtaining the relevant regulatory approvals and other customary closing conditions.

In February 2018, we closed a series of affiliated reinsurance transactions impacting the Legacy Portfolio. These transactions were designed to consolidate the bulk of the Legacy Insurance Run-Off Lines into a single legal entity, DSA Reinsurance Company, Ltd. (DSA Re), a Bermuda domiciled composite reinsurer, 100 percent owned by AIG. The transactions include the cession of approximately $31 billion of reserves from the Legacy Life and Retirement Run-off Lines and approximately $5 billion of reserves from the Legacy General Insurance Run-off Lines relating to business written by multiple AIG legal entities. This represented over 80 percent of the insurance reservesBeginning in the ~~Legacy Portfolio. DSA Re has approximately $45 billion~~first quarter of ~~invested assets, managed by~~ 2019, on a prospective basis, the changes in the fair value of equity securities are excluded from adjusted pre-tax income (loss).

AIG ~~Investments, and is AIG’s main run-off reinsurer with its own dedicated management team.~~| First Quarter 2019 Form 10-Q65

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ITEM 2 |Executive Summary

AIG’S OPERATING STRUCTURE

Our Core businesses include 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. Blackboard U.S. Holdings, Inc. (Blackboard), AIG’s technology-driven subsidiary, is reported within Other Operations. We also report a Legacy Portfolio consisting of our run-off insurance lines and legacy investments that we consider non-core. Effective ~~in the first quarter of~~February 2018, our ~~newly formed Bermuda domiciled~~Bermuda-domiciled composite reinsurer, ~~DSA Re~~Fortitude Reinsurance Company Ltd (Fortitude Re.) is included in our Legacy Portfolio.

Consistent with how we ~~now~~ manage our business, our General Insurance North America operating segment primarily includes insurance businesses in the United States, Canada and Bermuda. Our General Insurance International operating segment includes insurance businesses in Japan, the United Kingdom, Europe, the Asia Pacific region, Latin America, Puerto Rico, Australia, the Middle East and Africa. General Insurance results are presented before consideration of internal reinsurance agreements.

68For further discussion on our business segments see Note 3 to the Condensed Consolidated Financial Statements~~AIG | First Quarter 2018 Form 10-Q~~.

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~~ITEM 2~~ |~~Executive Summary~~

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.	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.
	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. ~~and~~; AIG Europe ~~Limited.~~S.A.; American International Group UK Ltd.; Validus Reinsurance, Ltd.; Talbot Holdings Ltd.; Western World Insurance Group, Inc. and Glatfelter Insurance Group.	Life and Retirement includes the following major operating companies: American General Life Insurance Company (American General Life); 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 consists of businesses and items not attributed to our General Insurance and Life and Retirement segments or our Legacy Portfolio. It includes AIG Parent; Blackboard; ~~AIG Fuji Life Insurance Company, Ltd. (Fuji Life), which was sold on April 30, 2017;~~ deferred tax assets related to tax attributes; corporate expenses and intercompany eliminations.	Legacy Portfolio Legacy Portfolio includes ~~Legacy General Insurance Run-Off Lines,~~ Legacy Life and Retirement Run-Off Lines, Legacy General Insurance Run-Off Lines, and Legacy Investments. Effective February 2018, ~~DSA~~Fortitude Re, our Bermuda-domiciled composite reinsurer, is included in our Legacy Portfolio.

66AIG | First Quarter ~~2018~~2019 Form 10-Q69

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ITEM 2 | Executive Summary

Financial Performance Summary

Net Income Attributable To AIG

Three Months Ended March 31,

($ in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

~~Decreased~~Decrease in Net income attributable to AIG is the result of:

Increases due to:

• improvement in accident year losses in General Insurance as a ~~decrease~~result of underwriting discipline, increased use of reinsurance and a change in ~~net~~business mix as well as lower catastrophe losses in General Insurance;

•higher investment ~~income driven by lower~~returns in our hedge fund portfolio and equity securities due to robust equity market returns in the first quarter of 2019 and an increase in income from ~~alternative investments, primarily hedge funds, losses on~~fixed maturity securities for which the fair value option was elected, compared to ~~gains~~the same period in the prior year where returns were lower as a result of an increase in rates and widening spreads that occurred, as well as negative performance of our fair value option equity securities portfolio; and

•lower general and other operating expenses as a result of ongoing strategic initiatives to reduce costs.

These increases were more than offset by:

•higher net realized capital losses;

•a net loss reserve discount charge in the first quarter of 2017, lower invested assets resulting from the funding of the adverse development reinsurance agreement with NICO late in the first quarter 2017 and the sale of the life settlements portfolio in 2017;

•higher losses and loss adjustment expenses incurred from General Insurance operations, reflecting higher catastrophe losses and higher accident year losses, partially offset by pre-tax favorable prior year2019 compared to a loss reserve ~~development~~discount benefit in the first quarter of ~~2018 compared~~2018; and

•the impact of noncontrolling interest attributed to ~~unfavorable prior year loss reserve development~~Fortitude Re results in the first quarter of ~~2017 mainly resulting from the reduction~~2019 as discussed in ~~Ogden discount rate during the first quarter~~Consolidated Results of ~~2017; and~~Operations.

•~~lower adjusted pre-tax income from the Legacy Portfolio.~~

~~This decrease was partially offset by:~~

•~~lower general operating and other expenses;~~

•~~gains on sale of divested businesses in the first quarter of 2018 compared to losses on sale of divested businesses in the first quarter of 2017; and~~

•~~lower net realized capital losses.~~

For further discussion see Consolidated Results of Operations.

Adjusted Pre-Tax Income*

Three Months Ended March 31,

(in millions)

2019 and 2018 Comparison

Increase in Adjusted pre-tax income primarily due to:

•higher investment returns in our hedge fund portfolio due to robust equity market returns in the first quarter of 2019 and an increase in income from fixed maturity securities for which the fair value option was elected, compared to the same period in the prior year where returns were lower as a result of an increase in rates and widening spreads that occurred, as well as negative performance of our fair value option equity securities portfolio;

•lower general operating and other expenses; and

•a General Insurance underwriting profit in the first quarter of 2019 compared to an underwriting loss in the same period in the prior year driven by lower catastrophe losses and lower accident year losses as a result of underwriting discipline, increased use of reinsurance and a change in business mix.

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

70AIG | First Quarter ~~2018~~2019 Form 10-Q67

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ITEM 2 | Executive Summary

Adjusted Pre-Tax Income*General Operating and Other Expenses

Three Months Ended March 31,

($ in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

~~Decreased due to:~~

•a decrease in net investment income driven by lower income from alternative investments, primarily hedge funds, losses on securities for which the fair value option was elected compared to gains in the first quarter of 2017, lower invested assets resulting from the funding of the adverse development reinsurance agreement with NICO late in the first quarter 2017 and the sale of the life settlements portfolio in 2017;

•~~higher losses and loss adjustment expenses incurred from~~ General Insurance operations, reflecting higher catastrophe losses and higher accident year losses, partially offset by pre-tax favorable prior year loss reserve development in the first quarter of 2018 compared to unfavorable prior year loss reserve development in the first quarter of 2017 mainly resulting from the reduction in Ogden discount rate during the first quarter of 2017; and

•~~lower adjusted pre-tax income from the Legacy Portfolio.~~

~~This decrease was partially offset by lower general~~ operating and other ~~expenses.~~

~~For further discussion see Consolidated Results of Operations.~~

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

~~General Operating and Other Expenses~~

~~Three Months Ended March 31,~~

~~($ in millions)~~

~~2018 and 2017 Comparison~~

~~Declined $172 million~~expenses declined primarily due to lower ~~employee-related~~employee related expenses and professional fee reductions ~~related~~pertaining to ~~our~~ ongoing efficiency ~~program, divestiture~~programs. The declines were partially offset due to the increase in expenses caused by the acquisitions of ~~Fuji Life~~Validus and ~~an unfavorable foreign exchange impact~~Glatfelter in the third and fourth quarters of ~~$48 million.~~2018, respectively.

In keeping with our broad and ongoing efforts to transform for long-term competitiveness, general operating and other expenses for the first quarters of ~~2018~~2019 and ~~2017~~2018 included approximately ~~$24~~$47 million and ~~$181~~$24 million of pre-tax restructuring and other costs, respectively, which were primarily comprised of employee severance ~~charges.~~

~~We continue~~charges and other exit costs related to ~~execute initiatives focused on~~ organizational simplification, operational efficiency, and business rationalization.

Return on Common Equity		Adjusted Return on Common Equity*

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

Book Value Per Common Share		Book Value Per Common Share, excluding AOCI*

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

68AIG | First Quarter ~~2018~~2019 Form 10-Q71

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ITEM 2 | Executive Summary

~~Return on Equity~~		Adjusted Return on Equity*

* Non-GAAP measure ~~– for reconciliation of Non-GAAP to GAAP measures see Consolidated Results of Operations~~.
~~Book Value Per Share~~		Book Value Per Share, excluding AOCI*

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

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 difficult market conditions in the first quarter of ~~2018,~~2019, characterized by factors such as the impact of historically low interest rates, uncertainties in the annuity marketplace resulting from legislative and regulatory initiatives aimed at re-evaluating the standard of care for sales of investment products and services, ~~historically high levels of catastrophic events,~~ slowing growth in China and Euro-Zone economies, global trade tensions and the UK’s pending withdrawal from its membership in the European Union (the EU) (commonly referred to as Brexit). Brexit has also affected the U.S. dollar/British pound exchange rate and increased the volatility of exchange rates among the euro, British pound and the Japanese yen (the Major Currencies), which may continue for some time.

Impact of Changes in the Interest Rate Environment

Interest rates ~~increased slightly~~ in ~~the first quarter of 2018 but~~2019 have remained low ~~relative~~by historical standards, notwithstanding that interest rates rose in 2018, and in some cases have risen close to ~~historical levels. A sustained~~highs of the preceding five to ten years. In early 2019, the Federal Open Market Committee of the Federal Reserve System indicated that it expects the pace of rate increases to slow. The low interest rate environment negatively affects sales of interest rate sensitive products in our industry and may negatively impact the profitability of our existing business as we reinvest cash flows from investments, including increased calls and prepayments of fixed maturity securities and mortgage loans, at rates below the average yield of our existing portfolios. As rates rise, some of these impacts may abate while there may be different impacts, some of which are highlighted below. 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.

72~~AIG | First Quarter 2018 Form 10-Q~~Additionally, sustained low interest rates on discounting of projected benefit cash flows for our pension plans may result in higher pension expense.

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~~ITEM 2~~ |~~Executive Summary~~

Annuity Sales and Surrenders

The sustained low interest rate environment has a significant impact on the annuity industry. Low long-term interest rates put pressure on investment returns, which may negatively affect sales of interest rate sensitive products and reduce future profits on certain existing fixed rate products. However, our disciplined rate setting has helped to mitigate some of the pressure on investment spreads. ~~As long as the low interest rate environment continues, conditions will be challenging for the fixed annuity market.~~ Rapidly rising interest rates could create the potential for increased sales, but may also drive higher surrenders. Customers are, however, currently buying fixed annuities with surrender charge periods of four to seven years in pursuit of higher returns, which may help mitigate increased early surrenders in a ~~rapidly~~ rising rate environment. In addition, older contracts that have higher minimum interest rates and continue to be attractive to the contract holders have driven better than expected persistency in Fixed Annuities, although the reserves for such contracts have continued to decrease over time in amount and as a percentage of the total annuity portfolio. We will closely monitor surrenders of Fixed Annuities as contracts with lower minimum interest rates come out of the surrender charge period in a more attractive rate environment. Low interest rates have also driven growth in our fixed index annuity products, which provide additional interest crediting, tied to favorable performance in certain equity market indices and the availability of guaranteed living benefits. Changes in interest rates significantly impact the valuation of our liabilities for annuities with guaranteed income features and the value of the related hedging portfolio.

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 to maintain profitability of the overall business in ~~a historically low~~light of the interest rate environment. ~~The~~A low interest rate environment puts margin pressure on pricing of new business and on existing products, due to the challenge of investing new money or recurring premiums and deposits, and reinvesting investment portfolio cash flows, in the low interest rate environment. In addition, there is investment risk associated with future premium receipts from certain in‑force business. Specifically, the investment of these future premium receipts may be at a yield below that required to meet future policy liabilities.

The contractual provisions for renewal of crediting rates and guaranteed minimum crediting rates included in products may reduce spreads in a sustained low interest rate environment and thus reduce future profitability. Although this interest rate risk is partially mitigated through the asset‑liability management process, product design elements and crediting rate strategies, a sustained low interest rate environment may negatively affect future profitability.

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

For investment-oriented products 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,

AIG | First Quarter 2019 Form 10-Q69

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ITEM 2 |Executive Summary

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 will continue to adjust crediting rates on in-force business to mitigate the pressure on spreads from declining base yields, but our ability to lower crediting rates may be limited by the competitive environment, contractual minimum crediting rates, and provisions that allow rates to be reset only at pre-established intervals. As interest rates rise, we may need to raise crediting rates on in-force business for competitive and other reasons potentially reducing the impact of investing in a higher interest rate environment.

Of the aggregate fixed account values of our Individual Retirement and Group Retirement annuity products, 7263 percent were crediting at the contractual minimum guaranteed interest rate at March 31, ~~2018.~~2019. The percentage of fixed account values of our annuity products that are currently crediting at rates above one percent was 6965 percent and 66 percent at ~~both~~ March 31, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively. These businesses continue to focus on pricing discipline and strategies to ~~reduce~~manage the minimum guaranteed interest crediting rates offered on new ~~sales.~~sales in the context of regulatory requirements and competitive positioning. In the core universal life business in our Life Insurance business, 7265 percent of the account values were crediting at the contractual minimum guaranteed interest rate at March 31, ~~2018.~~2019.

~~AIG | First Quarter 2018 Form 10-Q~~73

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~~ITEM 2~~ |~~Executive Summary~~

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:

	Current Crediting Rates									Current Crediting Rates
March 31, 2018			1-50 Basis		More than 50
March 31, 2019												1-50 Basis		More than 50
Contractual Minimum Guaranteed	At Contractual		Points Above		Basis Points					At Contractual		Points Above		Basis Points
Interest Rate	Minimum		Minimum		Above Minimum					Minimum		Minimum		Above Minimum
(in millions)	Guarantee		Guarantee		Guarantee			Total		Guarantee		Guarantee		Guarantee			Total
Individual Retirement^*
1%	$	5,322	$	3,764	$	12,779	$	21,865
<=1%										$	1,002	$	4,285	$	20,198	$	25,485
> 1% - 2%		6,647		72		2,928		9,647			6,884		183		1,768		8,835
> 2% - 3%		13,455		22		419		13,896			12,251		265		74		12,590
> 3% - 4%		10,046		44		7		10,097			9,505		42		7		9,554
> 4% - 5%		553		-		4		557			532		-		4		536
> 5% - 5.5%		34		-		5		39			34		-		5		39
Total Individual Retirement	$	36,057	$	3,902	$	16,142	$	56,101		$	30,208	$	4,775	$	22,056	$	57,039
Group Retirement^*
1%	$	1,363	$	3,439	$	2,055	$	6,857		$	1,533	$	2,686	$	3,202	$	7,421
> 1% - 2%		6,212		545		101		6,858			5,449		876		1,142		7,467
> 2% - 3%		15,375		-		81		15,456			14,954		3		-		14,957
> 3% - 4%		870		-		-		870			830		-		-		830
> 4% - 5%		7,107		-		-		7,107			7,078		-		-		7,078
> 5% - 5.5%		158		-		-		158			174		-		-		174
Total Group Retirement	$	31,085	$	3,984	$	2,237	$	37,306		$	30,018	$	3,565	$	4,344	$	37,927
Universal life insurance
1%	$	-	$	-	$	7	$	7		$	-	$	-	$	-	$	-
> 1% - 2%		109		109		216		434			93		24		365		482
> 2% - 3%		625		473		905		2,003			277		578		1,081		1,936
> 3% - 4%		1,683		351		6		2,040			1,544		491		7		2,042
> 4% - 5%		3,206		218		-		3,424			2,988		227		-		3,215
> 5% - 5.5%		303		-		-		303			264		-		-		264
Total universal life insurance	$	5,926	$	1,151	$	1,134	$	8,211		$	5,166	$	1,320	$	1,453	$	7,939
Total	$	73,068	$	9,037	$	19,513	$	101,618		$	65,392	$	9,660	$	27,853	$	102,905
Percentage of total		72	%	9	%	19	%	100	%		64	%	9	%	27	%	100	%

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

General Insurance

The impact of low interest rates on our General Insurance segment is primarily on our long-tail Casualty line of business. We expect limited impacts on our existing long-tail Casualty business as the duration of our assets is slightly longer than that of our liabilities. Sustained low interest rates would potentially impact new and renewal business for the long-tail Casualty line as we may not be able to adjust our future pricing consistent with our profitability objectives to fully offset the impact of investing at lower rates. However, we will continue to maintain pricing discipline and risk selection.

70AIG | First Quarter 2019 Form 10-Q

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ITEM 2 |Executive Summary

In addition, for our General Insurance segment and General Insurance ~~run-off lines~~Run-Off Lines reported within the Legacy Portfolio, sustained low interest rates may unfavorably affect the net loss reserve discount for workers’ compensation, and to a lesser extent could favorably impact assumptions about future medical costs, the combined net effect of which could result in higher net loss reserves.

~~Additionally, sustained low interest rates on discounting of projected benefit cash flows for our pension plans may result in higher pension expense.~~

74~~AIG | First Quarter 2018 Form 10-Q~~

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~~ITEM 2~~ |~~Executive Summary~~

Standard of Care – ~~Regulatory~~ Developments

~~Our Individual Retirement~~The SEC, federal and Group Retirement operating segments provide products and services that are subject to restrictions imposed by the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code, including the requirements set forth in the final fiduciary duty rule issued by the Department of Labor (the DOL) in April 2016 (the DOL Fiduciary Rule). On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit (the Fifth Circuit) ruled that the DOL exceeded its authority in promulgating the DOL Fiduciary Rule, specifically in its broadening the scope of “investment advice” fiduciary and in the terms of the best interest contract exemption. Following the Fifth Circuit’s decision, the DOL announced on March 16, 2018, that it was suspending enforcement of the DOL Fiduciary Rule pending further review. In late April 2018, several motions were filed to intervene and seek rehearing of the Fifth Circuit’s decision. If the Fifth Circuit’s decision is upheld, the Fifth Circuit’s ruling has the effect of invalidating the DOL Fiduciary Rule in its entirety.

~~In addition to recent developments surrounding the DOL Fiduciary Rule, the Securities and Exchange Commission (SEC),~~state lawmakers and state insurance regulators ~~are also engaged in re-evaluating~~continue their efforts at evaluating what is an appropriate regulatory framework around a standard of care for the sale of investment products and services. These regulatory developments, together with disruptions in the implementation of the DOL Fiduciary Rule, have created uncertainties in the annuity marketplace. These uncertainties have negatively impacted the industry sales of annuity products, including those offered by Individual Retirement as reflected in declines of premiums and deposits and net flows in our variable annuity product line during the three-month period ended March 31, 2018. Additionally,For example, on April 18, 2018, the SEC proposed a package of rulemakings and interpretations designed to address the standard of care issues and the transparency of retail investors’ relationships with investment advisors and broker-dealers. Additionally, on July 18, 2018, the New York State Department of Financial Services adopted a best interest standard of care regulation applicable to annuity and life transactions through issuance of the First Amendment to Insurance Regulation 187 – Suitability and Best Interests in Life Insurance and Annuity Transactions (Regulation 187). The ~~SEC established a 90-day comment period with respect~~compliance date for Regulation 187 is August 1, 2019 for annuity products and February 1, 2020 for life products. As amended, Regulation 187 requires producers to act in their client’s best interest when making point-of-sale and in-force recommendations, and provide in writing the 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 ~~proposals.~~transactions, such as requiring insurers to establish and maintain procedures designed to prevent financial exploitation and abuse. We ~~are evaluating~~will implement and enhance processes and procedures, where needed, to comply with this regulation. Other states, such as Nevada, Maryland and New Jersey, have also proposed similar standard of care regulations applicable to insurance producers and/or insurance companies. We continue to closely follow these proposals and other relevant federal and state-level regulatory and legislative developments in this area. While we cannot predict the ~~scope and potential~~long-term impact of ~~the SEC’s proposals~~these developments on our Life and Retirement businesses, ~~and our distribution partners. Despite these developments,~~ we believe our diverse ~~annuity~~ product offerings and distribution relationships position ~~Individual Retirement and Group Retirement~~us to compete effectively in this evolving ~~market environment.~~marketplace.

Impact of Currency Volatility

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

These currencies may continue to fluctuate, in either direction, especially as a result of the UK’s announced exit from the EU, and such fluctuations will affect net premiums written growth trends reported in U.S. dollars, as well as financial statement line item comparability.

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

Three Months Ended March 31,			Percentage				Percentage
Rate for 1 USD	2018	2017	Change		2019	2018	Change
Currency:
GBP	0.73	0.80	(9)	%	0.78	0.73	7	%
EUR	0.82	0.94	(13)	%	0.88	0.82	7	%
JPY	110.62	114.68	(4)	%	110.50	110.62	-	%

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.

Other Industry Developments

On September 7, 2017, the UK Ministry of Justice announced a proposal to increase the Ogden rate from negative 0.75 percent to between zero and one percent. ~~This proposal has~~Following this announcement, on December 20, 2018 the UK Parliament passed the Civil Liability Act 2018 which implements a new framework for determining the Ogden rate and requires the UK Ministry of Justice to ~~be passed by Parliament.~~start a review of the Ogden rate within 90 days of its commencement and review periodically thereafter. The Ministry of Justice concluded a public call for evidence on January 30, 2019 prior to beginning its first review. We will continue to monitor the progress ~~with this~~of potential ~~change.~~

changes to the Ogden rate.

AIG | First Quarter ~~2018~~2019 Form 10-Q 7571

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ITEM 2 | Consolidated Results of Operations

Consolidated Results of Operations

The following section provides a comparative discussion of our Consolidated Results of Operations on a reported basis for the three month periods ended March 31, ~~2018~~2019 and ~~2017.~~2018. Factors that relate primarily to a specific business are discussed in more detail within the business segment operations section.

For a discussion of the Critical Accounting Estimates that affect our results of operations see the Critical Accounting Estimates section of this MD&A and Part II, Item 7. MD&A — Critical Accounting Estimates in the ~~2017~~2018 Annual Report.

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

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Revenues:
Premiums	$	7,275	$	7,782	(7)	%	$	8,070	$	7,275	11	%
Policy fees		764		724	6			735		764	(4)
Net investment income		3,261		3,686	(12)			3,879		3,261	19
Net realized capital losses		(19)		(115)	83			(446)		(19)	NM
Other income		431		555	(22)			218		431	(49)
Total revenues		11,712		12,632	(7)			12,456		11,712	6
Benefits, losses and expenses:
Policyholder benefits and losses incurred		5,667		6,047	(6)			6,679		5,667	18
Interest credited to policyholder account balances		916		910	1			940		916	3
Amortization of deferred policy acquisition costs		1,358		1,108	23			1,289		1,358	(5)
General operating and other expenses		2,271		2,443	(7)			2,053		2,271	(10)
Interest expense		277		298	(7)			349		277	26
(Gain) loss on extinguishment of debt		4		(1)	NM			(2)		4	NM
Net (gain) loss on sale of divested businesses		(8)		100	NM
Net gain on sale of divested businesses								(6)		(8)	25
Total benefits, losses and expenses		10,485		10,905	(4)			11,302		10,485	8
Income from continuing operations before
income tax expense		1,227		1,727	(29)			1,154		1,227	(6)
Income tax expense		277		516	(46)			217		277	(22)
Income from continuing operations		950		1,211	(22)			937		950	(1)
Income (loss) from discontinued operations,
Loss from discontinued operations,
net of income tax expense		(1)		-	NM			-		(1)	NM
Net income		949		1,211	(22)			937		949	(1)
Less: Net income attributable to noncontrolling interests		11		26	(58)
Less: Net income (loss) attributable to
noncontrolling interests								283		11	NM
Net income attributable to AIG	$	938	$	1,185	(21)	%	$	654	$	938	(30)	%

	March 31,			December 31,	March 31,			December 31,
(in millions, except per share data)		2018		2017		2019		2018
Balance sheet data:
Total assets	$	499,143	$	498,301	$	512,922	$	491,984
Long-term debt		33,619		31,640		35,776		34,540
Total AIG shareholders’ equity		62,792		65,171		60,787		56,361
Book value per common share		69.95		72.49		69.33		65.04
Book value per common share, excluding AOCI		67.48		66.41		66.89		66.67
Adjusted book value per common share		56.10		54.74		55.47		54.95

7672 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Consolidated Results of Operations

The following table presents a reconciliation of Book value per common share to Book value per common share, excluding AOCI and Book value per common share, excluding AOCI and DTA (Adjusted book value per common share), which are non-GAAP measures. For additional information see Use of Non‑GAAP Measures.

		March 31,		December 31,		March 31,		December 31,
(in millions, except per share data)		2018		2017		2019		2018
Total AIG shareholders' equity	$	62,792	$	65,171	$	60,787	$	56,361
Accumulated other comprehensive income		2,220		5,465
Total AIG shareholders' equity, excluding AOCI		60,572		59,706

Preferred equity						485		-
Total AIG common shareholders' equity						60,302		56,361
Accumulated other comprehensive income (loss)						2,128		(1,413)
Total AIG common shareholders' equity, excluding AOCI						58,174		57,774
Deferred tax assets		10,214		10,492		9,926		10,153
Adjusted shareholders' equity	$	50,358	$	49,214
Adjusted common shareholders' equity					$	48,248	$	47,621

Total common shares outstanding		897,681,508		899,044,657		869,736,901		866,609,429
Book value per common share	$	69.95	$	72.49	$	69.33	$	65.04
Book value per common share, excluding AOCI		67.48		66.41		66.89		66.67
Adjusted book value per common share		56.10		54.74		55.47		54.95

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

	Three Months Ended						Year Ended			Three Months Ended						Year Ended
	March 31,						December 31,			March 31,						December 31,
(dollars in millions)		2018			2017			2017			2019			2018			2018
Actual or annualized net income (loss) attributable to AIG	$	3,752		$	4,740		$	(6,084)		$	2,616		$	3,752		$	(6)
Actual or annualized adjusted after-tax income attributable to AIG		3,852			5,468			2,231			5,552			3,852			1,064
Average AIG Shareholders' equity		63,982			75,185			72,348

Average AIG common shareholders' equity										$	58,332		$	63,982		$	60,819
Average AOCI		3,843			3,506			4,675			358			3,843			1,193
Average AIG Shareholders' equity, excluding average AOCI		60,139			71,679			67,673
Average AIG common shareholders' equity, excluding average AOCI											57,974			60,139			59,626
Average DTA		10,353			14,678			13,806			10,040			10,353			10,133
Average adjusted AIG Shareholders' equity	$	49,786		$	57,001		$	53,867
ROE		5.9	%		6.3	%		(8.4)	%
Adjusted Return on Equity		7.7	%		9.6	%		4.1	%
Average adjusted AIG common shareholders' equity										$	47,934		$	49,786		$	49,493
Return on common equity											4.5	%		5.9	%		0.0	%
Adjusted return on common equity											11.6	%		7.7	%		2.1	%

AIG | First Quarter ~~2018~~2019 Form 10-Q 7773

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ITEM 2 | Consolidated Results of Operations

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

Three Months Ended March 31,	2018						2017						2019								2018
				Total Tax						Total Tax						Total Tax								Total Tax
				(Benefit)		After				(Benefit)		After				(Benefit)	Noncontrolling			After				(Benefit)	Noncontrolling			After
(in millions, except per share data)		Pre-tax		Charge		Tax		Pre-tax		Charge		Tax		Pre-tax		Charge		Interest^(b)		Tax		Pre-tax		Charge		Interest		Tax
Pre-tax income/net income (loss), including
Pre-tax income/net income, including
noncontrolling interests	$	1,227	$	277	$	948	$	1,727	$	516	$	1,206	$	1,154	$	217	$	-	$	937	$	1,227	$	277	$	-	$	949
Noncontrolling interest						(10)						(21)						(283)		(283)						(11)		(11)
Pre-tax income/net income (loss) attributable
Pre-tax income/net income attributable
to AIG	$	1,227	$	277	$	938	$	1,727	$	516	$	1,185	$	1,154	$	217	$	(283)	$	654	$	1,227	$	277	$	(11)	$	938
Changes in uncertain tax positions and other tax adjustments				4		(4)				50		(50)				12		-		(12)				4		-		(4)
Deferred income tax valuation allowance charges				(30)		30				13		(13)
Deferred income tax valuation allowance (releases) charges																38		-		(38)				(30)		-		30
Changes in fair value of securities used to hedge
guaranteed living benefits		77		16		61		(11)		(4)		(7)		(96)		(20)		-		(76)		77		16		-		61
Changes in benefit reserves and DAC, VOBA and
SIA related to net realized capital gains (losses)		31		6		25		(53)		(19)		(34)		(99)		(21)		-		(78)		31		6		-		25
Changes in the fair value of equity securities														(79)		(17)		-		(62)		-		-		-		-
Unfavorable (favorable) prior year development and
related amortization changes ceded
under retroactive reinsurance agreements		34		7		27		14		4		10		(27)		(5)		-		(22)		34		7		-		27
(Gain) loss on extinguishment of debt		4		1		3		(1)		-		(1)		(2)		(1)		-		(1)		4		1		-		3
Net realized capital (gains) losses^*		19		(1)		20		115		47		68
Noncontrolling interest on
net realized capital (gains) losses						1						5
Net realized capital (gains) losses^(a)														474		109		-		365		19		(1)		-		20
Loss from discontinued operations						1						-								-								1
(Income) loss from divested businesses		(8)		(2)		(6)		100		(6)		106
Income from divested businesses														(6)		(1)		-		(5)		(8)		(2)		-		(6)
Non-operating litigation reserves and settlements		13		3		10		(6)		(2)		(4)		1		1		-		-		13		3		-		10
Net loss reserve discount (benefit) charge		(205)		(43)		(162)		(25)		(9)		(16)		473		99		-		374		(205)		(43)		-		(162)
Integration and transaction costs associated with acquired
businesses														7		2		-		5		-		-		-		-
Restructuring and other costs		24		5		19		181		63		118		47		10		-		37		24		5		-		19
Noncontrolling interest primarily related to net realized capital
gains (losses) of Fortitude Holdings' standalone results^(b)																		247		247						1		1
Adjusted pre-tax income/Adjusted after-tax
income	$	1,216	$	243	$	963	$	2,041	$	653	$	1,367	$	1,847	$	423	$	(36)	$	1,388	$	1,216	$	243	$	(10)	$	963

Weighted average diluted shares outstanding						925.3						1,005.3								877.5								925.3
Income (loss) per common share attributable
Income per common share attributable
to AIG (diluted)					$	1.01					$	1.18							$	0.75							$	1.01
Adjusted after-tax income (loss) per
common share attributable to AIG (diluted)					$	1.04					$	1.36
Adjusted after-tax income per common share
attributable to AIG (diluted)																			$	1.58							$	1.04

*(a) Includes all net realized capital 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.

~~first quarter pre-tax income Comparison for 2018 and 2017~~

~~Pre-tax results decreased~~(b) Noncontrolling interests is primarily due to the 19.9 percent investment in Fortitude Holdings by an affiliate of The Carlyle Group L.P. (Carlyle), which occurred in the ~~first~~fourth quarter of ~~2018 compared~~2018. Carlyle is allocated 19.9 percent of Fortitude Holdings’ standalone financial results. Fortitude Holdings’ results are mostly eliminated in AIG’s consolidated income from continuing operations given that its results arise from intercompany transactions. Noncontrolling interests is calculated based on the standalone financial results of Fortitude Holdings. The most significant component of Fortitude Holdings’ standalone results concerns gains related to the ~~same period~~change in ~~2017 primarily~~fair value of embedded derivatives, which moved materially in the quarter due ~~to:~~

•~~a decrease~~to lower rates and tightening credit spreads, and which are recorded in net ~~investment~~realized capital gains and losses of Fortitude Holdings. In accordance with AIG's adjusted after-tax income ~~driven by lower income~~definition, realized capital gains and losses are excluded from alternative investments, primarily hedge funds, losses on securities for which the fair value option was elected compared to gains in the first quarter of 2017, lower invested assets resulting from the funding of the adverse development reinsurance agreement with NICO late in the first quarter 2017 and the sale of the life settlements portfolio in 2017;noncontrolling interests.

•higher losses and loss adjustment expenses incurred from General Insurance operations, reflecting higher catastrophe losses and higher accident year losses, partially offset by pre-tax favorable prior year loss reserve development in the first quarter of 2018 compared to unfavorable prior year loss reserve development in the first quarter of 2017 mainly resulting from the reduction in Ogden discount rate during the first quarter of 2017; and Fortitude Holdings’ summarized financial information (standalone results) is presented below:

•~~lower adjusted pre-tax income from the Legacy Portfolio.~~

Three Months Ended March 31, 2019		Fortitude		AIG Noncontrolling
(in millions)		Holdings		Interest
Revenues	$	606	$	121
Expenses		472		94
Adjusted pre-tax income		134		27
Taxes on adjusted pre-tax income		28		6
Adjusted after-tax income, excluding realized capital gains		106		21

Net realized capital gains		1,573		313
Taxes on realized capital gains		330		66
After-tax net realized capital gains		1,243		247
Net income	$	1,349	$	268

7874 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Consolidated Results of Operations

~~Partially offset by:~~

•~~lower general operating~~first QUARTER pre-tax income Comparison for 2019 and ~~other expenses;~~2018

•~~gains on sale of divested businesses~~Decrease in pre-tax income in the first quarter of ~~2018~~2019 compared to the first quarter of 2018 is the result of:

Increases due to:

•improvement in accident year losses ~~on sale~~in General Insurance as a result of ~~divested businesses~~underwriting discipline, increased use of reinsurance and a change in business mix as well as lower catastrophe losses in General Insurance;

•higher investment returns in our hedge fund portfolio and equity securities due to robust equity market returns in the first quarter of ~~2017. The first quarter~~2019 and an increase in income from fixed maturity securities for which the fair value option was elected, compared to the same period in the prior year where returns were lower as a result of ~~2017 included losses on the agreements to sell Fuji Life to FWD Group~~an increase in rates and ~~certain insurance operations and assets to Fairfax;~~widening spreads that occurred, as well as negative performance of our fair value option equity securities portfolio; and

• lower general and other operating expenses as a ~~decrease~~result of ongoing strategic initiatives to reduce costs, partially offset by the increase in expenses caused by the acquisitions of Validus and Glatfelter in the third and fourth quarters of 2018, respectively.

These increases were more than offset by:

•higher net realized capital losses due to Life and Retirement guaranteed living benefits, net of hedges, which reflected net realized capital losses in the first quarter of 2019 compared to net realized capital gains in the first quarter of 2018, ~~compared to net realized capital losses in the first quarter of 2017,~~ primarily due to changes in the movement in the non-performance or “own credit” risk adjustment (NPA), which ~~are~~is not hedged as part of our economic hedging program (see Insurance Reserves – Life and Annuity Reserves and DAC – Variable Annuity Guaranteed Benefits and Hedging Results)., partially offset from gains in fixed income securities due to credit spreads tightening; and

•a net loss reserve discount charge in the first quarter of 2019 compared to a loss reserve discount benefit in the first quarter of 2018.

U.S. Tax Reform Overview

On December 22, 2017, the U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act reduced the statutory rate of U.S. federal corporate income tax to 21 percent and enacted numerous other changes impacting AIG and the insurance industry. At December 31, 2017, we originally recorded a provisional estimate of income tax effects of the Tax Act of $6.7 billion, including a tax charge of $6.7 billion attributable to the reduction in the U.S. corporate income tax rate and tax benefit of $38 million related to the deemed repatriation tax. During the period ended March 31, 2018, we have not recorded any material adjustments to these provisional amounts. We continue to refine our analysis and calculations, which could impact the provisional estimates previously recorded. Accordingly, as of March 31, 2018, we have not fully completed our accounting for the tax effects of the Tax Act.

Changes specific to the insurance industry include the calculation of insurance tax reserves and related transition adjustments, amortization of specified policy acquisition expenses, treatment of separate account dividends received deductions and computation of pro-ration adjustments. Provisions of the Tax Act with broader application include reductions or elimination of deductions for certain items, e.g., reductions to corporate dividends received deductions, disallowance of entertainment expenses and limitations on the deduction of certain executive compensation costs. These provisions, generally, result in an increase in AIG’s taxable income.

In our assessment of the realizability of our deferred tax assets, we made certain assumptions related to the impact of the Tax Act on our future taxable income. Generally, the Tax Act provisions result in an increase in our taxable income and, thus, accelerate utilization of our tax attribute deferred tax asset. Accordingly, we do not currently anticipate that our reliance on provisional estimates would have a material impact on our determination of the realizability of our deferred tax assets.

Repatriation Assumptions

As a result of the Tax Act, the majority of accumulated foreign earnings that were previously untaxed are subject to a one-time deemed repatriation tax. Going forward, foreign earnings not taxed as part of the one-time deemed repatriation (or otherwise taxed currently under the GILTI or subpart F regimes) will generally be exempt from U.S. tax upon repatriation. Notwithstanding the changes, U.S. tax on foreign exchange gain or loss and certain non-U.S. withholding taxes will continue to be applicable upon future repatriations of foreign earnings. For ~~the period ended March 31, 2018,~~2019, we ~~still~~ consider our foreign earnings with respect to certain operations in Canada, South Africa, the Far East, Latin America, Bermuda as well as the European, Asia Pacific and Middle East regions to be indefinitely reinvested. These earnings relate to ongoing operations and have been reinvested in active business operations. Deferred taxes, if necessary, have been provided on earnings of non-U.S. affiliates whose earnings are not indefinitely reinvested.

~~Deemed Repatriation Tax & Impact on Liquidity~~

The Tax Act required companies to pay a one-time transition tax, net of tax credits related to applicable foreign taxes paid, on previously untaxed current and accumulated earnings and profits (E&P) of certain of our foreign subsidiaries. In the determination of the deemed repatriation tax, we reviewed estimated post-1986 E&P of the relevant foreign subsidiaries, and any related non-U.S. income tax paid on such earnings. We originally recorded a provisional estimated tax benefit of $38 million at December 31, 2017. This amount is not considered to be material to our liquidity and capital resources. As we continue to refine our E&P analysis, we will refine our calculations of the one-time transition tax, which could impact the provisional estimate previously recorded.

~~AIG | First Quarter 2018 Form 10-Q~~79

~~TABLE OF CONTENTS~~

~~ITEM 2 |~~ ~~Consolidated Results of Operations~~

Interim Tax Calculation Method

AIG | First Quarter 2019 Form 10-Q75

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ITEM 2 | Consolidated Results of Operations

cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions and are recorded in the period in which the change occurs. While certain impacts of the Tax Act are included in our annual effective tax rate, we continue to refine our calculations as additional information becomes available, which may result in changes to the estimated annual effective tax rate.

Income Tax expense analysis

For the three-month period ended March 31, ~~2018~~2019, the effective tax rate on income from continuing operations was 18.8~~22.6~~ percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 21 percent primarily due to tax benefits associated with tax exempt income, reclassifications from accumulated other comprehensive income to income from continuing operations related to the disposal of available for sale securities, and valuation allowance activity related to certain foreign subsidiaries, partially offset by tax charges associated with the effect of foreign operations, state and local income taxes, a net tax charge related to the accrual of IRS interest, excess tax charges related to share based compensation payments recorded through the income statement, non-deductible transfer pricing charges, and U.S. tax imposed on GILTI earned by certain foreign subsidiaries. The effect of foreign operations is primarily related to income in our foreign operations taxed at statutory tax rates higher than 21 percent, other foreign taxes, and foreign income subject to U.S. taxation.

Business Segment Operations

Our business operations consist of General Insurance, Life and Retirement, Other Operations, and a Legacy Portfolio.

General Insurance consists of two operating segments: North America and International. Life and Retirement consists of four operating segments: Group Retirement, Individual Retirement, Life Insurance and Institutional Markets. Other Operations consists of businesses and items not allocated to our other businesses, which are primarily AIG Parent ~~Blackboard~~ and ~~Fuji Life, which was sold on April 30, 2017.~~Blackboard. Our Legacy Portfolio consists of our Legacy ~~General Insurance~~Life and Retirement Run-Off Lines, Legacy ~~Life and Retirement~~General Insurance Run-Off Lines, and Legacy Investments. Effective ~~in the first quarter of~~February 2018, ~~DSA~~Fortitude Re is included in our Legacy Portfolio.

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

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Core business:
General Insurance
North America	$	320	$	828	$	934	$	320
International		190		233		334		190
General Insurance		510		1,061		1,268		510
Life and Retirement
Individual Retirement		499		539		508		499
Group Retirement		282		243		232		282
Life Insurance		52		54		116		52
Institutional Markets		59		62		68		59
Life and Retirement		892		898		924		892
Other Operations		(342)		(308)		(387)		(342)
Consolidations, eliminations and other adjustments		11		48		(70)		11
Total Core		1,071		1,699		1,735		1,071
Legacy Portfolio		145		342		112		145
Adjusted pre-tax income (loss)	$	1,216	$	2,041	$	1,847	$	1,216

8076 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Business Segment Operations | General Insurance

General Insurance

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

PRODUCTS AND DISTRIBUTION




	Liability: Products include general liability, environmental, commercial automobile liability, workers’ compensation, excess casualty and crisis management insurance products. Casualty also includes ~~risk-sharing~~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 liability (D&O), mergers and acquisitions (M&A), fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions ~~insurance.~~insurance (E&O). Property: Products include commercial ~~industrial~~ and ~~energy-related~~industrial property insurance products and services that cover exposures to man-made and natural disasters, including business interruption. Special Risks: Products include aerospace, political risk, trade credit, portfolio solutions, energy-related property insurance products, surety, marine and ~~marine~~crop insurance. Personal Lines: Products include personal auto and property in selected ~~international~~ markets and insurance for high net worth individuals offered through AIG Private Client Group (PCG) in the U.S. that covers auto, homeowners, umbrella, yacht, fine art and collections. In addition, we offer extended warranty insurance and services covering electronics, appliances, and HVAC. 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.
	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 distribution network is aided by our competitive position to write multiple-national and cross-border risks in both Commercial Lines and Personal Insurance.

BUSINESS STRATEGY

Profitable Growth: Deploy capital efficiently to act opportunistically and optimize diversity within the portfolio to grow in profitable lines, geographies and customer segments. Look to inorganic growth opportunities in profitable markets and segments to expand our capabilities and footprint.

Reinsurance Optimization: Strategically partner with reinsurers to reduce exposure to losses arising from frequency of large catastrophic events and the severity from individual risk losses. We ~~will~~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: 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.

AIG | First Quarter ~~2018~~2019 Form 10-Q 8177

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ITEM 2 | Business Segment Operations | General Insurance

COMPETITION and challenges

Operating in a highly competitive industry, General Insurance competes against several hundred companies, specialty insurance organizations, mutual companies and other underwriting organizations in the U.S. In international markets, we compete for business with the foreign insurance operations of large global insurance groups and local companies in specific market areas and product types. Insurance companies compete through a combination of risk acceptance criteria, product pricing, service and terms and conditions. General Insurance seeks to distinguish itself in the insurance industry primarily based on its well-established brand, global franchise, multinational capabilities, financial and capital strength, innovative products, claims expertise to handle complex claims, expertise in providing specialized coverages and customer service.

We serve our business and individual customers on a global basis — from the largest multinational corporations to local businesses and individuals. Our clients benefit from our substantial underwriting ~~expertise.~~expertise.

Our challenges include:

• long-tail Commercial Lines exposures that create added ~~complexity in~~challenges to pricing and risk management;

• over capacity in certain lines of business that creates downward market pressure on pricing;

• tort environment volatility in certain jurisdictions and lines of business; and

• volatility in claims arising from natural and man-made catastrophes.

OUTLOOK—INDUSTRY AND ECONOMIC FACTORS

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

General Insurance – North America

Commercial Lines ~~continues to face~~over recent years has experienced challenging market conditions, with widespread excess capacity ~~negatively impacting the rate environment~~increasing competition and suppressing ~~margins.~~rates across multiple classes of business. However, in more recent periods we are seeing growing market support for rate increases in certain U.S. liability segments (outside of workers’ compensation), with increasing traction in excess casualty, D&O and commercial auto, where rates are supported by a trend of higher loss cost inflation. On the shorter tailed lines, the market is supporting higher rates for accounts which suffered losses from major catastrophe events in 2017 and 2018. We continue to achieve positive rate increases across a number of lines and ~~sub-segments~~classes of business as a result of our disciplined underwriting strategy and focus on risk selection. We have also achieved positive rates for Property following recent catastrophe activity in 2017 and in the first quarter of 2018. We observe higher loss cost trends in Casualty, in particular Excess Casualty. The more profitable segments of Commercial Lines remain highly competitive; however,Further, we continue to achieve growth in several of our Commercial Lines high margin ~~businesses.~~businesses, although these market segments remain highly competitive.

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 believe our global presence provides Commercial Lines and Personal Insurance a distinct competitive advantage, as the demand for multinational cross-border coverage and services ~~increase~~increases due to the ~~internationalization~~growing number of ~~customers.~~international customers, while giving us the ability to respond quickly to local market conditions and build client relationships.

The Commercial Lines market continues to be highly competitive, ~~with increased pressure on rates, particularly in Europe and the Asia Pacific region,~~ due to increased market ~~capacity.~~capacity and ample availability of capital. Despite this, we ~~are continuing~~continue to grow our most profitable segments and diversify our portfolio across all regions by expanding into new product lines (e.g., cyber), new client segments (e.g., middle market) and ~~are maintaining~~new distribution channels (e.g., digital and national brokers) while remaining a market ~~leadership~~leader in key developed and developing markets. We are ~~actively remediating our underperforming segments,~~ maintaining our underwriting discipline and continuing our risk selection strategy to ~~maintain~~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, portfolio diversity, and low volatility of the short-tailed risk in these business lines. We expect our newly formed entity in Japan – AIG Sonpo – to provide the necessary scale and platform to compete more efficiently in the Japanese market. Outside of Japan, Personal Insurance continues to invest selectively in international markets, which we believe have higher potential for sustainable profitability.

8278 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Business Segment Operations | General Insurance

General INSURANCE RESULTS

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Underwriting results:
Net premiums written	$	6,171	$	6,297	(2)	%	$	6,033	$	6,171	(2)	%
Decrease in unearned premiums		512		192	167			680		512	33
Net premiums earned		6,683		6,489	3			6,713		6,683	-
Losses and loss adjustment expenses incurred^(a)		4,488		4,237	6			4,233		4,488	(6)
Acquisition expenses:
Amortization of deferred policy acquisition costs		1,066		909	17			1,159		1,066	9
Other acquisition expenses		385		388	(1)			303		385	(21)
Total acquisition expenses		1,451		1,297	12			1,462		1,451	1
General operating expenses		995		943	6			839		995	(16)
Underwriting income (loss)		(251)		12	NM			179		(251)	NM
Net investment income		761		1,049	(27)			1,089		761	43
Adjusted pre-tax income	$	510	$	1,061	(52)	%
Adjusted pre-tax income (loss)							$	1,268	$	510	149	%

Loss ratio^(a)	67.2	65.3	1.9	63.1	67.2	(4.1)
Acquisition ratio	21.7	20.0	1.7	21.8	21.7	0.1
General operating expense ratio	14.9	14.5	0.4	12.5	14.9	(2.4)
Expense ratio	36.6	34.5	2.1	34.3	36.6	(2.3)
Combined ratio^(a)	103.8	99.8	4.0	97.4	103.8	(6.4)
Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums	(5.7)	(3.5)	(2.2)	(2.7)	(5.7)	3.0
Prior year development, net of (additional) return premium on loss sensitive business	1.6	(0.6)	2.2	1.0	1.6	(0.6)
Adjustment for ceded premiums under reinsurance contracts related to prior accident years	-	-	NM
Adjustment for ceded premiums under reinsurance contracts related to prior accident years and other				0.4	-	0.4
Accident year loss ratio, as adjusted	63.1	61.2	1.9	61.8	63.1	(1.3)
Accident year combined ratio, as adjusted	99.7	95.7	4.0	96.1	99.7	(3.6)

(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.

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

Three Months Ended March 31,					Percentage Change in								Percentage Change in
(in millions)		2018		2017	U.S. dollars		Original Currency			2019		2018	U.S. dollars		Original Currency
North America(b)	$	2,039	$	2,323	(12)	%	(11)	%	$	2,578	$	2,039	26	%	26	%
International^(a)(c)		4,132		3,974	4		(3)			3,455		4,132	(16)		(13)
Total net premiums written	$	6,171	$	6,297	(2)	%	(6)	%	$	6,033	$	6,171	(2)	%	-	%

(a)The three-month period ended March 31, 2019 includes Validus Net premiums written for North America and International of $1.1 billion and $171 million, respectively.

(b)The three-month period ended March 31, 2019 includes Glatfelter Net premiums written for North America of $76 million.

(c)As a result of the merger of AIUI Japan and Fuji Fire and Marine Insurance Company (Fuji), Fuji’s fiscal reporting period was conformed to that of ~~AIU~~AIUI Japan ~~(Fuji~~(Japan Merger Impact). Therefore, the ~~first quarter of~~three-month period ended March 31, 2018 ~~includes~~included approximately $300 million for two additional months of Net premiums written.

AIG | First Quarter ~~2018~~2019 Form 10-Q 8379

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ITEM 2 | Business Segment Operations | General Insurance

The following tables present General Insurance accident year catastrophes ~~and severe losses~~ by geography^(a) and number of events:

Catastrophes^(b)

	# of		North					# of		North
(in millions)	Events		America		International		Total	Events		America		International		Total
Three Months Ended March 31, 2019
Flooding								1	$	-	$	10	$	10
Windstorms and hailstorms								3		153		2		155
Tropical cyclone								1		5		5		10
Total catastrophe-related charges								5	$	158	$	17	$	175
Three Months Ended March 31, 2018
Windstorms and hailstorms	4	$	274	$	19	$	293	4	$	274	$	19	$	293
Earthquakes	1		25		58		83	1		25		58		83
Total catastrophe-related charges	5	$	299	$	77	$	376	5	$	299	$	77	$	376
Three Months Ended March 31, 2017
Windstorms and hailstorms	6	$	162	$	-	$	162
Tropical cyclone	1		-		66		66
Total catastrophe-related charges	7	$	162	$	66	$	228

(a) Geography: North America primarily includes insurance businesses in the United States, Canada and Bermuda. International includes insurance businesses in Japan, the United Kingdom, Europe, the Asia Pacific region, Latin America, Puerto Rico, Australia, the Middle East and Africa. Geography results are presented before consideration of internal reinsurance agreements.

(b) Natural and man-made catastrophe losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and also include certain man-made events, such as terrorism and civil disorders that ~~meet~~exceed the $10 million threshold.

~~Severe Losses~~^(c)

Three Months Ended March 31,
# of

North

(in millions)
Events

America

International

Total
2018
10
$
36
$
99
$
135
2017
4
$
44
$
13
$
57

(c) Severe losses are defined as non-catastrophe individual first party losses, surety losses and trade credit losses greater than $10 million, net of related reinsurance and salvage and subrogation.

North america Results

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Underwriting results:
Net premiums written	$	2,039	$	2,323	(12)	%	$	2,578	$	2,039	26	%
Decrease in unearned premiums		653		626	4			575		653	(12)
Net premiums earned		2,692		2,949	(9)			3,153		2,692	17
Losses and loss adjustment expenses incurred^(a)		2,153		2,163	-			2,189		2,153	2
Acquisition expenses:
Amortization of deferred policy acquisition costs		358		323	11			508		358	42
Other acquisition expenses		154		162	(5)			106		154	(31)
Total acquisition expenses		512		485	6			614		512	20
General operating expenses		355		364	(2)			361		355	2
Underwriting loss		(328)		(63)	(421)			(11)		(328)	97
Net investment income		648		891	(27)			945		648	46
Adjusted pre-tax income	$	320	$	828	(61)	%	$	934	$	320	192	%

84~~AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 2 |~~ ~~Business Segment Operations~~| ~~General Insurance~~

Loss ratio^(a)	80.0	73.3	6.7		69.4	80.0	(10.6)
Acquisition ratio	19.0	16.4	2.6		19.5	19.0	0.5
General operating expense ratio	13.2	12.3	0.9		11.4	13.2	(1.8)
Expense ratio	32.2	28.7	3.5		30.9	32.2	(1.3)
Combined ratio^(a)	112.2	102.0	10.2		100.3	112.2	(11.9)
Adjustments for accident year loss ratio, as adjusted				Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums	(11.1)	(5.4)	(5.7)		(5.1)	(11.1)	6.0
Prior year development, net of (additional) return premium on loss sensitive business	2.8	2.1	0.7		1.8	2.8	(1.0)
Adjustment for ceded premiums under reinsurance contracts related to prior accident years	-	-	NM
Adjustment for ceded premiums under reinsurance contracts related to prior accident years and other					1.0	-	1.0
Accident year loss ratio, as adjusted	71.7	70.0	1.7		67.1	71.7	(4.6)
Accident year combined ratio, as adjusted	103.9	98.7	5.2		98.0	103.9	(5.9)

(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.

80AIG | First Quarter 2019 Form 10-Q

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ITEM 2 | Business Segment Operations| General Insurance

Business and Financial Highlights

The North America General Insurance business is focused on making progress towards improved underwriting results and efficiencies. This includes strengthening our talent base; ongoing investment in pricing and monitoring tools; continuous review of our risk appetite combined with enhanced focus on portfolio management and individual business strategy; and increased use of reinsurance.

Adjusted pre-tax income ~~decreased~~increased in the ~~first quarter of 2018~~three-month period ended March 31, 2019 compared to the ~~first quarter of 2017~~same period in the prior year, primarily due to higher catastrophe losses and a higher current accident year loss ratio, as adjusted, driven by higher ceded earned premiums reflecting the additional aggregate and occurrence protection coverage added to the 2018 North American catastrophe reinsurance program. Net premiums written decreased primarily due to continued underwriting actions to strengthen our portfolio and maintain pricing discipline and changes in the 2018 reinsurance programs.

~~The decrease in~~ net investment income ~~primarily reflected lower~~reflecting higher income on alternative investments, ~~due to weaker hedge fund performance~~lower catastrophe losses and ~~lower interest and dividends due to lower invested assets resulting from~~ the ~~first quarter 2017 funding~~inclusion of the ~~adverse development reinsurance agreement with NICO.~~Validus acquisition.

~~For further discussion on the NICO transaction see Insurance Reserves.~~

For a ~~description~~discussion of ~~AIG’s catastrophe~~2019 reinsurance ~~protection for 2018,~~programs see Part II, Item ~~7. MD&A~~7 Management's Discussion and Analysis of Financial Condition Results of Operation - Enterprise Risk Management ~~– Insurance Risks – General Insurance Companies’ Key Risks – Natural Catastrophe Risk~~ in our ~~2017~~2018 Annual Report.

North America Adjusted Pre-Tax Income (Loss)

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Adjusted pre-tax income ~~decreased~~increased primarily due to:

• ~~lower~~higher net investment income reflecting ~~lower hedge fund performance, lower gains~~higher income on ~~securities for which changes in fair value are recognized in earnings, as well as lower interest~~alternative investments and ~~dividends due to lower invested assets resulting from~~ the ~~first quarter 2017 funding~~inclusion of the ~~adverse development reinsurance agreement with NICO;~~Validus acquisition;

• ~~higher~~lower catastrophe losses; and

• ~~higher~~lower current accident year loss ratio, as adjusted, driven primarily by underwriting actions and a change in business mix including the Validus and Glatfelter acquisitions.

North America Net Premiums Written

Three Months Ended March 31,

(in millions)

2019 and 2018 Comparison

Net premiums written increased primarily due to the inclusion of the Validus and Glatfelter acquisitions.

This increase was partially offset by:

•higher ceded ~~earned~~ premiums ~~primarily related~~due to the ~~2018 North American catastrophe~~changes in 2019 reinsurance ~~program.~~programs; and

•lower production primarily in Excess Casualty, Retail Property, and Construction due to underwriting actions taken to strengthen our portfolio and to maintain pricing discipline.

AIG | First Quarter ~~2018~~2019 Form 10-Q 8581

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ITEM 2 | Business Segment Operations | General Insurance

North America ~~Net Premiums Written~~Combined Ratios

Three Months Ended March 31,

~~(in millions)~~

~~2018~~2019 and ~~2017~~2018 Comparison

~~Net premiums written decreased primarily due to:~~

•lower production primarily in Casualty, commercial property within Property, D&O products within Financial Lines and programs business due to underwriting actions taken to strengthen our portfolio and to maintain pricing discipline; and

•~~higher ceded premiums due to changes in the 2018 reinsurance programs.~~

~~This decrease was partially offset by growth in Accident and Health within Personal Insurance and the positive impact on market pricing for Property following recent catastrophe activity.~~

~~North America Combined Ratios~~

~~Three Months Ended March 31,~~

~~2018 and 2017 Comparison~~

The ~~increase~~decrease in the combined ratio reflected ~~an increase~~a decrease in both the loss ratio and the expense ratio.

~~This increase~~The decrease in the loss ratio ~~was~~ primarily ~~due to:~~reflected:

• ~~higher~~lower catastrophe losses; and

• ~~higher current~~lower accident year loss ratio, as adjusted, due to ~~higher ceded premiums related to the 2018 North American catastrophe reinsurance program and an increase in loss estimates in the second half of 2017, which was partially offset by~~ a ~~favorable~~ change in business mix including the ~~portfolio mix.~~Validus and Glatfelter acquisitions.

The ~~increase~~decrease in the expense ratio ~~reflected a~~ reflected:

•lower general operating expense ratio primarily driven by expense reduction initiatives; and

•higher acquisition ~~expense~~ ratio ~~driven~~ primarily ~~by lower earned premium~~ due to changes in ~~the business~~portfolio mix and changes in the ~~2018~~2019 reinsurance programs.

86~~AIG | First Quarter 2018 Form 10-Q~~

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~~ITEM 2 |~~ ~~Business Segment Operations~~| ~~General Insurance~~

International Results

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Underwriting results:
Net premiums written	$	4,132	$	3,974	4	%	$	3,455	$	4,132	(16)	%
Decrease in unearned premiums		(141)		(434)	68
(Increase) decrease in unearned premiums								105		(141)	NM
Net premiums earned		3,991		3,540	13			3,560		3,991	(11)
Losses and loss adjustment expenses incurred^(a)		2,335		2,074	13			2,044		2,335	(12)
Acquisition expenses:
Amortization of deferred policy acquisition costs		708		586	21			651		708	(8)
Other acquisition expenses		231		226	2			197		231	(15)
Total acquisition expenses		939		812	16			848		939	(10)
General operating expenses		640		579	11			478		640	(25)
Underwriting income^(b)(a)		77		75	3			190		77	147
Net investment income		113		158	(28)			144		113	27
Adjusted pre-tax income	$	190	$	233	(18)	%	$	334	$	190	76	%

Loss ratio^(a)	58.5	58.6	(0.1)		57.4	58.5	(1.1)
Acquisition ratio	23.5	22.9	0.6		23.8	23.5	0.3
General operating expense ratio	16.0	16.4	(0.4)		13.4	16.0	(2.6)
Expense ratio	39.5	39.3	0.2		37.2	39.5	(2.3)
Combined ratio^(a)	98.0	97.9	0.1		94.6	98.0	(3.4)
Adjustments for accident year loss ratio, as adjusted				Adjustments for accident year loss ratio, as adjusted
and accident year combined ratio, as adjusted:
Catastrophe losses and reinstatement premiums	(1.9)	(1.9)	-		(0.5)	(1.9)	1.4
Prior year development, net of (additional) return premium on loss sensitive business	0.7	(2.9)	3.6		0.4	0.7	(0.3)
Adjustment for ceded premiums under reinsurance contracts related to prior accident years	-	-	NM		-	-	NM
Accident year loss ratio, as adjusted	57.3	53.8	3.5		57.3	57.3	(0.0)
Accident year combined ratio, as adjusted	96.8	93.1	3.7		94.5	96.8	(2.3)

(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.

~~(b)~~ As result of the ~~Fuji~~Japan Merger Impact, the ~~first quarter of~~three-month period ended March 31, 2018 includes two additional months of operating earnings increasing Net premiums written, Net premiums earned, Losses and loss adjustment expenses incurred, and Adjusted pre-tax income by approximately $300 million, $300 million, $200 million and $15 million, respectively.

82AIG | First Quarter 2019 Form 10-Q

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ITEM 2 | Business Segment Operations| General Insurance

Business and Financial Highlights

The International General Insurance business is focused on underwriting profits and improved efficiency, further improving underwriting margins, and growing profitably in segments and geographies that support our growth strategy.

Adjusted pre-tax income ~~decreased~~increased in the first quarter of ~~2018~~2019 compared to the ~~first quarter of 2017~~same period in the prior year primarily due to lower ~~income on alternative investments driven by~~General operating expenses, ~~a decrease in portfolio holdings as well asweaker hedge fund performance,~~inclusion of the Validus acquisition and ~~losses on securities for which changes in fair value are recognized in earnings compared to gains in the prior year period. The combined~~ ~~ratio remained flat due~~ ~~to a slightly higher expense~~ ~~ratio offset by a slightly~~ lower ~~loss ratio.~~ catastrophe losses.

Net ~~premium~~premiums written,, excluding the impact of foreign exchange, decreased primarily due to the Japan Merger Impact, higher ceded premiums, ~~related to the changes~~and lower Accident & Health business in ~~2018 reinsurance programs as well as portfolio optimization and continued challenging market conditions~~, Asia Pacific, partially offset by inclusion of the ~~Fuji Merger Impact.~~Validus acquisition.

International Adjusted Pre-Tax Loss

Three Months Ended March 31,

(in millions)

2019 and 2018 Comparison

Adjusted pre-tax Income increased primarily due to:

·lower general operating expenses;

·inclusion of the Validus acquisition; and

·lower catastrophe losses.

AIG | First Quarter ~~2018~~2019 Form 10-Q 8783

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ITEM 2 | Business Segment Operations | General Insurance

International ~~Adjusted Pre-Tax Income~~Net Premiums Written

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

~~Adjusted pre-tax income~~Net premiums written, excluding the impact of foreign exchange, decreased due to:

•· ~~higher current accident year loss ratio, as adjusted, driven primarily by higher severe losses and~~ the Japan Merger Impact;

·higher ceded ~~earned~~ premiums ~~related~~due to ~~the additional~~changes in 2019 reinsurance ~~protection against severe losses added for international locations on a global basis and~~ ~~the 2018 catastrophe reinsurance program~~;programs; and

•· lower ~~net investment income mainly driven by a~~ ~~decrease~~Accident & Health business in ~~alternative investments portfolio holdings as well aslower hedge fund performance, and~~ ~~losses on securities for which changes in fair value are recognized in earnings compared to gains in the prior year period~~. Asia Pacific.

This decrease was partially offset ~~by favorable prior year loss reserve development in~~by:

·inclusion of the first quarter of 2018 compared to unfavorable prior year loss reserve development in the first quarter of 2017 mainly resulting from the reduction in Ogden discount rate during the first quarter of 2017.Validus acquisition.

International ~~Net Premiums Written~~Combined Ratios

Three Months Ended March 31,

~~(in millions)~~

~~2018~~2019 and ~~2017~~2018 Comparison

~~Net premiums written decreased, excluding~~The decrease in the ~~impact of foreign exchange, due to:~~combined ratio reflected a decrease in both the expense ratio and the loss ratio.

•~~higher ceded premiums related to~~This decrease in the ~~changes in 2018 reinsurance programs;~~expense ratio reflected a

•lower ~~production in our Japan business reflecting our focus on profitability combined with a competitive market environment;~~

•~~lower production in Property and Casualty primarily~~general operating expense ratio driven by ~~execution of our portfolio optimization strategy in Europe;~~the Japan Merger Impact, lower employee-related expenses and

•~~the sale of certain of our insurance operations to Fairfax.~~ other expense reduction initiatives.

This decrease in the loss ratio was ~~partially offset~~primarily driven by ~~the Fuji Merger Impact.~~lower catastrophe losses.

8884 AIG | First Quarter ~~2018~~2019 Form 10-Q

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~~ITEM 2 |~~ ~~Business Segment Operations~~| ~~General Insurance~~

~~International Combined Ratios~~

~~Three Months Ended March 31,~~

~~2018 and 2017 Comparison~~

~~The combined ratio remained flat due to a slightly higher expense ratio offset by a slightly lower loss ratio.~~

~~The increase in expense ratio reflected a slightly higher acquisition ratio mainly due to a decrease in earned premiums driven by the changes in 2018 reinsurance programs.~~

The slightly lower loss ratio reflected favorable prior year loss reserve development in 2018, primarily from Personal Insurance, compared to unfavorable prior year loss reserve development in 2017 mainly resulting from the reduction in Ogden discount rate.

~~The lower loss ratio was almost entirely offset by a higher current accident year loss ratio, as adjusted, driven primarily by higher severe losses and~~ ~~higher ceded premiums related to the changes in 2018 reinsurance programs.~~

~~AIG | First Quarter 2018 Form 10-Q~~89

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ITEM 2 | Business Segment Operations | Life and Retirement

Life and Retirement

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. Index Annuities: Products include fixed index annuities that provide growth potential based in part on the performance of a market index. Certain fixed index annuity products offer optional income protection features. 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. The Fixed Annuities product line maintains its 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: Includes our mutual fund sales and related administration and servicing ~~operations.~~ operations. Retail Mutual Funds are distributed primarily through broker-dealers.
	Group Retirement: Productsand services~~include~~ consist of groupmutual funds,group ~~fixedannuities,~~ ~~group variable~~ annuities, individual annuity and investment products, and financial planning and advisory services~~advisory~~. ~~services.~~ ~~Products~~In March 2019, the products and services ~~are~~ marketed by ~~the~~The Variable Annuity Life Insurance Company (VALIC) ~~under the VALIC brand and~~, which include investment offerings and plan administrative and compliance ~~services.~~services, were rebranded under the AIG Retirement Services name to allow the business to fully leverage the strength and scale of the AIG brand. Legal entity names will, however, remain unchanged: The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company. AIG Retirement Services career financial advisors and independent financial advisors provide retirement plan participants with enrollment support and comprehensive financial planning services.
	Life Insurance: In the U.S., products primarily include term life and universal life ~~insurance.~~insurance distributed through independent marketing organizations, independent insurance agents, financial advisors and direct marketing. International operations include the distribution of life and health products in the UK and Ireland. ~~Life products in the U.S. are primarily distributed through independent marketing organizations, independent insurance agents, financial advisors and direct marketing.~~
	Institutional Markets: Products primarily include stable value wrap products, structured settlement and pension risk transfer annuities, corporate- and bank-owned life insurance and guaranteed investment contracts (GICs). Institutional Markets products are primarily distributed through specialized marketing and consulting firms and structured settlement brokers.

~~Federal Home Loan Bank (FHLB) Funding Agreements~~ are issued through our Individual Retirement, Group Retirement and Institutional Markets operating segments. Funding agreements are issued by our U.S. Life and Retirement companies to the FHLBs in their respective districts at floating rates over specified periods, which can be prepaid at our discretion. Proceeds are invested in fixed income securities and other suitable investments to generate spreads. These investment contracts do not have mortality or morbidity risk and are similar to GICs.

90AIG | First Quarter ~~2018~~2019 Form 10-Q85

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ITEM 2 | Business Segment Operations | Life and Retirement

Federal Home Loan Bank (FHLB) Funding Agreements are issued through our Individual Retirement, Group Retirement and Institutional Markets operating segments. Funding agreements are issued by our U.S. Life and Retirement companies to FHLBs in their respective districts at 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 spreads. These investment contracts do not have mortality or morbidity risk and are similar to GICs.

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 willcontinueto capitalize on the opportunity to meet consumer demand for guaranteed income by maintaining innovative variable and index annuity products, while also managing risk from guarantee features through risk-mitigating product design andwell-developedeconomic 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~~ ~~thecustomer~~ ~~experience~~ ~~for~~ ~~plansponsors~~ ~~and~~ ~~individual~~ ~~participants.~~ ~~VALIC’s~~ ~~self-service tools paired with its career 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.~~


	~~Life Insurance~~ ~~continues~~ to ~~invest~~ to ~~position~~ ~~itself~~ ~~for~~ ~~growth,~~ ~~while executing~~on ~~strategies~~ to ~~enhance~~ ~~returns.~~ ~~Life Insurance is focused on rationalizingits product portfolio, aligning distribution with itsmost~~ ~~productive~~ ~~channels, consolidatingsystems~~ on ~~state-of-the-art platforms, and employing innovative underwriting enhancements.~~			~~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 opportunistic and allows us to pursue select transactions that meet our risk-adjusted return requirements.

~~Enhance Operational Effectiveness~~ ~~by simplifyingprocesses 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. In the U.S. Life business, we are focused on leveraging our most efficient systems and increasing automation of our underwriting process. 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 maximize our ability to meet cash and liquidity needs under various operating scenarios.

~~Deliver Value Creation and Manage Capital~~ ~~by striving to deliversolid~~ ~~earnings throughdisciplined pricing, sustainableunderwriting~~ ~~improvements, expense reductions, and diversification of risk, while optimizing capital allocation and efficiency within insurance entities~~to ~~enhance~~ ~~return on equity~~.

~~AIG | First Quarter 2018 Form 10-Q~~91

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~~ITEM 2 |~~~~Business Segment~~ ~~Operations |~~ ~~Life and Retirement~~

~~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.~~

~~Our primary challenges include:~~

·~~a sustained low interest rate environment, which makes it difficult to profitably price new products and puts margin pressure on existing business due to lower reinvestment yields;~~

·increased competition in our primary markets, including aggressive pricing of annuities by private equity-backed annuity writers, increased competition and consolidation of employer groups in the group retirement planning market, and peers with different profitability targets in the pension risk transfer space;

·~~increasingly complex new and proposed regulatory requirements, which have created uncertainty that is affecting industry growth; 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:~~

~~Individual Retirement~~

~~Increasing life expectancy and reduced expectations for traditional retirement income from defined benefit programs and fixed income securities are leadingAmericans to seek additional financial security as they approach retirement.The strong demand for individual variable and fixed index annuities with guaranteed income features has attracted increased competition~~in ~~this~~ ~~product~~ ~~space.~~In ~~response~~ to ~~the~~ ~~continued~~ ~~lowinterest~~ ~~rate~~ ~~environment,which~~ ~~has~~ ~~added pressure~~ to~~profit margins, we have developed guaranteed income benefits for both variable and fixed index annuities with margins that~~ ~~are less~~ ~~sensitive~~ to ~~the~~ ~~level of interest~~ ~~rates.~~

Changes in the interest rate environment can have a significant impact on sales, surrender rates, investment returns, guaranteed income features, and spreads in the annuity industry. Additionally, regulatory developments surrounding the DOL Fiduciary Rule and standard of care for the sale of investment products and services have created uncertainties in the annuity marketplace. These uncertainties have negatively impacted the industry sales of annuity products, including those offered by Individual Retirement.

Group Retirement

~~Group Retirement competes in the defined contribution market under the~~ ~~VALIC~~ ~~brand.~~ ~~VALIC~~ ~~is a leading~~continues ~~retirement~~to ~~plan provider in~~enhance ~~the~~ ~~U.S.~~ ~~for~~ ~~K-12~~ ~~schools~~ ~~and~~ ~~school~~ ~~districts, highereducation, healthcare, government andother not-for-profit institutions.The defined contribution market is a highly efficient and competitive market that requires supportfor~~ ~~bothplan~~ ~~sponsors~~ ~~and individualparticipants.~~ To ~~meet~~ ~~this~~ ~~challenge,~~ ~~VALIC~~ is~~investing~~ in a ~~client-focused~~its technology platform toimprove the ~~support~~customer ~~improved~~experience ~~compliance~~for ~~and~~ ~~self-service~~ ~~functionality.~~plan ~~VALIC’s~~sponsors ~~service~~and individual participants. AIG Retirement Services’ (formerly VALIC) ~~model~~ ~~pairs~~ self-service tools paired with its career financial advisors ~~who~~ provide ~~individual plan participants with enrollment support and comprehensive~~a compelling service platform. Group Retirement’s strategy also involves providing financial planning ~~services.~~services for its clients and meeting their need for income in retirement.

~~Changes in the interest rate environment can have a significant impact on investment returns, guaranteed income features, and 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, as well as to supplement retirement income.~~

~~In response to consumer needs and a sustained low interest rate environment, our Life Insurance product portfolio has been evolving. We~~the U.S. will continue to ~~place~~position itself for growth and changing market dynamics while continuing to execute strategies to enhance returns. Our focus is on materializing success from a ~~strong~~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 Insurance will continue to focus on ~~indexed universal life products~~growing the business organically and ~~de-emphasize products with long-duration interest rate guarantees.~~through potential acquisition opportunities.

~~AIG | First Quarter 2018~~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 opportunistic and allows us to pursue select transactions that meet our risk-adjusted return requirements.

Enhance Operational Effectiveness by simplifyingprocesses and operating environments to increase competitiveness, improve service and product capabilities and facilitate deliveryof our target customer experience.We continueto 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 maximize our ability to meet cash and liquidity needs under various operating scenarios.

Deliver Value Creation and Manage Capital by striving to deliversolid earnings throughdisciplined pricing, sustainableunderwriting improvements, expense reductions, and diversification of risk, while optimizing capital allocation and efficiency within insurance entitiesto enhance return on equity.

86AIG | First Quarter 2019 Form 10-Q

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ITEM 2 |Business Segment Operations | Life and Retirement

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.

Our primary challenges include:

·a sustained low interest rate environment, which makes it difficult to profitably price new products and puts margin pressure on existing business due to lower reinvestment yields;

·increasingly complex new and proposed regulatory requirements, which have affected industry growth; 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:

Individual Retirement

Increasing life expectancy and reduced expectations for traditional retirement income from defined benefit programs and fixed income securities are leadingAmericans to seek additional financial security as they approach retirement.The strong demand for individual variable and fixed index annuities with guaranteed income features has attracted increased competitionin this product space.In response to the continued lowinterest rate environment,which has added pressure toprofit margins, we have developed guaranteed income benefits for both variable and fixed index annuities with margins that are less sensitive to the level of interest rates.

Changes in the interest rate environment can have a significant impact on sales, surrender rates, investment returns, guaranteed income features, and 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 leadingretirement plan provider in the U.S. for K-12 schools and school districts, highereducation, healthcare, government andother not-for-profit institutions.The defined contribution market is a highly efficient and competitive market that requires supportfor bothplan sponsors and individualparticipants. To meet this challenge, AIG Retirement Services is investing in a client-focused technology platform tosupport improved compliance and self-service functionality.AIG Retirement Services’ model pairs self-service tools with its career financial advisors who provide individual plan participants with enrollment support and comprehensive financial planning services.

Changes in the interest rate environment can have a significant impact on investment returns, guaranteed income features, and spreads, and a moderate impact on sales and surrender rates.

AIG | First Quarter 2019 Form 10-Q87

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ITEM 2 |Business Segment Operations | Life and Retirement

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.

In response to consumer needs and a sustained low interest rate environment, our Life Insurance product portfolio will continue to promote products with lower 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 as corporate plan sponsors look to transfer asset or liability, longevity, administrative and operational risks associated with their defined benefit plans.

Changes in the interest rate environment can have a significant impact on investment returns and net investment spreads, as well as reduce the tax efficiency associated with institutional life insurance products, dampening organic growth opportunities.

For additional discussion of 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.

life and retirement RESULTS

Three Months Ended March 31,					Percentage
(in millions)		2019		2018	Change
Revenues:
Premiums	$	1,229	$	446	176	%
Policy fees		707		734	(4)
Net investment income		2,042		2,046	-
Other income		226		234	(3)
Total adjusted revenues		4,204		3,460	22
Benefits and expenses:
Policyholder benefits and losses incurred		1,566		830	89
Interest credited to policyholder account balances		887		854	4
Amortization of deferred policy acquisition costs		200		246	(19)
General operating and other expenses^*		587		600	(2)
Interest expense		40		38	5
Total operating expenses		3,280		2,568	28
Adjusted pre-tax income	$	924	$	892	4	%

* Includes general operating expenses, non-deferrable commissions, other acquisition expenses, advisory fee expenses and other expenses.

Our insurance companies generate significant revenues from investment activities. As a result, the operating segments in Life and Retirement are subject to 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.

88AIG | First Quarter 2019 Form 10-Q

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ITEM 2 | Business Segment Operations | Life and Retirement

As life insurance ownership remains at historical lows in the United States, 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~~

For additional information on the impact of the DOL Fiduciary Rule and the related regulatory developments on our Individual Retirement and Group Retirement businesses see Executive Summary – AIG’s Outlook – Industry and Economic Factors – Standard of Care – Regulatory Developments.

~~life and retirement RESULTS~~

Three Months Ended March 31,

Percentage

(in millions)

2018

2017

Change

Revenues:

Premiums
$
446
$
836

(47)
%
Policy fees

734

688

7

Net investment income

2,046

1,962

4

Other income

234

217

8

Total adjusted revenues

3,460

3,703

(7)

Benefits and expenses:

Policyholder benefits and losses incurred

830

1,110

(25)

Interest credited to policyholder account balances

854

846

1

Amortization of deferred policy acquisition costs

246

228

8

General operating and other expenses^*

600

597

1

Interest expense

38

24

58

Total operating expenses

2,568

2,805

(8)

Adjusted pre-tax income
$
892
$
898

(1)
%

* Includes general operating expenses, non-deferrable commissions, other acquisition expenses, advisory fee expenses and other expenses.

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

~~AIG | First Quarter 2018 Form 10-Q~~93

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~~ITEM 2 |~~~~Business Segment~~ ~~Operations |~~ ~~Life and Retirement~~

Individual Retirement Results

Three Months Ended March 31,						Percentage							Percentage
(in millions)		2018		2017		Change			2019		2018		Change
Revenues:
Premiums	$	12	$	28		(57)	%	$	11	$	12		(8)	%
Policy fees		204		185		10			193		204		(5)
Net investment income		984		1,007		(2)			999		984		2
Advisory fee and other income		161		153		5			148		161		(8)
Benefits and expenses:
Policyholder benefits and losses incurred		47		37		27			31		47		(34)
Interest credited to policyholder account balances		412		415		(1)			424		412		3
Amortization of deferred policy acquisition costs		134		129		4			120		134		(10)
Non deferrable insurance commissions		81		72		13			77		81		(5)
Advisory fee expenses		54		58		(7)			54		54		-
General operating expenses		115		110		5			118		115		3
Interest expense		19		13		46			19		19		-
Adjusted pre-tax income	$	499	$	539		(7)	%	$	508	$	499		2	%
Fixed Annuities base net investment spread:
Base yield		4.60	%	4.92	%	(32)	bps		4.68	%	4.60	%	8	bps
Cost of funds		2.65		2.67		(2)			2.71		2.65		6
Fixed Annuities base net investment spread		1.95	%	2.25	%	(30)	bps		1.97	%	1.95	%	2	bps

Business and Financial Highlights

The market environment continues to reflect uncertainties in the annuity business resulting from ~~legislative and regulatory initiatives and~~ a sustained low interest rate environment. ~~While interest~~Interest rates ~~had slightly improved, rates~~declined in the first quarter of 2019 and remained low relative to historical levels. Excluding ~~the impact of~~prior year deposits from ~~the~~ FHLB funding ~~agreement,~~agreements, premiums and deposits ~~declined~~increased in the first quarter of ~~2018~~2019 compared to the same period in the prior year. Net flows declined and continued to be negative primarily due to lower deposits and higher surrenders. Adjusted pre-tax income decreased, reflecting declines in equity market performance, base net investment spread and gains on securities for which the fair value option was elected. Partially offsetting these decreases were higher alternative investment returns, policy fees and advisory fees, as well as the receipt of non-recurring payments on structured securities.

~~Fixed Annuities base net investment spread~~increased in the first quarter of ~~2018 declined~~2019 compared to the same period in the prior year primarily due to ~~decreases~~higher deposits driven by increased Fixed and Index Annuities sales, offset by lower sales for the Variable Annuities and Retail Mutual Funds.

Adjusted pre-tax income increased due to lower Variable Annuity DAC/SIA amortization and reserves from higher equity market performance, lower Fixed Annuity DAC amortization and reserves from policyholders reaching the end of the surrender charge period, higher base investment spread income primarily due to growth in ~~accretion~~Index Annuity assets from increased sales, and higher gains on securities for which the fair value option was elected due to tightening spreads and lower rates. Partially offsetting these increases were lower returns on alternative investments, lower fee income and ~~reinvestment yields.~~advisory fees, net of expenses, primarily driven by lower Variable Annuity AUM due to the equity market decline at the end of 2018, as well as prior year non-recurring payments on structured securities, and higher Index Annuity DAC amortization and reserves mostly driven by sales growth.

94AIG | First Quarter ~~2018~~2019 Form 10-Q89

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ITEM 2 | Business Segment Operations | Life and Retirement

Individual Retirement Adjusted Pre-Tax Income

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Adjusted pre-tax income ~~decreased~~increased primarily due to:

•~~lower equity market performance in the first quarter of 2018, which contributed to increases in policyholder benefits and DAC amortization;~~

• decline in base net investment spread primarily in Fixed Annuities driven by decreases in accretion income and reinvestment yields. In addition, income from base portfolio reflected declines driven by lower invested assets in Fixed Annuities, partially offset by asset growth in Index Annuities; and

•~~decline~~an increase in net investment income, ~~primarily from lower~~which included higher gains on securities for which the fair value option was elected and growth in income from ~~bond call~~base portfolio due to higher invested assets, and ~~tender,~~higher accretion income, partially offset by ~~higher~~lower returns on alternative investments and ~~the receipt of~~prior-year non-recurring payments on structured ~~securities.~~securities; and

•higher equity market performance, which contributed to decreases in Variable Annuity DAC amortization and reserves, and lower Fixed Annuity DAC amortization due to policyholders reaching the end of the surrender charge period, partially offset by higher Index Annuity DAC amortization driven by growth in sales and DAC model refinements.

Partially offsetting these ~~decreases were higher~~increases were:

•lower Variable Annuity policy ~~fees~~ and advisory ~~fees,~~fee income net of expenses ~~primarily driven by asset growth~~due to a decrease in Variable ~~Annuities.~~Annuity assets under management related to the equity market decline at the end of 2018.

Individual Retirement GAAP Premiums, Premiums and Deposits, Surrenders and Net Flows

For Individual Retirement, premiums primarily represent amounts received on life-contingent payout annuities. Premiums decreased slightly in the first quarter of ~~2018~~2019 compared to the same period in the prior year ~~primarily due to competitive market rates and continued regulatory uncertainties.~~.

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,FHLB funding agreements and mutual funds under ~~administration~~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. Deposits from FHLB funding agreements were excluded from net flows of Individual Retirement, as net flows from these funding agreements are not considered part of the metric to measure Individual Retirement’s core recurring performance.

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

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Premiums	$	12	$	28	$	11	$	12
Deposits		4,347		3,357		4,175		4,347
Other		(1)		(3)		-		(1)
Premiums and deposits	$	4,358	$	3,382	$	4,186	$	4,358

90AIG | First Quarter ~~2018~~2019 Form 10-Q95

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ITEM 2 | Business Segment Operations | Life and Retirement

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

Three Months Ended March 31,					2019		2018
	2018		2017
Surrenders as a percentage of average reserves
Fixed Annuities	7.4	%	7.0	%	8.1	%	7.4	%
Variable and Index Annuities	6.4		6.0		6.0		6.4

The following table presents reserves for Fixed Annuities and Variable and Index Annuities by surrender charge category:

	March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
				Variable				Variable				Variable				Variable
		Fixed		and Index		Fixed		and Index		Fixed		and Index		Fixed		and Index
(in millions)		Annuities		Annuities		Annuities		Annuities		Annuities		Annuities		Annuities		Annuities
No surrender charge	$	31,867	$	19,229	$	32,299	$	18,896	$	29,340	$	21,488	$	30,036	$	19,036
Greater than 0% - 2%		1,713		6,088		1,704		6,045		972		7,172		1,037		6,229
Greater than 2% - 4%		1,422		9,708		1,560		9,470		2,859		12,154		2,429		9,781
Greater than 4%		13,505		34,156		13,329		34,677		16,083		32,662		15,217		33,244
Non-surrenderable		1,625		447		1,665		429		1,643		486		1,608		474
Total reserves	$	50,132	$	69,628	$	50,557	$	69,517	$	50,897	$	73,962	$	50,327	$	68,764

Individual Retirement annuities are typically subject to a four- to seven-year surrender charge period, depending on the product. For ~~Variable and Index~~Fixed Annuities, the proportion of reserves subject to surrender ~~charges~~charge at March 31, ~~2018~~2019 has ~~decreased~~increased compared to December 31, ~~2017~~2018 due to ~~normal aging~~improved net flows driven by higher Fixed Annuity sales, combined with fewer policyholders reaching the end of the ~~business and continued decline~~surrender charge period in ~~sales.~~2019 compared to 2018. The increase in reserves with no surrender charge ~~contributed to the increase in the surrender rate~~ for Variable and Index Annuities ~~in the first quarter of 2018~~at March 31, 2019 compared to ~~the same period in the prior year. Increases in market interest rates in the first quarter~~December 31, 2018 is due to normal aging of ~~2018 contributed to the increase in the surrender rate for Fixed Annuities in the first quarter of 2018 compared to the same period in the prior year.~~business.

A discussion of the significant variances in premiums and deposits and net flows for each product line follows:

Individual Retirement Premiums and Deposits (P&D) and Net Flows

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

• Fixed Annuitiespremiums and deposits ~~decreased primarily due to lower bank distribution sales, partially offset by higher broker dealer distribution sales. Net flows declined and continued to be negative~~increased primarily due to higher ~~surrenders~~broker dealer and ~~lower~~bank distribution sales driven by favorable market conditions. Net flows increased primarily due to higher premiums and deposits, ~~primarily driven~~partially offset by ~~competitive market rates and continued regulatory uncertainties.~~increased surrenders.

• Variable and Index Annuities premiums and deposits increased primarily due to higher ~~index~~Index annuity sales driven by growth in all key distribution channels partially offset by decline in Variable Annuity premiums and deposits driven by lower broker dealer and bank distribution sales. Index annuity net flows increased primarily due to higher sales partially offset by ~~lower variable~~higher surrenders. Variable annuity ~~sales driven by continued regulatory uncertainties. Net~~net flows ~~declined~~remained negative and deteriorated primarily due to ~~higher surrenders partially~~a decline in sales offset by ~~increased sales.~~lower surrenders.

• Funding Agreementspremiums and deposits in the first quarter of 2018 reflected deposits from the FHLB funding ~~agreement,~~agreements, which were excluded from reported net flows.

• Retail Mutual Fundspremiums and deposits andnet flows ~~declined~~remained negative and ~~continued to be negative~~deteriorated reflecting lower deposits and higher withdrawals due to continued negative industry trends in U.S. equity actively managed ~~funds.~~funds and the impact of underperformance within our largest fund.

96AIG | First Quarter ~~2018~~2019 Form 10-Q91

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ITEM 2 | Business Segment Operations | Life and Retirement

Group Retirement Results

Three Months Ended March 31,						Percentage							Percentage
(in millions)		2018		2017		Change			2019		2018		Change
Revenues:
Premiums	$	6	$	9		(33)	%	$	4	$	6		(33)	%
Policy fees		112		99		13			100		112		(11)
Net investment income		582		555		5			541		582		(7)
Advisory fee and other income		61		55		11			64		61		5
Benefits and expenses:
Policyholder benefits and losses incurred		16		21		(24)			10		16		(38)
Interest credited to policyholder account balances		275		278		(1)			282		275		3
Amortization of deferred policy acquisition costs		25		22		14			12		25		(52)
Non deferrable insurance commissions		29		27		7			28		29		(3)
Advisory fee expenses		22		18		22			23		22		5
General operating expenses		102		102		-			111		102		9
Interest expense		10		7		43			11		10		10
Adjusted pre-tax income	$	282	$	243		16	%	$	232	$	282		(18)	%
Base net investment spread:
Base yield		4.53	%	4.68	%	(15)	bps		4.59	%	4.53	%	6	bps
Cost of funds		2.72		2.81		(9)			2.76		2.72		4
Base net investment spread		1.81	%	1.87	%	(6)	bps		1.83	%	1.81	%	2	bps

Business and Financial Highlights

Group Retirement is focused on implementing initiatives to grow its business. However, external factors, including increased competition and the consolidation of healthcare providers and other employers in target markets, continue to impact Group Retirement’s customer retention. Excluding ~~the impact of~~ deposits from ~~the~~ FHLB funding agreement, premiums and deposits ~~decreased~~increased in the first quarter of ~~2018~~2019 compared to the same period in ~~2017.~~2018. Net flows ~~declined~~deteriorated in the first quarter of 2019 compared to the same period of 2018 and continued to be negative primarily due to ~~lower deposits from group plan acquisitions~~higher surrenders, partially offset by increased premiums and ~~higher surrenders.~~ deposits.

Adjusted pre-tax income ~~increased, reflecting higher alternative~~decreased in the first quarter of 2019 compared to the same period in 2018 primarily from lower net investment ~~returns and policy fees, as well as the~~income due to prior year receipt of non-recurring payments on structured ~~securities.~~securities and lower alternative investment returns, lower fee income and higher general operating expenses. Partially offsetting these ~~increases~~decreases were ~~declines in base net investment spread~~lower variable annuity DAC amortization and ~~gains on securities for which the fair value option was elected.~~reserves due to higher equity market performance.

Group Retirement base net investment spread in the first quarter of ~~2018 declined~~2019 increased compared to the same period in the prior year primarily due to ~~lower reinvestment yields, partially offset by~~ higher accretion ~~income and effective crediting rate management.~~income.

92AIG | First Quarter ~~2018~~2019 Form 10-Q97

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ITEM 2 | Business Segment Operations | Life and Retirement

Group Retirement Adjusted Pre-Tax Income

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Adjusted pre-tax income ~~increased~~decreased primarily due to:

• ~~higher~~lower net investment income, primarily from the prior year receipt of non-recurring payments on structured securities and ~~higher~~lower returns on alternative investments, partially offset by ~~lower gains on securities for which the fair value option was elected and~~higher income from ~~bond call and tender; and~~base portfolio due to higher invested assets;

• ~~higher~~lower policy and advisory fees, net of expenses primarily driven by ~~growth~~decrease in ~~assets.~~separate account and mutual fund assets; and

•higher general operating expenses primarily due to higher project costs and compensation, partially offset by reduced corporate expenses.

Partially offsetting these ~~increases was a decline in base net investment spread primarily~~decreases were:

•lower variable annuity DAC amortization and reserves due to ~~lower reinvestment yields, partially offset by~~ higher ~~accretion income and effective crediting rate management.~~equity market performance.

Group Retirement GAAP Premiums, Premiums and Deposits, Surrenders and Net Flows

For Group Retirement, premiums primarily represent amounts received on life-contingent payout annuities. Premiums in the first quarter of ~~2018,~~2019, which primarily represent immediate annuities, decreased ~~modestly~~ compared to the same period in the prior ~~year reflecting~~year. Overall, premiums is not a significant driver of the ~~typical volumes expected for this product.~~Group Retirement results.

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 ~~FHLB funding agreements~~ and mutual funds under administration. Premiums and deposits included FHLB funding agreement in 2018.

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. Deposits from FHLB funding ~~agreements were~~agreement was excluded from net flows of Group Retirement in 2018, as net flows from ~~these~~this funding ~~agreements are~~agreement is not considered part of the metric to measure Group Retirement’s core recurring performance.

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

Three Months Ended March 31,

(in millions)

2018

2017
Premiums
$
6
$
9
Deposits

2,066

2,031
Premiums and deposits
$
2,072
$
2,040

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

Three Months Ended March 31,	2018		2017
Surrenders as a percentage of average reserves and mutual funds	10.2	%	10.2	%
(in millions)						2019		2018
Premiums					$	4	$	6
Deposits						2,059		2,066
Premiums and deposits					$	2,063	$	2,072

98AIG | First Quarter ~~2018~~2019 Form 10-Q93

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ITEM 2 | Business Segment Operations | Life and Retirement

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

Three Months Ended March 31,	2019		2018
Surrenders as a percentage of average reserves and mutual funds	11.8	%	10.2	%

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

		March 31,			December 31,			March 31,			December 31,
(in millions)		2018	^(a)		2017	^(a)		2019	^(a)		2018	^(a)
No surrender charge^(b)	$	68,492		$	69,006		$	68,942		$	65,500
Greater than 0% - 2%		690			1,087			1,086			650
Greater than 2% - 4%		1,256			1,344			898			1,115
Greater than 4%		5,728			5,270			5,893			5,868
Non-surrenderable		636			439			613			612
Total reserves	$	76,802		$	77,146		$	77,432		$	73,745

(a) Excludes mutual fund assets under administration of ~~$20.0~~$19.5 billion and ~~$20.2~~$17.9 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

(b) Group Retirement amounts in this category include General Account reserves of approximately $6.2 billion and $6.3 billion, at ~~both~~ March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, which are subject to 20 percent annual withdrawal ~~limitations.~~limitations at the participant level and General Account reserves of $4.8 billion and $4.7 billion at March 31, 2019 and December 31, 2018, respectively, which are subject to 20 percent annual withdrawal limitations at the plan level.

Group Retirement annuities are typically subject to a five- to seven-year surrender charge period, depending on the product. At March 31 ~~2018,~~, 2019, Group Retirement annuity reserves ~~declined~~increased compared to ~~December 31, 2017 primarily due to negative net flows, as well as less favorable equity market performance~~the same period in the ~~first quarter of 2018. The amount and proportion of annuity reserves that have no surrender charge decreased~~prior year primarily due to higher ~~group plan surrenders.~~equity market performance. The surrender rate in the first quarter of ~~2018 was unchanged~~2019 increased compared to the same period in the prior ~~year.~~year primarily due to higher surrenders, including approximately $566 million of large plan surrenders.

A discussion of the significant variances in premiums and deposits and net flows follows:

Group Retirement Premiums and Deposits and Net Flows

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Net flows ~~declined~~deteriorated and continued to be negative primarily due to ~~lower deposits from group plan acquisitions and~~ higher surrenders, including approximately ~~$405~~$566 million of large ~~group~~ plan ~~surrenders.~~surrenders, partially offset by increased other deposits. External factors including consolidation of healthcare providers and other employers in target markets continue to impact Group Retirement customer retention. Premiums and deposits in ~~the first quarter of~~ 2018 reflected deposits from ~~the~~ FHLB funding agreement, which were excluded from reported net flows.

94AIG | First Quarter ~~2018~~2019 Form 10-Q99

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ITEM 2 | Business Segment Operations | Life and Retirement

Life Insurance Results

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Revenues:
Premiums	$	379	$	384	(1)	%	$	395	$	379	4	%
Policy fees		377		360	5			373		377	(1)
Net investment income		293		260	13			291		293	(1)
Other income		12		9	33			14		12	17
Benefits and expenses:
Policyholder benefits and losses incurred		646		593	9			638		646	(1)
Interest credited to policyholder account balances		95		95	-			92		95	(3)
Amortization of deferred policy acquisition costs		86		76	13			67		86	(22)
Non deferrable insurance commissions		22		31	(29)			12		22	(45)
General operating expenses		154		161	(4)			141		154	(8)
Interest expense		6		3	100			7		6	17
Adjusted pre-tax income	$	52	$	54	(4)	%	$	116	$	52	123	%

Business and Financial Highlights

Life Insurance is focused on selling profitable new products through strategic channels to enhance future returns. ~~Premiums~~Results for the first quarter of 2019 reflect growth in term and ~~deposits~~international life and health premiums primarily due to the acquisition of Ellipse in the UK, offset by lower group benefit premiums. Adjusted pre-tax income increased in the first quarter of ~~2018 reflected growth~~2019 compared to the same period in ~~universal life deposits~~the prior year primarily due to favorable mortality experience, lower group benefits general operating expenses and ~~international life~~commissions, and ~~health premiums. Adjusted pre-tax income reflected the impact of the aging of the policyholder population base, partially offset by growth in invested assets~~favorable reserve and ~~higher alternative investment returns.~~

reinsurance refinements.

Life Insurance Adjusted Pre-Tax Income

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Adjusted pre-tax income increased primarily due to:

•favorable mortality experience in the ~~first quarter~~U.S.;

•continued decrease of ~~2018 was comparable to the same period in the prior year reflecting higher policyholder~~group benefits ~~in domestic individual life business primarily due to the aging of the policyholder population base.~~general operating expenses and commissions; and

~~This decrease was partially offset by increased net investment income primarily due to higher base portfolio income driven by growth in invested assets~~•favorable U.S. and ~~higher returns on alternative investments.~~international reserve and reinsurance refinements impacting ceded premiums, commissions and general operating expenses.

~~100~~AIG | First Quarter ~~2018~~2019 Form 10-Q95

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ITEM 2 | Business Segment Operations | Life and Retirement

Life Insurance GAAP Premiums and Premiums and Deposits

Premiums for Life Insurance represent amounts received on traditional life insurance policies, primarily term life, international life and health and group benefits. Premiums, excluding the effect of foreign exchange, ~~decreased five percent~~increased in the first quarter of ~~2018~~2019 compared to the same period in the prior ~~year, primarily due to lower premiums on group benefits policies partially offset by growth in international life and health, including assumed premiums on business distributed by Laya Healthcare.~~

year. 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.

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

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Premiums	$	379	$	384	$	395	$	379
Deposits		412		368		406		412
Other		178		158		194		178
Premiums and deposits	$	969	$	910	$	995	$	969

A discussion of the significant variances in premiums and deposits follows:

Life Insurance Premiums and Deposits

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Premiums and deposits, ~~grew by five percent,~~ excluding the effect of foreign exchange, increased primarily due to ~~growth in universal life~~increased term and international life and health premiums, including assumed premiums on business distributed by Laya Healthcare. These increases were partially offset by lower universal life deposits and lower premiums in individual health and group benefits ~~premiums.~~

as a result of the strategic decision to refocus the business at the end of 2016.

96AIG | First Quarter ~~2018~~2019 Form 10-Q~~101~~

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ITEM 2 | Business Segment Operations | Life and Retirement

Institutional markets Results

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Revenues:
Premiums	$	49	$	415	(88)	%	$	819	$	49	NM	%
Policy fees		41		44	(7)			41		41	-
Net investment income		187		140	34			211		187	13
Benefits and expenses:
Policyholder benefits and losses incurred		121		459	(74)			887		121	NM
Interest credited to policyholder account balances		72		58	24			89		72	24
Amortization of deferred policy acquisition costs		1		1	-			1		1	-
Non deferrable insurance commissions		7		8	(13)			8		7	14
General operating expenses		14		10	40			15		14	7
Interest expense		3		1	200			3		3	-
Adjusted pre-tax income	$	59	$	62	(5)	%	$	68	$	59	15	%

Business and Financial Highlights

Institutional Markets continued to opportunistically grow its assets under management, which drove the ~~continuous~~ increase in net investment spread over recent years. Product distribution continues to be strong and the business is focused on maintaining pricing discipline to achieve attractive risk adjusted ~~return.~~returns.

Institutional Markets Adjusted Pre-Tax Income

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

~~Adjusted pre-tax income in the first quarter of 2018 was comparable to the same period in the prior year. Decreases~~Increase in premiums and policyholder benefits were primarily due to ~~higher~~ pension risk transfer business written in the first quarter of ~~2017.~~2019. Growth in reserves and assets under management drove the increase in net investment income with similar impact to policyholder benefits and interest ~~credited~~credited.

Adjusted pre-tax income increased primarily due to:

•higher net investment income due to ~~policyholder account balances.~~higher invested assets resulting from growth in Pension Risk Transfer and GIC over 2018.

Partially offsetting these increases were:

•lower alternative investment returns.

~~102~~AIG | First Quarter ~~2018~~2019 Form 10-Q97

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ITEM 2 | Business Segment Operations | Life and Retirement

Institutional markets GAAP Premiums and Premiums and Deposits

Premiums for Institutional Markets primarily represent amounts received on pension risk transfer or structured settlement ~~annuities.~~annuities with life contingencies. Premiums ~~decreased~~increased in the first quarter of ~~2018~~2019 compared to the same period in the prior year primarily driven by the pension risk transfer business written in ~~2017.~~the first quarter of 2019.

Premiums and deposits for Institutional Markets is a non-GAAP financial measure that includes direct premiums as well as deposits received on ~~universal life insurance and~~ investment-type annuity contracts, including ~~GICs and~~GICs. Deposits also include FHLB funding agreements.

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

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Premiums	$	49	$	415	$	819	$	49
Deposits		1,408		150		286		1,408
Other		6		8		7		6
Premiums and deposits	$	1,463	$	573	$	1,112	$	1,463

A discussion of the significant variances in premiums and deposits follows:

Institutional Markets Premiums and Deposits

Three Months Ended March 31,

($ in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Premiums and deposits ~~increased primarily driven by~~decreased in the first quarter of 2019 due to $1.4 billion of FHLB agreements in ~~FHLB funding agreements, partially~~2018 offset by ~~lower sales in~~higher pension risk transfer and ~~structured settlements.~~a GIC issuance in the first quarter of 2019. Shift in premium and deposit mix is consistent with Institutional Markets’ strategy to opportunistically grow the portfolio.

98AIG | First Quarter ~~2018~~2019 Form 10-Q~~103~~

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ITEM 2 | Business Segment Operations | Other Operations

Other Opera tions

The following table presents Other Operations results:

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Adjusted pre-tax income (loss) by activities:
Fuji Life	$	-	$	16	NM	%
Parent and Other:
Corporate General operating expenses		(153)		(156)	2
Corporate general operating expenses							$	(183)	$	(153)	(20)	%
Interest expense		(238)		(244)	2			(303)		(238)	(27)
Other income, net		49		76	(36)
All other income (expense), net								99		49	102
Total Parent and Other		(342)		(324)	(6)			(387)		(342)	(13)
Adjusted pre-tax loss before eliminations		(342)		(308)	(11)
Consolidation, eliminations and other adjustments		11		48	(77)			(70)		11	NM
Adjusted pre-tax loss	$	(331)	$	(260)	(27)	%	$	(457)	$	(331)	(38)	%

~~2018~~2019 and ~~2017~~2018 Comparison

Parent and Other adjusted pre-tax loss increased ~~as a result~~compared to the same period in prior year due to higher interest expense driven by debt issuances totaling $2.5 billion at the end of ~~lower~~the first quarter of 2018, partially offset by higher income from ~~investments accounted for under the fair value option offset by investment income for equity securities. Interest expense decreased as a result of the timing of debt repayments.~~ investments.

~~Fuji Life was sold on April 30, 2017.~~

~~104~~AIG | First Quarter ~~2018~~2019 Form 10-Q99

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ITEM 2 | Business Segment Operations | Legacy Portfolio

Legacy Por tfolio

Legacy ~~Insurance Lines represent~~Portfolio represents exited or discontinued product lines, policy forms or distribution channels. Effective ~~in the first quarter of~~February 2018, ~~DSA~~our Bermuda-domiciled composite reinsurer, Fortitude Re, is included in our Legacy Portfolio.

~~Legacy General Insurance Run-Off Lines~~ ·— consists of asbestos and environmental exposures and other exposures within certain Property and Casualty profit centers no longer actively marketed, including excess workers’ compensation, environmental impairment liability, public entity liability, accident & health, physicians and surgeons professional liability, and various other workers’ compensation and general liability exposures.

Legacy Life and Retirement Run-Off Lines —- ~~include whole life, long-term care and exited accident & health product lines. Also includes~~Reserves consist of certain structured ~~settlement,~~settlements, pension risk transfer annuities and single premium immediate annuities written prior to April 2012. Also includes exposures to whole life, long-term care and exited accident & health product lines.

·Legacy General Insurance Run-Off Lines - Reserves consist of excess workers’ compensation, environmental exposures and exposures to other products within General Insurance that are no longer actively marketed. Also includes the remaining reserves in Eaglestone Reinsurance Company (Eaglestone).

·Legacy Investments – — ~~include~~Includes investment classes that we have placed into ~~run-off.~~run-off including holdings in direct investments as well as investments in global capital markets and global real estate.

BUSINESS STRATEGY

For Legacy ~~Insurance Lines,~~insurance lines, securing the interests of our policyholders and insureds is paramount. We have considered and continue to evaluate the following strategies for these lines:

• ~~Third party~~Third-party and affiliated reinsurance and retrocessions to improve capital efficiency

• Commutations of assumed reinsurance and direct policy buy-backs

• Enhance insured policyholder options and claims resolution strategies

• Enhanced asset liability management and expense management

For Legacy ~~Investments,~~investments, our business strategy is to maximize liquidity to AIG Parent and minimize book value impairments while sourcing for our insurance companies attractive assets for their portfolios.

SALE OF NON-CONTROLLING INTEREST IN FORTITUDE

Fortitude Re was established during the first quarter of 2018 in connection with a series of affiliated reinsurance transactions related to our Legacy Portfolio. Those reinsurance transactions were designed to consolidate most of our Legacy Insurance Run-Off Lines into a single legal entity. As of March 31, 2019, the affiliated transactions included the cession of approximately $31 billion of reserves from our Legacy Life and Retirement Run-Off Lines and approximately $4 billion of reserves from our Legacy General Insurance Run-Off Lines related to business written by multiple wholly-owned AIG subsidiaries. In the second quarter of 2018, we formed Fortitude Holdings to act as a holding company for Fortitude Re.

On November 13, 2018, we completed the sale of a 19.9 percent ownership interest in Fortitude Holdings to TCG, an affiliate of The Carlyle Group L.P. Fortitude Holdings owns 100 percent of the outstanding common shares of Fortitude Re and AIG has an 80.1 percent ownership interest in Fortitude Holdings.

The affiliated reinsurance transactions executed in the first quarter of 2018 with Fortitude Re resulted in prepaid insurance assets on the ceding subsidiaries’ balance sheets of approximately $2.5 billion (after-tax). These assets have been eliminated in AIG’s consolidated financial statements since the counterparties were wholly owned. In the event of a sale of a controlling interest in Fortitude Holdings, our Legacy Portfolio may recognize a loss for the portion of the unamortized balance of these assets and related deferred acquisition costs of $0.5 billion (after-tax) that are not recoverable, if any, in the period in which our interest in Fortitude Holdings becomes non-controlling. This loss would be incremental to any gain or loss recognized on the sale of our controlling interest in Fortitude Holdings.

100AIG | First Quarter ~~2018~~2019 Form 10-Q~~105~~

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ITEM 2 | Business Segment Operations | Legacy Portfolio

LEGACY PORTFOLIO RESULTS

Three Months Ended March 31,					Percentage						Percentage
(in millions)		2018		2017	Change			2019		2018	Change
Revenues:
Premiums	$	141	$	167	(16)	%	$	118	$	141	(16)	%
Policy fees		30		35	(14)			30		30	-
Net investment income		565		730	(23)			575		565	2
Other income (loss)		100		152	(34)			(17)		100	NM
Total adjusted revenues		836		1,084	(23)			706		836	(16)
Benefits and expenses:
Policyholder benefits and losses and loss adjustment
expenses incurred		506		482	5			432		506	(15)
Interest credited to policyholder account balances		59		63	(6)			54		59	(8)
Amortization of deferred policy acquisition costs		18		28	(36)			18		18	-
General operating and other expenses		100		127	(21)			85		100	(15)
Interest expense		8		42	(81)			5		8	(38)
Total benefits and expenses		691		742	(7)			594		691	(14)
Adjusted pre-tax income	$	145	$	342	(58)	%	$	112	$	145	(23)	%
Adjusted pre-tax income by type:
General Insurance Run-Off Lines	$	62	$	87	(29)	%	$	15	$	62	(76)	%
Life and Retirement Run-Off Lines		28		90	(69)			87		28	211
Legacy Investments		55		165	(67)			10		55	(82)
Adjusted pre-tax income	$	145	$	342	(58)	%	$	112	$	145	(23)	%
Selected Balance Sheet Data
Legacy Investments, net of related debt							$	2,548	$	2,779	(8)	%
Legacy General Insurance run-off reserves								5,432		5,926	(8)
Legacy Life and Retirement run-off reserves								37,262		37,793	(1)

Business and Financial Highlights

~~In February 2018,~~Legacy insurance lines, including those ceded to Fortitude Re, continue to run-off as anticipated for Legacy General Insurance and Legacy Life and Retirement Run-Off Lines. Legacy investments have been reduced significantly over the last several years declining from $6.7 billion at December 31, 2016 to $2.5 billion at March 31, 2019. The remaining Legacy investments primarily include structured credit junior notes for which we ~~used $2.6 billion of existing Legacy Portfolio cash~~have elected the fair value option and investment assets to capitalize DSA Re. These assets included approximately $1.6 billion resulting from an affiliated reinsurance transaction with Eaglestone Reinsurance Company. DSA Re has additional eligible capital under the Bermuda Monetary Authority capital framework in the form of $550 million in letter of credit agreements. In the first quarter of 2018, DSA Re disbursed tax sharing payments of $167 million to AIG Parent.real estate investments.

Legacy Portfolio Adjusted Pre-Tax Income

Three Months Ended March 31,

(in millions)

~~2018~~2019 and ~~2017~~2018 Comparison

Adjusted pre-tax income decreased due to:

•lower Legacy Life and Retirement earnings compared to the first quarter of 2017 due to lower net investment income and a refinement in reserves related to payout annuities, partially offset by modest mortality gains;

• ~~lower~~Lower Legacy General Insurance earnings compared to the first quarter of ~~2017~~2018 due to lower net investment ~~income;~~income and lower premiums driven by the continued run-off of the Legacy General Insurance portfolio; and

• ~~lower~~Lower Legacy Investment earnings compared to the first quarter of ~~2017~~2018 due to the continued decrease in net assets of the Legacy Investments ~~Portfolio,~~Portfolio.

These decreases were partially offset by higher Legacy Life and Retirement earnings compared to the first quarter of 2018 due to a refinement in reserves related to payout annuities in the first quarter of 2018, which ~~was primarily driven by~~did not impact the ~~sale~~first quarter of ~~the Life Settlements portfolio in 2017.~~2019.

~~106~~AIG | First Quarter ~~2018~~2019 Form 10-Q101

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ITEM 2 | Investments

Investments

Overview

Our investment strategies are tailored to the specific business needs of each operating unit. The investment objectives are driven by the respective operating segments and AIG Parent. The primary objectives are generation of investment income, preservation of capital, liquidity management and growth of surplus to support the insurance products. The majority of assets backing our insurance liabilities consist of fixed maturity securities.

Investment Highlights in the First Quarter of ~~2018~~2019

• A ~~slight rise~~drop in interest rates and ~~widening~~narrowing credit spreads ~~as well as the adoption of the Recognition and Measurement of Financial Assets and Financial Liabilities standard~~ ~~(Financial Instruments Recognition and Measurement Standard)~~ ~~on January 1, 2018, which resulted in the reclassification of unrealized gains in our equity securities to retained earnings,~~ resulted in a net unrealized ~~loss~~gain in our investment portfolio. Net unrealized gains in our available for sale portfolio ~~decreased~~increased to approximately ~~$8.6~~$9.6 billion as of March 31, ~~2018~~2019 from approximately ~~$13.9~~$3.6 billion as of December 31, ~~2017.~~2018.

• We continued to make investments in structured securities and other fixed maturity securities and increased lending activities in mortgage loans with favorable risk ~~versus~~compared to return characteristics to improve yields and increase net investment income.

• Higher investment returns in our hedge fund portfolio and equity securities due to robust equity market returns in the first quarter of 2019 and an increase in income from fixed maturity securities for which the fair value option was elected, compared to the same period in the prior year where returns were lower as a result of an increase in rates and widening spreads that occurred, as well as negative performance of our fair value option equity securities portfolio.

•During the first quarter of ~~2018,~~2019, we ~~reduced~~sold our ~~hedge fund portfolio by approximately $0.7 billion as a result~~remaining investment in People’s Insurance Company (Group) of ~~redemptions consistent with our planned reduction of exposure.~~China Limited and PICC Property & Casualty Company Limited.

• Blended investment yields on new investments were lower than blended rates on investments that were sold, matured or called.

•~~We sold our remaining interest in Arch Capital, which we received as part of the consideration for selling United Guaranty to Arch in 2016.~~

Investment Strategies

Investment strategies are based on considerations that include the local and general market conditions, liability duration and cash flow characteristics, rating agency and regulatory capital considerations, legal investment limitations, tax optimization and diversification.

Some of our key investment strategies are as follows:

• Fixed maturity securities held by the U.S. insurance companies included in General Insurance consist of a mix of instruments that meet our current risk-return, tax, liquidity, credit quality and diversification objectives.

• Outside of the U.S., fixed maturity securities held by General Insurance companies consist primarily of high-grade securities generally denominated in the currencies of the countries in which we operate.

• ~~While more of a focus is placed on asset-liability management in Life and Retirement companies, our~~Our fundamental strategy across all of our investment portfolios is to optimize the duration characteristics of the assets within a target range based on comparable liability characteristics, to the extent practicable.

• AIG Parent, included in Other Operations, actively manages its assets and liabilities in terms of products, counterparties and duration. AIG Parent’s liquidity sources are held primarily in the form of cash, short-term investments and publicly traded, investment-grade rated fixed maturity securities. Based upon an assessment of its immediate and longer-term funding needs, AIG Parent purchases publicly traded, investment-grade rated fixed maturity securities that can be readily monetized through sales or repurchase agreements. These securities allow us to diversify sources of liquidity while reducing the cost of maintaining sufficient liquidity.

Attribution of Net Investment Income to Operating Segments

Net investment income is attributed to our businesses based on internal models consistent with the nature of the underlying businesses.

For General Insurance — North America and International and Legacy General Insurance Run-Off Lines, we estimate investable funds based primarily on loss reserves and unearned premiums. The allocation of net investment income of the General Insurance companies to segments is calculated based on these estimated investable funds, consistent with the approximate duration of the liabilities and the required economic capital allocation for each ~~segment.~~segment

102AIG | First Quarter ~~2018~~2019 Form 10-Q~~107~~

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ITEM 2 | Investments

For Life and Retirement — Individual Retirement, Group Retirement, Life Insurance, and Institutional Markets and Legacy Life and Retirement Run-Off Lines, net investment income is attributed based on invested assets from segregated product line portfolios held in our Life and Retirement companies. All invested assets of the Life and Retirement companies in excess of liabilities are allocated based on estimates of required economic capital allocation for each segment.

Asset Liability Measurement

For the General Insurance companies, the duration of liabilities for long-tail casualty lines is greater than that of other lines. As a result, the investment strategy within the General Insurance companies focuses on growth of surplus and preservation of capital, subject to liability and other business considerations.

The General Insurance companies invest primarily in fixed maturity securities issued by corporations, municipalities and other governmental agencies and also invest in structured securities collateralized by, among other assets, residential and commercial real estate and commercial mortgage loans. While invested assets backing reserves of the General Insurance companies are primarily invested in conventional fixed maturity securities, we have continued to allocate a portion of our investment activity into asset classes that offer higher yields, particularly in the domestic operations. In addition, we continue to invest in both fixed rate and floating rate asset-backed investments for their risk-return attributes, as well as to manage our exposure to potential changes in interest rates. This asset diversification has maintained stable average yields while the overall credit ratings of our fixed maturity securities were largely unchanged. We expect to continue to pursue this investment strategy to meet the General Insurance companies’ liquidity, duration and credit quality objectives as well as current risk‑return and tax objectives.

In addition, a portion of the surplus of General Insurance ~~companies seek to enhance returns through selective investments~~is invested in a diversified portfolio of alternative ~~investments.~~investments which seeks to balance liquidity, volatility and growth. 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.

Fixed maturity securities of the General Insurance companies’ domestic operations, with an average duration of ~~4.2~~3.8 years, are currently comprised of corporate bonds, structured securities, taxable municipal bonds and government and agency bonds as well as tax-exempt securities, which provide attractive risk-adjusted after-tax returns. The majority of these high quality investments are rated A or higher based on composite ratings.

Fixed maturity securities held in the General Insurance companies’ foreign operations are of high quality, primarily rated A or higher based on composite ratings, with an average duration of ~~3.5~~3.4 years.

The investment strategy of the Life and Retirement companies is to maximize net investment income and portfolio value, subject to liquidity requirements, capital constraints, diversification requirements, asset‑liability management and available investment opportunities.

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' fundamental investment strategy is to maintain a diversified, high to medium quality portfolio of fixed maturity securities that, to the extent practicable, complements the characteristics of liabilities, including duration, which is a measure of sensitivity to changes in interest rates. The investment portfolio of each product line is tailored to the specific characteristics of its insurance liabilities, and as a result, certain portfolios are shorter in duration and others are longer in duration. An extended low interest rate environment may result in a lengthening of liability durations from initial estimates, primarily due to lower lapses, which may require us to further extend the duration of the investment portfolio.

The Life and Retirement companies invest 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.

In addition, the Life and Retirement companies seek to enhance returns through investments in a diversified portfolio of alternative investments. Although these alternative investments are subject to periodic earnings fluctuations, they have historically achieved yields in excess of the fixed maturity portfolio yields. While a diversified portfolio of alternative investments remains a fundamental component of the investment strategy of the Life and Retirement companies, we have reduced the overall size of the hedge fund portfolio, in light of changing market conditions and perceived market opportunities, and to continue reducing the size of the private equity portfolio.

Fixed maturity securities of the Life and Retirement companies domestic operations, with an average duration of ~~7.3~~7.2 years, are comprised primarily of taxable corporate bonds, as well as taxable municipal and government bonds, and agency and non‑agency structured securities. The majority of these investments are held in the available for sale portfolio and are rated investment grade based on its composite ratings.

AIG | First Quarter 2019 Form 10-Q103

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ITEM 2 | Investments

Fixed maturity securities held in the Life and Retirement companies foreign operations are of high quality, primarily rated A or higher based on composite ratings, with an average duration of ~~21.9~~18.2 years.

~~108AIG | First Quarter 2018 Form 10-Q~~

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~~ITEM 2 |~~ ~~Investments~~

NAIC Designations of Fixed Maturity Securities

The Securities Valuation Office (SVO) of the National Association of Insurance Companies (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. The NAIC has adopted revised rating methodologies for certain structured securities, including non-agency RMBS and CMBS, which are intended to enable a more precise assessment of the value of such structured securities and increase the accuracy in assessing expected losses to better determine the appropriate capital requirement for such structured securities. 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 U.S. Insurance Companies 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 a full description of the composite AIG credit ratings see ~~Investments –~~ Credit Ratings.

The following table presents the fixed maturity security portfolio categorized by NAIC Designation, at fair value:

March 31, 2018
March 31, 2019
(in millions)
																Total																		Total
						Total										Below								Total										Below
						Investment										Investment								Investment										Investment
NAIC Designation		1		2		Grade		3		4		5		6		Grade		Total		1		2		Grade		3		4		5		6		Grade		Total
Other fixed maturity securities	$	72,865	$	66,453	$	139,318	$	5,866	$	5,172	$	1,540	$	123	$	12,701	$	152,019	$	88,283	$	71,515	$	159,798	$	6,629	$	6,466	$	2,009	$	306	$	15,410	$	175,208
Mortgage-backed, asset-backed and collateralized		62,683		3,071		65,754		521		230		109		2,337		3,197		68,951		63,068		3,566		66,634		599		424		59		3,973		5,055		71,689
Total^*	$	135,548	$	69,524	$	205,072	$	6,387	$	5,402	$	1,649	$	2,460	$	15,898	$	220,970	$	151,351	$	75,081	$	226,432	$	7,228	$	6,890	$	2,068	$	4,279	$	20,465	$	246,897

* Excludes ~~$25.3~~$2.8 billion of fixed maturity securities for which no NAIC Designation is available because they are held in legal entities within U.S. Insurance Companies that do not require a statutory filing.

The following table presents the fixed maturity security portfolio categorized by composite AIG credit rating, at fair value:

March 31, 2018
March 31, 2019
(in millions)
														Total																Total
						Total								Below								Total								Below
						Investment						CCC and		Investment								Investment						CCC and		Investment
Composite AIG Credit Rating		AAA/AA/A		BBB		Grade		BB		B		Lower		Grade		Total		AAA/AA/A		BBB		Grade		BB		B		Lower		Grade		Total
Other fixed maturity securities	$	73,207	$	66,778	$	139,985	$	5,217	$	5,248	$	1,569	$	12,034	$	152,019	$	87,876	$	72,441	$	160,317	$	6,334	$	7,074	$	1,483	$	14,891	$	175,208
Mortgage-backed, asset-backed and collateralized		45,133		4,371		49,504		1,033		760		17,654		19,447		68,951		50,059		4,395		54,454		977		711		15,547		17,235		71,689
Total^*	$	118,340	$	71,149	$	189,489	$	6,250	$	6,008	$	19,223	$	31,481	$	220,970	$	137,935	$	76,836	$	214,771	$	7,311	$	7,785	$	17,030	$	32,126	$	246,897

Credit Ratings

At March 31, ~~2018,~~2019, approximately 89 percent of our fixed maturity securities were held by our domestic entities. Approximately 1716 percent of these securities were rated AAA by one or more of the principal rating agencies, and approximately 1615 percent were rated below investment grade or not rated. Our investment decision process relies primarily on internally generated fundamental analysis and internal risk ratings. Third-party rating services’ ratings and opinions provide one source of independent perspective for consideration in the internal analysis.

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 March 31, ~~2018,~~2019, approximately 2325 percent of such investments were either rated AAA or, on the basis of our internal analysis, were equivalent from a credit standpoint to securities rated AAA, and approximately 87 percent were below investment grade or not rated. Approximately 3529 percent of the foreign entities’ fixed maturity securities portfolio is comprised of sovereign fixed maturity securities supporting policy liabilities in the country of issuance.

104AIG | First Quarter ~~2018~~2019 Form 10-Q~~109~~

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ITEM 2 | Investments

Composite AIG Credit Ratings

With respect to our fixed maturity securities, the credit ratings in the table below and in subsequent tables reflect: (a) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the rating assigned by the NAIC SVO (over 99 percent of total fixed maturity securities), or (b) our equivalent 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 a discussion of credit risks associated with Investments see Enterprise Risk Management.

The following table presents the composite AIG credit ratings of our fixed maturity securities calculated on the basis of their fair value:

	Available for Sale				Other				Total				Available for Sale				Other				Total
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2018		2017		2018		2017		2019		2018		2019		2018		2019		2018
Rating:
Other fixed maturity
securities
AAA	$	11,639	$	11,644	$	2,633	$	2,656	$	14,272	$	14,300	$	11,303	$	11,170	$	2,713	$	2,619	$	14,016	$	13,789
AA		28,523		29,560		206		212		28,729		29,772		28,959		27,766		130		106		29,089		27,872
A		43,890		45,049		1,697		1,745		45,587		46,794		43,846		40,142		1,424		1,356		45,270		41,498
BBB		69,513		70,636		79		138		69,592		70,774		72,395		69,564		303		300		72,698		69,864
Below investment grade		13,089		13,173		19		17		13,108		13,190		15,372		14,511		6		-		15,378		14,511
Non-rated		1,052		1,073		-		-		1,052		1,073		1,395		1,333		-		-		1,395		1,333
Total	$	167,706	$	171,135	$	4,634	$	4,768	$	172,340	$	175,903	$	173,270	$	164,486	$	4,576	$	4,381	$	177,846	$	168,867
Mortgage-backed, asset-
backed and collateralized
AAA	$	29,659	$	30,306	$	764	$	818	$	30,423	$	31,124	$	28,564	$	28,859	$	545	$	481	$	29,109	$	29,340
AA		8,509		8,158		763		610		9,272		8,768		12,909		12,019		885		911		13,794		12,930
A		7,539		7,760		374		382		7,913		8,142		6,927		6,964		288		290		7,215		7,254
BBB		4,269		4,414		168		163		4,437		4,577		4,230		4,058		165		152		4,395		4,210
Below investment grade		16,218		17,194		5,681		6,004		21,899		23,198		12,266		12,923		4,947		5,096		17,213		18,019
Non-rated		14		25		13		27		27		52		35		82		105		104		140		186
Total	$	66,208	$	67,857	$	7,763	$	8,004	$	73,971	$	75,861	$	64,931	$	64,905	$	6,935	$	7,034	$	71,866	$	71,939
Total
AAA	$	41,298	$	41,950	$	3,397	$	3,474	$	44,695	$	45,424	$	39,867	$	40,029	$	3,258	$	3,100	$	43,125	$	43,129
AA		37,032		37,718		969		822		38,001		38,540		41,868		39,785		1,015		1,017		42,883		40,802
A		51,429		52,809		2,071		2,127		53,500		54,936		50,773		47,106		1,712		1,646		52,485		48,752
BBB		73,782		75,050		247		301		74,029		75,351		76,625		73,622		468		452		77,093		74,074
Below investment grade		29,307		30,367		5,700		6,021		35,007		36,388		27,638		27,434		4,953		5,096		32,591		32,530
Non-rated		1,066		1,098		13		27		1,079		1,125		1,430		1,415		105		104		1,535		1,519
Total	$	233,914	$	238,992	$	12,397	$	12,772	$	246,311	$	251,764	$	238,201	$	229,391	$	11,511	$	11,415	$	249,712	$	240,806

~~110~~AIG | First Quarter ~~2018~~2019 Form 10-Q105

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ITEM 2 | Investments

Available‑for‑Sale Investments

The following table presents the fair value of our available‑for‑sale securities:

		Fair Value at		Fair Value at		Fair Value at		Fair Value at
		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Bonds available for sale:
U.S. government and government sponsored entities	$	2,833	$	2,656	$	3,401	$	3,260
Obligations of states, municipalities and political subdivisions		17,811		18,644		15,922		16,001
Non-U.S. governments		15,723		15,659		15,274		14,525
Corporate debt		131,339		134,176		138,673		130,700
Mortgage-backed, asset-backed and collateralized:
RMBS		35,889		37,234		34,004		34,377
CMBS		13,609		13,841		13,161		12,701
CDO/ABS		16,710		16,782		17,766		17,827
Total mortgage-backed, asset-backed and collateralized		66,208		67,857		64,931		64,905
Total bonds available for sale^(a)		233,914		238,992
Equity securities available for sale:
Common stock		-		1,061
Preferred stock		-		533
Mutual funds		-		114
Total equity securities available for sale^(b)		-		1,708
Total	$	233,914	$	240,700
Total bonds available for sale^*					$	238,201	$	229,391

~~(a)~~* At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled ~~$30.4~~$29.1 billion and ~~$31.5~~$28.8 billion, respectively.

(b) As a result of the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, equity securities are no longer classified and accounted for as available for sale securities.

The following table presents the fair value of our aggregate credit exposures to non-U.S. governments for our fixed maturity securities:

	March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Japan	$	1,878	$	1,791	$	1,687	$	1,645
Canada						1,067		1,038
France						923		905
Germany		1,625		1,623		837		783
United Kingdom		1,102		1,214		811		794
Canada		1,035		1,051
France		936		923
United Arab Emirates						491		454
Netherlands		577		608		485		518
Mexico		497		513
Indonesia		493		493		475		453
United Arab Emirates		430		432
Norway		401		409		408		380
Singapore						399		373
Other		6,803		6,659		7,742		7,227
Total	$	15,777	$	15,716	$	15,325	$	14,570

106AIG | First Quarter ~~2018~~2019 Form 10-Q~~111~~

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ITEM 2 | Investments

The following table presents the fair value of our aggregate European credit exposures by major sector for our fixed maturity securities:

	March 31, 2018												March 31, 2019
						Non-					December 31,							Non-					December 31,
				Financial		Financial		Structured				2017				Financial		Financial		Structured				2018
(in millions)		Sovereign		Institution		Corporates		Products		Total		Total		Sovereign		Institution		Corporates		Products		Total		Total
Euro-Zone countries:
France	$	936	$	1,381	$	2,018	$	-	$	4,335	$	4,169	$	923	$	1,707	$	1,833	$	-	$	4,463	$	4,442
Germany		1,625		196		2,056		1		3,878		3,803		837		169		2,478		-		3,484		3,246
Netherlands		577		916		1,148		49		2,690		2,868		485		950		1,100		99		2,634		2,571
Ireland														65		17		450		928		1,460		1,494
Belgium		222		115		900		-		1,237		1,216		243		124		808		-		1,175		1,175
Ireland		11		-		504		618		1,133		1,071
Spain		-		166		836		-		1,002		1,009		42		232		834		-		1,108		1,068
Italy		-		254		488		-		742		694		1		90		392		-		483		507
Luxembourg		-		36		389		-		425		436		-		27		352		4		383		377
Finland		51		46		70		-		167		163		117		50		65		-		232		228
Austria		29		14		-		-		43		37		164		9		5		-		178		156
Other - EuroZone		705		42		238		-		985		1,013		579		77		230		-		886		929
Total Euro-Zone	$	4,156	$	3,166	$	8,647	$	668	$	16,637	$	16,479	$	3,456	$	3,452	$	8,547	$	1,031	$	16,486	$	16,193
Remainder of Europe:
United Kingdom	$	1,102	$	3,414	$	8,333	$	3,642	$	16,491	$	16,975	$	811	$	3,835	$	8,682	$	3,145	$	16,473	$	16,139
Switzerland		47		1,149		1,030		-		2,226		2,299		31		1,173		865		-		2,069		2,010
Sweden		117		385		165		-		667		658		149		377		120		-		646		639
Norway		401		47		158		-		606		618		408		39		149		-		596		566
Russian Federation		124		24		149		-		297		284		114		28		153		-		295		240
Other - Remainder of Europe		147		53		98		-		298		287		132		56		142		-		330		271
Total - Remainder of Europe	$	1,938	$	5,072	$	9,933	$	3,642	$	20,585	$	21,121	$	1,645	$	5,508	$	10,111	$	3,145	$	20,409	$	19,865
Total	$	6,094	$	8,238	$	18,580	$	4,310	$	37,222	$	37,600	$	5,101	$	8,960	$	18,658	$	4,176	$	36,895	$	36,058

Investments in Municipal Bonds

At March 31, ~~2018,~~2019, the U.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality tax-exempt bonds with 9391 percent of the portfolio rated A or higher.

~~112~~AIG | First Quarter ~~2018~~2019 Form 10-Q107

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ITEM 2 | Investments

The following table presents the fair values of our available for sale U.S. municipal bond portfolio by state and municipal bond type:

March 31, 2018

March 31, 2019

State

Local

Total

December 31,

State

Local

Total

December 31,

General

Fair

2017

General

Fair

2018

(in millions)

Obligation

Revenue

Value

Total Fair Value

Obligation

Revenue

Value

Total Fair Value

State:

New York

485

2,843

3,348

3,562

419

2,633

3,070

3,134

California

692

411

2,062

3,165

3,275

695

396

1,909

3,000

2,813

Texas

193

668

1,084

1,945

1,992

152

568

898

1,618

1,692

Illinois

107

124

764

995

908

148

856

1,057

979

Massachusetts

468

477

945

966

379

374

753

811

Virginia

501

511

541

Florida

582

642

666

455

505

542

Virginia

613

621

639

Ohio

425

494

485

Washington

250

347

604

650

190

261

451

473

Ohio

428

519

575

Georgia

104

257

448

445

Washington D.C.

448

484

497

323

334

340

Georgia

116

260

463

566

Pennsylvania

158

274

454

418

126

193

332

353

Maryland

164

107

362

380

104

277

332

All other states^(a)

377

317

2,570

3,264

3,550

373

277

2,422

3,072

3,061

Total^(b)(c)

2,740

2,212

12,859

17,811

18,644

2,327

2,008

11,587

15,922

16,001

(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.

Investments in Corporate Debt Securities

The following table presents the industry categories of our available for sale corporate debt securities:

		Fair Value at		Fair Value at		Fair Value at		Fair Value at
Industry Category		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Financial institutions:
Money Center/Global Bank Groups	$	9,355	$	9,295	$	10,175	$	9,602
Regional banks — other		603		562		675		630
Life insurance		3,482		3,603		3,286		3,201
Securities firms and other finance companies		375		386		401		389
Insurance non-life		4,698		4,893		5,007		4,648
Regional banks — North America		6,090		6,320		6,836		6,263
Other financial institutions		9,828		9,906		11,301		9,966
Utilities		18,177		18,655		17,984		17,542
Communications		9,376		9,756		9,469		9,249
Consumer noncyclical		16,113		15,873		17,797		16,410
Capital goods		7,606		7,797		7,614		7,237
Energy		12,841		13,171		13,006		12,350
Consumer cyclical		8,402		9,166		9,965		9,498
Basic		5,902		6,123		5,465		5,271
Other		18,491		18,670		19,692		18,444
Total^*	$	131,339	$	134,176	$	138,673	$	130,700

* At both March 31, ~~2018~~2019 and December 31, ~~2017, respectively,~~2018, approximately ~~90 and 91~~89 percent of these investments were rated investment grade.

Our investments in the energy category, as a percentage of total investments in available-for-sale fixed maturities, was 5.5 percent and 5.4 percent at ~~both~~ March 31, ~~2018~~2019 and December 31, ~~2017.~~2018, 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.

108AIG | First Quarter ~~2018~~2019 Form 10-Q~~113~~

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ITEM 2 | Investments

Investments in RMBS

The following table presents AIG’s RMBS available for sale securities:

		Fair Value at		Fair Value at		Fair Value at		Fair Value at
		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Agency RMBS	$	14,061	$	15,002	$	15,273	$	14,695
Alt-A RMBS		11,382		11,624		9,524		9,780
Subprime RMBS		2,920		2,947		2,855		2,982
Prime non-agency		6,725		6,891		5,652		6,211
Other housing related		801		770		700		709
Total RMBS^(a)(b)	$	35,889	$	37,234	$	34,004	$	34,377

(a) Includes approximately ~~$12.0~~$10.0 billion and ~~$12.3~~$10.3 billion at March 31, ~~2018,~~2019, and December 31, ~~2017,~~2018, respectively, of certain RMBS that had experienced deterioration in credit quality since their origination. For additional discussion on Purchased Credit Impaired (PCI) Securities see Note ~~5 to the Condensed Consolidated Financial Statements.~~6.

(b) The weighted average expected life was six years at ~~both~~ March 31, ~~2018~~2019 and seven years at December 31 ~~2017.~~2018.

Our underwriting practices for investing in RMBS, other asset‑backed securities (ABS) and CDOs 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 our CMBS available for sale securities:

		Fair Value at		Fair Value at		Fair Value at		Fair Value at
		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
CMBS (traditional)	$	10,896	$	11,092	$	10,358	$	9,975
Agency		2,077		2,093		2,123		2,047
Other		636		656		680		679
Total	$	13,609	$	13,841	$	13,161	$	12,701

The fair value of CMBS holdings remained stable during the first quarter of ~~2018.~~2019. 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 CDOs

The following table presents our CDO available for sale securities by collateral type:

		Fair value at		Fair value at		Fair value at		Fair value at
		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Collateral Type:
Bank loans (CLO)	$	7,997	$	8,112	$	8,450	$	8,164
Other		71		94		53		56
Total	$	8,068	$	8,206	$	8,503	$	8,220

~~Commercial Mortgage Loans~~

~~At March 31, 2018, we had direct commercial mortgage loan exposure of $29.7 billion. All commercial mortgage loans were current or performing according to their restructured terms.~~

~~114~~AIG | First Quarter ~~2018~~2019 Form 10-Q109

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ITEM 2 | Investments

Commercial Mortgage Loans

At March 31, 2019, we had direct commercial mortgage loan exposure of $33.7 billion. All commercial mortgage loans were current or performing according to their restructured terms.

The following table presents the commercial mortgage loan exposure by location and class of loan based on amortized cost:

	Number															Percent		Number															Percent
	of	Class														of		of	Class														of
(dollars in millions)	Loans	Apartments			Offices		Retail	Industrial		Hotel			Others		Total			Loans	Apartments			Offices		Retail	Industrial		Hotel			Others		Total
March 31, 2018
March 31, 2019
State:
New York	96	$	1,721	$	3,607	$	543	$	298	$	104	$	177	$	6,450	22	%	103	$	2,475	$	4,321	$	525	$	386	$	100	$	-	$	7,807	23	%
California	82		437		1,035		298		300		841		359		3,270	11		76		489		1,284		280		532		828		48		3,461	10
Texas	57		327		1,104		159		83		154		38		1,865	6		50		344		1,180		183		102		125		6		1,940	6
Massachusetts	21		714		421		409		-		-		26		1,570	5
New Jersey	41		704		46		428		41		28		32		1,279	4		46		1,130		45		407		41		28		33		1,684	5
Florida	81		353		82		433		226		18		68		1,180	4		88		400		159		586		223		218		35		1,621	5
Massachusetts																		14		647		242		549		26		-		-		1,464	4
Illinois	16		410		304		11		25		-		23		773	3		18		456		444		10		19		-		22		951	3
Washington D.C.																		12		401		309		-		-		18		-		728	2
Pennsylvania	25		76		22		575		47		26		-		746	3		25		81		21		553		47		25		-		727	2
Washington D.C.	12		327		358		-		-		19		-		704	2
Ohio	26		162		11		203		238		-		5		619	2		26		178		10		197		246		-		4		635	2
Other states	249		1,755		954		1,455		778		553		159		5,654	19		225		1,926		785		1,312		764		458		72		5,317	16
Foreign	74		1,804		804		699		537		638		1,107		5,589	19		81		3,534		1,091		1,011		603		727		364		7,330	22
Total^*	780	$	8,790	$	8,748	$	5,213	$	2,573	$	2,381	$	1,994	$	29,699	100	%	764	$	12,061	$	9,891	$	5,613	$	2,989	$	2,527	$	584	$	33,665	100	%
December 31, 2017
State:
New York	97	$	1,673	$	3,716	$	556	$	265	$	105	$	177	$	6,492	23	%
California	86		438		1,055		301		313		845		360		3,312	12
Texas	55		327		934		160		83		154		38		1,696	6
Massachusetts	21		701		384		410		-		-		27		1,522	5
New Jersey	42		667		46		486		41		28		32		1,300	4
Florida	81		319		84		435		227		19		69		1,153	4
Pennsylvania	25		74		22		577		47		26		-		746	3
Illinois	15		315		304		11		25		-		23		678	2
Ohio	26		163		11		205		240		-		5		624	2
Washington D.C.	11		232		359		-		-		19		-		610	2
Other states	253		1,790		964		1,466		696		564		160		5,640	20
Foreign	71		1,464		821		754		86		629		1,069		4,823	17
Total^*	783	$	8,163	$	8,700	$	5,361	$	2,023	$	2,389	$	1,960	$	28,596	100	%

December 31, 2018
State:
New York	98	$	2,009	$	4,082	$	512	$	393	$	100	$	-	$	7,096	22	%
California	78		490		1,308		283		535		831		48		3,495	11
Texas	53		344		1,256		185		102		125		5		2,017	6
New Jersey	45		1,049		45		422		41		28		33		1,618	5
Florida	87		358		159		589		224		218		35		1,583	5
Massachusetts	14		635		243		549		26		-		-		1,453	4
Illinois	18		456		444		11		19		-		22		952	3
Pennsylvania	25		80		21		567		47		25		-		740	2
Washington D.C.	12		401		311		-		-		19		-		731	2
Ohio	27		179		10		199		235		-		5		628	2
Other states	228		1,869		790		1,326		773		460		73		5,291	16
Foreign	79		3,320		1,201		1,002		679		717		359		7,278	22
Total^*	764	$	11,190	$	9,870	$	5,645	$	3,074	$	2,523	$	580	$	32,882	100	%

* Does not reflect allowance for credit losses.

For additional discussion on commercial mortgage loans see Note 7 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

~~Impairments~~

~~The following table presents impairments by investment type:~~

Three Months Ended March 31,

(in millions)

2018

2017
Other-than-temporary Impairments:

   Fixed maturity securities, available for sale

$
87
$
58
   Equity securities, available for sale^(a)

-

2
   Private equity funds and hedge funds

-

8
Subtotal

87

68
Other impairments:

   Investments in life settlements

-

41
   Real estate^(b)

10

52
Total

$
97
$
161

(a) Upon the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, equity securities are no longer required to be evaluated for other-than-temporary impairments.

110AIG | First Quarter ~~2018~~2019 Form 10-Q~~115~~

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ITEM 2 | Investments

~~(b)~~ Impairments ~~in 2017 include $35 million related to other assets that were sold.~~

The following table presents impairments by investment type:

Three Months Ended March 31,
(in millions)		2019		2018
Other-than-temporary Impairments:
Fixed maturity securities, available for sale	$	83	$	87
Other impairments:
Real estate		20		10
Total	$	103	$	97

Other-Than-Temporary Impairments

To determine other-than-temporary impairments, we use fundamental credit analyses of individual securities without regard to rating agency ratings. Based on this analysis, we expect to receive cash flows sufficient to cover the amortized cost of all below investment grade securities for which credit impairments were not recognized.

The following tables present other-than-temporary impairment charges recorded in earnings on fixed maturity securities, equity securities, private equity funds and hedge funds.

Other-than-temporary impairment charges by investment type and impairment type:

							Other Fixed		Equities/Other										Other Fixed
(in millions)	RMBS		CDO/ABS		CMBS		Maturity		Invested Assets^*			Total	RMBS		CDO/ABS		CMBS		Maturity			Total
Three Months Ended March 31, 2018
Three Months Ended March 31, 2019
Impairment Type:
Severity	$	-	$	-	$	-	$	-	$	-	$	-
Change in intent		-		-		-		49		-		49	$	-	$	-	$	-	$	3	$	3
Foreign currency declines		-		-		-		6		-		6		-		-		-		6		6
Issuer-specific credit events		15		2		6		9		-		32		6		1		6		58		71
Adverse projected cash flows		-		-		-		-		-		-		3		-		-		-		3
Total	$	15	$	2	$	6	$	64	$	-	$	87	$	9	$	1	$	6	$	67	$	83
Three Months Ended March 31, 2017
Three Months Ended March 31, 2018
Impairment Type:
Severity	$	-	$	-	$	-	$	-	$	-	$	-
Change in intent		-		-		-		1		-		1	$	-	$	-	$	-	$	49	$	49
Foreign currency declines		-		-		-		10		-		10		-		-		-		6		6
Issuer-specific credit events		12		-		15		20		10		57		15		2		6		9		32
Adverse projected cash flows		-		-		-		-		-		-		-		-		-		-		-
Total	$	12	$	-	$	15	$	31	$	10	$	68	$	15	$	2	$	6	$	64	$	87

* Includes other-than-temporary impairment charges on private equity funds, hedge funds and direct private equity investments. Upon the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, equity securities are no longer required to be evaluated for other-than-temporary impairments

We recorded other-than-temporary impairment charges in the ~~first quarters of~~three months ended March 31, 2019 and 2018 ~~and 2017~~ related to:

•· issuer-specific credit events;

•· securities that we intend to sell or for which it is more likely than not that we will be required to sell;

•· declines due to foreign exchange rates;

•· adverse changes in estimated cash flows on certain structured securities; and

•· securities that experienced severe market valuation declines.

In addition, impairments are recorded on real ~~estate and investments in life settlements.~~estate.

In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities that is not foreign-exchange related, we generally prospectively accrete into earnings the difference between the new amortized cost and the expected undiscounted recoverable value over the remaining life of the security. The accretion that was recognized for these securities in earnings was ~~$148~~$53 million and ~~$188~~$148 million in the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

For a discussion of our other-than-temporary impairment accounting policy see Note 6 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

~~116~~AIG | First Quarter ~~2018~~2019 Form 10-Q111

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ITEM 2 | Investments

The following table shows the aging of the pre-tax 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:

March 31, 2018		Less Than or Equal					Greater Than 20%					Greater Than 50%
March 31, 2019																					March 31, 2019	Less Than or Equal					Greater Than 20%					Greater Than 50%
		to 20% of Cost^(b)					to 50% of Cost^(b)					of Cost^(b)					Total					to 20% of Cost^(b)					to 50% of Cost^(b)					of Cost^(b)					Total
Aging^(a)			Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized
(dollars in millions)		Cost^(c)		Loss	Items^(e)		Cost^(c)		Loss	Items^(e)		Cost^(c)		Loss	Items^(e)		Cost^(c)		Loss^(d)	Items^(e)		Cost^(c)		Loss	Items^(e)		Cost^(c)		Loss	Items^(e)		Cost^(c)		Loss	Items^(e)		Cost^(c)		Loss^(d)	Items^(e)
Investment grade
bonds
0-6 months	$	50,268	$	1,165	6,405	$	360	$	126	7	$	-	$	-		$	50,628	$	1,291	6,412	$	19,705	$	296	2,837	$	60	$	15	3	$	7	$	6	2	$	19,772	$	317	2,842
7-11 months		9,864		364	1,140		-		-	-		-		-			9,864		364	1,140		6,367		155	851		-		-	-		-		-	-		6,367		155	851
12 months or more		13,024		740	1,547		68		20	13		37		23	12		13,129		783	1,572		31,763		1,008	3,894		45		13	13		17		11	5		31,825		1,032	3,912
Total	$	73,156	$	2,269	9,092	$	428	$	146	20	$	37	$	23	12	$	73,621	$	2,438	9,124	$	57,835	$	1,459	7,582	$	105	$	28	16	$	24	$	17	7	$	57,964	$	1,504	7,605
Below investment
grade bonds
0-6 months	$	4,838	$	119	2,248	$	51	$	15	32	$	9	$	6	7	$	4,898	$	140	2,287	$	6,643	$	121	1,867	$	446	$	158	32	$	8	$	6	11	$	7,097	$	285	1,910
7-11 months		369		24	270		17		5	13		-		-			386		29	283		347		13	119		50		12	10		-		-	-		397		25	129
12 months or more		1,858		122	407		218		59	32		17		9	4		2,093		190	443		2,088		115	709		229		53	24		24		16	11		2,341		184	744
Total	$	7,065	$	265	2,925	$	286	$	79	77	$	26	$	15	11	$	7,377	$	359	3,013	$	9,078	$	249	2,695	$	725	$	223	66	$	32	$	22	22	$	9,835	$	494	2,783
Total bonds
0-6 months	$	55,106	$	1,284	8,653	$	411	$	141	39	$	9	$	6	7	$	55,526	$	1,431	8,699	$	26,348	$	417	4,704	$	506	$	173	35	$	15	$	12	13	$	26,869	$	602	4,752
7-11 months		10,233		388	1,410		17		5	13		-		-			10,250		393	1,423		6,714		168	970		50		12	10		-		-	-		6,764		180	980
12 months or more		14,882		862	1,954		286		79	45		54		32	16		15,222		973	2,015		33,851		1,123	4,603		274		66	37		41		27	16		34,166		1,216	4,656
Total^(e)	$	80,221	$	2,534	12,017	$	714	$	225	97	$	63	$	38	23	$	80,998	$	2,797	12,137	$	66,913	$	1,708	10,277	$	830	$	251	82	$	56	$	39	29	$	67,799	$	1,998	10,388

(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 at March 31, ~~2018.~~2019.

(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.

Change in Unrealized Gains and Losses on Investments

The change in net unrealized gains and losses on investments in the first quarter of 2019 was primarily attributable to increases in the fair value of fixed maturity securities. For the first quarter of 2019, net unrealized gains related to fixed maturity securities increased by $6.0 billion due primarily to a decrease in rates and a narrowing of credit spreads.

The change in net unrealized gains and losses on investments in the first quarter of 2018 was primarily attributable to decreases in the fair value of fixed maturity securities. For the first quarter of 2018, net unrealized losses related to fixed maturity securities decreased by $5.0 billion due primarily to an increase in rates and a widening of credit spreads.

The change in net unrealized gains and losses on investments in the first quarter of 2017 was primarily attributable to increases in the fair value of fixed maturity securities. For the first quarter of 2017, net unrealized gains related to fixed maturity and equity securities increased by $0.9 billion due primarily to a decrease in rates and a narrowing of credit spreads.

For further discussion of our investment portfolio see also Note 56 to the Condensed Consolidated Financial Statements.

112AIG | First Quarter ~~2018~~2019 Form 10-Q~~117~~

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ITEM 2 | Investments

Net Realized Capital Gains and Losses

The following table presents the components of Net realized capital gains (losses):

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Sales of fixed maturity securities	$	10	$	155	$	(31)	$	10
Sales of equity securities		16		1		-		16
Other-than-temporary impairments:
Severity		-		-
Change in intent		(49)		(1)		(3)		(49)
Foreign currency declines		(6)		(10)		(6)		(6)
Issuer-specific credit events		(32)		(57)		(71)		(32)
Adverse projected cash flows		-		-		(3)		-
Provision for loan losses		(24)		6		(24)		(24)
Foreign exchange transactions		53		159		(37)		53
Variable annuity embedded derivatives, net of related hedges		147		(389)		(261)		147
All other derivatives and hedge accounting		(225)		13		(72)		(225)
Impairments on investments in life settlements		-		(41)
Other		91		49		62		91
Net realized capital losses	$	(19)	$	(115)	$	(446)	$	(19)

~~Net~~Higher net realized capital losses in the first quarter of ~~2018 were lower than~~2019 compared to the same period in the prior year due primarily to ~~lower~~higher derivative losses ~~which more than offset lower gains on the sales of securities~~ and ~~lower foreign exchange gains.~~ other-than-temporary impairment charges.

Net realized capital losses in the first quarter of 2018 were primarily related to other-than-temporary impairment charges and derivative losses, which were higher than the gains on sales of securities and foreign exchange gains.

Net realized capital losses in the first quarter of 2017 were primarily related to derivative and hedge accounting losses, and impairments, which were higher than the foreign exchange gains and the gains recognized on the sales of securities.

Variable annuity embedded derivatives, net of related hedges, reflected ~~gains in the first quarter of 2018 compared to~~ losses in the first quarter of ~~2017~~2019 compared to gains in the same period in the prior year primarily due to changes in the non-performance or “own credit” risk adjustment used in the valuation of the variable annuities with guaranteed minimum withdrawal benefits (GMWB) embedded derivative, which are not hedged as part of our economic hedging ~~program.~~program

For additional discussion of market risk management related to these product features see MD&A – Enterprise Risk Management – Insurance Risks – Life and Retirement ~~Companies’~~Companies Key Risks – Variable Annuity Risk Management and Hedging Programs in the ~~2017~~2018 Annual Report. For more information on the economic hedging target and the impact to pre-tax income of this program see Insurance Reserves – Life and Annuity Reserves and DAC – Variable Annuity Guaranteed Benefits and Hedging Results in this MD&A.

For further discussion of our investment portfolio see also Note 56 to the Condensed Consolidated Financial Statements.

~~118~~AIG | First Quarter ~~2018~~2019 Form 10-Q113

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ITEM 2 | Insurance Reserves

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:

	March 31, 2018						December 31, 2017						March 31, 2019						December 31, 2018
	Net liability for		Reinsurance		Gross liability		Net liability		Reinsurance		Gross liability		Net liability for		Reinsurance		Gross liability		Net liability for		Reinsurance		Gross liability
	unpaid losses		recoverable on		for unpaid		for unpaid		recoverable on		for unpaid		unpaid losses		recoverable on		for unpaid		unpaid losses		recoverable on		for unpaid
	and loss		unpaid losses and		losses and		losses and		unpaid losses and		losses and		and loss		unpaid losses and		losses and		and loss		unpaid losses and		losses and
	adjustment		loss adjustment		loss adjustment		loss adjustment		loss adjustment		loss adjustment		adjustment		loss adjustment		loss adjustment		adjustment		loss adjustment		loss adjustment
(in millions)	expenses		expenses		expenses		expenses		expenses		expenses		expenses		expenses		expenses		expenses		expenses		expenses
General Insurance:
U.S. Workers' Compensation
(net of discount)	$	5,366	$	4,892	$	10,258	$	5,690	$	4,974	$	10,664	$	4,507	$	5,648	$	10,155	$	4,772	$	5,318	$	10,090
U.S. Excess Casualty		4,647		4,071		8,718		4,802		4,053		8,855		4,604		4,596		9,200		4,715		4,576		9,291
U.S. Other Casualty		5,108		4,828		9,936		5,149		4,793		9,942		4,457		4,641		9,098		4,288		4,661		8,949
U.S. Financial Lines		5,030		1,960		6,990		5,104		1,962		7,066		5,225		1,971		7,196		5,315		1,960		7,275
U.S. Property and Special risks		5,041		975		6,016		5,410		968		6,378		5,961		2,738		8,699		6,534		2,748		9,282
U.S. Personal Insurance		1,444		194		1,638		1,380		194		1,574		1,498		1,005		2,503		1,706		1,001		2,707
Europe Casualty and Financial Lines		7,132		1,220		8,352		6,986		1,156		8,142
Europe Property and Special risks		2,010		667		2,677		2,022		632		2,654
Europe and Japan Personal Insurance		2,423		368		2,791		2,348		349		2,697
UK/Europe Casualty and Financial Lines														7,119		1,715		8,834		7,022		1,789		8,811
UK/Europe Property and Special risks														2,955		1,227		4,182		2,988		1,251		4,239
UK/Europe and Japan Personal Insurance														2,019		532		2,551		2,264		553		2,817
Other product lines		5,871		2,721		8,592		5,804		2,307		8,111		6,131		2,451		8,582		6,105		2,522		8,627
Unallocated loss adjustment expenses		1,960		1,281		3,241		1,974		1,258		3,232		1,894		1,301		3,195		1,834		1,307		3,141
Total General Insurance		46,032		23,177		69,209		46,669		22,646		69,315		46,370		27,825		74,195		47,543		27,686		75,229

Legacy Portfolio - Run-off Lines:
U.S. Long Tail Insurance lines
U.S. Run-off Long Tail Insurance lines
(net of discount)		4,312		3,694		8,006		4,465		3,675		8,140		3,823		3,657		7,480		3,862		3,689		7,551
Other run-off product lines		134		66		200		153		65		218		98		66		164		104		66		170
Unallocated loss adjusted expenses		379		113		492		370		111		481
Unallocated loss adjustment expenses														383		115		498		397		115		512
Total Legacy Portfolio - Run-off Lines		4,825		3,873		8,698		4,988		3,851		8,839		4,304		3,838		8,142		4,363		3,870		8,233

Other Operations (Blackboard)		30		161		191		28		211		239		38		121		159		43		134		177

Total	$	50,887	$	27,211	$	78,098	$	51,685	$	26,708	$	78,393	$	50,712	$	31,784	$	82,496	$	51,949	$	31,690	$	83,639

* Includes loss reserve discount of $1.9 billion and ~~$1.8~~$2.0 billion ~~for the three-month period ended~~as of March 31, ~~2018~~2019 and ~~year ended~~ December 31, ~~2017,~~2018, respectively. For discussion of loss reserve discount see Note 910 to the Condensed Consolidated Financial Statements.

PRIOR YEAR DEVELOPMENT

The following table summarizes incurred (favorable) unfavorable prior year development net of reinsurance by segment:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
General Insurance:
North America^*	$	(78)	$	(78)	$	(60)	$	(78)
International		(30)		102		(12)		(30)
Total General Insurance	$	(108)	$	24	$	(72)	$	(108)
Legacy Portfolio - Run-off Lines		(2)		(14)		(2)		(2)
Other Operations						-		-
Total prior year (favorable) unfavorable development	$	(110)	$	10	$	(74)	$	(110)

* Includes the amortization attributed to the deferred gain at inception from the NICO adverse development reinsurance agreement of ~~$62~~$58 million and ~~$41~~$62 million for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Consistent with our definition of APTI, ~~prior year development~~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 $9$1 million and ~~$11~~$9 million for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, and related changes in amortization of the deferred gain of ~~$(23)~~$28 million and ~~$(3)~~$(23) million over those same periods.

114AIG | First Quarter ~~2018~~2019 Form 10-Q~~119~~

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ITEM 2 | Insurance Reserves

Net Loss Development

In the first quarter of 2019, we recognized favorable prior year loss reserve development of $74 million. For North America, the favorable development was primarily driven by amortization of the deferred gain from the adverse development reinsurance agreement with NICO, favorable development in U.S. Property and Special Risks driven by favorable catastrophe activity, offset by adverse development in Excess Casualty. For International, the favorable development was driven by Europe and Japan Personal Insurance and Europe Property and Special Risks offset by adverse development in Europe Casualty and Financial Lines.

In the first quarter of 2018, we recognized favorable prior year loss reserve development of $110 million.For North America, the favorable development was primarily driven by amortization of the deferred gain from the adverse development reinsurance agreement with NICO. For International, the favorable development was driven by Europe and Japan Personal Insurance.

In the first quarter of 2017, we recognized adverse prior year loss reserve development of $10 million. We increased our loss reserves by $102 million as a result of the decision made by the UK Ministry of Justice to reduce the discount rate applied to lump-sum bodily injury payouts, known as the Ogden rate. This prior year loss reserve increase was almost entirely offset by the recognition of the amortization of the deferred gain from the adverse development reinsurance agreement with NICO and favorable development from U.S. Property and Special Risks of $35 million as a result of a reduction in catastrophe losses.

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:

Three Months Ended March 31, 2019
(in millions)								Total		2018		2017 & Prior
General Insurance North America:
U.S. Workers' Compensation							$	(19)	$	2	$	(21)
U.S. Excess casualty								17		-		17
U.S. Other casualty								(9)		-		(9)
U.S. Financial lines								(10)		-		(10)
U.S. Property and special risks								(46)		6		(52)
U.S. Personal insurance								9		(12)		21
Other product lines								(2)		-		(2)
Total General Insurance North America							$	(60)	$	(4)	$	(56)
General Insurance International:
UK/Europe casualty and financial lines							$	51	$	3	$	48
UK/Europe property and special risks								(33)		(2)		(31)
UK/Europe and Japan Personal insurance								(44)		(43)		(1)
Other product lines								14		(32)		46
Total General Insurance International							$	(12)	$	(74)	$	62

Legacy Portfolio - Run-off Lines								(2)		2		(4)

Total prior year (favorable) unfavorable development							$	(74)	$	(76)	$	2

Three Months Ended March 31, 2018
(in millions)		Total		2017		2016 & Prior		Total		2017		2016 & Prior
General Insurance North America:
U.S. Workers' Compensation	$	(20)	$	-	$	(20)	$	(20)	$	-	$	(20)
U.S. Excess casualty		(15)		-		(15)		(15)		-		(15)
U.S. Other casualty		(17)		(1)		(16)		(17)		(1)		(16)
U.S. Financial lines		(12)		(2)		(10)		(12)		(2)		(10)
U.S. Property and special risks		(69)		(63)		(6)		(69)		(63)		(6)
U.S. Personal insurance		57		56		1		57		56		1
Other product lines		(2)		1		(3)		(2)		1		(3)
Total General Insurance North America	$	(78)	$	(9)	$	(69)	$	(78)	$	(9)	$	(69)
General Insurance International:
Europe casualty and financial lines	$	1	$	1	$	-
Europe property and special risks		3		(3)		6
Europe and Japan Personal insurance		(40)		(15)		(25)
UK/Europe casualty and financial lines							$	1	$	1	$	-
UK/Europe property and special risks								3		(3)		6
UK/Europe and Japan Personal insurance								(40)		(15)		(25)
Other product lines		6		12		(6)		6		12		(6)
Total General Insurance International	$	(30)	$	(5)	$	(25)	$	(30)	$	(5)	$	(25)

Legacy Portfolio - Run-off Lines		(2)		(3)		1		(2)		(3)		1


Total prior year (favorable) unfavorable development	$	(110)	$	(17)	$	(93)	$	(110)	$	(17)	$	(93)

Three Months Ended March 31, 2017
(in millions)		Total		2016		2015 & Prior
General Insurance North America:
U.S. Workers' Compensation	$	(13)	$	-	$	(13)
U.S. Excess casualty		(21)		-		(21)
U.S. Other casualty		(16)		(5)		(11)
U.S. Financial lines		5		1		4
U.S. Property and special risks		(45)		(30)		(15)
U.S. Personal insurance		(4)		(10)		6
Other product lines		16		3		13
Total General Insurance North America	$	(78)	$	(41)	$	(37)
General Insurance International:
Europe casualty and financial lines	$	99	$	21	$	78
Europe property and special risks		26		29		(3)
Europe and Japan Personal insurance		-		(4)		4
Other product lines		(23)		(24)		1
Total General Insurance International	$	102	$	22	$	80

Legacy Portfolio - Run-off Lines		(14)		-		(14)


Total prior year (favorable) unfavorable development	$	10	$	(19)	$	29

~~120~~AIG | First Quarter ~~2018~~2019 Form 10-Q115

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ITEM 2 | Insurance Reserves

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. ~~These reclassifications are shown as development in the respective years in the tables above. This may affect the comparability of the data presented in our tables.~~

Significant Reinsurance Agreements

In the first quarter of 2017, we entered into an adverse development reinsurance agreement with NICO, ~~a subsidiary of Berkshire Hathaway Inc.,~~ 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 transaction resulted in a gain, which under U.S. 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 ~~2018,~~2019, see Part II, Item 7. MD&A – Enterprise Risk Management – Insurance Risks – General Insurance Companies’ Key Risks – Natural Catastrophe Risk in our ~~2017~~2018 Annual Report.

The table below shows the calculation of the deferred gain on the adverse development reinsurance agreement as of March 31, ~~2018~~2019 and as of December 31, ~~2017,~~2018, showing the effect of discounting of loss reserves and amortization of the deferred gain.

		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Gross Covered Losses
Covered reserves before discount	$	25,700	$	26,654	$	22,071	$	23,033
Inception to date losses paid		15,751		14,788		20,295		19,331
Attachment point		(25,000)		(25,000)		(25,000)		(25,000)
Covered losses above attachment point	$	16,451	$	16,442	$	17,366	$	17,364

Deferred Gain Development
Covered losses above attachment ceded to NICO (80%)	$	13,161	$	13,153	$	13,893	$	13,891
Consideration paid including interest		(10,188)		(10,188)		(10,188)		(10,188)
Pre-tax deferred gain before discount and amortization		2,973		2,965		3,705		3,703
Discount on ceded losses^(a)		(1,667)		(1,539)		(1,412)		(1,719)
Pre-tax deferred gain before amortization		1,306		1,426		2,293		1,984
Inception to date amortization of deferred gain at inception		(290)		(228)		(519)		(461)
Inception to date amortization attributed to changes in deferred gain^(b)		(3)		(31)		(161)		(141)
Deferred gain liability reflected in AIG's balance sheet	$	1,013	$	1,167	$	1,613	$	1,382

(a) For the period from inception to March 31, ~~2018,~~2019, the accretion of discount and a reduction in effective interest rates was offset by changes in estimates of the amount and timing of future recoveries under the ~~Adverse Development Reinsurance Agreement.~~adverse development reinsurance agreement.

(b) Excluded from our definition of APTI.

The following table presents the rollforward of activity in the deferred gain from the adverse development reinsurance agreement:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Balance at beginning of year net of discount	$	1,167	$	-
Gain at inception		-		1,116
Balance at beginning of year, net of discount					$	1,382	$	1,167
Unfavorable prior year reserve development ceded to NICO^(a)		8		11		2		8
Amortization attributed to deferred gain at inception^(b)		(62)		(41)		(58)		(62)
Amortization attributed to changes in deferred gain^(c)		28		(2)		(20)		28
Changes in discount on ceded loss reserves		(128)		(116)		307		(128)
Balance at end of period, net of discount	$	1,013	$	968	$	1,613	$	1,013

(a) Prior year reserve development ceded to NICO under the retroactive reinsurance agreement is deferred under U.S. GAAP.

(b) Represents amortization of the deferred gain recognized in APTI.

116AIG | First Quarter ~~2018~~2019 Form 10-Q~~121~~

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ITEM 2 | Insurance Reserves

The lines of business subject to this agreement have been the source of the majority of the prior year adverse development charges over the past several years. The agreement is expected to result in lower capital charges for reserve risks at our U.S. insurance subsidiaries. In addition, we would expect future net investment income to decline as a result of lower invested assets.

For a summary of significant reinsurers see Item 7. MD&A – Enterprise Risk Management – Insurance Operations Risks – General Insurance Companies Key Insurance Risks – Reinsurance Recoverable in our ~~2017~~2018 Annual Report.

LIFE AND ANNUITY reserves and dac

The following section provides discussion of life and annuity reserves and deferred policy acquisition costs.

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 GMWB are accounted for as embedded derivatives 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 swaption contracts, as well as fixed maturity securities with a fair value election.

For additional discussion of market risk management related to these product features see Enterprise Risk Management – Insurance Risks – Life and Retirement Companies Key Risks – Variable Annuity Risk Management and Hedging Programsin our ~~2017~~2018 Annual ~~Report~~Report..

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 U.S. GAAP valuation of the GMWB embedded derivatives primarily due to the following:

• The economic hedge target includes 100 percent of rider fees in present value calculations; the U.S. 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 U.S. 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 U.S. GAAP valuation, which reflects a market participant’s view of our claims-paying ability by incorporating an additional spread (the NPA spread) to the swap curve used to discount projected benefit cash flows. Because the discount rate includes the NPA spread and other explicit risk margins, the U.S. GAAP valuation is generally less sensitive to movements in interest rates and other market factors, and to changes from actuarial assumption updates, than the economic hedge target. For more information on our valuation methodology for embedded derivatives within policyholder contract deposits see Note 45 to the Condensed 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.

~~122~~AIG | First Quarter ~~2018~~2019 Form 10-Q117

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ITEM 2 | Insurance Reserves

The following table presents a reconciliation between the fair value of the U.S. GAAP embedded derivatives and the value of our economic hedge target:

		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Reconciliation of embedded derivatives and economic hedge target:
Embedded derivative liability	$	1,601	$	1,994	$	2,023	$	1,943
Exclude non-performance risk adjustment		(1,875)		(1,947)		(2,439)		(2,615)
Embedded derivative liability, excluding NPA		3,476		3,941		4,462		4,558
Adjustments for risk margins and differences in valuation		(1,450)		(1,557)		(2,485)		(2,377)
Economic hedge target liability	$	2,026	$	2,384	$	1,977	$	2,181

Impact on Pre-tax Income (Loss)

The impact on our pre-tax income (loss) of the 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 Other realized capital gains (losses). Realized capital 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 U.S. 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:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Change in fair value of embedded derivatives, excluding NPA	$	551	$	591	$	215	$	551
Change in fair value of variable annuity hedging portfolio:
Fixed maturity securities		(77)		11		96		(77)
Interest rate derivative contracts		(406)		(183)		293		(406)
Equity derivative contracts		74		(409)		(593)		74
Change in fair value of variable annuity hedging portfolio		(409)		(581)		(204)		(409)
Change in fair value of embedded derivatives excluding NPA, net of hedging portfolio		142		10		11		142
Change in fair value of embedded derivatives due to NPA spread		72		(185)		(163)		72
Change in fair value of embedded derivatives due to change in NPA volume		(144)		(203)		(13)		(144)
Total change due to NPA		(72)		(388)		(176)		(72)
Net impact on pre-tax income (loss)	$	70	$	(378)	$	(165)	$	70

By Consolidated Income Statement line
Net Investment Income	$	(77)	$	11
Net Realized capital gains (losses)		147		(389)
Net Impact on pre-tax income (loss)	$	70	$	(378)
Net investment income					$	96	$	(77)
Net realized capital gains (losses)						(261)		147
Net impact on pre-tax income (loss)					$	(165)	$	70

The net impact on pre-tax income from the GMWB embedded derivatives and related hedges in the first quarter of 2019 (excluding related DAC amortization) was primarily driven by losses from credit spread tightening and lower equity volatility on the economic hedge target and the impact of tighter credit spreads on the NPA spread. The net impact on pre-tax income from the GMWB and related hedges in the first quarter of 2018 (excluding related DAC amortization) was primarily driven by gains from the impact of widening credit spreads on the NPA spread, higher interest rates and equity market volatility, partially offset by the impact on NPA volume of lower expected GMWB payments, which was driven by higher interest rates. The net impact on pre-tax income from the GMWB and related hedges in the first quarter of 2017 was primarily driven by losses from the impact of tightening credit spreads on the NPA spread, and the impact on the NPA volume of lower expected GMWB payments, driven by higher equity markets.

118AIG | First Quarter ~~2018~~2019 Form 10-Q~~123~~

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ITEM 2 | Insurance Reserves

The change in the fair value of the GMWB embedded derivatives, excluding NPA and update of actuarial assumptions, in the first quarter of 2019 reflected gains from higher equity markets, offset by losses from decreases in interest rates, tightening of credit spreads, and lower equity volatility. The change in the fair value of embedded derivatives, excluding NPA, in the first quarter of 2018 reflected gains from equity market volatility and reductions in risk margins due to higher interest rates, partially offset by losses from the related hedging ~~portfolio. The change in the fair value of embedded derivatives, excluding NPA, in the first quarter of 2017 was largely offset by the related hedging portfolio.~~portfolio.

Fair value gains or losses in the hedging portfolio are typically not fully offset by increases or decreases in liabilities on a U.S. GAAP basis, due to the NPA and other risk margins used for U.S. GAAP valuation that cause the embedded derivatives to be less sensitive to changes in market rates than the hedge portfolio. On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the decrease in the economic hedge target, as discussed below.

Change in Economic Hedge Target

The decrease in the economic hedge target liability in the first quarter of ~~2018~~2019 was primarily due to ~~widening credit spreads,~~ higher equity markets, offset by lower interest rates and ~~equity market volatility.~~tightening of credit spreads.

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 ~~derivatives,~~derivative valuation under U.S. 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 fixed maturity securities, primarily corporate bonds for which the fair value option has been elected, 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 the first quarter of 2019 reflected gains due to decreases in interest rates, and tightening of credit spreads. The change in the fair value of the corporate bond hedging program in the first quarter of 2018 reflected losses due to increases in interest rates and widening of credit spreads, ~~while the first quarter of 2017 had a small gain, due to tightening of credit spreads.~~ The change in the fair value of the hedging bonds, which is excluded from the adjusted pre-tax income of the Individual Retirement and Group Retirement segments, is reported in net investment income on the Consolidated Statements of Income (Loss).

• Changes in the fair value of interest rate derivative contracts, which included swaps, swaptions and futures, resulted in ~~net~~gains driven by lower interest rates in the first quarter of 2019 compared to losses in the first ~~quarters~~quarter of 2018 ~~and 2017~~which was driven by higher interest rates.

• The change in the fair value of equity derivative contracts, which included futures and options, reflected ~~gains~~losses in the first quarter of ~~2018~~2019 compared to ~~losses in the~~gains in the same period in the prior year, which varied based on the relative change in equity market returns in the respective periods.

DAC

The following table summarizes the major components of the changes in DAC, including VOBA, within the Life and Retirement companies, excluding DAC of the Legacy Portfolio:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Balance, beginning of year	$	7,637	$	7,571	$	9,133	$	7,637
Acquisition costs deferred		249		239		336		249
Amortization expense:
Related to realized capital gains and losses		(27)		53		93		(27)
All other operating amortization		(246)		(228)		(200)		(246)
Increase (decrease) in DAC due to foreign exchange		12		4		7		12
Change related to unrealized depreciation (appreciation) of investments		564		49		(781)		564
Balance, end of period^*	$	8,189	$	7,688	$	8,588	$	8,189

* DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments was ~~$8.9~~$9.6 billion and ~~$8.4~~$8.9 billion at March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

~~124~~AIG | First Quarter ~~2018~~2019 Form 10-Q119

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ITEM 2 | Insurance Reserves

DAC and Reserves Related to Unrealized Appreciation of Investments

DAC and Reserves for universal life and investment-type products (collectively, 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 (OCI) as if securities available for sale had been sold at their stated aggregate fair value and the proceeds reinvested at current yields (shadow Investment-Oriented Adjustments). 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 (shadow Loss Adjustments) with an offset to OCI to be recorded.

Shadow adjustments 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, shadow adjustments 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 interest rates ~~increased~~decreased in the first quarter of ~~2018,~~2019, which resulted in a ~~$4.1~~$5.2 billion ~~decrease~~increase in the unrealized appreciation of fixed maturity securities held to support businesses in the Life and Retirement companies at March 31, ~~2018~~2019 compared to December 31, ~~2017.~~2018. At March 31, ~~2018,~~2019, the shadow Investment-Oriented Adjustments reflected ~~increases~~decreases in DAC and unearned revenues and ~~a decrease~~an increase in future policy benefit liabilities compared to December 31, ~~2017,~~2018, while the shadow Loss Adjustments reflected ~~a decrease~~an increase in future policy benefit ~~liabilities~~.liabilities.

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 policy funds, and separate account liabilities, as well as Retail Mutual Funds and Group Retirement mutual fund assets under administration:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Individual Retirement
Balance at beginning of period, gross	$	138,571	$	129,321	$	132,729	$	138,571
Premiums and deposits		4,358		3,382		4,186		4,358
Surrenders and withdrawals		(3,130)		(2,874)		(3,222)		(3,130)
Death and other contract benefits		(900)		(803)		(831)		(900)
Subtotal		328		(295)		133		328
Change in fair value of underlying assets and reserve accretion, net of
policy fees		(1,938)		2,377		5,763		(1,938)
Cost of funds*		378		382		403		378
Other reserve changes		(95)		(161)		55		(95)
Balance at end of period		137,244		131,624		139,083		137,244
Reinsurance ceded		(324)		(337)		(316)		(324)
Total Individual Retirement insurance reserves and mutual fund assets	$	136,920	$	131,287	$	138,767	$	136,920
Group Retirement
Balance at beginning of period, gross	$	97,306	$	88,622	$	91,685	$	97,306
Premiums and deposits		2,072		2,040		2,063		2,072
Surrenders and withdrawals		(2,467)		(2,288)		(2,781)		(2,467)
Death and other contract benefits		(151)		(134)		(157)		(151)
Subtotal		(546)		(382)		(875)		(546)
Change in fair value of underlying assets and reserve accretion, net of
policy fees		(270)		2,444		5,807		(270)
Cost of funds*		270		274		278		270
Other reserve changes		(6)		-		11		(6)
Balance at end of period		96,754		90,958		96,906		96,754
Total Group Retirement insurance reserves and mutual fund assets	$	96,754	$	90,958	$	96,906	$	96,754

120AIG | First Quarter ~~2018~~2019 Form 10-Q~~125~~

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ITEM 2 | Insurance Reserves

Life Insurance
Balance at beginning of period, gross	$	19,424	$	18,397	$	19,719	$	19,424
Premiums and deposits		884		856		908		884
Surrenders and withdrawals		(174)		(158)		(173)		(174)
Death and other contract benefits		(96)		(131)		(143)		(96)
Subtotal		614		567		592		614
Change in fair value of underlying assets and reserve accretion, net of
policy fees		(247)		(204)		(262)		(247)
Cost of funds*		95		95		93		95
Other reserve changes		(180)		(322)		69		(180)
Balance at end of period		19,706		18,533		20,211		19,706
Reinsurance ceded		(1,061)		(1,074)		(1,238)		(1,061)
Total Life Insurance reserves	$	18,645	$	17,459	$	18,973	$	18,645
Institutional Markets
Balance at beginning of period, gross	$	18,580	$	15,385	$	19,839	$	18,580
Premiums and deposits		1,463		573		1,112		1,463
Surrenders and withdrawals		(522)		(199)		(246)		(522)
Death and other contract benefits		(107)		(95)		(158)		(107)
Subtotal		834		279		708		834
Change in fair value of underlying assets and reserve accretion, net of
policy fees		61		56		205		61
Cost of funds*		72		58		89		72
Other reserve changes		32		37		(8)		32
Balance at end of period		19,579		15,815		20,833		19,579
Reinsurance ceded		(3)		(3)		(43)		(3)
Total Institutional Markets reserves	$	19,576	$	15,812	$	20,790	$	19,576
Total insurance reserves and mutual fund assets
Balance at beginning of period, gross	$	273,881	$	251,725	$	263,972	$	273,881
Premiums and deposits		8,777		6,851		8,269		8,777
Surrenders and withdrawals		(6,293)		(5,519)		(6,422)		(6,293)
Death and other contract benefits		(1,254)		(1,163)		(1,289)		(1,254)
Subtotal		1,230		169		558		1,230
Change in fair value of underlying assets and reserve accretion, net of
policy fees		(2,394)		4,673		11,513		(2,394)
Cost of funds*		815		809		863		815
Other reserve changes		(249)		(446)		127		(249)
Balance at end of period		273,283		256,930		277,033		273,283
Reinsurance ceded		(1,388)		(1,414)		(1,597)		(1,388)
Total insurance reserves and mutual fund assets	$	271,895	$	255,516	$	275,436	$	271,895

* Excludes amortization of deferred sales inducements.

Insurance reserves of Life and Retirement, as well as Retail Mutual Funds and Group Retirement mutual fund assets under administration, were comprised of the following balances:

		March 31,		December 31,		March 31,		December 31,
(in millions)		2018		2017		2019		2018
Future policy benefits	$	13,678	$	13,592	$	15,620	$	14,739
Policyholder contract deposits		133,419		130,735		140,919		137,718
Other policy funds		440		401		261		295
Separate account liabilities		88,635		90,819		86,851		79,960
Total insurance reserves		236,172		235,547
Total insurance reserves^*						243,651		232,712
Mutual fund assets		37,111		38,334		33,382		31,260
Total insurance reserves and mutual fund assets	$	273,283	$	273,881	$	277,033	$	263,972

* Excludes reserves related to the Legacy Portfolio.

~~126~~AIG | First Quarter ~~2018~~2019 Form 10-Q121

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ITEM 2 | Liquidity and Capital Resources

Liquidity and Capital Resources

Overview

Liquidity refers to the ability to generate sufficient cash resources to meet our payment obligations. It is defined as cash and unencumbered assets that can be monetized in a short period of time at a reasonable cost. We endeavor to manage our liquidity prudently through various risk committees, policies and procedures, and a stress testing and liquidity risk framework established by our Treasury group with oversight by Enterprise Risk Management (ERM). Our liquidity risk framework is designed to manage liquidity at both AIG Parent and its subsidiaries to meet our financial obligations for a minimum of six months under a liquidity stress scenario.

See Part II, Item 7. MD&A — Enterprise Risk Management — Risk Appetite, Limits, Identification, and Measurement ~~in the 2017 Annual Report~~ and Enterprise Risk Management — Liquidity Risk Management ~~below~~in the 2018 Annual Report for additional information.

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 minimum 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. Actual capital levels are monitored on a regular basis, and using ERM’s stress testing methodology, we evaluate the capital impact of potential macroeconomic, financial and insurance stresses in relation to the relevant capital constraints of both AIG and our insurance subsidiaries.

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. Additional collateral calls, deterioration in investment portfolios or reserve strengthening affecting statutory surplus, higher surrenders of annuities and other policies, downgrades in credit ratings, or catastrophic losses may result in significant additional cash or capital needs and loss of sources of liquidity and capital. In addition, regulatory and other legal restrictions could limit our ability to transfer funds freely, either to or from our subsidiaries.

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 and ~~share~~AIG Common Stock and/or warrant repurchases.

122AIG | First Quarter ~~2018~~2019 Form 10-Q~~127~~

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ITEM 2 | Liquidity and Capital Resources

LIQUIDITY AND CAPITAL RESOURCES ACTIVITY FOR the first quarter of ~~2018~~2019

Sources

AIG Parent Funding from ~~Subsidiaries~~^(a)Subsidiaries*

During the first quarter of ~~2018,~~2019, AIG Parent received ~~$696 million~~$1.0 billion in dividends from subsidiaries. Of this amount, ~~$310~~$522 million consisted of dividends in the form of cash and fixed maturity securities from our General Insurance companies and ~~$386~~$504 million consisted of dividends and loan repayments in the form of cash from our Life and Retirement companies.

AIG Parent also received a net amount of ~~$378~~$201 million in tax sharing payments in the form of cash and fixed maturity securities from our insurance businesses in the first quarter of ~~2018.~~2019. The tax sharing payments may be subject to further adjustment in future periods.

Preferred Stock Issuance

In March 2019, we issued 20,000 shares of Series A 5.85% Non-Cumulative Preferred Stock, with a par value of $5.00 per share and a liquidation preference of $25,000 per share, for net proceeds of approximately $485 million.

Debt Issuance

In March ~~2018,~~2019, we issued ~~$750~~$600 million aggregate principal amount of ~~4.200%~~4.250% Notes Due 2028; $1.0 billion aggregate principal amount of 4.750% Notes Due 2048; and $750 million aggregate principal amount of 5.750% Fixed-To-Floating Rate Series A-9 Junior Subordinated Debentures Due 2048 (Junior Subordinated Debentures). We intend to use the net proceeds from these offerings for general corporate purposes, including funding a portion of the consideration for the acquisition of Validus.

We will be required to redeem the Junior Subordinated Debentures at a redemption price equal to 101 percent of the principal amount of the Junior Subordinated Debentures, plus accrued and unpaid interest (i) if our acquisition of Validus is not consummated on or prior to September 21, 2018 (or such later date as extended by agreement under the agreement to purchase Validus) or (ii) if prior to such date the agreement to purchase Validus is terminated.2029.

Uses

Debt Reduction^(b)

We made repurchases of and repayments on debt instruments of approximately ~~$1.4 billion~~$597 million during the first quarter of ~~2018.~~2019. AIG Parent made interest payments on our debt instruments totaling ~~$260~~$225 million during the first quarter of ~~2018.~~2019.

Dividend

We paid a cash dividend of $0.32 per share on AIG Common Stock during the first quarter of ~~2018~~2019 totaling ~~$289~~$278 million.

~~Repurchase~~AIG Parent Funding to Subsidiaries

In February 2019, AIG Parent made a capital contribution of ~~Common Stock~~

~~We repurchased approximately 5~~$300 million ~~shares of AIG Common Stock during the first quarter of 2018, for an aggregate purchase price of approximately $298 million.~~to our General Insurance companies.

~~(a)~~* In April ~~2018,~~2019, we received ~~approximately $180~~$75 million in additional dividends in the form of cash from our General Insurance companies. These dividends had been declared during the first quarter of ~~2018.~~

(b) In April 2018, we announced that we will redeem all of our outstanding 8.000% Series A-7 Junior Subordinated Debentures and 8.625% Series A-8 Junior Subordinated Debentures on May 22, 2018, in each case for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest. As of April 20, 2018, €12,350,000 aggregate principal amount of the Series A-7 Junior Subordinated Debentures were outstanding and £5,500,000 aggregate principal amount of the Series A-8 Junior Subordinated Debentures were outstanding.

2019.

~~128~~AIG | First Quarter ~~2018~~2019 Form 10-Q123

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ITEM 2 | Liquidity and Capital Resources

Analysis of Sources and Uses of Cash

The following table presents selected data from AIG's Consolidated Statements of Cash Flows:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Sources:
Net cash provided by other investing activities	$	-	$	14,499
Changes in policyholder contract balances		2,909		320	$	1,434	$	2,909
Issuance of long-term debt		3,039		151		1,449		3,039
Issuance of Preferred Stock						485		-
Net cash provided by other financing activities						263		-
Total sources		5,948		14,970		3,631		5,948
Uses:
Net cash used in operating activities		(938)		(10,336)		(976)		(938)
Net cash used in other investing activities		(1,972)		-		(1,979)		(1,972)
Repayments of long-term debt		(1,327)		(602)		(589)		(1,327)
Purchases of AIG Common Stock		(298)		(3,585)		-		(298)
Dividends paid		(289)		(307)		(278)		(289)
Net cash used in other financing activities		(1,548)		(25)		-		(1,548)
Total uses		(6,372)		(14,855)		(3,822)		(6,372)
Effect of exchange rate changes on cash and restricted cash		58		(82)		12		58
Increase (decrease) in cash and restricted cash	$	(366)	$	33	$	(179)	$	(366)

The following table presents a summary of AIG’s Consolidated Statement of Cash Flows:

Three Months Ended March 31,
(in millions)		2018		2017		2019		2018
Summary:
Net cash provided by (used in) operating activities	$	(938)	$	(10,336)	$	(976)	$	(938)
Net cash provided by (used in) investing activities		(1,972)		14,499		(1,979)		(1,972)
Net cash provided by (used in) financing activities		2,486		(4,048)		2,764		2,486
Effect of exchange rate changes on cash and restricted cash		58		(82)		12		58
Increase (decrease) in cash and restricted cash		(366)		33		(179)		(366)
Cash and restricted cash at beginning of year		2,737		2,107		3,358		2,737
Change in cash of businesses held for sale		-		52		-		-
Cash and restricted cash at end of period	$	2,371	$	2,192	$	3,179	$	2,371

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 and operating expenses.

Interest payments totaled $315 million in the first quarter of 2019 compared to $357 million in the first quarter of ~~2018 compared to $354~~2018. Excluding interest payments, AIG had operating cash outflows of $661 million in the first quarter of ~~2017. Excluding interest payments, AIG had~~2019 compared to operating cash outflows of $581 million in the first quarter of 2018 compared to operating cash outflows of $10.0 billion in the first quarter of 2017. The operating cash outflow in the first quarter of 2017 was primarily due to payment for the adverse development reinsurance agreement entered into with NICO.

~~AIG | First Quarter 2018 Form 10-Q129~~

~~TABLE OF CONTENTS~~

2018.

~~ITEM 2~~ |~~Liquidity and Capital Resources~~

Investing Cash Flow Activities

Net cash used byin investing activities in the first quarter of ~~2018~~2019 was $2.0 billion compared to investing cash ~~inflows~~outflows of ~~$14.5~~$2.0 billion in the first quarter of ~~2017. The first quarter of 2017 included sales of certain investments to fund the adverse development reinsurance agreement entered into with NICO.~~2018.

124AIG | First Quarter 2019 Form 10-Q

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ITEM 2 |Liquidity and Capital Resources

Financing Cash Flow Activities

Net cash provided by financing activities in the first quarter of 2019 reflected:

•approximately $278 million in the aggregate to pay a dividend of $0.32 per share on AIG Common Stock;

•approximately $860 million in net inflows from the issuance and repayment of long-term debt; and

•approximately $485 million inflow from the issuance of preferred stock.

Net cash provided by financing activities in the first quarter of 2018 reflected:

• approximately $289 million in the aggregate to pay a dividend of $0.32 per share on AIG Common Stock;

• approximately $298 million to repurchase approximately 5 million shares of AIG Common Stock; and

• approximately $1.7 billion in net inflows ~~from the issuance and repayment of long-term debt.~~

~~Net cash used in financing activities in the first quarter of 2017 reflected:~~

•~~approximately $307 million in the aggregate to pay a dividend of $0.32 per share on AIG Common Stock;~~

•~~approximately $3.6 billion to repurchase approximately 56 million shares of AIG Common Stock; and~~

•~~approximately $451 million in net outflows~~ from the issuance and repayment of long-term debt.

Liquidity and Capital Resources of AIG Parent and Subsidiaries

AIG Parent

As of March 31, ~~2018,~~2019, AIG Parent had approximately ~~$13.0~~$9.7 billion in liquidity sources. AIG Parent’s liquidity sources are primarily held in the form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities. Fixed maturity securities primarily include U.S. government and government sponsored entity securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain other highly rated securities. AIG Parent actively manages its assets and liabilities in terms of products, counterparties and duration. Based upon an assessment of funding needs, the liquidity sources can be readily monetized through sales or repurchase agreements or contributed as admitted assets to regulated insurance companies. AIG Parent liquidity is monitored through the use of various internal liquidity risk measures. 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, and operating expenses.

We believe that we have sufficient liquidity and capital resources to satisfy our reasonably foreseeable future requirements and meet our obligations to our creditors, debt-holders and insurance company subsidiaries. We expect to access the debt and preferred equity markets from time to time to meet funding requirements as needed.

We utilize our capital resources to support our businesses, with the majority of capital allocated to our insurance operations. Should we have or generate more capital than is needed to support our business strategies (including organic growth or acquisition opportunities) or mitigate risks inherent to our business, we may develop plans to distribute such capital to shareholders via dividends or ~~share~~AIG Common Stock repurchase authorizations or deploy such capital towards liability management.

In the normal course, it is expected that a portion of the capital released by our insurance operations, by our other operations or through the utilization of AIG’s deferred tax assets may be available to support our business strategies, for distribution to shareholders or for liability management.

In developing plans to distribute capital, AIG considers a number of factors, including, but not limited to: AIG’s business and strategic plans, expectations for capital generation and utilization, AIG’s funding capacity and capital resources in comparison to internal benchmarks, as well as rating agency expectations, regulatory standards and internal stress tests for capital.

~~130AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 2~~ |~~Liquidity and Capital Resources~~

The following table presents AIG Parent's liquidity sources:

	As of		As of		As of		As of
(In millions)	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Cash and short-term investments^(a)	$	4,642	$	2,114	$	1,619	$	626
Unencumbered fixed maturity securities^(b)		3,815		5,172		3,547		3,168
Total AIG Parent liquidity		8,457		7,286		5,166		3,794
Available capacity under syndicated credit facility^(c)		4,500		4,500
Available capacity under committed, syndicated credit facility^(c)						4,500		4,500
Total AIG Parent liquidity sources	$	12,957	$	11,786	$	9,666	$	8,294

(a) Cash and short-term investments include reverse repurchase agreements totaling ~~$3.6 billion~~$884 million and ~~$1.7 billion~~$22 million as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

(b) Unencumbered securities consist of publicly traded, investment grade rated fixed maturity securities. Fixed maturity securities primarily include U.S. government and government sponsored entity securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain other highly rated securities.

AIG | First Quarter 2019 Form 10-Q125

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ITEM 2 |Liquidity and Capital Resources

Insurance Companies

We expect that our insurance companies will be able to continue to satisfy reasonably foreseeable future liquidity requirements and meet their obligations, including those arising from reasonably foreseeable contingencies or events, through cash from operations and, to the extent necessary, monetization of invested assets. Our insurance companies’ liquidity resources are primarily held in the form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities.

Each of our material insurance companies’ liquidity is monitored through various internal liquidity risk measures. The primary sources of liquidity are premiums, fees, reinsurance recoverables and investment income and maturities. The primary uses of liquidity are paid losses, reinsurance payments, benefit claims, surrenders, withdrawals, interest payments, dividends, expenses, investment purchases and collateral requirements.

Our General Insurance companies may require additional funding to meet capital or liquidity needs under certain circumstances. Large catastrophes may require us to provide additional support to our affected operations. Downgrades in our credit ratings could put pressure on the insurer financial strength ratings of our subsidiaries, which could result in non‑renewals or cancellations by policyholders and adversely affect ~~the~~a subsidiary’s ability to meet its own obligations. Increases in market interest rates may adversely affect the financial strength ratings of our subsidiaries, as rating agency capital models may reduce the amount of available capital relative to required capital. Other potential events that could cause a liquidity strain include an economic collapse of a nation or region significant to our operations, nationalization, catastrophic terrorist acts, pandemics or other events causing economic or political upheaval.

Management believes that because of the size and liquidity of our Life and Retirement companies’ investment portfolios, normal deviations from projected claim or surrender experience would not create significant liquidity risk. Furthermore, our Life and Retirement companies’ products contain certain features that mitigate surrender risk, including surrender charges. However, in times of extreme capital markets disruption, liquidity needs could outpace resources. As part of their risk management framework, our Life and Retirement companies continue to evaluate and, where appropriate, pursue strategies and programs to improve their liquidity position and facilitate their ability to maintain a fully invested asset portfolio.

Certain of our U.S. insurance companies are members of the Federal Home Loan Banks (FHLBs) in their respective districts. Borrowings from ~~the~~ FHLBs are used to supplement liquidity or for other uses deemed appropriate by management. Our U.S. General Insurance companies had no outstanding borrowings from ~~the~~ FHLBs ~~in an aggregate amount of approximately $80 million and $190 million~~ at March 31, ~~2018~~2019 and aggregate outstanding borrowings of approximately $115 million at December 31, ~~2017, respectively.~~ ~~The outstanding borrowings at March 31, 2018 were used primarily for short-term cash management purposes~~.2018. Our U.S. Life and Retirement companies had no outstanding borrowings in the form of cash advances from ~~the~~ FHLBs at both March 31, ~~2018 or~~2019 and December 31, ~~2017.~~2018, respectively. In addition, $3.4 billion ~~and $606 million were~~was due to ~~the~~ FHLBs in the respective districts of our U.S. Life and Retirement companies at both March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, under funding agreements issued through our Individual Retirement, Group Retirement and Institutional Markets operating segments, which were reported in Policyholder contract deposits.

Certain of our U.S. Life and Retirement companies have programs, which began in 2012, that lend securities from their investment portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under these programs, these U.S. Life and Retirement companies lend securities to financial institutions and receive cash as collateral equal to 102 percent of the fair value of the loaned securities. Cash collateral received is invested in short-term ~~investments.~~investments or partially used for short-term liquidity purposes. Additionally, the aggregate amount of securities that a Life and Retirement company is able to lend under its program at any time is limited to five percent of its general account statutory-basis admitted assets. ~~At both March 31, 2018 and December 31, 2017, our~~Our U.S. Life and Retirement companies had ~~$2.9~~$1.4 billion and $884 million of securities subject to these agreements at March 31, 2019 and ~~$3.0~~December 31, 2018, respectively, and $1.4 billion and $904 million of liabilities to borrowers for collateral ~~received.~~

~~AIG | First Quarter~~received at March 31, 2019 and December 31, 2018, ~~Form 10-Q131~~respectively.

~~TABLE OF CONTENTS~~

~~ITEM 2~~ |~~Liquidity and Capital Resources~~

AIG generally manages capital between AIG Parent and our insurance companies through internal, Board-approved policies and limits, as well as management standards. In addition, AIG Parent has unconditional capital maintenance agreements (CMAs) in place with certain subsidiaries. Nevertheless, regulatory and other legal restrictions could limit our ability to transfer capital freely, either to or from our subsidiaries.

In February 2018, AIG Parent entered into a CMA with ~~DSA~~Fortitude Re. Among other things, the CMA provides that AIG Parent will maintain available statutory capital and surplus in each of ~~DSA~~Fortitude Re’s long term business fund and ~~its~~ general business account at or above a stress threshold percentage of its projected enhanced capital requirement in respect of the applicable fund, as defined under Bermuda law. As of March 31, ~~2018,~~2019, the stress threshold percentage under this CMA was 125 percent.

AIG Parent and/or certain subsidiaries are parties to several letter of credit agreements with various financial ~~institutions. These financial~~ institutions, which issue letters of credit from time to time ~~to certain~~in support of our insurance companies. Letters of credit issued in support of the General Insurance companies ~~for insurance regulatory and reinsurance collateral purposes or for capital support, and the total outstanding amount of issued letters of credit for these purposes was~~totaled approximately ~~$2.4~~$3.5 billion at March 31, ~~2018~~.2019. Letters of credit issued in support of the Life and Retirement companies totaled approximately ~~$906~~$859 million at March 31, ~~2018. In the first quarter~~2019. Letters of ~~2018, AIG Parent~~credit issued ~~letters of credit~~ in support of ~~DSA~~Fortitude Re ~~that~~ totaled $550 million at March 31, ~~2018.~~2019.

126AIG | First Quarter 2019 Form 10-Q

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During 2016, we created a new Switzerland-domiciled international holding company, AIG International Holdings, GmbH (AIGIH), which is intended to be the ultimate holding company for all of our international entities. This international holding company structure is part of our ongoing efforts to simplify our organizational structure,ITEM 2 |Liquidity and ~~is expected to facilitate the optimization of our international capital strategy from both a regulatory and a tax perspective.~~ Capital ResourcesThrough May 2, 2018, substantially all of our international operations have been transferred to AIGIH. We will continue to monitor our international holding company structure in light of regulatory, tax and other developments, to ensure that this strategy continues to be effective.

In the first quarter of ~~2018,~~ 2019, our General Insurance companies collectively paid a total of approximately ~~$310~~$522 million in dividends in the form of cash and fixed maturity securities to AIG Parent. The fixed maturity securities primarily included U.S. ~~government and government-sponsored entity securities, U.S.~~ agency mortgage-backed securities, ~~corporate and~~ municipal bonds and certain other highly rated securities.

In the first quarter of ~~2018,~~ 2019, our Life and Retirement companies collectively paid a total of ~~$386~~approximately $504 million in dividends and loan repayments in the form of cash to AIG Parent.

Tax Matters

If the settlement agreements in principle are concluded in our ongoing dispute related to the disallowance of foreign tax credits associated with cross border financing transactions, we will be required to make a payment to the U.S. Treasury. Although we can provide no assurance regarding whether the non-binding settlements will be finalized, the amount we currently expect to pay based on current proposed settlement terms is approximately $1.7 billion, including obligations of AIG Parent and subsidiaries. This amount is net of payments previously made with respect to cross border financing transactions involving matters dating back to 1997 and other matters largely related to the same tax years. There remains uncertainty with regard to whether the settlements in principle will ultimately be approved by the relevant authorities as well as the amount and timing of any potential payments, which are not likely to be made before sometime in early 2020.

For additional information regarding this matter see Note 15 to the Condensed Consolidated Financial Statements.

Credit Facilities

We maintain a committed, revolving syndicated credit facility (the Facility) as a potential source of liquidity for general corporate purposes. The Facility provides for aggregate commitments by the bank syndicate to provide unsecured revolving loans and/or standby letters of credit of up to $4.5 billion without any limits on the type of borrowings and is scheduled to expire in June 2022.

As of March 31, ~~2018,~~2019, a total of $4.5 billion remains available under the Facility. Our ability to utilize the Facility is not contingent on our credit ratings. However, our ability to utilize the Facility is conditioned on the satisfaction of certain legal, operating, administrative and financial covenants and other requirements contained in the Facility. These include covenants relating to our maintenance of a specified total consolidated net worth and total consolidated debt to total consolidated capitalization. Failure to satisfy these and other requirements contained in the Facility would restrict our access to the Facility and could have a material adverse effect on our financial condition, results of operations and liquidity. We expect to utilize the Facility from time to time, and may use the proceeds for general corporate purposes.

~~132~~AIG | First Quarter ~~2018~~2019 Form 10-Q127

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ITEM 2 | Liquidity and Capital Resources

Contractual Obligations

The following table summarizes contractual obligations in total, and by remaining maturity:

March 31, 2018			Payments due by Period
March 31, 2019															Payments due by Period
		Total	Remainder of			2019 -		2021 -						Total	Remainder of			2020 -		2022 -
(in millions)		Payments		2018		2020		2022		2023		Thereafter		Payments		2019		2021		2023		2024		Thereafter
Insurance operations
Loss reserves	$	80,019	$	18,155	$	22,970	$	12,837	$	4,195	$	21,862
Loss reserves^(a)													$	85,777	$	16,539	$	24,013	$	12,553	$	4,000	$	28,672
Insurance and investment contract liabilities		242,309		12,871		30,140		28,273		13,005		158,020		254,813		12,430		32,400		28,779		13,793		167,411
Borrowings		995		-		122		231		-		642		1,338		-		338		-		-		1,000
Interest payments on borrowings		878		26		99		99		50		604		828		26		99		99		50		554
Other long-term obligations		-		-		-		-		-		-		-		-		-		-		-		-
Total	$	324,201	$	31,052	$	53,331	$	41,440	$	17,250	$	181,128	$	342,756	$	28,995	$	56,850	$	41,431	$	17,843	$	197,637
Other
Borrowings	$	25,858	$	990	$	2,637	$	3,250	$	1,838	$	17,143	$	25,256	$	1,252	$	3,040	$	3,268	$	1,130	$	16,566
Interest payments on borrowings		16,546		1,030		2,110		1,836		838		10,732		15,228		804		1,999		1,732		779		9,914
Other long-term obligations		440		68		177		161		-		34		387		112		173		79		-		23
Total	$	42,844	$	2,088	$	4,924	$	5,247	$	2,676	$	27,909	$	40,871	$	2,168	$	5,212	$	5,079	$	1,909	$	26,503
Consolidated
Loss reserves	$	80,019	$	18,155	$	22,970	$	12,837	$	4,195	$	21,862
Loss reserves^(a)													$	85,777	$	16,539	$	24,013	$	12,553	$	4,000	$	28,672
Insurance and investment contract liabilities		242,309		12,871		30,140		28,273		13,005		158,020		254,813		12,430		32,400		28,779		13,793		167,411
Borrowings		26,853		990		2,759		3,481		1,838		17,785		26,594		1,252		3,378		3,268		1,130		17,566
Interest payments on borrowings		17,424		1,056		2,209		1,935		888		11,336		16,056		830		2,098		1,831		829		10,468
Other long-term obligations^(a)(b)		440		68		177		161		-		34		387		112		173		79		-		23
Total^(b)(c)	$	367,045	$	33,140	$	58,255	$	46,687	$	19,926	$	209,037	$	383,627	$	31,163	$	62,062	$	46,510	$	19,752	$	224,140

(a) Represents undiscounted loss reserves.

(b) Primarily includes contracts to purchase future services and other capital expenditures.

~~(b)~~(c) Does not reflect obligations in connection with the agreement to purchase Validus Holdings, Ltd., which was entered into on January 21, 2018 and is expected to close mid-2018 subject to obtaining the relevant regulatory approvals and other customary closing conditions. Also does not reflect unrecognized tax benefits of $4.7 billion. See Note 1415 to the Condensed Consolidated Financial Statements for additional information.

~~Loss Reserves~~Tax Matters

~~Loss reserves relate~~If the settlement agreements in principle are concluded in our ongoing dispute related to the disallowance of foreign tax credits associated with cross border financing transactions, we will be required to make a payment to the U.S. Treasury. Although we can provide no assurance regarding whether the non-binding settlements will be finalized, the amount we currently expect to pay based on current proposed settlement terms is approximately $1.7 billion, including obligations of AIG Parent and subsidiaries. This amount is net of payments previously made with respect to cross border financing transactions involving matters dating back to 1997 and other matters largely related to the same tax years. There remains uncertainty with regard to whether the settlements in principle will ultimately be approved by the relevant authorities as well as the amount and timing of any potential payments, which are not likely to be made before sometime in early 2020.

For additional information regarding this matter see Note 15 to the Condensed Consolidated Financial Statements.

Credit Facilities

As of March 31, 2019, a total of $4.5 billion remains available under the Facility. Our ability to utilize the Facility is not contingent on our credit ratings. However, our ability to utilize the Facility is conditioned on the satisfaction of certain legal, operating, administrative and financial covenants and other requirements contained in the Facility. These include covenants relating to our ~~General Insurance companies~~maintenance of a specified total consolidated net worth and ~~represent estimates of future loss~~total consolidated debt to total consolidated capitalization. Failure to satisfy these and ~~loss adjustment expense payments estimated based on historical loss development payment patterns. Due~~other requirements contained in the Facility would restrict our access to the ~~significance~~Facility and could have a material adverse effect on our financial condition, results of operations and liquidity. We expect to utilize the ~~assumptions used, the payments by period presented above could be materially different~~Facility from ~~actual required payments. We believe that our General Insurance companies maintain adequate financial resources~~time to ~~meet the actual required payments under these obligations.~~

~~Insurance and Investment Contract Liabilities~~

Insurance and investment contract liabilities, including GIC liabilities, relate to our Life and Retirement companies. These liabilities include various investment-type products with contractually scheduled maturities, including periodic payments. These liabilities also include benefit and claim liabilities, of which a significant portion represents policies and contracts that do not have stated contractual maturity datestime, and may ~~not result in any future payment obligations. For these policies and contracts (i) we are not currently making payments until~~use the occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship or (iii) payment may occur due to a surrender or other non-scheduled event beyond our control.proceeds for general corporate purposes.

We have made significant assumptions to determine the estimated undiscounted cash flows of these contractual policy benefits. These assumptions include mortality, morbidity, future lapse rates, expenses, investment returns and interest crediting rates, offset by expected future deposits and premiums on in-force policies. Due to the significance of the assumptions, the periodic amounts presented could be materially different from actual required payments. The amounts presented in this table are undiscounted and exceed the future policy benefits and policyholder contract deposits included in the Consolidated Balance Sheets.

We believe that our Life and Retirement companies have adequate financial resources to meet the payments actually required under these obligations. These subsidiaries have substantial liquidity in the form of cash and short-term investments. In addition, our Life and Retirement companies maintain significant levels of investmentgrade rated fixed maturity securities, including substantial holdings in government and corporate bonds, and could seek to monetize those holdings in the event operating cash flows are insufficient. We expect liquidity needs related to GIC liabilities to be funded through cash flows generated from maturities and sales of invested assets.

AIG | First Quarter ~~2018~~2019 Form 10-Q ~~133~~127

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ITEM 2 | Liquidity and Capital Resources

~~Borrowings~~

Our borrowings exclude those incurred by consolidated investments and include hybrid financial instrument liabilities recorded at fair value. We expect to repay the long-term debt maturities and interest accrued on borrowings by AIG through maturing investments and dispositions of invested assets, future cash flows from operations, cash flows generated from invested assets, future debt issuance and other financing arrangements. Borrowings supported by assets of AIG include various notes and bonds payable as well as GIAs that are supported by cash and investments held by AIG Parent and certain non-insurance subsidiaries for the repayment of those obligations.

~~Off-Balance Sheet Arrangements and Commercial Commitments~~Contractual Obligations

The following table summarizes ~~Off-Balance Sheet Arrangements and Commercial Commitments~~contractual obligations in total, and by remaining maturity:

March 31, 2018

Amount of Commitment Expiring

Total Amounts

Remainder

2019 -

2021 -

(in millions)

Committed

of 2018

2020

2022

2023

Thereafter
Insurance operations

Guarantees:

Standby letters of credit
$
125
$
111
$
2
$
-
$
-
$
12
Guarantees of indebtedness

63

63

-

-

-

-
All other guarantees^(a)

2

-

-

2

-

-
Commitments:

Investment commitments^(b)

2,636

1,582

828

189

10

27
Commitments to extend credit

2,627

1,738

371

366

77

75
Letters of credit

5

5

-

-

-

-
Total^(c)
$
5,458
$
3,499
$
1,201
$
557
$
87
$
114
Other

Guarantees:

Liquidity facilities^(d)
$
74
$
-
$
-
$
-
$
-
$
74
Standby letters of credit

85

85

-

-

-

-
All other guarantees

84

7

28

28

14

7
Commitments:

Investment commitments^(b)

255

26

18

95

62

54
Commitments to extend credit^(e)

200

-

200

-

-

-
Letters of credit

17

17

-

-

-

-
Total^(c)(f)
$
715
$
135
$
246
$
123
$
76
$
135
Consolidated

Guarantees:

Liquidity facilities^(d)
$
74
$
-
$
-
$
-
$
-
$
74
Standby letters of credit

210

196

2

-

-

12
Guarantees of indebtedness

63

63

-

-

-

-
All other guarantees^(a)

86

7

28

30

14

7
Commitments:

Investment commitments^(b)

2,891

1,608

846

284

72

81
Commitments to extend credit^(e)

2,827

1,738

571

366

77

75
Letters of credit

22

22

-

-

-

-
Total^(c)(f)
$
6,173
$
3,634
$
1,447
$
680
$
163
$
249

March 31, 2019			Payments due by Period
		Total	Remainder of			2020 -		2022 -
(in millions)		Payments		2019		2021		2023		2024		Thereafter
Insurance operations
Loss reserves^(a)	$	85,777	$	16,539	$	24,013	$	12,553	$	4,000	$	28,672
Insurance and investment contract liabilities		254,813		12,430		32,400		28,779		13,793		167,411
Borrowings		1,338		-		338		-		-		1,000
Interest payments on borrowings		828		26		99		99		50		554
Other long-term obligations		-		-		-		-		-		-
Total	$	342,756	$	28,995	$	56,850	$	41,431	$	17,843	$	197,637
Other
Borrowings	$	25,256	$	1,252	$	3,040	$	3,268	$	1,130	$	16,566
Interest payments on borrowings		15,228		804		1,999		1,732		779		9,914
Other long-term obligations		387		112		173		79		-		23
Total	$	40,871	$	2,168	$	5,212	$	5,079	$	1,909	$	26,503
Consolidated
Loss reserves^(a)	$	85,777	$	16,539	$	24,013	$	12,553	$	4,000	$	28,672
Insurance and investment contract liabilities		254,813		12,430		32,400		28,779		13,793		167,411
Borrowings		26,594		1,252		3,378		3,268		1,130		17,566
Interest payments on borrowings		16,056		830		2,098		1,831		829		10,468
Other long-term obligations^(b)		387		112		173		79		-		23
Total^(c)	$	383,627	$	31,163	$	62,062	$	46,510	$	19,752	$	224,140

(a) Represents undiscounted loss reserves.

(b) Primarily includes contracts to purchase future services and other capital expenditures.

(a) Includes construction guarantees connected to affordable housing investments by our Life and Retirement companies. Excludes potential amounts for indemnification obligations included in asset sales agreements. (c) Does not reflect unrecognized tax benefits of $4.7 billion.~~For further information on indemnification obligations see~~ See Note 1015 to the Condensed Consolidated Financial ~~Statements.~~Statements for additional information.

(b) Includes commitments to invest in private equity funds, hedge funds and other funds and commitments to purchase and develop real estate in the United States and abroad. The commitments to invest in private equity funds, hedge funds and other funds are called at the discretion of each fund, as needed for funding new investments or expenses of the fund. The expiration of these commitments is estimated in the table above based on the expected life cycle of the related fund, consistent with past trends of requirements for funding. Investors under these commitments are primarily insurance and real estate subsidiaries.

~~(c) Does not include guarantees, CMAs or other support arrangements among AIG consolidated entities.~~

~~(d) Primarily represents liquidity facilities provided in connection with certain municipal swap transactions and collateralized bond obligations.~~

~~134AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 2~~ |~~Liquidity and Capital Resources~~

(e) Includes a senior unsecured revolving credit facility of up to $200 million between AerCap Ireland Capital Designated Activity Company, as borrower, and AIG Parent, as lender (the AerCap Credit Facility) scheduled to mature in October 2019. The AerCap Credit Facility permits loans for general corporate purposes. At March 31, 2018, no amounts were outstanding under the AerCap Credit Facility.

~~(f) Excludes commitments with respect to pension plans. The remaining annual pension contribution for 2018 is expected to be approximately $44 million for U.S. and non-U.S. plans.~~

Tax Matters

If the settlement agreements in principle are concluded in our ongoing dispute related to the disallowance of foreign tax credits associated with cross border financing transactions, we will be required to make a payment to the U.S. Treasury. Although we can provide no assurance regarding whether the non-binding settlements will be finalized, the amount we currently expect to pay based on current proposed settlement terms is approximately ~~$1.3 billion.~~$1.7 billion, including obligations of AIG Parent and subsidiaries. This amount is net of payments previously made with respect to cross border financing transactions involving matters dating back to 1997 and other matters largely related to the same tax years. There remains uncertainty with regard to whether the settlements in principle will ultimately be approved by the relevant authorities as well as the amount and timing of any potential payments, which are not likely to be made before sometime in ~~2019.~~early 2020.

For additional information regarding this matter see Note 1415 to the Condensed Consolidated Financial Statements.

Credit Facilities

AIG | First Quarter 2019 Form 10-Q127

TABLE OF CONTENTS

ITEM 2 |Liquidity and Capital Resources

Contractual Obligations

The following table summarizes contractual obligations in total, and by remaining maturity:

March 31, 2019			Payments due by Period
		Total	Remainder of			2020 -		2022 -
(in millions)		Payments		2019		2021		2023		2024		Thereafter
Insurance operations
Loss reserves^(a)	$	85,777	$	16,539	$	24,013	$	12,553	$	4,000	$	28,672
Insurance and investment contract liabilities		254,813		12,430		32,400		28,779		13,793		167,411
Borrowings		1,338		-		338		-		-		1,000
Interest payments on borrowings		828		26		99		99		50		554
Other long-term obligations		-		-		-		-		-		-
Total	$	342,756	$	28,995	$	56,850	$	41,431	$	17,843	$	197,637
Other
Borrowings	$	25,256	$	1,252	$	3,040	$	3,268	$	1,130	$	16,566
Interest payments on borrowings		15,228		804		1,999		1,732		779		9,914
Other long-term obligations		387		112		173		79		-		23
Total	$	40,871	$	2,168	$	5,212	$	5,079	$	1,909	$	26,503
Consolidated
Loss reserves^(a)	$	85,777	$	16,539	$	24,013	$	12,553	$	4,000	$	28,672
Insurance and investment contract liabilities		254,813		12,430		32,400		28,779		13,793		167,411
Borrowings		26,594		1,252		3,378		3,268		1,130		17,566
Interest payments on borrowings		16,056		830		2,098		1,831		829		10,468
Other long-term obligations^(b)		387		112		173		79		-		23
Total^(c)	$	383,627	$	31,163	$	62,062	$	46,510	$	19,752	$	224,140

(a) Represents undiscounted loss reserves.

(b) Primarily includes contracts to purchase future services and other capital expenditures.

(c) Does not reflect unrecognized tax benefits of $4.7 billion. See Note 15 to the Condensed Consolidated Financial Statements for additional information.

Loss Reserves

Loss reserves relate to our General Insurance companies and represent estimates of future loss and loss adjustment expense payments based on historical loss development payment patterns. Due to the significance of the assumptions used, the payments by period presented above could be materially different from actual required payments. We believe that our General Insurance companies maintain adequate financial resources to meet the actual required payments under these obligations.

Insurance and Investment Contract Liabilities

Insurance and investment contract liabilities, including GIC liabilities, relate to our Life and Retirement companies. These liabilities include various investment-type products with contractually scheduled maturities, including periodic payments. These liabilities also include benefit and claim liabilities, of which a significant portion represents policies and contracts that do not have stated contractual maturity dates and may not result in any future payment obligations. For these policies and contracts (i) we are not currently making payments until the occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship or (iii) payment may occur due to a surrender or other non-scheduled event beyond our control.

128AIG | First Quarter 2019 Form 10-Q

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ITEM 2 |Liquidity and Capital Resources

Borrowings

Our borrowings exclude those incurred by consolidated investments and include hybrid financial instrument liabilities recorded at fair value. We expect to repay the long-term debt maturities and interest accrued on borrowings by AIG through maturing investments and dispositions of invested assets, future cash flows from operations, cash flows generated from invested assets, future debt or preferred stock issuance and other financing arrangements. Borrowings supported by assets of AIG include various notes and bonds payable as well as GIAs that are supported by cash and investments held by AIG Parent and certain non-insurance subsidiaries for the repayment of those obligations.

Off-Balance Sheet Arrangements and Commercial Commitments

The following table summarizes Off-Balance Sheet Arrangements and Commercial Commitments in total, and by remaining maturity:

March 31, 2019				Amount of Commitment Expiring
		Total Amounts		Remainder		2020 -		2022 -
(in millions)		Committed		of 2019		2021		2023		2024		Thereafter
Insurance operations
Guarantees:
Standby letters of credit	$	194	$	183	$	-	$	-	$	-	$	11
Guarantees of indebtedness		88		88		-		-		-		-
All other guarantees^(a)		65		-		30		28		7		-
Commitments:
Investment commitments^(b)		7,146		2,772		2,616		1,467		248		43
Commitments to extend credit		2,921		1,194		673		998		-		56
Letters of credit		5		5		-		-		-		-
Total^(c)	$	10,419	$	4,242	$	3,319	$	2,493	$	255	$	110
Other
Guarantees:
Liquidity facilities^(d)	$	74	$	-	$	-	$	-	$	-	$	74
Standby letters of credit		82		82		-		-		-		-
All other guarantees		-		-		-		-		-		-
Commitments:
Investment commitments^(b)		140		38		39		31		1		31
Commitments to extend credit		-		-		-		-		-		-
Letters of credit		14		14		-		-		-		-
Total^(c)(e)	$	310	$	134	$	39	$	31	$	1	$	105
Consolidated
Guarantees:
Liquidity facilities^(d)	$	74	$	-	$	-	$	-	$	-	$	74
Standby letters of credit		276		265		-		-		-		11
Guarantees of indebtedness		88		88		-		-		-		-
All other guarantees^(a)		65		-		30		28		7		-
Commitments:
Investment commitments^(b)		7,286		2,810		2,655		1,498		249		74
Commitments to extend credit		2,921		1,194		673		998		-		56
Letters of credit		19		19		-		-		-		-
Total^(c)(e)	$	10,729	$	4,376	$	3,358	$	2,524	$	256	$	215

(a) Excludes potential amounts for indemnification obligations included in asset sales agreements. For further information on indemnification obligations see Note 11 to the Condensed Consolidated Financial Statements.

(d) Primarily represents liquidity facilities provided in connection with certain municipal swap transactions and collateralized bond obligations.

(e) Excludes commitments with respect to pension plans. The remaining annual pension contribution for 2019 is expected to be approximately $47 million for U.S. and non-U.S. plans.

AIG | First Quarter 2019 Form 10-Q129

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ITEM 2 |Liquidity and Capital Resources

Arrangements with Variable Interest Entities

We enter into various arrangements with variable interest entities (VIEs) in the normal course of business, and we consolidate a VIE when we are the primary beneficiary of the entity.

For a further discussion of our involvement with VIEs see Note 78 to the Condensed Consolidated Financial Statements.

Indemnification Agreements

We are subject to financial guarantees and indemnity arrangements in connection with our sales of businesses. These arrangements may be triggered by declines in asset values, specified business contingencies, the realization of contingent liabilities, litigation developments, or breaches of representations, warranties or covenants provided by us. These arrangements are typically subject to time limitations, defined by contract or by operation of law, such as by prevailing statutes of limitation. Depending on the specific terms of the arrangements, the maximum potential obligation may or may not be subject to contractual limitations.

For additional information regarding our indemnification agreements see Note 1011 to the Condensed Consolidated Financial Statements.

We have recorded liabilities for certain of these arrangements where it is possible to estimate them. These liabilities are not material in the aggregate. We are unable to develop a reasonable estimate of the maximum potential payout under some of these arrangements. Overall, we believe that it is unlikely we will have to make any material payments under these arrangements.

~~AIG | First Quarter 2018 Form 10-Q135~~

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~~ITEM 2~~ |~~Liquidity and Capital Resources~~

Debt

The following table provides the rollforward of AIG’s total debt outstanding:

		Balance at				Maturities		Effect of					Balance at		Balance at				Maturities		Effect of					Balance at
Three Months Ended March 31, 2018		December 31,				and		Foreign		Other		March 31,
Three Months Ended March 31, 2019															December 31,				and		Foreign		Other		March 31,
(in millions)		2017		Issuances	Repayments			Exchange		Changes			2018		2018		Issuances	Repayments			Exchange		Changes			2019
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable	$	20,339	$	1,729	$	(1,107)	$	80	$	7		$	21,048	$	20,853	$	596	$	-	$	(30)	$	8		$	21,427
Junior subordinated debt		841		743		-		8		-			1,592		1,548		-		-		(3)		-			1,545
AIG Japan Holdings Kabushiki Kaisha		334		-		-		19		-			353		331		-		-		7		-			338
Validus notes and bonds payable															359		-		-		-		(2)			357
AIGLH notes and bonds payable		281		-		-		-		-			281		282		-		-		-		-			282
AIGLH junior subordinated debt		361		-		-		-		-			361		361		-		-		-		-			361
Total AIG general borrowings		22,156		2,472		(1,107)		107		7			23,635		23,734		596		-		(26)		6			24,310
AIG borrowings supported by assets:^(a)
MIP notes payable		356		-		-		22		(1)			377
Series AIGFP matched notes and bonds payable		21		-		-		-		-			21		21		-		-		-		-			21
GIAs, at fair value		2,707		42		(67)		-		(42)	^(b)		2,640		2,164		37		(61)		-		72	^(b)		2,212
Notes and bonds payable, at fair value		181		-		(2)		-		1	^(b)		180		49		-		(2)		-		4	^(b)		51
Total AIG borrowings supported by assets		3,265		42		(69)		22		(42)			3,218		2,234		37		(63)		-		76			2,284
Total debt issued or guaranteed by AIG		25,421		2,514		(1,176)		129		(35)			26,853		25,968		633		(63)		(26)		82			26,594
Debt not guaranteed by AIG:
Other subsidiaries' notes, bonds, loans and
mortgages payable^(c)		190		-		(110)		-		-			80		168		-		(116)		-		-			52
Debt of consolidated investments^(d)		6,029		525		(71)		77		126	^(e)		6,686		8,404		816		(418)		6		322	^(e)		9,130
Total debt not guaranteed by AIG		6,219		525		(181)		77		126			6,766		8,572		816		(534)		6		322			9,182
Total debt	$	31,640	$	3,039	$	(1,357)	$	206	$	91		$	33,619	$	34,540	$	1,449	$	(597)	$	(20)	$	404		$	35,776

(a) AIG Parent guarantees all such debt, except for ~~MIP notes payable and~~ Series AIGFP matched notes and bonds payable, which are direct obligations of AIG Parent. Collateral posted to third parties was ~~$2.0~~$1.5 billion at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. This collateral primarily consists of securities of the U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties.

(b) Primarily represents adjustments to the fair value of debt.

(c) Includes primarily borrowings with Federal Home Loan Banks by our U.S. insurance companies. These borrowings are short term in nature and related activity is presented net of issuances and maturities and repayments.

(d) At March 31, 2019, includes debt of consolidated investment vehicles related to real estate investments of $3.1 billion, affordable housing partnership investments of $2.2 billion and other securitization vehicles of $3.8 billion. At December 31, 2018, includes debt of consolidated investment vehicles related to real estate investments of $2.7 billion, affordable housing partnership investments of $2.0 billion and other securitization vehicles of $2.0 billion. At December 31, 2017, includes debt of consolidated investment vehicles related to real estate investments of $2.5$3.7 billion, affordable housing partnership investments of $1.8 billion and other securitization vehicles of ~~$1.7~~$2.9 billion.

(e) Includes the effect of consolidating previously unconsolidated partnerships.

~~136~~130 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Liquidity and Capital Resources

TOTAL DEBT OUTSTANDING

(in millions)

Debt Maturities

The following table summarizes maturing debt at March 31, ~~2018~~2019 of AIG (excluding ~~$6.7~~$9.1 billion of borrowings of consolidated investments) for the next four quarters:

		Second		Third		Fourth		First				Second		Third		Fourth		First
		Quarter		Quarter		Quarter		Quarter				Quarter		Quarter		Quarter		Quarter
(in millions)		2018		2018		2018		2019		Total		2019		2019		2019		2020		Total
AIG general borrowings	$	-	$	-	$	-	$	-	$	-	$	-	$	1,000	$	-	$	-	$	1,000
AIG borrowings supported by assets		364		490		136		19		1,009		19		138		95		2		254
Other subsidiaries' notes, bonds, loans and
mortgages payable		80		-		-		-		80		-		-		1		-		1
Total	$	444	$	490	$	136	$	19	$	1,089	$	19	$	1,138	$	96	$	2	$	1,255

AIG | First Quarter ~~2018~~2019 Form 10-Q ~~137~~131

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ITEM 2 | Liquidity and Capital Resources

The following table presents maturities of long-term debt (including unamortized original issue discount, hedge accounting valuation adjustments and fair value adjustments, when applicable), excluding ~~$6.7~~$9.1 billion in borrowings of debt of consolidated investments:

March 31, 2018				Remainder		Year Ending
March 31, 2019																					Remainder		Year Ending
(in millions)			Total		of 2018		2019		2020		2021		2022		2023	Thereafter				Total		of 2019		2020		2021		2022		2023		2024	Thereafter
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable		$	21,048	$	-	$	999	$	1,344	$	1,496	$	1,508	$	1,725	$	13,976		$	21,427	$	1,000	$	1,345	$	1,497	$	1,509	$	1,594	$	997	$	13,485
Junior subordinated debt			1,592		-		-		-		-		-		-		1,592			1,545		-		-		-		-		-		-		1,545
AIG Japan Holdings Kabushiki Kaisha			353		-		-		122		231		-		-		-			338		-		117		221		-		-		-		-
Validus notes and bonds payable																				357		-		-		-		-		-		-		357
AIGLH notes and bonds payable			281		-		-		-		-		-		-		281			282		-		-		-		-		-		-		282
AIGLH junior subordinated debt			361		-		-		-		-		-		-		361			361		-		-		-		-		-		-		361
Total AIG general borrowings			23,635		-		999		1,466		1,727		1,508		1,725		16,210			24,310		1,000		1,462		1,718		1,509		1,594		997		16,030
AIG borrowings supported by assets:
MIP notes payable			377		377		-		-		-		-		-		-
Series AIGFP matched notes and
bonds payable			21		-		-		-		-		-		-		21			21		-		-		-		-		-		-		21
GIAs, at fair value			2,640		483		264		30		200		46		113		1,504			2,212		252		39		159		48		117		133		1,464
Notes and bonds payable, at fair value			180		130		-		-		-		-		-		50			51		-		-		-		-		-		-		51
Total AIG borrowings supported by assets	Total AIG borrowings supported by assets		3,218		990		264		30		200		46		113		1,575	Total AIG borrowings supported by assets		2,284		252		39		159		48		117		133		1,536
Total debt issued or guaranteed by AIG			26,853		990		1,263		1,496		1,927		1,554		1,838		17,785			26,594		1,252		1,501		1,877		1,557		1,711		1,130		17,566
Debt not guaranteed by AIG:
Other subsidiaries notes, bonds, loans
and mortgages payable			80		80		-		-		-		-		-		-			52		1		1		42		1		1		6		-
Total debt not guaranteed by AIG																		Total debt not guaranteed by AIG		52		1		1		42		1		1		6		-
Total		$	26,933	$	1,070	$	1,263	$	1,496	$	1,927	$	1,554	$	1,838	$	17,785		$	26,646	$	1,253	$	1,502	$	1,919	$	1,558	$	1,712	$	1,136	$	17,566

Credit Ratings

Credit ratings estimate a company’s ability to meet its obligations and may directly affect the cost and availability of financing to that company. The following table presents the credit ratings of AIG and certain of its subsidiaries as of ~~April 27, 2018.~~May 1, 2019. Figures in parentheses indicate the relative ranking of the ratings within the agency’s rating categories; that ranking refers only to the major rating category and not to the modifiers assigned by the rating agencies.

	Short-Term Debt		Senior Long-Term Debt
	Moody’s	S&P	Moody’s^(a)	S&P^(b)	Fitch^(c)
~~AIG~~American International Group, Inc.	P-2 (2nd of 3)	A-2 (2nd of 8)	Baa 1 (4th of 9)	BBB+ (4th of 9)	BBB+ (4th of 9)
	*Stable Outlook*		*Stable Outlook*	*Negative Outlook*	*Negative Outlook*
AIG Financial Products Corp.^(d)^(d)	P-2	A-2	Baa 1	BBB+	-
	*Stable Outlook*		*Stable Outlook*	*Negative Outlook*

(a) Moody’s appends numerical modifiers 1, 2 and 3 to the generic rating categories to show relative position within the rating categories.

(b) S&P ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

(c) Fitch ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

(d) AIG guarantees all obligations of AIG Financial Products Corp.

These credit ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances. Ratings may also be withdrawn at our request.

We are party to some agreements that contain “ratings triggers.” Depending on the ratings maintained by one or more rating agencies, these triggers could result in (i) the termination or limitation of credit availability or a requirement for accelerated repayment, (ii) the termination of business contracts or (iii) a requirement to post collateral for the benefit of counterparties.

In the event of adverse actions on our long-term debt ratings by the major rating agencies, AIGFP and certain other AIG entities would be required to post additional collateral under some derivative transactions or could experience termination of the transactions. Such requirements and terminations could adversely affect our business, our consolidated results of operations in a ~~reporting period or our liquidity. In the event of a further~~ downgrade of AIG’s long-term senior debt ratings, AIGFP and certain other AIG entities would be required to post additional collateral under some derivative and other transactions, or certain of the counterparties of AIGFP or of such other AIG entities would be permitted to terminate ~~their contracts~~such transactions early.

~~138~~132 AIG | First Quarter ~~2018~~2019 Form 10-Q

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ITEM 2 | Liquidity and Capital Resources

The actual amount of collateral that we would be required to post to counterparties in the event of such downgrades, or the aggregate amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected transactions and other factors prevailing at the time of the downgrade.

For a discussion of the effects of downgrades in our credit ratings see Note 89 to the Condensed Consolidated Financial Statements herein and Part I, Item 1A. Risk Factors – Liquidity, Capital and Credit in our ~~2017~~2018 Annual Report.

FINANCIAL STRENGTH Ratings

Financial Strength ratings estimate an insurance company’s ability to pay its obligations under an insurance policy. The following table presents the ratings of our significant insurance subsidiaries as of ~~April 27, 2018.~~May 1, 2019.

	A.M. Best	S&P	Fitch	Moody’s
National Union Fire Insurance Company of Pittsburgh, Pa.	A	A+	A	A2
Lexington Insurance Company	A	A+	A	A2
American Home Assurance Company ~~(US)~~(U.S.)	A	A+	A	A2
American General Life Insurance Company	A	A+	A+	A2
The Variable Annuity Life Insurance Company	A	A+	A+	A2
United States Life Insurance Company in the City of New York	A	A+	A+	A2
AIG Europe ~~Limited~~S.A.	NR	A+	NR	A2
American International Group UK Ltd.	A	A+	ANR	A2
AIG General Insurance Co. Ltd.	NR	A+	NR	NR
Validus Reinsurance, Ltd.	A	A	A	A2

These financial strength ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances.

For a discussion of the effects of downgrades in our financial strength ratings see Note 89 to the Condensed Consolidated Financial Statements herein and Part I, Item 1A. Risk Factors – Liquidity, Capital and Credit in our ~~2017~~2018 Annual Report.

Regulation and Supervision

For a discussion of our regulation and supervision by different regulatory authorities in the United States and abroad, including with respect to our liquidity and capital resources see Part I, Item 1. Business — Regulation and Part I, Item 1A. Risk Factors — Regulation in our ~~2017~~2018 Annual Report, and Regulatory Environment below in this Quarterly Report on Form 10-Q.

Dividends and Repurchases of AIG Common Stock

On February ~~8, 2018,~~13, 2019, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on March 29, ~~2018~~2019 to shareholders of record on March 15, ~~2018.~~2019. On May ~~2, 2018,~~6, 2019, our Board of Directors declared a cash dividend on AIG Common Stock of $0.32 per share, payable on June 28, ~~2018~~2019 to shareholders of record on June 14, ~~2018.~~2019. The payment of any future dividends will be at the discretion of our Board of Directors and will depend on various factors, as discussed further in Note 1112 to the Condensed Consolidated Financial Statements.

Our Board of Directors has authorized the repurchase of shares of AIG Common Stock and warrants to purchase shares of AIG Common Stock through a series of actions. On ~~May 3, 2017,~~February 13, 2019, our Board of Directors ~~approved~~authorized an additional increase to its previous repurchase authorization of ~~$2.5 billion to the share repurchase authorization.~~AIG Common Stock of approximately $1.5 billion. As of May ~~2, 2018, approximately~~6, 2019, $2.0 billion remained under the authorization. Shares may be repurchased from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise (including through the purchase of warrants). Certain of our share repurchases have been and may from time to time be effected through Exchange Act Rule 10b5-1 repurchase plans. The timing of any future share repurchases will depend on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and other ~~factors.~~factors, as discussed further in Note 12 to the Condensed Consolidated Financial Statements.

~~During the first quarter of 2018, we repurchased approximately 5 million~~We did not repurchase any shares of AIG Common Stock ~~for an aggregate purchase price of approximately $298 million pursuant to this authorization.~~during the three months ended March 31, 2019.

~~AIG | First Quarter 2018 Form 10-Q139~~

~~TABLE OF CONTENTS~~

~~ITEM 2~~ |~~Liquidity and Capital Resources~~

~~Dividend~~ Restrictions on dividends from subsidiaries

Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities.

For a discussion of restrictions on payments of dividends by our subsidiaries see Note 19 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

AIG | First Quarter 2019 Form 10-Q133

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ITEM 2 | Enterprise Risk Management

Enterprise Risk Management

Risk management includes the identification and measurement of various forms of risk, the establishment of risk thresholds and the creation of processes intended to maintain risks within these thresholds while optimizing returns. We consider risk management an integral part of managing our core businesses and a key element of our approach to corporate governance.

Overview

We have an integrated process for managing risks throughout our organization in accordance with our firm‑wide risk appetite. Our Board of Directors has oversight responsibility for the management of risk. Our Enterprise Risk Management (ERM) Department supervises and integrates the risk management functions in each of our business units, providing senior management with a consolidated view of AIG’s major risk positions. Within each business unit, senior leaders and executives approve risk‑taking policies and targeted risk tolerance within the framework provided by ERM. ERM supports our businesses and management ~~in the~~by embedding of risk management in our key day-to-day business processes and in identifying, assessing, quantifying, managing, monitoring, reporting, and mitigating the risks taken by usour businesses and ~~our businesses.~~AIG overall. Nevertheless, our risk management efforts may not always be successful and material adverse effects on our business, results of operations, cash flows, liquidity or financial condition may occur.

For a further discussion of AIG’s risk management program see Part II, Item 7. MD&A ─ Enterprise Risk Management in the ~~2017~~2018 Annual Report.

~~Credit Risk Management~~

~~Overview~~

Credit risk is defined as the risk that our customers or counterparties are unable or unwilling to repay their contractual obligations when they become due. Credit risk may also result from a downgradeAs of ~~a counterparty’s credit ratings or a widening of its credit spreads.~~

We devote considerable resources to managing our direct and indirect credit exposures. These exposures may arise from, but are not limited to, fixed income investments, equity securities, deposits, commercial paper investments, reverse repurchase agreements and repurchase agreements, corporate and consumer loans, leases, reinsurance recoverables, counterparty risk arising from derivatives activities, collateral extended to counterparties, insurance risk cessions to third parties, financial guarantees, letters of credit, and certain General Insurance businesses.

We monitor and control our company-wide credit risk concentrations and attempt to avoid unwanted or excessive risk accumulations, whether funded or unfunded. To minimize the level of credit risk in some circumstances, we may require mitigants, such as third‑party guarantees, reinsurance or collateral, including commercial bank-issued letters of credit and trust collateral accounts. We treat these guarantees, reinsurance recoverables, and letters of credit as credit exposure and include themMarch 31, 2019, there have been no material changes in our ~~risk concentration~~economic exposure ~~data. We also monitor closely the quality of any trust collateral accounts.~~

~~For further information on our credit concentrations and credit exposures see Investments – Available-for-Sale Securities.~~

~~140AIG | First Quarter 2018 Form 10-Q~~

~~TABLE OF CONTENTS~~

~~ITEM 2 |~~ ~~Enterprise Risk Management~~

~~Our credit risk management framework incorporates the following elements:~~

~~Risk Identification~~	~~including the ongoing capture and monitoring of all existing, contingent, potential and emerging credit risk exposures, whether funded or unfunded~~
~~Risk Measurement~~	~~comprising risk ratings, default probabilities, loss given default and expected loss parameters, exposure calculations, stress testing and other risk analytics~~
~~Risk Limits~~	including, but not limited to, a system of single obligor or risk group-based AIG-wide house limits and sub-limits for corporates, financial institutions, sovereigns and sub-sovereigns when appropriate and a defined process for identifying, evaluating, documenting and approving, if appropriate, breaches of and exceptions to such limits
~~Risk Delegations~~	~~a comprehensive credit risk delegation framework from the Chief Credit Officer (CCO) to authorized credit professionals throughout the company~~
~~Risk Evaluation, Monitoring and Reporting~~	~~including the ongoing analysis and assessment of credit risks, trending of those risks and reporting of other key risk metrics and limits to the CCO and senior management, as may be required~~
~~Credit Reserving~~	including but not limited to development of a proper framework, policies and procedures for establishing accurate identification of (i) Allowance for Loan and Lease Losses, and (ii) other-than-temporary impairments for securities portfolios

~~Market Risk Management~~

Market risk is defined as the risk of adverse impact due to systemic movements in one or more of the following market risk drivers: equity and commodity prices, residential and commercial real estate values, interest rates, credit spreads, foreign exchange, inflation, and their levels of volatility.

~~We are engaged in a variety of insurance, investment and other financial services businesses that expose us~~ to market risk ~~directly~~from December 31, 2018, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, 2018, Item 7A. “Quantitative and ~~indirectly. We are exposed to market risks primarily within~~Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission. See Item 1A, “Risk Factors” included in the Annual Report on Form 10-K on how difficult conditions in the financial markets and the economy generally may materially adversely affect our ~~insurance~~business and ~~capital markets activities, on both the asset and liability side~~results of our balance sheet through on- and off-balance sheet exposures. The Risk Officer within each business is responsible for creating a framework to properly identify these risks, then ensuring that they are appropriately measured, monitored and managed in accordance with the risk governance framework established by the Chief Market Risk Officer (CMRO).operations.

The scope and magnitude of our market risk exposures is managed under a robust framework that contains defined risk limits and minimum standards for managing market risk in a manner consistent with our risk appetite statement. Our market risk management framework focuses on quantifying the financial repercussions of changes in these broad market observables, as opposed to the idiosyncratic risks associated with individual assets that are addressed through our credit risk management function.

Many of our market risk exposures related to interest rates and equity returns are associated with our Life and Retirement companies and relate to both asset and liability exposures. In addition, these exposures are long-term in nature. Examples of liability-related exposures include interest rate sensitive surrenders in our fixed deferred annuity product portfolio. Also, we have equity market risk sensitive surrenders in our variable annuity product portfolio. These interactive asset-liability types of risk exposures are regularly monitored in accordance with the risk governance framework noted above.

~~AIG | First Quarter 2018 Form 10-Q141~~

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~~ITEM 2 |~~ ~~Enterprise Risk Management~~

~~Risk Identification~~

Market risk focuses on quantifying the financial repercussions of changes in broad, external, predominantly market-observable risks. Financial repercussions can include an adverse impact on results of operations, financial condition, liquidity and capital.

~~Each of the following systemic risks is considered a market risk:~~

~~Equity prices~~	We are exposed to changes in equity market prices affecting a variety of instruments. Changes in equity prices can affect the valuation of publicly traded equity shares, investments in private equity, hedge funds and mutual funds, exchange-traded funds, and other equity-linked capital market instruments as well as equity-linked insurance products, including but not limited to index annuities, variable annuities, indexed universal life insurance and variable universal life insurance.
~~Residential and commercial real estate values~~	Our investment portfolios are exposed to the risk of changing values in a variety of residential and commercial real estate investments. Changes in residential/commercial real estate prices can affect the valuation of residential/commercial mortgages, residential/commercial mortgage‑backed securities and other structured securities with underlying assets that include residential/commercial mortgages, trusts that include residential/commercial real estate and/or mortgages, residential mortgage insurance and reinsurance contracts and commercial real estate investments.
~~Interest rates~~	Interest rate risk can arise from a mismatch in the interest rate exposure of assets versus liabilities. Lower interest rates generally result in lower investment income and make some of our product offerings less attractive to investors. Conversely, higher interest rates are typically beneficial for the opposite reasons. However, when rates rise quickly, there can be a temporary asymmetric GAAP accounting effect where the existing securities lose market value, which is largely reported in Other comprehensive income, and the offsetting decrease in the value of related liabilities may not be recognized. Changes in interest rates can affect the valuation of fixed maturity securities, financial liabilities, insurance contracts including but not limited to universal life, fixed rate annuities, variable annuities and derivative contracts.
~~Credit spreads~~	Credit spreads measure an instrument’s risk premium or yield relative to that of a comparable duration, default‑free instrument. Changes in credit spreads can affect the valuation of fixed maturity securities, including but not limited to corporate bonds, ABS, mortgage-backed securities, AIG-issued debt obligations, credit derivatives and derivative credit valuation adjustments. Much like higher interest rates, wider credit spreads with unchanged default losses mean more investment income in the long term. In the short term, quickly rising spreads will cause a loss in the value of existing fixed maturity securities, which is largely reported in Other comprehensive income. A precipitous widening of credit spreads may also signal a fundamental weakness in the credit worthiness of bond obligors, potentially resulting in default losses.
~~Foreign exchange (FX) rates~~	We are a globally diversified enterprise with income, assets and liabilities denominated in, and capital deployed in, a variety of currencies. Changes in FX rates can affect the valuation of a broad range of balance sheet and income statement items as well as the settlement of cash flows exchanged in specific transactions.
~~Commodity prices~~	Changes in commodity prices (the value of commodities) can affect the valuation of publicly‑traded commodities, commodity indices and derivatives on commodities and commodity indices. We are exposed to commodity prices primarily through their impact on the prices and credit quality of commodity producers’ debt and equity securities in our investment portfolio.
~~Inflation~~	Changes in inflation can affect the valuation of fixed maturity securities, including AIG-issued debt obligations, derivatives and other contracts explicitly linked to inflation indices, and insurance contracts where the claims are linked to inflation either explicitly, via indexing, or implicitly, through medical costs or wage levels.

~~142AIG | First Quarter 2018 Form 10-Q~~

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~~ITEM 2 |~~ ~~Enterprise Risk Management~~

~~Risk Measurement~~

Our market risk measurement framework was developed with the main objective of communicating the range and scale of our market risk exposures. At the firm‑wide level market risk is measured in a manner that is consistent with AIG’s risk appetite statement. This is designed to ensure that we remain within our stated risk tolerance levels and can determine how much additional market risk taking capacity is available within our framework. Our risk appetite is currently defined in terms of capital and liquidity levels. At the market risk level, the framework measures our overall exposure to each systemic market risk change on an economic basis.

In addition, we continue to use enhanced economic, GAAP accounting and statutory capital‑based risk measures at the market risk level, business‑unit level and firm‑wide levels. This process aims to ensure that we have a comprehensive view of the impact of our market risk exposures.

~~We use a number of approaches to measure our market risk exposure, including:~~

		~~Examples include:~~
~~Sensitivity analysis~~	~~measures the impact from a unit change in a market risk input~~	•~~a one basis point increase in yield on fixed maturity securities,~~ •~~a one basis point increase in credit spreads of fixed maturity securities, and~~ •~~a one percent increase in prices of equity securities.~~
~~Scenario analysis~~	~~uses historical, hypothetical, or forward‑looking macroeconomic scenarios to assess and report exposures~~	•~~a 100 basis point parallel shift in the yield curve, or~~ •~~a 20 percent immediate and simultaneous decrease in world‑wide equity markets.~~ ~~Scenarios may also utilize a stochastic framework to arrive at a probability distribution of losses.~~
~~Stress testing~~	~~a special form of scenario analysis in which the scenarios are designed to lead to a material adverse outcome~~	•~~the stock market crash of October 1987 or the widening of yields or spreads of RMBS or CMBS during 2008.~~

~~AIG | First Quarter 2018 Form 10-Q143~~

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~~ITEM 2 |~~ ~~Enterprise Risk Management~~

~~Market Risk Sensitivities~~

~~The following table provides estimates of our sensitivity to changes in yield curves, equity prices and foreign currency exchange rates:~~

Balance Sheet Exposure

Economic Effect

March 31,

December 31,

March 31,

December 31,
(dollars in millions)

2018

2017

2018

2017
Sensitivity factor

100 bps parallel increase in all yield curves
Interest rate sensitive assets:

Fixed maturity securities
$
242,059

$
248,195

$
(14,656)

$
(14,998)
Mortgage and other loans receivable

29,871

28,799

(1,571)

(1,566)
Preferred stock

14

14

(1)

(1)
Derivatives:

Interest rate contracts

346

(29)

(1,193)

(1,343)
Equity contracts

255

501

26

36
Foreign exchange contracts

(422)

(416)

74

42
Credit contracts

(262)

(276)

-

-
Other contracts

12

17

-

-
Total interest rate sensitive assets
$
271,873
^(a)
$
276,805
^(a)

$
(17,321)

$
(17,830)
Interest rate sensitive liabilities:

Policyholder contract deposits:

Investment-type contracts
$
117,265

$
114,326

$
(1,927)

$
506
Variable annuity and other embedded

derivatives

3,672

4,148

(1,369)

(2,175)
Long-term debt^(b)

25,858

24,445

(2,038)

(1,803)
Total interest rate sensitive liabilities
$
146,795

$
142,919

$
(5,334)

$
(3,472)
Sensitivity factor

20% decline in stock prices and value of

derivatives and alternative investments
Derivatives:

Equity contracts^(c)
$
255

$
501

$
(51)

$
(100)
Equity and alternative investments

exposure:

Real estate investments

8,636

8,258

(1,727)

(1,652)
Private equity

5,657

5,540

(1,131)

(1,108)
Hedge funds

5,468

5,768

(1,094)

(1,153)
Common equity

1,187

1,215

(237)

(243)
PICC Investment

521

549

(104)

(110)
Aircraft asset investments

201

206

(40)

(41)
Other investments

651

555

(131)

(111)
Total derivatives, equity and alternative

investments exposure
$
22,576

$
22,592

$
(4,515)

$
(4,518)
Policyholder contract deposits:

Variable annuity and other embedded

derivatives^(c)
$
3,672

$
4,148

$
747

$
982
Total liability exposure
$
3,672

$
4,148

$
747

$
982
Sensitivity factor

10% depreciation of all foreign currency

exchange rates against the U.S. dollar
Foreign currency-denominated net

asset position:

Great Britain pound
$
2,360

$
2,026

$
(236)

$
(203)
Euro

1,112

1,349

(111)

(135)
Japanese yen

588

651

(59)

(65)
All other foreign currencies

2,273

2,533

(227)

(253)
Total foreign currency-denominated net

asset position^(d)
$
6,333

$
6,559

$
(633)

$
(656)

~~144AIG | First Quarter 2018 Form 10-Q~~

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~~ITEM 2 |~~ ~~Enterprise Risk Management~~

(a) At March 31, 2018, the analysis covered $271.9 billion of $285.4 billion interest-rate sensitive assets. Excluded were $8.7 billion of loans. In addition, $4.8 billion of assets across various asset categories were excluded due to modeling limitations. At December 31, 2017, the analysis covered $276.8 billion of $289.6 billion interest-rate sensitive assets. Excluded were $8.2 billion of loans. In addition, $4.6 billion of assets across various asset categories were excluded due to modeling limitations.

(b) At March 31, 2018, the analysis excluded $6.7 billion of long-term debt related to debt of consolidated investments, $642 million of AIGLH borrowings, $80 million of borrowings from the FHLB and $353 million of AIG Japan Holdings loans. At December 31, 2017, the analysis excluded $6.0 billion of long-term debt related to debt of consolidated investments, $642 million of AIGLH borrowings, $190 million of borrowings from the FHLB and $334 million of AIG Japan Holdings loans.

(c) The balance sheet exposures for equity contracts and variable annuity and other embedded derivatives are also reflected under “Interest rate sensitive liabilities” above, and are not additive.

~~(d) The majority of the foreign currency exposure is reported on a one quarter lag.~~

The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot ensure that our actual losses in any particular period will not exceed the amounts indicated above.

We use duration and convexity metrics to measure price sensitivity to interest rate changes for interest rate sensitive assets excluding derivatives and long-term debt. Duration measures the relative sensitivity of the fair value of a financial instrument to changes in interest rates. Convexity measures the rate of change of duration with respect to changes in interest rates.

~~Interest rate sensitivity~~ of a derivative is calculated as change in its value with respect to plus a 100 basis point change in the interest rate environment, calculated as: scenario value minus base value, where base value is the value of the derivative under the yield curves as of the period end and scenario value is the value reflecting a 100 basis point parallel increase in all yield curves.

We evaluate our interest rate risk without the effect of any correlation among other key market risks or other assumptions used for calculating the fair value of our financial liabilities and embedded derivatives. This scenario does not measure changes in value resulting from non-parallel shifts in the yield curve, which could produce different results.

We evaluate our equity price risk without the effect of any correlation among other key market risks or other assumptions used for calculating the fair value of our financial liabilities and embedded derivatives. This scenario considers the direct impact of declines in equity prices and not changes in asset-based fees, changes in the estimated gross profits used for amortizing DAC, or changes in any other assumptions used to calculate the fair value of the embedded derivatives related to the living benefit features within variable annuity products. In addition, this scenario does not reflect the impact of basis risk, such as projections about the future performance of the underlying contract holder funds and actual fund returns, which we use as a basis for developing our hedging strategy.

Foreign currency-denominated net asset position reflects our consolidated non‑U.S. dollar assets less our consolidated non‑U.S dollar liabilities on a GAAP basis, with certain adjustments. We use a bottom-up approach in managing our foreign currency exchange rate exposures with the objective of protecting statutory capital at the regulated insurance entity level. At the AIG Parent level, we monitor our foreign currency exposures against single currency and aggregate currency portfolio limits.

Our foreign currency-denominated net asset position at March 31, 2018, decreased by $226 million compared to December 31, 2017, primarily due to a $237 million decrease in our euro position primarily due to an increase in reserves.

For illustrative purposes, we modeled our sensitivities based on a 100 basis point increase in yield curves, a 20 percent decline in equities and alternative assets, and a 10 percent depreciation of all foreign currency exchange rates against the U.S. dollar. The estimated results presented in the table above should not be taken as a prediction, but only as a demonstration of the potential effects of such events.

~~Liquidity Risk Management~~

Liquidity risk is defined as the risk that our financial condition will be adversely affected by the inability or perceived inability to meet our short-term cash, collateral or other financial obligations. Failure to appropriately manage liquidity risk can result in insolvency, reduced operating flexibility, increased costs, reputational harm and regulatory action.Regulat

AIG and its legal entities seek to maintain sufficient liquidity both during the normal course of business and under defined liquidity stress scenarios to ensure that sufficient cash will be available to meet the obligations as they come due.

AIG Parent liquidity risk tolerance levels are designed to allow us to meet our financial obligations for a minimum of six months under a liquidity stress scenario. We maintain liquidity limits and minimum coverage ratios designed to ensure that funding needs are met under varying market conditions. If we project that we will breach these tolerances, we will assess and determine appropriate liquidity management actions. However, the market conditions in effect at that time may not permit us to achieve an increase in liquidity sources or a reduction in liquidity requirements.

~~AIG | First Quarter 2018 Form 10-Q145~~

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~~ITEM 2 |~~ ~~Enterprise Risk Management~~

~~Risk Identification~~

~~The following sources of liquidity and funding risks could impact our ability to meet short-term financial obligations as they come due.~~

~~Market/Monetization Risk~~	~~Assets may not be readily transformed into cash due to unfavorable market conditions. Market liquidity risk may limit our ability to sell assets at reasonable values to meet liquidity needs.~~
~~Cash Flow Mismatch Risk~~	~~Discrete and cumulative cash flow mismatches or gaps over short-term horizons under both expected and adverse business conditions may create future liquidity shortfalls.~~
~~Event Funding Risk~~	Additional funding may be required as the result of a trigger event. Event funding risk comes in many forms and may result from a downgrade in credit ratings, a market event, or some other event that creates a funding obligation or limits existing funding options.
~~Financing Risk~~	~~We may be unable to raise additional cash on a secured or unsecured basis due to unfavorable market conditions, AIG-specific issues, or any other issue that impedes access to additional funding.~~

~~Risk Measurement~~

Comprehensive cash flow projections under normal conditions are the primary component for identifying and measuring liquidity risk. We produce comprehensive liquidity projections over varying time horizons that incorporate all relevant liquidity sources and uses and include known and likely cash inflows and outflows. In addition, we perform stress testing by identifying liquidity stress scenarios and assessing the effects of these scenarios on our cash flow and liquidity.

~~We use a number of approaches to measure our liquidity risk exposure, including:~~

~~Minimum Liquidity Limits~~	Minimum Liquidity Limits specify the amount of assets required to be maintained in specific liquidity portfolios to meet obligations as they arise over a specified time horizon under stressed liquidity conditions.
~~Coverage Ratios~~	Coverage Ratios measure the adequacy of available liquidity sources, including the ability to monetize assets to meet the forecasted cash flows over a specified time horizon. The portfolio of assets is selected based on our ability to convert those assets into cash under the assumed market conditions and within the specified time horizon.
~~Cash Flow Forecasts~~	~~Cash Flow Forecasts measure the liquidity needed for a specific legal entity over a specified time horizon.~~
~~Stress Testing~~	~~Asset liquidity and~~ ~~Coverage Ratios are re-measured under defined liquidity stress scenarios that will impact net cash flows, liquid assets and/or other funding sources.~~

Relevant liquidity reporting is produced and reported regularly to AIG Parent and business unit risk committees. The frequency, content, and nature of reporting will vary for each business unit and legal entity, based on its complexity, risk profile, activities and size.

~~146AIG | First Quarter 2018 Form 10-Q~~

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~~ITEM 2 |~~ ~~Regulatory Environment~~

~~Regulat~~ory Environment

Overview

Our operations around the world are subject to regulation by many different types of regulatory authorities, including insurance, securities, derivatives, investment advisory and thrift regulators in the United States and abroad. The insurance and financial services industries generally have been subject to heightened regulatory scrutiny and supervision in recent years.

Our insurance subsidiaries are subject to regulation and supervision by the states and jurisdictions in which they do business. We expect that the domestic and international regulations applicable to us and our regulated entities will continue to evolve for the foreseeable future.

For updated information on the impact of the DOL Fiduciary Rule and the related regulatory developments regarding a standard of care for the sale of investment products and services, see Executive Summary – AIG’s Outlook – Industry and Economic Factors – Standard of Care – Regulatory Developments.

In addition to the information set forth in this Quarterly Report on Form 10-Q, our regulatory status is also discussed in Part I, Item 1. Business – Regulation, Part I, Item 1A. Risk Factors – Regulation and Note 19 to the Consolidated Financial Statements in the ~~2017~~2018 Annual Report.

134AIG | First Quarter ~~2018~~2019 Form 10-Q~~147~~

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Glossary

Glos sary

Accident year The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.

Accident year combined ratio, as adjusted The combined ratio excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting.

Accident year loss ratio, as adjusted The loss ratio excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting.

Acquisition ratio Acquisition costs divided by net premiums earned. Acquisition costs are those costs incurred to acquire new and renewal insurance contracts and also include the amortization of VOBA and DAC. Acquisition costs vary with sales and include, but are not limited to, commissions, premium taxes, direct marketing costs and certain costs of personnel engaged in sales support activities such as underwriting.

Additional premium represents a premium on an insurance policy over and above the initial premium imposed at the beginning of the policy. An additional premium may be assessed if the insured’s risk is found to have increased significantly.

Assets under administration include assets under management and Retail Mutual Funds and Group Retirement mutual fund assets that we sell or administer.

Assets under management include assets in the general and separate accounts of our subsidiaries that support liabilities and surplus related to our life and annuity insurance products and the notional value of stable value wrap contracts.

Base Spread Net investment income excluding income from alternative investments and other enhancements, less interest credited excluding amortization of sales inducement assets.

Base Yield Net investment income excluding income from alternative investments and other enhancements, as a percentage of average base invested asset portfolio, which excludes alternative investments, other bond securities and certain other investments for which the fair value option has been elected.

Book value per common share, excluding accumulated other comprehensive income (AOCI) and Book value per common share, excluding AOCI and deferred tax assets (DTA) (Adjusted book value per common share) are non-GAAP measures and are used to show the amount of our net worth on a per-share basis. Book value per common share excluding AOCI is derived by dividing total AIG shareholders’ equity, excluding AOCI, by total common shares outstanding. Adjusted book value per common share is derived by dividing total AIG shareholders’ equity, excluding AOCI and DTA (Adjusted Shareholders’ Equity), by total common shares outstanding.

Casualty insurance Insurance that is primarily associated with the losses caused by injuries to third persons, i.e., not the insured, and the legal liability imposed on the insured as a result.

Combined ratio Sum of the loss ratio and the acquisition and general operating expense ratios.

CSA Credit Support Annex A legal document generally associated with an ISDA Master Agreement that provides for collateral postings which could vary depending on ratings and threshold levels.

CVA Credit Valuation Adjustment The CVA adjusts the valuation of derivatives to account for nonperformance risk of our counterparty with respect to all net derivative assets positions. Also, the CVA reflects the fair value movement in AIGFP's asset portfolio that is attributable to credit movements only, without the impact of other market factors such as interest rates and foreign exchange rates. Finally, the CVA also accounts for our own credit risk in the fair value measurement of all derivative net liability positions and liabilities where AIG has elected the fair value option, when appropriate.

DAC Deferred Policy Acquisition Costs Deferred costs that are incremental and directly related to the successful acquisition of new business or renewal of existing business.

~~148~~AIG | First Quarter ~~2018~~2019 Form 10-Q135

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Glossary

DAC Related to Unrealized Appreciation (Depreciation) of Investments An adjustment to DAC and Reserves for investment-oriented products, equal to the change in DAC and Unearned Revenue amortization that would have been recorded if fixed maturity ~~and equity~~ securities available for sale and also, prior to 2018, equity securities at fair value had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. An adjustment to benefit reserves for investment-oriented products is also recognized to reflect the application of the benefit ratio to the accumulated assessments that would have been recorded if fixed maturity ~~and equity~~ securities available for sale and also, prior to 2018, equity securities at fair value had been sold at their stated aggregate fair value and the proceeds reinvested at current yields (collectively referred to as “shadow Investment-Oriented Adjustments”).

For long-duration traditional products, significant unrealized appreciation of investments in a sustained low interest rate environment may cause additional future policy benefit liabilities to be recorded (shadow loss reserves).

Deferred Gain on Retroactive Reinsurance Retroactive reinsurance is a reinsurance contract in which an assuming entity agrees to reimburse a ceding entity for liabilities incurred as a result of past insurable events. If the amount of premium paid by the ceding reinsurer is less than the related ceded loss reserves, the resulting gain is deferred and amortized over the settlement period of the reserves. Any related development on the ceded loss reserves recoverable under the contract would increase the deferred gain if unfavorable, or decrease the deferred gain if favorable.

Expense ratio Sum of acquisition expenses and general operating expenses, divided by net premiums earned.

General operating expense ratio General operating expenses divided by net premiums earned. General operating expenses are those costs that are generally attributed to the support infrastructure of the organization and include but are not limited to personnel costs, projects and bad debt expenses. General operating expenses exclude losses and loss adjustment expenses incurred, acquisition expenses, and investment expenses.

GIC/GIA Guaranteed Investment Contract/Guaranteed Investment Agreement A contract whereby the seller provides a guaranteed repayment of principal and a fixed or floating interest rate for a predetermined period of time.

~~G-SII~~~~Global Systemically Important Insurer~~ An insurer that is deemed globally systemically important (that is, of such size, market importance and global interconnectedness that the distress or failure of the insurer would cause significant dislocation in the global financial system and adverse economic consequences across a range of countries) by the Financial Stability Board, in consultation with and based on a methodology developed by the International Association of Insurance Supervisors.

IBNR Incurred But Not Reported Estimates of claims that have been incurred but not reported to us.

ISDA Master Agreement An agreement between two counterparties, which may have multiple derivative transactions with each other governed by such agreement, that generally provides for the net settlement of all or a specified group of these derivative transactions, as well as pledged collateral, through a single payment, in a single currency, in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions.

LAE Loss Adjustment Expenses The expenses directly attributed to settling and paying claims of insureds and include, but are not limited to, legal fees, adjuster’s fees and the portion of general expenses allocated to claim settlement costs.

Loss Ratio Losses and loss adjustment expenses incurred divided by net premiums earned.

Loss reserve development The increase or decrease in incurred losses and loss adjustment expenses related to prior years as a result of the re-estimation of loss reserves at successive valuation dates for a given group of claims.

Loss reserves Liability for unpaid losses and loss adjustment expenses. The estimated ultimate cost of settling claims relating to insured events that have occurred on or before the balance sheet date, whether or not reported to the insurer at that date.

Loan-to-Value Ratio Principal amount of loan amount divided by appraised value of collateral securing the loan.

Master netting agreement An agreement between two counterparties who have multiple derivative contracts with each other that provides for the net settlement of all contracts covered by such agreement, as well as pledged collateral, through a single payment, in a single currency, in the event of default on or upon termination of any one such contract.

Natural catastrophe and man-made losses are generally weather or seismic events having a net impact on AIG in excess of $10 million each and also include certain man-made events, such as terrorism and civil disorders that ~~meet~~exceed the $10 million threshold.

Net premiums written represent the sales of an insurer, adjusted for reinsurance premiums assumed and ceded, during a given period. Net premiums earned are the revenue of an insurer for covering risk during a given period. Net premiums written are a measure of performance for a sales period, while Net premiums earned are a measure of performance for a coverage period.

136AIG | First Quarter ~~2018~~2019 Form 10-Q~~149~~

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Glossary

Noncontrolling interest The portion of equity ownership in a consolidated subsidiary not attributable to the controlling parent company.

Policy fees An amount added to a policy premium, or deducted from a policy cash value or contract holder account, to reflect the cost of issuing a policy, establishing the required records, sending premium notices and other related expenses.

Pool A reinsurance arrangement whereby all of the underwriting results of the pool members are combined and then shared by each member in accordance with its pool participation percentage.

Premiums and deposits – Life and Retirement include direct and assumed amounts received on traditional life insurance policies and group benefit policies, and deposits on life-contingent payout annuities, as well as deposits received on universal life, investment-type annuity contracts, FHLB funding agreements and mutual funds.

Prior year development See Loss reserve development.

RBC Risk-Based Capital A formula designed to measure the adequacy of an insurer’s statutory surplus compared to the risks inherent in its business.

Reinstatement ~~premium~~premiums Additional premiums payable to reinsurers or receivable from insurers to restore coverage limits that have been reduced or exhausted as a result of reinsured losses under certain excess of loss reinsurance treaties.

Reinsurance The practice whereby one insurer, the reinsurer, in consideration of a premium paid to that insurer, agrees to indemnify another insurer, the ceding company, for part or all of the liability of the ceding company under one or more policies or contracts of insurance which it has issued.

Retroactive Reinsurance See Deferred Gain on Retroactive Reinsurance.

Return on equity – Adjusted after-tax income excluding AOCI and DTA (Adjusted Return on equity) is a non-GAAP measure and is used to show the rate of return on shareholders’ equity. Adjusted Return on equity is derived by dividing actual or annualized adjusted after-tax income attributable to AIG by average Adjusted Shareholders’ Equity.

Return premium represents amounts given back to the insured in the case of a cancellation, an adjustment to the rate or an overpayment of an advance premium.

Salvage The amount that can be recovered by an insurer for the sale of damaged goods for which a policyholder has been indemnified (and to which title was transferred).

~~Severe losses~~ ~~are defined as non-catastrophic individual first-party losses, surety and trade credit losses greater than $10 million, net of related reinsurance and salvage and subrogation.~~

SIA Sales Inducement Asset Represents enhanced crediting rates or bonus payments to contract holders on certain annuity and investment contract products that meet the criteria to be deferred and amortized over the life of the contract.

Solvency II Legislation in the European Union which reforms the insurance industry’s solvency framework, including minimum capital and solvency requirements, governance requirements, risk management and public reporting standards. The Solvency II Directive (2009/138/EEC) was adopted on November 25, 2009 and became effective on January 1, 2016.

Subrogation The amount of recovery for claims we have paid our policyholders, generally from a negligent third party or such party’s insurer.

Surrender charge A charge levied against an investor for the early withdrawal of funds from a life insurance or annuity contract, or for the cancellation of the agreement.

Surrender rate represents annualized surrenders and withdrawals as a percentage of average reserves and Group Retirement mutual fund assets under administration.

Unearned premium reserve Liabilities established by insurers and reinsurers to reflect unearned premiums, which are usually refundable to policyholders if an insurance or reinsurance contract is canceled prior to expiration of the contract term.

VOBA Value of Business Acquired Present value of projected future gross profits from in-force policies of acquired businesses.

~~150~~AIG | First Quarter ~~2018~~2019 Form 10-Q137

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Acronyms

Acronyms

A&H Accident and Health Insurance	GMWB Guaranteed Minimum Withdrawal Benefits
ABS Asset-Backed Securities	ISDA International Swaps and Derivatives Association, Inc.
CDO Collateralized Debt Obligations	Moody's Moody's Investors’ Service Inc.
CDS Credit Default Swap	NAIC National Association of Insurance Commissioners
CMA Capital Maintenance Agreement	NM Not Meaningful
CMBS Commercial Mortgage-Backed Securities	OTC Over-the-Counter
EGPs Estimated gross profits	OTTI Other-Than-Temporary Impairment
FASB Financial Accounting Standards Board	RMBS Residential Mortgage-Backed Securities
FRBNY Federal Reserve Bank of New York	S&P Standard & Poor’s Financial Services LLC
GAAP Accounting principles generally accepted in the United States of America	SEC Securities and Exchange Commission
GMDB Guaranteed Minimum Death Benefits	URR Unearned revenue reserve
	VIE Variable Interest Entity

138AIG | First Quarter ~~2018~~2019 Form 10-Q~~151~~

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ITEM 3 | Quantitative and Qualitative Disclosures About Market Risk

ITEM 3 | Quantitative and Qualitative Disclosures About Market Risk

Included in Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Enterprise Risk Management.

ITEM 4 | Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation, which excluded the impact of the acquisitions of Validus Holdings and Glatfelter Insurance Group (collectively, the Acquired Businesses), was carried out by ~~AIG’s~~AIG management, with the participation of AIG’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of ~~AIG’s~~our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)., as of March 31, 2019. Based on ~~that~~this evaluation, AIG’s Chief Executive Officer and Chief Financial Officer ~~have~~ concluded that ~~AIG’s~~our disclosure controls and procedures were effective as of March 31, ~~2018.~~2019.

Changes in Internal Control Over Financial Reporting

We continue to integrate the internal controls of the Acquired Businesses. There ~~has~~have been no ~~change~~changes in ~~AIG’s~~our internal control over financial reporting (as defined in Rule 13a-15(f) ~~under the Exchange Act)~~) that have occurred during the quarter ended March 31, ~~2018,~~2019 that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~AIG’s~~our internal control over financial reporting.

~~152~~AIG | First Quarter ~~2018~~2019 Form 10-Q139

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Part II – Other Information

ITEM 1 | Legal Proceedings

For a discussion of legal proceedings see Note 1011 to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.

ITEM 1A | Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors in our ~~2017~~2018 Annual Report.

ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds

~~The following table provides the information with respect~~On February 13, 2019, our Board of Directors authorized an additional increase to ~~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)~~its previous repurchase authorization of AIG Common Stock ~~and warrants to purchase~~of $1.5 billion.

During the three-month period ended March 31, 2019, we did not repurchase any shares of AIG Common Stock ~~during the three months ended March 31, 2018:~~

Total Number

Average
Total Number of Shares
Approximate Dollar Value of Shares

of Shares

Price Paid
Purchased as Part of Publicly
that May Yet Be Purchased Under the

Period
Repurchased

per Share
Announced Plans or Programs
Plans or Programs (in millions)

January 1 – 31
-
$
-
-

$
2,262

February 1 – 28
-

-
-

2,262

March 1 – 31^(a)
5,384,703

55.41
5,384,703

1,962
^(b)
Total^(c)
5,384,703
$
55.41
5,384,703

$
1,962

~~(a) During the March 1-31 period, we also repurchased 97,553~~or any warrants to purchase shares of AIG Common Stock ~~at an average purchase price per warrant of $16.96, for an aggregate purchase price of $2 million.~~

~~(b) Reflects the purchase of 97,553 warrants to purchase shares of AIG Common Stock in the March 1-31 period, which reduced the dollar value of the remaining repurchase~~under this authorization.

~~(c) On May 3, 2017, our Board of Directors authorized an additional increase of $2.5 billion to the share repurchase authorization.~~ As of ~~May 2, 2018,~~March 31, 2019, approximately $2.0 billion remained under the authorization. We did not repurchase any shares of AIG Common Stock from April 1, 2019 to May 6, 2019. Shares may be repurchased from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise (including through the purchase of warrants). Certain of our share repurchases have been and may from time to time be effected through Exchange Act Rule 10b5-1 repurchase plans. The timing of any future share repurchases will depend on market conditions, our business and strategic plans, financial condition, results of operations, liquidity and other factors.

~~During the three-month period ended March 31, 2018, we repurchased approximately 5 million shares~~ The repurchase of AIG Common Stock ~~under this authorization for an aggregate~~is also subject to the terms of AIG’s outstanding Series A Preferred Stock, pursuant to which AIG may not (other than in limited circumstances) purchase, ~~price of approximately $298 million.~~ ~~We also repurchased 97,553 warrants to purchase shares of~~redeem or otherwise acquire AIG Common Stock ~~during~~unless the ~~three-month~~full dividends for the latest completed dividend period ~~ended March 31, 2018 for an aggregate purchase price~~on all outstanding shares of ~~$2 million.~~Series A Preferred Stock have been declared and paid or provided for.

ITEM 4 | Mine Safety Disclosures

Not applicable.

140AIG | First Quarter ~~2018~~2019 Form 10-Q~~153~~

TABLE OF CONTENTS

ITEM 6 | Exhibits

Exhibit Index

Exhibit Number	Description	Location
23	(1) ~~Agreement~~Certificate of Designations of AIG with respect to Series A Preferred Stock, dated March 8, 2019, as filed with the Secretary of the State of Delaware and ~~Plan of Merger, by and among AIG, Venus Holdings Limited and Validus Holdings, Ltd., dated January 21, 2018~~effective March 8, 2019	Incorporated by reference to Exhibit ~~2.1~~3.2 to AIG’s Registration Statement on Form 8-A filed with the SEC on March 13, 2019 (File No. 1-8787).
4	(1) Filed as Exhibit 3.1
	(2) Deposit Agreement, dated March 14, 2019, among AIG, Equiniti Trust Company, as depositary, and the holders from time to time of the depositary receipts described therein	Incorporated by reference to Exhibit 4.2 to AIG’s Current Report on Form 8-K filed with the SEC on ~~January 22, 2018~~March 14, 2019 (File No. 1-8787).
4	~~(1)~~ (3) Form of depositary receipt representing the Depository Shares (included as Exhibit A to Exhibit 4.2)
	(4) ~~Thirty-Sixth Supplemental~~Thirty-Eighth supplemental Indenture, dated March ~~26, 2018,~~15, 2019, between AIG and The Bank of New York Mellon, as Trustee, relating to the ~~2028~~2029 Notes	Incorporated by reference to Exhibit 4.1 to AIG’s Current Report on Form 8-K filed with the SEC on March ~~26, 2018~~15, 2019 (File No. 1-8787).
	~~(2)~~ ~~Thirty-Seventh Supplemental Indenture, dated March 26, 2018, between AIG and The Bank of New York Mellon, as Trustee, relating to the 2048 Notes~~	~~Incorporated by reference to Exhibit 4.2 to AIG’s Current Report on Form 8-K filed with the SEC on March 26, 2018 (File No. 1-8787).~~
	~~(3)~~ ~~Fifteenth Supplemental Indenture, dated March 26, 2018, between AIG and The Bank of New York Mellon, as Trustee, relating to the Junior Subordinated Debentures~~	~~Incorporated by reference to Exhibit 4.3 to AIG’s Current Report on Form 8-K filed with the SEC on March 26, 2018 (File No. 1-8787).~~
	~~(4)~~ (5) Form of the ~~2028~~2029 Notes (included in Exhibit ~~4.1)~~4.4)
	~~(5)~~ ~~Form of the 2048 Notes (included in Exhibit 4.2)~~
	~~(6)~~ ~~Form of the Junior Subordinated Debentures (included in Exhibit 4.3)~~
10	(1) Form of ~~Long Term Incentive Stock Option Award Agreement~~*	~~Incorporated by reference to Exhibit 10.60 to AIG’s Annual Report on Form 10-K filed with the SEC on February 16, 2018 (File No. 1-8787).~~
	~~(2)~~ AIG Long Term Incentive ~~Plan (as amended)~~Award Agreement**	Filed herewith.
	~~(3)~~ (2) AIG Long-Term Incentive Plan (as amended and restated)~~Description of Non-Management Director Compensation~~	~~Incorporated by reference to “Compensation of Directors” in AIG’s Definitive Proxy Statement on Schedule 14A, dated March 27, 2018 (File No. 1-8787).~~
11	~~Statement re: Computation of Per Share Earnings~~	~~Included in Note 12 to the Condensed Consolidated Financial Statements.~~
12	~~Computation of Ratios of Earnings to Fixed Charges~~	Filed herewith.
31	Rule 13a-14(a)/15d-14(a) Certifications	Filed herewith.
32	Section 1350 Certifications**	Filed herewith.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, (ii) the Condensed Consolidated Statements of Income for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, (iii) the Condensed Consolidated Statements of Equity for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, (v) the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 and (vi) the Notes to the Condensed Consolidated Financial Statements	Filed herewith.

* This exhibit is a management contract or a compensatory plan or arrangement.

** This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

~~154~~AIG | First Quarter ~~2018~~2019 Form 10-Q141

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERICAN INTERNATIONAL GROUP, INC.
	(Registrant)
	/S/ ~~SIDDHARTHA SANKARAN~~MARK D. LYONS
	~~Siddhartha Sankaran~~Mark D. Lyons
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)




	/S/ ~~ELIAS F. HABAYEB~~JONATHAN WISMER
	~~Elias F. Habayeb~~Jonathan Wismer
	Senior Vice President
	Deputy Chief Financial Officer and
	~~Group Controller~~Chief Accounting Officer
	(Principal Accounting Officer)

Dated: May ~~3, 2018~~7, 2019

142AIG | First Quarter ~~2018~~2019 Form 10-Q~~155~~

AMERICAN INTERNATIONAL GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

March 31, 20182019

Table of Contents

Item Number

Description

Page

Part I — Financial Information

Part II — Other Information

Signatures

155142

Three Months Ended March 31, 2018				Other Invested
(in millions)		Equities		Assets		Total
Net gains and losses recognized during the period on equity securities	$	(31)	$	192	$	161
Less: Net gains and losses recognized during the period on equity securities sold
during the period		(8)		(1)		(9)
Unrealized gains and losses recognized during the reporting period on equity
securities still held at the reporting date	$	(23)	$	193	$	170

	Balance Sheet Exposure							Economic Effect
	March 31,			December 31,				March 31,		December 31,
(dollars in millions)		2018			2017				2018		2017
Sensitivity factor							100 bps parallel increase in all yield curves
Interest rate sensitive assets:
Fixed maturity securities	$	242,059		$	248,195			$	(14,656)	$	(14,998)
Mortgage and other loans receivable		29,871			28,799				(1,571)		(1,566)
Preferred stock		14			14				(1)		(1)
Derivatives:
Interest rate contracts		346			(29)				(1,193)		(1,343)
Equity contracts		255			501				26		36
Foreign exchange contracts		(422)			(416)				74		42
Credit contracts		(262)			(276)				-		-
Other contracts		12			17				-		-
Total interest rate sensitive assets	$	271,873	^(a)	$	276,805	^(a)		$	(17,321)	$	(17,830)
Interest rate sensitive liabilities:
Policyholder contract deposits:
Investment-type contracts	$	117,265		$	114,326			$	(1,927)	$	506
Variable annuity and other embedded
derivatives		3,672			4,148				(1,369)		(2,175)
Long-term debt^(b)		25,858			24,445				(2,038)		(1,803)
Total interest rate sensitive liabilities	$	146,795		$	142,919			$	(5,334)	$	(3,472)
Sensitivity factor								20% decline in stock prices and value of
								derivatives and alternative investments
Derivatives:
Equity contracts^(c)	$	255		$	501			$	(51)	$	(100)
Equity and alternative investments
exposure:
Real estate investments		8,636			8,258				(1,727)		(1,652)
Private equity		5,657			5,540				(1,131)		(1,108)
Hedge funds		5,468			5,768				(1,094)		(1,153)
Common equity		1,187			1,215				(237)		(243)
PICC Investment		521			549				(104)		(110)
Aircraft asset investments		201			206				(40)		(41)
Other investments		651			555				(131)		(111)
Total derivatives, equity and alternative
investments exposure	$	22,576		$	22,592			$	(4,515)	$	(4,518)
Policyholder contract deposits:
Variable annuity and other embedded
derivatives^(c)	$	3,672		$	4,148			$	747	$	982
Total liability exposure	$	3,672		$	4,148			$	747	$	982
Sensitivity factor								10% depreciation of all foreign currency
								exchange rates against the U.S. dollar
Foreign currency-denominated net
asset position:
Great Britain pound	$	2,360		$	2,026			$	(236)	$	(203)
Euro		1,112			1,349				(111)		(135)
Japanese yen		588			651				(59)		(65)
All other foreign currencies		2,273			2,533				(227)		(253)
Total foreign currency-denominated net
asset position^(d)	$	6,333		$	6,559			$	(633)	$	(656)

	Total Number		Average	Total Number of Shares	Approximate Dollar Value of Shares
	of Shares		Price Paid	Purchased as Part of Publicly	that May Yet Be Purchased Under the
Period	Repurchased		per Share	Announced Plans or Programs	Plans or Programs (in millions)
January 1 – 31	-	$	-	-		$	2,262
February 1 – 28	-		-	-			2,262
March 1 – 31^(a)	5,384,703		55.41	5,384,703			1,962	^(b)
Total^(c)	5,384,703	$	55.41	5,384,703		$	1,962