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Analyzing AIG’s Individual Retirement Business

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Pretax operating income

American International Group’s (AIG) Individual Retirement business posted pretax operating income of $1.8 billion in 9M17 versus $1.7 billion in 9M16, reflecting a rise of 5.0%. This business generated net investment income of $2.9 billion in 9M17 compared to $2.8 billion in 9M16.

This trend reflects a 4.0% increase, which was helped by a rise in income from investments made in alternative assets and profits on securities. AIG chose the fair value option for these investments.

AIG’s Individual Retirement business incurred advisory fee expenses of $179.0 million in 9M17 compared to $514.0 million in 9M16, implying a 65.0% fall. The business incurred general operating expenses of $321.0 million in 9M17 compared to $381.0 million in 9M16, implying a fall of 16%.

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Why did premiums decline?

In 9M17, AIG’s Individual Retirement business generated premiums of $81.0 million versus $129.0 million in 9M16. This trend reflects more sales related to immediate annuities in 2016. The company’s Individual Retirement business consists of fixed annuities, index annuities, variable annuities, and retail mutual funds.

In 9M17, premiums and deposits in fixed, variable, index annuities, and retail mutual funds stood at $2.1 billion, $2.4 billion, $1.9 billion, and $2.2 billion, respectively. In 9M17, AIG’s Individual Retirement business generated policy fees of $567.0 million versus $528.0 million in 9M16, implying a rise of 7%.

On an LTM (last-12-months) basis, AIG’s free cash flow yield stood at 1.9%. Its peers (XLF) Hartford Financial Services (HIG), Travelers Companies (TRV), and Chubb Limited (CB) posted free cash flow yields of ~1.9%, ~6.7%, and ~4.1%, respectively.

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