AIG 10-Q Quarter ended June 30, 2023

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1. Basis of Presentation

American International Group, Inc. (AIG) is a leading global insurance organization. AIG member companies provide insurance solutions that help businesses and individuals in approximately 70 countries and jurisdictions protect their assets and manage risks. Unless the context indicates otherwise, the terms “AIG,” “we,” “us,” “our” or "the Company" 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, 2022 (the 2022 Annual Report). The condensed consolidated financial information as of December 31, 2022 included herein has been derived from the audited Consolidated Financial Statements in the 2022 Annual Report.

Prior to the fourth quarter ending December 31, 2022, certain of our foreign subsidiaries included in the Condensed Consolidated Financial Statements report on the basis of a fiscal year ending November 30. For these periods, 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. Effective with the fourth quarter of the year ended December 31, 2022, these foreign subsidiaries now report on the basis of a calendar year ending December 31, and corresponding calendar quarters. For additional information on the change in fiscal year of these foreign subsidiaries, see Note 1 in our 2022 Annual Report. 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. Operating results for the six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

We evaluated the need to recognize or disclose events that occurred subsequent to June 30, 2023 and prior to the issuance of these Condensed Consolidated Financial Statements.

We adopted the Financial Accounting Standards Board's (FASB) targeted improvements to the accounting for long-duration contracts (the standard or LDTI) on January 1, 2023 with a transition date of January 1, 2021 (Transition Date). In accordance with the transition guidance in the standard, we updated our prior period Condensed Consolidated Financial Statements presented herein to reflect LDTI. For additional detail, see Note 2.

SALES/DISPOSALS OF ASSETS AND BUSINESSES

Validus Re

On May 22, 2023, AIG announced that it entered into a definitive agreement to sell Validus Reinsurance, Ltd. (Validus Re), including AlphaCat Managers Ltd. and the Talbot Treaty reinsurance business, to RenaissanceRe Holdings Ltd. (RenaissanceRe) for $ 2.7 billion in cash and approximately 1.3 million common shares of RenaissanceRe. The sale of Validus Re is expected to close in the fourth quarter of 2023, subject to regulatory approvals and other customary closing conditions. For further details on this transaction, see Note 4.

Crop Risk Services

On May 2, 2023, AIG announced that it reached an agreement to sell Crop Risk Services, Inc. (CRS) to American Financial Group, Inc. (AFG) for approximately $ 240 million. The transaction closed on July 3, 2023. For further details on this transaction, see Note 4.

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Separation of Life and Retirement Business and Relationship with Blackstone Inc.

AIG owns 65.3 percent of the outstanding common stock of Corebridge Financial, Inc. (Corebridge) as of June 30, 2023. Corebridge is the holding company for AIG’s Life and Retirement business. AIG continues to consolidate Corebridge in AIG’s Condensed Consolidated Financial Statements. The portion of equity interest of Corebridge that AIG does not own is reflected as noncontrolling interest in AIG’s Condensed Consolidated Financial Statements.

On June 12, 2023, AIG closed a secondary offering of common shares of Corebridge. AIG sold 74.75 million shares of common stock of Corebridge at a public offering price of $ 16.25 per share, which included 65 million shares initially offered and the full exercise by the underwriters of their option to purchase an additional 9.75 million shares. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $ 1.2 billion. After consideration of underwriting discounts, commissions and other related expenses payable by AIG, AIG recorded a decrease of $ 71 million in Total AIG shareholders' equity.

On June 26, 2023, Corebridge repurchased 12.2 million shares of Corebridge common stock for an aggregate purchase price of $ 200 million, of which 11.0 million shares were from AIG for an aggregate purchase price of $ 180 million. As a result, AIG recorded a decrease of $ 15 million in Total AIG shareholders' equity.

On September 19, 2022, AIG closed on the initial public offering (IPO) of 80 million shares of Corebridge common stock at a public offering price of $ 21.00 per share, representing 12.4 percent of Corebridge's common stock. The aggregate gross proceeds of the offering to AIG, before deducting underwriting discounts and commissions and other expenses payable by AIG, were approximately $ 1.7 billion. After consideration of underwriting discounts, commissions and other related expenses payable by AIG, AIG recorded an increase of $ 497 million in Total AIG shareholders' equity, recalculated on an LDTI basis.

Blackstone Inc. (Blackstone) completed the acquisition of a 9.9 percent equity stake in Corebridge in November 2021. Blackstone is required to hold its ownership interest in Corebridge following the completion of the separation of the Life and Retirement business, subject to exceptions permitting Blackstone to sell 25 percent, 67 percent and 75 percent of its shares after the first, second and third anniversaries, respectively, of Corebridge IPO (which will be September 19, 2023, 2024 and 2025, respectively), with the transfer restrictions terminating in full on the fifth anniversary of the IPO (September 19, 2027).

Other Events

On December 14, 2022, AIG announced that its wholly-owned subsidiary, AIG Financial Products Corp. (AIGFP), filed a voluntary petition to reorganize under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware and filed a proposed plan of reorganization. The reorganization will not have a material impact on the consolidated balance sheets of AIG or our respective businesses. AIGFP has no material operations or businesses and no employees. In conjunction with the bankruptcy filing, AIGFP and its consolidated subsidiaries were deconsolidated from the results of AIG, resulting in a pre-tax loss of $ 114 million for the twelve months ended December 31, 2022, reported in Net gain (loss) on divestitures and other. In addition, AIGFP and its subsidiaries were determined to be an unconsolidated variable interest entity.

USE OF ESTIMATES

The preparation of financial statements in accordance with U.S. 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:

• loss reserves;

• valuation of future policy benefit liabilities and recognition of measurement gains and losses;

• valuation of market risk benefits (MRBs) related to guaranteed benefit features of variable annuity, fixed annuity and fixed index annuity products;

• valuation of embedded derivative liabilities for fixed index annuity and index universal life products;

• reinsurance assets, including the allowance for credit losses and disputes;

• goodwill impairment;

• allowance for credit losses on certain investments, primarily on loans and available for sale fixed maturity securities;

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

• income taxes, in particular the recoverability of our deferred tax asset and establishment of provisions for uncertain tax positions.

These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of operations and cash flows could be materially affected.

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There were no material changes to our significant accounting policies with the exception of the policies listed below which were impacted by the adoption of LDTI. For additional information on our significant accounting policies not impacted by the adoption of LDTI, see Note 2 to the Consolidated Financial Statements in the 2022 Annual Report.

The following list identifies our significant accounting policies presented in other Notes to these Condensed Consolidated Financial Statements, with a reference to the Note where a detailed description can be found:

Note 6. Investments

• Net realized gains (losses)

Note 7. Lending Activities

Note 8. Reinsurance

• Reinsurance assets – net of allowance

Note 9. Deferred Policy Acquisition Costs

• Deferred policy acquisition costs

• Deferred sales inducements

• Amortization of deferred policy acquisition costs

Note 12. Insurance Liabilities

• Future policy benefits

• Policyholder contract deposits

• Other policyholder funds

Note 13. Market Risk Benefits

OTHER SIGNIFICANT ACCOUNTING POLICIES

Insurance revenues include premiums and policy fees. All premiums and policy fees are presented net of reinsurance, as applicable. Premiums from long-duration life products, other than universal and variable life contracts, are recognized as revenues when due. Premiums from individual and group annuity contracts that are life contingent are recognized as revenues when due.

For limited payment contracts, premiums are due over a significantly shorter period than the period over which benefits are provided. Prior to the adoption of LDTI, effective on January 1, 2021, the difference between the gross premium received and the net premium was deferred and recognized in premiums in a constant relationship to insurance in-force, or for annuities, the amount of expected future policy benefits. This Deferred Profit Liability (DPL) was recorded in the Condensed Consolidated Balance Sheets in Other policyholder funds. After January 1, 2021, the difference between the gross premium received and recorded as revenue and the net premium is deferred and recognized in Policyholder benefits in a constant relationship to insurance in-force, or for annuities, the amount of expected future policy benefits. This DPL is recorded in the Condensed Consolidated Balance Sheets in Future policy benefits for life and accident and health insurance contracts.

Prior to the adoption of LDTI, effective on January 1, 2021, reinsurance premiums ceded under yearly renewable term (YRT) reinsurance agreements were recognized as a reduction in revenues over the period the reinsurance coverage was utilized in proportion to the risks to which the premiums relate, while premiums ceded under modified coinsurance (modco) treaties were recognized when due. Following the adoption of LDTI, after January 1, 2021 all reinsurance premiums ceded are recognized when due, following a ceded net premium ratio (NPR) methodology that also accrues a proportionate amount of estimated benefits.

Reinsurance premiums for assumed business are estimated based on information received from ceding companies and reinsurers. Any subsequent differences that arise regarding such estimates are recorded in the periods in which they are determined.

Amounts received as payment for investment-oriented contracts such as universal life, variable annuities, fixed annuities, and fixed index annuities, are reported as deposits to Policyholder contract deposits or Separate account liabilities, as applicable. Revenues from these contracts are recorded in policy fees and consist of policy charges for the cost of insurance, policy administration charges, surrender charges and amortization of unearned revenue reserves (URR). Policy fees are recognized as revenues in the period in which they are assessed against policyholders, unless the fees are designed to compensate AIG for services to be provided in the future. Prior to the adoption of LDTI, effective on January 1, 2021, fees deferred as unearned revenue were amortized in relation to the incidence of estimated gross profits (EGPs) to be realized over the estimated lives of the contracts. After January 1, 2021 fees deferred as unearned revenue are amortized on a constant level basis over the estimated lives of the contracts, consistent with the

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ACCOUNTING STANDARDS ADOPTED DURING 2023

Targeted Improvements to the Accounting for Long-Duration Contracts

In 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 Company adopted the standard on January 1, 2023 using the modified retrospective transition method relating to liabilities for traditional and limited payment contracts and deferred policy acquisition costs. The Company also adopted the standard in relation to MRBs on a full retrospective basis. As of the Transition Date, the impact of the adoption of the standard was a net decrease to beginning Accumulated other comprehensive income (loss) (AOCI) of $ 2.2 billion and a net increase to beginning Retained earnings of $ 933 million primarily driven by (1) changes related to MRBs in our Individual Retirement and Group Retirement operating segments, including the impact of non-performance risk adjustments which reclassified the portion of the changes in fair value attributable to non-performance risk from Retained earnings to AOCI, (2) changes to the discount rate used to measure the liability for future policy benefits which most significantly impacted our Life Insurance and Institutional Markets operating segments, and (3) the removal of balances recorded in AOCI related to changes in unrealized appreciation (depreciation) on investments. The Condensed Consolidated Financial Statements as of December 31, 2022 and for three and six months ended June 30, 2022 have been adjusted to reflect the effects of applying the standard.

The accounting for the Fortitude Reinsurance Company Ltd. (Fortitude Re) reinsurance assets, including the discount rates, continued to be calculated using the same methodology and assumptions as the direct policies, and therefore have been recalculated on an LDTI basis. The accounting for reinsurance transactions between AIG and Fortitude Re structured as modco remained unchanged.

Market risk benefits: The standard requires the measurement of all MRBs (e.g., living benefit and death benefit guarantees associated with variable annuities) associated with deposit (or account balance) contracts at fair value at each reporting period. Changes in fair value compared to prior periods are recorded and presented separately within the income statement, with the exception of our own credit risk changes (non-performance adjustments), which are recognized in Other comprehensive income (loss) (OCI). MRBs impacted both Retained earnings and AOCI upon transition.

The accounting for MRBs primarily impacted our Individual Retirement and Group Retirement operating segments. For additional disclosures about MRBs, see Note 13.

Discount rate assumption: The standard requires the discount rate assumption for the liability for future policy benefits to be updated at the end of each reporting period using an upper-medium grade (low credit risk) fixed income instrument yield that maximizes the use of observable market inputs. Upon transition, the Company had an adjustment to AOCI due to the fact that the market upper-medium grade (low credit risk) interest rates as of the Transition Date differed from reserve interest accretion rates.

Following adoption of the standard, the impact of changes to discount rates are recognized through OCI. Changes resulting from updating the discount rate each reporting period primarily impact term life insurance and other traditional life insurance products, as well as pension risk transfer (PRT) and structured settlement products. For additional information on the discount rate assumption under accounting for Long-Duration Contracts Standard, see Note 12.

Removal of balances related to changes in unrealized appreciation (depreciation) on investments: Under the standard, the majority of balances recorded in AOCI related to changes in unrealized appreciation (depreciation) on investments were eliminated.

In addition to the above, the standard also:

• 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 parenthetical presentation of any resulting re-measurement gain or loss in Policyholder benefits and losses incurred (except for discount rate changes as noted above) in the Condensed Consolidated Statements of Income (Loss). For additional information, see Note 12.

• Simplifies the amortization of DAC to a constant level basis over the expected term of the related contracts and no longer requires an impairment test. For additional information, see Note 9.

• Increases disclosures of disaggregated rollforwards of several balances, including but not limited to liabilities for future policy benefits, deferred acquisition costs, account balances, MRBs, separate account liabilities and information about significant inputs, judgments and methods used in measurement and changes thereto and impact of those changes.

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The following table presents the impacts in connection with the adoption of LDTI effective as of January 1, 2021 as well as cross references to the applicable notes herein for additional information:

						Pre-Adoption, December 31, 2020						Cumulative Effect Adjustment as of January 1, 2021						Updated Balances Post-Adoption of LDTI
(in millions)
Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes (a)						$	34,578					$	7,666					$	42,244
Reinsurance assets - other, net of allowance for credit losses and disputes (a)						38,963						469						39,432
Deferred income taxes						12,624						339						12,963
Deferred policy acquisition costs (b)						9,805						3,150						12,955
Market risk benefit assets (c)						—						338						338
Other assets, net of allowance for credit losses (d)						13,122						398						13,520
Total assets						586,481						12,360						598,841
Future policy benefits for life and accident and health insurance contracts (e)						56,878						10,486						67,364
Policyholder contract deposits (e)						154,470						( 6,247 )						148,223
Market risk benefit liabilities (c)						—						8,739						8,739
Other policyholder funds (f)						3,548						248						3,796
Other liabilities (g)						27,122						398						27,520
Total liabilities						519,282						13,624						532,906
Retained earnings						15,504						933						16,437
Accumulated other comprehensive income (loss)						13,511						( 2,197 )						11,314
Total AIG Shareholders' equity						66,362						( 1,264 )						65,098
Total equity						67,199						( 1,264 )						65,935
Total liabilities and equity						586,481						12,360						598,841

(a) For additional information on the transition impacts associated with LDTI, see Note 8.

(b) For additional information on the transition impacts associated with LDTI, see Note 9.

(c) For additional information on the transition impacts associated with LDTI, see Note 13.

(d) Other assets include deferred sales inducement assets. For additional information on the transition impacts associated with LDTI, see Note 9.

(e) For additional information on the transition impacts associated with LDTI, see Note 12.

(f) Other policyholder funds include URR. For additional information on the transition impacts associated with LDTI, see Note 12.

(g) Other liabilities include deferred cost of reinsurance liabilities. For additional information on the transition impacts associated with LDTI, see Note 8.

The following table presents the impacts in connection with the adoption of LDTI effective as of January 1, 2021 on our previously reported Condensed Consolidated Balance Sheets as of December 31, 2022:

						As Previously Reported						Effect of Change						Updated Balances Post-Adoption of LDTI
(in millions)
Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes						$	32,159					$	( 1,408 )					$	30,751
Reinsurance assets - other, net of allowance for credit losses and disputes						39,434						( 463 )						38,971
Deferred income taxes						15,144						( 340 )						14,804
Deferred policy acquisition costs						15,518						( 2,661 )						12,857
Market risk benefit assets						—						796						796
Other assets, net of allowance for credit losses						12,714						( 330 )						12,384
Total assets						526,634						( 4,406 )						522,228
Future policy benefits for life and accident and health insurance contracts						59,223						( 7,309 )						51,914
Policyholder contract deposits						158,891						( 2,907 )						155,984
Market risk benefit liabilities						—						4,736						4,736
Other policyholder funds						3,909						( 446 )						3,463
Other liabilities						26,456						301						26,757
Total liabilities						484,399						( 5,625 )						478,774
Additional paid-in capital						80,284						( 369 )						79,915
Retained earnings						33,032						1,861						34,893
Accumulated other comprehensive income (loss)						( 22,092 )						( 524 )						( 22,616 )
Total AIG Shareholders' equity						40,002						968						40,970
Non-redeemable noncontrolling interests						2,233						251						2,484
Total equity						42,235						1,219						43,454
Total liabilities and equity						526,634						( 4,406 )						522,228

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The following table presents the impacts in connection with the adoption of LDTI on our previously reported Condensed Consolidated Statements of Income (Loss):

						Three Months Ended June 30, 2022															Six Months Ended June 30, 2022
						As Previously Reported						Effect of Change						Updated Balances Post- Adoption of LDTI									As Previously Reported						Effect of Change						Updated Balances Post- Adoption of LDTI
(in millions, except per common share data)
Revenues:
Premiums						$	7,516					$	( 4 )					$	7,512								$	14,626					$	6					$	14,632
Policy fees						742						( 14 )						728									1,506						( 48 )						1,458
Total net realized gains (losses)						3,392						( 760 )						2,632									7,811						( 1,600 )						6,211
Total revenues						14,441						( 778 )						13,663									30,249						( 1,642 )						28,607
Benefits, losses and expenses:
Policyholder benefits and losses incurred						5,123						( 139 )						4,984									10,378						( 334 )						10,044
Change in the fair value of market risk benefits, net						—						( 45 )						( 45 )									—						( 278 )						( 278 )
Interest credited to policyholder account balances						910						1						911									1,787						3						1,790
Amortization of deferred acquisition costs						1,298						( 182 )						1,116									2,735						( 482 )						2,253
General operating and other expenses						2,223						( 17 )						2,206									4,404						( 34 )						4,370
Total benefits, losses and expenses						10,120						( 382 )						9,738									20,093						( 1,125 )						18,968
Income (loss) from continuing operations before income tax expense (benefit)						4,321						( 396 )						3,925									10,156						( 517 )						9,639
Income tax expense (benefit)						928						( 83 )						845									2,107						( 108 )						1,999
Income (loss) from continuing operations						3,393						( 313 )						3,080									8,049						( 409 )						7,640
Net income (loss)						3,392						( 313 )						3,079									8,048						( 409 )						7,639
Net income (loss) from continuing operations attributable to noncontrolling interests						356						( 31 )						325									752						( 40 )						712
Net income (loss) attributable to AIG						3,036						( 282 )						2,754									7,296						( 369 )						6,927
Net income (loss) attributable to AIG common shareholders						3,028						( 282 )						2,746									7,281						( 369 )						6,912
Income (loss) per common share attributable to AIG common shareholders:
Common stock - Basic						3.83						( 0.36 )						3.47									9.06						( 0.46 )						8.60
Common stock - Diluted						3.78						( 0.35 )						3.43									8.95						( 0.45 )						8.50

The following table presents the impacts in connection with the adoption of LDTI on our previously reported Condensed Consolidated Statements of Comprehensive Income (Loss):

						Three Months Ended June 30, 2022															Six Months Ended June 30, 2022
						As Previously Reported						Effect of Change						Updated Balances Post- Adoption of LDTI									As Previously Reported						Effect of Change						Updated Balances Post- Adoption of LDTI
(in millions)
Net income						$	3,392					$	( 313 )					$	3,079								$	8,048					$	( 409 )					$	7,639
Other comprehensive income (loss), net of tax
Change in unrealized appreciation (depreciation) of fixed maturity securities on which allowance for credit losses was taken						40						( 4 )						36									( 5 )						( 4 )						( 9 )
Change in unrealized appreciation (depreciation) of all other investments						( 12,538 )						( 2,244 )						( 14,782 )									( 26,145 )						( 4,778 )						( 30,923 )
Change in fair value of market risk benefits attributable to changes in our own credit risk						—						582						582									—						1,364						1,364
Change in the discount rates used to measure traditional and limited payment long-duration insurance contracts						—						1,870						1,870									—						4,160						4,160
Change in foreign currency translation adjustments						( 281 )						( 54 )						( 335 )									( 286 )						( 55 )						( 341 )
Other comprehensive income (loss)						( 12,767 )						150						( 12,617 )									( 26,415 )						687						( 25,728 )
Comprehensive income (loss)						( 9,375 )						( 163 )						( 9,538 )									( 18,367 )						278						( 18,089 )
Comprehensive income (loss) attributable to noncontrolling interests						( 655 )						( 18 )						( 673 )									( 1,320 )						22						( 1,298 )
Comprehensive income (loss) attributable to AIG						( 8,720 )						( 145 )						( 8,865 )									( 17,047 )						256						( 16,791 )

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The following table presents the impacts in connection with the adoption of LDTI on our previously reported Condensed Consolidated Statements of Cash Flows:

Six Months Ended June 30, 2022						As Previously Reported						Effect of Change			Updated Balances Post-Adoption of LDTI
(in millions)
Cash flows from operating activities:
Net income			$			8,048			$			( 409 )			$			7,639
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income (loss):
Unrealized gains in earnings - net						( 3,238 )						1,906						( 1,332 )
Change in the fair value of market risk benefits in earnings, net						—						( 541 )						( 541 )
Depreciation and other amortization						2,698						( 508 )						2,190
Changes in operating assets and liabilities:
Insurance reserves						1,402						( 1,024 )						378
Premiums and other receivables and payables - net						( 7,646 )						( 20 )						( 7,666 )
Reinsurance assets, net						20						811						831
Capitalization of deferred policy acquisition costs						( 2,543 )						( 34 )						( 2,577 )
Current and deferred income taxes - net						1,842						( 109 )						1,733
Other, net						( 783 )						( 105 )						( 888 )
Total adjustments						( 7,418 )						376						( 7,042 )
Net cash provided by operating activities						631						( 33 )						598
Cash flows from financing activities:
Policyholder contract deposits						12,457						34						12,491
Net cash used in financing activities						( 2,793 )						34						( 2,759 )

Troubled Debt Restructuring and Vintage Disclosures

In March 2022, the FASB issued an accounting standard update that eliminates the accounting guidance for troubled debt restructurings for creditors and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The standard also updates the requirements for accounting for credit losses by adding enhanced disclosures for creditors related to loan refinancings and restructurings for borrowers experiencing financial difficulty. The Company adopted the standard prospectively as of January 1, 2023 and the standard did not have a material impact on our reported consolidated financial condition, results of operations, or cash flows. For the updated required disclosures, see Note 7.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

Fair Value Measurement

On June 30, 2022, the FASB issued an accounting standards update to address diversity in practice by clarifying that a contractual sale restriction should not be considered in the measurement of the fair value of an equity security. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities. The guidance is effective for public companies for fiscal years beginning after December 15, 2023 and interim period within those years, with early adoption permitted. For entities other than investment companies, the accounting standards update applies prospectively, with any adjustments resulting from adoption recognized in earnings on the date of adoption. We are assessing the impact of this standard.

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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:

GENERAL INSURANCE

General Insurance business is presented as two operating segments:

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

• International – consists of regional insurance businesses in Japan, the United Kingdom, Europe, Middle East and Africa (EMEA region), Asia Pacific, Latin America and Caribbean, and China. International also includes the results of Talbot Holdings, Ltd. as well as AIG’s Global Specialty business.

North America and International operating segments consist of the following products:

– Commercial Lines – consists of Property, Liability, Financial Lines, and Specialty.

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

LIFE AND RETIREMENT

Life and Retirement business is presented as four operating segments:

• Individual Retirement – consists of fixed annuities, fixed index annuities and variable annuities.

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

• Life Insurance – primary products in the U.S. include term life and universal life insurance. International operations primarily 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, high net worth products and guaranteed investment contracts (GICs).

OTHER OPERATIONS

Other Operations primarily consists of income from assets held by AIG Parent and other corporate subsidiaries, deferred tax assets related to tax attributes, corporate expenses and intercompany eliminations, our institutional asset management business and results of our consolidated investment entities, General Insurance portfolios in run-off as well as the historical results of our legacy insurance lines ceded to Fortitude Re.

SEGMENT RESULTS

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 pre-tax income (loss), respectively. 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. Legal entities are attributed to each segment based upon the predominance of activity in that legal entity. For the items excluded from adjusted revenues and adjusted pre-tax income (loss), see the table below.

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

Three Months Ended June 30,			2023																		2022
(in millions)						Adjusted Revenues						Adjusted Pre-tax Income (Loss)												Adjusted Revenues						Adjusted Pre-tax Income (Loss)
General Insurance
North America			$			3,195			$			352			(a)						$			2,972			$			406			(a)
International						3,302						242			(a)									3,414						393			(a)
Net investment income						725						725												458						458
Total General Insurance						7,222						1,319												6,844						1,257
Life and Retirement
Individual Retirement						1,578						585												1,267						370
Group Retirement						690						201												672						180
Life Insurance						1,280						78												1,314						120
Institutional Markets						2,368						127												786						77
Total Life and Retirement						5,916						991												4,039						747
Other Operations
Other Operations before consolidation and eliminations						111						( 423 )												207						( 331 )
Consolidation and eliminations						( 14 )						3												( 136 )						( 130 )
Total Other Operations						97						( 420 )												71						( 461 )
Total						13,235						1,890												10,954						1,543
Reconciling items:
Changes in fair value of securities used to hedge guaranteed living benefits						14						( 3 )												13						10
Change in the fair value of market risk benefits, net (b)						—						262												—						45
Changes in benefit reserves related to net realized gains (losses)						—						( 1 )												—						7
Changes in the fair value of equity securities						43						43												( 30 )						( 30 )
Other income (expense) - net						( 12 )						—												( 9 )						—
Loss on extinguishment of debt						—						—												—						( 299 )
Net investment income on Fortitude Re funds withheld assets						291						291												188						188
Net realized losses on Fortitude Re funds withheld assets						( 138 )						( 138 )												( 86 )						( 86 )
Net realized gains on Fortitude Re funds withheld embedded derivative						180						180												2,776						2,776
Net realized losses (c)						( 395 )						( 390 )												( 147 )						( 140 )
Net gain (loss) on divestitures and other						—						43												—						( 1 )
Non-operating litigation reserves and settlements						—						( 1 )												4						4
Favorable prior year development and related amortization changes ceded under retroactive reinsurance agreements						—						18												—						144
Net loss reserve discount charge						—						( 16 )												—						( 14 )
Pension expense related to a one-time lump sum payment to former employees						—						( 67 )												—						—
Integration and transaction costs associated with acquiring or divesting businesses						—						( 79 )												—						( 38 )
Restructuring and other costs						—						( 153 )												—						( 175 )
Non-recurring costs related to regulatory or accounting changes						—						( 12 )												—						( 9 )
Revenues and pre-tax income			$			13,218			$			1,867									$			13,663			$			3,925

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Six Months Ended June 30,			2023																		2022
(in millions)						Adjusted Revenues																		Adjusted Pre-tax Income (Loss)												Adjusted Revenues						Adjusted Pre-tax Income (Loss)
General Insurance
North America			$			6,175																					$			651			(a)						$			5,761			$			662			(a)
International						6,581																								445			(a)									6,881						583			(a)
Net investment income						1,471																								1,471												1,223						1,223
Total General Insurance						14,227																								2,567												13,865						2,468
Life and Retirement
Individual Retirement						3,062																								1,118												2,614						836
Group Retirement						1,373																								388												1,406						421
Life Insurance						2,529																								160												2,625						233
Institutional Markets						4,323																								211												1,335						191
Total Life and Retirement						11,287																								1,877												7,980						1,681
Other Operations
Other Operations before consolidation and eliminations						243																								( 857 )												501						( 619 )
AIG consolidation and eliminations						( 78 )																								( 54 )												( 272 )						( 263 )
Total Other Operations						165																								( 911 )												229						( 882 )
Total						25,679																								3,533												22,074						3,267
Reconciling items:
Changes in fair value of securities used to hedge guaranteed living benefits						27																								( 6 )												27						23
Change in the fair value of market risk benefits, net (b)						—																								66												—						278
Changes in benefit reserves related to net realized gains (losses)						—																								5												—						9
Changes in the fair value of equity securities						94																								94												( 57 )						( 57 )
Other income (expense) - net						( 19 )																								—												( 16 )						—
Loss on extinguishment of debt						—																								—												—						( 299 )
Net investment income on Fortitude Re funds withheld assets						737																								737												479						479
Net realized gains (losses) on Fortitude Re funds withheld assets						( 169 )																								( 169 )												( 226 )						( 226 )
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative						( 985 )																								( 985 )												6,094						6,094
Net realized gains (losses) (c)						( 1,167 )																								( 1,156 )												194						209
Net gain (loss) on divestitures and other						—																								41												—						39
Non-operating litigation reserves and settlements						1																								—												38						38
Favorable prior year development and related amortization changes ceded under retroactive reinsurance agreements						—																								37												—						144
Net loss reserve discount benefit (charge)						—																								( 80 )												—						6
Pension expense related to a one-time lump sum payment to former employees						—																								( 67 )												—						—
Integration and transaction costs associated with acquiring or divesting businesses						—																								( 131 )												—						( 84 )
Restructuring and other costs						—																								( 270 )												—						( 268 )
Non-recurring costs related to regulatory or accounting changes						—																								( 25 )												—						( 13 )
Net impact from elimination of international reporting lag (d)						4																								12												—						—
Revenues and pre-tax income (loss)			$			24,202																					$			1,636									$			28,607			$			9,639

(a) General Insurance North America’s and General Insurance International’s Adjusted pre-tax income does not include Net investment income as the investment portfolio results are managed at the General Insurance level. Net investment income is shown separately as a component of General Insurance’s total Adjusted pre-tax income results.

(b) Includes realized gains and losses on certain derivative instruments used for non-qualifying (economic) hedging.

(c) Includes all net realized gains and losses except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedging or for asset replication and net realized gains and losses on Fortitude Re funds withheld assets held by AIG in support of Fortitude Re’s reinsurance obligations to AIG (Fortitude Re funds withheld assets).

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4. Held-For-Sale Classification

HELD-FOR-SALE CLASSIFICATION

We report and classify a business as held-for-sale (Held-For-Sale Business) when management has approved the sale or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A Held-For-Sale Business is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized.

Assets and liabilities related to a Held-For-Sale Business are reported in Assets held for sale and Liabilities held for sale, respectively, in our Condensed Consolidated Balance Sheets beginning in the period in which the business is classified as held-for-sale. At June 30, 2023, the following businesses were reported and classified as held-for-sale:

Validus Re

To further simplify AIG's business model and reduce volatility in our portfolio, on May 22, 2023, AIG announced that it entered into a definitive agreement to sell Validus Re, including AlphaCat Managers Ltd. and the Talbot Treaty reinsurance business to RenaissanceRe for $ 2.7 billion in cash and approximately 1.3 million common shares of RenaissanceRe. Additionally, AIG agreed to retain 95 percent of the difference between (i) the reserves with respect to the business as of the closing date of the sale for losses occurring prior to the closing date and (ii) the associated reserve development following the closing date with respect to such losses. Any reserve development will be settled annually, commencing with the calendar year ending December 31, 2024. This arrangement stays in effect until the parties determine to terminate such arrangement (which they will re-evaluate on an annual basis beginning 5 years after the closing date) or until all such liabilities of the acquired reinsurance business have run off. This reserve cover is considered contingent consideration and will be recognized at fair value when the sale of Validus Re closes. The sale is expected to close in the fourth quarter of 2023, subject to regulatory approvals and other customary closing conditions. The results of Validus Re are reported in General Insurance.

CRS

On May 2, 2023, AIG announced that it reached an agreement to sell CRS, also purchased as part of the 2018 acquisition of Validus Holdings Ltd. in 2018, to AFG for approximately $ 240 million. The transaction closed on July 3, 2023. The historical results of CRS are reported in General Insurance.

The following table summarizes the components of assets and liabilities held-for-sale on the Condensed Consolidated Balance Sheets at June 30, 2023 after elimination of intercompany balances:

(in millions)						Validus Re						CRS						Total
Assets:
Bonds available for sale			$			4,568			$			—			$			4,568
Other invested assets						5						—						5
Short-term investments, including restricted cash of $ 46						389						29						418
Cash						191						—						191
Accrued investment income						26						—						26
Premiums and other receivables, net of allowance for credit losses and disputes						3,812						51						3,863
Reinsurance assets - other, net of allowance for credit losses and disputes						2,057						—						2,057
Deferred income taxes						75						—						75
Deferred policy acquisition costs						712						—						712
Other assets, net of allowance for credit losses (a)						591						189						780
Total assets held for sale			$			12,426			$			269			$			12,695
Liabilities:
Liability for unpaid losses and loss adjustment expenses, including allowance for credit losses			$			4,929			$			—			$			4,929
Unearned premiums						3,006						—						3,006
Other liabilities						1,220						173						1,393
Long-term debt						267						—						267
Total liabilities held for sale			$			9,422			$			173			$			9,595

(a) Other assets, net of allowance for credit losses includes goodwill and other intangibles of $ 318 million and $ 235 million, respectively, for Validus Re and $ 23 million and $ 20 million, respectively, for CRS.

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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.

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.

The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the levels discussed above, and the observability of the inputs used determines the appropriate level in the fair value hierarchy for the respective asset or liability.

VALUATION METHODOLOGIES OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

There were no material changes to valuation methodologies of financial instruments measured at fair value with the exception of the valuation methodologies listed below which were impacted by the adoption of LDTI. For additional information on valuation methodologies not impacted by the adoption LDTI, see Note 4 to the Consolidated Financial Statements in the 2022 Annual Report.

Market Risk Benefits and Embedded Derivatives within Policyholder Contract Deposits

Certain variable annuity, fixed annuity and fixed index annuity contracts contain MRBs related to guaranteed benefit features that we separate from the host contracts and account for at fair value, with certain changes recognized in earnings. MRBs are contracts or contract features that provide protection to policyholders from other-than-nominal capital market risks and therefore expose the insurance entity to other-than-nominal capital market risks.

The fair value of MRBs contained in certain variable annuity, fixed annuity and fixed index annuity contracts is measured based on policyholder behavior and capital market assumptions related to projected cash flows over the expected lives of the contracts. These discounted cash flow projections primarily include benefits and related fees assessed, when applicable. In some instances, the projected cash flows from fees may exceed projected cash flows related to benefit payments and therefore, at a point in time, the carrying value of the MRBs may be in a net asset position. The projected cash flows incorporate best estimate assumptions for policyholder behavior (including mortality, lapses, withdrawals and benefit utilization), along with an explicit risk margin to reflect a market participant’s estimates of projected cash flows and policyholder behavior. Estimates of future policyholder behavior assumptions are subjective and are based primarily on our historical experience.

Because of the dynamic and complex nature of the projected cash flows with respect to MRBs in our variable annuity, fixed annuity, and fixed index annuity contracts, risk neutral valuations are used, which are calibrated to observable interest rate and equity option prices. Estimating the underlying cash flows for these products involves judgments regarding the capital market assumptions related to expected market rates of return, market volatility, credit spreads, correlations of certain market variables, fund performance and discount rates. Additionally, estimating the underlying cash flows for these products also involves judgments regarding policyholder behavior. The portion of fees attributable to the fair value of expected benefit payments is included within the fair value measurement of these MRBs, and related fees are classified in change in the fair value of MRBs, net, as earned, consistent with other changes in the fair value of these MRBs. Any portion of the fees not attributed to the MRBs is excluded from the fair value measurement and classified in policy fees as earned.

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Option pricing models are used to estimate the fair value of embedded derivatives in our fixed index annuity and life contracts, taking into account the capital market assumptions for future index growth rates, volatility of the equity indices, future interest rates, and our ability to adjust the participation rate and the cap on fixed index credited rates in light of market conditions and policyholder behavior assumptions.

Projected cash flows are discounted using the interest rate swap curve (swap curve), which is viewed as being consistent with the credit spreads for highly-rated financial institutions (S&P AA-rated or above). A swap curve shows the fixed-rate leg of a non-complex swap against the floating rate (for example, Secured Overnight Financing Rate (SOFR) or London Inter-Bank Offered Rate) leg of a related tenor. We also incorporate our own risk of non-performance in the valuation of MRBs and embedded derivatives associated with variable annuity, fixed annuity, fixed index annuity and life contracts. The non-performance risk adjustment (NPA) reflects a market participant’s view of our claims-paying ability by incorporating an additional spread to the swap curve used to discount projected benefit cash flows. The NPA is calculated by constructing forward rates based on a weighted average of observable corporate credit indices to approximate the claims-paying ability rating of our insurance companies. The corporate credit indices are observable for the first 30 years. For years 30 to 50, the yield is derived using market observable yields. Yields for years 50 to 100 are extrapolated using a flat forward approach, maintaining a constant forward spread through the period. MRBs are measured using a NPA that is a locked-in estimate of our claims-paying ability at policy issue (locked-in NPA) as well as a NPA that reflects an estimate of our current claims-paying ability (current NPA).

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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:

June 30, 2023						Level 1						Level 2						Level 3			Counterparty Netting (a)						Cash Collateral									Total
(in millions)
Assets:
Bonds available for sale:
U.S. government and government sponsored entities			$			82			$			6,087			$			—			$			—			$			—			$			6,169
Obligations of states, municipalities and political subdivisions						—						10,277						869						—						—						11,146
Non-U.S. governments						204						12,298						6						—						—						12,508
Corporate debt						—						131,582						1,721						—						—						133,303
RMBS						—						11,277						7,617						—						—						18,894
CMBS						—						13,196						553						—						—						13,749
CLO/ABS						—						12,547						14,214						—						—						26,761
Total bonds available for sale						286						197,264						24,980						—						—						222,530
Other bond securities:
U.S. government and government sponsored entities						—						—						—						—						—						—
Obligations of states, municipalities and political subdivisions						—						108						3						—						—						111
Non-U.S. governments						—						46						—						—						—						46
Corporate debt						—						2,422						155						—						—						2,577
RMBS						—						194						164						—						—						358
CMBS						—						283						26						—						—						309
CLO/ABS						—						496						1,044						—						—						1,540
Total other bond securities						—						3,549						1,392						—						—						4,941
Equity securities						465						123						72						—						—						660
Other invested assets (b)						—						153						2,140						—						—						2,293
Derivative assets (c) :
Interest rate contracts						—						2,122						339						—						—						2,461
Foreign exchange contracts						—						1,426						1						—						—						1,427
Equity contracts						11						603						666						—						—						1,280
Commodity contracts						—						—						—						—						—						—
Credit contracts						—						—						33						—						—						33
Other contracts						—						—						15						—						—						15
Counterparty netting and cash collateral						—						—						—						( 2,826 )						( 1,980 )						( 4,806 )
Total derivative assets						11						4,151						1,054						( 2,826 )						( 1,980 )						410
Short-term investments						1,881						2,397						—						—						—						4,278
Market risk benefit assets						—						—						954						—						—						954
Other assets (c)						—						—						111						—						—						111
Separate account assets						86,579						3,139						—						—						—						89,718
Total (d)			$			89,222			$			210,776			$			29,749			$			( 2,826 )			$			( 1,980 )			$			324,941
Liabilities:
Policyholder contract deposits			$			—			$			51			$			6,813			$			—			$			—			$			6,864
Market risk benefit liabilities						—						—						4,977						—						—						4,977
Derivative liabilities (c) :
Interest rate contracts						—						3,108						—						—						—						3,108
Foreign exchange contracts						—						796						3						—						—						799
Equity contracts						23						303						21						—						—						347
Credit contracts						—						6						33						—						—						39
Counterparty netting and cash collateral						—						—						—						( 2,826 )						( 1,182 )						( 4,008 )
Total derivative liabilities						23						4,213						57						( 2,826 )						( 1,182 )						285
Fortitude Re funds withheld payable						—						—						( 2,118 )						—						—						( 2,118 )
Other liabilities						—						—						98						—						—						98
Long-term debt						—						50						—						—						—						50
Total			$			23			$			4,314			$			9,827			$			( 2,826 )			$			( 1,182 )			$			10,156

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December 31, 2022						Level 1						Level 2						Level 3			Counterparty Netting (a)						Cash Collateral									Total
(in millions)
Assets:
Bonds available for sale:
U.S. government and government sponsored entities			$			25			$			6,594			$			—			$			—			$			—			$			6,619
Obligations of states, municipalities and political subdivisions						—						11,275						824						—						—						12,099
Non-U.S. governments						158						13,326						1						—						—						13,485
Corporate debt						—						134,992						2,847						—						—						137,839
RMBS						—						11,264						7,553						—						—						18,817
CMBS						—						13,267						926						—						—						14,193
CLO/ABS						—						10,356						12,748						—						—						23,104
Total bonds available for sale						183						201,074						24,899						—						—						226,156
Other bond securities:
Obligations of states, municipalities and political subdivisions						—						111						—						—						—						111
Non-U.S. governments						—						66						—						—						—						66
Corporate debt						—						1,976						416						—						—						2,392
RMBS						—						113						173						—						—						286
CMBS						—						303						28						—						—						331
CLO/ABS						—						389						910						—						—						1,299
Total other bond securities						—						2,958						1,527						—						—						4,485
Equity securities						518						18						39						—						—						575
Other invested assets (b)						—						145						2,075						—						—						2,220
Derivative assets (c) :
Interest rate contracts						1						3,410						311						—						—						3,722
Foreign exchange contracts						—						1,844						—						—						—						1,844
Equity contracts						11						132						285						—						—						428
Commodity contracts						—						9						—						—						—						9
Credit contracts						—						—						32						—						—						32
Other contracts						—						—						14						—						—						14
Counterparty netting and cash collateral						—						—						—						( 3,895 )						( 1,640 )						( 5,535 )
Total derivative assets						12						5,395						642						( 3,895 )						( 1,640 )						514
Short-term investments						2,821						2,887						—						—						—						5,708
Market risk benefit assets						—						—						796						—						—						796
Other assets (c)						—						—						107						—						—						107
Separate account assets						81,655						3,198						—						—						—						84,853
Total			$			85,189			$			215,675			$			29,289			$			( 3,895 )			$			( 1,640 )			$			324,618
Liabilities:
Policyholder contract deposits			$			—			$			41			$			5,367			$			—			$			—			$			5,408
Market risk benefit liabilities						—						—						4,736						—						—						4,736
Derivative liabilities (c) :
Interest rate contracts						—						4,838						—						—						—						4,838
Foreign exchange contracts						—						1,138						—						—						—						1,138
Equity contracts						2						10						14						—						—						26
Credit contracts						—						9						32						—						—						41
Counterparty netting and cash collateral						—						—						—						( 3,895 )						( 1,917 )						( 5,812 )
Total derivative liabilities						2						5,995						46						( 3,895 )						( 1,917 )						231
Fortitude Re funds withheld payable						—						—						( 2,235 )						—						—						( 2,235 )
Other liabilities						—						—						112						—						—						112
Long-term debt						—						56						—						—						—						56
Total			$			2			$			6,092			$			8,026			$			( 3,895 )			$			( 1,917 )			$			8,308

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

(b) Excludes investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent), which totaled $ 9.8 billion and $ 9.8 billion as of June 30, 2023 and December 31, 2022, respectively.

(c) Presented as part of Other assets and Other liabilities on the Condensed Consolidated Balance Sheets.

(d) Excludes $ 5.0 billion of assets reclassified to Assets held for sale on the Condensed Consolidated Balance Sheets.

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CHANGES IN LEVEL 3 RECURRING FAIR VALUE MEASUREMENTS

The following tables present changes during the three and six months ended June 30, 2023 and 2022 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 June 30, 2023 and 2022:

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(in millions)						Fair Value Beginning of Year						MRBs and Net Realized and Unrealized Gains (Losses) Included in Income						Other Comprehensive Income (Loss)						Purchases, Sales, Issuances and Settlements, Net						Gross Transfers In						Gross Transfers Out						Other						Fair Value End of Period						Changes in Unrealized Gains (Losses) Included in Income on Instruments Held at End of Period						Changes in Unrealized Gains (Losses) Included in Other Comprehensive Income (Loss) for Recurring Level 3 Instruments Held at End of Period
Six Months Ended June 30, 2022
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions			$			1,431			$			2			$			( 428 )			$			( 65 )			$			17			$			—			$			—			$			957			$			—			$			( 410 )
Non-U.S. governments						7						—						—						—						2						—						—						9						—						—
Corporate debt						2,641						( 26 )						( 151 )						( 37 )						382						( 326 )						—						2,483						—						( 137 )
RMBS						10,378						222						( 943 )						( 874 )						—						( 431 )						—						8,352						—						( 925 )
CMBS						1,190						13						( 113 )						117						—						( 336 )						—						871						—						( 108 )
CLO/ABS						11,215						19						( 1,003 )						1,651						1,464						( 1,650 )						—						11,696						—						( 1,003 )
Total bonds available for sale						26,862						230						( 2,638 )						792						1,865						( 2,743 )						—						24,368						—						( 2,583 )
Other bond securities:
Corporate debt						134						( 4 )						—						124						222						( 15 )						—						461						( 4 )						—
RMBS						196						( 18 )						—						14						—						—						—						192						( 21 )						—
CMBS						35						( 3 )						—						—						—						—						—						32						( 3 )						—
CLO/ABS						2,332						( 249 )						—						352						63						( 56 )						—						2,442						( 162 )						—
Total other bond securities						2,697						( 274 )						—						490						285						( 71 )						—						3,127						( 190 )						—
Equity securities						6						—						—						6						—						—						—						12						—						—
Other invested assets						1,948						245						( 27 )						( 38 )						47						( 167 )						—						2,008						295						—
Other assets						114						—						—						( 7 )						—						—						—						107						—						—
Total (a)			$			31,627			$			201			$			( 2,665 )			$			1,243			$			2,197			$			( 2,981 )			$			—			$			29,622			$			105			$			( 2,583 )
(in millions)						Fair Value Beginning of Year						MRBs and Net Realized and Unrealized (Gains) Losses Included in Income						Other Comprehensive Income (Loss)						Purchases, Sales, Issuances and Settlements, Net						Gross Transfers In						Gross Transfers Out						Other						Fair Value End of Period						Changes in Unrealized Gains (Losses) Included in Income on Instruments Held at End of Period						Changes in Unrealized Gains (Losses) Included in Other Comprehensive Income (Loss) for Recurring Level 3 Instruments Held at End of Period
Liabilities:
Policyholder contract deposits			$			5,572			$			( 1,203 )			$			—			$			359			$			—			$			—			$			—			$			4,728			$			1,437			$			—
Derivative liabilities, net:
Interest rate contracts						—						11						—						( 73 )						( 81 )						—						—						( 143 )						( 10 )						—
Foreign exchange contracts						( 1 )						1						—						1						—						—						—						1						( 1 )						—
Equity contracts						( 444 )						390						—						( 94 )						—						( 1 )						—						( 149 )						( 247 )						—
Credit contracts						30						2						—						—						—						—						—						32						( 1 )						—
Other contracts						( 13 )						( 32 )						—						29						—						—						—						( 16 )						32						—
Total derivative liabilities, net (b)						( 428 )						372						—						( 137 )						( 81 )						( 1 )						—						( 275 )						( 227 )						—
Fortitude Re funds withheld payable						5,922						( 6,094 )						—						( 466 )						—						—						—						( 638 )						6,316						—
Total (c)			$			11,066			$			( 6,925 )			$			—			$			( 244 )			$			( 81 )			$			( 1 )			$			—			$			3,815			$			7,526			$			—

(a) Excludes MRB assets of $ 954 million at June 30, 2023 and $ 642 million at June 30, 2022, For additional information, see Note 13.

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

(c) Excludes MRB liabilities of $ 5.0 billion at June 30, 2023 and $ 5.3 billion at June 30, 2022. For additional information, see Note 13.

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Market risk benefits and 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 (Loss) as follows:

(in millions)						Net Investment Income						Net Realized Gains (Losses)						Change in the fair value of market risk benefits, net (c)						Other Income						Total
Three Months Ended June 30, 2023
Assets:
Bonds available for sale			$			121			$			( 28 )			$			—			$			—			$			93
Other bond securities						( 6 )						—						—						—						( 6 )
Equity securities						2						—						—						—						2
Other invested assets						( 20 )						1						—						—						( 19 )
Three Months Ended June 30, 2022
Assets:
Bonds available for sale			$			142			$			( 57 )			$			—			$			—			$			85
Other bond securities						( 153 )						—						—						—						( 153 )
Other invested assets						133						—						—						—						133
Six Months Ended June 30, 2023
Assets:
Bonds available for sale			$			183			$			( 24 )			$			—			$			—			$			159
Other bond securities						35						—						—						—						35
Other invested assets						( 71 )						—						—						—						( 71 )
Six Months Ended June 30, 2022
Assets:
Bonds available for sale			$			306			$			( 76 )			$			—			$			—			$			230
Other bond securities						( 274 )						—						—						—						( 274 )
Other invested assets						245						—						—						—						245
(in millions)						Net Investment Income						Net Realized (Gains) Losses						Change in the fair value of market risk benefits, net (c)						Other Income						Total
Three Months Ended June 30, 2023
Liabilities:
Policyholder contract deposits (a)			$			—			$			429			$			—			$			—			$			429
Market risk benefit liabilities, net (b)						—						( 3 )						( 884 )						—						( 887 )
Derivative liabilities, net						—						65						( 31 )						( 16 )						18
Fortitude Re funds withheld payable						—						( 180 )						—						—						( 180 )
Three Months Ended June 30, 2022
Liabilities:
Policyholder contract deposits (a)			$			—			$			( 545 )			$			—			$			—			$			( 545 )
Market risk benefit liabilities, net (b)						—						( 5 )						( 258 )						—						( 263 )
Derivative liabilities, net						—						120						( 18 )						( 13 )						89
Fortitude Re funds withheld payable						—						( 2,776 )						—						—						( 2,776 )
Six Months Ended June 30, 2023
Liabilities:
Policyholder contract deposits (a)			$			—			$			810			$			—			$			—			$			810
Market risk benefit liabilities, net (b)						—						( 3 )						( 797 )						—						( 800 )
Derivative liabilities, net						—						( 23 )						58						( 32 )						3
Fortitude Re funds withheld payable						—						985						—						—						985
Six Months Ended June 30, 2022
Liabilities:
Policyholder contract deposits (a)			$			—			$			( 1,203 )			$			—			$			—			$			( 1,203 )
Market risk benefit liabilities, net (b)						—						( 8 )						( 957 )						—						( 965 )
Derivative liabilities, net						—						447						( 47 )						( 28 )						372
Fortitude Re funds withheld payable						—						( 6,094 )						—						—						( 6,094 )

(a) Primarily embedded derivatives.

(b) Market risk benefit assets and liabilities have been netted in the above table for presentation purposes only.

(c) The portion of the fair value change attributable to own credit risk is recognized in OCI.

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(in millions)						Purchases						Sales						Issuances and Settlements (a)						Purchases, Sales, Issuances and Settlements, Net (a)
Six Months Ended June 30, 2023
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions			$			1			$			( 4 )			$			( 5 )			$			( 8 )
Corporate debt						22						—						( 396 )						( 374 )
RMBS						401						( 61 )						( 541 )						( 201 )
CMBS						10						( 32 )						( 17 )						( 39 )
CLO/ABS						1,392						( 151 )						( 11 )						1,230
Total bonds available for sale						1,826						( 248 )						( 972 )						606
Other bond securities:
Obligations of states, municipalities and political subdivisions						3						—						—						3
Corporate debt						87						—						( 159 )						( 72 )
RMBS						6						—						( 22 )						( 16 )
CLO/ABS						127						—						( 33 )						94
Total other bond securities						223						—						( 214 )						9
Equity securities						31						—						( 2 )						29
Other invested assets						152						—						( 23 )						129
Other assets						—						—						4						4
Total			$			2,232			$			( 248 )			$			( 1,207 )			$			777
Liabilities:
Policyholder contract deposits			$			—			$			728			$			( 92 )			$			636
Derivative liabilities, net						( 450 )						9						37						( 404 )
Fortitude Re funds withheld payable						—						—						( 868 )						( 868 )
Total			$			( 450 )			$			737			$			( 923 )			$			( 636 )
Six Months Ended June 30, 2022
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions			$			1			$			( 64 )			$			( 2 )			$			( 65 )
Corporate Debt						23						—						( 60 )						( 37 )
RMBS						285						—						( 1,159 )						( 874 )
CMBS						146						—						( 29 )						117
CLO/ABS						2,131						—						( 480 )						1,651
Total bonds available for sale						2,586						( 64 )						( 1,730 )						792
Other bond securities:
Corporate debt						24						—						100						124
RMBS						31						—						( 17 )						14
CLO/ABS						616						—						( 264 )						352
Total other bond securities						671						—						( 181 )						490
Equity securities						5						—						1						6
Other invested assets						517						—						( 555 )						( 38 )
Other assets						—						—						( 7 )						( 7 )
Total			$			3,779			$			( 64 )			$			( 2,472 )			$			1,243
Liabilities:
Policyholder contract deposits			$			—			$			417			$			( 58 )			$			359
Derivative liabilities, net						( 249 )						3						109						( 137 )
Fortitude Re funds withheld payable						—						—						( 466 )						( 466 )
Total			$			( 249 )			$			420			$			( 415 )			$			( 244 )

(a) There were no issuances during the three and six months ended June 30, 2023 and 2022.

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Transfers of Level 3 Assets and Liabilities

The Net realized and unrealized gains (losses) included in income (loss) or OCI as shown in the table above excludes $ 1 million and $ 8 million of net gains (losses) related to assets and liabilities transferred into Level 3 during the three and six months ended June 30, 2023, respectively, and includes $( 9 ) million and $( 14 ) million of net gains (losses) related to assets and liabilities transferred out of Level 3 during the three and six months ended June 30, 2023, respectively.

The Net realized and unrealized gains (losses) included in income (loss) or OCI as shown in the table above excludes $( 38 ) million and $( 72 ) million of net gains (losses) related to assets and liabilities transferred into Level 3 during the three and six months ended June 30, 2022, respectively, and includes $( 38 ) million and $( 79 ) million of net gains (losses) related to assets and liabilities transferred out of Level 3 during the three and six months ended June 30, 2022, respectively.

Transfers of Level 3 Assets

During the three and six months ended June 30, 2023 and 2022, transfers into Level 3 assets primarily included certain investments in private placement corporate debt, Residential Mortgage-Backed Securities (RMBS), Commercial Mortgage-Backed Securities (CMBS) and Collateralized Loan Obligations (CLO)/Asset-Backed Securities (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 CLO and certain ABS into Level 3 assets were due to diminished market transparency and liquidity for individual security types.

During the three and six months ended June 30, 2023 and 2022, transfers out of Level 3 assets primarily included certain investments in private placement corporate debt, RMBS, CMBS and CLO/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 CLO and certain ABS into Level 3 assets were due to diminished market transparency and liquidity for individual security types.

Transfers of Level 3 Liabilities

There were no significant transfers of derivative or other liabilities into or out of Level 3 for the three and six months ended June 30, 2023. During the three and six months ended June 30, 2022, transfers of derivatives into Level 3 were primarily due to increased long-dated European swaption activity with SOFR tenors.

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. Because input information from third-parties with respect to certain Level 3 instruments (primarily CLO/ABS) may not be reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and liabilities:

(in millions)						Fair Value at June 30, 2023						Valuation Technique			Unobservable Input (b)			Range (Weighted Average) (c)
Assets:
Obligations of states, municipalities and political subdivisions						$			846			Discounted cash flow			Yield			5.02 % - 5.46 % ( 5.24 %)
Corporate debt									1,570			Discounted cash flow			Yield			5.57 % - 8.14 % ( 6.85 %)
RMBS (a)									5,107			Discounted cash flow			Constant prepayment rate			4.76 % - 10.21 % ( 7.48 %)
															Loss severity			44.40 % - 77.42 % ( 60.91 %)
															Constant default rate			0.84 % - 2.71 % ( 1.77 %)
															Yield			4.37 % - 8.40 % ( 6.26 %)
CLO/ABS (a)									11,234			Discounted cash flow			Yield			6.05 % - 7.81 % ( 6.93 %)
CMBS									533			Discounted cash flow			Yield			4.86 % - 32.35 % ( 14.68 %)
Market risk benefit assets									954			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.16 % - 28.80 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			38.25 % - 160.01 %
															Utilization (g)			80.00 % - 100.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.34 % - 2.23 %

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(in millions)						Fair Value at June 30, 2023						Valuation Technique			Unobservable Input (b)			Range (Weighted Average) (c)
Liabilities (d) :
Market risk benefit liabilities:
Variable annuities guaranteed benefits									2,044			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.16 % - 28.80 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			38.25 % - 160.01 %
															Utilization (g)			80.00 % - 100.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.34 % - 2.23 %
Fixed annuities guaranteed benefits									886			Discounted cash flow			Base lapse rate			0.20 % - 15.75 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			40.26 % - 168.43 %
															Utilization (g)			90.00 % - 97.50 %
															NPA (f)			0.34 % - 2.23 %
Fixed index annuities guaranteed benefits									2,047			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.20 % - 50.00 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			24.00 % - 180.00 %
															Utilization (g)			60.00 % - 97.50 %
															Option budget			0.00 % - 6.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.34 % - 2.23 %
Embedded derivatives within Policyholder contract deposits:
Index credits on fixed index annuities (h)									5,973			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.20 % - 50.00 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			24.00 % - 180.00 %
															Utilization (g)			60.00 % - 97.50 %
															Option budget			0.00 % - 6.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.34 % - 2.23 %
Index life									840			Discounted cash flow			Base lapse rate			0.00 % - 37.97 %
															Mortality rate			0.00 % - 100.00 %
															Equity volatility			5.75 % - 20.82 %
															NPA (f)			0.34 % - 2.23 %

(in millions)						Fair Value at December 31, 2022						Valuation Technique			Unobservable Input (b)			Range (Weighted Average) (c)
Assets:
Obligations of states, municipalities and political subdivisions						$			799			Discounted cash flow			Yield			5.28 % - 5.94 % ( 5.61 %)
Corporate debt									2,527			Discounted cash flow			Yield			4.98 % - 9.36 % ( 7.17 %)
RMBS (a)									5,235			Discounted cash flow			Constant prepayment rate			4.89 % - 10.49 % ( 7.69 %)
															Loss severity			45.06 % - 76.87 % ( 60.97 %)
															Constant default rate			0.82 % - 2.72 % ( 1.77 %)
															Yield			5.98 % - 7.75 % ( 6.87 %)
CLO/ABS (a)									7,503			Discounted cash flow			Yield			6.00 % - 7.97 % ( 6.99 %)
CMBS									587			Discounted cash flow			Yield			4.06 % - 13.14 % ( 8.60 %)
Market risk benefit assets									796			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.16 % - 28.80 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			38.25 % - 160.01 %
															Utilization (g)			80.00 % - 100.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.00 % - 2.03 %

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(in millions)						Fair Value at December 31, 2022						Valuation Technique			Unobservable Input (b)			Range (Weighted Average) (c)
Liabilities (d) :
Market risk benefit liabilities:
Variable annuities guaranteed benefits									2,358			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.16 % - 28.80 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			38.25 % - 160.01 %
															Utilization (g)			80.00 % - 100.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.00 % - 2.03 %
Fixed annuities guaranteed benefits									680			Discounted cash flow			Base lapse rate			0.20 % - 15.75 %
															Dynamic lapse multiplier			20.00 % - 186.16 %
															Mortality multiplier (e)			40.26 % - 168.43 %
															Utilization (g)			90.00 % - 97.50 %
															NPA (f)			0.00 % - 2.03 %
Fixed index annuities guaranteed benefits									1,698			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.20 % - 50.00 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			24.00 % - 180.00 %
															Utilization (g)			60.00 % - 97.50 %
															Option budget			0.00 % - 5.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.00 % - 2.03 %
Embedded derivatives within Policyholder contract deposits:
Index credits on fixed index annuities (h)									4,657			Discounted cash flow			Equity volatility			6.45 % - 50.75 %
															Base lapse rate			0.20 % - 50.00 %
															Dynamic lapse multiplier			20.00 % - 186.18 %
															Mortality multiplier (e)			24.00 % - 180.00 %
															Utilization (g)			60.00 % - 97.50 %
															Option budget			0.00 % - 5.00 %
															Equity / interest rate correlation			0.00 % - 30.00 %
															NPA (f)			0.00 % - 2.03 %
Index life									710			Discounted cash flow			Base lapse rate			0.00 % - 37.97 %
															Mortality rate			0.00 % - 100.00 %
															Equity volatility			5.75 % - 23.63 %
															NPA (f)			0.00 % - 2.03 %

(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 CLO 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.

(c) The weighted averaging for fixed maturity securities is based on the estimated fair value of the securities. Because the valuation methodology for embedded derivatives with policyholder contract deposits and market risk benefits uses a range of inputs that vary at the contract level over the cash flow projection period, management believes that presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

(d) The Fortitude Re funds withheld payable has been excluded from the above table. As discussed in Note 8, the Fortitude Re funds withheld payable is created through modco and funds withheld reinsurance arrangements where the investments supporting the reinsurance agreements are withheld by, and continue to reside on AIG’s balance sheet. This embedded derivative is valued as a total return swap with reference to the fair value of the invested assets held by AIG. Accordingly, the unobservable inputs utilized in the valuation of the embedded derivative are a component of the invested assets supporting the reinsurance agreements that are held on AIG’s balance sheet.

(e) Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table.

(f) The NPA applied as a spread over risk-free curve for discounting.

(g) The partial withdrawal utilization unobservable input range shown applies only to policies with guaranteed minimum withdrawal benefit riders. The total embedded derivative liability at June 30, 2023 and December 31, 2022 was approximately $ 1.5 billion and $ 1.1 billion, respectively.

(h) The fixed index annuities embedded derivative associated with index credits related to the contracts with guaranteed product features included in policyholder contract deposits was $ 1.5 billion and $ 1.1 billion at June 30, 2023 and December 31, 2022, respectively.

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The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS, CLO/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.

Interrelationships Between 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 significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements. 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.

Fixed Maturity Securities

The significant unobservable input used in the fair value measurement of fixed maturity securities is yield. The yield is affected by the market movements in credit spreads and U.S. Treasury yields. The yield may be affected by other factors including constant prepayment rates, loss severity, and constant default rates. In general, increases in the yield would decrease the fair value of investments, and conversely, decreases in the yield would increase the fair value of investments.

MRBs and Embedded Derivatives within Policyholder Contract Deposits

For MRBs and embedded derivatives, the assumptions for unobservable inputs vary throughout the period over which cash flows are projected for valuation purposes. The following are applicable unobservable inputs:

• 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. 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 and interest rate correlation estimates the relationship between changes in equity returns and interest rates in the economic scenario generator used to value our MRBs. 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. Only our fixed index annuities with a Guaranteed Minimum Withdrawal Benefits (GMWB) rider are subject to the equity and interest correlation assumption. Other policies such as accumulation fixed index annuity and life products do not use a correlation assumption.

• Base lapse rate assumptions are determined by company experience and judgment 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 benefit 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 GMWB liability, while lower mortality rate assumptions will generally increase the fair value of the liability because guaranteed withdrawal payments will be made for a longer period of time and generally exceed any decrease in guaranteed death benefits.

• 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.

• Non-performance or “own credit” risk adjustment used in the valuation of MRBs and embedded derivatives, which reflects a market participant’s view of our claims-paying ability by incorporating a different spread (the NPA spread) to the curve used to discount projected benefit cash flows. When corporate credit spreads widen, the change in the NPA spread generally reduces the fair value of the MRBs and embedded derivatives, resulting in a gain in AOCI or Net realized gains (losses), respectively, and when corporate credit spreads narrow or tighten, the change in the NPA spread generally increases the fair value of the MRBs and embedded derivatives, resulting in a loss in AOCI or Net realized gains (losses), respectively.

• The projected cash flows incorporate best estimate assumptions for policyholder behavior (including mortality, lapses, withdrawals and benefit utilization), along with an explicit risk margin to reflect a market participant’s estimates of projected cash flows and policyholder behavior. Estimates of future policyholder behavior assumptions are subjective and based primarily on our historical experience.

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Embedded Derivatives within Reinsurance Contracts

The fair value of embedded derivatives associated with funds withheld reinsurance contracts is determined based upon a total return swap technique with reference to the fair value of the investments held by AIG related to AIG’s funds withheld payable. The fair value of the underlying assets is generally based on market observable inputs using industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable, and accordingly, the valuation is considered Level 3 in the fair value hierarchy.

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.

									June 30, 2023															December 31, 2022
(in millions)			Investment Category Includes						Fair Value Using NAV Per Share (or its equivalent)						Unfunded Commitments									Fair Value Using NAV Per Share (or its equivalent)						Unfunded 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			$			3,423			$			2,185						$			3,146			$			2,448
Real assets			Investments in real estate properties, agricultural and infrastructure assets, including power plants and other energy producing assets						1,855						844									1,851						840
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						269						161									272						183
Growth equity			Funds that make investments in established companies for the purpose of growing their businesses						703						45									732						60
Mezzanine			Funds that make investments in the junior debt and equity securities of leveraged companies						579						149									598						142
Other			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						1,954						272									1,829						391
Total private equity funds									8,783						3,656									8,428						4,064
Hedge funds:
Event-driven			Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations						19						—									92						—
Long-short			Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk						670						—									696						—
Macro			Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions						191						—									414						—
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						149						—									192						—
Total hedge funds									1,029						—									1,394						—
Total						$			9,812			$			3,656						$			9,822			$			4,064

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 lives at their inception, but these lives may be extended at the fund manager’s discretion, typically in one-year or two-year increments.

The hedge fund investments included above, which are carried at fair value, are generally redeemable subject to the redemption notices period. The majority of our hedge fund investments are redeemable monthly or quarterly.

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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:

			Gain (Loss) Three Months Ended June 30,															Gain (Loss) Six Months Ended June 30,
(in millions)						2023						2022									2023						2022
Assets:
Other bond securities (a)			$			( 1 )			$			( 355 )						$			135			$			( 674 )
Alternative investments (b)						134						( 167 )									211						231
Liabilities:
Long-term debt (c)						3						68									2						171
Total gain (loss)			$			136			$			( 454 )						$			348			$			( 272 )

(a) Includes certain securities supporting the funds withheld arrangements with Fortitude Re. For additional information regarding the gains and losses for Other bond securities, see Note 6. For additional information regarding the funds withheld arrangements with Fortitude Re, see Note 8.

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

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

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.

The following table presents the difference between fair value and the aggregate contractual principal amount of long-term debt for which the fair value option was elected:

						June 30, 2023																					December 31, 2022
(in millions)						Fair Value						Outstanding Principal Amount						Difference									Fair Value						Outstanding Principal Amount						Difference
Liabilities:
Long-term debt*			$			50			$			41			$			9						$			56			$			45			$			11

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

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
			Non-Recurring Basis																											Three Months Ended June 30,															Six Months Ended June 30,
(in millions)						Level 1						Level 2						Level 3						Total									2023						2022									2023						2022
June 30, 2023
Other assets			$			—			$			—			$			12			$			12									8						—						$			17			$			—
Total			$			—			$			—			$			12			$			12						$			8			$			—						$			17			$			—
December 31, 2022
Other investments			$			—			$			—			$			12			$			12
Total			$			—			$			—			$			12			$			12

In addition to the assets presented in the table above, AIG had $ 36 million and $ 163 million of loans held for sale which are carried at fair value at June 30, 2023 and December 31, 2022, respectively. There are no associated impairment charges.

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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 Value
(in millions)						Level 1						Level 2						Level 3						Total
June 30, 2023
Assets:
Mortgage and other loans receivable			$			—			$			273			$			47,727			$			48,000			$			51,569
Other invested assets						—						853						6						859						858
Short-term investments						—						6,677						—						6,677						6,677
Cash						2,283						—						—						2,283						2,283
Other assets						35						2						—						37						37
Liabilities:
Policyholder contract deposits associated with investment-type contracts						—						106						136,027						136,133						139,239
Fortitude Re funds withheld payable						—						—						31,706						31,706						31,706
Other liabilities						—						532						—						532						532
Short-term and long-term debt*						—						19,395						261						19,656						21,302
Debt of consolidated investment entities						—						89						2,676						2,765						2,793
Separate account liabilities - investment contracts						—						85,761						—						85,761						85,761
December 31, 2022
Assets:
Mortgage and other loans receivable			$			—			$			89			$			45,755			$			45,844			$			49,442
Other invested assets						—						848						6						854						854
Short-term investments						—						6,668						—						6,668						6,668
Cash						2,043						—						—						2,043						2,043
Other assets						24						9						—						33						33
Liabilities:
Policyholder contract deposits associated with investment-type contracts						—						119						129,174						129,293						137,086
Fortitude Re funds withheld payable						—						—						32,618						32,618						32,618
Other liabilities						—						3,101						—						3,101						3,101
Short-term and long-term debt						—						19,328						275						19,603						21,243
Debt of consolidated investment entities						—						3,055						2,478						5,533						5,880
Separate account liabilities - investment contracts						—						80,649						—						80,649						80,649

* Excludes $ 267 million reclassified to Liabilities held for sale on the Condensed Consolidated Balance Sheets.

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SECURITIES AVAILABLE FOR SALE

The following table presents the amortized cost and fair value of our available for sale securities:

(in millions)						Amortized Cost						Allowance for Credit Losses (a)						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
June 30, 2023
Bonds available for sale:
U.S. government and government sponsored entities			$			6,485			$			—			$			17			$			( 333 )			$			6,169
Obligations of states, municipalities and political subdivisions						11,982						—						107						( 943 )						11,146
Non-U.S. governments						14,087						( 11 )						97						( 1,665 )						12,508
Corporate debt						153,633						( 67 )						1,122						( 21,385 )						133,303
Mortgage-backed, asset-backed and collateralized:
RMBS						19,353						( 26 )						856						( 1,289 )						18,894
CMBS						15,258						( 19 )						13						( 1,503 )						13,749
CLO/ABS						28,437						( 2 )						99						( 1,773 )						26,761
Total mortgage-backed, asset-backed and collateralized						63,048						( 47 )						968						( 4,565 )						59,404
Total bonds available for sale (b)			$			249,235			$			( 125 )			$			2,311			$			( 28,891 )			$			222,530
December 31, 2022
Bonds available for sale:
U.S. government and government sponsored entities			$			7,094			$			—			$			21			$			( 496 )			$			6,619
Obligations of states, municipalities and political subdivisions						13,195						—						99						( 1,195 )						12,099
Non-U.S. governments						15,133						( 6 )						91						( 1,733 )						13,485
Corporate debt						160,242						( 132 )						1,152						( 23,423 )						137,839
Mortgage-backed, asset-backed and collateralized:
RMBS						19,584						( 37 )						807						( 1,537 )						18,817
CMBS						15,610						( 11 )						14						( 1,420 )						14,193
CLO/ABS						25,135						—						38						( 2,069 )						23,104
Total mortgage-backed, asset-backed and collateralized						60,329						( 48 )						859						( 5,026 )						56,114
Total bonds available for sale (b)			$			255,993			$			( 186 )			$			2,222			$			( 31,873 )			$			226,156

(a) Represents the allowance for credit losses that has been recognized. Changes in the allowance for credit losses are recorded through Net realized gains (losses) and are not recognized in OCI.

(b) At June 30, 2023 and December 31, 2022, the fair value of bonds available for sale held by us that were below investment grade or not rated totaled $ 17.8 billion or 8 percent and $ 22.3 billion or 10 percent, respectively.

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Securities Available for Sale in a Loss Position for Which No Allowance for Credit Loss Has Been Recorded

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 for which no allowance for credit loss has been recorded:

						Less than 12 Months												12 Months or More												Total
(in millions)						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
June 30, 2023
Bonds available for sale:
U.S. government and government sponsored entities			$			5,299			$			314			$			213			$			19			$			5,512			$			333
Obligations of states, municipalities and political subdivisions						7,172						861						769						82						7,941						943
Non-U.S. governments						10,200						1,647						438						18						10,638						1,665
Corporate debt						88,949						15,831						28,260						5,538						117,209						21,369
RMBS						8,305						687						3,775						560						12,080						1,247
CMBS						8,162						851						4,569						650						12,731						1,501
CLO/ABS						11,969						698						10,096						1,075						22,065						1,773
Total bonds available for sale			$			140,056			$			20,889			$			48,120			$			7,942			$			188,176			$			28,831

December 31, 2022
Bonds available for sale:
U.S. government and government sponsored entities			$			3,493			$			368			$			1,816			$			128			$			5,309			$			496
Obligations of states, municipalities and political subdivisions						8,697						1,180						73						15						8,770						1,195
Non-U.S. governments						10,702						1,526						779						191						11,481						1,717
Corporate debt						110,683						19,756						13,778						3,609						124,461						23,365
RMBS						10,953						1,293						1,005						182						11,958						1,475
CMBS						11,620						1,094						1,728						326						13,348						1,420
CLO/ABS						16,852						1,388						4,307						681						21,159						2,069
Total bonds available for sale			$			173,000			$			26,605			$			23,486			$			5,132			$			196,486			$			31,737

At June 30, 2023, we held 32,032 individual fixed maturity securities that were in an unrealized loss position and for which no allowance for credit losses has been recorded (including 7,063 individual fixed maturity securities that were in a continuous unrealized loss position for 12 months or more). At December 31, 2022, we held 36,549 individual fixed maturity securities that were in an unrealized loss position and for which no allowance for credit losses has been recorded (including 4,048 individual fixed maturity securities that 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 June 30, 2023 because it was determined that such losses were due to non-credit factors. Additionally, 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, liquidity position, expected defaults, industry and sector analysis, forecasts and available market data.

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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 Available for Sale
(in millions)						Amortized Cost, Net of Allowance						Fair Value
June 30, 2023
Due in one year or less			$			9,123			$			9,000
Due after one year through five years						45,775						43,487
Due after five years through ten years						41,559						37,535
Due after ten years						89,652						73,104
Mortgage-backed, asset-backed and collateralized						63,001						59,404
Total			$			249,110			$			222,530

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 June 30,																														Six Months Ended June 30,
			2023															2022															2023															2022
(in millions)						Gross Realized Gains						Gross Realized Losses									Gross Realized Gains						Gross Realized Losses									Gross Realized Gains						Gross Realized Losses									Gross Realized Gains						Gross Realized Losses
Fixed maturity securities			$			83			$			424						$			186			$			790						$			229			$			1,022						$			283			$			1,026

For the three and six months ended June 30, 2023, the aggregate fair value of available for sale securities sold was $ 5.8 billion and $ 16.6 billion, respectively, which resulted in net realized gains (losses) of $( 341 ) million and $( 793 ) million, respectively. Included within the net realized gains (losses) are $( 54 ) million and $( 119 ) million of net realized gains (losses) for the three and six months ended June 30, 2023, respectively, which relate to Fortitude Re funds withheld assets. These net realized gains (losses) are included in Net realized gains (losses) on Fortitude Re funds withheld assets.

For the three and six months ended June 30, 2022, the aggregate fair value of available for sale securities sold was $ 9.2 billion and $ 14.0 billion, respectively, which resulted in net realized gains (losses) of $( 604 ) million and $( 743 ) million, respectively. Included within the net realized gains (losses) are $( 122 ) million and $( 154 ) million of net realized gains (losses) for the three and six months ended June 30, 2022, respectively, which relate to Fortitude Re funds withheld assets. These net realized gains (losses) are included in Net realized gains (losses) on Fortitude Re funds withheld assets.

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OTHER SECURITIES MEASURED AT FAIR VALUE

The following table presents the fair value of fixed maturity securities measured at fair value based on our election of the fair value option, which are reported in the other bond securities caption in the financial statements, and equity securities measured at fair value:

(in millions)									June 30, 2023																		December 31, 2022
									Fair Value						Percent of Total												Fair Value						Percent of Total
Fixed maturity securities:
U.S. government and government sponsored entities						$			—						—			%						$			—						—			%
Obligations of states, municipalities and political subdivisions									111						2												111						2
Non-U.S. governments									46						1												66						1
Corporate debt									2,577						46												2,392						47
Mortgage-backed, asset-backed and collateralized:
RMBS									358						6												286						6
CMBS									309						6												331						7
CLO/ABS and other collateralized									1,540						27												1,299						26
Total mortgage-backed, asset-backed and collateralized									2,207						39												1,916						39
Total fixed maturity securities									4,941						88												4,485						89
Equity securities									660						12												575						11
Total						$			5,601						100			%						$			5,060						100			%

OTHER INVESTED ASSETS

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

(in millions)						June 30, 2023						December 31, 2022
Alternative investments (a)(b)			$			11,792			$			11,809
Investment real estate (c)						2,218						2,153
All other investments (d)						2,057						1,991
Total			$			16,067			$			15,953

(a) At June 30, 2023, included hedge funds of $ 1.0 billion and private equity funds of $ 10.8 billion. At December 31, 2022, included hedge funds of $ 1.4 billion and private equity funds of $ 10.4 billion.

(b) At June 30, 2023, approximately 51 percent of our hedge fund portfolio is available for redemption in 2023. The remaining 49 percent will be available for redemption between 2024 and 2028.

(c) Represents values net of accumulated depreciation. At June 30, 2023 and December 31, 2022, the accumulated depreciation was $ 806 million and $ 786 million, respectively.

(d) Includes AIG's ownership interest in Fortitude Group Holdings, LLC (FRL), which is recorded using the measurement alternative for equity securities. Our investment in FRL totaled $ 156 million and $ 156 million at June 30, 2023 and December 31, 2022, respectively.

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NET INVESTMENT INCOME

The following table presents the components of Net investment income:

Three Months Ended June 30,			2023																					2022
(in millions)			Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets									Total						Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets									Total
Available for sale fixed maturity securities, including short-term investments			$			2,629			$			232			$			2,861						$			2,147			$			267			$			2,414
Other fixed maturity securities (a)						8						( 7 )						1									( 175 )						( 180 )						( 355 )
Equity securities						43						—						43									( 30 )						—						( 30 )
Interest on mortgage and other loans						625						58						683									460						51						511
Alternative investments (b)						147						13						160									109						56						165
Real estate						17						—						17									32						—						32
Other investments (c)						8						1						9									37						3						40
Total investment income						3,477						297						3,774									2,580						197						2,777
Investment expenses						197						6						203									164						9						173
Net investment income			$			3,280			$			291			$			3,571						$			2,416			$			188			$			2,604

Six Months Ended June 30,			2023																					2022
(in millions)			Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets						Total									Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets						Total
Available for sale fixed maturity securities, including short-term investments			$			5,175			$			475			$			5,650						$			4,188			$			568			$			4,756
Other fixed maturity securities (a)						20						116						136									( 376 )						( 298 )						( 674 )
Equity securities						94						—						94									( 57 )						—						( 57 )
Interest on mortgage and other loans						1,192						117						1,309									913						97						1,010
Alternative investments (b)						223						44						267									778						127						905
Real estate						20						—						20									32						—						32
Other investments (c)						36						—						36									194						3						197
Total investment income						6,760						752						7,512									5,672						497						6,169
Investment expenses						393						15						408									310						18						328
Net investment income			$			6,367			$			737			$			7,104						$			5,362			$			479			$			5,841

(a) Included in the three and six months ended June 30, 2022 were income (loss) of $( 55 ) million and $( 151 ) million, respectively, related to fixed maturity securities measured at fair value that economically hedge liabilities described in (c) below.

(b) Included 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 one-quarter lag.

(c) Included in the three and six months ended June 30, 2023 were income (loss) of $( 1 ) million and $( 4 ) million, respectively, related to liabilities measured at fair value that are economically hedged with fixed maturity securities as described in (a) above. Included in the three and six months ended June 30, 2022 were income (loss) of $ 41 million and $ 132 million, respectively, related to liabilities measured at fair value that are economically hedged with fixed maturity securities as described in (a) above.

NET REALIZED GAINS AND LOSSES

Net realized gains and losses are determined by specific identification. The net realized gains and losses are generated primarily from the following sources:

• Sales of available for sale fixed maturity securities, real estate and other alternative investments.

• Reductions to the amortized cost basis of available for sale fixed maturity securities that have been written down due to our intent to sell them or it being more likely than not that we will be required to sell them.

• Changes in the allowance for credit losses on bonds available for sale, mortgage and other loans receivable, and loans commitments.

• Most changes in the fair value of free standing and embedded derivatives, including changes in the non-performance adjustment are included in Net realized gains (losses). However, changes in derivatives designated as hedging instruments when the fair value of the hedged item is not reported in Net realized gains (losses) are excluded from Net realized gains (losses). Additionally, in conjunction with the adoption of LDTI, changes in the fair value of free standing derivatives that hedge certain MRBs are excluded from Net realized gains (losses).

• Foreign exchange gains and losses resulting from foreign currency transactions.

• Changes in fair value of the embedded derivative related to the Fortitude Re funds withheld assets.

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

Three Months Ended June 30,						2023																					2022
(in millions)			Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets									Total						Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets									Total
Sales of fixed maturity securities			$			( 287 )			$			( 54 )			$			( 341 )						$			( 482 )			$			( 122 )			$			( 604 )
Change in allowance for credit losses on fixed maturity securities						( 56 )						( 2 )						( 58 )									( 47 )						( 1 )						( 48 )
Change in allowance for credit losses on loans						( 46 )						( 5 )						( 51 )									24						6						30
Foreign exchange transactions						211						11						222									( 229 )						( 15 )						( 244 )
Index-linked interest credited embedded derivatives, net of related hedges						( 141 )						—						( 141 )									( 20 )						—						( 20 )
All other derivatives and hedge accounting*						26						( 87 )						( 61 )									682						48						730
Sales of alternative investments and real estate investments						4						( 1 )						3									7						2						9
Other						( 50 )						—						( 50 )									7						( 4 )						3
Net realized losses – excluding Fortitude Re funds withheld embedded derivative						( 339 )						( 138 )						( 477 )									( 58 )						( 86 )						( 144 )
Net realized gains on Fortitude Re funds withheld embedded derivative						—						180						180									—						2,776						2,776
Net realized gains (losses)			$			( 339 )			$			42			$			( 297 )						$			( 58 )			$			2,690			$			2,632

Six Months Ended June 30,			2023																					2022
(in millions)			Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets									Total						Excluding Fortitude Re Funds Withheld Assets						Fortitude Re Funds Withheld Assets									Total
Sales of fixed maturity securities			$			( 674 )			$			( 119 )			$			( 793 )						$			( 589 )			$			( 154 )			$			( 743 )
Change in allowance for credit losses on fixed maturity securities						( 72 )						( 2 )						( 74 )									( 100 )						( 41 )						( 141 )
Change in allowance for credit losses on loans						( 88 )						( 26 )						( 114 )									5						( 2 )						3
Foreign exchange transactions						325						27						352									( 242 )						( 24 )						( 266 )
Index-linked interest credited embedded derivatives, net of related hedges						( 319 )						—						( 319 )									183						—						183
All other derivatives and hedge accounting*						( 191 )						( 49 )						( 240 )									1,082						( 8 )						1,074
Sales of alternative investments and real estate investments						8						—						8									23						3						26
Other						( 41 )						—						( 41 )									( 19 )						—						( 19 )
Net realized gains (losses) – excluding Fortitude Re funds withheld embedded derivative						( 1,052 )						( 169 )						( 1,221 )									343						( 226 )						117
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative						—						( 985 )						( 985 )									—						6,094						6,094
Net realized gains (losses)			$			( 1,052 )			$			( 1,154 )			$			( 2,206 )						$			343			$			5,868			$			6,211

* Derivative activity related to hedging MRBs is recorded in Change in the fair value of MRBs, net. For additional disclosures about MRBs, see Note 13.

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 June 30,															Six Months Ended June 30,
(in millions)						2023						2022									2023						2022
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities			$			( 1,934 )			$			( 17,897 )						$			3,071			$			( 38,057 )
Other investments						—						( 7 )									—						( 14 )
Total increase (decrease) in unrealized appreciation (depreciation) of investments*			$			( 1,934 )			$			( 17,904 )						$			3,071			$			( 38,071 )

* Excludes net unrealized gains and losses attributable to businesses held for sale at June 30, 2023.

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The following table summarizes the unrealized gains and losses recognized in Net investment income during the reporting period on equity securities and other investments still held at the reporting date:

Three Months Ended June 30,						2023																					2022
(in millions)						Equities						Other Invested Assets						Total									Equities						Other Invested Assets						Total
Net gains (losses) recognized during the period on equity securities and other investments			$			43			$			187			$			230						$			( 30 )			$			( 71 )			$			( 101 )
Less: Net gains (losses) recognized during the period on equity securities and other investments sold during the period						( 13 )						17						4									( 1 )						( 33 )						( 34 )
Unrealized gains (losses) recognized during the reporting period on equity securities and other investments still held at the reporting date			$			56			$			170			$			226						$			( 29 )			$			( 38 )			$			( 67 )

Six Months Ended June 30,						2023																					2022
(in millions)						Equities						Other Invested Assets						Total									Equities						Other Invested Assets						Total
Net gains (losses) recognized during the period on equity securities and other investments			$			94			$			297			$			391						$			( 57 )			$			404			$			347
Less: Net gains (losses) recognized during the period on equity securities and other investments sold during the period						140						18						158									93						( 36 )						57
Unrealized gains (losses) recognized during the reporting period on equity securities and other investments still held at the reporting date			$			( 46 )			$			279			$			233						$			( 150 )			$			440			$			290

EVALUATING INVESTMENTS FOR AN ALLOWANCE FOR CREDIT LOSSES

For a discussion of our policy for evaluating investments for an allowance for credit losses, see Note 5 to the Consolidated Financial Statements in the 2022 Annual Report.

Credit Impairments

The following table presents a rollforward of the changes in allowance for credit losses on available for sale fixed maturity securities by major investment category:

Three Months Ended June 30,						2023																					2022
(in millions)			Structured						Non- Structured									Total						Structured						Non- Structured									Total
Balance, beginning of period			$			45			$			91			$			136						$			15			$			176			$			191
Additions:
Securities for which allowance for credit losses were not previously recorded						16						40						56									2						28						30
Reductions:
Securities sold during the period						( 2 )						( 16 )						( 18 )									( 1 )						( 40 )						( 41 )
Addition to (release of) the allowance for credit losses on securities that had an allowance recorded in a previous period, for which there was no intent to sell before recovery of amortized cost basis						—						2						2									10						8						18
Write-offs charged against the allowance						( 10 )						( 37 )						( 47 )									—						( 22 )						( 22 )
Other						( 2 )						( 2 )						( 4 )									—						( 1 )						( 1 )
Balance, end of period			$			47			$			78			$			125						$			26			$			149			$			175

Six Months Ended June 30,			2023																					2022
(in millions)			Structured						Non- Structured									Total						Structured						Non- Structured									Total
Balance, beginning of year			$			46			$			140			$			186						$			8			$			90			$			98
Additions:
Securities for which allowance for credit losses were not previously recorded						18						62						80									51						156						207
Reductions:
Securities sold during the period						( 3 )						( 26 )						( 29 )									( 1 )						( 41 )						( 42 )
Addition to (release of) the allowance for credit losses on securities that had an allowance recorded in a previous period, for which there was no intent to sell before recovery of amortized cost basis						( 4 )						( 2 )						( 6 )									( 32 )						( 34 )						( 66 )
Write-offs charged against the allowance						( 10 )						( 87 )						( 97 )									—						( 22 )						( 22 )
Other						—						( 9 )						( 9 )									—						—						—
Balance, end of period			$			47			$			78			$			125						$			26			$			149			$			175

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Purchased Credit Deteriorated (PCD) Securities

We purchase certain RMBS securities that have experienced more-than-insignificant deterioration in credit quality since origination. These are referred to as PCD assets. At the time of purchase an allowance is recognized for these PCD assets by adding it to the purchase price to arrive at the initial amortized cost. There is no credit loss expense recognized upon acquisition of a PCD asset. When determining the initial allowance for credit losses, management considers the historical performance of underlying assets and available market information as well as bond-specific structural considerations, such as credit enhancement and the priority of payment structure of the security. In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs:

• Current delinquency rates;

• Expected default rates and the timing of such defaults;

• Loss severity and the timing of any recovery; and

• Expected prepayment speeds.

Subsequent to the acquisition date, the PCD assets follow the same accounting as other structured securities that are not high credit quality.

We did not purchase securities with more than insignificant credit deterioration since their origination during the six months ended June 30, 2023 and 2022.

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)						June 30, 2023						December 31, 2022
Fixed maturity securities available for sale			$			542			$			2,968

At June 30, 2023 and December 31, 2022, amounts borrowed under repurchase and securities lending agreements totaled $ 532 million and $ 3.1 billion, respectively.

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
(in millions)						Overnight and Continuous						up to 30 days						31 - 90 days						91 - 364 days						365 days or greater						Total
June 30, 2023
Bonds available for sale:
Non-U.S. governments			$			—			$			—			$			—			$			—			$			—			$			—
Corporate debt						27						515						—						—						—						542
Total			$			27			$			515			$			—			$			—			$			—			$			542

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December 31, 2022
Bonds available for sale:
Non-U.S. governments			$			—			$			20			$			—			$			—			$			—			$			20
Corporate debt						—						2,371						577						—						—						2,948
Total			$			—			$			2,391			$			577			$			—			$			—			$			2,968

We also enter into agreements in which securities are purchased by us under 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)						June 30, 2023						December 31, 2022
Securities collateral pledged to us			$			2,019			$			—

At June 30, 2023, the carrying value of reverse repurchase agreements totaled $ 2.0 billion.

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 contracts, was $ 14.5 billion and $ 13.6 billion at June 30, 2023 and December 31, 2022, 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 $ 263 million and $ 239 million of stock in FHLBs at June 30, 2023 and December 31, 2022, 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 $ 7.1 billion and $ 2.5 billion, respectively, at June 30, 2023 and $ 5.8 billion and $ 1.8 billion, respectively, at December 31, 2022.

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 $ 56 million and $ 63 million, at June 30, 2023 and December 31, 2022, 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 $ 303 million and $ 301 million, comprised of bonds available for sale and short-term investments at June 30, 2023 and December 31, 2022, respectively.

Reinsurance transactions between AIG and Fortitude Re were structured as modco and loss portfolio transfer arrangements with funds withheld.

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

(in millions)						June 30, 2023						December 31, 2022
Commercial mortgages (a)			$			37,926			$			37,128
Residential mortgages						7,708						6,130
Life insurance policy loans						1,762						1,758
Commercial loans, other loans and notes receivable (b)						5,015						5,305
Total mortgage and other loans receivable (c)						52,411						50,321
Allowance for credit losses (c) (d)						( 806 )						( 716 )
Mortgage and other loans receivable, net (c)			$			51,605			$			49,605

(a) 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 18 percent and 11 percent, respectively, at June 30, 2023 and 19 percent and 11 percent, respectively, at December 31, 2022).

(b) Includes loans held for sale which are carried at lower of cost or market and are collateralized primarily by apartments. As of June 30, 2023 and December 31, 2022, the net carrying value of these loans were $ 186 million and $ 170 million, respectively.

(c) Excludes $ 37.6 billion at both June 30, 2023 and December 31, 2022 of loan receivable from AIGFP, which has a full allowance for credit losses, recognized upon the deconsolidation of AIGFP. For additional information, see Note 1.

(d) Does not include allowance for credit losses of $ 87 million and $ 69 million, respectively, at June 30, 2023 and December 31, 2022, in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.

Interest income is not accrued when payment of contractual principal and interest is not expected. Any cash received on impaired loans is generally recorded as a reduction of the current carrying amount of the loan. Accrual of interest income is generally resumed when delinquent contractual principal and interest is repaid or when a portion of the delinquent contractual payments are made and the ongoing required contractual payments have been made for an appropriate period. As of June 30, 2023, $ 6 million and $ 708 million of residential mortgage loans and commercial mortgage loans, respectively, are placed on nonaccrual status. As of December 31, 2022, $ 5 million and $ 703 million of residential mortgage loans and commercial mortgage loans, respectively, are placed on nonaccrual status.

Accrued interest is presented separately and is included in Accrued investment income on the Condensed Consolidated Balance Sheets. As of June 30, 2023, accrued interest receivable was $ 20 million and $ 171 million associated with residential mortgage loans and commercial mortgage loans, respectively. As of December 31, 2022, accrued interest receivable was $ 15 million and $ 147 million associated with residential mortgage loans and commercial mortgage loans, respectively.

A significant majority of commercial mortgages in the portfolio are non-recourse loans and, accordingly, the only guarantees are for specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for us to have cause to enforce the provisions of a guarantee on a commercial real estate or mortgage loan.

Nonperforming loans are generally those loans where payment of contractual principal or interest is more than 90 days past due. Nonperforming loans were not significant for any of the periods presented.

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CREDIT QUALITY OF COMMERCIAL MORTGAGES

The following table presents debt service coverage ratios (a) for commercial mortgages by year of vintage:

June 30, 2023						2023						2022						2021						2020						2019						Prior						Total
(in millions)
>1.2X			$			1,363			$			5,558			$			2,531			$			1,263			$			5,190			$			14,809			$			30,714
1.00 - 1.20X						54						1,138						1,152						912						230						1,771						5,257
<1.00X						67						50						—						23						—						1,815						1,955
Total commercial mortgages			$			1,484			$			6,746			$			3,683			$			2,198			$			5,420			$			18,395			$			37,926
December 31, 2022						2022						2021						2020						2019						2018						Prior						Total
(in millions)
>1.2X			$			5,518			$			2,457			$			1,710			$			4,985			$			4,120			$			11,663			$			30,453
1.00 - 1.20X						910						898						473						416						567						1,353						4,617
<1.00X						45						—						23						52						744						1,194						2,058
Total commercial mortgages			$			6,473			$			3,355			$			2,206			$			5,453			$			5,431			$			14,210			$			37,128

The following table presents loan-to-value ratios (b) for commercial mortgages by year of vintage:

June 30, 2023						2023						2022						2021						2020						2019						Prior						Total
(in millions)
Less than 65%			$			1,048			$			5,172			$			2,744			$			1,956			$			3,948			$			13,155			$			28,023
65% to 75%						348						1,210						650						76						1,422						2,852						6,558
76% to 80%						—						364						52						—						—						469						885
Greater than 80%						88						—						237						166						50						1,919						2,460
Total commercial mortgages			$			1,484			$			6,746			$			3,683			$			2,198			$			5,420			$			18,395			$			37,926
December 31, 2022						2022						2021						2020						2019						2018						Prior						Total
(in millions)
Less than 65%			$			5,425			$			2,548			$			1,775			$			3,958			$			3,016			$			10,739			$			27,461
65% to 75%						998						517						405						1,445						1,487						1,393						6,245
76% to 80%						50						52						—						—						168						229						499
Greater than 80%						—						238						26						50						760						1,849						2,923
Total commercial mortgages			$			6,473			$			3,355			$			2,206			$			5,453			$			5,431			$			14,210			$			37,128

(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 1.9 x at both periods ended on June 30, 2023 and December 31, 2022. The debt service coverage ratios are updated when additional relevant information becomes available.

(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 58 percent at June 30, 2023 and 59 percent at December 31, 2022. The loan-to-value ratios have been updated within the last three months to reflect the current carrying values of the loans. We update the valuations of collateral properties by obtaining independent appraisals, generally at least once per year.

The following table presents supplementary credit quality information related to commercial mortgages:

			Number of Loans						Class																																							Percent of Total
(dollars in millions)									Apartments						Offices						Retail						Industrial						Hotel						Others						Total
June 30, 2023
Past Due Status:
In good standing			618			$			15,282			$			9,766			$			4,000			$			6,180			$			2,062			$			437			$			37,727			99			%
90 days or less delinquent			—						—						—						—						—						—						—						—			—
>90 days delinquent or in process of foreclosure (a)			4						—						157						42						—						—						—						199			1
Total (b)			622			$			15,282			$			9,923			$			4,042			$			6,180			$			2,062			$			437			$			37,926			100			%
Allowance for credit losses						$			98			$			431			$			94			$			76			$			29			$			9			$			737			2			%

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December 31, 2022
Past Due Status:
In good standing			625			$			14,597			$			10,102			$			3,774			$			6,006			$			2,027			$			407			$			36,913			99			%
90 days or less delinquent			—						—						—						—						—						—						—						—			—
>90 days delinquent or in process of foreclosure (a)			4						—						173						42						—						—						—						215			1
Total (b)			629			$			14,597			$			10,275			$			3,816			$			6,006			$			2,027			$			407			$			37,128			100			%
Allowance for credit losses						$			100			$			351			$			81			$			71			$			29			$			8			$			640			2			%

(a) Includes $ 157 million and $ 156 million of Office loans supporting the Fortitude Re funds withheld arrangements, greater than 90 days delinquent or in process of foreclosure, at June 30, 2023 and December 31, 2022, respectively.

(b) Does not reflect allowance for credit losses.

The following table presents credit quality performance indicators for residential mortgages by year of vintage:

June 30, 2023									2023						2022						2021						2020						2019						Prior						Total
(in millions)
FICO*:
780 and greater						$			285			$			553			$			2,317			$			640			$			241			$			628			$			4,664
720 - 779									664						582						540						169						80						235						2,270
660 - 719									170						250						88						38						26						106						678
600 - 659									2						21						7						7						6						40						83
Less than 600									—						—						1						1						2						9						13
Total residential mortgages						$			1,121			$			1,406			$			2,953			$			855			$			355			$			1,018			$			7,708
December 31, 2022									2022						2021						2020						2019						2018						Prior						Total
(in millions)
FICO*:
780 and greater						$			296			$			2,204			$			654			$			232			$			77			$			567			$			4,030
720 - 779									536						728						168						76						32						169						1,709
660 - 719									163						80						28						16						9						62						358
600 - 659									2						4						2						2						2						14						26
Less than 600									—						—						—						1						—						6						7
Total residential mortgages						$			997			$			3,016			$			852			$			327			$			120			$			818			$			6,130

* Fair Isaac Corporation (FICO) is the credit quality indicator used to evaluate consumer credit risk for residential mortgage loan borrowers and have been updated within the last twelve months.

METHODOLOGY USED TO ESTIMATE THE ALLOWANCE FOR CREDIT LOSSES

For a discussion of our accounting policy for evaluating Mortgage and other loans receivable for impairment, see Note 6 to the Consolidated Financial Statements in the 2022 Annual Report.

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

Three Months Ended June 30,						2023 (b)																					2022
(in millions)						Commercial Mortgages						Other Loans						Total									Commercial Mortgages						Other Loans						Total
Allowance, beginning of period			$			706			$			80			$			786						$			533			$			84			$			617
Loans charged off						( 6 )						—						( 6 )									—						—						—
Net charge-offs						( 6 )						—						( 6 )									—						—						—
Addition to (release of) allowance for loan losses						37						( 11 )						26									( 8 )						( 6 )						( 14 )
Reclassified to held for sale						—						—						—									—						—						—
Allowance, end of period			$			737			$			69			$			806						$			525			$			78			$			603

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Six Months Ended June 30,						2023 (b)																					2022
(in millions)						Commercial Mortgages						Other Loans						Total									Commercial Mortgages						Other Loans						Total
Allowance, beginning of year			$			640			$			76			$			716						$			545			$			84			$			629
Loans charged off						( 6 )						—						( 6 )									( 4 )						—						( 4 )
Net charge-offs						( 6 )						—						( 6 )									( 4 )						—						( 4 )
Addition to (release of) allowance for loan losses						103						( 7 )						96									( 16 )						( 6 )						( 22 )
Reclassified to held for sale						—						—						—									—						—						—
Allowance, end of period			$			737			$			69			$			806						$			525			$			78			$			603

(a) Does not include allowance for credit losses of $ 87 million and $ 89 million, respectively, at June 30, 2023 and 2022 in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.

(b) Excludes $ 37.6 billion at both June 30, 2023 and December 31, 2022, of loan receivable from AIGFP, which has a full allowance for credit losses, recognized upon the deconsolidation of AIGFP. For additional information, see Note 1.

Our expectations and models used to estimate the allowance for losses on commercial and residential mortgage loans are regularly updated to reflect the current economic environment.

LOAN MODIFICATIONS

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. We use a probability of default/loss given default model to determine the allowance for credit losses for our commercial and residential mortgage loans. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses utilizing the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

When modifications are executed, they often will be in the form of principal forgiveness, term extensions, interest rate reductions, or some combination of any of these concessions. When principal is forgiven, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

We assess whether a borrower is experiencing financial difficulty based on a variety of factors, including the borrower’s current default on any of its outstanding debt, the probability of a default on any of its debt in the foreseeable future without the modification, the insufficiency of the borrower’s forecasted cash flows to service any of its outstanding debt (including both principal and interest), and the borrower’s inability to access alternative third party financing at an interest rate that would be reflective of current market conditions for a non-troubled debtor.

During the six months ended June 30, 2023, AIG did not modify any loans to borrowers experiencing financial difficulty.

There were no loans that had defaulted during the six months ended June 30, 2023, that had been previously modified with borrowers experiencing financial difficulties.

Prior to January 1, 2023, we were required to assess loan modifications to determine if they were a troubled debt restructuring. A troubled debt restructuring was a modification of a loan with a borrower that was experiencing financial difficulty and the modification involved us granting a concession to the troubled borrower. Concessions previously granted included extended maturity dates, interest rate changes, principal or interest forgiveness, payment deferrals and easing of loan covenants.

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8. Reinsurance

In the ordinary course of business, our insurance companies purchase both treaty and facultative reinsurance to limit potential losses, provide additional capacity for growth, minimize exposure to significant risks or to facilitate greater diversification of our businesses. In addition, certain of our General Insurance subsidiaries sell reinsurance to other insurance companies. We determine the portion of our ultimate net loss that will be recoverable under our reinsurance contracts by reference to the terms of the reinsurance protection purchased. This determination involves an estimate of incurred but not reported (IBNR) loss. Reinsurance recoverables for contracts which are accounted for as deposits are subject to similar judgments and uncertainties and reported in Other assets.

Reinsurance assets include the balances due for paid losses and expenses, reserves for losses and expenses reported and outstanding, reserves for IBNR, ceded unearned premiums and ceded future policy benefits for life and accident and health insurance contracts and benefits paid and unpaid. Amounts related to paid and reserved losses and expenses and benefits with respect to these reinsurance agreements are sometimes collateralized. We remain liable to our policyholders regardless of whether our reinsurers meet their obligations under the reinsurance contracts, and as such, we regularly evaluate the financial condition of our reinsurers and monitor concentration of our credit risk. The estimation of the allowance for unrecoverable reinsurance from reinsurers who are unwilling and/or unable to pay amounts due us requires judgment for which key inputs typically include historical collection rates when amounts due are in dispute or where the reinsurer has suffered a credit event as well as specific reviews of balances in dispute or subject to credit impairment. Changes in the allowance for credit losses and disputes on reinsurance assets are reflected in Policyholder benefits and losses incurred within the Condensed Consolidated Statements of Income (Loss).

PRIOR TO THE ADOPTION OF THE TARGETED IMPROVEMENTS TO THE ACCOUNTING FOR LONG-DURATION CONTRACTS STANDARD

Assumptions used in estimating reinsurance recoverables related to coinsurance or modco contracts were consistent with those used in estimating the related liabilities and reflected locked-in assumptions, absent a loss recognition event. Amounts recoverable on YRT treaties were recognized when claims were incurred on the reinsured policies.

SUBSEQUENT TO THE ADOPTION OF THE TARGETED IMPROVEMENTS TO THE ACCOUNTING FOR LONG-DURATION CONTRACTS STANDARD

Reinsurance recoverables are recognized in a manner consistent with the liabilities relating to the underlying reinsured contracts.

The reinsurance recoverables for coinsurance and modco contracts, along with amounts recoverable on YRT treaties are determined based on updated net premium ratios, reflecting updated actuarial assumptions using locked-in upper-medium investment instrument yield discount rates with changes recognized as remeasurement gains and losses reported in income. In addition, reinsurance recoverables are remeasured at the balance sheet date using current upper-medium grade discount rates with changes reported in OCI. For reinsurance agreements that reinsure existing, or non-contemporaneous (in-force) traditional and limited payment long-duration insurance contracts, the reinsurance recoverable is measured using the upper-medium grade fixed-income instrument yield discount rate assumption related to the effective date of the reinsurance contract. Therefore, for non-contemporaneous reinsurance agreements executed after January 1, 2021, the locked-in rate to accrete interest into the income statement related to the reinsurance recoverable would be different from the locked-in rate used for accreting interest on the direct reserve for future policy benefits. Certain reinsured guaranteed benefits previously reported as reinsurance recoverables are classified as Market risk benefit assets in the Condensed Consolidated Balance Sheets and are measured at fair value.

The following tables present the transition rollforward for Reinsurance assets:

(in millions)			Individual Retirement												Life Insurance						Institutional Markets						Total
Reinsurance assets - other, net of allowance for credit losses and disputes (a)
Pre-adoption, December 31, 2020			$	309											$	2,370					$	28					$	2,707
Reclassification of Cost of Reinsurance (b)			—												416						—						416
Reclassification to Market risk benefits			( 35 )												—						—						( 35 )
Change in cash flow assumptions and effect of net premiums exceeding gross premiums			—												9						—						9
Change due to the current upper-medium grade discount rate			—												74						5						79
Post-adoption January 1, 2021			$	274											$	2,869					$	33					$	3,176

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(in millions)																											Total
Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes (c)
Pre-adoption, December 31, 2020																											$	29,135
Change in cash flow assumptions and effect of net premiums exceeding gross premiums																											55
Change due to the current upper-medium grade discount rate																											7,611
Post-adoption January 1, 2021																											$	36,801

(a) Excludes $ 36.3 billion of Reinsurance assets - other, net of allowance for credit losses and disputes in General Insurance and Other Operations.

(b) Cost of reinsurance is reported in Other liabilities in the Condensed consolidated Balance sheets.

(c) Represents Life and Retirement legacy insurance lines ceded to Fortitude Re. Excludes $ 5.4 billion of Reinsurance assets - Fortitude Re, net of allowance for credit losses and disputes in General Insurance and Other Operations.

The remeasurement of the reinsurance assets using the current upper-medium grade discount rate is offset in AOCI.

FORTITUDE RE

Fortitude Re is the reinsurer of the majority of AIG’s run-off operations. The reinsurance transactions are structured as modco and loss portfolio transfer arrangements with funds withheld (funds withheld). In modco and funds withheld arrangements, the investments supporting the reinsurance agreements, and which reflect the majority of the consideration that would be paid to the reinsurer for entering into the transaction, are withheld by, and therefore continue to reside on the balance sheet of, the ceding company (i.e., AIG) thereby creating an obligation for the ceding company to pay the reinsurer (i.e., Fortitude Re) at a later date. Additionally, as AIG maintains ownership of these investments, AIG will maintain its existing accounting for these assets (e.g., the changes in fair value of available for sale securities will be recognized within OCI). AIG has established a funds withheld payable to Fortitude Re while simultaneously establishing a reinsurance asset representing reserves for the insurance coverage that Fortitude Re has assumed. The funds withheld payable contains an embedded derivative and changes in fair value of the embedded derivative related to the funds withheld payable are recognized in earnings through Net realized gains (losses). This embedded derivative is considered a total return swap with contractual returns that are attributable to various assets and liabilities associated with these reinsurance agreements.

As of June 30, 2023, approximately $ 27.5 billion of reserves from our Life and Retirement Run-Off Lines and approximately $ 3.1 billion of reserves from our General Insurance Run-Off Lines related to business written by multiple wholly-owned AIG subsidiaries, had been ceded to Fortitude Re under these reinsurance transactions.

There is a diverse pool of assets supporting the funds withheld arrangements with Fortitude Re. The following summarizes the composition of the pool of assets:

			June 30, 2023															December 31, 2022
(in millions)			Carrying Value									Fair Value						Carrying Value									Fair Value			Corresponding Accounting Policy
Fixed maturity securities - available for sale (a)			$			17,595			$			17,595						$			18,821			$			18,821			Fair value through other comprehensive income (loss)
Fixed maturity securities - fair value option						4,558						4,558									4,182						4,182			Fair value through net investment income
Commercial mortgage loans						4,196						3,928									4,107						3,837			Amortized cost
Real estate investments						126						302									133						348			Amortized cost
Private equity funds / hedge funds						1,940						1,940									1,893						1,893			Fair value through net investment income
Policy loans						341						341									355						355			Amortized cost
Short-term investments						255						255									75						75			Fair value through net investment income
Funds withheld investment assets						29,011						28,919									29,566						29,511
Derivative assets, net (b)						58						58									90						90			Fair value through net realized gains (losses)
Other (c)						611						611									782						782			Amortized cost
Total			$			29,680			$			29,588						$			30,438			$			30,383

(a) The change in the net unrealized gains (losses) on available for sale securities related to the Fortitude Re funds withheld assets was $ 376 million ($ 297 million after-tax) and $( 6.1 ) billion ($( 4.8 ) billion after-tax), respectively for the six months ended June 30, 2023 and 2022.

(b) The derivative assets and liabilities have been presented net of cash collateral. The derivative assets and liabilities supporting the Fortitude Re funds withheld arrangements had a fair market value of $ 191 million and $ 25 million, respectively, as of June 30, 2023. The derivative assets and liabilities supporting the Fortitude Re funds withheld arrangements had a fair market value of $ 192 million and $ 28 million, respectively, as of December 31, 2022. These derivative assets and liabilities are fully collateralized either by cash or securities.

(c) Primarily comprised of Cash and Accrued investment income.

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The impact of the funds withheld arrangements with Fortitude Re was as follows:

			Three Months Ended June 30,															Six Months Ended June 30,
(in millions)						2023						2022									2023						2022
Net investment income - Fortitude Re funds withheld assets			$			291			$			188						$			737			$			479
Net realized gains (losses) on Fortitude Re funds withheld assets:
Net realized losses - Fortitude Re funds withheld assets						( 138 )						( 86 )									( 169 )						( 226 )
Net realized gains (losses) - Fortitude Re funds withheld embedded derivative						180						2,776									( 985 )						6,094
Net realized gains (losses) on Fortitude Re funds withheld assets						42						2,690									( 1,154 )						5,868
Income (loss) from continuing operations before income tax expense (benefit)						333						2,878									( 417 )						6,347
Income tax expense (benefit) (a)						70						605									( 88 )						1,333
Net income (loss)						263						2,273									( 329 )						5,014
Change in unrealized appreciation (depreciation) of all other investments (a)						( 259 )						( 2,156 )									297						( 4,794 )
Comprehensive income (loss)			$			4			$			117						$			( 32 )			$			220

(a) The income tax expense (benefit) and the tax impact in AOCI was computed using AIG’s U.S. statutory tax rate of 21 percent.

Various assets supporting the Fortitude Re funds withheld arrangements are reported at amortized cost, and as such, changes in the fair value of these assets are not reflected in the financial statements. However, changes in the fair value of these assets are included in the embedded derivative in the Fortitude Re funds withheld arrangement and the appreciation (depreciation) of the asset is the primary driver of the comprehensive income (loss) reflected above.

REINSURANCE – CREDIT LOSSES

The estimation of reinsurance recoverables involves a significant amount of judgment, particularly for latent exposures, such as asbestos, due to their long-tail nature. We assess the collectability of reinsurance recoverable balances in each reporting period, through either historical trends of disputes and credit events or financial analysis of the credit quality of the reinsurer. We record adjustments to reflect the results of these assessments through an allowance for credit losses and disputes on uncollectible reinsurance that reduces the carrying amount of reinsurance and other assets on the consolidated balance sheets (collectively, reinsurance recoverables). This estimate requires significant judgment for which key considerations include:

• paid and unpaid amounts recoverable;

• whether the balance is in dispute or subject to legal collection;

• the relative financial health of the reinsurer as classified by the Obligor Risk Ratings (ORRs) we assign to each reinsurer based upon our financial reviews; reinsurers that are financially troubled (i.e., in run-off, have voluntarily or involuntarily been placed in receivership, are insolvent, are in the process of liquidation or otherwise subject to formal or informal regulatory restriction) are assigned ORRs that will generate a significant allowance; and

• whether collateral and collateral arrangements exist.

An estimate of the reinsurance recoverable's lifetime expected credit losses is established utilizing a probability of default and loss given default method, which reflects the reinsurer’s ORR. The allowance for credit losses excludes disputed amounts. An allowance for disputes is established for a reinsurance recoverable using the losses incurred model for contingencies.

The total reinsurance recoverables as of June 30, 2023 were $ 72.5 billion. As of that date, utilizing AIG’s ORRs, (i) approximately 90 percent of the reinsurance recoverables were investment grade, of which 50 percent related to General Insurance and 40 percent related to Life and Retirement; and (ii) approximately 10 percent of the reinsurance recoverables were non-investment grade, the majority of which related to General Insurance.

The total reinsurance recoverables as of December 31, 2022 were $ 71.8 billion. As of that date, utilizing AIG’s ORRs, (i) approximately 92 percent of the reinsurance recoverables were investment grade, of which 53 percent related to General Insurance and 39 percent related to Life and Retirement; (ii) approximately 7 percent of the reinsurance recoverables were non-investment grade, the majority of which related to General Insurance; (iii) less than one percent of the non-investment grade reinsurance recoverables related to Life and Retirement and (iv) approximately one percent of the reinsurance recoverables related to entities that were not rated by AIG.

As of June 30, 2023 and December 31, 2022, approximately 85 percent and 77 percent, respectively, of our non-investment grade reinsurance exposure related to captive insurers. These arrangements are typically collateralized by letters of credit, funds withheld or trust agreements.

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Reinsurance Recoverable Allowance

The following table presents a rollforward of the reinsurance recoverable allowance:

Three Months Ended June 30,						2023																					2022
(in millions)			General Insurance						Life and Retirement									Total						General Insurance						Life and Retirement									Total
Balance, beginning of period			$			253			$			74			$			327						$			286			$			105			$			391
Addition to (release of) allowance for expected credit losses and disputes, net						( 1 )						( 8 )						( 9 )									( 4 )						2						( 2 )
Write-offs charged against the allowance for credit losses and disputes						—						—						—									—						—						—
Recoveries of amounts previously written off						—						—						—									2						—						2
Other changes						2						—						2									—						—						—
Balance, end of period			$			254			$			66			$			320						$			284			$			107			$			391

Six Months Ended June 30,						2023																					2022
(in millions)			General Insurance						Life and Retirement									Total						General Insurance						Life and Retirement									Total
Balance, beginning of year			$			260			$			84			$			344						$			281			$			101			$			382
Addition to (release of) allowance for expected credit losses and disputes, net						( 4 )						( 18 )						( 22 )									1						6						7
Write-offs charged against the allowance for credit losses and disputes						( 1 )						—						( 1 )									( 2 )						—						( 2 )
Recoveries of amounts previously written off						—						—						—									2						—						2
Other changes						( 1 )						—						( 1 )									2						—						2
Balance, end of period			$			254			$			66			$			320						$			284			$			107			$			391

Past-Due Status

We consider a reinsurance asset to be past due when it is 90 days past due. The allowance for credit losses is estimated excluding disputed amounts. An allowance for disputes is established using the losses incurred method for contingencies. Past due balances on claims that are not in dispute were not material for any of the periods presented.

9. Deferred Policy Acquisition Costs

DAC represent those costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts. We defer incremental costs that result directly from, and are essential to, the acquisition or renewal of an insurance contract. Such DAC generally include agent or broker commissions and bonuses, premium taxes, and medical and inspection fees that would not have been incurred if the insurance contract had not been acquired or renewed. Each cost is analyzed to assess whether it is fully deferrable. We partially defer costs, including certain commissions, when we do not believe that the entire cost is directly related to the acquisition or renewal of insurance contracts. Commissions that are not deferred to DAC are recorded in General operating and other expenses in the Condensed Consolidated Statements of Income (Loss).

We also defer a portion of employee total compensation and payroll-related fringe benefits directly related to time spent performing specific acquisition or renewal activities, including costs associated with the time spent on underwriting, policy issuance and processing, and sales force contract selling. The amounts deferred are derived based on successful efforts for each distribution channel and/or cost center from which the cost originates.

Short-duration insurance contracts: Policy acquisition costs are deferred and amortized over the period in which the related premiums written are earned, generally 12 months. DAC is grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of DAC. We assess the recoverability of DAC on an annual basis or more frequently if circumstances indicate an impairment may have occurred. This assessment is performed by comparing recorded net unearned premiums and anticipated investment income on in-force business to the sum of expected losses and loss adjustment expenses incurred, unamortized DAC and maintenance costs. If the sum of these costs exceeds the amount of recorded net unearned premiums and anticipated investment income, the excess is recognized as an offset against the asset established for DAC. This offset is referred to as a premium deficiency charge. Increases in expected losses and loss adjustment expenses incurred can have a significant impact on the likelihood and amount of a premium deficiency charge.

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PRIOR TO THE ADOPTION OF THE TARGETED IMPROVEMENTS TO THE ACCOUNTING FOR LONG-DURATION CONTRACTS STANDARD

Long-duration insurance contracts: Policy acquisition costs for participating life, traditional life and accident and health insurance products were generally deferred and amortized, with interest, over the premium paying period. The assumptions used to calculate the benefit liabilities and DAC for these traditional products were set when a policy was issued and did not change with changes in actual experience, unless a loss recognition event occurred. These “locked-in” assumptions included mortality, morbidity, persistency, maintenance expenses and investment returns, and included margins for adverse deviation to reflect uncertainty given that actual experience might deviate from these assumptions. A loss recognition event occurred when there was a shortfall between the carrying amount of future policy benefit liabilities, net of DAC, and what the future policy benefit liabilities, net of DAC, would be when applying updated current assumptions. When we determined a loss recognition event had occurred, we first reduced any DAC related to that block of business through amortization of acquisition expense, and after DAC was depleted, we recorded additional liabilities through a charge to Policyholder benefits and losses incurred. Groupings for loss recognition testing were consistent with our manner of acquiring, servicing and measuring the profitability of the business and applied by product groupings. We performed separate loss recognition tests for traditional life products, payout annuities and long-term care products. Our policy was to perform loss recognition testing net of reinsurance. Once loss recognition had been recorded for a block of business, the old assumption set was replaced, and the assumption set used for the loss recognition would then be subject to the lock-in principle.

Investment-oriented contracts: Certain policy acquisition costs and policy issuance costs related to investment-oriented contracts, for example universal life, variable and fixed annuities, and fixed index annuities, were deferred and amortized, with interest, in relation to the incidence of EGPs to be realized over the estimated lives of the contracts. EGPs were affected by a number of factors, including levels of current and expected interest rates, net investment income and spreads, net realized gains and losses, fees, surrender rates, mortality experience, policyholder behavior experience and equity market returns and volatility. In each reporting period, current period amortization expense was adjusted to reflect actual gross profits. If the assumptions used for estimating gross profit changed significantly, DAC was recalculated using the new assumptions, including actuarial assumptions such as mortality, lapse, benefit utilization, and premium persistency, and any resulting adjustment was included in income. If the new assumptions indicated that future EGPs were higher than previously estimated, DAC was increased resulting in a decrease in amortization expense and increase in income in the current period; if future EGPs were lower than previously estimated, DAC was decreased resulting in an increase in amortization expense and decrease in income in the current period. Updating such assumptions may result in acceleration of amortization in some products and deceleration of amortization in other products. DAC was grouped consistent with the manner in which the insurance contracts were acquired, serviced and measured for profitability and was reviewed for recoverability based on the current and projected future profitability of the underlying insurance contracts.

To estimate future EGPs for variable life and annuity products, a long-term annual asset growth assumption was applied to determine the future growth in assets and related asset-based fees. In determining the asset growth rate, the effect of short-term fluctuations in the equity markets was partially mitigated through the use of a “reversion to the mean” methodology for variable annuities, whereby short-term asset growth above or below long-term annual rate assumptions impacted the growth assumption applied to the five-year period subsequent to the current balance sheet date. The reversion to the mean methodology allowed us to maintain our long-term growth assumptions, while also giving consideration to the effect of actual investment performance. When actual performance significantly deviated from the annual long-term growth assumption, as evidenced by growth assumptions in the five-year reversion to the mean period falling below a certain rate (floor) or rising above a certain rate (cap) for a sustained period, judgment was applied to revise or “unlock” the growth rate assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual growth assumption applied to subsequent periods.

Unrealized Appreciation (Depreciation) of Investments: DAC related to investment-oriented contracts was also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale on EGPs, with related changes recognized through OCI. The adjustment was made at each balance sheet date, as if the securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. Similarly, for long-duration traditional insurance contracts, if the assets supporting the liabilities were in a net unrealized gain position at the balance sheet date, loss recognition testing assumptions were updated to exclude such gains from future cash flows by reflecting the impact of reinvestment rates on future yields. If a future loss was anticipated under this basis, any additional shortfall indicated by loss recognition tests was recognized as a reduction in OCI. Similar to other loss recognition on long-duration insurance contracts, such shortfall is first reflected as a reduction in DAC and secondly as an increase in liabilities for Future policy benefits. The change in these adjustments, net of tax, was included with the change in net unrealized appreciation of investments that is credited or charged directly to OCI.

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SUBSEQUENT TO THE ADOPTION OF THE TARGETED IMPROVEMENTS TO THE ACCOUNTING FOR LONG-DURATION CONTRACTS STANDARD

DAC for all long-duration contracts, except for those with limited to no exposure to policyholder behavior risk, (i.e., certain investment contracts), is grouped and amortized on a constant level basis (i.e., approximating straight line amortization with adjustments for expected terminations) over the expected term of the related contracts using assumptions consistent with those used in estimating the related liability for future policy benefits, or any other related balances, for those corresponding contracts, as applicable. Capitalized expenses are only included in DAC amortization as expenses are incurred. For amortization purposes, contracts are grouped into annual cohorts by issue year and product and to segregate reinsured and non-reinsured contracts. For life insurance contracts, amortization is based on insurance in-force, while initial deposits are used for deferred annuity contracts, structured settlements and pension risk transfer products. Changes in future assumptions (e.g., expected duration of contracts or amount of coverage expected to be in force) are applied by adjusting the amortization rate prospectively. The Company has elected to implicitly account for actual experience, whether favorable or unfavorable, in its amortization expense each period. DAC is capped at the amount of expenses capitalized as the DAC balance does not accrue interest. DAC is not subject to recoverability testing.

Value of Business Acquired (VOBA) is determined at the time of acquisition and is reported in the Condensed Consolidated Balance Sheets with DAC. This value is based on the present value of future pre-tax profits discounted at yields applicable at the time of purchase. VOBA is amortized, consistent with DAC, i.e., over the life of the business on a constant level basis.

Internal Replacements of Long-duration and Investment-oriented Products: the accounting of internal replacements has generally not been impacted by the adoption of LDTI.

The following table presents the transition rollforward for DAC*:

						Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Total
(in millions)
Pre-adoption December 31, 2020 DAC balance						$	2,359					$	560					$	4,371					$	26					$	7,316
Adjustments for the removal of related balances in Accumulated other comprehensive income (loss) originating from unrealized gains (losses)						2,062						534						547						7						3,150
Post-adoption January 1, 2021 DAC balance						$	4,421					$	1,094					$	4,918					$	33					$	10,466

* Excludes $ 2.5 billion of DAC in General Insurance.

Prior to the adoption of LDTI, DAC for investment-oriented products included the effect of unrealized gains or losses on fixed maturity securities classified as available for sale. At the Transition Date, these adjustments were removed with a corresponding offset in AOCI. As the available for sale portfolio was in an unrealized gain position as of the Transition Date, the adjustment for removal of related balances in AOCI originating from unrealized gains (losses) balances was reducing DAC.

The following table presents a rollforward of DAC:

Six Months Ended June 30, 2023						General Insurance						Individual Retirement						Group Retirement						Life Insurance						Institutional Markets
(in millions)																																				Total
Balance, beginning of year			$			2,310			$			4,597			$			1,060			$			4,839			$			51			$			12,857
Capitalization						2,385						358						37						234						10						3,024
Amortization expense						( 1,965 )						( 272 )						( 41 )						( 201 )						( 4 )						( 2,483 )
Other, including foreign exchange*						( 734 )						—						—						38						—						( 696 )
Balance, end of period			$			1,996			$			4,683			$			1,056			$			4,910			$			57			$			12,702
Six Months Ended June 30, 2022
Balance, beginning of year			$			2,428			$			4,553			$			1,078			$			4,904			$			38			$			13,001
Capitalization						2,046						281						29						215						6						2,577
Amortization expense						( 1,759 )						( 242 )						( 39 )						( 210 )						( 3 )						( 2,253 )
Other, including foreign exchange						( 130 )						—						—						( 77 )						—						( 207 )
Balance, end of period			$			2,585			$			4,592			$			1,068			$			4,832			$			41			$			13,118

* Includes $ 712 million reclassified to Assets held for sale on the Condensed Consolidated Balance Sheets.

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DEFERRED SALES INDUCEMENTS

We offer deferred sales inducements (DSI) which include enhanced crediting rates or bonus payments to contract holders (bonus interest) on certain annuity and investment contract products. To qualify for such accounting treatment as an asset, the bonus interest must be explicitly identified in the contract at inception. We must also demonstrate that such amounts are incremental to amounts we credit on similar contracts without bonus interest and are higher than the contracts’ expected ongoing crediting rates for periods after the bonus period. DSI is reported in Other assets, while amortization related to DSI is recorded in Interest credited to policyholder account balances.

Prior to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

DSI amounts were deferred and amortized over the life of the contract in relation to the incidence of EGPs to be realized over the estimated lives of the contracts. DSI was adjusted for the effect on EGPs of unrealized gains and losses on available-for-sale securities, with related changes recognized through OCI.

Subsequent to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

DSI amounts are deferred and amortized on a constant level basis over the life of the contract consistent with DAC. Changes in future assumptions (e.g., expected duration of contracts) are applied by adjusting the amortization rate prospectively rather than through a retrospective catch up adjustment. The Company has elected to implicitly account for actual experience, whether favorable or unfavorable, in its amortization expense each period, consistent with DAC.

The following table presents the transition rollforward for DSI*:

(in millions)						Individual Retirement						Group Retirement						Total
Pre-adoption December 31, 2020 DSI balance						$	190					$	91					$	281
Adjustments for the removal of related balances in Accumulated other comprehensive income (loss) originating from unrealized gains (losses)						284						114						398
Post-adoption January 1, 2021 DSI balance						$	474					$	205					$	679

* Other assets, excluding DSI, totaled $ 12.8 billion.

Prior to the adoption of LDTI, deferred sales inducements for investment-oriented products included the effect of unrealized gains or losses on fixed maturity securities classified as available-for-sale. At the Transition Date, these adjustments were removed with a corresponding offset in AOCI. As the available for sale portfolio was in an unrealized gain position as of the Transition Date, the adjustment for removal of related balances in AOCI originating from unrealized gains (losses) balances was reducing DSI.

The following table presents a rollforward of DSI:

Six Months Ended June 30, 2023			2023												2022
(in millions)			Individual Retirement			Group Retirement			Total						Individual Retirement			Group Retirement			Total
Balance, beginning of year			$	381		$	177		$	558					$	428		$	191		$	619
Capitalization			4			1			5						4			—			4
Amortization expense			( 27 )			( 7 )			( 34 )						( 26 )			( 7 )			( 33 )
Balance, end of period*			$	358		$	171		$	529					$	406		$	184		$	590

* At June 30, 2023 and 2022, Other assets, excluding DSI, totaled $ 12.3 billion and $ 13.0 billion, respectively.

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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 to which the entity was designed to expose the variable interest holders.

The primary beneficiary is the entity that has both (i) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (ii) 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

Creditors or beneficial interest holders of VIEs for which AIG is the primary beneficiary generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to AIG, except in limited circumstances when AIG has provided a guarantee to the VIE’s interest holders. 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)																		Total
June 30, 2023
Assets:
Bonds available for sale			$			—			$			236															$			236
Equity securities						34						—																		34
Mortgage and other loans receivable						—						2,139																		2,139
Other invested assets
Alternative investments (a)						2,860						—																		2,860
Investment real estate						1,784						—																		1,784
Short-term investments						292						33																		325
Cash						99						—																		99
Accrued investment income						—						16																		16
Other assets						130						1																		131
Total (b)			$			5,199			$			2,425															$			7,624
Liabilities:
Debt of consolidated investment entities			$			1,410			$			1,197															$			2,607
Other (c)						102						23																		125
Total			$			1,512			$			1,220															$			2,732

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(in millions)			Real Estate and Investment Entities (d)									Securitization Vehicles (e)																		Total
December 31, 2022
Assets:
Bonds available for sale			$			—			$			3,672															$			3,672
Equity securities						51						—																		51
Mortgage and other loans receivable						—						2,221																		2,221
Other invested assets
Alternative investments (a)						2,842						—																		2,842
Investment real estate						1,731						—																		1,731
Short-term investments						191						281																		472
Cash						71						—																		71
Accrued investment income						—						9																		9
Other assets						102						70																		172
Total (b)			$			4,988			$			6,253															$			11,241
Liabilities:
Debt of consolidated investment entities			$			1,358			$			4,336															$			5,694
Other (c)						85						47																		132
Total			$			1,443			$			4,383															$			5,826

(a) Comprised primarily of investments in real estate joint ventures at June 30, 2023 and December 31, 2022.

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

(c) Comprised primarily of Other liabilities at June 30, 2023 and December 31, 2022.

(d) At June 30, 2023 and December 31, 2022, off-balance sheet exposure primarily consisting of our insurance companies’ commitments to real estate and investment entities were $ 2.0 billion and $ 2.1 billion, respectively, of which commitments to external parties were $ 0.5 billion and $ 0.6 billion, respectively.

(e) During the six months ended June 30, 2023, as part of the sale of AIG Credit Management, LLC, certain consolidated investment entities were deconsolidated. The impact of the deconsolidation was a decrease of $ 3.6 billion in assets and $ 3.1 billion in liabilities, resulting in a pre-tax loss of $ 14 million.

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.

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
(in millions)						Total VIE Assets						On-Balance Sheet (c)									Off-Balance Sheet									Total
June 30, 2023
Real estate and investment entities (a)			$			513,797			$			9,318						$			3,826			(d)			$			13,144
Other (b)						1,027						58									748			(e)						806
Total			$			514,824			$			9,376						$			4,574						$			13,950
December 31, 2022
Real estate and investment entities (a)			$			504,219			$			9,145						$			3,938			(d)			$			13,083
Other (b)						1,302						247									747			(e)						994
Total			$			505,521			$			9,392						$			4,685						$			14,077

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

(b) At June 30, 2023 and December 31, 2022, excludes approximately $ 1,986 million and $ 2,057 million, respectively, of VIE assets related to AIGFP and its consolidated subsidiaries, with maximum off-balance sheet exposure to loss of $ 1,959 million and $ 2,033 million, respectively. For additional information, see Note 1.

(c) At June 30, 2023 and December 31, 2022, $ 9.3 billion and $ 9.3 billion, respectively, of our total unconsolidated VIE assets were recorded as Other invested assets.

(d) These amounts represent our unfunded commitments to invest in private equity funds and hedge funds.

(e) 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 9 to the Consolidated Financial Statements in the 2022 Annual Report.

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11. 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. 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 swaps) are used to economically mitigate risk associated with non-U.S. dollar denominated debt, net capital exposures, foreign currency transactions, and foreign denominated investments. Equity derivatives are used to economically mitigate financial risk associated with embedded derivatives and MRBs in certain insurance liabilities. We use credit derivatives to manage our credit exposures. Commodity derivatives are used to hedge exposures within reinsurance contracts. 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 contracts with respect to investment operations, which may include, among other things, credit default swaps (CDSs), total return swaps and purchases of investments with embedded derivatives, such as equity-linked notes and convertible bonds.

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:

			June 30, 2023																														December 31, 2022
			Gross Derivative Assets															Gross Derivative Liabilities															Gross Derivative Assets															Gross Derivative Liabilities
(in millions)						Notional Amount						Fair Value									Notional Amount						Fair Value									Notional Amount						Fair Value									Notional Amount						Fair Value
Derivatives designated as hedging instruments: (a)
Interest rate contracts			$			642			$			210						$			1,428			$			38						$			251			$			355						$			1,688			$			66
Foreign exchange contracts						4,978						530									3,752						275									4,543						642									4,899						317
Derivatives not designated as hedging instruments: (a)
Interest rate contracts						35,331						2,251									30,855						3,070									39,833						3,367									34,128						4,772
Foreign exchange contracts						9,968						897									10,077						524									8,626						1,202									10,397						821
Equity contracts						35,621						1,280									9,042						347									31,264						428									4,740						26
Commodity contracts						—						—									—						—									212						9									20						—
Credit contracts (b)						1,807						33									537						39									1,808						32									933						41
Other contracts (c)						46,017						15									—						—									47,184						14									—						—
Total derivatives, gross			$			134,364			$			5,216						$			55,691			$			4,293						$			133,721			$			6,049						$			56,805			$			6,043
Counterparty netting (d)												( 2,826 )															( 2,826 )															( 3,895 )															( 3,895 )
Cash collateral (e)												( 1,980 )															( 1,182 )															( 1,640 )															( 1,917 )
Total derivatives on Condensed Consolidated Balance Sheets (f)									$			410												$			285												$			514												$			231

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

(b) As of June 30, 2023 and December 31, 2022, included CDSs on super senior multi-sector CLO with a net notional amount of $ 53 million and $ 79 million (fair value liability of $ 32 million and $ 32 million, respectively). The net notional amount represents the maximum exposure to loss on the portfolio.

(c) Consists primarily of stable value wraps and contracts with multiple underlying exposures.

(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 derivatives. Derivative instrument assets and liabilities are recorded in Other assets and Other liabilities, respectively. Fair value of assets related to bifurcated embedded derivatives was $ 2.1 billion at June 30, 2023 and $ 2.2 billion at December 31, 2022. Fair value of liabilities related to bifurcated embedded derivatives was $ 6.9 billion and $ 5.4 billion, respectively, at June 30, 2023 and December 31, 2022. A bifurcated embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in fixed index annuities and index universal life products, which include equity and interest rate components, and the funds withheld arrangement with Fortitude Re. For additional information, see Note 8.

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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 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 by us 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 $ 2.2 billion and $ 2.9 billion at June 30, 2023 and December 31, 2022, respectively. 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 $ 2.4 billion and $ 2.0 billion at June 30, 2023 and December 31, 2022, 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.

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 and six months ended June 30, 2023, we recognized gains (losses) of $( 8 ) million and $( 33 ) million, respectively, and for the three and six months ende d June 30, 2022, we recognized gains (losses) of $ 220 million and $ 307 million, respectively, included in Change in foreign currency translation adjustments in OCI 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.

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

			Gains/(Losses) Recognized in Income for:
(in millions)						Hedging Derivatives (a)						Excluded Components (b)						Hedged Items						Net Impact
Three Months Ended June 30, 2023
Interest rate contracts:
Interest credited to policyholder account balances			$			( 7 )			$			1			$			( 3 )			$			( 9 )
Net investment income						—						—						—						—
Foreign exchange contracts:
Net realized gains/(losses)						( 314 )						121						314						121
Three Months Ended June 30, 2022
Interest rate contracts:
Interest credited to policyholder account balances			$			( 7 )			$			—			$			8			$			1
Net investment income						—						—						—						—
Foreign exchange contracts:
Net realized gains/(losses)						325						98						( 325 )						98
Six Months Ended June 30, 2023
Interest rate contracts:
Interest credited to policyholder account balances			$			36			$			1			$			( 50 )			$			( 13 )
Net investment income						—						—						—						—
Foreign exchange contracts:
Net realized gains/(losses)						( 444 )						197						444						197
Six Months Ended June 30, 2022
Interest rate contracts:
Interest credited to policyholder account balances			$			( 28 )			$			—			$			31			$			3
Net investment income						1						—						( 1 )						—
Foreign exchange contracts:
Net realized gains/(losses)						434						140						( 434 )						140

(a) Gains and losses on derivative instruments designated and qualifying in fair value hedges that are included in the assessment of hedge effectiveness.

(b) Gains and losses on derivative instruments designated and qualifying in fair value hedges that are excluded from the assessment of hedge effectiveness and recognized in income on a mark-to-market basis.

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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 (Loss):

			Gains (Losses) Recognized in Income
			Three Months Ended June 30,															Six Months Ended June 30,
(in millions)						2023						2022									2023						2022
By Derivative Type:
Interest rate contracts			$			( 179 )			$			( 869 )						$			( 84 )			$			( 1,482 )
Foreign exchange contracts						( 220 )						730									( 321 )						966
Equity contracts						3						78									( 75 )						( 126 )
Commodity contracts						1						( 3 )									8						( 7 )
Credit contracts						—						—									( 1 )						( 1 )
Other contracts						17						13									33						31
Embedded derivatives						( 256 )						3,333									( 1,804 )						7,312
Total			$			( 634 )			$			3,282						$			( 2,244 )			$			6,693
By Classification:
Policy fees			$			17			$			15						$			33			$			30
Net investment income - excluding Fortitude Re funds withheld assets						—						3									—						2
Net investment income - Fortitude Re funds withheld assets						—						—									( 2 )						—
Net realized gains (losses) - excluding Fortitude Re funds withheld assets						( 120 )						659									( 511 )						1,266
Net realized gains (losses) on Fortitude Re funds withheld assets (a)						93						2,824									( 1,034 )						6,086
Policyholder benefits and claims incurred						( 3 )						( 7 )									—						( 14 )
Change in the fair value of market risk benefits, net (b)						( 621 )						( 212 )									( 730 )						( 677 )
Total			$			( 634 )			$			3,282						$			( 2,244 )			$			6,693

(a) Includes over-the-counter derivatives supporting the funds withheld arrangements with Fortitude Re and the embedded derivative contained within the funds withheld payable with Fortitude Re.

(b) This represents activity related to derivatives that economically hedged changes in the fair value of certain market risk benefits.

CREDIT RISK-RELATED CONTINGENT FEATURES

We estimate that at June 30, 2023, 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 $ 6 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 $ 33 million and $ 32 million at June 30, 2023 and December 31, 2022, respectively. The aggregate fair value of assets posted as collateral under these contracts at June 30, 2023 and December 31, 2022, was approximately $ 33 million and $ 34 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, CLO 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. Our investments in these hybrid securities are reported as Other bond securities in the Condensed Consolidated Balance Sheets. The fair value of these hybrid securities was under $ 1 million at both June 30, 2023 and December 31, 2022, respectively. These securities have par amounts of $ 42 million and $ 42 million at June 30, 2023 and December 31, 2022, respectively, and have remaining stated maturity dates that extend to 2052.

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12. 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 and loss adjustment expenses, 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, 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 or reserve releases.

Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from policyholders of approximately $ 12.4 billion and $ 12.1 billion at June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022 we held collateral of approximately $ 8.8 billion and $ 8.6 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust agreements. Allowance for credit losses for the unsecured portion of these recoverable amounts was $ 14 million at both June 30, 2023 and December 31, 2022.

The following table presents the rollforward of activity in loss reserves:

			Three Months Ended June 30,															Six Months Ended June 30,
(in millions)						2023						2022									2023						2022
Liability for unpaid loss and loss adjustment expenses, beginning of period			$			75,793			$			78,183						$			75,167			$			79,026
Reinsurance recoverable						( 32,366 )						( 34,321 )									( 32,102 )						( 35,213 )
Net Liability for unpaid loss and loss adjustment expenses, beginning of period						43,427						43,862									43,065						43,813
Losses and loss adjustment expenses incurred:
Current year						3,945						3,765									7,729						7,647
Prior years, excluding discount and amortization of deferred gain						( 107 )						( 374 )									( 134 )						( 425 )
Prior years, discount charge (benefit)						54						38									148						42
Prior years, amortization of deferred gain on retroactive reinsurance (a)						( 25 )						28									( 85 )						( 14 )
Total losses and loss adjustment expenses incurred						3,867						3,457									7,658						7,250
Losses and loss adjustment expenses paid:
Current year						( 881 )						( 834 )									( 1,170 )						( 1,157 )
Prior years						( 2,994 )						( 2,729 )									( 6,543 )						( 6,171 )
Total losses and loss adjustment expenses paid						( 3,875 )						( 3,563 )									( 7,713 )						( 7,328 )
Other changes:
Foreign exchange effect						( 25 )						( 800 )									372						( 796 )
Retroactive reinsurance adjustment (net of discount) (b)						47						200									59						217
Reclassified to held for sale, net of reinsurance recoverables						( 3,383 )						—									( 3,383 )						—
Total other changes						( 3,361 )						( 600 )									( 2,952 )						( 579 )
Liability for unpaid loss and loss adjustment expenses, end of period:
Net liability for unpaid losses and loss adjustment expenses						40,058						43,156									40,058						43,156
Reinsurance recoverable (c)						30,226						33,583									30,226						33,583
Total			$			70,284			$			76,739						$			70,284			$			76,739

(a) Includes $ 6 million and $ 6 million for the retroactive reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. (Berkshire), covering U.S. asbestos exposures for the three months ended June 30, 2023 and 2022, respectively, and $ 13 million and $ 10 million for the six months ended June 30, 2023 and 2022, respectively.

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(b) Includes benefit (charge) from change in discount on retroactive reinsurance in the amount of $ 26 million and $ 18 million for the three months ended June 30, 2023 and 2022 respectively, and $ 96 million and $ 57 million for the six months ended June 30, 2023 and 2022, respectively.

(c) Excludes $ 1.5 billion of Reinsurance recoverable reclassified to Assets held for sale on the Condensed Consolidated Balance Sheets at June 30, 2023.

On January 20, 2017, we entered into an adverse development reinsurance agreement with NICO, under which we transferred to NICO 80 percent of the reserve risk on substantially all of our U.S. commercial long-tail exposures for accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the 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.

Prior Year Development

During the three months ended June 30, 2023, we recognized favorable prior year loss reserve development of $ 107 million excluding discount and amortization of deferred gain. The development in this period was largely driven by favorable development on our loss sensitive U.S. Workers Compensation business, U.S. Other Casualty and U.S. Property & Special Risks including prior year catastrophes, partially offset by unfavorable development on European Casualty. During the six months ended June 30, 2023, we recognized favorable prior year loss reserve development of $ 134 million excluding discount and amortization of deferred gain. The development in this period was largely driven by favorable development on our loss sensitive U.S. Workers Compensation business, U.S. Other Casualty and U.S. Property & Special Risks, partially offset by unfavorable development on European Casualty.

During the three months ended June 30, 2022, we recognized favorable prior year loss reserve development of $ 374 million excluding discount and amortization of deferred gain. During the six months ended June 30, 2022, we recognized favorable prior year loss reserve development of $ 425 million excluding discount and amortization of deferred gain. The development in these periods was primarily driven by favorable development on U.S. Workers Compensation, U.S. Other Casualty and Japan Personal Insurance, partially offset by unfavorable development on U.S Property and Special Risks.

Discounting of Loss Reserves

At June 30, 2023 and December 31, 2022, the loss reserves reflect a net loss reserve discount of $ 1.3 billion and $ 1.3 billion, respectively, including tabular and non-tabular calculations based upon the following assumptions:

• The non-tabular workers’ compensation discount is calculated separately for companies domiciled in New York, Pennsylvania and Delaware, 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.

– The Pennsylvania and Delaware regulators approved use of a consistent benchmark discount rate and spread (U.S. Treasury rate plus a liquidity premium) to all of our workers’ compensation reserves in our Pennsylvania domiciled and Delaware domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers compensation portfolios. In 2020, the regulators also approved that the discount rate will be updated on an annual basis.

• The tabular workers’ compensation discount is calculated based on the mortality rate used in the 2007 U.S. Life table and interest rates prescribed or permitted by each state (i.e. New York is based on 5 percent interest rate and Pennsylvania and Delaware are based on U.S. Treasury rate plus a liquidity premium). In the case that applying this tabular discount factor to our nominal reserves produces a tabular discount that is greater than the indemnity portion of our case reserves, the tabular discount is capped at our estimate of the indemnity portion of our cases reserves ( 45 percent).

The discount for asbestos reserves has been fully accreted.

At June 30, 2023 and December 31, 2022, the discount consists of $ 324 million and $ 314 million of tabular discount, respectively, and $ 970 million and $ 964 million of non-tabular discount for workers’ compensation, respectively. During the six months ended June 30, 2023 and 2022, the benefit / (charge) from changes in discount of $( 80 ) million and $ 6 million, respectively, were recorded as part of Policyholder benefits and losses incurred in the Condensed Consolidated Statements of Income (Loss).

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

(in millions)						June 30, 2023						December 31, 2022
U.S. workers' compensation			$			2,452			$			2,532
Retroactive reinsurance						( 1,158 )						( 1,254 )
Total reserve discount (a)(b)			$			1,294			$			1,278

(a) Excludes $ 143 million and $ 135 million of discount related to certain long-tail liabilities in the UK at June 30, 2023 and December 31, 2022, respectively.

(b) Includes gross discount of $ 748 million and $ 763 million, which was 100 percent ceded to Fortitude Re at June 30, 2023 and December 31, 2022, respectively.

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The following table presents the net loss reserve discount benefit (charge):

			Three Months Ended June 30,															Six Months Ended June 30,
(in millions)						2023						2022									2023						2022
Current accident year			$			38			$			24						$			68			$			48
Accretion and other adjustments to prior year discount						( 54 )						( 38 )									( 148 )						( 42 )
Net reserve discount benefit (charge)						( 16 )						( 14 )									( 80 )						6
Change in discount on loss reserves ceded under retroactive reinsurance						26						18									96						57
Net change in total reserve discount*			$			10			$			4						$			16			$			63

* Excludes $ 4 million and $( 7 ) million discount related to certain long-tail liabilities in the UK for the three months ended June 30, 2023 and 2022, respectively, and excludes $ 8 million and $( 5 ) million discount related to certain long-tail liabilities in the UK for the six months ended June 30, 2023 and 2022, respectively.

Amortization of Deferred Gain on Retroactive Reinsurance

Amortization of the deferred gain on retroactive reinsurance includes $ 19 million and $( 34 ) million related to the adverse development reinsurance cover with NICO for the three months ended June 30, 2023 and 2022, respectively, and $ 72 million and $ 4 million related to the adverse development reinsurance cover with NICO for the six months ended June 30, 2023 and 2022, respectively.

Amounts recognized reflect the amortization of the initial deferred gain at inception, as amended for subsequent changes in the deferred gain due to changes in subject reserves.

FUTURE POLICY BENEFITS

Future policy benefits primarily include reserves for traditional life and annuity payout contracts, which represent an estimate of the present value of future benefits less the present value of future net premiums. Included in Future policy benefits are liabilities for annuities issued in structured settlement arrangements whereby a claimant receives life contingent payments over their lifetime. Also included are pension risk transfer arrangements whereby an upfront premium is received in exchange for guaranteed retirement benefits. All payments under these arrangements are fixed and determinable with respect to their amounts and dates.

Prior to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

Future policy benefits for traditional and limited pay contracts were reserved using actuarial assumptions locked-in at contract issuance. These assumptions were only updated when a loss recognition event occurred. Also included in Future policy benefits were reserves for contracts in loss recognition, including the adjustment to reflect the effect of unrealized gains on fixed maturity securities available for sale with related changes recognized through OCI.

Future policy benefits also included certain guaranteed benefits of annuity products that were not considered embedded derivatives.

Subsequent to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

For traditional and limited pay long-duration products, benefit reserves are accrued and benefit expense is recognized using a NPR methodology for each annual cohort of business. This NPR method incorporates periodic retrospective revisions to the NPR to reflect updated actuarial assumptions and variances in actual versus expected experience. The Future policy benefit liability is accrued by multiplying the gross premium recognized in each period by the net premium ratio. The net premium is equal to the portion of the gross premium required to provide for all benefits and certain expenses and may not exceed 100 percent. Benefits in excess of premiums are expensed immediately through Policyholder benefits. In addition, periodic revisions to the NPR below 100 percent may result in reclassification between the benefit reserves and deferred profit liability for limited pay contracts.

Insurance contracts are aggregated into annual cohorts for the purposes of determining the liability for future policy benefits (LFPB), but are not aggregated across segments. These annual cohorts may be further segregated based on product characteristics, or to distinguish business reinsured from non-reinsured business or products issued in different functional currencies. The assumptions used to calculate the future policy benefits include discount rates, persistency and recognized morbidity and mortality tables modified to reflect the Company's experience.

The current discount rate assumption for the liability for future policy benefits is derived from market observable yields on upper-medium-grade fixed income instruments. The Company uses an external index as the source of the yields on these instruments for the first 30 years. For years 30 to 50, the yield is derived using market observable yields. Yields for years 50 to 100 are extrapolated using a flat forward approach, maintaining a constant forward spread through the period. The current discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change in the discount rate reflected in OCI.

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The method for constructing and applying the locked-in discount rate assumptions on newly issued business is determined based on factors such as product characteristics and the expected timing of cash flows. This discount rate assumption is derived from market observable yields on upper-medium-grade fixed income instruments. Similar to the current discount rate assumption, the Company may employ conversion and interpolation methodologies when necessary. The applicable interest accretion is reflected in Policyholder benefits and losses incurred in the Condensed Consolidated Statements of Income (Loss).

The following table presents the transition rollforward of the liability for future policy benefits for nonparticipating contracts (a) :

			Individual Retirement						Group Retirement						Life Insurance			Institutional Markets						Other (b)						Total
(in millions)
Pre-adoption December 31, 2020 liability for future policy benefits balance			$	1,309					$	282					$	11,129		$	11,029					$	22,206					$	45,955
Adjustments for the reclassification to the deferred profit liability			( 65 )						( 8 )						—			( 766 )						( 859 )						( 1,698 )
Change in cash flow assumptions and effect of net premiums exceeding gross premiums			( 14 )						2						15			4						55						62
Effect of the remeasurement of the liability at a current single A rate			156						63						2,977			1,655						7,611						12,462
Adjustment for the removal of loss recognition balances related to unrealized gain or loss on securities			( 64 )						( 60 )						4			( 292 )						—						( 412 )
Post-adoption January 1, 2021 liability for future policy benefits balance			$	1,322					$	279					$	14,125		$	11,630					$	29,013					$	56,369

(a) Excludes future policy benefits for participating contracts, DPL, additional liabilities, Accident and Health, Group Benefits and Other Operations representing $ 11.0 billion of liability for future policy benefits. See transition tables below for DPL and additional liabilities.

(b) Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

Adjustments for the reclassification between the liability for future policy benefits and deferred profit liability represent changes in the net premium ratios that are less than 100 percent at transition for certain limited pay cohorts, resulting in a reclassification between the two liabilities, with no impact on Retained earnings.

Adjustments for Changes in cash flow assumptions represents revised net premium ratios in excess of 100 percent for certain cohorts at transition, with an offset to Retained earnings.

The effect of the remeasurement at the current single A rate is reported at the Transition Date and each subsequent balance sheet date, with an offset in AOCI.

Prior to adoption, loss recognition for traditional products was adjusted for the effect of unrealized gains on fixed maturity securities available for sale. At the Transition Date, these adjustments were removed with a corresponding offset in AOCI.

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The following tables present the balances and changes in the liability for future policy benefits and a reconciliation of the net liability for future policy benefits to the liability for future policy benefits in the Condensed Consolidated Balance Sheets:

Six Months Ended June 30, 2023			General Insurance						Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other (e)						Total
(in millions, except for liability durations)
Present value of expected net premiums
Balance, beginning of year			$	1,929					$	—					$	—					$	11,654					$	—					$	991					$	14,574
Effect of changes in discount rate assumptions (AOCI)			262						—						—						1,872						—						66						2,200
Beginning balance at original discount rate			2,191						—						—						13,526						—						1,057						16,774
Effect of changes in cash flow assumptions			—						—						—						—						—						—						—
Effect of actual variances from expected experience			( 26 )						—						—						10						—						6						( 10 )
Adjusted beginning of year balance			2,165						—						—						13,536						—						1,063						16,764
Issuances			67						—						—						666						—						—						733
Interest accrual			21						—						—						214						—						23						258
Net premium collected			( 117 )						—						—						( 719 )						—						( 59 )						( 895 )
Foreign exchange impact			( 88 )						—						—						206						—						—						118
Other			—						—						—						10						—						—						10
Ending balance at original discount rate			2,048						—						—						13,913						—						1,027						16,988
Effect of changes in discount rate assumptions (AOCI)			( 330 )						—						—						( 1,904 )						—						( 61 )						( 2,295 )
Balance, end of period			$	1,718					$	—					$	—					$	12,009					$	—					$	966					$	14,693
Present value of expected future policy benefits
Balance, beginning of year			$	2,380					$	1,223					$	211					$	21,179					$	12,464					$	20,429					$	57,886
Effect of changes in discount rate assumptions (AOCI)			362						167						2						3,424						2,634						1,083						7,672
Beginning balance at original discount rate			2,742						1,390						213						24,603						15,098						21,512						65,558
Effect of changes in cash flow assumptions (a)			—						—						—						—						—						—						—
Effect of actual variances from expected experience (a)			( 16 )						( 1 )						—						36						17						( 8 )						28
Adjusted beginning of year balance			2,726						1,389						213						24,639						15,115						21,504						65,586
Issuances			70						120						6						656						3,301						3						4,156
Interest accrual			26						25						5						450						301						513						1,320
Benefit payments			( 122 )						( 65 )						( 13 )						( 943 )						( 521 )						( 739 )						( 2,403 )
Foreign exchange impact			( 121 )						—						—						236						308						—						423
Other			—						—						—						5						—						( 6 )						( 1 )
Ending balance at original discount rate			2,579						1,469						211						25,043						18,504						21,275						69,081
Effect of changes in discount rate assumptions (AOCI)			( 423 )						( 158 )						( 1 )						( 3,386 )						( 2,752 )						( 822 )						( 7,542 )
Balance, end of period			$	2,156					$	1,311					$	210					$	21,657					$	15,752					$	20,453					$	61,539
Net liability for future policy benefits, end of period			$	438					$	1,311					$	210					$	9,648					$	15,752					$	19,487					$	46,846
Liability for future policy benefits for certain participating contracts																																							1,329
Liability for universal life policies with secondary guarantees and similar features (b)																																							3,458
Deferred profit liability																																							2,451
Other reconciling items (c)																																							1,606
Future policy benefits for life and accident and health insurance contracts																																							55,690
Less: Reinsurance recoverable																																							( 23,765 )
Net liability for future policy benefits after reinsurance recoverable																																							$	31,925
Weighted average liability duration of the liability for future policy benefits (d)			9.9						7.8						6.9						12.5						11.6						11.5

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Six Months Ended June 30, 2022			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other (e)						Total
(in millions, except for liability durations)
Present value of expected net premiums
Balance, beginning of year			$	—					$	—					$	14,369					$	—					$	1,274					$	15,643
Effect of changes in discount rate assumptions (AOCI)			—						—						( 706 )						—						( 150 )						( 856 )
Beginning balance at original discount rate			—						—						13,663						—						1,124						14,787
Effect of changes in cash flow assumptions			—						—						—						—						—						—
Effect of actual variances from expected experience			—						—						( 8 )						—						4						( 4 )
Adjusted beginning of year balance			—						—						13,655						—						1,128						14,783
Issuances			—						—						728						—						—						728
Interest accrual			—						—						199						—						25						224
Net premium collected			—						—						( 710 )						—						( 62 )						( 772 )
Foreign exchange impact			—						—						( 479 )						—						—						( 479 )
Other			—						—						—						—						—						—
Ending balance at original discount rate			—						—						13,393						—						1,091						14,484
Effect of changes in discount rate assumptions (AOCI)			—						—						( 1,174 )						—						( 16 )						( 1,190 )
Balance, end of period			$	—					$	—					$	12,219					$	—					$	1,075					$	13,294
Present value of expected future policy benefits
Balance, beginning of year			$	1,373					$	264					$	27,442					$	13,890					$	27,674					$	70,643
Effect of changes in discount rate assumptions (AOCI)			( 95 )						( 46 )						( 2,717 )						( 870 )						( 5,673 )						( 9,401 )
Beginning balance at original discount rate			1,278						218						24,725						13,020						22,001						61,242
Effect of changes in cash flow assumptions (a)			—						—						—						—						—						—
Effect of actual variances from expected experience (a)			( 7 )						( 1 )						( 6 )						( 5 )						( 18 )						( 37 )
Adjusted beginning of year balance			1,271						217						24,719						13,015						21,983						61,205
Issuances			102						7						726						708						5						1,548
Interest accrual			20						4						439						215						615						1,293
Benefit payments			( 56 )						( 13 )						( 905 )						( 390 )						( 746 )						( 2,110 )
Foreign exchange impact			—						—						( 610 )						( 318 )						—						( 928 )
Other			—						—						( 1 )						—						( 98 )						( 99 )
Ending balance at original discount rate			1,337						215						24,368						13,230						21,759						60,909
Effect of changes in discount rate assumptions (AOCI)			( 109 )						10						( 1,868 )						( 1,712 )						451						( 3,228 )
Balance, end of period			$	1,228					$	225					$	22,500					$	11,518					$	22,210					$	57,681
Net liability for future policy benefits, end of period			$	1,228					$	225					$	10,281					$	11,518					$	21,135					$	44,387
Liability for future policy benefits for certain participating contracts																																	1,373
Liability for universal life policies with secondary guarantees and similar features (b)																																	3,663
Deferred profit liability																																	2,199
Other reconciling items (c)																																	2,222
Future policy benefits for life and accident and health insurance contracts																																	53,844
Less: Reinsurance recoverable																																	( 26,677 )
Net liability for future policy benefits after reinsurance recoverable																																	$	27,167
Weighted average liability duration of the liability for future policy benefits (d)			7.7						7.2						12.7						11.1						12.0

(a) Effect of changes in cash flow assumptions and variances from actual experience are partially offset by changes in the deferred profit liability.

(b) Additional details can be found in the table that presents the balances and changes in the liability for universal life policies with secondary guarantees and similar features.

(c) Other reconciling items primarily include the Accident and Health as well as Group Benefits (short-duration) contracts.

(d) The weighted average liability durations are calculated as the modified duration using projected future net liability cashflows that are aggregated at the segment level, utilizing the segment level weighted average interest rates and current discount rate, which can be found in the table below.

(e) Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

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For the six months ended June 30, 2023 and 2022 in the traditional term life insurance block, capping of net premium ratios at 100 percent causes our reserves to be higher by $ 13 million and $ 8 million, respectively, with a charge to net income. The discount rate was updated based on market observable information. Relative to the prior period, the increase in upper-medium-grade fixed income yields resulted in a decrease in the liability for future policy benefits.

The following table presents the amount of undiscounted expected future benefit payments and undiscounted and discounted expected gross premiums for future policy benefits for nonparticipating contracts:

Six Months Ended June 30,
(in millions)									2023						2022
General Insurance			Undiscounted expected future benefits and expense						$	3,165					$	3,421
			Undiscounted expected future gross premiums						4,383						4,494
			Discounted expected future gross premiums (at current discount rate)						3,109						3,533
Individual Retirement			Undiscounted expected future benefits and expense						$	2,115					$	1,835
			Undiscounted expected future gross premiums						—						—
			Discounted expected future gross premiums (at current discount rate)						—						—
Group Retirement			Undiscounted expected future benefits and expense						$	316					$	328
			Undiscounted expected future gross premiums						—						—
			Discounted expected future gross premiums (at current discount rate)						—						—
Life Insurance			Undiscounted expected future benefits and expense						$	39,848					$	38,406
			Undiscounted expected future gross premiums						29,792						28,810
			Discounted expected future gross premiums (at current discount rate)						19,207						19,704
Institutional Markets			Undiscounted expected future benefits and expense						$	33,474					$	21,092
			Undiscounted expected future gross premiums						—						—
			Discounted expected future gross premiums (at current discount rate)						—						—
Other*			Undiscounted expected future benefits and expense						$	43,791					$	45,258
			Undiscounted expected future gross premiums						2,179						2,346
			Discounted expected future gross premiums (at current discount rate)						1,435						1,602

* Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

The following table presents the amount of revenue and interest recognized in the Condensed Consolidated Statements of Income (Loss) for future policy benefits for nonparticipating contracts:

			Gross Premiums												Interest Accretion												Gross Premiums												Interest Accretion
			Three Months Ended June 30,												Three Months Ended June 30,												Six Months Ended June 30,												Six Months Ended June 30,
(in millions)			2023						2022						2023						2022						2023						2022						2023						2022
General Insurance			$	137					$	155					$	3					$	3					$	232					$	252					$	4					$	4
Individual Retirement			61						57						13						10						136						108						25						20
Group Retirement			4						5						2						1						10						13						5						4
Life Insurance			600						586						118						119						1,175						1,168						236						240
Institutional Markets			1,919						503						162						110						3,500						747						301						215
Other*			53						57						245						341						107						113						490						590
Total			$	2,774					$	1,363					$	543					$	584					$	5,160					$	2,401					$	1,061					$	1,073

* Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

The following table presents the weighted-average interest rate for future policy benefits for nonparticipating contracts:

Six Months Ended June 30, 2023			General Insurance						Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other*
Weighted-average interest rate, original discount rate			1.81		%				3.73		%				5.14		%				4.09		%				3.95		%				4.88		%
Weighted-average interest rate, current discount rate			3.59		%				5.27		%				5.26		%				5.27		%				5.34		%				5.25		%
Six Months Ended June 30, 2022
Weighted-average interest rate, original discount rate			1.67		%				3.37		%				5.20		%				4.15		%				3.30		%				4.84		%
Weighted-average interest rate, current discount rate			2.68		%				4.61		%				4.58		%				4.62		%				4.52		%				4.72		%

* Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

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The weighted average interest rates are calculated using projected future net liability cash flows that are aggregated to the segment level, and are represented as an annual rate.

Deferred Profit Liability: The Company issues certain annuity and life insurance contracts where premiums are paid up-front or for a shorter period than benefits will be paid (i.e., limited pay contracts). A DPL is required to be established to avoid recognition of gains when these contracts are issued. DPLs are amortized over the life of the contracts to align the revenue recognized with the related benefit expenses. The DPL is amortized in a constant relationship to the amount of discounted insurance in force for life insurance or expected future benefit payments for annuity contracts over the term of the contract.

Prior to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

Limited pay contracts were subject to a lock-in concept and assumptions derived at policy issue were not subsequently updated unless a loss recognition event occurred. The net premiums were recorded as revenue. The difference between the gross premium received and the net premium was deferred and recognized in premiums in a constant relationship to insurance in-force, or for annuities, the amount of expected future policy benefits. This unearned revenue (deferred profit) was recorded in the Condensed Consolidated Balance Sheets in Other policyholder funds.

Subsequent to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

The difference between the gross premium received and recorded as revenue and the net premium is deferred and recognized in Policyholder benefits in a constant relationship to insurance in-force, or for annuities, the amount of expected future policy benefits. This deferred profit liability accretes interest and is recorded in the Condensed Consolidated Balance Sheets in Future policy benefits. Cash flow assumptions included in the measurement of the DPL are the same as those utilized in the respective LFPBs and are reviewed at least annually. The cash flow estimates for DPLs are updated on a retrospective catch-up basis at the same time as the cash flow estimates for the related LFPBs. The updated LFPB cash flows are used to recalculate the DPL at the inception of the applicable related LFPB cohort. The difference between the recalculated DPL at the beginning of the current reporting period and the carrying amount of the DPL at the current reporting period is recognized as a gain or loss in Policyholder benefits and losses incurred in the Condensed Consolidated Statements of Income (Loss).

The following table presents the transition rollforward for deferred profit liability for long-duration contracts*:

			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other*						Total
(in millions)
Pre-adoption December 31, 2020 deferred profit liability balance			$	2					$	—					$	5					$	64					$	—					$	71
Adjustments for the reclassification from/(to) the liability for the future policy benefits			65						8						—						766						859						1,698
Post-adoption January 1, 2021 deferred profit liability balance			$	67					$	8					$	5					$	830					$	859					$	1,769

* Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

Adjustments for the reclassification between the liability for future policy benefits and deferred profit liability represent changes in the net premium ratios that are less than 100 percent at transition for certain limited pay cohorts, resulting in a reclassification between the two liabilities, with no impact on Retained earnings.

Additional Liabilities: For universal-life type products, insurance benefits in excess of the account balance are generally recognized as expenses in the period incurred unless the design of the product is such that future charges are insufficient to cover the benefits, in which case an “additional liability” is accrued over the life of the contract. These additional liabilities are included in Future policy benefits for life and accident and health insurance contracts in the Condensed Consolidated Balance Sheets. Prior to the adoption of the standard, our additional liabilities consisted primarily of guaranteed minimum death benefits (GMDBs) on annuities, as well as universal-life contracts with secondary guarantees. Subsequent to the adoption of this standard, the GMDBs have been reclassified and reported as MRBs, while the universal-life contracts with secondary guarantees continue to be reported as additional liabilities.

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The following table presents the transition rollforward of the additional liabilities:

			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other (c)						Total
(in millions)
Pre-adoption December 31, 2020 additional liabilities			$	1,423					$	221					$	5,117					$	—					$	55					$	6,816
Adjustment for the reclassification of additional liabilities from Future policy benefits to Market risk benefits (a)			( 907 )						( 132 )						—						—						—						( 1,039 )
Adjustment for removal of related balances in Accumulated other comprehensive income (loss) originating from unrealized gains (losses) (b)			( 516 )						( 89 )						—						—						—						( 605 )
Post-adoption January 1, 2021 additional liabilities			$	—					$	—					$	5,117					$	—					$	55					$	5,172

(a) Adjustments for the reclassification of additional liabilities from Future policy benefits to MRBs represent contract guarantees (e.g., GMDBs) that were previously classified as insurance liabilities within Future policy benefits, but have been reclassified as MRBs as of January 1, 2021. For additional information on the transition impacts associated with LDTI, see Note 14.

(b) Adjustments for the removal of related balances in Accumulated other comprehensive income (loss) originating from unrealized gains (losses) relate to the additional liabilities reclassified from Future policy benefits in the line above.

(c) Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

Post-adoption, our additional liabilities primarily consist of universal life policies with secondary guarantees and these additional liabilities are recognized in addition to the Policyholder account balances. For universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are expected at contract inception, a liability is recognized based on a benefit ratio of (a) the present value of total expected payments, in excess of the account value, over the life of the contract, divided by (b) the present value of total expected assessments over the life of the contract. For universal life policies without secondary guarantees, for which profits followed by losses are first expected after contract inception, we establish a liability, in addition to policyholder account balances, so that expected future losses are recognized in proportion to the emergence of profits in the earlier (profitable) years. Universal life account balances are reported within Policyholder contract deposits, while these additional liabilities are reported within the liability for future policy benefits in the Condensed Consolidated Balance Sheets. These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale on accumulated assessments, with related changes recognized through OCI. The policyholder behavior assumptions for these liabilities include mortality, lapses and premium persistency. The capital market assumptions used for the liability for universal life secondary guarantees include discount rates and net earned rates.

The following table presents the balances and changes in the liability for universal life policies with secondary guarantees and similar features:

Six Months Ended June 30,			2023																		2022
(in millions, except duration of liability)			Life Insurance						Other (b)						Total						Life Insurance						Other (b)						Total
Balance, beginning of year			$	3,300					$	55					$	3,355					$	4,952					$	55					$	5,007
Effect of changes in experience			149						( 1 )						148						194						( 2 )						192
Adjusted beginning balance			3,449						54						3,503						5,146						53						5,199
Assessments			341						1						342						344						1						345
Excess benefits paid			( 457 )						—						( 457 )						( 496 )						—						( 496 )
Interest accrual			61						1						62						65						1						66
Other			( 3 )						—						( 3 )						( 5 )						—						( 5 )
Changes related to unrealized appreciation (depreciation) of investments			11						—						11						( 1,446 )						—						( 1,446 )
Balance, end of period			3,402						56						3,458						3,608						55						3,663
Less: Reinsurance recoverable			( 172 )						—						( 172 )						( 209 )						—						( 209 )
Balance, end of period net of Reinsurance recoverable			$	3,230					$	56					$	3,286					$	3,399					$	55					$	3,454
Weighted average duration of liability (a)			26.2						9.2												27.1						9.7

(a) The weighted average duration of liabilities is calculated as the modified duration using projected future net liability cashflows that are aggregated at the segment level, utilizing the segment level weighted average interest rates, which can be found in the table below.

(b) Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

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The following table presents the amount of revenue and interest recognized in the Condensed Consolidated Statements of Income (Loss) for the liability for universal life policies with secondary guarantees and similar features:

			Gross Assessments												Interest Accretion												Gross Assessments												Interest Accretion
			Three Months Ended June 30,												Three Months Ended June 30,												Six Months Ended June 30,												Six Months Ended June 30,
(in millions)			2023						2022						2023						2022						2023						2022						2023						2022
Life Insurance			$	274					$	284					$	33					$	31					$	573					$	576					$	61					$	65
Other*			10						9						—						—						20						19						1						1
Total			$	284					$	293					$	33					$	31					$	593					$	595					$	62					$	66

* Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

The following table presents the calculation of weighted average interest rate for the liability for universal life policies with secondary guarantees and similar features:

Six Months Ended June 30,			2023												2022
			Life Insurance						Other*						Life Insurance						Other*
Weighted-average interest rate			3.77		%				4.20		%				3.75		%				4.20		%

* Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

The weighted average interest rates are calculated using projected future net liability cash flows that are aggregated to the segment level, and are represented as an annual rate.

The following table presents details concerning our universal life policies with secondary guarantees and similar features:

Six Months Ended June 30,
(dollars in millions)						2023						2022
Account value			$			3,604			$			3,406
Net amount at risk			$			70,850			$			66,889
Average attained age of contract holders						53						53

POLICYHOLDER CONTRACT DEPOSITS

The liability for Policyholder contract deposits is primarily recorded at accumulated value (deposits received and net transfers from separate accounts, plus accrued interest credited, less withdrawals and assessed fees). Deposits collected on investment-oriented products are not reflected as revenues. They are recorded directly to Policyholder contract deposits upon receipt. Amounts assessed against the contract holders for mortality, administrative, and other services are included as Policy fees in revenues.

In addition to liabilities for universal life, fixed annuities, fixed options within variable annuities, annuities without life contingencies, funding agreements and GICs, policyholder contract deposits also include our liability for (i) index features accounted for as embedded derivatives at fair value, (ii) annuities issued in a structured settlement arrangement with no life contingency and (iii) certain contracts we have elected to account for at fair value. Changes in the fair value of the embedded derivatives related to policy index features and the fair value of derivatives hedging these liabilities are recognized in realized gains and losses.

For additional information on index credits accounted for as embedded derivatives, see Note 5.

Under a funding agreement-backed notes issuance program, an unaffiliated, non-consolidated statutory trust issues medium-term notes to investors, which are secured by funding agreements issued to the trust by one of our Life and Retirement companies through our Institutional Markets business.

The following table presents the transition rollforward of Policyholder contract deposits account balances (a ) :

			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other (b)						Total
(in millions)
Pre-adoption December 31, 2020 Policyholder contract deposits			$	84,874					$	43,805					$	10,286					$	11,559					$	4,145					$	154,669
Adjustment for the reclassification of the embedded derivative liability to market risk benefits, net of the host adjustment(s)			( 5,671 )						( 576 )						—						—						—						( 6,247 )
Post-adoption January 1, 2021 Policyholder contract deposits			$	79,203					$	43,229					$	10,286					$	11,559					$	4,145					$	148,422

(a) Excludes Other Operations of $( 199 ) million.

(b) Represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

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The following table presents the balances and changes in Policyholder contract deposits account balances (a) :

Six Months Ended June 30, 2023			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other (d)						Total
(in millions, except for average crediting rate)
Policyholder contract deposits account balance, beginning of year			$	89,554					$	43,395					$	10,224					$	11,734					$	3,587					$	158,494
Deposits			8,898						2,597						809						1,608						22						13,934
Policy charges			( 462 )						( 238 )						( 764 )						( 34 )						( 31 )						( 1,529 )
Surrenders and withdrawals			( 6,585 )						( 3,979 )						( 122 )						( 421 )						( 42 )						( 11,149 )
Benefit payments			( 2,012 )						( 1,080 )						( 100 )						( 283 )						( 171 )						( 3,646 )
Net transfers from (to) separate account			1,637						1,221						—						473						—						3,331
Interest credited			863						554						188						218						85						1,908
Other			( 3 )						4						( 32 )						( 1 )						8						( 24 )
Policyholder contract deposits account balance, end of period			91,890						42,474						10,203						13,294						3,458						161,319
Other reconciling items (b)			( 1,598 )						( 254 )						135						42						( 72 )						( 1,747 )
Policyholder contract deposits			$	90,292					$	42,220					$	10,338					$	13,336					$	3,386					$	159,572
Weighted average crediting rate			2.59			%			2.84			%			4.30			%			3.54			%			4.95			%
Cash surrender value (c)			$	85,417					$	41,550					$	8,976					$	2,555					$	1,762					$	140,260

Six Months Ended June 30, 2022			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Other (d)						Total
(in millions, except for average crediting rate)
Policyholder contract deposits account balance, beginning of year			$	84,097					$	43,902					$	10,183					$	10,804					$	3,823					$	152,809
Deposits			7,547						2,341						835						162						24						10,909
Policy charges			( 395 )						( 259 )						( 782 )						( 34 )						( 33 )						( 1,503 )
Surrenders and withdrawals			( 4,008 )						( 2,726 )						( 103 )						( 27 )						( 32 )						( 6,896 )
Benefit payments			( 1,996 )						( 1,072 )						( 119 )						( 160 )						( 178 )						( 3,525 )
Net transfers from (to) separate account			1,074						1,155						( 2 )						14						—						2,241
Interest credited			882						550						193						128						90						1,843
Other			6						1						( 10 )						( 29 )						7						( 25 )
Policyholder contract deposits account balance, end of period			87,207						43,892						10,195						10,858						3,701						155,853
Other reconciling items (b)			( 2,245 )						( 353 )						( 60 )						43						( 77 )						( 2,692 )
Policyholder contract deposits			$	84,962					$	43,539					$	10,135					$	10,901					$	3,624					$	153,161
Weighted average crediting rate			2.38			%			2.72			%			4.25			%			2.40			%			4.90			%
Cash surrender value (c)			$	81,207					$	43,094					$	8,935					$	2,524					$	1,839					$	137,599

(a) Transactions between the general account and the separate account are presented in this table on a gross basis (e.g., a policyholder's funds are initially deposited into the general account and then simultaneously transferred to the separate account), thus, did not impact the ending balance of policyholder contract deposits.

(b) Includes MRBs that are bifurcated and reported separately, net of embedded derivatives recorded in Policyholder contract deposits. Other also includes amounts related to Other Operations of $( 72 ) million and $( 77 ) million at June 30, 2023 and 2022, respectively.

(c) Cash surrender value is related to the portion of policyholder contract deposits that have a defined cash surrender value (e.g. GICs, do not have a cash surrender value).

(d) Primarily represents Life and Retirement legacy insurance lines ceded to Fortitude Re.

For information related to net amount at risk, refer to the table that presents the balances of and changes in MRBs in Note 13.

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The following table presents Policyholder contract deposits account balance by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums:

June 30, 2023						At Guaranteed Minimum						1 Basis Point - 50 Basis Points Above						More than 50 Basis Points Above Minimum Guarantee						Total
(in millions, except percentage of total)
Individual Retirement			Range of Guaranteed Minimum Credited Rate
			<=1%			$	7,044					$	2,390					$	23,797					$	33,231
			> 1% - 2%			4,151						23						2,067						6,241
			> 2% - 3%			8,831						11						732						9,574
			> 3% - 4%			7,122						39						6						7,167
			> 4% - 5%			446						—						4						450
			> 5%			32						—						4						36
			Total			$	27,626					$	2,463					$	26,610					$	56,699
Group Retirement			Range of Guaranteed Minimum Credited Rate
			<=1%			$	2,018					$	2,574					$	6,382					$	10,974
			> 1% - 2%			4,050						1,624						391						6,065
			> 2% - 3%			13,123						89						62						13,274
			> 3% - 4%			651						—						—						651
			> 4% - 5%			6,799						—						—						6,799
			> 5%			151						—						—						151
			Total			$	26,792					$	4,287					$	6,835					$	37,914
Life Insurance			Range of Guaranteed Minimum Credited Rate
			<=1%			$	—					$	—					$	—					$	—
			> 1% - 2%			—						131						350						481
			> 2% - 3%			10						872						1,083						1,965
			> 3% - 4%			1,190						322						201						1,713
			> 4% - 5%			2,909						—						—						2,909
			> 5%			221						—						—						221
			Total			$	4,330					$	1,325					$	1,634					$	7,289
Total*						$	58,748					$	8,075					$	35,079					$	101,902
Percentage of total						58			%			8			%			34			%			100			%

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June 30, 2022						At Guaranteed Minimum						1 Basis Point - 50 Basis Points Above						More than 50 Basis Points Above Minimum Guarantee						Total
(in millions, except percentage of total)
Individual Retirement			Range of Guaranteed Minimum Credited Rate
			<=1%			$	10,300					$	1,775					$	19,868					$	31,943
			> 1% - 2%			4,300						25						1,666						5,991
			> 2% - 3%			9,995						1						18						10,014
			> 3% - 4%			7,934						40						6						7,980
			> 4% - 5%			471						—						5						476
			> 5%			34						—						4						38
			Total			$	33,034					$	1,841					$	21,567					$	56,442
Group Retirement			Range of Guaranteed Minimum Credited Rate
			<=1%			$	3,817					$	1,717					$	4,674					$	10,208
			> 1% - 2%			6,310						410						7						6,727
			> 2% - 3%			14,556						—						—						14,556
			> 3% - 4%			696						—						—						696
			> 4% - 5%			6,953						—						—						6,953
			> 5%			159						—						—						159
			Total			$	32,491					$	2,127					$	4,681					$	39,299
Life Insurance			Range of Guaranteed Minimum Credited Rate
			<=1%			$	—					$	—					$	—					$	—
			> 1% - 2%			105						24						350						479
			> 2% - 3%			240						638						1,108						1,986
			> 3% - 4%			1,395						186						189						1,770
			> 4% - 5%			3,024						—						—						3,024
			> 5%			226						—						—						226
			Total			$	4,990					$	848					$	1,647					$	7,485
Total*						$	70,515					$	4,816					$	27,895					$	103,226
Percentage of total						68			%			5			%			27			%			100			%

* Excludes policyholder contract deposits account balances that are not subject to guaranteed minimum crediting rates.

OTHER POLICYHOLDER FUNDS

Other policyholder funds include URR, consisting of front-end loads on investment-oriented contracts, representing those policy loads that are non-level and typically higher in initial policy years than in later policy years. Amortization of URR is recorded in Policy fees.

Prior to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

URR for investment-oriented contracts are generally deferred and amortized, with interest, in relation to the incidence of EGPs to be realized over the estimated lives of the contracts and are subject to the same adjustments due to changes in the assumptions underlying EGPs as DAC. Similar to unrealized appreciation (depreciation) of investments for DAC, URR related to investment-oriented products is also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale on EGPs, with related changes recognized through OCI.

Subsequent to the adoption of the Targeted Improvements to the Accounting for Long-Duration Contracts Standard

URR for investment-oriented contracts are generally deferred and amortized into income using the same assumptions and factors used to amortize DAC (i.e., on a constant level basis). Changes in future assumptions are applied by adjusting the amortization rate prospectively. The Company has elected to implicitly account for actual experience, whether favorable or unfavorable, in its amortization of URR (i.e., policy fees) each period.

The following table presents the transition rollforward of URR:

			Life Insurance						Institutional Markets						Other*						Total
(in millions)
Pre-adoption December 31, 2020 URR balance			$	1,413					$	2					$	132					$	1,547
Adjustment for the removal of related balances in Accumulated other comprehensive income (loss) originating from unrealized gains (losses)			248						—						—						248
Post-adoption January 1, 2021 URR balance			$	1,661					$	2					$	132					$	1,795

* Represents Life and Retirement legacy insurance lines ceded to Fortitude Re. Other policyholder funds, excluding URR, totaled $ 2.0 billion.

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Prior to the adoption of LDTI, URR for investment-oriented products included the effect of unrealized gains or losses on fixed maturity securities classified as available for sale. At the Transition Date, these adjustments were removed with a corresponding offset in AOCI. As the available for sale portfolio was in an unrealized gain position as of the Transition Date, the adjustment for removal of related balances in AOCI originating from unrealized gains (losses) balances was reducing URR.

The following table presents a rollforward of URR:

Six Months Ended June 30, 2023			Life Insurance						Institutional Markets						Other*						Total
(in millions)
Balance, beginning of year			$	1,727					$	2					$	105					$	1,834
Revenue deferred			76						—						—						76
Amortization			( 55 )						( 1 )						( 5 )						( 61 )
Balance, end of period			$	1,748					$	1					$	100					$	1,849

Six Months Ended June 30, 2022			Life Insurance						Institutional Markets						Other*						Total
(in millions)
Balance, beginning of year			$	1,693					$	2					$	116					$	1,811
Revenue deferred			70						—						—						70
Amortization			( 54 )						—						( 6 )						( 60 )
Balance, end of period			$	1,709					$	2					$	110					$	1,821

13. Market Risk Benefits

MRBs are defined as contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk and expose AIG to other-than nominal capital market risk. The MRB is an amount that a policyholder receives in addition to the account balance upon the occurrence of a specific event or circumstance, such as death, annuitization, or periodic withdrawal that involves protection from other-than-nominal capital market risk. Certain contract features, such as GMWBs, GMDBs and guaranteed minimum income benefits (GMIBs) commonly found in variable, fixed index and fixed annuities, are MRBs. MRBs are assessed at contract inception using a non-option method involving attributed fees that results in an initial fair value of zero or an option method that results in a fair value greater than zero.

MRBs are recorded at fair value, and AIG applies a non-option attributed fee valuation method for variable annuity products, and an option-based valuation method (host offset) for both fixed index and fixed products. Under the non-option valuation method, the attributed fee is determined at contract inception; it cannot exceed the total contract fees and assessments collectible from the contract holder and cannot be less than zero. Investment margin is excluded from the attributed fee determination. Under the option-based valuation method, an offset to the host amount related to the MRB amount is established at inception. Changes in the fair value of MRBs are recorded in net income in Changes in the fair value of market risk benefits, net except for the portion of the fair value change attributable to our own credit risk, is recognized in OCI. MRBs are derecognized when the underlying contract is surrendered, a GMDB is incurred, a GMIB is annuitized, or when the account value is exhausted on a policy with a GMWB. When a policyholder elects to annuitize a GMIB rider or the account value on a policy with a GMWB rider is reduced to zero, the policy is converted to a payout annuity automatically. When a conversion occurs, the policyholder is issued a new payout annuity contract. At this point, the MRB is derecognized and a LFPB is established for the payout annuity.

Assumptions used to determine the MRB asset (including ceded MRBs) or liability generally include mortality rates that are based upon actual experience modified to allow for variations in policy form; lapse rates that are based upon actual experience modified to allow for variations in policy features; and investment returns, based on stochastically generated scenarios. We evaluate at least annually estimates used to determine the MRB asset or liability and adjust the balance, with a related charge or credit to Change in fair value of MRBs, net, if actual experience or other evidence suggests that earlier assumptions should be revised. In addition, MRBs are valued such that the current provision for nonperformance risk is reflected in the claims cash flows of the asset or liability valuation for direct MRBs. The nonperformance risk spread at contract issue is locked-in. The difference between the MRB valued using the at issue nonperformance risk spread and the current nonperformance risk spread is reported through OCI, while changes in the counterparty credit risk related to ceded MRBs are reported in income.

Changes in the fair value of MRBs, net represents changes in the fair value of market risk benefit liabilities and assets (with the exception of our own credit risk changes), and includes attributed rider fees and benefits, net of changes in the fair value of derivative instruments and fixed maturity securities that are used to economically hedge market risk from the VA GMWB riders.

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The following table presents the transition rollforward of MRBs:

						Individual Retirement						Group Retirement						Total
(in millions)
Pre-adoption December 31, 2020 carrying amount for features now classified as MRBs						$	—					$	—					$	—
Adjustment for the reclassification of the embedded derivative liability from policyholder contract deposits, net of the host adjustment(s) (a)						5,671						576						6,247
Adjustment for the reclassification of additional liabilities from Future policy benefits (b)						1,388						221						1,609
Adjustments for the cumulative effect of the changes to our own credit risk between the original contract issuance date and the Transition Date (c)						2,140						187						2,327
Adjustment for the removal of related balances in Accumulated other comprehensive income (loss) originating from unrealized gains (losses) (d)						( 516 )						( 89 )						( 605 )
Adjustment for the remaining difference (exclusive of our own credit risk change and host contract adjustments) between previous carrying amount and fair value measurement for the MRB (e)						( 1,084 )						( 93 )						( 1,177 )
Post-adoption January 1, 2021 carrying amount for features now classified as MRBs						$	7,599					$	802					$	8,401

(a) Adjustments for the reclassification from Policyholder contract deposits represents certain contract guarantees (e.g., GMWBs) that were previously classified as embedded derivatives, but have been reclassified as MRBs as of January 1, 2021, and the related host impact. The impact on Retained earnings or AOCI resulting from the simultaneous remeasurement of the guarantee as a market risk benefit is reflected in the lines below.

(b) Adjustments for the reclassification from Future policy benefits represents contract guarantees (e.g., GMDBs) that were previously classified as insurance liabilities within Future policy benefits, but have been reclassified as MRBs as of January 1, 2021. The impact on Retained earnings or AOCI resulting from the simultaneous remeasurement of the guarantee as a market risk benefit is reflected in the lines below.

(c) Adjustments for the cumulative effect of the changes to our own credit risk between the original contract issuance date and the Transition Date are recognized in AOCI.

(d) Adjustment for the removal of related balances in AOCI originating from unrealized gains (losses) with an offset to AOCI relate to the additional liabilities reclassified from Future policy benefits in the line above.

(e) Adjustment for the remaining difference represents the measurement of MRBs at fair value, excluding the impact of our own credit risk with an offset to Retained earnings.

The following is a reconciliation of MRBs by amounts in an asset position and in liability position to the MRB amounts in the Condensed Consolidated Balance Sheets at transition:

						Individual Retirement						Group Retirement						Total
(in millions)
Market risk benefit in an asset position						$	176					$	—					$	176
Reinsured market risk benefit						162						—						162
Market risk benefit assets, at fair value						338						—						338
Market risk benefit liabilities, at fair value						7,937						802						8,739
Market risk benefit, net, January 1, 2021						$	7,599					$	802					$	8,401

The following table presents the balances of and changes in market risk benefits:

Six Months Ended June 30, 2023						Individual Retirement						Group Retirement						Total
(in millions, except for attained age of contract holders)
Balance, beginning of year						$	3,738					$	296					$	4,034
Balance, beginning of year, before effect of changes in our own credit risk						$	3,297					$	272					$	3,569
Issuances						379						19						398
Interest accrual						78						8						86
Attributed fees						442						33						475
Expected claims						( 48 )						( 1 )						( 49 )
Effect of changes in interest rates						34						3						37
Effect of changes in interest rate volatility						( 84 )						( 4 )						( 88 )
Effect of changes in equity markets						( 843 )						( 78 )						( 921 )
Effect of changes in equity index volatility						8						( 4 )						4
Actual outcome different from model expected outcome						93						12						105
Effect of changes in other future expected assumptions						( 94 )						( 29 )						( 123 )
Other, including foreign exchange						—						( 2 )						( 2 )
Balance, end of period, before effect of changes in our own credit risk						3,262						229						3,491
Effect of changes in our own credit risk						564						47						611
Balance, end of period						3,826						276						4,102
Less: Reinsured MRB, end of period						( 79 )						—						( 79 )
Net Liability Balance after reinsurance recoverable						$	3,747					$	276					$	4,023

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Six Months Ended June 30, 2023						Individual Retirement						Group Retirement						Total
(in millions, except for attained age of contract holders)
Net amount at risk
GMDB only						$	1,068					$	212					$	1,280
GMWB only						$	56					$	4					$	60
Combined*						$	1,435					$	23					$	1,458
Weighted average attained age of contract holders						70						64

Six Months Ended June 30, 2022						Individual Retirement						Group Retirement						Total
(in millions, except for attained age of contract holders)
Balance, beginning of year						$	6,452					$	582					$	7,034
Balance, beginning of year, before effect of changes in our own credit risk						$	4,518					$	415					$	4,933
Issuances						97						11						108
Interest accrual						83						11						94
Attributed fees						409						37						446
Expected claims						( 28 )						( 1 )						( 29 )
Effect of changes in interest rates						( 2,864 )						( 270 )						( 3,134 )
Effect of changes in interest rate volatility						180						12						192
Effect of changes in equity markets						1,558						136						1,694
Effect of changes in equity index volatility						( 42 )						( 4 )						( 46 )
Actual outcome different from model expected outcome						130						13						143
Other, including foreign exchange						2						( 8 )						( 6 )
Balance, end of period, before effect of changes in our own credit risk						4,043						352						4,395
Effect of changes in our own credit risk						355						20						375
Balance, end of period						4,398						372						4,770
Less: Reinsured MRB, end of period						( 110 )						—						( 110 )
Net Liability Balance after reinsurance recoverable						$	4,288					$	372					$	4,660
Net amount at risk
GMDB only						$	1,828					$	396					$	2,224
GMWB only						$	58					$	5					$	63
Combined*						$	2,052					$	11					$	2,063
Weighted average attained age of contract holders						70						64

* Certain contracts contain both guaranteed GMDB and GMWB features and are modeled together for the purposes of calculating the MRB.

The following is a reconciliation of MRBs by amounts in an asset position and in a liability position to the MRBs amount in the Condensed Consolidated Balance Sheets:

						June 30, 2023																		June 30, 2022
(in millions)						Asset*						Liability*						Net						Asset*						Liability*						Net
Individual Retirement						$	787					$	4,534					$	3,747					$	527					$	4,815					$	4,288
Group Retirement						167						443						276						115						487						372
Total						$	954					$	4,977					$	4,023					$	642					$	5,302					$	4,660

* Cash flows and attributed fees for MRBs are determined on a policy level basis and are reported based on their asset or liability position at the balance sheet date.

For additional information related to fair value measurements of MRBs, see Note 5.

ANNUITY GUARANTEES

Annuity contracts may include certain contractually guaranteed benefits to the contract holder. These guaranteed features include GMDBs that are payable in the event of death and living benefits that are payable when partial withdrawals exhaust a policy’s account value, in the event of annuitization, or, in other instances, at specified dates during the accumulation period. Living benefits primarily include GMWBs. A variable annuity contract may include more than one type of guaranteed benefit feature; for example, it may have both GMDB and GMWB. However, a policyholder can only receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, i.e., the features are mutually exclusive (except a surviving spouse who has a rider to potentially collect both GMDB upon their spouse’s death and GMWB during their lifetime). A policyholder cannot purchase more than one living benefit on one contract. The net amount at risk for each feature is calculated irrespective of the existence of other features; as a result, the net amount at risk for each feature is not additive to that of other features.

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Guaranteed Benefits on Variable Annuities

Depending on the contract, the GMDB feature may provide a death benefit of either (a) total deposits made to the contract, less any partial withdrawals plus a minimum return (and in rare instances, no minimum return), (b) return of premium whereby the benefit is the greater of the current account value or premiums paid less any partial withdrawals, (c) rollups whereby the benefit is the greater of current account value or premiums paid (adjusted for withdrawals) accumulated at contractually specified rates up to specified ages, or (d) the highest contract value attained, typically on any anniversary date less any subsequent withdrawals following the contract anniversary. GMDB is our most widely offered benefit.

Certain of our variable annuity contracts also contain living benefit riders, which include optional GMWBs and, to a lesser extent, GMABs and GMIBs. These living benefits and GMDBs related to variable annuity contracts are accounted for as MRBs measured at fair value, with changes in the fair value (excluding changes in our own credit risk) recorded in Change in the fair value of MRBs, net. The net amount at risk for the GMWB represents benefits in excess of the account value assuming the utilization of all benefits by the contract holders at the balance sheet date. The net amount at risk for the GMDB feature represents the amount of guaranteed benefits in excess of account value if all policyholders died.

Guaranteed Benefits on Fixed Index and Fixed Annuities

Certain of our fixed annuity and fixed index annuity contracts, which are not offered through separate accounts, contain optional GMWBs. With a GMWB, the contract holder can monetize the excess of the guaranteed amount over the account value of the contract through a series of withdrawals that do not exceed a specific percentage per year of the guaranteed amount. Once the account value is exhausted, the contract holder will receive a series of annuity payments equal to the remaining guaranteed amount; for lifetime GMWB products, the annuity payments continue as long as the covered person(s) is living. The liability for GMWBs in fixed annuity and fixed index annuity contracts, which are recorded in MRBs, represents the expected value of benefits in excess of the projected account value, with the excess (excluding changes in our own credit risk) recognized at fair value through Change in the fair value of MRBs, net.

The liability for all of our GMWBs in fixed annuity and fixed index annuity contracts are accounted for as MRBs.

For a discussion of the fair value measurement of guaranteed benefits that are accounted for as MRBs , see Note 5.

14. Separate Account Assets and Liabilities

We report variable contracts within the separate accounts when investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder and the separate account meets additional accounting criteria to qualify for separate account treatment. The assets supporting the variable portion of variable annuity and variable universal life contracts that qualify for separate account treatment are carried at fair value and are reported as separate account assets, with an equivalent summary total reported as separate account liabilities. The assets of separate accounts are legally segregated and are not subject to claims that arise from any of our other businesses.

Policy values for variable products and investment contracts are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The current liability at any time is the sum of the current unit value of all investment units in the separate accounts, plus any liabilities for MRBs.

Amounts assessed against the policyholders for mortality, administrative and other services are included in policy fees. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to policyholders of such separate accounts are offset within the same line in the Condensed Consolidated Statements of Income (Loss).

For discussion of the fair value measurement of guaranteed benefits that are accounted for as MRBs, see Note 5.

The following table presents fair value of separate account investment options:

			June 30, 2023																		June 30, 2022
(in millions)			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Total						Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Total
Equity Funds			$	24,804					$	27,889					$	777					$	630					$	54,100					$	23,012					$	25,210					$	690					$	576					$	49,488
Bond Funds			3,974						3,428						43						1,302						8,747						3,887						4,010						46						1,358						9,301
Balanced Funds			17,911						5,375						51						1,880						25,217						18,684						5,181						49						2,444						26,358
Money Market Funds			720						553						17						364						1,654						679						501						22						386						1,588
Total			$	47,409					$	37,245					$	888					$	4,176					$	89,718					$	46,262					$	34,902					$	807					$	4,764					$	86,735

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The following table presents the balances and changes in Separate account liabilities:

Six Months Ended June 30, 2023			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Total
(in millions)
Balance, beginning of year			$	45,178					$	34,361					$	799					$	4,515					$	84,853
Premiums and deposits			807						697						18						30						1,552
Policy charges			( 662 )						( 221 )						( 25 )						( 47 )						( 955 )
Surrenders and withdrawals			( 1,776 )						( 1,390 )						( 12 )						( 422 )						( 3,600 )
Benefit payments			( 432 )						( 250 )						( 3 )						( 58 )						( 743 )
Investment performance			4,172						4,169						113						146						8,600
Net transfers from (to) general account			122						( 121 )						( 2 )						11						10
Other charges			—						—						—						1						1
Balance, end of period			$	47,409					$	37,245					$	888					$	4,176					$	89,718
Cash surrender value*			$	46,307					$	37,050					$	854					$	4,178					$	88,389

Six Months Ended June 30, 2022			Individual Retirement						Group Retirement						Life Insurance						Institutional Markets						Total
(in millions)
Balance, beginning of year			$	57,927					$	45,138					$	1,044					$	5,002					$	109,111
Premiums and deposits			1,354						868						19						33						2,274
Policy charges			( 646 )						( 244 )						( 25 )						( 50 )						( 965 )
Surrenders and withdrawals			( 1,741 )						( 1,329 )						( 11 )						( 25 )						( 3,106 )
Benefit payments			( 476 )						( 283 )						( 4 )						( 12 )						( 775 )
Investment performance			( 10,249 )						( 8,987 )						( 216 )						( 208 )						( 19,660 )
Net transfers from (to) general account			93						( 261 )						—						22						( 146 )
Other charges			—						—						—						2						2
Balance, end of period			$	46,262					$	34,902					$	807					$	4,764					$	86,735
Cash surrender value*			$	45,154					$	34,699					$	792					$	4,766					$	85,411

* The cash surrender value represents the amount of the contract holder’s account balance distributable at the balance sheet date less applicable surrender charges.

Separate account liabilities primarily represent the contract holder's account balance in separate account assets and will be equal and offsetting to total separate account assets.

15. 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 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 may 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, indemnification 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

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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.

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 or examinations into, among other matters, the business practices of current and former operating insurance subsidiaries. Such investigations, inquiries or examinations could develop into administrative, civil or criminal proceedings or enforcement actions, in which remedies could include fines, penalties, restitution or alterations in our business practices, and could result in additional expenses, limitations on certain business activities and reputational damage.

Moriarty Litigation

Effective January 1, 2013, the California legislature enacted AB 1747 (the Act), which amended the Insurance Code to mandate that life insurance policies issued and delivered in California contain a 60-day grace period during which time the policies must remain in force after a premium payment is missed, and that life insurers provide both a 30-day minimum notification of lapse and the right of policy owners to designate a secondary recipient for lapse and termination notices. Following guidance from the California Department of Insurance and certain industry trade groups, American General Life Insurance Company (AGL) interpreted the Act to be prospective in nature, applying only to policies issued and delivered on or after the Act’s January 1, 2013, effective date. On July 18, 2017, AGL was sued in a putative class action captioned Moriarty v. American General Life Insurance Company, No. 17-cv-1709 (S.D. Cal.), challenging AGL’s prospective application of the Act. Plaintiff’s complaint, which is similar to complaints filed against other insurers, argues that policies issued and delivered prior to January 1, 2013, like the $ 1 million policy issued to Plaintiff’s husband do not lapse—despite nonpayment of premiums—if the insurer has not complied with the Act’s terms. On August 30, 2021, the California Supreme Court issued an opinion in McHugh v. Protective Life Insurance, 12 Cal. 5th 213 (2021), ruling that the Act applies to all policies in force on January 1, 2013, regardless of when the policies were issued. On February 7, 2022, Plaintiff filed motions for summary judgment and class certification; AGL opposed both motions and filed its own motion for partial summary judgment. On July 26, 2022, the District Court granted in part and denied in part AGL’s motion for partial summary judgment, and on September 7, 2022, the District Court denied Plaintiff's motion for summary judgment. In the summary judgment decisions, the District Court declined to adopt Plaintiff's theory that a failure to comply with the Act necessitates payment of policy benefits or to make a pre-trial determination as to AGL’s liability. On September 27, 2022, the District Court denied Plaintiff’s motion for class certification without prejudice. The District Court declined to certify Plaintiff's proposed class consisting of claims for monetary damages and equitable relief, but indicated that Plaintiff could seek the certification of a narrower class consisting only of claims for monetary damages. The District Court indicated, however, that it has "substantial concerns" as to whether individual issues such as actual damages and causation would predominate, precluding class certification. While the District Court had initially set a trial date for February 7, 2023, it vacated the date and indicated that it would set a new trial date in due course, following consultation with the parties. Subsequently, the case was reassigned to a new District Court judge, who requested additional briefing on certain issues addressed by the summary judgment decisions and heard additional oral argument on those issues on July 19, 2023. The parties are awaiting a decision from the Court. We have accrued our current estimate of probable loss with respect to this litigation.

Proceedings are ongoing in other California cases that raise similar industry-wide issues, including in the McHugh case on remand from the California Supreme Court, in which the California Court of Appeal rendered an unpublished opinion on October 10, 2022 that also declined to hold that failure to comply with the Act automatically necessitates payment of policy benefits.

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 $ 4.7 billion and $ 6.6 billion at June 30, 2023 and December 31, 2022, respectively.

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 AIGFP and certain of its subsidiaries. We have also issued guarantees of all present and future payment obligations and liabilities of AIG Markets, Inc.

Due to the deconsolidation of AIGFP and its subsidiaries, as of June 30, 2023, a $ 99 million guarantee related to the obligations of AIGFP and certain of its subsidiaries was recognized, and is reported in Other liabilities.

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Business and Asset Dispositions

We are subject to financial guarantees and indemnity arrangements in connection with the completed sales of businesses and assets. 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 the likelihood that we will have to make any material payments related to completed sales under these arrangements is remote, and no material liabilities related to these arrangements have been recorded in the Condensed Consolidated Balance Sheets.

Other

• For additional information on commitments and guarantees associated with VIEs, see Note 10.

• For additional information on derivatives, see Note 11.

16. Equity

SHARES OUTSTANDING

Preferred Stock

On March 14, 2019, we issued 20,000 shares of Series A 5.85 % Non-Cumulative Perpetual 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.

Common Stock

The following table presents a rollforward of outstanding shares:

Six Months Ended June 30, 2023			Common Stock Issued			Treasury Stock			Common Stock Outstanding
(in millions)
Shares, beginning of year			1,906.7			( 1,172.6 )			734.1
Shares issued			—			4.8			4.8
Shares repurchased			—			( 21.4 )			( 21.4 )
Shares, end of period			1,906.7			( 1,189.2 )			717.5

Dividends

Dividends are payable on AIG common stock, par value $ 2.50 per share (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.

For a discussion of restrictions on payments of dividends to AIG Parent by its subsidiaries, see Note 18 to the Consolidated Financial Statements in the 2022 Annual Report.

Repurchase of AIG Common Stock

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. Certain of our share repurchases have been and may from time to time be effected through the Securities Exchange Act of 1934, as amended (the Exchange Act) Rule 10b5-1 repurchase plans. On August 1, 2023, the Board of Directors authorized the repurchase of $ 7.5 billion of AIG Common Stock (inclusive of the approximately

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$ 2.15 billion of expected remaining authorization under the Board's prior share repurchase authorization upon expiration of the current 10b5-1 plan as of August 7, 2023).

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.

Pursuant to an Exchange Act Rule 10b5-1 repurchase plan from July 1, 2023 to July 26, 2023, we repurchased approximately 6 million shares of AIG Common Stock for an aggregate purchase price of approximately $ 336 million.

DIVIDENDS DECLARED

On August 1, 2023, our Board of Directors declared a cash dividend on AIG Common Stock of $ 0.36 per share, payable on September 29, 2023 to shareholders of record on September 15, 2023. On August 1, 2023, our Board of Directors declared a cash dividend on AIG’s Series A Preferred Stock of $ 365.625 per share, payable on September 15, 2023 to holders of record on August 31, 2023.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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The following table presents the other comprehensive income (loss) reclassification adjustments for the three and six months ended June 30, 2023 and 2022 , respectively:

(in millions)			Unrealized Appreciation (Depreciation) of Fixed Maturity Securities on Which Allowance for Credit Losses Was Taken						Unrealized Appreciation (Depreciation) of All Other Investments						Change in Fair Value of Market Risk Benefits Attributable to Changes in Our Own Credit Risk						Change in the discount rates used to measure traditional and limited payment long-duration insurance contracts						Foreign Currency Translation Adjustments						Retirement Plan Liabilities Adjustment						Fair Value of Liabilities Under Fair Value Option Attributable to Changes in Our Own Credit Risk									Total
Three Months Ended June 30, 2023
Unrealized change arising during period			$			97			$			( 2,739 )			$			( 241 )			$			531			$			( 25 )			$			72			$			—			$			( 2,305 )
Less: Reclassification adjustments included in net income						( 7 )						( 334 )						—						—						—						( 8 )						—						( 349 )
Total other comprehensive income (loss), before income tax expense (benefit)						104						( 2,405 )						( 241 )						531						( 25 )						80						—						( 1,956 )
Less: Income tax expense (benefit)						20						( 407 )						( 51 )						158						34						28						—						( 218 )
Total other comprehensive income (loss), net of income tax expense (benefit)			$			84			$			( 1,998 )			$			( 190 )			$			373			$			( 59 )			$			52			$			—			$			( 1,738 )
Three Months Ended June 30, 2022
Unrealized change arising during period			$			36			$			( 17,908 )			$			737			$			2,352			$			( 273 )			$			2			$			( 4 )			$			( 15,058 )
Less: Reclassification adjustments included in net income						( 8 )						( 596 )						—						—						—						( 7 )						—						( 611 )
Total other comprehensive income (loss), before income tax expense (benefit)						44						( 17,312 )						737						2,352						( 273 )						9						( 4 )						( 14,447 )
Less: Income tax expense (benefit)						8						( 2,530 )						155						482						62						( 7 )						—						( 1,830 )
Total other comprehensive income (loss), net of income tax expense (benefit)			$			36			$			( 14,782 )			$			582			$			1,870			$			( 335 )			$			16			$			( 4 )			$			( 12,617 )

Six Months Ended June 30, 2023
Unrealized change arising during period			$			90			$			1,827			$			( 146 )			$			4			$			( 44 )			$			90			$			—			$			1,821
Less: Reclassification adjustments included in net income						( 23 )						( 770 )						—						—						—						( 17 )						—						( 810 )
Total other comprehensive income (loss), before of income tax expense (benefit)						113						2,597						( 146 )						4						( 44 )						107						—						2,631
Less: Income tax expense (benefit)						23						343						( 31 )						51						43						27						—						456
Total other comprehensive income (loss), net of income tax expense (benefit)			$			90			$			2,254			$			( 115 )			$			( 47 )			$			( 87 )			$			80			$			—			$			2,175
Six Months Ended June 30, 2022
Unrealized change arising during period			$			( 21 )			$			( 37,347 )			$			1,728			$			5,235			$			( 276 )			$			6			$			( 4 )			$			( 30,679 )
Less: Reclassification adjustments included in net income						( 8 )						( 735 )						—						—						—						( 15 )						—						( 758 )
Total other comprehensive income (loss), before income tax expense (benefit)						( 13 )						( 36,612 )						1,728						5,235						( 276 )						21						( 4 )						( 29,921 )
Less: Income tax expense (benefit)						( 4 )						( 5,689 )						364						1,075						65						( 4 )						—						( 4,193 )
Total other comprehensive income (loss), net of income tax expense (benefit)			$			( 9 )			$			( 30,923 )			$			1,364			$			4,160			$			( 341 )			$			25			$			( 4 )			$			( 25,728 )

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The following table presents the effect of the reclassification of significant items out of AOCI on the respective line items in the Condensed Consolidated Statements of Income (Loss) (a) :

			Amount Reclassified from AOCI															Affected Line Item in the
			Three Months Ended June 30,															Condensed Consolidated
(in millions)						2023						2022												Statements of Income (Loss)
Unrealized appreciation (depreciation) of fixed maturity securities on which allowance for credit losses was taken
Investments			$			( 7 )			$			( 8 )												Net realized gains (losses)
Total						( 7 )						( 8 )
Unrealized appreciation (depreciation) of all other investments
Investments						( 334 )						( 596 )												Net realized gains (losses)
Total						( 334 )						( 596 )
Change in retirement plan liabilities adjustment
Prior-service credit						—						—												(b)
Actuarial losses						( 8 )						( 7 )												(b)
Total						( 8 )						( 7 )
Total reclassifications for the period			$			( 349 )			$			( 611 )
			Amount Reclassified from AOCI															Affected Line Item in the
			Six Months Ended June 30,															Condensed Consolidated
(in millions)						2023						2022												Statements of Income (Loss)
Unrealized appreciation (depreciation) of fixed maturity securities on which allowance for credit losses was taken
Investments			$			( 23 )			$			( 8 )												Net realized gains (losses)
Total						( 23 )						( 8 )
Unrealized appreciation (depreciation) of all other investments
Investments						( 770 )						( 735 )												Net realized gains (losses)
Total						( 770 )						( 735 )
Change in retirement plan liabilities adjustment
Prior-service credit						( 1 )						( 1 )												(b)
Actuarial losses						( 16 )						( 14 )												(b)
Total						( 17 )						( 15 )
Total reclassifications for the period			$			( 810 )			$			( 758 )

(a) The following items are not reclassified out of AOCI and included in the Condensed Consolidated Statements of Income (Loss) and thus have been excluded from the table: (a) Change in fair value of market risk benefits attributable to changes in our own credit risk (b) Change in the discount rates used to measure traditional and limited-payment long-duration insurance contracts, and (c) Fair value of liabilities under fair value option attributable to changes in own credit risk.

(b) These AOCI components are included in the computation of net periodic pension cost.

NON-CONTROLLING INTEREST

On June 12, 2023, AIG closed a secondary offering of Corebridge common stock, selling 74.75 million existing shares (out of approximately 648 million total shares of common stock outstanding), which included 65 million shares initially offered and the full exercise by the underwriters of their option to purchase an additional 9.75 million shares. Corebridge also repurchased approximately 11 million shares of Corebridge common stock from AIG during the six months ended June 30, 2023. AIG owns 65.3 percent of the outstanding common stock of Corebridge as of June 30, 2023.

For additional information on the Corebridge common stock offerings and share repurchases, see Note 1.

The following table presents the effect of changes in our ownership interest in Corebridge on our equity:

(in millions)			Three Months Ended June 30, 2023						Six Months Ended June 30, 2023
Net income attributable to AIG common shareholders			$	1,485					$	1,508
Changes in AIG equity for sale of interest in Corebridge and Corebridge share repurchases			( 86 )						( 86 )
Change from Net income attributable to AIG common shareholders and changes in AIG's ownership interests			$	1,399					$	1,422

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17. Earnings Per Common 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 common 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, using the treasury stock method or the if-converted method, as applicable.

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

			Three Months Ended June 30,															Six Months Ended June 30,
(dollars in millions, except per common share data)						2023						2022									2023						2022
Numerator for EPS:
Income from continuing operations			$			1,691			$			3,080						$			1,604			$			7,640
Less: Net income from continuing operations attributable to noncontrolling interests						198						325									81						712
Less: Preferred stock dividends						8						8									15						15
Income attributable to AIG common shareholders from continuing operations						1,485						2,747									1,508						6,913
Income (loss) from discontinued operations, net of income tax expense						—						( 1 )									—						( 1 )
Net income attributable to AIG common shareholders			$			1,485			$			2,746						$			1,508			$			6,912
Denominator for EPS:
Weighted average common shares outstanding - basic						725,754,549						790,897,301									732,175,533						803,532,447
Dilutive common shares						4,792,563						9,833,445									5,115,161						9,765,891
Weighted average common shares outstanding - diluted (a)						730,547,112						800,730,746									737,290,694						813,298,338
Income (loss) per common share attributable to AIG common shareholders:
Basic:
Income from continuing operations			$			2.05			$			3.47						$			2.06			$			8.60
Income from discontinued operations			$			—			$			—						$			—			$			—
Income attributable to AIG common shareholders			$			2.05			$			3.47						$			2.06			$			8.60
Diluted:
Income from continuing operations			$			2.03			$			3.43						$			2.05			$			8.50
Income from discontinued operations			$			—			$			—						$			—			$			—
Income attributable to AIG common shareholders			$			2.03			$			3.43						$			2.05			$			8.50

(a) Potential dilutive common shares include our share-based employee compensation plans and an option for Blackstone to exchange all or a portion of its ownership interest in Corebridge for AIG common shares in the event an IPO did not occur prior to 2024. As a result of the consummation of the IPO on September 19, 2022, this exchange right of Blackstone was terminated. The number of potential common shares excluded from diluted shares outstanding was 6.6 million and 5.5 million for the three and six months ended June 30, 2023, respectively, and 46.6 million and 46.2 million for the three and six months ended June 30, 2022, respectively, because the effect of including those common shares in the calculation would have been anti-dilutive.

For information regarding our repurchases of AIG Common Stock, see Note 16.

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18. Income Taxes

U.S. TAX LAW CHANGES

The Inflation Reduction Act of 2022 (H.R. 5376) includes a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with average profits over $1 billion over a three-year period. Although the U.S. Treasury and Internal Revenue Service (IRS) issued interim CAMT guidance in early 2023, many details and specifics of application of the CAMT remain subject to future guidance. We are subject to CAMT for 2023. Our estimated CAMT liability will continue to be refined based on future guidance.

BASIS OF PRESENTATION

We file a consolidated U.S. federal income tax return with our eligible U.S. subsidiaries. Income earned by subsidiaries operating outside the U.S. is taxed, and income tax expense is recorded, based on applicable U.S. and foreign laws.

Following the IPO of Corebridge on September 19, 2022, AIG’s remaining ownership in Corebridge decreased below 80 percent, resulting in tax deconsolidation of Corebridge parent and its subsidiaries from the AIG consolidated U.S. federal income tax group as well as certain state and local jurisdictions where unitary returns are filed.

Subsequent to the tax deconsolidation from AIG, due to the application of relevant U.S. tax laws, American General Corporation and its directly owned life insurance subsidiaries (the AGC Group) will not be permitted to join in the filing of a consolidated U.S. federal income tax return with Corebridge parent and its non-life-insurance subsidiaries for a period of five years. Corebridge’s net operating losses and tax credit carryforwards that have not been utilized prior to tax deconsolidation from AIG will remain with the relevant Corebridge entities and will be available for utilization by the respective Corebridge U.S. federal income tax groups. The realizability of the deferred tax assets related to such carryforwards is based on the positive and negative evidence applicable to each U.S. federal income tax group.

TAX ACCOUNTING POLICIES

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 (loss) from continuing operations.

We consider our foreign earnings with respect to certain operations in Canada, South Africa, Japan, 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. A deferred tax liability has not been recorded for those foreign subsidiaries whose earnings are considered to be indefinitely reinvested. If recorded, such deferred tax liability would not be material to our consolidated financial condition. Deferred taxes, if necessary, have been provided on earnings of non-U.S. affiliates whose earnings are not indefinitely reinvested.

Global Intangible Low-Taxed Income (GILTI) imposes U.S. taxes on the excess of a deemed return on tangible assets of certain foreign subsidiaries. Consistent with accounting guidance, we have made an accounting policy election to treat GILTI taxes as a period tax charge in the period the tax is incurred.

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 uncertain tax positions and realizability of deferred tax assets and are recorded in the period in which the change occurs.

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INTERIM TAX EXPENSE (BENEFIT)

For the three months ended June 30, 2023, the effective tax rate on income from continuing operations was 9.4 percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 21 percent primarily due to tax benefits related to the potential resolution of an IRS audit matter, net of an increase in associated uncertain tax benefits, tax implications of the Corebridge secondary offering, and tax exempt income, partially offset by tax charges associated with the effect of foreign operations, tax implications related to the announced sale of Validus Re, U.S. federal and foreign valuation allowance changes, and state and local income taxes. The effect of foreign operations is primarily related to income of 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 six months ended June 30, 2023, the effective tax rate on income from continuing operations was 2.0 percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 21 percent primarily due to tax benefits related to the potential resolution of an IRS audit matter, net of an increase in associated uncertain tax benefits, tax implications of the Corebridge secondary offering, tax exempt income, excess tax benefits related to share-based compensation payments recorded through the income statement and tax adjustments related to prior year returns. These tax benefits were partially offset by tax charges associated with the effect of foreign operations, tax implications related to the announced sale of Validus Re, U.S. federal and foreign valuation allowance changes, and state and local income taxes. The effect of foreign operations is primarily related to income of 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 months ended June 30, 2022, the effective tax rate on income from continuing operations was 21.5 percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 21 percent primarily due to tax charges associated with the effect of foreign operations, state and local income taxes, and non-deductible transfer pricing charges. These tax charges were partially offset by tax benefits associated with tax exempt income and reclassifications from AOCI to income from continuing operations related to the disposal of available for sale securities. The effect of foreign operations is primarily related to income of 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 six months ended June 30, 2022, the effective tax rate on income from continuing operations was 20.7 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 AOCI to income from continuing operations related to the disposal of available for sale securities, excess tax benefits related to share-based compensation payments recorded through the income statement and tax adjustments related to prior year returns. These tax benefits were partially offset by tax charges associated with the effect of foreign operations, state and local income taxes, and non-deductible transfer pricing charges. The effect of foreign operations is primarily related to income of our foreign operations taxed at statutory tax rates higher than 21 percent, other foreign taxes, and foreign income subject to U.S. taxation.

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.

Recent events, including changes in target interest rates by the Board of Governors of the Federal Reserve System, and significant market volatility, continue to impact actual and projected results of our business operations as well as our views on potential effectiveness of certain prudent and feasible tax planning strategies. In order to demonstrate the predictability and sufficiency of future taxable income necessary to support the realizability of the net operating losses and foreign tax credit carryforwards, we have considered forecasts of future income for each of our businesses, including assumptions about future macro-economic and AIG-specific conditions and events, and any impact these conditions and events may have on our prudent and feasible tax planning strategies. We also subjected the forecasts to a variety of stresses of key assumptions and evaluated the effect on tax attribute utilization.

The carryforward period of our foreign tax credit carryforwards runs through 2023. Carryforward periods for our net operating losses extend from 2028 forward. However, utilization of a portion of our net operating losses is limited under separate return limitation year rules.

To the extent that the valuation allowance is attributed to changes in forecast of current year taxable income, the impact is included in our estimated annualized effective tax rate. A valuation allowance related to changes in forecasts of income in future periods as well as other items not related to the current year is recorded discretely.

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Although tax deconsolidation of Corebridge from the AIG consolidated U.S. federal income tax group resulted in the formation of new federal tax filing groups requiring separate deferred tax asset realizability assessments, there was no material change to the total deferred tax asset valuation allowance.

After factoring in multiple data points and assessing relative weight of all positive and negative evidence, we concluded that a valuation allowance of $ 915 million is necessary. Accordingly, as of June 30, 2023, the balance sheet reflects a valuation allowance of $ 915 million, of which $ 713 million relates to AIG's U.S. federal consolidated income tax group and $ 202 million relates to Corebridge. The valuation allowance recorded with respect to AIG's U.S. federal consolidated income tax group relates to a portion of tax attribute carryforwards that are no longer more-likely-than-not to be realized. No change in AIG's U.S. federal consolidated income tax group valuation allowance was recorded for the six months ended June 30, 2023. The valuation allowance at Corebridge relates to a portion of both tax attribute carryforwards and certain other deferred tax assets of the Corebridge non-life insurance group that are not more-likely-than-not to be realized. For the six months ended June 30, 2023, Corebridge recorded a $ 51 million increase in valuation allowance, attributable to current year activity.

For the six months ended June 30, 2023, recent changes in market conditions, including changes in interest rates, impacted the unrealized tax gains and losses in the available for sale securities portfolios of both our U.S. life insurance and non-life insurance companies, resulting in a reduction to deferred tax assets related to net unrealized tax capital losses. The deferred tax assets relate to the unrealized tax capital losses for which the carryforward period has not yet begun, and as such, when assessing recoverability, we consider our ability and intent to hold the underlying securities to recovery. As of June 30, 2023, based on all available evidence, we concluded that a valuation allowance of $ 2.1 billion is necessary on a portion of the deferred tax assets related to unrealized tax capital losses that are not more-likely-than-not to be realized. Of the total valuation allowance, $ 1.4 billion relates to the unrealized tax capital losses in the U.S. Life Insurance Companies' available for sale securities portfolio and $ 745 million relates to the unrealized tax capital losses in the non-life insurance companies' available for sale securities portfolio. For the six months ended June 30, 2023, we released $ 63 million of valuation allowance associated with the unrealized tax capital losses in the U.S. Life Insurance Companies’ available for sale securities portfolio and $ 160 million of valuation allowance associated with the unrealized tax capital losses in the non-life insurance companies’ available for sale securities portfolio. For the three months ended June 30, 2023, we recorded an increase in valuation allowance of $ 69 million associated with the unrealized tax capital losses in the U.S. Life Insurance Companies’ available for sale securities portfolio and $ 74 million associated with the unrealized tax capital losses in the non-life insurance companies’ available for sale securities portfolio. The valuation allowance establishment was primarily allocated to other comprehensive income.

For the six months ended June 30, 2023, we recognized a net $ 46 million increase in deferred tax asset valuation allowance associated with certain foreign jurisdictions.

TAX EXAMINATIONS AND LITIGATION

We are currently under examination by the IRS for the tax years 2011 through 2019.

In September 2020, we received the IRS Revenue Agent Report containing agreed and disagreed issues for the audit of tax years 2007-2010. In October 2020, we filed a protest of the disagreed issues with the IRS Independent Office of Appeals (IRS Appeals). In March 2021, the IRS audit team issued their rebuttal to the protest of disagreed issues to IRS Appeals. We had an IRS Appeals conference in October 2021 and are continuing to engage in the appeals process.

ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

At June 30, 2023 and December 31, 2022, our unrecognized tax benefits, excluding interest and penalties, were $ 1.5 billion and $ 1.2 billion, respectively. At June 30, 2023 and December 31, 2022, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were $ 1.4 billion and $ 1.2 billion, respectively. Unrecognized tax benefits that would not affect the effective tax rate generally relate to such factors as the timing, rather than the permissibility of the deduction.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At June 30, 2023 and December 31, 2022, we had accrued liabilities of $ 59 million and $ 63 million, respectively, for the payment of interest (net of the federal benefit) and penalties. For the six months ended June 30, 2023 and June 30, 2022, we accrued benefit of $ 4 million and $ 3 million, respectively, for the payment of interest and penalties.

Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next 12 months, based on the information currently available, we do not expect any change to be material to our consolidated financial condition.

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