AIG 2014 Annual Report Download - page 82

ITEM 2 / EXECUTIVE OVERVIEW
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CONSUMER INSURANCE STRATEGIC INITIATIVES AND OUTLOOK
Strategic Initiatives
Customer: Strive to be our customers’ most valued insurer. Through our unique franchise, which brings together a broad
portfolio of retirement, life insurance and personal insurance products offered through multiple distribution networks,
Consumer Insurance aims to provide customers with the products they need, delivered through the channels they prefer.
Information-driven Strategy: Utilize customer insight, analytics and the application of science to optimize customer
acquisition, product profitability, product mix, channel performance and risk management capabilities.
Focused Growth: Invest in areas where Consumer Insurance can grow profitably and sustainably. Target growth in select
markets according to market size, growth potential, market maturity and customer demographics.
Operational Effectiveness: Simplify processes, enhance operating environments, and leverage the best platforms and
tools for multiple operating segments to increase competitiveness, improve service and product capabilities and facilitate
delivery of our target customer experience.
Investment Strategy: Maintain a diversified, high quality portfolio of fixed maturity securities that largely matches the
duration characteristics of related insurance liabilities with assets of comparable duration, and pursue yield-enhancement
opportunities that meet liquidity, risk and return objectives.
Profitability and Capital Management: Deliver solid earnings through disciplined pricing, sustainable underwriting
improvements and diversification of risk, and increase capital efficiency within insurance entities to enhance return on
equity.
Market Conditions and Industry Trends
Retirement
An increasing population of Americans expecting to live longer and placing less reliance on traditional retirement benefits are
seeking financial security as they approach retirement, which continues to drive demand for individual variable and fixed index
annuities with guaranteed income features. In addition, rising tax rates and a desire for higher investment returns have
prompted less risk-averse investors to seek products without guaranteed lifetime income, providing Retirement Income
Solutions the opportunity to further diversify its product portfolio by offering investment-focused variable annuities.
The sustained low interest rate environment has a significant impact on the annuity industry. Low long-term interest rates put
pressure on long-term investment returns, negatively affect sales of interest rate sensitive products and reduce future profits
on certain existing fixed rate products. As long as the sustained low interest rate environment continues, market conditions will
be challenging for the fixed annuity market. In addition, more highly leveraged providers have entered the market offering
higher crediting rates.
Despite the challenging environment where long-term interest rates have continued to remain low relative to historical levels
throughout 2014, fixed annuity industry sales have continued to improve from the very low levels seen in 2013, as baby
boomers approaching retirement continue to seek financial solutions that can provide guaranteed income, and customers are
now more willing to purchase non-guaranteed return of premium products with market value adjustments in exchange for
higher crediting rates. Although rapidly rising interest rates could create the potential for increased surrenders, customers are
currently buying fixed annuities with longer surrender periods in pursuit of higher returns.