VARIABLE INTEREST ENTITIES

12 Months Ended

Dec. 31, 2021

VARIABLE INTEREST ENTITIES

VARIABLE INTEREST ENTITIES

9. Variable Interest Entities

A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains and losses of the entity. Consolidation of a VIE by its primary beneficiary is not based on majority voting interest, but is based on other criteria discussed below.

We enter into various arrangements with 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 Consolidated Balance Sheets:

		Real Estate and				Affordable
		Investment		Securitization		Housing
(in millions)		Entities(d)		Vehicles		Partnerships		Other		Total
December 31, 2021
Assets:
Bonds available for sale	$	-	$	5,543	$	-	$	-	$	5,543
Other bond securities		-		1,852		-		-		1,852
Equity securities		223		-		-		-		223
Mortgage and other loans receivable		-		2,523		-		-		2,523
Other invested assets
Alternative investments(a)		3,017		-		-		-		3,017
Investment real estate		2,257		-		-		-		2,257
Short-term investments		487		151		-		-		638
Cash		96		-		-		-		96
Accrued investment income		-		17		-		-		17
Other assets		190		558		-		-		748
Total(b)	$	6,270	$	10,644	$	-	$	-	$	16,914
Liabilities:
Debt of consolidated investment entities	$	1,743	$	4,504	$	-	$	-	$	6,247
Other(c)		122		722		-		-		844
Total	$	1,865	$	5,226	$	-	$	-	$	7,091
December 31, 2020
Assets:
Bonds available for sale	$	-	$	6,089	$	-	$	-	$	6,089
Other bond securities		-		2,367		-		-		2,367
Equity securities		507		-		-		-		507

Mortgage and other loans receivable		-		3,135		-		-		3,135
Other invested assets
Alternative investments(a)		2,689		-		-		-		2,689
Investment real estate		3,378		-		3,558		-		6,936
Short-term investments		365		1,534		-		27		1,926
Cash		129		-		203		-		332
Accrued investment income		-		38		-		-		38
Other assets		169		120		243		2		534
Total(b)	$	7,237	$	13,283	$	4,004	$	29	$	24,553
Liabilities:
Debt of consolidated investment entities	$	2,559	$	3,961	$	2,287	$	2	$	8,809
Other(c)		180		187		187		10		564
Total	$	2,739	$	4,148	$	2,474	$	12	$	9,373

(a) Comprised primarily of investments in real estate joint ventures at December 31, 2021 and 2020.

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

(c) Comprised primarily of Other liabilities at December 31, 2021 and 2020.

(d) At December 31, 2021 and 2020, off-balance sheet exposure primarily consisting of our insurance companies’ commitments to real estate and investment entities were $2.2 billion and $2.4 billion, respectively, of which commitments to external parties were $0.6 billion and $0.7 billion, respectively.

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.

AIG entered into six transactions between 2012 and 2014, securitizing portfolios of certain debt securities previously owned by AIG and its affiliates. As part of these transactions, an indirectly wholly-owned subsidiary of AIG was obligated to make capital contributions to these securitization VIEs in the event that the VIE was unable to redeem any rated notes it had in issue on the relevant redemption date. AIG had provided a guarantee to the six securitization VIEs of the obligations of its indirectly wholly-owned subsidiary to make such capital contributions when due. Prior to December 31, 2021, all six transactions were terminated. In aggregate, the termination of these six transactions resulted in a reduction of debt of consolidated investment entities of $175 million. There were no amounts paid related to the guarantees provided.

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
		Total VIE		On-Balance			Off-Balance
(in millions)		Assets		Sheet	(b)		Sheet			Total
December 31, 2021
Real estate and investment entities(a)	$	457,335	$	7,650		$	3,448	(d)	$	11,098
Other		1,738		237			528	(e)		765
Total	$	459,073	$	7,887		$	3,976		$	11,863
December 31, 2020
Real estate and investment entities(a)	$	321,716	$	6,420		$	3,273	(d)	$	9,693
Affordable housing partnerships		2,801		368	(c)		4			372
Other		1,733		195			546	(e)		741
Total	$	326,250	$	6,983		$	3,823		$	10,806

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

(b) At December 31, 2021 and 2020, $7.8 billion and $6.8 billion, respectively, of our total unconsolidated VIE assets were recorded as Other invested assets.

(c) At December 31, 2020, primarily included alternative equity investments of $257 million and other loans receivables of $97 million.

(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.

Real Estate and Investment Entities

Through our insurance operations and AIG Global Real Estate Investment Corp., we are an investor in various real estate investment entities, some of which are VIEs. These investments are typically with unaffiliated third-party developers via a partnership or limited liability company structure. The VIEs’ activities consist of the development or redevelopment of commercial, industrial and residential real estate. Our involvement varies from being a passive equity investor or finance provider to actively managing the activities of the VIEs.

Our insurance operations participate as passive investors in the equity issued by certain third-party-managed hedge and private equity funds that are VIEs. Our insurance operations typically are not involved in the design or establishment of these VIEs, nor do they actively participate in the management of the VIEs.

Securitization AND REPACKAGING Vehicles

We created certain VIEs that hold investments, primarily in investment-grade debt securities and loans, and issued beneficial interests in these investments. Some of these VIEs were created to facilitate our purchase of asset-backed securities. In these situations, all of the beneficial interests are owned by our insurance operations and are consolidated by AIG. In other instances, we have created VIEs that are securitizations of residential mortgage loans or other forms of collateralized loan obligations or repackage loan and other assets into pass-through securities. Our insurance subsidiaries own some of the beneficial interests of these VIEs, and we maintain the power to direct the activities of the VIEs that most significantly impact their economic performance. Accordingly, we consolidate these entities and those beneficial interests issued to third parties are reported as debt of consolidated investment entities. This debt is non-recourse to AIG.

Affordable Housing Partnerships

SAAHP organized and invested in limited partnerships that develop and operate affordable housing qualifying for federal, state, and historic tax credits, in addition to a few market rate properties across the United States. The operating partnerships are VIEs, whose debt is generally non-recourse in nature, and the general partners of which are mostly unaffiliated third-party developers. Until their sale in December 2021, we accounted for our investments in operating partnerships using the equity method of accounting, unless they are required to be consolidated. We consolidated an operating partnership if the general partner is an affiliated entity or we otherwise have the power to direct activities that most significantly impact the entities’ economic performance. The pre-tax income of SAAHP was reported as a component of the Life and Retirement segment. In December 2021, AIG completed the sale of a U.S. affordable housing portfolio to Blackstone Real Estate Income Trust.

For additional information on the sale of AIG’s interests in a U.S. affordable housing portfolio, see Note 1.

RMBS, CMBS, Other ABS and CDOs

Primarily through our insurance operations, we are a passive investor in RMBS, CMBS, other ABS and CDOs, the majority of which are issued by domestic special purpose entities. We generally do not sponsor or transfer assets to, or act as the servicer to these asset-backed structures, and were not involved in the design of these entities.

Our maximum exposure in these types of structures is limited to our investment in securities issued by these entities. Based on the nature of our investments and our passive involvement in these types of structures, we have determined that we are not the primary beneficiary of these entities. We have not included these entities in the above tables; however, the fair values of our investments in these structures are reported in Notes 4 and 5 herein.