Net investment income declined 5 percent to $2.5 billion, primarily due to lower returns on alternative investments and declines in base yields and yield enhancements, including call and tender income. The base investment yield was 5.26 percent compared to 5.38 percent in the third quarter of 2012. This decline reflected the current interest rate environment and reinvestment of assets over the last 12 months at rates that were lower than the weighted average yield of the overall portfolio. AIG Life and Retirement continued to manage profitability actively through crediting rate actions on existing spread business and disciplined pricing on new business. Consistent with prior quarters, AIG Life and Retirement realized significant capital gains in its fixed maturity investment portfolio in connection with utilizing capital loss carryforwards. Reinvestment of proceeds from such sales has also reduced the base investment yield.
Assets under management rose 10 percent to $304 billion. Net flows and account values increased substantially compared to the prior-year period. These increases were driven by strong demand for Retail products due to innovative and competitive product design, favorable market conditions, and increased penetration within several of AIG Life and Retirement’s strategic distribution firms. Strong equity market performance further drove the increase in account values. The development of the stable value wrap business also accounted for a substantial amount of the growth in assets under management. The decline in AIG Life and Retirement’s unrealized gain position on available for sale securities due to rising interest rates partially offset the increase in assets under management.
Premiums and deposits totaled $8.4 billion, up 76 percent, driven by growth in sales of investment-oriented products, including individual variable annuities, retail mutual funds and fixed annuities. Premiums and deposits for Retirement Income Solutions and Retail Mutual Fund product lines increased 133 percent and 121 percent, respectively. Fixed Annuities product line sales totaled nearly $1.2 billion for the quarter, up from $173 million.