AIG Reports Second Quarter 2006 Results.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. , Inc. (AIG AIG addressee indicator group (US DoD) AIG American International Group, Inc AiG Answers in Genesis (religious group in defense of Scripture) AIG Artificial Intelligence Group AIG Australian Industry Group ) today reported that its net income for the second quarter of 2006 was $3.19 billion or $1.21 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to $4.49 billion or $1.71 per diluted share in the second quarter of 2005. Net income, as reported, includes economically effective hedging activities that currently do not qualify for hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). treatment under FAS 133, including the related foreign exchange gains and losses. Second quarter 2006 adjusted net income, as defined below, was $4.16 billion or $1.58 per diluted share, compared to $3.28 billion or $1.25 per diluted share in the second quarter of 2005. During the second quarter of 2006, AIG recorded an addition to income of $374 million, net of tax, or $0.14 per diluted share, related to the correction of the accounting for certain interests in unit investment trusts. These investments had previously been accounted for as available for sale securities, with changes in market values being reflected in other comprehensive income. The changes in market values are now included in AIG's net investment income. This adjustment had no effect on consolidated shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. at June June: see month. 30, 2006 or December December: see month. 31, 2005. Net income for the first six months of 2006 was $6.39 billion or $2.43 per diluted share, compared to $8.29 billion or $3.16 per diluted share in the first six months of 2005. Adjusted net income for the first six months of 2006 was $7.53 billion or $2.87 per diluted share, compared to $6.51 billion or $2.48 per diluted share in the first six months of 2005.
SECOND QUARTER
(in millions, except per share data)
Per Diluted Share
--------------------
2006 2005 Change 2006 2005 Change
----------------------------------------------------------------------
Net income $3,190 $4,489 (28.9)% $1.21 $1.71 (29.2)%
Realized capital gains
(losses), including pricing
gains (losses), net of tax (144) (56) - (0.06) (0.02) -
FAS 133 gains (losses),
excluding realized capital
gains (losses),
net of tax (a) (824) 1,266 - (0.31) 0.48 -
Adjusted net income (b) $4,158 $3,279 26.8% $1.58 $1.25 26.4%
Effect of out of period
adjustment, net of tax, on
income (c) $374 - - $0.14 - -
Average shares outstanding 2,625 2,623
----------------------------------------------------------------------
SIX MONTHS
(in millions, except per share data)
Per Diluted Share
---------------------
2006 2005 Change 2006 2005 Change
----------------------------------------------------------------------
Net income $6,385 $8,288 (23.0)% $2.43 $3.16 (23.1)%
Realized capital gains
(losses), including pricing
gains (losses), net of tax (26) 5 - (0.01) - -
FAS 133 gains (losses),
excluding realized
capital gains (losses),
net of tax (a) (1,157) 1,777 - (0.44) 0.68 -
Cumulative effect of an
accounting change, net of
tax (d) 34 - - 0.01 - -
Adjusted net income (b) $7,534 $6,506 15.8% $2.87 $2.48 15.7%
Effect of out of period
adjustment, net of tax,
on income (c) $374 - - $0.14 - -
Average shares outstanding 2,624 2,623
----------------------------------------------------------------------
(a) Includes the effect of hedging activities that do not qualify for
hedge accounting treatment under FAS 133, including the related
foreign exchange gains and losses.
(b) Excludes realized capital gains (losses) which includes pricing
net investment gains, cumulative effect of an accounting change
and FAS 133, net of tax.
(c) During the second quarter of 2006, AIG recorded an out of period
adjustment related to the accounting for certain interests in unit
investment trusts in accordance with FIN 46(R), "Consolidation of
Variable Interest Entities", and APB Opinion Number 18, "The
Equity Method of Accounting for Investments in Common Stock". The
out of period adjustment increased net income and adjusted net
income by $374 million in both the second quarter and six months
2006.
(d) Represents the cumulative effect of an accounting change, net of
tax, related to FAS 123R "Share-Based Payment".
At June 30, 2006, AIG's consolidated assets were $900.67 billion and shareholders' equity was $87.71 billion. Commenting on the second quarter's results, AIG President and Chief Executive Officer Martin J. Sullivan Martin J. Sullivan (born 1955 in Essex, England), is President and Chief Executive Officer of American International Group, Inc. Educated at the Sydney Russell School in Dagenham, Essex, in January 2007, he donated £50,000 to the school saying: said, "AIG had a very good quarter. Once again, our performance underscored the strength of AIG's widely diversified diversified (di·verˑ·s business portfolio, both domestically and overseas. General Insurance posted record underwriting profits Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. , with a combined ratio of 86.47. Net premiums written increased across the board, and our General Insurance operations are well positioned to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. opportunities in the current market environment. Life Insurance & Retirement Services had a mixed quarter, including strong production results in the domestic life insurance, payout pay·out n. 1. The act or an instance of paying out. 2. A percentage of corporate earnings that is paid as dividends to shareholders. annuities and individual variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. lines, with an ongoing difficult sales environment in individual fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. . Our domestic life insurance operations were affected by declines in investment yield enhancements. We were also challenged by market conditions in Japan and Taiwan Taiwan (tī`wän`), Portuguese Formosa, officially Republic of China, island nation (2005 est. pop. 22,894,000), 13,885 sq mi (35,961 sq km), in the Pacific Ocean, separated from the mainland of S China by the 100-mi-wide (161-km) Taiwan . We are taking appropriate action, including shifting our product mix to emphasize investment linked and personal accident & health products that provide better margins than traditional savings-oriented life products in the current low interest rate environment. "Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. also reported good results. Demand for International Lease Finance Corporation's (ILFC ILFC International Lease Finance Corporation ILFC International Lunar Finance Commission (TV show: Space: 1999) ) modern, fuel efficient fleet continues to be strong. Capital Markets experienced improved results emanating from increased transaction flow compared to last year. Consumer Finance was affected by the slowing U.S. real estate market and rising interest rates. Asset Management produced strong results, primarily driven by our Institutional Asset Management business. During the quarter, we launched our matched investment program to replace the Guaranteed Investment Contract Guaranteed investment contract (GIC) A pure investment product in which a life company agrees, for a single premium, to pay at a maturity date the principal amount of a predetermined annual crediting (interest) rate over the life of the investment. portfolio which is now in runoff Runoff The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape. Notes: If the "tape is late" then it can take a long time to print off all the closing prices. . "AIG's strong second quarter performance reflects our ability to quickly address changes in market conditions and client demand. A number of recent accomplishments demonstrate our continued focus on geographic expansion and strategic acquisitions that will contribute to future profitable growth. For example, the expansion of our Chinese Chinese, subfamily of the Sino-Tibetan family of languages (see Sino-Tibetan languages), which is also sometimes grouped with the Tai, or Thai, languages in a Sinitic subfamily of the Sino-Tibetan language stock. life insurance operations in Guangdong Guangdong or Kwangtung (both: gwäng`d  ng`), province (1994 est. pop. 66,910,000), c.76,000 sq mi (196,891 sq km), S China. The capital is Guangzhou. and Jiangsu Jiangsu (jyäng`s `) or Kiangsu (kyäng`s`, jyäng`–), province (1994 est. provinces
and the approval to conduct group insurance business throughout American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of International Assurance's operations in China will enable AIG to
strengthen our penetration in the retail and institutional markets in
China, adding to our existing strong presence there. During the second
quarter, the Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. Parliament passed legislation that will allow
United Guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. Corporation to begin writing business in the
world's second largest mortgage guaranty market, when provincial
licenses are issued."After the quarter's close, AIG announced the acquisition of Central Insurance Co., a significant general insurance business in Taiwan. With this acquisition, AIG's companies become one of the largest general insurance businesses in that market, ranking third in gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. ." GENERAL INSURANCE General Insurance reported second quarter 2006 operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before realized capital gains (losses) of $2.99 billion, a 68.6 percent increase over the second quarter of 2005. Second quarter operating income increased 44.2 percent to $2.56 billion, excluding the $432 million pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern increase in income relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the out of period adjustment from unit investment trust accounting, of which $412 million pertains to Foreign General. General Insurance achieved a combined ratio of 86.47, a 5.41 point improvement over the second quarter of 2005, primarily the result of an improved current accident year loss ratio compared to the 2005 accident year loss ratio recorded in the second quarter of 2005. The strong underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. performance reflects continued generally favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. pricing, policy terms and conditions. Second quarter 2006 General Insurance net investment income, excluding the out of period adjustment, increased 11.5 percent, benefiting from positive cash flow and rising interest rates. Partnership income overall was good, but declined compared to very strong results in the second quarter of 2005. Foreign General net investment income, excluding the out of period adjustment, declined in the quarter compared to last year due to higher partnership realizations in the second quarter of 2005. General Insurance net premiums written increased 9.3 percent to $11.63 billion in the second quarter. The Domestic Brokerage Group (DBG DBG database generation (US DoD) DBG Dallah al-Baraka Group DBG Don't Be Gay DBG Diversified Business Group DBG Data Bus Group DBG Distance Between Guides (engineering and construction) DBG Debugging ) continued to execute its core strategies of expanding distribution, product innovation and cross selling, as well as capitalizing on its extensive nationwide office network. These competitive advantages contributed to DBG's 10.8 percent growth in net premiums written in the quarter. In the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , property rates remained strong in the second quarter with modest rate declines in certain casualty classes. Personal Lines reported an improved combined ratio and strong premium growth in the Private Client Group and Agency Auto, offset by the runoff of the assigned risk A danger or hazard of loss or injury that an insurer will not normally accept for coverage under a policy issued by the insurer, but that the insurance company is required by state law to offer protection against by participating in a pool of insurers who are also compelled to provide business and a slight decline in the direct auto businesses. United Guaranty had strong premium growth with increases in all business lines, and improved persistency in its domestic first lien lien, claim or charge held by one party, on property owned by a second party, as security for payment of some debt, obligation, or duty owed by that second party. business. Foreign General net premiums written in original currency rose 12.4 percent in the second quarter, with strong growth in personal lines and accident & health, and very good retention rates in commercial lines. Efforts to expand the homeowners and warranty businesses contributed to personal lines growth in the quarter. At June 30, 2006, General Insurance net loss and loss adjustment reserves totaled $60.21 billion, a $1.32 billion increase from March 31, 2006. In the second quarter of 2006, net favorable loss development from prior accident years was approximately $248 million. This includes favorable development from prior year catastrophes of approximately $53 million and excludes accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of discount of approximately $101 million. LIFE INSURANCE & RETIREMENT SERVICES Life Insurance & Retirement Services second quarter 2006 operating income before realized capital gains (losses) but including pricing net investment gains increased 9.7 percent to $2.61 billion, with Domestic Life Insurance & Retirement Services increasing 2.7 percent and Foreign Life Insurance & Retirement Services increasing 14.2 percent when compared to the second quarter of 2005. Excluding the $144 million pretax increase in income due to the out of period adjustment from unit investment trust accounting, Total Life Insurance & Retirement Services and Foreign Life Insurance & Retirement Services operating income before realized capital gains (losses) but including pricing net investment gains increased 3.6 percent and 4.2 percent, respectively. In Domestic Life Insurance, second quarter 2006 operating income declined compared to the second quarter of 2005, primarily as a result of lower net investment income from yield enhancements and a legal reserve charge for the group life/health business. Retail periodic premium sales of life insurance increased 44.1 percent and life insurance reserves grew 9.0 percent over the prior year. In the quarter, payout annuities reported strong sales in structured settlement and immediate annuity immediate annuity An annuity that is purchased with a lump sum and that begins making payments one period after the purchase. Immediate annuities are most commonly purchased by people who have accumulated a sum of money and are ready for retirement. products with a 14.6 percent increase in reserves. In Domestic Retirement Services, individual fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. sales declined and surrender rates increased compared to the second quarter of 2005 in the face of continued competition from bank CDs and the flat yield curve Flat Yield Curve A chart that shows that the yields of bonds with short maturities are equal to the yields of bonds with longer maturities. environment. Operating income increased due to stronger partnership income, lower amortization of deferred acquisition costs related to realized capital losses and modest growth in underlying reserves. Group retirement operating income was flat primarily as a result of slightly lower investment spreads. Individual variable annuities had very good deposit growth and positive net flows on the continued strength of new guaranteed minimum withdrawal benefit features. Foreign Life Insurance & Retirement Services operating income reflects strong growth in most regions of the world. However, performance in Japan and Taiwan was affected by market conditions, including the continued low interest rate environment, increased competition, a Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and tax law change affecting the personal accident & health business, and the weaker yen. Earnings growth for AIG Star Life and AIG Edison Edison, township (1990 pop. 88,680), Middlesex co., NE N.J., inc. 1870 as Raritan Township, renamed 1954. Edison's varied manufactures include light trucks, chemicals, metal products, electrical and electronic equipment, machinery, and instruments. Life reflects the runoff of the more profitable acquired inforce business in comparison to the lower profit margins being generated on new business. During the quarter, we announced that the operations of AIG Star Life and AIG Edison Life will be combined to achieve expanded distribution, broader new product offerings and efficiencies of scale. AIG's overseas life insurance operations are focused on leveraging their multiple distribution channels and emphasizing investment linked and personal accident & health products that provide better margins than traditional savings oriented o·ri·ent n. 1. Orient The countries of Asia, especially of eastern Asia. 2. a. The luster characteristic of a pearl of high quality. b. A pearl having exceptional luster. 3. life products with higher guarantees. These efforts are reflected in the strong second quarter single premium life insurance growth as well as improved personal accident & health first year premium results. In Japan, fixed annuity production increased from the first quarter of 2006, but will remain sensitive to yen/dollar exchange rates. Variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. sales increased significantly from year ago levels. In June, ALICO ALICO American Life Insurance Company introduced a guaranteed minimum income Guaranteed minimum income is a proposed system of income redistribution that would provide eligible citizens with a certain sum of money (independent of whether they work or not), also known as "Basic Income Guarantee (BIG)", "universal basic income", "citizen's income scheme", benefit feature for its Japanese variable annuity products and is developing additional living benefit features, including guaranteed minimum withdrawal benefits. In other markets, variable annuity sales continued to be strong in Europe Europe (y r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). and fixed annuity sales increased in Korea.FINANCIAL SERVICES Second quarter 2006 Financial Services operating income before the effect of FAS 133 was $615 million, an increase of 5.7 percent compared to the second quarter of 2005. ILFC operating income in the second quarter of 2006 was approximately equal to the second quarter of 2005, as increased lease and overhaul revenues were offset by rising interest rates and charges related to bankrupt BANKRUPT. A person who has done, or suffered some act to be done, which is by law declared an act of bankruptcy; in such case he may be declared a bankrupt. 2. It is proper to notice that there is much difference between a bankrupt and an insolvent. airlines. Excluding the effect of FAS 133, Capital Markets reported improved results due to increased transaction flow, especially in credit, commodity and equity products. Consumer Finance operating income declined as a result of higher borrowing costs, a cooling domestic residential real estate market, higher expenses related to overseas expansion and lower new business volumes in Taiwan in the wake of the industry wide deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. of consumer credit conditions. In the U.S., emphasis on retail finance and branch generated products should help offset the slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in the domestic residential real estate market. Domestically, net charge off and delinquency delinquency Criminal behaviour carried out by a juvenile. Young males make up the bulk of the delinquent population (about 80% in the U.S.) in all countries in which the behaviour is reported. ratios improved compared to the second quarter of 2005. ASSET MANAGEMENT Asset Management operating income in the second quarter of 2006, before the effect of FIN fin, organ of locomotion characteristic of fish and consisting of thin tissue supported by cartilaginous or bony rays. In some fish, e.g., the eel, a single fin extends from the back, around the tail, and along the ventral surface. 46(R), EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation 04-5 and FAS 133, was $541 million, an increase of 23.0 percent compared to the second quarter of 2005. This increase was largely attributable to the performance of the Institutional Asset Management business, which was partially offset by the runoff of the existing domestic GIC GIC See: Guaranteed Investment Contract GIC See guaranteed investment contract (GIC). portfolio. Institutional Asset Management growth was the result of the continued increase in institutional assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. and the associated fee revenue, as well as gains on real estate investments and an increase in performance-based fees. At June 30, 2006, third party assets under management amounted to approximately $66 billion, an increase of 8 percent over June 30, 2005. As disclosed in the first quarter 2006 earnings release, AIG initiated its matched investment program in April and completed three note offerings through June 30th totaling approximately $1.70 billion. In July, a registration statement was declared effective by the Securities and Exchange Commission, which reactivated a previously announced amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. shelf registration. This will allow AIG to launch a registered matched investment program in the U.S. securities market. OTHER OPERATIONS Second quarter 2006 operating income from Other Operations, including other realized capital gains (losses), amounted to a loss of $187 million compared to a loss of $246 million in the second quarter of 2005. These results reflect increased interest expense, offset by favorable comparisons in most other categories. Additional supplementary financial data is available in the Investor Information section of www.aigcorporate.com. A conference call for the investment community will be held tomorrow, Thursday, August 10, 2006 at 8:30 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . The call will be broadcast live on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.aigwebcast.com. A replay will be archived at the same URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. through Thursday, August 24, 2006. It should be noted that the remarks made in this press release or on the conference call may contain projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to management, operations, products and services, and assumptions underlying these projections and statements. Please refer to AIG's Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the period ended June 30, 2006 and AIG's past and future filings with the Securities and Exchange Commission for a description of the business environment in which AIG operates and the factors that may affect its business. AIG is not under any obligation (and expressly disclaims any such obligation) to update or alter its projections and other statements whether as a result of new information, future events or otherwise. American International Group, Inc. (AIG), world leaders For a list of heads of state, see . World leaders is a MMORPG. The game involves creating a state, joining an alliance and going into war. It is mostly played by players from Israel, China, USA, Britain, Brazil and Saudi-Arabia. in insurance and financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. . In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG's common stock is listed on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. , as well as the stock exchanges in London, Paris, Switzerland and Tokyo. Comment on Regulation G This press release, including the financial highlights, includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). figures in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Regulation G are included within the relevant tables or in the Second Quarter 2006 Financial Supplement available in the Investor Information section of AIG's corporate website, www.aigcorporate.com. Throughout this press release, AIG presents its operations in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use AIG's financial information in evaluating the performance of AIG. That presentation includes the use of certain non-GAAP measures. In addition to the GAAP presentations, in some cases, revenues, net income, operating income and related rates In differential calculus, related rates problems involve finding the rate at which a quantity is changing by relating that quantity to other quantities whose rates of change are known. The rate of change is usually with respect to time. of performance are shown exclusive of realized capital gains (losses), cumulative effect of an accounting change in 2006, the effect of FIN46(R), the effect of EITF 04-5, the effect of FAS 133 and the effect of the catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). related losses. AIG excludes the effects of FIN 46(R), EITF 04-5 and FAS 133 because AIG believes that the GAAP presentation is not indicative of AIG's true economic position and is therefore less meaningful to the investor. For example, AIG's derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. are economically effective hedges, even though they do not qualify for hedge accounting. Likewise, AIG believes that a presentation excluding entities consolidated pursuant to FIN 46(R), is more meaningful than the GAAP presentation where AIG does not in fact have the economic interest that is presumed to be held. Although the investment of premiums to generate investment income (or loss) and realized capital gains or losses capital gains or losses n. particularly when calculating the tax liability of an individual or business, this is the difference between the original cost plus the cost of capital improvements, excluding maintenance, called "basis" and the sales price. is an integral part of both life and general insurance operations, the determination to realize capital gains or losses is independent of the insurance underwriting process. Moreover, under applicable GAAP accounting requirements, losses can be recorded as the result of other than temporary declines in value without actual realization. In sum, investment income and realized capital gains or losses for any particular period are not indicative of underlying business performance for such period. AIG believes that underwriting profit (loss) provides investors with financial information that is not only meaningful but critically important to understanding the results of property and casualty insurance operations. Operating income of a property and casualty insurance company includes three components: underwriting profit (loss), net investment income and realized capital gains (losses). Without disclosure of underwriting profit (loss), it is impossible to determine how successful an insurance company is in its core business activity of assessing and underwriting risk. Including investment income and realized capital gains (losses) in operating income without disclosing underwriting profit (loss) can mask underwriting losses. The amount of net investment income may be driven by changes in interest rates and other factors that are totally unrelated to underwriting performance. Underwriting profit (loss) is an important measurement used by AIG senior management to judge the performance of its property and casualty insurance operations. AIG includes the measurement required in statutory financial statements filed with state insurance departments and adjusts for changes in deferred acquisition costs in order to make the measure more consistent with the information provided in AIG's consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge . Further, the equity analysts who follow AIG exclude the realized capital transactions in their analyses for the same reason and consistently request that AIG provide the non-GAAP information. Life and retirement services production (premiums, deposits and other considerations), gross premiums written, net premiums written and loss, expense and combined ratios are presented in accordance with accounting principles prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). or permitted by insurance regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities because these are standard measures of performance used in the insurance industry and thus allow for more meaningful comparisons with AIG's insurance competitors.
American International Group, Inc.
Financial Highlights*
(in millions, except per share data)
Three Months Ended June 30,
2006 2005 (a) Change
-------------------- ------
General Insurance Operations:
Net Premiums Written $ 11,634 $ 10,644 9.3 %
Net Premiums Earned 10,678 10,232 4.4
Underwriting Profit 1,374 712 93.0
Net Investment Income 1,614 1,060 52.3
Income before Realized Capital
Gains (Losses) 2,988 1,772 68.6
Realized Capital Gains
(Losses)(b) (125) 113 -
Operating Income $ 2,863 $ 1,885 51.9 %
-------------------------------------------------------
Loss Ratio 63.34 69.55
Expense Ratio 23.13 22.33
Combined Ratio 86.47 91.88
-------------------------------------------------------
Life Insurance & Retirement Services Operations:
GAAP Premiums $ 7,625 $ 7,304 4.4 %
Net Investment Income 4,298 4,167 3.1
Pricing Net Investment
Gains (c) 88 100 (12.0)
Income before Realized Capital
Gains (Losses) 2,608 2,378 9.7
Realized Capital
Gains (Losses)(b)(c) (306) (54) -
Operating Income 2,302 2,324 (0.9)
Financial Services Operations:
Operating Income excluding
FAS 133 615 582 5.7
FAS 133(b) (1,163) 1,632 -
Operating Income (Loss) (548) 2,214 -
Asset Management Operations:
Operating Income excluding
FIN46(R), EITF 04-5
and FAS 133 541 440 23.0
FIN46(R) (d) 183 37 -
EITF 04-5 (e) 87 - -
FAS 133 (b) - 47 -
Operating Income 811 524 54.8
Other Income (Deductions) - net (316) 38 -
Other Realized Capital
Gains (Losses) (b) 129 (284) -
Income before Income Taxes,
Minority Interest and
Cumulative Effect of
an Accounting Change 5,241 6,701 (21.8)
Income Taxes 1,688 2,083 -
Income before Minority Interest
and Cumulative Effect of
an Accounting Change 3,553 4,618 (23.1)
Minority Interest, after-tax :
Income before Realized Capital
Gains (Losses) (360) (127) -
Realized Capital Gains
(Losses) (3) (2) -
Income before Cumulative Effect
of an Accounting Change 3,190 4,489 (28.9)
Cumulative Effect of an Accounting
Change, net of tax (f) - - -
Net Income 3,190 4,489 (28.9)
Realized Capital Gains (Losses),
including Pricing Gains(Losses),
net of tax (144) (56) -
FAS 133 Gains (Losses), excluding
Realized Capital Gains
(Losses), net of tax (824) 1,266 -
Cumulative Effect of an Accounting
Change, net of tax (f) - - -
Adjusted Net Income (g) 4,158 3,279 26.8
Effect of Out of Period Adjustment,
net of tax (h) 374 - -
Per Share - Diluted:
Net Income 1.21 1.71 (29.2)
Realized Capital Gains (Losses),
including Pricing Gains(Losses),
net of tax (0.06) (0.02) -
FAS 133 Gains (Losses), excluding
Realized Capital Gains
(Losses), net of tax (0.31) 0.48 -
Cumulative Effect of an Accounting
Change, net of tax (f) - - -
Adjusted Net Income (g) $ 1.58 $ 1.25 26.4 %
Effect of Out of Period Adjustment,
net of tax (h) $ 0.14 - -
Average Diluted Common
Shares Outstanding 2,625 2,623
Six Months Ended June 30,
2006 2005 (a) Change
-------------------- ------
General Insurance Operations:
Net Premiums Written $ 22,889 $ 21,434 6.8 %
Net Premiums Earned 21,148 20,372 3.8
Underwriting Profit 2,519 1,275 97.6
Net Investment Income 2,732 2,075 31.7
Income before Realized Capital
Gains (Losses) 5,251 3,350 56.7
Realized Capital Gains
(Losses)(b) (57) 177 -
Operating Income $ 5,194 $ 3,527 47.3 %
-------------------------------------------------------
Loss Ratio 64.98 70.66
Expense Ratio 22.84 22.03
Combined Ratio 87.82 92.69
-------------------------------------------------------
Life Insurance & Retirement Services Operations:
GAAP Premiums $ 15,397 $ 14,844 3.7 %
Net Investment Income 9,007 8,484 6.2
Pricing Net Investment
Gains (c) 212 181 17.1
Income before Realized Capital
Gains (Losses) 5,129 4,722 8.6
Realized Capital
Gains (Losses)(b)(c) (272) (217) -
Operating Income 4,857 4,505 7.8
Financial Services Operations:
Operating Income excluding
FAS 133 1,134 1,144 (0.9)
FAS 133(b) (1,841) 2,115 -
Operating Income (Loss) (707) 3,259 -
Asset Management Operations:
Operating Income excluding
FIN46(R), EITF 04-5
and FAS 133 906 893 1.5
FIN46(R) (d) 210 112 -
EITF 04-5 (e) 156 - -
FAS 133 (b) - 109 -
Operating Income 1,272 1,114 14.2
Other Income (Deductions) - net (654) 74 -
Other Realized Capital
Gains (Losses) (b) 72 (129) -
Income before Income Taxes,
Minority Interest and
Cumulative Effect of
an Accounting Change 10,034 12,350 (18.8)
Income Taxes 3,123 3,789 -
Income before Minority Interest
and Cumulative Effect of
an Accounting Change 6,911 8,561 (19.3)
Minority Interest, after-tax :
Income before Realized Capital
Gains (Losses) (541) (265) -
Realized Capital Gains
(Losses) (19) (8) -
Income before Cumulative Effect
of an Accounting Change 6,351 8,288 (23.4)
Cumulative Effect of an Accounting
Change, net of tax (f) 34 - -
Net Income 6,385 8,288 (23.0)
Realized Capital Gains (Losses),
including Pricing Gains(Losses),
net of tax (26) 5 -
FAS 133 Gains (Losses), excluding
Realized Capital Gains
(Losses), net of tax (1,157) 1,777 -
Cumulative Effect of an Accounting
Change, net of tax (f) 34 - -
Adjusted Net Income (g) 7,534 6,506 15.8
Effect of Out of Period
Adjustment, net of tax (h) 374 - -
Per Share - Diluted:
Net Income 2.43 3.16 (23.1)
Realized Capital Gains (Losses),
including Pricing Gains(Losses),
net of tax (0.01) - -
FAS 133 Gains (Losses), excluding
Realized Capital Gains
(Losses), net of tax (0.44) 0.68 -
Cumulative Effect of an Accounting
Change, net of tax (f) 0.01 - -
Adjusted Net Income (g) $ 2.87 $ 2.48 15.7 %
Effect of Out of Period Adjustment,
net of tax (h) $ 0.14 - -
Average Diluted Common
Shares Outstanding 2,624 2,623
* Including reconciliation in accordance with Regulation G.
(a) Certain accounts have been reclassified in 2005 to conform to the
2006 presentation.
(b) Includes the effect of hedging activities that do not qualify for
hedge accounting treatment under FAS 133 "Accounting for
Derivative Instruments and Hedging Activities", including the
related foreign exchange gains and losses.
(c) For purposes of this presentation, pricing net investment gains
are segregated as a component of total realized capital gains
(losses). They represent certain amounts of realized capital gains
where gains are an inherent element in pricing certain life
products in some foreign countries.
(d) Includes the full results of certain AIG managed private equity
and real estate funds that are consolidated pursuant to FIN46(R),
"Consolidation of Variable Interest Entities".
(e) Includes the full results of certain AIG managed partnerships that
are consolidated effective January 1, 2006 pursuant to EITF 04-5,
"Determining Whether a General Partner, or the General Partners as
a Group, Controls a Limited Partnership or Similar Entity When the
Limited Partners Have Certain Rights".
(f) Represents the cumulative effect of an accounting change, net of
tax, related to FAS 123R "Share-Based Payment".
(g) Adjusted net income excludes realized capital gains (losses) which
includes pricing net investment gains, cumulative effect of an
accounting change and FAS 133 "Accounting for Derivative
Instruments and Hedging Activities", net of tax.
(h) During the second quarter of 2006, AIG recorded an out of period
adjustment related to the accounting for certain interests in unit
investment trusts in accordance with FIN 46(R), and APB Opinion
Number 18, "The Equity Method of Accounting for Investments in
Common Stock". The out of period adjustment increased net income
and adjusted net income by $374 million in both the second quarter
and six months 2006.
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