NEW YORK, Feb 28, 2008 -- American International Group, Inc. (AIG) today reported that its
net income for full year 2007 was $6.20 billion or $2.39 per diluted
share, compared to $14.05 billion or $5.36 per diluted share for full
year 2006. Net income, as reported, includes the effect of
economically effective hedging activities that did not qualify for
hedge accounting treatment under FAS 133, including the related
foreign exchange gains and losses. Full year 2007 adjusted net income,
as shown below, was $9.31 billion or $3.58 per diluted share, compared
to $15.41 billion or $5.88 per diluted share for full year 2006.
The net loss for the fourth quarter of 2007 was $5.29 billion or
$2.08 per diluted share, compared to net income of $3.44 billion or
$1.31 per diluted share for the fourth quarter of 2006. The adjusted
net loss for the fourth quarter of 2007 was $3.20 billion or $1.25 per
diluted share, compared to adjusted net income of $3.85 billion or
$1.47 per diluted share for the fourth quarter of 2006.
Included in both the full year and fourth quarter 2007 net income
(loss) and adjusted net income (loss) were charges of approximately
$11.47 billion pretax ($7.46 billion after tax) and $11.12 billion
pretax ($7.23 billion after tax), respectively, for a net unrealized
market valuation loss related to the AIG Financial Products
Corp.(AIGFP) super senior credit default swap portfolio. AIG continues
to believe that the unrealized market valuation losses on this super
senior credit default swap portfolio are not indicative of the losses
AIGFP may realize over time. Under the terms of these credit
derivatives, losses to AIG would result from the credit impairment of
any bonds AIG would acquire in satisfying its swap obligations. Based
upon its most current analyses, AIG believes that any credit
impairment losses realized over time by AIGFP will not be material to
AIG's consolidated financial condition, although it is possible that
realized losses could be material to AIG's consolidated results of
operations for an individual reporting period. Except to the extent of
any such realized credit impairment losses, AIG expects AIGFP's
unrealized market valuation losses to reverse over the remaining life
of the super senior credit default swap portfolio.
Fourth quarter 2007 results included pretax net realized capital
losses of $2.63 billion ($1.71 billion after tax) primarily from
other-than-temporary impairment charges in AIG's investment portfolio,
with an additional $643 million pretax other-than-temporary impairment
charge ($418 million after tax) related to AIGFP's available for sale
investment securities. This compares to pretax net realized capital
gains of $238 million ($121 million after tax) in the fourth quarter
of 2006. The 2007 other-than-temporary impairment charges resulted
primarily from the significant, rapid declines in market values of
certain residential mortgage backed securities in the fourth quarter
for which AIG cannot reasonably determine that the recovery period
will be temporary.
TWELVE MONTHS
(in millions, except per share data)
Per Diluted Share
----------------------
2007 2006 Change 2007 2006 Change
----------------------------------------------------------------------
Net income $6,200 $14,048 (55.9)% $2.39 $5.36 (55.4)%
Net realized capital
gains (losses), net
of tax (2,386) 33 - (0.92) 0.01 -
Capital Markets other-
than-temporary
impairments, net of
tax(a) (418) - - (0.16) - -
FAS 133 gains
(losses), excluding
net realized capital
gains (losses), net
of tax(b) (304) (1,424) - (0.11) (0.54) -
Cumulative effect of
an accounting change,
net of tax(c) - 34 - - 0.01 -
Adjusted net income(d) $9,308 $15,405 (39.6)% $3.58 $5.88 (39.1)%
Effect of Capital
Markets unrealized
market valuation
(losses) on super
senior credit default
swaps, net of tax $(7,457) - - $(2.87) - -
Average shares
outstanding 2,598 2,623
----------------------------------------------------------------------
FOURTH QUARTER
(in millions, except per share data)
Per Diluted Share
------------------------
2007 2006 Change 2007 2006 Change
----------------------------------------------------------------------
Net income (loss) $(5,292) $3,439 - $(2.08) $1.31 -
Net realized
capital gains
(losses), net of
tax (1,713) 121 - (0.68) 0.04 -
Capital Markets
other-than-
temporary
impairments, net
of tax(a) (418) - - (0.16) - -
FAS 133 gains
(losses),
excluding net
realized capital
gains (losses),
net of tax(b) 37 (534) - 0.01 (0.20) -
Adjusted net income
(loss)(d) $(3,198) $3,852 - $(1.25) $1.47 -
Effect of Capital
Markets unrealized
market valuation
(losses) on super
senior credit
default swaps, net
of tax $(7,228) - - $(2.83) - -
Average shares
outstanding(e) 2,550 2,622
----------------------------------------------------------------------
(a) Represents Capital Markets other-than-temporary impairments on
securities available for sale reported in other income on AIG's
Consolidated Statement of Income and excluded from adjusted net
income (loss) on AIG's Statement of Segment Operations in both
the fourth quarter and twelve months of 2007.
(b) Represents the effect of hedging activities that did not qualify
for hedge accounting treatment under FAS 133, including the
related foreign exchange gains and losses. In the first quarter
of 2007, AIG began applying hedge accounting for certain
transactions, primarily in its Capital Markets operations. In the
second quarter of 2007, AGF and ILFC began applying hedge
accounting to most of their derivatives hedging interest rate and
foreign exchange risks associated with their floating rate and
foreign currency denominated borrowings.
(c) Represents the cumulative effect of an accounting change, net of
tax, related to FAS 123R "Share-Based Payment".
(d) Includes out of period adjustments detailed in note (h) on page
12.
(e) As a result of the loss reported in fourth quarter 2007, basic
shares outstanding were used for this period.
At December 31, 2007, AIG's consolidated assets were $1.061
trillion and shareholders' equity was $95.80 billion. Shareholders'
equity declined from September 30, 2007 due to the fourth quarter 2007
net loss and an additional $2.54 billion in after-tax unrealized
depreciation of investments reported in other comprehensive income.
Book value per share at December 31, 2007 was $37.87, including a
reduction of $0.36 per share related to payments of $912 million
advanced to repurchase shares. A significant portion of the decrease
in shareholders' equity during 2007 was the result of share purchases,
substantially all of which were funded from the issuance of hybrid
debt securities. These transactions replaced high cost common stock
with cost efficient hybrid securities, a substantial portion of which
is treated as equity capital by the rating agencies.
During the fourth quarter of 2007, AIG repurchased 21,257,364
shares of its common stock, bringing the total to 76,361,209 shares
repurchased for full year 2007. An additional 12,196,187 shares were
purchased through February 15, 2008, for a total of 88,557,396 shares
purchased since March 2007. AIG does not expect to purchase additional
shares for the foreseeable future, other than to meet commitments that
existed at December 31, 2007.
Commenting on full year and fourth quarter 2007 results, AIG
President and Chief Executive Officer Martin J. Sullivan said, "AIG's
results in 2007 were clearly unsatisfactory. This was a challenging
year in which the deterioration of both the U.S. residential mortgage
and credit markets significantly affected several of our operations
and investments. Following record performance through the first six
months of 2007, AIG experienced deteriorating results in its Mortgage
Guaranty and Consumer Finance businesses, unrealized market valuation
losses related to the AIGFP super senior credit default swap
portfolio, and increased markdowns and impairments in our investment
portfolios in the second half of the year, primarily in the fourth
quarter.
"Despite our reported results, a number of areas within AIG's
diversified portfolio of global businesses performed well in the
quarter. The underwriting results of the Domestic Brokerage Group and
Foreign General were excellent. Aircraft Leasing and Institutional
Asset Management reported strong operating income growth. The
underlying performance of our Life Insurance & Retirement Services
businesses provided further evidence that our continued focus on
multiple distribution initiatives to capitalize on our broad product
portfolio is gaining traction. Operating income growth in this
segment, however, was affected by unusual items in 2007 and 2006, as
well as by market volatility.
"During 2008, we expect the U.S. housing market to remain weak and
credit market uncertainty will likely persist. Continuing market
deterioration would cause AIG to report additional unrealized market
valuation losses and impairment charges. However, with a diverse
portfolio of global businesses, a strong capital base and outstanding
talent, AIG has the ability to absorb the current volatility while
committing the resources to grow and take advantage of opportunities.
We continue to invest in improvements in internal controls, processes,
systems and overall effectiveness and will continue to assign the
highest priority to remediation efforts over our material weakness in
internal control and oversight over the fair value valuation of
AIGFP's super senior credit default swap portfolio. At the same time,
we are looking to better leverage our significant scale, promote
efficiency and improve margins. We are confident AIG is pursuing the
right strategies, and has the global franchise and financial strength
to meet our performance goals and build long-term shareholder value."
GENERAL INSURANCE
General Insurance fourth quarter 2007 operating income before net
realized capital gains (losses) declined 15.8 percent to $2.11 billion
compared to the fourth quarter of 2006. Improved underwriting results
in the Domestic Brokerage Group and Foreign General were offset by a
$348 million operating loss in Mortgage Guaranty and a $184 million
operating loss in Personal Lines. Included within these results are
$175 million in losses and reinstatement premiums related to the
fourth quarter 2007 California wildfires. Fourth quarter 2007 General
Insurance net investment income declined 2.9 percent on lower
partnership and other investment income compared to the fourth quarter
of 2006.
Domestic Brokerage Group (DBG) fourth quarter 2007 operating
income was $1.66 billion, an increase of 14.1 percent compared to the
fourth quarter of 2006. Improved underwriting results reflect
favorable loss trends in recent accident years across most lines of
business. The fourth quarter 2007 combined ratio was 89.72 compared to
91.71 in the fourth quarter of 2006. Fourth quarter 2007 net premiums
written declined 4.3 percent to $5.65 billion compared to the fourth
quarter of 2006, primarily due to rate declines in property and most
casualty lines, partially offset by premium growth in risk management,
environmental and accident & health.
Personal Lines reported a $184 million operating loss in the
fourth quarter of 2007 compared to operating income of $79 million in
the fourth quarter of 2006. The decline in operating income was due to
losses and reinstatement premiums related to the California wildfires,
unfavorable loss reserve development in prior accident years,
primarily in agency auto, an increase in the current accident year
loss ratio and transaction and integration costs related to the
acquisition of the minority interest in 21st Century Insurance Group.
Strong Private Client Group premium growth was offset by declines in
the direct and agency auto segments.
United Guaranty Corporation (UGC) reported an operating loss of
$348 million in the fourth quarter of 2007, compared to operating
income of $27 million in the fourth quarter of 2006. Continued
deterioration in the U.S. housing market adversely affected losses
incurred in both the domestic first- and second-lien businesses.
Fourth quarter 2007 net premiums written increased 23.8 percent
compared to the fourth quarter of 2006. Strong growth in international
premiums was enhanced by UGC's entry into the Canadian market in the
first quarter of 2007.
Foreign General fourth quarter 2007 operating income increased 2.2
percent to $805 million compared to the fourth quarter of 2006.
Improved underwriting results were partially offset by a 22.5 percent
decline in net investment income, principally the result of lower
partnership income compared to strong fourth quarter 2006 returns. The
fourth quarter 2007 combined ratio increased to 89.56 from 87.74 in
the fourth quarter of 2006, primarily due to increases in the expense
ratio, which included costs for realigning certain entities,
principally in the U.K. Net premiums written increased 5.8 percent in
original currency compared to the fourth quarter of 2006, as primary
and excess casualty lines in the corporate sector and accident &
health in multiple regions contributed to the increase.
At December 31, 2007, General Insurance net loss and loss
adjustment reserves totaled $69.29 billion, a $6.66 billion increase
from December 31, 2006 and a $2.35 billion increase from September 30,
2007. This includes $317 million in reserves related to the fourth
quarter 2007 acquisition of WuBa. For full year 2007, net loss
development from prior accident years, excluding accretion of
discount, was favorable by approximately $656 million. The overall
favorable development in 2007 consisted of approximately $2.12 billion
of favorable development from accident years 2004 through 2006,
partially offset by approximately $1.47 billion of adverse development
from earlier accident years. Fourth quarter 2007 net loss development
from prior accident years, excluding accretion of discount, was
favorable by approximately $51 million. The overall favorable
development consisted of approximately $603 million of favorable
development from accident years 2004 through 2006, partially offset by
$552 million in adverse development from earlier accident years.
LIFE INSURANCE & RETIREMENT SERVICES
Life Insurance & Retirement Services fourth quarter 2007 operating
income before net realized capital gains (losses) increased 9.2
percent to $2.66 billion.
Fourth quarter 2007 Domestic Life Insurance operating income was
$348 million compared to $80 million in the fourth quarter of 2006,
reflecting growth in both life insurance in-force and payout annuity
reserves, as well as a favorable comparison in unusual items. The
increase in fourth quarter 2007 retail periodic premium sales of life
insurance reflects the improvement in universal life sales following
re-pricing and underwriting enhancements as well as continued growth
from new indexed universal life products. Operating income in the
fourth quarter of 2007 included expenses associated with SOP 05-1,
while fourth quarter 2006 operating income included charges
principally for the Superior National arbitration ruling and exiting
the financial institutions credit life business.
Fourth quarter 2007 Domestic Retirement Services operating income
declined 6.3 percent to $679 million compared to the fourth quarter of
2006. Fourth quarter 2007 operating income in this segment was
affected by changes in actuarial estimates, including deferred
acquisition cost (DAC) unlockings and refinements to estimates
resulting from actuarial valuation system enhancements and lower
aggregate net investment income, offset by lower DAC amortization due
to the effect of realized capital losses resulting from
other-than-temporary impairments. In group retirement products, the
increase in fourth quarter deposits combined with a decrease in
surrenders resulted in an increase in net flows from the fourth
quarter of 2006. Individual fixed annuity deposits declined compared
to the fourth quarter of 2006, but increased sequentially as a result
of favorable fourth quarter 2007 changes in the yield curve.
Individual fixed annuity surrenders in the fourth quarter of 2007
increased compared to the fourth quarter of 2006 due both to an
increasing number of policies coming out of their surrender charge
period and competition from bank deposit products.
Foreign Life Insurance & Retirement Services operating income was
$1.63 billion in the fourth quarter of 2007, essentially flat compared
to the fourth quarter of 2006, due to an unfavorable comparison in
unusual items compared to the fourth quarter of 2006. The quarter's
underlying results, however, reflect strong life insurance production,
higher annuity and investment-linked product assets under management
and increased net investment income from partnerships, unit investment
trusts and other investments and favorable foreign exchange
translation.
Fourth quarter 2007 premiums and other considerations in foreign
life insurance, personal accident & health and group products
experienced double digit increases compared to the fourth quarter of
2006. Personal accident growth in Europe and Korea was partially
offset by lower growth in Japan, particularly in the direct marketing
distribution channel. Group products reported increased sales and
renewals in credit, life and pension products in multiple regions. The
shift to investment-oriented products continues with strong growth in
single premium sales and first-year premiums in Asia and Europe,
offset by first-year premium decreases in Japan's life and personal
accident & health businesses.
Individual fixed annuity deposits in Japan declined compared to
the fourth quarter of 2006, though the strengthening of the yen in the
fourth quarter of 2007 helped increase sales sequentially. Individual
variable annuity production in Japan improved as products with
guaranteed living benefit features gained acceptance. Fourth quarter
2007 individual fixed annuity operating income benefited from lower
deferred acquisition cost amortization due to the effect of realized
capital losses resulting from other-than-temporary impairments.
Fourth quarter 2007 Foreign Life Insurance & Retirement Services
operating income was affected by a favorable change in actuarial
estimates, trading account losses related to certain U.K. variable
annuity products, an increase in incurred policyholder benefits
related to a closed block of Japanese business with guaranteed
benefits, and the adverse effect of SOP 05-1. Fourth quarter 2006
operating income included favorable net out of period adjustments
related to remediation activities.
FINANCIAL SERVICES
In the fourth quarter of 2007, Financial Services reported a
$10.25 billion operating loss, before net realized capital gains
(losses), an other-than-temporary impairment charge on AIGFP's
available for sale investment securities and the effect of
economically effective hedging activities that did not qualify for
hedge accounting treatment under FAS 133, compared to operating income
of $635 million in the fourth quarter of 2006.
Fourth Quarter 2007 Aircraft Leasing operating income was $248
million, a 51.2 percent increase compared to the fourth quarter of
2006. These excellent results reflect revenue growth from ILFC's
larger aircraft fleet, higher lease rates and utilization, moderate
increases in interest and depreciation expenses and lower income from
aircraft sales compared to the fourth quarter of 2006.
Capital Markets reported a $10.49 billion operating loss in the
fourth quarter of 2007, primarily due to $11.12 billion of unrealized
market valuation losses related to AIGFP's super senior credit default
swap portfolio. AIGFP experienced increased transaction flow in its
rate and currency products compared to the fourth quarter of 2006.
American General Finance, Inc. (AGF) reported operating income of
$9 million in the fourth quarter of 2007 compared to $157 million in
the fourth quarter of 2006. AGF experienced a sharp decline in
origination volume and higher warranty reserves in its mortgage
banking operation as well as an increase in the allowance for loan
losses, more than offsetting an increase in revenues from finance
receivables. While fourth quarter 2007 real estate charge-off and
delinquency ratios increased due to the maturation of the receivables
and market conditions, these measures remained below AGF's target
ranges.
AIG Consumer Finance Group, Inc. reported a fourth quarter 2007
operating loss of $18 million compared to operating income of $6
million in the fourth quarter of 2006. Revenue growth from higher
receivable balances was more than offset by higher expenses associated
with branch expansion and product promotion, especially in Poland,
Mexico and Argentina.
ASSET MANAGEMENT
Asset Management fourth quarter 2007 operating income before net
realized capital gains (losses) was $458 million, an 11.8 percent
decrease compared to the fourth quarter of 2006. The decrease in
operating income was primarily due to the continued run off of the
Guaranteed Investment Contract (GIC) business and lower partnership
income compared to the fourth quarter of 2006 in the GIC and Other
asset management lines. Institutional Asset Management operating
income increased 75.4 percent due to higher income from gains on real
estate sales, increased carried interest and increased fees associated
with the growth in client assets under management. These items were
partially offset by expenses related to expansion of marketing and
distribution capabilities and infrastructure enhancements.
OTHER OPERATIONS
Fourth quarter 2007 operating loss from Other Operations, before
net realized capital gains (losses) and consolidation and elimination
adjustments, was $400 million compared to a $414 million loss in the
fourth quarter of 2006. These results reflect higher interest expense
resulting from increased parent company borrowings offset by lower
unallocated corporate expenses.
Additional supplementary financial data, a presentation on AIG's
businesses with exposure to the current credit market disruption and
an update on AIG's Economic Capital Modeling Initiative are available
in the Investor Information section of www.aigcorporate.com.
A conference call for the investment community will be held
Friday, February 29, 2008 at 8:30 a.m. EST. The call will be broadcast
live on the Internet at www.aigwebcast.com. A replay will be archived
at the same URL through Friday, March 14, 2008.
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. It is possible that AIG's actual results and financial
condition may differ, possibly materially, from the anticipated
results and financial condition indicated in these projections and
statements. Factors that could cause AIG's actual results to differ,
possibly materially, from those in the specific projections and
statements are discussed in Item 1A. Risk Factors of AIG's Annual
Report on Form 10-K for the year ended December 31, 2007. AIG is not
under any obligation (and expressly disclaims any such obligations) 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), a world leader 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. 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, as well as the stock
exchanges in Paris 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 figures in accordance with
Regulation G are included within the relevant tables or in the Fourth
Quarter 2007 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 of performance, and out of
period adjustments are shown exclusive of realized capital gains
(losses), cumulative effect of an accounting change in 2006, the
effect of FIN 46(R), the effect of EITF 04-5, the effect of FAS 133
and the effect of catastrophe-related losses.
AIG excludes the effects of the 2006 accounting change, FIN 46(R)
and EITF 04-5, and the effect of hedging activities that did not
qualify for hedge accounting treatment under FAS 133, although they
are economically effective hedges, because AIG believes that excluding
these items permits investors to better assess the performance of the
underlying businesses. AIG believes that providing information in a
non-GAAP manner is more useful to investors and analysts. Likewise,
AIG excludes certain entities consolidated pursuant to FIN 46(R) or
EITF 04-5, including certain AIG managed partnerships, private equity
and real estate funds, where AIG does not in fact have the economic
interest that is presumed to be held by consolidation, because AIG
believes this presentation is more meaningful than the GAAP
presentation.
Although the investment of premiums to generate investment income
(or loss) and realized capital gains or losses 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 evaluate 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.
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 or permitted by insurance regulatory
authorities 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 Twelve Months Ended
December 31, December 31,
2007 2006(a) Change 2007 2006(a) Change
------------------ ------- ----------------- -------
General Insurance
Operations:
Net Premiums
Written $ 10,999 $10,753 2.3 % $47,067 $44,866 4.9 %
Net Premiums
Earned 11,667 11,086 5.2 45,682 43,451 5.1
Underwriting
Profit 563 911 (38.2) 4,500 4,657 (3.4)
Net Investment
Income 1,547 1,594 (2.9) 6,132 5,696 7.7
Income before
Net Realized
Capital Gains
(Losses) 2,110 2,505 (15.8) 10,632 10,353 2.7
Net Realized
Capital Gains
(Losses)(b) (95) 88 - (106) 59 -
Operating
Income $ 2,015 $ 2,593 (22.3)% $10,526 $10,412 1.1 %
----------------------------------------------------------------------
Loss Ratio 69.70 65.79 65.63 64.56
Expense Ratio 26.93 25.90 24.70 24.50
Combined Ratio 96.63 91.69 90.33 89.06
----------------------------------------------------------------------
Life Insurance &
Retirement
Services
Operations:
Premiums and
Other
Considerations $ 8,732 $ 7,645 14.2 % $33,627 $30,766 9.3 %
Net Investment
Income 5,873 5,725 2.6 22,341 20,024 11.6
Income before
Net Realized
Capital Gains
(Losses) 2,658 2,433 9.2 10,584 10,033 5.5
Net Realized
Capital Gains
(Losses)(b) (1,372) 205 - (2,398) 88 -
Operating
Income 1,286 2,638 (51.3) 8,186 10,121 (19.1)
Financial
Services
Operations:
Operating
Income (Loss)
excluding FAS
133, Net
Realized
Capital Gains
(Losses) and
Capital
Markets Other-
Than-Temporary
Impairments(c) (10,246) 635 - (8,983) 2,338 -
FAS 133(b) 396 (764) - 211 (1,822) -
Net Realized
Capital Gains
(Losses)(b) (30) (29) - (100) (133) -
Capital Markets
Other-Than-
Temporary
Impairments(d) (643) - - (643) - -
Operating
Income (Loss) (10,523) (158) - (9,515) 383 -
Asset Management
Operations:
Operating
Income before
Net Realized
Capital Gains
(Losses) 458 519 (11.8)% 2,164 1,663 30.1
Net Realized
Capital Gains
(Losses)(b) (1,100) (16) - (1,000) (125) -
Operating
Income (Loss) (642) 503 - 1,164 1,538 (24.3)
Other before Net
Realized Capital
Gains (Losses) (400) (414) - (1,731) (1,398) -
Other Net
Realized Capital
Gains
(Losses)(b) (183) (68) - (409) (37) -
Consolidation and
Elimination
Adjustments(b)(e) 11 258 - 722 668 -
Income (Loss)
before Income
Taxes
(Benefits),
Minority
Interest and
Cumulative
Effect of an
Accounting
Change (8,436) 5,352 - 8,943 21,687 (58.8)
Income Taxes
(Benefits) (3,413) 1,471 - 1,455 6,537 (77.7)
Income (Loss)
before Minority
Interest and
Cumulative
Effect of an
Accounting
Change (5,023) 3,881 - 7,488 15,150 (50.6)
Minority
Interest, after-
tax:
Income before
Net Realized
Capital Gains
(Losses) (267) (439) - (1,272) (1,117) -
Net Realized
Capital Gains
(Losses) (2) (3) - (16) (19) -
Income (Loss)
before
Cumulative
Effect of an
Accounting
Change (5,292) 3,439 - 6,200 14,014 (55.8)
Cumulative Effect
of an Accounting
Change, net of
tax(f) - - - - 34 -
Net Income
(Loss)(g) $ (5,292) $ 3,439 - $ 6,200 $14,048 (55.9)%
Financial Highlights
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006(a) Change 2007 2006(a) Change
------------------ ------- ----------------- -------
Net Income
(Loss)(g) $ (5,292) $ 3,439 - $ 6,200 $14,048 (55.9)%
Net Realized
Capital Gains
(Losses), net
of tax (1,713) 121 - (2,386) 33 -
Capital Markets
Other-Than-
Temporary
Impairments,
net of tax(d) (418) - - (418) - -
FAS 133 Gains
(Losses),
excluding Net
Realized
Capital Gains
(Losses), net
of tax 37 (534) - (304) (1,424) -
Cumulative
Effect of an
Accounting
Change, net of
tax(f) - - - - 34 -
-------- ------- ------- -------
Adjusted Net
Income (Loss)(h) (3,198) 3,852 - 9,308 15,405 (39.6)
-------- ------- ------- -------
Effect of Capital
Markets
Unrealized
Market Valuation
(Losses) on
Super Senior
Credit Default
Swaps, net of
tax(c) (7,228) - - (7,457) - -
Earnings Per
Share - Diluted:
Net Income
(Loss)(g) (2.08) 1.31 - 2.39 5.36 (55.4)
Net Realized
Capital Gains
(Losses), net
of tax (0.68) 0.04 - (0.92) 0.01 -
Capital Markets
Other-Than-
Temporary
Impairments,
net of tax(d) (0.16) - - (0.16) - -
FAS 133 Gains
(Losses),
excluding Net
Realized
Capital Gains
(Losses), net
of tax 0.01 (0.20) - (0.11) (0.54) -
Cumulative
Effect of an
Accounting
Change, net of
tax(f) - - - - 0.01 -
-------- ------- ------- -------
Adjusted Net
Income (Loss)(h) (1.25) $ 1.47 - 3.58 5.88 (39.1)
-------- ------- ------- -------
Effect of Capital
Markets
Unrealized
Market Valuation
(Losses) on
Super Senior
Credit Default
Swaps, net of
tax(c) $ (2.83) - - (2.87) - -
Book Value Per
Share $ 37.87 $ 39.09 (3.1)%
Average Diluted
Common Shares
Outstanding(i) 2,550 2,622 2,598 2,623
(See accompanying Notes on Page 12)
Financial Highlights - Notes
* Including reconciliation in accordance with Regulation G.
(a) Certain amounts have been reclassified in 2006 to conform to the
2007 presentation.
(b) Includes gains (losses) from hedging activities that did not
qualify for hedge accounting treatment under FAS 133 "Accounting
for Derivative Instruments and Hedging Activities", including the
related foreign exchange gains and losses. In the first quarter
of 2007, AIG began applying hedge accounting for certain
transactions, primarily in its Capital Markets operations. In the
second quarter of 2007, AGF and ILFC began applying hedge
accounting to most of their derivatives hedging interest rate and
foreign exchange risks associated with their floating rate and
foreign currency denominated borrowings.
(c) Includes $11.12 billion and $11.47 billion of net unrealized
market valuation losses on Capital Markets' super senior credit
default swap portfolio in the fourth quarter and twelve months of
2007, respectively.
(d) Represents Capital Markets other-than-temporary impairments on
securities available for sale reported in other income on AIG's
Consolidated Statement of Income and excluded from adjusted net
income (loss) on AIG's Statement of Segment Operations in both
the fourth quarter and twelve months of 2007.
(e) Includes income from certain AIG managed partnerships, private
equity and real estate funds that are consolidated. Such income
is offset in minority interest expense, which is not a component
of operating income.
(f) Represents the cumulative effect of an accounting change, net of
tax, related to FAS 123R "Share-Based Payment".
(g) In the fourth quarter and twelve months of 2007 and 2006, net
income (loss) includes out of period increases (decreases) as
follows:
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
--------- --------- --------- ---------
To reverse net gains on
transfers of available for
sale securities among legal
entities consolidated
within AIGFP $ - $ - $ (247) $ -
Swap income adjustment -
AIGFP (33) - - 87
Net realized capital gains
relating to foreign
exchange 38 - 125 18
Derivative transactions
under FAS 133 39 - (12) (145)
Income tax remediation (100) 181 (156) (58)
Singapore par fund tax
recovery - 124 - 141
Unit investment trusts - 16 - 428
Other, primarily remediation
activities 58 (265) (109) (406)
-------- -------- -------- --------
Total 2 56 (399) 65
-------- -------- -------- --------
Effect on Diluted Earnings
Per Share(i) $ - $ 0.02 $ (0.15) $ 0.02
-------- -------- -------- --------
(h) In the fourth quarter and twelve months of 2007 and 2006, adjusted
net income (loss) includes out of period increases (decreases) as
follows:
Income tax remediation $ (100) $ 181 $ (156) $ (58)
Singapore par fund tax
recovery - 124 - 141
Unit investment trusts - 16 - 428
Other, primarily remediation
activities 58 (254) (105) (426)
--------- --------- --------- ---------
Total (42) 67 (261) 85
--------- --------- --------- ---------
Effect on Diluted Earnings
Per Share(i) $ (0.02) $ 0.03 $ (0.10) $ 0.03
--------- --------- --------- ---------
(i) As a result of the loss reported in fourth quarter 2007, basic
shares outstanding were used for this period.
