2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations Continued Japan and Other Results Japan and Other results on a sub-product basis for 2007, 2006 and 2005 were as follows: Premiums and Net Net Realized Other Investment Capital Gains Total Operating (in millions) Considerations Income (Losses) Revenues Income 2007 Life insurance $ 4,999 $2,113 $ (92) $ 7,020 $1,193 Personal accident 4,225 204 (1) 4,428 1,071 Group products 2,318 626 1 2,945 250 Individual fixed annuities 386 2,160 (181) 2,365 500 Individual variable annuities 459 980 (21) 1,418 30 Total $12,387 $6,083 $(294) $18,176 $3,044 2006 Life insurance (a) $ 4,783 $1,749 $ 316 $ 6,848 $1,731 Personal accident 3,957 162 49 4,168 1,122 Group products 1,740 541 13 2,294 272 Individual fixed annuities 337 1,930 28 2,295 553 Individual variable annuities 289 857 — 1,146 143 Total $11,106 $5,239 $ 406 $16,751 $3,821 2005 Life insurance $ 4,864 $1,828 $ (52) $ 6,640 $1,288 Personal accident 3,788 137 (15) 3,910 1,051 Group products 1,473 535 (34) 1,974 191 Individual fixed annuities 292 1,672 29 1,993 390 Individual variable annuities 186 1,234 — 1,420 100 Total $10,603 $5,406 $ (72) $15,937 $3,020 Percentage Increase/(Decrease) 2007 vs. 2006: Life insurance 5% 21% —% 3% (31)% Personal accident 7 26 — 6 (5) Group products 33 16 (92) 28 (8) Individual fixed annuities 15 12 — 3 (10) Individual variable annuities 59 14 — 24 (79) Total 12% 16% —% 9% (20)% Percentage Increase/(Decrease) 2006 vs. 2005: Life insurance (2)% (4)% —% 3% 34% Personal accident 4 18 — 7 7 Group products 18 1 — 16 42 Individual fixed annuities 15 15 (3) 15 42 Individual variable annuities 55 (31) — (19) 43 Total 5% (3)% —% 5% 27% (a) Includes the effect of an out of period UCITS adjustment in 2006, which increased both net investment income and operating income by $29 million. 2007 and 2006 Comparison estimates, trading account losses of $150 million in the U.K. associated with certain investment-linked products, $67 million of Total revenues for Japan and Other in 2007 increased compared additional claim expense related to the industry wide regulatory to 2006, primarily due to higher premiums and other considerareview of claims in Japan and increased incurred policyholder tions and net investment income partially offset by net realized benefits of $36 million related to a closed block of Japanese capital losses. Net investment income increased in 2007 combusiness with guaranteed benefits. These decreases were partially pared to 2006 due to higher levels of assets under management offset by the positive effect of foreign exchange rates. and higher policyholder trading gains partially offset by lower Life insurance premiums and other considerations increased partnership and mutual fund income. Operating income decreased moderately in 2007 compared to 2006. In Japan, single premium in 2007 compared to 2006 due principally to net realized capital sales of U.S. dollar denominated interest sensitive whole life losses, a $187 million charge related to changes in actuarial 66 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries products remained strong. First year premium sales declined, surrender charges from U.S. dollar products in Japan where a however, due to the suspension in April 2007 of increasing term weak Japanese Yen makes it attractive for certain policyholders to products pending completion of an industry wide review by the lock-in foreign exchange gains in excess of surrender charges. National Tax Authority. Although the review was completed with the Surrender charges were $151 million and $98 million in 2007 issue of a draft paper for comment in December 2007, the and 2006, respectively. Net investment income increased due to product remains suspended pending finalization of the report. In higher average investment yields and higher levels of assets Europe, growth in premiums and other considerations was driven under management. Operating income declined in 2007 compared by the growing block of U.K. single premium investment-oriented to 2006 due to realized capital losses in 2007 versus realized products and the positive effect of foreign exchange rates. The capital gains in 2006. growth in net investment income was due to growth in underlying Individual variable annuity deposits in 2007 declined compared invested assets and higher partnership income. Life insurance to 2006 due to the effect of tax law changes in Europe that operating income declined in 2007 compared to 2006 due to net reduced tax benefits to policyholders, and lower sales in Japan realized capital losses, compared to net realized capital gains in due to increased competition and the introduction of a new law 2006. In addition, 2007 operating income was negatively affected that increased sales compliance and customer suitability requireby a $115 million charge related to changes in actuarial ments. Variable annuity sales in Japan began to improve in the estimates, higher incurred policyholder benefits of $36 million fourth quarter of 2007 as a new product, launched mid-year in related to a closed block of Japanese business with guaranteed 2007, gained acceptance and banks became more comfortable benefits and $23 million of additional claim expense related to with the new law. The fees generated from the higher levels of the claims review in Japan. Operating income in 2006 included assets under management increased premiums and other considthe effect of an out of period UCITS adjustment, which increased erations in 2007 compared to 2006. Net investment income both net investment income and operating income by $29 million. increased due to higher policyholder trading gains in 2007 Personal accident premiums and other considerations grew compared to 2006. Operating income declined in 2007 compared modestly as strong growth in Europe was offset by lower growth in to 2006 primarily due to $150 million of trading account losses Japan, particularly from the direct marketing distribution channel. on certain investment-linked products in the U.K. and net realized Net investment income increased in 2007 compared to 2006 capital losses. primarily due to growth in invested assets. Operating income declined in 2007 compared to 2006 due to a net realized capital 2006 and 2005 Comparison loss, a $42 million charge related to changes in actuarial Total revenues for Japan and Other increased in 2006 compared estimates, $42 million of additional claim expense related to the to 2005. Premiums and other considerations growth rates were claims review in Japan and $20 million of additional expenses dampened by the effect of foreign exchange, most notably by the related to SOP 05-1. weakening of the Japanese Yen. Net investment income in 2006 Group products premiums and other considerations in 2007 declined compared to 2005 due to lower policyholder trading increased significantly compared to 2006 primarily due to the gains in the individual variable annuity line. Total revenues in growing credit business in Europe. Net investment income 2006 increased compared to 2005 due to realized capital gains increased in 2007 compared to 2006, primarily due to higher relating primarily to derivative instruments for transactions that did assets under management related to the Brazil pension business. not qualify for hedge accounting treatment under FAS 133. Operating income in 2007 declined compared to 2006 primarily Operating income in 2006 increased compared to 2005 due to due to $19 million of additional expenses related to SOP 05-1 growth in the underlying retirement services businesses and and lower net realized capital gains. realized capital gains of $406 million. Operating income in 2006 Individual fixed annuity deposits improved in 2007 primarily included the effect of an out of period UCITS adjustment which due to sales in the U.K. and were partially offset by declining increased net investment income and operating income by sales in Japan due to the effect of a weak Japanese Yen for most $32 million. Operating income in 2006 was negatively affected by of the year as well as the market shift to variable annuity the weakening of the Japanese Yen against the U.S. dollar and products. Assets under management, however, continued to grow. the continued runoff of the older, higher margin in-force busi- Individual fixed annuities premiums and other considerations nesses of AIG Star Life and AIG Edison Life. growth reflects a shift to front-end load products and higher AIG 2007 Form 10-K 67
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AMERICAN INTERNATIONAL GROUP, INC.
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FINANCIAL HIGHLIGHTS (in millions,
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overall financial condition, althou
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Group Executive Committee We are ad
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AIG’s life insurance network is t
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We have also begun to address the e
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WHAT WE SEE The ability to see and
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The Major Accounts Practice within
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Around the world, the middle class
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WE SEE GROWTH OPPORTUNITIES IN EMER
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To grow the strength of the AIG glo
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Since 2003, the AIG Disaster Relief
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RESPECT Respect encompasses how we
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Life Insurance & Retirement Service
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Domestic Brokerage Group— Gross P
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In the summer of 2007, widespread f
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in gross premiums written. It launc
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It grew new business premiums from
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emerging markets for its services,
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ILFC—Revenues by Region Total = $
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AIG Investments acquired a 94 perce
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and changing interest rates, as wel
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American International Group, Inc.
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UNITED STATES SECURITIES AND EXCHAN
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Index of Notes to Consolidated Fina
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SHAREHOLDER INFORMATION Corporate H
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