2007 Annual Report - AIG.com

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