2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
Premiums and Net Net Realized Operating
Other Investment Capital Gains Total Income
(in millions) Considerations Income (Losses) Revenues (Loss)
2005
Life insurance $ 2,041 $ 1,352 $ 98 $ 3,491 $ 874
Home service 801 605 (2) 1,404 282
Group life/health 1,079 201 (1) 1,279 69
Payout annuities (a) 1,473 912 (34) 2,351 128
Individual fixed and runoff annuities 53 663 (26) 690 142
Total $ 5,447 $ 3,733 $ 35 $ 9,215 $ 1,495
Percentage Increase/(Decrease) 2007 vs. 2006:
Life insurance 11% 11% —% (4)% (65)%
Home service (3) 2 — (5) (23)
Group life/health (15) (6) — (15) —
Payout annuities 15 15 — 15 (3)
Individual fixed and runoff annuities 12 (14) — (13) (8)
Total 5% 6% —% (1)% (30)%
Percentage Increase/(Decrease) 2006 vs. 2005:
Life insurance 4% 2% —% (2)% (25)%
Home service (1) 4 — (2) —
Group life/health (8) 6 — (6) —
Payout annuities 7 10 — 8 (41)
Individual fixed and runoff annuities (8) (16) — (18) (55)
Total 2% 1% —% (1)% (39)%
(a) Premiums and other considerations include structured settlements, single premium immediate annuities and terminal funding annuities.
2007 and 2006 Comparison benefits due to additional reinsurance recoveries associated with
Superior National.
Total Domestic Life Insurance revenues in 2007 decreased
Life insurance premiums and other considerations increased in
compared to 2006 primarily due to higher net realized capital
2007 compared to 2006 driven by growth in life insurance
losses, partially offset by higher premiums and other considerabusiness
in force and increased policyholder charges related to
tions and net investment income. Domestic Life Insurance
universal life and whole life products. Net investment income in
premiums and other considerations increased in 2007 compared
2007 compared to 2006 increased due to higher partnership
to 2006 primarily due to the growth in life insurance business in
income, higher call and tender income and positive changes from
force and payout annuity premiums, which were partially offset by
foreign denominated emerging market bonds. Life insurance
a decline in group life/health premiums due to exiting the financial
operating income decreased in 2007 compared to 2006 primarily
institutions credit life business at the end of 2006. Domestic Life
due to higher net realized capital losses and higher mortality in
Insurance operating income decreased in 2007 compared to
2007, although mortality is still within expected ranges. In
2006, primarily due to higher net realized capital losses which
addition, operating income in 2007 included a $25 million
consisted of losses related to sales of securities, other-thanincrease
in reserves related to changes in actuarial estimates and
temporary impairment writedowns of fixed income securities as
an $11 million increase in DAC amortization related to SOP 05-1.
well as derivative losses. The higher net realized capital losses in
Home service premiums and other considerations declined in
2007 were partially offset by increases in premiums and other
2007 compared to 2006 as the reduction in premiums in force
considerations and net investment income, and an improvement
from normal lapses and maturities exceeded sales growth. Net
in group life/health results compared to 2006, which included a
investment income in 2007 increased slightly compared to 2006
$125 million charge related to the Superior National workers
due to higher partnership income and positive changes from
compensation arbitration, a $66 million loss related to the exit
foreign denominated emerging market bonds. Home service
from the financial institutions credit life business and a $55 miloperating
income decreased largely due to higher net realized
lion charge related to litigation reserves. Changes in actuarial
capital losses and an $11 million increase in DAC amortization
estimates, including DAC unlockings and refinements in estimates
related to SOP 05-1, partially offset by continued improvement in
resulting from actuarial valuation system enhancements, resulted
profit margins.
in a net decrease in operating income of $52 million in 2007.
Group life/health premiums and other considerations in 2007
Operating income in 2007 was also negatively affected by a
declined compared to 2006, primarily due to the exit from the
$67 million increase in DAC amortization related to SOP 05-1,
financial institutions credit life business at the end of 2006 and
which was partially offset by a $52 million decrease in policy
tightened pricing and underwriting in the group employer product
70 AIG 2007 Form 10-K