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 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
American International Group, Inc. and Subsidiaries lines. Group life/health operating income increased in 2007 $30 million of increased amortization due to DAC unlocking to compared to 2006. Operating income in 2007 included a reflect lower in-force amounts. $52 million decrease in policy benefits from additional reinsurance recoveries associated with Superior National, offset by an in- 2006 and 2005 Comparison crease of $45 million in DAC amortization related to SOP 05-1. Premiums and other considerations for Domestic Life Insurance The operating loss in 2006 included a $125 million charge increased in 2006 compared to 2005 and were primarily driven by resulting from the loss of the Superior National arbitration, a growth in the life insurance business in-force and payout annuity $66 million loss related to exiting the financial institutions credit premiums, partially offset by declining in-force business in the business and a $25 million charge for litigation reserves. home service and group life/health lines. Domestic Life Insurance Payout annuities premiums and other considerations increased operating income declined in 2006 compared to 2005 due to net in 2007 compared to 2006 reflecting increased sales of strucrealized capital losses and several significant transactions detured settlements and terminal funding annuities. Net investment scribed below in 2006, partially offset by continued growth in life income increased in 2007 reflecting growth in insurance reserves insurance and payout annuity business. Operating income in 2006 and an increase in call and tender income on fixed income included a $125 million charge resulting from the loss of the securities. Payout annuities operating income decreased slightly in Superior National arbitration and a $66 million loss related to 2007 as growth in the business was more than offset by higher exiting the financial institutions credit business both within the net realized capital losses and by a $30 million out of period group life/health business. In addition, Domestic Life Insurance adjustment to increase group annuity reserves for payout annuioperating income was negatively affected by $55 million in ties. Operating income in 2006 included a $24 million increase in litigation accruals, an increase in reserves of $24 million related reserves as various methodologies and assumptions were ento various methodologies and assumptions which were enhanced hanced for payout annuity reserves. in the payout annuity business and a DAC unlocking charge of Individual fixed and runoff annuities net investment income and $30 million in the individual fixed and runoff annuities line to operating income decreased in 2007 compared to 2006 reflecting reflect lower in-force amounts. declining insurance reserves. Operating income in 2006 included The following table reflects Domestic Life Insurance periodic premium sales by product for 2007, 2006 and 2005: Percentage Increase/(Decrease) (in millions) 2007 2006 2005 2007 vs. 2006 2006 vs. 2005 Periodic Premium Sales By Product*: Universal life $230 $334 $271 (31)% 23% Variable universal life 55 56 44 (2) 27 Term life 219 240 229 (9) 5 Whole life/other 9 13 10 (31) 30 Total $513 $643 $554 (20)% 16% * Periodic premium represents premium from new business expected to be collected over a one-year period. 2007 and 2006 Comparison 2006 and 2005 Comparison Domestic Life Insurance periodic premium sales declined in Domestic Life Insurance periodic premium sales increased in 2007 compared to 2006 primarily as a result of the repricing of 2006 compared to 2005 primarily reflecting growth in the certain universal life and term products and the tightening of independent distribution platform. During the second half of 2006, underwriting standards during the second half of 2006. In the certain universal life products were re-priced and underwriting second half of 2007, AIG experienced positive sales growth in standards were tightened. indexed universal life products and the sale of a large private placement variable universal life case. AIG 2007 Form 10-K 71
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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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