2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries RECONCILIATION IN ACCORDANCE WITH REGULATION G Regulation G, promulgated by the Securities and Exchange Commission, requires a reconciliation of each non-GAAP financial measure used in this Annual Report to the comparable GAAP figure. Such reconciliations are set forth below, in the Five Year Summary of Consolidated Operations on page 43 and throughout this Annual Report. 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. (in millions, except ratios) Years Ended December 31, 2007 2006 2005 General Insurance revenues: Net premiums earned $ 45,682 $ 43,451 $ 40,809 Net investment income 6,132 5,696 4,031 Net realized capital gains (losses) (106) 59 334 Total $ 51,708 $ 49,206 $ 45,174 General Insurance operating income $ 10,526 $ 10,412 $ 2,315 Net realized capital gains (losses) (106) 59 334 General Insurance operating income excluding net realized capital gains (losses) 10,632 10,353 1,981 Current year catastrophe-related losses (276) — (2,888) Change in estimate for asbestos and environmental reserves — (198) (873) Reserve charge — — (1,824) General Insurance operating income excluding net realized capital gains (losses), current year catastrophe-related losses, change in estimate for asbestos and environmental reserves, and reserve charge $ 10,908 $ 10,551 $ 7,566 General Insurance combined ratio 90.33 89.06 104.69 Current year catastrophe-related losses 0.60 — 7.06 Change in estimate for asbestos and environmental reserves — 0.46 2.14 Reserve charge — — 4.47 General Insurance combined ratio, excluding current year catastrophe-related losses, change in estimate for asbestos and environmental reserves, and reserve charge 89.73 88.60 91.02 Life Insurance & Retirement Services revenues: Premiums and other considerations $ 33,627 $ 30,766 $ 29,501 Net investment income 22,341 20,024 18,677 Net realized capital gains (losses) (2,398) 88 (158) Total $ 53,570 $ 50,878 $ 48,020 Life Insurance & Retirement Services premiums: Premiums and other considerations $ 33,627 $ 30,766 $ 29,501 Deposits and other considerations not included in revenues under GAAP 59,103 50,241 46,221 Premiums, deposits and other considerations $ 92,730 $ 81,007 $ 75,722 Life Insurance & Retirement Services operating income $ 8,186 $ 10,121 $ 8,965 Net realized capital gains (losses) (2,398) 88 (158) Life Insurance & Retirement Services operating income excluding net realized capital gains (losses) $ 10,584 $ 10,033 $ 9,123 Financial Services operating income (loss) $ (9,515) $ 383 $ 4,424 Net realized capital gains (losses) and Capital Markets other-than-temporary impairments (743) (133) 154 FAS 133 gains (losses) 211 (1,822) 2,014 Financial Services operating income (loss) excluding FAS 133 gains (losses), net realized capital gains (losses) and Capital Markets other-than-temporary impairments $ (8,983) $ 2,338 $ 2,256 Asset Management operating income $ 1,164 $ 1,538 $ 1,963 Net realized capital gains (losses) (1,000) (125) 82 Asset Management operating income before net realized capital gains (losses) $ 2,164 $ 1,663 $ 1,881 Consolidated: Net income $ 6,200 $ 14,048 $ 10,477 Net realized capital gains (losses) and Capital Markets other-than-temporary impairment, net of tax (2,804) 33 201 FAS 133 gains (losses), excluding net realized capital gains (losses), net of tax (304) (1,424) 1,530 Cumulative effect of accounting changes, net of tax — 34 — Adjusted net income $ 9,308 $ 15,405 $ 8,746 42 AIG 2007 Annual Report
American International Group, Inc. and Subsidiaries FIVE YEAR SUMMARY OF CONSOLIDATED OPERATIONS * Compound Annual (in millions) Growth Rate Years Ended December 31, 2007 2006 (a) 2005 (a) 2004 (a) 2003 (a) 2003–2007 General Insurance operations: Gross premiums written $ 58,798 $ 56,280 $ 52,725 $ 52,046 $ 46,938 5.8% Net premiums written 47,067 44,866 41,872 40,623 35,031 7.7 Net premiums earned 45,682 43,451 40,809 38,537 31,306 9.9 Underwriting profit (loss) (b)(c) 4,500 4,657 (2,050) (247) 1,975 22.9 Net investment income (d) 6,132 5,696 4,031 3,196 2,566 24.3 Operating income before net realized capital gains (losses) 10,632 10,353 1,981 2,949 4,541 23.7 Net realized capital gains (losses) (106) 59 334 228 (39) — General Insurance operating income (b)(c)(d) 10,526 10,412 2,315 3,177 4,502 23.7 Life Insurance & Retirement Services operations: Premiums and other considerations 33,627 30,766 29,501 28,167 23,568 9.3 Net investment income (d) 22,341 20,024 18,677 15,654 13,278 13.9 Operating income before net realized capital gains (losses) 10,584 10,033 9,123 7,923 6,608 12.5 Net realized capital gains (losses) (e) (2,398) 88 (158) 45 362 — Life Insurance & Retirement Services operating income (d)(e) 8,186 10,121 8,965 7,968 6,970 4.1 Financial Services operating income (loss), excluding net realized capital gains (losses) (f)(g) (8,983) 2,338 2,256 2,298 2,189 — FAS 133 gains (losses) 211 (1,822) 2,014 (122) (1,010) — Net realized capital gains (losses) (100) (133) 154 (45) 123 — Capital Markets other-than-temporary impairments (643) — — — — — Financial Services operating income (loss) (f)(g) (9,515) 383 4,424 2,131 1,302 — Asset Management operating income, excluding net realized capital gains (losses) 2,164 1,663 1,881 1,887 1,275 14.1 Net realized capital gains (losses) (1,000) (125) 82 60 (754) 7.3 Asset Management operating income 1,164 1,538 1,963 1,947 521 22.3 Other Operations before net realized capital gains (losses) (h) (1,731) (1,398) (3,034) (651) (915) — Other Operations net realized capital gains (losses) (409) (37) 269 78 (473) — Consolidation and elimination adjustments 722 668 311 195 — — Income before income taxes, minority interest and cumulative effect of accounting changes (d)(i) 8,943 21,687 15,213 14,845 11,907 (6.9) Income taxes 1,455 6,537 4,258 4,407 3,556 — Income before minority interest and cumulative effect of accounting changes 7,488 15,150 10,955 10,438 8,351 (2.7) Minority interest (1,288) (1,136) (478) (455) (252) — Cumulative effect of accounting changes — 34 — (144) 9 — Net income $ 6,200 $ 14,048 $ 10,477 $ 9,839 $ 8,108 (6.5)% * Includes reconciliation of certain non-GAAP financial measures in accordance with SEC Regulation G. (a) Certain reclassifications have been made to prior period amounts to conform to the current period presentation. (b)Includes current year catastrophe-related losses of $276 million, $2.89 billion and $1.05 billion in 2007, 2005 and 2004, respectively. There were no significant catastropherelated losses in 2006 or 2003. (c) Operating income was reduced by fourth quarter charges of $1.8 billion and $850 million in 2005 and 2004, respectively, resulting from the annual review of General Insurance reserves. In 2006, 2005 and 2004, changes in estimates for asbestos and environmental reserves were $198 million, $873 million and $850 million, respectively. (d) In 2006, includes effect of out of period adjustments related to the accounting for certain interests in UCITS. The effect was an increase of $490 million in operating income for General Insurance and an increase of $169 million in operating income for Life Insurance & Retirement Services. (e) In 2007, 2006, 2005, 2004 and 2003, includes other-than-temporary impairment charges of $2.8 billion, $641 million, $425 million, $441 million and $1.2 billion, respectively. (f) These amounts result primarily from interest rate and foreign currency derivatives that are effective economic hedges of investments and borrowings. These gains (losses) in 2007 include a $380 million out of period charge to reverse net gains recognized on transfers of available-for-sale securities among legal entities consolidated within AIGFP. In 2006, includes an out of period charge of $223 million related to the remediation of the material weakness in internal control over the accounting for certain derivative transactions under FAS 133. In the first quarter of 2007, AIGFP began applying hedge accounting for certain of its interest rate swaps and foreign currency forward contracts, hedging its investments and borrowings. (g) In 2007, includes an unrealized market valuation loss of $11.5 billion on AIGFP’s super senior credit default swap portfolio. (h) In 2005, includes $1.6 billion of regulatory settlement costs. (i) In 2007, 2006, 2005, 2004 and 2003, includes other-than-temporary impairment charges of $4.7 billion, $944 million, $598 million, $684 million and $1.5 billion, respectively. Also includes gains (losses) from hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. In 2007, 2006, 2005, 2004 and 2003, the effect was $(1.44) billion, $(1.87) billion, $2.02 billion, $671 million and $(1.22) billion in operating income, respectively. These amounts result primarily from interest rate and foreign currency derivatives that are effective economic hedges of investments and borrowings. AIG 2007 Annual Report 43
Page 1 and 2: AMERICAN INTERNATIONAL GROUP, INC.
Page 3 and 4: FINANCIAL HIGHLIGHTS (in millions,
Page 5 and 6: overall financial condition, althou
Page 7 and 8: Group Executive Committee We are ad
Page 9 and 10: AIG’s life insurance network is t
Page 11 and 12: We have also begun to address the e
Page 13 and 14: WHAT WE SEE The ability to see and
Page 15 and 16: The Major Accounts Practice within
Page 17 and 18: Around the world, the middle class
Page 19 and 20: WE SEE GROWTH OPPORTUNITIES IN EMER
Page 21 and 22: To grow the strength of the AIG glo
Page 23 and 24: Since 2003, the AIG Disaster Relief
Page 25 and 26: RESPECT Respect encompasses how we
Page 27 and 28: Life Insurance & Retirement Service
Page 29 and 30: Domestic Brokerage Group— Gross P
Page 31 and 32: In the summer of 2007, widespread f
Page 33 and 34: in gross premiums written. It launc
Page 35 and 36: It grew new business premiums from
Page 37 and 38: emerging markets for its services,
Page 39 and 40: ILFC—Revenues by Region Total = $
Page 41 and 42: AIG Investments acquired a 94 perce
Page 43: and changing interest rates, as wel
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Page 55 and 56: UNITED STATES SECURITIES AND EXCHAN
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