2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Domestic
Foreign
Brokerage Personal Mortgage General Reclassifications
(in millions) Group Transatlantic Lines Guaranty Insurance and Eliminations Total
2007:
Statutory underwriting profit (loss) $ 3,404 $ 165 $(191) $(849) $1,544 $ — $ 4,073
Increase in DAC 97 17 29 57 227 — 427
Net investment income 3,879 470 231 158 1,388 6 6,132
Net realized capital gains (losses) (75) 9 (2) (3) (22) (13) (106)
Operating income (loss) $ 7,305 $ 661 $ 67 $(637) $3,137 $ (7) $10,526
2006:
Statutory underwriting profit (loss) $ 2,322 $ 129 $ 204 $ 188 $1,565 $ — $ 4,408
Increase in DAC 14 14 2 3 216 — 249
Net investment income 3,411 435 225 140 1,484 1 5,696
Net realized capital gains (losses) 98 11 1 (3) (37) (11) 59
Operating income (loss) $ 5,845 $ 589 $ 432 $ 328 $3,228 $(10) $10,412
2005:
Statutory underwriting profit (loss) $(3,403) $(434) $ (38) $ 249 $1,461 $ — $ (2,165)
Increase (decrease) in DAC (21) 14 19 (8) 111 — 115
Net investment income 2,403 343 217 123 944 1 4,031
Net realized capital gains (losses) 201 38 (3) (1) 85 14 334
Operating income (loss) $ (820) $ (39) $ 195 $ 363 $2,601 $ 15 $ 2,315
AIG transacts business in most major foreign currencies. from both established and new distribution channels, and the
The following table summarizes the effect of changes in effect of changes in foreign currency exchange rates as well as
foreign currency exchange rates on the growth of General growth in Mortgage Guaranty, primarily from international
Insurance net premiums written for the years ended
business.
December 31, 2007 and 2006:
General Insurance net investment income increased in 2007
2007 2006
by $436 million. Interest and dividend income increased $714 million
in 2007 compared to 2006 as fixed maturities and equity
Growth in original currency* 3.5% 7.4% securities increased by $11.6 billion and the average yield
Foreign exchange effect 1.4 (0.2) increased 10 basis points. Income from partnership investments
Growth as reported in U.S. dollars 4.9% 7.2% increased $159 million in 2007 compared to 2006, primarily due
* Computed using a constant exchange rate for each period.
to improved returns on underlying investments and higher levels of
invested assets. Investment expenses in 2007 declined $60 million
2007 and 2006 Comparison
compared to 2006, primarily due to decreased interest
expense on deposit liabilities. These increases to net investment
General Insurance operating income increased in 2007 compared income were partially offset by $490 million of income from an
to 2006 due to growth in net investment income, partially offset by out of period UCITS adjustment recorded in 2006. Net realized
a decline in underwriting profit and Net realized capital losses. The capital losses in 2007 include other-than-temporary impairment
2007 combined ratio increased to 90.3, an increase of 1.2 points charges of $276 million compared to $77 million in 2006. See
compared to 2006, primarily due to an increase in the loss ratio of also Capital Resources and Liquidity and Invested Assets herein.
1.0 points. The loss ratio for accident year 2007 recorded in 2007 In order to better align financial reporting with the manner in
was 2.3 points higher than the loss ratio recorded in 2006 for which AIG’s chief operating decision makers manage their busiaccident
year 2006. Increases in Mortgage Guaranty losses
nesses, commencing in 2007, the foreign aviation business,
accounted for a 2.1 point increase in the 2007 accident year loss which was historically reported in DBG, is now reported as part of
ratio. The downward cycle in the U.S. housing market is not
Foreign General Insurance, and the oil rig and marine businesses,
expected to improve until residential inventories return to a more which were historically reported in Foreign General Insurance, are
normal level, and AIG expects that this downward cycle will continue now reported as part of DBG. Prior period amounts have been
to adversely affect Mortgage Guaranty’s loss ratios for the
revised to conform to the current presentation.
foreseeable future. The higher accident year loss ratio was partially
offset by favorable development on prior years, which reduced 2006 and 2005 Comparison
incurred losses by $606 million and $53 million in 2007 and
2006, respectively. Additional favorable loss development of
General Insurance operating income increased in 2006 compared
$50 million (recognized in consolidation and related to certain to 2005 due to growth in net premiums, a reduction in both
asbestos settlements) reduced overall incurred losses.
General Insurance net premiums written increased in 2007
compared to 2006, reflecting growth in Foreign General Insurance
AIG 2007 Form 10-K 43