2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
DBG’s net investment income increased by $1.0 billion in Net premiums written increased in 2007 compared to 2006
2006 compared to 2005, as interest income increased $482 mil- due to continued growth in the Private Client Group and increased
lion on growth in the bond portfolio resulting from investment of new business production in the aigdirect.com business partially
operating cash flows and capital contributions. Partnership income offset by a reduction in the Agency Auto business.
increased from 2005 due to improved performance of the
On September 27, 2007, AIG completed its previously anunderlying
investments, including initial public offering activity. Net nounced acquisition of 21st Century, paying $759 million to
investment income in 2006 included increases relating to out of acquire the remaining 39.2 percent of the shares of 21st Century
period adjustments of $109 million for the accounting for UCITS that it did not previously own. As a result of the acquisition, the
and partnerships and $85 million related to interest earned on a AIG Direct and 21st Century operations have been combined as
deposit contract that did not exist in the prior year.
aigdirect.com.
Under the purchase method of accounting, the assets and
Transatlantic Results
liabilities of 21st Century that were acquired were adjusted to
2007 and 2006 Comparison
their estimated fair values as of the date of the acquisition, and
goodwill of $342 million was recorded. A customer relationship
Transatlantic’s net premiums written and net premiums earned intangible asset, initially valued at $119 million, was also
increased in 2007 compared to 2006 due to increases in both established.
domestic and international operations. The increase in statutory
underwriting profit in 2007 compared to 2006 reflects improved 2006 and 2005 Comparison
underwriting results in Domestic operations. Operating income
increased in 2007 compared to 2006 due principally to increased Personal Lines operating income increased $237 million in 2006
net investment income and improved underwriting results.
compared to 2005 reflecting a reduction in the loss ratio of 5.8
points. Favorable development on prior accident years reduced
2006 and 2005 Comparison
incurred losses by $111 million in 2006 compared to an increase
of $14 million in 2005, accounting for 2.7 points of the decrease
Transatlantic’s net premiums written and net premiums earned in the loss ratio. The 2005 catastrophe-related losses of
increased in 2006 compared to 2005 due primarily to increased $112 million added 2.4 points to the loss ratio. The loss ratio for
writings in domestic operations. Operating income increased in the 2006 accident year improved 0.7 points primarily due to the
2006 compared to 2005 due largely to lower catastrophe losses termination of The Robert Plan relationship effective Decemand
net ceded reinstatement premiums, and increased net
ber 31, 2005 and growth in the Private Client Group. The
investment income.
improvement in the loss ratio was partially offset by an increase
in the expense ratio of 0.6 points primarily due to investments in
Personal Lines Results
people and technology, national expansion efforts and lower
2007 and 2006 Comparison
response rates. Net premiums written were flat in 2006 compared
to 2005, with growth in the Private Client Group and Agency Auto
Personal Lines operating income in 2007 decreased by $365 mildivisions
offset by termination of The Robert Plan relationship.
lion compared to 2006, largely due to an increase in incurred
Growth in the Private Client Group spans multiple products, with a
losses from a number of sources, leading to an overall increase in
continued penetration of the high net worth market, strong brand
the loss ratio of 6.8 points. Prior year net adverse reserve
promotion and innovative loss prevention programs.
development contributed 2.5 points of this increase in the loss
ratio, as Personal Lines experienced $7 million in net adverse
development (including $64 million in adverse development from
Mortgage Guaranty Results
businesses placed in runoff), compared to $111 million of
2007 and 2006 Comparison
favorable development in 2006. An additional 1.6 point increase
Mortgage Guaranty’s operating loss in 2007 was $637 million
in the loss ratio resulted from $61 million of losses and
compared to operating income of $328 million in 2006 as the
$14 million of reinstatement premiums due to the California
deteriorating U.S. residential housing market adversely affected
wildfires. In addition, an increase in the loss ratio recorded in
losses incurred for both the domestic first- and second-lien
2007 for accident year 2007 compared to the loss ratio recorded
businesses. Domestic first- and second-lien losses incurred
in 2006 for accident year 2006 of 2.7 points resulted, in part,
increased 362 percent and 346 percent respectively, compared to
from an increased frequency of large losses in the Private Client
2006, resulting in loss ratios of 122.0 and 357.0, respectively, in
Group and average automobile premiums declining faster than
2007. Increases in domestic losses incurred resulted in an overall
loss trends.
loss ratio of 168.6 in 2007 compared to 47.2 in 2006. Prior year
Operating income also declined due to increased expenses.
development reduced incurred losses in 2007 by $25 million
The expense ratio increased 1.1 points in 2007 compared to
compared to a reduction of $115 million in 2006, which
2006, primarily due to $63 million of transaction and integration
accounted for 12.7 points of the increase in the loss ratio.
costs associated with the 2007 acquisition of the minority interest
Net premiums written increased in 2007 compared to 2006
in 21st Century.
primarily due to growth in the international markets, accounting for
19 percent of the increase in net premiums written. In addition
AIG 2007 Form 10-K 45