01—Abstract
Summary
Summary of the 10-K filed March 30, 1994. Cited figures are marked; the original filing is the authoritative source.
American International Group's 1993 Form 10-K shows a large, diversified insurance holding company with total revenues of $20.13 billiona (up 9.5% from $18.39 billion in 1992), net income of $1.94 billion ($6.11 per share, up from $5.20), and total assets of $101.0 billion.
Growth was driven mainly by life insurance, where premium income rose 18.4% to $5.75 billionb, largely from overseas (95.3% of life premiums came from foreign operations, chiefly Asia), and by general insurance, where net premiums written rose 9.7% to $10.03 billion. The general insurance statutory combined ratio was 100.1%, versus 102.4% in 1992, with 1992's results hurt by Hurricane Andrew and other catastrophes. Shareholders' equity (capital funds) grew to $15.22 billion from $12.78 billion.
The filing also highlights growing exposure to financial services, which contributed $390 millionc of operating income (up 12.6%). That segment includes AIG Financial Products (derivatives dealer), AIG Trading Group, and International Lease Finance Corp. Financial services carried $18.9 billion of liabilities, and total borrowings reached $15.69 billion, of which about $5.94 billion was not guaranteed by AIG. Management also disclosed a $215 million pretax impairment on investments held by AIGFP after rating downgrades, with $104 million charged to 1993 income.
Management described reserves as adequate, though it flagged environmental and asbestos claims as an ongoing source of uncertainty. For investors, the key points are strong earnings and premium growth, a combined ratio near breakeven, and a rising reliance on financial services and leveraged, partly non-guaranteed borrowings. Dependence on overseas life insurance, derivatives counterparty risk, and long-tail casualty reserve development are the main risks to monitor.
02—Key points
Key Highlights
- Total revenues rose 9.5% to $20.13 billion in 1993, and net income rose 17% to $1.94 billion ($6.11 per share).
- Life insurance premium income grew 18.4% to $5.75 billion, with 95.3% generated outside the U.S., mainly in Asia.
- General insurance net premiums written grew 9.7% to $10.03 billion, and the statutory combined ratio improved to 100.1% from 102.4%.
- Capital funds (shareholders' equity) increased to $15.22 billion from $12.78 billion, helped by a $792.8 million rise in unrealized appreciation of investments.
- Financial services operating income rose 12.6% to $390 million, but AIGFP took a $215 million pretax impairment on downgraded investments ($104 million charged to 1993 income).
- Total borrowings reached $15.69 billion, of which about $5.94 billion was not guaranteed by AIG.
- Total assets grew to $101.0 billion from $92.7 billion, and the company had about 33,000 employees at year-end 1993.
03—Questions
Frequently Asked Questions
How profitable was AIG in 1993 compared with 1992?
Net income was $1.94 billion, or $6.11 per share, versus $1.66 billion, or $5.20 per share, in 1992. Income before cumulative effect of accounting changes rose to $1.92 billion from $1.63 billion. Income before taxes rose 21.7% to $2.60 billion. The effective tax rate increased to 26.3% from 24.0%, mainly due to the 1993 Omnibus Budget Reconciliation Act raising the corporate rate to 35%.
What drove growth in the insurance businesses?
Life insurance was the main growth engine, with premium income up 18.4% and operating income up 17.1% to $781.6 million, almost entirely from foreign operations. General insurance operating income rose 26% to $1.42 billion, helped by a smaller catastrophe burden than in 1992 (about $134 million gross in 1993 versus about $567 million in 1992). The underwriting result turned to a small profit of $10.4 million from a $195.1 million loss.
What are the main risks highlighted in the filing?
The filing points to several risks: (1) reserve adequacy for long-tail casualty lines, including environmental and asbestos claims whose future liability cannot be reasonably estimated; (2) derivatives and trading exposure at AIGFP and AIGTG, where the maximum potential loss on swaps was about $5.4 billion and AIGFP's investments were impaired; (3) foreign operations exposed to political risk, currency restrictions, and nationalization; (4) reinsurance recoverables of about $12 billion, which depend on reinsurer solvency; and (5) about $5.94 billion of borrowings that AIG does not guarantee, mainly at ILFC and AICCO.
How concentrated is ownership and control of AIG?
Starr International Company (SICO) held about 15.9% of common stock, the Starr Foundation 3.7%, and C.V. Starr & Co. 2.4%. Directors and officers, together with the Starr entities, controlled about 29% of voting stock, and six AIG directors also served on the Starr and SICO boards. The filing also notes related-party commission payments to Starr of about $25.8 million in 1993.
Did the company change its accounting in 1993 in ways that affect comparability?
Yes. AIG adopted FASB 115 at December 31, 1993, which marked available-for-sale bonds to market and increased pretax carrying value by $919.3 million. The portion attributable to policyholders ($511.8 million) went into policy liabilities, and unrealized appreciation rose $251.0 million net of taxes. AIG also adopted FASB 113 on reinsurance, which grossed up reserves and reinsurance assets on the balance sheet, reporting $30.0 billion in gross loss reserves against $17.6 billion net. Auditor Coopers & Lybrand noted these changes but did not qualify its opinion.
04—Continue