How profitable was AIG in 1995 compared with 1994?

Net income was $2.51 billion, or $5.30 per share, compared with $2.18 billion, or $4.58 per share, in 1994, an increase of about 15%. Pretax income rose to $3.47 billion from $2.95 billion, and the effective tax rate increased to 27.6% from 26.3%.

Is AIG's core insurance underwriting improving?

Yes. The consolidated general insurance loss ratio fell to 75.9% from 77.8%, and the combined ratio improved to 97.0%. Excluding catastrophe losses, the pro forma combined ratio was 96.2%. Foreign general insurance, with a combined ratio of 92.0%, was a key contributor.

What are the main risks to AIG's financial position?

Key risks include exposure to foreign political and currency developments, given that about 37% of assets are abroad; long-tail casualty and asbestos/environmental reserve uncertainty that could produce future adverse development; and significant leverage in financial services, where total borrowings reached $18.0 billion, with $14.3 billion either non-recourse to AIG or matched against guaranteed investment agreements. Derivative counterparty exposure is also substantial, though AIG reports most of it is netted and collateralized.

How is AIG's capital position?

Capital funds reached $19.83 billion at year-end 1995, and statutory surplus of domestic general and life subsidiaries exceeded risk-based capital standards by considerable margins. Management states that no AIG company is on a regulatory watch list. Retained earnings rose to $17.70 billion, and unrealized appreciation of investments increased to $1.40 billion.

AIG 10-K FY1995 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 29, 1996. Cited figures are marked; the original filing is the authoritative source.

American International Group (AIG) reported a strong 1995 for its FY ended December 31, 1995.

Consolidated revenues rose 15.7% to $25.87 billion^a from $22.36 billion, and net income grew 15.4% to $2.51 billion ($5.30 per share, versus $4.58 in 1994). Total assets reached $134.1 billion and capital funds rose to $19.83 billion from $16.42 billion, a gain of about 21%. Return on the expanded equity base remained solid, and the company's statutory surplus in both general and life insurance comfortably exceeded risk-based capital requirements.

The core insurance franchise drove results. General insurance net premiums written grew 9.5% to $11.89 billion^b, and the combined ratio improved to 97.0% from 98.7%, with an adjusted underwriting profit of $361.6 million versus $147.5 million a year earlier. Life insurance premium income rose 19.5% to $8.04 billion, with about 94% generated overseas, principally in Asia and Japan.

Financial services operating income grew 3.2%, led by International Lease Finance Corp. (aircraft leasing) and the derivatives and trading units, though the financial services segment carries substantial leverage and derivative exposure ($164 billion^c notional in swaps at AIGFP). Investors should weigh several risks: about 37% of consolidated assets are located abroad and subject to political and currency risk; the company's casualty reserves, including $507 million of net asbestos and environmental reserves, carry long-tail uncertainty; and total borrowings of $18.0 billion include large amounts of debt not guaranteed by AIG. The Starr-affiliated group controls roughly 28% of voting stock, a concentration worth noting for governance.

02—Key points

Key Highlights

Net income rose 15.4% to $2.51 billion, or $5.30 per share, up from $4.58 in 1994.
Total revenues grew 15.7% to $25.87 billion, with life premium income up 19.5% to $8.04 billion.
General insurance combined ratio improved to 97.0% from 98.7%, and adjusted underwriting profit more than doubled to $361.6 million.
Capital funds increased to $19.83 billion from $16.42 billion; total assets reached $134.1 billion.
Foreign operations account for about 94% of life premium income and roughly 37% of consolidated assets, concentrated in Asia and Japan.
Financial services (ILFC, AIGFP, AIGTG) generated $2.20 billion in revenue and $417.7 million operating income, with large derivative books (about $164 billion notional in swaps).
Asbestos and environmental reserves total $1.94 billion gross and $507 million net, with management describing future development as uncertain.

03—Questions

Frequently Asked Questions

How profitable was AIG in 1995 compared with 1994?
Net income was $2.51 billion, or $5.30 per share, compared with $2.18 billion, or $4.58 per share, in 1994, an increase of about 15%. Pretax income rose to $3.47 billion from $2.95 billion, and the effective tax rate increased to 27.6% from 26.3%.
Is AIG's core insurance underwriting improving?
Yes. The consolidated general insurance loss ratio fell to 75.9% from 77.8%, and the combined ratio improved to 97.0%. Excluding catastrophe losses, the pro forma combined ratio was 96.2%. Foreign general insurance, with a combined ratio of 92.0%, was a key contributor.
What are the main risks to AIG's financial position?
Key risks include exposure to foreign political and currency developments, given that about 37% of assets are abroad; long-tail casualty and asbestos/environmental reserve uncertainty that could produce future adverse development; and significant leverage in financial services, where total borrowings reached $18.0 billion, with $14.3 billion either non-recourse to AIG or matched against guaranteed investment agreements. Derivative counterparty exposure is also substantial, though AIG reports most of it is netted and collateralized.
How is AIG's capital position?
Capital funds reached $19.83 billion at year-end 1995, and statutory surplus of domestic general and life subsidiaries exceeded risk-based capital standards by considerable margins. Management states that no AIG company is on a regulatory watch list. Retained earnings rose to $17.70 billion, and unrealized appreciation of investments increased to $1.40 billion.

04—Continue

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