01—Abstract
Summary
Summary of the 10-K/A filed April 1, 1996. Cited figures are marked; the original filing is the authoritative source.
American International Group's 10-K/A for fiscal 1995 shows a large, highly diversified insurer and financial services group.
Consolidated revenues rose 15.7% to $25.87 billiona and net income rose 15.4% to $2.51 billion, or $5.30 per share, versus $2.18 billion ($4.58) in 1994. Total assets reached $134.1 billion and capital funds reached $19.8 billion, up about $3.4 billion in the year, helped by a $1.8 billion unrealized appreciation swing. The general insurance combined ratio improved to 97.0% from 98.7%, with an adjusted underwriting profit of $361.6 million, and life insurance operating income rose 14.5% to $1.09 billion, with about 94% of life operating income coming from foreign operations, mainly Asia and Japan.
The filing also highlights several risk areas for investors. Financial services, which includes ILFC aircraft leasing, AIGFP derivatives and AIGTG trading, carries a notional derivatives book of roughly $164 billionb in swaps and large trading exposures, with total borrowings of $17.99 billion, of which $14.32 billion is non-recourse or matched. Long-tail casualty reserves are large, with net loss reserves of $19.69 billion, and asbestos and environmental exposures remain a material uncertainty.
Foreign operations account for about 37%c of assets and face currency and political risks. Overall, the filing reflects strong earnings growth, improving underwriting discipline, and a robust capital base. Investors should weigh that against the complexity and leverage of the financial services segment, reserve adequacy in long-tail lines, and reliance on overseas life insurance growth.
02—Key points
Key Highlights
- Net income of $2.51 billion (EPS $5.30) rose 15.4% from $2.18 billion in 1994, and revenues grew 15.7% to $25.87 billion.
- General insurance combined ratio improved to 97.0% from 98.7%, and adjusted underwriting profit more than doubled to $361.6 million.
- Life insurance operating income rose 14.5% to $1.09 billion, with roughly 94% of life operating income derived from foreign operations, led by Asia and Japan.
- Capital funds grew to $19.83 billion from $16.42 billion, driven by retained earnings and a $1.21 billion (net of tax) rise in unrealized appreciation of investments.
- Financial services operating income rose 3.2% to $417.7 million. The segment carries significant leverage and derivatives exposure, including $164 billion of notional swaps at AIGFP and $206 million of AIGTG letters of credit.
- Net loss reserves reached $19.69 billion, with a $280.4 million redundancy on 1994 and prior reserves, but asbestos and environmental claims remain a source of potential future adverse development.
- Total assets reached $134.1 billion, with about 37% located in foreign countries, exposing the company to currency, regulatory and political risks.
03—Questions
Frequently Asked Questions
How profitable was AIG in 1995 compared with 1994?
Net income rose to $2.51 billion, or $5.30 per share, from $2.18 billion, or $4.58 per share, in 1994, an increase of about 15%. Revenue growth of 15.7% to $25.87 billion came from higher premiums, investment income and financial services.
What drove the improvement in the general insurance business?
The combined ratio improved to 97.0% from 98.7%, reflecting a lower loss ratio (75.9% versus 77.8%) and modest pricing gains in commercial property and specialty casualty. Catastrophe losses were about $100 million net in 1995 versus $55 million in 1994, so the underlying improvement was even larger on a pro forma basis.
What are the main risks investors should consider?
The main risks are the leverage and derivatives activity in the financial services segment, including AIGFP and AIGTG, and the ILFC aircraft leasing business, which had about $18 billion of borrowings. Other risks include long-tail casualty reserve adequacy, asbestos and environmental claims that could exceed current reserves, foreign currency and political exposure, and the Japanese life business, where asset duration is shorter than policy liabilities.
How strong is AIG's capital position?
Capital funds were $19.83 billion at year-end 1995, up from $16.42 billion. The domestic general and life subsidiaries exceeded their risk-based capital standards by considerable margins, and management stated that no AIG company was on any regulatory watch list. Some subsidiary dividends are restricted, and about 60% of consolidated capital funds were restricted from immediate transfer to the parent.
04—Continue