10-KPeriod: FY2007

AMERICAN INTERNATIONAL GROUP, INC. Annual Report, Year Ended Dec 31, 2007

Filed February 28, 2008For Securities:AIG

Summary

American International Group, Inc. (AIG) reported significant financial results for the fiscal year ended December 31, 2007. The company experienced a substantial decline in net income, primarily driven by a $11.5 billion pre-tax charge related to unrealized market valuation losses on AIG Financial Products Corp.'s (AIGFP) super senior credit default swap portfolio and a $643 million other-than-temporary impairment charge on AIGFP's investment securities. These charges, coupled with broader disruptions in the global credit markets and the U.S. housing market, significantly impacted the company's performance, leading to a reported net income of $6.2 billion, a decrease from $14.0 billion in the prior year. The company's diverse business segments, including General Insurance, Life Insurance & Retirement Services, Financial Services, and Asset Management, collectively generated total revenues of $110 billion, a slight decrease from the previous year. The General Insurance segment showed resilience with a slight increase in operating income, while the Life Insurance & Retirement Services segment experienced a decline primarily due to increased realized capital losses. The Financial Services segment incurred a significant operating loss, heavily influenced by the AIGFP charges. The company also highlighted ongoing efforts to remediate internal control deficiencies, particularly related to the AIGFP valuation, and a material weakness in internal control over financial reporting that was identified as of December 31, 2007.

Financial Highlights

17 data points
Beta

Revenue

$103.63B

Net Income

$6.20B

6.0% Net Margin

Cash & Equivalents

$2.28B

Free Cash Flow

$32.79B

Financial Statements
Beta
Revenue$103.63B
SG&A Expenses$19.82B
Interest Expense$4.75B
Net Income$6.20B
Shares Outstanding (Basic)129.23M
Shares Outstanding (Diluted)129.90M

Key Highlights

  • 1Net income declined significantly to $6.2 billion from $14.0 billion in 2006, largely due to a substantial $11.5 billion pre-tax charge related to AIGFP's super senior credit default swap portfolio and other impairments.
  • 2Total revenues were $110.1 billion, a slight decrease from $113.4 billion in 2006, reflecting diverse segment performance.
  • 3The Financial Services segment reported a significant operating loss of $9.5 billion, primarily driven by the $11.5 billion unrealized market valuation loss on AIGFP's credit default swap portfolio and other-than-temporary impairment charges.
  • 4The General Insurance segment demonstrated stability, with operating income slightly increasing to $10.5 billion, supported by strength in the Domestic Brokerage Group.
  • 5The Life Insurance & Retirement Services segment experienced a decline in operating income to $8.2 billion from $10.1 billion, mainly due to higher net realized capital losses.
  • 6A material weakness in internal control over financial reporting was identified concerning the AIGFP super senior credit default swap portfolio valuation process and oversight, which management is actively working to remediate.
  • 7AIG repurchased shares totaling $5.1 billion in 2007 under its expanded share repurchase program.

Frequently Asked Questions

The substantial decrease in net income for 2007 was primarily driven by a $11.5 billion pre-tax charge related to unrealized market valuation losses on AIG Financial Products Corp.'s (AIGFP) super senior credit default swap portfolio, and a $643 million other-than-temporary impairment charge on AIGFP's investment securities. These charges, reflecting the difficult credit and housing market conditions, significantly impacted the company's profitability.

The disruptions in the global credit markets and the U.S. housing market had a severe adverse effect on the Financial Services segment. This was primarily due to the large unrealized market valuation loss on AIGFP's super senior credit default swap portfolio and other-than-temporary impairment charges on AIGFP's investment securities, leading to a significant operating loss for the segment.

AIG has identified a material weakness related to the fair value valuation of the AIGFP super senior credit default swap portfolio and oversight. Management is actively engaged in remediation efforts, which include assigning dedicated resources, enhancing technical expertise, and strengthening corporate oversight. AIG is prioritizing these efforts with the goal of remediating this material weakness by the end of 2008.

AIG's General Insurance segment showed stability with a slight increase in operating income. The Life Insurance & Retirement Services segment experienced a decline in operating income, mainly due to higher net realized capital losses. The Financial Services segment incurred a significant operating loss, heavily impacted by issues within AIGFP. The Asset Management segment's operating income decreased due to realized capital losses and impairment charges on fixed income investments, partly offset by gains from real estate and a partial sale of its Blackstone investment.