01—Abstract
Summary
Summary of the 10-K filed February 28, 2008. Cited figures are marked; the original filing is the authoritative source.
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 billiona 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.
02—Key points
Key Highlights
- Net 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.
- Total revenues were $110.1 billion, a slight decrease from $113.4 billion in 2006, reflecting diverse segment performance.
- The 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.
- The General Insurance segment demonstrated stability, with operating income slightly increasing to $10.5 billion, supported by strength in the Domestic Brokerage Group.
- The 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.
- A 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.
- AIG repurchased shares totaling $5.1 billion in 2007 under its expanded share repurchase program.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 28, 2008Financial Statements
| 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 |
05—Questions
Frequently Asked Questions
What were the primary drivers for the significant decrease in net income for 2007?
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.
How did the credit market disruptions affect AIG's Financial Services segment?
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.
What is AIG doing about the material weakness identified in its internal controls?
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.
How did AIG's different business segments perform in 2007?
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.
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