10-QPeriod: Q3 FY2005

AMERICAN INTERNATIONAL GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 14, 2005For Securities:AIG

Summary

This filing from AMERICAN INTERNATIONAL GROUP, INC. (AIG) for the quarterly period ended September 30, 2005, highlights significant financial restatements due to identified errors in accounting for derivatives, balance sheet reconciliations, and income tax accounting. The company announced a second restatement impacting financial statements for years 2004, 2003, 2002, 2001, and 2000, along with specific quarterly periods. Despite these accounting adjustments, AIG reported robust revenue growth of 12.4% for the first nine months of 2005 compared to the prior year, primarily driven by its General Insurance and Life Insurance & Retirement Services segments. The company's diversified business model across insurance, financial services, and asset management continues to be a strength, allowing it to absorb significant catastrophe losses in 2005 while maintaining profitability in other segments. Key financial metrics show total revenues of $81.54 billion for the nine months ended September 30, 2005, up from $72.58 billion in the prior year. Income before income taxes, minority interest, and cumulative effect of an accounting change increased by 18.5% to $14.91 billion. Shareholders' equity stood at $89.28 billion at the end of the quarter. The report also details the impact of rating agency downgrades in early 2005, which increased borrowing costs and required AIG to post additional collateral, impacting liquidity.

Key Highlights

  • 1AIG is undergoing a second restatement of its financial statements for multiple prior years due to accounting errors, primarily related to derivatives, balance sheet reconciliations, and income tax accounting.
  • 2Total revenues for the nine months ended September 30, 2005, increased to $81.54 billion, a 12.4% rise from the previous year's $72.58 billion.
  • 3Income before income taxes, minority interest, and cumulative effect of an accounting change grew by 18.5% to $14.91 billion for the nine months ended September 30, 2005.
  • 4Shareholders' equity increased to $89.28 billion as of September 30, 2005.
  • 5Significant catastrophe-related losses in the General Insurance segment ($2.44 billion in Q3 2005) were partially offset by strong performance in other segments.
  • 6Rating agency downgrades in 2005 led to increased borrowing costs and the requirement to post additional collateral, impacting liquidity.
  • 7The company's diversified business model, spanning General Insurance, Life Insurance & Retirement Services, Financial Services, and Asset Management, remains a key strength.

Frequently Asked Questions

AIG is undertaking a second restatement of its financial statements due to identified errors primarily related to internal controls surrounding the accounting for derivatives, reconciliation of certain balance sheet accounts, and income tax accounting. These issues were identified during the remediation of previously disclosed material weaknesses in internal controls.

AIG reported total revenues of $81.54 billion for the nine months ended September 30, 2005, representing a 12.4% increase compared to $72.58 billion for the same period in the prior year. This growth was largely driven by increases in net premiums and net investment income across its General Insurance and Life Insurance & Retirement Services segments.

The downgrades in AIG's credit ratings by major agencies in 2005 led to increased borrowing costs. Additionally, these downgrades required AIG to post approximately $1.16 billion in collateral to counterparties for guaranteed investment agreements and financial derivatives, potentially increasing liquidity demands if further downgrades occur.

All major segments showed growth or resilience. General Insurance operating income decreased due to catastrophe losses, but underwriting results in foreign operations and investment income were strong. Life Insurance & Retirement Services operating income increased by 17.7%, boosted by foreign operations and improved realized capital gains. Financial Services operating income saw a significant increase, primarily due to FAS 133 accounting effects and strong consumer finance results. Asset Management operating income grew 10.3% driven by global market upturns.