10-QPeriod: Q3 FY2006

AMERICAN INTERNATIONAL GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 9, 2006For Securities:AIG

Summary

American International Group, Inc. (AIG) reported strong financial results for the quarter ended September 30, 2006, with significant growth in income before income taxes, minority interest, and cumulative effect of accounting change, increasing by 147% to $6,301 million compared to $2,547 million in the prior year's period. This improvement was largely driven by a rebound from substantial catastrophe-related losses in the third quarter of 2005, coupled with higher operating income across its General Insurance and Life Insurance & Retirement Services segments. Total revenues for the quarter saw an 11% increase year-over-year, reaching $29,199 million, primarily due to growth in net premiums earned and net investment income from its global General Insurance operations and Life Insurance & Retirement Services segment. The company also noted the impact of out-of-period adjustments, which positively affected net income in the third quarter of 2006. Despite facing ongoing regulatory scrutiny and investigations related to insurance brokerage practices, AIG continues to implement remediation efforts and expand its global operations.

Key Highlights

  • 1Net income for the quarter increased significantly to $4,224 million from $1,745 million in the prior year's third quarter.
  • 2Total revenues grew by 11% to $29,199 million, reflecting broad-based growth across segments.
  • 3General Insurance operating income saw a substantial improvement, turning positive at $2,625 million compared to a loss of $137 million in the prior year, largely due to a reduction in catastrophe losses and improved underwriting results.
  • 4Life Insurance & Retirement Services operating income increased by 9% to $2,448 million, driven by strong performance in foreign operations and improved domestic results.
  • 5Financial Services operating income saw a notable increase to $1,357 million, primarily influenced by gains from derivatives not qualifying for hedge accounting.
  • 6Despite ongoing investigations into insurance brokerage practices, the company reported progress in its remediation efforts.
  • 7The company's balance sheet reflects substantial growth in total assets to $941,544 million and total liabilities to $845,201 million, with shareholders' equity increasing to $96,154 million.

Frequently Asked Questions

The primary driver for the significant increase in income before income taxes was the comparison to the third quarter of 2005, which included substantial catastrophe-related losses of $2.44 billion. The current quarter benefited from the absence of similar catastrophe events and improved operating income from the General Insurance and Life Insurance & Retirement Services segments.

General Insurance operating income significantly improved, turning profitable from a loss in the prior year. Life Insurance & Retirement Services operating income saw healthy growth, and Financial Services operating income also increased, largely due to derivative gains not qualifying for hedge accounting. Asset Management operating income, however, decreased due to the run-off of Guaranteed Investment Contracts and lower transaction fees.

Yes, AIG is subject to various ongoing regulatory investigations and litigation concerning insurance brokerage practices, including allegations of bid rigging and steering business. While the company has reached settlements with some authorities, including the DOJ and SEC, it continues to cooperate with ongoing inquiries and faces potential future claims. Investors should refer to the Risk Factors section and Notes to the Financial Statements for detailed information on these matters.

AIG's invested assets grew, with fixed maturities available for sale at market value reaching $376,036 million. The company experienced unrealized gains in its available-for-sale portfolio, which are reflected in accumulated other comprehensive income. There were also realized capital losses, particularly in the Financial Services segment, often related to derivatives that did not qualify for hedge accounting.