10-QPeriod: Q3 FY2007

AMERICAN INTERNATIONAL GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 7, 2007For Securities:AIG

Summary

American International Group, Inc. (AIG) reported its third-quarter and nine-month results for 2007, indicating a challenging environment, particularly within its Financial Services and Consumer Finance segments. While overall revenues saw an increase, net income experienced a decline, impacted by factors such as increased net realized capital losses, operational losses in mortgage guaranty, and the ongoing effects of the housing market downturn. The company continued to manage its diverse business lines, including General Insurance, Life Insurance & Retirement Services, Financial Services, and Asset Management, with varying degrees of success across segments. Management highlighted the significant impact of market disruptions, especially in the structured finance markets, on the valuation of certain derivative portfolios. The company also addressed ongoing regulatory investigations and litigation, which continue to pose a risk. AIG remains focused on managing its capital resources and liquidity, with ongoing share repurchase programs and dividend policies in place, while also navigating new accounting standards that have been adopted. The report underscores AIG's extensive global diversification as a key strength in managing economic cycles.

Key Highlights

  • 1Total revenues increased by 2% for the three months ended September 30, 2007, and by 10% for the nine months ended September 30, 2007, compared to the prior year periods.
  • 2Net income decreased by 27% for the three months ended September 30, 2007, and increased by 8% for the nine months ended September 30, 2007.
  • 3The Financial Services segment reported a significant decrease in operating income for the three months ended September 30, 2007, impacted by accounting treatment for hedging activities and unrealized losses on credit default swaps.
  • 4General Insurance operating income decreased 7% for the three months ended September 30, 2007, mainly due to losses in the Mortgage Guaranty business.
  • 5Life Insurance & Retirement Services operating income declined 19% for the three months ended September 30, 2007, attributed to market volatility affecting investment income and realized capital losses.
  • 6AIG's commitment to the repurchase of its common stock continued, with $3.7 billion repurchased in the first nine months of 2007.
  • 7The company recorded substantial other-than-temporary impairment pre-tax losses totaling $529 million in the three-month period and $1.4 billion in the nine-month period ended September 30, 2007.

Frequently Asked Questions

AIG saw an increase in total revenues for both the three-month and nine-month periods ended September 30, 2007. However, net income decreased by 27% for the three-month period compared to the prior year, while it increased by 8% for the nine-month period. The company faced challenges, particularly within its Financial Services segment, and experienced significant other-than-temporary impairment losses.

Performance varied across segments. General Insurance saw a slight decrease in operating income due to mortgage guaranty losses. Life Insurance & Retirement Services experienced a decline in operating income, affected by market volatility. Financial Services reported a significant drop in operating income, influenced by hedging accounting changes and derivative portfolio valuations. Asset Management showed strong growth in revenues and operating income, partly due to gains from partnerships and the sale of an investment in Blackstone.

Key factors included increased net realized capital losses, the impact of market disruptions on the valuation of derivative portfolios (particularly AIGFP's super senior credit default swaps), the downturn in the U.S. housing market affecting mortgage guaranty and consumer finance operations, and the adoption of new accounting standards. The company also noted impacts from out-of-period adjustments related to the remediation of control deficiencies.

AIG continued its share repurchase activities, authorizing an additional $8 billion in February 2007 and repurchasing approximately 55.1 million shares in the first nine months of 2007. The company also adopted a new dividend policy in February 2007, planning to increase its common stock dividend by approximately 20% annually under ordinary circumstances.