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Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|X| SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|_| SECURITIES EXCHANGE ACT OF 1934
For the Transition period from________to________
Commission file number 1-8787
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American International Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2592361
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 Pine Street, New York, New York 10270
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 770-7000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, Par Value $2.50 Per Share New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|.
The aggregate market value of the shares of all classes of voting stock of
the registrant held by non-affiliates of the registrant on January 31, 2000 was
approximately $161,757,642,000 computed upon the basis of the closing sales
price of the Common Stock on that date.
As of January 31, 2000, there were outstanding 1,549,773,813 shares of
Common Stock, $2.50 par value, of the registrant.
Documents Incorporated by Reference:
The registrant's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A involving the
election of directors at the annual meeting of the shareholders of the
registrant scheduled to be held on May 17, 2000 is incorporated by reference in
Part III of this Form 10-K.
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PART I
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ITEM 1. Business
American International Group, Inc. ("AIG"), a Delaware corporation, is a holding
company which through its subsidiaries is engaged in a broad range of insurance
and insurance-related activities and financial services in the United States and
abroad. AIG's primary activities include both general and life insurance
operations. Other significant activities include financial services and asset
management. The principal insurance company subsidiaries are American Home
Assurance Company ("American Home"), National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union"), New Hampshire Insurance Company ("New
Hampshire"), Lexington Insurance Company ("Lexington"), Transatlantic
Reinsurance Company, American International Underwriters Overseas, Ltd.
("AIUO"), American Life Insurance Company ("ALICO"), American International
Assurance Company, Limited together with American International Assurance
Company (Bermuda) Limited ("AIA"), Nan Shan Life Insurance Company, Ltd. ("Nan
Shan"), American International Reinsurance Company, Ltd. and United Guaranty
Residential Insurance Company. The merger of SunAmerica Inc., a leading company
in the retirement savings and asset accumulation business, with and into AIG
became effective January 1, 1999. The transaction was treated as a pooling of
interests for accounting purposes. AIG issued 0.855 shares of common stock in
exchange for each share of SunAmerica Inc. stock outstanding at the effective
time of the merger for an aggregate issuance of approximately 187.5 million
shares. For information on AIG's business segments, see Note 18 of Notes to
Financial Statements.
All per share information herein gives retroactive effect to all stock
dividends and stock splits. As of January 31, 2000, beneficial ownership of
approximately 13.7 percent, 2.8 percent and 2.0 percent of AIG's Common Stock,
$2.50 par value ("Common Stock"), was held by Starr International Company, Inc.
("SICO"), The Starr Foundation and C.V. Starr & Co., Inc. ("Starr"),
respectively.
At December 31, 1999, AIG and its subsidiaries had approximately 55,000
employees.
The following table shows the general development of the business of AIG
on a consolidated basis, the contributions made to AIG's consolidated revenues
and operating income and the assets held, in the periods indicated by its
general insurance, life insurance, financial services operations, asset
management operations, equity in income of minority-owned insurance companies
and other realized capital losses. (See also Management's Discussion and
Analysis of Financial Condition and Results of Operations and Notes 1 and 18 of
Notes to Financial Statements.)
(dollars in millions)
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Years Ended December 31, 1999 1998 1997 1996 1995
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General insurance operations:
Gross premiums written $22,569 $20,684 $18,742 $18,319 $17,895
Net premiums written 16,224 14,586 13,408 12,692 11,893
Net premiums earned 15,544 14,098 12,421 11,855 11,406
Adjusted underwriting profit (a) 669 531 490 450 417
Net investment income 2,517 2,192 1,854 1,691 1,547
Realized capital gains 295 205 128 65 68
Operating income 3,481 2,928 2,472 2,206 2,032
Identifiable assets 76,725 73,226 62,386 58,792 56,223
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Loss ratio 75.5 75.6 75.3 75.9 75.9
Expense ratio 20.8 20.8 20.9 20.6 20.7
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Combined ratio 96.3 96.4 96.2 96.5 96.6
====================================================================================================================================
Life insurance operations:
Premium income 11,942 10,293 9,956 8,995 8,044
Net investment income 6,206 5,201 4,521 3,805 3,059
Realized capital gains (losses) (148) (74) (9) 4 1
Operating income 2,858 2,373 2,048 1,657 1,331
Identifiable assets 128,697 103,611 87,747 72,275 60,125
Insurance in-force at end of year 584,959 503,649 443,323 429,992 378,005
Financial services operations:
Commissions, transaction and other fees 3,340 3,044 3,042 2,379 2,043
Operating income 1,081 869 671 501 424
Identifiable assets 66,567 59,198 51,110 43,074 36,039
Asset management operations:
Commissions and other fees 985 707 555 444 390
Operating income 314 191 127 101 35
Identifiable assets 1,132 915 646 787 795
Equity in income of minority-owned
insurance operations -- 57 114 99 82
Other realized capital losses (25) (7) (29) (12) (30)
Revenues (b) 40,656 35,716 32,553 29,325 26,610
Total assets 268,238 233,676 199,614 172,330 150,981
====================================================================================================================================
(a) Adjusted underwriting profit is statutory underwriting income adjusted
primarily for changes in deferral of acquisition costs. This adjustment is
necessary to present the financial statements in accordance with generally
accepted accounting principles.
(b) Represents the sum of general net premiums earned, life premium income,
net investment income, financial services commissions, transaction and
other fees, asset management commissions and other fees, equity in income
of minority-owned insurance operations, and realized capital gains
(losses). Commencing in 1997, agency operations were presented as a
component of general insurance and for years prior to 1997 agency results
have been reclassified to conform to this presentation.
1
3
The following table shows identifiable assets, revenues and income derived
from operations in the United States and Canada and from operations in other
countries for the year ended December 31, 1999. (See also Note 18 of Notes to
Financial Statements.)
(dollars in millions)
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Percent of Total
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United States Other United States Other
Total and Canada Countries and Canada Countries
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General insurance operations:
Net premiums earned $ 15,544 $10,083 $ 5,461 64.9% 35.1%
Adjusted underwriting profit 669 359 310 53.6 46.4
Net investment income 2,517 1,995 522 79.3 20.7
Realized capital gains (losses) 295 321 (26) -- --
Operating income 3,481 2,675 806 76.8 23.2
Identifiable assets 76,725 58,137 18,588 75.8 24.2
Life insurance operations:
Premium income 11,942 947 10,995 7.9 92.1
Net investment income 6,206 3,497 2,709 56.3 43.7
Realized capital losses (148) (91) (57) -- --
Operating income 2,858 971 1,887 34.0 66.0
Identifiable assets 128,697 72,358 56,339 56.2 43.8
Financial services operations:
Commissions, transaction and other fees 3,340 2,797 543 83.7 16.3
Operating income 1,081 846 235 78.2 21.8
Identifiable assets 66,567 55,473 11,094 83.3 16.7
Asset management operations:
Commissions and other fees 985 821 164 83.3 16.7
Operating income 314 288 26 91.8 8.2
Identifiable assets 1,132 573 559 50.6 49.4
Other realized capital losses (25) (25) -- -- --
Income before income taxes and minority interest 7,512 4,590 2,922 61.1 38.9
Revenues 40,656 20,345 20,311 50.0 50.0
Total Assets 268,238 181,517 86,721 67.7 32.3
====================================================================================================================================
General Insurance Operations
AIG's general insurance subsidiaries are multiple line companies writing
substantially all lines of property and casualty insurance. One or more of these
companies is licensed to write substantially all of these lines in all states of
the United States and in approximately 70 foreign countries.
Domestic general insurance operations are comprised of the Domestic
Brokerage Group, which includes the domestic operations of Transatlantic
Holdings, Inc. ("Transatlantic"), Personal Lines, including 21st Century
Insurance Group (21st Century), and Mortgage Guaranty.
Commencing with the third quarter of 1998, Transatlantic and 21st Century
were consolidated into AIG's financial statements, as a result of AIG obtaining
majority ownership.
AIG's primary domestic division is the Domestic Brokerage Group (DBG).
DBG's business is derived from brokers in the United States and Canada and is
conducted through its general insurance subsidiaries including American Home,
National Union, Lexington, Transatlantic and certain other insurance company
subsidiaries of AIG. The risk management division of DBG provides insurance and
risk management programs for large corporate customers. The AIG Risk Finance
division designs and implements creative risk financing alternatives using the
insurance and financial services capabilities of AIG. Also included are the
operations of DBG's environmental unit which focuses specifically on providing
specialty products to clients with environmental exposures.
DBG writes substantially all classes of business insurance accepting such
business mainly from insurance brokers. This provides DBG the opportunity to
select specialized markets and retain underwriting control. Any licensed broker
is able to submit business to DBG without the traditional agent-company
contractual relationship, but such broker usually has no authority to commit DBG
to accept a risk.
In addition to writing substantially all classes of business insurance,
including large commercial or industrial property insurance, excess liability,
inland marine, environmental, workers' compensation and excess and umbrella
coverages, DBG offers many specialized forms of insurance such as directors and
officers liability, difference-in-conditions, kidnap-ransom, export credit and
political risk, and various types of professional errors and omissions
coverages. Lexington writes surplus lines, those risks for which conventional
insurance companies do not readily provide insurance coverage, either because of
complexity or because the coverage does not lend itself to conventional
contracts.
AIG engages in mass marketing of personal lines coverages, primarily
private passenger auto and includes homeowners and personal umbrella coverages,
principally through American International Insurance Company and 21st Century.
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4
The business of United Guaranty Corporation ("UGC") and its subsidiaries
is also included in the domestic operations of AIG. The principal business of
the UGC subsidiaries is the writing of residential mortgage loan insurance,
which is guaranty insurance on conventional first mortgage loans on
single-family dwellings and condominiums. Such insurance protects lenders
against loss if borrowers default. UGC subsidiaries also write home equity and
property improvement loan insurance on loans to finance residential property
improvements, alterations and repairs and for other purposes not necessarily
related to real estate. UGC had approximately $19 billion of mortgage guarantee
risk in-force at December 31, 1999.
AIG's Foreign General insurance group accepts risks primarily underwritten
through American International Underwriters ("AIU"), a marketing unit consisting
of wholly owned agencies and insurance companies. The Foreign General insurance
group also includes business written by AIG's foreign-based insurance
subsidiaries for their own accounts. The Foreign General group uses various
marketing methods to write both business and personal lines insurance with
certain refinements for local laws, customs and needs. AIU operates in over 70
countries in Asia, the Pacific Rim, Europe, Africa, Middle East and Latin
America. Transatlantic's foreign operations are included in this group.
During 1999, DBG and the Foreign General insurance group accounted for
50.0 percent and 34.2 percent, respectively, of AIG's net premiums written.
AIG's general insurance company subsidiaries worldwide operate primarily
by underwriting and accepting any size risk for their direct account and
securing reinsurance on that portion of the risk in excess of the limit which
they wish to retain. This operating policy differs from that of many insurance
companies which will underwrite only up to their net retention limit, thereby
requiring the broker or agent to secure commitments from other underwriters for
the remainder of the gross risk amount.
The following table summarizes general insurance premiums written and
earned:
(in millions)
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Years Ended December 31, Written Earned
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1999
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Gross premiums $22,569 $21,187
Ceded premiums (6,345) (5,643)
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Net premiums $16,224 $15,544
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1998
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Gross premiums $20,684 $20,092
Ceded premiums (6,098) (5,994)
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Net premiums $14,586 $14,098
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1997
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Gross premiums $18,742 $17,566
Ceded premiums (5,334) (5,145)
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Net premiums $13,408 $12,421
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The utilization of reinsurance is closely monitored by an internal
reinsurance security committee, consisting of members of AIG's senior
management. No single reinsurer is a material reinsurer to AIG nor is AIG's
business substantially dependent upon any reinsurance contract. (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 5 of Notes to Financial Statements.)
AIG is well diversified both in terms of lines of business and geographic
locations. Of the general insurance lines of business, workers' compensation was
approximately 7 percent of AIG's net premiums written. This line is well
diversified geographically.
The majority of AIG's insurance business is in the casualty classes, which
tend to involve longer periods of time for the reporting and settling of claims.
This may increase the risk and uncertainty with respect to AIG's loss reserve
development. (See also the Discussion and Analysis of Consolidated Net Losses
and Loss Expense Reserve Development and Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
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5
Loss and expense ratios of AIG's consolidated general insurance operations
are set forth in the following table. (See also Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
(dollars in millions)
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Ratio of Ratio of
Losses and Underwriting
Loss Expenses Expenses
Net Premiums Incurred to Incurred to Industry
------------------ Net Premiums Net Premiums Combined Underwriting Combined
Years Ended December 31, Written Earned Earned Written Ratio Margin Ratio*
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1999 $16,224 $15,544 75.5 20.8 96.3 3.7 107.3
1998 14,586 14,098 75.6 20.8 96.4 3.6 104.9
1997 13,408 12,421 75.3 20.9 96.2 3.8 101.5
1996 12,692 11,855 75.9 20.6 96.5 3.5 106.3
1995 11,893 11,406 75.9 20.7 96.6 3.4 106.7
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* Source: Best's Aggregates & Averages (Stock insurance companies, after
dividends to policyholders); the ratio for 1999 reflects estimated results
provided by Conning & Company.
During 1999, of the direct general insurance premiums written (gross
premiums less return premiums and cancellations, excluding reinsurance assumed
and before deducting reinsurance ceded), 10.8 percent, 5.8 percent and 5.1
percent were written in California, New York and Illinois, respectively. No
other state accounted for more than 5 percent of such premiums.
There was no significant adverse effect on AIG's general insurance results
of operations from the economic environments in any one state, country or
geographic region for the year ended December 31, 1999. (See also Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
Discussion and Analysis of Consolidated Net Losses and Loss Expense Reserve
Development
The reserve for net losses and loss expenses represents the accumulation of
estimates for reported losses ("case basis reserves") and provisions for losses
incurred but not reported ("IBNR"), both reduced by applicable reinsurance
recoverable. Losses and loss expenses are charged to income as incurred. AIG
discounts certain of its loss reserves principally related to workers'
compensation lines of business.
Loss reserves established with respect to foreign business are set and
monitored in terms of the respective local or functional currency. Therefore, no
assumption is included for changes in currency rates. (See also Note 1(t) of
Notes to Financial Statements.)
Management continually reviews the adequacy of established loss reserves
through the utilization of a number of analytical reserve development
techniques. Through the use of these techniques, management is able to monitor
the adequacy of its established reserves and determine appropriate assumptions
for inflation. Also, analysis of emerging specific development patterns, such as
case reserve redundancies or deficiencies and IBNR emergence, allows management
to currently determine any required adjustments. (See also Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
The "Analysis of Consolidated Net Losses and Loss Expense Reserve
Development", which follows, presents the development of net losses and loss
expense reserves for calendar years 1989 through 1999. The upper half of the
table shows the cumulative amounts paid during successive years related to the
opening loss reserves. For example, with respect to the net losses and loss
expense reserve of $16.76 billion as of December 31, 1992, by the end of 1999
(seven years later) $14.50 billion had actually been paid in settlement of these
net loss reserves. In addition, as reflected in the lower section of the table,
the original reserve of $16.76 billion was reestimated to be $18.15 billion at
December 31, 1999. This increase from the original estimate would generally be a
combination of a number of factors, including reserves being settled for larger
amounts than originally estimated. The original estimates will also be increased
or decreased as more information becomes known about the individual claims and
overall claim frequency and severity patterns. The redundancy (deficiency)
depicted in the table, for any particular calendar year, shows the aggregate
change in estimates over the period of years subsequent to the calendar year
reflected at the top of the respective column heading. For example, the
redundancy of $382 million at December 31, 1999 related to December 31, 1998 net
losses and loss expense reserves of $24.62 billion represents the cumulative
amount by which reserves for 1998 and prior years have developed redundantly
during 1999. The reserve for net losses and loss expenses with respect to
Transatlantic and 21st Century are included only in the consolidated net losses
and loss expenses commencing with the year ended December 31, 1998. Reserve
development for these operations is included only for 1998 and subsequent
periods.
Over the past several years, AIG has significantly strengthened its net
loss and loss expense reserves with respect to asbestos and environmental
losses. This strengthening is the primary cause of the adverse development
reflected in certain calendar years in the net loss and loss expense reserves
shown in the following table.
4
6
Analysis of Consolidated Net Losses and
Loss Expense Reserve Development
(in millions)
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
====================================================================================================================================
Reserve for Net Losses and Loss
Expenses, December 31, $12,958 $14,699 $15,840 $16,757 $17,557 $18,419 $19,693 $20,407 $21,171 $24,619 $24,600
Paid (Cumulative) as of:
One Year Later 3,940 4,315 4,748 4,883 5,146 4,775 5,281 5,616 5,716 6,779
Two Years Later 6,477 7,350 8,015 8,289 8,242 8,073 8,726 9,081 9,559
Three Years Later 8,351 9,561 10,436 10,433 10,404 10,333 11,024 11,456
Four Years Later 9,721 11,224 11,815 11,718 12,095 12,107 12,591
Five Years Later 10,765 12,112 12,611 12,931 13,378 13,270
Six Years Later 11,285 12,615 13,472 13,894 14,179
Seven Years Later 11,517 13,235 14,193 14,502
Eight Years Later 11,953 13,804 14,654
Nine Years Later 12,402 14,147
Ten Years Later 12,627
Net Liability Reestimated as of:
End of Year 12,958 14,699 15,840 16,757 17,557 18,419 19,693 20,407 21,171 24,619 24,600
One Year Later 12,845 14,596 15,828 16,807 17,434 18,139 19,413 20,009 20,890 24,237
Two Years Later 12,844 14,595 15,903 16,603 17,479 18,269 19,330 19,999 20,886
Three Years Later 12,809 14,724 15,990 16,778 17,782 18,344 19,327 20,151
Four Years Later 12,896 14,965 16,254 17,182 18,090 18,344 19,604
Five Years Later 13,065 15,361 16,712 17,600 18,300 18,535
Six Years Later 13,426 15,845 17,095 17,844 18,537
Seven Years Later 13,931 16,161 17,356 18,148
Eight Years Later 14,180 16,385 17,679
Nine Years Later 14,457 16,687
Ten Years Later 14,738
Redundancy/(Deficiency) (1,780) (1,988) (1,839) (1,391) (980) (116) 89 256 285 382
====================================================================================================================================
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7
The following table excludes for each calendar year the net loss and loss
expense reserves and the development thereof with respect to asbestos and
environmental claims. Thus, AIG's loss and loss expense reserves excluding
asbestos and environmental claims are developing adequately. (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Analysis of Consolidated Net Losses and Loss Expense
Reserve Development Excluding Asbestos and
Environmental Net Losses and Loss Expense Reserve
Development
(in millions)
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
====================================================================================================================================
Reserve for Net Losses and
Loss Expenses, Excluding
Asbestos and Environmental
Losses and Loss Expenses,
December 31, $12,838 $14,539 $15,639 $16,503 $17,249 $18,089 $19,186 $19,664 $20,384 $23,754 $23,709
Paid (Cumulative) as of:
One Year Later 3,940 4,260 4,691 4,766 5,061 4,700 5,174 5,507 5,576 6,657
Two Years Later 6,422 7,237 7,842 8,088 8,082 7,891 8,515 8,832 9,305
Three Years Later 8,240 9,333 10,178 10,157 10,137 10,048 10,673 11,094
Four Years Later 9,496 10,912 11,483 11,337 11,726 11,683 12,128
Five Years Later 10,456 11,727 12,175 12,448 12,871 12,734
Six Years Later 10,904 12,126 12,935 13,274 13,560
Seven Years Later 11,034 12,646 13,519 13,771
Eight Years Later 11,370 13,079 13,870
Nine Years Later 11,684 13,312
Ten Years Later 11,801
Net Liability Reestimated as of:
End of Year 12,838 14,539 15,639 16,503 17,249 18,089 19,186 19,664 20,384 23,754 23,709
One Year Later 12,684 14,341 15,518 16,382 17,019 17,556 18,568 19,118 19,903 23,229
Two Years Later 12,591 14,232 15,422 16,073 16,813 17,355 18,347 18,910 19,771
Three Years Later 12,449 14,190 15,403 15,997 16,790 17,293 18,141 18,934
Four Years Later 12,368 14,327 15,417 16,081 16,960 17,090 18,292
Five Years Later 12,431 14,472 15,562 16,362 16,969 17,155
Six Years Later 12,544 14,648 15,808 16,404 17,080
Seven Years Later 12,748 14,828 15,869 16,582
Eight Years Later 12,861 14,854 16,067
Nine Years Later 12,941 15,032
Ten Years Later 13,097
Redundancy/(Deficiency) (259) (493) (428) (79) 169 934 894 730 613 525
====================================================================================================================================
Reconciliation of Net Reserve for Losses and
Loss Expenses
(in millions)
- --------------------------------------------------------------------------------
1999 1998 1997
================================================================================
Net reserve for losses and loss
expenses at beginning of year $ 24,619 $ 21,171 $ 20,407
Acquisitions (a) -- 2,896 --
- --------------------------------------------------------------------------------
Losses and loss expenses incurred:
Current year 12,122 10,938 9,732
Prior years (b) (384) (281) (376)
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11,738 10,657 9,356
- --------------------------------------------------------------------------------
Losses and loss expenses paid:
Current year 4,978 4,389 2,976
Prior years 6,779 5,716 5,616
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11,757 10,105 8,592
- --------------------------------------------------------------------------------
Net reserve for losses and loss
expenses at end of year (c) $24,600 $24,619 $21,171
================================================================================
(a) Acquisitions include the opening balances with respect to Transatlantic
and 21st Century.
(b) Does not include the effects of foreign exchange adjustments which are
reflected in the "Net Losses and Loss Expense Reserve Development" table.
(c) See also Note 6(a) of Notes to Financial Statements.
Approximately 45 percent of the net losses and loss expense reserves are
paid out within two years of the date incurred. The remaining net losses and
loss expense reserves, particularly those associated with the casualty lines of
business, may extend to 20 years or more.
For further discussion regarding net reserves for losses and loss
expenses, see Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The reserve for losses and loss expenses as reported in AIG's Consolidated
Balance Sheet at December 31, 1999, differs from the total reserve reported in
the Annual Statements filed with state insurance departments and, where
appropriate, with foreign regulatory authorities. The differences at December
31, 1999 relate primarily to reserves for certain foreign operations. (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
The reserve for gross losses and loss expenses is prior to reinsurance and
represents the accumulation for reported losses and IBNR. Management reviews the
adequacy of established gross loss reserves in the manner previously described
for net loss reserves.
The "Analysis of Consolidated Gross Losses and Loss
6
8
Expense Reserve Development", which follows, presents the development of gross
losses and loss expense reserves for calendar years 1992 through 1999. As with
the net losses and loss expense reserve development, the deficiencies of $1.77
billion and $923 million for 1992 and 1993, and redundancies of $1.02 billion,
$1.44 billion, $2.02 billion, $1.15 billion and $1.15 billion for 1994, 1995,
1996, 1997 and 1998, respectively, are relatively insignificant both in terms of
an aggregate amount and as a percentage of the initial reserve balance.
Analysis of Consolidated Gross Losses and
Loss Expense Reserve Development
(in millions)
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1992 1993 1994 1995 1996 1997 1998 1999
====================================================================================================================================
Gross Losses and
Loss Expenses,
December 31, $28,157 $30,046 $31,435 $33,047 $33,430 $33,400 $38,310 $38,252
Paid (Cumulative)
as of:
One Year Later 7,281 8,807 7,640 8,392 9,199 9,185 10,344
Two Years Later 13,006 13,279 13,036 15,496 15,043 14,696
Three Years Later 16,432 17,311 17,540 18,837 18,721
Four Years Later 18,550 20,803 20,653 21,811
Five Years Later 21,322 22,895 22,634
Six Years Later 22,807 23,779
Seven Years Later 23,684
Gross Liability Reestimated
as of:
End of Year 28,157 30,046 31,435 33,047 33,430 33,400 38,310 38,252
One Year Later 28,253 29,866 30,759 32,372 32,777 32,337 37,161
Two Years Later 27,825 29,537 30,960 32,398 31,719 32,251
Three Years Later 27,727 30,362 30,825 31,759 31,407
Four Years Later 28,625 31,020 30,508 31,604
Five Years Later 29,701 30,881 30,417
Six Years Later 29,605 30,969
Seven Years Later 29,929
Redundancy/(Deficiency) (1,772) (923) 1,018 1,443 2,023 1,149 1,149
====================================================================================================================================
Life Insurance Operations
AIG's life insurance subsidiaries offer a wide range of traditional insurance
and financial and investment products. One or more of these subsidiaries is
licensed to write life insurance in all states in the United States and in over
70 foreign countries. Traditional products consist of individual and group life,
annuity, endowment and accident and health policies. Financial and investment
products consist of single premium annuity, variable annuities, guaranteed
investment contracts, universal life and pensions. (See also Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
Life insurance operations in foreign countries comprised 92.1 percent of
life premium income and 66.0 percent of operating income in 1999. AIG operates
overseas principally through American Life Insurance Company (ALICO), American
International Assurance Company, Limited together with American International
Assurance Company (Bermuda) Limited (AIA) and Nan Shan Life Insurance Company,
Ltd. (Nan Shan). ALICO is incorporated in Delaware and all of its business is
written outside of the United States. ALICO has operations either directly or
through subsidiaries in approximately 50 countries located in Europe, Africa,
Latin America, the Caribbean, the Middle East, and the Far East, with Japan
being the largest territory. AIA operates primarily in Hong Kong, Singapore,
Malaysia and Thailand. Nan Shan operates in Taiwan. These operations comprised
89.8 percent of AIG's consolidated life premium income. (See also Note 18 of
Notes to Financial Statements.)
AIG's domestic life operations are comprised of two separate operations,
AIG's domestic life companies and the life insurance subsidiaries of SunAmerica.
AIG's predominant domestic life subsidiaries are American International Life
Assurance Company of New York and AIG Life Insurance Company. These companies
utilize multiple distribution channels including brokerage and career and
general agents to offer primarily life insurance, financial and investment
products and specialty forms of accident and health coverage for individuals and
groups, including employee benefit plans. SunAmerica sells primarily financial
and investment type products. The domestic life operations comprised 7.9 percent
of total life premium income in 1999.
There was no significant adverse effect on AIG's life insurance results of
operations from economic environments in any one state, country or geographic
region for the year ended December 31, 1999. (See also Management's Discussion
and Analysis of Financial Condition and Results of Operations.)
Traditional life insurance products such as whole life and endowment
continue to be significant in the overseas companies, especially in Southeast
Asia, while a mixture of traditional, accident and health and financial products
are sold in Japan.
In addition to the above, AIG also has subsidiary operations in the
Philippines, Canada, Mexico, Poland, Switzerland, Puerto Rico, and conducts life
insurance business through AIUO subsidiary companies in Russia, Israel and in
certain countries in Central and South America.
7
9
The foreign life companies have approximately 125,000 career agents and
sell their products largely to indigenous persons in local currencies. In
addition to the agency outlets, these companies also distribute their products
through direct marketing channels, such as mass marketing, and through brokers
and other distribution outlets such as financial institutions.
The following tables summarize the life insurance operating results for
the years ended December 31, 1999 and 1998. (See also Management's Discussion
and Analysis of Financial Condition and Results of Operations.)
(dollars in millions)
- -----------------------------------------------------------------------------------------------------------------------------------
Average
Net Termination Rate
Premium Investment Operating Insurance ----------------------
December 31, 1999 Income Income Income (a) In-Force Lapse Other
===================================================================================================================================
Individual:
Life $ 8,491 $2,630 $1,487 $431,507 (b) 7.0% 1.6%
Annuity 334 1,600 244 (c)
Accident and health 1,643 115 432 (c)
Group:
Life 619 37 66 153,452 8.5% 2.7%
Pension 252 1,805 765 (c)
Accident and health 603 27 20 (c)
Realized capital losses -- -- (148) (c)
Consolidation adjustments -- (8) (8) (c)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $11,942 $6,206 $2,858 $584,959
===================================================================================================================================
(a) Including income related to investment type products.
(b) Including $304.7 billion of whole life insurance and endowments.
(c) Not applicable.
(dollars in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Average
Net Termination Rate
Premium Investment Operating Insurance -----------------------
December 31, 1998 Income Income Income (a) In-Force Lapse Other
====================================================================================================================================
Individual:
Life $ 7,391 $2,260 $1,244 $381,181 (b) 6.8% 1.4%
Annuity 284 1,598 292 (c)
Accident and health 1,297 95 361 (c)
Group:
Life 513 32 55 122,468 10.6% 5.1%
Pension 229 1,197 480 (c)
Accident and health 579 27 23 (c)
Realized capital losses -- -- (74) (c)
Consolidation adjustments -- (8) (8) (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $10,293 $5,201 $2,373 $503,649
====================================================================================================================================
(a) Including income related to investment type products.
(b) Including $280.1 billion of whole life insurance and endowments.
(c) Not applicable.
8
10
AIG's individual life insurance and group life insurance portfolio
accounted for 52 percent, 53 percent and 52 percent of AIG's consolidated life
insurance operating income before realized capital losses for the years ended
December 31, 1999, 1998 and 1997, respectively. For the years ended December 31,
1999, 1998 and 1997, 64.7 percent, 68.0 percent and 69.3 percent, respectively,
of consolidated life operating income before realized capital losses was derived
from foreign operations.
Insurance Investment Operations
A significant portion of AIG's general and life operating revenues are derived
from AIG's insurance investment operations. (See also Management's Discussion
and Analysis of Financial Condition and Results of Operations and Notes 1, 2, 8
and 18 of Notes to Financial Statements.)
The following tables summarize the composition of AIG's insurance invested
assets by insurance segment, including investment income due and accrued and
real estate, at December 31, 1999 and 1998:
(dollars in millions)
- -----------------------------------------------------------------------------------------------------------------------------------
Percent Distribution
General Life Percent -------------------------
December 31, 1999 Insurance Insurance Total of Total Domestic Foreign
===================================================================================================================================
Fixed maturities:
Available for sale, at market value (a) $16,903 $61,022 $ 77,925 61.6% 53.5% 46.5%
Held to maturity, at amortized cost 12,078 -- 12,078 9.5 100.0 --
Equity securities, at market value (b) 4,000 2,503 6,503 5.1 50.2 49.8
Mortgage loans on real estate, policy and
collateral loans 70 10,420 10,490 8.3 57.0 43.0
Short-term investments, including
time deposits, and cash 977 5,710 6,687 5.3 45.1 54.9
Real estate 381 1,141 1,522 1.2 18.5 81.5
Investment income due and accrued 576 1,421 1,997 1.6 48.0 52.0
Other invested assets 4,150 5,138 9,288 7.4 85.1 14.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total $39,135 $87,355 $126,490 100.0% 59.5% 40.5%
==================================================================================================================================
(a) Includes $1.04 billion of bonds trading securities, at market value.
(b) Includes $697 million of non-redeemable preferred stocks, at market value.
(dollars in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Distribution
General Life Percent ------------------------
December 31, 1998 Insurance Insurance Total of Total Domestic Foreign
====================================================================================================================================
Fixed maturities:
Available for sale, at market value (a) $15,939 $51,237 $ 67,176 59.0% 56.4% 43.6%
Held to maturity, at amortized cost 12,658 -- 12,658 11.1 100.0 --
Equity securities, at market value (b) 3,923 2,092 6,015 5.3 54.1 45.9
Mortgage loans on real estate, policy and collateral loans 70 9,894 9,964 8.7 55.5 44.5
Short-term investments, including
time deposits, and cash 873 5,835 6,708 5.9 42.6 57.4
Real estate 393 1,124 1,517 1.3 18.2 81.8
Investment income due and accrued 568 1,197 1,765 1.5 51.2 48.8
Other invested assets 4,459 3,699 8,158 7.2 85.9 14.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total $38,883 $75,078 $113,961 100.0% 61.7% 38.3%
====================================================================================================================================
(a) Includes $1.01 billion of bonds trading securities, at market value.
(b) Includes $593 million of non-redeemable preferred stocks, at market value.
9
11
The following table summarizes the investment results of the general
insurance operations. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 8 of Notes to Financial
Statements.)
(dollars in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Average Cash and Invested Assets
---------------------------------------
Cash
(including Net Realized
short-term Invested Investment Rate of Return on Capital
Years Ended December 31, investments) Assets(a) Total Income(b) Invested Assets Gains
==================================================================================================================================
1999 $925 $38,084 $39,009 $2,517 6.5%(c) 6.6%(d) $295
1998 745 34,619 35,364 2,192 6.2%(c) 6.3%(d) 205
1997 611 29,704 30,315 1,854 6.1%(c) 6.2%(d) 128
1996 630 27,048 27,678 1,691 6.1%(c) 6.3%(d) 65
1995 825 24,417 25,242 1,547 6.1%(c) 6.3%(d) 68
==================================================================================================================================
(a) Including investment income due and accrued and real estate.
(b) Net investment income is after deduction of investment expenses and
excludes realized capital gains.
(c) Net investment income divided by the annual average sum of cash and
invested assets.
(d) Net investment income divided by the annual average invested assets.
The following table summarizes the investment results of the life
insurance operations. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 8 of Notes to Financial
Statements.)
(dollars in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Average Cash and Invested Assets
---------------------------------------
Cash Realized
(including Net Capital
short-term Invested Investment Rate of Return on Gains
Years Ended December 31, investments) Assets(a) Total Income(b) Invested Assets (Losses)
==================================================================================================================================
1999 $5,772 $75,444 $81,216 $6,206 7.6%(c) 8.2%(d) $(148)
1998 4,619 65,796 70,415 5,201 7.4%(c) 7.9%(d) (74)
1997 2,467 57,849 60,316 4,521 7.5%(c) 7.8%(d) (9)
1996 1,809 48,158 49,967 3,805 7.6%(c) 7.9%(d) 4
1995 1,934 38,990 40,924 3,059 7.5%(C) 7.8%(d) 1
==================================================================================================================================
(a) Including investment income due and accrued and real estate.
(b) Net investment income is after deduction of investment expenses and
excludes realized capital gains.
(c) Net investment income divided by the annual average sum of cash and
invested assets.
(d) Net investment income divided by the annual average invested assets.
AIG's worldwide insurance investment policy places primary emphasis on
investments in high quality, fixed income securities in all of its portfolios
and, to a lesser extent, investments in marketable common stocks in order to
preserve policyholders' surplus and generate net investment income. The ability
to implement this policy is somewhat limited in certain territories as there may
be a lack of qualified long term investments or investment restrictions may be
imposed by the local regulatory authorities. (See also Management's Discussion
and Analysis of Financial Condition and Results of Operations.)
Financial Services Operations
AIG's financial services subsidiaries engage in diversified financial products
and services including aircraft, consumer and premium financing, and banking
services.
International Lease Finance Corporation (ILFC) engages primarily in the
acquisition of new and used commercial jet aircraft and the leasing and
remarketing of such aircraft to airlines around the world. (See also Note 18 of
Notes to Financial Statements.)
AIG Financial Products Corp. and its subsidiaries (AIGFP) structure
financial transactions, including long-dated interest rate and currency swaps
and structures borrowing through notes, bonds and guaranteed investment
agreements. (See also Note 18 of Notes to Financial Statements.)
AIG Trading Group Inc. and its subsidiaries (AIGTG) engage in various
commodities trading, foreign exchange trading, interest rate swaps and market
making activities. (See also Note 18 of Notes to Financial Statements.)
Together these three operations comprise 94.5 percent of the commissions,
transaction and other fees of AIG's consolidated financial services operations.
10
12
The following table is a summary of the composition of AIG's financial
services and asset management invested assets and liabilities at December 31,
1999 and 1998. (See also Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 1 of Notes to Financial
Statements.)
(in millions) 1999 1998
============================================================================
Financial services and asset management
invested assets:
Flight equipment primarily under operating
leases, net of accumulated depreciation $17,334 $16,330
Securities available for sale, at market value 12,954 10,674
Trading securities, at market value 4,391 5,668
Spot commodities, at market value 683 476
Unrealized gain on interest rate and currency
swaps, options and forward transactions 7,931 9,881
Trading assets 5,793 6,229
Securities purchased under agreements to
resell, at contract value 10,897 4,838
Other, including short-term investments 2,565 2,523
- ----------------------------------------------------------------------------
Total $62,548 $56,619
============================================================================
Financial services and asset management liabilities:
Borrowings under obligations of guaranteed
investment agreements $ 9,430 $ 9,188
Securities sold under agreements to
repurchase, at contract value 6,116 4,473
Trading liabilities 3,821 4,664
Securities and spot commodities sold but not
yet purchased, at market value 6,413 4,457
Unrealized loss on interest rate and currency
swaps, options and forward transactions 8,624 7,055
Trust deposits and deposits due to banks and
other depositors 2,175 1,682
Commercial paper 2,958 3,204
Notes, bonds and loans payable 16,806 15,249
- ----------------------------------------------------------------------------
Total $56,343 $49,972
============================================================================
The following table is a summary of the revenues and operating income of
AIG's principal financial services operations for the year ended December 31,
1999, 1998 and 1997. (See also Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 1 of Notes to Financial
Statements.)
Operating
(in millions) Revenues Income
============================================================================
1999
ILFC $2,194 $590
AIGFP* 737 482
AIGTG* 227 109
============================================================================
1998
ILFC $2,002 $496
AIGFP* 550 323
AIGTG* 374 123
============================================================================
1997
ILFC $1,857 $382
AIGFP* 452 241
AIGTG* 562 127
============================================================================
* Revenues represent commissions, transaction and other fees.
A.I. Credit Corp. and Imperial Premium Finance, Inc. also contribute to
financial services income. These operations engage principally in premium
financing. (See also Management's Discussion and Analysis of Financial Condition
and Results of Operations and Notes 1, 9 and 12 of Notes to Financial
Statements.)
AIG Consumer Finance Group, Inc., through its subsidiaries, is engaged in
developing a multi-product consumer finance business with an emphasis on
emerging markets.
Asset Management Operations
AIG's asset management operations offer a wide variety of investment vehicles
and services, including variable annuities, mutual funds, and investment asset
management. Such products and services are offered to individuals and
institutions both domestically and internationally.
AIG's three principal asset management operations are SunAmerica's asset
management operations (SAAMCo), AIG Global Investment Group, Inc. and its
subsidiaries (Global Investment) and AIG Capital Partners, Inc. (Cap Partners).
SAAMCo develops and sells variable annuities and other investment products,
sells and manages mutual funds and provides financial services. Global
Investment manages invested assets of institutions, including insurance
companies and pension funds, and provides custodial services. Cap Partners
organizes, and manages the invested assets of institutional investment funds and
may also invest in such funds. Each of these subsidiary operations receives fees
for investment products and services provided.
Other Operations
Small AIG subsidiaries provide insurance-related services such as adjusting
claims and marketing specialized products. AIG has several other relatively
minor subsidiaries which carry on various businesses. American International
Technology Enterprises, Inc. provides information technology and processing
services to businesses worldwide. Mt. Mansfield Company, Inc. owns and operates
the ski slopes, lifts, school and an inn located at Stowe, Vermont.
Additional Investments
AIG holds a 24.4 percent interest in IPC Holdings, Ltd., a reinsurance holding
company and a 19.9 percent interest in Richmond Insurance Company, Ltd., a
reinsurer. (See also Note 1(o) of Notes to Financial Statements.)
Locations of Certain Assets
As of December 31, 1999, approximately 32 percent of the consolidated assets of
AIG were located in foreign countries (other than Canada), including $894
million of cash and securities on deposit with foreign regulatory authorities.
Foreign operations and assets held abroad may be adversely affected by political
developments in foreign countries, including such possibilities as tax changes,
nationalization and changes in
11
13
regulatory policy, as well as by consequence of hostilities and unrest. The
risks of such occurrences and their overall effect upon AIG vary from country to
country and cannot easily be predicted. If expropriation or nationalization does
occur, AIG's policy is to take all appropriate measures to seek recovery of such
assets. Certain of the countries in which AIG's business is conducted have
currency restrictions which generally cause a delay in a company's ability to
repatriate assets and profits. (See also Notes 1, 2 and 18 of Notes to Financial
Statements.)
Insurance Regulation and Competition
Certain states require registration and periodic reporting by insurance
companies which are licensed in such states and are controlled by other
corporations. Applicable legislation typically requires periodic disclosure
concerning the corporation which controls the registered insurer and the other
companies in the holding company system and prior approval of intercorporate
transfers of assets (including in some instances payment of dividends by the
insurance subsidiary) within the holding company system. AIG's subsidiaries are
registered under such legislation in those states which have such
requirements.(See also Note 11 of Notes to Financial Statements.)
AIG's insurance subsidiaries, in common with other insurers, are subject
to regulation and supervision by the states and by other jurisdictions in which
they do business. Within the United States, the method of such regulation varies
but generally has its source in statutes that delegate regulatory and
supervisory powers to an insurance official. The regulation and supervision
relate primarily to approval of policy forms and rates, the standards of
solvency that must be met and maintained, including risk based capital
measurements, the licensing of insurers and their agents, the nature of and
limitations on investments, restrictions on the size of risks which may be
insured under a single policy, deposits of securities for the benefit of
policyholders, methods of accounting, periodic examinations of the affairs of
insurance companies, the form and content of reports of financial condition
required to be filed, and reserves for unearned premiums, losses and other
purposes. In general, such regulation is for the protection of policyholders
rather than security holders. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
Risk Based Capital (RBC) is designed to measure the adequacy of an
insurer's statutory surplus in relation to the risks inherent in its business.
Thus, inadequately capitalized general and life insurance companies may be
identified.
The RBC formula develops a risk adjusted target level of adjusted
statutory capital by applying certain factors to various asset, premium and
reserve items. Higher factors are applied to more risky items and lower factors
are applied to less risky items. Thus, the target level of statutory surplus
varies not only as a result of the insurer's size, but also on the risk profile
of the insurer's operations.
The RBC Model Law provides for four incremental levels of regulatory
attention for insurers whose surplus is below the calculated RBC target. These
levels of attention range in severity from requiring the insurer to submit a
plan for corrective action to actually placing the insurer under regulatory
control.
The statutory surplus of each of AIG's domestic general and life insurance
subsidiaries exceeded their RBC standards by considerable margins as of December
31, 1999.
To the extent that any of AIG's insurance entities would fall below
prescribed levels of surplus, it would be AIG's intention to infuse necessary
capital to support that entity.
A substantial portion of AIG's general insurance business and a majority
of its life insurance business is carried on in foreign countries. The degree of
regulation and supervision in foreign jurisdictions varies from minimal in some
to stringent in others. Generally, AIG, as well as the underwriting companies
operating in such jurisdictions, must satisfy local regulatory requirements.
Licenses issued by foreign authorities to AIG subsidiaries are subject to
modification or revocation by such authorities, and AIU or other AIG
subsidiaries could be prevented from conducting business in certain of the
jurisdictions where they currently operate. In the past, AIU has been allowed to
modify its operations to conform with new licensing requirements in most
jurisdictions.
In addition to licensing requirements, AIG's foreign operations are also
regulated in various jurisdictions with respect to currency, policy language and
terms, amount and type of security deposits, amount and type of reserves, amount
and type of local investment and the share of profits to be returned to
policyholders on participating policies. Some foreign countries regulate rates
on various types of policies. Certain countries have established reinsurance
institutions, wholly or partially owned by the state, to which admitted insurers
are obligated to cede a portion of their business on terms which do not always
allow foreign insurers, including AIG, full compensation. In some countries,
regulations governing constitution of technical reserves and remittance balances
may hinder remittance of profits and repatriation of assets.
The insurance industry is highly competitive. Within the United States,
AIG's general insurance subsidiaries compete with approximately 3,000 other
stock companies, specialty insurance organizations, mutual companies and other
underwriting organizations. AIG's life insurance companies compete in the United
States with some 1,700 life insurance companies and other participants in
related financial service fields. Overseas, AIG subsidiaries compete for
business with foreign insurance operations of the larger U.S. insurers and local
companies in particular areas in which they are active.
AIG's financial services subsidiaries, particularly AIGTG and AIGFP,
operate in a highly competitive environment, both domestically and overseas.
Principal sources of competition are banks, investment banks and other non-bank
financial institutions.
12
14
ITEM 2. Properties
AIG and its subsidiaries operate from approximately 360 offices in the United
States, 5 offices in Canada and numerous offices in approximately 100 foreign
countries. The offices in Springfield, Illinois; Houston, Texas; Atlanta,
Georgia; Baton Rouge, Louisiana; Wilmington, Delaware; Hato Rey, Puerto Rico;
San Diego, California; Greensboro, North Carolina; Livingston, New Jersey; 70
Pine Street, 72 Wall Street and 175 Water Street in New York City; and offices
in approximately 30 foreign countries including Bermuda, Chile, Hong Kong, the
Philippines, Japan, England, Singapore, Switzerland, Taiwan and Thailand are
located in buildings owned by AIG and its subsidiaries. The remainder of the
office space utilized by AIG subsidiaries is leased.
ITEM 3. Legal Proceedings
AIG and its subsidiaries, in common with the insurance industry in general, are
subject to litigation, including claims for punitive damages, in the normal
course of their business. AIG does not believe that such litigation will have a
material adverse effect on its financial condition, future operating results or
liquidity. (See also the Discussion and Analysis of Consolidated Net Losses and
Loss Expense Reserve Development and Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
Directors and Executive Officers of the Registrant
Set forth below is certain information concerning the directors and executive
officers of AIG. All directors are elected at the annual meeting of
shareholders. All officers serve at the pleasure of the Board of Directors, but
subject to the foregoing, are elected for terms of one year expiring in May of
each year.
- --------------------------------------------------------------------------------------------------------------------------------
Served as
Director or
Officer
Name Title Age Since
================================================================================================================================
M. Bernard Aidinoff* Director 71 1984
Eli Broad Director 66 1999
Pei-yuan Chia Director 61 1996
Marshall A. Cohen Director 64 1992
Barber B. Conable, Jr. Director 77 1991
Martin S. Feldstein Director 60 1987
Ellen V. Futter Director 50 1999
Leslie L. Gonda Director 80 1990
Evan G. Greenberg* Director, President and Chief Operating Officer 45 1995
M. R. Greenberg* Director, Chairman and Chief Executive Officer 74 1967
Carla A. Hills Director 66 1993
Frank J. Hoenemeyer* Director 80 1985
Edward E. Matthews* Director and Vice Chairman - Investments and Financial Services 68 1973
Dean P. Phypers Director 71 1979
Howard I. Smith Director, Executive Vice President, Chief Financial Officer and Comptroller 55 1984
Thomas R. Tizzio* Director and Senior Vice Chairman - General Insurance 62 1982
Edmund S. W. Tse Director and Vice Chairman - Life Insurance 62 1991
Jay S. Wintrob Director 43 1999
Frank G. Wisner Director and Vice Chairman - External Affairs 61 1997
Edwin E. Manton Senior Advisor 91 1967
John J. Roberts Senior Advisor 77 1967
Ernest E. Stempel Senior Advisor 83 1967
Kristian P. Moor Executive Vice President - Domestic General Insurance 40 1998
R. Kendall Nottingham Executive Vice President - Life Insurance 61 1998
Robert M. Sandler Executive Vice President, Senior Casualty Actuary and Senior Claims Officer 57 1980
Martin J. Sullivan Executive Vice President - Foreign General Insurance 45 1997
William N. Dooley Senior Vice President - Financial Services 47 1992
Lawrence W. English Senior Vice President - Administration 58 1985
Axel I. Freudmann Senior Vice President - Human Resources 53 1986
Win J. Neuger Senior Vice President and Chief Investment Officer 50 1995
Ernest T. Patrikis Senior Vice President and General Counsel 56 1998
Robert E. Lewis Vice President and Chief Credit Officer 49 1993
Charles M. Lucas Vice President and Director of Market Risk Management 61 1996
Frank Petralito II Vice President and Director of Taxes 63 1978
Kathleen E. Shannon Vice President and Secretary 50 1986
John T. Wooster, Jr. Vice President - Communications 60 1989
Carol A. McFate Treasurer 47 1998
================================================================================================================================
* Member of Executive Committee.
13
15
Except as hereinafter noted, each of the directors who is also an
executive officer of AIG and each of the other executive officers has, for more
than five years, occupied an executive position with AIG or companies that are
now its subsidiaries, or with Starr. Evan G. Greenberg is the son of M.R.
Greenberg. There are no other arrangements or understandings between any
director or officer and any other person pursuant to which the director or
officer was elected to such position. Prior to joining AIG in 1998, Mr. Patrikis
was First Vice President at the Federal Reserve Bank of New York, previously
having served as Executive Vice President and General Counsel. Mr. Lucas was
Senior Vice President at Republic National Bank of New York prior to joining AIG
in 1996. Ms. McFate was Assistant Treasurer of AIG and Director of Financial
Analysis of AIG prior to being elected Treasurer of AIG in 1998 and was Senior
Vice President - Investment Management at Prudential Insurance Company prior to
joining AIG in 1994. Mr. Wisner served as a career foreign service officer with
the United States Department of State from 1961 through July, 1997, with his
last position being Ambassador to India.
PART II
================================================================================
ITEM 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
(a) The table below shows the high and low closing sales prices per share of
AIG's common stock, as reported on the New York Stock Exchange Composite Tape,
for each quarter of 1999 and 1998, as adjusted for the common stock split in the
form of a 25 percent common stock dividend paid July 30, 1999 and the common
stock split in the form of a 50 percent common stock dividend paid July 31,
1998. All prices are as reported by the National Quotation Bureau, Incorporated.
- --------------------------------------------------------------------------------
1999 1998
--------------------- ------------------
High Low High Low
================================================================================
First Quarter 98 1/8 78 69 53 5/8
Second Quarter 106 3/8 89 3/16 77 7/8 65 7/16
Third Quarter 99 3/4 84 1/2 81 9/16 61
Fourth Quarter 111 11/16 82 80 11/16 53 1/4
================================================================================
(b) In 1999, AIG paid a quarterly dividend of 4.5 cents in March and June
and 5.0 cents in September and December for a total cash payment of 19 cents per
share of common stock. In 1998, AIG paid a quarterly dividend of 4.0 cents in
March and June and 4.5 cents in September and December for a total cash payment
of 17 cents per share of common stock. These amounts reflect the adjustment for
common stock splits described above. Subject to the dividend preference of any
of AIG's serial preferred stock which may be outstanding, the holders of shares
of common stock are entitled to receive such dividends as may be declared by the
Board of Directors from funds legally available therefor.
See Note 11(a) of Notes to Financial Statements for a discussion of
certain restrictions on the payment of dividends to AIG by some of its insurance
subsidiaries.
(c) The approximate number of holders of Common Stock as of January 31,
2000, based upon the number of record holders, was 26,000.
================================================================================
14
16
ITEM 6. Selected Financial Data
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data, which has been restated to
include the operations of SunAmerica Inc., the Maryland corporation which was
merged into AIG on January 1, 1999, on a pooling of interest basis, is presented
in accordance with generally accepted accounting principles. This data should be
read in conjunction with the financial statements and accompanying notes
included elsewhere herein.
(in millions, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997 1996 1995
===================================================================================================================================
Revenues (a) $ 40,656 $ 35,716 $ 32,553 $ 29,325 $ 26,610
General insurance:
Net premiums written 16,224 14,586 13,408 12,692 11,893
Net premiums earned 15,544 14,098 12,421 11,855 11,406
Adjusted underwriting profit 669 531 490 450 417
Net investment income 2,517 2,192 1,854 1,691 1,547
Realized capital gains 295 205 128 65 68
Operating income 3,481 2,928 2,472 2,206 2,032
Life insurance:
Premium income 11,942 10,293 9,956 8,995 8,044
Net investment income 6,206 5,201 4,521 3,805 3,059
Realized capital gains (losses) (148) (74) (9) 4 1
Operating income 2,858 2,373 2,048 1,657 1,331
Financial services operating income 1,081 869 671 501 424
Asset management operating income 314 191 127 101 35
Equity in income of minority-owned insurance operations -- 57 114 99 82
Other realized capital losses (25) (7) (29) (12) (30)
Other income (deductions)--net (197) (134) (93) (84) (91)
Income before income taxes and minority interest 7,512 6,277 5,310 4,468 3,783
Income taxes 2,219 1,785 1,525 1,234 1,041
Income before minority interest 5,293 4,492 3,785 3,234 2,742
Minority interest (238) (210) (74) (63) (38)
Net income 5,055 4,282 3,711 3,171 2,704
Earnings per common share (b) :
Basic 3.27 2.81 2.45 2.08 1.78
Diluted 3.23 2.75 2.40 2.05 1.75
Cash dividends per common share (c) .19 .17 .15 .13 .11
Total assets 268,238 233,676 199,614 172,330 150,981
Long-term debt (d) 22,896 22,720 18,950 18,079 14,977
Capital funds (shareholders' equity) 33,306 30,123 26,585 23,705 21,040
===================================================================================================================================
(a) Represents the sum of general net premiums earned, life premium income,
net investment income, financial services commissions, transaction and
other fees, asset management commissions and other fees, equity in income
of minority-owned insurance operations, and realized capital gains
(losses). Commencing in 1997, agency operations were presented as a
component of general insurance and for years prior to 1997 agency results
have been reclassified to conform to this presentation.
(b) Per share amounts for all periods presented have been retroactively
adjusted to reflect all stock dividends and splits and reflect the
adoption of the Statement of Financial Accounting Standards No. 128
"Earnings per Share."
(c) Cash dividends have not been restated to reflect dividends paid by
SunAmerica Inc.
(d) Including commercial paper and excluding that portion of long-term debt
maturing in less than one year.
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American International Group, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operational Review
General Insurance Operations
AIG's general insurance subsidiaries are multiple line companies writing
substantially all lines of property and casualty insurance.
Domestic general insurance operations are comprised of the Domestic
Brokerage Group (DBG), which includes the domestic operations of Transatlantic
Holdings, Inc. (Transatlantic), Personal Lines, including 21st Century Insurance
Group (21st Century), and Mortgage Guaranty.
Commencing with the third quarter of 1998, Transatlantic and 21st Century
were consolidated into AIG's financial statements, as a result of AIG obtaining
majority ownership.
DBG is AIG's primary domestic division. DBG writes substantially all
classes of business insurance, accepting such business mainly from insurance
brokers. This provides DBG the opportunity to select specialized markets and
retain underwriting control. Any licensed broker is able to submit business to
DBG without the traditional agent-company contractual relationship, but such
broker usually has no authority to commit DBG to accept a risk.
Personal Lines engages in the mass marketing of personal lines insurance,
primarily private passenger auto and includes homeowners and personal umbrella
coverages.
Mortgage Guaranty provides guaranty insurance on conventional first
mortgage loans on single family dwellings and condominiums.
AIG's Foreign General insurance group accepts risks primarily underwritten
through American International Underwriters (AIU), a marketing unit consisting
of wholly owned agencies and insurance entities. The Foreign General insurance
group also includes business written by AIG's foreign-based insurance
subsidiaries for their own accounts. The Foreign General insurance group uses
various marketing methods to write both business and personal lines insurance
with certain refinements for local laws, customs and needs. AIU operates in over
70 countries in Asia, the Pacific Rim, Europe, Africa, Middle East and Latin
America. Transatlantic's foreign operations are included in this group. (See
also Note 18 of Notes to Financial Statements.)
General insurance operations for the twelve month periods ending December
31, 1999, 1998 and 1997 were as follows:
(in millions)
- --------------------------------------------------------------------------------
1999 1998 1997
================================================================================
Net premiums written:
Domestic $ 10,678 $ 9,787 $ 9,038
Foreign 5,546 4,799 4,370
- --------------------------------------------------------------------------------
Total $ 16,224 $ 14,586 $ 13,408
================================================================================
Net premiums earned:
Domestic $ 10,083 $ 9,471 $ 8,352
Foreign 5,461 4,627 4,069
- --------------------------------------------------------------------------------
Total $ 15,544 $ 14,098 $ 12,421
================================================================================
Adjusted underwriting profit (loss):
Domestic $ 359 $ 9 $ (7)
Foreign 310 522 497
- --------------------------------------------------------------------------------
Total $ 669 $ 531 $ 490
================================================================================
Net investment income:
Domestic $ 1,995 $ 1,754 $ 1,485
Foreign 522 438 369
- --------------------------------------------------------------------------------
Total $ 2,517 $ 2,192 $ 1,854
================================================================================
Operating income before realized capital gains:
Domestic $ 2,354 $ 1,763 $ 1,478
Foreign 832 960 866
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Total 3,186 2,723 2,344
Realized capital gains 295 205 128
- --------------------------------------------------------------------------------
Operating income $ 3,481 $ 2,928 $ 2,472
================================================================================
In AIG's general insurance operations, 1999 net premiums written and net
premiums earned increased 11.2 percent and 10.3 percent, respectively, from
those of 1998. In 1998, net premiums written increased 8.8 percent and net
premiums earned increased 13.5 percent when compared to 1997.
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American International Group, Inc. and Subsidiaries
General insurance domestic net premiums written and net premiums earned
were as follows:
(in millions)
- --------------------------------------------------------------------------------
1999 1998 1997
================================================================================
Net premiums written:
DBG $ 8,119 $ 8,002 $ 7,885
Personal Lines 2,162 1,422 812
Mortgage Guaranty 397 363 341
- --------------------------------------------------------------------------------
Total $ 10,678 $ 9,787 $ 9,038
================================================================================
Net premiums earned:
DBG $ 7,608 $ 7,814 $ 7,207
Personal Lines 2,079 1,280 790
Mortgage Guaranty 396 377 355
- --------------------------------------------------------------------------------
Total $ 10,083 $ 9,471 $ 8,352
================================================================================
During the latter part of 1999, the commercial insurance market began to
experience some rate increases. However, this market remains competitive and
excessively capitalized. DBG has been able to sustain some growth in various
specialty markets, such as pollution, excess liability and risk management,
where AIG provides cost effective coverages for large complex risks,
underwriting flexibility, and creative risk financing solutions; however, in
1999 DBG declined to renew $450 million of domestic business where underwriting
and pricing standards could not be achieved. Non-renewed policies were
principally in the workers' compensation, traditional casualty and property
lines of business.
As reflected in the preceding table showing the distribution of net
premiums written and net premiums earned, domestic growth was primarily achieved
through the growth in the personal auto insurance segment of Personal Lines.
Personal Lines net premiums written increased $740 million in 1999 over 1998,
compared to an increase of $610 million in 1998 over 1997. The consolidation of
21st Century for twelve months in 1999 compared to six months in 1998 accounted
for approximately 50 percent of the increase. The balance of the increase was
related to the significant growth in the number of policies issued with respect
to preferred, standard and non-standard auto risks.
Growth of 15.6 percent and 18.0 percent for foreign general insurance net
premiums written and net premiums earned, respectively, in 1999 over 1998
reflect growth of operations in the United Kingdom, the Far East, and the
consolidation of Transatlantic's foreign operations for the twelve months in
1999 compared to six months in 1998. Foreign general insurance operations
produced 34.2 percent of the general insurance net premiums written in 1999,
32.9 percent in 1998 and 32.6 percent in 1997.
Differences in foreign exchange rates during 1999 relative to 1998 had a
negligible effect on foreign general insurance net premiums written when
translated from original currencies into U.S. dollars. (See also the discussion
under "Capital Resources" herein.)
Because of the nature and diversity of AIG's operations and the continuing
rapid changes in the insurance industry worldwide, together with the factors
discussed above, it is difficult to assess further or project future growth in
AIG's net premiums written and reserve for losses and loss expenses.
Net premiums written are initially deferred and earned based upon the
terms of the underlying policies. The net unearned premium reserve constitutes
deferred revenues which are generally earned ratably over the policy period.
Thus, the net unearned premium reserve is not fully recognized as net premiums
earned until the end of the policy period.
AIG, along with most general insurance entities, uses the loss ratio, the
expense ratio and the combined ratio as measures of performance. The loss ratio
is derived as the sum of losses and loss expenses incurred divided by net
premiums earned. The expense ratio is derived as statutory underwriting expenses
divided by net premiums written. The combined ratio is the sum of the loss ratio
and the expense ratio. These ratios are relative measurements that describe for
every $100 of net premiums earned or written, the cost of losses and statutory
expenses, respectively. The combined ratio presents the total cost per $100 of
premium production. A combined ratio below 100 demonstrates underwriting profit;
a combined ratio above 100 demonstrates underwriting loss. The statutory general
insurance ratios were as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
================================================================================
Domestic:
Loss Ratio 81.51 84.25 84.44
Expense Ratio 16.19 15.87 15.90
- --------------------------------------------------------------------------------
Combined Ratio 97.70 100.12 100.34
================================================================================
Foreign:
Loss Ratio 64.44 57.87 56.61
Expense Ratio 29.80 30.76 31.16
- --------------------------------------------------------------------------------
Combined Ratio 94.24 88.63 87.77
================================================================================
Consolidated:
Loss Ratio 75.51 75.59 75.33
Expense Ratio 20.84 20.77 20.87
- --------------------------------------------------------------------------------
Combined Ratio 96.35 96.36 96.20
================================================================================
AIG believes that underwriting profit is the true measure of the
performance of the core business of a general insurance company.
Underwriting profit is measured in two ways: statutory underwriting profit
and Generally Accepted Accounting Principles (GAAP) underwriting profit.
Statutory underwriting profit is arrived at by reducing net premiums
earned by net losses and loss expenses incurred and net expenses incurred.
Statutory accounting differs from GAAP, as statutory accounting requires
immediate expense recognition and ignores the matching of revenues and expenses
as required by GAAP. That is, for statutory purposes, all expenses, most
specifically acquisition expenses, are recognized immediately, not consistent
with the revenues earned.
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Management's Discussion and Analysis of
Financial Condition and Results of Operations (CONTINUED)
A basic premise of GAAP accounting is the recognition of expenses at the
same time revenues are earned, the principle of matching. Therefore, to convert
underwriting results to a GAAP basis, acquisition expenses are deferred and
recognized together with the related revenues. Accordingly, the statutory
underwriting profit has been adjusted as a result of acquisition expenses being
deferred as required by GAAP. Thus, "adjusted underwriting profit" is a GAAP
measurement which can be viewed as gross margin or an intermediate subtotal in
calculating operating income and net income.
A major part of the discipline of a successful general insurance company
is to produce an underwriting profit, exclusive of investment income. If
underwriting is not profitable, losses incurred are a major factor. The result
is that the premiums are inadequate to pay for losses and expenses and produce a
profit; therefore, investment income must be used to cover underwriting losses.
If assets and the income therefrom are insufficient to pay claims and expenses
over extended periods, an insurance company cannot survive. For these reasons,
AIG views and manages its underwriting operations separately from its investment
operations.
The adjusted underwriting profits were $669 million in 1999, $531 million
in 1998 and $490 million in 1997. Domestic adjusted underwriting profit
increased primarily as a result of the disciplined underwriting of DBG. Foreign
underwriting profit declined primarily as a result of catastrophe losses from
European storms. The regulatory, product type and competitive environment as
well as the degree of litigation activity in any one country varies
significantly. These factors have a direct impact on pricing and consequently
profitability as reflected by adjusted underwriting profit and statutory general
insurance ratios. (See also Notes 4 and 18 of Notes to Financial Statements.)
AIG's results reflect the net impact of incurred losses from catastrophes
approximating $156 million in 1999, $110 million in 1998 and $16 million in
1997. AIG's gross incurred losses from catastrophes approximated $472 million in
1999, $625 million in 1998 and $22 million in 1997. In 1999, the catastrophe
losses resulted primarily from European storms. The impact of losses caused by
catastrophes can fluctuate widely from year to year, making comparisons of
recurring type business more difficult. The pro forma table below excludes
catastrophe losses in order to present comparable results of AIG's recurring
core underwriting operations. The pro forma consolidated statutory general
insurance ratios would be as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
================================================================================
Loss Ratio 74.51 74.81 75.20
Expense Ratio 20.84 20.77 20.87
- --------------------------------------------------------------------------------
Combined Ratio 95.35 95.58 96.07
================================================================================
AIG's historic ability to maintain its combined ratio below 100 is
primarily attributable to the profitability of AIG's foreign general insurance
operations and AIG's emphasis on maintaining its disciplined underwriting,
especially in the domestic specialty markets. In 1999, the discipline in
domestic underwriting was critical in maintaining underwriting profit as the
foreign general combined ratio rose because of the impact of catastrophe losses.
In addition, AIG does not seek net premium growth where rates do not adequately
reflect its assessment of exposures.
General insurance net investment income in 1999 increased 14.8 percent
when compared to 1998. In 1998, net investment income increased 18.3 percent
over 1997. The growth in net investment income in each of the three years was
primarily attributable to new cash flow for investment and the consolidation of
Transatlantic and 21st Century for twelve months in 1999 compared to six months
in 1998. The new cash flow was generated from net general insurance operating
cash flow and included the compounding of previously earned and reinvested net
investment income. (See also the discussion under "Liquidity" herein and Note 8
of Notes to Financial Statements.)
General insurance realized capital gains were $295 million in 1999, $205
million in 1998 and $128 million in 1997. These realized gains resulted from the
ongoing management of the general insurance investment portfolios within the
overall objectives of the general insurance operations and arose primarily from
the disposition of equity securities and available for sale fixed maturities as
well as redemptions of fixed maturities.
General insurance operating income in 1999 increased 18.9 percent when
compared to 1998. The 1998 results reflect an increase of 18.4 percent from
1997. The contribution of general insurance operating income to income before
income taxes and minority interest was 46.3 percent in 1999 compared to 46.6
percent in 1998 and 1997.
AIG is a major purchaser of reinsurance for its general insurance
operations. AIG is cognizant of the need to exercise good judgment in the
selection and approval of both domestic and foreign companies participating in
its reinsurance programs. AIG insures risks in over 70 countries and its
reinsurance programs must be coordinated in order to provide AIG the level of
reinsurance protection that AIG desires. These reinsurance arrangements do not
relieve AIG from its direct obligations to its insureds.
AIG's general reinsurance assets amounted to $19.13 billion and resulted
from AIG's reinsurance arrangements. Thus, a credit exposure existed at December
31, 1999 with respect to reinsurance recoverable to the extent that any
reinsurer may not be able to reimburse AIG under the terms of these reinsurance
arrangements. AIG manages its credit risk in its reinsurance relationships by
transacting with reinsurers that it considers financially sound, and when
necessary AIG holds substantial collateral in the form of funds, securities
and/or irrevocable letters of credit. This collateral can be drawn on for
amounts that remain unpaid beyond specified time periods on an individual
reinsurer basis. At December 31, 1999, approximately 50 percent of the general
reinsurance assets were from unauthorized reinsurers. In order to obtain
statutory recogni-
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American International Group, Inc. and Subsidiaries
tion, nearly all of these balances were collateralized. The remaining 50 percent
of the general reinsurance assets were from authorized reinsurers and over 95
percent of such balances are from reinsurers rated A-(excellent) or better, as
rated by A.M. Best. This rating is a measure of financial strength. The terms
authorized and unauthorized pertain to regulatory categories, not
creditworthiness.
AIG maintains an allowance for estimated unrecoverable reinsurance and has
been largely successful in its previous recovery efforts. At December 31, 1999,
AIG had allowances for unrecoverable reinsurance approximating $78 million. At
that date, and prior to this allowance, AIG had no significant reinsurance
recoverables from any individual reinsurer which is financially troubled (e.g.,
liquidated, insolvent, in receivership or otherwise subject to formal or
informal regulatory restriction).
AIG's Reinsurance Security Department conducts ongoing detailed
assessments of the reinsurance markets and current and potential reinsurers,
both foreign and domestic. Such assessments include, but are not limited to,
identifying if a reinsurer is appropriately licensed, and has sufficient
financial capacity, and the local economic environment in which a foreign
reinsurer operates. This department also reviews the nature of the risks ceded
and the need for collateral. In addition, AIG's Credit Risk Committee reviews
the credit limits for and concentrations with any one reinsurer.
AIG enters into certain intercompany reinsurance transactions for its
general and life operations. AIG enters these transactions as a sound and
prudent business practice in order to maintain underwriting control and spread
insurance risk among various legal entities. These reinsurance agreements have
been approved by the appropriate regulatory authorities. All material
intercompany transactions have been eliminated in consolidation.
At December 31, 1999, the consolidated general reinsurance assets of
$19.13 billion include reinsurance recoverables for paid losses and loss
expenses of $2.54 billion and $13.65 billion with respect to the ceded reserve
for losses and loss expenses, including ceded losses incurred but not reported
(IBNR) (ceded reserves). The ceded reserves represent the accumulation of
estimates of ultimate ceded losses including provisions for ceded IBNR and loss
expenses. The methods used to determine such estimates and to establish the
resulting ceded reserves are continually reviewed and updated. Any adjustments
therefrom are reflected in income currently. It is AIG's belief that the ceded
reserves at December 31, 1999 were representative of the ultimate losses
recoverable. In the future, as the ceded reserves continue to develop to
ultimate amounts, the ultimate loss recoverable may be greater or less than the
reserves currently ceded.
At December 31, 1999, general insurance reserves for losses and loss
expenses (loss reserves) amounted to $38.25 billion. These loss reserves
represent the accumulation of estimates of ultimate losses, including IBNR, and
loss expenses and amounts of discounting related to certain workers'
compensation claims. At December 31, 1999, general insurance net loss reserves
decreased $19 million from prior year end to $24.60 billion. The decrease was
primarily attributable to the change in the mix of business. That is, claims
with respect to personal lines increased relative to commercial lines. Thus, the
subsequent payment of these personal lines claims is significantly faster as
these claims are deemed short tail lines, as described below. The net loss
reserves represent loss reserves reduced by reinsurance recoverables, net of an
allowance for unrecoverable reinsurance. The methods used to determine such
estimates and to establish the resulting reserves are continually reviewed and
updated. Any adjustments resulting therefrom are reflected in operating income
currently. It is management's belief that the general insurance net loss
reserves are adequate to cover all general insurance net losses and loss
expenses as at December 31, 1999. In the future, if the general insurance net
loss reserves develop deficiently, such deficiency would have an adverse impact
on such future results of operations.
In a very broad sense, the general loss reserves can be categorized into
two distinct groups: one group being long tail casualty lines of business. Such
lines include excess and umbrella liability, directors and officers' liability,
professional liability, medical malpractice, general liability, products'
liability, and related classes. These lines account for approximately one-half
of net losses and loss expenses. The other grou