AIG 2005 Annual Report Download - page 10

8Letter to Shareholders
AIG’s Capital Markets operations
comprise the businesses of AIG Financial
Products Corp. and its subsidiaries
(AIGFP), which engage as principal in a
customer driven financial transactions
business. AIGFP offers a wide spectrum of
standard and customized financial prod-
ucts, including commodities, credit, cur-
rencies, energy, equities and rates. Capital
Markets had operating income in 2005 of
$2.66 billion, compared to $662.4 million
in 2004. Excluding the effects of FAS 133,
Capital Markets operating income was
$647.3 million in 2005, compared to
$784.7 million in 2004. Fluctuations in
both revenues and operating income for
this segment are to be expected, given the
transactional nature of the business and
the volatility in reported results emanating
from the accounting treatment for deriva-
tives under FAS 133.
In Consumer Finance, a growing busi-
ness for AIG globally, operating income
rose 11.5 percent to $900.7 million. In
the United States, American General
Finance, Inc. is one of the largest con-
sumer finance organizations, with the
second largest consumer finance network
in the country, as well as a growing
Internet-based business. Overseas, AIG’s
consumer finance business was robust
in 2005, reporting record operating
income, with strong results in Poland,
Hong Kong and Argentina.
Asset Management
For years, AIG has been one of the
largest institutional asset managers
in the world, investing AIG’s own
general and life insurance investment
portfolios. Over the past 10 years, AIG
has also developed its outside client asset
management business conducted through
AIG Global Investment Group (AIG-
GIG). At year-end 2005, these client
assets under management, including insti-
tutional accounts and retail mutual funds,
exceeded $62 billion. Combined with
more than a half-trillion dollars of assets
AIGGIG manages for AIG’s insurance
companies, AIG ranks in the top five
institutional asset managers in the world.
Asset Management operating income rose
6.0 percent to a record $2.25 billion, and
new institutional assets in 2005 totaled
$13.55 billion.
Clients choose to invest alongside
AIG companies because of our extensive
knowledge of developed and emerging
markets worldwide, as well as our product
depth and capital markets expertise. We
are sharply focused on expanding our
international retail distribution through
intermediaries, as well as developing new
products in anticipation of market needs.
Public Policy Issues
In 2005, AIG worked hard on two
public policy issues that helped keep
the U.S. economy growing. The first
was the successful adoption by Congress
of class action reform after many years of
debate. This will help reduce the burden
on our economy of excessive litigation
and its hidden tax on business. The other
was the extension by Congress of the
terrorism insurance legislation that pro-
vides an essential federal backstop to the
private market, which cannot generate
sufficient capital for what is, ultimately,
an infinite risk.
AIG also remains actively engaged in
encouraging liberalization of world trade
through bilateral, regional and multilateral
initiatives. During the year, a number
of important free trade agreements were
negotiated and adopted. Although the
World Trade Organization negotiations
faltered over agricultural issues, we remain
cautiously optimistic that a multilateral
agreement, including liberalization of
key markets for financial services, will be
reached by year-end 2006.
AIG’s Report on Corporate Social Responsibility
AIG is firmly committed to being
a leader in all areas of social
responsibility. Giving back to
the communities we serve is a top priority
at AIG. Our new Board Public Policy and
Social Responsibility Committee will
help oversee and monitor AIG’s continued
progress in this important area and
further enhance our role as a good global
corporate citizen. Recently, AIG has
undertaken a corporate-wide project to
describe and highlight the activities of
AIG employees and units throughout the
world in the area of corporate social
responsibility, including environmental
initiatives, volunteerism, diversity, philan-
thropy and community service. This effort
AIG is committed
to being a good global
corporate citizen.