AIG 2005 Annual Report Download - page 78

Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
participates in the underwriting results through a reinsurance
Overview of Operations and Business Results
agreement and also holds a 9.9 percent ownership interest in
In 2003 and prior years, AIG’s operations were conducted by PICC. Other examples of new distribution channels used both
its subsidiaries principally through four operating segments: domestically and overseas include banks, affinity groups, direct
General Insurance, Life Insurance, Financial Services and response and e-commerce.
Retirement Services & Asset Management. Beginning with the AIG patiently builds relationships in markets around the
first quarter of 2004, AIG reports Retirement Services results world where it sees long-term growth opportunities. For
in the same segment as Life Insurance, reflecting the conver- example, the fact that AIG has the only wholly-owned foreign
gence of protective financial and retirement products and life insurance operations in eight cities in China is the result
AIG’s current management of these operations. All financial of relationships developed over nearly 30 years. AIG’s more
information herein gives effect to the Restatements described recent expansion of operations into India, Vietnam, Russia and
in ‘‘The Restatements’’ under Item 1. Business. Information for other emerging markets reflect the same growth strategy.
years prior to 2005 included herein has been reclassified to Moreover, AIG believes in investing in the economies and
show AIG’s results of operations and financial position on a infrastructures of these countries and growing with them.
comparable basis with the 2005 presentation. When AIG companies enter a new jurisdiction, they typically
Through these segments, AIG provides insurance and offer both basic protection and savings products. As the
investment products and services to both businesses and economies evolve, AIG’s products evolve with them, to more
individuals in more than 130 countries and jurisdictions. This complex and investment-oriented models.
geographic, product and service diversification is one of AIG’s Growth for AIG may be generated both internally and
major strengths and sets it apart from its competitors. The through acquisitions which both fulfill strategic goals and offer
importance of this diversification was especially evident in adequate return on investment. In recent years, the acquisi-
2005, when record catastrophe losses, settlements of legal tions of AIG Star Life and AIG Edison Life have broadened
proceedings and charges for increases in reserves for loss and AIG’s penetration of the Japanese market through new
loss expenses, were more than offset by profitability in other distribution channels and will result in operating efficiencies as
segments and product lines. Although regional economic they are integrated into AIG’s previously existing companies
downturns or political upheaval could negatively affect parts of operating in Japan.
AIG’s operations, AIG believes that its diversification makes it AIG provides leadership on issues of concern to the global
unlikely that regional difficulties would have a material effect and local economies as well as the insurance and financial
on its operating results, financial condition or liquidity. services industries. In recent years, efforts to reform the tort
AIG’s subsidiaries serve commercial, institutional and indi- system and class action litigation procedures, legislation to deal
vidual customers through an extensive property-casualty and with the asbestos problem and the renewal of the Terrorism
life insurance and retirement services network. In the United Risk Insurance Act have been key issues, while in prior years
States, AIG companies are the largest underwriters of commer- trade legislation and Superfund had been issues of concern.
cial and industrial insurance and one of the largest life
The following table summarizes AIG’s revenues, income before
insurance and retirement services operations as well. AIG’s
income taxes, minority interest and cumulative effect of
Financial Services businesses include commercial aircraft and
equipment leasing, capital markets operations and consumer accounting changes and net income for the twelve months
finance, both in the United States and abroad. AIG also ended December 31, 2005, 2004 and 2003:
provides asset management services and offers guaranteed
Years Ended December 31,
investment contracts (GICs) to institutions and individuals. (in millions) 2005 2004 2003
A primary goal of AIG in managing its General Insurance
Total revenues $108,905 $97,666 $79,421
operations is to achieve an underwriting profit. To achieve this
goal, AIG must be disciplined in its risk selection and Income before income
premiums must be adequate and terms and conditions appropri- taxes, minority interest
ate to cover the risk accepted. AIG believes in strict control of and cumulative effect of
expenses. accounting changes 15,213 14,845 11,907
AIG’s 2005 operating performance reflects continuing im- Net income $ 10,477 $ 9,839 $ 8,108
plementation of various long-term strategies in its various
operating segments. Consolidated Results
A central focus of AIG operations in recent years is the The 12 percent growth in revenues in 2005 and 23 percent
development and expansion of new distribution channels. In growth in revenues in 2004 were primarily attributable to the
2005, AIG continued to expand its distribution channels in growth in net premiums earned from global General Insurance
many Asian countries, which now include banks, credit card operations as well as growth in both General Insurance and
companies and television-media home shopping. In late 2003, Life Insurance & Retirement Services net investment income
AIG entered into an agreement with PICC Property and and Life Insurance & Retirement Services GAAP premiums.
Casualty Company, Limited (PICC), which will enable the An additional factor was the capital gains realized in 2004
marketing of accident and health products throughout China rather than the capital losses realized in 2003.
through PICC’s branch networks and agency system. AIG
26 AIG m Form 10-K