AIG 2005 Annual Report Download - page 96

Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
(h) Operating income includes the effect on deferred policy acquisition cost
(in millions) 2005 2004(a) 2003(a)
amortization for FAS 97 products related to realized capital gains
Foreign Life:
(losses) and has reduced amortization costs totaling $59 million,
Life insurance 4,844 4,065 3,356
$44 million and $54 million for 2005, 2004 and 2003, respectively.
Personal accident &
(i) Domestic in-force for 2005 includes the effect of the non-renewal of a
health 255 179 161
single large group life case of $36 billion.
Group products 613 431 326
Intercompany
AIG’s Life Insurance & Retirement Services subsidiaries
adjustments (36) (18) (15)
report their operations through the following operating units:
Total 5,676 4,657 3,828
Domestic Life — AIG American General, including American
General Life Insurance Company (AG Life), USLIFE and
Foreign Retirement
Services:
AGLA; Domestic Retirement Services — VALIC, AIG Annu-
Individual fixed
ity and AIG SunAmerica; Foreign Life — ALICO, AIRCO,
annuities 1,728 1,034 368
AIG Edison Life, AIG Star Life, AIA, Nan Shan and
Individual variable
Philamlife.
annuities 771 143 4
Total 2,499 1,177 372
Life Insurance & Retirement Services Results
Total Foreign 8,175 5,834 4,200
The increase in operating income in 2005 compared to 2004
Total net investment
was caused by growth in both domestic and overseas opera-
income $ 18,134 $ 15,269 $ 12,942
tions. Similarly, the increase in operating income in 2004
Realized capital gains
compared to 2003 was due to strong growth, particularly
(losses):
overseas.
Domestic realized
Life Insurance & Retirement Services GAAP premiums
capital gains
(losses)
(e)
$ (302) $ (329) $ (246)
grew in 2005 when compared with 2004 as well as 2004 when
compared with 2003. AIG’s Domestic Life operations had
Foreign realized
capital gains
continued growth in term and universal life sales with good
(losses)
(f)
(260) 147 330
performance from the independent distribution channels.
Pricing net investment
GAAP premiums for life insurance grew 12 percent in 2005
gains
(g)
344 225 156
reflecting consistently strong sales from the independent
Total Foreign 84 372 486
distribution channels. Retail periodic life sales increased
Total realized capital
18 percent in 2005, representing a compound rate of growth of
gains (losses) $ (218) $ 43 $ 240
16 percent since 2001, compared to modest growth in the
Operating Income:
industry. Profit margins have been maintained through strict
Domestic
(h)
3,599 3,075 2,765
underwriting discipline and low cost. In addition, increases in
Foreign 5,245 4,848 4,042
product prices and retention have offset price increases by
Total operating income $ 8,844 $ 7,923 $ 6,807
reinsurers. Payout annuities declined slightly due to the low
Life insurance in–force:
interest rate environment and the competitive market condi-
Domestic $ 825,151
(i)
$ 772,251 $ 645,606
tions for structured settlement and single premium individual
Foreign 1,027,682 1,085,843 937,425
annuity business. The domestic group business is below AIG’s
Total $1,852,833 $1,858,094 $1,583,031
growth standards, largely because several accounts where
(a) Adjusted to conform to 2005 presentation. pricing was unacceptable were not renewed and loss experience
(b) Includes structured settlements, single premium immediate annuities and was higher than anticipated. Restructuring efforts in this
terminal funding annuities. business are focused on new product introductions, cross selling
(c) Primarily represents runoff annuity business sold through discontinued and other growth strategies. AGLA, the home service business,
distribution relationships. is diversifying product offerings, enhancing the capabilities and
(d) Revenues in 2004 includes approximately $640 million of single quality of the sales force, and broadening the markets served
premium from a reinsurance transaction involving terminal funding beyond those historically serviced in an effort to accelerate
business, which is offset by a similar increase of benefit reserves.
growth, although it is expected to remain a slow growth
(e) Includes the effect of hedging activities that do not qualify for hedge
accounting treatment under FAS 133 and the application of FAS 52. business.
For 2005, 2004, and 2003, respectively, the amounts included are Domestic Retirement Services businesses faced a challenging
$63 million, $(6) million, and $19 million. environment in 2005 and 2004, as deposits declined approxi-
(f) Includes the effect of hedging activities that do not qualify for hedge mately 17 percent for 2005 compared to 2004 and 1 percent
accounting treatment under FAS 133 and the application of FAS 52. for 2004 compared to 2003. The decrease in AIG’s individual
For 2005, 2004, and 2003, respectively, the amounts included are
$(500) million, $(134) million, and $59 million. variable annuity product sales in 2005 was largely attributable
(g) For purposes of this presentation, pricing net investment gains are to significant variable annuity sales declines at several of AIG’s
segregated as a component of total realized gains (losses). They largest distribution firms due to lackluster equity markets, more
represent certain amounts of realized capital gains where gains are an
inherent element in pricing certain life products in some foreign
countries.
44 AIG m Form 10-K