AIG 2006 Annual Report Download - page 105

American International Group, Inc. and Subsidiaries
and health policies in force at December 31, 2006 totaled ing realized capital gains of $301 million. Revenues and
$214 million. In response to the tax law change, AIG has operating income in 2006 include $208 million and
introduced new products, both life and health, to meet the needs $137 million, respectively, from out of period adjustments
of clients in that market. AIG continues to believe that the effect related to cer tain investments in unit trusts. GAAP premiums
of future policy terminations will not be material to AIG’s grew 4 percent in 2006 compared to 2005. The GAAP
consolidated financial condition or results of operations. premium growth rate was negatively affected by the continu-
Revenues from group products increased in 2006 by $320 mil- ing trend towards investment-oriented products in Asia as
lion, to $2.3 billion, resulting in an increase in operating income only a por tion of policy charges collected from the custom-
of $81 million to $272 million. Fixed annuity reserves continued ers are reported as GAAP premiums. AIG’s Life Insurance
to grow due to positive net flows, but demand for U.S. dollar fixed operations in Asia have responded to this trend by offering a
annuities has slowed due to a weaker Japanese Yen. The wide array of investment linked products, with multiple fund
individual fixed annuity revenues grew $302 million to $2.3 billion choices but with minimal investment guarantees.
resulting in an increase in operating income of $163 million to Operating income benefited in 2006 from an out of period
$553 million. Growth in variable annuity deposits has accelerated reduction in participating policyholder dividend reserves of
compared to 2005 due to new product offerings and stronger $163 million, primarily as a result of tax remediation adjustments
equity markets, resulting in higher fees and policy charges and a correction to expense allocations between participating and
included in GAAP premiums. Variable annuity revenues declined in non-participating accounts. Certain participating policyholder divi-
2006 compared to 2005 due to lower policyholder trading gains dend reserves are determined on an after tax basis and as a
which comprise the entirety of variable annuity net investment result any change in the local tax provision will have a partially
income. Policyholder trading gains are offset by an equal increase offsetting, but not equal, effect on participating policyholder
in policy benefits expense, as all investment returns for these dividend reserves. The amount of the offsetting effect depends on
variable annuities accrue to the benefit of the policyholder. the level of participation required by law or regulation in that
specific country or by the participation level provided for in the
underlying contracts. In 2005, operating income for Asia included
2005 and 2004 Comparison
a charge of $137 million related to an increase in participating
In 2005, total revenues for the Japan and Other reporting policyholder dividends as a result of the settlement of a tax
unit grew $3.1 billion to $15.3 billion, including policyholder dispute in Singapore. Life insurance revenues grew $1.4 billion to
trading gains of $1.3 billion. Operating income grew $15.4 billion in 2006, including realized capital gains of $258 mil-
$566 million to $3.0 billion. Compared to 2004, results lion and policyholder trading gains of $552 million, helped by
reported in U.S. dollars were negatively affected by foreign strong growth in investment linked products throughout Asia.
exchange, particularly the weakening of the Japanese Yen to Operating income grew $609 million, including adjustments in
the U.S. dollar. In addition, Japan and Other operating 2006 and 2005 for participating policyholder dividend reserves
income was negatively affected by the runoff of older higher mentioned above. Operating income includes the Life Insurance &
margin in-force business of AIG Star Life and AIG Edison Retirement Services segment’s equal share of the results of AIG
Life. Life insurance operating income grew primarily due to Credit Card Company (Taiwan), which amounted to a loss of
lower realized capital losses and higher GAAP premiums. $47 million in 2006 compared to a gain of $26 million in 2005.
Personal accident operating income continued to report Personal accident revenues grew 28 percent to $1.7 billion,
stable profit margins and grew $119 million to $1.05 billion. reflecting increased focus on risk based accident and health
Group operating income grew to $191 million on strong products. The growth in revenues resulted in operating income of
growth in ALICO operations outside of Japan. Individual fixed $337 million for the year, an increase of 40 percent over 2005.
annuities operating income grew to $390 million, primarily Group products revenues increased $72 million from 2005, to
from strong growth of net flows that increased underlying $627 million, resulting in operating income growth of $47 million
reserves in Japan. Individual fixed annuity operating income to $178 million.
for 2005 included a charge of $47 million related to the
unwinding of certain businesses in Chile that were sold in 2005 and 2004 Comparison
2006. Individual variable annuities operating income grew to
$47 million on higher average reserves. Net investment In 2005, revenues were essentially unchanged at $16.0 bil-
income for individual variable annuities grew to $767 million lion on lower realized capital gains that declined $372 mil-
in 2005 and represents policyholder trading gains lion, due to lower gains on derivatives that did not qualify for
(losses) that are offset by an equal amount in incurred hedge accounting. Operating income declined in 2005 by
policy losses and benefits. $169 million due to the decrease in realized capital gains
and an increase in liabilities for participating policyholder
dividends of $137 million as a result of the settlement of a
Asia
tax dispute in Singapore. Life insurance GAAP premiums
2006 and 2005 Comparison
grew $310 million to $10.8 billion. Life insurance operating
Revenues for Asia grew $1.9 billion in 2006 to $17.9 billion. income did not grow in 2005 due to the effect of the
Operating income grew $774 million, to $3.1 billion, includ- additional par policy dividend reserves previously noted and
Form 10-K 2006 AIG 55