AIG 2006 Annual Report Download - page 107

American International Group, Inc. and Subsidiaries
DAC unlocking charge of $11 million and higher realized capital
The following table reflects periodic Domestic Life insur-
losses. Group life/health operating income for 2006 was lower
ance sales by product for 2006, 2005 and 2004,
than 2005 primarily due to the $125 million Superior National
respectively:
charge and the $66 million loss associated with the exit from the
Domestic Life Insurance financial institutions credit business. The group life/health lines
(in millions) 2006 2005 2004 operating income was also affected by a $25 million charge for
Periodic Premium Sales By Product*: litigation reserves. Payout annuities operating income declined for
Universal life $334 $271 $201 2006 due to lower calls and tenders on fixed maturity securities.
Variable universal life 56 44 79 In addition, various methodologies and assumptions were en-
Term life 240 229 215 hanced for payout annuity reserves, resulting in a $24 million
Whole life/other 13 10 13 increase to the payout annuity reserves. Individual annuities —
Total $643 $554 $508 runoff operating income is down from 2005 due to the decline in
the block of business and the related DAC unlocking charge of
* Periodic premium represents premium from new business expected to $30 million to reflect lower in-force amounts.
be collected over a one-year period.
2005 and 2004 Comparison
2006 and 2005 Comparison
The Domestic Life Insurance operations in 2005 had continued
GAAP premiums for Domestic Life Insurance were $5.5 billion in
growth in term and universal life sales with good performance
2006, a 2 percent increase compared to 2005. Overall, periodic
from the independent distribution channels. GAAP premiums for
life insurance sales grew by 16 percent, compared to 2005,
life insurance grew 12 percent in 2005 reflecting consistently
reflecting increased growth from the independent distribution
strong sales from the independent distribution platform. Payout
platform. During the second half of 2006, certain universal life
annuities declined slightly due to the low interest rate environment
products were re-priced and underwriting standards were tight-
and the competitive market conditions for structured settlement
ened, which could affect future periodic life insurance sales. GAAP
and single premiums individual annuity business. Home service
premiums from AGLA, AIG’s home service business, declined
GAAP premiums were essentially flat in this slow growth business.
slightly in 2006 as the reduction of premium in-force from normal
The group life/health GAAP premiums declined by $116 million, or
lapses and maturities exceeded sales growth for the period. GAAP
10 percent, primarily due to the non-renewal of several accounts
premiums for group life/health for 2006 declined over the prior
where pricing was unacceptable and loss experience was higher
year primarily due to restructuring efforts in certain product lines,
than anticipated.
including the financial institutions credit life business and the
employer benefits business. The GAAP premium growth from Domestic Life Insurance operating income of $1.5 billion
payout annuities for 2006 reflects increased sales of single increased 46 percent in 2005 resulting from increased realized
premium annuities and structured settlements when compared to capital gains, higher partnership income and growth in the
2005. At December 31, 2006, AIG effectively exited the financial underlying business compared to 2004. Life insurance operating
institutions credit business through a third party indemnity income was up 43 percent in 2005 compared to 2004 due in part
reinsurance agreement. The transaction is expected to close in to growth in the underlying business, improved mortality results
the first quarter of 2007, subject to normal closing requirements, and higher realized capital gains, offset by higher losses from
including regulatory approval. GAAP premiums in 2006 related to partnership investments in synthetic fuel production facilities.
this business were approximately $100 million. Home service operating income declined as a result of a
reduction in premiums in-force and higher insurance and acquisi-
Domestic Life Insurance operating income of $917 million
tions expenses, combined with an increase in losses related to
declined by 39 percent in 2006 compared to 2005 due to several
hurricanes. Group life/health operating income was affected by
significant transactions, including a $125 million charge resulting
the non-renewal of cases where acceptable margins could not be
from the loss of the Superior National arbitration. For a further
achieved. Operating income in 2004 includes a $178 million
discussion of the Superior National arbitration see Note 12(c) of
charge related to a workers compensation quota share reinsur-
Notes to Consolidated Financial Statements. In addition, Domestic
ance agreement with Superior National. In addition, in 2004, as
Life operating income was negatively affected by a $55 million
part of the business review of group life/health, approximately
accrual related to other litigation and a $66 million loss related to
$68 million was incurred for reserve strengthening and al-
exiting the financial institutions credit business.
lowances for receivables. Payout annuities operating income
Life insurance operating income decreased by $220 million or increased 3 percent as growth in the business base was offset by
25 percent for 2006 due to a $45 million decrease in partnership higher realized capital losses. Individual annuities runoff operating
income, $30 million in litigation-related charges and realized income increased in 2005 primarily as a result of lower operating
capital losses that offset growth in the underlying business. Home expenses offset by higher realized capital losses when compared
service operating income was flat compared with 2005 due to to 2004.
increased net investment income from partnerships and lower
acquisition costs and catastrophe losses, partially offset by a
Form 10-K 2006 AIG 57