AIG 2006 Annual Report Download - page 4

Dear Fellow Shareholders:
Throughout my 35-year career with AIG, my regard for this
extraordinary company has grown immensely.After
two years as President and Chief Executive Officer, I have
gained an entirely new appreciation for AIG’s strength and
resilience. 2006 was an excellent year, starting with the resolution
of our significant regulatory challenges and ending with record
financial results. We made significant progress in capital manage-
ment, allowing us to announce a new dividend policy and share
repurchase program in early 2007. In addition, we continued to
improve our financial control environment, providing greater
transparency in our financial disclosures and remaining on the
forefront of good corporate governance.
The road from uncertainty to success was not an easy one.
Traveling it required the focused and determined efforts of AIG’s tal-
ented employees all over the world. Through their efforts, we exe-
cuted our strategy and achieved healthy growth in our businesses.
We also grew as an organization under new governance and man-
agement policies that will make AIG more responsive and responsi-
ble in every aspect of our business.
Last year’s successes were also due in great measure to the
inherent strengths of the AIG culture. I don’t know of any other com-
pany that combines our depth of talent, entrepreneurship, leading
worldwide market positions, and business and geographic diversifi-
cation.These attributes made it possible for AIG to work through
difficult challenges while continuing to build shareholder value.
2006 Results
AIG reported record net income for 2006 of $14.05 billion, an
increase of 34.1 percent over 2005. The company earned $5.36
per diluted share in 2006, 34.3 percent higher than the $3.99
per diluted share earned in 2005. Results for 2005 included a
$1.15 billion after-tax charge for regulatory settlements and
a$1.19 billion after-tax charge related to an increase in net
reserve for losses and loss expenses.AIG also reported a record
$2.11 billion in after-tax catastrophe-related losses in 2005.
Net income in 2006 included the effect of economically effec-
tive hedging activities that did not qualify for hedge accounting
treatment under FAS 133, including the related foreign exchange
gains and losses. Full-year 2006 adjusted net income was
$15.41 billion, or $5.88 per diluted share, compared to $8.75 bil-
lion or $3.33 per diluted share in 2005.
Solid execution of our strategies and the absence of significant
catastrophes contributed to our outstanding results in 2006. Around
the world and across all of our business segments we are capitaliz-
ing on growth opportunities, using our business diversity and matrix-
management structure to respond quickly to customer needs.
As our businesses have grown, so too has our financial strength,
which is the foundation for everything we do. During 2006, our
assets grew more than $126 billion, or nearly 15 percent, to
$979.41 billion. To keep pace with net cash provided for invest-
ment by our insurance operations and cash generated from
our investment portfolio, every day we invest an average of nearly
$200 million. At year end, shareholders’ equity was $101.68 bil-
lion, an increase of 17.8 percent over 2005. Total revenues in
2006 were $113.19 billion, 3.9 percent above 2005. Our return
on equity for 2006 was 15.26 percent and our book value per
share grew from $33.24 to $39.09.
2006 was an excellent year, starting
with the resolution of our significant
regulatory challenges and ending with
record financial results.
2AIG 2006 Annual Report