AIG 2008 Annual Report Download - page 113

Years Ended December 31,
Premiums and
Other
Considerations
Net
Investment
Income
Net Realized
Capital Gains
(Losses)
Total
Revenues
Operating
Income
(Loss)(a)
(In millions)
Percentage Increase/(Decrease) 2007 vs. 2006:
Life insurance ........................ 11% 11% —% (4)% (65)%
Home service ........................ (3) 2 — (5) (23)
Group life/health ...................... (15) (6) — (15) —
Payout annuities ...................... 15 15 — 15 (3)
Individual fixed and runoff annuities ....... 12 (14) — (13) (8)
Total ............................. 5% 6% —% (1)% (30)%
(a) 2008 operating income (loss) includes goodwill impairment charges of $80 million for life insurance,
$280 million for home service and $42 million for group life/health.
(b) Premiums and other considerations include structured settlements, single premium immediate annuities and
terminal funding annuities.
2008 and 2007 Comparison
Total revenues for Domestic Life Insurance decreased in 2008 compared to 2007 primarily due to significantly
higher net realized capital losses and lower net investment income, partially offset by higher premiums and other
considerations. Domestic Life Insurance premiums and other considerations increased due to strong payout
annuities sales and growth in life insurance business in force. The growth in payout annuities deposits was driven by
structured settlement and terminal funding annuities in both the U.S. and Canada. Net investment income declined
due to higher policyholder trading losses offset in policyholder benefits, reduced overall investment yields from
increased levels of short-term investments and lower partnership and call and tender income. Partially offsetting
these items were growth in underlying businesses and reduced losses due to the phaseout of synthetic fuel
production investments. The increase in net realized capital losses was primarily driven by other-than-temporary
impairment charges. See Results of Operations — Consolidated Results — Net Investment Income and Net
Realized Capital Losses and Investments — Securities Lending Activities.
Domestic Life Insurance reported a significant operating loss in 2008 compared to operating income in 2007
due principally to significantly lower revenues (as described above), goodwill impairment charges and restructuring
expenses in 2008. Partially offsetting these items was the continued growth in the underlying business in force and
favorable mortality experience in life insurance and payout annuities. Life insurance results were also affected by
higher DAC amortization of $30 million related to the change in the unearned revenue liability described above,
resulting in a net benefit of $22 million. In addition, 2007 payout annuities operating income was adversely affected
by a $30 million adjustment to increase group annuity reserves. Policyholder benefit reserves in 2008 included an
increase of $12 million related to the workers’ compensation reinsurance program compared to a reduction in
expense of $52 million in 2007. Operating income (loss) includes a DAC benefit related to realized capital losses of
$364 million in 2008 compared to a benefit of $13 million in 2007.
2007 and 2006 Comparison
Total revenues for Domestic Life Insurance decreased in 2007 compared to 2006 primarily due to net realized
capital losses partially offset by higher net investment income and premiums and other considerations. The
Domestic Life Insurance premiums and other considerations increased as a result of higher payout annuity deposits
and growth in life insurance business in force, partially offset by decreased group life/health premiums from exiting
the financial institutions credit life business at the end of 2006.
Operating income decreased in 2007 compared with 2006 due principally to net realized capital losses. In
addition, operating income in 2007 was negatively affected by a $52 million charge due to changes in actuarial
estimates which included DAC unlocking and refinements in estimates resulting from actuarial valuation system
enhancements and a $67 million increase in DAC amortization related to SOP 05-1. These items were partially
AIG 2008 Form 10-K 107
American International Group, Inc., and Subsidiaries