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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
/x/ SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
/ / SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from______to____________
Commission file number 0-4652
AMERICAN INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2592361
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 Pine Street, New York, New York 10270
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 770-7000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, Par Value $2.50 Per Share New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------ -------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
The aggregate market value of the shares of all classes of voting stock of
the registrant held by non-affiliates of the registrant on January 31, 1994 was
approximately $ 20,974,828,000 computed upon the basis of the closing sales
price of the Common Stock on that date.
As of January 31, 1994, there were outstanding 317,648,221 shares of Common
Stock, $2.50 par value, of the registrant.
Documents Incorporated by Reference:
The registrant's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A involving the
election of directors at the annual meeting of the shareholders of the
registrant scheduled to be held on May 16, 1994 is incorporated by reference in
Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
American International Group, Inc. ("AIG"), a Delaware corporation, is a
holding company which through its subsidiaries is primarily engaged in a broad
range of insurance and insurance-related activities in the United States and
abroad. AIG's primary activities include both general and life insurance
operations. The principal insurance company subsidiaries are American Home
Assurance Company ("American Home"), National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union"), New Hampshire Insurance Company ("New
Hampshire"), Lexington Insurance Company ("Lexington"), American International
Underwriters Overseas, Ltd. ("AIUO"), American Life Insurance Company
("ALICO"), American International Assurance Company, Limited ("AIA"), Nan Shan
Insurance Company, Ltd. ("Nan Shan"), The Philippine American Life Insurance
Company ("PHILAM"), American International Reinsurance Company, Ltd. and United
Guaranty Residential Insurance Company. Other significant activities are
financial services and agency and service fee operations. For information on
AIG's business segments, see Note 19 of Notes to Financial Statements.
All per share information herein gives retroactive effect to all stock
dividends and stock splits. As of January 31, 1994, beneficial ownership of
approximately 15.9 percent, 3.7 percent and 2.4 percent of AIG's Common Stock,
$2.50 par value ("Common Stock"), was held by Starr International Company, Inc.
("SICO"), The Starr Foundation and C. V. Starr & Co., Inc. ("Starr"),
respectively.
At December 31, 1993, AIG and its subsidiaries had approximately 33,000
employees.
The following table shows the general development of the business of AIG on
a consolidated basis, the contributions made to AIG's consolidated revenues and
operating income and the assets held, in the periods indicated by its general
insurance, life insurance, agency and service fee and financial services
operations, equity in income of minority-owned reinsurance companies and
realized capital gains. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations and Notes 1 and 19 of Notes to
Financial Statements.)
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991 1990 1989
====================================================================================================================================
GENERAL INSURANCE OPERATIONS:
Gross premiums written $ 14,901,255 $ 13,615,715 $ 13,336,248 $ 11,926,850 $ 11,615,938
Net premiums written 10,025,903 9,138,528 9,146,394 9,267,201 8,940,427
Net premiums earned 9,566,640 9,209,390 9,104,632 9,149,414 8,529,106
Adjusted underwriting profit (loss)(a) 10,391 (195,084) (4,809) 75,184 57,084
Net investment income 1,340,480 1,252,086 1,163,461 1,059,161 954,867
Realized capital gains 65,264 67,134 89,275 120,000 86,050
Operating income 1,416,135 1,124,136 1,247,927 1,254,345 1,098,001
Identifiable assets 46,981,720 42,416,509 29,278,641 27,993,993 25,124,984
LIFE INSURANCE OPERATIONS:
Premium income 5,746,046 4,853,087 4,059,354 3,477,598 2,994,882
Net investment income 1,499,714 1,313,838 1,139,793 977,343 805,542
Realized capital gains (losses) 54,576 43,257 23,219 (6,347) 42,206
Operating income 781,611 667,453 561,839 462,862 453,960
Identifiable assets 28,381,164 23,472,687 19,986,909 16,319,156 13,630,174
Insurance in-force at end of year 257,162,102 210,605,862 193,226,288 160,373,296 131,983,324
AGENCY AND SERVICE FEE OPERATIONS:
Commissions, management and other fees 237,738 225,686 211,210 205,679 209,578
Net investment income 1,903 2,611 4,754 5,226 6,083
Operating income 60,247 52,570 46,202 36,663 34,911
Identifiable assets 179,297 157,280 188,638 168,846 150,509
FINANCIAL SERVICES OPERATIONS:
Commissions, transaction and other fees 1,595,449 1,404,902 1,073,553 704,201 504,777
Operating income 390,038 346,442 222,156 132,505 149,798
Identifiable assets 25,514,258 27,138,230 20,485,838 14,472,483 6,866,037
EQUITY IN INCOME OF MINORITY-OWNED
REINSURANCE OPERATIONS 39,589 27,929 28,806 24,050 21,496
OTHER REALIZED CAPITAL LOSSES (12,742) (11,293) (14,144) (14,258) (4,563)
REVENUES (b) 20,134,657 18,388,627 16,883,913 15,702,067 14,150,024
TOTAL ASSETS 101,014,848 92,722,182 69,389,468 58,201,835 46,036,966
====================================================================================================================================
(a) Adjusted underwriting profit (loss) is statutory underwriting income (loss)
adjusted primarily for changes in deferral of acquisition costs. This
adjustment is necessary to present the financial statements in accordance
with generally accepted accounting principles.
(b) Represents the sum of general net premiums earned, life premium income,
agency commissions, management and other fees, net investment income,
financial services commissions, transaction and other fees, equity in
income of minority-owned reinsurance operations and realized capital gains.
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3
The following table shows identifiable assets, revenues and income derived
from operations in the United States and Canada and from operations in other
countries for the year ended December 31, 1993. (See also Note 19 of Notes to
Financial Statements.)
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL
---------------------------
UNITED STATES OTHER UNITED STATES OTHER
TOTAL AND CANADA COUNTRIES AND CANADA COUNTRIES
============================================================================================================================
GENERAL INSURANCE OPERATIONS:
Net premiums earned $ 9,566,640 $6,664,792 $ 2,901,848 69.7% 30.3%
Adjusted underwriting profit (loss) 10,391 (130,275) 140,666 -- --
Net investment income 1,340,480 1,085,953 254,527 81.0 19.0
Realized capital gains 65,264 27,341 37,923 41.9 58.1
Operating income 1,416,135 983,019 433,116 69.4 30.6
Identifiable assets 46,981,720 37,334,348 9,647,372 79.5 20.5
LIFE INSURANCE OPERATIONS:
Premium income 5,746,046 268,358 5,477,688 4.7 95.3
Net investment income 1,499,714 471,459 1,028,255 31.4 68.6
Realized capital gains 54,576 24,133 30,443 44.2 55.8
Operating income 781,611 43,455 738,156 5.6 94.4
Identifiable assets 28,381,164 6,959,646 21,421,518 24.5 75.5
AGENCY AND SERVICE FEE OPERATIONS:
Commissions, management and other fees 237,738 232,937 4,801 98.0 2.0
Net investment income 1,903 1,879 24 98.7 1.3
Operating income 60,247 56,066 4,181 93.1 6.9
Identifiable assets 179,297 161,673 17,624 90.2 9.8
FINANCIAL SERVICES OPERATIONS:
Commissions, transaction and other fees 1,595,449 1,200,420 395,029 75.2 24.8
Operating income 390,038 276,995 113,043 71.0 29.0
Identifiable assets 25,514,258 20,239,195 5,275,063 79.3 20.7
EQUITY IN INCOME OF MINORITY-OWNED
REINSURANCE OPERATIONS 39,589 37,237 2,352 94.1 5.9
OTHER REALIZED CAPITAL GAINS (LOSSES) (12,742) (27,778) 15,036 -- --
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 2,601,081 1,329,908 1,271,173 51.1 48.9
REVENUES 20,134,657 9,986,731 10,147,926 49.6 50.4
TOTAL ASSETS 101,014,848 64,482,527 36,532,321 63.8 36.2
==========================================================================================================================
GENERAL INSURANCE OPERATIONS
AIG's general insurance subsidiaries are multiple line companies writing
substantially all lines of property and casualty insurance. One or more of
these companies is licensed to write substantially all of these lines in all
states of the United States and in more than 100 foreign countries.
AIG's business derived from brokers in the United States and Canada is
conducted through its domestic brokerage division, consisting of American Home,
National Union, Lexington and certain other insurance company subsidiaries of
AIG. Also included are the operations of New Hampshire and its subsidiaries,
which were restructured in 1992, thus completing the withdrawal of these
companies from an agency production system. New Hampshire is now integrated
into this division as the AIG company focusing specifically on providing AIG
products and services through brokers to middle market companies.
The domestic brokerage division accepts business mainly from insurance
brokers, enabling selection of specialized markets and retention of
underwriting control. Any licensed broker is able to submit business to these
companies without the traditional agent-company contractual relationship, but
such broker usually has no authority to commit the companies to accept a risk.
In addition to writing substantially all classes of business insurance,
including large commercial or industrial property insurance, excess liability,
inland marine, workers' compensation and excess and umbrella coverages, the
domestic brokerage division offers many specialized forms of insurance such as
directors and officers liability, difference-in-conditions, kidnap-ransom,
export credit and political risk, and various types of professional errors and
omissions coverages. Lexington writes surplus lines, those risks for which
conventional insurance companies do not readily provide insurance coverage,
either because of complexity or because the coverage does not lend itself to
conventional contracts.
Audubon Insurance Company and its subsidiaries ("Audubon") conduct agency
marketing of personal and small commercial coverages in certain Southern and
Western States.
2
4
In early 1994, AIG announced that it was considering the sale of Audubon,
since its agency operations do not have a strategic fit with AIG's brokerage
operations.
American International Insurance Company ("AIIC") engages in mass marketing
of personal lines coverages. Since 1992, AIIC increased its participation in
non-standard auto business in urban markets.
The business of United Guaranty Corporation ("UGC") and its subsidiaries is
also included in the domestic operations of AIG. The principal business of the
UGC subsidiaries is the writing of residential mortgage loan insurance, which
is guaranty insurance on conventional first mortgage loans on single-family
dwellings and condominiums. Such insurance protects lenders against loss if
borrowers default. UGC subsidiaries also write commercial mortgage loan
insurance covering first mortgage loans on commercial real estate, home equity
and property improvement loan insurance on loans to finance residential
property improvements, alterations and repairs and for other purposes not
necessarily related to real estate, and rent guaranty insurance on commercial
and industrial real estate.
AIG's foreign general insurance business comprises primarily risks
underwritten through American International Underwriters ("AIU"), a marketing
unit consisting of wholly owned agencies and insurance companies. It also
includes business written by foreign-based insurance subsidiaries of AIUO for
their own accounts. In general, the same types of policies and marketing
methods, with certain refinements for local laws, customs and needs, are used
in these foreign operations as have been described above in connection with the
domestic operations.
During 1993 domestic general and foreign general insurance business
accounted for 69.9 percent and 30.1 percent, respectively, of AIG's net
premiums written.
AIG's general insurance company subsidiaries worldwide operate primarily by
underwriting and accepting any size risk for their direct account and securing
reinsurance on that portion of the risk in excess of the limit which they wish
to retain. This operating policy differs from that of many insurance companies
which will underwrite only up to their net retention limit, thereby requiring
the broker or agent to secure commitments from other underwriters for the
remainder of the gross risk amount.
The following table summarizes general insurance premiums written and
earned:
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
--------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, WRITTEN EARNED Written Earned Written Earned
=================================================================================================================================
Gross premiums $14,901,255 $14,405,992 $13,615,715 $13,616,700 $13,336,248 $13,234,486
Reinsurance ceded (4,875,352) (4,839,352) (4,477,187) (4,407,310) (4,189,854) (4,129,854)
- ---------------------------------------------------------------------------------------------------------------------------------
Net premiums $10,025,903 $ 9,566,640 $ 9,138,528 $ 9,209,390 $ 9,146,394 $ 9,104,632
=================================================================================================================================
The utilization of reinsurance is closely monitored by an internal
reinsurance security committee, consisting of members of AIG's Senior
Management. No single reinsurer is a material reinsurer to AIG nor is AIG's
business substantially dependent upon any reinsurance contract. (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 5 of Notes to Financial Statements.)
AIG is well diversified both in terms of lines of business and geographic
locations. Of the general insurance lines of business, workers' compensation
was approximately 18 percent of AIG's net premiums written. This line is well
diversified geographically and is generally written on a retrospectively rated
basis which reduces its exposure to material uncertainty or risks.
Notwithstanding the above, the majority of AIG's insurance business is in
the casualty classes, which tend to involve longer periods of time for the
reporting and settling of claims. This may increase the risk and uncertainty
with respect to AIG's loss reserve development. (See also the Discussion and
Analysis of Consolidated Net Loss and Loss Expense Reserve Development and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
3
5
The following table is a summary of the general insurance operations,
including statutory ratios, by major operating category for the year ended
December 31, 1993. (See also Note 19(b) of Notes to Financial Statements.)
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
LOSSES AND UNDERWRITING
LOSS EXPENSES EXPENSES
NET PREMIUMS INCURRED TO INCURRED TO
------------------------------- NET PREMIUMS NET PREMIUMS COMBINED
WRITTEN EARNED EARNED WRITTEN RATIO
==================================================================================================================
Foreign $ 3,019,300 $2,901,800 60.6 34.3 94.9
Commercial casualty(a) 5,368,200 5,174,300 82.1 13.4 95.5
Commercial property 241,400 180,700 108.2 21.8 130.0
Pools and associations(b) 746,400 723,100 135.8 16.3 152.1
Personal lines(c) 471,800 432,400 80.1 24.0 104.1
Mortgage guaranty 178,800 154,300 30.2 28.6 58.8
- ------------------------------------------------------------------------------------------------------------------
Total $10,025,900 $9,566,600 79.2 20.9 100.1
==================================================================================================================
(a) Including workers' compensation and retrospectively rated risks.
(b) Including involuntary pools.
(c) Including mass marketing and specialty programs.
Statutory loss and expense ratios of AIG's consolidated general insurance
operations are set forth in the following table. (See also Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
LOSSES AND UNDERWRITING
LOSS EXPENSES EXPENSES
NET PREMIUMS INCURRED TO INCURRED TO INDUSTRY
------------------------------- NET PREMIUMS NET PREMIUMS COMBINED UNDERWRITING COMBINED
YEARS ENDED DECEMBER 31, WRITTEN EARNED EARNED WRITTEN RATIO MARGIN RATIO*
===================================================================================================================================
1993 $10,025,903 $9,566,640 79.2 20.9 100.1 (0.1) 110.3
1992 9,138,528 9,209,390 81.5 20.9 102.4 (2.4) 119.1
1991 9,146,394 9,104,632 78.9 21.5 100.4 (0.4) 109.5
1990 9,267,201 9,149,414 78.2 21.4 99.6 0.4 109.4
1989 8,940,427 8,529,106 79.5 20.5 100.0 -- 109.7
===================================================================================================================================
* Source: Best's Aggregates & Averages (Stock insurance companies, after
dividends to policyholders). The ratio for 1993 reflects estimated results
provided by Conning & Company.
During 1993, of the direct general insurance premiums written (gross
premiums less return premiums and cancellations, excluding reinsurance assumed
and before deducting reinsurance ceded), 10.0 percent and 10.6 percent were
written in California and New York, respectively (no other state accounted for
more than 5 percent of such premiums).
There was no significant adverse effect on AIG's results of operations from
the economic environments in any one state, country or geographic region for
the year ended December 31, 1993. During that year, 32.2 percent of general
insurance premiums were written outside of the United States and Canada.
DISCUSSION AND ANALYSIS OF CONSOLIDATED NET LOSS AND LOSS EXPENSE RESERVE
DEVELOPMENT
The reserve for net losses and loss expenses is exclusive of applicable
reinsurance and represents the accumulation of estimates for reported losses
("case basis reserves") and provisions for losses incurred but not reported
("IBNR"). AIG does not discount its loss reserves other than for very minor
amounts related to certain workers' compensation claims.
Loss reserves established with respect to foreign business are set and
monitored in terms of the respective local or functional currency. Therefore,
no assumption is included for changes in currency rates. (See also Note 1(t) of
Notes to Financial Statements.) Losses and loss expenses are charged to income
as incurred.
4
6
Management continually reviews the adequacy of established loss reserves
through the utilization of a number of analytical reserve development
techniques (discussed below). Through the use of these techniques, management
is able to monitor the adequacy of its established reserves, including the
appropriate assumptions for inflation. Also, through reactions to the emergence
of specific development patterns, such as case reserve redundancies or
deficiencies and IBNR emergence, management is able to currently determine any
required adjustments. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
The "Analysis of Consolidated Net Loss and Loss Expense Reserve
Development", which follows, presents the development of net loss and loss
expense reserves for calendar years 1983 through 1993. The upper half of the
table shows the cumulative amounts paid during successive years related to the
opening loss reserves. For example, with respect to the net loss and loss
expense reserve of $2,800.1 million as of December 31, 1983, by the end of 1993
(ten years later) $2,998.3 million had actually been paid in settlement of
these net loss reserves. In addition, as reflected in the lower section of the
table, the original reserve of $2,800.1 million was reestimated to be $3,361.5
million at December 31, 1993. This increase from the original estimate would
generally be a combination of a number of factors, including reserves being
settled for larger amounts than originally estimated. The original estimates
will also be increased or decreased as more information becomes known about the
individual claims and overall claim frequency and severity patterns. The
redundancy (deficiency) depicted in the table, for any particular calendar
year, shows the aggregate change in estimates over the period of years
subsequent to the calendar year reflected at the top of the respective column
heading. For example, the deficiency of $50.2 million at December 31, 1993
related to December 31, 1992 net loss and loss expense reserves of $16,756.8
million represents the cumulative amount by which reserves for 1992 and prior
years have developed deficiently during 1993.
ANALYSIS OF CONSOLIDATED NET LOSS AND LOSS EXPENSE RESERVE DEVELOPMENT
(in millions)
- -------------------------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
=================================================================================================
Reserve for Net Losses and Loss
Expenses, December 31, $2,800.1 $3,132.7 $4,034.9 $6,199.3 $8,670.7 $11,086.1
Paid (Cumulative) as of:
One Year Later 926.7 1,288.8 1,576.1 2,300.1 2,619.2 3,266.9
Two Years Later 1,670.4 2,183.9 2,823.2 3,676.4 4,315.9 5,451.5
Three Years Later 2,066.8 2,723.9 3,321.1 4,340.7 5,496.6 6,904.5
Four Years Later 2,370.8 2,934.6 3,589.5 4,919.1 6,207.5 7,966.2
Five Years Later 2,484.9 3,072.9 3,886.5 5,260.3 6,757.2 8,792.1
Six Years Later 2,567.1 3,235.6 4,055.3 5,593.1 7,246.1
Seven Years Later 2,675.0 3,329.8 4,267.7 5,902.7
Eight Years Later 2,736.1 3,496.2 4,464.7
Nine Years Later 2,867.2 3,640.0
Ten Years Later 2,998.3
Net Liability Reestimated as of:
End of Year 2,800.1 3,132.7 4,034.9 6,199.3 8,670.7 11,086.1
One Year Later 2,713.0 3,269.9 4,164.2 6,268.3 8,523.6 10,923.8
Two Years Later 2,917.3 3,447.0 4,404.2 6,354.3 8,492.4 10,856.9
Three Years Later 2,995.1 3,638.8 4,502.0 6,397.5 8,488.1 10,811.9
Four Years Later 3,100.6 3,669.6 4,573.4 6,491.1 8,472.3 10,774.9
Five Years Later 3,101.6 3,744.2 4,672.4 6,531.2 8,472.0 10,805.1
Six Years Later 3,170.4 3,819.0 4,728.9 6,598.0 8,470.0
Seven Years Later 3,218.3 3,861.2 4,824.5 6,681.0
Eight Years Later 3,246.4 3,953.3 4,925.6
Nine Years Later 3,296.6 3,970.4
Ten Years Later 3,361.5
Redundancy/(Deficiency) (561.4) (837.7) (890.7) (481.7) 200.7 281.0
=================================================================================================
(in millions)
- -------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993
===========================================================================================
Reserve for Net Losses and Loss
Expenses, December 31, $12,958.5 $14,699.2 $15,839.9 $16,756.8 $17.557.0
Paid (Cumulative) as of:
One Year Later 3,940.3 4,315.2 4,747.8 4,882.7
Two Years Later 6,476.6 7,349.7 8,015.4
Three Years Later 8,350.8 9,561.0
Four Years Later 9,721.3
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Net Liability Reestimated as of:
End of Year 12,958.5 14,699.2 15,839.9 16,756.8 17,557.0
One Year Later 12,844.5 14,596.2 15,828.1 16,807.0
Two Years Later 12,843.9 14,595.4 15,902.9
Three Years Later 12,809.2 14,723.7
Four Years Later 12,896.4
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Redundancy/(Deficiency) 62.1 (24.5) (63.0) (50.2)
===========================================================================================
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7
The trend depicted in the latest development year in the reestimated
liability portion of the "Analysis of Consolidated Net Loss and Loss Expense
Reserve Development" table indicates that the overall position of AIG's 1992
and prior reserves one year later is fairly comparable to the trends reflected
in recent years. The variations in development from original reserves in the
later years of the table are relatively insignificant both in terms of
aggregate amounts and as a percentage of the initial reserve balances.
RECONCILIATION OF NET RESERVE FOR LOSSES AND LOSS EXPENSES
(in millions)
- -------------------------------------------------------------------------------------
1993 1992 1991
=====================================================================================
Net reserve for losses and loss
expenses at beginning of year $16,756.8 $15,839.9 $14,699.2
- -------------------------------------------------------------------------------------
Losses and loss expenses incurred:
Current year 7,530.7 7,497.1 7,263.6
Prior years* 45.3 6.4 (77.1)
- -------------------------------------------------------------------------------------
7,576.0 7,503.5 7,186.5
- -------------------------------------------------------------------------------------
Losses and loss expenses paid:
Current year 1,893.1 1,838.8 1,730.6
Prior years 4,882.7 4,747.8 4,315.2
- -------------------------------------------------------------------------------------
6,775.8 6,586.6 6,045.8
- -------------------------------------------------------------------------------------
Net reserve for losses and loss
expenses at end of year $17,557.0 $16,756.8 $15,839.9
=====================================================================================
* Does not include the effects of foreign exchange adjustments as described
above, which are reflected in the table on page 5.
Approximately 50 percent of the net loss and loss expense reserves are paid
out within two years of the date incurred. The remaining net loss and loss
expense reserves, particularly those associated with the casualty lines of
business, may extend to 20 years or more.
For further discussion regarding net reserves for losses and loss expenses,
see Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The reserve for losses and loss expenses as reported in AIG's Consolidated
Balance Sheet at December 31, 1993, differs from the total reserve reported in
the Annual Statements filed with state insurance departments and, where
appropriate, with foreign regulatory authorities. The difference at December
31, 1993 is primarily because of minor discounting on certain workers'
compensation claims, estimates for unrecoverable reinsurance and additional
reserves relating to certain foreign operations. (See also Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
The reserve for gross loss and loss expenses is prior to reinsurance and
represents the accumulation for reported losses and IBNR. Management reviews
the adequacy of established gross loss reserves in a manner as previously
described for net loss reserves.
The "Analysis of Consolidated Gross Loss and Loss Expense Reserve
Development", which follows, presents the development of gross loss and loss
expense reserves for calendar years 1992 and 1993. As with the net loss and
loss expense reserve development, the deficiency of $96.6 million is relatively
insignificant both in terms of an aggregate amount and as a percentage of the
initial reserve balance.
Analysis of Consolidated Gross Loss and Loss Expense Reserve Development
(in millions)
- ----------------------------------------------------------------------------------
1992 1993
==================================================================================
Reported as of December 31,
Gross loss and loss expense reserve $28,156.8 $30,046.2
Reinsurance recoverable 11,400.0 12,489.2
Net loss and loss expense reserve 16,756.8 17,557.0
Reestimated one year later,
Gross loss and loss expense reserve 28,253.4
Reinsurance recoverable 11,446.4
Net loss and loss expense reserve 16,807.0
Gross deficiency (96.6)
==================================================================================
LIFE INSURANCE OPERATIONS
AIG's life insurance subsidiaries offer a wide range of traditional insurance
and financial and investment products. One or more of these subsidiaries is
licensed to write life insurance in all states in the United States and in over
70 foreign countries. Traditional products consist of individual and group
life, annuity, and accident and health policies. Financial and investment
products consist of single premium annuity, variable annuities, guaranteed
investment contracts and universal life. (See also Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
In the United States, AIG has four domestic life subsidiaries: American
International Life Assurance Company of New York, AIG Life Insurance Company,
Delaware American Life Insurance Company, and Pacific Union Assurance Company.
These companies utilize multiple distribution channels including brokerage and
career and general agents to offer primarily financial and investment products
and specialty forms of accident and health coverage for individuals and groups,
including employee benefit plans. The domestic life business comprised 4.7
percent of total life premium income in 1993.
Life insurance operations in foreign countries comprised 95.3 percent of
life premium income in 1993 and accounted for 94.4 percent of operating income.
AIG operates overseas through two main subsidiary companies, ALICO and AIA. AIA
operates primarily in Hong Kong, Singapore, Malaysia and Thailand. Although
ALICO is incorporated in Delaware, all of its business is written outside of
the United States. ALICO has operations either directly or through subsidiaries
in approximately 50 countries located in Europe, Africa, Latin America, the
Middle East, and the Far East, with Japan being the largest territory.
6
8
Traditional life insurance products such as whole life and endowment
continue to be significant in the overseas companies, especially in Southeast
Asia, while a mixture of traditional, accident and health and financial
products are sold in Japan.
In addition to ALICO and AIA, AIG also has subsidiary operations in Taiwan
(Nan Shan), Switzerland (Ticino Societa d'Assicurazioni Sulla Vita), Puerto
Rico (AIG Life Insurance Company of Puerto Rico) and the Philippines (PHILAM),
and conducts life insurance business through AIUO subsidiary companies in
certain countries in Central and South America.
The foreign life companies have over 96,000 career agents and sell their
products largely to indigenous persons in local currencies. In addition to the
agency outlets, these companies also distribute their products through direct
marketing channels, such as mass marketing, and through brokers and other
distribution outlets such as financial institutions.
The following table summarizes the life insurance operating results for the
year ended December 31, 1993. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE
NET DIRECT TERMINATION RATE
PREMIUM INVESTMENT OPERATING INSURANCE ----------------
INCOME INCOME INCOME(a) IN-FORCE LAPSE OTHER
=========================================================================================================================
Individual:
Life $4,263,339 $ 915,802 $453,730 $197,346,575(b) 7.6% 1.9%
Annuity 59,068 325,747 17,714 (c)
Accident and health 762,157 51,299 215,395 (c)
Group:
Life 336,623 20,440 16,816 59,815,527 10.6% 12.0%
Pension 6,561 175,453 16,140 (c)
Accident and health 318,298 17,036 19,003 (c)
Realized capital gains -- -- 54,576 (c)
Consolidation adjustments -- (6,063) (11,763) (c)
- -------------------------------------------------------------------------------------------------------------------------
Total $5,746,046 $1,499,714 $781,611 $257,162,102
=========================================================================================================================
(a) Including income related to investment type products.
(b) Including $114.05 billion of whole life insurance and endowments.
(c) Not applicable.
INSURANCE INVESTMENT OPERATIONS
A significant portion of AIG's general and life operating revenues are derived
from AIG's insurance investment operations. (See also Management's Discussion
and Analysis of Financial Condition and Results of Operations and Notes 1, 2, 8
and 19 of Notes to Financial Statements.)
The following table is a summary of the composition of AIG's insurance
invested assets by insurance segment, including investment income due and
accrued and real estate, at December 31, 1993:
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Distribution
Percent --------------------
General Life Total of Total Domestic Foreign
====================================================================================================================================
Bonds:
Taxable $ 4,234,800 $13,387,800 $17,622,600 39.5% 38.4% 61.6%
Tax-exempt 12,346,700 -- 12,346,700 27.7 100.0 --
Short-term investments, including
time deposits, and cash 1,820,500 2,878,600 4,699,100 10.6 23.1 76.9
Common stocks 2,761,800 1,527,200 4,289,000 9.6 36.1 63.9
Mortgage loans on real estate, policy and collateral loans 96,300 2,678,200 2,774,500 6.2 24.6 75.4
Real estate 284,300 572,000 856,300 1.9 16.2 83.8
Investment income due and accrued 429,700 363,900 793,600 1.8 54.0 46.0
Other invested assets 599,700 629,600 1,229,300 2.7 53.2 46.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total $22,573,800 $22,037,300 $44,611,100 100.0% 53.0% 47.0%
===================================================================================================================================
7
9
The following table summarizes the investment results of the general
insurance operations. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 8 of Notes to Financial
Statements.)
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL AVERAGE CASH AND INVESTED ASSETS
------------------------------------------
CASH RATE OF RETURN
(INCLUDING NET ------------------ REALIZED
SHORT-TERM INVESTED INVESTMENT INVESTED CAPITAL
YEARS ENDED DECEMBER 31, INVESTMENTS) ASSETS(a) TOTAL INCOME(b) TOTAL(c) ASSETS(d) GAINS
==================================================================================================================================
1993 $1,779,647 $19,493,536 $21,273,183 $1,340,480 6.3% 6.9% $65,264
1992 1,766,031 17,982,498 19,748,529 1,252,086 6.3 7.0 67,134
1991 1,828,346 16,615,150 18,443,496 1,163,461 6.3 7.0 89,275
1990 1,842,262 14,818,073 16,660,335 1,059,161 6.4 7.1 120,000
1989 1,762,081 12,943,542 14,705,623 954,867 6.5 7.4 86,050
==================================================================================================================================
(a) Including investment income due and accrued.
(b) Net investment income is after deduction of investment expenses and
excludes realized capital gains.
(c) Net investment income divided by the annual average sum of cash and
invested assets.
(d) Net investment income divided by the annual average invested assets.
The following table summarizes the investment results
of the life insurance operations. (See also Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 8 of Notes
to Financial Statements.)
(dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS AT END OF PERIOD
-------------------------------------------------
CASH REALIZED
(INCLUDING NET NET YIELD CAPITAL
SHORT-TERM INVESTED INVESTMENT ON MEAN GAINS
YEARS ENDED DECEMBER 31, INVESTMENTS) ASSETS(a) TOTAL INCOME(b) ASSETS(c) (LOSSES)
================================================================================================================================
1993 $2,878,563 $19,158,688 $22,037,251 $1,499,714 7.8% $54,576
1992 2,516,001 15,413,653 17,929,654 1,313,838 8.3 43,257
1991 2,092,084 12,968,083 15,060,167 1,139,793 8.7 23,219
1990 1,789,392 10,602,567 12,391,959 977,343 9.1 (6,347)
1989 1,059,995 9,106,918 10,166,913 805,542 9.1 42,206
================================================================================================================================
(a) Including investment income due and accrued and real estate.
(b) Net investment income is after deduction of investment expenses and
excludes realized capital gains (losses).
(c) Calculated on the basis of the formula prescribed by the National
Association of Insurance Commissioners.
8
10
AIG's worldwide insurance investment policy places primary emphasis on
investments in high quality, fixed income securities in all of its portfolios
and, to a lesser extent, investments in marketable common stocks in order to
preserve policyholders' surplus and generate net investment income. The ability
to implement this policy is somewhat limited in certain territories as there
may be a lack of qualified long term investments or investment restrictions
may be imposed by the local regulatory authorities. (See also Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
AGENCY AND SERVICE FEE OPERATIONS
AIG's agency and service fee operations contribute to AIG earnings through fees
as agents and managers, the premiums they generate for AIG's insurance
companies and the revenues they produce from technical and support service
activities.
Several AIG companies act as managing general agents for both AIG
subsidiaries and non-affiliated insurance companies, accepting liability on
risks and actively managing the business produced. These general agencies deal
directly with the producing agents and brokers, exercise full underwriting
control, issue policies, collect premiums, arrange reinsurance, perform
accounting, actuarial and safety and loss control services, adjust and pay
losses and claims, and settle net balances with the represented companies. In
some cases, they also maintain their own and the represented companies'
authority to do business in the jurisdictions in which they operate.
Agency and service fee operations are conducted primarily through AIG Risk
Management, Inc., which provides risk management services to independent
insurance agents, brokers and their customers on a worldwide basis and AIG
Aviation Inc., which sells aviation insurance.
FINANCIAL SERVICES OPERATIONS
AIG operations which contribute to financial services income include primarily
A.I. Credit Corp. ("AICCO"), AIG Financial Products Corp. and its subsidiary
companies ("AIGFP"), AIG Trading Group Inc. and its subsidiaries ("AIGTG"),
International Lease Finance Corporation ("ILFC") and UeberseeBank, AG. AICCO's
business is principally in premium financing. During the year ended December
31, 1993, AICCO financed gross property and casualty premiums exceeding $2.1
billion. AIGFP structures borrowings through guaranteed investment agreements
and engages in other complex financial transactions, including interest rate
and currency swaps. AIGTG engages in various commodities trading, foreign
exchange trading and market making activities. ILFC is engaged primarily
in the acquisition of new and used commercial jet aircraft and the leasing and
remarketing of such aircraft to airlines around the world. UeberseeBank, AG
operates as a Swiss bank. AIG Funding, Inc. provides funding for various AIG
subsidiaries. (See also Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes 1, 9 and 11 of Notes to Financial
Statements.)
The following table is a summary of the composition of AIG's financial
services invested assets and liabilities at December 31, 1993. (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 1 of Notes to Financial Statements.)
(in thousands)
================================================================================
Financial services invested assets:
Flight equipment primarily under operating leases,
net of accumulated depreciation $ 8,555,356
Securities available for sale, at market value 4,991,105
Trading securities, at market value 2,516,166
Spot commodities, at market value 764,215
Net unrealized gain on interest rate and currency
swaps, options and forward transactions 640,120
Securities purchased under agreements to resell,
at contract value 2,737,507
Receivables from securities brokers and dealers 1,328,391
Other, including short-term investments 1,424,404
- --------------------------------------------------------------------------------
Total financial services invested assets $22,957,264
================================================================================
Financial services liabilities:
Borrowings under obligations of guaranteed
investment agreements $ 6,735,579
Securities sold under agreements to repurchase,
at contract value 2,299,563
Payables to securities brokers and dealers 1,688,147
Securities sold but not yet purchased, principally
obligations of the U.S. Government and
Government agencies, at market value 696,454
Spot commodities sold but not yet purchased,
at market value 285,757
Deposits due to banks and other depositors 557,372
Commercial paper 1,618,979
Notes, bonds and loans payable 5,021,941
- --------------------------------------------------------------------------------
Total financial services liabilities $18,903,792
================================================================================
Other financial services activities include AIG's 30 percent interest in
AB Asesores CFMB, S.L., a Spanish brokerage, investment banking and private
investment management firm, and certain investment management and venture
capital operations in various overseas financial services sectors.
OTHER OPERATIONS
AIG Global Investors, Inc. and AIG Investment Corporation and its subsidiaries
manage the investment portfolios of various AIG subsidiaries. Other smaller
subsidiaries provide insurance-related services such as adjusting claims and
marketing specialized products. AIG has several other relatively small
subsidiaries which carry on various businesses. Mt. Mansfield Company, Inc.
owns and operates the ski slopes, lifts, school and an inn located at Stowe,
Vermont.
9
11
ADDITIONAL INVESTMENTS
As of March 15, 1994, AIG holds a 46.5 percent interest in Transatlantic
Holdings, Inc., a reinsurance holding company, and a 19.9 percent interest in
Richmond Insurance Company, Ltd., a reinsurer. (See also Note 1(n) of Notes to
Financial Statements.) During 1992, AIG acquired a 20 percent interest through
a purchase of preferred stock in The Robert Plan Corporation, a leading
servicer and underwriter of private passenger and commercial automobile
insurance in urban markets. During 1993, AIG acquired a 23.1 percent interest
in Kroll Associates, an international investigation and consulting firm; AIG
holds a 23.9 percent interest in SELIC Holdings, Ltd., an insurance holding
company and a 24.4 percent interest in IPC Holding, Ltd., a reinsurance holding
company.
LOCATIONS OF CERTAIN ASSETS
As of December 31, 1993, approximately 36 percent of the consolidated assets of
AIG were located in foreign countries (other than Canada), including $164.7
million and $814.0 million of cash and securities, respectively, on deposit
with foreign regulatory authorities. Foreign operations and assets held abroad
may be adversely affected by political developments in foreign countries,
including such possibilities as tax changes, nationalization and changes in
regulatory policy, as well as by consequence of hostilities and unrest. The
risks of such occurrences and their overall effect upon AIG vary from country
to country and cannot easily be predicted. If expropriation or nationalization
does occur, AIG's policy is to take all appropriate measures to seek recovery
of such assets. Certain of the countries in which AIG's business is conducted
have currency restrictions which generally cause a delay in a company's ability
to repatriate assets and profits. (See also Notes 1(t), 2 and 19(d) of Notes to
Financial Statements.)
INSURANCE REGULATION AND COMPETITION
Certain states require registration and periodic reporting by insurance
companies which are licensed in such states and are controlled by other
corporations. Applicable legislation typically requires periodic disclosure
concerning the corporation which controls the registered insurer and the other
companies in the holding company system and prior approval of intercorporate
transfers of assets (including in some instances payment of dividends by the
insurance subsidiary) within the holding company system. AIG's subsidiaries are
registered under such legislation in those states which have such requirements.
(See also Note 10(b) of Notes to Financial Statements.)
AIG's insurance subsidiaries, in common with other insurers, are
subject to regulation and supervision by the states and by other jurisdictions
in which they do business. Within the United States, the method of such
regulation varies but generally has its source in statutes that delegate
regulatory and supervisory powers to an insurance official. The regulation and
supervision relate primarily to approval of policy forms and rates, the
standards of solvency that must be met and maintained, the licensing of
insurers and their agents, the nature of and limitations on investments,
restrictions on the size of risks which may be insured under a single policy,
deposits of securities for the benefit of policyholders, methods of accounting,
periodic examinations of the affairs of insurance companies, the form and
content of reports of financial condition required to be filed, and reserves
for unearned premiums, losses and other purposes. In general, such regulation
is for the protection of policyholders rather than security holders. (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Risk Based Capital (RBC) is designed to measure the adequacy of an
insurer's statutory surplus in relation to the risks inherent in its business.
Thus, inadequately capitalized general and life insurance companies may be
identified.
The RBC formula develops a risk adjusted target level of statutory
surplus by applying certain factors to various asset, premium and reserve
items. Higher factors are applied to more risky items and lower factors are
applied to less risky items. Thus, the target level of statutory surplus varies
not only as a result of the insurer's size, but also on the risk profile of the
insurer's operations.
The RBC Model Law provides for four incremental levels of regulatory
attention for insurers whose surplus is below the calculated RBC target. These
levels of attention range in severity from requiring the insurer to submit a
plan for corrective action to actually placing the insurer under regulatory
control.
To the extent that any of AIG's insurance entities would fall below
prescribed levels of surplus, it would be AIG's intention to infuse necessary
capital to support that entity.
Each of AIG's domestic, general and life insurer's statutory surplus
exceeds the risk based capital requirements as of December 31, 1993.
A substantial portion of AIG's general insurance business and a
majority of its life insurance business is carried on in foreign countries. The
degree of regulation and supervision in foreign jurisdictions varies from
minimal in some to stringent in others. Generally, AIG, as well as the
underwriting companies operating in such jurisdictions, must satisfy local
regulatory requirements. Licenses issued by foreign authorities to AIG
subsidiaries are subject to modification or revocation by such authorities, and
AIU or other AIG subsidiaries could be prevented from conducting business in
certain of the jurisdictions where they currently operate. In the past,
AIU has been allowed to modify its operations to conform with new licensing
requirements in most jurisdictions.
10
12
In addition to licensing requirements, AIG's foreign operations are
also regulated in various jurisdictions with respect to currency, policy
language and terms, amount and type of security deposits, amount and type of
reserves, amount and type of local investment and the share of profits to be
returned to policyholders on participating policies. Some foreign countries
regulate rates in various types of policies. Certain countries have established
reinsurance institutions, wholly or partially owned by the state, to which
admitted insurers are obligated to cede a portion of their business on terms
which do not always allow foreign insurers, including AIG, full compensation.
Regulations governing constitution of technical reserves and remittance
balances in some countries may hinder remittance of profits and repatriation of
assets.
The insurance industry is highly competitive. Within the United
States, AIG's general insurance subsidiaries compete with approximately 3,100
other stock companies, specialty insurance organizations, mutual companies and
other underwriting organizations. AIG's life insurance companies compete in
the United States with some 1,300 other companies. Overseas, AIG subsidiaries
compete for business with foreign insurance operations of the larger U.S.
insurers and local companies in particular areas in which they are active.
ITEM 2. PROPERTIES
AIG and its subsidiaries operate from approximately 250 offices in the United
States, 5 offices in Canada and numerous offices in other foreign countries.
The offices in Manchester, New Hampshire; Springfield, Illinois; Houston,
Texas; Atlanta, Georgia; Baton Rouge, Louisiana; Wilmington, Delaware; Hato
Rey, Puerto Rico; San Diego, California; Greensboro, North Carolina; Livingston
and Morris County, New Jersey; 70 Pine Street, 99 John Street and 72 Wall
Street in New York City; and offices in approximately 30 foreign countries
including Bermuda, Hong Kong, the Philippines, Japan, England, Singapore,
Taiwan and Thailand are located in buildings owned by AIG and its subsidiaries.
The remainder of the office space utilized by AIG subsidiaries is leased.
ITEM 3. LEGAL PROCEEDINGS
AIG and its subsidiaries, in common with the insurance industry in general, are
subject to litigation, including claims for punitive damages, in the normal
course of their business. AIG does not believe that such litigation will have a
material adverse effect on its financial condition. (See also the Discussion
and Analysis of Consolidated Net Loss and Loss Expense Reserve Development and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1993.
11
13
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the directors and executive
officers of AIG. All directors are elected at the annual meeting of
shareholders. All officers serve at the pleasure of the Board of Directors, but
subject to the foregoing, are elected for terms of one year expiring in May of
each year.
- --------------------------------------------------------------------------------------------------------------------------------
SERVED AS
DIRECTOR OR
OFFICER
NAME TITLE AGE SINCE
================================================================================================================================
M. Bernard Aidinoff* Director 65 1984
Marshall A. Cohen Director 58 1992
Barber B. Conable, Jr. Director 71 1991
Marion E. Fajen Director 73 1984
Martin S. Feldstein Director 54 1987
Houghton Freeman Director 72 1967
Leslie L. Gonda Director 74 1990
Pierre Gousseland Director 72 1977
M. R. Greenberg* Director, Chairman, and Chief Executive Officer 68 1967
Carla A. Hills Director 60 1993
Frank J. Hoenemeyer Director 74 1985
John I. Howell* Director 77 1969
Edward E. Matthews Director and Vice Chairman-Finance 62 1973
Dean P. Phypers Director 65 1979
John J. Roberts* Director and Vice Chairman-External Affairs 71 1967
Ernest E. Stempel* Director and Vice Chairman-Life Insurance 77 1967
Thomas R. Tizzio* Director and President 56 1982
Brian Duperreault Executive Vice President-Foreign General Insurance 46 1993
Jeffrey W. Greenberg Executive Vice President-Domestic General Insurance-Brokerage 42 1987
Edmund S. W. Tse Executive Vice President-Life Insurance 56 1991
Lawrence W. English Senior Vice President-Administration 52 1985
Axel I. Freudmann Senior Vice President-Human Resources 47 1986
John G. Hughes Senior Vice President-Worldwide Claims 63 1978
Kevin H. Kelley Senior Vice President-Domestic General Insurance-Brokerage 43 1991
R. Kendall Nottingham Senior Vice President-Life Insurance 55 1991
Petros K. Sabatacakis Senior Vice President-Financial Services 47 1992
Robert M. Sandler Senior Vice President, Senior Casualty Actuary and Senior Claims Officer 51 1980
Howard I. Smith Senior Vice President and Comptroller 49 1984
Stephen Y. N. Tse Senior Vice President 63 1974
Wayland M. Mead Acting General Counsel 62 1975
Aloysius B. Colayco Vice President-Foreign Investments 43 1986
Robert K. Conry Vice President and Director of Internal Audit 41 1992
Patrick J. Foley Vice President 63 1982
Robert E. Lewis Vice President and Chief Credit Officer 43 1993
Christian M. Milton Vice President-Reinsurance 46 1985
Nicholas A. O'Kulich Vice President-Life Insurance 50 1991
Douglas A. Paul Vice President-Strategic Planning 45 1983
Frank Petralito II Vice President and Director of Taxes 57 1978
Kathleen E. Shannon Vice President and Secretary 44 1986
Joseph H. Umansky Vice President and Deputy Comptroller 46 1992
John T. Wooster, Jr. Vice President-Communications 54 1989
William N. Dooley Treasurer 40 1992
================================================================================================================================
* Member of Executive Committee.
12
14
Except as hereinafter noted, each of the directors who is also an
executive officer of AIG and each of the other executive officers has, for more
than five years, occupied an executive position with AIG or companies that are
now its subsidiaries, or with Starr. Jeffrey W. Greenberg is the son of M.R.
Greenberg. There are no other arrangements or understandings between any
director or officer and any other person pursuant to which the director or
officer was elected to such position. Mr. Lewis was Assistant General Manager
for North America, Chief Credit Officer, and senior executive responsible for
risk and exposure management of ING Bank in New York, the bank division of
Internationale Nederlanden Group from 1988 until joining AIG in October, 1993.
Mr. O'Kulich was president of Maccabees Life & Annuity Company from 1982 to
July 31, 1989 and was self employed from August, 1989 until joining AIG in May,
1990. Mr. Sabatacakis was Managing Director and head of the Capital Markets and
Treasury Group of Chemical Banking Corporation prior to joining AIG in
February, 1992. From January, 1988 until joining AIG in October, 1989, Mr.
Wooster headed his own corporate communications and investor relations firm,
Wooster Communications, in New York. Prior to that, he was President of The
Hannaford Company, a Washington-based public relations and public affairs firm.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) The table below shows the high and low closing sales prices per share of
AIG's common stock, as reported on the New York Stock Exchange Composite Tape,
for each quarter of 1993 and 1992. All prices are as reported by the National
Quotation Bureau, Incorporated.
- ------------------------------------------------------------------------
1993 1992
-------------------- ------------------
HIGH LOW High Low
========================================================================
First Quarter 85 1/8 75 65 3/8 57 1/8
Second Quarter 88 79 1/8 59 5/8 55 3/8
Third Quarter 100 85 1/2 70 5/8 58 1/2
Fourth Quarter 97 7/8 83 5/8 80 3/8 69 1/8
========================================================================
(b) In 1993, AIG paid a quarterly dividend of 9.3 cents in March and
June and 10.0 cents in September and December for a total cash payment of 38.6
cents per share of common stock. In 1992, AIG paid a quarterly dividend of 8.3
cents in March and June and 9.3 cents in September and December for a total
cash payment of 35.2 cents per share of common stock. These amounts reflect the
adjustment for a 50 percent common stock split in the form of a common stock
dividend paid July 30, 1993. Subject to the dividend preference of any of AIG's
serial preferred stock which may be outstanding, the holders of shares of
common stock are entitled to receive such dividends as may be declared by the
Board of Directors from funds legally available therefor. During 1992, serial
preferred stock consisted of 750 shares of Series M-1 Preferred Stock and 750
shares of Series M-2 Preferred Stock. AIG redeemed the Series M-1 on April 2,
1993 and the Series M-2 on March 5, 1993 at a price of $100,000 per share plus
accrued dividends.
See Note 10(b) of Notes to Financial Statements for a discussion of
certain restrictions on the payment of dividends to AIG by some of its
insurance subsidiaries.
(c) The approximate number of holders of Common Stock as of January
31, 1994, based upon the number of record holders, was 14,700.
13
15
ITEM 6. SELECTED FINANCIAL DATA
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data is presented in accordance
with generally accepted accounting principles. This data should be read in
conjunction with the financial statements and accompanying notes included
elsewhere herein.
(in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989
=================================================================================================================================
Revenues(a) $ 20,134,657 $18,388,627 $16,883,913 $15,702,067 $14,150,024
General insurance:
Net premiums written 10,025,903 9,138,528 9,146,394 9,267,201 8,940,427
Net premiums earned 9,566,640 9,209,390 9,104,632 9,149,414 8,529,106
Adjusted underwriting profit (loss) 10,391 (195,084) (4,809) 75,184 57,084
Net investment income 1,340,480 1,252,086 1,163,461 1,059,161 954,867
Realized capital gains 65,264 67,134 89,275 120,000 86,050
Operating income 1,416,135 1,124,136 1,247,927 1,254,345 1,098,001
Life insurance:
Premium income 5,746,046 4,853,087 4,059,354 3,477,598 2,994,882
Net investment income 1,499,714 1,313,838 1,139,793 977,343 805,542
Realized capital gains (losses) 54,576 43,257 23,219 (6,347) 42,206
Operating income 781,611 667,453 561,839 462,862 453,960
Agency and service fee operating income 60,247 52,570 46,202 36,663 34,911
Financial services operating income 390,038 346,442 222,156 132,505 149,798
Equity in income of minority-owned reinsurance
operations 39,589 27,929 28,806 24,050 21,496
Other realized capital losses (12,742) (11,293) (14,144) (14,258) (4,563)
Income before income taxes and cumulative
effect of accounting changes 2,601,081 2,137,048 2,022,575 1,811,534 1,705,688
Income taxes 683,003 512,033 469,566 369,240 338,213
Income before cumulative effect of accounting changes 1,918,078 1,625,015 1,553,009 1,442,294 1,367,475
Cumulative effect of accounting changes, net of tax:
AIG -- 31,941 -- -- --
Minority-owned reinsurance operations 20,695 -- -- -- --
Net income 1,938,773 1,656,956 1,553,009 1,442,294 1,367,475
Earnings per common share:
Income before cumulative effect of
accounting changes 6.04 5.10 4.86 4.61 4.42
Cumulative effect of accounting changes, net of tax:
AIG -- .10 -- -- --
Minority-owned reinsurance operations .07 -- -- -- --
Net income 6.11 5.20 4.86 4.61 4.42
Cash dividends per common share .39 .35 .31 .27 .23
Total assets 101,014,848 92,722,182 69,389,468 58,201,835 46,036,966
Long-term debt(b) 10,955,963 9,517,595 7,591,385 6,780,211 4,060,937
Capital funds (shareholders' equity) 15,224,195 12,782,152 11,463,454 9,904,442 8,405,083
=================================================================================================================================
(a) Represents the sum of general net premiums earned, life premium income,
agency commissions, management and other fees, net investment income,
financial services commissions, transaction and other fees, equity in
income of minority-owned reinsurance operations and realized capital
gains. (See also tables under Item 1, "Business".)
(b) Including commercial paper and excluding that portion of long-term debt
maturing in less than one year.
14
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONAL REVIEW
GENERAL INSURANCE OPERATIONS
In AIG's general insurance operations, 1993 net premiums written and net
premiums earned increased 9.7 percent and 3.9 percent, respectively, from those
of 1992. In 1992, net premiums written decreased 0.1 percent and net premiums
earned increased 1.2 percent when compared to 1991. In 1991, declines occurred
in both net premiums written of 1.3 percent and net premiums earned of 0.5
percent when compared to 1990.
The growth in net premiums written in 1993 over 1992 resulted from a
mix of several factors. AIG achieved general price increases in domestic
commercial property and some specialty casualty markets while overseas, price
and volume increases were realized. During 1992 and 1991, the slowing of growth
in net premiums written was due in part to the competitive pricing environment
in the property-casualty industry in the United States, particularly in
commercial lines. In addition, AIG had withdrawn from certain classes of
business, primarily agency lines and certain segments of workers' compensation
business, because returns on allocated capital or equity were deemed
unacceptable. The estimated impact of AIG's strategy when comparing results for
1992 to those of 1991 was to reduce net premiums written by approximately $680
million, following a similar reduction of approximately $330 million in 1991.
Net premiums written are initially deferred and earned based upon the
terms of the underlying policies. The net unearned premium reserve constitutes
the deferred earnings which are generally earned ratably over the policy
period. Thus, the net unearned premium reserve is not fully recognized as net
premiums earned until the end of the policy period.
Adjusted underwriting profit or loss (operating income less net
investment income and realized capital gains) represents statutory underwriting
profit or loss adjusted primarily for changes in the deferral of acquisition
costs. (See also Note 4 of Notes to Financial Statements.) The adjusted
underwriting profit in 1993 was $10.4 million compared to adjusted underwriting
losses of $195.1 million recorded in 1992 and $4.8 million in 1991.
The statutory general insurance ratios were as follows:
- -------------------------------------------------------------------
1993 1992 1991
===================================================================
Loss Ratio 79.19 81.48 78.93
Expense Ratio 20.88 20.88 21.49
- -------------------------------------------------------------------
Combined Ratio 100.07 102.36 100.42
===================================================================
The gross and net impacts of the catastrophe losses during 1993 were
approximately $134 million and $70 million, respectively. This was
significantly below the approximately $567 million and $192 million in gross
and net catastrophe losses, respectively, recorded in 1992, which included the
three major storms Andrew, Iniki and Omar. Losses of $99 million and $68
million, respectively, were recorded in 1991. If the catastrophes were excluded
from the losses incurred in each period, the pro forma statutory general
insurance ratios would be as follows:
- -------------------------------------------------------------------
1993 1992 1991
===================================================================
Loss Ratio 78.46 79.40 78.19
Expense Ratio 20.88 20.88 21.49
- -------------------------------------------------------------------
Combined Ratio 99.34 100.28 99.68
===================================================================
The maintenance of the statutory combined ratio in all three years at
a level approximating 100 is a result of AIG's emphasis on maintaining its
underwriting discipline within the continued overall competitiveness of the
domestic market environment as well as AIG's expense control.
AIG's operations are negatively impacted under guarantee fund
assessment laws which exist in most states. As a result of operating in a state
which has guarantee fund assessment laws, a solvent insurance company may be
assessed for certain obligations arising from the insolvencies of other
insurance companies which operated in that state. AIG generally records these
assessments upon notice. Additionally, certain states permit at least a portion
of the assessed amount to be used as a credit against a company's future
premium tax liabilities. Therefore, the ultimate net assessment cannot
reasonably be estimated. The guarantee fund assessments net of credits for
1993, 1992 and 1991 were $14.1 million, $27.7 million and $37.9 million,
respectively. Also, AIG is required to participate in various involuntary pools
(principally workers' compensation business) which provide insurance coverage
for those not able to obtain such coverage in the voluntary markets. This
participation is also recorded upon notification, as these amounts cannot
reasonably be estimated.
At December 31, 1993, general insurance reserves for losses and loss
expenses (loss reserves) amounted to $30.05 billion, an increase of $1.89
billion or 6.7 percent over the prior year end. General insurance net loss
reserves represent the accumulation of estimates of ultimate losses, including
provisions for losses incurred but not reported (IBNR), and loss expenses,
reduced by reinsurance recoverable net of an allowance for unrecoverable
reinsurance and very minor amounts of discounting related to certain workers'
compensation claims. The net loss reserves increased $800.2 million or 4.8
percent to $17.56 billion. The methods used to determine such estimates and to
establish the resulting reserves are continually reviewed and
15
17
updated. Any adjustments resulting therefrom are reflected in operating income
currently. It is management's belief that the general insurance net loss
reserves are adequate to cover all general insurance net losses and loss
expenses as at December 31, 1993. In the future, if the general insurance net
loss reserves develop deficiently, such deficiency would have an adverse impact
on such future results of operations.
AIG's reinsurance recoverable results from its reinsurance
arrangements. These arrangements do not relieve AIG from its direct obligation
to its insureds. Thus, a contingent liability of approximately $12 billion
existed at December 31, 1993 with respect to general reinsurance reserves for
loss and loss expenses ceded (reinsurance recoverable) to the extent that
reinsurers are unable to meet their obligations assumed under the reinsurance
agreements. However, AIG holds substantial collateral as security under related
reinsurance agreements in the form of funds, securities and/or irrevocable
letters of credit which can be drawn on for amounts that remain unpaid beyond
specified time periods. Although a provision is recorded for estimated
unrecoverable reinsurance, AIG has been largely successful in prior recovery
efforts. (See also Note 5 of Notes to Financial Statements.)
AIG enters into certain intercompany reinsurance transactions for both
its general and life operations. AIG enters these transactions as a sound and
prudent business practice in order to maintain underwriting control and spread
insurance risk among various legal entities. These reinsurance agreements have
been approved by the appropriate regulatory authorities. All material
intercompany transactions have been eliminated in consolidation.
In a very broad sense, the general loss reserves can be categorized
into two distinct groups: one group being long tail casualty lines of business;
the other being short tail lines of business consisting principally of property
lines and including certain classes of casualty lines.
Estimation of ultimate net losses and loss expenses (net losses) for
long tail casualty lines of business is a complex process and depends on a
number of factors, including the line and volume of the business involved. In
the more recent accident years of long tail casualty lines there is limited
statistical credibility in reported net losses. That is, a relatively low
proportion of net losses would be reported claims and expenses and an even
smaller proportion would be net losses paid. A relatively high proportion of
net losses would therefore be IBNR.
A variety of actuarial methods and assumptions are normally employed
to estimate net losses for long tail casualty lines. These methods ordinarily
involve the use of loss trend factors intended to reflect the estimated annual
growth in loss costs from one accident year to the next. Loss trend factors
reflect many items including changes in claims handling, exposure and policy
forms and current and future estimates of inflation and social inflation. Thus,
many factors are implicitly considered in estimating the year to year growth in
loss costs. Therefore, AIG's carried net long tail loss reserves are
judgmentally set as well as tested for reasonableness using the most
appropriate loss trend factors for each class of business. In the evaluation of
AIG's net loss reserves, loss trend factors have ranged from 7 percent to 22
percent of average loss costs, depending on the particular class and nature of
the business involved. For the majority of long tail casualty lines, net loss
trend factors approximating 10 percent were employed. These factors are
periodically reviewed and subsequently adjusted, as appropriate, to reflect
emerging trends which are based upon past loss experience.
Estimation of net losses for short tail business is less complex than
for long tail casualty lines. Loss cost trends for many property lines can
generally be assumed to be similar to the growth in exposure of such lines. For
example, if the fire insurance coverage remained proportional to the actual
value of the property, the growth in property's exposure to fire loss can be
approximated by the amount of insurance purchased.
For other property and short tail casualty lines, the loss trend is
implicitly assumed to grow at the rate that reported net losses grow from one
year to the next. The concerns noted above for longer tail casualty lines with
respect to the limited statistical credibility of reported net losses generally
do not apply to shorter tail lines.
AIG continues to receive indemnity claims asserting injuries from
toxic waste, hazardous substances, asbestos and other environmental pollutants
and alleged damages to cover the clean-up costs of hazardous waste dump sites
(environmental claims). The vast majority of these environmental claims emanate
from policies written in 1984 and prior years. Commencing in 1985, standard
policies contained an absolute exclusion for pollution related damage. AIG has
established a special environmental claims unit which investigates and adjusts
all such claims.
Estimation of environmental claims loss reserves is a difficult
process. These environmental claims cannot be estimated by conventional
reserving techniques as previously described. Quantitative techniques
frequently have to be supplemented by subjective considerations including
managerial judgment. Significant factors which affect the trends which
influence the development of environmental claims are the inconsistent court
resolutions, the broadening of the intent of the policies and scope of coverage
and the increasing number of new claims. The case law that has emerged can be
characterized as still being in its infancy and the likelihood of any firm
direction in the near future is very small. Additionally, the exposure for
cleanup costs of hazardous waste dump sites involves coverage issues such as
allocation of responsibility among potentially responsible parties and the
government's refusal to release parties. The cleanup cost exposure may
significantly change if the Congressional reauthorization of Superfund in 1994
is dramatically changed thereby reducing or increasing litigation and cleanup
costs.
16
18
In the interim, AIG and other industry members have and will continue
to litigate the broadening judicial interpretation of the policy coverage and
the liability issues. If the courts continue in the future to expand the intent
of the policies and the scope of the coverage as they have in the past,
additional liabilities would emerge for amounts in excess of the current
reserves held. This emergence cannot now be reasonably estimated, but could
have a material impact on AIG's future operating results and financial
condition. The reserves carried for these claims as at December 31, 1993 are
believed to be adequate as these reserves are based on the known facts and
current law. Furthermore, as AIG's net exposure retained relative to the gross
exposure written was lower in those years, the potential impact of these claims
is much smaller on the net loss reserves than on the gross loss reserves. (See
the previous discussion on reinsurance collectibility herein.)
The gross and net IBNR included in the reserve for loss and loss
expenses at December 31, 1993 for environmental claims approximated $245
million and $85 million, respectively; for 1992, $225 million and $75 million,
respectively; for 1991, $210 million and $60 million, respectively. Most of the
claims included in the following table relate to policies written in 1984 and
prior years.
The majority of AIG's exposures for environmental claims are excess
casualty coverages, not primary coverages. Thus, the litigation costs are
treated in the same manner as indemnity reserves. That is, litigation expenses
are included within the limits of the liability AIG incurs. Individual
significant claim liabilities, where future litigation costs are reasonably
determinable, are established on a case basis.
A summary of reserve activity, including estimates for applicable
IBNR, relating to environmental claims at December 31, 1993, 1992 and 1991 is
as follows:
(in millions)
- --------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------ ---------------------- ----------------------
GROSS NET Gross Net Gross Net
==========================================================================================================================
Reserve for loss and loss
expenses at beginning of year $1,222.1 $318.0 $ 896.5 $262.0 $828.5 $241.0
Loss and loss expenses incurred 584.8 202.6 516.4 120.4 281.0 89.0
Loss and loss expenses paid (328.4) (134.3) (190.8) (64.4) (213.0) (68.0)
- --------------------------------------------------------------------------------------------------------------------------
Reserve for loss and loss
expenses at end of year $1,478.5 $386.3 $1,222.1 $318.0 $896.5 $262.0
==========================================================================================================================
General insurance net investment income in 1993 was $1.34 billion, an
increase of 7.1 percent from 1992. In 1992, net investment income increased 7.6
percent to $1.25 billion from the $1.16 billion earned in 1991. The growth in
net investment income in each of the three years was primarily attributable to
new cash flow for investment. The new cash flow was generated from net general
insurance operating cash flow and included the compounding of previously earned
and reinvested net investment income. The decline in the rate of growth is a
reflection of the general worldwide downward trend in interest rates. (See also
the discussion under "Liquidity" herein.)
General insurance realized capital gains were $65.3 million in 1993,
$67.1 million in 1992 and $89.3 million in 1991. These realized gains resulted
from the ongoing management of the general insurance investment portfolios
within the overall objectives of the general insurance operations and arose
primarily from the disposition of equity securities and fixed maturities,
including redemptions of fixed maturities.
General insurance operating income in 1993 was $1.42 billion, an
increase of 26.0 percent when compared to $1.12 billion in 1992. The 1992
results reflect a decrease of 9.9 percent from 1991. The 1992 operating results
were significantly impacted by the aforementioned catastrophes. The
contribution of general insurance operating income to income before income
taxes and the cumulative effect of accounting changes was 54.4 percent in 1993
compared to 52.6 percent in 1992 and 61.7 percent in 1991. The changes in the
contribution percentages were due to the aforementioned factors and, in 1992
and 1991, the growth of the financial services operations relative to general
insurance operating income.
A year to year comparison of operating income is significantly
influenced by the catastrophe losses in any one year as well as the volatility
from one year to the next in realized capital gains. Adjusting each year to
exclude the effects of both catastrophe losses and realized capital gains,
operating income would have increased by 13.9 percent in 1993, 1.7 percent in
1992 and 5.1 percent in 1991. The increase in the growth rate of 1993 over 1992
after the aforementioned adjustments was a result of the increased net
investment income as previously discussed and improvement in underwriting
results. The decline in the growth rate in 1992 as compared to 1991 is
primarily a result of the higher level of incurred losses and the general
downward trend in interest rates, as discussed above.
LIFE INSURANCE OPERATIONS
AIG's life insurance operations continued to show growth as a result of
overseas operations, particularly in Asia. AIG's life premium income of $5.75
billion in 1993 represented an 18.4
17
19
percent increase from the prior year. This compares with increases of 19.6
percent and 16.7 percent in 1992 and 1991, respectively. The foreign ordinary
life products were the major contributor to premium growth in all three years.
In 1993, foreign life operations produced 95.3 percent of the life premium
income and 94.4 percent of the operating income. (See also Notes 1, 4 and 6 of
Notes to Financial Statements.)
Traditional life insurance products such as whole life and endowment
continue to be significant in the overseas companies, especially in Southeast
Asia, while a mixture of traditional, accident and health and financial
products are being sold in Japan.
The risks associated with the traditional and accident and health
products are underwriting risk and investment risk. The risk associated with
the financial and investment contract products is investment risk.
Underwriting risk represents the exposure to loss resulting from the
actual policy experience adversely emerging in comparison to the assumptions
made in the product pricing associated with mortality, morbidity, termination
and expenses. AIG's life companies limit their maximum underwriting exposure on
traditional life insurance of a single life to approximately $1 million of
coverage by using yearly renewable term reinsurance. The life insurance
operations have not entered into assumption reinsurance transactions or surplus
relief transactions during the three year period ended December 31, 1993. (See
also Note 5 of Notes to Financial Statements.)
The investment risk represents the exposure to loss resulting from the
cash flows from the invested assets, primarily long-term fixed rate
investments, being less than the cash flows required to meet the obligations of
the expected policy and contract liabilities and the necessary return on
investments.
To minimize its exposure to investment risk, AIG tests the cash flows
from the invested assets and the policy and contract liabilities using various
interest rate scenarios to determine if a liquidity excess or deficit is
perceived to exist. If a rebalancing of the invested assets to the policy and
contract claims became necessary and did not occur, a demand could be placed
upon liquidity. (See also the discussion under "Liquidity" herein.)
The asset-liability relationship is appropriately managed in AIG's
foreign operations, even though certain territories lack qualified long term
investments or there are investment restrictions imposed by the local
regulatory authorities. For example, in Japan and several Southeast Asia
territories, the duration of the investments is often for a shorter period than
the effective maturity of such policy liabilities. Therefore, there is a risk
that the reinvestment of the proceeds at the maturity of the investments may be
at a yield below that of the interest required for the accretion of the policy
liabilities. In Japan, the average duration of the investment portfolio is 5.3
years, while the related policy liabilities are estimated to be 7.4 years. To
maintain an adequate yield to match the interest required over the duration of
the liabilities, constant management focus is required to reinvest the proceeds
of the maturing securities without sacrificing investment quality. To the
extent permitted under local regulation, AIG may invest in qualified
longer-term securities outside Japan to achieve a closer matching in both
duration and the required yield. AIG is able to manage any asset-liability
duration difference through maintenance of sufficient global liquidity and
support of any operational shortfall through its international financial
network. Domestically, the asset-liability matching process is appropriately
functioning as there are investments available to match the duration and the
required yield. (See also the discussion under "Liquidity" herein.)
AIG uses asset-liability matching as a management tool to determine
the composition of the invested assets and marketing strategies. As a part of
these strategies, AIG may determine that it is economically advantageous to be
temporarily in an unmatched position due to anticipated interest rate or other
economic changes.
Life insurance net investment income increased 14.1 percent to $1.50
billion in 1993 compared to increases of 15.3 percent and 16.6 percent in 1992
and 1991, respectively. The growth in net investment income in each of the
three years was primarily attributable to new cash flow for investment. The new
cash flow was generated from net life insurance operating cash flow and
included the compounding of previously earned and reinvested net investment
income. The decline in the rate of growth is a reflection of the general
worldwide downward trend in interest rates. (See also the discussion under
"Liquidity" herein.)
Life insurance realized capital gains were $54.6 million in 1993,
$43.3 million in 1992 and $23.2 million in 1991. These realized gains resulted
from the ongoing management of the life insurance investment portfolios within
the overall objectives of the life insurance operations and arose primarily
from the redemption of fixed maturities and, to a smaller extent, from the
disposition of equity securities.
Life insurance operating income in 1993 increased 17.1 percent to
$781.6 million compared to increases of 18.8 percent and 21.4 percent in 1992
and 1991, respectively. Excluding realized capital gains from life insurance
operating income, the percent increases would be 16.5 percent, 15.9 percent and
14.8 percent in 1993, 1992 and 1991, respectively. The contribution of life
insurance operating income to income before income taxes and the cumulative
effect of accounting changes amounted to 30.0 percent in 1993 compared to 31.2
percent in 1992 and 27.8 percent in 1991.
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20
AGENCY AND SERVICE FEE OPERATIONS
Agency and service fee operating income in 1993 increased 14.6 percent to $60.2
million compared to an increase of 13.8 percent in 1992 and an increase of 26.0
percent in 1991. The increases in operating income in all three years resulted
from the growth of risk management services. Agency and service fee operating
income contributed 2.3 percent to AIG's income before income taxes and the
cumulative effect of accounting changes in 1993 compared to 2.5 percent in 1992
and 2.3 percent in 1991.
FINANCIAL SERVICES OPERATIONS
Financial services operating income amounted to $390.0 million in 1993, an
increase of 12.6 percent. This compares with operating income in 1992 and 1991
of $346.4 million and $222.2 million, respectively, or increases of 55.9
percent and 67.7 percent in 1992 and 1991, respectively. The financial services
operating income in 1993 increased over that of 1992 as a result of increases
in the operating income of International Lease Finance Corporation (ILFC) and
AIG Trading Group Inc. and its subsidiaries (AIGTG). The financial services
operating income in 1992 increased over that of 1991 as a result of increases
in the operating income of AIG Financial Products Corp. and its subsidiaries
(AIGFP), ILFC and AIGTG. The primary reason for the increase in financial
services operating income in 1991 was the inclusion of twelve months results of
operations of ILFC and AIGTG.
Through AIGFP and AIGTG, AIG participates in the derivatives market, which
has expanded significantly during the past several years. Derivative products
typically take the form of futures, forward, swap and option contracts and
derive their values from underlying interest rate, foreign exchange, equity or
commodity instruments. End users find derivatives to be a cost effective
approach to managing market risks associated with traditional on-balance sheet
financial instruments. As a dealer of derivative contracts, AIG typically acts
as a counterparty to end users or other dealers. Consequently, AIG may build up
substantial positions in derivatives which are managed by taking offsetting
positions in other derivatives, commodities or financial instruments. AIG's
counterparties include financial services companies, governmental units, banks
and industrial companies. In considering AIG's derivative activities, it is
also important to note that all significant derivative activities are conducted
through AIGFP and AIGTG and that AIG's other units, including its insurance
subsidiaries, are not significant end users of derivative products.
Although the notional amounts of derivatives are not recorded on the
balance sheet, dealer or principal-related derivatives are carried at their
estimated fair values. Substantially all of AIG's derivative positions at
December 31, 1993 were dealer or principal-related and thus accounted for in
that manner. The notional amounts used to express the extent of AIG's
involvement in derivatives transactions do not represent a quantification of
the market or credit risks of the positions. The notional amounts represent the
amounts used to calculate contractual cash flows to be exchanged and are
generally not actually paid or received, except for certain contracts such as
currency swaps and foreign exchange forwards. Furthermore, other factors such
as offsetting transactions, master netting agreements and collateral must all
be thoroughly considered in any measurement of risk.
The market risk of derivatives arises principally from the potential for
changes in volatility, interest rates, foreign exchange rates, and equity and
commodity prices. The credit risk of derivatives arises from the potential for
a counterparty to default on its contractual obligations. Credit risk exists at
a particular point in time when a derivative has a positive market value.
Derivatives, other than options, may be in an unrealized gain or unrealized
loss position depending on market rates and contract terms. Purchased options
contracts with positive market values have credit risk.
AIGFP conducts, primarily as principal, an interest rate, currency, equity
and commodity derivative products business. AIGFP also enters into long dated
forward foreign exchange, option, synthetic security, liquidity facility and
investment contract transactions.
AIGFP generally manages its exposures by taking offsetting positions,
including swaps, options, bonds, forwards or futures contracts. AIGFP manages
its credit risk by internally evaluating the creditworthiness of counterparties
and consulting with widely accepted credit rating services. In addition, AIGFP
enters into master netting agreements, which incorporate the right of set-off
to provide for the net settlement of covered contracts with the same
counterparty, in the event of default or other cancellation of the agreement.
Also, AIGFP requires collateral on certain transactions based on the credit
worthiness of the counterparty.
AIGFP monitors and controls its risk exposure on a daily basis through
financial, credit and legal reporting systems and, accordingly, has in place
effective procedures for evaluating and limiting the credit and market risks to
which it is subject. Management is not aware of any potential counterparty
defaults as of December 31, 1993.
Revenues generated by AIGFP for 1993 were primarily comprised of interest
rate swaps activity, which represented over 50 percent of total AIGFP revenues.
In August of 1993, the chief executive officer and minority shareholder of
AIGFP left the company and a new management team was put in place. A full and
satisfactory settlement was reached between AIG and the former minority
shareholder. Most members of AIGFP's core group central to the AIGFP operation
have remained at the company.
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21
During 1993, certain investments held by AIGFP experienced financial
difficulties and suffered significant rating downgrades. The pretax impact on
AIG of the estimated other than temporary impairment in value of these
investments was $215 million. As is AIG's policy in such situations where
credit ratings have deteriorated significantly, these impairments have been
appropriately recognized by charges to income of $104 million in 1993 and $111
million prior to 1993. The charge for the aforementioned impairments relates to
investments made before the new management team was in place. Based on the
latest information available, AIG believes that no further significant
impairments exist.
AIGTG engages as principal in trading activities in certain foreign
exchange, precious and base metals, petroleum and petroleum products and
natural gas markets. AIGTG is exposed to risk of loss through the potential
non-performance of a counterparty on its contractual obligations (credit risk)
and through the potential for changes in value due to fluctuations in interest
and foreign exchange rates and in prices of commodities (market risk).
Generally, AIGTG manages its credit risk through credit reviews, transaction
limits and/or margin requirements. AIGTG manages the market risk of its various
positions and transactions through offsetting transactions such as purchasing
and selling options and forward and futures contracts.
Revenues generated by AIGTG for 1993 were primarily comprised of foreign
exchange activities, which represented over 60 percent of total AIGTG revenues.
ILFC primarily engages in the acquisition of new and used commercial jet
aircraft and the leasing and sale of such aircraft to airlines around the
world. In addition, ILFC is engaged in the remarketing of commercial jets for
airlines and financial institutions. ILFC is exposed to loss through
non-performance of aircraft lessees and through owning and committing to
purchase aircraft which it would be unable to lease. ILFC manages its lessee
non-performance exposure through credit reviews and security deposit
requirements. At December 31, 1993, only one of 230 aircraft owned was not
leased. This aircraft is being converted for freighter service. Currently, 76.5
percent of the fleet is leased to foreign carriers.
See also the discussions under "Capital Resources" and "Liquidity" herein
and Notes 1, 9, 11 and 16 of Notes to Financial Statements.
Financial services operating income represented 15.0 percent of AIG's
income before income taxes and the cumulative effect of accounting changes in
1993. This compares to 16.2 percent and 11.0 percent in 1992 and 1991,
respectively.
OTHER OPERATIONS
In 1993, AIG's equity in income of minority-owned reinsurance operations was
$39.6 million compared to $27.9 million in 1992 and $28.8 million in 1991. The
equity interest in reinsurance companies, which includes two equity operations
which commenced business during 1993, represented 1.5 percent of income before
income taxes and the cumulative effect of accounting changes in 1993, compared
to 1.3 percent in 1992 and 1.4 percent in 1991.
Other realized capital losses amounted to $12.7 million, $11.3 million and
$14.1 million in 1993, 1992 and 1991, respectively.
Other income (deductions)-net includes AIG's equity in certain minor
majority-owned subsidiaries and certain partially-owned companies, minority
interest in certain consolidated companies, realized foreign exchange
transaction gains and losses in substantially all currencies and unrealized
gains and losses in hyperinflationary currencies, as well as the income and
expenses of the parent holding company and other miscellaneous income and
expenses. In 1993, net deductions amounted to $73.8 million. In both 1992 and
1991, net deductions amounted to $70.2 million.
Income before income taxes and the cumulative effect of accounting changes
amounted to $2.60 billion in 1993 and $2.14 billion in 1992. Income before
income taxes was $2.02 billion in 1991.
In 1993, AIG recorded a provision for income taxes of $683.0 million
compared to the provisions of $512.0 million and $469.6 million in 1992 and
1991, respectively. These provisions represent effective tax rates of 26.3
percent, 24.0 percent and 23.2 percent in the same respective years. The most
significant cause for the increase in the effective tax rate for 1993 was the
Omnibus Budget Reconciliation Act of 1993 (the Act). Among other things, the
Act increased the corporate tax rate to 35 percent from 34 percent, effective
January 1, 1993. Additionally, the effective tax rate was influenced by higher
state and local income taxes.
The increase in the effective tax rate for 1992 resulted from the adoption
of Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (FASB 109). That is, fresh start adjustments resulting from loss reserve
discounting and salvage recoveries are no longer recognized periodically. The
provision for income taxes in 1991 reflects a benefit of approximately $28
million relating to the fresh start adjustment. (See Note 3 of Notes to
Financial Statements.)
Income before the cumulative effect of accounting changes amounted to
$1.92 billion in 1993, $1.63 billion in 1992 and $1.55 billion in 1991. The
increases in net income over the three year period resulted from those factors
described above.
At January 1, 1993, AIG's equity in income of minority-owned reinsurance
operations was positively impacted by the cumulative effect of accounting
changes on such operations from the adoption of FASB 109, which was partially
offset by the adoption of Statement of Financial Accounting Standards No. 106
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22
"Employer's Accounting for Postretirement Benefits Other than Pension Plans"
(FASB 106). AIG's equity in the cumulative effect of such accounting changes
was a net benefit of $20.7 million.
AIG had adopted FASB 106 and FASB 109 effective as at January 1, 1992
recording a cumulative effect net benefit of $31.9 million. The pretax
cumulative charge of adopting FASB 106 was $83.1 million and the net of tax
cumulative charge was $54.8 million. The cumulative effect of adopting FASB
109 was a benefit of $86.7 million.
Net income amounted to $1.94 billion in 1993, $1.66 billion in 1992 and
$1.55 billion in 1991. The increases in net income over the three year period
resulted from those factors described above.
CAPITAL RESOURCES
At December 31, 1993, AIG had total capital funds of $15.22 billion and total
borrowings of $15.69 billion.
Total borrowings at December 31, 1993 and 1992 were as follows:
(in thousands)
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 1992
============================================================================================================
Borrowings under Obligations of
Guaranteed Investment Agreements
(GIA) -- AIGFP $ 6,735,600 $ 6,697,800
- ------------------------------------------------------------------------------------------------------------
Commercial Paper:
AIG Funding, Inc. 891,700 985,200
ILFC 1,442,400* 942,800*
AICCO 638,200 514,300
AIGFP 176,600 183,000
- ------------------------------------------------------------------------------------------------------------
Total 3,148,900 2,625,300
- ------------------------------------------------------------------------------------------------------------
Medium Term Notes:
ILFC 1,753,700* 1,428,000*
AIG 295,000 237,000
- ------------------------------------------------------------------------------------------------------------
Total 2,048,700 1,665,000
- ------------------------------------------------------------------------------------------------------------
Notes and Bonds Payable:
ILFC 2,550,000* 1,800,000*
AIGFP 521,400 145,500
AIG: Lire bonds 159,100 159,100
Zero coupon notes 59,100 53,100
- ------------------------------------------------------------------------------------------------------------
Total 3,289,600 2,157,700
- ------------------------------------------------------------------------------------------------------------
Loans and Mortgages Payable 466,300 318,500
($196,900 was not guaranteed by
AIG in 1993 and 1992.)
- ------------------------------------------------------------------------------------------------------------
Total Borrowings 15,689,100 13,464,300
- ------------------------------------------------------------------------------------------------------------
Borrowings not guaranteed by AIG 5,943,000 4,367,700
Matched GIA borrowings 6,735,600 6,697,800
- ------------------------------------------------------------------------------------------------------------
12,678,600 11,065,500
- ------------------------------------------------------------------------------------------------------------
Remaining borrowings of AIG $ 3,010,500 $ 2,398,800
============================================================================================================
* AIG does not guarantee or support these borrowings.
See also Note 9 of Notes to Financial Statements.
GIAs serve as the source of proceeds for AIGFP's investments in a
diversified portfolio of securities. (See also the discussions under
"Operational Review" and "Liquidity" herein and Notes 1, 9 and 11 of Notes to
Financial Statements.)
AIG Funding, Inc. intends to continue to meet AIG's funding requirements
through the issuance of commercial paper guaranteed by AIG. This issuance of
commercial paper is subject to the approval of AIG's Board of Directors. ILFC,
A.I. Credit Corp. (AICCO) and AIGFP issue commercial paper for the funding of
their own operations. AIG does not guarantee AICCO's or ILFC's commercial
paper. However, AIG has entered into an agreement in support of AICCO's
commercial paper. AIG guarantees AIGFP's commercial paper. (See Note 9 of Notes
to Financial Statements.)
ILFC primarily uses the proceeds of its borrowings to acquire new and used
commercial jet aircraft to lease and/or remarket to airlines around the world.
During 1993, ILFC increased the aggregate principal amount outstanding of its
medium term and term notes to $4.30 billion at December 31, 1993, a net
increase of $1.08 billion from 1992. At December 31, 1993, ILFC had $1 billion
in aggregate principal amount of debt securities registered for issuance from
time to time. (See also the discussions under "Operational Review" and
"Liquidity" herein and Notes 1, 9 and 16 of Notes to Financial Statements.)
ILFC sold $100 million of Market Auction Preferred Stock in each of
November 1993 and December 1992.
During 1993, AIG issued $125.0 million in aggregate principal amount of
medium term notes. The proceeds of these notes were used for general corporate
purposes. During 1993, $67.0 million of previously issued notes matured. At
December 31, 1993, AIG had $247.0 million in aggregate principal amount of debt
securities registered for issuance from time to time. (See also Note 9 of Notes
to Financial Statements.)
AIG's capital funds have increased $2.44 billion in 1993. Unrealized
appreciation of investments, net of taxes, increased $792.8 million, primarily
as a result of the general market trends worldwide, particularly overseas, and
to a lesser extent, the adoption of Financial Accounting Standards No. 115
"Accounting for Certain Debt and Equity Securities" (FASB 115). Unrealized
appreciation of investments, net of taxes, will now be subject to increased
volatility resulting from the changes in the market value of bonds available
for sale. (See also the discussion under "Accounting Standards" herein.) The
cumulative translation adjustment loss, net of taxes, increased $14.3 million,
and retained earnings increased $1.81 billion, resulting from net income less
dividends.
During 1993, preferred stock issued and outstanding decreased $7,500 and
additional paid-in capital declined approximately $150 million due to the
redemption of Series M-1 and M-2 Exchangeable Money Market Cumulative Serial
Preferred Stock. Common stock increased by $281.2 million
21
23
and additional paid-in capital decreased by that amount as a result of a common
stock split in the form of a 50 percent stock dividend paid July 30, 1993. (See
also Note 10 of Notes to Financial Statements.)
Payments of dividends to AIG by its insurance subsidiaries are subject to
certain restrictions imposed by statutory authorities. AIG has in the past
reinvested most of its unrestricted earnings in its operations and believes
such continued reinvestment in the future will be adequate to meet any
foreseeable capital needs. However, AIG may choose from time to time to raise
additional funds through the issuance of additional securities. At December 31,
1993 there were no significant statutory or regulatory issues which would
impair AIG's financial condition or results of operations. (See also the
discussion under "Liquidity" herein and Note 10 of Notes to Financial
Statements.)
LIQUIDITY
At December 31, 1993, AIG's consolidated invested assets included approximately
$5.23 billion of cash and short-term investments. Consolidated net cash
provided from operating activities in 1993 amounted to approximately $6.47
billion.
Management believes that AIG's liquid assets, its net cash provided by
operations, and access to the capital markets will enable it to meet any
foreseeable cash requirements.
AIG's liquidity is primarily derived from the operating cash flows of its
general and life insurance operations.
The liquidity of the combined insurance operations is derived both
domestically and abroad. The combined insurance pretax operating cash flow is
derived from two sources, underwriting operations and investment operations. In
the aggregate, AIG's insurance operations generated approximately $5.7 billion
in pretax operating cash flow during 1993. The underwriting cash flow
approximated $2.8 billion in 1993. Underwriting cash flow represents periodic
premium collections and paid loss recoveries less reinsurance premiums, losses,
benefits, and acquisition and operating expenses paid. Generally, there is a
time lag from when premiums are collected and, when as a result of the
occurrence of events specified in the policy, the losses and benefits are paid.
AIG's insurance operations generated approximately $2.9 billion in investment
income cash flow during 1993. Investment income cash flow is primarily derived
from interest and dividends received and includes realized capital gains.
The combined insurance pretax operating cash flow coupled with the cash
and short-term investments of $4.70 billion provided the insurance operations
with a significant amount of liquidity. This liquidity is available to purchase
high quality and diversified fixed income securities and to a lesser extent
marketable equity securities and to provide mortgage loans on real estate,
policy and collateral and guaranteed loans. With this liquidity coupled with
proceeds of approximately $11 billion from the maturities, sales and
redemptions of fixed income securities and from the sales of marketable equity
securities, AIG purchased approximately $15 billion of fixed income securities
and marketable equity securities.
The following table is a summary of the composition of AIG's invested
assets, including investment income due and accrued and real estate, at
December 31, 1993:
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------
Invested Percent
Assets of Total
=========================================================================================================
General insurance $22,573,800 33.2%
Life insurance 22,037,300 32.4
Financial services 22,957,300 33.7
Other 464,100 0.7
- ---------------------------------------------------------------------------------------------------------
Total $68,032,500 100.0%
=========================================================================================================
The following table is a summary of the composition of AIG's insurance
invested assets by insurance segment, including investment income due and
accrued and real estate, at December 31, 1993:
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
PERCENT DISTRIBUTION
PERCENT --------------------
GENERAL LIFE TOTAL OF TOTAL DOMESTIC FOREIGN
====================================================================================================================================
Bonds:
Taxable $ 4,234,800 $13,387,800 $17,622,600 39.5% 38.4% 61.6%
Tax-exempt 12,346,700 -- 12,346,700 27.7 100.0 --
Short-term investments, including
time deposits, and cash 1,820,500 2,878,600 4,699,100 10.6 23.1 76.9
Common stocks 2,761,800 1,527,200 4,289,000 9.6 36.1 63.9
Mortgage loans on real estate, policy and collateral loans 96,300 2,678,200 2,774,500 6.2 24.6 75.4
Real estate 284,300 572,000 856,300 1.9 16.2 83.8
Investment income due and accrued 429,700 363,900 793,600 1.8 54.0 46.0
Other invested assets 599,700 629,600 1,229,300 2.7 53.2 46.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total $22,573,800 $22,037,300 $44,611,100 100.0% 53.0% 47.0%
=================================================================================================================================
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With respect to bonds, AIG's strategy is to invest in high quality
securities while maintaining diversification to avoid significant exposure to
issuer, industry and/or country concentrations.
Approximately two-thirds of the fixed maturity investments are domestic
securities. Approximately 43 percent of such domestic securities were rated AAA
and approximately 2 percent were below investment grade.
A significant portion of the foreign insurance fixed income portfolio is
rated by Moody's, Standard & Poor's (S&P) or similar foreign services. However,
credit quality rating services similar to the aforementioned rating agencies
are not available in all overseas locations. Thus, AIG annually reviews the
credit quality of the nonrated fixed income investments, including mortgages,
in its foreign portfolio. AIG applies a scale similar to that of Moody's and
S&P to the rating of these securities. Coupling the ratings of this internal
review with those of the independent agencies indicates that approximately 49
percent of the foreign fixed income investments were rated AAA and
approximately one percent were deemed below investment grade at December 31,
1993.
Although AIG's fixed income insurance portfolios contain minor amounts of
securities below investment grade, potentially any fixed income security is
subject to downgrade for a variety of reasons subsequent to any balance sheet
date.
Approximately 6 percent of the fixed maturities portfolio are
Collateralized Mortgage Obligations (CMOs). All the CMOs are investment grade
and nearly all the CMOs are backed by various U.S. government agencies. Thus,
credit risk is minimal. There are no interest only or principal only CMOs. CMOs
are exposed to interest rate risk as the duration and ultimate realized yield
would be affected by the accelerated prepayments of the underlying mortgages.
When permitted by regulatory authorities and when deemed necessary to
protect insurance assets, including invested assets, from currency risk and
interest rate risk, AIG and its insurance subsidiaries consider entering into
derivative transactions. To date, such activities have been insignificant.
Short-term investments represent amounts invested in various internal and
external money market funds, time deposits and cash.
Mortgage loans on real estate, policy, collateral and guaranteed loans
comprise 6.2 percent of AIG's insurance invested assets at December 31, 1993.
AIG's insurance holdings of real estate mortgages amounted to $1.31 billion of
which 36.4 percent was domestic. At December 31, 1993, no domestic mortgages
and only a nominal amount of foreign mortgages were in default. At December 31,
1993, AIG's insurance holdings of collateral loans amounted to $482.4 million,
all of which were foreign. It is AIG's practice to maintain a maximum loan to
value ratio of 75 percent.
AIG's real estate investment properties are primarily occupied by AIG's
various operations. The current market value of these properties considerably
exceeds their carrying value.
There exist in certain jurisdictions significant regulatory and/or foreign
governmental barriers which may not permit the immediate free flow of funds
between insurance subsidiaries or from the insurance subsidiaries to AIG
parent. These barriers generally cause only minor delays in the outward
remittance of the funds.
The following table is a summary of the composition of AIG's financial
services invested assets, including real estate, at December 31, 1993:
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------
Invested Percent
Assets of Total
=========================================================================================================
Flight equipment, primarily under operating
leases, net of accumulated depreciation $ 8,555,400 37.3%
Securities available for sale, at market value 4,991,100 21.7
Trading securities, at market value 2,516,200 11.0
Securities purchased under agreements
to resell, at contract value 2,737,500 11.9
Receivables from securities brokers
and dealers 1,328,400 5.8
Spot commodities, at market value 764,200 3.3
Net unrealized gain on interest rate and currency
swaps, options and forward transactions 640,100 2.8
Other, including short-term investments 1,424,400 6.2
- ---------------------------------------------------------------------------------------------------------
Total $22,957,300 100.0%
=========================================================================================================
As previously discussed, the cash for the purchase of flight equipment is
derived primarily from the proceeds of ILFC's debt financing. The primary
sources for the repayment of this debt and the interest expense thereon are the
lease receipts received and proceeds from the sale of flight equipment. During
1993, ILFC obtained net financing of $1.59 billion for the acquisition of
flight equipment costing $2.41 billion. Additional funds were provided by the
proceeds from the issuance of its preferred stock and the disposal of flight
equipment.
At December 31, 1993, ILFC had committed to purchase 227 aircraft
deliverable from 1994 through 1999 at an estimated aggregate purchase price of
$12.9 billion and had options to purchase an additional 58 aircraft deliverable
through 1999 at an estimated aggregate exercisable price of $3.4 billion. As of
March 1, 1994, ILFC has entered into leases, letters of intent to lease or is
in various stages of negotiation for 52 of 56 aircraft to be delivered in 1994
and 40 of 171 aircraft to be delivered subsequent to 1994. ILFC will be
required to find customers for any aircraft presently on order and any new
aircraft to be ordered, and it must arrange financing for portions of the
purchase price of such equipment. ILFC has been successful to date both in
placing its new aircraft on lease or sales contract and obtaining adequate
financing.
23
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Securities available for sale, and securities purchased under agreements
to resell are primarily purchased with the proceeds of AIGFP's GIA financings.
The securities purchased involve varying degrees of credit risk. The average
credit rating of AIGFP's securities available for sale at December 31, 1993 was
AA. Securities purchased under agreements to resell are treated as
collateralized transactions. AIGFP generally takes possession of securities
purchased under agreements to resell. AIGFP further minimizes its credit risk
by monitoring customer credit exposure and requiring additional collateral to
be deposited when deemed necessary.
AIGFP for its own account enters into interest rate, currency, equity and
commodity swaps and forward commitments. AIGFP evaluates the credit worthiness
of its counter-parties by internal credit evaluation and consultation with
widely accepted credit-rating services. The average credit rating of AIGFP's
counterparties as a whole, as measured by AIGFP, was AA-- at December 31, 1993.
Swaps, options and forward transactions are carried at estimated fair value
based on the use of valuation models that utilize, among other things, current
interest, foreign exchange and volatility rates, as applicable, with the
resulting unrealized gains or losses reflected in the current period's income.
These values are also reviewed by reference to the market levels at which AIGFP
hedges its transactions, and are adjusted as deemed appropriate by management.
The recorded values may be different than the values that might be realized if
AIGFP were to sell or close out the transactions because of limited liquidity
for these instruments.
AIGTG acts as principal in certain foreign exchange, precious and base
metals, petroleum and petroleum products and natural gas trading activities.
AIGTG owns and may maintain substantially hedged inventories in the commodities
in which it trades. AIGTG supports its trading activities largely through
payables to securities brokers and dealers, securities sold under agreements to
repurchase and spot commodities sold but not yet purchased. Thus, AIGTG's
liquidity is provided through its high volume and rapid turnover activities in
trading, market making and hedging. AIGTG uses derivatives to hedge various
trading positions and transactions from adverse movement in interest rates,
exchange rates and commodity prices.
RECENT DEVELOPMENTS
In 1989, the National Association of Insurance Commissioners (NAIC) adopted the
"NAIC Solvency Policing Agenda for 1990". Included in this agenda was the
development of Risk-Based Capital (RBC) requirements. RBC relates an individual
insurance company's statutory surplus to the risk inherent in its overall
operations. AIG believes that the development of RBC standards is a positive
step for the insurance industry but further believes the standards in their
present form may lead to an inefficient deployment of industry capital. As
experience is gained with the application of RBC standards, it is likely that
adjustments to the formula will be made.
Standards for the life RBC formula and a model act have been approved by
regulators and were effective with the 1993 statutory financial statements. At
December 31, 1993, the adjusted capital of each of AIG's four domestic life
companies exceeded each of their RBC standards by multiples ranging from two to
more than four.
RBC standards for property and casualty insurers were finalized in
principle in December 1993 and will be effective with the 1994 statutory
financial statements to be filed in 1995. Applying these RBC standards to AIG's
domestic general operations at December 31, 1993 reveals that the capital of
each of the domestic general insurance companies exceeds the RBC requirements.
Additionally, no AIG company is on any regulatory or similar "watch list".
In 1992, domestic life insurance companies were required for regulatory
purposes to fully adopt two investment reserves, the Asset Valuation Reserve
(AVR) and the Interest Maintenance Reserve (IMR). The AVR is formula based and
applies to all invested assets which are subject to either credit or market
risk. The IMR defers realized capital gains and losses on the sale of fixed
maturities and mortgage loans. The realized gains and losses are subsequently
amortized into investment income over the original term of the disposed assets.
The impact of these reserves on the separately reported statutory income of
certain domestic life companies was significant in 1993. However, there was no
impact on AIG's 1993 GAAP consolidated life insurance operating income
presented herein.
In January 1994, the Los Angeles area of California suffered severe damage
as a result of an earthquake. The impact of the insured losses on AIG's 1994
results of operations is currently estimated to be approximately $55 million
net of reinsurance recoverable of approximately $95 million.
ACCOUNTING STANDARDS
Standards adopted during 1993:
At January 1, 1993, AIG adopted Statement of Financial Accounting Standards No.
113 "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" (FASB 113). This statement specifies the accounting
for the reinsuring (ceding) of insurance contracts and, effective in the first
quarter of 1993, eliminates the reporting of assets and liabilities net of the
effects of reinsurance. As required by FASB 113, the reserve for losses and
loss expenses, the reserve for unearned premiums and future policy benefits for
life and accident and health insurance contracts have been presented gross of
ceded reinsurance in the accompanying December 31, 1993 balance sheet. A
reinsurance asset was established to include the aforementioned ceded
reinsurance balances. The balance sheet at December 31,
24
26
1992 has been appropriately reclassified to reflect the new presentation. FASB
113 also establishes the conditions required for a contract with a reinsurer to
be accounted for as reinsurance ceded and prescribes accounting and reporting
standards for the contract. There has been no material effect on AIG's general
or life insurance operating income as a result of the adoption of FASB 113.
(See also Note 5 of Notes to Financial Statements.)
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (FASB 115), and AIG adopted this
standard at December 31, 1993. The pretax increase in carrying value of bonds
available for sale as a result of marking to market was $919.3 million. The
portion which inured to the benefit of policyholders was $511.8 million, which
has been recorded as a component of future policy benefits for life and
accident and health insurance contracts. Thus, the unrealized appreciation of
investments increased $251.0 million, net of taxes of $156.5 million.
FASB 115 addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. Those investments are to be classified in three categories
and accounted for as follows:
o Where an enterprise has the positive intent and ability to hold debt
securities to maturity, those securities are deemed to be held to maturity
securities and reported at amortized cost.
o Where an enterprise purchases debt and equity securities principally for
the purpose of selling them in the near term, those securities are deemed to be
trading securities and are reported at fair value, with the unrealized gains
and losses included in operating income.
o Where debt and equity securities are not reported either as held to
maturity securities or trading securities, those securities are deemed to be
available for sale securities and reported at fair value, with unrealized gains
and losses excluded from operating income and reported in a separate component
of shareholders' equity.
This statement has significantly changed and narrowed the meaning of the
held to maturity category from previous generally accepted accounting
principles. (See also Notes 1(c) and 8 of Notes to Financial Statements.)
During 1993, the Emerging Issues Task Force (EITF) of FASB adopted an
accounting rule "Accounting for Multiple-Year Retrospectively Rated Contracts
by Ceding and Assuming Enterprises" (EITF Issue No. 93-6). This rule
encompasses any multiyear retrospectively rated contract requiring that
insurers recognize as assets the reinsurer's obligations, and that ceding
insurers accrue liabilities for the contract obligations. AIG has analyzed the
aspects of this accounting rule and determined that there was no significant
impact on AIG's results of operations or financial condition.
Standards to be adopted in the future:
In March 1992, FASB issued Interpretation No. 39 "Offsetting of Amounts
Related to Certain Contracts" (Interpretation), which is effective for fiscal
years beginning after December 15, 1993. The Interpretation requires that
unrealized gains and losses on swaps, forwards, options and similar contracts
be recognized as assets and liabilities, whereas AIG's current policy is to
record such unrealized gains and losses on a net basis in the consolidated
balance sheet. The Interpretation allows the netting of such unrealized gains
and losses with the same counterparty when they are included under a master
netting arrangement with the counterparty and the contracts are reported at
market value.
Although there will be no effect on AIG's operating income upon the
adoption of the Interpretation, AIG will be required to present certain of its
financial services assets and liabilities on a gross basis, thus increasing
both assets and liabilities in the consolidated balance sheet. The effect of
presenting these assets and liabilities on a gross basis on AIG's consolidated
balance sheet will not be significant.
In November of 1992, FASB issued Statement of Financial Accounting
Standards No. 112 "Employers' Accounting for Post-employment Benefits" (FASB
112). FASB 112 establishes accounting standards for employers who provide
benefits to former or inactive employees after employment but before
retirement. FASB 112 is effective for the 1994 financial statements and will
have no material effect on AIG's results of operations or financial condition.
In May 1993, FASB issued Statement of Financial Accounting Standards No.
114 "Accounting by Creditors for Impairment of a Loan" (FASB 114). FASB 114
addresses the accounting by all creditors for impairment of certain loans. The
impaired loans are to be measured at the present value of all expected future
cash flows. The present value may be determined by discounting the expected
future cash flows at the loan's effective rate or valued at the loan's
observable market price or valued at the fair value of the collateral if the
loan is collateral dependent. This methodology is not expected to produce a
material effect on AIG's results of operations or financial condition.
FASB 114 will be effective for the 1995 financial statements. AIG does not
anticipate adoption prior to the effective date.
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27
ITEM 8. Financial Statements and Supplementary Data
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
- --------------------------------------------------------------------------------------------------------------------------
Page Page
- --------------------------------------------------------------------------------------------------------------------------
Report of Independent Accountants 27 Schedules:
Consolidated Balance Sheet as at I--Summary of Investments--Other Than
December 31, 1993 and 1992 28 Investments in Related
Consolidated Statement of Income for the Parties as of
years ended December 31, 1993, 1992 December 31, 1993 S-1
and 1991 30 II--Amounts Receivable from Related
Consolidated Statement of Capital Funds Parties and Underwriters,
for the years ended December 31, 1993, Promoters and Employees Other
1992 and 1991 31 Than Related Parties for the years
Consolidated Statement of Cash Flows for ended December 31, 1993, 1992
the years ended December 31, 1993, and 1991 S-2
1992 and 1991 32 III--Condensed Financial Information of
Notes to Financial Statements 34 Registrant as of December 31, 1993
and 1992 and for the years ended
December 31, 1993, 1992 and 1991 S-4
V--Supplementary Insurance Information as
of December 31, 1993, 1992 and
1991 and for the years then ended S-6
VI--Reinsurance as of December 31, 1993,
1992 and 1991 and for the years
then ended S-7
IX--Short-term Borrowings as of
December 31, 1993, 1992 and 1991 S-8
X--Supplemental Information Concerning
Property-Casualty Insurance Operations
as of December 31, 1993, 1992
and 1991 and for the years then ended S-9
26
28
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
American International Group, Inc.
We have audited the consolidated financial statements of American
International Group, Inc. and subsidiaries listed in the index on page 26 of
this Form 10-K. These financial statements and the financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
International Group, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
As discussed in Note 1(w) to the financial statements, the Company changed
its method of accounting for investments in certain fixed maturity securities
in 1993, and in 1992 for income taxes and postretirement benefits other than
pensions.
COOPERS & LYBRAND
New York, New York
February 24, 1994.
27
29
CONSOLIDATED BALANCE SHEET American International Group, Inc. and Subsidiaries
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 1992
====================================================================================================================================
ASSETS:
Investments and cash:
Fixed maturities:
Bonds held to maturity, at amortized cost (market value: 1993-$13,278,300;
1992-$24,371,600) $ 12,193,701 $23,175,004
Bonds available for sale, at market value (cost: $16,599,600) 17,562,411 --
Bonds trading securities, at market value (cost: $307,900) 310,834 --
Preferred stocks, at amortized cost (market value: 1993-$18,000; 1992-$100,100) 17,428 99,908
Bonds, at market value (cost: $3,184,000) -- 3,215,453
Equity securities:
Common stocks (cost: 1993-$3,720,000; 1992-$2,481,100) 4,364,410 2,584,810
Non-redeemable preferred stocks (cost: 1993-$108,200; 1992-$109,100) 123,837 120,294
Mortgage loans on real estate, policy and collateral loans 3,576,516 3,079,560
Financial services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation
(1993-$599,800; 1992-$358,400) 8,555,356 6,697,179
Securities held for investment, at amortized cost -- 4,172,671
Securities available for sale, at market value (cost: $4,971,800) 4,991,105 --
Trading securities, at market value 2,516,166 1,947,220
Spot commodities, at market value 764,215 631,717
Net unrealized gain on interest rate and currency swaps, options and forward transactions 640,120 1,422,700
Receivables from securities brokers and dealers 1,328,391 4,340,417
Securities purchased under agreements to resell, at contract value 2,737,507 4,317,312
Other invested assets 1,265,056 1,172,535
Short-term investments, at cost which approximates market value 5,072,893 4,648,879
Cash 157,481 136,628
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments and cash 66,177,427 61,762,287
Investment income due and accrued 808,268 782,391
Premiums and insurance balances receivable-net 8,364,096 7,693,179
Reinsurance assets 15,883,788 14,342,602
Deferred policy acquisition costs 4,249,409 3,657,818
Investments in partially-owned companies 571,680 440,267
Real estate and other fixed assets, net of accumulated depreciation
(1993-$950,000; 1992-$835,700) 1,615,742 1,405,837
Separate and variable accounts 1,914,815 1,723,229
Other assets 1,429,623 914,572
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $101,014,848 $92,722,182
====================================================================================================================================
See Accompanying Notes to Financial Statements.
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30
CONSOLIDATED BALANCE SHEET (continued) American International Group, Inc. and Subsidiaries
(in thousands, except share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 1992
===================================================================================================================================
LIABILITIES:
Reserve for losses and loss expenses $ 30,046,172 $28,156,767
Reserve for unearned premiums 5,515,670 4,956,727
Future policy benefits for life and accident and health insurance contracts 14,638,382 11,804,484
Policyholders' contract deposits 4,439,839 4,486,702
Other policyholders' funds 1,739,290 1,526,477
Reserve for commissions, expenses and taxes 1,113,397 924,805
Insurance balances payable 1,458,383 583,420
Funds held by companies under reinsurance treaties 406,902 331,515
Income taxes payable:
Current 358,219 128,048
Deferred 447,790 184,347
Financial services liabilities:
Borrowings under obligations of guaranteed investment agreements 6,735,579 6,697,819
Securities sold under agreements to repurchase, at contract value 2,299,563 3,632,205
Payables to securities brokers and dealers 1,688,147 3,216,637
Securities sold but not yet purchased, principally obligations of the
U.S. Government and Government agencies, at market value 696,454 417,391
Spot commodities sold but not yet purchased, at market value 285,757 1,536,675
Deposits due to banks and other depositors 557,372 1,001,610
Commercial paper 1,618,979 1,125,762
Notes, bonds and loans payable 5,021,941 3,578,983
Commercial paper 1,529,906 1,499,547
Notes, bonds, loans and mortgages payable 782,660 562,206
Separate and variable accounts 1,914,815 1,723,229
Other liabilities 2,295,436 1,764,674
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 85,590,653 79,840,030
- -----------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
PREFERRED SHAREHOLDERS' EQUITY IN SUBSIDIARY COMPANY 200,000 100,000
CAPITAL FUNDS:
Preferred stock, exchangeable money market cumulative serial, $5.00 par value;
$100,000 liquidation value; 1,500 shares authorized; issued and
outstanding 1993-0; 1992-1,500 -- 8
Common stock, $2.50 par value; 500,000,000 shares authorized; shares issued
1993-337,390,986; 1992-224,929,520 843,477 562,324
Additional paid-in capital 572,142 1,014,947
Unrealized appreciation of investments, net of taxes 922,646 129,816
Cumulative translation adjustments, net of taxes (348,186) (333,882)
Retained earnings 13,301,529 11,486,615
Treasury stock; 1993-19,762,919; 1992-13,300,507 shares of common stock
(including 18,747,224 and 12,534,285 shares held by subsidiaries) (67,413) (77,676)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL FUNDS 15,224,195 12,782,152
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL FUNDS $101,014,848 $92,722,182
===================================================================================================================================
See Accompanying Notes to Financial Statements.
29
31
CONSOLIDATED STATEMENT OF INCOME American International Group, Inc. and Subsidiaries
(in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
===================================================================================================================================
GENERAL INSURANCE OPERATIONS:
Net premiums written $10,025,903 $ 9,138,528 $ 9,146,394
Change in unearned premium reserve (459,263) 70,862 (41,762)
- -----------------------------------------------------------------------------------------------------------------------------------
Net premiums earned 9,566,640 9,209,390 9,104,632
Net investment income 1,340,480 1,252,086 1,163,461
Realized capital gains 65,264 67,134 89,275
- -----------------------------------------------------------------------------------------------------------------------------------
10,972,384 10,528,610 10,357,368
- -----------------------------------------------------------------------------------------------------------------------------------
Losses incurred 6,310,099 6,172,111 6,021,724
Loss expenses incurred 1,265,917 1,331,393 1,164,824
Underwriting expenses (principally policy acquisition costs) 1,980,233 1,900,970 1,922,893
- -----------------------------------------------------------------------------------------------------------------------------------
9,556,249 9,404,474 9,109,441
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,416,135 1,124,136 1,247,927
- -----------------------------------------------------------------------------------------------------------------------------------
LIFE INSURANCE OPERATIONS:
Premium income 5,746,046 4,853,087 4,059,354
Net investment income 1,499,714 1,313,838 1,139,793
Realized capital gains 54,576 43,257 23,219
- -----------------------------------------------------------------------------------------------------------------------------------
7,300,336 6,210,182 5,222,366
- -----------------------------------------------------------------------------------------------------------------------------------
Death and other benefits 2,374,112 1,849,238 1,525,982
Increase in future policy benefits 2,517,245 2,274,638 1,967,206
Acquisition and insurance expenses 1,627,368 1,418,853 1,167,339
- -----------------------------------------------------------------------------------------------------------------------------------
6,518,725 5,542,729 4,660,527
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 781,611 667,453 561,839
- -----------------------------------------------------------------------------------------------------------------------------------
AGENCY AND SERVICE FEE OPERATING INCOME 60,247 52,570 46,202
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES OPERATING INCOME 390,038 346,442 222,156
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY IN INCOME OF MINORITY-OWNED REINSURANCE OPERATIONS 39,589 27,929 28,806
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER REALIZED CAPITAL LOSSES (12,742) (11,293) (14,144)
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS) - NET (73,797) (70,189) (70,211)
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 2,601,081 2,137,048 2,022,575
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME TAXES (BENEFITS):
Current 772,032 556,332 469,078
Deferred (89,029) (44,299) 488
- -----------------------------------------------------------------------------------------------------------------------------------
683,003 512,033 469,566
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 1,918,078 1,625,015 1,553,009
CUMULATIVE EFFECT OF ACCOUNTING CHANGES, NET OF TAX
AIG -- 31,941 --
MINORITY-OWNED REINSURANCE OPERATIONS 20,695 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,938,773 $ 1,656,956 $ 1,553,009
===================================================================================================================================
EARNINGS PER COMMON SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES $6.04 $ 5.10 $ 4.86
CUMULATIVE EFFECT OF ACCOUNTING CHANGES, NET OF TAX
AIG -- .10 --
MINORITY-OWNED REINSURANCE OPERATIONS .07 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $6.11 $ 5.20 $ 4.86
===================================================================================================================================
AVERAGE SHARES OUTSTANDING 317,461 317,637 318,372
===================================================================================================================================
See Accompanying Notes to Financial Statements.
30
32
CONSOLIDATED STATEMENT OF CAPITAL FUNDS AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
===================================================================================================================================
PREFERRED STOCK:
Series M-1 and M-2, exchangeable money market cumulative serial:
Balance at beginning of year $ 8 $ 8 $ 8
Redemption of preferred stock (8) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year -- 8 8
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of year 562,324 562,324 562,276
Issued under stock option and purchase plans -- -- 48
Stock split effected as dividend 281,153 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 843,477 562,324 562,324
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year 1,014,947 1,029,733 1,035,124
Excess (deficit) of proceeds over (under) par value of common stock
or cost of treasury common stock issued under stock
option and purchase plans (10,131) (13,353) (5,391)
Stock split effected as dividend (281,153) -- --
Redemption of preferred stock (149,992) -- --
Other (1,529) (1,433) --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 572,142 1,014,947 1,029,733
- -----------------------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS, NET OF TAXES:
Balance at beginning of year 129,816 114,826 (38,030)
Changes during year 719,824 26,812 226,625
Deferred income tax (expense) benefit on changes (177,971) (11,822) (73,769)
Cumulative effect of accounting change, net of taxes of $156,521 250,977 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 922,646 129,816 114,826
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS, NET OF TAXES:
Balance at beginning of year (333,882) (167,567) (128,661)
Changes during year 8,742 (212,541) (57,068)
Applicable income tax (expense) benefit on changes (23,046) 46,226 18,162
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (348,186) (333,882) (167,567)
- -----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 11,486,615 9,946,335 8,500,343
Net income 1,938,773 1,656,956 1,553,009
Cash dividends to shareholders:
Preferred (1,043) (4,471) (7,262)
Common ($.39, $.35 and $.31 per share, respectively) (122,816) (112,205) (99,755)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 13,301,529 11,486,615 9,946,335
- -----------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST:
Balance at beginning of year (77,676) (22,205) (26,618)
Cost of shares acquired during year (13,148) (82,096) (12,675)
Issued under stock option and purchase plans 23,411 26,625 17,088
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (67,413) (77,676) (22,205)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL FUNDS AT END OF YEAR $ 15,224,195 $ 12,782,152 $ 11,463,454
===================================================================================================================================
See Accompanying Notes to Financial Statements.
31
33
CONSOLIDATED STATEMENT OF CASH FLOWS American International Group, Inc. and Subsidiaries
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
===================================================================================================================================
SUMMARY:
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,467,451 $ 2,983,661 $ 3,679,255
NET CASH USED IN INVESTING ACTIVITIES (7,998,990) (5,944,009) (5,488,067)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,552,392 2,948,448 1,862,231
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH 20,853 (11,900) 53,419
CASH AT BEGINNING OF YEAR 136,628 148,528 95,109
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 157,481 $ 136,628 $ 148,528
===================================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,938,773 $ 1,656,956 $ 1,553,009
- -----------------------------------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Non-cash revenues, expenses, gains and losses included in income:
Change in:
General and life insurance reserves 4,770,443 3,755,753 3,146,970
Premiums and insurance balances receivable and payable-net 204,046 (119,083) (249,251)
Reinsurance assets (1,541,186) (980,757) --
Deferred policy acquisition costs (591,591) (415,142) (465,252)
Investment income due and accrued (25,877) (72,442) (38,941)
Funds held under reinsurance treaties 75,387 14,332 (65,811)
Other policyholders' funds 212,813 (163,971) 55,243
Current and deferred income taxes-net 141,143 (46,695) 80,630
Reserve for commissions, expenses and taxes 188,592 82,052 72,144
Other assets and liabilities-net 15,711 366,672 278,671
Receivables from and payables to securities brokers and dealers--net 1,483,536 (1,537,589) 192,181
Trading securities, at market value (568,946) (322,323) (184,441)
Spot commodities, at market value (132,498) 313,274 (808,903)
Net unrealized gain on interest rate and currency swaps,
options and forward transactions 782,580 (880,117) (173,802)
Securities purchased under agreements to resell 1,579,805 (1,132,296) (1,305,659)
Securities sold under agreements to repurchase (1,332,642) 1,881,101 772,416
Securities sold but not yet purchased 279,063 (594,152) 586,299
Spot commodities sold but not yet purchased, at market value (1,250,918) 1,290,089 215,996
Realized capital gains (107,098) (99,098) (98,350)
Equity in income of partially-owned companies and other invested assets (61,934) (19,041) (9,562)
Depreciation expenses, principally flight equipment 472,247 391,865 325,144
Cumulative effect of accounting changes (20,695) (31,941) --
Change in cumulative translation adjustments 8,742 (212,541) (57,068)
Other-net (52,045) (141,245) (142,408)
- -----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 4,528,678 1,326,705 2,126,246
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,467,451 $ 2,983,661 $ 3,679,255
===================================================================================================================================
See Accompanying Notes to Financial Statements.
32
34
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
American International Group, Inc. and Subsidiaries
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
===================================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of fixed maturities, at amortized cost, sold $ 1,319,187 $ 1,189,167 $ 3,830,880
Cost of fixed maturities, at amortized cost, matured or redeemed 2,202,289 1,544,986 885,680
Cost of bonds, at market, sold 5,251,475 5,301,328 2,606,636
Cost of bonds, at market, matured or redeemed 556,881 769,043 5,038
Cost of equity securities sold 1,885,439 1,699,855 2,500,354
Realized capital gains 107,098 99,098 98,350
Purchases of fixed maturities (11,965,103) (11,656,635) (10,191,021)
Purchases of equity securities (2,868,385) (2,043,295) (2,645,141)
Mortgage, policy and collateral loans granted (1,234,780) (869,290) (1,190,760)
Repayments of mortgage, policy and collateral loans 691,284 789,158 820,189
Sales or maturities of securities held for investment 1,902,814 2,385,465 1,712,165
Purchases of securities held for investment (2,714,813) (2,751,823) (2,055,569)
Sales of flight equipment 301,353 210,927 123,034
Purchases of flight equipment (2,410,816) (1,746,762) (1,261,872)
Net additions to real estate and other fixed assets (389,390) (249,705) (221,606)
Sales or distributions of other invested assets 325,077 255,497 223,589
Investments in other invested assets (436,660) (232,317) (425,626)
Change in short-term investments (424,014) (547,229) (279,991)
Investments in partially-owned companies (97,926) (91,477) (22,396)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $ (7,998,990) $ (5,944,009) $ (5,488,067)
===================================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in policyholders' contract deposits $ (46,863) $ 709,298 $ 417,813
Change in deposits due to banks and other depositors (444,238) 789,579 20,145
Change in commercial paper 523,576 856,092 (783,938)
Proceeds from notes, bonds, loans and mortgages payable 2,479,559 2,388,701 3,199,194
Repayments on notes, bonds, loans and mortgages payable (822,147) (1,639,780) (2,140,700)
Liquidation of zero coupon notes payable -- (4,647) --
Proceeds from guaranteed investment agreements 4,244,133 3,024,305 3,916,397
Maturities of guaranteed investment agreements (4,206,373) (3,088,167) (2,658,733)
Proceeds from subsidiary company preferred stock issued 98,472 98,567 --
Proceeds from common stock issued 13,280 13,272 11,691
Cash dividends to shareholders (123,859) (116,676) (107,017)
Acquisition of treasury stock (13,148) (82,096) (12,675)
Redemption of preferred stock (150,000) -- --
Other-net -- -- 54
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 1,552,392 $ 2,948,448 $ 1,862,231
===================================================================================================================================
See Accompanying Notes to Financial Statements.
33
35
NOTES TO FINANCIAL STATEMENTS
American International Group, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of American International Group, Inc. and all significant
subsidiaries (AIG). All material intercompany accounts and transactions have
been eliminated.
(B) BASIS OF PRESENTATION: The accompanying financial statements have
been prepared on the basis of generally accepted accounting principles. Certain
accounts have been reclassified in the 1992 and 1991 financial statements to
conform to their 1993 presentation.
General Insurance Operations: Premiums are earned primarily on a pro
rata basis over the term of the related coverage. The reserve for unearned
premiums represents the portion of net premiums written relating to the
unexpired terms of coverage.
Acquisition costs are deferred and amortized over the period in which
the related premiums are earned. Investment income is not anticipated in the
deferral of acquisition costs (see Note 4).
Losses and loss expenses are charged to income as incurred. The reserve
for losses and loss expenses represents the accumulation of estimates for
reported losses and includes provisions for losses incurred but not reported.
AIG does not discount its loss reserves, other than for very minor amounts
related to certain workers' compensation claims. The methods of determining
such estimates and establishing resulting reserves, including amounts relating
to reserves for estimated unrecoverable reinsurance, are continually reviewed
and updated. Adjustments resulting therefrom are reflected in income currently.
Life Insurance Operations: Premiums for traditional life insurance
products are generally recognized as revenues over the premium paying period of
the related policies. Benefits and expenses are provided against such revenues
to recognize profits over the estimated life of the policies. Revenues for
universal life and investment-type products consist of policy charges for the
cost of insurance, administration, and surrenders during the period. Expenses
include interest credited to policy account balances and benefit payments made
in excess of policy account balances. Investment income reflects certain minor
amounts of realized capital gains where the gains are deemed to be an inherent
element in pricing certain life products in some foreign countries.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the policy.
Deferred policy acquisition costs and policy initiation costs related to
universal life and investment-type products are amortized in relation to
expected gross profits over the life of the policies (see Note 4).
The liabilities for future policy benefits and policyholders' contract
deposits are established using assumptions described in Note 6.
Financial Services Operations: AIG conducts, primarily as principal, an
interest rate, currency, equity and commodity derivative products business. It
also enters into long dated forward foreign exchange, option, synthetic
security, liquidity facility and investment contract transactions. In the
course of conducting its business, AIG also engages in a variety of other
related transactions.
AIG engages as principal in trading activities in certain foreign
exchange, precious and base metals, petroleum and petroleum products and
natural gas markets. AIG owns and maintains substantial inventories in the
commodities in which it trades. Substantially all spot commodities are hedged
by futures and forward contracts to minimize exposure to market risk.
Additionally, AIG acts as an adviser in evaluating and subsequently customizing
specific programs for customers to manage their foreign exchange exposure.
AIG, as lessor, leases flight equipment principally under operating
leases. Accordingly, income is reported over the life of the lease as rentals
become receivable under the provisions of the lease or, in the case of leases
with varying payments, under the straight-line method over the noncancelable
term of the lease. In certain cases, leases provide for additional amounts
contingent on usage. AIG also is a marketer of flight equipment and marketing
revenues from such operations consist of net gains on sales of flight
equipment, commissions and net gains on dispositions of leased flight
equipment.
(C) INVESTMENTS IN FIXED MATURITIES AND EQUITY SECURITIES: Bonds and
preferred stocks held to maturity, both of which are principally owned by the
insurance subsidiaries, are carried at amortized cost where AIG has the ability
and positive intent to hold these securities until maturity. Where AIG may not
have the positive intent to hold these securities until maturity, those bonds
are considered to be available for sale and carried at market values. Included
in the bonds available for sale are collateralized mortgage obligations (CMOs).
Premiums and discounts arising from the purchase of CMOs are treated as yield
adjustments. Bond trading securities are carried at market value, as it is
AIG's intention to sell these securities in the near term. Common and preferred
stocks available for sale are carried at market value.
Unrealized gains and losses from investments in available for sale
securities are reflected in capital funds, net of any related deferred income
taxes. Changes in unrealized gains and losses from investments in trading
securities are reflected in income currently.
34
36
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or amortized
cost are considered to be other than temporary, a charge would be reflected in
income for the difference between carrying value and estimated net realizable
value.
(D) MORTGAGE LOANS ON REAL ESTATE, POLICY AND COLLATERAL LOANS:
Mortgage loans on real estate, policy loans and collateral loans are carried at
unpaid principal balances.
(E) FLIGHT EQUIPMENT: Flight equipment is stated at cost. Major
additions and modifications are capitalized. Normal maintenance and repairs,
airframe and engine overhauls and compliance with return conditions of flight
equipment on lease are provided by and paid for by the lessee. Under the
provisions of most leases for certain airframe and engine overhauls, the lessee
is reimbursed for costs incurred up to but not exceeding contingent rentals
paid to AIG by the lessee. AIG provides a charge to income for such
reimbursements based upon the hours utilized during the period and the expected
reimbursement during the life of the lease. Depreciation and amortization are
computed on the straight-line basis to a residual value of approximately 15
percent over the estimated useful lives of the related assets but not exceeding
25 years. This caption also includes deposits for aircraft to be purchased.
At the time the assets are retired or disposed of, the cost and
associated accumulated depreciation and amortization are removed from the
related accounts and the difference, net of proceeds, is recorded as a gain or
loss.
(F) SECURITIES AVAILABLE FOR SALE, AT MARKET VALUE: These securities
are held to meet long term investment objectives and are accounted for as
available for sale. In 1992 these securities were carried at amortized cost.
(G) TRADING SECURITIES, AT MARKET VALUE: Trading securities are held to
meet short term investment objectives, including hedging securities. These
securities are carried at market value and are recorded on a trade date basis.
The unrealized gains and losses are reflected in income currently.
(H) SPOT COMMODITIES, AT MARKET VALUE: Spot commodities, which include
commodities and foreign currency options, are valued at market and are recorded
on a trade date basis. The unrealized gains and losses are reflected in income
currently. Substantially all spot commodities are hedged by futures and forward
contracts. These contracts are valued at market and are recorded as contractual
commitments on a trade basis. The unrealized gains and losses on open contracts
are reflected in income currently.
(I) NET UNREALIZED GAIN ON INTEREST RATE AND CURRENCY SWAPS, OPTIONS AND
FORWARD TRANSACTIONS: Swaps, options and forward transactions are accounted
for as contractual commitments recorded on a trade date basis and are carried
at estimated fair value based on the use of valuation models that utilize,
among other things, current interest, foreign exchange and volatility rates, as
applicable, with the resulting unrealized gains or losses reflected in the
current period's income. These values are also reviewed by reference to the
market levels at which AIG hedges its transactions, and are adjusted, as deemed
appropriate by management. The recorded values may be different than the values
that might be realized if AIG were to sell or close out the transactions
because of limited liquidity for these instruments. AIGmanages its economic
risk with a variety of transactions, including swaps, options, bonds, forwards
or futures contracts and other transactions as appropriate.
(J) RECEIVABLES FROM AND PAYABLES TO SECURITIES BROKERS AND DEALERS:
Receivables from and payables to securities brokers and dealers include
balances due from and due to clearing brokers and exchanges and receivables
from and payables to counterparties which relate to unrealized gains and losses
on open forward settlement contracts and next day settlements on securities and
swap payments.
(K) SECURITIES PURCHASED (SOLD) UNDER AGREEMENTS TO RESELL (REPURCHASE),
AT CONTRACT VALUE: Purchases of securities under agreements to resell and
sales of securities under agreements to repurchase are accounted for as
collateralized transactions and are recorded at their contracted resale or
repurchase amounts, plus accrued interest. Generally, it is AIG's policy to
take possession of securities purchased under agreements to resell.
AIG minimizes the credit risk that counterparties to transactions might
be unable to fulfill their contractual obligations by monitoring customer
credit exposure and collateral value and generally requiring additional
collateral to be deposited with AIG when deemed necessary.
(L) OTHER INVESTED ASSETS: Other invested assets consist primarily of
investments in joint ventures and partnerships and other investments not
classified elsewhere herein. The joint ventures and partnerships are carried at
equity or cost depending on the nature of the invested asset and the ownership
percentage thereof. Other investments are carried at cost or market depending
upon the nature of the underlying assets. Unrealized gains and losses from the
revaluation of those investments carried at market are reflected in capital
funds, net of any related taxes.
35
37
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(M) REINSURANCE ASSETS: Reinsurance assets include the balances due
from other insurance companies under the terms of AIG's reinsurance
arrangements for paid and unpaid losses and loss expenses, unearned reinsurance
premium ceded and for future policy benefits for life and accident and health
insurance contracts and benefits paid. It also includes funds held under
reinsurance treaties.
(N) INVESTMENTS IN PARTIALLY-OWNED COMPANIES: The equity method of
accounting is used for AIG's investment in companies in which AIG's ownership
interest approximates twenty but is not greater than fifty percent
(minority-owned companies). Equity in income of minority-owned reinsurance
operations is presented separately in the consolidated statement of income.
Equity in realized capital gains of such companies is included in other
realized capital gains (losses). Equity in net income of other unconsolidated
companies is principally included in other income (deductions)-net. At December
31, 1993, AIG's significant investments in partially-owned companies included
its 45.4 percent interest in Transatlantic Holdings, Inc. (Transatlantic),
which derives a substantial portion of its assumed reinsurance from AIG
subsidiaries; its 19.9 percent interest in Richmond Insurance Company; its 23.9
percent interest in SELIC Holdings, Ltd; and its 24.4 percent interest in IPC
Holdings, Ltd. This balance sheet caption also includes investments in less
significant partially-owned companies and in certain minor majority-owned
subsidiaries. At December 31, 1993, the market value of AIG's investment in
Transatlantic exceeded its carrying value by approximately $193.1 million.
(O) REAL ESTATE AND OTHER FIXED ASSETS: The costs of buildings and
furniture and equipment are depreciated principally on a straight-line
basis over their estimated useful lives (maximum of 40 years for buildings and
10 years for furniture and equipment). Expenditures for maintenance and repairs
are charged to income as incurred; expenditures for betterments are capitalized
and depreciated.
(P) SEPARATE AND VARIABLE ACCOUNTS: Separate and variable accounts
represent funds for which investment income and investment gains and losses
accrue directly to the policyholders. Each account has specific investment
objectives, and the assets are carried at market value. The assets of each
account are legally segregated and are not subject to claims which arise out of
any other business of AIG.
(Q) SECURITIES SOLD BUT NOT YET PURCHASED, PRINCIPALLY OBLIGATIONS OF
THE U.S. GOVERNMENT AND GOVERNMENT AGENCIES, AT MARKET VALUE: Securities sold
but not yet purchased represent sales of securities not owned at the time of
sale. These obligations are recorded on a trade date basis and are carried at
current market values. The unrealized gains and losses are reflected in income
currently.
(R) SPOT COMMODITIES SOLD BUT NOT YET PURCHASED, AT MARKET VALUE: Spot
commodities sold but not yet purchased represent sales of commodities not owned
at the time of sale. These obligations are recorded on a trade date basis and
are carried at market values based upon current commodity prices. The
unrealized gains and losses are reflected in income currently.
(S) PREFERRED SHAREHOLDERS' EQUITY IN SUBSIDIARY COMPANY: Preferred
shareholders' equity in subsidiary company relates to outstanding market
auction preferred stock of International Lease Finance Corporation (ILFC), a
wholly owned subsidiary of AIG.
(T) TRANSLATION OF FOREIGN CURRENCIES: Financial statement accounts
expressed in foreign currencies are translated into U.S. dollars in accordance
with Statement of Financial Accounting Standards No. 52 "Foreign Currency
Translation" (FASB 52). Under FASB 52, functional currency assets and
liabilities are translated into U.S. dollars generally using current rates of
exchange and the related translation adjustments are recorded as a separate
component of capital funds. Functional currencies are generally the currencies
of the local operating environment. Income statement accounts expressed in
functional currencies are translated using average exchange rates. The
adjustments resulting from translation of financial statements of foreign
entities operating in highly inflationary economies are recorded in income.
Exchange gains and losses resulting from foreign currency transactions are also
recorded in income.
(U) INCOME TAXES: Deferred federal and foreign income taxes are
provided for temporary differences for the expected future tax consequences of
events that have been recognized in AIG's financial statements or tax returns.
(V) EARNINGS PER SHARE: Earnings per common share are based on the
weighted average number of common shares outstanding, retroactively adjusted to
reflect all stock dividends and stock splits. The effect of all other common
stock equivalents is not significant for any period presented.
(W) ACCOUNTING STANDARDS:
(i) Standards Adopted in 1993: At January 1, 1993, AIG adopted Statement
of Accounting Standards No. 113 "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" (FASB 113). This statement
specifies the accounting for the reinsuring (ceding) of insurance contracts
and, effective in the first quarter of 1993, eliminates the reporting of assets
and liabilities net of the effects of reinsurance. As required by FASB 113, the
reserve for losses and loss expenses, reserve for unearned premiums and future
policy benefits for life and accident and health insurance contracts have been
presented gross of ceded reinsurance. A reinsurance asset was established to
include the aforementioned ceded reinsurance balances. The balance sheet at
December 31, 1992 has been appropriately reclassified to reflect the new
presentation.
36
38
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FASB 113 also establishes the conditions required for a contract with a
reinsurer to be accounted for as reinsurance ceded and prescribes accounting
and reporting standards for the contract. There has been no material effect on
AIG's general or life insurance operating income as a result of the adoption of
FASB 113.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 115 "Accounting for Certain Investments
on Debt and Equity Securities" (FASB 115) and AIG adopted this standard at
December 31, 1993. The pretax increase in carrying value of bonds available for
sale as a result of marking to market was $919.3 million. The portion which
inured to the benefit of policyholders was $511.8 million, which has been
recorded as a component of future policy benefits for life and accident and
health insurance contracts. Thus, the unrealized appreciation of investments
increased $251.0 million, net of taxes of $156.5 million.
FASB 115 addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are to be classified in three
categories and accounted for as follows:
o Where an enterprise has the positive intent and ability to hold debt
securities to maturity, those securities are deemed to be held to maturity
securities and reported at amortized cost.
o Where an enterprise purchases debt and equity securities principally
for the purpose of selling them in the near term, those securities are deemed
to be trading securities and are reported at fair value, with the unrealized
gains and losses included in operating income.
o Where debt and equity securities are not reported either as held to
maturity securities or trading securities, those securities are deemed to be
available for sale securities and reported at fair value, with unrealized gains
and losses excluded from operating income and reported in a separate component
of shareholders' equity.
This statement has significantly changed and narrowed the meaning of the
held to maturity category from previous generally accepted accounting
principles.
During 1993, the Emerging Issues Task Force (EITF) of the FASB adopted
an accounting rule "Accounting for Multiple-Year Retrospectively Rated Contract
by Ceding and Assuming Enterprises" (EITF Issue No. 93-6). This rule encompasses
any multiyear retrospectively rated contract requiring that insurers recognize
as assets the reinsurer's obligations, and that ceding insurers accrue
liabilities for the contract obligations. AIG has analyzed the aspects of this
accounting rule and determined that there was no significant impact on AIG's
results of operations or financial condition.
(ii) Standards Adopted Prior to 1993: In 1990, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(FASB 106). FASB 106 establishes accounting for postretirement benefits,
principally postretirement health care and life insurance benefits. It requires
accrual accounting for postretirement benefits during the years that an
employee renders services. FASB 106 has been adopted effective January 1, 1992.
The consolidated transition liability was approximately $83.1 million,
including minor amounts for certain foreign plans. The transition liability was
recognized immediately at adoption as a change in accounting principle. The
cumulative effect of the adoption of FASB 106 was a charge of $54.8 million,
net of a tax benefit of $28.3 million.
In 1992, FASB issued Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (FASB 109). FASB 109's objectives are to
recognize (a) the amount of taxes payable or refundable for the current year
and (b) deferred tax liabilities and assets for expected future tax
consequences of events that have been recognized in the financial statements or
tax returns. The measurement of a deferred tax asset is subject to the
expectation of future realization. AIG adopted FASB 109, effective January 1,
1992. The cumulative effect of adopting FASB 109 was a benefit of $86.7
million.
(iii) Standards to Be Adopted: In March, 1992, FASB issued
Interpretation No. 39 "Offsetting of Amounts Related to Certain Contracts"
(Interpretation), which is effective for fiscal years beginning after December
15, 1993. The Interpretation requires that unrealized gains and losses on
swaps, forwards, options and similar contracts be recognized as assets and
liabilities, whereas AIG's current policy is to record such unrealized gains
and losses on a net basis in the consolidated balance sheet. The Interpretation
allows the netting of such unrealized gains and losses with the same
counterparty when they are included under a master netting arrangement with the
counterparty and the contracts are reported at market value.
Although there will be no effect on AIG's operating income upon the
adoption of the Interpretation, AIG will be required to present certain of its
financial services assets and liabilities on a gross basis, thus increasing
both assets and liabilities in the consolidated balance sheet. The effect of
presenting these assets and liabilities on a gross basis on AIG's consolidated
balance sheet will not be significant.
In November of 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" (FASB 112). FASB 112 establishes
accounting standards for employers who provide benefits to former or inactive
employees after employment but before retirement. FASB 112 is effective for the
1994 financial statements. There will be no material effect on AIG's results of
operations or financial condition.
37
39
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In May 1993, FASB issued Statement of Financial Accounting Standards No.
114 "Accounting by Creditors for Impairment of a Loan" (FASB 114). FASB 114
addresses the accounting by all creditors for impairment of certain loans. The
impaired loans are to be measured at the present value of all expected future
cash flows. The present value may be determined by discounting the expected
future cash flows at the loan's effective rate or valued at the loan's
observable market price or valued at the fair value of the collateral if the
loan is collateral dependent. This methodology is not expected to produce a
material effect on AIG's results of operations or financial condition.
FASB 114 will be effective for the 1995 financial statements. AIG does
not anticipate adoption prior to the effective date.
2. FOREIGN OPERATIONS
Certain subsidiaries operate solely outside of the United States. Their assets
and liabilities are located principally in the countries where the insurance
risks are written and/or investment and noninsurance related operations are
located. In addition, certain of AIG's domestic subsidiaries have branch and/or
subsidiary operations and substantial assets and liabilities in foreign
countries. Certain countries have restrictions on the conversions of funds
which generally cause a delay in the outward remittance of such funds.
Approximately 36 percent of consolidated assets at both December 31, 1993 and
1992, and 50 percent, 47 percent and 43 percent of revenues for the years ended
December 31, 1993, 1992 and 1991, respectively, were located in or derived from
foreign countries (other than Canada). (See Note 19.)
3. FEDERAL INCOME TAXES
(a) AIG and its domestic subsidiaries file a consolidated U.S. Federal income
tax return. Revenue Agent's Reports assessing additional taxes for the years
1985 and 1986 have been issued and Letters of Protest contesting the
assessments have been filed with the Internal Revenue Service. It is
management's belief that there are substantial arguments in support of the
positions taken by AIG in its Letters of Protest. Management also believes that
the final result of these examinations will be immaterial to the financial
statements.
Foreign income not expected to be taxed in the United States has arisen
because AIG's foreign subsidiaries were generally not subject to U.S. income
taxes on income earned prior to January 1, 1987. Such income would become
subject to U.S. income taxes at current tax rates if remitted to the United
States or if other events occur which would make these amounts currently
taxable. The cumulative amount of undistributed earnings of AIG's foreign
subsidiaries currently not subject to U.S. income taxes was approximately $2.2
billion at December 31, 1993. The unrecognized deferred tax liability has not
been determined as it is not practicable. Management presently has no intention
of subjecting these accumulated earnings to material U.S. income taxes and no
provision has been made in the accompanying financial statements for such
taxes.
The Tax Reform Act of 1986 (the 1986 Act) required that, for tax
purposes, AIG recalculate its property and casualty loss reserves to a
discounted basis as of December 31, 1986. The discount of these loss reserves
was the "Fresh Start" adjustment and any current tax benefit was deferred and
amortizable over future periods. Effective January 1, 1992, the remaining
future tax effect of this Fresh Start adjustment was recognized as a component
of deferred taxes receivable. Prior to January 1, 1992, this adjustment was
amortized into subsequent years' income, giving rise to a current tax benefit
only. For 1991, this tax benefit approximated $16,000,000.
Income taxes paid in 1993, 1992 and 1991 amounted to $466,600,000,
$328,900,000 and $376,800,000, respectively.
The Consolidated Omnibus Budget Reconciliation Act of 1990 (the 1990
Act) requires that life insurers capitalize and amortize policy acquisition
expenses that relate to specified insurance contracts. This provision has no
significant effect on current income taxes or future net income of AIG. The
1990 Act also requires that property and casualty insurers, for tax purposes,
reduce the effects of the discounted loss and loss expenses reserve change by a
discounted estimate of recoveries from the salvage and subrogation of claims.
The tax effect applicable to 87 percent of the discounted December 31, 1989
anticipated recovery balance was a Fresh Start benefit to be amortized over
four years. Thus, the provision for income taxes in 1991 reflects benefits of
approximately $12,000,000. Effective January 1, 1992, a deferred tax receivable
was recognized for the remainder of the discounted recoveries from salvage and
subrogation.
The Omnibus Budget Reconciliation Act of 1993 (the 1993 Act) increased
the highest tax rate on corporations to 35 percent for 1993. The 1993 Act
requires securities dealers to recognize for tax purposes the mark-to-market
gain or loss on certain securities. The adjustment from this change in
accounting method must be phased into taxable income over five years beginning
in 1993. The 1993 Act also disallows several items as expenses beginning in
1994. None of these items will have a significant effect on AIG's net income or
financial condition. However, it is expected that income taxes paid will
increase as a result of such changes.
38
40
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
3. FEDERAL INCOME TAXES (continued)
(b) The U.S. Federal income tax rate is 35 percent for 1993 and 34
percent for 1992 and 1991. Actual tax expense on income differs from the
"expected" amount computed by applying the Federal income tax rate because of
the following:
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
--------------------- ----------------------- ---------------------
PERCENT Percent Percent
OF PRE-TAX Of Pre-tax Of Pre-tax
AMOUNT INCOME Amount Income Amount Income
=================================================================================================================================
"Expected" tax expense $910,378 35.0% $726,596 34.0% $687,675 34.0%
Adjustments:
Tax exempt interest (248,887) (9.6) (228,883) (10.7) (209,946) (10.4)
Dividends received deduction (9,357) (0.4) (8,726) (0.4) (9,782) (0.5)
Fresh start adjustments(a) -- -- -- -- (28,000) (1.4)
State income taxes 48,424 1.9 22,307 1.0 34,700 1.7
Foreign income not expected to be
taxed in the U.S., less foreign income taxes 10,481 0.4 18,780 0.9 15,086 0.8
Other (28,036) (1.0) (18,041) (0.8) (20,167) (1.0)
- ---------------------------------------------------------------------------------------------------------------------------------
Actual tax expense $683,003 26.3% $512,033 24.0% $469,566 23.2%
=================================================================================================================================
Foreign and domestic components
of actual tax expense:
Foreign:
Current $219,799 $159,113 $ 85,689
Deferred 17,736 21,998 20,750
Domestic(b):
Current 552,233 397,219 383,389
Deferred (106,765) (66,297) (20,262)
- ---------------------------------------------------------------------------------------------------------------------------------
Total (a) $683,003 $512,033 $469,566
=================================================================================================================================
(a) See discussion in Note 3(a).
(b) Including U.S. tax on foreign income.
(c) The components of the net deferred tax liability as of December 31,
1993 and December 31, 1992 were as follows:
(in thousands)
- ------------------------------------------------------------------------
1993 1992
========================================================================
Deferred tax assets:
Loss reserve discount $1,266,010 $1,169,629
Unearned premium reserve reduction 212,588 190,141
Accruals not currently deductible 294,630 277,561
Adjustment to life policy reserves 272,236 128,601
Cumulative translation adjustment 1,847 28,324
Other 70,173 48,584
- ------------------------------------------------------------------------
2,117,484 1,842,840
- ------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 937,046 789,151
Financial service products
mark to market differential 346,262 474,643
Depreciation of flight equipment 350,779 232,836
Acquisition net asset basis adjustments 275,765 299,658
Unrealized appreciation of investments 404,264 69,769
Other 251,158 161,130
- ------------------------------------------------------------------------
2,565,274 2,027,187
- ------------------------------------------------------------------------
Net deferred tax liability $ 447,790 $ 184,347
========================================================================
(d) Under APB 11, deferred income tax expenses or benefits resulted from
timing differences in the recognition of revenues and expenses for tax and
financial statement purposes.
The sources of these differences and the tax effect of each are
summarized as follows:
(in thousands)
- ------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,* 1991
========================================================================
Deferred policy acquisition costs $ 61,787
Deferred credits (1,747)
Accrual of bond discount 6,938
Accruals not currently deductible (3,766)
Financial service products mark to market differential 53,596
Loss reserve discount (102,215)
Unearned premium reserve reduction (2,518)
Unearned premium reserve phase-in (19,717)
Adjustment to life policy reserves (26,476)
Other 34,606
- ------------------------------------------------------------------------
Deferred income tax expense $ 488
========================================================================
* 1993 and 1992 information is not required under FASB 109.
39
41
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
4. DEFERRED POLICY ACQUISITION COSTS
The following reflects the policy acquisition costs deferred for amortization
against future income and the related amortization charged to income for
general and life insurance operations, excluding certain amounts deferred and
amortized in the same period:
(in thousands)
- ----------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
========================================================================================
General insurance operations:
Balance at beginning of year $ 880,257 $ 872,012 $ 813,213
- ----------------------------------------------------------------------------------------
Acquisition costs deferred
Commissions 475,511 418,527 459,112
Other 492,944 428,694 387,958
- ----------------------------------------------------------------------------------------
968,455 847,221 847,070
- ----------------------------------------------------------------------------------------
Amortization charged to income
Commissions 416,134 453,328 384,384
Other 423,033 385,648 403,887
- ----------------------------------------------------------------------------------------
839,167 838,976 788,271
- ----------------------------------------------------------------------------------------
Balance at end of year $1,009,545 $ 880,257 $ 872,012
========================================================================================
Life insurance operations:
Balance at beginning of year $2,777,561 $2,370,664 $1,964,211
- ----------------------------------------------------------------------------------------
Acquisition costs deferred
Commissions 604,906 551,121 465,550
Other 294,636 246,839 219,072
- ----------------------------------------------------------------------------------------
899,542 797,960 684,622
- ----------------------------------------------------------------------------------------
Amortization charged to income
Commissions 304,276 265,600 215,671
Other 165,034 129,275 117,385
- ----------------------------------------------------------------------------------------
469,310 394,875 333,056
- ----------------------------------------------------------------------------------------
Increase due to foreign exchange 32,071 3,812 54,887
- ----------------------------------------------------------------------------------------
Balance at end of year $3,239,864 $2,777,561 $2,370,664
========================================================================================
Total deferred policy acquisition costs $4,249,409 $3,657,818 $3,242,676
========================================================================================
5. REINSURANCE
In the ordinary course of business, AIG's general and life insurance companies
cede reinsurance to other insurance companies in order to provide greater
diversification of its business and limit its potential for losses arising from
large risks.
General reinsurance is effected under reinsurance treaties and by
negotiation on individual risks. Certain of these reinsurance arrangements
consist of excess of loss contracts which protect AIG against losses over
stipulated amounts. Amounts recoverable from general reinsurers are estimated
in a manner consistent with the claims liabilities associated with the
reinsurance and presented as a component of reinsurance assets.
AIG life companies limit exposure to loss on any single life. For
ordinary insurance, AIG retains a maximum of approximately $1,000,000 of
coverage per individual life. There are smaller retentions for other lines of
business. Life reinsurance is effected principally under yearly renewable term
treaties. Amounts recoverable from life reinsurers are estimated in a manner
consistent with the assumptions used for the underlying policy benefits and are
presented as a component of reinsurance assets.
General insurance premiums written and earned were comprised of the
following:
(in thousands)
- -------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, WRITTEN EARNED
=========================================================================
1993
Gross premiums $14,901,255 $14,405,992
Reinsurance ceded (4,875,352) (4,839,352)
- -------------------------------------------------------------------------
Net premiums $10,025,903 $ 9,566,640
=========================================================================
1992
Gross premiums $13,615,715 $13,616,700
Reinsurance ceded (4,477,187) (4,407,310)
- -------------------------------------------------------------------------
Net premiums $ 9,138,528 $ 9,209,390
=========================================================================
1991
Gross premiums $13,336,248 $13,234,486
Reinsurance ceded (4,189,854) (4,129,854)
- -------------------------------------------------------------------------
Net premiums $ 9,146,394 $ 9,104,632
=========================================================================
In the normal course of their operations, certain AIG subsidiaries are
provided reinsurance coverages from AIG's minority-owned reinsurance
companies. During 1993, 1992 and 1991, the premiums written which were ceded to
Transatlantic amounted to $238,100,000, $210,700,000 and $257,700,000,
respectively.
For the years ended December 31, 1993 and 1992, reinsurance recoveries,
which reduced loss and loss expenses incurred, amounted to $4.45 billion and
$4.19 billion, respectively.
Life insurance net premium income was comprised of the following:
(in thousands)
- ---------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992
=====================================================================
Gross premium income $5,924,557 $5,023,534
Reinsurance ceded (178,511) (170,447)
- ---------------------------------------------------------------------
Net premium income $5,746,046 $4,853,087
=====================================================================
Life insurance recoveries, which reduced death and other benefits,
approximated $169.8 million and $125.0 million respectively, for each of the
years ended December 31, 1993 and 1992.
AIG's reinsurance arrangements do not relieve AIG from its direct
obligation to its insureds. Thus, a contingent liability exists with respect to
both general and life reinsurance ceded to the extent that any reinsurer is
unable to meet the obligations
40
42
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
5. REINSURANCE (continued)
assumed under the reinsurance agreements. AIG holds substantial collateral as
security under related reinsurance agreements in the form of funds, securities
and/or letters of credit. A provision has been recorded for estimated
unrecoverable reinsurance. AIG has been largely successful in prior recovery
efforts.
AIG evaluates the financial condition of its reinsurers by an internal
reinsurance security committee consisting of members of AIG's Senior
Management. No single reinsurer is a material reinsurer to AIG nor is AIG's
business substantially dependent upon any reinsurance contract.
Life insurance ceded to other insurance companies was as follows:
(in thousands)
- ------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
==============================================================================
Life insurance in-force $13,006,000 $11,344,000 $11,737,000
==============================================================================
Life insurance assumed represented 1 percent of gross life insurance
in-force at December 31, 1993, and 2 percent for both 1992 and 1991, and 0.1
percent, 0.2 percent and 0.3 percent of gross premium income for each of the
periods ended December 31, 1993, 1992 and 1991, respectively.
A reconciliation of the Balance Sheet at December 31, 1992 reflecting
the adoption of FASB 113 is as follows:
(in thousands)
- ----------------------------------------------------------------------------------
PREVIOUSLY
REPORTED RECLASSIFIED
==================================================================================
Reserves for losses and loss expenses $(16,756,800) $(28,156,800)
Future policy benefits for life and accident
and health insurance contracts (11,527,500) (11,804,500)
Premium and insurance balances
receivable -- net 9,010,400 7,693,200
Funds held under reinsurance treaties 138,400 --
Reserve for unearned premiums (3,746,700) (4,956,700)
Reinsurance assets -- 14,342,600
===================================================================================
Supplemental information for gross loss and benefit reserves net of ceded
reinsurance at December 31, 1993 is as follows:
(in thousands)
- ----------------------------------------------------------------------------------
AS NET OF
REPORTED REINSURANCE
==================================================================================
Reserve for losses and loss expenses $(30,046,200) $(17,557,000)
Future policy benefits for life and accident
and health insurance contracts (14,638,400) (14,344,900)
Premium and insurance balances
receivable -- net 8,364,100 10,122,700
Funds held under reinsurance treaties -- 96,500
Reserve for unearned premiums (5,515,700) (4,269,700)
Reinsurance assets 15,883,800 --
==================================================================================
6. FUTURE LIFE POLICY BENEFITS AND POLICYHOLDERS'
CONTRACT DEPOSITS
(a) The analysis of the future policy benefits and policyholders' contract
deposits liabilities as at December 31, 1993 follows:
(in thousands)
==================================================================================
Future policy benefits:
Long duration contracts $14,223,502
Short duration contracts 414,880
- ----------------------------------------------------------------------------------
Total $14,638,382
==================================================================================
Policyholders' contract deposits:
Annuities $ 2,686,439
Guaranteed investments contracts (GICs) 729,679
Universal life 507,922
Other investment contracts 515,799
- ----------------------------------------------------------------------------------
Total $ 4,439,839
==================================================================================
(b) Long duration contract liabilities included in future policy
benefits, as presented in the table above, result from traditional life
products. Short duration contract liabilities are primarily accident and health
products. These long duration products generally have fixed cash values and
there are no surrender charges. The liability for future life policy benefits
has been established based upon the following assumptions:
(i) Interest rates (exclusive of immediate/terminal funding annuities),
which vary by territory, year of issuance and products, range from 2.2 percent
to 12.0 percent within the first 20 years. Interest rates on immediate/terminal
funding annuities are at a maximum of 13.3 percent and grade to not greater
than 7.5 percent.
(ii) Mortality and surrender rates are based upon actual experience by
geographical area modified to allow for variations in policy form. The weighted
average lapse rate, including surrenders, for individual and group life
approximated 9 percent.
(iii) The portion of net income and unrealized appreciation
(depreciation) of investments that can inure to the benefit of AIG is limited
in some cases by the insurance contracts and by the local insurance regulations
of the countries in which the policies are in force. All net income and
unrealized appreciation (depreciation) of investments in excess of these limits
have been included in the reserve for future policy benefits in the
consolidated balance sheet.
(iv) Participating life business represented approximately 29 percent of
the gross insurance in-force at December 31, 1993 and 48 percent of gross
premium income in 1993. The amount of dividends to be paid is determined
annually by the Boards of Directors. Anticipated dividends are considered as a
planned contractual benefit in computing the value of future policy benefits
and are provided ratably over the premium-paying period of the contracts.
41
43
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
6. FUTURE LIFE POLICY BENEFITS AND POLICYHOLDERS' CONTRACT DEPOSITS (continued)
(c) The liability for policyholders' contract deposits has been
established based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 8.2 percent to 4.8 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges generally
range from 6 percent to 10 percent grading to 0 percent over a period of 7 to
10 years.
(ii) Domestically, GICs have market value withdrawal provisions for any
funds withdrawn other than benefit responsive payments. Interest rates credited
generally range from 4.8 percent to 9.2 percent and maturities range from 2 to
7 years. Overseas, primarily in the United Kingdom, GIC type contracts are
credited at rates ranging from 4.0 percent to 9.0 percent with maturities
generally being 1 to 2 years. Contracts in other foreign locations have
interest rates, maturities and withdrawal charges based upon local economic and
regulatory conditions.
(d) Experience adjustments, relating to future policy benefits and
policyholders' contract deposits, vary according to the type of contract and
the territory in which the policy is in force. In general terms, investments,
mortality and morbidity results may be passed through by experience credits or
as an adjustment to the premium mechanism, subject to local regulatory
guidance.
7. STATUTORY FINANCIAL DATA
Statutory surplus and net income for general insurance and life insurance
operations as reported to regulatory authorities were as follows:
(in thousands)
- ------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
==============================================================================
Statutory surplus:
General insurance $7,164,367 $6,552,960 $6,156,899
Life insurance 3,275,078 2,141,637 1,762,257
Statutory net income
(including net realized
capital gains and losses):
General insurance 1,206,387 875,231 1,014,383
Life insurance 570,570 378,704 302,777
==============================================================================
AIG's insurance subsidiaries file financial statements prepared in
accordance with statutory accounting practices prescribed or permitted by
domestic or foreign insurance regulators. The differences between statutory
financial statements and financial statements prepared in accordance with
generally accepted accounting principles (GAAP) vary between domestic and
foreign jurisdictions. The principal differences are that statutory financial
statements do not reflect the change in the market value of the bonds available
for sale, deferred policy acquisition costs and deferred income taxes.
8. INVESTMENT INFORMATION
(A) STATUTORY DEPOSITS: Cash in the amount of $165,111,000 and $84,763,000 and
securities with a carrying value of $2,787,900,000 and $2,372,400,000 were
deposited by AIG's subsidiaries under requirements of regulatory authorities as
of December 31, 1993 and 1992 respectively.
(B) NET INVESTMENT INCOME: An analysis of the net investment income
from the general and life insurance operations follows:
(in thousands)
- ------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
==============================================================================
General insurance:
Fixed maturities $1,136,120 $1,108,643 $1,048,383
Equity securities 96,311 34,964 40,375
Short-term investments 62,156 72,334 98,005
Other (net of interest
expense on funds held) 97,150 83,410 31,602
- ------------------------------------------------------------------------------
Total investment income 1,391,737 1,299,351 1,218,365
Investment expenses 51,257 47,265 54,904
- ------------------------------------------------------------------------------
Net investment income $1,340,480 $1,252,086 $1,163,461
==============================================================================
Life insurance:
Fixed maturities $ 981,128 $ 907,983 $ 777,208
Equity securities 38,361 18,692 11,451
Short-term investments 220,050 157,976 123,215
Interest on mortgage, policy
and collateral loans 242,014 232,472 196,120
Other 100,785 63,851 86,476
- ------------------------------------------------------------------------------
Total investment income 1,582,338 1,380,974 1,194,470
Investment expenses 82,624 67,136 54,677
- ------------------------------------------------------------------------------
Net investment income $1,499,714 $1,313,838 $1,139,793
==============================================================================
(C) INVESTMENT GAINS AND LOSSES: The realized capital gains and change in
unrealized appreciation of investments for 1993, 1992 and 1991 were as follows:
(in thousands)
- -----------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991
=========================================================================================
Realized capital gains (losses)
on investments:
Fixed maturities* $ 125,296 $130,698 $ 45,305
Equity securities 65,090 57,616 117,890
Other (83,288) (89,216) (64,845)
- -----------------------------------------------------------------------------------------
Realized capital gains $ 107,098 $ 99,098 $ 98,350
=========================================================================================
Change in unrealized appreciation
of investments:
Cumulative effect of
accounting change $ 407,498 $ -- $ --
Fixed maturities 31,382 38,592 117,098
Equity securities 545,074 (75,771) 112,356
Other 143,368 63,991 (2,829)
- -----------------------------------------------------------------------------------------
Change in unrealized appreciation $1,127,322 $ 26,812 $226,625
=========================================================================================
* A majority of the gains realized resulted from sales of bonds carried at
market value.
42
44
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
8. INVESTMENT INFORMATION (continued)
During 1993, 1992 and 1991, gross gains of $99,162,000, $87,776,000 and
$79,315,000, respectively and gross losses of $43,094,000, $35,635,000 and
$62,797,000, respectively were realized on dispositions of fixed maturities
carried at amortized cost.
(D) MARKET VALUE OF FIXED MATURITIES AND UNREALIZED APPRECIATION OF
INVESTMENTS: At December 31, 1993, the balance of the unrealized appreciation
of investments in equity securities (before applicable taxes) included gross
gains of approximately $906,400,000 and gross losses of approximately
$246,400,000.
At December 31, 1992, the balance of the unrealized appreciation of
investments in equity securities (before applicable taxes) included gross gains
of approximately $423,100,000 and gross losses of approximately $308,200,000.
The deferred tax payable related to the net unrealized appreciation of
investments was $404,264,000 at December 31, 1993 and $69,769,000 at December
31, 1992.
The amortized cost and estimated market value of investments in fixed
maturities carried at amortized cost at December 31, 1993 and December 31, 1992
were as follows:
(in thousands)
- ------------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
======================================================================================================
1993
Fixed maturities held to
maturity and carried
at amortized cost:
Bonds:
U.S. Government(a) $ 14,330 $ 745 $ 27 $ 15,048
States(b) 12,176,138 1,087,519 3,850 13,259,807
All other corporate 3,233 242 -- 3,475
- ------------------------------------------------------------------------------------------------------
Total bonds 12,193,701 1,088,506 3,877 13,278,330
Preferred stocks 17,428 6,084 5,519 17,993
- ------------------------------------------------------------------------------------------------------
Total fixed maturities $12,211,129 $1,094,590 $9,396 $13,296,323
======================================================================================================
1992
Fixed maturities carried at
amortized cost:
Bonds:
U.S.Government(a) $ 212,736 $ 43,948 $ 612 $ 256,072
States(b) 12,508,078 852,917 10,326 13,350,669
Foreign governments 2,572,456 42,648 10,483 2,604,621
All other corporate 7,881,734 362,306 83,835 8,160,205
- ------------------------------------------------------------------------------------------------------
Total bonds 23,175,004 1,301,819 105,256 24,371,567
Redeemable
preferred stocks 99,908 3,489 3,258 100,139
- ------------------------------------------------------------------------------------------------------
Total fixed maturities $23,274,912 $1,305,308 $108,514 $24,471,706
======================================================================================================
(a) Including U.S. Government agencies and authorities.
(b) Including municipalities and political subdivisions.
The amortized cost and estimated market value of bonds available for
sale and carried at market value at December 31, 1993 were as follows:
(in thousands)
- ------------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
======================================================================================================
1993
Fixed maturities available
for sale carried at
market value:
Bonds:
U.S. Government(a) $ 1,211,016 $ 84,342 $14,823 $ 1,280,535
States(b) 1,876,795 123,697 4,404 1,996,088
Foreign governments 4,422,548 237,961 5,928 4,654,581
All other corporate 9,089,243 610,802 68,838 9,631,207
- ------------------------------------------------------------------------------------------------------
Total bonds $16,599,602 $1,056,802 $93,993 $17,562,411
======================================================================================================
(a) Including U.S. Government agencies and authorities.
(b) Including municipalities and political subdivisions.
The amortized cost and estimated market values of fixed maturities held
to maturity and of fixed maturities available for sale at December 31, 1993, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain borrowers have the right to call or
prepay certain obligations with or without call or prepayment penalties.
(in thousands)
- ------------------------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
======================================================================================================
Fixed maturities held to maturity:
Due in one year or less $ 94,619 $ 102,345
Due after one year through five years 992,121 1,078,163
Due after five years through ten years 4,807,474 5,234,307
Due after ten years 6,316,915 6,881,508
- ------------------------------------------------------------------------------------------------------
Total held to maturity $12,211,129 $13,296,323
======================================================================================================
Fixed maturities available for sale:
Due in one year or less $ 827,803 $ 860,664
Due after one year through five years 5,406,925 5,686,841
Due after five years through ten years 6,415,371 6,767,401
Due after ten years 3,949,503 4,247,505
- ------------------------------------------------------------------------------------------------------
Total available for sale $16,599,602 $17,562,411
======================================================================================================
(E) CMOs: CMOs, held by AIG's domestic life companies, are principally
U.S. government and government agency backed and AAA rated securities. These
represent 95 percent of the CMOs held. Whole loans represent 5 percent of the
CMOs held and are investment grade. These CMOs are held by AIG's domestic life
company which operates overseas.
43
45
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
8. INVESTMENT INFORMATION (continued)
At December 31, 1993 and 1992, the market value of the CMO portfolio
was $1.8 billion and $1.6 billion, respectively; the estimated amortized cost
was approximately $1.7 billion in 1993 and $1.5 billion in 1992. AIG's CMO
portfolio is readily marketable. There were no derivative (high risk) CMO
securities contained in this portfolio at December 31, 1993.
The distribution of the CMOs at December 31, 1993 and 1992 was as
follows:
- --------------------------------------------------------------------
1993 1992
====================================================================
GNMA 48% 59%
FNMA 22 20
FHLMC 21 20
VA 4 --
Other 5 1
- --------------------------------------------------------------------
100% 100%
====================================================================
At December 31, 1993, the gross weighted average coupon of this
portfolio was 8.8 percent. The gross weighted average life of this portfolio
was 6.5 years.
(F) FIXED MATURITIES BELOW INVESTMENT GRADE: At December 31, 1993, the
fixed maturities held by AIG that were below investment grade were
insignificant.
(G) During 1993, certain investments held by AIGFP experienced financial
difficulties and suffered rating downgrades. The pretax impact on AIG of the
estimated other than temporary impairment in value of these investments was
$215 million. As is AIG's policy in such situations where credit ratings have
deteriorated significantly, these impairments have been appropriately
recognized by charges to income of $104 million in 1993 and $111 million prior
to 1993.
(H) At December 31, 1993, non-income producing assets were insignificant.
9. DEBT OUTSTANDING
At December 31, 1993, AIG had the following debt outstanding:
(in thousands)
- -------------------------------------------------------------------
Commercial paper:
Financial services:
ILFC $ 1,442,413
AIGFP 176,566
- -------------------------------------------------------------------
1,618,979
- -------------------------------------------------------------------
AIG Funding Inc. (Funding) 891,692
AICCO 638,214
- -------------------------------------------------------------------
1,529,906
- -------------------------------------------------------------------
Total commercial paper 3,148,885
- -------------------------------------------------------------------
Borrowings under obligations of guaranteed investment
agreements -- AIGFP 6,735,579
- -------------------------------------------------------------------
Notes, bonds, loans and mortgages payable:
Financial services:
ILFC medium term notes 1,753,685
ILFC notes payable 2,550,000
AIGFP notes and bonds payable 521,393
Loans payable 196,863
- -------------------------------------------------------------------
5,021,941
- -------------------------------------------------------------------
AIG medium term notes 295,000
AIG lire bonds 159,067
AIG zero coupon notes 59,116
Loans and mortgages payable 269,477
- -------------------------------------------------------------------
782,660
- -------------------------------------------------------------------
Total notes, bonds, loans and mortgages payable 5,804,601
- -------------------------------------------------------------------
Total debt* $15,689,065
===================================================================
*At December 31, 1993, borrowings not guaranteed by AIG were $5,942,961.
(A) COMMERCIAL PAPER: At December 31, 1993, the commercial paper issued
and outstanding was as follows:
(in thousands)
- ------------------------------------------------------------------------------------------------------
WEIGHTED
NET AVERAGE WEIGHTED
BOOK UNAMORTIZED FACE INTEREST AVERAGE
VALUE DISCOUNT AMOUNT RATE MATURITY
======================================================================================================
Funding $ 891,692 $2,204 $ 893,896 3.3% 27 days
AICCO 638,214 911 639,125 3.3 17 days
ILFC 1,442,413 2,564 1,444,977 3.3 31 days
AIGFP 176,566 768 177,334 6.4* 47 days
- ------------------------------------------------------------------------------------------------------
Total $3,148,885 $6,447 $3,155,332 -- --
======================================================================================================
*Reflects the nominal Deutschemark rate available at December 31, 1993.
Economically, this rate is reduced by various hedging transactions to an
effective rate approximating those presented above.
Commercial paper issued by Funding and AIGFP is guaranteed by AIG. AIG
has entered into an agreement in support of AICCO's commercial paper.
44
46
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
9. DEBT OUTSTANDING (continued)
(B) BORROWINGS UNDER OBLIGATIONS OF GUARANTEED INVESTMENT AGREEMENTS:
Borrowings under obligations of guaranteed investment agreements, which are
guaranteed by AIG, are recorded on the basis of proceeds received. Obligations
may be called at various times prior to maturity at the option of the
counterparty. Interest rates on these borrowings range from 3.3 percent to 9.8
percent.
Payments due under these investment agreements in each of the next five
years ending December 31, and the periods thereafter based on the earliest call
dates, were as follows:
(in thousands)
- -------------------------------------------------------------------
PRINCIPAL
AMOUNT
===================================================================
1994 $3,519,670
1995 760,612
1996 662,467
1997 58,966
1998 43,556
Remaining years after 1998 1,690,308
- -------------------------------------------------------------------
Total $6,735,579
===================================================================
At December 31, 1993, the market value of securities pledged as
collateral with respect to these obligations approximated $976 million.
(C) MEDIUM TERM NOTES PAYABLE:
(i) Medium Term Notes Payable Issued by AIG: AIG's Medium Term Notes
are unsecured obligations which may not be redeemed by AIG prior to maturity
and bear interest at either fixed rates set by AIG at issuance or variable
rates determined by reference to an interest rate or other formula.
An analysis of the Medium Term Notes for the year ended December 31,
1993 is as follows:
(in thousands)
- ------------------------------------------------------------------------------------------------------
MEDIUM TERM
NOTE SERIES: A B C D TOTAL
======================================================================================================
Balance December 31,
1992 $17,000 $ 40,000 $115,000 $ 65,000 $237,000
Issued during year -- -- -- 125,000 125,000
Matured during year (17,000) -- (10,000) (40,000) (67,000)
- ------------------------------------------------------------------------------------------------------
Balance December 31,
1993 $ -- $40,000 $105,000 $150,000 $295,000
======================================================================================================
The interest rates on this debt range from 3.13 percent to 8.45 percent. To
the extent deemed appropriate, AIG enters into swap transactions to reduce its
effective borrowing rate.
At December 31, 1993, the maturity schedule for AIG's outstanding Medium
Term Notes was as follows:
(in thousands)
- --------------------------------------------------------------
PRINCIPAL
AMOUNT
==============================================================
1994 $140,000
1995 40,000
1996 75,000
1997 --
1998 40,000
- --------------------------------------------------------------
Total $295,000
==============================================================
At December 31, 1993, AIG had $247,000,000 principal amount of Series D
Medium Term Notes registered and available for issuance from time to time.
(ii) Medium Term Notes Payable Issued by ILFC: ILFC's Medium Term Notes
are unsecured obligations which may not be redeemed by ILFC prior to maturity
and bear interest at fixed rates set by ILFC at issuance.
As of December 31, 1993, notes in aggregate principal amount of
$1,753,685,000 were outstanding with maturity dates varying from 1994 to 2003
at interest rates ranging from 3.57 percent to 10.25 percent. These notes
provide for a single principal payment at the maturity of each note.
At December 31, 1993, the maturity schedule for ILFC's outstanding
Medium Term Notes was as follows:
(in thousands)
- --------------------------------------------------------------
PRINCIPAL
AMOUNT
==============================================================
1994 $ 389,750
1995 274,900
1996 282,550
1997 340,000
1998 314,235
Remaining years after 1998 152,250
- --------------------------------------------------------------
Total $1,753,685
==============================================================
(D) NOTES AND BONDS PAYABLE:
(i) Zero Coupon Notes: On October 1, 1984, AIG issued Eurodollar zero
coupon notes in the aggregate principal amount at stated maturity of
$750,000,000. The notes were offered at 12 percent of principal amount at
stated maturity, bear no interest and are due August 15, 2004. The net proceeds
to AIG from the issuance were $85,625,000. The notes are redeemable at any time
in whole or in part at the option of AIG at 100 percent of their principal
amount at stated maturity. The notes are also redeemable at the option of AIG
or bearer notes may be redeemed at the option of the holder in the event of
certain changes involving taxation in the United States at prices ranging from
30.92 percent currently, to 89.88 percent after August
45
47
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
9. DEBT OUTSTANDING (continued)
15, 2003, of the principal amount at stated maturity together with
accrued amortization of original issue discount from the preceding August 15.
During 1993, no notes were repurchased. During 1992, AIG repurchased notes with
a face value of $17,500,000, realizing a loss of $2,126,000. At December 31,
1993, the notes outstanding have a face value of $189,200,000, an unamortized
discount of $130,084,000 and a net book value of $59,116,000. The amortization
of the original issue discount is recorded as interest expense.
(ii) Italian Lire Bonds: In December, 1991, AIG issued unsecured bonds
denominated in Italian Lire. The principal amount of Italian Lire 200 billion
matures December 4, 2001 and accrues interest at a rate of 11.7 percent which
is paid annually. These bonds are not redeemable prior to maturity, except in
the event of certain changes involving taxation in the United States or the
imposition of certain certification, identification or reporting requirements.
Simultaneous with the issuance of this debt, AIG entered into a swap
transaction which effectively converted AIG's net interest expense to a U.S.
dollar liability of approximately 7.9 percent, which requires the payment of
proceeds at maturity of approximately $159 million in exchange for Italian Lire
200 billion and interest thereon.
(iii) Term Notes Issued by ILFC: ILFC has issued unsecured obligations
which may not be redeemed prior to maturity. $200,000,000 of such term notes
are at floating interest rates and the remainder are at fixed rates.
As of December 31, 1993, notes in aggregate principal amount of
$2,550,000,000 were outstanding with maturity dates varying from 1994 to 2001
and interest rates ranging from 3.56 percent to 8.88 percent. These notes
provide for a single principal payment at maturity.
At December 31, 1993, the maturity schedule for ILFC's Term Notes was as
follows:
(in thousands)
- --------------------------------------------------------------
PRINCIPAL
AMOUNT
==============================================================
1994 $ 350,000
1995 500,000
1996 600,000
1997 450,000
1998 300,000
Remaining years after 1998 350,000
- --------------------------------------------------------------
Total $2,550,000
==============================================================
AIG does not guarantee any of the debt obligations of ILFC.
(E) LOANS AND MORTGAGES PAYABLE: Loans and mortgages payable at
December 31, 1993 consisted of the following:
(in thousands)
- ------------------------------------------------------------------------------
FINANCIAL
SERVICES AIG TOTAL
==============================================================================
Uncollateralized loans payable $148,335 $139,977 $288,312
Collateralized loans and
mortgages payable 48,528 129,500 178,028
- ------------------------------------------------------------------------------
Total $196,863 $269,477 $466,340
==============================================================================
(F) INTEREST EXPENSE FOR ALL INDEBTEDNESS: Total interest expense for
all indebtedness, net of capitalized interest, aggregated $1,103,955,000 in
1993, $1,128,007,000 in 1992 and $871,036,000 in 1991. Interest expense paid
approximated $1,017,066,000 in 1993, $1,051,976,000 in 1992 and $797,000,000 in
1991.
10. CAPITAL FUNDS
(a) At December 31, 1993, there were 6,000,000 shares of AIG's $5 par value
serial preferred stock authorized, issuable in series. AIG redeemed the
Exchangeable Money Market Cumulative Serial Preferred(TM) Stock, Series M-1 on
April 2, 1993 and the Exchangeable Money Market Cumulative Serial Preferred
Stock, Series M-2 (Series M-1 and M-2 together, MMP(TM)), on March 5, 1993 at a
price of $100,000 per share plus accrued dividends.
During 1993, 1992 and 1991, dividends paid on the MMP aggregated
$1,043,000, $4,471,000 and $7,262,000, respectively.
(b) AIG parent depends on its subsidiaries for cash flow in the form of
loans, advances and dividends. Some AIG subsidiaries, namely those in the
insurance business, are subject to regulatory restrictions on the amount of
dividends which can be remitted to AIG parent. These restrictions vary by
state. For example, unless permitted by the New York Superintendent of
Insurance, general insurance companies domiciled in New York may not pay
dividends to shareholders which in any twelve month period exceed the lesser of
10 percent of the company's statutory policyholders' surplus or 100 percent of
its "adjusted net investment income", as defined. Generally, less severe
restrictions applicable to both general and life insurance companies exist in
most of the other states in which AIG's insurance subsidiaries are domiciled.
Certain foreign jurisdictions have restrictions which generally cause only a
temporary delay in the remittance of dividends. There are also various local
restrictions limiting cash loans and advances to AIG by its subsidiaries.
Largely as a result of the restrictions, approximately 53 percent of
consolidated capital funds were restricted from immediate transfer to AIG
parent at December 31, 1993.
46
48
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
10. CAPITAL FUNDS (continued)
(c) The common stock activity for the three years ended December 31,
1993 was as follows:
- ------------------------------------------------------------------------------------------------------
1993 1992 1991
======================================================================================================
Shares outstanding at
beginning of year 211,629,013 212,269,558 212,142,912
Acquired during year (148,872) (963,062) (155,703)
Issued under stock option
and purchase plans 350,848 322,517 282,349
Stock split effected
as dividend 112,461,475 -- --
Other* (6,664,397) -- --
- ------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 317,628,067 211,629,013 212,269,558
======================================================================================================
* Shares issued to AIG and subsidiaries as part of stock split effected as
dividend.
Common stock increased and additional paid-in capital decreased $281.2
million as a result of a common stock split in the form of a 50 percent stock
dividend paid July 30, 1993 to holders of record July 2, 1993.
11. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, various commitments and contingent
liabilities are entered into by AIG and certain of its subsidiaries. In
addition, AIG guarantees various obligations of certain subsidiaries.
Commitments to extend credit are agreements to lend subject to certain
conditions. These commitments generally have fixed expiration dates or
termination clauses and typically require payment of a fee. At December 31,
1993 and 1992, these commitments, made principally by AIG Capital Corp.,
approximated $140,700,000 and $167,300,000 respectively. AIG uses the same
credit policies in making commitments and conditional obligations as it does
for on-balance-sheet instruments. AIG evaluates each counterparty's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by AIG upon extension of credit, is based on management's
credit evaluation of the counterparty.
AIG and certain of its subsidiaries become parties to financial
instruments with off-balance-sheet risk as a result of trading activities and
to reduce currency, interest rate, equity and commodity exposures. To the
extent those instruments are carried at their estimated fair value, the
elements of currency, interest rate, equity and commodity risks are reflected
in the consolidated balance sheet. In addition, these instruments involve, to
varying degrees, elements of credit risk not explicitly recognized in the
consolidated balance sheet. Collateral is required, at the discretion of AIG,
on certain transactions based on the creditworthiness of the counterparty.
AIGFP becomes party to off-balance-sheet financial instruments in the
normal course of its business and to reduce its currency, interest rate, equity
and commodity exposures.
Forward and future contracts are contracts for delivery of foreign
currencies, commodities, securities, equity indexes or money market instruments
in which the seller/purchaser agrees to make/take delivery at a specified
future date of a specified instrument, at a specified price or yield. Risks
arise as a result of deviations in current market conditions from contracted
levels and the potential inability of counterparties to meet the terms of their
contracts. The notional amounts for each AIGFP contract are converted to
five-year equivalent amounts, a measurement used to standardize the various
maturities within the portfolio. At December 31, 1993, the notional principal
amount of forward contracts entered into by AIGFP, expressed in five-year
equivalent amounts, approximated $247 million. The contractual amounts of
futures commitments to purchase and commitments to sell approximated $25.5
billion and $4.6 billion, respectively.
As a writer of options, AIGFP generally receives a premium at the outset
and then follows a policy of minimizing interest rate, commodity, equity and
currency risks underlying the option. At December 31, 1993, the notional
principal amount of interest rate, commodity, equity and currency options
written, expressed in five-year equivalent amounts, approximated $813 million.
AIGFP, for its own account, enters into interest rate, currency, equity
and commodity swaps and forward commitments. Interest rate swap and swaption
transactions generally involve the exchange of fixed and floating rate interest
payment obligations without the exchange of the underlying principal amounts.
AIGFP typically becomes a principal in the exchange of interest payments
between the parties and, therefore, may be exposed to loss, if counterparties
default. Currency, equity and commodity swaps are similar to interest rate
swaps, but may involve the exchange of principal amounts at the beginning and
end of the transaction. At December 31, 1993, the notional principal amount of
the sum of the swap pays and receives expressed in five-year equivalent
amounts, approximated $118 billion, primarily related to interest rate swaps
($90 billion). Assuming simultaneous nonperformance by all counterparties on
all contracts potentially subject to a loss, the maximum potential loss, based
on the cost of replacement at market rates prevailing at December 31, 1993,
approximated $5.4 billion.
AIGFP evaluates the creditworthiness of its counterparties by internally
evaluating counterparties by individual credits and consulting with widely
accepted credit-rating services. The average credit rating of AIGFP's
counterparties as a whole (as measured by AIGFP) is equivalent to AA-. The
maximum potential loss will increase or decrease during the life of the swaps
and forward commitments as a function of maturity and market conditions.
47
49
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
11. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
At December 31, 1993, the breakdown by industry of maximum potential
loss was as follows:
(in thousands)
- --------------------------------------------------------------
Non-U.S. banks $2,200,932
Insured municipalities 552,447
U.S. industrials 550,405
Governmental 466,373
Non-U.S. financial services companies 460,706
Non-U.S. industrials 422,871
Structured/Collateral 293,949
U.S. banks 195,595
U.S. financial services companies 174,340
Supranationals 104,053
- --------------------------------------------------------------
Total $5,421,671
==============================================================
AIGFP has entered into commitments to provide liquidity for certain
insured variable rate bonds issued by municipal entities. The bond agreements
allow the holder, in certain circumstances, to tender the bonds to the issuer
at par value. In the event a remarketing agent of the issuer is unable to
resell such bonds, AIGFP would be obligated to purchase the bonds at par value.
AIGFP would receive interest on any bonds purchased at rates above the then
prevailing market rates. These liquidity facilities aggregated $685 million at
December 31, 1993 and extend through December 31, 1997. In management's
opinion, it is unlikely that AIGFP will become obligated to purchase any bonds
pursuant to the liquidity facilities.
Securities sold, but not yet purchased represent obligations of AIGFP to
deliver specified securities at their contracted prices, and thereby create a
liability to repurchase the securities in the market at prevailing prices.
AIGFP monitors and controls its risk exposure on a daily basis through
financial, credit and legal reporting systems and, accordingly, believes that
it has in place effective procedures for evaluating and limiting the credit and
market risks to which it is subject. Management is not aware of any potential
counterparty defaults as of December 31, 1993.
AIG has issued an unconditional guarantee with respect to the prompt
payment, when due, of all present and future obligations and liabilities of
AIGFP arising from transactions entered into by AIGFP.
AIG Trading Group Inc. and its subsidiaries (AIGTG) becomes party to
off-balance sheet financial instruments in the normal course of its business
and to reduce its currency, interest rate and commodity exposures.
Forward and futures contracts are contracts for delivery of foreign
currencies or money market instruments in which the seller/purchaser agrees to
make/take delivery at a specified future date of a specified instrument at a
specified price or yield. Risks arise as a result of movements in current
markets from contracted levels and the potential inability of counterparties to
meet the terms of their contracts. At December 31, 1993, the notional principal
amount of open purchase and sale forward and futures contracts of AIGTG
approximated $101 billion. The notional or contractual amounts used to
summarize the volume of financial instruments do not represent the amount of
financial instruments subject to off-balance sheet risks. Assuming simultaneous
nonperformance by all counterparties on all contracts of AIGTG potentially
subject to loss, the maximum potential loss, based on the cost of replacement
at market rates prevailing at December 31, 1993, approximated $800 million.
As a writer of foreign exchange options, AIGTG generally receives a
premium at the outset and then follows a policy of minimizing the currency risk
underlying the option. At December 31, 1993, the notional principal amount of
foreign currency options written approximated $15 billion.
AIGTG limits its risks by holding offsetting positions. In addition,
AIGTG monitors and controls its risk exposures through various monitoring
systems which evaluate AIGTG's market and credit risks, and through credit
approvals and limits. At December 31, 1993, AIGTG did not have a significant
concentration of credit risk from either an individual counterparty or group of
counterparties.
At December 31, 1993, ILFC had committed to purchase 227 aircraft
deliverable from 1994 through 1999 at an estimated aggregate purchase price of
$12.9 billion. Concurrently, at December 31, 1993, ILFC had options to purchase
58 aircraft deliverable through 1999 at an estimated aggregate purchase price
of $3.4 billion. ILFC will be required to find customers for any new aircraft
ordered and arrange financing for portions of the purchase price of such
equipment.
AIG does not anticipate any losses in connection with the aforementioned
activities that would have a material effect on its financial condition or
results of operations.
AIG and its subsidiaries, in common with the insurance industry in
general, are subject to litigation, including claims for punitive damages, in
the normal course of their business. AIG does not believe that such litigation
will have a material effect on its operating results and financial condition.
AIG continues to receive indemnity claims asserting injuries from toxic
waste, hazardous substances, asbestos and other environmental pollutants and
alleged damages to cover the clean-up costs of hazardous waste dump sites
(environmental claims). Estimation of environmental claims loss reserves is a
difficult process, as these claims, which emanate from policies written in 1984
and prior years, cannot be estimated by conventional reserving techniques.
Environmental claims development is affected by factors such as inconsistent
court resolutions, the broadening of the intent of policies and scope
48
50
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
11. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
of coverage and increasing number of new claims. AIGand other industry members
have and will continue to litigate the broadening judicial interpretation of
policy coverage and the liability issues. If the courts continue in the future
to expand the intent of the policies and the scope of the coverage, as they
have in the past, additional liabilities would emerge for amounts in excess of
reserves held. This emergence cannot now be reasonably estimated, but could
have a material impact on AIG's future operating results and financial
condition. The reserves carried for these claims as at December 31, 1993 ($1.48
billion gross; $368.3 million net) are believed to be adequate as these
reserves are based on known facts and current law. Furthermore, as AIG's net
exposure retained relative to the gross exposure written was lower in those
years, the potential impact of these claims is much smaller on the net loss
reserves than on the gross loss reserves.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107 "Disclosures about Fair
Value of Financial Instruments" (FASB 107) requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
such fair value. These financial instruments may or may not be recognized in
the consolidated balance sheet. In the measurement of the fair value of certain
of the financial instruments, quoted market prices were not available and other
valuation techniques were utilized. These derived fair value estimates are
significantly affected by the assumptions used. FASB 107 excludes certain
financial instruments, including those related to insurance contracts.
The following methods and assumptions were used by AIG in estimating the
fair value of the financial instruments presented:
Cash and short-term investments: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate fair values.
Fixed maturity securities: Fair values for fixed maturity securities
carried at amortized cost or at market value were generally based upon quoted
market prices. For certain fixed maturity securities for which market prices
were not readily available, fair values were estimated using values obtained
from independent pricing services. No other fair valuation techniques were
applied to these bonds as AIG believes it would have to expend excessive costs
for the benefits derived.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage loans on real estate, policy and collateral loans: Where
practical, the fair values of loans on real estate and collateral loans were
estimated using discounted cash flow calculations based upon AIG's current
incremental lending rates for similar type loans. The fair values of the policy
loans were not calculated as AIG believes it would have to expend excessive
costs for the benefits derived.
Securities held for investment: Fair values for securities held for
investment carried at amortized cost were based upon quoted market prices. For
securities for which market prices were not readily available, fair values were
estimated using quoted market prices of comparable investments.
Receivables from and payables to securities brokers and dealers: Fair
values for receivables from and payables to securities brokers and dealers
approximate the carrying values presented in the consolidated balance sheet.
Securities available for sale: Fair values for securities available for
sale and related hedges were based on quoted market prices. For securities and
related hedges for which market prices were not readily available, fair values
were estimated using quoted market prices of comparable investments.
Trading securities: Fair values for trading securities were based on
current market value where available. For securities for which market values
were not readily available, fair values were estimated using quoted market
prices of comparable investments.
Spot commodities: Fair values for spot commodities, which include
options, were based on current market prices.
Net unrealized gains on interest rate and currency swaps, options and
forward transactions: Fair values for swaps, options and forward transactions
were based on the use of valuation models that utilize, among other things,
current interest, foreign exchange and volatility rates, as applicable.
Securities purchased (sold) under agreements to resell (repurchase), at
contract value: As these securities (obligations) are short-term in nature, the
contract values approximate fair values.
Other invested assets: For assets for which market prices were not
readily available, fair valuation techniques were not applied as AIG believes
it would have to expend excessive costs for the benefits derived.
Policyholders' contract deposits: Fair values of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
GIAs: Fair values of AIG's obligations under investment type agreements
were estimated using discounted cash flow calculations based on interest rates
currently being offered for similar agreements with maturities consistent with
those remaining for the agreements being valued. Additionally, AIG follows a
policy of minimizing interest rate risks associated with GIAs by entering into
swap transactions. The unrealized gains for transactions related to GIAs were
$526.3 million at December 31, 1993.
49
51
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Securities sold but not yet purchased, principally obligations of the
U.S. Government and Government agencies: The carrying amounts for these
financial instruments approximate fair values.
Spot commodities sold but not yet purchased: The carrying amounts for
these financial instruments approximate fair values.
Deposits due to banks and other depositors: To the extent certain
amounts are not demand deposits or certificates of deposit which mature in more
than one year, fair values were not calculated as AIG believes it would have to
expend excessive costs for the benefits derived.
Commercial paper: The carrying amount of AIG's commercial paper
borrowings approximates fair value.
Notes, bonds, loans and mortgages payable: Where practical, the fair
values of these obligations were estimated using discounted cash flow
calculations based upon AIG's current incremental borrowing rates for similar
types of borrowings with maturities consistent with those remaining for the
debt being valued.
The carrying values and fair values of AIG's financial instruments at
December 31, 1993 and December 31, 1992 were as follows:
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
1993 1992
-------------------------------------------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
=================================================================================================================================
Fixed maturities $30,084,374 $31,169,569 $26,490,365 $27,687,159
Equity securities 4,488,247 4,488,247 2,705,104 2,705,104
Mortgage loans on real estate, policy and collateral loans 3,576,516 3,662,300 3,079,560 3,120,174
Securities held for investment -- -- 4,172,671 4,049,509
Securities available for sale 4,991,105 4,991,105 -- --
Trading securities 2,516,166 2,516,166 1,947,220 1,947,220
Spot commodities 764,215 764,215 631,717 631,717
Net unrealized gain on interest rate and currency swaps,
options and forward transactions 640,120 640,120 1,422,700 1,422,700
Receivables from securities brokers and dealers 1,328,391 1,328,391 4,340,417 4,340,417
Securities purchased under agreement to resell 2,737,507 2,737,507 4,317,312 4,317,312
Other invested assets 1,265,056 1,265,056 1,172,535 1,172,535
Short-term investments 5,072,893 5,072,893 4,648,879 4,648,879
Cash 157,481 157,481 136,628 136,628
Policyholders' contract deposits 4,439,839 4,566,204 4,486,702 4,649,140
Borrowings under obligations of guaranteed
investment agreements 6,735,579 7,261,330 6,697,819 7,045,211
Securities sold under agreements to repurchase 2,299,563 2,299,563 3,632,205 3,632,205
Payables to securities brokers and dealers 1,688,147 1,688,147 3,216,637 3,216,637
Securities sold but not yet purchased, principally obligations
of the U.S. Government and Government agencies 696,454 696,454 417,391 417,391
Spot commodities sold but not yet purchased 285,757 285,757 1,536,675 1,536,675
Deposits due to banks and other depositors 557,372 557,372 1,001,610 1,001,610
Commercial paper 3,148,885 3,148,885 2,625,309 2,625,309
Notes, bonds, loans and mortgages payable 5,804,601 5,965,912 4,141,189 4,230,953
=================================================================================================================================
50
52
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Off-balance sheet financial instruments: Financial instruments which are
not currently recognized in the consolidated balance sheet of AIG are
principally commitments to extend credit and financial guarantees. The
unrecognized fair values of these instruments represent fees currently charged
to enter into similar agreements, taking into account the remaining terms of
the current agreements and the counterparties' credit standings. No valuation
was made as AIG believes it would have to expend excessive costs for the
benefits derived.
13. STOCK PURCHASE PLAN
AIG's 1984 employee stock purchase plan was adopted at the 1984 shareholders'
meeting and became effective as of July 1, 1984. Eligible employees receive
privileges to purchase up to an aggregate of 1,312,500 shares of AIG common
stock, at a price equal to 85 percent of the fair market value on the date of
grant of the purchase privilege.
Purchase privileges are granted annually and are limited to the number
of whole shares that can be purchased by an amount equal to 5 percent of an
employee's annual salary or $3,750, whichever is less.
As of December 31, 1993, there were 84,055 shares of common stock
subscribed to at a weighted average price of $75.97 per share pursuant to
grants of privileges under the 1984 plan. There were 93,447 shares, 92,220
shares and 122,072 shares issued under the 1984 plan at weighted average prices
of $54.46, $49.66 and $41.33 for the years ended December 31, 1993, 1992 and
1991, respectively. The excess of the proceeds over the par value or cost of
the common stock issued was credited to additional paid-in capital. There were
352,040 shares available for the grant of future purchase privileges under the
1984 plan at December 31, 1993.
14. STOCK OPTIONS
On December 19, 1991, the AIG Board of Directors adopted a 1991 employee stock
option plan, which provides that options to purchase a maximum of 3,000,000
shares of common stock could be granted to officers and other key employees at
prices not less than fair market value at the date of grant. Both the 1991
plan, and the options with respect to 74,925 shares granted thereunder on
December 19, 1991, were approved by shareholders at the 1992 Annual Meeting. At
December 31, 1993, 2,108,950 shares were reserved for future grants under the
1991 plan. As of March 18, 1992, no further options could be granted under the
1987 plan, but outstanding options granted under the 1987 plan and the
previously superceded 1982 plan continue in force until exercise or expiration.
At December 31, 1993, there were 2,622,259 shares reserved for issuance under
the 1991, 1987 and 1982 plans.
Under each plan, 25 percent of the options granted become exercisable on
the anniversary of the date of grant in each of the four years following that
grant and all options expire 10 years from the date of the grant. As of
December 31, 1993, outstanding options granted with respect to 1,981,273shares
qualified for Incentive Stock Option treatment under the Economic Recovery Tax
Act of 1981.
Additional information with respect to the AIG plans at December 31,
1993 was as follows:
(dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------
NUMBER PRICE RANGE AGGREGATE
OF PER OPTION
SHARES SHARE PRICE
======================================================================================================
Shares under option at
December 31, 1993 2,622,259 $14.87-99.13 $140,037
Shares under option
exercisable at
December 31, 1993 1,552,882 14.87-79.50 62,814
Shares under option exercised
during year ended:
December 31, 1993 314,938 15.63-79.50 8,456
December 31, 1992 391,566 11.87-60.92 8,658
December 31, 1991 300,503 11.87-51.20 6,645
Shares under option granted
during year ended:
December 31, 1993 347,575 84.33-99.13 30,869
December 31, 1992 486,300 54.67-79.50 37,967
December 31, 1991 458,175 48.00-60.92 24,963
Shares under option
forfeited during
year ended:
December 31, 1993 38,137 16.37-88.75 1,844
December 31, 1992 55,208 11.87-60.92 2,306
December 31, 1991 80,586 11.87-51.20 2,808
======================================================================================================
15. EMPLOYEE BENEFITS
(a) Employees of AIG, its subsidiaries and certain affiliated companies,
including employees in foreign countries, are generally covered under various
funded and insured pension plans. Eligibility for participation in the various
plans is based on either completion of a specified period of continuous service
or date of hire, subject to age limitation. While benefits vary, they are
usually based on the employees' years of credited service and average
compensation in the three years preceding retirement.
AIG's U.S. retirement plan is a qualified, noncontributory, defined
benefit plan. All qualified employees who have attained age 21 and completed
six months of continuous service are eligible to participate in this plan. An
employee with 5 or more years of service is entitled to pension benefits
beginning at
51
53
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
15. EMPLOYEE BENEFITS (continued)
normal retirement at age 65. Benefits are based upon a percentage of average
final compensation multiplied by years of credited service commencing April 1,
1985 and limited to 44 years of credited service. The average final
compensation is subject to certain limitations. Annual funding requirements are
determined based on the "projected unit credit" cost method which attributes a
pro rata portion of the total projected benefit payable at normal retirement to
each year of credited service.
AIG has adopted a Supplemental Executive Retirement Program
(Supplemental Plan) to provide additional retirement benefits to designated
executives and key employees. Under the Supplemental Plan, the annual benefit,
not to exceed 60 percent of average final compensation, accrues at a percentage
of average final pay multiplied for each year of credited service reduced by
any benefits from the current and any predecessor retirement plans, Social
Security, if any, and from any qualified pension plan of prior employers.
Effective January 1, 1991, the Supplemental Plan also provides a benefit equal
to the reduc-tion in benefits payable under the AIG retirement plan as a result
of Federal limitations on benefits payable thereunder. Currently, the
Supplemental Plan is unfunded.
Eligibility for participation in the various non-U.S. retirement plans
is either based on completion of a specified period of continuous service or
date of hire, subject to age limitation. While benefits vary, they are
generally based on the employees' years of credited service and average
compensation in the years preceding retirement.
Assumptions associated with the projected benefit obligation and
expected long-term rate of return on plan assets at December 31, 1993 were as
follows:
- ------------------------------------------------------------------------------------------------------
RANGE OF
NON-U.S. PLANS* U.S. PLANS
======================================================================================================
Discount rate 6-15% 7%
Salary increase rate 3-13 5
Expected long-term rate
of return on plan assets 7-15 9
======================================================================================================
* The ranges for the non-U.S. plans reflect the local socioeconomic
environments in which AIG operates.
The following table sets forth the funded status of the various pension
plans and the amounts recognized in the accompanying consolidated balance sheet
as of December 31, 1993 and 1992:
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
1993 1992
------------------------------- ----------------------------------
NON-U.S. U.S. Non-U.S. U.S.
PLANS PLANS TOTAL Plans Plans Total
===================================================================================================================================
Plan assets at fair value* $131,391 $139,129 $270,520 $113,709 $113,704 $227,413
- -----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefits earned prior to valuation date:
Vested 143,614 94,717 238,331 80,382 63,745 144,127
Nonvested 21,038 15,747 36,785 17,855 10,256 28,111
Additional benefits based on estimated future salary levels 48,973 66,652 115,625 59,188 59,840 119,028
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 213,625 177,116 390,741 157,425 133,841 291,266
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets 82,234 37,987 120,221 43,716 20,137 63,853
- -----------------------------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost (9,486) (2,786) (12,272) (5,945) 1,169 (4,776)
Unrecognized net gain (loss) (6,344) 1,321 (5,023) 21,530 13,928 35,458
Unamortized balance of the initial transition amounts (23,266) (13,692) (36,958) (21,786) (15,196) (36,982)
- ------------------------------------------------------------------------------------------------------------------------------------
Net amounts to be applied to future periods (39,096) (15,157) (54,253) (6,201) (99) (6,300)
Adjustment to reflect minimum liability 23,268 1,896 25,164 1,498 1,607 3,105
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued pension liability $ 66,406 $ 24,726 $ 91,132 $ 39,013 $ 21,645 $ 60,658
===================================================================================================================================
* Plan assets are invested primarily in fixed-income securities and listed
stocks.
52
54
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
15. EMPLOYEE BENEFITS (continued)
Net pension cost for the years ended December 31, 1993, 1992 and 1991
included the following components:
(in thousands)
- -------------------------------------------------------------------------------------------------
1993 1992 1991
=================================================================================================
Cost of benefits earned during the period $33,258 $25,175 $26,289
Interest cost on the projected benefit
obligation 23,243 18,135 16,628
Actual return on all retirement plan assets (29,613) (13,574) (30,554)
Net amortization and deferral of
actuarial gains and losses 7,542 (4,856) 13,394
Amortization of the initial
transition amount 3,389 2,014 1,608
- -------------------------------------------------------------------------------------------------
Net pension expense* $37,819 $26,894 $27,365
=================================================================================================
* Net pension expense included $20,999, $13,478 and $13,433 related to non-U.S.
plans for 1993, 1992 and 1991, respectively.
(b) AIG sponsors a voluntary savings plan for domestic employees (a
401(k) plan), which provides for salary reduction contributions by employees
and matching contributions by AIG of up to 2 percent of annual salary.
(c) In addition to AIG's defined benefit pension plan, AIG and its
subsidiaries provide a postretirement benefit program for medical care and life
insurance, domestically and in certain foreign countries. Eligibility in the
various plans is generally based upon completion of a specified period of
eligible service and reaching a specified age. Benefits vary by geographic
location.
AIG's U.S. postretirement medical and life insurance benefits are based
upon the employee reaching age 55 with 10 years of service to be eligible for
an immediate benefit from the U.S. retirement plan. Retirees and their
dependents who were age 65 by May 1, 1989 participate in the medical plan at no
cost. All other retirees and dependents over age 65 pay 50 percent of the
premium that is paid by current active employees. Retirees under age 65 pay the
full active premium and covered dependents pay twice the active employee
amounts. Contri-butions are subject to adjustment annually. Other cost sharing
features of the medical plan include deductibles, coinsurance and Medicare
coordination and a lifetime maximum benefit of $1,000,000. The maximum life
insurance benefit prior to age 70 is $32,500, with a maximum of $25,000
thereafter.
Effective January 1, 1993, both plans' provisions were amended.
Employees who retire on or after January 1, 1993 will be required to pay the
actual cost of the medical benefits reduced by a credit which is based upon age
and years of serv- ice at retirement. The life insurance benefit will vary by
age at retirement from $5,000 for retirement at ages 55 through 59 to $15,000
for retirement at ages 65 and over.
AIG adopted FASB 106 effective January 1, 1992. Prior to adoption, AIG
expensed these postretirement benefits on a pay-as-you-go basis. The cumulative
effect of the accounting change relative to the adoption of FASB 106 was $54.8
million, net of tax.
Assumptions associated with the accrued postretirement benefit liability
at December 31, 1993 were as follows:
- ------------------------------------------------------------------------------------
NON-U.S. U.S.
PLANS PLANS
====================================================================================
Discount rate 8.0-10.5% 7.0%
Salary increase rate 7.0-8.0 --
Medical trend rate year 1* 14.0 12.5
Medical trend rate year 8 and 9 6.0 5.5
====================================================================================
* The Medical trend rate grades downward from years 1 through 8 domestically
and years 1 through 9 for the foreign benefits. The trend rates remain level
thereafter.
The following table sets forth the liability for the accrued
postretirement benefits of the various plans, and amounts recognized in the
accompanying consolidated balance sheet as of December 31, 1993 and 1992. These
plans are not funded currently.
(in thousands)
- --------------------------------------------------------------------------------------------------
NON-U.S. U.S.
PLANS PLANS TOTAL
==================================================================================================
1993
Accumulated postretirement
benefit obligation:
Retirees $ 1,911 $45,749 $47,660
Fully eligible active employees 3,969 1,633 5,602
Other active employees 4,993 9,602 14,595
- --------------------------------------------------------------------------------------------------
10,873 56,984 67,857
- --------------------------------------------------------------------------------------------------
Unrecognized net loss -- (7,812) (7,812)
Unrecognized prior service cost -- 31,835 31,835
- --------------------------------------------------------------------------------------------------
Accrued postretirement benefit
liabilities $10,873 $81,007 $91,880
==================================================================================================
1992
Accumulated postretirement
benefit obligation:
Retirees $ 1,911 $34,894 $36,805
Fully eligible active employees 3,666 14,643 18,309
Other active employees 4,156 32,704 36,860
- --------------------------------------------------------------------------------------------------
Accrued postretirement benefit
liabilities $ 9,733 $82,241 $91,974
==================================================================================================
53
55
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
15. EMPLOYEE BENEFITS (continued)
The net periodic postretirement costs for the years ended December 31,
1993 and 1992 included the following components:
(in thousands)
- --------------------------------------------------------------------------------------------------------------
LIFE
MEDICAL INSURANCE
PLANS PLANS TOTAL
==============================================================================================================
1993
Cost of benefits earned during
the period $ 876 $ 384 $1,260
Interest cost on accumulated
postretirement benefit obligations 3,693 1,110 4,803
Amortization of prior service cost (1,344) (172) (1,516)
- ---------------------------------------------------------------------------------------------------------------
Net periodic postretirement
benefit costs $ 3,225 $1,322 $4,547
==============================================================================================================
1992
Cost of benefits earned during
the period $ 4,439 $ 696 $ 5,135
Interest cost on accumulated
postretirement benefit obligations 5,668 1,283 6,951
- --------------------------------------------------------------------------------------------------------------
Net periodic postretirement
benefit costs $10,107 $1,979 $12,086
==============================================================================================================
The medical trend rate assumptions have a significant effect on the
amounts reported. Increasing each trend rate by 1 percent in each year would
increase the accumulated post-retirement benefit obligations as of December 31,
1993 by $5.0 million and the aggregate service and interest cost components of
the periodic postretirement benefit costs for 1993 by $468,000.
During 1991, AIG recognized the cost of providing current medical and
life insurance benefits by recording the annual insurance premiums as an
expense. During 1991 these costs approximated $32,000,000. The cost of
providing these benefits for retirees was not separable from the cost of
providing benefits for active employees prior to 1992.
16. LEASES
(a) AIG and its subsidiaries occupy leased space in many locations under
various long-term leases and have entered into various leases covering the
long-term use of data processing equipment. At December 31, 1993, the future
minimum lease payments under operating leases were as follows:
(in thousands)
==============================================================
1994 $ 146,433
1995 121,871
1996 96,228
1997 82,119
1998 75,078
Remaining years after 1998 695,347
- --------------------------------------------------------------
Total $1,217,076
==============================================================
Rent expense approximated $200,500,000, $199,200,000, and $199,400,000
for the years ended December 31, 1993, 1992 and 1991, respectively.
(b) Minimum future rental income on noncancelable operating leases of
flight equipment which have been delivered at December 31, 1993 was as follows:
(in thousands)
==============================================================
1994 $ 717,735
1995 638,449
1996 473,211
1997 318,759
1998 188,990
Remaining years after 1998 126,574
- --------------------------------------------------------------
Total $2,463,718
==============================================================
Flight equipment is leased, under operating leases, for periods ranging
from one to twelve years.
17. OWNERSHIP AND TRANSACTIONS WITH RELATED PARTIES
(A) OWNERSHIP: The directors and officers of AIG, the directors and holders of
common stock of C. V. Starr & Co., Inc. (Starr), a private holding company, The
Starr Foundation, Starr International Company, Inc. (SICO), a private holding
company, and Starr own or otherwise control approximately 29 percent of the
voting stock of AIG. Six directors of AIG also serve as directors of Starr and
SICO.
(B) TRANSACTIONS WITH RELATED PARTIES: During the ordinary course of
business, AIG and its subsidiaries pay commissions to Starr and its
subsidiaries for the production and management of insurance business. Net
commission payments to Starr aggregated approximately $25,800,000 in 1993,
$21,200,000 in 1992 and $19,600,000 in 1991, from which Starr is required to
pay commissions due originating brokers and its operating expenses. AIG also
received approximately $11,800,000 in 1993, $11,500,000 in 1992 and $10,500,000
in 1991 from Starr and paid approximately $60,000 in 1993 and $50,000 in 1992
and 1991 to Starr as reimbursement for services provided at cost. AIG also
received approximately $600,000 in 1993 and $800,000 in 1992 and 1991 from SICO
and paid approximately $1,100,000 in 1993, $900,000 in 1992 and $800,000 in
1991 to SICO as reimbursement for services rendered at cost. AIG also paid to
SICO $3,400,000 in 1993, $3,800,000 in 1992 and $4,700,000 in 1991 in rental
fees.
54
56
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
18. SUMMARY OF QUARTERLY FINANCIAL INFORMATION-
UNAUDITED
The following quarterly financial information for each of the three months
ended March 31, June 30, September 30 and December 31, 1993 and 1992 is
unaudited. However, in the opinion of management, all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the results of
operations for such periods, have been made for a fair presentation of the
results shown.
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30,
------------------------ -----------------------
(in thousands, except per share amounts) 1993 1992 1993 1992
=======================================================================================================
Revenues $4,643,240 $4,363,488 $5,015,236 $ 4,530,285
- -------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting changes $ 475,226 $ 407,703 $ 481,634 $ 419,583
- -------------------------------------------------------------------------------------------------------
Cumulative effect of accounting changes (a) $ 20,695 $ 31,941 $ -- $ --
- -------------------------------------------------------------------------------------------------------
Net income $ 495,921 $ 439,644 $ 481,634 $ 419,583
- -------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting changes per common share $1.49 $1.28 $1.52 $ 1.32
Net income per common share $1.56 $1.38 $1.52 $ 1.32
Average shares outstanding 317,484 318,324 317,360 317,448
=======================================================================================================
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
------------------------ -----------------------
(in thousands, except per share amounts) 1993 1992 1993 1992
======================================================================================================
Revenues $5,119,228 $4,635,922 $5,356,953 $4,858,932
- ------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting changes $ 451,061 $ 338,874 $ 510,157 $ 458,855
- ------------------------------------------------------------------------------------------------------
Cumulative effect of accounting changes (a) $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------
Net income $ 451,061 $ 338,874 $ 510,157 $ 458,855
- ------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting changes per common share $1.42 $1.06 $1.61 $ 1.44
Net income per common share $1.42 $1.06 $1.61 $ 1.44
Average shares outstanding 317,438 317,289 317,577 317,389
======================================================================================================
(a) Represents a net benefit for the cumulative effect of the adoption of
accounting pronouncements related to postretirement benefits (FASB 106) and
income taxes (FASB 109) by minority-owned reinsurance operations in 1993 and by
AIG in 1992.
19. SEGMENT INFORMATION
(a) AIG's operations are conducted principally through five business segments.
These segments and their respective operations are as follows:
Parent - AIG parent is a holding company owning directly or indirectly
all of the capital stock of certain insurance, insurance related and financial
services companies in both the United States and abroad.
General Insurance - AIG's general insurance operations are multiple line
property and casualty companies writing substantially all lines of insurance
other than title insurance. The general insurance operations also include
mortgage guaranty insurance operations.
Life Insurance - AIG's life insurance operations offer a broad line of
individual and group life, annuity and accident and health policies.
Agency and Service Fee - AIG's agency operations are engaged in the
production and management of various types of insurance for affiliated and
non-affiliated companies.
Financial Services - AIG's financial services operations engage in
diversified financial services for affiliated and non-affiliated companies.
Such operations include, but are not limited to, short-term cash management and
financing, premium financing, interest rate, currency, equity and commodity
derivative products business, various commodities trading and market making
activities, banking services and operations and leasing and remarketing of
flight equipment.
55
57
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
19. SEGMENT INFORMATION (continued)
The following table is a summary of the operations by major operating segments
for the years ended December 31, 1993, 1992 and 1991:
INDUSTRY SEGMENTS-1993
----------------------------------------------------------------------------
GENERAL LIFE AGENCY AND FINANCIAL
(in thousands) PARENT INSURANCE INSURANCE SERVICE FEE SERVICES
===================================================================================================================
Revenues(b) $ 908,176(c) $10,972,384 $ 7,300,336 $239,641 $ 1,595,449
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes
and cumulative effect of
accounting changes $ 908,176(c) $ 1,416,135 $ 781,611 $ 60,247 $ 390,038
- -------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of
partially-owned companies $ 11,183 $ 36,618 $ 1,260 $ (202) $ --
- -------------------------------------------------------------------------------------------------------------------
Depreciation expense $ -- $ 40,535 $ 39,258 $ 3,787 $ 326,028
- -------------------------------------------------------------------------------------------------------------------
Capital expenditures $ -- $ 103,686 $ 119,157 $ 4,801 $ 2,575,652(d)
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets(e) $16,210,208 $46,981,720 $28,381,164 $179,297 $25,514,258
===================================================================================================================
INDUSTRY SEGMENTS-1993
-------------------------------
ADJUSTMENTS
AND
(in thousands) ELIMINATIONS(a) CONSOLIDATED
======================================================================
Revenues(b) $ (881,329) $ 20,134,657
- ----------------------------------------------------------------------
Income before income taxes
and cumulative effect of
accounting changes $ (955,126) $ 2,601,081
- ----------------------------------------------------------------------
Equity in net income (loss) of
partially-owned companies $ 236 $ 49,095
- ----------------------------------------------------------------------
Depreciation expense $ 62,639 $ 472,247
- ----------------------------------------------------------------------
Capital expenditures $ 109,737 $ 2,913,033(d)
- ----------------------------------------------------------------------
Identifiable assets(e) $ (16,251,799) $101,014,848
======================================================================
Industry Segments-1992
----------------------------------------------------------------------------
General Life Agency And Financial
(in thousands) Parent Insurance Insurance Service Fee Services
===================================================================================================================
Revenues(b) $ 637,339(c) $10,528,610 $ 6,210,182 $228,297 $ 1,404,902
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes
and cumulative effect of
accounting changes $ 637,339(c) $ 1,124,136 $ 667,453 $ 52,570 $ 346,442
- -------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of
partially-owned companies $ 6,258 $ 19,610 $ 7,382 $ 46 $ --
- -------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 1,057 $ 38,963 $ 41,613 $ 3,796 $ 249,548
- -------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 2,733 $ 66,899 $ 156,583 $ 16,355 $ 1,793,372(d)
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets(e) $13,747,118 $42,416,509 $23,472,687 $157,280 $27,138,230
===================================================================================================================
Industry Segments-1992
-------------------------------
Adjustments
And
(in thousands) Eliminations(a) Consolidated
======================================================================
Revenues(b) $ (620,703) $ 18,388,627
- ----------------------------------------------------------------------
Income before income taxes
and cumulative effect of
accounting changes $ (690,892) $ 2,137,048
- ----------------------------------------------------------------------
Equity in net income (loss) of
partially-owned companies $ -- $ 33,296
- ----------------------------------------------------------------------
Depreciation expense $ 56,888 $ 391,865
- ----------------------------------------------------------------------
Capital expenditures $ 34,378 $ 2,070,320(d)
- ----------------------------------------------------------------------
Identifiable assets(e) $ (14,209,642) $ 92,722,182
======================================================================
Industry Segments-1991
----------------------------------------------------------------------------
General Life Agency And Financial
(in thousands) Parent Insurance Insurance Service Fee Services
===================================================================================================================
Revenues(b) $ 381,877(c) $10,357,369 $ 5,222,366 $215,964 $ 1,073,553
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 381,877(c) $ 1,247,927 $ 561,839 $ 46,202 $ 222,156
- -------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of
partially-owned companies $ 3,654 $ 26,232 $ 8,508 $ 24 $ (85)
- -------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 428 $ 51,240 $ 35,093 $ 4,409 $ 184,912
- -------------------------------------------------------------------------------------------------------------------
Capital expenditures $ -- $ 43,344 $ 117,960 $ 3,984 $ 1,164,496(d)
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets(e) $12,919,992 $29,278,641 $19,986,909 $188,638 $20,485,838
===================================================================================================================
Industry Segments-1991
-------------------------------
Adjustments
And
(in thousands) Eliminations(a) Consolidated
======================================================================
Revenues(b) $ (367,216) $ 16,883,913
- ----------------------------------------------------------------------
Income before income taxes $ (437,426) $ 2,022,575
- ----------------------------------------------------------------------
Equity in net income (loss) of
partially-owned companies $ 70 $ 38,403
- ----------------------------------------------------------------------
Depreciation expense $ 49,062 $ 325,144
- ----------------------------------------------------------------------
Capital expenditures $ 40,456 $ 1,370,240(d)
- ----------------------------------------------------------------------
Identifiable assets(e) $ (13,470,550) $ 69,389,468
======================================================================
(a) Including other operations and other income (deductions) -net, which are
not deemed to be reportable segments.
(b) Including realized capital gains attributable to the segments.
(c) Substantially dividend income from subsidiaries.
(d) Relating primarily to ILFC.
(e) Assets as at December 31, 1993 and 1992 have been adjusted to conform to
the requirements of FASB 113.
56
58
NOTES TO FINANCIAL STATEMENTS (continued)
American International Group, Inc. and Subsidiaries
19. SEGMENT INFORMATION (continued)
(b) The following table is a summary of AIG's general insurance operations
by major operating category for the years ended December 31, 1993, 1992
and 1991:
NET PREMIUMS
-----------------------------------------------------------------------------------
WRITTEN EARNED
----------------------------------------- --------------------------------------
(in thousands) 1993 1992 1991 1993 1992 1991
==================================================================================================================================
Underwriting:
Foreign $ 3,019,300 $2,573,900 $2,322,900 $2,901,800 $2,496,600 $2,278,900
Commercial casualty(a) 5,368,200 5,209,300 5,320,700 5,174,300 5,350,000 5,282,600
Commercial property 241,400 166,700 285,600 180,700 210,300 314,900
Pools and associations(b) 746,400 753,300 826,100 723,100 760,200 860,500
Personal lines(c) 471,800 295,900 266,200 432,400 266,000 258,800
Mortgage guaranty 178,800 139,400 124,900 154,300 126,300 108,900
- ----------------------------------------------------------------------------------------------------------------------------------
Total underwriting $10,025,900 $9,138,500 $9,146,400 $9,566,600 $9,209,400 $9,104,600
==================================================================================================================================
Net investment income
Realized capital gains
General insurance operating income
OPERATING INCOME
---------------------------------------
(in thousands) 1993 1992 1991
========================================================================================
Underwriting:
Foreign $ 140,700 $ 95,000 $ 78,700
Commercial casualty(a) 253,800 169,500 272,200
Commercial property (51,700) (23,400) (51,500)
Pools and associations(b) (377,500) (389,500) (265,400)
Personal lines(c) (22,300) (77,200) (49,800)
Mortgage guaranty 67,400 30,500 11,000
- ----------------------------------------------------------------------------------------
Total underwriting 10,400 (195,100) (4,800)
Net investment income 1,340,500 1,252,100 1,163,500
Realized capital gains 65,200 67,100 89,200
- ----------------------------------------------------------------------------------------
General insurance operating income $1,416,100 $1,124,100 $1,247,900
========================================================================================
(a) Including workers' compensation and retrospectively rated risks.
(b) Including involuntary pools.
(c) Including mass marketing and specialty programs.
(c) AIG's individual life insurance and group life insurance portfolio
accounted for 64 percent, 67 percent and 71 percent of AIG's consolidated life
insurance operating income before realized capital gains or losses for the
years ended December 31, 1993, 1992 and 1991, respectively. For those years, 97
percent, 98 percent and 99 percent, respectively, of consolidated life
operating income before realized capital gains or losses was derived from
foreign operations.
(d) A substantial portion of AIG's business is conducted in countries other
than the United States and Canada. The following table is a summary of AIG's
business by geographic segments. Allocations have been made on the basis of
location of operations and assets.
GEOGRAPHIC SEGMENTS-1993
--------------------------------------------------------
OTHER
(in thousands) DOMESTIC(a) FAR EAST FOREIGN CONSOLIDATED
=================================================================================================================================
Revenues(b) $ 9,986,700 $ 6,911,700 $ 3,236,300 $ 20,134,700
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting changes $ 1,329,900 $ 900,700 $ 370,500 $ 2,601,100
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets(c) $64,482,500 $18,667,500 $17,864,800 $101,014,800
=================================================================================================================================
Geographic Segments-1992
--------------------------------------------------------
Other
(in thousands) Domestic(a) Far East Foreign Consolidated
=================================================================================================================================
Revenues(b) $ 9,767,700 $ 5,876,900 $ 2,744,000 $18,388,600
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting changes $ 1,035,200 $ 799,500 $ 302,300 $ 2,137,000
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets(c) $59,443,500 $14,720,100 $18,558,600 $92,722,200
=================================================================================================================================
Geographic Segments-1991
--------------------------------------------------------
Other
(in thousands) Domestic(a) Far East Foreign Consolidated
=================================================================================================================================
Revenues(b) $ 9,561,600 $ 4,879,000 $ 2,443,300 $16,883,900
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 1,093,400 $ 685,300 $ 243,900 $ 2,022,600
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets(c) $41,110,400 $13,284,600 $14,994,500 $69,389,500
=================================================================================================================================
(a) Including general insurance operations in Canada.
(b) Revenues are derived from revenues of the general, life, agency and service
fee and financial services operations, equity in income of minority-owned
reinsurance operations and realized capital gains attributable to the
segments.
(c) Assets as at December 31, 1993 and 1992 have been adjusted to conform to
the requirements of FASB 113.
57
59
American International Group, Inc. and Subsidiaries
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
and financial disclosure within the twenty-four months ending December 31, 1993.
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for the information provided in Part I under the heading "Directors and
Executive Officers of the Registrant", this item is omitted because a
definitive proxy statement which involves the election of directors will be
filed with the Securities and Exchange Commission not later than 120 days after
the close of the fiscal year pursuant to Regulation 14A.
ITEM 11.EXECUTIVE COMPENSATION
This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year pursuant to
Regulation 14A.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year pursuant to
Regulation 14A.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year pursuant to
Regulation 14A.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND EXHIBITS.
1. Financial Statements and Schedules. See accompanying Index to
Financial Statements.
2. Exhibits.
3-- Articles of Incorporation and By-Laws.
10-- Material Contracts.
11-- Computation of Earnings Per Share for the Years Ended
December 31, 1993, 1992, 1991, 1990 and 1989.
12-- Computation of Ratios of Earnings to Fixed Charges for
the Years Ended December 31, 1993, 1992, 1991, 1990 and
1989.
21-- Subsidiaries of Registrant.
23-- Consent of Coopers & Lybrand.
24-- Power of Attorney.
28-- Information from Statutory Schedule P.
99-- Undertakings.
(B) REPORTS ON FORM 8-K.
There have been no reports on Form 8-K filed during the quarter ended
December 31, 1993.
58
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the issuer has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of New York and State of New York, on the 30th day of March,
1994.
AMERICAN INTERNATIONAL GROUP, INC.
By /s/ M. R. Greenberg
--------------------------------
(M. R. Greenberg, Chairman)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons in the capacities indicated on the 30th day of March, 1994 and each of
the undersigned persons, in any capacity, hereby severally constitutes M.R.
Greenberg, Edward E. Matthews and Howard I. Smith and each of them, singularly,
his true and lawful attorney with full power to them and each of them to sign
for him, and in his name and in the capacities indicated below, this Annual
Report on Form 10-K and any and all amendments thereto.
SIGNATURE TITLE
--------- -----
/s/ M.R. Greenberg
- --------------------------------- Chairman and Director
(M.R. Greenberg) (Principal Executive Officer)
/s/ Edward E. Matthews
- --------------------------------- Vice Chairman and Director
(Edward E. Matthews) (Principal Financial Officer)
/s/ Howard I. Smith
- --------------------------------- Senior Vice President and Comptroller
(Howard I. Smith) (Principal Accounting Officer)
/s/ Bernard Aidinoff
- --------------------------------- Director
(M. Bernard Aidinoff)
- --------------------------------- Director
(Marshall A. Cohen)
/s/ Barber B. Conable, Jr.
- --------------------------------- Director
(Barber B. Conable, Jr.)
/s/ Marion E. Fajen
- --------------------------------- Director
(Marion E. Fajen)
/s/ Martin S. Feldstein
- --------------------------------- Director
(Martin S. Feldstein)
/s/ Houghton Freeman
- --------------------------------- Director
(Houghton Freeman)
II-1
61
SIGNATURES--(CONTINUED)
SIGNATURE TITLE
--------- -----
/s/ Leslie L. Gonda
- --------------------------------- Director
(Leslie L. Gonda)
/s/ Pierre Gousseland
- --------------------------------- Director
(Pierre Gousseland)
/s/ Carla A. Hills
- --------------------------------- Director
(Carla A. Hills)
/s/ Frank J. Hoenemeyer
- --------------------------------- Director
(Frank J. Hoenemeyer)
/s/ John I. Howell
- --------------------------------- Director
(John I. Howell)
/s/ Dean P. Phypers
- --------------------------------- Director
(Dean P. Phypers)
/s/ John J. Roberts
- --------------------------------- Director
(John J. Roberts)
- --------------------------------- Director
(Ernest E. Stempel)
/s/ Thomas R. Tizzio
- --------------------------------- Director
(Thomas R. Tizzio)
II-2
62
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
2 Plan of acquisition, reorganization, None
arrangement, liquidation or successsion
3(i) (a) Restated Certificate of Incorporation of AIG
at April 8, 1969 . . . . . . . . . . . Filed as exhibit to AIG's Registration
Statement (File No. 2-31223)
and incorporated herein by
reference.
(b) Amendment to Restated Certificate of
Incorporation of AIG, May 4, 1972 . . . Filed as exhibit to AIG's Registration
Statement (File No. 2-59317) and
incorporated herein by
reference.
(c) Amendment to Restated Certificate of
Incorporation of AIG, April 23, 1976 . Filed as exhibit to AIG's Registration
Statement (File No. 2-59317) and
incorporated herein by
reference.
(d) Amendment to Restated Certificate of
Incorporation of AIG, September 20, 1978 Filed as exhibit to AIG's Registration
Statement (File No. 2-64336) and
incorporated herein by
reference.
(e) Amendment to Restated Certificate of
Incorporation of AIG, June 1, 1982 . . Filed as exhibit to AIG's Registration
Statement (File No. 2-78291) and
incorporated herein by
reference.
(f) Amendment to Restated Certificate of
Incorporation of AIG, May 19, 1986 . . Filed as exhibit to AIG's Registration
Statement (File No. 33-8495) and
incorporated herein by
reference.
(g) Amendment to Restated Certificate of
Incorporation of AIG, June 1, 1987 . . Filed as exhibit to AIG's Registration
Statement (File No. 33-18073) and
incorporated herein by
reference.
(h) Amendment to Restated Certificate of
Incorporation of AIG, May 22, 1992 . . Filed as exhibit to AIG's Annual Report on
Form 10-K for the year ended December 31,
1992 (File No. 0-4652) and incorporated
herein by reference herewith.
3(ii) By-laws of AIG . . . . . . . . . . . . . . . . Filed as exhibit to AIG's Annual Report on
Form 10-K for the year ended December 31,
1992 (File No. 0-4652) and incorporated
herein by reference herewith.
4 Instruments defining the rights of security holders,
including indentures
(a) Fiscal Agency Agreement dated as of
October 1, 1984 between AIG and
Citibank, N.A. . . . . . . . . . . Not required to be filed. The Registrant
hereby agrees to file with the
Commission a copy of any
instrument defining the rights
of holders of the Registrant's
long-term debt upon request of
the Commission.
(b) Indenture dated as of July 15, 1989
between AIG and The Bank of New York . . . Not required to be filed. The
Registrant hereby agrees to file
with the Commission a copy of any
instrument defining the rights
of holders of the Registrant's
long-term debt upon request of
the Commission.
II-3
63
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
9 Voting Trust Agreement . . . . . . . . . . . . None.
10 Material contracts
(a) AIG 1969 Employee Stock Option Plan
and Agreement Form . . . . . . . . Filed as exhibit to AIG's Registration
Statement (File No. 2-44043) and
incorporated herein by reference.
(b) AIG 1972 Employee Stock Option Plan Filed as exhibit to AIG's Registration
Statement (File No. 2-44702) and
incorporated herein by reference.
(c) AIG 1972 Employee Stock Purchase Plan Filed as exhibit to AIG's Registration
Statement (File No. 2-44043) and
incorporated herein by reference.
(d) AIG 1984 Employee Stock Purchase Plan Filed as exhibit to AIG's Registration
Statement (File No. 2-91945) and
incorporated herein by reference.
(e) AIG 1977 Stock Option and Stock
Appreciation Rights Plan . . . . . Filed as exhibit to AIG's Registration
Statement (File No. 2-59317) and
incorporated herein by reference.
(f) AIG 1982 Employee Stock Option Plan Filed as Exhibit to AIG's Registration
Statement (File No. 2-78291) and
incorporated herein by reference.
(g) AIG 1987 Employee Stock Option Plan Filed as Exhibit to AIG's Definitive Proxy
Statement dated as of April 6,
1987 (File No. 0-4652) and
incorporated herein by reference.
(h) AIG 1991 Employee Stock Option Plan Filed as exhibit to AIG's Definitive Proxy
Statement dated as of March 30,
1992 (File No. 0-4652) and
incorporated herein by reference.
(i) AIRCO 1972 Employee Stock Option Plan Incorporated by reference to AIG's Joint
Proxy Statement and Prospectus
(File No. 2-61994).
(j) AIRCO 1977 Stock Option and Stock
Appreciation Rights Plan . . . . . Incorporated by reference to AIG's Joint
Proxy Statement and Prospectus
(File No. 2-61994).
(k)P Policy for directors and officers
liability insurance . . . . . . . Filed herewith under request for confidential treatment.
11 Statement re computation of per share earnings Filed herewith.
12 Statements re computation of ratios . . . . . . Filed herewith.
13 Annual report to security holders . . . . . . . Not required to be filed.
18 Letter re change in accounting principles . . . None.
21 Subsidiaries of the Registrant . . . . . . . . Filed herewith.
22 Published report regarding matters submitted to
vote of security holders . . . . . . . . . . . None.
II-4
64
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
23 Consent of Coopers & Lybrand . . . . . . . . . Filed herewith.
24 Power of attorney . . . . . . . . . . . . . . . Included on the signature page hereof.
27 Financial Data Schedule . . . . . . . . . . . . Not required to be filed.
28 P Information from reports furnished to state
insurance regulatory authorities . . . . . . . Filed herewith under hardship exemption.
99 Undertakings by the Registrant required by Item 17
of Form S-3 and Item 21 of Form S-8, deemed to be
incorporated by reference into AIG's Registration
Statements on Forms S-3 and S-8 (No. 2-38768,
No. 2-44043, No. 2-45346, No. 2-51498, No. 2-59317,
No. 2-61858, No. 2-62760, No. 2-64336, No. 2-67600,
No. 2-72058, No. 2-75874, No. 2-75875, No. 2-78291,
No. 2-87005, No. 2-82989, No. 2-90756, No. 2-91945,
No. 2-95589, No. 2-97439, No. 33-8495, No. 33-13874,
No. 33-18073, No. 33-25291, No. 33-41643, No. 33-48996
and No. 33-57250) . . . . . . . . . . . . . . . Filed herewith.
II-5