This summary is based on the first quarter fiscal 2007 earnings call conducted by American International Group, Inc. (AIG: chart) on May 11, 2007.
Director of Investor Relations: Charlene Hamrah
President and Chief Executive Officer: Martin Sullivan
Key Investors Issues
- EPS were $1.58 a share compared to $1.22 a share last year.
- Net income was $4.13 billion, up 29% from $3.2 billion last year.
- Revenue was $30.65 billion compared to $27.28 billion a year ago.
First Quarter Highlights
Consolidated assets were $999.75 billion and shareholders'' equity was $103.06 billion. Book value per share increased to $39.64 compared to $39.09 at year end 2006.
- AIG repurchased 2,470,499 shares of its common stock. An additional 6,643,052 shares were purchased during April 2007.
- Adjusted net income, which excludes net realized capital gains and losses and the effect of some hedging activities, was $4.39 billion or $1.68 per share, compared to $3.38 billion or $1.29 per diluted share for the first quarter of 2006.
AIG had a good quarter, with strong performance in worldwide General Insurance businesses, continued improvement in Foreign Life Insurance, and solid results at ILFC and Asset Management.
- In General Insurance, the Domestic Brokerage Group and Foreign General reported strong growth in operating income on excellent underwriting results and increased net investment income.
- United Guaranty''s results were adversely affected by the continued slowdown in the U.S. residential real estate market.
- Domestic Personal Lines reflects strong underwriting results in the direct auto business and continued profitable growth from the Private Client Group.
- Domestic Life Insurance results were driven by in-force growth and increased net investment income in the life insurance and payout annuity businesses, while Domestic Retirement Services experienced a decline in deposits and increased surrender activity.
- In Foreign Life Insurance & Retirement Services, most product lines and regions performed well.
- In Financial Services, aircraft lease rates remained strong as did demand for ILFC''s modern fuel-efficient fleet.
- AIG Financial Products experienced slower transaction flow compared to a strong first quarter of 2006. While the slowdown in the U.S. residential real estate market affected American General Finance''s results, prior action taken to limit certain geographic and product exposures has helped AGF avoid some of the credit deterioration currently facing the real estate lending industry.
- Consumer finance operating income was adversely affected by a $128 million pre-tax charge relating to ongoing discussions with the Office of Thrift Supervision relating to loans originated in the name of AIG Federal Savings Bank.
- Asset Management results increased compared to the first quarter of 2006, due primarily to growth in Guaranteed Investment Contracts which benefited from higher partnership income, which will vary from period to period. Growth in Institutional Asset Management revenues and operating income was driven by contributions from all asset classes globally.
The company continues to seek opportunities to extend global footprint, laying the groundwork for the future.
- In March, AIG Global Investment Group received approval to set up a representative office in Tianjin, the third largest city in China in per capita GDP.
- AIG Consumer Finance Group added to its existing retail bank and credit card operations in Thailand by acquiring a majority interest in a secured lending company with a network of 138 branches.
- The company has taken initial steps to build an asset management and consumer finance franchise in India by acquiring a sales finance lending operation, establishing a real estate investment joint venture and launching first equity fund.
General Insurance operating income before realized capital gains (losses) increased 31.5% to $2.98 billion compared to the first quarter of 2006.
- The combined ratio was 87.52, a 1.65 point improvement compared to the first quarter of 2006, including a 2.46 point improvement in the loss ratio.
- General Insurance net investment income increased 39.8% to $1.56 billion, on higher levels of invested assets and increased partnership income compared to the first quarter of 2006.
Domestic Brokerage Group (DBG) net premiums written increased 2.5% to $6.01 billion compared to the first quarter of 2006, with DBG''s diverse product offerings including energy, environmental, multinational liability and accident & health products, contributing to the quarter''s growth.
Strong growth in the accident & health lines was enhanced by the acquisition of TravelGuard International in the second quarter of 2006. The growth in net premiums written was partially offset by declines in certain parts of the excess casualty and directors & officers product lines, reflecting softening market conditions for those products.
- Personal Lines net premiums written increased 2.6% compared to the first quarter of 2006, resulting from continued growth in the Private Client Group and increases in the direct auto business driven by strong new business production, particularly from Internet activity.
- Mortgage Guaranty operating income declined primarily due to the continued softening of the U.S. housing market, resulting in unfavorable loss experience on domestic first and second-lien business, including continuing adverse performance of the third-party originated second-lien product. Net premiums written increased on strong growth in European markets and higher renewal premiums on the domestic second-lien book of business.
- Foreign General net premiums written increased 12.6% in original currency compared to the first quarter of 2006, with growth in both commercial and consumer lines driven by new business from both established and new distribution channels. Higher commercial lines retention rates and growth in financial lines and primary casualty, particularly in Europe, contributed to the increase.
