This summary is based on the second quarter fiscal 2007 earnings call conducted by American International Group Inc. (AIG: chart) on August 9, 2007.
Management
President, CEO: Martin Sullivan
SVP, Chief Risk Officer: Bob Lewis
Chief Financial Officer: Joe Cassano
CEO American General Finance: Rick Geissinger
President AIG Japan: Bob Clyde
EVP Domestic General Insurance: Kris Moor
EVP Foreign general Insurance: Nick Walsh
SVP Casualty: Frank Douglas
Senior Vice Chairman: Edmund Tse
President, CEO of AIG United Guaranty: Billy Nutt
CFO Life and Retirement Services: Chris Swift
EVP, Retirement Services: Jay Wintrob
Investor Relations: Charlene Hamrah
Key Investors Issues
- The earnings per share increased to $1.64 from $1.21 in the previous year.
- Book value per share increased to $14.44
- The company purchased over 22 million shares in the second quarter.
Second Quarter Fiscal 2007 Financial Highlights
American International Group reported net income of $4.28 billion or $1.64 per share, compared to $3.19 billion or $1.21 per share in the prior year.
Net income, as reported, includes the effect of economically effective hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses.
Second quarter 2007 adjusted net income was a record $4.63 billion or $1.77 per share, compared to $4.16 billion or $1.58 per share in the second quarter of 2006.
AIG had a strong second quarter, owing to its diversified global business portfolio. Major contributions to the results came from General Insurance, Life Insurance and Retirement Services, Asset Management, and Capital Markets. Partnership returns remained strong, positively affecting investment income.
- Return on equity using adjusted net income as the measure was 19.8% for the second quarter.
- Total assets now exceed $1 trillion.
- Shareholders equity at June 30 stood at over $104 billion, including retained earnings of some $92.3 billion.
- Book value per share increased to $14.44. Excluding $2.34 billion in payments advanced to purchase shares, book value was $41.34.
- The company purchased over 22 million shares in the second quarter and an additional 24.5 million shares through August 6. That puts the year-to-date share repurchases at approximately 49 million shares or 67% of the $5 billion in repurchases planned for 2007.
Performance Analysis of Segments
General Insurance
The operating income before net realized capital gains (losses) increased 1.7% to $3.04 billion compared to the second quarter of 2006, or 18.9% excluding the $432 million second quarter 2006 pre-tax increase in income relating to the out of period adjustment from unit investment trust accounting. The combined ratio was 87.12 compared to 86.47 in the second quarter of 2006. Second quarter 2007 General Insurance net investment income reflects higher levels of invested assets and increased partnership income compared to the second quarter of 2006.
Domestic Brokerage Group (DBG) second quarter 2007 operating income was $1.98 billion, an increase of 30.4% compared to the second quarter of 2006 on strong growth in underwriting profit and net investment income. Improved underwriting results reflect favorable loss trends in recent accident years across most lines of business. Second quarter 2007 net premiums written declined slightly to $6.44 billion compared to $6.48 billion in the second quarter of 2006, as DBG maintained its underwriting discipline. Strong growth in the commercial property, commercial liability, and accident & health lines was offset by increasing competition and rate declines in directors & officers, excess casualty and workers'' compensation coverages.
Personal Lines second quarter 2007 operating income was $120 million compared to $117 million in the second quarter of 2006. Net premiums written increased 1.9% compared to the second quarter of 2006, driven by continued growth in the AIG Private Client Group. The combined ratio improved to 94.50, primarily due to pricing and underwriting enhancements in AIG Agency Auto, favorable loss trends and growth in the Private Client Group and solid underwriting results in the direct business.
Mortgage Guaranty reported an operating loss of $78 million in the second quarter of 2007, compared to income of $110 million in the second quarter of 2006. The continuing weakness in the U.S. housing market resulted in a significant increase in losses for the domestic mortgage insurance business. The domestic second-lien business was the primary contributor to the decline in operating income; however, the domestic first-lien business also experienced an increase in incidence and severity of losses incurred. Net premiums written increased 40.9% on strong growth in international markets and higher renewal premiums on the domestic first-lien book of business, where persistency has increased compared to the second quarter of 2006.
Foreign General second quarter 2007 operating income declined 22.7% to $849 million compared to the second quarter of 2006, but increased 23.8% excluding the $412 million second quarter 2006 out of period adjustment for unit investment trusts. Second quarter 2007 operating income was negatively affected by $68 million in catastrophe-related losses from the U.K. floods. Net premiums written increased 9.4% in original currency compared to the second quarter of 2006, with consumer lines in Latin America, Europe and the Far East as well as commercial lines in Europe and the U.K. contributing to the increase.
At June 30, 2007, General Insurance net loss and loss adjustment reserves totaled $65.20 billion, a $1.16 billion increase from March 31, 2007. For the second quarter of 2007, net loss development from prior accident years, excluding accretion of discount, was favorable by approximately $120 million. The overall favorable development consisted of approximately $475 million of favorable development from accident years 2003 through 2006, partially offset by approximately $355 million of adverse development from accident years 2002 and prior.
Life Insurance & Retirement Services
