American International Group Inc. (AIG) has filed its Annual Report on Form 10-K for the year ended Dec. 31, 2005 with the Securities and Exchange Commission.
Net income for the full year 2005 was $10.48 billion or $3.99 per diluted share, compared to $9.84 billion or $3.73 per diluted share in the full year 2004. Fourth quarter 2005 net income was $444 million or $0.17 per diluted share, compared to $1.61 billion or $0.62 per diluted share in the fourth quarter of 2004. At Dec. 31, 2005, consolidated assets were $853.37 billion and shareholders’ equity was $86.32 billion.
Full year and fourth quarter 2005 results include a $1.15 billion after-tax charge resulting from the previously announced settlements with the United States Department of Justice, the Securities and Exchange Commission, the Office of the New York Attorney General and the New York State Department of Insurance in connection with the accounting, financial reporting and insurance brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments.
In addition, full year and fourth quarter 2005 results include a $1.19 billion after-tax charge related to an increase of approximately $1.82 billion to AIG’s net reserve for losses and loss expenses. The reserve increase followed the completion of an independent, comprehensive review of the loss reserves of AIG’s principal property/casualty insurance operations conducted by Milliman Inc. and AIG’s own actuarial analysis.
Full year 2005 results include after-tax net catastrophe related losses of $2.11 billion. Fourth quarter 2005 results include approximately $390 million after-tax net losses arising from Hurricane Wilma, including net reinstatement premium costs, as well as approximately $150 million after-tax net losses relating to adverse development from third quarter 2005 catastrophe events, primarily Hurricane Katrina. Full year and fourth quarter 2004 results include after-tax net catastrophe related losses of $729 million and $217 million, respectively.
Commenting on full year and fourth quarter 2005 results, AIG President and CEO Martin Sullivan said, “In what was a most challenging year for the company, AIG demonstrated its true resilience by generating net income of $10.48 billion for the full year and $444 million for the fourth quarter, after taking charges to settle legal and regulatory issues, increasing general insurance loss reserves and sustaining record catastrophe losses, all while initiating significant change throughout the organization. These results are a testament to AIG’s diversified portfolio of market-leading businesses and the commitment of our 97,000 employees who, throughout this challenging year, remained focused on executing the strategies we have in place.
“AIG is financially strong, and our major business units remain focused on our strategic objectives. Our tradition of entrepreneurship and innovation will enable AIG to continue to perform successfully, enter new markets, develop new products and meet our clients’ needs. There is every reason for us to be optimistic about our future. AIG today is a better company for all that we have been through.
“The settlement with Federal and New York authorities reached in February was an important step forward in resolving the legal and regulatory issues facing AIG and will allow us to focus intently on our business going forward.”
General Insurance reported a fourth quarter 2005 operating loss before realized capital gains of $1.16 billion and a combined ratio of 121.39. These results include catastrophe losses ($775 million), the general insurance loss reserve charge ($1.824 billion) and adjustments to Domestic Brokerage Group balance sheet accounts ($291 million). The effect of these three items on the fourth quarter combined ratio was 28.10 points. General insurance cash flow remains strong at $2.65 billion and $12.03 billion for the fourth quarter and full year 2005, respectively.
Domestic Brokerage Group net premiums written in the fourth quarter of 2005 reflect generally improving renewal retention rates, higher property rates and increased submission activity in the aftermath of the hurricanes and a modest decline in rates in some of the casualty classes.
Personal Lines premium growth was driven by strong performance by Agency Auto and the Private Client Group, which offset a sharp decline in the assigned risk market. United Guaranty experienced increased new business production, improved persistency and growth in its international operations in the fourth quarter of 2005.
Foreign General experienced solid premium growth in most regions, particularly in its personal accident, energy and personal lines portfolios, but was affected by softening commercial market conditions in the United Kingdom.
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