AIG Reports Record 2003 Net Income of $9.27 Billion

American International Group, Inc. (AIG) reported that its net income for the full year 2003 increased 68.0 percent to a record $9.27 billion, compared to $5.52 billion in 2002. Net income excluding realized capital gains (losses) and cumulative effect of an accounting change increased 43.6 percent to a record $10.22 billion in the full year 2003.

Net income in the fourth quarter of 2003 totaled a record $2.71 billion compared to a loss of $103.8 million in the same period of 2002. Fourth quarter 2003 net income excluding realized capital gains (losses) and cumulative effect of an accounting change was a record $2.75 billion compared to $537.5 million in the same period of 2002. Results for fourth quarter and full year 2002 include the $1.8 billion net, after tax general insurance reserve charge.

Income before income taxes, minority interest, cumulative effect of an accounting change and pretax realized capital gains (losses) for the 12 months of 2003 increased 45.0 percent to $15.34 billion. Income before income taxes, minority interest, cumulative effect of an accounting change and pretax realized capital gains (losses) for the fourth quarter of 2003 was $4.14 billion, compared to $671.6 million in the fourth quarter of 2002.

Commenting on full-year and fourth quarter 2003 performance, AIG Chairman M. R. Greenberg said, “AIG had record results in 2003, with $10.22 billion in net income, excluding realized capital losses and the cumulative effect of an accounting change.

“In addition to record net income of $9.27 billion, AIG had record results in 2003 in all four of our core businesses – General Insurance, Life Insurance, Financial Services and Retirement Services & Asset Management – and in most other key measures including shareholders’ equity, return on equity, revenues, assets and cash flow. In the fourth quarter of 2003, AIG had net income of $2.71 billion, another record, which gives AIG strong momentum for 2004 and beyond.

“In addition to achieving these financial results, AIG in 2003 made important investments that will further AIG’s continued growth and success, including the acquisition of GE Edison in Japan, and our investment in, and agreement to market accident and health products with, the People’s Insurance Company of China (PICC).”

According to Greenberg, “AIG’s General Insurance business had an excellent year and quarter. Net premiums written were a record $9.16 billion in the fourth quarter of 2003, up 27.0 percent over a year ago. Our top ratings and financial strength have never been more valuable to customers and set us apart from the competition in the U.S. and around the world. Corporate leaders recognize that buying specialty casualty and liability lines, known as ‘long tail’ lines, from other than the most financially strong carriers is taking a credit risk they can ill afford in today’s environment.

“In the United States, the Domestic Brokerage Group had very strong growth in 2003. In the fourth quarter, net premiums written were a record $5.33 billion, up 27.3 percent over the same period in 2002. The fourth quarter combined ratio was an excellent 93.53, and the expense ratio was 15.05, far superior to the industry average. The Domestic Brokerage Group has the most extensive array of product offerings in the industry, and it has been successfully expanding its distribution. These initiatives include targeting regional brokers and small- and mid-cap companies. We are the market of choice and the number one provider for all of the major insurance brokers, which attest to our market knowledge, underwriting skill, ability to create new products to meet customer needs, expert claims management and outstanding service.

“The success of the Domestic Brokerage Group over the year and fourth quarter of 2003 was very broad-based. Lexington, our excess and surplus lines company, had outstanding results. We are one of the leading providers of terrorism coverage to the aviation industry and other sectors of the economy, and achieved good results from this business over the year and quarter.

“HSB Group Inc. achieved record net premiums written in 2003, and has successfully leveraged its engineering and product innovation skills throughout the AIG global network to expand distribution and cross selling and develop new products.

“The Domestic Personal Lines businesses achieved significant premium growth and a strong improvement in profitably in the fourth quarter and full year of 2003. Net premiums written increased 23.2 percent, to $1.00 billion, in the fourth quarter, and the combined ratio was 96.03. The direct marketing, agency auto, assigned risk, 21st Century and Private Client businesses all contributed to the 58.5 percent increase in 2003 pretax operating income.

“United Guaranty Corporation (UGC) also did well in the year and quarter. Despite a more challenging mortgage market, UGC earned $87.4 million in pretax operating income in the fourth quarter of 2003 and continued to have a significantly lower delinquency ratio than the mortgage guaranty insurance industry overall. In terms of premiums, new business offset the impact of continued refinancing activities.

“Transatlantic Holdings Inc. had an excellent year and quarter. In the fourth quarter of 2003, net premiums written increased 32.2 percent, to $868.9 million. The combined ratio was 96.03.”

Greenberg also noted, “In 2004, we would expect General Insurance in the United States to have another solid year. While there is more competition for certain ‘short tail’ lines, the market for ‘long tail’ and specialty lines, where AIG has significant competitive strengths, should continue to be strong.

“Foreign General Insurance had excellent 2003 and fourth quarter performance throughout the world. In the fourth quarter of 2003, net premiums written were $1.82 billion, an increase of 27.1 percent over the same period last year. Growth in Continental Europe and the United Kingdom was very strong, in large part because many local insurers have been beset by capital adequacy problems and could not meet their clients’ needs. The Latin America division also performed well in the fourth quarter and throughout 2003.

“Asia had strong performance in 2003, including the fourth quarter, and is making significant investments for the future. In October, AIG entered into an agreement with the People’s Insurance Company of China (PICC), the largest non-life insurance company in China. Under this agreement, AIG companies will market accident and health products through PICC’s 4,300 branch offices throughout the country. In conjunction with this cooperative relationship, AIG has made a long-term investment in PICC, purchasing 9.9 percent of the company’s share capital.

“In Japan, both AIU and American Home, which is the leading direct marketer of general insurance products in the country, had solid results for the year and fourth quarter. Korea also had a good year with record gross premiums.

“Foreign General pricing was excellent throughout 2003, and we do not foresee any material change in 2004.

“Reflecting strong cash flow and improved market conditions, General Insurance net investment income in the fourth quarter of 2003 was $764.4 million, an increase of 13.5 percent compared to $673.2 million a year ago. For the full year 2003, General Insurance net investment income was $3.02 billion, an increase of 9.5 percent compared to $2.76 billion in 2002.”

According to Greenberg, at year-end 2003, General Insurance net loss and loss adjustment reserves totaled $36.65 billion, an increase of $5.91 billion and $1.56 billion for the full year and the fourth quarter, respectively.