AIG Unveils Q3 Numbers, Notes Storm Impact

American International Group Inc. (AIG) on Thursday reported third quarter 2004 net income of $2.51 billion or $0.95 per share, compared to $2.34 billion or $0.89 per share in the third quarter of 2003.

Third quarter 2004 net income excluding realized capital gains (losses), was $2.54 billion or $0.97 per share, compared to $2.58 billion or $0.98 per share in the same period of 2003. Third quarter 2004 after tax net catastrophe losses from hurricanes and typhoons were $512.2 million or $0.19 per share, compared to after tax net catastrophe losses of $46.2 million or $0.02 per share in the third quarter of 2003. Third quarter 2004 net income excluding realized capital gains (losses) and catastrophe losses increased 16.5 percent to $3.06 billion or $1.16 per share, compared to $2.62 billion or $1.00 per share in the same period of 2003.

Net income for the first nine months of 2004 rose 22.3 percent to $8.03 billion or $3.05 per share, compared to $6.57 billion or $2.50 per share in the first nine months of 2003. For the first nine months of 2004, net income excluding realized capital gains (losses) and the cumulative effect of an accounting change increased 12.3 percent to $8.39 billion or $3.19 per share, compared to $7.46 billion or $2.84 per share in the same period of 2003. After tax net catastrophe losses for the first nine months of 2004 were $512.2 million or $0.19 per share, compared to $46.2 million or $0.02 per share in the same period of 2003.

For the first nine months of 2004, net income excluding realized capital gains (losses), the cumulative effect of an accounting change and catastrophe losses increased 18.5 percent to $8.90 billion or $3.38 per share, compared to $7.51 billion or $2.86 per share in the same period of 2003.

Income before income taxes and minority interest for the third quarter of 2004 was $3.96 billion, a 13.0 percent increase over $3.50 billion in the third quarter of 2003. Income before income taxes, minority interest and cumulative effect of an accounting change for the first nine months of 2004 was $12.64 billion, a 28.2 percent increase over $9.86 billion in the same period of 2003.

Commenting on AIG’s results, AIG Chairman, M.R. Greenberg said, “AIG had third quarter net income of $2.51 billion, up 7.5 percent, even after accounting for the unprecedented succession of storms, which included four hurricanes and three typhoons. Excluding realized capital gains (losses) and catastrophe losses, net income in the third quarter of 2004 increased 16.5 percent over a year ago. For the first nine months of 2004, net income was a record $8.03 billion, up 22.3 percent. Excluding realized capital gains (losses), cumulative effect of an accounting change and catastrophe losses, net income for the first nine months increased 18.5 percent.

“This storm season was the most costly in history, and it resulted in a tragic loss of life. AIG’s third quarter 2004 after tax catastrophe losses of $512.2 million compare to average annual after tax catastrophe losses over the prior 15 years of approximately $50 million. The importance of AIG’s claims handling expertise, strong financial position and diverse business mix is evident in this quarter’s results.

“For many years, the insurance industry has sought the ability to set up catastrophe reserves specifically to provide for serious events, such as those in the third quarter. The U.S. Congress and Treasury have not supported these efforts. However, I would hope that, following the impact of these destructive storms, more attention will be paid to this matter.

“General Insurance had a strong quarter in the U.S. and around the world. General Insurance operating income excluding realized capital gains (losses) in the third quarter of 2004 was $894.3 million compared to $1.32 billion a year ago. Excluding catastrophe losses and realized capital gains (losses), General Insurance operating income increased 17.5 percent. Net premiums written were a record $10.73 billion, up 19.7 percent over a year ago. The General Insurance combined ratio was 99.89, or 92.76 excluding catastrophe losses, compared to 93.05, or 92.17 excluding catastrophe losses, a year ago.

“Worldwide General Insurance net investment income was $869.0 million, an increase of 17.1 percent. Strong cash flow in our business resulted in increased interest and dividend income. We also had good realizations from our private equity investments compared to the prior year. General Insurance cash flow totaled $3.64 billion and $10.35 billion in the third quarter and nine months of 2004, respectively, compared to $3.58 billion and $9.49 billion a year earlier.

Greenberg continued on by noting, “Underwriting is a process of careful risk by risk selection as well as pricing discipline. We will maintain this approach in order to assure that AIG receives adequate returns for the risks we accept. While industry pricing has eroded more than it should have in some classes of business, we are still able to identify profitable opportunities and build attractive new business as a result of our broad product line and extensive distribution reach.

“At September 30, 2004, General Insurance net loss and loss adjustment reserves totaled $43.82 billion, an increase of $3.04 billion ($2.30 billion excluding catastrophe losses) and $7.17 billion ($6.44 billion excluding catastrophe losses) for the third quarter and nine months, respectively.

“In the United States, the Domestic Brokerage Group had excellent premium growth of 20.6 percent in the third quarter. We continue to benefit from a flight to quality in a number of key lines of business. Net premiums written were a record $6.19 billion. The combined ratio was 101.76, or 94.95 excluding catastrophe losses, compared to 94.78, or 93.74 excluding catastrophe losses, in the third quarter of 2003.”

According to Greenberg, “The Domestic Personal Lines business had good premium growth. Third quarter underwriting performance was solid, even with the impact of catastrophes. Third quarter operating income was $72.7 million, or $97.4 million excluding catastrophe losses, compared to $74.9 million, or $79.9 million excluding catastrophe losses, a year ago. Net premiums written were $1.09 billion, up 18.7 percent over a year ago. The combined ratio was 97.69, or 95.41 excluding catastrophe losses, compared to 97.20, or 96.66 excluding catastrophe losses, a year ago.

“HSB Group Inc. had outstanding underwriting results and continues to expand its global client base. The third quarter 2004 combined ratio was 74.42 including catastrophe losses.

“United Guaranty Corporation (UGC) had another good quarter. Premiums grew and refinancings continued to decline as interest rates rose. UGC’s delinquency ratio remains well below the industry average. UGC is moving forward with plans to enter new international markets.

“The results of Transatlantic Holdings Inc. were impacted by the high level of catastrophes in the quarter. The third quarter combined ratio was 113.01, or 95.47 excluding catastrophe losses, compared to 96.16, or 95.76 excluding catastrophe losses, a year ago. Net premiums written grew 9.6 percent, to $987.4 million.

“AIG’s Foreign General Insurance operations had excellent results even though they were adversely impacted by the Asia typhoons and hurricanes in the Caribbean. Premiums in the third quarter were up 23.4 percent to $2.30 billion. The combined ratio was 92.95, or 86.61 excluding catastrophe losses, compared to 88.31, or 87.39 excluding catastrophe losses, a year ago.”

Greenberg concluded by noting, “The Far East region had excellent growth. In Japan, corporate and personal accident business expanded. Commercial lines in Europe continue to exhibit strong growth, as did our personal lines operations in Brazil and Latin America. Additionally, our joint venture in India has expanded its commercial lines leadership among the private sector companies.