American International Group, Inc. yesterday reported that 2005 fourth quarter net income fell by 72.5 percent, driven down by a $1.15 billion charge to settle accounting infractions and $1.82 billion to beef up reserves.

While income for the fourth quarter dropped to $444 million from $1.62 billion in the same quarter of 2004--to 17 cents per share from 62 cents per share--AIG managed a 6.5 percent net income gain for the year. Full-year results included $2.11 billion after tax net catastrophe losses

AIG President Martin J. Sullivan said in a statement the results showed the giant insurer's strength and resilience in the face of challenges.

For the 12-month period ended Dec. 31, 2005, net income increased to $10.48 billion from $9.84 billion, rising to $3.99 per share from $3.73 per share in 2004.

At year end, AIG said, consolidated assets were $853.37 billion and shareholders' equity was $86.32 billion.

The $1.15 billion after-tax charge resulted from previously announced settlements with the U.S. Department of Justice, Securities and Exchange Commission, New York Attorney General's Office and the New York State Insurance 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 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 company said 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.

Fourth-quarter 2005 results include $540 million catastrophe-related losses net of tax.

Additionally, AIG today filed its 2004 Annual Report on Form 10-K/A restating its consolidated financial statements for the years ended December 31, 2004, 2003 and 2002, along with affected Selected Consolidated Financial Data for 2001 and 2000 and quarterly financial information for 2004 and 2003.

The company had previously announced the restatement addressing accounting misstatements while it undertook remediation of "material weaknesses in internal control" and reconciliation of certain balance sheet accounts in its Domestic Brokerage Group.

Mr. 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

The CEO called the results a "testament to AIG's diversified portfolio of market-leading businesses" and said the company settlement with federal and New York authorities in February "will allow us to focus intently on our business going forward."

The combined ratio for general insurance operations was 121.39 in the fourth quarter.

Special Reports /

AIG Down 72% For Quarter, Up 6.5% For Year

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