AIG Reports Higher Quarterly, Full-Year Income

In October 2004 Karen Radke, AIG's vice president of excess casualty, and National Accounts Manager Jean-Baptist Tateossian, both with the AIG subsidiary American Home Insurance Company in New York each pled guilty to one count of scheming to defraud in connection with a bid-rigging scheme with Marsh brokerage.

AIG said at this point it has examined more than 850,000 e-mails and 30,000 documents with help from 40 outside attorneys, and the conclusion so far, Mr. Greenberg said, is that New York Attorney General Eliot Spitzer's probe of AIG is confined to the one broker relationship involving the American Home's Excess Casualty Division.

The insurer said that for its 2004 fourth quarter it had $3.02 billion in net profit, an 11.5 percent increase over $2.71 billion reported during the comparable quarter in 2003.

For full-year 2004, AIG said its income came in at $11.05 billion, a company record and a 19.1 percent rise over the $9.27 billion income during full-year 2003.

Mr. Greenberg said his company managed to earn a record full-year net income in 2004 despite unprecedented losses from hurricanes, typhoons, earthquakes and tsunamis in the second half of the year.

Mr. Greenberg noted AIG took a $53 million after-tax charge in the fourth quarter for the previously reported settlement with the SEC concerning Brightpoint and PNC dealings, which involved AIG's financial transactions that authorities viewed as illegitimate income-smoothing products.

The company said the full-year 2004 after-tax net CAT losses from hurricanes, typhoons, earthquakes and tsunamis were $682.7 million, which is significantly higher than the $46.2 million CAT losses in 2003. The full-year 2004 and fourth-quarter CAT losses now include an additional $126.9 million due to late reported losses from the third-quarter hurricanes and typhoons.

For the 2004 fourth quarter, after-tax CAT losses came in at $170.5 million; in the comparable period for 2003 there were no CAT losses.

"Our ability to absorb $682.7 million in catastrophe losses, tackle challenging regulatory issues, and navigate through a volatile global economic and political environment and still achieve record net income is a testament to the diversity and strength of our franchise," Mr. Greenberg said.

AIG's general insurance business saw its underwriting results, while still profitable, decline for both fourth-quarter and full-year 2004. But those declines were compensated by higher net investment income.

For the fourth quarter, net premiums written for general insurance rose 15.5 percent to $10.58 billion, but underwriting profit fell to $504.4 million?down 8.5 percent from the year-ago period.

The combined ratio deteriorated to 94.25 from 91.39 posted one year ago. However, the decline in underwriting profit was compensated by the quarterly net investment income, which rose 23.1 percent to $940.7 million.

During full-year 2004, net premiums written for general insurance increased 19 percent to reach $41.9 billion, but underwriting profit again fell, down 15.7 percent to $1.87 billion compared to 2003 figures. The full-year combined ratio deteriorated to 95.02 from 92.43. Again, the downturn in profit was offset by higher net investment income, which rose 17.8 percent to $3.56 billion.

"General Insurance had a solid year and quarter in the U.S. and around the world," Mr. Greenberg observed. In particular, AIG's U.S. Domestic Brokerage Group did well even after accounting for the four hurricanes, he said, noting that Lexington, the largest excess-and-surplus lines carrier and a major underwriter of property insurance, was significantly impacted by CAT losses.

Mr. Greenberg said domestic p-c rates are "generally satisfactory" at this time, although in some classes of business, including property, directors and officers, and energy, rates should be firmer.