American International Group Inc. (AIG) reported that its second quarter 2004 net income rose 25.7 percent to a record $2.86 billion or $1.09 per share, compared to $2.28 billion or $0.87 per share in the second quarter of 2003. Second quarter 2004 net income excluding realized capital gains (losses), increased 19.2 percent to a record $3.00 billion or $1.14 per share, compared to $2.52 billion or $0.96 per share in the same period of 2003.
Net income for the first six months of 2004 rose 30.4 percent to $5.52 billion or $2.10 per share, compared to $4.23 billion or $1.61 per share in the first six months of 2003. For the first six months of 2004 net income excluding realized capital gains (losses) and the cumulative effect of an accounting change, increased 19.5 percent to $5.84 billion or $2.22 per share, compared to $4.89 billion or $1.86 per share in the same period of 2003. Income before income taxes and minority interest for the second quarter of 2004 was a record $4.39 billion, a 27.9 percent increase over $3.43 billion in the second quarter of 2003. Income before income taxes, minority interest and the cumulative effect of an accounting change for the first six months of 2004 was $8.68 billion, a 36.6 percent increase over $6.35 billion in the same period of 2003.
These results include realized capital losses of $209.0 million and $204.1 million in the second quarter and six months of 2004, respectively, compared to realized capital losses of $356.9 million and $988.4 million in the second quarter and six months of 2003, respectively.
Commenting on second quarter results, AIG Chairman M. R. Greenberg said, “AIG had a very good quarter overall, with especially strong results from Worldwide General Insurance operations and Foreign Life & Retirement Services. Second quarter net income was a record $2.86 billion, up 25.7 percent over the second quarter of 2003. Excluding realized capital gains and losses, net income increased 19.2 percent to $3.00 billion. Shareholders’ equity at June 30, 2004 was $73.6 billion, and assets increased to a record $736 billion.
“General Insurance results were very strong both in the U.S. and worldwide. General Insurance operating income excluding realized capital gains (losses) in the second quarter of 2004 increased 22.8 percent over a year ago to a record $1.59 billion. Net premiums written were a record $10.38 billion, up 17.4 percent over a year ago. The General Insurance combined ratio was 92.35 compared to 92.27 a year ago.
“Worldwide General Insurance net investment income was $892.7 million, an increase of 22.0 percent benefiting from strong cash flow resulting from good growth in our business, higher interest rates, dividend income and good private equity results. General Insurance cash flow totaled $3.17 billion and $6.71 billion in the second quarter and six months of 2004, respectively, compared to $2.67 billion and $5.91 billion a year earlier.
“At June 30, 2004, General Insurance net loss and loss adjustment reserves totaled $40.78 billion, an increase of $2.03 billion and $4.13 billion for the second quarter and six months, respectively.”
According to Greenberg, in the United States, the Domestic Brokerage Group had a very good quarter. Net premiums written in the second quarter of 2004 increased 14.8 percent over a year ago to a record $5.81 billion. The combined ratio was 95.00 compared to 94.43 in the second quarter of 2003. The Domestic Brokerage Group is benefiting from the flight to quality – since a Triple A balance sheet is important for many classes of long tail business – a strong profit center focus and vast and growing distribution channels.
“We have maintained a disciplined approach to pricing and risk selection,” Greenberg continued. “Where pricing, terms and conditions or loss experience did not meet our standards, we chose to non-renew approximately $275 million in premiums in the Domestic Brokerage Group as well as nearly $50 million in our Foreign General operations in the second quarter. While the market generally has taken a rational approach to pricing, a few foreign and domestic companies have under-priced certain more difficult classes of long tail lines of business. These companies often lack the specialized knowledge, underwriting skills and claim management expertise that these lines require. Such pricing practices unsettle the market and add to long term volatility.
“Reforming the U.S. tort system is more than an insurance industry issue. It is critical to the economy and the country. Necessary class action reforms had significant support in Congress, and it is unfortunate that debate over the number of non-germane amendments attached to the bill led to what we hope is a temporary setback. Efforts are underway to reconcile these differences, and the bill could be reintroduced at a later date. We will continue to work for its passage.
“The Domestic Personal Lines business had good premium growth and solid underwriting performance in the second quarter. Operating income was $91.7 million in the second quarter compared to $28.8 million a year ago. Net premiums written were $1.08 billion, up 20.4 percent over a year ago. The combined ratio was 95.68.
“HSB Group Inc. had outstanding underwriting results. Losses have declined as a result of HSB’s leading engineering, inspection and loss mitigation capabilities. The recent integration of AIG Consultants into HSB enhances our cross-sell opportunities and our capabilities for providing engineering and loss control services to a global client base.
“United Guaranty Corporation had a good quarter. Premiums grew and refinancings declined as interest rates rose. UGC’s delinquency ratio, always well below the industry average, was up modestly over a year ago, but has been declining over the past two quarters consistent with the improving job market. UGC’s foreign operations, which we have been nurturing, are profitable, and we are planning to enter several new markets around the world.
“Transatlantic Holdings, Inc. had good growth and underwriting results. Net premiums written increased 15.5 percent to $927.2 million led by significant growth in international business. Operating income was up 15.7 percent to $111.6 million. The combined ratio was 95.69 compared to 96.30 in the second quarter of 2003.
“Foreign General Insurance had excellent results from all regions of the world. Net premiums written were $2.42 billion, an increase of 23.8 percent over the second quarter of 2003. The combined ratio continues to be outstanding at 86.24, compared to 86.53 a year ago.”
Greenberg noted that in Japan, the improving economy has contributed to AIG’s growth, especially in the growing commercial lines business and personal accident operations. The U. K., European and Australasian regions had excellent results. Latin America has had another good quarter, too.
“In China, our landmark venture with PICC Property and Casualty Company Limited to develop the market for accident and health products is up and running,’ Greenberg said. “Also, we expect, by the end of 2004, to extend our general insurance operations to more cities in China as the market opens up in compliance with WTO rules.”
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