AIG Reports $62B Loss for Q4; $99B for Year

March 2, 2009

American International Group Inc. posted a $61.7 billion fourth-quarter loss — its fifth consecutive quarterly loss and the biggest quarterly loss in corporate history.

The quarter’s net loss of $61.7 billion compared to a 2007 fourth quarter net loss of $5.3 billion.

AIG’s net loss for full year 2008 was $99.3 billion compared to net income of $6.2 billion for full year 2007.

The insurer reported that continued severe credit market deterioration and charges related to ongoing restructuring activities contributed to the record net loss for the fourth quarter. Specifically, about $7 billion was attributed to restructuring costs; $26 billion to market disruption items including a steep decline in commercial mortgage backed securities; $25 billion in accounting costs; and $7 billion in amortization and credit charges for govermment credit facilities.

Despite AIG’s credit market and restructuring woes, insurance premiums and other considerations declined only 1.9 percent for the fourth quarter compared to the fourth quarter of 2007. For the year,
premiums and other considerations grew by 5.3 percent.

General Insurance fourth quarter 2008 operating loss was $2.8 billion, compared to a profit of $2.1 billion in the fourth quarter of 2007.

AIG said the 2008 results reflect goodwill impairment charges of $2.0 billion, principally related to the transactions relating to Hartford Steam Boiler, 21st Century and Transatlantic, and a decline in net investment income of $1.2 billion, primarily due to losses from partnership and mutual fund investments and an increase in adverse loss development compared to the prior year quarter.

Operating losses at United Guaranty Corp. (UGC) increased by $148 million to $496 million in the fourth quarter of 2008.

General Insurance net premiums written were $9.2 billion in the fourth quarter of 2008, a 16.3 percent decline compared to last year’s fourth quarter.

For the quarter, AIG reported an 83.05 percent loss ratio, which compared to 69.70 percent in the fourth quarter last year.

For the year, the loss ratio was 76.93 percent (65.63 in 2007).

The 2008 fourth quarter combined ratio was 129.08 percent; in 2007 it was 95.17. For the full year 2008, the combined ratio was 109.09 percet, compared to 90.15 perent in 2007.

Commercial Insurance reported net premiums written during the fourth quarter of 2008 of $4.4 billion, a 22.1 percent decline from the fourth quarter of 2007, reflecting changes in the structure of catastrophe reinsurance programs and a significant reduction in workers’ compensation premiums.

Commercial Insurance renewal premium retention decreased
slightly, but stabilized in early 2009 compared to early 2008, and new business premium decreased in the fourth quarter of 2008.

Foreign General reported a decline in net premiums written of 2.9 percent in original currency. Despite challenging worldwide economic conditions and AIG’s headline attention, Foreign General insurance was largely successful in retaining business in its property, casualty and consumer lines in the fourth quarter of 2008.

Overall, rates in Commercial Insurance are flat in early 2009 as compared to the comparable prior year period. The stabilization of rates is an improvement from the fourth quarter of 2008 in which rates declined 6.5 percent. Additionally, retention levels have improved in the early part of 2009 as compared to the fourth quarter of 2008.

At Dec. 31, 2008, AIG’s Commercial Insurance fleet of companies had a combined statutory capital base of more than $26 billion, which AIG said is larger than any other competitor.

At Dec. 31, 2008, General Insurance net loss and loss adjustment reserves totaled $72.5 billion, a decrease of $1.3 billion in the fourth quarter 2008 and an increase of $3.2 billion for the twelve months ended December 31, 2008.

For the full year 2008, net loss development from prior accident years, excluding accretion of discount, was adverse by $118 million.

Financial Services reported a $17.6 billion operating loss compared to a $10.3 billion operating loss in the fourth quarter of 2007. AIG Financial Products Corp. (AIGFP) net operating results for 2008 include the effect of changes in credit spreads on the valuation
of its assets and liabilities since AIGFP elected to account for most of its financial assets and liabilities at fair value upon the adoption of FAS 159 on January 1, 2008. Previously, these effects were only recognized in earnings once realized upon a sale, maturity, impairment or termination.

AIGFP , which is in the process of winding down its businesses and portfolios, contributed $17.2 billion to the Financial Services loss, primarily from the unrealized market valuation losses on its super senior credit default swap portfolio and credit valuation adjustments.

Source: AIG

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