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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 22, 1998
AMERICAN INTERNATIONAL GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-8787 13-2592361
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
70 Pine Street
New York, New York 10270
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (212) 770-7000
_________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
99.1 Press Release of American International Group, Inc. dated
October 22, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
AMERICAN INTERNATIONAL GROUP, INC.
(Registrant)
Date: October 22, 1998 By /s/ HOWARD I. SMITH
-------------------------------
Name: Howard I. Smith
Title: Executive Vice President,
Chief Financial Officer &
Comptroller
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EXHIBIT INDEX
Exhibit No. Description
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99.1 Press Release of American International Group, Inc.
dated October 22, 1998.
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EXHIBIT 99.1
[AIG LOGO] AMERICAN INTERNATIONAL GROUP, INC.
70 Pine Street New York, New York 10270
For information, please contact:
Charlene M. Hamrah (Investment Community)
(212) 770-7074
Joe Norton (News Media)
(212) 770-3144
AIG REPORTS THIRD QUARTER 1998 NET INCOME ROSE TO $931.1 MILLION
NEW YORK, NY, October 22, 1998 - American International Group, Inc. (AIG) today
reported that its net income for the third quarter of 1998 increased 10.8
percent to $931.1 million, compared to $840.3 million in the third quarter of
1997. Excluding catastrophe losses, net income for the third quarter rose 15.1
percent. For the first nine months of 1998, net income totaled $2.76 billion, an
increase of 12.7 percent, compared to $2.45 billion in the same period of 1997.
Following is a summary table of third quarter and nine months
information (in millions, except per share amounts).
THIRD QUARTER NINE MONTHS
1998 1997 Change 1998 1997 Change
Net income, as reported $ 931.1 $ 840.3 10.8% $ 2,759.6 $ 2,447.7 12.7%
Income, as adjusted* $ 923.7 $ 824.8 12.0% $ 2,699.2 $ 2,386.8 13.1%
PER SHARE RESULTS:**
Diluted:
Net income, as reported $ .89 $ .79 12.7% $ 2.62 $ 2.31 13.4%
Income, as adjusted* $ .88 $ .78 12.8% $ 2.56 $ 2.25 13.8%
Average shares outstanding 1,055.1 1,056.9 1,054.7 1,058.7
*Adjusted to exclude realized capital gains, net of taxes and minority interest
in capital gains after taxes.
**Share information reflects the three-for-two split in the form of a 50 percent
common stock dividend, paid July 31, 1998.
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Income before income taxes and minority interest for the third quarter
of 1998 amounted to $1.41 billion, an increase of 18.9 percent over the $1.19
billion reported in 1997. Excluding catastrophe losses, income before income
taxes and minority interest rose 23.6 percent. For the first nine months of
1998, income before income taxes and minority interest increased 16.1 percent to
$4.04 billion from $3.48 billion reported last year. Included in these results
were pretax realized capital gains of $50.4 million and $129.2 million for the
third quarter and nine months of 1998, respectively, compared to $24.3 million
and $99.0 million for the same periods in 1997.
The following table shows these results for the quarter and nine
months, including and excluding catastrophe losses (in millions):
THIRD QUARTER NINE MONTHS
1998 1997 Change 1998 1997 Change
---- ---- ------ ---- ---- ------
Income before income
taxes and minority $ 1,414.5 $ 1,189.8 18.9% $ 4,038.0 $ 3,476.7 16.1%
interest, as reported
Catastrophe losses 56.0 0.0 -- 83.0 16.0 --
Income before income
taxes and minority
interest, excluding $ 1,470.5 $ 1,189.8 23.6% $ 4,121.0 $ 3,492.7 18.0%
catastrophe losses
Combined ratio:
As reported 96.95 96.32 96.26 96.17
Excluding catastrophe
losses 95.43 96.32 95.45 95.99
Revenues in the third quarter of 1998 rose 8.5 percent to $8.36 billion
from $7.70 billion in the year-earlier quarter. For the first nine months,
revenues totaled $24.19 billion, an increase of 6.8 percent over $22.65 billion
in 1997.
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Foreign exchange rates continued to affect the translation of foreign
currency net premiums written into U.S. dollars, as shown in the following
table, which compares third quarter 1998 to third quarter 1997:
Worldwide Foreign Worldwide
General General Life
Insurance Insurance Insurance
--------- --------- ---------
Premium Growth in Original Currency *13.3% **22.5% 12.7%
Foreign Exchange Impact (3.7) (11.3) (15.7)
Premium Growth as Reported in U.S. $ 9.6% 11.2% (3.0%)
===============================
Pro Forma Premium Growth in U.S. 12.2% 19.1% 3.2%
dollars for third quarter
assuming current (10/16/98)
foreign exchange rates were in
effect during the third quarter
*Includes operations of Transatlantic Holdings, Inc. and 20th Century
Industries.
**Includes operations of Transatlantic Holdings, Inc.
Early in the fourth quarter, the yen strengthened sharply against the
U.S. dollar and Southeast Asian currencies continue to improve relative to the
U.S. dollar. If these trends continue, there would be a positive impact on
reported fourth quarter 1998 premiums. Also negatively impacting premium growth
in the third quarter was the decision to non-renew approximately $275 million of
inadequately priced business in the U.S.
At September 30, 1998, AIG's consolidated assets and shareholders'
equity approximated $184 billion and $26 billion, respectively.
Commenting on the third quarter's results, AIG Chairman M.R. Greenberg
said, "AIG had a good third quarter overall. Hurricane Georges, which caused
insured losses estimated to be approximately $2.5 billion in the Caribbean and
the U.S., was the largest catastrophe to impact the insurance industry in
several years. Nonetheless, all of our principal businesses met their targets
and are well positioned for future growth.
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"General insurance worldwide net premiums written before the impact of
foreign exchange gained 13.3 percent in the third quarter. The combined ratio
was 96.95, compared to 96.32 in last year's third quarter. Excluding net
catastrophe losses in the quarter of approximately $56 million, primarily
attributable to Hurricane Georges, the combined ratio for the quarter was 95.43,
compared to 96.32 last year. Following the acquisition of shares leading to
AIG's ownership position of over 50 percent in both Transatlantic Holdings, Inc.
and 20th Century Industries, for the first time this quarter AIG's results now
consolidate the operations of both companies.
"In the Domestic Brokerage Group, as the erosion of pricing in
commodity lines and workers' compensation continued, we maintained our focus on
underwriting profitability and as mentioned above, we aggressively non-renewed
lines of business where rates had fallen well below acceptable levels. Instead,
the Brokerage Group vigorously pursued a variety of specialty lines and other
classes where rate adequacy exists. We will continue this strategy until a more
stable and healthy underwriting environment returns.
"AIG's domestic personal lines business continues to do very well, and
our growing direct auto business had an excellent quarter.
"United Guaranty Corporation, AIG's mortgage guaranty insurance
subsidiary, reported very strong results in the quarter both in premium growth
and operating income.
"AIG's foreign general insurance operations produced good results in
the quarter. Premium growth in original currency was quite strong, increasing
22.5 percent, including the operations of Transatlantic Holdings, Inc., although
foreign exchange rates continued to impact premium growth expressed in U.S.
dollars. In Japan, AIG's new direct auto business reported excellent gains, and
the flight to quality continued to benefit our overall Japanese operations.
Underwriting results in Japan were very good in the quarter. Elsewhere, Europe
and Latin America also did well.
"We added $152 million to AIG's general insurance net loss and loss
adjustment reserves during the quarter. The total of such net reserves,
including the consolidation of Transatlantic Holdings, Inc. and 20th Century
Industries, approximates $24.5 billion at September 30.
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"General insurance net investment income, including the results of
Transatlantic Holdings, Inc. and 20th Century Industries, rose 26.2 percent in
the quarter and our operating cash flow continued to be strong. Our expenditure
of approximately $544 million in 1998 to acquire shares of Transatlantic
Holdings, Inc. and 20th Century Industries negatively impacted net investment
income of the Domestic Brokerage Group, although this was more than offset by
the reported investment income of both of these companies.
"Our worldwide life business performed well in the third quarter, posting
a gain in operating income of 15.3 percent. Overseas, premium growth in original
currency was strong. In Japan, our life business continues to post double-digit
gains in local currency premiums, significantly outperforming the industry,
while in Taiwan, Nan Shan Life Insurance Company had another excellent quarter.
During the quarter, American Life Insurance Company (ALICO), along with a local
partner, acquired a major interest in the Bulgarian Post Bank. Elsewhere, AIG
and its Brazilian partner Unibanco purchased a 50 percent interest in the second
largest private pension management company in Brazil. Our Domestic Life
Companies had an excellent quarter.
"AIG's Financial Services Group turned in a strong third quarter.
Operating income rose 29.8 percent for the Group. Maintaining discipline in
counterparty credit exposure has always been a key management priority for AIG's
financial services operations, and this emphasis resulted in a satisfactory
quarter for AIG Trading Group Inc. International Lease Finance Corporation
(ILFC) continued to perform well and had a strong quarter. AIG Financial
Products Corp. had a very good third quarter. The Consumer Finance Group
continues to build its businesses in key markets, and made good progress in the
quarter, completing the acquisition of a Polish bank with operations aimed
directly at consumers and small businesses. Additionally, in the quarter AIG
Consumer Finance Group, Inc. entered the Argentine consumer finance market,
purchasing a majority ownership interest in Compania Financiera Argentina S.A.
"In August, AIG and SunAmerica Inc. entered into a definitive agreement
whereby AIG will acquire 100 percent of the outstanding stock of SunAmerica. The
transaction, which will be treated as a pooling of interests for accounting
purposes, is expected to close by year-end, or soon thereafter. We are excited
about this agreement and the prospect of SunAmerica becoming a part of AIG.
Discussions have been underway for the past month between AIG and SunAmerica
managements to refine the new business and revenue-enhancing opportunities we
all see in this combination. There is enormous potential worldwide in the
retirement savings business, and SunAmerica is an outstanding company and
leading participant in asset accumulation products for both the
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retirement and pre-retirement markets. This transaction will position AIG in a
major market where we have not been well represented, and will also enable AIG
to introduce SunAmerica's retirement products into world markets.
"Another significant investment announced in the third quarter was AIG's
long-term investment agreement with The Blackstone Group, whereby AIG will
acquire for $150 million a seven percent limited partnership interest in
Blackstone, and also invest over a number of years under certain conditions an
estimated $1.2 billion as a limited partner in future Blackstone funds. We have
had a long and very positive relationship with The Blackstone Group, a highly
regarded firm that manages third party funds and acts as an investment banker on
restructuring transactions. We look forward to working closely with Blackstone
in a variety of asset management, advisory and investment activities in the
years ahead.
"There have been a number of widely publicized financial dislocations in
world markets in recent weeks which have unsettled investors and raised
questions about the balance sheet integrity of financial institutions worldwide.
In AIG's case, our balance sheet remains strong. Our U.S. investment portfolio
consists principally of tax-exempt municipal bonds, U.S. treasury bonds and
notes and other high grade securities. The assets supporting our extensive
foreign life insurance business are virtually all invested locally to support
local currency liabilities, and other than relatively insignificant amounts of
assets required to be reflected at cost, are carried at market value. The amount
of assets on our balance sheet that are in default or are non-performing is
immaterial, and we continue to recognize other than temporary declines in value
through the income statement. Our overseas direct investment funds have, in the
aggregate, experienced only relatively minor losses in recent weeks. AIG has no
investment in Long-Term Capital Management L.P. and only one swap with that
fund, which is fully collateralized and marked to market daily. Our exposure to
other hedge funds is minimal, and where there have been declines in value, these
declines have been recognized in our financial statements. The flight to quality
evident in many markets benefits financially strong organizations like AIG, and
we will continue to prudently seek investment and business opportunities where
that strength may provide an advantage. Finally, our Triple-A ratings from the
principal rating services reflect the sound financial management and financial
strength of AIG."
GENERAL INSURANCE
General insurance pretax income before realized capital gains for the
third quarter of 1998 was $708.6 million, 21.8 percent above the $581.6 million
last year. For the first nine months of 1998, general insurance pretax income
before realized capital gains was $1.99 billion, an increase of 14.6 percent,
compared to $1.74 billion in 1997.
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Worldwide general insurance net premiums written in the third quarter of
1998 amounted to $3.76 billion, 9.6 percent ahead of the $3.43 billion in 1997.
For the first nine months of 1998, general insurance net premiums written were
$10.76 billion, an increase of 4.6 percent, compared to $10.29 billion last
year.
General insurance net investment income rose 26.2 percent to $584.6
million in the third quarter and 16.2 percent to $1.59 billion in the nine
months of 1998.
LIFE INSURANCE
AIG's worldwide life insurance operations reported third quarter 1998
pretax income before realized capital gains of $460.5 million, an increase of
15.3 percent, compared to $399.4 million in 1997. For the first nine months of
1998, life insurance pretax income before realized capital gains increased 17.1
percent to $1.33 billion, compared to $1.13 billion last year.
Life insurance premium income declined 3.0 percent in the third quarter to
$2.41 billion from $2.48 billion in 1997. For the first nine months, premium
income amounted to $7.39 billion, a gain of 0.8 percent, compared to $7.33
billion in 1997.
Life insurance net investment income rose 4.4 percent to $775.0 million in
the third quarter of 1998, compared to $742.5 million for the same period last
year. For the first nine months, net investment income amounted to $2.34
billion, an increase of 8.7 percent, compared to $2.15 billion in 1997.
FINANCIAL SERVICES
Financial services pretax operating income during the third quarter of
1998 increased 29.8 percent to $234.2 million, compared to $180.5 million in
1997. For the first nine months of 1998, financial services operating income was
$640.1 million, a 31.3 percent increase, compared to $487.4 million in 1997.
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# # # #
AIG is the leading U.S.-based international insurance organization and among the
largest underwriters of commercial and industrial insurance in the United
States. Its member companies write property, casualty, marine, life and
financial services insurance in approximately 130 countries and jurisdictions,
and are engaged in a range of financial services businesses. American
International Group, Inc.'s common stock is listed on the New York Stock
Exchange, as well as the stock exchanges in London, Paris, Switzerland and
Tokyo.
# # # #
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American International Group, Inc.
Financial Highlights
(in thousands, except per share amounts)
Nine Months Ended September 30, Three Months Ended September 30,
1998 1997 Change 1998 1997 Change
----------- ----------- ------ ----------- ----------- ------
General Insurance Operations:
Net Premiums Written $10,758,856 $10,286,766 4.6% $ 3,760,223 $ 3,429,877 9.6%
Net Premiums Earned 10,319,228 9,297,356 11.0 3,699,115 3,089,264 19.7
Adjusted Underwriting Profit 404,920 371,574 9.0 124,045 118,281 4.9
Net Investment Income 1,587,337 1,366,275 16.2 584,588 463,324 26.2
Income before Realized Capital Gains 1,992,257 1,737,849 14.6 708,633 581,605 21.8
Realized Capital Gains 169,351 106,787 - 72,995 28,188 -
Operating Income $ 2,161,608 $ 1,844,636 17.2% $ 781,628 $ 609,793 28.2%
----------- ----------- ------ ----------- ----------- ------
Loss Ratio 75.99 75.75 75.74 74.47
Expense Ratio 20.27 20.42 21.21 21.85
Combined Ratio 96.26 96.17 96.95 96.32
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Life Insurance Operations:
Premium Income $ 7,389,556 $ 7,329,233 0.8% $ 2,407,129 $ 2,480,443 (3.0)%
Net Investment Income 2,335,041 2,147,593 8.7 774,978 742,483 4.4
Income before Realized Capital Gains 1,328,829 1,134,500 17.1 460,490 399,430 15.3
Realized Capital Gains (Losses) (29,412) 12,789 - (14,917) 6,540 -
Operating Income 1,299,417 1,147,289 13.3 445,573 405,970 9.8
Financial Services Operating Income 640,065 487,434 31.3 234,229 180,485 29.8
Equity in Income of Minority-Owned
Insurance Operations 57,127 84,593 (32.5) 0 26,804 -
Other Realized Capital Losses (10,731) (20,602) - (7,636) (10,466) -
Other Income (Deductions) - net (111,226) (67,837) - (44,454) (22,311) -
Foreign Exchange Gains (Losses) 1,750 1,225 - 5,189 (450) -
Income before Income Taxes
and Minority Interest 4,038,010 3,476,738 16.1 1,414,529 1,189,825 18.9
Income Taxes 1,177,429 1,003,497 - 415,472 344,256 -
Income before Minority Interest 2,860,581 2,473,241 15.7 999,057 845,569 18.2
Minority Interest, after tax: (a)
Operating Income (78,373) (25,493) - (45,392) (5,251) -
Capital Gains (22,595) 0 - (22,595) 0 -
Net Income 2,759,613 2,447,748 12.7 931,070 840,318 10.8
Per Common Share (b) - Basic 2.63 2.32 13.4 0.89 0.80 11.3
- Diluted $ 2.62 $ 2.31 13.4% $ 0.89 $ 0.79 12.7%
----------- ----------- ------ ----------- ----------- ------
Average Common Shares Outstanding (b)
- Basic 1,049,678 1,053,860 1,049,992 1,052,078
- Diluted 1,054,704 1,058,682 1,055,112 1,056,896
(a) Represents minority shareholders' equity in operating income and capital
gains of certain consolidated subsidiaries, including Transatlantic
Holdings, Inc. and 20th Century Industries.
(b) Share information reflects the three-for-two split in the form of a 50
percent common stock dividend, paid July 31, 1998.
