Exhibit 99.1
NEWS (AIG Logo)
Contact: Charlene Hamrah (Investment Community)
(212) 770-7074
Joe Norton (News Media)
(212) 770-3144
AIG REPORTS SECOND QUARTER 2006 RESULTS
NEW YORK, NY, August 9, 2006 - American International Group, Inc. (AIG)
today reported that its net income for the second quarter of 2006 was $3.19
billion or $1.21 per diluted share, compared to $4.49 billion or $1.71 per
diluted share in the second quarter of 2005. Net income, as reported, includes
economically effective hedging activities that currently do not qualify for
hedge accounting treatment under FAS 133, including the related foreign exchange
gains and losses. Second quarter 2006 adjusted net income, as defined below, was
$4.16 billion or $1.58 per diluted share, compared to $3.28 billion or $1.25 per
diluted share in the second quarter of 2005.
During the second quarter of 2006, AIG recorded an addition to income of
$374 million, net of tax, or $0.14 per diluted share, related to the correction
of the accounting for certain interests in unit investment trusts. These
investments had previously been accounted for as available for sale securities,
with changes in market values being reflected in other comprehensive income. The
changes in market values are now included in AIG's net investment income. This
adjustment had no effect on consolidated shareholders' equity at June 30, 2006
or December 31, 2005.
Net income for the first six months of 2006 was $6.39 billion or $2.43 per
diluted share, compared to $8.29 billion or $3.16 per diluted share in the first
six months of 2005. Adjusted net income for the first six months of 2006 was
$7.53 billion or $2.87 per diluted share, compared to $6.51 billion or $2.48 per
diluted share in the first six months of 2005.
SECOND QUARTER
(in millions, except per share data)
<Table>
<Caption>
PER DILUTED SHARE
---------------------------------
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
Net income $ 3,190 $ 4,489 (28.9)% $ 1.21 $ 1.71 (29.2)%
Realized capital gains (losses),
including pricing gains (losses),
net of tax (144) (56) -- (0.06) (0.02) --
FAS 133 gains (losses), excluding
realized capital gains (losses),
net of tax (a) (824) 1,266 -- (0.31) 0.48 --
Adjusted net income (b) $ 4,158 $ 3,279 26.8% $ 1.58 $ 1.25 26.4%
Effect of out of period adjustment,
net of tax, on income (c) $ 374 -- -- $ 0.14 -- --
Average shares outstanding 2,625 2,623
</Table>
SIX MONTHS
(in millions, except per share data)
<Table>
<Caption>
PER DILUTED SHARE
---------------------------
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
Net income $ 6,385 $ 8,288 (23.0)% $ 2.43 $ 3.16 (23.1)%
Realized capital gains (losses),
including pricing gains (losses),
net of tax (26) 5 -- (0.01) -- --
FAS 133 gains (losses), excluding
realized capital gains (losses),
net of tax (a) (1,157) 1,777 -- (0.44) 0.68 --
Cumulative effect of an accounting
change, net of tax (d) 34 -- -- 0.01 -- --
Adjusted net income (b) $ 7,534 $ 6,506 15.8% $ 2.87 $ 2.48 15.7%
Effect of out of period adjustment,
net of tax, on income (c) $ 374 -- -- $ 0.14 -- --
Average shares outstanding 2,624 2,623
</Table>
(a) Includes the effect of hedging activities that do not qualify for hedge
accounting treatment under FAS 133, including the related foreign exchange
gains and losses.
(b) Excludes realized capital gains (losses) which includes pricing net
investment gains, cumulative effect of an accounting change and FAS 133,
net of tax.
(c) During the second quarter of 2006, AIG recorded an out of period
adjustment related to the accounting for certain interests in unit
investment trusts in accordance with FIN 46(R), "Consolidation of Variable
Interest Entities", and APB Opinion Number 18, "The Equity Method of
Accounting for Investments in Common Stock". The out of period adjustment
increased net income and adjusted net income by $374 million in both the
second quarter and six months 2006.
(d) Represents the cumulative effect of an accounting change, net of tax,
related to FAS 123R "Share-Based Payment".
At June 30, 2006, AIG's consolidated assets were $900.67 billion and
shareholders' equity was $87.71 billion.
Commenting on the second quarter's results, AIG President and Chief
Executive Officer Martin J. Sullivan said, "AIG had a very good quarter. Once
again, our performance underscored the strength of AIG's widely diversified
business portfolio, both domestically and overseas. General Insurance posted
record underwriting profits, with a combined ratio of 86.47. Net premiums
written increased across the board, and our General Insurance operations are
well positioned to capitalize on opportunities in the current market
environment. Life Insurance & Retirement Services had a mixed quarter, including
strong production results in the domestic life insurance, payout annuities and
individual variable annuities lines, with an ongoing difficult sales environment
in individual fixed annuities. Our domestic life insurance operations were
affected by declines in investment yield enhancements. We were also challenged
by market conditions in Japan and Taiwan. We are taking appropriate action,
including shifting our product mix to emphasize investment linked and personal
accident & health products that provide better margins than traditional
savings-oriented life products in the current low interest rate environment.
2
"Financial Services also reported good results. Demand for International
Lease Finance Corporation's (ILFC) modern, fuel efficient fleet continues to be
strong. Capital Markets experienced improved results emanating from increased
transaction flow compared to last year. Consumer Finance was affected by the
slowing U.S. real estate market and rising interest rates. Asset Management
produced strong results, primarily driven by our Institutional Asset Management
business. During the quarter, we launched our matched investment program to
replace the Guaranteed Investment Contract portfolio which is now in runoff.
"AIG's strong second quarter performance reflects our ability to quickly
address changes in market conditions and client demand. A number of recent
accomplishments demonstrate our continued focus on geographic expansion and
strategic acquisitions that will contribute to future profitable growth. For
example, the expansion of our Chinese life insurance operations in Guangdong and
Jiangsu provinces and the approval to conduct group insurance business
throughout American International Assurance's operations in China will enable
AIG to strengthen our penetration in the retail and institutional markets in
China, adding to our existing strong presence there. During the second quarter,
the Canadian Parliament passed legislation that will allow United Guaranty
Corporation to begin writing business in the world's second largest mortgage
guaranty market, when provincial licenses are issued.
"After the quarter's close, AIG announced the acquisition of Central
Insurance Co., a significant general insurance business in Taiwan. With this
acquisition, AIG's companies become one of the largest general insurance
businesses in that market, ranking third in gross premiums written."
GENERAL INSURANCE
General Insurance reported second quarter 2006 operating income before
realized capital gains (losses) of $2.99 billion, a 68.6 percent increase over
the second quarter of 2005. Second quarter operating income increased 44.2
percent to $2.56 billion, excluding the $432 million pretax increase in income
relating to the out of period adjustment from unit investment trust accounting,
of which $412 million pertains to Foreign General. General Insurance achieved a
combined ratio of 86.47, a 5.41 point improvement over the second quarter of
2005, primarily the result of an improved current accident year loss ratio
compared to the 2005 accident year loss ratio recorded in the second quarter of
2005. The strong underwriting performance reflects continued generally favorable
pricing, policy terms and conditions. Second quarter 2006 General Insurance net
investment income, excluding the out of period adjustment, increased 11.5
percent, benefiting from positive cash flow and rising interest rates.
Partnership income overall was good, but declined compared to very strong
results in the second quarter of 2005. Foreign General net investment income,
excluding the out of period adjustment, declined in the quarter compared to last
year due to higher partnership realizations in the second quarter of 2005.
3
General Insurance net premiums written increased 9.3 percent to $11.63
billion in the second quarter. The Domestic Brokerage Group (DBG) continued to
execute its core strategies of expanding distribution, product innovation and
cross selling, as well as capitalizing on its extensive nationwide office
network. These competitive advantages contributed to DBG's 10.8 percent growth
in net premiums written in the quarter. In the United States, property rates
remained strong in the second quarter with modest rate declines in certain
casualty classes. Personal Lines reported an improved combined ratio and strong
premium growth in the Private Client Group and Agency Auto, offset by the runoff
of the assigned risk business and a slight decline in the direct auto
businesses. United Guaranty had strong premium growth with increases in all
business lines, and improved persistency in its domestic first lien business.
Foreign General net premiums written in original currency rose 12.4
percent in the second quarter, with strong growth in personal lines and accident
& health, and very good retention rates in commercial lines. Efforts to expand
the homeowners and warranty businesses contributed to personal lines growth in
the quarter.
At June 30, 2006, General Insurance net loss and loss adjustment reserves
totaled $60.21 billion, a $1.32 billion increase from March 31, 2006. In the
second quarter of 2006, net favorable loss development from prior accident years
was approximately $248 million. This includes favorable development from prior
year catastrophes of approximately $53 million and excludes accretion of
discount of approximately $101 million.
LIFE INSURANCE & RETIREMENT SERVICES
Life Insurance & Retirement Services second quarter 2006 operating income
before realized capital gains (losses) but including pricing net investment
gains increased 9.7 percent to $2.61 billion, with Domestic Life Insurance &
Retirement Services increasing 2.7 percent and Foreign Life Insurance &
Retirement Services increasing 14.2 percent when compared to the second quarter
of 2005. Excluding the $144 million pretax increase in income due to the out of
period adjustment from unit investment trust accounting, Total Life Insurance &
Retirement Services and Foreign Life Insurance & Retirement Services operating
income before realized capital gains (losses) but including pricing net
investment gains increased 3.6 percent and 4.2 percent, respectively.
In Domestic Life Insurance, second quarter 2006 operating income declined
compared to the second quarter of 2005, primarily as a result of lower net
investment income from yield enhancements and a legal reserve charge for the
group life/health business. Retail periodic premium sales of life insurance
increased 44.1 percent and life insurance reserves grew 9.0 percent over the
prior year. In the quarter, payout annuities reported strong sales in structured
settlement and immediate annuity products with a 14.6 percent increase in
reserves.
4
In Domestic Retirement Services, individual fixed annuity sales declined
and surrender rates increased compared to the second quarter of 2005 in the face
of continued competition from bank CDs and the flat yield curve environment.
Operating income increased due to stronger partnership income, lower
amortization of deferred acquisition costs related to realized capital losses
and modest growth in underlying reserves. Group retirement operating income was
flat primarily as a result of slightly lower investment spreads. Individual
variable annuities had very good deposit growth and positive net flows on the
continued strength of new guaranteed minimum withdrawal benefit features.
Foreign Life Insurance & Retirement Services operating income reflects
strong growth in most regions of the world. However, performance in Japan and
Taiwan was affected by market conditions, including the continued low interest
rate environment, increased competition, a Japanese tax law change affecting the
personal accident & health business, and the weaker yen. Earnings growth for AIG
Star Life and AIG Edison Life reflects the runoff of the more profitable
acquired inforce business in comparison to the lower profit margins being
generated on new business. During the quarter, we announced that the operations
of AIG Star Life and AIG Edison Life will be combined to achieve expanded
distribution, broader new product offerings and efficiencies of scale.
AIG's overseas life insurance operations are focused on leveraging their
multiple distribution channels and emphasizing investment linked and personal
accident & health products that provide better margins than traditional savings
oriented life products with higher guarantees. These efforts are reflected in
the strong second quarter single premium life insurance growth as well as
improved personal accident & health first year premium results.
In Japan, fixed annuity production increased from the first quarter of
2006, but will remain sensitive to yen/dollar exchange rates. Variable annuity
sales increased significantly from year ago levels. In June, ALICO introduced a
guaranteed minimum income benefit feature for its Japanese variable annuity
products and is developing additional living benefit features, including
guaranteed minimum withdrawal benefits. In other markets, variable annuity sales
continued to be strong in Europe and fixed annuity sales increased in Korea.
FINANCIAL SERVICES
Second quarter 2006 Financial Services operating income before the effect
of FAS 133 was $615 million, an increase of 5.7 percent compared to the second
quarter of 2005. ILFC operating income in the second quarter of 2006 was
approximately equal to the second quarter of 2005, as increased lease and
overhaul revenues were offset by rising interest rates and charges related to
bankrupt airlines. Excluding the effect of FAS 133, Capital Markets reported
improved results due to increased transaction flow, especially in credit,
commodity and equity products. Consumer Finance operating income declined as a
result of higher borrowing costs, a cooling domestic residential real estate
market, higher expenses related to overseas expansion and lower new business
volumes in Taiwan in the wake of the industry wide deterioration of consumer
credit conditions. In the U.S., emphasis on retail finance and branch generated
products should help offset the slowdown in the domestic residential real estate
market. Domestically, net charge off and delinquency ratios improved compared to
the second quarter of 2005.
5
ASSET MANAGEMENT
Asset Management operating income in the second quarter of 2006, before
the effect of FIN 46(R), EITF 04-5 and FAS 133, was $541 million, an increase of
23.0 percent compared to the second quarter of 2005. This increase was largely
attributable to the performance of the Institutional Asset Management business,
which was partially offset by the runoff of the existing domestic GIC portfolio.
Institutional Asset Management growth was the result of the continued increase
in institutional assets under management and the associated fee revenue, as well
as gains on real estate investments and an increase in performance-based fees.
At June 30, 2006, third party assets under management amounted to approximately
$66 billion, an increase of 8 percent over June 30, 2005.
As disclosed in the first quarter 2006 earnings release, AIG initiated its
matched investment program in April and completed three note offerings through
June 30th totaling approximately $1.70 billion. In July, a registration
statement was declared effective by the Securities and Exchange Commission,
which reactivated a previously announced amended shelf registration. This will
allow AIG to launch a registered matched investment program in the U.S.
securities market.
OTHER OPERATIONS
Second quarter 2006 operating income from Other Operations, including
other realized capital gains (losses), amounted to a loss of $187 million
compared to a loss of $246 million in the second quarter of 2005. These results
reflect increased interest expense, offset by favorable comparisons in most
other categories.
# # #
6
ADDITIONAL SUPPLEMENTARY FINANCIAL DATA IS AVAILABLE IN THE INVESTOR
INFORMATION SECTION OF WWW.AIGCORPORATE.COM.
A conference call for the investment community will be held tomorrow,
Thursday, August 10, 2006 at 8:30 a.m. EDT. The call will be broadcast live on
the Internet at www.aigwebcast.com. A replay will be archived at the same URL
through Thursday, August 24, 2006.
It should be noted that the remarks made in this press release or on the
conference call may contain projections concerning financial information and
statements concerning future economic performance and events, plans and
objectives relating to management, operations, products and services, and
assumptions underlying these projections and statements. Please refer to AIG's
Quarterly Report on Form 10-Q for the period ended June 30, 2006 and AIG's past
and future filings with the Securities and Exchange Commission for a description
of the business environment in which AIG operates and the factors that may
affect its business. AIG is not under any obligation (and expressly disclaims
any such obligation) to update or alter its projections and other statements
whether as a result of new information, future events or otherwise.
# # #
American International Group, Inc. (AIG), world leaders in insurance and
financial services, is the leading international insurance organization with
operations in more than 130 countries and jurisdictions. AIG companies serve
commercial, institutional and individual customers through the most extensive
worldwide property-casualty and life insurance networks of any insurer. In
addition, AIG companies are leading providers of retirement services, financial
services and asset management around the world. AIG's common stock is listed on
the New York Stock Exchange, as well as the stock exchanges in London, Paris,
Switzerland and Tokyo.
# # #
7
COMMENT ON REGULATION G
This press release, including the financial highlights, includes certain
non-GAAP financial measures. The reconciliations of such measures to the most
comparable GAAP figures in accordance with Regulation G are included within the
relevant tables or in the Second Quarter 2006 Financial Supplement available in
the Investor Information section of AIG's corporate website,
www.aigcorporate.com.
Throughout this press release, AIG presents its operations in the way it
believes will be most meaningful and useful, as well as most transparent, to the
investing public and others who use AIG's financial information in evaluating
the performance of AIG. That presentation includes the use of certain non-GAAP
measures. In addition to the GAAP presentations, in some cases, revenues, net
income, operating income and related rates of performance are shown exclusive of
realized capital gains (losses), cumulative effect of an accounting change in
2006, the effect of FIN 46(R), the effect of EITF 04-5, the effect of FAS 133
and the effect of the catastrophe related losses.
AIG excludes the effects of FIN 46(R), EITF 04-5 and FAS 133 because AIG
believes that the GAAP presentation is not indicative of AIG's true economic
position and is therefore less meaningful to the investor. For example, AIG's
derivatives are economically effective hedges, even though they do not qualify
for hedge accounting. Likewise, AIG believes that a presentation excluding
entities consolidated pursuant to FIN 46(R) is more meaningful than the GAAP
presentation where AIG does not in fact have the economic interest that is
presumed to be held.
Although the investment of premiums to generate investment income (or
loss) and realized capital gains or losses is an integral part of both life and
general insurance operations, the determination to realize capital gains or
losses is independent of the insurance underwriting process. Moreover, under
applicable GAAP accounting requirements, losses can be recorded as the result of
other than temporary declines in value without actual realization. In sum,
investment income and realized capital gains or losses for any particular period
are not indicative of underlying business performance for such period.
AIG believes that underwriting profit (loss) provides investors with
financial information that is not only meaningful but critically important to
understanding the results of property and casualty insurance operations.
Operating income of a property and casualty insurance company includes three
components: underwriting profit (loss), net investment income and realized
capital gains (losses). Without disclosure of underwriting profit (loss), it is
impossible to determine how successful an insurance company is in its core
business activity of assessing and underwriting risk. Including investment
income and realized capital gains (losses) in operating income without
disclosing underwriting profit (loss) can mask underwriting losses. The amount
of net investment income may be driven by changes in interest rates and other
factors that are totally unrelated to underwriting performance. Underwriting
profit (loss) is an important measurement used by AIG senior management to judge
the performance of its property and casualty insurance operations. AIG includes
the measurement required in statutory financial statements filed with state
insurance departments and adjusts for changes in deferred acquisition costs in
order to make the measure more consistent with the information provided in AIG's
consolidated financial statements. Further, the equity analysts who follow AIG
exclude the realized capital
8
transactions in their analyses for the same reason and consistently request that
AIG provide the non-GAAP information.
Life and retirement services production (premiums, deposits and other
considerations), gross premiums written, net premiums written and loss, expense
and combined ratios are presented in accordance with accounting principles
prescribed or permitted by insurance regulatory authorities because these are
standard measures of performance used in the insurance industry and thus allow
for more meaningful comparisons with AIG's insurance competitors.
9
AMERICAN INTERNATIONAL GROUP, INC.
FINANCIAL HIGHLIGHTS*
(IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -------------------------------
2006 2005 (a) CHANGE 2006 2005 (a) CHANGE
---- -------- ------ ---- -------- ------
GENERAL INSURANCE OPERATIONS:
Net Premiums Written $ 11,634 $ 10,644 9.3% $ 22,889 $ 21,434 6.8%
Net Premiums Earned 10,678 10,232 4.4 21,148 20,372 3.8
Underwriting Profit 1,374 712 93.0 2,519 1,275 97.6
Net Investment Income 1,614 1,060 52.3 2,732 2,075 31.7
Income before Realized Capital Gains (Losses) 2,988 1,772 68.6 5,251 3,350 56.7
Realized Capital Gains (Losses) (b) (125) 113 -- (57) 177 --
OPERATING INCOME $ 2,863 $ 1,885 51.9% $ 5,194 $ 3,527 47.3%
-------- -------- ---- -------- -------- ----
Loss Ratio 63.34 69.55 64.98 70.66
Expense Ratio 23.13 22.33 22.84 22.03
Combined Ratio 86.47 91.88 87.82 92.69
----- ----- ---- ----- ----- ----
LIFE INSURANCE & RETIREMENT SERVICES OPERATIONS :
GAAP Premiums $ 7,625 $ 7,304 4.4% $ 15,397 $ 14,844 3.7%
Net Investment Income 4,298 4,167 3.1 9,007 8,484 6.2
Pricing Net Investment Gains (c) 88 100 (12.0) 212 181 17.1
Income before Realized Capital Gains (Losses) 2,608 2,378 9.7 5,129 4,722 8.6
Realized Capital Gains (Losses) (b)(c) (306) (54) -- (272) (217) --
OPERATING INCOME 2,302 2,324 (0.9) 4,857 4,505 7.8
FINANCIAL SERVICES OPERATIONS:
Operating Income excluding FAS 133 615 582 5.7 1,134 1,144 (0.9)
FAS 133 (b) (1,163) 1,632 -- (1,841) 2,115 --
OPERATING INCOME (LOSS) (548) 2,214 -- (707) 3,259 --
ASSET MANAGEMENT OPERATIONS:
Operating Income excluding FIN 46(R), EITF 04-5
and FAS 133 541 440 23.0 906 893 1.5
FIN 46(R) (d) 183 37 -- 210 112 --
EITF 04-5 (e) 87 -- -- 156 -- --
FAS 133 (b) -- 47 -- -- 109 --
OPERATING INCOME 811 524 54.8 1,272 1,114 14.2
Other Income (Deductions) - net (316) 38 -- (654) 74 --
Other Realized Capital Gains (Losses) (b) 129 (284) -- 72 (129) --
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 5,241 6,701 (21.8) 10,034 12,350 (18.8)
Income Taxes 1,688 2,083 -- 3,123 3,789 --
INCOME BEFORE MINORITY INTEREST AND CUMULATIVE
EFFECT OF AN ACCOUNTING CHANGE 3,553 4,618 (23.1) 6,911 8,561 (19.3)
Minority Interest, after-tax:
Income before Realized Capital Gains (Losses) (360) (127) -- (541) (265) --
Realized Capital Gains (Losses) (3) (2) -- (19) (8) --
INCOME BEFORE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 3,190 4,489 (28.9) 6,351 8,288 (23.4)
Cumulative Effect of an Accounting Change, net of tax (f) -- -- -- 34 -- --
NET INCOME $ 3,190 $ 4,489 (28.9)% $ 6,385 $ 8,288 (23.0)%
</Table>
10
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ---------------------------------
2006 2005 (a) CHANGE 2006 2005 (a) CHANGE
---- -------- ------ ---- -------- ------
FINANCIAL HIGHLIGHTS
NET INCOME $ 3,190 $ 4,489 (28.9)% $ 6,385 $ 8,288 (23.0)%
REALIZED CAPITAL GAINS (LOSSES), INCLUDING PRICING GAINS
(LOSSES), NET OF TAX (144) (56) -- (26) 5 --
FAS 133 GAINS (LOSSES), EXCLUDING REALIZED CAPITAL GAINS
(LOSSES), NET OF TAX (824) 1,266 -- (1,157) 1,777 --
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE, NET OF TAX (f) -- -- -- 34 -- --
ADJUSTED NET INCOME (g) 4,158 3,279 26.8 7,534 6,506 15.8
EFFECT OF OUT OF PERIOD ADJUSTMENT, NET OF TAX (h) 374 -- -- 374 -- --
PER SHARE - DILUTED:
NET INCOME 1.21 1.71 (29.2) 2.43 3.16 (23.1)
REALIZED CAPITAL GAINS (LOSSES), INCLUDING PRICING
GAINS (LOSSES), NET OF TAX (0.06) (0.02) -- (0.01) -- --
FAS 133 GAINS (LOSSES), EXCLUDING REALIZED CAPITAL
GAINS (LOSSES), NET OF TAX (0.31) 0.48 -- (0.44) 0.68 --
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE, NET OF
TAX (f) -- -- -- 0.01 -- --
ADJUSTED NET INCOME (g) $ 1.58 $ 1.25 26.4% $ 2.87 $ 2.48 15.7%
EFFECT OF OUT OF PERIOD ADJUSTMENT, NET OF TAX (h) $ 0.14 -- -- $ 0.14 -- --
AVERAGE DILUTED COMMON SHARES OUTSTANDING 2,625 2,623 2,624 2,623
</Table>
* Including reconciliation in accordance with Regulation G.
(a) Certain accounts have been reclassified in 2005 to conform to the 2006
presentation.
(b) Includes the effect of hedging activities that do not qualify for hedge
accounting treatment under FAS 133 "Accounting for Derivative Instruments
and Hedging Activities", including the related foreign exchange gains and
losses.
(c) For purposes of this presentation, pricing net investment gains are
segregated as a component of total realized capital gains (losses). They
represent certain amounts of realized capital gains where gains are an
inherent element in pricing certain life products in some foreign
countries.
(d) Includes the full results of certain AIG managed private equity and real
estate funds that are consolidated pursuant to FIN 46(R), "Consolidation
of Variable Interest Entities".
(e) Includes the full results of certain AIG managed partnerships that are
consolidated effective January 1, 2006 pursuant to EITF 04-5, "Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have
Certain Rights".
(f) Represents the cumulative effect of an accounting change, net of tax,
related to FAS 123R "Share-Based Payment".
(g) Adjusted net income excludes realized capital gains (losses) which
includes pricing net investment gains, cumulative effect of an accounting
change and FAS 133 "Accounting for Derivative Instruments and Hedging
Activities", net of tax.
(h) During the second quarter of 2006, AIG recorded an out of period
adjustment related to the accounting for certain interests in unit
investment trusts in accordance with FIN 46(R), and APB Opinion Number 18,
"The Equity Method of Accounting for Investments in Common Stock". The out
of period adjustment increased net income and adjusted net income by $374
million in both the second quarter and six months 2006.
11