The following Selected Consolidated Financial Data is presented in accordance with generally accepted accounting principles. This data should be read in conjunction with the financial statements and accompanying notes included elsewhere herein.
(b) The assets with respect to December 31, 1992 and subsequent years conform to the requirements of FASB 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts."
General insurance operations for the twelve month periods ending December 31, 1994, 1993 and 1992 were as follows:
The growth in net premiums written in 1994 and 1993 resulted from a combination of several factors. Although AIG continued to achieve some general price increases in domestic commercial property and some specialty casualty markets, the primary reasons for this growth were price and volume increases overseas. Foreign general insurance operations produced 33.0 percent of the general insurance net premiums written in 1994, 30.1 percent in 1993 and 28.2 percent in 1992.
If the net premiums written with respect to the domestic risk management operations were excluded from both 1994 and 1993, the domestic net premiums written would have increased approximately 12 percent. The decline in the volume of the risk management net premiums written was generally a result of higher deductibles. This decline had no impact on the operating income produced by the risk management business.
The maintenance of the pro forma statutory combined ratio in all three years at a level approximating 100 is a result of AIG's emphasis on maintaining its underwriting discipline within the continued overall competitiveness of the domestic market environment as well as AIG's expense control.
The domestic adjusted underwriting loss has been impacted significantly by catastrophes in all three years. Excluding the effects of these catastrophes, the domestic general insurance operation has significantly improved over the three year period. This improvement is a result of a strategy implemented several years ago. That is, AIG withdrew from certain classes of business, primarily agency lines and certain segments of workers' compensation business. At that time, AIG had determined that the returns on capital or equity allocated to such classes were deemed unacceptable. AIG's objective continues to be disciplined underwriting, especially in the domestic primary casualty market, and AIG does not seek net premium growth where rates do not adequately reflect its assessment of exposures.
General insurance net investment income in 1994 increased 7.1 percent when compared to 1993. In 1993, net investment income increased 7.1 percent over 1992. The growth in net investment income in each of the three years was primarily attributable to new cash flow for investment. The new cash flow was generated from net general insurance operating cash flow and included the compounding of previously earned and reinvested net investment income. (See also the discussion under "Liquidity" herein.)
General insurance realized capital gains were $52.5 million in 1994, $65.3 million in 1993 and $67.1 million in 1992. These realized gains resulted from the ongoing management of the general insurance investment portfolios within the overall objectives of the general insurance operations and arose primarily from the disposition of equity securities and available for sale and trading fixed maturities as well as redemptions of fixed maturities.
A year to year comparison of operating income is significantly influenced by the catastrophe losses in any one year as well as the volatility from one year to the next in realized capital gains. Adjusting each year to exclude the effects of both catastrophe losses and realized capital gains, operating income would have increased by 15.3 percent in 1994 and 13.9 percent in 1993. The increase in the growth rate of 1994 over 1993 and 1993 over 1992 after the aforementioned adjustments was a result of the increased net investment income and improvement in underwriting results.
AIG maintains a provision for estimated unrecoverable reinsurance and has been largely successful in its prior recovery efforts. At December 31, 1994, AIG had allowances for unrecoverable reinsurance approximating $110 million. At that date, and prior to this allowance, AIG had no significant reinsurance recoverables from any individual reinsurer which is financially troubled (e.g., liquidated, insolvent, in receivership or otherwise subject to formal or informal regulatory restriction).
AIG's Reinsurance Security Department conducts ongoing detailed assessments of the reinsurance markets and current and potential reinsurers both foreign and domestic. Such assessments include, but are not limited to, identifying if a reinsurer is appropriately licensed, and whether a reinsurer has sufficient financial capacity. Also considered are such things as the local economic environment and exchange rates of foreign reinsurers. This department also reviews the nature of the risks ceded and the need for collateral. In addition, AIG's Credit Risk Committee reviews the credit limits for and concentrations with any one reinsurer.
Estimation of asbestos and environmental claims loss reserves is a difficult process. These asbestos and environmental claims cannot be estimated by conventional reserving techniques as previously described. Quantitative techniques frequently have to be supplemented by subjective considerations including managerial judgment. Significant factors which affect the trends which influence the development of asbestos and environmental claims are the inconsistent court resolutions, judicial interpretations which broaden the intent of the policies and scope of coverage and the increasing number of new claims. The case law that has emerged can be characterized as still being in its infancy and the likelihood of any firm direction in the near future is very
In the interim, AIG and other industry members have and will continue to litigate the broadening judicial interpretation of the policy coverage and the liability issues. At the current time, it is not possible to determine the future development of asbestos and environmental claims. Such development will be affected by the extent to which courts continue to expand the intent of the policies and the scope of the coverage, as they have in the past, as well as by changes in Superfund and waste dump site coverage issues. Additional liabilities could emerge for amounts in excess of the current reserves held. Although this emergence cannot now be reasonably estimated, it could have a material adverse impact on AIG's future operating results. The reserves carried for these claims at December 31, 1994 are believed to be adequate as these reserves are based on the known facts and current law. Furthermore, as AIG's net exposure retained relative to the gross exposure written was lower in 1984 and prior years, the potential impact of these claims is much smaller on the net loss reserves than on the gross loss reserves. (See the previous discussion on reinsurance collectibility herein.)
A summary of asbestos and environmental claims count activity for the years ended December 31, 1994 and 1993 were as follows:
The average cost per claim settled, dismissed or otherwise resolved for the years ended December 31, 1994 and 1993 was as follows:
The developed survival ratios include both involuntary and voluntary indemnity payments. Involuntary payments include court judgments; court orders; covered claims with no coverage defenses; state mandated cleanup costs; claims where AIG's coverage defenses are minimal; and settlements made less than six months before the first trial setting. Also, AIG considers all legal and loss adjustment payments as involuntary.
Accordingly, AIG's survival ratios for involuntary asbestos and environmental claims, separately and combined, were estimated as follows for the years ended December 31, 1994 and 1993:
The new cash flow was generated from net life insurance operating cash flow and included the compounding of previously earned and reinvested net investment income. (See also the discussion under "Liquidity" herein.)
Underwriting risk represents the exposure to loss resulting from the actual policy experience adversely emerging in comparison to the assumptions made in the product pricing associated with mortality, morbidity, termination and expenses. AIG's life companies limit their maximum underwriting exposure on traditional life insurance of a single life to approximately $1.3 million of coverage by using yearly renewable term reinsurance. The life insurance operations have not entered into assumption reinsurance transactions or surplus relief transactions during the three year period ended December 31, 1994. (See also Note 5 of Notes to Financial Statements.)
To minimize its exposure to investment risk, AIG tests the cash flows from the invested assets and the policy and contract liabilities using various interest rate scenarios to assess whether there is a liquidity excess or deficit. If a rebalancing of the invested assets to the policy and contract claims became necessary and did not occur, a demand could be placed upon liquidity. (See also the discussion under "Liquidity" herein.)
The asset-liability relationship is appropriately managed in AIG's foreign operations, even though certain territories lack qualified long-term investments or there are investment restrictions imposed by the local regulatory authorities. For example,
in Japan and several Southeast Asia territories, the duration of the investments is often for a shorter period than the effective maturity of such policy liabilities. Therefore, there is a risk that the reinvestment of the proceeds at the maturity of the investments may be at a yield below that of the interest required for the accretion of the policy liabilities. In Japan, the average duration of the investment portfolio is 5.0 years, while the related policy liabilities are estimated to be 11.5 years. To maintain an adequate yield to match the interest required over the duration of the liabilities, constant management focus is required to reinvest the proceeds of the maturing securities without sacrificing investment quality. To the extent permitted under local regulation, AIG may invest in qualified longer-term securities outside Japan to achieve a closer matching in both duration and the required yield. AIG is able to manage any asset-liability duration difference through maintenance of sufficient global liquidity and to support any operational shortfall through its international financial network. Domestically, the asset-liability matching process is appropriately functioning as there are investments available to match the duration and the required yield. (See also the discussion under "Liquidity" herein.)
Agency and service fee operating income in 1994 decreased 10.2 percent to $54.1 million compared to $60.2 million which was an increase of 14.6 percent in 1993. The decline in 1994 was due to reduced commission revenue in certain of AIG's managing general agencies. The increase in operating income in 1993 resulted from the growth of risk management services. Agency and service fee operating income contributed 1.8 percent to AIG's income before income taxes and the cumulative effect of accounting changes in 1994 compared to 2.3 percent in 1993 and 2.5 percent in 1992.
Financial services operating income increased 3.8 percent in 1994 over 1993. This compares with an increase of 12.6 percent in 1993 over 1992. The financial services operating income in both 1994 and 1993 increased primarily as a result of the increase in the operating income of International Lease Finance Corporation (ILFC).
ILFC primarily engages in the acquisition of new and used commercial jet aircraft and the leasing and sale of such aircraft to airlines around the world. ILFC derives a substantial portion of its revenues from its leasing operations and is also engaged in the remarketing of commercial jets to and for airlines and financial institutions. As a result of the rising interest rate environment during 1994, ILFC's new borrowings were at higher rates relative to prior years. In such an environment, ILFC negotiates higher lease rates on any new contract. The increase in interest rates had a minor impact on ILFC's current lease margins. It is not anticipated that this rise in interest rates will have any significant impact on future operating income. (See also the discussions under "Capital Resources" and "Liquidity" herein.)
ILFC is exposed to loss through non-performance of aircraft lessees, through owning aircraft which it would be unable to lease or re-lease at acceptable rates or sell at lease expiration and through committing to purchase aircraft which it would be unable to lease. ILFC manages its lessee non-performance exposure through credit reviews and security deposit requirements. At December 31, 1994, only three of 270 aircraft owned were not leased. At March 1, 1995, these three aircraft have been committed for either lease or sale and all other aircraft remain leased. Currently, 77 percent of the fleet is leased to foreign carriers producing 76.8 percent of ILFC's rental revenues. (See also the discussions under "Capital Resources" and "Liquidity" herein.)
AIG Financial Products Corp. and its subsidiaries (AIGFP) participate in the derivatives dealer market conducting, as principals, an interest rate, currency and equity derivative products business which includes long-dated transactions. AIGFP also enters into guaranteed investment agreements. In 1994, AIGFP's revenues and operating income were less than those of 1993 as a result of fewer transactions. Current and past performance may not provide a basis for predicting future performance. AIGFP derives substantially all its revenues from proprietary positions entered in connection with counterparty transactions rather than for speculative purposes. (See also the discussions under "Capital Resources," "Liquidity" and "Derivatives" herein.)
Other income (deductions)-net includes AIG's equity in certain minor majority-owned subsidiaries and certain partially-owned companies, realized foreign exchange transaction gains and losses in substantially all currencies and unrealized gains and losses in hyperinflationary currencies, as well as the income and expenses of the parent holding company and other miscellaneous income and expenses. In 1994, net deductions amounted to $68.6 million. In 1993 and 1992, net deductions amounted to $46.9 million and $59.0 million, respectively.
Income before the cumulative effect of accounting changes amounted to $2.18 billion in 1994, $1.92 billion in 1993 and $1.63 billion in 1992. The increases in net income over the three year period resulted from those factors described above.
At December 31, 1994, AIG's consolidated invested assets included approximately $2.54 billion of cash and short-term investments. Consolidated net cash provided from operating activities in 1994 amounted to approximately $5.39 billion.
The combined insurance pretax operating cash flow coupled with the cash and short-term investments of $2.17 billion provided the insurance operations with a significant amount of liquidity. This liquidity is available to purchase high quality and diversified fixed income securities and to a lesser extent marketable equity securities and to provide mortgage loans on real estate, policy and collateral and guaranteed loans. With this liquidity coupled with proceeds of approximately $12.7 billion from the maturities, sales and redemptions of fixed income securities and from the sales of marketable equity securities, AIG purchased approximately $19.4 billion of fixed income securities and marketable equity securities during 1994.
During 1995, AIG expects to have approximately $1 billion of held to maturity municipal bonds redeemed for approximately $1 billion. Prior to redemption, the yield on these bonds approximates 8 percent. If these bonds were redeemed at March 1, 1995, the estimated yield on the reinvestment of the proceeds in bonds with similar characteristics would approximate 6.5 percent. AIG does not anticipate that these redemptions will have a significant effect on AIG's general investment income, operations, financial condition or liquidity.
* See also the discussion under "Accounting Standards: Standards Adopted in 1994" herein.
At December 31, 1994, approximately 60 percent of the fixed maturity investments were domestic securities. Approximately 42 percent of such domestic securities were rated AAA, approximately 2 percent were below investment grade and less than 1 percent were not rated.
Short-term investments represent amounts invested in various internal and external money market funds, time deposits and cash. The $2.53 billion reduction in short-term investments and cash during 1994 resulted from the redeployment of funds to purchase fixed maturities both domestically and overseas, particularly for foreign life operations.
Mortgage loans on real estate, policy, collateral and guaranteed loans comprised 9.0 percent of AIG's insurance invested assets at December 31, 1994. AIG's insurance holdings of real estate mortgages amounted to $1.71 billion of which 33.8 percent was domestic. At December 31, 1994, no domestic mortgages and only a nominal amount of foreign mortgages were in default. At December 31, 1994, AIG's insurance holdings of collateral loans amounted to $625.7 million, all of which were foreign. It is AIG's practice to maintain a maximum loan to value ratio of 75 percent at loan origination. AIG's policy loans increased from $984.9 million at December 31, 1993 to $2.23 billion at December 31, 1994, with $1.25 billion of this increase relating to the domestic corporate-owned life insurance product.
The following table is a summary of the composition of AIG's financial services invested assets at December 31, 1994 and 1993. (See also the discussions under "Operational Review," "Capital Resources" and "Derivatives" herein.)
Derivatives are financial arrangements among two or more parties whose returns are linked to or "derived" from some underlying stock, bond, commodity or other asset, or some index. Derivatives payments may be based on interest rates and exchange rates and/or prices of certain securities, certain commodities, or financial or commodity indices. The more significant types of derivative arrangements in which AIG transacts are swaps, forwards, futures, options and related instruments.
Through AIGFP and AIGTG, AIG participates in the derivatives dealer market acting primarily as principal. In these derivative operations AIG structures transactions which generally permit its counterparties to enter into transactions with respect to interest and exchange rate changes, to prices of securities and to certain commodities and financial or commodity indices. All significant derivatives activities are conducted through AIGFP and AIGTG.
Generally, derivatives are used by AIG's customers such as corporations, financial institutions, multinational organizations, sovereign entities, government agencies and municipalities. For example, a futures, forward or option contract can be used to protect the customers' assets or liabilities against price fluctuations.
AIGFP does not seek to manage the market risk of each of its individual transactions through an individual offsetting transaction. Rather, AIGFP takes a portfolio approach to the management of its market risk exposure. AIGFP values its portfolio at market value or estimated fair value when market values are not readily available. These valuations represent an assessment of the present values of expected future cash flows of AIGFP's transactions and may include reserves for market risk as deemed appropriate by AIGFP management. AIGFP evaluates the portfolio's discounted cash flows with reference to current market conditions, maturities within the portfolio and other relevant factors. Based upon this evaluation, AIGFP determines what, if any, offsetting transactions are necessary to reduce the market risk exposure of the portfolio.
As part of its monitoring and controlling of its exposure to market risk, AIGFP applies various testing techniques which reflect potential market movements. These techniques vary by currency and are regularly changed to reflect factors affecting the derivatives portfolio. In addition to the daily monitoring, AIGFP's senior management and local risk managers conduct a weekly review of the derivatives portfolio and existing hedges. This review includes an examination of the portfolio's risk measures, such as aggregate option sensitivity to movements in market variables. AIGFP's management may change these measures to reflect their judgment and evaluation of the dynamics of the markets. This management group will also determine whether additional or alternative action is required in order to manage the portfolio. AIG utilizes an outside consultant to provide the managements of AIG and AIGFP with comfort that the system produces representative values.
AIGTG's approach to managing market risk is to establish an appropriate offsetting position to a particular transaction or group of transactions depending upon the extent of market risk AIGTG wishes to reduce.
AIGTG attempts to secure reliable current market prices, such as published prices or third party quotes, to value its derivatives. Where such prices are not available, AIGTG uses an internal methodology which includes interpolation or
(b) The net replacement value with respect to futures and forward contracts of AIGTG at December 31, 1994 was $1.87 billion.
The interest rate risk on securities available for sale, at market, is managed by taking offsetting positions on a security by security basis, thereby offsetting a significant portion of the unrealized appreciation or depreciation. At December 31, 1994, the unrealized gains and losses remaining after benefit of the offsets were $8.3 million and $5.6 million, respectively.
AIGTG acts as principal in certain foreign exchange, interest rate, precious and base metals, petroleum and natural gas trading activities. AIGTG owns inventories in the commodities in which it trades. These inventories are carried at market and may be substantially hedged. AIGTG uses derivatives to manage the economic exposure of its various trading positions and transactions from adverse movements in interest rates, exchange rates and commodity prices. (See also the discussions under "Operational Review: Financial Services" and "Liquidity" herein.)
A counterparty may default on any obligation to AIG, including a derivative contract. Credit risk is a consequence of extending credit and/or carrying trading and investment positions. Credit risk exists for a derivative contract when that contract has an estimated positive fair value. To help manage this risk, the credit departments of AIGFP and AIGTG operate within the guidelines of the AIG Credit Risk Committee, which sets credit policy and limits for counterparties and provides limits for derivative transactions with counterparties having different credit ratings. In addition to credit ratings, this committee takes into account the industry and country of the counterparty. Transactions which fall outside these pre-established guidelines require the approval of the AIG Credit Risk Committee. It is also AIG's policy to establish reserves for potential credit impairment when necessary.
AIGFP and AIGTG determine the credit quality of each of their counterparties taking into account credit ratings assigned by recognized statistical rating organizations. If it is determined that a counterparty requires credit enhancement, then one or more enhancement techniques will be used. Examples of such enhancement techniques include letters of credit, guarantees, collateral and margin agreements.
AIGFP extensively uses legally enforceable master closeout netting agreements. Thus, contracts subject to such arrangements permit AIGFP to offset its receivables from and payables to the same counterparty. As a result, the net replacement value represents the net sum of estimated positive fair values after the application of such agreements and collateral held. The net replacement value most closely represents the net credit risk to AIGFP or the maximum amount exposed to potential loss. (See also the discussion under "Accounting Standards: Standards Adopted in 1994" herein.)
The following tables provide the notional and contractual amounts of AIGTG's derivatives portfolio at December 31, 1994. In addition, the estimated positive fair values associated with the derivatives portfolio are also provided and include a maturity profile for the December 31, 1994 balances based upon the expected timing of the future cash flows.
Net replacement values presented represent the net sum of estimated positive fair values after the application of legally enforceable master closeout netting agreements and collateral held. The net replacement values most closely represent the net credit risk to AIGTG or the maximum amount exposed to potential loss. (See also the discussion under "Accounting Standards: Standards Adopted in 1994" herein.)
The following tables present AIGTG's derivatives portfolio and associated credit exposure, if applicable, by maturity and type of derivative at December 31, 1994:
(b) Includes interest rate swaps with notional amounts of approximately $549.0 million and $203.4 million at December 31, 1994 and 1993, respectively.
(c) The net replacement values with respect to futures and forward contracts are presented as a component of trade receivables in the accompanying balance sheet.
(b) The net replacement value with respect to purchased options is presented as a component of spot commodities, at market value in the accompanying balance sheet.
At December 31, 1994, the counterparty credit quality by derivative product with respect to the net replacement value of AIGTG's derivatives portfolio was as follows:
AIG, through its Foreign Exchange Operating Committee, evaluates its worldwide consolidated net asset or liability positions and manages AIG's translation exposure to adverse movement in currency exchange rates. AIG may use forward exchange contracts and purchases options where the cost of such is reasonable and markets are liquid to reduce these exchange translation exposures. The exchange gain or loss with respect to these hedging instruments is recorded on an accrual basis as a component of the cumulative translation adjustment account in capital funds. AIG's largest currency net investments have had historically stable exchange rates with respect to the U.S. dollar.
RBC standards for property and casualty insurers were finalized in principle in December 1993 and were effective with the 1994 statutory financial statements. At December 31, 1994, the adjusted capital of each of AIG's domestic general companies exceeded each of their RBC standards by considerable margins. Additionally, no AIG company is on any regulatory or similar "watch list".
In January 1995, the Kobe region of Japan suffered severe damage as a result of an earthquake. The impact of the insured losses on AIG's 1995 results of operations before taxes is currently estimated to be $50 million net of reinsurance.
Although there was no effect on AIG's operating income upon the adoption of the Interpretation, AIG adopted this Interpretation effective January 1, 1994, and now presents certain of its financial services assets and liabilities, primarily unrealized gain (loss) on interest rate and currency swaps, options and forward transactions, on a gross basis. Thus, both consolidated assets and liabilities have increased. The effect of presenting these assets and liabilities on a gross basis on AIG's consolidated balance sheet was not significant. The prior year's balance sheet was not reclassified.
retirement. FASB 112 was adopted by AIG effective January 1, 1994, and had no significant effect on AIG's results of operations, financial condition or liquidity.
In May 1993, FASB issued Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" (FASB 114). FASB 114 addresses the accounting by all creditors for impairment of certain loans. The impaired loans are to be measured at the present value of all expected future cash flows. The present value may be determined by discounting the expected future cash flows at the loan's effective rate or valued at the loan's observable market price or valued at the fair value of the collateral if the loan is collateral dependent. AIG adopted FASB 114 effective December 31, 1994.
We have audited the consolidated financial statements of American International Group, Inc. and subsidiaries listed in the index on page 35 of this Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American International Group, Inc. and subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
American International Group, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
American International Group, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(b) BASIS OF PRESENTATION: The accompanying financial statements have been prepared on the basis of generally accepted accounting principles. Certain accounts have been reclassified in the 1993 and 1992 financial statements to conform to their 1994 presentation.
General Insurance Operations:Premiums are earned primarily on a pro rata basis over the term of the related coverage. The reserve for unearned premiums represents the portion of net premiums written relating to the unexpired terms of coverage.
Losses and loss expenses are charged to income as incurred. The reserve for losses and loss expenses represents the accumulation of estimates for reported losses and includes provisions for losses incurred but not reported. AIG does not discount its loss reserves, other than for very minor amounts related to certain workers' compensation claims. The methods of determining such estimates and establishing resulting reserves, including amounts relating to reserves for estimated unrecoverable reinsurance, are continually reviewed and updated. Adjustments resulting therefrom are reflected in income currently.
LIFE INSURANCE OPERATIONS: Premiums for traditional life insurance products are generally recognized as revenues over the premium paying period of the related policies. Benefits and expenses are provided against such revenues to recognize profits over the estimated life of the policies. Revenues for universal life and investment-type products consist of policy charges for the cost of insurance, administration, and surrenders during the period. Expenses include interest credited to policy account balances and benefit payments made in excess of policy account balances. Investment income reflects certain minor amounts of realized capital gains where the gains are deemed to be an inherent element in pricing certain life products in some foreign countries.
Policy acquisition costs for traditional life insurance products are generally deferred and amortized over the premium paying period of the policy. Deferred policy acquisition costs and policy initiation costs related to universal life and investment-type products are amortized in relation to expected gross profits over the life of the policies (see Note 4).
(c) INVESTMENTS IN FIXED MATURITIES AND EQUITY SECURITIES: Bonds and preferred stocks held to maturity, both of which are principally owned by the insurance subsidiaries, are carried at amortized cost where AIG has the ability and positive intent to hold these securities until maturity. Where AIG may not have the positive intent to hold these securities until maturity, those bonds are considered to be available for sale and carried at market value. Included in the bonds available for sale are collateralized mortgage obligations (CMOs). Premiums and discounts arising from the purchase of CMOs are treated as yield adjustments over the estimated life. Bond trading securities are carried at market value, as it is AIG's intention to sell these securities in the near term. Common and non-redeemable preferred stocks are carried at market value.
Unrealized gains and losses from investments in equity securities and fixed maturities available for sale are reflected in capital funds, net of any related deferred income taxes. Unrealized gains and losses from investments in trading securities are reflected in income currently.
(e) FLIGHT EQUIPMENT: Flight equipment is stated at cost. Major additions and modifications are capitalized. Normal maintenance and repairs, airframe and engine overhauls and compliance
with return conditions of flight equipment on lease are provided by and paid for by the lessee. Under the provisions of most leases for certain airframe and engine overhauls, the lessee is reimbursed for costs incurred up to but not exceeding contingent rentals paid to AIG by the lessee. AIG provides a charge to income for such reimbursements based upon the hours utilized during the period and the expected reimbursement during the life of the lease. Depreciation and amortization are computed on the straight-line basis to a residual value of approximately 15 percent over the estimated useful lives of the related assets but not exceeding 25 years. This caption also includes deposits for aircraft to be purchased.
(i) UNREALIZED GAIN AND UNREALIZED LOSS ON INTEREST RATE AND CURRENCY SWAPS, OPTIONS AND FORWARD TRANSACTIONS: Swaps, options and forward transactions are accounted for as contractual commitments recorded on a trade date basis and are carried at market or estimated fair value when market values are not available. Estimated fair values are based on the use of valuation models that utilize, among other things, current interest, foreign exchange and volatility rates with the resulting unrealized gains or losses reflected in income currently. These valuations represent an assessment of the present values of expected future cash flows of these transactions and may include reserves for market risk as deemed appropriate. The portfolio's discounted cash flows are evaluated with reference to current market conditions, maturities within the portfolio and other relevant factors. Based upon this evaluation, it is determined what, if any, offsetting transactions are necessary to reduce the market risk of the portfolio. The recorded values of these transactions may be different than the values that might be realized if AIG were to sell or close out the transactions prior to maturity. AIG manages its market risk with a variety of transactions, including swaps, trading securities, futures and forward contracts and other transactions as appropriate.
(j) TRADE RECEIVABLES AND TRADE PAYABLES: Trade receivables and trade payables include balances due from and due to clearing brokers and exchanges and receivables from and payables to counterparties which relate to unrealized gains and losses on open futures and forward contracts, securities, commodities and swaps.
(n) INVESTMENTS IN PARTIALLY-OWNED COMPANIES: The equity method of accounting is used for AIG's investment in companies in which AIG's ownership interest approximates twenty but is not greater than fifty percent (minority-owned companies). Equity in income of minority-owned insurance operations is presented separately in the consolidated statement of income. Equity in realized capital gains of such companies is included in other realized capital gains (losses). Equity in net income of other unconsolidated companies is principally included in other income (deductions)-net. At December 31, 1994, AIG's significant investments in partially-owned companies included its 46.4 percent interest in Transatlantic Holdings, Inc. (Transatlantic), which derives a substantial portion of its assumed reinsurance from AIG subsidiaries; its 19.9 percent
(t) TRANSLATION OF FOREIGN CURRENCIES: Financial statement accounts expressed in foreign currencies are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52 "Foreign Currency Translation" (FASB 52). Under FASB 52, functional currency assets and liabilities are translated into U.S. dollars generally using current rates of exchange and the related translation adjustments are recorded as a separate component of capital funds net of any related taxes. Functional currencies are generally the currencies of the local operating environment. Income statement accounts expressed in functional currencies are translated using average exchange rates. The adjustments resulting from translation of financial statements of foreign entities operating in highly inflationary economies are recorded in income. Exchange gains and losses resulting from foreign currency transactions are also recorded in income currently. The exchange gain or loss with respect to utilization of foreign exchange hedging instruments is recorded as a component of capital funds.
(u) INCOME TAXES: Deferred federal and foreign income taxes are provided for temporary differences for the expected future tax consequences of events that have been recognized in AIG's financial statements or tax returns.
Although there was no effect on AIG's operating income upon the adoption of the Interpretation, AIG now presents certain of its financial services assets and liabilities, primarily unrealized gain or loss on interest rate and currency swaps, options and forward transactions, on a gross basis. Thus, both consolidated assets and liabilities have increased. The effect of presenting these assets and liabilities on a gross basis on AIG's consolidated balance sheet was not significant. Prior years' balance sheets are not required to be restated. AIG adopted this interpretation effective January 1, 1994.
In May 1993, FASB issued Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" (FASB 114). FASB 114 addresses the accounting by all creditors for impairment of certain loans. The impaired loans are to be measured at the present value of all expected future cash flows. The present value may be determined by discounting the expected future cash flows at the loan's effective rate or valued at the loan's observable market price or valued at the fair value of the collateral if the loan is collateral dependent.
In October 1994, FASB issued Statement of Financial Accounting Standards No. 118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" (FASB 118). FASB 118 amends FASB 114 to allow a creditor to use existing methods to recognize interest income on an impaired loan. FASB 118 also amends certain disclosure requirements of FASB 114. AIG has adopted FASB 114 and FASB 118 effective December 31, 1994. The adoption of these statements did not have any significant impact on AIG's results of operations, financial condition or liquidity.
In December 1994, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 94-5 "Disclosure of Certain Matters in the Financial Statements of Insurance Enterprises" (SOP 94-5). Pursuant to SOP 94-5, AIG has disclosed certain information with respect to unpaid claims and claim adjustment expenses; accounting methods used by AIG's insurance subsidiaries that are permitted by various domestic and foreign insurance regulatory authorities rather than prescribed by such authorities; and AIG's policies and methodologies for estimating the liability for unpaid claim adjustment expense for difficult-to-estimate liabilities.
In 1992, FASB issued Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (FASB 109). FASB 109's objectives are to recognize (a) the amount of taxes payable or refundable for the current year and (b) deferred tax liabilities and assets for expected future tax consequences of events that have been recognized in the financial statements or tax returns. The measurement of a deferred tax asset is subject to the expectation of future realization. AIG adopted FASB 109, effective January 1, 1992. The cumulative effect of adopting FASB 109 was a benefit of $86.7 million.
At January 1, 1993, AIG adopted Statement of Accounting Standards No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" (FASB 113). This statement specifies the accounting for the reinsuring (ceding) of insurance contracts and, effective in the first quarter of 1993, eliminates the reporting of assets and liabilities net of the effects of reinsurance. As required by FASB 113, the reserve for losses and loss expenses, reserve for unearned premiums and future policy benefits for life and accident and health insurance contracts have been presented gross of ceded reinsurance. A reinsurance asset was established to include the aforementioned ceded reinsurance balances. FASB 113 also establishes the conditions required for a contract with a reinsurer to be accounted for as reinsurance ceded and prescribes accounting and reporting standards for the contract. There has been no material effect on AIG's general or life insurance operating income as a result of the adoption of FASB 113.
In May 1993, FASB issued Statement of Accounting Standards No. 115 "Accounting for Certain Investments on Debt and Equity Securities" (FASB 115) and AIG adopted this standard at December 31, 1993. The pretax increase in carrying value of bonds available for sale as a result of marking to market was $919.3 million. The portion which inured to the benefit of policyholders was $511.8 million, which has been recorded as a component of future policy benefits for life and accident and health insurance contracts. Thus, the unrealized appreciation of investments increased $251.0 million, net of taxes of $156.5 million.
* Where debt and equity securities are not reported either as held to maturity securities or trading securities, those securities are deemed to be available for sale securities and reported at fair value, with unrealized gains and losses excluded from operating income and reported in a separate component of shareholders' equity.
This statement has significantly changed and narrowed the meaning of the held to maturity category from previous generally accepted accounting principles.
During 1993, the Emerging Issues Task Force (EITF) of the FASB adopted an accounting rule "Accounting for Multiple-Year Retrospectively Rated Contract by Ceding and Assuming Enterprises" (EITF Issue No. 93-6). This rule encompasses any multiyear retrospectively rated contract requiring that insurers recognize as assets the reinsurer's obligations, and that ceding insurers accrue liabilities for the contract obligations. AIG has analyzed the aspects of this accounting rule and determined that its implementation had no significant impact on AIG's results of operations or financial condition.
Income taxes paid in 1994, 1993 and 1992 amounted to $741,900,000, $466,600,000 and $328,900,000, respectively.
The Omnibus Budget Reconciliation Act of 1993 (the 1993 Act) increased the highest tax rate on corporations to 35 percent for 1993 and subsequent years. The 1993 Act requires securities dealers to recognize for tax purposes the mark-to-market gain or loss on certain securities. The adjustment from this change in accounting method must be phased into taxable income over five years beginning in 1993. The 1993 Act also disallows several items as expenses beginning in 1994. None of these items will have a significant effect on AIG's net income or financial condition. However, it is expected that income taxes paid will increase as a result of such changes.
The Uruguay Round of the General Agreement on Tariffs and Trade Agreements Act (GATT) contains several revenue raising provisions. One of GATT's funding measures requires AIG to include Subpart F income from foreign subsidiaries in estimated tax payments. It is anticipated that the timing of income taxes paid will accelerate as a result of this change.
(b) The U.S. Federal income tax rate is 35 percent for 1994 and 1993 and 34 percent for 1992. Actual tax expense on income differs from the "expected" amount computed by applying the Federal income tax rate because of the following:
(c) The components of the net deferred tax liability as of December 31, 1994 and December 31, 1993 were as follows:
AIG life companies limit exposure to loss on any single life. For ordinary insurance, AIG retains a maximum of approximately $1,300,000 of coverage per individual life. There are smaller retentions for other lines of business. Life reinsurance is effected principally under yearly renewable term treaties. Amounts recoverable from life reinsurers are estimated in a manner consistent with the assumptions used for the underlying policy benefits and are presented as a component of reinsurance assets.
Supplemental information for gross loss and benefit reserves net of ceded reinsurance at December 31, 1994 and 1993 follows:
(b) The analysis of the future policy benefits and policyholders' contract deposits liabilities as at December 31, 1994 and 1993 follows:
(ii) Mortality and surrender rates are based upon actual experience by geographical area modified to allow for variations in policy form. The weighted average lapse rate, including surrenders, for individual and group life approximated 7.5 percent.
(iii) The portion of net income and unrealized appreciation of investments that can inure to the benefit of AIG is limited in some cases by the insurance contracts and by the local insurance regulations of the countries in which the policies are in force. All net income and unrealized appreciation of investments in excess of these limits have been included in the reserve for future policy benefits in the consolidated balance sheet.
Statutory surplus and net income for general insurance and life insurance operations as reported to regulatory authorities were as follows:
The gross gains and gross losses realized on the disposition of available for sale securities for 1994 follows:
During 1993 and 1992, gross gains of $99,162,000 and $87,776,000, respectively, and gross losses of $43,094,000 and $35,635,000, respectively, were realized on dispositions of fixed maturities carried at amortized cost.
At December 31, 1993, the balance of the unrealized appreciation of investments in equity securities (before applicable taxes) included gross gains of approximately $906,400,000 and gross losses of approximately $246,400,000.
The amortized cost and estimated market value of securities available for sale and carried at market value at December 31, 1994 and 1993 were as follows:
The amortized cost and estimated market values of fixed maturities held to maturity and fixed maturities available for sale at December 31, 1994, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.
The amortized cost and estimated market values of securities available for sale at December 31, 1994, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.
At December 31, 1994 and 1993, the market value of the CMO portfolio was $1.7 billion and $1.8 billion, respectively; the amortized cost was approximately $1.8 billion in 1994 and $1.7 billion in 1993. AIG's CMO portfolio is readily marketable. There were no derivative (high risk) CMO securities contained in this portfolio at December 31, 1994.
At December 31, 1994, the gross weighted average coupon of this portfolio was 7.6 percent. The gross weighted average life of this portfolio was 7.8 years.
(g) During 1993, certain investments held by AIGFP experienced financial difficulties and suffered rating downgrades. The pretax impact on AIG of the estimated other than temporary impairment in value of these investments was $215 million. As is AIG's policy in such situations where credit ratings have deteriorated significantly, these impairments have been appropriately recognized by charges to income of $104 million in 1993 and $111 million prior to 1993.
(a) COMMERCIAL PAPER: At December 31, 1994, the commercial paper issued and outstanding was as follows:
(b) BORROWINGS UNDER OBLIGATIONS OF GUARANTEED INVESTMENT AGREEMENTS: Borrowings under obligations of guaranteed investment agreements, which are guaranteed by AIG, are recorded on the basis of proceeds received. Obligations may be called at various times prior to maturity at the option of the counterparty. Interest rates on these borrowings range from 3.3 percent to 10.6 percent.
The interest rates on this debt range up to 8.45 percent. To the extent deemed appropriate, AIG may enter into swap transactions to reduce its effective short-term borrowing rate.
At December 31, 1994, the maturity schedule for AIG's outstanding Medium Term Notes was as follows:
At December 31, 1994, AIG had $247,000,000 principal amount of Series D Medium Term Notes registered and available for issuance from time to time.
(ii) MEDIUM TERM NOTES PAYABLE ISSUED BY ILFC: ILFC's Medium Term Notes are unsecured obligations which may not be redeemed by ILFC prior to maturity and bear interest at fixed rates set by ILFC at issuance.
As of December 31, 1994, notes in aggregate principal amount of $1,999,535,000 were outstanding with maturity dates varying from 1995 to 2004 at interest rates ranging from 3.75 percent to 9.88 percent. These notes provide for a single principal payment at the maturity of each note.
At December 31, 1994, the maturity schedule for ILFC's outstanding Medium Term Notes was as follows:
(i) ZERO COUPON NOTES: On October 1, 1984, AIG issued Eurodollar zero coupon notes in the aggregate principal amount at stated maturity of $750,000,000. The notes were offered at 12 percent of principal amount at stated maturity, bear no interest and are due August 15, 2004. The net proceeds to AIG from the issuance were $85,625,000. The notes are redeemable at any time in whole or in part at the option of AIG at 100 percent of their principal amount at stated maturity. The notes are also redeemable at the option of AIG or bearer notes may be redeemed at the option of the holder in the event of certain changes involving taxation in the United States at prices ranging from 34.41 percent currently, to 89.88 percent after August 15, 2003, of the principal amount at stated maturity together with accrued amortization of original issue discount from the preceding August 15. During 1994 and 1993, no notes were repurchased. At December 31, 1994, the notes outstanding have a face value of $189,200,000, an unamortized discount of $123,369,000 and a net book value of $65,831,000. The amortization of the original issue discount is recorded as interest expense.
(iii) TERM NOTES ISSUED BY ILFC: ILFC has issued unsecured obligations which may not be redeemed prior to maturity. $100,000,000 of such term notes are at floating interest rates and the remainder are at fixed rates.
During 1994, AIGFP issued Swiss franc denominated notes, maturing on May 15, 1998 and June 1, 1999 in the amount of Swiss franc 130 million and 61 million, respectively. These notes have an interest rate that is six month Swiss franc LIBOR plus 22 basis points. Interest is payable semi-annually. At December 31, 1994, these notes had a U.S. dollar carrying value of $148.6 million.
AIGFP is also obligated under various notes maturing in 1995 through 2005. The majority of these notes are U.S. dollar denominated and accrue interest at various interest rates. At December 31, 1994, these notes amounted to $789.4 million.
During 1993 and 1992, dividends paid on the MMP aggregated $1,043,000 and $4,471,000, respectively.
(b) AIG parent depends on its subsidiaries for cash flow in the form of loans, advances and dividends. Some AIG subsidiaries, namely those in the insurance business, are subject to regulatory restrictions on the amount of dividends which can be remitted to AIG parent. These restrictions vary by state. For example, unless permitted by the New York Superintendent of Insurance, general insurance companies domiciled in New York may not pay dividends to shareholders which in any twelve month period exceed the lesser of 10 percent of the company's statutory policyholders' surplus or 100 percent of its "adjusted net investment income", as defined. Generally, less severe restrictions applicable to both general and life insurance companies exist in most of the other states in which AIG's insurance subsidiaries are domiciled. Certain foreign jurisdictions have restrictions which generally cause only a temporary delay in the remittance of dividends. There are also various local restrictions limiting cash loans and advances to AIG by its subsidiaries. Largely as a result of the restrictions, approximately 64 percent of consolidated capital funds were restricted from immediate transfer to AIG parent at December 31, 1994.
* Shares issued to AIG and subsidiaries as part of stock split effected as dividend.
Common stock increased and additional paid-in capital decreased $281.2 million as a result of a common stock split in the form of a 50 percent stock dividend paid July 30, 1993 to holders of record July 2, 1993.
(c) AIGFP becomes party to off-balance sheet financial instruments in the normal course of its business and to reduce its currency, interest rate, equity and commodity exposures.
AIGFP, as principal and for its own account, enters into interest rate, currency, equity and commodity swaps and swaptions. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. AIGFP typically becomes a principal in the exchange of interest payments between the parties and, therefore, may be exposed to loss, if counterparties default. Currency, equity and commodity swaps are similar to interest rate swaps, but may involve the exchange of principal amounts at the beginning and end of the transaction. At December 31, 1994, the notional principal amount of the sum of the swap pays and receives approximated $133.7 billion, primarily related to interest rate swaps of approximately $105.6 billion.
The following table presents AIGFP's swaps and swaptions portfolio by maturity and type of derivative at December 31, 1994:
The following table presents AIGFP's futures and forward contracts portfolio, by maturity and type of derivative at December 31, 1994:
AIGFP independently evaluates the creditworthiness of its counterparties, taking into account credit ratings assigned by recognized statistical rating organizations. In addition, AIGFP's credit approval process involves pre-set counterparty, country and industry credit exposure limits and, for particularly credit intensive transactions, obtaining approval from AIG's Credit Risk Committee. The average credit rating of AIGFP's counterparties as a whole (as measured by AIGFP) is equivalent to AA. The maximum potential loss will increase or decrease during the life of the derivative commitments as a function of maturity and market conditions.
AIGFP monitors and controls its risk exposure on a daily basis through financial and credit reporting systems and, accordingly, believes that it has in place effective procedures for evaluating and limiting the credit and market risks to which it is subject. Management is not aware of any potential counterparty defaults as of December 31, 1994.
The net trading revenues for the twelve months ended December 31, 1994 from AIGFP's operations were $279.1 million.
(d) AIG Trading Group Inc. and its subsidiaries (AIGTG) becomes party to off-balance sheet financial instruments in the normal course of its business and to reduce its currency, interest rate and commodity exposures.
The following table provides the notional and contractual amounts of AIGTG's derivatives portfolio at December 31, 1994. In addition, the estimated positive fair values associated with the derivatives portfolio are also provided and include a maturity profile for the December 31, 1994 balances based upon the expected timing of the future cash flows.
Net replacement values presented represent the net sum of estimated positive fair values after the application of legally enforceable master closeout netting agreements and collateral held. The net replacement value most closely represents the net credit risk to AIGTG or the maximum exposure to potential loss.
Net replacement values presented represent the net sum of estimated positive fair values after the application of legally enforceable master closeout netting agreements and collateral held. The net replacement values most closely represent the net credit risk to AIGTG or the maximum amount exposed to potential loss. At December 31, 1994, the net replacement value of AIGTG's futures and forwards contracts approximated $1.87 billion.
The following table presents AIGTG's options portfolio and the associated credit exposure, if applicable, by maturity and type of derivative at December 31, 1994:
At December 31, 1994 the counterparty breakdown by industry with respect to the net replacement value of AIGTG's derivatives portfolio was as follows:
The net trading revenues for the twelve months ended December 31, 1994 from AIGTG's operations were $246.6 million.
Cash and short-term investments: The carrying amounts reported in the consolidated balance sheet for these instruments approximate fair values.
Trade receivables and trade payables: Fair values for trade receivables and trade payables approximate the carrying values presented in the consolidated balance sheet.
Spot commodities sold but not yet purchased: Fair values for spot commodities sold short, which include options, were based on current market prices.
The carrying values and fair values of AIG's financial instruments at December 31, 1994 and December 31, 1993 and the average fair values with respect to derivative positions during 1994 were as follows:
On December 19, 1991, the AIG Board of Directors adopted a 1991 employee stock option plan, which provides that options to purchase a maximum of 3,000,000 shares of common stock could be granted to officers and other key employees at prices not less than fair market value at the date of grant. Both the 1991 plan, and the options with respect to 74,925 shares granted thereunder on December 19, 1991, were approved by shareholders at the 1992 Annual Meeting. At December 31, 1994, 1,744,874 shares were reserved for future grants under the 1991 plan. As of March 18, 1992, no further options could be granted under the 1987 plan, but outstanding options granted under the 1987 plan and the previously superceded 1982 plan continue in force until exercise or expiration. At December 31, 1994, there were 2,765,388 shares reserved for issuance under the 1991, 1987 and 1982 plans.
Net pension cost for the years ended December 31, 1994, 1993 and 1992 included the following components:
* Net pension expense included $26,727, $20,999 and $13,478 related to non-U.S. plans for 1994, 1993 and 1992, respectively.
(c) In addition to AIG's defined benefit pension plan, AIG and its subsidiaries provide a postretirement benefit program for medical care and life insurance, domestically and in certain foreign countries. Eligibility in the various plans is generally based upon completion of a specified period of eligible service and reaching a specified age. Benefits vary by geographic location.
AIG's U.S. postretirement medical and life insurance benefits are based upon the employee reaching age 55 with 10 years of service to be eligible for an immediate benefit from the U.S. retirement plan. Retirees and their dependents who were age 65 by May 1, 1989 participate in the medical plan at no cost. All other retirees and dependents over age 65 pay 50 percent of the premium that is paid by current active employees. Retirees under age 65 pay the full active premium and covered dependents pay twice the active employee amounts. Contributions are subject to adjustment annually. Other cost sharing features of the medical plan include deductibles, coinsurance and Medicare coordination and a lifetime maximum benefit of $1,000,000. The maximum life insurance benefit prior to age 70 is $32,500, with a maximum of $25,000 thereafter.
Effective January 1, 1993, both plans' provisions were amended. Employees who retire on or after January 1, 1993 will be required to pay the actual cost of the medical benefits reduced by a credit which is based upon age and years of service at retirement. The life insurance benefit will vary by age at retirement from $5,000 for retirement at ages 55 through 59 to $15,000 for retirement at ages 65 and over.
Assumptions associated with the accrued postretirement benefit liability at December 31, 1994 were as follows:
The medical trend rate assumptions have a significant effect on the amounts reported. Increasing each trend rate by 1 percent in each year would increase the accumulated postretirement benefit obligations as of December 31, 1994 by $4.9 million and the aggregate service and interest cost components of the periodic postretirement benefit costs for 1994 by $493,000.
(d) AIG has certain postemployment benefits provided to former or inactive employees who are not retirees. Certain of these benefits are insured and expensed currently; other expenses are provided for currently. Such uninsured expenses include long and short-term disability medical and life insurance continuation, short-term disability income continuation and COBRA medical subsidies. The provision for these benefits at December 31, 1994 was $5.3 million. The incremental expense was insignificant.
(a) AIG and its subsidiaries occupy leased space in many locations under various long-term leases and have entered into various leases covering the long-term use of data processing equipment. At December 31, 1994, the future minimum lease payments under operating leases were as follows:
Rent expense approximated $218,900,000, $200,500,000, and $199,200,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
(a) OWNERSHIP: The directors and officers of AIG, the directors and holders of common stock of C. V. Starr & Co., Inc. (Starr), a private holding company, The Starr Foundation, Starr International Company, Inc. (SICO), a private holding company, and Starr own or otherwise control approximately 29 percent of the voting stock of AIG. Six directors of AIG also serve as directors of Starr and SICO.
(b) TRANSACTIONS WITH RELATED PARTIES: During the ordinary course of business, AIG and its subsidiaries pay commissions to Starr and its subsidiaries for the production and management of insurance business. Net commission payments to Starr aggregated approximately $31,200,000 in 1994, $25,800,000 in 1993 and $21,200,000 in 1992, from which Starr is required to pay commissions due originating brokers and its operating expenses. AIG also received approximately $12,900,000 in 1994, $11,800,000 in 1993 and $11,500,000 in 1992 from Starr and paid approximately $42,000 in 1994, $60,000 in 1993 and $50,000 in 1992 to Starr as reimbursement for services provided at cost. AIG also received approximately $900,000 in 1994, $600,000 in 1993 and $800,000 in 1992 from SICO and paid approximately $1,200,000 in 1994, $1,100,000 in 1993 and $900,000 in 1992 to SICO as reimbursement for services rendered at cost. AIG also paid to SICO $3,000,000 in 1994, $3,400,000 in 1993 and $3,800,000 in 1992 in rental fees.
The following quarterly financial information for each of the three months ended March 31, June 30, September 30 and December 31, 1994 and 1993 is unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the results of operations for such periods, have been made for a fair presentation of the results shown.
Financial Services - AIG's financial services operations engage in diversified financial services for affiliated and non-affiliated companies. Such operations include, but are not limited to, short-term cash management and financing, premium financing, interest rate, currency, equity and commodity derivative products business, various commodities trading and market making activities, banking services and operations and leasing and remarketing of flight equipment.
(b) The following table is a summary of AIG's general insurance operations by major operating category for the years ended December 31, 1994, 1993 and 1992:
(c) AIG's individual life insurance and group life insurance portfolio accounted for 62 percent, 64 percent and 67 percent of AIG's consolidated life insurance operating income before realized capital gains or losses for the years ended December 31, 1994, 1993 and 1992, respectively. For those years, 96 percent, 97 percent and 98 percent, respectively, of consolidated life operating income before realized capital gains or losses was derived from foreign operations.
(c) Assets as at December 31, 1993 and 1992 have been adjusted to conform to the requirements of FASB 113.