The following summary sets forth selected financial data with respect to AIG for the five fiscal years ended December 31, 2001. The balance sheet and income statement data have been derived from AIG's consolidated financial statements which have been audited, for fiscal years through 1998 by Johnson Lambert & Co., AIIG's independent auditors and, for fiscal years 2001, 2000 and 1999 by Deloitte & Touche, AIG's independent auditors. The data set forth below should be read in conjunction with the audited financial statements and notes thereto included elsewhere herein.
A net income of $751,092 was reported in 2001, compared to net loss of $648,013 in 2000. A net loss of $1,438,024 was reported in 1999.
Premiums earned decreased by 2.2% in 2001 to $6,400,322 from $6,544,342 in 2000. Premiums earned for 2000 increased by 2.4% from $6,388,323 reported in 1999. In 2001, 2000, and 1999 premiums earned includes $0, $0 and $182,959, respectively resulting from reductions in the ultimate estimated premium ceded pursuant to retrocession agreements in effect during 1989 through mid-1993. Ultimate premiums are dependent on loss experience under the agreements and are reevaluated as ultimate losses are reevaluated.
Net investment income, including realized capital gains and losses, includes amounts earned on the Company's investment portfolio and cash equivalents. Net investment income increased $1,132,404 or 57.3% in 2001 to $3,107,964 from $1,975,560 in 2000. Net investment income in 2000 decreased by $720,572, or 26.7% from the $2,696,132 reported in 1999. Net investment income in 2001 includes net realized capital gains of $986,422 as compared to net realized capital losses in 2000 of $168,819. Net realized capital gains in 1999 were $532,854.
Invested assets including cash equivalents increased by $1,052,476 or 2.2% to $48,941,214 in 2001 compared to $47,888,738 in 2000. 2000 invested assets increased by 7.8% from $44,408,812 in 1999. Investment yield including realized capital gains and losses in 2001 was 6.4% as compared to 4.3% in 2000 and 6.1% in 1999. Excluding realized gains and losses, the yield was 4.4% in 2001, 4.6% in 2000 and 5.2% in 1999. The decrease in investment yield excluding realized gains and losses from 2000 to 2001 is primarily due to a decrease in the fixed term investments market yield.
2001 2000 ---- ---- U.S. Treasury notes 0% 0% Mortgage backed securities and obligations of U.S. Government agencies 39 44 Corporate debt securities 4 6 Obligations of state and political subdivisions 21 16 Equity securities 36 34 ---- ---- 100% 100% ==== ====
Losses and loss adjustment expenses incurred decreased by 2.6% to $6,065,656 in 2001 from $6,231,210 in 2000, and for 2000 decreased by 7.6% from $6,744,893 in 1999. These amounts include favorable development of prior years' estimates of losses and loss adjustment expense of approximately $22,742 in 2001, $0 in 2000 and $2,533,000 in 1999. AIG's loss ratio, calculated as the ratio of losses and loss adjustment expense to premiums earned, is 94.8% in 2001, 95.2% in 2000 and 105.6% in 1999. The ratio calculated using only losses and loss adjustment expenses incurred for the current year (excluding the effects of favorable development and excluding reductions to retrocession premiums) is 94.7% in 2001, 95.2% in 2000, 149.5% in 1999.
Policy acquisition costs of $1,891,474 were expensed in 2001 as compared to $1,927,973 in 2000, a decrease of 1.9%. Policy acquisition costs expensed in
Operating and management expenses decreased by 21.0% in 2001 to $800,064 from $1,013,138 in 2000. The primary reasons for this decline was a significant reduction in 2001 legal fees due to completion of work on the redomestication to Bermuda as compared to 2000. As well, due to the events of September 11th 2001, there was one less meeting of the AmerInst Board of Directors resulting in a reduction in Director's fees and travel expenses. Operating and management expenses for 2000 decreased by 7.7% from $1,097,171 in 1999, due to the write-off of all expenses relating to the redomestication.
As of December 31, 2001, total invested assets amounted to $46,085,433, an increase of $258,028 or 0.6% from $45,827,405 at December 31, 2000. Cash balances increased from $2,061,333 at December 31, 2000 to $2,855,781 at December 31, 2001. The amount of cash and cash equivalents varies depending on the maturities of fixed term investments and on the level of funds invested in money market mutual funds. The ratio of cash and invested assets to total liabilities and stockholders' equity at December 31, 2001 was .93 to 1, compared to .94 to 1 at December 31, 2000.
Deferred policy acquisition costs, representing the deferral of ceding commission expense related to premiums not yet earned, increased from December 31, 2000 along with the increase in unearned premiums. The current ceding commission rate, which became effective August 1, 1995, is 28.5%.
The Company paid its twenty-sixth consecutive quarterly dividend of $0.65 per share during the fourth quarter of 2001.
The above table presents the development of balance sheet liabilities for 1991 through 2001 as of year-end 2001. The top line of the table shows the original recorded unpaid liability for losses and LAE recorded at the balance sheet date for each of the indicated years.
The "cumulative redundancy (deficiency)" represents the aggregate change in the estimates over all prior years. For example, the 1995 liability has developed a $10,817,000 redundancy which has been reflected in income in subsequent years as the reserves were reestimated.
The Company does not believe its operations have been materially affected by inflation. The potential adverse impacts of inflation include: (a) a decline in the market value of the Company's fixed maturity investment portfolio; (b) an increase in the ultimate cost of settling claims which remain unresolved for a significant period of time; and (c) an increase in the Company's operating expenses. However, the Company generally holds its fixed maturity investments to maturity and currently believes that the yield is adequate to compensate the Company for the risk of inflation. In addition, the Company anticipates any increase from inflation in the ultimate cost of settling unpaid claims generally will be offset by investment income earned for the benefit of the client during the period that the claim is outstanding. Finally, the increase in operating expenses resulting from inflation should generally be matched by similar inflationary increases in the premium rates.
Report of Independent Accountants ....................................... 17 Consolidated Balance Sheets ............................................. 18 Consolidated Statements of Income and Other Comprehensive Income ........ 19 Consolidated Statement of Changes in Stockholders' Equity ............... 20-22 Consolidated Statements of Cash Flows ................................... 23 Notes to the Consolidated Financial Statements .......................... 24-34
Reports of Independent Accountants on Financial Statement Schedule ...... 35 Schedule I, Investments ................................................. 36 Schedule IV, Reinsurance ................................................ 36
Schedules II, III, V, and VI are omitted as they are inapplicable, immaterial, or because the required information may be found in the audited consolidated financial statements and notes thereto.