Friday, March 17, 2006

AIG-Some Preliminary Thoughts

American International Group (AIG) has done an outstanding job in improving disclosure, one of very few insurance businesses that permits you to look at their statutory accounting as well as GAAP accounting on their website. A new and refreshing development.

Speaking of development, it appears that one of the reasons that the earnings appeared light relative to expectations was attributable to recommendations of their independent actuary that they recognize some adverse development in the asbestos liabilities.

Overall reserve strengthening for both core and asbestos liabilities amounted to $4 billion for prior period adjustments plus $1.8 billion due to the actuarial study.

I believe this reflects two things...what apparently was a historic liberal attitude to maximizing and smoothing earnings under the previous management leadership and two, a mea culpa, bold strengthening of reserves in what has been a tumultuous year.

To come out after all of that with an ROE of 11% reflects an incredibly strong franchise.

I hope to grow through these numbers this weekend to hopefully have a little more insight. I really appreciate management's efforts in bringing greater clarity and transparency to what historically has been a fairly opaque and minimalist disclosure.

Have a great weekend everyone!


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