|AIG PROVIDES ADDITIONAL INFORMATION ON HOW POTENTIAL JAPAN EARTHQUAKE-RELATED LOSSES AT FUJI FIRE AND MARINE COULD AFFECT AIG’S FINANCIAL RESULTS|
NEW YORK, Mar 23, 2011 --
American International Group, Inc. (AIG) today released additional information about how potential losses stemming from earthquake-related claims filed with Fuji Fire and Marine Insurance Co., Ltd. (Fuji Fire and Marine), in which AIG holds a 54.66 percent equity stake, could affect AIG's financial results.
Last week, AIG issued a preliminary pre-tax insurance loss estimate for Chartis, its property casualty insurance unit, of $1.0 billion, or $0.9 billion after tax - 1.1 percent of total AIG shareholders' equity as of December 31, 2010 - net of all reinsurance recoverables for the first quarter of 2011, related to various catastrophes, including a pre-tax insurance loss of $0.7 billion related to the recent earthquake in Japan, consequent tsunami, and related exposures. As AIG noted in its announcement last week, the preliminary estimate excluded losses arising from AIG's general insurance operations in Japan that participate in the Japanese Earthquake Reinsurance Company (JERC), including Fuji Fire and Marine.
Under U.S. generally accepted accounting principles (U.S. GAAP), AIG consolidates Fuji Fire and Marine's financial results in AIG's financial statements. AIG believes the vast majority of any losses recorded by Fuji Fire and Marine in connection with the Japanese earthquake will relate to Fuji Fire and Marine's participation in the JERC, a joint government-private sector insurance system that is the exclusive provider of earthquake coverage for personal dwellings and their contents in Japan. Under this system, the Japanese government is to a great extent responsible for insurance liability through a reinsurance system that defines the various limits of liability to be covered by the government, the JERC, and private, general insurance companies in Japan, including Fuji Fire and Marine. (See "Note to Editors" at the end of this press release for more explanatory information.)
Although Fuji Fire and Marine has not announced an actual loss estimate for earthquake-related claims because its net loss exposure is dependent on industry total losses, which have not yet been determined, the company said earlier this week that the maximum possible loss that it could sustain in connection with JERC-related claims is approximately $508 million. In accordance with Japanese statutory accounting rules, as well as the requirements for private sector participants in the JERC, Fuji Fire and Marine had previously established catastrophe reserves of approximately $482 million for potential claims associated with earthquake damage to personal dwellings. These reserves, which are backed by funds held by the JERC, exist to cover the potential losses that Fuji Fire and Marine could sustain in connection with JERC-related claims, and limit the maximum net additional cash payments to the JERC to $26 million.
As U.S. GAAP prohibits the establishment of catastrophe reserves in advance of a catastrophic event occurring, the total net JERC losses that Fuji Fire and Marine actually incurs in connection with the Japan earthquake will flow through AIG's income statement. However, AIG expects minimal net effects on the statutory capital and liquidity of its local Japanese operations, including those of Fuji Fire and Marine, in light of existing local reserves as outlined above.
AIG expects that any net U.S. GAAP charge for earthquake-related losses by Fuji Fire and Marine would relate almost entirely to Fuji Fire and Marine's participation in the JERC, and that such a charge would be funded from Fuji Fire and Marine's JERC-related earthquake reserves, which are backed by funds held by the JERC for the benefit of supporting Fuji Fire and Marine's potential JERC-related liability.
NOTE TO EDITORS:
Background on the Japanese Earthquake Reinsurance Company (JERC) and Fuji Fire and Marine
As noted earlier in this press release, in Japan, there is a joint government-private sector insurance system covering earthquake risk for personal dwellings and their contents. Under this system, the Japanese government is, to a great extent, responsible for insurance liability through a reinsurance system that defines the various limits of liability to be covered by the government, the JERC, and private general insurance companies in Japan, including Fuji Fire and Marine.
An overview of the liability under the joint system for earthquake insurance for personal dwellings and their contents follows:
Aggregating all the numbers above, the maximum liability for the government will be 4.301 trillion yen ($52.5 billion USD), and 605.6 billion yen ($7.4 billion USD) for the JERC, and 593.15 billion yen ($7.2 billion USD) for the private general insurance companies, respectively. Fuji Fire and Marine's portion of the maximum for the private general insurance industry is 41.7 billion yen ($508 million USD). For comparison purposes, the Japanese private general insurance sector's aggregate liability resulting from the Great Hanshin-Awaji Earthquake was 78.3 billion yen ($955 million USD).
Furthermore, the private general insurance companies have established catastrophe reserves under Japanese accounting standards that are available to cover claims related to extensive disasters in addition to their regular reserves that cover their normal liability payments. These reserves can be utilized to offset earthquake losses. As of the end of December 2010, Fuji Fire and Marine had accumulated a 39.5 billion yen ($482 million USD) catastrophe reserve liability related to earthquake damage to personal dwellings, supported by a deposit asset of 35.5 billion yen ($433 million USD) with the JERC. The difference between these two figures is due to income taxes.
As a result, provided the industry loss from the Pacific Coast of Tohoku Earthquake for the JERC program does not exceed 3.1 trillion yen ($37.8 billion), Fuji Fire and Marine will not have to pay additional funds to the JERC as industry losses at that level will be covered by Fuji Fire and Marine's existing 39.5 billion yen ($482 million USD) reserve liability with the JERC. To the extent industry losses exceed 3.1 trillion yen ($37.8 billion), Fuji Fire and Marine is exposed to additional payments and liabilities of up to a maximum amount of 2.16 billion yen ($26 million).
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect AIG's current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Except for AIG's ongoing obligation to disclose material information as required by federal securities laws, it does not intend to provide an update concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date hereof.
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
SOURCE: American International Group, Inc.