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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .................... TO ....................
COMMISSION FILE NUMBER 1-7981
AMERICAN GENERAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES OF INCORPORATION)
<TABLE>
<S> <C>
TEXAS 74-0483432
(State of incorporation) (I.R.S. Employer Identification No.)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019-2155
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (713) 522-1111
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - ------------------------------- -----------------------------
<S> <C> <C>
Common Stock, Par Value $.50 { New York Stock Exchange
{ Pacific Stock Exchange
Preferred Share Purchase Rights { New York Stock Exchange
(One right is attached to { Pacific Stock Exchange
each share of Common Stock) {
7% Convertible Preferred Stock, { New York Stock Exchange
Par Value $1.50 {
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value based on published prices as of March 1, 1996 of
American General's voting stock held by non-affiliates was approximately $7.6
billion. As of March 1, 1996, there were 207,603,245 shares of American
General's Common Stock and 2,317,701 shares of American General's 7% Convertible
Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- ------------------------
<S> <C>
Portions of American General's 1995 Annual Report to Shareholders Parts I and II
Portions of American General's definitive Proxy Statement dated March 19, 1996, for
the Annual Meeting of Shareholders to be held April 25, 1996 Parts I and III
</TABLE>
1995 FORM 10-K
<PAGE> 2
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PART I
ITEM 1. BUSINESS
GENERAL
American General Corporation (American General or the company) is the parent
company of one of the nation's largest diversified financial services
organizations. American General's operating subsidiaries are leading providers
of retirement annuities, consumer loans, and life insurance. The company was
incorporated as a general business corporation in Texas in 1980 and is the
successor to American General Insurance Company, an insurance company
incorporated in Texas in 1926.
Much of the information provided in response to this Item 1 is incorporated
herein by reference to selected portions of American General's 1995 Annual
Report to Shareholders (ARS). Appropriate references to such incorporated
information are specified throughout the text of this Item 1. Portions of
American General's 1995 ARS are provided as Exhibit 13 to this Form 10-K.
ACQUISITIONS AND DIVESTITURES. American General continued its corporate
development efforts during 1995. On January 31, 1995, the company acquired
American Franklin Company (AFC), the holding company of The Franklin Life
Insurance Company (Franklin Life), for $1.17 billion. The purchase price
consisted of $920 million paid in cash at closing and a $250 million cash
dividend paid by AFC to its former parent prior to closing. On October 19, 1995,
the company announced a definitive agreement to acquire Independent Insurance
Group, Inc. (Independent) for total consideration of $362 million.
On February 29, 1996, the company completed the Independent acquisition.
Prior to closing, Independent shareholders could elect to exchange each share of
Independent stock for $27.50 in cash, .7480 share of American General common
stock, or .7480 share of American General 7% mandatorily convertible preferred
stock. The exchange ratio was based on $36.7625, the average market price of
American General common stock during the ten trading days ending on and
including the fifth trading day prior to closing. The consideration at closing
was as follows: 1) $139 million of cash (38%), 2) 3.7 million shares of common
stock (38%), and 3) 2.3 million shares of preferred stock (24%). Holders of the
preferred stock are entitled to receive annual cumulative dividends of 7% and
have the right to vote, together with holders of American General common stock,
on the basis of four-fifths of one vote for each share of preferred stock. The
preferred stock is non-callable for four years, and each share is mandatorily
convertible into not more than one share of American General common stock during
the fifth year.
Additional information regarding acquisition and divestiture activities is
incorporated herein by reference to the section "Acquisitions and Divestitures"
on page 16 of Management's Discussion and Analysis (MD&A) and Note 2 of Notes to
Financial Statements in American General's 1995 ARS.
BUSINESS SEGMENTS. American General's operations are classified into the
following three business segments: Retirement Annuities, Consumer Finance, and
Life Insurance. A description of each business segment, including principal
products, methods of distribution, and principal markets, is incorporated herein
by reference to Note 1.1 of Notes to Financial Statements in American General's
1995 ARS. Financial information for each business segment is incorporated herein
by reference to the section "Business Segments" on pages 16-18 and the sections
"Asset/Liability Management," "Capital Requirements," and "Liquidity" on pages
21-24 of MD&A and Note 1.2 of Notes to Financial Statements in American
General's 1995 ARS, and to Schedule III of Item 14 of this Form 10-K.
EMPLOYEES. As of December 31, 1995, American General and its subsidiaries
employed approximately 15,300 full-time salaried employees, compared to 12,900
at year-end 1994. This increase is principally due to growth in the Consumer
Finance segment and the acquisition of Franklin Life.
AMERICAN GENERAL CORPORATION
2
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[AMERICAN GENERAL LOGO]
INSURANCE SALES AND IN FORCE. The following table summarizes the face amounts
of life insurance sales and life insurance in force for the company's insurance
subsidiaries for the past three years:
<TABLE>
<CAPTION>
In millions 1995(a) 1994(b) 1993
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
Individual life insurance
sales
Permanent (non-participating)
Interest-sensitive $ 9,231 $ 8,046 $ 9,941
Guaranteed-cost 3,249 2,739 3,681
Term 10,831 6,200 6,728
Permanent (participating) 1,749 7 9
Group life insurance sales 921 496 1,406
Credit life insurance sales 4,753 3,483 2,941
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Total 30,734 20,971 24,706
Reinsurance assumed (2,876) (394) (2,043)
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Total, excluding
reinsurance assumed(c) $ 27,858 $ 20,577 $ 22,663
- - -----------------------------------------------------------------------
Individual life insurance in force
(at December 31)
Permanent (non-participating)
Interest-sensitive $ 56,540 $ 48,415 $ 44,660
Guaranteed-cost 24,325 24,207 24,897
Term 40,903 23,405 22,366
Permanent (participating) 17,172 842 851
Group life insurance in
force 5,669 4,983 5,073
Credit life insurance in
force 4,575 2,899 2,548
- - -----------------------------------------------------------------------
Total(d) $ 149,184 $ 104,751 $ 100,395
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</TABLE>
(a) Includes Franklin Life from January 31, 1995.
(b) Excludes life insurance company sold in 1994.
(c) Before deductions for reinsurance ceded.
(d) Includes reinsurance assumed before deductions for reinsurance ceded.
INSURANCE DEPOSITS AND PREMIUMS. The following table lists deposits and
premiums and other considerations of the company's insurance and annuity
subsidiaries for the past three years:
<TABLE>
<CAPTION>
In millions 1995(a) 1994 1993
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
Deposits(b) $ 3,978 $ 3,375 $ 3,125
- - -----------------------------------------------------------------------
Direct premiums and other
considerations
Individual life premiums $ 991 $ 606 $ 652
Insurance charges 409 357 319
Individual health premiums 160 148 148
Other 288 143 143
- - -----------------------------------------------------------------------
Total direct premiums
and other considerations 1,848 1,254 1,262
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Reinsurance premiums assumed 104 52 38
Reinsurance premiums ceded (199) (96) (48)
- - -----------------------------------------------------------------------
Premiums and other
considerations $ 1,753 $ 1,210 $ 1,252
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</TABLE>
(a) Includes Franklin Life from January 31, 1995.
(b) Represents premiums received for interest-sensitive and certain
participating life insurance and annuity products.
INVESTMENTS
Information regarding investments is incorporated here-
in by reference to the sections "Investments" and "Asset/Liability Management"
on pages 18-22 of MD&A and Notes 3.2 and 5 of Notes to Financial Statements in
American General's 1995 ARS, and to Schedule I of Item 14 of this Form 10-K.
INSURANCE AND ANNUITY RESERVING METHODS
Individual life insurance reserves are based on assumptions similar to those
used to establish premium rates. Further information regarding reserving methods
is incorporated herein by reference to Note 3.8 of Notes to Financial Statements
in American General's 1995 ARS.
REINSURANCE
Information regarding reinsurance is incorporated herein by reference to Note
3.11 of Notes to Financial Statements in American General's 1995 ARS, and to
Schedule IV of Item 14 of this Form 10-K.
FACTORS AFFECTING PRICING OF PRODUCTS
INSURANCE AND ANNUITY PRODUCTS. Premium rates are based on assumptions, which
the company's insurance subsidiaries believe to be realistic, as to future
mortality, investment yields, expenses, and lapses. In addition, the pricing is
influenced by competition and the company's objectives for return on capital.
Although a profit margin is included in the price of the products, the actual
profitability of the products can be significantly affected by the variation
between actual and assumed experience.
CONSUMER FINANCE PRODUCTS. Pricing of consumer finance products is influenced
by such factors as cost of borrowed funds, credit risk, competition, and the
expense of operations. In addition, pricing is affected by state regulation of
interest rates based on contractual terms and loan amounts, charges for
individual loans, and insurance premium rates.
COMPETITION
The business of the company's subsidiaries is highly competitive with other
financial institutions and mutual fund companies with respect to pricing,
selection of products, and quality of service. No single competitor nor any
small group of competitors dominates any of the markets in which the company's
subsidiaries operate. Additional information is incorporated herein by reference
to the section "Competition" on page 25 of MD&A in American General's 1995 ARS.
1995 FORM 10-K
3
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PART I (Continued)
REGULATION
INSURANCE. American General's insurance subsidiaries are subject to state
regulation in the jurisdictions in which they do business. Information
concerning regulatory compliance is incorporated herein by reference to the
sections "Solvency Regulation" and "Market Conduct" on page 25 of MD&A in
American General's 1995 ARS. Information regarding statutory accounting
practices is incorporated herein by reference to Note 16 of Notes to Financial
Statements in American General's 1995 ARS.
Most states also regulate affiliated groups such as American General and its
subsidiaries under insurance holding company laws. Additional information
regarding dividend restrictions is incorporated herein by reference to Note 19.1
of Notes to Financial Statements in American General's 1995 ARS.
Discussion of state guaranty associations is incorporated herein by reference
to the section "Guaranty Associations" on page 25 of MD&A and Note 9 of Notes to
Financial Statements in American General's 1995 ARS.
CONSUMER FINANCE. The company's consumer finance subsidiaries are subject to
various types of federal regulation including the Federal Consumer Credit
Protection Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Truth In Lending Act, certain Federal Trade Commission rules, and state laws
that regulate the consumer loan and retail sales finance businesses. In
addition, the company's thrift subsidiary, which engages in the consumer finance
business and accepts insured deposits, is subject to regulation by and reporting
requirements of the Federal Deposit Insurance Corporation and is subject to
regulatory codes in the state of Utah.
OTHER. Discussion of certain other regulatory factors is incorporated herein
by reference to the sections "Taxation" and "Environmental" on page 25 of MD&A
in American General's 1995 ARS.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information as of March 1, 1996 regarding the 15 executive officers of
American General is as follows:
<TABLE>
<CAPTION>
Present Principal Position with American General and
Name and Age Other Material Positions Held during Last Five Years
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C>
HAROLD S. HOOK (64) Chairman and Chief Executive Officer (since 1978) and Director (since 1972), American
General Corporation.
ROBERT M. DEVLIN (55) President (since 1995), Director (since 1993), and Vice Chairman (1993-95), American
General Corporation; President and Chief Executive Officer (1986-93), American General Life
Insurance Company, Houston, Texas, a subsidiary of American General Corporation.
JON P. NEWTON (54) Vice Chairman and General Counsel, and Director (since 1995), and Senior Vice President and
General Counsel (1993-95), American General Corporation. Partner (1985-93), Clark, Thomas,
Winters & Newton, Austin, Texas.
MICHAEL G. ATNIP (47) Senior Vice President (since 1994) and Senior Vice President - Operations Support (since
1995), American General Corporation; with American General during the remainder of last
five years in various other capacities including Senior Vice President - Insurance and
Administration (1991-93) and Senior Vice President (1989-91), American General Finance,
Inc., Evansville, Indiana, a subsidiary of American General Corporation.
STEPHEN D. BICKEL (56) Chairman (since 1994) and Chief Executive Officer (since 1988), The Variable Annuity Life
Insurance Company, Houston, Texas, a subsidiary of American General Corporation; President
(1988-94), The Variable Annuity Life Insurance Company.
ROBERT S. CAUTHEN JR. (51) President and Chief Executive Officer (since 1993), American General Life Insurance
Company, Houston, Texas, a subsidiary of American General Corporation; Senior Vice
President and Chief Marketing Officer (1991-93), American General Life Insurance Company.
Chairman and Chief Operating Officer (1990-91), First Financial Resources, Valley Forge,
Pennsylvania.
</TABLE>
AMERICAN GENERAL CORPORATION
4
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[AMERICAN GENERAL LOGO]
<TABLE>
<CAPTION>
Present Principal Position with American General and
Name and Age Other Material Positions Held during Last Five Years
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C>
JAMES S. D'AGOSTINO JR. (49) Chairman (since 1995) and Chief Executive Officer (since 1993), American General Life and
Accident Insurance Company, Nashville, Tennessee, a subsidiary of American General
Corporation; President (1993-95), American General Life and Accident Insurance Company;
with American General Corporation during the remainder of last five years in various other
capacities including Executive Vice President - Administration (1993), Senior Vice
President - Administration (1991-93), and Senior Vice President - Investor Relations
(1990-91).
FREDERICK W. GEISSINGER (50) President and Chief Executive Officer (since 1995), American General Finance, Inc.,
Evansville, Indiana, a subsidiary of American General Corporation; President and Chief
Executive Officer (1994-95), American General Land Development, Inc., Houston, Texas, a
subsidiary of American General Corporation. Independent Consultant (1992-94), New York, New
York. Executive Vice President (1990-92), Daiwa Securities America, New York, New York.
ROBERT J. GIBBONS (53) President and Chief Executive Officer (since 1995), The Franklin Life Insurance Company,
Springfield, Illinois, a subsidiary of American General Corporation; President and Chief
Executive Officer (1994-95), American General Life Insurance Company of New York, Syracuse,
New York, a subsidiary of American General Corporation. Vice President (1993-94), Chemical
Insurance Agency, New York, New York. Senior Vice President (1989-93), The Equitable Life
Assurance Society of the United States, New York, New York.
ALBERT E. HAINES (51) Senior Vice President - Administration (since January 1996), American General Corporation.
President (1992-January 1996), Chamber of Commerce, The Greater Houston Partnership,
Houston, Texas. Chief Administrative Officer and Director of Finance (1989-92), City of
Houston, Texas.
JOE KELLEY (48) President (since 1995), American General Life and Accident Insurance Company, Nashville,
Tennessee, a subsidiary of American General Corporation; Senior Vice President and Chief
Marketing Officer (1994-95), American General Life Insurance Company, Houston, Texas, a
subsidiary of American General Corporation. Senior Vice President (1992-94), Prudential
Preferred Financial Services, Houston, Texas. Chief Marketing Officer (1990-92), The
Prudential Insurance Company, Newark, New Jersey.
NICHOLAS R. RASMUSSEN (49) Senior Vice President (since 1983) and Senior Vice President - Corporate Development (since
1993), and Senior Vice President - Group Executive (1990-93), American General Corporation.
PETER V. TUTERS (43) Senior Vice President (since 1992) and Chief Investment Officer (since 1993), American
General Corporation. Vice President (1986-92), Crown Life Insurance Company, Toronto,
Ontario, Canada.
THOMAS L. WEST JR. (58) President (since 1994), The Variable Annuity Life Insurance Company, Houston, Texas, a
subsidiary of American General Corporation. Senior Vice President, Annuity Operations
(1991-94), Aetna Life & Casualty Company, Hartford, Connecticut.
AUSTIN P. YOUNG (55) Senior Vice President (since 1987), Chief Financial Officer (since 1988), and Treasurer
(1990-91), American General Corporation.
</TABLE>
1995 FORM 10-K
5
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PART I (Continued)
ITEM 2. PROPERTIES
American General's corporate headquarters is located in the American General
Center, a complex of office buildings on a 45-acre tract near downtown Houston.
American General or its subsidiaries either own or lease pursuant to a
sale-leaseback arrangement all of the buildings in the complex. In addition,
American General or its subsidiaries own all of the underlying land, except for
a five-acre parcel that is leased pursuant to a long-term agreement. American
General and its subsidiaries occupy approximately 45% of the total office space
available in the American General Center.
American General's subsidiaries also own various other properties, including
properties held for investment, branch office buildings, and the home office
buildings of American General Finance, Inc. in Evansville, Indiana; Franklin
Life in Springfield, Illinois; and The Independent Life and Accident Insurance
Company in Jacksonville, Florida. Portions of certain of these buildings are
rented to unaffiliated third parties. The home office building of American
General Life and Accident Insurance Company was sold in 1994, and construction
of a new building in Nashville, Tennessee is expected to be completed in late
1996.
ITEM 3. LEGAL PROCEEDINGS
AVIA V. AMERICAN GENERAL REALTY. Two real estate subsidiaries of the company
were defendants in a lawsuit, Avia Development Group et al. v. American General
Realty Investment Corp., et al. (filed in the 61st District Court of Harris
County, Texas, September 23, 1991), that alleged damages based on lost profits
and related claims arising from certain loans and joint venture contracts. On
July 16, 1993, a judgment was entered against the subsidiaries jointly for $47.3
million in compensatory damages and against one of the subsidiaries for $189.2
million in punitive damages. On September 17, 1993, a Texas state district court
reduced the previously-awarded punitive damages by $60.0 million, resulting in a
reduced judgment in the amount of $176.5 million plus post-judgment interest. On
January 29, 1996, the Texas First Court of Appeals rendered a two-to-one
decision that affirmed the trial court judgment. The company intends to
vigorously contest the matter through the appellate process. Although
substantial risks and uncertainties remain with respect to the ultimate outcome,
legal counsel has advised the company that it is not probable within the meaning
of Statement of Financial Accounting Standards (SFAS) 5, "Accounting for
Contingencies," that the company will ultimately incur a material liability in
connection with this matter. Accordingly, no provision has been made in the
consolidated financial statements related to this contingency.
GULF LIFE V. IRS. In April 1992, the Internal Revenue Service (IRS) issued
Notices of Deficiency for the 1977-1981 tax years of certain insurance
subsidiaries. The basis of the dispute was the tax treatment of modified
coinsurance agreements. The company elected to pay all related assessments plus
associated interest, totaling $59 million. A claim for refund of tax and
interest was disallowed by the IRS in January 1993. On June 30, 1993, a suit for
refund was filed in the United States Court of Federal Claims (Gulf Life
Insurance Co. v. United States, C.A. No. 93-404T). On February 7, 1996, the
court ruled in favor of the company on all legal issues related to this
contingency. The company does not yet know whether the IRS will appeal this
decision; however, the company intends to pursue a full refund of the amounts
paid. Accordingly, no provision has been made in the consolidated financial
statements related to this contingency.
AMERICAN GENERAL CORPORATION
6
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[AMERICAN GENERAL LOGO]
CALIFORNIA V. OCHOA. In March 1994, two subsidiaries of the company were
named as defendants in a lawsuit, The People of the State of California
(California) v. Luis Ochoa, Skeeters Automotive, Morris Plan, Creditway of
America, Inc. and American General Finance, filed in the Superior Court of
California, County of San Joaquin, Case No. 271130. California is seeking
injunctive relief, a civil penalty of not less than $5,000 per day or not less
than $250,000 for violation of its Health and Safety Code in connection with the
failure to register and remove underground storage tanks on property acquired
through a foreclosure proceeding by a subsidiary of the company, and a civil
penalty of $2,500 for each act of unfair competition prohibited by its Business
and Professions Code, but not less than $250,000, plus costs.
PEBBLE CREEK. Various violations of operating permits held by Pebble Creek
Service Corporation (Pebble Creek), an indirect wholly-owned subsidiary of the
company, are currently being addressed by Pebble Creek with the United States
Environmental Protection Agency (EPA), the Florida Department of Environmental
Protection, and the Environmental Protection Commission of Hillsborough County,
Florida. These violations include inaccurate reporting of test results by a
former plant operator and violations of effluent parameters in connection with
its wastewater treatment plant. In May 1994, Pebble Creek attended a meeting to
show cause why the EPA should not initiate enforcement proceedings against
Pebble Creek. Pebble Creek has not yet been made aware of the EPA's decision.
The company believes that penalties in excess of $100,000 could be assessed
against Pebble Creek.
The company believes that the total amounts that would ultimately be paid, if
any, arising from the environmental claims discussed in the two preceding
paragraphs would have no material effect on the company's consolidated results
of operations and financial position.
OTHER. American General and certain of its subsidiaries are defendants in
various other lawsuits and proceedings arising in the normal course of business.
Some of these lawsuits and proceedings arise in jurisdictions such as Alabama
that permit punitive damages disproportionate to the actual damages alleged. In
light of the uncertainties inherent in any litigation, no assurances can be
given as to the ultimate outcome of these lawsuits and proceedings. However,
American General and its subsidiaries believe that there are meritorious
defenses for all of these claims and are defending them vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during fourth quarter
1995.
1995 FORM 10-K
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The quarterly high and low market prices of American General's common stock
as quoted by the New York Stock Exchange, the number of shareholders of record
of common stock, and restrictions on retained earnings for the payment of
dividends are incorporated herein by reference to Notes 20, 13.1, and 19.1,
respectively, of Notes to Financial Statements in American General's 1995 ARS.
The quarterly cash dividends paid on common stock are incorporated herein by
reference to Note 20 of Notes to Financial Statements in American General's 1995
ARS.
The common stock of American General is traded in the United States on the
New York Stock Exchange and the Pacific Stock Exchange. The common stock is also
traded on the London Stock Exchange and the Swiss Stock Exchanges of Basel,
Geneva, and Zurich.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included or incorporated by reference herein.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
In millions, except per share data 1995(a) 1994 1993 1992 1991
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 6,495 $ 4,841 $ 4,829 $ 4,602 $ 4,395
Income before cumulative effect of accounting changes 545(b) 513(c) 250(d) 533 480
Income per common share before cumulative effect of
accounting changes 2.64(b) 2.45(c) 1.15(d) 2.45 2.13
Assets 61,153(e) 46,295(e) 43,982(e) 39,742 36,105
Debt
Corporate 1,723 1,836 1,686 1,987 1,981
Consumer Finance 7,470 7,090 5,843 5,484 5,243
Redeemable equity 729(f) 47 - - -
Shareholders' equity 5,801(e) 3,457(e) 5,137(e) 4,616 4,329
Cash dividends declared per common share 1.24 1.16 1.10 1.04 1.00
- - ------------------
</TABLE>
(a) Includes Franklin Life from January 31, 1995.
(b) Includes aftertax charge of $140 million ($.67 per share) for an increase in
the allowance for finance receivable losses in fourth quarter 1995.
(c) 1994 includes realized investment losses of $114 million ($.55 per share).
Realized investment gains for 1995, 1993, 1992, and 1991 were immaterial.
(d) Includes $300 million ($1.39 per share) write-down of goodwill and $30
million ($.14 per share) tax rate related adjustment. Additional information
is incorporated herein by reference to the section "Acquisition-Related
Goodwill" on page 24 of MD&A and Note 11.2 of Notes to Financial Statements
in American General's 1995 ARS.
(e) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Fair Value of
Securities" on pages 18-19 of MD&A in American General's 1995 ARS.
(f) Includes $244 million of convertible and $485 million of non-convertible
preferred securities of subsidiaries issued in 1995. Additional information
is incorporated herein by reference to Note 12.1 of Notes to Financial
Statements in American General's 1995 ARS.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is incorporated herein by reference to "Management's Discussion and
Analysis" on pages 16-25 in American General's 1995 ARS.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Financial statements and supplementary data are incorporated herein by
reference to pages 26-44 in American General's 1995 ARS.
The ratios of earnings to fixed charges are incorporated herein by reference
to Exhibit 12 of Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
AMERICAN GENERAL CORPORATION
8
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PART III [AMERICAN GENERAL LOGO]
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the section "Election of Directors" in American
General's definitive Proxy Statement dated March 19, 1996 (1996 Proxy
Statement), is incorporated herein by reference. Information regarding the 12
executive officers of American General who are not standing for election to the
board of directors of American General is included in Part I, Item 1A of this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the sections "Governance of the Company" and
"Compensation of Executive Officers" in American General's 1996 Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the sections "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in American General's
1996 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the section "Certain Relationships and
Transactions" in American General's 1996 Proxy Statement is incorporated herein
by reference.
1995 FORM 10-K
9
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
<TABLE>
<CAPTION>
Page Reference
--------------------------------
1995
Form 10-K Annual Report
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Financial Statements
Report of Ernst & Young LLP, Independent Auditors - 45
Consolidated Financial Statements
Statement of Income - 26
Balance Sheet - 27
Statements of Shareholders' Equity and Stock Activity - 28
Statement of Cash Flows - 29
Notes to Financial Statements - 30-44
2. Financial Statement Schedules
Schedule I - Summary of Investments - Other than Investments in
Affiliates 13 -
Schedule II - Condensed Financial Information of Registrant 14-16 -
Schedule III - Supplementary Insurance Information 17 -
Schedule IV - Reinsurance 18 -
Schedule V - Valuation and Qualifying Accounts 19 -
</TABLE>
All other financial statement schedules have been omitted
because they are inapplicable.
3. Exhibits
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA), or
Incorporated by Reference to
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 Restated Articles of Incorporation of American General 4.1 33-33115
Corporation (including Statement of Resolution
Establishing Series of Shares of Series A Junior
Participating Preferred Stock)
3.2 Statement of Resolution Establishing Series of Shares 4(o) 33-58317
of Series A Cumulative Convertible Preferred Stock
3.3 Statement of Resolution Establishing Series of Shares 4(d) 333-00513
of 7% Convertible Preferred Stock
3.4 Amended and Restated Bylaws of American General 3.2 Form 10-K
Corporation for 1993
4.1 There have not been filed as exhibits to this Form 10-K NA NA
certain long-term debt instruments, none of which
relates to authorized indebtedness that exceeds 10% of
the consolidated assets of the company and its
subsidiaries. The company hereby agrees to furnish a
copy of any such instrument to the Commission upon
request.
4.2 Rights Agreement, dated as of July 27, 1989, between 4 Form 10-Q
the company and Texas Commerce Bank, as Rights Agent for Second
(Rights Agreement) Quarter 1989
4.3 First Amendment to Rights Agreement, dated as of 19 Form 10-Q
October 26, 1992, between the company and First Chicago for Third
Trust Company of New York, as Rights Agent Quarter 1992
10.1 1984 Stock and Incentive Plan for key employees of the 10.5 Form 10-K
company and its subsidiaries for 1984
</TABLE>
(continued on next page)
AMERICAN GENERAL CORPORATION
10
<PAGE> 11
- - --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA),
or
Incorporated by Reference to
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.2 1984 Stock and Incentive Plan (Amended and Restated 10.2 Form 10-K
Effective as of February 8, 1994) for key employees of for 1993
the company and its subsidiaries
10.3 Restoration of Retirement Income Plan for Certain 10.3 Form 10-K
Employees Participating in the Restated American for 1993
General Retirement Plan (Restoration of Retirement
Income Plan)
10.4 First Amendment to Restoration of Retirement Income 10.4 Form 10-K
Plan for 1993
10.5 Second Amendment to Restoration of Retirement Income 10.5 Form 10-K
Plan for 1993
10.6 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.7 First Amendment to American General Supplemental Thrift 10.7 Form 10-K
Plan for 1993
10.8 Second Amendment to American General Supplemental 10.8 Form 10-K
Thrift Plan for 1993
10.9 Third Amendment to American General Supplemental Thrift 10.9 Form 10-K
Plan for 1993
10.10 Form of Severance Agreements between the company and 10.10 Form 10-K
each of the following: Harold S. Hook, Robert M. Devlin, for 1993
Jon P. Newton, Michael G. Atnip, Stephen D. Bickel,
Robert S. Cauthen Jr., James S. D'Agostino Jr., Stephen H.
Field, Frederick W. Geissinger, Robert J. Gibbons,
Albert E. Haines, Joe Kelley, Rodney O. Martin Jr.,
Nicholas R. Rasmussen, Gary D. Reddick, Peter V. Tuters,
Thomas L. West Jr., and Austin P. Young
10.11 Severance Agreements between Howard C. Humphrey and 10.11 Form 10-K
Franklin Life for 1994
10.12 Supplemental Retirement Agreement between the company 10.11 Form 10-K
and Harold S. Hook for 1993
10.13 American General Supplemental Retirement Plan Trust 10.12 Form 10-K
(relating to Exhibit 10.12 hereto) for 1993
10.14 Amendment to Supplemental Retirement Agreement between 10.13 Form 10-K
the company and Harold S. Hook for 1993
10.15 Second Amendment to Supplemental Retirement Agreement 10.14 Form 10-K
between the company and Harold S. Hook for 1993
10.16 Deferred Compensation Agreement between the company and 10.16 Form 10-K
Harold S. Hook for 1993
10.17 1995 Deferred Compensation Plan 10.17 Form 10-K
for 1994
10.18 1996 Deferred Compensation Plan 10.18* NA
10.19 American General Corporation Retirement Plan for 10.17 Form 10-K
Directors (as amended and restated) for 1993
10.20 American General Corporation Performance-Based Plan for 10.19 Form 10-K
Executive Officers, Amended and Restated Effective for 1994
January 1, 1995
</TABLE>
(continued on next page)
1995 FORM 10-K
11
<PAGE> 12
- - --------------------------------------------------------------------------------
PART IV (Continued)
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA), or
Incorporated by Reference to
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.21 Employment Memorandum of Understanding dated April 12, 10.2 Form 10-Q
1994 between The Variable Annuity Life Insurance for Second
Company and Thomas L. West Jr. Quarter 1994
10.22 Employment Agreement dated April 28, 1994 between the 10.3 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
10.23 Consulting Agreement dated April 28, 1994 between the 10.4 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
10.24 License Agreement dated April 28, 1994 among the 10.5 Form 10-Q
company, Harold S. Hook, and Main Event Management for Second
Corporation Quarter 1994
10.25 Stock Purchase Agreement between American General 2 Form 8-K
Corporation and American Brands, Inc., dated as of dated 2/14/95
November 29, 1994
11 Computation of Earnings Per Share 11* NA
12 Computation of Ratio of Earnings to Fixed Charges and 12* NA
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
13 Portions of American General's 1995 Annual Report to 13* NA
Shareholders that are expressly incorporated herein by
reference in this Form 10-K. Other sections of the
Annual Report furnished for the information of the
Commission are not deemed "filed" as part of this Form
10-K.
21 Subsidiaries of American General Corporation 21* NA
23 Consent of Ernst & Young LLP, Independent Auditors 23* NA
24 Powers of attorney for the directors signing this Form 24* NA
10-K
27 Financial Data Schedule 27* NA
</TABLE>
Any Exhibit not included with this Form 10-K will be
furnished to any shareholder of record on written
request and payment of up to $.25 per page plus postage.
Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston,
Texas 77253-3247.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed after September 30, 1995:
1. Current Report on Form 8-K dated October 20, 1995, with respect to the
issuance of a news release announcing the signing of a definitive
agreement under which the company will acquire Independent for total
consideration of $362 million, subject to approval by Independent's
shareholders and requisite regulatory authorities.
2. Current Report on Form 8-K dated October 26, 1995, with respect to the
issuance of a news release announcing the adoption by the company's
board of directors of a plan of succession for the Office of the
Chairman.
3. Current Report on Form 8-K dated November 13, 1995, with respect to the
pro forma financial statements of the company including the acquisition
of AFC and the proposed acquisition of Independent as of and for the
nine months ended September 30, 1995, and for the year ended December
31, 1994.
AMERICAN GENERAL CORPORATION
12
<PAGE> 13
- - --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
In millions
<TABLE>
<CAPTION>
At December 31, 1995
-------------------------------------------------
Amount
Cost Shown in
or Consolidated
Amortized Fair Balance
Type of Investment Cost Value Sheet
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Bonds and notes
U.S. government obligations $ 537 $ 624 $ 624
States and political subdivisions 271 290 290
Foreign governments 648 730 730
Mortgage-backed securities 11,019 11,663 11,663
Public utilities 3,928 4,285 4,285
All other corporate 18,055 19,484 19,484
Redeemable preferred stocks 132 137 137
- - --------------------------------------------------------------------------------------------------------------
Total fixed maturity securities 34,590 37,213 37,213
- - --------------------------------------------------------------------------------------------------------------
Equity securities
Common stocks - industrial, miscellaneous, and all other 86 104 104
Perpetual preferred stocks 52 82 82
- - --------------------------------------------------------------------------------------------------------------
Total equity securities 138 186 186
- - --------------------------------------------------------------------------------------------------------------
Mortgage loans on real estate* 3,041 3,041
Investment real estate*
Investment properties 503 503
Acquired in satisfaction of debt 74 74
Policy loans 1,605 1,605
Other long-term investments* 179 179
Short-term investments 103 103
- - --------------------------------------------------------------------------------------------------------------
Total investments $ 40,233 $ 42,904
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of applicable allowance for losses. See Schedule V of this Form 10-K.
1995 FORM 10-K
13
<PAGE> 14
- - --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Dividends - affiliated $ 445 $ 459(a) $ 679
Interest income - affiliated 130 33 21
Net realized investment gains (losses) (1) (3) 19
Other income
Affiliated 36 36 24
Other 6 3 5
- - ------------------------------------------------------------------------------------------------------------
Total revenues 616 528 748
- - ------------------------------------------------------------------------------------------------------------
Expenses
Operating costs and expenses
Affiliated 7 8 8
Other 77 66 51
Interest expense
Affiliated 46 11 12
Other 156 110 109
- - ------------------------------------------------------------------------------------------------------------
Total expenses 286 195 180
- - ------------------------------------------------------------------------------------------------------------
Income before income tax benefit, equity in undistributed net
income (loss) of subsidiaries, and cumulative effect of
accounting changes 330 333 568
Income tax benefit 35 43 37
Equity in undistributed net income (loss) of subsidiaries
(net of dividends paid to parent) 180 137(a) (355)
- - ------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 545 513 250
Cumulative effect of accounting changes(b)
Parent company - - (12)
Subsidiaries - - (34)
- - ------------------------------------------------------------------------------------------------------------
Net income $ 545 $ 513 $ 204
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) To conform with the 1995 presentation, amount has been restated.
(b) Reflects adoption of SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions;" SFAS 109, "Accounting for Income Taxes;" and
SFAS 112, "Employers' Accounting for Postemployment Benefits," at January 1,
1993. Additional information is incorporated herein by reference to Note 4.2
of Notes to Financial Statements in American General's 1995 ARS.
AMERICAN GENERAL CORPORATION
14
<PAGE> 15
- - --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
BALANCE SHEET OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
At December 31,
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments
Subsidiaries, at equity $ 6,710 $ 4,238 $ 5,661
Other 35 64 37
Indebtedness from subsidiaries 1,473 779 780
Cash 1 - -
Other 115 52 83
- - --------------------------------------------------------------------------------------------------------------
Total assets $ 8,334 $ 5,133 $ 6,561
- - --------------------------------------------------------------------------------------------------------------
Liabilities
Short-term debt $ 240 $ 642 $ 315
Long-term debt(a)
Senior(b) 1,180 847 956
Subordinated, held by subsidiaries(c) 993 53 56
Indebtedness to subsidiaries 23 35 27
Federal income taxes 28 (3) (7)
Other 69 55 77
- - --------------------------------------------------------------------------------------------------------------
Total liabilities 2,533 1,629 1,424
- - --------------------------------------------------------------------------------------------------------------
Redeemable equity
Common stock subject to put contracts - 47 -
- - --------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock 364 364 365
Net unrealized gains (losses) on securities(d) 1,100 (935) 709
Retained earnings(e) 4,787 4,495 4,229
Cost of treasury stock(f) (450) (467) (166)
- - --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,801 3,457 5,137
- - --------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 8,334 $ 5,133 $ 6,561
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The five-year schedule of maturities of debt is as follows: 1996, $0; 1997,
$136 million; 1998, $71 million; 1999, $103 million; and 2000, $203 million.
(b) The principal amount of American General senior notes held by subsidiaries
was $10 million at December 31, 1995, $11 million at December 31, 1994, and
$11 million at December 31, 1993.
(c) Information regarding American General's subordinated debentures issued in
1995 is incorporated herein by reference to Note 12.1 of Notes to Financial
Statements in American General's 1995 ARS.
(d) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Fair Value of
Securities" on pages 18-19 of MD&A in American General's 1995 ARS.
(e) Amounts include undistributed earnings of subsidiaries of $2.7 billion in
1995, $2.6 billion in 1994, and $2.4 billion in 1993.
(f) Amounts for 1995, 1994, and 1993 include 699,614 shares at a cost of $8
million held by a subsidiary.
1995 FORM 10-K
15
<PAGE> 16
- - --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Income before cumulative effect of accounting changes $ 545 $ 513 $ 250
Reconciling adjustments to net cash provided by operating
activities
Equity in undistributed net (income) loss of subsidiaries
(net of dividends paid to parent) (180) (137)* 355
Other, net 4 27 (19)
- - ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 369 403 586
- - ------------------------------------------------------------------------------------------------------------
Investing activities
Net (increase) decrease in indebtedness from subsidiaries (694) 1 (130)
Capital contributions to subsidiaries (368) (91) (69)
Return of capital from subsidiaries 113 7* -
Net (increase) decrease in other investments 31 (34) 34
Net increase (decrease) in indebtedness to subsidiaries (12) 8 (2)
Other, net (4) (2) (4)
- - ------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (934) (111) (171)
- - ------------------------------------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in short-term debt (405) 324 (216)
Long-term debt issuances 1,376 100 100
Long-term debt redemptions (100) (209) -
Dividend payments (254) (243) (238)
Common share purchases (35) (264) (72)
Other, net (16) - 11
- - ------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 566 (292) (415)
- - ------------------------------------------------------------------------------------------------------------
Net change in cash 1 - -
Cash at beginning of year - - -
- - ------------------------------------------------------------------------------------------------------------
Cash at end of year $ 1 $ - $ -
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
* To conform with the 1995 presentation, amount has been restated.
AMERICAN GENERAL CORPORATION
16
<PAGE> 17
- - --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
In millions
<TABLE>
<CAPTION>
At December 31, For the Years Ended December 31,
----------------------- -------------------------------------------------------------
Amorti-
Premiums zation of
Deferred Insurance and Insurance Deferred
Policy and Other Net and Policy Other
Acquisition Annuity Consider- Investment Annuity Acquisition Operating
Segment Costs(a)(b) Liabilities(c) ations Income(d) Benefits Costs(b)(e) Expenses
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Retirement Annuities $ 183 $ 20,147 $ 50 $ 1,597 $ 1,204 $ 17 $ 129
Consumer Finance 12 494 217 63 116 9 12
Life Insurance(f) 1,933 17,403 1,486 1,401 1,722 224 468
Other(g) 1 (61) - 34 5 (1) 1,066
- - ---------------------------------------------------------------------------------------------------------------------
Consolidated $ 2,129 $ 37,983 $ 1,753 $ 3,095 $ 3,047 $ 249 $ 1,675
- - ---------------------------------------------------------------------------------------------------------------------
1994
Retirement Annuities $ 910 $ 18,656 $ 37 $ 1,492 $ 1,134 $ 13 $ 108
Consumer Finance 10 480 175 57 98 6 11
Life Insurance 1,809 10,548 999 902 990 193 350
Other(g) 2 (61) (1) 42 2 1 607
- - ---------------------------------------------------------------------------------------------------------------------
Consolidated $ 2,731 $ 29,623 $ 1,210 $ 2,493 $ 2,224 $ 213 $ 1,076
- - ---------------------------------------------------------------------------------------------------------------------
1993
Retirement Annuities $ 113 $ 17,029 $ 30 $ 1,434 $ 1,125 $ 10 $ 95
Consumer Finance 8 415 138 56 80 6 10
Life Insurance 1,515 9,857 1,085 942 1,101 187 314
Other(g) 1 (62) (1) 5 5 - 511
- - ---------------------------------------------------------------------------------------------------------------------
Consolidated $ 1,637 $ 27,239 $ 1,252 $ 2,437 $ 2,311 $ 203 $ 930
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Fair Value of
Securities" on pages 18-19 of MD&A in American General's 1995 ARS.
(b) Includes cost of insurance purchased.
(c) Includes unearned premiums, other policy claims and benefits payable, and
other policyholder funds, which are not significant relative to insurance
and annuity liabilities.
(d) Represents earnings and related expenses on those investments considered
necessary to support the segment's business operations.
(e) Net of accretion of interest.
(f) Includes Franklin Life from January 31, 1995.
(g) Represents Consumer Finance non-insurance operations, Corporate operations,
and intersegment eliminations.
1995 FORM 10-K
17
<PAGE> 18
- - --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE IV - REINSURANCE
In millions
<TABLE>
<CAPTION>
Percentage
of
Assumed Amount
Ceded to from Assumed
Gross Other Other Net to
Description Amount Companies Companies Amount Net
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Life insurance in force at year
end $ 145,263 $ 21,390 $ 3,921 $ 127,794 3.1%
Premiums for the year
Life insurance and annuities $ 1,107 $ 68 $ 25 $ 1,064 2.3%
Accident and health insurance 283 130 42 195 21.7
Property-liability insurance 49 1 37 85 43.6
- - ---------------------------------------------------------------------------------------------------------------
Total premiums $ 1,439 $ 199 $ 104 $ 1,344 7.7%
- - ---------------------------------------------------------------------------------------------------------------
1994
Life insurance in force at year
end $ 103,646 $ 12,075 $ 1,105 $ 92,676 1.2%
Premiums for the year
Life insurance and annuities $ 652 $ 37 $ 17 $ 632 2.7%
Accident and health insurance 193 58 15 150 9.7
Property-liability insurance 52 1 20 71 28.5
- - ---------------------------------------------------------------------------------------------------------------
Total premiums $ 897 $ 96 $ 52 $ 853 6.1%
- - ---------------------------------------------------------------------------------------------------------------
1993
Life insurance in force at year
end* $ 99,434 $ 12,905 $ 961 $ 87,490 1.1%
Premiums for the year
Life insurance and annuities $ 702 $ 47 $ 13 $ 668 1.9%
Accident and health insurance 194 - 13 207 6.4
Property-liability insurance 47 1 12 58 20.4
- - ---------------------------------------------------------------------------------------------------------------
Total premiums $ 943 $ 48 $ 38 $ 933 4.1%
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
* To conform with the 1995 presentation, amounts have been restated.
AMERICAN GENERAL CORPORATION
18
<PAGE> 19
- - --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
In millions
<TABLE>
<CAPTION>
Additions
----------------------------------------------
Charged to Charged to
Balance at Provision for Realized Charged to Balance at
Beginning Finance Receivable Investment Other Deduc- End of
Description of Year Losses Gains (Losses) Accounts tions(a) Year
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995
Allowance for losses on:
Finance receivables $ 226 $ 574 $ - $ - $ 308 $ 492
Mortgage loans on real
estate 89 - 28 - 30 87
Investment real estate 321 - 18 - 304(b) 35
Other long-term investments 6 - 1 - 5 2
Valuation allowance on
deferred
tax asset 315 - - 26(c) 315 26
- - -----------------------------------------------------------------------------------------------------------------
Total $ 957 $ 574 $ 47 $ 26 $ 962 $ 642
- - -----------------------------------------------------------------------------------------------------------------
1994
Allowance for losses on:
Finance receivables $ 184 $ 214 $ - $ - $ 172 $ 226
Mortgage loans on real
estate 98 - 11 - 20 89
Investment real estate 253 - 110 - 42 321
Other long-term investments 43 - 4 - 41 6
Valuation allowance on
deferred
tax asset - - - 315(d) - 315
- - -----------------------------------------------------------------------------------------------------------------
Total $ 578 $ 214 $ 125 $ 315 $ 275 $ 957
- - -----------------------------------------------------------------------------------------------------------------
1993
Allowance for losses on:
Finance receivables $ 162 $ 163 $ - $ - $ 141 $ 184
Below investment grade
bonds 26 - 10 - 36 -
Mortgage loans on real
estate 53 - 84 - 39 98
Investment real estate 129 - 199 - 75 253
Other long-term investments 22 - 33 - 12 43
- - -----------------------------------------------------------------------------------------------------------------
Total $ 392 $ 163 $ 326 $ - $ 303 $ 578
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Resulting from write-offs of uncollectible receivables and bonds, sales of
bonds and real estate, mortgage loan payoffs, and foreclosures of real
estate.
(b) Includes $243 million reclassification to reduce cost basis on adoption of
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of."
(c) Relates to operating loss carryovers not expected to be utilized charged to
deferred tax expense.
(d) Relates to unrealized losses on securities charged to net unrealized gains
(losses) on securities.
1995 FORM 10-K
19
<PAGE> 20
- - --------------------------------------------------------------------------------
PART IV (Continued)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 20, 1996.
AMERICAN GENERAL CORPORATION
By: /s/ Pamela J. Penny
----------------------------------------
Pamela J. Penny
(Vice President and Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 20, 1996.
/s/ Harold S. Hook
- - -----------------------------------------------------------------
Harold S. Hook
(Chairman of the Board, Chief Executive Officer, and Director -
Principal Executive Officer)
/s/ Austin P. Young
- - -----------------------------------------------------------------
Austin P. Young
(Senior Vice President and Chief Financial Officer -
Principal Financial Officer)
/s/ Pamela J. Penny
- - -----------------------------------------------------------------
Pamela J. Penny
(Vice President and Controller - Principal Accounting Officer)
J. Evans Attwell*
- - -----------------------------------------------------------------
J. Evans Attwell
(Director)
Brady F. Carruth*
- - -----------------------------------------------------------------
Brady F. Carruth
(Director)
W. Lipscomb Davis Jr.*
- - -----------------------------------------------------------------
W. Lipscomb Davis Jr.
(Director)
Robert M. Devlin*
- - -----------------------------------------------------------------
Robert M. Devlin
(Director)
Larry D. Horner*
- - -----------------------------------------------------------------
Larry D. Horner
(Director)
Richard J.V. Johnson*
- - -----------------------------------------------------------------
Richard J.V. Johnson
(Director)
/s/ Jon P. Newton
- - -----------------------------------------------------------------
Jon P. Newton
(Director)
Robert E. Smittcamp*
- - -----------------------------------------------------------------
Robert E. Smittcamp
(Director)
Anne M. Tatlock*
- - -----------------------------------------------------------------
Anne M. Tatlock
(Director)
*By: /s/ Jon P. Newton
- - -----------------------------------------------------------------
Jon P. Newton
(Attorney-in-fact)
AMERICAN GENERAL CORPORATION
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA),
or
Incorporated by Reference to
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 Restated Articles of Incorporation of American General 4.1 33-33115
Corporation (including Statement of Resolution
Establishing Series of Shares of Series A Junior
Participating Preferred Stock)
3.2 Statement of Resolution Establishing Series of Shares 4(o) 33-58317
of Series A Cumulative Convertible Preferred Stock
3.3 Statement of Resolution Establishing Series of Shares 4(d) 333-00513
of 7% Convertible Preferred Stock
3.4 Amended and Restated Bylaws of American General 3.2 Form 10-K
Corporation for 1993
4.1 There have not been filed as exhibits to this Form 10-K NA NA
certain long-term debt instruments, none of which
relates to authorized indebtedness that exceeds 10% of
the consolidated assets of the company and its
subsidiaries. The company hereby agrees to furnish a
copy of any such instrument to the Commission upon
request.
4.2 Rights Agreement, dated as of July 27, 1989, between 4 Form 10-Q
the company and Texas Commerce Bank, as Rights Agent for Second
(Rights Agreement) Quarter 1989
4.3 First Amendment to Rights Agreement, dated as of 19 Form 10-Q
October 26, 1992, between the company and First Chicago for Third
Trust Company of New York, as Rights Agent Quarter 1992
10.1 1984 Stock and Incentive Plan for key employees of the 10.5 Form 10-K
company and its subsidiaries for 1984
10.2 1984 Stock and Incentive Plan (Amended and Restated 10.2 Form 10-K
Effective as of February 8, 1994) for key employees of for 1993
the company and its subsidiaries
10.3 Restoration of Retirement Income Plan for Certain 10.3 Form 10-K
Employees Participating in the Restated American for 1993
General Retirement Plan (Restoration of Retirement
Income Plan)
10.4 First Amendment to Restoration of Retirement Income 10.4 Form 10-K
Plan for 1993
10.5 Second Amendment to Restoration of Retirement Income 10.5 Form 10-K
Plan for 1993
10.6 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.7 First Amendment to American General Supplemental Thrift 10.7 Form 10-K
Plan for 1993
10.8 Second Amendment to American General Supplemental 10.8 Form 10-K
Thrift Plan for 1993
10.9 Third Amendment to American General Supplemental Thrift 10.9 Form 10-K
Plan for 1993
</TABLE>
(continued on next page)
<PAGE> 22
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA),
or
Incorporated by Reference to
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.10 Form of Severance Agreements between the company and 10.10 Form 10-K
each of the following: Harold S. Hook, Robert M. Devlin, for 1993
Jon P. Newton, Michael G. Atnip, Stephen D. Bickel,
Robert S. Cauthen Jr., James S. D'Agostino Jr.,
Stephen H. Field, Frederick W. Geissinger,
Robert J. Gibbons, Albert E. Haines, Joe Kelley,
Rodney O. Martin Jr., Nicholas R. Rasmussen,
Gary D. Reddick, Peter V. Tuters, Thomas L. West Jr.,
and Austin P. Young
10.11 Severance Agreements between Howard C. Humphrey and 10.11 Form 10-K
Franklin Life for 1994
10.12 Supplemental Retirement Agreement between the company 10.11 Form 10-K
and Harold S. Hook for 1993
10.13 American General Supplemental Retirement Plan Trust 10.12 Form 10-K
(relating to Exhibit 10.12 hereto) for 1993
10.14 Amendment to Supplemental Retirement Agreement between 10.13 Form 10-K
the company and Harold S. Hook for 1993
10.15 Second Amendment to Supplemental Retirement Agreement 10.14 Form 10-K
between the company and Harold S. Hook for 1993
10.16 Deferred Compensation Agreement between the company and 10.16 Form 10-K
Harold S. Hook for 1993
10.17 1995 Deferred Compensation Plan 10.17 Form 10-K
for 1994
10.18 1996 Deferred Compensation Plan 10.18* NA
10.19 American General Corporation Retirement Plan for 10.17 Form 10-K
Directors (as amended and restated) for 1993
10.20 American General Corporation Performance-Based Plan for 10.19 Form 10-K
Executive Officers, Amended and Restated Effective for 1994
January 1, 1995
10.21 Employment Memorandum of Understanding dated April 12, 10.2 Form 10-Q
1994 between The Variable Annuity Life Insurance for Second
Company and Thomas L. West Jr. Quarter 1994
10.22 Employment Agreement dated April 28, 1994 between the 10.3 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
10.23 Consulting Agreement dated April 28, 1994 between the 10.4 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
10.24 License Agreement dated April 28, 1994 among the 10.5 Form 10-Q
company, Harold S. Hook, and Main Event Management for Second
Corporation Quarter 1994
10.25 Stock Purchase Agreement between American General 2 Form 8-K
Corporation and American Brands, Inc., dated as of dated 2/14/95
November 29, 1994
11 Computation of Earnings Per Share 11* NA
12 Computation of Ratio of Earnings to Fixed Charges and 12* NA
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
</TABLE>
(continued on next page)
<PAGE> 23
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA),
or
Incorporated by Reference to
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
13 Portions of American General's 1995 Annual Report to 13* NA
Shareholders that are expressly incorporated herein by
reference in this Form 10-K. Other sections of the
Annual Report furnished for the information of the
Commission are not deemed "filed" as part of this Form
10-K.
21 Subsidiaries of American General Corporation 21* NA
23 Consent of Ernst & Young LLP, Independent Auditors 23* NA
24 Powers of attorney for the directors signing this Form 24* NA
10-K
27 Financial Data Schedule 27* NA
</TABLE>
Any Exhibit not included with this Form 10-K will be
furnished to any shareholder of record on written
request and payment of up to $.25 per page plus postage.
Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston,
Texas 77253-3247.
<PAGE> 1
1996 DEFERRED COMPENSATION PLAN
<TABLE>
<S> <C>
I. INTRODUCTION
American General Corporation (hereinafter referred to as "AGC") hereby establishes the 1996 Deferred
Compensation Plan (hereinafter referred to as the "Plan") for Harold S. Hook (hereinafter referred to
as "Participant").
II. DEFINITIONS
2.01 "Annual Base Salary" means the amount of annual salary, set by the Personnel Committee of the
AGC Board of Directors, payable to Participant in biweekly installments.
2.02 "Cash Bonus Award" means the annual cash bonus awarded by a Committee consisting of members of
the Personnel Committee of the AGC Board of Directors in their complete discretion to chosen
members of the highest-paid group of salaried employees.
2.03 "Deferred Compensation" means the amount of Cash Bonus Award defined in Section 2.02 and the
Annual Base Salary defined in Section 2.01 which Participant and AGC mutually agree to defer.
2.04 "Election" means Participant's election to defer all or part of his Annual Base Salary and Cash
Bonus Award for a particular calendar year as evidenced by a Notice of Election to Defer Income
whose form will be substantially similar to Exhibit I attached to this Plan. Such election
shall fix the amount of Deferred Compensation, establish the time when the payment of benefits
shall commence, specify the option under which benefits will be paid, and incorporate the
terms, conditions, and provisions of this Plan by reference. An executed Election form will
continue in force until all Benefits relating to such election have been paid.
2.05 "Separation from Service" means severance of Participant's relationship with AGC as an
employee. Participant shall be deemed to have severed his employment or contractual
relationship with AGC for purposes of this Plan when, in accordance with the established
practices of AGC, the employment or contractual relationship is considered to have terminated.
III. ADMINISTRATION
This Plan will be administered by a Committee of one or more persons appointed by AGC. The Committee
will act as the agent of AGC in all matters concerning the administration of this Plan.
IV. DEFERRAL ELECTION
4.01 Participant may elect to defer all or any part of his Cash Bonus Award, as defined in Section
2.02 of this Plan, and Annual Base Salary, as defined in Section 2.01 of this Plan, by
completing an Election as provided below. If no Election is made, all compensation will be paid
on a regular basis.
4.02 The Election to defer Annual Base Salary must be made within 30 days prior to the beginning of
the calendar year in which the compensation is to be deferred and must defer compensation not
yet earned.
4.03 Participant may not amend or modify the Plan to change the amount of Deferred Compensation, the
payment option selected, or the time when the payment of benefits should commence, except in
the case of Participant's becoming disabled as discussed in Section 5.04. However, Participant
shall make a separate Election to defer his Cash Bonus Award and Annual Base Salary each
calendar year.
4.04 If Participant makes a withdrawal pursuant to Section 5.05, Participant may again defer his
Cash Bonus Award and Annual Base Salary by executing a new Election prior to the beginning of
the calendar year in which it is effective. The effective date of the new Election will be
subject to the provisions of Section 5.05.
V. BENEFITS
PAYMENT OPTION
5.01 The benefit payable under this Plan shall be payable to Participant in one lump sum payment in
an amount equal to the total of the deferred compensation plus interest at the rate in effect
from time to time under the Cash Fund of the American General Employees' Thrift and Incentive
Plan. Interest on the benefit shall be credited at the end of each calendar quarter on the
basis of the time during such quarter the various portions of such amounts were credited as
payable under this Plan, and such interest shall be compounded quarterly at the end of each
calendar quarter.
SEPARATION FROM SERVICE
5.02 Participant will be entitled to his lump sum payment on the first business day of the second
calendar year following the date of Participant's Separation from Service.
</TABLE>
Page 1 of 4
<PAGE> 2
<TABLE>
<S> <C> <C>
DEATH BENEFITS
5.03 Should Participant die before he has begun to receive the benefits provided in Section 5.01,
AGC shall cause to be paid to Participant's spouse within thirty (30) days of receipt of
satisfactory proof of death, a lump sum benefit in an amount equal to the then value of
Participant's account. If Participant's spouse does not survive Participant for a period of
fifteen (15) days, then AGC shall cause such death benefit to be paid to Participant's estate.
DISABILITY BENEFITS
5.04 Should Participant become disabled before the commencement date of the benefits, Participant
may elect to receive his lump sum payment on the first day of the month following the
determination of disability. The Plan shall consider Participant disabled on the date the
committee appointed by AGC to administer this Plan determines Participant is unable to engage
in any substantial gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or mental impairment or be of
long-continued and indefinite duration. The disability of Participant shall be determined by
the committee in accordance with uniform principles consistently applied, upon the basis of
such evidence as the committee deems necessary and desirable. An election to receive disability
benefits must be made within a reasonable time after the determination of disability.
UNFORESEEABLE EMERGENCY WITHDRAWALS
5.05 In the event of an unforeseeable emergency prior to the commencement of the benefits provided
in Section 5.01, Participant may apply to the committee to receive that part of his account
which is reasonably needed to satisfy the emergency needs. If such application for emergency
withdrawal is approved by AGC, AGC shall pay Participant such value as AGC deems necessary to
meet the emergency needs. An unforeseeable emergency involves only circumstances of sudden and
unexpected emergencies which would cause great hardship to Participant if early withdrawal were
not permitted. The emergency must be beyond Participant's control and payment may not be made
to the extent that such hardship may be relieved by other financial resources available to
Participant, including insurance reimbursement, cessation of deferrals under the Plan, or
liquidation of other assets.
If Participant is granted an unforeseeable emergency hardship withdrawal, he shall be required
to cease deferring compensation under this Plan. The period of cessation shall commence as of
the date of the request and shall expire as of the last day of the calendar year next following
the calendar year containing the date of the request. Participant can execute a new Election
and resume making deferrals of his Cash Bonus Award and Annual Base Salary effective as of the
first day of the first calendar year following the end of the period of cessation.
VI. RELATIONSHIP TO OTHER PLANS
This Plan serves in addition to any other retirement, pension, or benefit plan or system presently in
existence of hereinafter established.
VII. ANTI-ALIENATION
Participant's rights, interests, and benefits hereunder cannot be assigned, transferred, pledged, sold,
conveyed or encumbered in any way by Participant or his estate, and are not subject to execution,
attachment, or similar process. Any attempted sale, conveyance, transfer, assignment, pledge or
encumbrance of the rights, interests, or benefits provided pursuant to the terms of this Plan contrary
to the terms of the foregoing sentence, or the levy of any attachment or similar process thereupon,
shall be null and void and without effect.
VIII. AMENDMENT OR TERMINATION OF PLAN
AGC may at any time amend or terminate this Plan, provided that such amendment or termination shall not
affect the rights of Participant with respect to any compensation deferred before the date of the
termination of this Plan. Participant will thereafter receive his Cash Bonus Award and Annual Base
Salary and benefits shall be paid as provided in Article V.
</TABLE>
Page 2 of 4
<PAGE> 3
<TABLE>
<S> <C> <C>
IX. APPLICABLE LAW
This Agreement shall be construed under the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have signed this 1996 Deferred Compensation Agreement, this 18th day of
December, 1995.
</TABLE>
WITNESS: AMERICAN GENERAL CORPORATION
<TABLE>
<S> <C>
/s/ JOSIANNE ISNARD By: /s/ JO ANN GRIFFITH
- - ---------------------------- ------------------------------------
Jo Ann Griffith
Vice President -- Human Resources
WITNESS:
/s/ CARMEL L. OSBORNE /s/ HAROLD S. HOOK
- - ---------------------------- ------------------------------------
Harold S. Hook
</TABLE>
Page 3 of 4
<PAGE> 4
EXHIBIT I
1996 DEFERRED INCOME PLAN
NOTICE OF ELECTION TO DEFER INCOME
December 18, 1995
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Gentlemen:
1. Deferral of Income. Pursuant to Article 4 of my 1996 Deferred
Compensation Plan with American General Corporation, I hereby
elect to have 80% of the amount payable to me as Annual Base
Salary during the 1996 calendar year and 0% of any amount payable
to me as a Cash Bonus Award during the 1996 calendar year
deferred and paid to me on my "Deferral Date."
2. Deferral Date. For purposes of the 1996 Deferred Compensation
Plan, the Deferral Date, which is the date the payments commence,
shall be the first business day of the second calendar year
following the date of my Separation from Service.
3. Manner of Deferred Payment. Deferred payments are to be made in a
lump sum payment payable on the first business day of the second
calendar year following the date of my Separation from Service.
4. Terms of Election. I understand that this election is subject to
the terms and conditions of the 1996 Deferred Compensation Plan.
I further understand that upon my disability, I may elect to
receive the lump sum payment on the first day of the month
following the determination of my disability.
Dated: December 18, 1995
/s/ HAROLD S. HOOK
-------------------------
Harold S. Hook
Received this 18th day of December, 1995
/s/ JO ANN GRIFFITH
- - -----------------------------
Page 4 of 4
<PAGE> 1
- - --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions, except share data 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary:
Net income available to common stock
Income before cumulative effect of accounting changes $ 545 $ 513 $ 250
Cumulative effect of accounting changes - - (46)
- - ----------------------------------------------------------------------------------------------------------
Net income available to common stock $ 545 $ 513 $ 204
- - ----------------------------------------------------------------------------------------------------------
Average shares outstanding
Common shares 204,761,037 209,125,350 216,117,181
Assumed exercise of stock options 445,389 274,313 461,655
Assumed exercise of put contracts - 3,394 -
- - ----------------------------------------------------------------------------------------------------------
Total 205,206,426 209,403,057 216,578,836
- - ----------------------------------------------------------------------------------------------------------
Earnings per share
Income before cumulative effect of accounting changes $ 2.66 $ 2.45 $ 1.15
Cumulative effect of accounting changes - - (.21)
- - ----------------------------------------------------------------------------------------------------------
Net income per share $ 2.66 $ 2.45 $ .94
- - ----------------------------------------------------------------------------------------------------------
Fully diluted:
Net income available to common stock
Income before cumulative effect of accounting changes $ 545 $ 513 $ 250
Plus: Net dividends on convertible preferred securities 6 - -
- - ----------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes
available to common stock 551 513 250
Cumulative effect of accounting changes - - (46)
- - ----------------------------------------------------------------------------------------------------------
Net income available to common stock $ 551 $ 513 $ 204
- - ----------------------------------------------------------------------------------------------------------
Average shares outstanding
Common shares 204,761,037 209,125,350 216,117,181
Assumed exercise of stock options 508,223 291,742 461,655
Assumed conversion of convertible preferred securities 3,602,245 - -
Assumed exercise of put contracts - 3,394 -
- - ----------------------------------------------------------------------------------------------------------
Total 208,871,505 209,420,486 216,578,836
- - ----------------------------------------------------------------------------------------------------------
Earnings per share
Income before cumulative effect of accounting changes $ 2.64 $ 2.45 $ 1.15
Cumulative effect of accounting changes - - (.21)
- - ----------------------------------------------------------------------------------------------------------
Net income per share $ 2.64 $ 2.45 $ .94
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
- - --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions, except ratios 1995 1994 1993
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated operations:
Income before income tax expense, net dividends on preferred
securities, and cumulative effect of accounting changes $ 850 $ 802 $ 602
Fixed charges deducted from income
Interest expense 671 526 488
Implicit interest in rents 18 16 15
- - -----------------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 689 542 503
- - -----------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 1,539 $ 1,344 $ 1,105
- - -----------------------------------------------------------------------------------------------------------
Fixed charges per above $ 689 $ 542 $ 503
Capitalized interest 17 18 15
- - -----------------------------------------------------------------------------------------------------------
Total fixed charges 706 560 518
Dividends on preferred securities 30 - -
- - -----------------------------------------------------------------------------------------------------------
Total fixed charges and dividends on preferred
securities $ 736 $ 560 $ 518
- - -----------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.2 2.4 2.1
- - -----------------------------------------------------------------------------------------------------------
Ratio of earnings to combined fixed charges and
preferred stock dividends 2.1 2.4 2.1
- - -----------------------------------------------------------------------------------------------------------
Consolidated operations, corporate fixed charges and preferred
stock dividends only:
Income before income tax expense, net dividends on preferred
securities, and cumulative effect of accounting changes $ 850 $ 802 $ 602
Corporate fixed charges deducted from income - corporate
interest expense 165 120* 126*
- - -----------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 1,015 $ 922 $ 728
- - -----------------------------------------------------------------------------------------------------------
Total corporate fixed charges per above $ 165 $ 120 $ 126
Capitalized interest related to real estate operations 16 18 15
- - -----------------------------------------------------------------------------------------------------------
Total fixed charges 181 138 141
Dividends on preferred securities 30 - -
- - -----------------------------------------------------------------------------------------------------------
Total fixed charges and dividends on preferred
securities $ 211 $ 138 $ 141
- - -----------------------------------------------------------------------------------------------------------
Ratio of earnings to corporate fixed charges 5.6 6.7* 5.2*
- - -----------------------------------------------------------------------------------------------------------
Ratio of earnings to combined corporate fixed charges
and preferred stock dividends 4.8 6.7 5.2
- - -----------------------------------------------------------------------------------------------------------
American General Finance, Inc.:
Income before income tax expense and cumulative effect of
accounting changes $ 116 $ 392 $ 337
Fixed charges deducted from income
Interest expense 518 416 380
Implicit interest in rents 13 11 10
- - -----------------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 531 427 390
- - -----------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 647 $ 819 $ 727
- - -----------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.2 1.9 1.9
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
* To conform with the 1995 presentation, amount has been restated.
<PAGE> 1
EXHIBIT 13
- - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
AMERICAN GENERAL CORPORATION
For the Three Years Ended December 31, 1995
- - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON PAGE 26.
American General Corporation (American General or the company) reported net
income of $545 million ($2.64 per share) in 1995, compared to $513 million
($2.45 per share) in 1994 and $204 million ($.94 per share) in 1993. Net income
for 1995 included earnings of $98 million from The Franklin Life Insurance
Company (Franklin Life), acquired on January 31, 1995, and an aftertax charge
of $140 million ($.67 per share) for an increase in the allowance for finance
receivable losses in the fourth quarter of the year. The 1994 net income was
reduced by net realized investment losses of $114 million ($.55 per share)
arising from the company's capital gains offset program and increases in real
estate reserves. The 1993 net income was decreased by $376 million ($1.74 per
share) of non-recurring items for the write-down of goodwill, a tax charge,
and accounting changes.
ACQUISITIONS AND DIVESTITURES
Franklin Life. On January 31, 1995, the company acquired American Franklin
Company (AFC), the holding company of Franklin Life, for $1.17 billion. The
purchase price consisted of $920 million in cash paid at closing and a $250
million cash dividend paid by AFC to its former parent prior to closing.
Franklin Life was acquired to complement American General's existing life
insurance distribution systems and further strengthen the company's position in
middle-income households, particularly in the Midwest. The acquisition was
accounted for using the purchase method, and the results of operations of
Franklin Life are included in the consolidated statement of income from the
date of acquisition. The addition of Franklin Life increased the Life Insurance
segment's assets and life insurance in force at December 31, 1995 by
approximately 45% and 33%, respectively.
The permanent financing of this acquisition, including related issue costs,
consisted of $150 million of short-term debt, $300 million of senior long-term
fixed-rate debt, and $502 million of non-convertible preferred securities.
Western National Corporation. On December 23, 1994, the company acquired a
40% interest in Western National Corporation (WNC) through the acquisition of
24,947,500 shares of WNC's common stock for $274 million in cash. The WNC
shares were acquired for investment purposes. The investment in WNC is
reflected in the consolidated financial statements using the equity method of
accounting. The company's aftertax equity in earnings of WNC was $29 million in
1995.
Independent Insurance Group, Inc. On October 19, 1995, the company
announced a definitive agreement to acquire Independent Insurance Group, Inc.
(Independent), for total consideration of $362 million. Independent's
shareholders may elect to receive from among cash, American General common
stock, or a new issue of American General 7% mandatorily convertible preferred
stock. The transaction is expected to close during first quarter 1996.
Independent distributes individual life insurance in 11 southeastern states
and will complement American General's existing distribution systems and
further strengthen the company's position in households with modest incomes,
particularly in the Southeast. The company plans to consolidate Independent's
operations into those of its Nashville-based operations. The consolidation is
expected to take 18 to 24 months and, when completed, should result in a
reduction in annual operating expenses of $75 million. The acquisition is
expected to be non-dilutive to earnings per share in 1996 and accretive
thereafter. After closing, Independent will be reported as part of the Life
Insurance segment, increasing that segment's assets and life insurance in force
by approximately 6% and 5%, respectively.
Divestiture. On August 31, 1994, the company completed the sale of
American-Amicable Life Insurance Company of Texas (American-Amicable), a
special niche subsidiary in the Life Insurance segment. The sales price, which
included a $10 million cash dividend paid prior to closing, was $105 million.
BUSINESS SEGMENTS
American General reports the results of its business operations in three
segments: Retirement Annuities, Consumer Finance, and Life Insurance. To
facilitate meaningful period-to-period comparisons, earnings of each segment
include earnings from its business operations and earnings on that amount of
equity considered necessary to support its business, and exclude net realized
investment gains (losses), non-recurring items, and the effect of accounting
changes.
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
16
<PAGE> 2
- - --------------------------------------------------------------------------------
Segment earnings were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement Annuities $204 $187 $162
Consumer Finance 85 245 206
Life Insurance 348 257 291
- - --------------------------------------------------------------------------------
Segment earnings 637 689 659
Non-recurring items -- -- (329)
- - --------------------------------------------------------------------------------
Total $637 $689 $330
- - --------------------------------------------------------------------------------
</TABLE>
Segment earnings, presented above on an aftertax basis, differ from those
disclosed in Note 1.2 by the amount of income tax expense for each segment.
Non-recurring items in 1993 included a $300 million write-down of goodwill in
the Life Insurance segment and a $29 million charge due to a tax rate change.
RETIREMENT ANNUITIES
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets $27,084 $22,007 $20,896
Deposits
Fixed 1,720 1,657 1,700
Variable 835 573 432
Net investment income 1,597 1,492 1,434
Segment earnings 204 187 162
- - --------------------------------------------------------------------------------
</TABLE>
Results. Profitability of the retirement annuity business is a function of
three elements: asset growth, net investment spread, and operating expenses.
Asset growth, excluding the fair value adjustment on securities, was 17% in
1995 and 11% in 1994, reflecting strong sales and deposits in each of the
segment's marketing niches. A key component of asset growth is new deposits
from customers, who may elect fixed or variable account options. Variable
deposits increased 46% during 1995 as a result of strong growth in Portfolio
Director(R), a new variable product. This growth reflects policyholders'
increased interest in equity investments due to the strong stock market
performance during the year. The attractiveness of equity investments also
contributed to the 1994 increase in variable deposits. Assets and liabilities
related to variable account options are reflected in Separate Account assets
and liabilities because the customer bears the investment risk.
Net investment income, which accounts for over 96% of segment revenues,
increased in 1995 and 1994 as a result of growth in assets. Investment income
increased despite declines of 13 and 57 basis points in investment yields on
fixed accounts in 1995 and 1994, respectively. Management's ability to make
corresponding reductions in rates credited to policyholders resulted in an
increase in net investment spread of 3 basis points in 1995 and 14 basis points
in 1994.
The ratio of operating expenses to average assets was .61%, .57%, and .59%
in 1995, 1994, and 1993, respectively. Operating expenses for 1995 were
adversely affected by a pretax charge of $19 million (.08% of average assets)
for estimated state guaranty fund assessments resulting from past industry
insolvencies. Pretax charges for guaranty fund assessments for 1994 and 1993
were $6 million and $7 million, respectively.
The rate of policyholder surrenders of fixed accounts decreased to 4.3% of
average reserves in 1995, compared to 4.9% in 1994 and 3.9% in 1993. The 1994
increase was due to the surrender of one large group account and withdrawals by
fixed-account policyholders seeking higher returns in equity-based investments.
Outlook. While net investment spreads may decline, segment earnings should
increase through asset growth and management of the investment spread. This
segment should experience additional growth through its programs to strengthen
its sales force. New products, such as Portfolio Director, help the segment
meet a growing demand for equity-based investments.
CONSUMER FINANCE
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance receivables $8,410 $7,920 $6,574
Finance receivables, net 7,918 7,694 6,390
Revenues 1,790 1,491 1,282
Segment earnings 85 245 206
- - --------------------------------------------------------------------------------
</TABLE>
Results. Consumer Finance segment results are influenced by the aggregate
amount and mix of finance receivables, credit loss experience, cost of borrowed
funds, and operating expenses.
The segment's initiatives to increase the size of the finance receivable
portfolio and to emphasize retail and higher-yielding non-real estate consumer
loans during recent years generated receivables growth of 6% in 1995, 20% in
1994, and 6% in 1993. The increase in finance receivables is primarily due to
consumer loans, sourced from increased levels of retail sales finance. Another
contributor to growth has been private label products, which offer revolving
financing services through large retail merchants. Growth in retail and
higher-yielding non-real estate consumer loans contributed to the increase in
average yield on finance receivables of 44 and 63 basis points during 1995 and
1994, respectively.
As expected, growth in higher-yielding finance receivables adversely
influenced credit quality in 1995 and 1994. However, 60-day delinquencies and
charge offs sharply increased to unanticipated levels beginning in third
quarter 1995. Delinquencies increased to 4.1% of average finance receivables at
December 31, 1995, compared to 2.9% and 2.5% at December 31, 1994 and 1993,
respectively. Charge offs increased to 3.8% of average finance receivables in
1995 compared to 2.5% and 2.2% in 1994 and 1993, respectively.
Due to the unexpected third-quarter rise in delinquencies and charge offs, a
comprehensive review of the Consumer Finance segment was initiated in fourth
quarter 1995. This review consisted of extensive internal analysis, together
with credit loss development projections supplied by outside credit
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
17
<PAGE> 3
- - --------------------------------------------------------------------------------
consultants. The results of the analysis indicated a need for an increase in
the allowance for losses. In response, the segment increased the allowance for
losses on finance receivables $216 million ($140 million aftertax) in the
fourth quarter.
At year-end 1995, the allowance for losses was $492 million or 5.9% of
finance receivables, compared to $226 million or 2.9% of finance receivables at
year-end 1994. The increased allowance represents the company's best estimate
of the segment's net credit losses on outstanding finance receivables.
Cost of borrowings for this segment increased 41 basis points in 1995,
compared to a decrease of 7 basis points in 1994. The increase is primarily due
to higher short-term borrowing costs, partially offset by lower long-term
borrowing costs.
Operating expenses increased 26% in 1995 and 12% in 1994. As a percentage of
average finance receivables, operating expenses were 5.4% and 5.0% in 1995 and
1994, respectively. The increase in operating expenses reflected increased
staffing and costs related to growth in branch offices, including 106
additional branches in 1995 and 100 in 1994, a major branch office automation
program, and increased collection costs on delinquent finance receivables in
1995. Segment earnings in 1995 benefited from a non-recurring $15 million
reduction in income tax expense, primarily related to the resolution of a state
tax audit.
Outlook. The Consumer Finance segment's initiatives for growth were
analyzed during fourth quarter 1995 and underperforming programs have been
restructured or discontinued. In addition, the company has taken a number of
corrective actions, including tightening underwriting standards and increasing
branch office training, that should improve credit quality and slow receivables
growth. Under current economic conditions, these corrective actions should
contribute to improvements in segment earnings during 1996.
LIFE INSURANCE
<TABLE>
<CAPTION>
In millions 1995 1995* 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $23,592 $16,261 $14,156 $14,192
Revenues
Premiums 1,486 1,019 999 1,085
Net investment income 1,401 941 902 942
Life insurance premium
sales 340 267 258 259
Deposits
Annuities 661 448 598 472
Life insurance 762 616 547 521
Segment earnings 348 250 257 291
- - --------------------------------------------------------------------------------
</TABLE>
* Excluding Franklin Life.
Results. Earnings for this segment increased primarily due to the
acquisition of Franklin Life on January 31, 1995. Franklin Life contributed $98
million to segment earnings and $359 million to total deposits during the year.
To facilitate analysis of the segment's financial information, Franklin Life's
activity is excluded in the following discussion.
Premiums include mortality, expense, and surrender charges on
interest-sensitive products, as well as premiums on traditional life insurance.
Premiums for 1995 increased slightly over 1994. The decrease in 1994 was
primarily due to the sale of American-Amicable and the ceding of medicare
supplement business to another insurance company. The revenues ceded were
largely offset by a related decrease in benefit expense.
The 1995 increase in net investment income is a result of a 7% growth in
invested assets (excluding the fair value adjustment on securities), partially
offset by a 7 basis point decline in investment yield. The decrease in 1994 net
investment income resulted from a 75 basis point decline in investment yield.
This decline reflected lower interest rates during 1994 and significant
prepayments of mortgage-backed securities and bond calls in 1993, which
increased investment income and yield in that year.
Deposits for annuities decreased 25% in 1995, compared to an increase of 27%
in 1994. Sales of annuity products through financial institutions, which
contributed to the 1994 increase in deposits, slowed in 1995. The 1995 decrease
in deposits also reflected increased competition from other equity-based
investments. During 1995, the segment introduced structured settlement
products, which resulted in annuity deposits of $118 million. Deposits for
interest-sensitive life insurance increased 13% in 1995 and 5% in 1994,
primarily due to higher sales in both years and higher amounts of unscheduled
deposits in 1995.
Segment earnings were adversely affected by aftertax charges in fourth
quarter 1995 of $3 million for estimated state guaranty fund assessments and $6
million for adverse policy lapse experience in the company's Canadian
subsidiary.
Outlook. The company expects continued pressure on segment earnings in 1996
due to lower investment yields. However, segment earnings are expected to
increase as a result of the acquisition of Independent and anticipated expense
reductions. The strong claims-paying ability ratings of the companies in this
segment provide an advantage in the highly competitive life insurance industry.
INVESTMENTS
At year-end 1995, American General's $61 billion of assets included $43
billion of investments, principally supporting insurance and annuity
liabilities. Fixed maturity securities and mortgage loans accounted for 94% of
total investments.
FAIR VALUE OF SECURITIES
Declining interest rates in 1995 caused a $4.1 billion increase in the fair
value adjustment to fixed maturity securities and a related $2.0 billion
increase in shareholders' equity.
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
18
<PAGE> 4
- - --------------------------------------------------------------------------------
The components of the adjustment to report fixed maturity and equity securities
at fair value at December 31, and the 1995 change, were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 Change
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value adjustment to fixed
maturity securities $ 2,716* $ (1,387) $ 4,103
Increase (decrease) in deferred
policy acquisition costs and
cost of insurance purchased (1,061) 401 (1,462)
Decrease (increase) in deferred
income taxes (586) 36 (622)
- - --------------------------------------------------------------------------------
Net unrealized gains (losses)
Fixed maturity securities 1,069 (950) 2,019
Equity securities 31 15 16
- - --------------------------------------------------------------------------------
Net unrealized gains (losses)
on securities $ 1,100 $ (935) $ 2,035
- - --------------------------------------------------------------------------------
</TABLE>
* Includes $93 million related to WNC.
Accounting rules do not permit adjustment to fair value of the insurance
liabilities supported by these securities, thereby creating volatility in
shareholders' equity as interest rates change. Care should be exercised in
drawing conclusions based on balance sheets that are only partially adjusted to
fair value.
FIXED MATURITY SECURITIES
At year-end 1995, fixed maturity securities included $23.8 billion of
corporate bonds, $11.7 billion of mortgage-backed securities (MBSs), $1.6
billion of bonds issued by governmental agencies, and $137 million of preferred
stocks with mandatory redemption provisions.
The average credit rating of the fixed maturity securities was AA- at
year-end 1995, 1994, and 1993. Average ratings by category at December 31, 1995
were as follows:
<TABLE>
<CAPTION>
Average
In millions 1995 % Rating
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment grade $ 24,111 65% A
Mortgage-backed 11,663 31 AAA
Below investment grade 1,439 4 BB-
- - --------------------------------------------------------------------------------
Total fixed maturity securities $ 37,213 100% AA-
- - --------------------------------------------------------------------------------
</TABLE>
Investment Grade. Investment grade securities include bonds and preferred
stocks with mandatory redemption features and have credit ratings of BBB- or
higher.
Mortgage-backed Securities. MBSs at December 31 were invested as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
CMOs $ 10,466 $ 9,180 $ 10,167
Pass-through securities 1,061 784 511
Commercial MBSs 136 68 --
- - ---------------------------------------------------------------------
Total MBSs $ 11,663 $ 10,032 $ 10,678
- - ---------------------------------------------------------------------
</TABLE>
Collateralized mortgage obligations (CMOs) are purchased to diversify the
portfolio risk characteristics from primarily corporate credit risk to a mix of
credit and cash flow risk. The majority of the CMOs in the company's investment
portfolio have relatively low cash flow variability. In addition, virtually all
CMOs in the portfolio have minimal credit risk because the underlying
collateral is guaranteed by the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, or the Government National Mortgage
Association. These CMOs are highly liquid and offer higher yields than
corporate debt securities of similar credit quality and expected average lives.
The principal risks inherent in holding CMOs (as well as pass-through
securities and other MBSs) are prepayment and extension risks arising from
changes in market interest rates. In declining interest rate environments, the
mortgages underlying the CMOs are prepaid more rapidly than anticipated,
causing early repayment of the CMOs. In rising interest rate environments, the
underlying mortgages are prepaid at a slower rate than anticipated, causing CMO
principal repayments to be extended. Although early CMO repayments may result
in acceleration of income from recognition of any unamortized discount, the
proceeds typically are reinvested at lower current yields, resulting in a net
reduction of future investment income. Proceeds from repayments of MBSs
decreased from $1.8 billion in 1994 to $.7 billion in 1995. At current interest
rate levels, repayments in 1996 are expected to increase slightly over 1995
levels.
The company manages this prepayment and extension risk by investing in CMO
tranches that provide for greater stability of cash flows. The mix of CMO
tranches at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - -------------------------------------------------------------------
<S> <C> <C> <C>
Planned Amortization Class $ 5,579 $ 4,546 $ 4,196
Sequential 3,268 3,144 4,088
Z (Accrual) 973 823 912
Target Amortization Class 638 656 952
Other 8 11 19
- - -------------------------------------------------------------------
Total CMOs $ 10,466 $ 9,180 $ 10,167
- - -------------------------------------------------------------------
</TABLE>
The Planned Amortization Class (PAC) tranche is structured to provide more
certain cash flows to the investor and therefore is subject to less prepayment
and extension risk than other CMO tranches. PACs derive their stability from
two factors: (1) early repayments are applied first to other tranches to
preserve the PACs' originally scheduled cash flows as much as possible, and (2)
cash flows applicable to other tranches are applied first to the PAC if the
PACs' actual cash flows are received later than originally anticipated. To take
advantage of PACs' lower prepayment and extension risks, the majority of the
proceeds received from early repayments in recent years were reinvested in
additional PACs, causing PACs to account for 48% of total MBSs at December 31,
1995.
Sequentials allocate all principal payments to tranches based on maturity,
retiring the shortest maturity tranches first. The prepayment and extension
risk associated with a
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
19
<PAGE> 5
- - --------------------------------------------------------------------------------
Sequential tranche can vary as interest rates fluctuate, since Sequentials are
not supported by other tranches. Sequentials include PACs that effectively
function as Sequentials due to excessive early repayment of the underlying
mortgages.
The Z tranche (also known as the Accrual Class) defers all cash flows to
another class until that class is paid down, at which time accumulated interest
and principal are paid to the Z tranche. The Target Amortization Class tranche
has protection similar to PACs in decreasing interest rate environments, but
has minimal protection in increasing rate environments.
The majority of the company's CMO portfolio trades in the open market. As
such, the company obtains market prices from outside vendors. Any security
price not received from a vendor is obtained from the originating broker or, in
rare circumstances, is internally calculated.
Below Investment Grade. Below investment grade securities include bonds and
preferred stocks with mandatory redemption provisions that have a credit rating
below BBB-. Below investment grade securities increased to 3.4% of invested
assets at year-end 1995, compared to 2.8% for 1994 and 2.3% for 1993, as a
result of new investments made to enhance yields while continuing to maintain
asset quality at acceptable levels. These percentages compare to the life
insurance industry average of 3.9% at December 31, 1994, the latest date for
which information is available. Net income from below investment grade bonds,
including realized investment gains (losses), was $84 million in 1995, compared
to $50 million in 1994 and $49 million in 1993.
Bonds are deemed to be non-performing when the payment of interest is
sufficiently uncertain as to preclude the accrual of interest. Non-performing
bonds were .01% of total fixed maturity securities at year-end 1995 and .2% at
year-end 1994 and 1993.
MORTGAGE LOANS
Mortgage loans on real estate represented 7% of invested assets at December
31, 1995, down from 8% in 1994 and 10% in 1993. Total mortgage loans increased
during 1995 as a result of the Franklin Life acquisition. Mortgage loan
information at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 3,060 $ 2,656 $ 2,997
Residential 68 84 133
Allowance for losses (87) (89) (98)
- - --------------------------------------------------------------------------------
Total mortgage loans $ 3,041 $ 2,651 $ 3,032
- - --------------------------------------------------------------------------------
Foreclosures during the year $ 73 $ 17 $ 45
- - --------------------------------------------------------------------------------
Allowance for losses* 2.8% 3.2% 3.1%
- - --------------------------------------------------------------------------------
Non-performing*
Delinquent (60+ days) 2.6% 3.0% 2.2%
Restructured commercial loans 2.9 2.7 2.2
- - --------------------------------------------------------------------------------
Total non-performing 5.5% 5.7% 4.4%
- - --------------------------------------------------------------------------------
</TABLE>
* Percentage of total mortgage loans before allowance for losses.
Non-performing mortgage loans include loans delinquent 60 days or more and
commercial loans that have been restructured. Non-performing mortgage loans
totaled $172 million at year-end 1995, compared to $157 million and $137
million at year-end 1994 and 1993, respectively. The company's portfolio
continues to outperform the life insurance industry averages for non-performing
commercial mortgage loans. These averages were 12.0% at September 30, 1995, and
13.0% and 13.9% at year-end 1994 and 1993, respectively. At year-end 1995, the
average yield on restructured commercial mortgage loans was 8.1%.
Commercial mortgage loans are placed on the company's watch list if (1) the
loan is delinquent 30-59 days, (2) the borrower is in bankruptcy, or (3) the
loan is potentially undercollateralized. At year-end 1995, $263 million of
commercial mortgage loans were on the company's watch list, compared to $239
million at year-end 1994 and $467 million at year-end 1993. The 1995 increase
reflects additions of potentially undercollateralized loans and certain loans
acquired in the Franklin Life acquisition. The 1994 decrease in the watch list
was primarily due to improving collateral values. While the watch list loans
may be predictive of higher non-performing loans in the future, American
General does not anticipate a significant effect on operations, liquidity, or
capital from these loans.
INVESTMENT REAL ESTATE
Investment real estate at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land development projects $ 366 $ 372 $ 491
American General Center, Houston 115 120 125
Income-producing real estate 56 96 189
Foreclosed real estate 75 56 69
Allowance for losses (35) (80) (102)
- - --------------------------------------------------------------------------------
Total investment real estate $ 577 $ 564 $ 772
- - --------------------------------------------------------------------------------
</TABLE>
During 1995, the company adopted Statement of Financial Accounting Standards
(SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." With the adoption of SFAS 121, the
company measures impairment of certain investment real estate based on fair
value, rather than net realizable value as previously required. Additionally,
on adoption, a portion of the allowance for losses was reclassified to reduce
the cost basis of land development projects. To facilitate analysis, the 1994
and 1993 balances are presented on a comparable basis in the above table.
The 1994 decrease in land development projects was due to reserve increases
now reflected as reductions of cost basis. The 1995 and 1994 decreases in
income-producing real estate were due to sales. No new investments in real
estate were made, except for commitments on existing land development projects
and foreclosures.
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
20
<PAGE> 6
- - --------------------------------------------------------------------------------
REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) may vary significantly from year to year
since the decision to sell investments is determined principally by
considerations of investment timing and tax consequences. Realized investment
gains (losses) can also result from early redemption of securities at the
election of the issuer (calls) and changes in write-downs and reserves.
Realized gains (losses) were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales of fixed maturity securities $(14) $(150) $ (6)
Write-downs/reserve increases (54) (123) (298)
Calls of fixed maturity securities 32 29 129
Sales/calls of equity securities 19 9 123
Other 29 63 60
- - --------------------------------------------------------------------------------
Total realized investment
gains (losses) $ 12 $(172) $ 8
- - --------------------------------------------------------------------------------
</TABLE>
The majority of the 1995 write-down and reserve increases related to
mortgage loans. Write-downs and reserve increases in 1994 and 1993 primarily
related to investment real estate.
During fourth quarter 1994, American General initiated a program to realize
capital losses for tax purposes to offset prior period capital gains. During
1995, the company received a tax refund of $46 million, generated by $126
million in net capital losses realized in fourth quarter 1994 primarily through
the sale of fixed maturity securities. Due to declining interest rates during
1995, which resulted in increasing values of the company's fixed maturity
securities, no additional capital losses were realized under this program.
The company realized net capital gains of $256 million in 1993 that can be
used for tax loss carryback purposes in 1996. The ability of the company to
generate capital losses in 1996 sufficient to offset these capital gains is
dependent on future interest rate levels and alternative tax planning
strategies. Net capital gains of $162 million realized in 1992 expired for tax
loss carryback purposes in 1995.
ASSET/LIABILITY MANAGEMENT
OBJECTIVES
Asset/liability management is performed on an ongoing basis for each
operating company as well as on an aggregate basis. The primary objective of
the company's asset/liability management program is to maintain a reasonable
balance in the durations of assets and liabilities, while achieving
profitability objectives. An additional objective of the asset/liability
management program is to manage the Consumer Finance segment's spread between
the yield on finance receivables and borrowing costs.
RETIREMENT ANNUITIES AND LIFE INSURANCE
The asset/liability management program of the Retirement Annuities and Life
Insurance segments is designed to maximize long-term profitability, subject to
pre-established risk constraints. These risk constraints include: (1)
minimizing the exposure of the company's surplus to fluctuations in interest
rates, (2) ensuring adequate liquidity to meet liability cash flow
requirements, and (3) maintaining an adequate level of statutory equity.
Interest Rates. The company responds to fluctuations in interest rates
through periodic repricing of new products and adjustment of interest crediting
rates on existing products where possible. The company's ability to manage
interest crediting rates is largely due to the nature of its insurance and
annuity products. At December 31, 1995, approximately 82% of the insurance and
annuity liabilities were subject to interest crediting adjustments. Insurance
and annuity liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement annuities $20,147 $18,656 $17,029
Traditional and participating life 7,679 4,334 4,199
Interest-sensitive life 3,253 2,933 2,664
Other annuities 5,578 3,029 2,765
Other 1,326 671 582
- - --------------------------------------------------------------------------------
Total insurance and
annuity liabilities $37,983 $29,623 $27,239
- - --------------------------------------------------------------------------------
</TABLE>
The average investment yield, interest crediting rate, and investment spread
for the primary operating companies in the Retirement Annuities and Life
Insurance segments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
VALIC
Investment yield* 8.24% 8.37% 8.94%
Crediting rate 6.41 6.57 7.28
- - --------------------------------------------------------------------------------
Investment spread 1.83% 1.80% 1.66%
- - --------------------------------------------------------------------------------
American General Life
Investment yield* 7.95% 8.05% 8.72%
Crediting rate 5.91 5.91 6.20
- - --------------------------------------------------------------------------------
Investment spread 2.04% 2.14% 2.52%
- - --------------------------------------------------------------------------------
American General Life and Accident
Investment yield* 8.78% 8.97% 9.69%
Crediting rate 6.82 6.78 6.93
- - --------------------------------------------------------------------------------
Investment spread 1.96% 2.19% 2.76%
- - --------------------------------------------------------------------------------
Franklin Life
Investment yield* 8.61%
Crediting rate 6.65
- - ------------------------------------------------
Investment spread 1.96%
- - ------------------------------------------------
</TABLE>
* Excludes fair value adjustment.
Despite declining yields due to lower interest rates, interest spread
management programs have maintained overall margins on interest-sensitive
products within product pricing assumptions. Total investment spreads have
declined in the life insurance companies because some large blocks of
traditional in force business have crediting rates that cannot be adjusted when
investment yields fluctuate. Overall investment spreads on these products are
still within product pricing assumptions.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
21
<PAGE> 7
- - --------------------------------------------------------------------------------
Liquidity. The company targets duration relationships by aligning new cash
flows with specific duration objectives and, to a lesser extent, through
portfolio restructuring actions. The most recent estimated duration of the
company's insurance and annuity liabilities was in the range of 4.7 to 5.7
years, while the estimated duration of the assets supporting these liabilities
was 4.9 years. The company's insurance reserves are supported by high-quality,
low-risk investments, including investment grade fixed maturity securities,
mortgage-backed securities, mortgage loans, and policy loans. The company did
not use derivative financial instruments or off-balance-sheet transactions in
any material way for asset/liability management purposes during the three years
ended December 31, 1995.
Cash flow testing of assets and liabilities is performed at least annually
under multiple interest rate scenarios to evaluate the appropriateness of the
company's investment portfolios relative to its insurance reserves. Cash flow
testing performed as of December 31, 1995 indicated that the company's
insurance subsidiaries would have future surplus after meeting their insurance
obligations.
Statutory Equity. The operating companies in the Retirement Annuities and
Life Insurance segments have strong statutory equity. See "Solvency Regulation"
on page 25 for a discussion of the operating companies' risk-based capital
ratios.
CONSUMER FINANCE
The company funds its finance receivables with equity and a combination of
fixed-rate debt, principally long-term, and floating-rate or short-term debt,
principally commercial paper. The company's mix of fixed-rate and floating-rate
debt is a management decision based in part on the nature of the receivables
being supported. The company limits its exposure to market interest rate
increases by fixing interest rates it pays for term periods. The primary means
by which the company accomplishes this is through the issuance of fixed-rate
debt. The company also uses interest rate swap agreements to synthetically
create fixed-rate debt by altering the nature of floating-rate debt, thereby
limiting its exposure to interest rate movements.
Growth in higher-yielding finance receivables, partially offset by higher
cost of borrowings in 1995, has resulted in increases in the spread between
yield and borrowing costs. The yield on finance receivables, cost of
borrowings, and spread for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield on finance receivables 18.02% 17.58% 16.95%
Cost of borrowings 7.01 6.60 6.67
- - --------------------------------------------------------------------------------
Spread 11.01% 10.98% 10.28%
- - --------------------------------------------------------------------------------
</TABLE>
CAPITAL REQUIREMENTS
The overall financial strength of American General and its subsidiaries is
based on consolidated shareholders' equity of $5.8 billion and is confirmed by
strong ratings for both debt-paying and claims-paying ability.
For analysis of capital requirements, corporate capital and the business
segments are discussed separately.
CORPORATE CAPITAL
Total capital of the parent company is referred to as "corporate capital."
Since the parent company is a holding company, the level of corporate capital
is determined primarily by the required equity of its business segments, while
the mix of corporate capital between debt and equity is influenced by overall
corporate strategy and structure. At year-end 1995, corporate capital totaling
$8.2 billion was comprised of $1.7 billion of corporate debt, $729 million of
redeemable equity, and $5.8 billion of shareholders' equity.
During 1995, the parent company issued $450 million of long-term debt. The
company's current corporate debt ratings are as follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
- - ----------------------------------------------------------
<S> <C> <C> <C>
Standard & Poor's A-1+ (Highest) AA- (Strong)
Duff & Phelps Duff 1+ (Highest) AA- (Strong)
Moody's P-1 (Highest) A1 (Strong)
- - ----------------------------------------------------------
</TABLE>
Excluding unrealized gains (losses) on securities, corporate debt was 24%
and redeemable equity was 10% of corporate capital at year-end 1995. The ratio
of corporate debt to corporate capital increased to 35% at January 31, 1995
with the issuance of short-term debt to initially finance the Franklin Life
acquisition, but was subsequently reduced by the issuance of $729 million of
redeemable equity, discussed below. Management expects to maintain the ratio of
corporate debt to corporate capital at or below 25% and the ratio of redeemable
equity to corporate capital at or below 10% in 1996.
During 1995, two wholly-owned subsidiaries of the company were incorporated
for the purpose of completing public offerings of three issues of Monthly
Income Preferred Securities (Preferred Securities) totaling $752 million, with
net proceeds of $729 million. Net proceeds of $485 million from the issuance of
non-convertible Preferred Securities were used to refinance a portion of the
short-term debt related to the Franklin Life acquisition. Net proceeds of $244
million from the issuance of convertible Preferred Securities were used to
refinance short-term real estate-related debt. Dividends paid on Preferred
Securities are deductible for federal income tax purposes.
The anticipated first quarter 1996 acquisition of Independent for total
consideration of $362 million calls for Independent's shareholders to elect to
receive from among cash, American General common stock, and a new issue
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
22
<PAGE> 8
- - --------------------------------------------------------------------------------
of American General 7% mandatorily convertible preferred stock. Cash and
preferred stock elections by Independent's shareholders will each be limited to
50% of the aggregate consideration. The cash portion of the purchase price will
be financed through short-term borrowings. Common stock will be issued from
shares currently held in treasury. The preferred stock will be noncallable for
four years, and each share is mandatorily convertible into not more than one
share of American General common stock during the fifth year.
RETIREMENT ANNUITIES AND LIFE INSURANCE SEGMENTS
The amount of statutory equity required to support the business of American
General's Retirement Annuities and Life Insurance segments is principally a
function of three factors: (1) the quality of the assets invested to support
insurance and annuity reserve liabilities, (2) the mortality risk of the life
insurance in force, and (3) the interest-rate risk resulting from potential
mismatching of asset and liability durations. Each of these items is a key
factor in the National Association of Insurance Commissioners' (NAIC)
risk-based capital (RBC) formula, used to evaluate the adequacy of a life
insurance company's statutory equity (see "Solvency Regulation" on page 25).
Rating agencies use the NAIC approach as one of the factors in determining
an insurance company's claims-paying ability rating. American General's target
statutory equity for each of its life insurance and annuity subsidiaries is 2.5
times the Company Action Level RBC. At December 31, 1995, all of the company's
life insurance and annuity subsidiaries had statutory equity equal to or in
excess of 2.45 times Company Action Level RBC.
The current claims-paying ability ratings of the company's principal
insurance and annuity subsidiaries are as follows:
<TABLE>
<CAPTION>
American
American General Life Franklin
VALIC General Life and Accident Life
- - -----------------------------------------------------------
<S> <C> <C> <C> <C>
A.M. Best A++ A++ A++ A+
Standard &
Poor's AAA AAA AAA AA
Duff &
Phelps AAA AAA -- AA+
Moody's Aa2 Aa3 -- Aa3
- - -----------------------------------------------------------
</TABLE>
CONSUMER FINANCE SEGMENT
The capital of American General's Consumer Finance segment varies directly
with the amount of finance receivables outstanding. The capital mix of consumer
finance debt and equity is based primarily upon maintaining leverage at a level
that supports cost-effective funding.
The ratio of debt to tangible net worth (equity less goodwill and the fair
value adjustment on securities), a key measure of financial risk in the
consumer finance industry, was 7.5 to 1 for the Consumer Finance segment at
year-end 1995, 1994, and 1993. Management expects to maintain the current
level of debt to tangible net worth.
At year-end 1995, consumer finance capital increased to $8.8 billion,
compared to $8.3 billion a year earlier, primarily due to an increase in debt
to support an increase in finance receivables. The 1995 capital included $7.5
billion of consumer finance debt, which is not guaranteed by the parent
company, and $1.3 billion of equity. Segment equity was increased during fourth
quarter 1995 by an $80 million capital contribution from the parent company to
support the increased allowance for finance receivable losses. This capital
contribution enabled the segment to maintain leverage at its target ratio of
debt to tangible net worth (7.5 to 1).
The current consumer finance debt ratings are as follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
- - ---------------------------------------------------------
<S> <C> <C> <C>
Standard & Poor's A-1+ (Highest) A+ (Strong)
Duff & Phelps Duff 1+ (Highest) A+ (Strong)
Moody's P-1 (Highest) A1 (Strong)
- - ---------------------------------------------------------
</TABLE>
LIQUIDITY
American General's overall liquidity is based on cash flows from each of its
business segments and its ability to borrow in both the long-term and
short-term markets at competitive rates. American General believes that its
overall sources of liquidity will continue to be sufficient to satisfy its
foreseeable financial obligations.
PARENT COMPANY
Operating cash flow for the parent company includes dividends from the
business segments, partially offset by interest and other expenses not
allocated to the segments.
While the subsidiaries are restricted in the amount of dividends they may
pay to the parent company as discussed in Note 19.1, these restrictions are not
expected to affect the ability of the parent company to meet its cash
obligations in 1996.
During 1995, operating cash flow of the parent company of $369 million was
used to pay dividends to shareholders, to buy back common stock, and to pay
interest on corporate debt.
In 1995, the company purchased 1.2 million shares of its common stock at a
cost of $40 million, compared to 9.5 million shares ($262 million) and 2.7
million shares ($78 million) in 1994 and 1993, respectively. Since inception of
the share buyback program in 1987, 98.3 million American General common shares,
or 33% of the total shares then outstanding, have been purchased for an
aggregate cost of $1.9 billion.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
23
<PAGE> 9
- - --------------------------------------------------------------------------------
RETIREMENT ANNUITIES AND LIFE INSURANCE SEGMENTS
In 1995, the Retirement Annuities and Life Insurance segments generated $2.9
billion of cash, composed of $1.8 billion from operations and $1.1 billion from
net policyholder fixed account deposits. This compares to total cash generated
of $2.5 billion in 1994 and $3.1 billion in 1993. The 1995 increase resulted
from cash flows of Franklin Life's operations, partially offset by a decrease
in net policyholder fixed account deposits. The decrease from 1993 to 1994 was
the result of policyholders seeking higher returns in equity-based investments,
including the company's Separate Accounts.
The major uses of cash were the net purchase of investments necessary to
support increases in insurance and annuity liabilities, and dividends paid to
the parent company. These segments paid dividends to the parent company of $323
million in 1995, compared to $367 million in 1994 and $506 million in 1993. In
addition, Franklin Life loaned $116 million to a subsidiary of the parent
company in 1995, which was used to pay down short-term debt.
CONSUMER FINANCE SEGMENT
Operating cash flow for the Consumer Finance segment includes net income
adjusted for non-cash items such as the provision for finance receivable losses
and the amortization of intangible assets. In 1995, operating cash flow totaled
$658 million, an increase from $511 million and $479 million in 1994 and 1993,
respectively.
The 1995 operating cash flow, coupled with net proceeds from increased debt,
generated total cash flow of $1.0 billion, compared to $1.8 billion in 1994 and
$833 million in 1993. This cash was used to fund the net increase in
receivables and to pay dividends to the parent company. Dividends paid to the
parent company totaled $33 million in 1995, net of an $80 million capital
contribution, compared to dividends of $140 million in 1994 and $163 million in
1993. Dividend levels are adjusted to maintain the ratio of debt to tangible
net worth at 7.5 to 1.
Operating cash flow and access to money and capital markets, resulting from
strong long-term debt and commercial paper ratings, are expected to satisfy
1996 cash requirements, including long-term debt maturities.
CREDIT FACILITIES
At December 31, 1995, committed credit facilities totaled $3.2 billion with
51 domestic and foreign banks. While the principal purpose of these facilities
is to support the issuance of commercial paper, they also provide an additional
source of cash to American General and its subsidiaries.
ACQUISITION-RELATED GOODWILL
In 1993, the company recorded a $300 million non-cash write-down of
acquisition-related goodwill in the Life Insurance segment. This write-down was
one of the decisions resulting from a strategic review of the company's four
ordinary life insurance subsidiaries, primarily American General Life (AGL),
begun in 1993. The strategic review was initiated to assess alternatives for
optimizing the use of capital allocated to these subsidiaries in light of
increasing public market multiples for life insurance companies in early 1993
and new RBC requirements facing the life insurance industry. While AGL had been
profitable in recent years, it operated in increasingly competitive markets and
its performance was not meeting management's expectations, particularly in
comparison to the company's other businesses.
In connection with the strategic review, the company retained an outside
advisor to assess AGL's market value, assuming the company chose to sell AGL.
The outside advisor's report, received on November 22, 1993, indicated that
AGL's fair value was below its book value. This report, together with the
marketing and profitability review performed by management, suggested an
impairment of AGL's goodwill. The primary source of AGL's goodwill was the $1.2
billion acquisition of the Gulf United insurance operations in 1984. Since that
time, there had been a series of consolidations within the company's ordinary
life insurance operations. In addition, AGL's marketing focus gradually
changed, causing a decline in the acquired agency force and its in force
business. In the past several years, AGL's business mix also continued to shift
from life insurance to annuities, which have different distribution systems and
lower investment spreads. Management concluded, based on the cumulative effect
of these trends and the outside advisor's report, that a portion of goodwill
was permanently impaired.
Following a special board of directors meeting on November 29, 1993, the
company announced the board's decision to retain AGL and a related New York
subsidiary, seek future growth through acquisitions, sell two special niche
life insurance subsidiaries, and write down $300 million of goodwill associated
with the four subsidiaries. While the write-down resulted in a $164 million net
loss in fourth quarter 1993, it did not affect the company's debt or
claims-paying ability ratings and is not expected to have a material impact on
future operating results.
ECONOMIC FACTORS
Interest Rates. The pricing and profit margins of the products and services
offered by American General's operating subsidiaries are sensitive to interest
rates. See the discussion of the company's asset/liability management program
beginning on page 21.
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
24
<PAGE> 10
- - --------------------------------------------------------------------------------
Competition. Insurance and annuity providers currently face strong
competition from mutual fund companies for consumers' savings and investments.
Additionally, the U.S. Supreme Court ruled in January 1995 that national banks
also may compete with insurance companies in the sale of annuities. VALIC
currently sells variable annuities to specialized markets for qualified
retirement plans through NASD-licensed representatives. American General's life
insurance companies sell annuities through their own agency distribution
systems and through a network of financial institutions. As a result, the
impact of the Supreme Court's decision on American General's insurance
operations has been minimal.
The company's Consumer Finance segment competes with other types of
financial institutions which offer similar products and services. Competition
in financial services markets is intense due to an increase in the number and
sophistication of financial products, technological improvements, and more
rapid communication.
Taxation. Tax laws affect not only the way American General is taxed but
also the design of many of its products. Changes in tax laws or regulations
could adversely affect operating results. The Revenue Reconciliation Act of
1993 increased the federal corporate tax rate by 1% and caused an increase in
current taxes and a one-time increase in deferred income taxes, which together
decreased net income by $30 million in 1993. A proposal is currently pending
that would eliminate the deductibility of dividends paid on certain preferred
securities. This proposal, however, is not expected to impact the tax status of
previously issued preferred securities.
Solvency Regulation. Insurance regulators monitor asset quality and capital
adequacy of the insurance industry.
The NAIC uses the risk-based capital (RBC) formula to evaluate the adequacy
of life insurance companies' statutory capital and surplus. The RBC formula
specifies weighting factors that are applied to financial balances or levels of
activity of each company, based on the perceived degree of risk, to calculate
RBC. The formula focuses on: (1) asset impairment risks, (2) insurance risks,
(3) interest rate risks, and (4) general business risks. The "Company Action
Level" RBC ratio (RBC ratio) is determined by dividing a life insurance
company's total adjusted capital by its calculated RBC.
The RBC requirements provide for four different levels of regulatory
attention depending on an insurance company's RBC ratio. The least severe of
these is the "Company Action Level." It is triggered if a company's RBC ratio
is less than 100% but greater than or equal to 75%, or if a negative trend (as
defined by the regulations) has occurred and the company's RBC ratio is less
than 125%. At the "Company Action Level," the company must submit a
comprehensive financial plan to the state insurance commissioner that discusses
proposed corrective actions to improve its capital position.
Calculations at December 31, 1995, using the RBC formula, indicate that each
of the company's Life Insurance and Retirement Annuities subsidiaries' total
adjusted capital is equal to or greater than 245% of amounts required at the
"Company Action Level." The company believes that its statutory capital is more
than adequate to satisfy its foreseeable financial obligations.
Market Conduct. In addition to monitoring financial solvency, insurance
regulators monitor market conduct, such as sales and advertising practices,
agent licensing and compensation, policyholder service, complaint handling,
underwriting, and claims practices. Regulatory scrutiny in this area has
increased as a result of negative publicity in recent years regarding the
market misconduct of various insurers, particularly with respect to agent
misrepresentation and policy replacement practices. The NAIC and individual
state insurance departments have proposed or adopted new policies designed to
better regulate life insurance sales illustrations, sales practices in
connection with replacing policies, and agent compensation. In addition, the
major trade association for the life insurance industry, the American Council
of Life Insurance, is developing a code of ethical life insurance market
conduct and an accompanying assessment process.
American General is not aware of any existing or pending regulatory actions
concerning market conduct that would materially affect the company's
operations. However, as a result of these various developments, market conduct
compliance costs may increase for American General's insurance and annuity
subsidiaries.
Guaranty Associations. All 50 states have laws requiring life insurance
companies to pay assessments to state guaranty associations to protect the
interests of policyholders of insolvent life insurance companies. A portion of
these assessments can be recovered against the payment of future premium taxes;
however, changes in state laws could decrease the amount available for
recovery. See Note 9 for amounts assessed and accrued by the company under such
laws.
Litigation. American General and certain of its subsidiaries are defendants
in various lawsuits and proceedings arising in the normal course of business.
Some of these lawsuits and proceedings arise in jurisdictions such as Alabama
that permit punitive damages disproportionate to the actual damages alleged. In
light of the uncertainties inherent in any litigation, no assurances can be
given as to the ultimate outcome of these lawsuits and proceedings. However,
American General and its subsidiaries believe that there are meritorious
defenses for all of these claims and are defending them vigorously. See Note
19.2 for specific legal proceedings involving the company.
Environmental. American General's principal exposure to environmental
regulation arises from its ownership of investment real estate. Probable costs
related to environmental cleanup are immaterial.
- - --------------------------------------------------------------------------------
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<PAGE> 11
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
AMERICAN GENERAL CORPORATION
For the Years Ended December 31,
In millions, except per share data
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES Premiums and other considerations $ 1,753 $ 1,210 $ 1,252
Net investment income 3,095 2,493 2,437
Finance charges 1,492 1,248 1,083
Realized investment gains (losses) 12 (172) 8
Equity in earnings of Western National Corporation 43 -- --
Other 100 62 49
----------------------------------------------------------------------------------------------------
Total revenues 6,495 4,841 4,829
- - ------------------------------------------------------------------------------------------------------------------------
BENEFITS AND Insurance and annuity benefits 3,047 2,224 2,311
EXPENSES Operating costs and expenses 1,007 801 749
Commissions 511 400 417
Change in deferred policy acquisition costs and
cost of insurance purchased (168) (126) (196)
Provision for finance receivable losses 574 214 163
Write-down of acquisition-related goodwill -- -- 300
Interest expense
Corporate 156 110 108
Consumer Finance 518 416 375
----------------------------------------------------------------------------------------------------
Total benefits and expenses 5,645 4,039 4,227
- - ------------------------------------------------------------------------------------------------------------------------
EARNINGS Income before income tax expense 850 802 602
Income tax expense 286 289 352
----------------------------------------------------------------------------------------------------
Income before net dividends on preferred securities 564 513 250
Net dividends on preferred securities of subsidiaries 19 -- --
----------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 545 513 250
Cumulative effect of accounting changes -- -- (46)
----------------------------------------------------------------------------------------------------
Net income $ 545 $ 513 $ 204
- - ------------------------------------------------------------------------------------------------------------------------
SHARE DATA Income before cumulative effect of accounting changes $ 2.64 $ 2.45 $ 1.15
Cumulative effect of accounting changes -- -- (.21)
----------------------------------------------------------------------------------------------------
Net income per share $ 2.64 $ 2.45 $ .94
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
26
<PAGE> 12
- - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
AMERICAN GENERAL CORPORATION
At December 31,
In millions, except share data
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS Investments
Fixed maturity securities (amortized cost: $34,590;
$27,087; $24,885) $ 37,213 $ 25,700 $ 26,479
Mortgage loans on real estate 3,041 2,651 3,032
Equity securities (cost: $138; $202; $182) 186 224 233
Policy loans 1,605 1,197 1,156
Investment real estate 577 564 772
Other long-term investments 179 152 137
Short-term investments 103 209 67
----------------------------------------------------------------------------------------------------
Total investments 42,904 30,697 31,876
----------------------------------------------------------------------------------------------------
Cash 161 45 6
Finance receivables, net 7,918 7,694 6,390
Investment in Western National Corporation 407 274 --
Deferred policy acquisition costs 1,625 2,563 1,451
Cost of insurance purchased 504 168 186
Acquisition-related goodwill 577 597 618
Other assets 1,887 1,356 1,358
Assets held in Separate Accounts 5,170 2,901 2,097
----------------------------------------------------------------------------------------------------
Total assets $ 61,153 $ 46,295 $ 43,982
- - ------------------------------------------------------------------------------------------------------------------------
LIABILITIES Insurance and annuity liabilities $ 37,983 $ 29,623 $ 27,239
Debt (short-term)
Corporate ($553; $1,000; $726) 1,723 1,836 1,686
Consumer Finance ($2,490; $2,777; $1,824) 7,470 7,090 5,843
Income tax liabilities 1,268 721 1,241
Other liabilities 1,009 620 739
Liabilities related to Separate Accounts 5,170 2,901 2,097
----------------------------------------------------------------------------------------------------
Total liabilities 54,623 42,791 38,845
- - ------------------------------------------------------------------------------------------------------------------------
REDEEMABLE Company-obligated mandatorily redeemable preferred securities
EQUITY of subsidiaries holding solely company subordinated notes
Non-convertible 485 -- --
Convertible 244 -- --
Common stock subject to put contracts -- 47 --
----------------------------------------------------------------------------------------------------
Total redeemable equity 729 47 --
- - ------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Common stock (shares issued: 220,122,120;
EQUITY outstanding: 203,948,246; 203,051,907; 214,157,548) 364 364 365
Net unrealized gains (losses) on securities 1,100 (935) 709
Retained earnings 4,787 4,495 4,229
Cost of treasury stock (450) (467) (166)
----------------------------------------------------------------------------------------------------
Total shareholders' equity 5,801 3,457 5,137
----------------------------------------------------------------------------------------------------
Total liabilities and equity $ 61,153 $ 46,295 $ 43,982
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
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<PAGE> 13
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AMERICAN GENERAL CORPORATION
For the Years Ended December 31,
In millions, except per share data
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON Balance at beginning of year $ 364 $ 365 $ 368
STOCK Treasury shares issued and other -- (1) (3)
----------------------------------------------------------------------------------------------------
Balance at end of year 364 364 365
- - ------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED Balance at beginning of year (935) 709 88
GAINS (LOSSES) Change during year 2,035 (1,644) (55)
ON SECURITIES Effect of accounting change -- -- 676
----------------------------------------------------------------------------------------------------
Balance at end of year 1,100 (935) 709
- - ------------------------------------------------------------------------------------------------------------------------
RETAINED Balance at beginning of year 4,495 4,229 4,263
EARNINGS Net income 545 513 204
Dividends paid (per share: $1.24; $1.16; $1.10) (254) (243) (238)
Other 1 (4) --
----------------------------------------------------------------------------------------------------
Balance at end of year 4,787 4,495 4,229
- - ------------------------------------------------------------------------------------------------------------------------
COST OF Balance at beginning of year (467) (166) (103)
TREASURY Purchases on the open market (40) (262) (78)
STOCK Expiration (issuance, net of premiums) of put contracts 47 (43) --
Other 10 4 15
----------------------------------------------------------------------------------------------------
Balance at end of year (450) (467) (166)
- - ------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS'
EQUITY Balance at end of year $ 5,801 $ 3,457 $ 5,137
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
CONSOLIDATED STATEMENT OF STOCK ACTIVITY
AMERICAN GENERAL CORPORATION
For the Years Ended December 31,
In thousands of shares
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON SHARES
ISSUED Balance at beginning and end of year 220,122 220,122 220,122
- - ------------------------------------------------------------------------------------------------------------------------
TREASURY Balance at beginning of year (17,070) (5,964) (3,865)
SHARES Purchases on the open market (1,187) (9,536) (2,655)
Expiration (issuance) of put contracts 1,700 (1,700) --
Issuance under employee benefit plans 383 130 556
----------------------------------------------------------------------------------------------------
Balance at end of year (16,174) (17,070) (5,964)
- - ------------------------------------------------------------------------------------------------------------------------
OUTSTANDING
SHARES Balance at end of year 203,948 203,052 214,158
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
- - --------------------------------------------------------------------------------
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<PAGE> 14
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
AMERICAN GENERAL CORPORATION
For the Years Ended December 31,
In millions
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Income before cumulative effect of accounting changes $ 545 $ 513 $ 250
ACTIVITIES Reconciling adjustments to net cash provided by
operating activities
Insurance and annuity liabilities 1,361 1,007 1,012
Deferred policy acquisition costs and cost of
insurance purchased (168) (126) (196)
Provision for finance receivable losses 574 214 163
Realized investment (gains) losses (66) 49 (306)
Investment write-downs and reserves 54 123 298
Write-down of acquisition-related goodwill -- -- 300
Other, net (77) (280) 180
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,223 1,500 1,701
- - ------------------------------------------------------------------------------------------------------------------------
INVESTING Investment purchases (7,734) (7,239) (9,499)
ACTIVITIES Investment calls, maturities, and sales 5,601 5,566 6,984
Finance receivable originations or acquisitions (5,786) (5,827) (4,320)
Finance receivable principal payments received 4,927 4,323 3,797
Acquisition of Franklin Life (920) -- --
Investment in Western National Corporation -- (274) --
Proceeds from sale of subsidiary -- 95 --
Other, net 16 (205) (151)
----------------------------------------------------------------------------------------------------
Net cash used for investing activities (3,896) (3,561) (3,189)
- - ------------------------------------------------------------------------------------------------------------------------
FINANCING Retirement Annuities and Life Insurance
ACTIVITIES Policyholder account deposits 3,045 2,583 2,656
Policyholder account withdrawals (1,965) (1,345) (934)
----------------------------------------------------------------------------------------------------
Total Retirement Annuities and Life Insurance 1,080 1,238 1,722
----------------------------------------------------------------------------------------------------
Consumer Finance
Net increase (decrease) in short-term debt (287) 953 (106)
Long-term debt issuances 1,577 1,136 1,005
Long-term debt redemptions (914) (846) (545)
----------------------------------------------------------------------------------------------------
Total Consumer Finance 376 1,243 354
----------------------------------------------------------------------------------------------------
Corporate
Net increase (decrease) in short-term debt (447) 272 (370)
Long-term debt issuances 433 100 100
Long-term debt redemptions (100) (247) (31)
Issuance of preferred securities of subsidiaries 729 -- --
Common share dividend payments (254) (243) (238)
Common share purchases (35) (264) (72)
Other, net 7 1 12
----------------------------------------------------------------------------------------------------
Total Corporate 333 (381) (599)
----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,789 2,100 1,477
- - ------------------------------------------------------------------------------------------------------------------------
NET CHANGE Net increase (decrease) in cash 116 39 (11)
IN CASH Cash at beginning of year 45 6 17
----------------------------------------------------------------------------------------------------
Cash at end of year $ 161 $ 45 $ 6
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
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<PAGE> 15
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
1.1 BUSINESS SEGMENTS
American General Corporation (American General or the company) is one of the
nation's largest diversified financial services organizations. Headquartered in
Houston, it provides retirement annuities, consumer loans, and life insurance
products to more than eight million households throughout the United States,
Canada, Puerto Rico, and the U.S. Virgin Islands. American General reports the
results of its business operations in three segments.
Retirement Annuities. The Variable Annuity Life Insurance Company (VALIC)
provides tax-deferred retirement annuities and employer-sponsored retirement
plans to employees of educational, health care, public sector, and
not-for-profit organizations. VALIC markets products nationwide to 900,000
customers through a national network of 850 sales representatives. VALIC holds
the strongest claims-paying ability ratings available in the life insurance
industry from three rating agencies.
Consumer Finance. American General Finance, Inc. and its subsidiaries (AGF)
provide consumer and home equity loans, credit cards, and credit-related
insurance products to 3.2 million customers through a network of 1,400 branch
offices in 41 states, Puerto Rico, and the U.S. Virgin Islands. AGF also
operates financing programs through 20,000 retail merchants. AGF holds debt
ratings that are among the strongest in the consumer finance industry.
Life Insurance. American General's life insurance companies provide life
insurance and annuity products to over five million customers throughout the
United States through 14,000 sales representatives and general agents. This
customer base is served by American General Life Insurance Company (AGL),
American General Life and Accident Insurance Company (AGLA), and, since January
1995, The Franklin Life Insurance Company (Franklin Life). AGL serves the
estate planning needs of middle- and upper-income households and the insurance
needs of small- to medium-size businesses. AGLA concentrates on meeting the
basic life insurance needs of families with modest incomes. Franklin Life
provides life insurance to middle-income households, primarily in the Midwest.
These companies hold claims-paying ability ratings that are among the strongest
in the life insurance industry.
1.2 SEGMENT RESULTS
Results of each of these segments include earnings from its business
operations and earnings on that amount of equity considered necessary to
support its business. Business segment information, reconciled to consolidated
amounts, was as follows:
<TABLE>
<CAPTION>
Revenues Income before Taxes(a) Assets
--------------------------- ---------------------------- ------------------------------
In millions 1995 1994 1993 1995 1994 1993 1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Annuities $1,655 $1,537 $1,470 $ 305 $ 282 $ 240 $27,084 $22,007 $20,896
Consumer Finance 1,790 1,491 1,282 115(b) 392 330 9,466 8,949 7,641
Life Insurance 2,956 1,932 2,054 542 399 152(c) 23,592 14,156 14,192
- - -------------------------------------------------------------------------------------------------------------------
Total business segments 6,401 4,960 4,806 962 1,073 722 60,142 45,112 42,729
- - -------------------------------------------------------------------------------------------------------------------
Corporate 131 105 65 (127)(d) (99)(d) (129)(d) 1,317 1,391 1,506
Realized investment gains
(losses) 12 (172) 8 12 (172) 8 -- -- --
Intersegment eliminations (49) (52) (50) 3 -- 1 (306) (208) (253)
- - -------------------------------------------------------------------------------------------------------------------
Consolidated $6,495 $4,841 $4,829 $ 850 $ 802 $ 602 $61,153 $46,295 $43,982
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes net dividends on preferred securities of subsidiaries and
cumulative effect of accounting changes.
(b) Decrease in 1995 primarily due to $266 million increase in the allowance
for finance receivable losses.
(c) Includes $300 million write-down of goodwill.
(d) Primarily interest on corporate debt.
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
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<PAGE> 16
- - --------------------------------------------------------------------------------
2. ACQUISITIONS AND DIVESTITURES
2.1 FRANKLIN LIFE
On January 31, 1995, the company acquired American Franklin Company (AFC),
the holding company of Franklin Life, for $1.17 billion. The purchase price
consisted of $920 million paid in cash at closing and a $250 million cash
dividend paid by AFC to its former parent prior to closing. The permanent
financing of this acquisition, including related issue costs, consisted of $150
million of short-term debt, $300 million of senior long-term fixed-rate debt,
and $502 million of non-convertible preferred securities. The acquisition was
accounted for using the purchase method, and the results of operations of
Franklin Life are included in the consolidated statement of income from the
date of acquisition.
2.2 WESTERN NATIONAL CORPORATION
On December 23, 1994, the company acquired a 40% interest in Western
National Corporation (WNC), the holding company of Western National Life
Insurance Company, through the acquisition of 24,947,500 shares of WNC common
stock for $274 million in cash. For accounting purposes, the acquisition was
recorded on an equity basis, using the purchase method. The purchase price was
approximately $139 million greater than the underlying net assets of WNC. This
amount has been allocated to WNC's individual assets and liabilities based on
their fair values as of the acquisition date, and will be amortized into income
over the lives of the specific assets or liabilities. Approximately $137
million of the difference is attributed to goodwill, which will be amortized on
a straight-line basis over 20 years. At December 31, 1995, the fair value of
the WNC shares held was $402 million.
2.3 PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information presents the consolidated
results of operations of the company and AFC and reflects the company's 40%
equity in the earnings of WNC for the years ended December 31, 1995 and 1994.
The pro forma information is presented as if the acquisitions had been
effective at January 1, 1994, after giving effect to adjustments to reflect the
acquisitions and the permanent financing of the AFC acquisition. This
information is intended for informational purposes only and may not be
indicative of the company's future results of operations.
<TABLE>
<CAPTION>
In millions, except share data 1995 1994
- - ----------------------------------------------------------
<S> <C> <C>
Total revenues $ 6,575 $ 5,921
Income before income tax expense 869 952
Income before net dividends on
preferred securities 576 607
Net income 543 580
Net income per share 2.63 2.77
- - ----------------------------------------------------------
Average fully diluted shares
outstanding (thousands) 208,872 209,420
- - ----------------------------------------------------------
</TABLE>
2.4 INDEPENDENT INSURANCE GROUP, INC.
During first quarter 1996, the company expects to acquire Independent
Insurance Group, Inc. (Independent), for total consideration of $362 million.
Independent's shareholders may elect to receive from among cash, American
General common stock, or a new issue of American General 7% mandatorily
convertible preferred stock. The preferred stock will be non-callable for four
years, and each share is mandatorily convertible into not more than one share
of American General common stock during the fifth year. This acquisition will
be accounted for using the purchase method.
2.5 SALE OF SUBSIDIARY
On August 31, 1994, the company sold American-Amicable Life Insurance
Company of Texas for $105 million cash, which included a $10 million cash
dividend paid prior to closing.
3. SIGNIFICANT ACCOUNTING POLICIES
3.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the accounts of
American General and its subsidiaries. All material intercompany transactions
have been eliminated in consolidation. To conform with the 1995 presentation,
certain items in the prior years' financial statements have been reclassified.
The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of assets and
liabilities, (2) disclosures of contingent assets and liabilities, and (3) the
reported amounts of revenues and expenses during the reporting periods.
Ultimate results could differ from those estimates.
3.2 INVESTMENTS
Fixed Maturity and Equity Securities. All fixed maturity and equity
securities are currently classified as available-for-sale and recorded at fair
value. After adjusting related balance sheet accounts as if unrealized gains
(losses) had been realized, the net adjustment is recorded in net unrealized
gains (losses) on securities within shareholders' equity. If the fair value of
a security classified as available-for-sale declines below its cost and this
decline is considered to be other than temporary, the security is reduced to
its fair value, and the reduction is recorded as a realized loss.
Mortgage Loans. Mortgage loans are reported at amortized cost, net of an
allowance for losses. The allowance for losses covers all non-performing loans,
consisting of loans restructured or delinquent 60 days or more. The allowance
also covers loans for which there is a concern based on management's assessment
of risk factors, such as potential non-payment or non-monetary default. The
allowance is based on a loan-specific review and a formula that reflects past
results and current trends.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
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<PAGE> 17
- - --------------------------------------------------------------------------------
Impaired loans, those for which the company determines that it is probable
that all amounts due under the contractual terms will not be collected, are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated costs to sell.
Policy and Other Loans. Policy and other loans are reported at unpaid
principal balance and adjusted periodically for any differences between face
value and unpaid principal balance, and for possible uncollectible amounts.
Investment Real Estate. Investment real estate consists of land development
projects, income-producing real estate, foreclosed real estate, and the
American General Center, an office complex in Houston. During 1995, the company
adopted Statement of Financial Accounting Standards (SFAS) 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Under SFAS 121, investment real estate is classified as held for
investment or available for sale, depending on management's intent and the
stage of completion of the assets.
At December 31, 1995, real estate held for investment is carried at cost,
less accumulated depreciation and impairment reserves and write-downs, if
applicable. Cost includes land acquisition and development costs, indirect
costs related to development, and interest and property taxes incurred during
the development period. Impairment losses are recorded whenever circumstances
indicate that a property might be impaired and the estimated undiscounted cash
flows to be generated by the property are less than its carrying amount. In
such event, the property is written down to fair value, determined by
observable market prices, third party appraisals, or expected future cash flows
discounted at market rates. Any write-down is recognized as a realized loss,
and a new cost basis is established.
Prior to 1995, real estate held for investment was carried at cost less
accumulated depreciation or, for land development projects, at the lower of
cost or estimated net realizable value. Whenever the net realizable value was
less than the carrying amount, the deficiency was recognized as a realized loss
through a valuation allowance.
Real estate available for sale is carried at the lower of cost (less
accumulated depreciation, if applicable) or fair value less cost to sell.
Changes in estimates of fair value less cost to sell are recognized as realized
gains (losses) through a valuation allowance.
Investment Income. Interest on fixed maturity securities and performing
mortgage loans is recorded as income when earned and is adjusted for any
amortization of premium or discount. Interest on restructured mortgage loans is
recorded as income when earned based on the new contractual rate. Interest on
delinquent mortgage loans is recorded as income on a cash basis. Dividends are
recorded as income on ex-dividend dates.
Realized Investment Gains (Losses). Realized investment gains (losses) are
recognized using the specific identification method and include declines in
fair value of investments below cost that are considered other than temporary.
3.3 FINANCE RECEIVABLES
Finance Charges. Finance charges on discounted receivables and interest on
interest-bearing receivables are recognized as revenue on the accrual basis
using the interest method. The accrual of revenue is suspended when contractual
payments are not received for four consecutive months for loans and retail
sales contracts, and for six months for private label and credit cards.
Extension fees and late charges are recognized as revenue when received. Non-
refundable points and fees on loans, net of direct costs incurred to originate
loans, are deferred and included in the carrying amount of the related loans.
The net deferral is recognized into income using the interest method over the
lesser of the contractual term or the expected life based on prepayment
experience. If a loan is prepaid before all related deferred amounts are
recognized, any remaining deferral is recognized into income at the date of
prepayment.
Losses on Finance Receivables. The company's policy is to charge off
consumer loans (except those secured by real estate), private label, credit
cards, and retail sales contracts for which minimal or no collections were made
in the prior six-month period. For loans secured by real estate, foreclosure
proceedings are instituted when four monthly installments are past due. At
foreclosure, the carrying amount of a loan in excess of the fair value of the
underlying real estate is charged off.
The allowance for finance receivable losses is maintained at a level that is
considered adequate to absorb anticipated losses in the existing portfolio.
Management considers numerous factors including current economic conditions,
portfolio composition, and loss and delinquency experience in its periodic
evaluations of the portfolio.
3.4 DEFERRED POLICY ACQUISITION COSTS (DPAC)
The costs of writing an insurance policy, including agents' commissions and
underwriting and marketing expenses, are deferred and included in the DPAC
asset.
DPAC associated with interest-sensitive life contracts, insurance investment
contracts, and participating life insurance contracts is charged to expense in
relation to the estimated gross profits of those contracts. DPAC associated
with all other insurance contracts is charged to expense over the
premium-paying period or as the premiums are earned over the life of the
contract.
Gross profits include realized investment gains (losses). In addition, DPAC
is adjusted for the impact on estimated future gross profits as if net
unrealized gains (losses) on securities had been realized at the balance sheet
date. The impact of this adjustment is included in net unrealized gains
(losses) on securities within shareholders' equity.
The company reviews the carrying amount of DPAC on at least an annual basis.
In determining whether the carrying amount is appropriate, the company
considers estimated future gross profits or future premiums, as applicable for
the type of contract. In all cases, the company considers expected mortality,
interest earned and credited rates, persistency, and expenses.
- - --------------------------------------------------------------------------------
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<PAGE> 18
- - --------------------------------------------------------------------------------
3.5 COST OF INSURANCE PURCHASED (CIP)
The cost assigned to certain acquired subsidiaries' insurance contracts in
force at the acquisition date is included in the CIP asset. Interest is
accreted on the unamortized balance of CIP at rates of 8.2% to 8.5%. CIP is
charged to expense and adjusted for the impact of net unrealized gains (losses)
on securities in the same manner as DPAC. The company reviews the carrying
amount of CIP on at least an annual basis using the same methods used to
evaluate DPAC.
3.6 ACQUISITION-RELATED GOODWILL
Acquisition-related goodwill is charged to expense in equal amounts,
generally over 20 or 40 years. The carrying amount of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary, including unexpected or adverse changes in the
following: (1) the economic or competitive environments in which the company
operates, (2) profitability analyses, (3) cash flow analyses, and (4) the fair
value of the relevant subsidiary. If facts and circumstances suggest that a
subsidiary's goodwill is impaired, the company assesses the fair value of the
underlying business and reduces goodwill to an amount that results in the book
value of the subsidiary approximating fair value. The company determines the
subsidiary's fair value based on an independent appraisal.
In 1993, the company recorded a non-cash charge of $300 million to reduce
acquisition-related goodwill following a strategic review of certain life
insurance operations. The reported amount and the remaining life of
acquisition-related goodwill are considered appropriate.
3.7 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain
contracts, principally annuities, for which the investment risk lies solely
with the holder of the contract rather than the company. Consequently, the
insurer's liability for these accounts equals the value of the account assets.
Investment income, realized investment gains (losses), and policyholder account
deposits and withdrawals related to Separate Accounts are excluded from the
consolidated statements of income and cash flows. Assets held in Separate
Accounts are primarily shares in mutual funds, which are carried at fair value,
based on the quoted net asset value per share.
3.8 INSURANCE AND ANNUITY LIABILITIES
Substantially all of the company's insurance and annuity liabilities relate
to long-duration contracts, which generally require performance over a period
of more than one year. The contract provisions normally cannot be changed or
cancelled by the company during the contract period.
For interest-sensitive life and insurance investment contracts, reserves
equal the sum of the policy account balance and deferred revenue charges.
Reserves for other types of long-duration contracts are based on estimates of
the cost of future policy benefits to be paid as a result of present and future
claims due to death, disability, surrender of a policy, or payment of an
endowment. Reserves are determined using the net level premium method. Interest
assumptions used to compute reserves ranged from 2.5% to 13.5% at December 31,
1995.
3.9 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies
are classified as deposits instead of revenues. Revenues for these contracts
consist of the mortality, expense, and surrender charges assessed against the
account balance. Policy charges that are designed to compensate the company for
future services are deferred and recognized in income over the period earned,
using the same assumptions used to amortize DPAC.
For limited-payment contracts, net premiums are recorded as revenue, and the
difference between the gross premium received and the net premium is deferred
and recognized in income in a constant relationship to insurance in force. For
all other long-duration contracts, premiums are recognized when due.
3.10 PARTICIPATING LIFE INSURANCE
Participating life insurance contracts contain dividend payment provisions
that entitle the policyholders to participate in the earnings of the contracts.
Participating life insurance accounted for 12% of life insurance in force at
December 31, 1995 and 17% of premiums and other considerations in 1995. Such
business is accounted for in accordance with SFAS 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts." Before the January 1995
acquisition of Franklin Life, the company's participating life insurance
business was not significant.
The portion of earnings allocated to participating policyholders which
cannot be expected to inure to shareholders is excluded from net income and
shareholders' equity.
The amount of dividends to be paid on participating life insurance contracts
is determined annually based on estimates of amounts incurred for the contracts
in effect during the period. Policyholder dividends for 1995 were $91 million.
3.11 REINSURANCE
The company's insurance subsidiaries are routinely involved in reinsurance
transactions. Ceded reinsurance becomes a liability of the reinsurer that
assumes the risk. The company's insurance subsidiaries diversify their risk of
exposure to reinsurance loss by using a number of life reinsurers that have
strong claims-paying ability ratings. The maximum retention on one life for
individual life insurance is $1.5 million. If the reinsurer could not meet its
obligations, American General's insurance subsidiaries would reassume the
liability. The likelihood of a material reinsurance liability being reassumed
by the company's insurance subsidiaries is considered to be remote.
Amounts paid or deemed to have been paid in connection with ceded
reinsurance contracts are recorded as reinsurance receivables. The cost of
reinsurance related to long-duration contracts is recognized over the life of
the underlying reinsured policies using assumptions consistent with those used
to account for the underlying policies.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
33
<PAGE> 19
- - --------------------------------------------------------------------------------
Reinsurance premiums included in premiums and other considerations were as
follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Direct premiums and other
considerations $ 1,848 $1,254 $1,262
Reinsurance assumed 104 52 38
Reinsurance ceded (199) (96) (48)
- - ----------------------------------------------------------
Premiums and other
considerations $ 1,753 $1,210 $1,252
- - ----------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $113 million, $74
million, and $52 million during 1995, 1994, and 1993, respectively. The amount
of reinsurance recoverable on paid and unpaid losses was not material at
December 31, 1995, 1994, or 1993.
3.12 INTEREST CAPITALIZED OR PAID
Essentially all interest incurred on land development projects under
development is capitalized until the property is substantially complete and
ready for its intended use. Interest capitalized was $17 million, $18 million,
and $15 million in 1995, 1994, and 1993, respectively.
Interest paid, excluding interest capitalized, was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Corporate $ 148 $115 $142
Consumer Finance 502 407 379
- - ----------------------------------------------------------
</TABLE>
3.13 STOCK-BASED COMPENSATION
The company's stock and incentive plans provide for the award of stock
options, restricted stock awards, performance awards, and incentive awards to
key employees. Stock options constitute the majority of such awards. Expense
related to stock options is measured as the difference between the quoted
market price of the stock at the measurement date and the price to be paid by
the employee. The measurement date is the first date on which both the number
of shares that the employee is entitled to receive and the exercise price are
known. Under the company's stock option plans, no expense is recognized since
the exercise price equals the market price at the measurement date.
3.14 INCOME TAXES
Deferred tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income
tax expense.
A valuation allowance for deferred tax assets is provided if all or some
portion of the deferred tax asset may not be realized. An increase or decrease
in a valuation allowance that results from a change in circumstances that
causes a change in judgment about the realizability of the related deferred tax
asset is included in income. A change related to fluctuations in fair value of
available-for-sale securities is included in net unrealized gains (losses) on
securities in shareholders' equity.
3.15 EARNINGS PER SHARE
Earnings per share is computed by dividing earnings available to common
shareholders by average common shares outstanding. Earnings available to common
shareholders is computed by increasing net income by the amount of net
dividends on convertible preferred securities. Average common shares
outstanding include common share equivalents from the assumed exercise or
conversion of stock options, shares subject to put contracts, and convertible
preferred securities.
Average common shares outstanding, including common share equivalents, used
in computing earnings per share were 208,871,505 in 1995; 209,420,486 in 1994;
and 216,578,836 in 1993.
4. ACCOUNTING CHANGES
4.1 CURRENT YEAR
During 1995, the company adopted SFAS 121, which establishes accounting
standards for (1) the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used in the
business, and (2) long-lived assets and certain identifiable intangibles to be
disposed of. With the adoption of SFAS 121, the company measures impairment of
certain investment real estate based on fair value, rather than net realizable
value as previously required. Adoption of this standard did not have a material
impact on the consolidated financial statements.
4.2 PRIOR YEARS
Effective January 1, 1993, the company adopted the following accounting
standards: (1) SFAS 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," which resulted in a one-time reduction of net income of
$45 million ($68 million pretax) or $.21 per share; (2) SFAS 109, "Accounting
for Income Taxes," which resulted in a one-time increase of net income of $8
million or $.04 per share; and (3) SFAS 112, "Employers' Accounting for
Postemployment Benefits," which resulted in a one-time reduction of net income
of $9 million ($14 million pretax) or $.04 per share.
Effective January 1, 1993, the company also adopted SFAS 113, "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts,"
and SFAS 114, "Accounting by Creditors for Impairment of a Loan." Adoption of
these standards did not have a material impact on the consolidated financial
statements.
At December 31, 1993, the company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." This standard requires that debt
and equity securities be carried at fair value unless the company has the
positive intent and ability to hold these investments to maturity. Upon
adoption, the company reported all debt and equity securities at fair value and
recorded net unrealized gains on securities of $676 million in shareholders'
equity.
- - --------------------------------------------------------------------------------
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<PAGE> 20
- - --------------------------------------------------------------------------------
5. INVESTMENTS
5.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 2,660 $2,099 $2,005
Mortgage loans on real estate 314 296 357
Other investments 192 185 195
- - ----------------------------------------------------------
Gross investment income 3,166 2,580 2,557
- - ----------------------------------------------------------
Investment expense -- real estate 46 65 102
Investment expense -- other 25 22 18
- - ----------------------------------------------------------
Total investment expense 71 87 120
- - ----------------------------------------------------------
Net investment income $ 3,095 $2,493 $2,437
- - ----------------------------------------------------------
</TABLE>
The carrying amount of investments that produced no investment income during
1995 was less than 1% of total invested assets. The ultimate disposition of
these investments is not expected to have a material effect on American
General's consolidated results of operations and financial position.
5.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Gross gains $ 74 $ 46 $ 201
Gross losses (56) (175) (59)
- - ----------------------------------------------------------
Total fixed maturity
securities 18 (129) 142
- - ----------------------------------------------------------
Equity securities
Gross gains 21 14 127
Gross losses (2) (6) (6)
- - ----------------------------------------------------------
Total equity securities 19 8 121
- - ----------------------------------------------------------
Mortgage loans on real estate (37) (5) (69)
Investment real estate (9) (88) (170)
Other 21 42 (16)
- - ----------------------------------------------------------
Realized investment
gains (losses) $ 12 $(172) $ 8
- - ----------------------------------------------------------
</TABLE>
5.3 FIXED MATURITY AND EQUITY SECURITIES
Valuation. All fixed maturity and equity securities are classified as
available-for-sale and reported at fair value. Amortized cost and fair value
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross
Amortized Cost Unrealized Gains
In millions 1995 1994 1993 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities
Corporate bonds
Investment grade $ 20,634 $13,996 $ 12,207 $ 1,759 $154 $1,021
Below investment grade 1,349 904 707 67 15 42
Mortgage-backed 11,019 10,774 10,217 650 64 536
Foreign governments 648 604 565 83 3 37
U.S. government 537 306 882 87 10 49
States/political subdivisions 271 336 180 19 14 22
Redeemable preferred stocks 132 167 127 6 2 6
- - ---------------------------------------------------------------------------------------------------------------
Total fixed maturity
securities $ 34,590 $27,087 $ 24,885 $ 2,671 $262 $1,713
- - ---------------------------------------------------------------------------------------------------------------
Equity securities $ 138 $ 202 $ 182 $ 50 $ 29 $ 53
- - ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Gross
Unrealized Losses Fair Value
In millions 1995 1994 1993 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities
Corporate bonds
Investment grade $ (32) $ (718) $ (25) $ 22,361 $13,432 $13,203
Below investment grade (8) (60) (6) 1,408 859 743
Mortgage-backed (6) (806) (75) 11,663 10,032 10,678
Foreign governments (1) (40) (1) 730 567 601
U.S. government -- (4) (12) 624 312 919
States/political subdivisions -- (8) -- 290 342 202
Redeemable preferred stocks (1) (13) -- 137 156 133
- - ---------------------------------------------------------------------------------------------------------------
Total fixed maturity
securities $ (48) $(1,649) $(119) $ 37,213 $25,700 $26,479
- - ---------------------------------------------------------------------------------------------------------------
Equity securities $ (2) $ (7) $ (2) $ 186 $ 224 $ 233
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
Maturities. The contractual maturities of fixed maturity securities at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
In millions Cost Value
- - ----------------------------------------------------------
<S> <C> <C>
Fixed maturity securities, excluding
mortgage-backed securities
Due in one year or less $ 250 $ 252
Due after one year through
five years 4,029 4,256
Due after five years through
ten years 12,262 13,158
Due after ten years 7,030 7,884
Mortgage-backed securities 11,019 11,663
- - ----------------------------------------------------------
Total fixed maturity securities $34,590 $37,213
- - ----------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities since borrowers may
have the right to call or prepay obligations. Corporate requirements and
investment strategies may result in the sale of investments before maturity.
5.4 NET UNREALIZED GAINS (LOSSES) ON SECURITIES
Net unrealized gains (losses) on fixed maturity and equity securities
included in shareholders' equity at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized gains $ 2,721 $ 291 $1,766
Gross unrealized losses (50) (1,656) (121)
DPAC and CIP fair value
adjustments (1,061) 401 (554)
Deferred federal income taxes (603) 29 (382)
Equity in WNC's net
unrealized gains 93 -- --
- - ----------------------------------------------------------
Net unrealized gains (losses)
on securities $ 1,100 $ (935) $ 709
- - ----------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
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<PAGE> 21
- - --------------------------------------------------------------------------------
5.5 MORTGAGE LOANS ON REAL ESTATE
Diversification. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, the company requires loan-to-value ratios of 75% or less,
based on management's credit assessment of the borrower. At December 31, the
mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Geographic distribution
Atlantic $ 1,251 $1,086 $1,181
Central 988 810 1,009
Pacific and Mountain 889 844 940
Allowance for losses (87) (89) (98)
- - ----------------------------------------------------------
Total $ 3,041 $2,651 $3,032
- - ----------------------------------------------------------
Property type
Retail $ 1,057 $ 890 $1,038
Office 1,008 925 994
Industrial 478 444 531
Apartments 377 298 334
Residential and other 208 183 233
Allowance for losses (87) (89) (98)
- - ----------------------------------------------------------
Total $ 3,041 $2,651 $3,032
- - ----------------------------------------------------------
</TABLE>
Impaired Loans. Impaired mortgage loans on real estate and related interest
income were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Impaired loans
With allowance* $ 97 $137 $103
Without allowance 22 4 5
- - ----------------------------------------------------------
Total impaired loans $ 119 $141 $108
- - ----------------------------------------------------------
Average investment $ 130 $119 $128
Interest income earned 10 7 6
Interest income -- cash basis 7 3 3
- - ----------------------------------------------------------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of $26
million, $36 million, and $22 million, respectively.
Allowance. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 89 $ 98 $ 53
Net additions(a) 28 11 84
Deductions(b) (30) (20) (39)
- - ----------------------------------------------------------
Balance at December 31 $ 87 $ 89 $ 98
- - ----------------------------------------------------------
</TABLE>
(a) Charged to realized investment gains (losses).
(b) Resulting from foreclosures and payoffs.
5.6 INVESTMENT REAL ESTATE
The allowance for investment real estate losses was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 321 $253 $129
Net additions(a) 18 110 199
Deductions(b) (304) (42) (75)
- - ----------------------------------------------------------
Balance at December 31 $ 35 $321 $253
- - ----------------------------------------------------------
</TABLE>
(a) Charged to realized investment gains (losses).
(b) Primarily resulting from sales and a $243 million reclassification in 1995
to reduce cost basis on adoption of SFAS 121.
5.7 CASH FLOWS FROM INVESTING ACTIVITIES
The uses of cash for investment purchases were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 7,155 $7,009 $9,378
Equity securities 24 111 33
Other 555 119 88
- - ----------------------------------------------------------
Total $ 7,734 $7,239 $9,499
- - ----------------------------------------------------------
</TABLE>
The sources of cash from investment calls, maturities, and sales were as
follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Sales $ 2,466 $1,886 $ 859
Calls 980 794 2,098
Repayments of mortgage-
backed securities 686 1,833 2,650
Maturities 481 303 191
Mortgage loans 352 421 610
Equity securities 176 98 283
Other 460 231 293
- - ----------------------------------------------------------
Total $ 5,601 $5,566 $6,984
- - ----------------------------------------------------------
</TABLE>
6. FINANCE RECEIVABLES
6.1 DETAIL OF FINANCE RECEIVABLES
Finance receivables, which are reported net of unearned finance charges, at
December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Consumer loans
Real estate $ 2,904 $2,705 $2,642
Other 2,765 2,661 2,318
- - ----------------------------------------------------------
Total consumer loans 5,669 5,366 4,960
Retail sales finance 2,183 2,075 1,218
Credit cards 558 479 396
- - ----------------------------------------------------------
Total finance receivables 8,410 7,920 6,574
Allowance for losses (492) (226) (184)
- - ----------------------------------------------------------
Finance receivables,
net $ 7,918 $7,694 $6,390
- - ----------------------------------------------------------
</TABLE>
At December 31, 1995, 93% of non-credit card receivables were secured by
real estate or other property.
6.2 GEOGRAPHIC CONCENTRATIONS
The largest geographic concentrations of finance receivables at December 31
were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
California $ 887 $ 811 $ 751
North Carolina 738 639 582
Florida 627 574 503
Illinois 490 458 409
Indiana 455 410 365
Ohio 440 401 341
Virginia 392 355 353
Georgia 373 347 264
Other 4,008 3,925 3,006
- - ----------------------------------------------------------
Total $ 8,410 $7,920 $6,574
- - ----------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
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<PAGE> 22
- - --------------------------------------------------------------------------------
6.3 CONTRACTUAL MATURITIES AND COLLECTIONS
Contractual maturities of finance receivables at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
After
In millions 1996 1997 1998 1999 2000 2000
- - -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maturities $3,205 $1,547 $947 $504 $300 $1,907
- - -------------------------------------------------------------
</TABLE>
Contractual maturities are not a forecast of future cash collections. A
substantial portion of finance receivables may be renewed, converted, or paid
in full prior to maturity.
Cash collections of principal and collections as a percentage of average
finance receivable balances were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Consumer loans
Cash collections $ 2,588 $2,437 $2,101
Percent of average balances 46% 48% 43%
Retail sales finance
Cash collections $ 1,885 $1,454 $1,192
Percent of average balances 86% 92% 111%
Credit cards
Cash collections $ 454 $ 432 $ 504
Percent of average balances 90% 103% 137%
- - ----------------------------------------------------------
</TABLE>
6.4 ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
The allowance for finance receivable losses was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 226 $184 $162
Provision for finance
receivable losses 574 214 163
Charge offs, net of recoveries (308) (172) (141)
- - ----------------------------------------------------------
Balance at December 31 $ 492 $226 $184
- - ----------------------------------------------------------
</TABLE>
7. DEFERRED POLICY ACQUISITION COSTS (DPAC)
DPAC at December 31, and the components of the change for the years then
ended, were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 2,563 $1,451 $1,876
Capitalization 417 339 399
Accretion of interest 157 149 143
Amortization (360) (344) (326)
Effect of net unrealized gains
(losses) on securities (1,160) 954 (550)
Other 8 14 (91)
- - ----------------------------------------------------------
Balance at December 31 $ 1,625 $2,563 $1,451
- - ----------------------------------------------------------
</TABLE>
8. COST OF INSURANCE PURCHASED (CIP)
CIP at December 31, and the components of the change for the years then
ended, were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 168 $186 $207
Addition from Franklin Life 658 -- --
Accretion of interest 54 16 18
Amortization (100) (34) (38)
Effect of net unrealized gains
(losses) on securities (270) -- --
Other (6) -- (1)
- - ----------------------------------------------------------
Balance at December 31 $ 504 $168 $186
- - ----------------------------------------------------------
</TABLE>
CIP amortization, net of accretion, expected to be recorded in each of the
next five years is $49 million, $46 million, $42 million, $37 million, and $34
million.
9. STATE GUARANTY ASSOCIATIONS
State guaranty fund expense included in operating costs and expenses was $28
million, $14 million, and $11 million for the years ended December 31, 1995,
1994, and 1993, respectively. Amounts assessed American General's life
insurance and annuity subsidiaries by state life and health insurance guaranty
funds resulting from past industry insolvencies were $21 million, $16 million,
and $14 million in 1995, 1994, and 1993, respectively. These assessments are
expected to be partially recovered against the payment of future premium taxes.
The accrued liability for anticipated assessments was $51 million, $30
million, and $26 million at December 31, 1995, 1994, and 1993, respectively.
The company has recorded receivables of $44 million, $24 million, and $18
million at each year-end, respectively, for expected recoveries against the
payment of future premium taxes.
The 1995 liability was estimated by the company using the latest information
available from the National Organization of Life and Health Insurance Guaranty
Associations. Although the amount accrued represents the company's best
estimate of its liability, this estimate may change in the future.
Additionally, changes in state laws could decrease the amount recoverable
against future premium taxes.
10. DEBT
10.1 LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Corporate
Senior, 6.3% -- 10%,
through 2025 $1,170 $ 836 $ 960
- - ----------------------------------------------------------
Consumer Finance
Senior, 4.4% -- 11%,
through 2009 $4,980 $4,163 $3,547
Senior subordinated -- 150 472
- - ----------------------------------------------------------
Total Consumer Finance $4,980 $4,313 $4,019
- - ----------------------------------------------------------
</TABLE>
10.2 LONG-TERM DEBT MATURITIES
Maturities of long-term debt and sinking fund requirements for each of the
next five years are as follows:
<TABLE>
<CAPTION>
In millions 1996 1997 1998 1999 2000
- - ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate $ -- $ 133 $ 68 $100 $200
Consumer Finance 608 1,219 811 535 937
- - ------------------------------------------------------------
</TABLE>
Two debt issues of the Consumer Finance segment that are scheduled to mature
after 2000 are redeemable prior to maturity at par, at the option of the
holders. If these issues were so redeemed, the amounts above would increase by
$150 million in 1996 and 1999.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
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<PAGE> 23
- - --------------------------------------------------------------------------------
10.3 SHORT-TERM DEBT
The weighted-average interest rates on short-term borrowings at December 31
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Corporate 5.8% 6.0% 3.3%
Consumer Finance 5.8 5.9 3.3
- - ----------------------------------------------------------
</TABLE>
10.4 CREDIT AGREEMENTS
During 1995, American General and certain subsidiaries used commercial paper
to meet short-term funding requirements. Unsecured bank credit facilities are
used to support commercial paper borrowings.
At December 31, 1995, American General and certain of its subsidiaries
maintained unsecured committed credit facilities of $3.2 billion with a total
of 51 domestic and foreign banks. Interest rates are based on a money market
index, and annual commitment fees range from 6 to 11 basis points. There were
no borrowings under these facilities at December 31, 1995.
11. INCOME TAXES
11.1 TAX LIABILITIES
Income tax liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Current tax liabilities
(assets) $ (53) $(67) $ 76
- - ----------------------------------------------------------
Deferred, applicable to
Net income 718 817 783
Net unrealized gains (losses)
on securities 603 (29) 382
- - ----------------------------------------------------------
Net deferred tax
liabilities 1,321 788 1,165
- - ----------------------------------------------------------
Income tax liabilities $1,268 $721 $1,241
- - ----------------------------------------------------------
</TABLE>
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities,
applicable to
Basis differential of
investments $ 911 $ -- $ 589
DPAC and CIP 583 850 480
Other 571 425 380
- - ----------------------------------------------------------
Total deferred tax
liabilities 2,065 1,275 1,449
- - ----------------------------------------------------------
Deferred tax assets,
applicable to
Policy reserves (392) (132) (28)
Allowance for finance
receivable losses (138) (64) (44)
Basis differential of
investments -- (464) --
Other (240) (142) (212)
- - ----------------------------------------------------------
Gross deferred tax assets (770) (802) (284)
Valuation allowance 26 315 --
- - ----------------------------------------------------------
Total deferred tax
assets, net (744) (487) (284)
- - ----------------------------------------------------------
Net deferred tax
liabilities $1,321 $ 788 $1,165
- - ----------------------------------------------------------
</TABLE>
The deferred tax asset valuation allowance at December 31, 1995 was related
to operating loss carryovers not expected to be utilized. The deferred tax
asset valuation allowance at December 31, 1994 was attributable to unrealized
losses on securities and had no income statement impact.
A portion of life insurance income earned prior to 1984 is not taxable
unless it exceeds certain statutory limitations or is distributed as dividends.
Such income, accumulated in policyholders' surplus accounts, totaled $569
million at December 31, 1995. At current corporate rates, the maximum amount of
tax on such income is approximately $199 million. Deferred income taxes on
these accumulations are not required because no distributions are expected.
11.2 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 304 $261 $354
State 6 19 18
- - ----------------------------------------------------------
Total current 310 280 372
Deferred (24) 9 (20)
- - ----------------------------------------------------------
Income tax expense $ 286* $289 $352
- - ----------------------------------------------------------
</TABLE>
* Excludes $11 million tax benefit for tax deductible dividends on preferred
securities of subsidiaries.
In 1993, the federal corporate income tax rate increased from 34% to 35%. As
a result, an adjustment of $30 million was included in income tax expense in
1993, $26 million of which reflects an increase in deferred tax liabilities.
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Tax-exempt investment income (2) (2) (2)
State taxes, net -- 2 2
Acquisition-related goodwill 1 1 1
Tax rate change -- -- 4
Write-down of goodwill -- -- 18
- - ----------------------------------------------------------
Effective tax rate 34% 36% 58%*
- - ----------------------------------------------------------
</TABLE>
* Excludes tax effect of accounting changes.
11.3 TAXES PAID
Federal income taxes paid in 1995, 1994, and 1993 were $269 million, $409
million, and $260 million, respectively. State income taxes paid in 1995,
1994, and 1993 were $13 million, $22 million, and $15 million, respectively.
11.4 TAX RETURN EXAMINATIONS
The company and the majority of its subsidiaries file a consolidated federal
income tax return. The Internal Revenue Service (IRS) has completed
examinations of the company's returns through 1985. All issues, except the one
being litigated as described in Note 19.2, have been settled within the amounts
previously provided in the consolidated financial statements. The IRS is
currently examining the company's tax returns for 1986 through 1992.
- - --------------------------------------------------------------------------------
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<PAGE> 24
- - --------------------------------------------------------------------------------
12. REDEEMABLE EQUITY
12.1 PREFERRED SECURITIES OF SUBSIDIARIES
During 1995, two wholly-owned subsidiaries of the company were incorporated
for the purpose of issuing Monthly Income Preferred Securities (Preferred
Securities). The sole assets of these subsidiaries are Junior Subordinated
Debentures (Subordinated Debentures) issued by the company and U.S. Treasury
bonds. These subsidiaries have no independent operations. The Subordinated
Debentures are eliminated in the consolidated financial statements.
The interest and other payment dates of the company's Subordinated
Debentures held by the subsidiaries correspond to the distribution and other
payment dates of the subsidiaries' Preferred Securities. The company's
obligations under the Subordinated Debentures and related agreements, when
taken together, constitute a full and unconditional guarantee of payments due
on the Preferred Securities. The Subordinated Debentures are redeemable at the
option of the company. Upon such event, the Preferred Securities are redeemable
on a proportionate basis.
Information about the Preferred Securities and the assets held by the
issuing subsidiaries at December 31, 1995 was as follows:
<TABLE>
<CAPTION>
American General American General American General
$ in millions, except per security data Capital, L.L.C. Capital, L.L.C. Delaware, L.L.C.
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred securities
Date issued June 5, 1995 August 29, 1995 June 1, 1995
Shares issued and outstanding 11,500,000 8,600,000 5,000,000
Par value $287 $215 $250
Carrying amount $277 $208 $244
Dividend rate 8.45% 8.125% 6%
Dividends paid $14 $6 $9
Conversion feature Non-convertible Non-convertible Convertible(a)
Earliest redemption date June 5, 2000 August 29, 2000 May 31, 2003(b)
Mandatory redemption date June 30, 2025(c) September 30, 2025(c) May 31, 2025
- - -----------------------------------------------------------------------------------------------------------------
Assets of issuing subsidiary
Subordinated Debentures of American General
Interest rate 8.45% 8.125% 6%
Mandatory redemption date June 30, 2025(c) September 30, 2025(c) May 31, 2025
Principal $360 $269 $313
U.S. Treasury bonds $4 $3 $3
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Each security convertible into 1.2288 shares of American General common
stock.
(b) Under certain circumstances, may be redeemed on May 31, 2000.
(c) Subject to possible extension to 2044.
12.2 COMMON STOCK SUBJECT TO PUT CONTRACTS
During 1994, the company entered into put option contracts giving the
holders the right, but not the obligation, to sell to American General a total
of 1,700,000 shares of its common stock at fixed prices ranging from $25.88 to
$29.25 per share. All such options expired during 1995, and the related
redeemable equity of $47 million was reclassified to shareholders' equity.
13. CAPITAL STOCK
13.1 CLASSES OF CAPITAL STOCK
American General has two classes of capital stock. Preferred stock ($1.50
par value, 60 million shares authorized) may be issued in series with rights to
be determined by the board of directors. At December 31, 1995, sufficient
shares of preferred stock were reserved for the acquisition of Independent.
Common stock ($.50 par value, 300 million shares authorized) was owned by
28,336 shareholders of record at February 9, 1996. At December 31, 1995,
approximately 2.6 million shares of common stock were reserved for issuance,
primarily for the exercise of stock options.
13.2 PREFERRED SHARE PURCHASE RIGHTS
One preferred share purchase right is attached to each share of common
stock. These rights will become exercisable only upon the occurrence of certain
events related to a change in control of the company. Each right will entitle
the holder to purchase 1/100 of a share of American General's Series A Junior
Participating Preferred Stock. All rights expire August 7, 1999, unless
extended or redeemed.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
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<PAGE> 25
- - --------------------------------------------------------------------------------
14. STOCK AND INCENTIVE PLANS
Shares available for stock and incentive plans and stock option activity are
shown below:
<TABLE>
<CAPTION>
Shares
Available Shares Issuable under
for Issue Outstanding Options
----------- ---------------------------------
1995 1995 1994 1993
- - --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1 4,692,585 2,292,346 1,563,980 1,654,854
Stock options
Granted (690,700) 690,700 851,500 516,305
Exercised -- (358,714) (64,634) (531,637)
Forfeited* 64,800 (72,300) (58,500) (75,542)
Restricted stock issued (42,000)
- - --------------------------------------------------------------------------
Balance at December 31 4,024,685 2,552,032 2,292,346 1,563,980
- - --------------------------------------------------------------------------
</TABLE>
* 1995 includes 7,500 options forfeited from the 1984 plan, which are no longer
available for issue.
Options may not be exercised within six months of, nor after 10 years from,
the date of grant. The average price of options exercised was $21.58, $19.65,
and $17.70 in 1995, 1994, and 1993, respectively. At December 31, 1995, there
were 1,802,407 options exercisable, and the exercise price of all options
outstanding ranged from $15.38 to $34.88 (average price of $26.72 per share).
The options expire between 1996 and 2005.
15. BENEFIT PLANS
15.1 PENSION PLANS
American General and its subsidiaries have non-contributory defined benefit
pension plans covering most employees. Pension benefits are based on the
participant's average monthly compensation and length of credited service. The
company's funding policy is to contribute annually no more than the maximum
amount deductible for federal income tax purposes.
Equity and fixed maturity securities were 63% and 35%, respectively, of the
plans' assets at the plans' most recent balance sheet dates.
The pension plans have purchased annuity contracts from American General
subsidiaries to provide benefits for certain retirees. During 1995, 1994, and
1993, these contracts provided $42 million, $38 million, and $37 million,
respectively, for retiree benefits.
The components of pension expense and underlying assumptions were as
follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned) $ 11 $ 13 $ 12
Interest cost 28 21 19
Actual return on plan assets (126) (2) (65)
Net amortization and deferral 62 (53) 15
- - ----------------------------------------------------------
Pension expense (income) $ (25) $ (21) $ (19)
- - ----------------------------------------------------------
Weighted-average discount
rate on benefit obligation 7.25% 8.50% 7.25%
Rate of increase in
compensation levels 4.00 4.00 4.00
Expected long-term rate of
return on plan assets 10.00 10.00 10.00
- - ----------------------------------------------------------
</TABLE>
The funded status of the plans and the prepaid pension expense included in
other assets at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation* $ 379 $245 $253
Effect of increase in
compensation levels 36 30 36
- - ----------------------------------------------------------
Projected benefit obligation 415 275 289
Plan assets at fair value 698 532 531
- - ----------------------------------------------------------
Plan assets at fair value in
excess of projected
benefit obligation 283 257 242
Unrecognized net gain (83) (83) (80)
Unrecognized prior service cost 6 8 11
Unrecognized transition asset (5) (16) (27)
- - ----------------------------------------------------------
Prepaid pension expense $ 201 $166 $146
- - ----------------------------------------------------------
</TABLE>
* Over 85% vested.
15.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
American General and its subsidiaries have life, medical, supplemental major
medical, and dental plans for certain retired employees and agents. Most plans
are contributory, with retiree contributions adjusted annually to limit
employer contributions to predetermined amounts. American General and its
subsidiaries have reserved the right to change or eliminate these benefits at
any time.
The life plans are fully insured. A portion of the retiree medical and
dental plans are funded through a voluntary employees' beneficiary association
(VEBA) established in 1994; the remainder is unfunded and self-insured. All of
the retiree medical and dental plans' assets held in the VEBA were invested in
readily marketable securities at its most recent balance sheet date.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of
benefit obligation
Retirees $ 40 $ 34 $ 39
Active plan participants
Fully eligible 5 4 4
Other 22 18 19
- - ----------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) 67 56 62
Plan assets at fair value 2 3 --
- - ----------------------------------------------------------
APBO in excess of plan assets
at fair value 65 53 62
Unrecognized net gain (loss) -- 1 (3)
- - ----------------------------------------------------------
Accrued benefit cost $ 65 $ 54 $ 59
- - ----------------------------------------------------------
Weighted-average discount
rate on benefit obligation 7.25% 8.50% 7.25%
- - ----------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
40
<PAGE> 26
- - --------------------------------------------------------------------------------
Postretirement benefit expense was as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned) $ 1 $1 $1
Interest cost 5 4 4
Postretirement benefit expense $ 6 $5 $5
- - ----------------------------------------------------------
</TABLE>
For measurement purposes, an 11.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 1996; the rate was assumed
to decrease gradually to 6% in 2007 and remain at that level. A 1% increase in
this assumed rate results in a $2 million increase in the APBO and an
immaterial increase in postretirement benefit expense.
16. STATUTORY ACCOUNTING
State insurance laws prescribe accounting practices for calculating
statutory net income and equity. In addition, state regulators may allow
permitted statutory accounting practices that differ from prescribed practices.
The use of such permitted practices by the company's insurance and annuity
subsidiaries did not have a material effect on their statutory equity at
December 31, 1995.
Statutory accounting practices differ from GAAP. Significant differences for
the company's life insurance and annuity subsidiaries were as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Statutory net income $ 413 $ 507 $ 417
Change in DPAC and CIP 167 124 191
Investment valuation
differences 48 (89) 100
Policy reserve adjustments (123) (122) (198)
Non-recurring adjustments -- -- (346)(a)
Other, net 80 3 59
- - ----------------------------------------------------------
GAAP net income $ 585 $ 423 $ 223
- - ----------------------------------------------------------
Statutory equity $ 1,966 $1,681 $1,700
Asset valuation reserve 442 296 245
Investment valuation
differences(b) 2,305 (1,469) 1,484
DPAC and CIP 2,116 2,720 1,758
Deferred income taxes (1,319) (775) (1,130)
Policy reserve adjustments 264 570 673
Acquisition-related goodwill 297 308 319
Other, net 266 45 21
- - ----------------------------------------------------------
GAAP equity $ 6,337 $3,376 $5,070
- - ----------------------------------------------------------
</TABLE>
(a) Includes $300 million write-down of goodwill, $26 million tax rate related
adjustment, and $20 million of accounting changes.
(b) Primarily GAAP unrealized gains (losses) on securities.
17. DERIVATIVE FINANCIAL INSTRUMENTS
17.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The company's objectives for using interest rate swap agreements on its debt
are to effectively convert a portion of its floating-rate borrowings to a fixed
rate and to hedge against the risk of rising interest rates on anticipated debt
issuances. The company's objectives for using interest rate swap agreements on
its investment securities are to effectively convert specific investment
securities from a floating to a fixed-rate basis, or vice versa, and to hedge
against the risk of rising prices on anticipated investment security purchases.
The company's objectives for using currency swap agreements are to
effectively convert cash flows from specific investment securities denominated
in foreign currencies into U.S. dollars at specified exchange rates, and to
hedge against currency rate fluctuations on anticipated investment security
purchases.
Derivative financial instruments related to debt securities did not have a
material effect on the weighted-average borrowing rate or reported interest
expense in any of the three years ended December 31, 1995. Derivative financial
instruments related to investment securities, which were not used prior to
1994, did not have a material effect on net investment income in 1995 or 1994.
The company is neither a dealer nor a trader in derivative financial
instruments.
17.2 CREDIT AND MARKET RISK
The company is exposed to credit risk in the event of non-performance by
counterparties to swap agreements. The company limits this exposure by entering
into swap agreements with counterparties having high credit ratings, basing the
amount and term of agreements on these credit ratings, and regularly monitoring
the ratings.
The company's credit exposure on swaps is limited to the fair value of swap
agreements that are favorable to the company. The company does not expect any
counterparty to fail to meet its obligation; however, non-performance would not
have a material impact on the consolidated results of operations and financial
position.
The company's exposure to market risk is mitigated by the offsetting effects
of changes in the value of swap agreements and of the related debt and
investment securities.
17.3 ACCOUNTING POLICIES
The difference between amounts paid and received on swap agreements is
recorded on an accrual basis as an adjustment to interest expense or investment
income, as appropriate, over the periods covered by the agreements. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
The fair values of swap agreements are recognized in the consolidated
balance sheet if they hedge investment securities carried at fair value or
anticipated investment purchases. In this event, changes in the fair value of a
swap agreement are reported in net unrealized gains (losses) on securities
included in shareholders' equity, consistent with the treatment of the related
investment security. The fair values of swap agreements hedging debt are not
recognized in the consolidated balance sheet.
For swap agreements hedging anticipated debt issuances or investment
security purchases, the net swap settlement amount or unrealized gain or loss
is deferred and included in the measurement of the anticipated transaction when
it occurs. During 1995, swap agreements hedging anticipated debt issuances were
terminated, and settlement costs of approximately $13 million were deferred and
are being recognized as an increase to interest expense over the terms of the
related debt. At December 31, 1995, there were no outstanding swap agreements
related to anticipated debt issuances.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
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<PAGE> 27
- - --------------------------------------------------------------------------------
Any gain or loss from early termination of a swap agreement is deferred and
amortized into income over the remaining term of the related debt or investment
security. If the underlying debt or investment security is extinguished or
sold, any related gain or loss on swap agreements is recognized in income.
17.4 TERMS OF DERIVATIVE FINANCIAL INSTRUMENTS
Swap agreements generally have terms of two to ten years. Average floating
rates may change significantly, thereby affecting future cash flows.
Derivative financial instruments related to debt at December 31 were as
follows:
<TABLE>
<CAPTION>
$ in millions 1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Swap agreements to pay fixed rate
Corporate
Notional amount -- $ 150 --
Average receive rate -- 6.10% --
Average pay rate -- 7.54 --
Consumer Finance
Notional amount $ 590 $ 390 $ 290
Average receive rate 6.10% 4.64% 3.35%
Average pay rate 8.28 8.77 8.69
- - ----------------------------------------------------------
</TABLE>
Options written on interest rate swap agreements prior to 1993 with total
notional amounts of $200 million and $50 million were exercised in 1994 and
1993, respectively.
Derivative financial instruments related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
$ in millions 1995 1994
- - ----------------------------------------------------------
<S> <C> <C>
Interest rate swap agreements to
pay fixed rate
Notional amount $ 45 --
Average receive rate 5.82% --
Average pay rate 6.41 --
Interest rate swap agreements to receive
fixed rate
Notional amount $ 24 $ 9
Average receive rate 7.03% 6.92%
Average pay rate 6.82 6.96
- - ----------------------------------------------------------
Currency swap agreements (receive
U.S.$/pay Canadian$)
Notional amount (in U.S.$) $ 72 --
Average exchange rate 1.62 --
- - ----------------------------------------------------------
</TABLE>
During 1995, the company exercised a purchase option on investment
securities with a notional amount of $7 million, which had been entered into in
1994. In addition, at December 31, 1995, the company had entered into forward
interest rate swap agreements with effective dates in 1996. These swaps, with a
total notional amount of $25 million, were entered into to hedge anticipated
investment purchases expected to occur in 1996 and to synthetically modify the
yield on specific fixed-rate securities.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all of the company's assets and
liabilities, and (2) the reporting of investments at fair value without a
corresponding revaluation of related policyholder liabilities can be
misinterpreted.
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- -----------------------
Fair Carrying Fair Carrying Fair Carrying
In millions Value Amount Value Amount Value Amount
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $37,399 $37,399 $25,924 $25,924 $26,712 $26,712
Mortgage loans on real estate 3,148 3,041 2,668 2,651 3,145 3,032
Policy loans 1,610 1,605 1,078 1,197 1,209 1,156
Finance receivables, net 7,918 7,918 7,694 7,694 6,390 6,390
Liabilities
Insurance investment contracts 24,597 24,978 18,622 21,140 18,880 19,216
Short-term debt 3,043 3,043 3,777 3,777 2,550 2,550
Long-term debt
Corporate 1,291 1,170 851 836 1,098 960
Consumer Finance 5,225 4,980 4,208 4,313 4,264 4,019
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair values
of financial instruments.
Fixed Maturity and Equity Securities. Fair values of fixed maturity and
equity securities were based on quoted market prices, where available. For
investments not actively traded, fair values were estimated using values
obtained from independent pricing services or, in the case of some private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the investments.
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
42
<PAGE> 28
- - --------------------------------------------------------------------------------
Mortgage Loans on Real Estate. Fair value of mortgage loans was estimated
primarily using discounted cash flows, based on contractual maturities and
discount rates that were based on U.S. Treasury rates for similar maturity
ranges, adjusted for risk, based on property type.
Policy Loans. Fair value of policy loans was estimated using discounted
cash flows and actuarially-determined assumptions, incorporating market rates.
Finance Receivables, Net. Fair value of finance receivables, which
approximates carrying amount, was estimated using projected cash flows,
discounted at the weighted-average rates currently being offered for similar
finance receivables. Cash flows were based on contractual payment terms
adjusted for delinquencies and losses. The fair value estimate does not reflect
the value of the underlying customer relationships or the related distribution
system.
Insurance Investment Contracts. Fair value of insurance investment
contracts, which do not subject the company to significant risks arising from
policyholder mortality or morbidity, was estimated using cash flows discounted
at market interest rates. Care should be exercised in drawing conclusions from
the estimated fair value, since the estimates are based on assumptions
regarding future economic activity.
Debt. Fair value of short-term debt approximates the carrying amount. Fair
value of long-term debt was estimated using cash flows discounted at current
borrowing rates.
Off-Balance-Sheet Derivative Financial Instruments. Fair values of
off-balance-sheet derivative financial instruments reflect the estimated
amounts that the company would receive or pay to terminate the contract at the
balance sheet date, incorporating the unrealized gains (losses) on the
instruments. Had the company elected to terminate its interest rate swap
agreements related to debt at December 31, 1995, 1994, and 1993, it would have
paid $50 million, $7 million, and $29 million, respectively. Had the company
elected to terminate its written options on interest rate swap agreements at
December 31, 1993, it would have paid $33 million. These fair values were based
on estimates obtained from the individual counterparties.
19. RESTRICTIONS AND CONTINGENCIES
19.1 SUBSIDIARY DIVIDEND RESTRICTIONS
American General's insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. Certain non-insurance
subsidiaries are similarly restricted in the payment of dividends by long-term
debt and credit agreements. At December 31, 1995, the amount of dividends
available to the parent company from subsidiaries during 1996 not limited by
such restrictions is $1.0 billion.
19.2 LEGAL PROCEEDINGS
Two real estate subsidiaries of the company were defendants in a lawsuit
that alleged damages based on lost profits and related claims arising from
certain loans and joint venture contracts. On July 16, 1993, a judgment was
entered against the subsidiaries jointly for $47.3 million in compensatory
damages and against one of the subsidiaries for $189.2 million in punitive
damages. On September 17, 1993, a Texas state district court reduced the
previously-awarded punitive damages by $60.0 million, resulting in a reduced
judgment in the amount of $176.5 million plus post-judgment interest. On
January 29, 1996, the Texas First Court of Appeals rendered a two-to-one
decision that affirmed the trial court judgment. The company intends to
vigorously contest the matter through the appellate process. Although
substantial risks and uncertainties remain with respect to the ultimate
outcome, legal counsel has advised the company that it is not probable within
the meaning of SFAS 5, "Accounting for Contingencies," that the company will
ultimately incur a material liability in connection with this matter.
Accordingly, no provision has been made in the consolidated financial
statements related to this contingency.
In April 1992, the IRS issued Notices of Deficiency for the 1977-1981 tax
years of certain insurance subsidiaries. The basis of the dispute was the tax
treatment of modified coinsurance agreements. The company elected to pay all
related assessments plus associated interest, totaling $59 million. A claim for
refund of tax and interest was disallowed by the IRS in January 1993. On June
30, 1993, a suit for refund was filed in the United States Court of Federal
Claims. On February 7, 1996, the court ruled in favor of the company on all
legal issues related to this contingency. The company does not yet know whether
the IRS will appeal this decision; however, the company intends to pursue a
full refund of the amounts paid. Accordingly, no provision has been made in the
consolidated financial statements related to this contingency.
American General and certain of its subsidiaries are defendants in various
other lawsuits and proceedings arising in the normal course of business. Some
of these lawsuits and proceedings arise in jurisdictions such as Alabama that
permit punitive damages disproportionate to the actual damages alleged. In
light of the uncertainties inherent in any litigation, no assurances can be
given as to the ultimate outcome of these lawsuits and proceedings. However,
American General and its subsidiaries believe that there are meritorious
defenses for all of these claims and are defending them vigorously.
- - --------------------------------------------------------------------------------
1 9 9 5 A N N U A L R E P O R T
43
<PAGE> 29
- - --------------------------------------------------------------------------------
20. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995
In millions, ----------------------------------------------------------
except per share data 4th 3rd 2nd 1st
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 456 $ 455 $ 439 $ 403
Net investment income 804 797 772 722
Total revenues 1,677 1,673 1,627 1,518
Insurance and annuity
benefits 808 782 764 693
Operating costs and
expenses 281 250 242 234
Provision for finance
receivable losses 313 114 75 72
Total benefits and expenses 1,650 1,406 1,343 1,246
Net realized investment
gains (losses) 3 3 1 1
Net income (loss) 9(a) 181 180 175
- - ----------------------------------------------------------------------------------------------
Per common share
Net income (loss) $ .05(a) $ .86 $ .88 $ .85
Dividends paid .31 .31 .31 .31
Market price
High 39.13 38.88 35.50 33.25
Low 31.00 33.63 31.13 27.50
Close 34.88 37.38 33.75 32.25
- - ----------------------------------------------------------------------------------------------
<CAPTION>
1994
In millions, ----------------------------------------------------------
except per share data 4th 3rd 2nd 1st
- - ----------------------------------------------------------------------------------------------
Premiums and other
considerations $ 319 $ 304 $ 298 $ 289
Net investment income 633 622 617 621
Total revenues 1,130 1,265 1,232 1,214
Insurance and annuity
benefits 577 555 553 539
Operating costs and
expenses 208 206 196 191
Provision for finance
receivable losses 67 59 45 43
Total benefits and expenses 1,073 1,020 985 961
Net realized investment
gains (losses) (115)(b) (1) 1 1
Net income (loss) 35 159 158 161
- - ----------------------------------------------------------------------------------------------
Per common share
Net income (loss) $ .18 $ .77 $ .75 $ .75
Dividends paid .29 .29 .29 .29
Market price
High 28.88 30.50 29.38 29.63
Low 25.63 26.88 24.88 25.50
Close 28.25 27.13 27.63 27.88
- - ----------------------------------------------------------------------------------------------
<CAPTION>
1993
In millions, ----------------------------------------------------------
except per share data 4th 3rd 2nd 1st
- - ----------------------------------------------------------------------------------------------
Premiums and other
considerations $ 322 $ 311 $ 308 $ 311
Net investment income 612 619 608 598
Total revenues 1,215 1,222 1,205 1,187
Insurance and annuity
benefits 605 588 564 554
Operating costs and
expenses 180 188 187 194
Provision for finance
receivable losses 50 44 36 33
Total benefits and expenses 1,303 989 971 964
Net realized investment
gains (losses) 1 1 3 1
Net income (loss) (164)(c) 119(d) 151 98(e)
- - ----------------------------------------------------------------------------------------------
Per common share
Net income (loss) $ (.76)(c) $ .55(d) $ .70 $ .45(e)
Dividends paid .275 .275 .275 .275
Market price
High 34.75 36.50 33.25 32.88
Low 26.25 30.13 27.75 27.31
Close 28.63 32.75 31.63 31.25
- - ----------------------------------------------------------------------------------------------
</TABLE>
(a) Includes increase in allowance for finance receivable losses of $140
million or $.67 per share.
(b) Results primarily from the capital gains offset program.
(c) Includes write-down of goodwill of $300 million or $1.39 per share.
(d) Includes tax rate related adjustment of $30 million or $.14 per share.
(e) Includes cumulative effect of accounting changes of $46 million or $.21
per share.
- - --------------------------------------------------------------------------------
A M E R I C A N G E N E R A L C O R P O R A T I O N
44
<PAGE> 30
- - --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
MANAGEMENT RESPONSIBILITY
Management is responsible for the information in this report. Informed
estimates and judgments were used that affect the reported amounts in the
financial statements and disclosures regarding contingencies. While the
estimates were based on management's best judgment at the time, future facts and
circumstances could change, causing the ultimate results to differ from
management's estimates.
INTERNAL CONTROLS
American General's system of internal controls is designed to provide
reasonable assurance that assets are safeguarded, that transactions are properly
recorded and executed, and that established policies and procedures are
followed. The system includes: a documented organizational structure and
division of responsibility; established policies and procedures that are
communicated throughout the company, including a policy on business conduct to
foster a strong ethical climate; and the careful selection, training, and
development of employees.
INTERNAL AUDITORS
Internal auditors monitor the operation of the internal control system and
report findings and recommendations to management and the audit committee of the
board. The company takes prompt corrective actions to address control
deficiencies and other opportunities for improving the system.
INDEPENDENT AUDITORS
American General engaged Ernst & Young LLP to perform an independent audit of
the consolidated financial statements of the company. Ernst & Young LLP was
given unrestricted access to all financial records and related data, including
minutes of all meetings of shareholders, the board of directors, and committees
of the board. Management believes that all representations made to Ernst & Young
LLP during their audit were valid and appropriate.
AUDIT COMMITTEE OF THE BOARD
The audit committee is composed of three non-employee members of the board of
directors. The committee meets regularly with members of management, internal
auditors, and Ernst & Young LLP to discuss the adequacy of American General's
internal control environment, financial reporting, accounting matters, and audit
results. Ernst & Young LLP and internal auditors have full and free access to
the audit committee.
/s/ Austin P. Young
Senior Vice President and Chief Financial Officer
/s/ Harold S. Hook
Chairman and Chief Executive Officer
- - --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN GENERAL CORPORATION
We have audited the accompanying consolidated balance sheets of American
General Corporation and subsidiaries as of December 31, 1995, 1994, and 1993,
and the related consolidated statements of income, shareholders' equity, stock
activity, and cash flows for each of the three years in the period ended
December 31, 1995. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Corporation and subsidiaries as of December 31, 1995, 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, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, the company changed
certain of its accounting methods as a result of adopting new, required
accounting standards.
/s/ Ernst & Young LLP
Houston, Texas
February 12, 1996
- - --------------------------------------------------------------------------------
45
1 9 9 5 A N N U A L R E P O R T
<PAGE> 1
- - --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
EXHIBIT 21 - SUBSIDIARIES OF AMERICAN GENERAL CORPORATION
The following list includes certain, but not all, of American General
Corporation's subsidiaries at March 1, 1996. Subsidiaries of subsidiaries are
indicated by indentations.
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation
- - ------------------------------------------------------------------------------------------------------------------
<S> <C>
AGC Life Insurance Company................................................................ Missouri
American Franklin Company............................................................... Delaware
The Franklin Life Insurance Company.................................................. Illinois
Franklin Financial Services Corporation............................................ Delaware
The American Franklin Life Insurance Company....................................... Illinois
American General Life and Accident Insurance Company.................................... Tennessee
American General Exchange, Inc. ..................................................... Tennessee
American General Life Insurance Company................................................. Texas
American General Annuity Service Corporation......................................... Texas
American General Life Insurance Company of New York.................................. New York
American General Securities Incorporated............................................. Texas
The Variable Annuity Life Insurance Company.......................................... Texas
The Variable Annuity Marketing Company............................................. Texas
Independent Property & Casualty Insurance Company....................................... Florida
The Independent Life and Accident Insurance Company..................................... Florida
Independent Fire Insurance Company................................................... Florida
Independent Fire Insurance Company of Florida...................................... Florida
Thomas Jefferson Insurance Company................................................... Florida
Allen Property Company ................................................................... Delaware
American General Capital, L.L.C. ......................................................... Delaware
American General Capital Services, Inc. .................................................. Delaware
American General Delaware, L.L.C. ........................................................ Delaware
American General Delaware Management Corporation.......................................... Delaware
American General Finance, Inc. ........................................................... Indiana
AGF Investment Corp. ................................................................... Indiana
American General Auto Finance, Inc. .................................................... Delaware
American General Finance Corporation.................................................... Indiana
American General Finance Group, Inc. ................................................ Delaware
American General Financial Services, Inc........................................... Delaware
The National Life and Accident Insurance Company................................ Texas
CommoLoCo, Inc. .............................................................. Puerto Rico
Merit Life Insurance Co. ............................................................ Indiana
Service Bureau of Indiana, Inc....................................................... Indiana
Yosemite Insurance Company........................................................... California
American General Financial Center....................................................... Utah
American General Finance, Inc. ......................................................... Alabama
American General Investment Corporation................................................... Delaware
American General Mortgage and Land Development, Inc. ..................................... Delaware
American General Land Development, Inc. ................................................ Delaware
American General Realty Advisors, Inc. ................................................. Delaware
American General Property Insurance Company............................................... Tennessee
Bayou Property Company ................................................................... Delaware
Financial Life Assurance Company of Canada................................................ Canada
Florida GL Corporation.................................................................... Delaware
GPC Property Company...................................................................... Delaware
Green Hills Corporation................................................................... Delaware
Knickerbocker Corporation................................................................. Texas
Lincoln American Corporation.............................................................. Delaware
Pavilions Corporation..................................................................... Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23 -- CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American General Corporation of our report dated February 12, 1996,
included in the 1995 Annual Report to Shareholders of American General
Corporation.
Our audits also included the financial statement schedules of American
General Corporation listed in Item 14(a). These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth herein.
We also consent to the incorporation by reference in
<TABLE>
<CAPTION>
REGISTRATION
STATEMENT
NUMBER ON FORM
<S> <C> <C> <C>
- - -----------------------------------------------------------------------------------------
33-39200............................................................ S-8
33-39201............................................................ S-8
33-39202............................................................ S-8
2-98021............................................................. S-8
33-51973............................................................ S-8
33-19075............................................................ S-3
33-30693............................................................ S-3
33-51045............................................................ S-3
33-58317............................................................ S-3
33-58317-01......................................................... S-3
33-58317-02......................................................... S-3
333-00513........................................................... S-4
- - -----------------------------------------------------------------------------------------
</TABLE>
of our report dated February 12, 1996, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of American General Corporation.
/s/ Ernst & Young LLP
Houston, Texas
March 20, 1996
<PAGE> 1
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ J. Evans Attwell
------------------------------
J. Evans Attwell
<PAGE> 2
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ Brady F. Carruth
------------------------------
Brady F. Carruth
<PAGE> 3
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ W. Lipscomb Davis, Jr.
------------------------------
W. Lipscomb Davis, Jr.
<PAGE> 4
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ Robert M. Devlin
------------------------------
Robert M. Devlin
<PAGE> 5
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ Larry D. Horner
------------------------------
Larry D. Horner
<PAGE> 6
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ Richard J.V. Johnson
------------------------------
Richard J.V. Johnson
<PAGE> 7
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ Robert E. Smittcamp
------------------------------
Robert E. Smittcamp
<PAGE> 8
American General Corporation: Board of Directors
Date: February 8, 1996
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the undersigned person,
the company's 1995 annual report on Form 10-K, with such amendments thereto as
may be necessary or appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form
10-K), with such amendments thereto as may be necessary or appropriate, together
with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the company does hereby appoint AUSTIN
P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his
true and lawful attorney or attorneys-in-fact with or without the others and
with full power of substitution and resubstitution, to execute in his name,
place, and stead, in his capacity as a director or officer or both, as the case
may be, of the company, the Form 10-K and any and all amendments thereto as said
attorneys-in-fact or any of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable in connection with the Form 10-K, as fully and
for all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys-in-fact
and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this eighth day of February, 1996.
/s/ Anne M. Tatlock
------------------------------
Anne M. Tatlock
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 37,213<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 186
<MORTGAGE> 3,041
<REAL-ESTATE> 577
<TOTAL-INVEST> 42,904
<CASH> 161
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,129<F2>
<TOTAL-ASSETS> 61,153
<POLICY-LOSSES> 35,794<F3>
<UNEARNED-PREMIUMS> 236<F3>
<POLICY-OTHER> 164<F3>
<POLICY-HOLDER-FUNDS> 1,789<F3>
<NOTES-PAYABLE> 9,193
729<F4>
0
<COMMON> 364
<OTHER-SE> 5,437<F5>
<TOTAL-LIABILITY-AND-EQUITY> 61,153
1,753<F6>
<INVESTMENT-INCOME> 3,095
<INVESTMENT-GAINS> 12
<OTHER-INCOME> 1,635<F7>
<BENEFITS> 3,047
<UNDERWRITING-AMORTIZATION> 249<F8>
<UNDERWRITING-OTHER> (417)<F9>
<INCOME-PRETAX> 850<F10>
<INCOME-TAX> 286<F11>
<INCOME-CONTINUING> 545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 545
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.64
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CURRENTLY CLASSIFIED AS AVAILABLE-FOR-SALE
AND RECORDED AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON
SECURITIES; RETAINED EARNINGS; AND COST OF TREASURY STOCK.
<F6>INCLUDES TOTAL INSURANCE CHARGES.
<F7>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F8>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF
ACCRETION OF INTEREST.
<F9>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS.
<F10>EXCLUDES $30 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN CONSOLIDATED INCOME STATEMENT.
<F11>EXCLUDES $11 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS ON PREFERRED
SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
