<PAGE> 1
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, 1996
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
- ------------------------------------- ------------------------------------
<C> <C> <C>
{ New York Stock Exchange
Common Stock, Par Value $.50 { Pacific Stock Exchange
Preferred Share Purchase Rights
(one Right attached to { New York Stock Exchange
each share of Common Stock) { Pacific Stock Exchange
7% Convertible Preferred Stock,
Par Value $1.50 { New York Stock Exchange
</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 February 28,
1997 of American General's voting Common Stock held by non-affiliates was
approximately $8.7 billion. As of February 28, 1997, there were 200,885,052
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
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<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
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<S> <C>
Portions of American General's 1996 Annual Report to
Shareholders Parts I and II
Portions of American General's definitive Proxy Statement
dated March 18, 1997, for the Annual Meeting of
Shareholders to be held April 24, 1997 Part III
</TABLE>
1996 FORM 10-K
<PAGE> 2
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
GENERAL
American General Corporation (American General) is one of the nation's
largest diversified financial services organizations. American General's
operating subsidiaries are leading providers of retirement services, consumer
loans, and life insurance. American General 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.
Financial data of American General and its subsidiaries (collectively, the
company) included in this Form 10-K includes the operations of The Independent
Life and Accident Insurance Company, acquired February 29, 1996, and The
Franklin Life Insurance Company (Franklin Life), acquired January 31, 1995.
Much of the information provided in response to this Item 1 is incorporated
herein by reference to selected portions of American General's 1996 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 1996 ARS are provided as Exhibit 13 to this Form 10-K.
CORPORATE DEVELOPMENT. During 1996 and early 1997, American General continued
its corporate development activities. Over the past two years, American General
has completed or announced five acquisitions with total consideration of $4.4
billion, including the $1.8 billion merger of USLIFE Corporation (USLIFE) into
American General, which is expected to close by June 30, 1997. Information
regarding these transactions is incorporated herein by reference to the section
"Corporate Development" on pages 16-17 of Management's Discussion and Analysis
(MD&A) and Note 2 of Notes to Financial Statements in American General's 1996
ARS.
On March 11, 1997, Standard & Poor's Ratings Services indicated that it
expects to reduce all of the company's debt and claims-paying ability ratings
referred to in the section "Capital Resources" on pages 23-24 of American
General's 1996 ARS by one notch upon completion of the USLIFE merger. Also, as
of this date, Duff & Phelps Credit Rating Co. has affirmed the company's
ratings, while Moody's Investors Service, Inc. continues to review the company's
ratings for possible downgrade.
BUSINESS SEGMENTS. The company reports the results of its operations in three
business segments: Retirement Services, 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
18.1 of Notes to Financial Statements in American General's 1996 ARS. Financial
information for each business segment is incorporated herein by reference to the
section "Business Segments" on pages 17-20 and the sections "Asset/Liability
Management," "Capital Resources," and "Liquidity" on pages 22-25 of MD&A and
Note 18.2 of Notes to Financial Statements in American General's 1996 ARS, and
to Schedule III of Item 14 of this Form 10-K.
EMPLOYEES. As of December 31, 1996 and 1995, the company employed
approximately 15,300 full-time salaried employees.
INSURANCE SALES AND IN FORCE. The following table summarizes the face amounts
of life insurance sales and life insurance in force for American General's
insurance subsidiaries for the past three years:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
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<S> <C> <C> <C>
Individual life insurance
sales
Permanent (non-participating)
Interest-sensitive $ 8,117 $ 9,231 $ 8,046
Guaranteed-cost 2,649 3,249 2,739
Term 9,050 10,831 6,200
Permanent (participating) 1,824 1,749 7
Group life insurance sales 520 921 496
Credit life insurance sales 2,409 4,753 3,483
- -------------------------------------------------------------------
Total 24,569 30,734 20,971
Reinsurance assumed (351) (2,876) (394)
- -------------------------------------------------------------------
Total, excluding
reinsurance assumed(a) $ 24,218 $ 27,858 $ 20,577
- -------------------------------------------------------------------
Individual life insurance in force
(at December 31)
Permanent (non-participating)
Interest-sensitive $ 61,032 $ 56,540 $ 48,415
Guaranteed-cost 27,985 24,325 24,207
Term 40,508 40,903 23,405
Permanent (participating) 17,773 17,172 842
Group life insurance in
force 5,412 5,669 4,983
Credit life insurance in
force 3,543 4,575 2,899
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Total(a)(b) $ 156,253 $ 149,184 $ 104,751
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</TABLE>
(a) Before deductions for reinsurance ceded.
(b) Includes reinsurance assumed.
AMERICAN GENERAL CORPORATION
2
<PAGE> 3
INSURANCE DEPOSITS AND PREMIUMS. The following table lists deposits and
premiums and other considerations of American General's insurance and annuity
subsidiaries for the past three years:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
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<S> <C> <C> <C>
Deposits(a)(b) $ 4,013 $ 3,865 $ 3,375
- -------------------------------------------------------------------
Direct premiums and other
considerations
Individual life premiums $ 1,145 $ 991 $ 606
Insurance charges 474 409 357
Individual health premiums 187 160 148
Other 303 288 143
- -------------------------------------------------------------------
Total direct premiums
and other considerations 2,109 1,848 1,254
- -------------------------------------------------------------------
Reinsurance premiums assumed 68 104 52
Reinsurance premiums ceded (209) (199) (96)
- -------------------------------------------------------------------
Premiums and other
considerations $ 1,968 $ 1,753 $ 1,210
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</TABLE>
(a) Represents premiums received for interest-sensitive life insurance and
annuity products.
(b) 1995 restated to conform with the 1996 presentation.
ANNUITY PRODUCTS. The primary products offered by the Retirement Services
segment are retirement annuities which qualify for tax deferral under the
Internal Revenue Code. These products are provided to employees of educational,
health care, public sector, and other not-for-profit organizations.
Policyholders may select either fixed or variable account options. Fixed
accounts have minimum guaranteed interest crediting rates ranging from 3.00% to
5.50%. During 1996, actual interest crediting rates on fixed accounts ranged
from 5.00% to 7.00%. These annuities are generally issued on a group basis, for
which there are no scheduled maturities.
The companies in the Life Insurance segment offer a variety of annuity
products. Individual fixed annuities comprised approximately 76% of the
segment's annuity liabilities at December 31, 1996. These annuities are
primarily used for retirement funding purposes and generally continue for the
life of the policyholder. Minimum guaranteed interest crediting rates on these
annuities range from 2.50% to 4.50%; actual interest crediting rates during 1996
ranged from 3.25% to 7.87%.
Payout annuities, those currently paying out the annuity value, represented
approximately 22% of the Life Insurance segment's annuity liabilities at
December 31, 1996. Payout annuities consist primarily of structured settlements
of indemnity claims and pension buyouts used by employer-sponsored pension plans
to fund pension obligations. Interest is credited to these annuities at fixed
rates determined when the contracts are issued, consistent with the related
investment yield at the time. Interest crediting rates ranged from 2.00% to
13.50% during 1996. These contracts will continue until all obligations are
extinguished.
Both the Retirement Services and Life Insurance segments offer variable
annuity accounts, in which the investment risk lies solely with the
policyholder. Assets and liabilities related to these accounts are included in
Separate Account assets and liabilities in the company's consolidated balance
sheet.
INVESTMENTS
Information regarding investments is incorporated here-
in by reference to the sections "Investments" and "Asset/Liability
Management - Derivative Financial Instruments" on pages 20-23 of MD&A and Notes
1.2, 3, and 15 of Notes to Financial Statements in American General's 1996 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 1.8 of Notes to Financial Statements
in American General's 1996 ARS.
REINSURANCE
Information regarding reinsurance is incorporated herein by reference to Note
1.11 of Notes to Financial Statements in American General's 1996 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
American General'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, the expense
of operations, and the company's objectives for return on capital. In addition,
pricing is affected by state regulation of interest rates based on contractual
terms and loan
1996 FORM 10-K 3
<PAGE> 4
PART I (Continued)
amounts, charges for individual loans, and insurance premium rates.
COMPETITION
Competition in life insurance and financial services markets and the recent
trend of consolidations in the industry may affect, among other matters,
corporate development activities, business growth, distribution methods, and the
pricing of products and services.
American General's life insurance and annuity businesses operate in a highly
competitive industry that consists of a large number of insurance companies,
other financial institutions, mutual fund companies, and banks. No single
competitor nor any small group of competitors dominates any of the markets in
which the company operates. Principal competitive factors include price,
financial and claims-paying ability ratings, selection of products, quality of
service, and, with respect to variable insurance and annuity products,
investment management performance.
American General's consumer finance business competes with other types of
financial institutions which offer similar products and services, including
industrial banks, industrial loan companies, commercial banks, sales finance
companies, savings and loan associations, and credit unions. Competition in the
financial services industry is intense due to the increasing number of companies
offering financial products and services, the sophistication of those products,
technological improvements, and more rapid communication.
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 "Capital Resources - Retirement Services and Life Insurance Segments"
on page 24 and "Legal and Other Factors - Regulation" on page 25 of MD&A in
American General's 1996 ARS. Information regarding statutory accounting
practices is incorporated herein by reference to Note 14 of Notes to Financial
Statements in American General's 1996 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 17.1
of Notes to Financial Statements in American General's 1996 ARS.
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. Further discussion of
state guaranty associations is incorporated herein by reference to Note 8 of
Notes to Financial Statements in American General's 1996 ARS.
CONSUMER FINANCE. American General'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, American General'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.
TAXATION. Discussion of the effect of tax law changes is incorporated herein
by reference to the section "Legal and Other Factors - Taxation" on page 25 of
MD&A in American General's 1996 ARS.
ENVIRONMENTAL. The company's principal exposure to environmental regulation
arises from its ownership of investment real estate. Probable costs related to
environmental cleanup are immaterial.
FORWARD-LOOKING STATEMENTS
The statements contained in this filing on Form 10-K that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. Actual results may differ materially from
those included in the forward-looking statements. These forward-looking
statements involve risks and uncertainties including, but not limited to, the
following: changes in general economic conditions, including the performance of
financial markets, interest rates, and the level of personal bankruptcies;
customer responsiveness to both new products and distribution channels;
competitive, regulatory, or tax changes that affect the cost of or demand for
the company's
4 AMERICAN GENERAL CORPORATION
<PAGE> 5
products; adverse litigation results; and the company's failure to achieve
anticipated levels of operational efficiencies related to recently acquired
companies, as well as other cost-saving initiatives. The Consumer Finance
segment's future results could be adversely affected if, despite the company's
initiatives to improve credit quality, finance receivable delinquencies and net
charge offs increase or remain at current levels for a longer period than
anticipated by management. Failure to dispose of assets held for sale for
carrying value could also adversely affect this segment's future results.
Readers also are directed to other risks and uncertainties discussed in
documents filed by the company with the Securities and Exchange Commission.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information as of February 28, 1997 regarding the 18 executive officers of
the company is as follows:
<TABLE>
<CAPTION>
Present Principal Position with the Company and
Name and Age Other Material Positions Held during Last Five Years
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<S> <C>
HAROLD S. HOOK (65) Chairman (since 1978), Chief Executive Officer (1978-96),
and Director (since 1972), American General Corporation.
ROBERT M. DEVLIN (56) President (since 1995) and Chief Executive Officer (since
1996), 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 (55) 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 (48) Senior Vice President (since 1994) and Senior Vice
President - Operations Support (since 1995), American
General Corporation; Senior Vice President - Insurance and
Administration (1991-93), American General Finance, Inc.,
Evansville, Indiana, a subsidiary of American General
Corporation.
STEPHEN D. BICKEL (57) Chairman (since 1994) and Chief Executive Officer (since
1988), and President (1988-94), The Variable Annuity Life
Insurance Company, Houston, Texas, a subsidiary of American
General Corporation.
JAMES S. D'AGOSTINO JR. (50) Chairman (since 1995) and Chief Executive Officer (since
1993), and President (1993-95), American General Life and
Accident Insurance Company, Nashville, Tennessee, a
subsidiary of American General Corporation; Director (since
1996), American General Corporation; with American General
Corporation during the remainder of last five years in
various other capacities including Executive Vice
President - Administration (1993) and Senior Vice
President - Administration (1991-93).
STEPHEN H. FIELD (49) President and Chief Executive Officer (since 1995), American
General Mortgage and Land Development, Inc., Houston, Texas,
a subsidiary of American General Corporation. Executive Vice
President (1991-95), Texas Commerce Bancshares Inc.,
Houston, Texas.
FREDERICK W. GEISSINGER (51) 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 (54) 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 (52) Senior Vice President - Administration (since 1996),
American General Corporation. President (1992-96), Chamber
of Commerce, The Greater Houston Partnership, Houston,
Texas. Chief Administrative Officer and Director of Finance
(1989-92), City of Houston, Texas.
</TABLE>
1996 FORM 10-K 5
<PAGE> 6
PART I (Continued)
<TABLE>
<CAPTION>
Present Principal Position with the Company and
Name and Age Other Material Positions Held during Last Five Years
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<S> <C>
JOE KELLEY (49) 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.
RODNEY O. MARTIN JR. (44) President and Chief Executive Officer (since 1996), American
General Life Insurance Company, Houston, Texas, a subsidiary
of American General Corporation; President and Chief
Executive Officer (1995-96), American General Life Insurance
Company of New York, Syracuse, New York, a subsidiary of
American General Corporation. President (1993-95),
Connecticut Mutual Insurance Services, Hartford,
Connecticut. Senior Vice President - Corporate Distribution
(1992-93) and Vice President - Agencies (1990-92),
Connecticut Mutual Life Insurance Company, Hartford,
Connecticut.
NICHOLAS R. RASMUSSEN (50) Senior Vice President (since 1983) and Senior Vice
President - Corporate Development (since 1993), and Senior
Vice President - Group Executive (1990-93), American General
Corporation.
CRAIG R. RODBY (47) Vice Chairman (since February 1997), The Variable Annuity
Life Insurance Company, Houston, Texas, a subsidiary of
American General Corporation. Senior Vice
President - Financial Management (1994-February 1997),
ReliaStar Financial Corp., Minneapolis, Minnesota. President
and Chief Executive Officer (1990-94), Northern Life
Insurance Company, Seattle, Washington.
CARL J. SANTILLO (47) Senior Vice President - Finance (since 1996), American
General Corporation. Senior Vice President - Life & Health
Operations (1993-96), Nationwide Life Insurance Company,
Columbus, Ohio. President (1993-96), Employers Life of
Wausau, Wausau, Wisconsin. Executive Vice
President - Operations (1987-93), Wausau Insurance
Companies, Wausau, Wisconsin.
ROBERT A. SLEPICKA (53) President and Chief Marketing Officer (since 1996), American
General Life Insurance Company of New York, Syracuse, New
York, a subsidiary of American General Corporation. Senior
Vice President - Brokerage (1995-96) and Chief Marketing
Officer - Brokerage (1991-94), New York Life Insurance
Company, New York, New York.
PETER V. TUTERS (44) 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. (59) 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.
</TABLE>
ITEM 2. PROPERTIES
The company's corporate headquarters is located in the American General
Center, a complex of office buildings on a 46-acre tract near downtown Houston.
American General or its subsidiaries either own or lease pursuant to a sale-
leaseback arrangement all of the buildings and underlying land in the complex.
The company occupies 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; American
General Life and Accident Insurance Company in Nashville, Tennessee; and
Franklin Life in Springfield, Illinois. Portions of certain of these buildings
are rented to unaffiliated third parties.
ITEM 3. LEGAL PROCEEDINGS
AVIA. Two real estate subsidiaries of American General 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 for $47 million in compensatory
damages and for $189 million in punitive damages. On September 17, 1993, a Texas
state district court reduced the previously awarded punitive damages by $60
million, resulting in a reduced judgment in the amount of $176 million plus
post-judgment interest. On January 29, 1996, the Texas First Court of Appeals
rendered a decision that affirmed the trial court judgment and held both
companies liable to pay the punitive damages. The company intends to continue to
vigorously contest the matter
6 AMERICAN GENERAL CORPORATION
<PAGE> 7
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 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. Based upon information presently available, the
company believes that the total amount that will ultimately be paid, if any,
arising from this lawsuit will have no material adverse effect on the company's
consolidated results of operations and financial position.
GULF LIFE. 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 representative 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, and a judgment
was entered in favor of the company on July 9, 1996, for the portion of the
contingency related to the representative case. The government has appealed this
judgment; however, the company intends to pursue a full refund of the amounts
paid.
OCHOA. In March 1994, two subsidiaries of American General 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 American General, 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
American General, are being addressed by Pebble Creek with the United States
Environmental Protection Agency (EPA). 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 1994, Pebble
Creek attended a meeting to show cause why the EPA should not initiate
enforcement proceedings against Pebble Creek. To date, Pebble Creek has not been
made aware of the EPA's decision. The company believes that penalties in excess
of $100,000 could be assessed against Pebble Creek.
OTHER. The company is a party to various other lawsuits and proceedings
arising in the ordinary course of business. Many of these lawsuits and
proceedings arise in jurisdictions, such as Alabama, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon information
presently available, the company believes that the total amounts that will
ultimately be paid, if any, arising from these lawsuits and proceedings, and
from Ochoa and Pebble Creek, will have no material adverse effect on the
company's consolidated results of operations and financial position. However, it
should be noted that the frequency of large damage awards, including large
punitive damage awards, that bear little or no relation to actual economic
damages incurred by plaintiffs in jurisdictions like Alabama continues to
increase and creates the potential for an unpredictable judgment in any given
suit.
In addition, two of American General's subsidiaries, Franklin Life and
American General Life Insurance Company, are defendants in lawsuits filed as
purported class actions asserting claims related to sales practices of certain
life insurance products. Because these cases are in the early stages of
litigation, it is premature to address their materiality. The claims are being
defended vigorously by the subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during fourth quarter
1996.
1996 FORM 10-K 7
<PAGE> 8
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 19, 11.1, and 17.1,
respectively, of Notes to Financial Statements in American General's 1996 ARS.
The quarterly cash dividends paid on common stock are incorporated herein by
reference to Note 19 of Notes to Financial Statements in American General's 1996
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 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 6,887 $ 6,495 $ 4,841 $ 4,829 $ 4,602
Income before cumulative effect of accounting changes 577(a) 545(b) 513(c) 250(d) 533
Income per common share before cumulative effect of
accounting changes 2.75(a) 2.64(b) 2.45(c) 1.15(d) 2.45
Assets 66,254(e) 61,153(e) 46,295(e) 43,982(e) 39,742
Debt
Corporate 1,533 1,723 1,836 1,686 1,987
Consumer Finance 7,630 7,470 7,090 5,843 5,484
Redeemable equity 1,227(f) 729(f) 47 - -
Shareholders' equity 5,621(e) 5,801(e) 3,457(e) 5,137(e) 4,616
Cash dividends per common share 1.30 1.24 1.16 1.10 1.04
- ------------------
</TABLE>
(a) Includes $93 million ($.44 per share) aftertax loss on consumer finance
assets held for sale.
(b) Includes $140 million ($.67 per share) aftertax adjustment to the allowance
for finance receivable losses.
(c) Includes aftertax net realized investment losses of $114 million ($.55 per
share). Net realized investment gains for 1996, 1995, 1993, and 1992 were
immaterial.
(d) Includes $300 million ($1.39 per share) write-down of goodwill and $30
million ($.14 per share) tax rate related adjustment.
(e) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" on page 20 of MD&A in American General's 1996 ARS.
(f) Includes convertible and non-convertible preferred securities of
subsidiaries. Additional information is incorporated herein by reference to
Note 10.1 of Notes to Financial Statements in American General's 1996 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 1996 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 1996 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.
8 AMERICAN GENERAL CORPORATION
<PAGE> 9
PART III
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 18, 1997 (1997 Proxy Statement)
is incorporated herein by reference. Information regarding the company's 18
executive officers 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 1997 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
1997 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 1997 Proxy Statement is incorporated herein
by reference.
1996 FORM 10-K 9
<PAGE> 10
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
---------------------------------
1996
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 Common 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
Exhibit Registration No. or
Number Exhibit Report
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <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 of Series A 4(o) 33-58317
Cumulative Convertible Preferred Stock
3.3 Statement of Resolution Establishing Series of Shares of 7% 4(d) 333-00513
Convertible Preferred Stock
3.4 Resolutions Establishing American General's 6% Series A 4(k) 333-00513
Convertible Junior Subordinated Debentures
3.5 Amended and Restated Bylaws of American General Corporation 3.2 Form 10-K
for 1993
4.1 There have not been filed as exhibits to this Form 10-K certain NA NA
long-term debt instruments, none of which relates to authorized
indebtedness that exceeds 10% of the consolidated assets of the
company. 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 American 4 Form 10-Q
General and Texas Commerce Bank, as Rights Agent (Rights for Second
Agreement) Quarter 1989
4.3 First Amendment to Rights Agreement, dated as of October 26, 19 Form 10-Q
1992, between American General and First Chicago Trust Company of for Third
New York, as Rights Agent Quarter 1992
</TABLE>
(continued on next page)
10 AMERICAN GENERAL CORPORATION
<PAGE> 11
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA),
or
Incorporated by Reference to
-------------------------------
American General
Registration No.
Exhibit or
Number Exhibit Report
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4.4 Junior Subordinated Indenture, dated as of May 15, 1995, between 4(g) 333-00513
American General and Chemical Bank, as Trustee, relating to American
General's 6% Series A Convertible Junior Subordinated Debentures
4.5 Terms of the 6% Convertible Monthly Income Preferred Securities, 4(i) 333-00513
Series A, of American General Delaware, L.L.C.
4.6 Guarantee of American General with respect to the 6% Convertible 4(j) 333-00513
Monthly Income Preferred Securities, Series A, of American General
Delaware, L.L.C.
10.1 1984 Stock and Incentive Plan 10.5 Form 10-K
for 1984
10.2 1984 Stock and Incentive Plan (Amended and Restated Effective as of 10.2 Form 10-K
February 8, 1994) for 1993
10.3 American General Corporation 1997 Stock and Incentive Plan 10.3* NA
10.4 Restoration of Retirement Income Plan for Certain Employees 10.3 Form 10-K
Participating in the Restated American General Retirement Plan for 1993
(Restoration of Retirement Income Plan)
10.5 First Amendment to Restoration of Retirement Income Plan 10.4 Form 10-K
for 1993
10.6 Second Amendment to Restoration of Retirement Income Plan 10.5 Form 10-K
for 1993
10.7 Third Amendment to Restoration of Retirement Income Plan 10.7* NA
10.8 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.9 First Amendment to American General Supplemental Thrift Plan 10.7 Form 10-K
for 1993
10.10 Second Amendment to American General Supplemental Thrift Plan 10.8 Form 10-K
for 1993
10.11 Third Amendment to American General Supplemental Thrift Plan 10.9 Form 10-K
for 1993
10.12 Form of Severance Agreements between American General 10.10 Form 10-K
and each of the following: Harold S. Hook, Robert M. Devlin, Jon P. for 1993
Newton, Michael G. Atnip, Mark S. Berg, Stephen D. Bickel, James S.
D'Agostino Jr., Stephen H. Field, Frederick W. Geissinger, Robert J.
Gibbons, Albert E. Haines, Joe Kelley, Bill B. Luther, Rodney O.
Martin Jr., Nicholas R. Rasmussen, Gary D. Reddick, Craig R. Rodby,
Carl J. Santillo, Robert A. Slepicka, Peter V. Tuters, and Thomas L.
West Jr.
10.13 Supplemental Retirement Agreement between American General and 10.11 Form 10-K
Harold S. Hook for 1993
10.14 American General Supplemental Retirement Plan Trust 10.12 Form 10-K
for 1993
10.15 Amendment to Supplemental Retirement Agreement between American 10.13 Form 10-K
General and Harold S. Hook for 1993
10.16 Second Amendment to Supplemental Retirement Agreement between 10.14 Form 10-K
American General and Harold S. Hook for 1993
10.17 Deferred Compensation Agreement between American General and Harold 10.16 Form 10-K
S. Hook for 1993
10.18 1995 Deferred Compensation Plan 10.17 Form 10-K
for 1994
</TABLE>
(continued on next page)
1996 FORM 10-K 11
<PAGE> 12
- --------------------------------------------------------------------------------
PART IV (Continued)
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA),
or
Incorporated by Reference to
-------------------------------
American General
Registration No.
Exhibit or
Number Exhibit Report
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10.19 1996 Deferred Compensation Plan 10.18 Form 10-K
for 1995
10.20 American General Corporation Retirement Plan for Directors (as 10.17 Form 10-K
amended and restated) for 1993
10.21 American General Corporation Performance-Based Plan for Executive 10.19 Form 10-K
Officers, Amended and Restated Effective January 1, 1995 for 1994
10.22 Employment Agreement dated April 28, 1994 between 10.3 Form 10-Q
American General and Harold S. Hook for Second
Quarter 1994
10.23 Consulting Agreement dated April 28, 1994 between American General 10.4 Form 10-Q
and Harold S. Hook for Second
Quarter 1994
10.24 License Agreement dated April 28, 1994 among American General, 10.5 Form 10-Q
Harold S. Hook, and Main Event Management Corporation for Second
Quarter 1994
10.25 Supplemental Retirement Benefit for Jon P. Newton 10 Form 10-Q
for First Quarter
1996
11 Computation of Earnings Per Share 11* NA
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of 12* NA
Earnings to Combined Fixed Charges and Preferred Stock Dividends
13 Portions of American General's 1996 Annual Report to Shareholders 13* NA
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 10-K 24* NA
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, 1996:
(1) Current Report on Form 8-K dated October 24, 1996, with respect to the
issuance of a news release announcing the completion of the succession
plan for the Office of the Chairman including the announcement that
Robert M. Devlin had been named to the additional office of Chief
Executive Officer.
(2) Current Report on Form 8-K dated December 23, 1996, with respect to the
issuance of a news release announcing the signing of a definitive
agreement under which the company will acquire Home Beneficial
Corporation for $665 million, or $39.00 per share, subject to approval
by Home Beneficial Corporation's shareholders and requisite regulatory
authorities.
(3) Current Report on Form 8-K dated February 12, 1997, with respect to the
issuance of a joint news release announcing the signing of a definitive
agreement under which USLIFE will merge into American General in a
transaction valued at $1.8 billion, or $49.00 per share, subject to
approval by USLIFE and American General shareholders and requisite
regulatory authorities.
(4) Current Report on Form 8-K dated February 21, 1997, with respect to the
filing of American General's Consolidated Financial Statements and the
related Management's Discussion and Analysis for the three years ended
December 31, 1996.
12 AMERICAN GENERAL CORPORATION
<PAGE> 13
AMERICAN GENERAL CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
In millions
<TABLE>
<CAPTION>
At December 31, 1996
------------------------------------------------------
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 $ 652 $ 704 $ 704
States and political subdivisions 304 316 316
Foreign governments 674 742 742
Mortgage-backed securities 10,401 10,642 10,642
Public utilities 3,587 3,770 3,770
All other corporate 21,481 22,218 22,218
Redeemable preferred stocks 95 98 98
- ------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities 37,194 38,490 38,490
- ------------------------------------------------------------------------------------------------------------------
Equity securities
Common stocks 22 27 27
Perpetual preferred stocks 85 106 106
- ------------------------------------------------------------------------------------------------------------------
Total equity securities 107 133 133
- ------------------------------------------------------------------------------------------------------------------
Mortgage loans on real estate* 2,970 2,970
Investment real estate*
Investment properties 510 510
Acquired in satisfaction of debt 88 88
Policy loans 1,728 1,728
Other long-term investments* 191 191
Short-term investments 160 160
- ------------------------------------------------------------------------------------------------------------------
Total investments $ 42,948 $ 44,270
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of applicable allowance for losses. See Schedule V of this Form 10-K.
1996 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 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Dividends - affiliated $ 464 $ 445 $ 459
Interest income - affiliated 120 130 33
Net realized investment gains (losses) 1 (1) (3)
Other income
Affiliated 39 36 36
Other 2 6 3
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 626 616 528
- ----------------------------------------------------------------------------------------------------------------------
Expenses
Operating costs and expenses
Affiliated 10 7 8
Other 72 77 66
Interest expense
Affiliated* 81 46 11
Other 123 156 110
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 286 286 195
- ----------------------------------------------------------------------------------------------------------------------
Income before income tax benefit and equity in undistributed
net income of subsidiaries 340 330 333
Income tax benefit 34 35 43
Equity in undistributed net income of subsidiaries (net of
dividends paid to parent) 203 180 137
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 577 $ 545 $ 513
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $71 million in 1996 and $36 million in 1995 related to subordinated
debentures issued in conjunction with the issuances of preferred securities of
subsidiaries. Additional information is incorporated herein by reference to
Note 10.1 of Notes to Financial Statements in American General's 1996 ARS.
14 AMERICAN GENERAL CORPORATION
<PAGE> 15
- --------------------------------------------------------------------------------
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 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments
Subsidiaries, at equity $6,958 $6,710 $4,238
Other 8 35 64
Indebtedness from subsidiaries 1,555 1,473 779
Cash - 1 -
Other 90 115 52
- ----------------------------------------------------------------------------------------------
Total assets $8,611 $8,334 $5,133
- ----------------------------------------------------------------------------------------------
Liabilities
Short-term debt $ 153 $ 240 $ 642
Long-term debt(a)
Senior(b) 1,182 1,180 847
Subordinated, held by subsidiaries(c) 1,505 993 53
Indebtedness to subsidiaries 21 23 35
Federal income taxes 39 28 (3)
Other 90 69 55
- ----------------------------------------------------------------------------------------------
Total liabilities 2,990 2,533 1,629
- ----------------------------------------------------------------------------------------------
Redeemable equity
Common stock subject to put contracts - - 47
- ----------------------------------------------------------------------------------------------
Shareholders' equity
Convertible preferred stock 85 - -
Common stock 398 364 364
Net unrealized gains (losses) on securities(d) 559 1,100 (935)
Retained earnings(e) 5,093 4,787 4,495
Cost of treasury stock(f) (514) (450) (467)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 5,621 5,801 3,457
- ----------------------------------------------------------------------------------------------
Total liabilities and equity $8,611 $8,334 $5,133
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) The five-year schedule of maturities of debt is as follows: 1997, $133
million; 1998, $71 million; 1999, $103 million; 2000, $203 million; and
2001, $8 million.
(b) The principal amount of American General senior notes held by subsidiaries
was $10 million at December 31, 1996 and 1995, and $11 million at December
31, 1994.
(c) Includes $1,458 million in 1996 and $943 million in 1995 of subordinated
debentures issued in conjunction with the issuances of preferred securities
of subsidiaries. Additional information is incorporated herein by reference
to Note 10.1 of Notes to Financial Statements in American General's 1996
ARS.
(d) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" on page 20 of MD&A in American General's 1996 ARS.
(e) Amounts include undistributed earnings of subsidiaries of $2.9 billion in
1996, $2.7 billion in 1995, and $2.6 billion in 1994.
(f) Amounts for 1996, 1995, and 1994 include 699,614 shares at a cost of $8
million held by a subsidiary.
1996 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 1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Operating activities
Net income $ 577 $ 545 $ 513
Reconciling adjustments
Equity in undistributed net income of subsidiaries (net
of dividends paid to parent) (203) (180) (137)
Other, net 54 4 27
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 428 369 403
- --------------------------------------------------------------------------------------------------------------
Investing activities
Net (increase) decrease in indebtedness from subsidiaries (82) (694) 1
Capital contributions to subsidiaries (311) (368) (91)
Return of capital from subsidiaries 53 113 7
Acquisition (106) - -
Net (increase) decrease in other investments 48 31 (34)
Net increase (decrease) in indebtedness to subsidiaries (2) (12) 8
Other, net (11) (4) (2)
- --------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (411) (934) (111)
- --------------------------------------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in short-term debt (90) (405) 324
Long-term debt issuances 516 1,376 100
Long-term debt redemptions - (100) (209)
Dividends on common and preferred stock (271) (254) (243)
Common stock repurchases (181) (35) (264)
Other, net 8 (16) -
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (18) 566 (292)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1) 1 -
Cash at beginning of year 1 - -
- --------------------------------------------------------------------------------------------------------------
Cash at end of year $ - $ 1 $ -
- --------------------------------------------------------------------------------------------------------------
</TABLE>
16 AMERICAN GENERAL CORPORATION
<PAGE> 17
AMERICAN GENERAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
In millions
<TABLE>
<CAPTION>
At December 31, For the Years Ended December 31,
----------------------- ----------------------------------------------------------------
Amorti-
zation
Premiums 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>
- -------------------------------------------------------------------------------------------------------------------------
1996
Retirement Services $ 558 $21,067 $ 78 $1,652 $1,244 $ 31 $ 126
Consumer Finance 11 463 202 66 103 9 11
Life Insurance 2,355 18,760 1,687 1,533 1,805 284 602
Other(f) - (58) 1 20 4 - 1,088
- -------------------------------------------------------------------------------------------------------------------------
Consolidated $2,924 $40,232 $1,968 $3,271 $3,156 $ 324 $1,827
- -------------------------------------------------------------------------------------------------------------------------
1995
Retirement Services $ 183 $20,147 $ 50 $1,597 $1,204 $ 17 $ 129
Consumer Finance 12 494 217 63 116 9 12
Life Insurance 1,933 17,403 1,486 1,401 1,722 224 468
Other(f) 1 (61) - 34 5 (1) 1,066
- -------------------------------------------------------------------------------------------------------------------------
Consolidated $2,129 $37,983 $1,753 $3,095 $3,047 $ 249 $1,675
- -------------------------------------------------------------------------------------------------------------------------
1994
Retirement Services $ 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(f) 2 (61) (1) 42 2 1 607
- -------------------------------------------------------------------------------------------------------------------------
Consolidated $2,731 $29,623 $1,210 $2,493 $2,224 $ 213 $1,076
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" on page 20 of MD&A in American General's 1996 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) Represents Consumer Finance non-insurance operations, Corporate operations,
and intersegment eliminations.
1996 FORM 10-K 17
<PAGE> 18
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE IV - REINSURANCE
In millions
<TABLE>
<CAPTION>
Percentage
of
Ceded to Assumed Amount
Gross Other from Other Net Assumed
Description Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1996
Life insurance in force at year
end $153,790 $27,785 $2,463 $128,468 1.9%
Premiums for the year
Life insurance and annuities $ 1,236 $ 84 $ 12 $ 1,164 1.1%
Accident and health insurance 293 107 16 202 7.8
Property-liability insurance 106 18 40 128 31.0
- --------------------------------------------------------------------------------------------------------------
Total premiums $ 1,635 $ 209 $ 68 $ 1,494 4.5%
- --------------------------------------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
18 AMERICAN GENERAL CORPORATION
<PAGE> 19
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 Losses Accounts tions(a) Year
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1996
Allowance for losses on:
Finance receivables $ 492 $ 417 $ - $ - $ 514(b) $ 395
Mortgage loans on real
estate 87 - 2 - 9 80
Investment real estate 35 - - - 12 23
Other long-term investments 2 - - - 1 1
Valuation allowance on
deferred tax asset 26 - - 4 - 30
- -----------------------------------------------------------------------------------------------------------------------
Total $ 642 $ 417 $ 2 $ 4 $ 536 $ 529
- -----------------------------------------------------------------------------------------------------------------------
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(c) 35
Other long-term investments 6 - 1 - 5 2
Valuation allowance on
deferred tax asset 315 - - 26(d) 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(e) - 315
- -----------------------------------------------------------------------------------------------------------------------
Total $ 578 $ 214 $ 125 $ 315 $ 275 $ 957
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Resulting from write-offs of uncollectible receivables, mortgage loan
payoffs, sales of real estate, and foreclosures of real estate.
(b) Includes $70 million reclassification to assets held for sale.
(c) Includes $243 million reclassification to reduce cost basis.
(d) Relates to operating loss carryovers not expected to be utilized charged to
deferred tax expense.
(e) Relates to unrealized losses on securities charged to net unrealized gains
(losses) on securities.
1996 FORM 10-K 19
<PAGE> 20
PART IV (Continued)
AMERICAN GENERAL CORPORATION
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, 1997.
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, 1997.
/s/ Robert M. Devlin
- -----------------------------------------------------------------
Robert M. Devlin
(President, Chief Executive Officer, and Director -
Principal Executive Officer)
/s/ Carl J. Santillo
- -----------------------------------------------------------------
Carl J. Santillo
(Senior Vice President - Finance -
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)
James S. D'Agostino Jr.*
- -----------------------------------------------------------------
James S. D'Agostino Jr.
(Director)
W. Lipscomb Davis Jr.*
- -----------------------------------------------------------------
W. Lipscomb Davis Jr.
(Director)
Harold S. Hook*
- -----------------------------------------------------------------
Harold S. Hook
(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)
20 AMERICAN GENERAL CORPORATION
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
---------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
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<C> <S> <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 of Series A 4(o) 33-58317
Cumulative Convertible Preferred Stock
3.3 Statement of Resolution Establishing Series of Shares of 7% 4(d) 333-00513
Convertible Preferred Stock
3.4 Resolutions Establishing American General's 6% Series A 4(k) 333-00513
Convertible Junior Subordinated Debentures
3.5 Amended and Restated Bylaws of American General Corporation 3.2 Form 10-K
for 1993
4.1 There have not been filed as exhibits to this Form 10-K certain NA NA
long-term debt instruments, none of which relates to authorized
indebtedness that exceeds 10% of the consolidated assets of the
company. 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 American 4 Form 10-Q
General and Texas Commerce Bank, as Rights Agent (Rights for Second
Agreement) Quarter 1989
4.3 First Amendment to Rights Agreement, dated as of October 26, 19 Form 10-Q
1992, between American General and First Chicago Trust Company of for Third
New York, as Rights Agent Quarter 1992
4.4 Junior Subordinated Indenture, dated as of May 15, 1995, between 4(g) 333-00513
American General and Chemical Bank, as Trustee, relating to
American General's 6% Series A Convertible Junior Subordinated
Debentures
4.5 Terms of the 6% Convertible Monthly Income Preferred Securities, 4(i) 333-00513
Series A, of American General Delaware, L.L.C.
4.6 Guarantee of American General with respect to the 6% Convertible 4(j) 333-00513
Monthly Income Preferred Securities, Series A, of American
General Delaware, L.L.C.
10.1 1984 Stock and Incentive Plan 10.5 Form 10-K
for 1984
10.2 1984 Stock and Incentive Plan (Amended and Restated Effective as 10.2 Form 10-K
of February 8, 1994) for 1993
10.3 American General Corporation 1997 Stock and Incentive Plan 10.3* NA
10.4 Restoration of Retirement Income Plan for Certain Employees 10.3 Form 10-K
Participating in the Restated American General Retirement Plan for 1993
(Restoration of Retirement Income Plan)
10.5 First Amendment to Restoration of Retirement Income Plan 10.4 Form 10-K
for 1993
10.6 Second Amendment to Restoration of Retirement Income Plan 10.5 Form 10-K
for 1993
10.7 Third Amendment to Restoration of Retirement Income Plan 10.7* NA
10.8 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.9 First Amendment to American General Supplemental Thrift Plan 10.7 Form 10-K
for 1993
10.10 Second Amendment to American General Supplemental Thrift Plan 10.8 Form 10-K
for 1993
10.11 Third Amendment to American General Supplemental Thrift Plan 10.9 Form 10-K
for 1993
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
---------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
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<C> <S> <C> <C>
10.12 Form of Severance Agreements between American General 10.10 Form 10-K
and each of the following: Harold S. Hook, Robert M. Devlin, Jon for 1993
P. Newton, Michael G. Atnip, Mark S. Berg, Stephen D. Bickel,
James S. D'Agostino Jr., Stephen H. Field, Frederick W.
Geissinger, Robert J. Gibbons, Albert E. Haines, Joe Kelley, Bill
B. Luther, Rodney O. Martin Jr., Nicholas R. Rasmussen, Gary D.
Reddick, Craig R. Rodby, Carl J. Santillo, Robert A. Slepicka,
Peter V. Tuters, and Thomas L. West Jr.
10.13 Supplemental Retirement Agreement between American General and 10.11 Form 10-K
Harold S. Hook for 1993
10.14 American General Supplemental Retirement Plan Trust 10.12 Form 10-K
for 1993
10.15 Amendment to Supplemental Retirement Agreement between American 10.13 Form 10-K
General and Harold S. Hook for 1993
10.16 Second Amendment to Supplemental Retirement Agreement between 10.14 Form 10-K
American General and Harold S. Hook for 1993
10.17 Deferred Compensation Agreement between American General and 10.16 Form 10-K
Harold S. Hook for 1993
10.18 1995 Deferred Compensation Plan 10.17 Form 10-K
for 1994
10.19 1996 Deferred Compensation Plan 10.18 Form 10-K
for 1995
10.20 American General Corporation Retirement Plan for Directors (as 10.17 Form 10-K
amended and restated) for 1993
10.21 American General Corporation Performance-Based Plan for Executive 10.19 Form 10-K
Officers, Amended and Restated Effective January 1, 1995 for 1994
10.22 Employment Agreement dated April 28, 1994 between 10.3 Form 10-Q
American General and Harold S. Hook for Second
Quarter 1994
10.23 Consulting Agreement dated April 28, 1994 between American 10.4 Form 10-Q
General and Harold S. Hook for Second
Quarter 1994
10.24 License Agreement dated April 28, 1994 among American General, 10.5 Form 10-Q
Harold S. Hook, and Main Event Management Corporation for Second
Quarter 1994
10.25 Supplemental Retirement Benefit for Jon P. Newton 10 Form 10-Q
for First Quarter
1996
11 Computation of Earnings Per Share 11* NA
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of 12* NA
Earnings to Combined Fixed Charges and Preferred Stock Dividends
13 Portions of American General's 1996 Annual Report to Shareholders 13* NA
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 10-K 24* NA
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
EXHIBIT 10.3
AMERICAN GENERAL CORPORATION 1997 STOCK AND INCENTIVE PLAN
1. PURPOSE
The purpose of the American General Corporation 1997 Stock and Incentive
Plan (the "Plan") is to provide a means through which American General
Corporation, a Texas corporation, and its subsidiaries (collectively, the
"Company") may attract able persons to enter the employ or become directors of
the Company and to provide a means whereby those persons upon whom the
responsibilities of the successful administration and management of the Company
rest, and whose present and potential contributions to the welfare of the
Company are of importance, can acquire and maintain stock ownership, thereby
strengthening their concern for the welfare of the Company and their desire to
remain in its employ or as directors. A further purpose of the Plan is to
provide such persons with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. So that the maximum
incentive can be provided, the Plan provides for granting Incentive Stock
Options, Non-Qualified Options, Restricted Stock Awards, Performance Awards,
and Incentive Awards, or any combination of the foregoing, as is best suited to
the circumstances of the particular person.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Performance Award, or Incentive Award.
(b) "Board" means the Board of Directors of American General Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(d) "Committee" means a committee of the Board that is selected by the
Board as provided in Section 4 (a).
(e) "Common Stock" means the common stock of American General Corporation.
(f) "Company" means, collectively, American General Corporation and its
subsidiaries.
(g) "Director" means an individual elected to the Board by the
shareholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(h) "Employee" means any person (including a Director) in an employment
relationship with the Company or any parent or subsidiary corporation (as
defined in section 424 of the Code).
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<PAGE> 2
(i) "Fair Market Value" means, as of any specified date, the average of
the highest and lowest quoted selling prices of the Common Stock as reported on
the Composite Tape for issues listed on the New York Stock Exchange on the
specified date, or, if no sales were reported on the Composite Tape on such
specified date, the average of the highest and lowest quoted selling prices of
the Common Stock on the nearest dates before and after such specified date on
which sales of the Common Stock were so reported.
(j) "Holder" means an employee or a non-employee Director of the Company
who has been granted an Option, a Restricted Stock Award, a Performance Award,
or an Incentive Award.
(k) "Incentive Award" means an Award granted under Section 10 of the Plan.
(l) "Incentive Stock Option" means an Option within the meaning of section
422(b) of the Code.
(m) "Immediate Family" means, with respect to a Holder, the Holder's
spouse, children or grandchildren (including adopted and step children and
grandchildren).
(n) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(o) "Non-Qualified Option" means an Option that is not an Incentive Stock
Option.
(p) "Option" means an Award under Section 7 of the Plan and includes both
Non-Qualified Options and Incentive Stock Options to purchase Common Stock.
(q) "Performance Award" means an Award granted under Section 9 of the
Plan.
(r) "Personal Representative" means the person who upon the death,
disability, or incompetency of a Holder shall have acquired, by will or by the
laws of descent and distribution or by other legal proceedings, the right to
exercise an Option or the right to any Restricted Stock Award, Performance
Award, or Incentive Award theretofore granted or made to such Holder.
(s) "Plan" means the American General Corporation 1997 Stock and Incentive
Plan, as amended from time to time.
(t) "Restricted Stock Award" means an Award granted under Section 8 of the
Plan.
(u) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation, or
statute fulfilling the same or similar function.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective on February 6, 1997, following adoption by
the Board, provided the Plan is approved by the shareholders of American
General Corporation within twelve months thereafter. Notwithstanding any
provision in the Plan or in any agreement under the Plan, no Option shall be
exercisable and no Award shall vest prior to such shareholder approval. No
further Awards may be granted under the Plan after ten years from the date the
Plan becomes effective. The Plan shall remain in effect until all Options
granted under the Plan have been exercised or expired by reason of lapse of
time, all restrictions imposed upon Restricted Stock Awards have been
eliminated, and all Performance Awards and Incentive Awards have been
satisfied.
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<PAGE> 3
4. ADMINISTRATION
(a) Composition of Committee. The Plan shall be administered by a
committee of, and appointed by, the Board, and such Committee shall be
comprised solely of two or more outside Directors (within the meaning of
section 162(m) of the Code and applicable interpretive authority thereunder)
who are also Non-Employee Directors (within the meaning of Rule 16b-3). A
majority of the Committee shall constitute a quorum. The Committee shall act by
majority action at a meeting, except that action permitted to be taken at a
meeting may be taken without a meeting if written consent thereto is given by
all members of the Committee.
(b) Powers. Subject to the express provisions of the Plan, the Committee
shall have authority, in its discretion, to determine which employees or
Directors of the Company shall receive an Award, the time or times when such
Award shall be made, whether an Incentive Stock Option or Non-Qualified Option
shall be granted, the number of shares to be subject to each Option and
Restricted Stock Award, and the value of each Performance Award and Incentive
Award. In making such determinations, the Committee shall take into account the
nature of the services rendered by the respective employees or Directors, their
present and potential contribution to the Company's success, and such other
factors as the Committee shall deem relevant. The Board shall also have
authority, in its discretion, to grant such Awards as it may determine to
non-employee Directors.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, this shall include the power to construe the Plan and
the respective agreements executed thereunder, to prescribe rules and
regulations relating to the Plan and to determine the terms, restrictions, and
provisions of the agreement to each Award, including such terms, restrictions,
and provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, to ensure that the
grant of Awards are exempt under Rule 16b-3, and to make all other
determinations necessary or advisable for administering the Plan. Without
limiting the generality of the foregoing, agreements providing for Awards under
the Plan may contain such provisions covering a change of control of the
Company, as defined by the Committee in its sole discretion, as the Committee
may approve, not inconsistent with the terms of this Plan, including without
limitation provisions for the acceleration of, vesting of, or the payment of
cash in lieu of, any Award. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any agreement
relating to an Award in the manner and to the extent it shall deem expedient to
carry it into effect. The Committee may delegate to other persons the
responsibility of performing ministerial acts in furtherance of the Plan's
purposes. The determinations of the Committee on the matters referred to in
this Section 4 shall be conclusive.
5. GRANT OF OPTIONS, RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS, AND INCENTIVE
AWARDS; SHARES SUBJECT TO THE PLAN
(a) Stock Grant Limit. The Committee may from time to time grant Awards to
one or more employees or Directors determined by it to be eligible for
participation in the Plan in accordance with the provisions of Section 6.
Subject to adjustment in the same manner as provided in Section 11 with respect
to shares of Common Stock subject to Awards then outstanding, the aggregate
number of shares of Common Stock that may be issued under the Plan shall not
exceed 7,000,000. Shares shall be deemed to have been issued under the Plan
only to the extent actually issued and delivered pursuant to an Award. To the
extent that an Award lapses or the rights of its Holder terminate or the Award
is paid in cash, any shares of Common Stock subject to such Award shall again
be available for the grant of an Award. Notwithstanding any provision in the
Plan to the contrary, the maximum number of shares of Common Stock that may be
subject to Awards granted to any one individual during the term of the Plan may
not exceed 7,000,000 shares of Common Stock (subject to adjustment in the same
manner as provided in Section 11 with respect to shares of Common Stock subject
to Awards then outstanding); provided that any such individual shall also be
subject to the separate limitations contained in Sections 7, 8, and 9 with
respect to specific types of Awards. The limitation set forth in the preceding
sentence shall be applied in a manner which will permit compensation generated
under the Plan to constitute "performance-based" compensation for purposes of
section 162(m) of the Code, including, without limitation, counting
3
<PAGE> 4
against such maximum number of shares, to the extent required under section
162(m) of the Code and applicable interpretive authority thereunder, any shares
subject to options or surrender rights that are cancelled or repriced.
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
6. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are key
employees of the Company or Directors. Awards may not be granted to any person
who immediately after such grant is the owner, directly or indirectly, of more
than 10% of the total combined voting power of all classes of stock of the
Company. An Award may be granted on more than one occasion to the same person,
and such Award may include an Incentive Stock Option, Non-Qualified Option,
Restricted Stock Award, Performance Award, Incentive Award, or any combination
thereof.
7. STOCK OPTIONS
(a) Limitations on Awards. The maximum number of shares of Common Stock
that may be subject to Option Awards granted to any one individual during any
calendar year may not exceed 500,000 shares of Common Stock (subject to
adjustment in the same manner as provided in Section 11 with respect to shares
of Common Stock subject to Options then outstanding).
(b) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant but shall not exceed ten years.
(c) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times, commencing not earlier than
six months from the date of grant, as determined by the Committee.
(d) Stock Option Agreement. Each Option shall be evidenced by an Option
agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify as an Incentive Stock
Option under section 422 of the Code.
(e) Option Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee, but, subject to adjustment in the same manner as provided in Section
11, shall not be less than the Fair Market Value of a share of Common Stock at
the date such Option is granted. The Option or portion thereof may be exercised
by delivery of an irrevocable notice of exercise to the Company. The purchase
price of the Option or portion thereof shall be paid in full in the manner
prescribed by the Committee.
(f) Restrictions on Transfer. An Option shall not be transferable or
assignable otherwise than (i) by will or the laws of descent and distribution,
(ii) with respect to Awards of Non-Qualified Stock Options, pursuant to a
qualified domestic relations order (as defined by the Code), or (iii) with
respect to Awards of Non-Qualified Stock Options, if such transfer is permitted
in the sole discretion of the Committee, by transfer by a Holder to a member of
the Holder's Immediate Family, to a trust solely for the benefit of the Holder
and his Immediate Family, or to a partnership or limited liability company
whose only partners or shareholders are the Holder and members of his Immediate
Family.
(g) Shareholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a shareholder only with respect to such shares of
Common Stock as have been purchased under the Option and for which certificates
of stock have been registered in the Holder's name.
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<PAGE> 5
(h) Special Limitations on Incentive Stock Options. An Incentive Stock
Option may be granted only to an individual who is an Employee at the time the
option is granted. In the case of Incentive Stock Options, the value of shares
of stock for which such Options are exercisable for the first time in any one
calendar year cannot exceed $100,000 based on the Fair Market Value of the
stock at the date of grant according to section 422(d)(1) of the Code (or such
other individual limit as may be in effect under the Code on the date of
grant).
(i) Surrender of Options. The Committee (concurrently with the grant of an
Option or subsequent to such grant) may, in its sole discretion, grant to any
Option Holder the right, upon written request, to surrender any exercisable
Option or portion thereof in exchange for cash, whole shares of Common Stock,
or a combination thereof, as determined by the Committee, with a value equal to
the excess of the Fair Market Value, as of the date of such request, of one
share of Common Stock over the Option price for such share multiplied by the
number of shares covered by the Option or portion thereof to be surrendered. In
the case of any such surrender right which is granted in connection with an
Incentive Stock Option, such right shall be exercisable only when the Fair
Market Value of the Common Stock exceeds the price specified therefor in the
Option or portion thereof to be surrendered. In the event of the exercise of
any surrender right granted hereunder, the number of shares reserved for
issuance under the Plan shall be reduced only to the extent that shares of
Common Stock are actually issued in connection with the exercise of such
surrender right. Additional terms and conditions governing any such surrender
rights may from time to time be prescribed by the Committee in its sole
discretion.
8. RESTRICTED STOCK AWARDS
(a) Limitations on Awards. The maximum number of shares of Common Stock
that may be subject to Restricted Stock Awards granted to any one individual
during any calendar year may not exceed 50,000 shares of Common Stock (subject
to adjustment in the same manner as provided in Section 11 with respect to
shares of Common Stock subject to Restricted Stock Awards then outstanding).
Subject to adjustment in the same manner as provided in Section 11 with respect
to shares of Common Stock subject to Restricted Stock Awards then outstanding,
the aggregate number of shares of Common Stock that may be issued under the
Plan with respect to Restricted Stock Awards shall not exceed 2,000,000.
(b) Restriction Period to be Established by the Committee. At the time a
Restricted Stock Award is made, the Committee shall establish a period of time
(the "Restriction Period") applicable to such Award. Each Restricted Stock
Award may have a different Restriction Period, in the discretion of the
Committee.
(c) Forfeiture Restrictions to be Established by the Committee. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances
(the "Forfeiture Restrictions"). The Forfeiture Restrictions shall be
determined by the Committee in its sole discretion, and the Committee may
provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of
one or more performance targets established by the Committee that are based on
(1) the price of a share of Common Stock, (2) the Company's earnings per share,
(3) the Company's market share, (4) the market share of a business unit of the
Company designated by the Committee, (5) the return on shareholders' equity
achieved by the Company, or (6) the payment of cash dividends, (ii) the
Holder's continued employment with the Company or continued service as a
Director for a specified period of time, (iii) the occurrence of any event or
the satisfaction of any other condition specified by the Committee in its sole
discretion, or (iv) a combination of any of the foregoing. Each Restricted
Stock Award may have different Forfeiture Restrictions, in the discretion of
the Committee.
(d) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. The Holder shall have
the right to receive dividends during the Restriction Period, to vote Common
Stock subject thereto, and to enjoy all other shareholder rights, except that
(i) the Holder shall not be entitled to delivery of the stock certificate until
the
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<PAGE> 6
Restriction Period shall have expired, (ii) the Company shall retain custody of
the stock during the Restriction Period, (iii) the Holder may not sell,
transfer, pledge, exchange, hypothecate, or otherwise dispose of the stock
during the Restriction Period, and (iv) a breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock Award shall cause
a forfeiture of the Restricted Stock Award.
(e) Payment for Restricted Stock. A Holder shall not be required to make
any payment for Common Stock received pursuant to a Restricted Stock Award,
except to the extent otherwise required by law or the Committee.
9. PERFORMANCE AWARDS
(a) Limitation on Awards. The maximum number of shares of Common Stock
that may be subject to Performance Awards granted to any one individual during
any calendar year may not exceed 100,000 shares of Common Stock, subject to
adjustment in the same manner as provided in Section 11 with respect to shares
of Common Stock subject to Performance Awards then outstanding.
(b) Performance Period. The Committee shall establish, with respect to and
at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(c) Performance Awards. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award.
(d) Performance Measures. A Performance Award shall be awarded to a Holder
contingent upon future performance of the Company or any subsidiary, division,
or department thereof by or in which such Holder is employed during the
performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance
period; provided such measures may be made subject to automatic adjustment for
specified significant extraordinary items or events. The performance measures
established by the Committee may be based upon (i) the price of a share of
Common Stock, (ii) the Company's earnings per share, (iii) the Company's market
share, (iv) the market share of a business unit of the Company designated by
the Committee, (v) the return on shareholder's equity achieved by the Company,
or (vi) the payment of cash dividends, or a combination of any of the
foregoing. The Committee, in its sole discretion, may provide for an adjustable
Performance Award value based upon the level of achievement of performance
measures.
(e) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account a Holder's responsibility level, performance,
potential, other Awards, and such other considerations as it deems appropriate.
The Committee, in its sole discretion, may provide for a reduction in the value
of a Holder's Performance Award during the performance period.
(f) Payment. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Common Stock, or
a combination thereof, as determined by the Committee. Payment shall be made in
a lump sum or in installments as prescribed by the Committee. Any payment to be
made in cash shall be based on the Fair Market Value of the Common Stock on the
payment date.
(g) Termination of Employment. A Performance Award shall terminate if the
Holder does not remain continuously in the employ (or in service as a Director)
of the Company at all times during the applicable performance period, except as
may be determined by the Committee.
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<PAGE> 7
10. INCENTIVE AWARDS
(a) Incentive Awards. Incentive Awards are rights to receive shares of
Common Stock (or the Fair Market Value thereof), or rights to receive an amount
equal to any appreciation or increase in the Fair Market Value of Common Stock
over a specified period of time, which vest over a period of time as
established by the Committee, without satisfaction of any performance criteria
or objectives. The Committee may, in its discretion, require payment or other
conditions of the Holder respecting any Incentive Award. Each Incentive Award
shall have a maximum value established by the Committee at the time of such
Award.
(b) Award Period. The Committee shall establish, with respect to and at
the time of each Incentive Award, a period over which the Award shall vest with
respect to the Holder.
(c) Awards Criteria. In determining the value of Incentive Awards, the
Committee shall take into account a Holder's responsibility level, performance,
potential, other Awards, and such other considerations as it deems appropriate.
(d) Payment. Following the end of the vesting period for a Incentive
Award, the Holder of an Incentive Award shall be entitled to receive payment of
an amount, not exceeding the maximum value of the Incentive Award, based on the
then vested value of the Award. Payment of an Incentive Award may be made in
cash, Common Stock, or a combination thereof as determined by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee. Any payment to be made in cash shall be based on the Fair Market
Value of the Common Stock on the payment date. Cash dividend equivalents may be
paid during or after the vesting period with respect to an Incentive Award, as
determined by the Committee.
(e) Termination of Employment. An Incentive Award shall terminate if the
Holder does not remain continuously in the employ (or in service as a
Director) of the Company at all times during the applicable vesting period,
except as may be otherwise determined by the Committee.
11. CHANGE IN CAPITAL STRUCTURE.
Options, Restricted Stock Awards, Performance Awards, Incentive Awards,
and any agreements evidencing such Awards shall be subject to adjustment by the
Committee at its discretion as to the number and price of shares of Common
Stock or other consideration subject to such Awards in the event of changes in
the outstanding Common Stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the date
of the grant of any such Awards. In the event of any such change in the
outstanding Common Stock, the aggregate number of shares available under the
Plan may be appropriately adjusted by the Committee, whose determination shall
be conclusive. No adjustment to either (i) the number or price of shares of
Common Stock subject to Incentive Stock Options or (ii) the aggregate number of
shares which may be issued as Incentive Stock Options shall be permitted
hereunder to the extent that such adjustment would cause an Incentive Stock
Option to fail to constitute an Incentive Stock Option within the meaning of
section 422 of the Code.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Board may amend the Plan at any time; provided that no change in any
Award theretofore granted may be made that would impair the rights of the
Holder without the consent of the Holder, and provided, further, that it may
not, without approval of the shareholders, amend the Plan (a) to increase the
maximum aggregate number of shares which may be issued under the Plan or (b) to
change the class of individuals eligible to receive Awards under the Plan. The
Board, in its discretion, may terminate the Plan at any time with respect to
any shares of Common Stock for which Awards have not theretofore been granted.
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<PAGE> 8
13. EFFECT OF THE PLAN
(a) No Right to an Award. Neither the adoption of the Plan nor any action
of the Board or of the Committee shall be deemed to give an employee or
Director any right to be granted an Option to purchase Common Stock, a right to
a Restricted Stock Award or a right to a Performance Award or Incentive Award
or any other rights hereunder except as may be evidenced by an Option or Award
agreement duly executed on behalf of the Company, and then only to the extent
and on the terms and conditions expressly set forth therein. The Plan shall be
unfunded. The Company shall not be required to establish any special or
separate fund or to make any other segregation of funds or assets to assure the
payment of any Award.
(b) No Employment/Membership Rights Conferred. Nothing contained in the
Plan shall (i) confer upon any employee any right with respect to continuation
of employment with the Company or (ii) interfere in any way with the right of
the Company to terminate his or her employment at any time. Nothing contained
in the Plan shall confer upon any Director any right with respect to
continuation of membership on the Board.
(c) Other Laws; Withholding. The Company shall not be obligated to issue
any shares of Common Stock until there has been compliance with such laws and
regulations as the Company may deem applicable. No fractional shares of Common
Stock shall be delivered. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company from taking any corporate action
which is deemed by the Company to be appropriate or in its best interests,
whether or not such action would have an adverse effect on the Plan or any
Award made under the Plan. No employee, Director, beneficiary, or other person
shall have any claim against the Company as a result of any such action.
(e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option) which shall be subject to the transfer restrictions set forth in
Section 7(f) shall not be transferable or assignable otherwise than (i) by will
or the laws of descent and distribution, (ii) pursuant to a "qualified domestic
relations order" (as defined by the Code), (iii) with respect to Awards of
Non-Qualified Stock Options, as provided in Section 7(f)(iii), or (iv) with the
consent of the Committee.
(f) Section 162(m). It is intended that the Plan comply fully with and
meet all the requirements of section 162(m) of the Code so that Options granted
hereunder and, if determined by the Committee, Restricted Stock Awards and
Performance Awards shall constitute "performance-based" compensation within the
meaning of such section. If any provision of the Plan would disqualify the Plan
or would not otherwise permit the Plan to comply with section 162(m) as so
intended, such provision shall be construed or deemed amended to conform to the
requirements or provisions of section 162(m); provided that no such
construction or amendment shall have an adverse effect on the economic value to
a Holder of any Award previously granted hereunder.
(g) Governing Law. This Plan shall be construed in accordance with the
laws of the State of Texas.
8
<PAGE> 1
EXHIBIT 10.7
THIRD AMENDMENT TO THE
RESTORATION OF RETIREMENT INCOME PLAN
FOR CERTAIN EMPLOYEES PARTICIPATING IN THE
RESTATED AMERICAN GENERAL RETIREMENT PLAN
WHEREAS, AMERICAN GENERAL CORPORATION and certain of its subsidiaries
have heretofore adopted the RESTORATION OF RETIREMENT INCOME PLAN FOR CERTAIN
EMPLOYEES PARTICIPATING IN THE RESTATED AMERICAN GENERAL RETIREMENT PLAN (the
"Restoration Plan"); and
WHEREAS, AMERICAN GENERAL CORPORATION desires to amend the Restoration
Plan on behalf of itself and on behalf of each of its subsidiaries that has
adopted the Restoration Plan;
NOW, THEREFORE, the Restoration Plan shall be amended as follows,
effective as of May 30, 1996;
1. The following shall be added to Section 3 of the Restoration
Plan.
"Notwithstanding the foregoing, employees covered by The Independent
Life and Accident Insurance Company Salaried Employees' Retirement
Plan provisions of the Basic Plan or by The Independent Life and
Accident Insurance Company Commissioned Employees' Retirement Plan
provisions of the Basic Plan shall not be eligible for benefits under
this Restoration Plan."
2. As amended hereby, the Restoration Plan is specifically
ratified and reaffirmed.
IN WITNESS WHEREOF, AMERICAN GENERAL CORPORATION has executed this
Third Amendment as of the 23rd day of May, 1996.
AMERICAN GENERAL CORPORATION
ATTEST:
By: /s/ Patricia W. Neighbors By: /s/ Albert E. Haines
------------------------- -----------------------
Title: Assistant Secretary Title: Senior Vice President
------------------------- -----------------------
Page 1 of 2
<PAGE> 2
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
Albert E. Haines, Senior Vice President of AMERICAN GENERAL CORPORATION, a
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
as the act and deed of said corporation for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of May, 1996.
/s/ Sue Harris Johnson
-------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires: December 22, 1996
[notary seal]
Page 2 of 2
<PAGE> 1
- --------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions, except share data 1996 1995 1994
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Primary:
Net income available to common stock $ 577 $ 545 $ 513
- -------------------------------------------------------------------------------------------------------
Average shares outstanding
Common stock 204,805,936 204,761,037 209,125,350
Assumed conversion of convertible preferred stock 1,601,357 - -
Assumed exercise of stock options 532,311 445,389 274,313
Assumed exercise of put contracts - - 3,394
- -------------------------------------------------------------------------------------------------------
Total 206,939,604 205,206,426 209,403,057
- -------------------------------------------------------------------------------------------------------
Net income per share $ 2.79 $ 2.66 $ 2.45
- -------------------------------------------------------------------------------------------------------
Fully diluted:
Net income $ 577 $ 545 $ 513
Plus: Net dividends on convertible preferred securities of
subsidiary 11 6 -
- -------------------------------------------------------------------------------------------------------
Net income available to common stock $ 588 $ 551 $ 513
- -------------------------------------------------------------------------------------------------------
Average shares outstanding
Common stock 204,805,936 204,761,037 209,125,350
Assumed conversion of convertible preferred securities
of subsidiary 6,144,016 3,602,245 -
Assumed conversion of convertible preferred stock 1,937,750 - -
Assumed exercise of stock options 725,509 508,223 291,742
Assumed exercise of put contracts - - 3,394
- -------------------------------------------------------------------------------------------------------
Total 213,613,211 208,871,505 209,420,486
- -------------------------------------------------------------------------------------------------------
Net income per share $ 2.75 $ 2.64 $ 2.45
- -------------------------------------------------------------------------------------------------------
1996 FORM 10-K 21
</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 1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Consolidated operations:
Income before income tax expense and net dividends on
preferred securities of subsidiaries $ 964 $ 850 $ 802
Fixed charges deducted from income
Interest expense 621 671 526
Implicit interest in rents 19 18 16
- ------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 640 689 542
- ------------------------------------------------------------------------------------------------
Earnings available for fixed charges $1,604 $1,539 $1,344
- ------------------------------------------------------------------------------------------------
Fixed charges per above $ 640 $ 689 $ 542
Capitalized interest 12 17 18
- ------------------------------------------------------------------------------------------------
Total fixed charges 652 706 560
Dividends on preferred stock and securities 68 30 -
- ------------------------------------------------------------------------------------------------
Combined fixed charges and preferred stock
dividends $ 720 $ 736 $ 560
- ------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.5 2.2 2.4
- ------------------------------------------------------------------------------------------------
Ratio of earnings to combined fixed charges and
preferred
stock dividends 2.2 2.1 2.4
- ------------------------------------------------------------------------------------------------
Consolidated operations, corporate fixed charges and
preferred stock
dividends only:
Income before income tax expense and net dividends on
preferred securities of subsidiaries $ 964 $ 850 $ 802
Corporate fixed charges deducted from
income - corporate
interest expense 139 165 120
- ------------------------------------------------------------------------------------------------
Earnings available for fixed charges $1,103 $1,015 $ 922
- ------------------------------------------------------------------------------------------------
Total corporate fixed charges per above $ 139 $ 165 $ 120
Capitalized interest related to real estate operations 11 16 18
- ------------------------------------------------------------------------------------------------
Total corporate fixed charges 150 181 138
Dividends on preferred stock and securities 68 30 -
- ------------------------------------------------------------------------------------------------
Combined corporate fixed charges and preferred
stock dividends $ 218 $ 211 $ 138
- ------------------------------------------------------------------------------------------------
Ratio of earnings to corporate fixed charges 7.3 5.6 6.7
- ------------------------------------------------------------------------------------------------
Ratio of earnings to combined corporate fixed
charges and preferred stock dividends 5.1 4.8 6.7
- ------------------------------------------------------------------------------------------------
American General Finance, Inc.:
Income before income tax expense $ 54 $ 116 $ 392
Fixed charges deducted from income
Interest expense 493 518 416
Implicit interest in rents 12 13 11
- ------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 505 531 427
- ------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 559 $ 647 $ 819
- ------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.1 1.2 1.9
- ------------------------------------------------------------------------------------------------
</TABLE>
22 AMERICAN GENERAL CORPORATION
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
AMERICAN GENERAL CORPORATION
For the three years ended December 31, 1996
Management's Discussion and Analysis should be read in conjunction with
the Consolidated Financial Statements and related notes beginning on page 26.
Certain information included herein is forward looking and involves risks and
uncertainties that could significantly impact expected results. Readers are
directed to discussions of risks and uncertainties included in documents filed
by American General Corporation with the Securities and Exchange Commission.
OVERVIEW
American General Corporation (American General) is one of the nation's
largest diversified financial services organizations with assets of $66 billion
and shareholders' equity of $5.6 billion. American General reports the results
of its business operations in three segments: Retirement Services, Consumer
Finance, and Life Insurance.
American General and its subsidiaries (collectively, the company) reported
net income for the three years ended December 31, 1996 as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 577 $ 545 $ 513
Net income per share 2.75 2.64 2.45
- --------------------------------------------------------------------------------
</TABLE>
The following significant items affected year-to-year comparability of net
income:
o Results include the operations of The Independent Life and Accident
Insurance Company (Independent Life), acquired February 29, 1996, and The
Franklin Life Insurance Company (Franklin Life), acquired January 31, 1995.
o Net income for 1996 reflected an aftertax charge of $93 million ($.44
per share) resulting from the company's decision to offer for sale $875 million
of non-strategic, underperforming finance receivable portfolios.
o Net income for 1995 included a fourth quarter aftertax charge of $140
million ($.67 per share) for an increase in the allowance for finance
receivable losses.
o In 1994, net income reflected net realized investment losses of $114
million ($.55 per share), primarily from the company's capital gains offset
program.
CORPORATE DEVELOPMENT
The life insurance industry is currently undergoing a period of extensive
consolidation. American General has participated in this consolidation through
selective acquisitions to enhance growth and shareholder value. Since December
1994, American General has completed or announced five acquisitions with total
consideration of $4.4 billion.
INDEPENDENT LIFE
On February 29, 1996, American General acquired Independent Insurance
Group, Inc., the holding company of Independent Life, for $362 million,
consisting of cash (38%), common stock (38%), and convertible preferred stock
(24%).
Independent Life complements the company's existing life insurance
distribution systems and further strengthens its position in households with
modest incomes, particularly in the Southeast. Management plans to complete
consolidation of Independent Life into the company's Nashville-based operations
in 1997. The ultimate annual expense savings from this consolidation are
expected to be approximately $75 million.
FRANKLIN LIFE
On January 31, 1995, American General acquired American Franklin Company
(AFC), the holding company of Franklin Life, for $1.17 billion. The purchase
price consisted of $920 million cash paid at closing and a $250 million cash
dividend paid by AFC to its former parent prior to closing. Franklin Life
complements the company's existing life insurance distribution systems and
further strengthens its position in middle-income households, particularly in
the Midwest.
WESTERN NATIONAL
On December 23, 1994, American General acquired a 40% investment in
Western National Corporation (Western National), the holding company of Western
National Life Insurance Company, through the acquisition of 24.9 million shares
of common stock for $274 million cash. On September 17, 1996, American General
increased its investment to 46.2% on a fully diluted basis through the purchase
of 7.3 million shares of participating convertible preferred stock for $126
million cash. American General's aftertax equity in earnings of Western
National was $27 million in 1996 and $29 million in 1995.
HOME BENEFICIAL LIFE
On December 23, 1996, American General announced a definitive agreement to
acquire Home Beneficial Corporation, the holding company of Home Beneficial
Life Insurance Company (Home Beneficial Life), for $665 million, or $39 per
share, in cash or American General common stock. The amount of cash will be
limited to a minimum of 25% and a maximum of 50% of the total consideration.
Home Beneficial Life sells individual life insurance in six mid-Atlantic
states and the District of Columbia.
16 AMERICAN GENERAL CORPORATION
<PAGE> 2
Home Beneficial Life will be consolidated into the company's Nashville-based
operations, resulting in approximately $20 million of annual expense savings.
The transaction, which is subject to approval by Home Beneficial Corporation
shareholders and to requisite regulatory approvals, is expected to close by
March 31, 1997.
USLIFE
On February 13, 1997, American General announced a definitive agreement
under which USLIFE Corporation (USLIFE) will merge into American General in a
transaction valued at $1.8 billion. Under the agreement, USLIFE shareholders
will exchange each share of USLIFE common stock for American General common
stock valued at $49. The exchange ratio will be based on an average trading
price of American General common stock prior to closing, subject to a minimum
of 1.09 shares and a maximum of 1.29 shares of American General common stock.
USLIFE provides financial services, primarily life insurance and
annuities, to over one million customers nationwide. Ultimate annual expense
savings from this merger are expected to be approximately $50 million. The
transaction, which is subject to approval by American General and USLIFE
shareholders and to requisite regulatory approvals, is expected to close by
June 30, 1997. The merger will be accounted for using the pooling of interests
method.
BUSINESS SEGMENTS
To facilitate meaningful period-to-period comparisons, earnings of each
business 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) and other non-recurring items. Segment
earnings were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement Services $ 225 $ 204 $ 187
Consumer Finance 128 85 245
Life Insurance 397 348 257
- --------------------------------------------------------------------------------
Segment earnings 750 637 689
Loss on assets held for sale (93) -- --
- --------------------------------------------------------------------------------
Total $ 657 $ 637 $ 689
- --------------------------------------------------------------------------------
</TABLE>
Segment earnings, presented above on an aftertax basis, differ from those
disclosed in Note 18.2 by the amount of income tax expense for each segment and
the loss on assets held for sale.
RETIREMENT SERVICES
The Retirement Services segment offers retirement products and planning
services to employees of educational, health care, public sector, and other
not-for-profit organizations. Asset growth through sales and deposits, as well
as management of the investment spread and operating expenses, contribute to
the segment's profitability. Segment results were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment earnings $ 225 $ 204 $ 187
Assets
Investments 22,146 21,933 18,260
Separate Accounts 7,134 4,541 2,507
Sales 1,324 1,112 891
Deposits
Fixed 1,587 1,720 1,657
Variable 1,310 835 573
- --------------------------------------------------------------------------------
</TABLE>
EARNINGS. Segment earnings increased 10% in 1996 and 9% in 1995, reflecting
continued strong growth in assets. Asset growth, excluding the fair value
adjustment on securities, was 13% in 1996 and 17% in 1995 as a result of strong
sales and deposits in each of the segment's primary markets.
SALES AND DEPOSITS. Sales increased 19% in 1996 and 25% in 1995 primarily
due to the 1994 introduction of the Portfolio Director product series, which
provides numerous variable investment options. Variable deposits increased 57%
in 1996 and 46% during 1995, as a result of policyholders' demand for equity
investments due to the strong performance of the stock market. During 1996, the
company responded to this demand by introducing Portfolio Director(R) 2, which
offers 20 investment options including 12 publicly traded mutual funds. The
segment's Separate Account assets, which relate to variable account options,
increased $2.6 billion in 1996 and $2.0 billion in 1995.
INVESTMENT SPREAD. Investment results and crediting rates on fixed accounts
were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income $ 1,652 $ 1,597 $ 1,492
Investment yield 8.03% 8.24% 8.37%
Average crediting rate 6.23 6.41 6.57
Investment spread 1.80 1.83 1.80
- --------------------------------------------------------------------------------
</TABLE>
Net investment income, the primary component of segment revenues,
increased in 1996 and 1995 as a result of growth in invested assets. Investment
income increased despite declines of 21 and 13 basis points in investment
yields on fixed accounts in 1996 and 1995, respectively. In response to these
declining yields, the company adjusted the rates credited to policyholders.
Through such management of crediting rates, the company has maintained a stable
investment spread for the past three years.
SURRENDERS. The rate of policyholder surrenders of fixed accounts was 5.3%
of average reserves in 1996, compared to 4.3% in 1995 and 4.9% in 1994. The
1996 increase was due to competition from mutual funds and other financial
institutions, and the trend toward lower fixed interest crediting rates.
OPERATING EXPENSES. The ratio of operating expenses to average assets
improved to .52% in 1996, compared to .61% in 1995 and .57% in 1994. Operating
1996 ANNUAL REPORT 17
<PAGE> 3
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.
OUTLOOK. Through the development of new products and enhanced technology,
the company is well positioned to meet the retirement services needs of the
expanding middle-aged market. Segment earnings are expected to increase
primarily through expanded sales, asset growth, and management of the
investment spread.
CONSUMER FINANCE
The Consumer Finance segment provides consumer and home equity loans and
other credit-related products. Segment results are influenced by the amount and
mix of finance receivables, credit quality, borrowing cost, and operating
expenses. In 1996, this segment focused on its action program to improve credit
quality. Segment results were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment earnings $ 128* $ 85 $ 245
Finance receivables 7,625 8,410 7,920
Yield on finance receivables 17.9% 18.0% 17.6%
Borrowing cost 6.9 7.0 6.6
Spread 11.0 11.0 11.0
- --------------------------------------------------------------------------------
</TABLE>
* Excludes $93 million loss on assets held for sale.
EARNINGS. The decline in credit quality beginning in 1995 and management's
related actions have caused segment earnings to fluctuate over the past two
years. In fourth quarter 1995, the company increased the allowance for losses
on finance receivables by $216 million ($140 million aftertax). Efforts to
improve credit quality were also reflected in 1996 earnings through higher
operating expenses and lower finance charge revenues.
ACTION PROGRAM. As a result of the company's strategy in prior years of
emphasizing higher-yielding receivables, which are characterized by higher
credit risk, delinquencies and charge offs increased to higher than anticipated
levels beginning in third quarter 1995. The company responded by initiating an
action program to improve credit quality, beginning with a comprehensive review
of the consumer finance operations in fourth quarter 1995. This review, which
consisted of extensive internal analysis, together with credit loss development
projections supplied by outside credit consultants, indicated a need for an
increase in the allowance for losses. As a result, the company increased the
allowance for losses on finance receivables $216 million ($140 million
aftertax) in fourth quarter 1995.
Other components of the action program included raising underwriting
standards, increasing collection efforts, and rebalancing the finance
receivable portfolio to de-emphasize certain higher-risk portfolios and
increase the proportion of real estate-secured receivables. During 1996,
the company purchased five portfolios of real estate-secured receivables
totaling $754 million, which increased the proportion of these receivables
to 49% at December 31, 1996, compared to 35% and 34% at year-end 1995 and
1994, respectively.
ASSETS HELD FOR SALE. To increase its focus on core branch operations, the
company decided in fourth quarter 1996 to offer for sale two non-strategic,
underperforming finance receivable portfolios totaling $875 million. These
portfolios consisted of $520 million of bank credit card receivables and $355
million of private label loans issued in prior years to finance purchases of
home satellite dishes. At December 31, 1996, these receivables and an
associated allowance of $70 million were reclassified to assets held for sale.
The company has hired an outside advisor to market the portfolios. Based
on negotiations with prospective purchasers subsequent to year end, the company
determined that an aftertax write-down of $93 million was necessary to reduce
the carrying amount of the assets held for sale to net realizable value, after
considering related expenses.
SPREAD. Yield on finance receivables declined 17 basis points in 1996,
compared to an increase of 44 basis points during 1995. The 1996 decline
reflects the increased proportion of real estate-secured loans and higher
levels of non-accrual delinquent loans. Although the yield declined in 1996,
the spread between yield and borrowing cost has remained constant at 11% for
the past three years.
CREDIT QUALITY DATA. The allowance for finance receivable losses,
delinquencies, and charge offs were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for finance
receivable losses $ 395 $ 492 $ 226
% of finance receivables 5.18% 5.85% 2.86%
Delinquencies $ 317 $ 386 $ 252
% of finance receivables 3.83% 4.13% 2.89%
Charge offs $ 444 $ 308 $ 172
% of average finance
receivables 5.47% 3.77% 2.45%
- --------------------------------------------------------------------------------
</TABLE>
The 1996 decreases in the allowance and delinquency ratios were primarily
due to the increased proportion of real estate-secured receivables and the
reclassification of certain receivables to assets held for sale. Excluding the
portfolios held for sale, the delinquency ratios were 3.88% and 2.81% at
year-end 1995 and 1994, respectively.
The increases in charge offs in 1996 and 1995 were primarily attributable
to non-real estate-secured loans and the portfolios currently held for sale.
Excluding the portfolios held for sale, the charge off ratios were 4.72%,
3.26%, and 2.19% in 1996, 1995, and 1994, respectively.
18 AMERICAN GENERAL CORPORATION
<PAGE> 4
OPERATING EXPENSES. Operating expenses increased 10% in 1996 and 26% in
1995. As a percentage of average finance receivables, operating expenses were
6.1%, 5.4%, and 5.0% in 1996, 1995, and 1994, respectively. The increase in
operating expenses reflected lower 1996 deferrals of loan origination costs,
increased collection efforts associated with higher levels of delinquent
receivables, and increased costs related to branch office growth that occurred
in 1995 and 1994.
OUTLOOK. Management believes that the planned sale of the non-strategic,
underperforming portfolios combined with the ongoing credit quality improvement
program will result in improved earnings. However, adverse changes in credit
fundamentals within the consumer finance market, including the current high
level of personal bankruptcies, could negatively impact expected results.
LIFE INSURANCE
The Life Insurance segment provides traditional and interest-sensitive
life insurance and annuities to three defined markets, based on household
income and product needs. Recent acquisitions of companies that strategically
fit the segment's existing markets and distribution systems have contributed to
growth and profitability. Segment profitability is a function of premiums,
investment spread, mortality, and operating expenses. Segment results were as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment earnings $ 397 $ 348 $ 257
Assets 25,078 23,592 14,156
Premiums and other
considerations 1,687 1,486 999
Net investment income 1,533 1,401 902
Insurance and annuity
benefits 1,805 1,722 990
- --------------------------------------------------------------------------------
EARNINGS. Earnings increased primarily due to the acquisitions of
Independent Life on February 29, 1996 and Franklin Life on January 31, 1995.
These acquisitions contributed $146 million and $98 million to segment earnings
in 1996 and 1995, respectively. The acquisitions were the primary reason for
the increases in each of the line items in the table above.
PREMIUMS AND DEPOSITS. Premiums, sales, and deposits were as follows:
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Life insurance
Premiums $1,291 $1,127 $ 679
Sales 310 347 258
Deposits 682 649 547
Annuities
Sales 366 592 601
Deposits 434 661 598
- --------------------------------------------------------------------------------
</TABLE>
Life insurance premiums increased by 15% in 1996 and 66% in 1995 due to
new sales and the acquisitions of Independent Life and Franklin Life. Life
insurance sales were lower in 1996 due to competitive factors and disruptions
resulting from changes in field administration systems. The 1995 increase in
life insurance sales primarily related to the acquisition of Franklin Life.
Deposits for interest-sensitive life insurance increased 5% in 1996, compared
to an increase of 19% in 1995, which included high amounts of optional deposits
in excess of target premium on such contracts.
Annuity sales were lower in 1996 due to market conditions that would not
support the segment's profitability objectives. Deposits for annuities
decreased 34% in 1996 compared to an increase of 10% in 1995. The 1996 decrease
reflected increased competition from other equity-based investments.
During 1996, the company launched initiatives to increase sales, such as
strategic alliances with brokerage firms and mutual fund companies and the
development of new insurance and annuity products.
INVESTMENT SPREAD. Net investment income increased in 1996 and 1995 as a
result of the Independent Life and Franklin Life acquisitions. The average
investment yield, interest crediting rate, and investment spread for the
primary operating companies were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
American General Life
Investment yield 7.79% 7.99% 8.05%
Average crediting rate 5.90 5.98 5.91
Investment spread 1.89 2.01 2.14
- --------------------------------------------------------------------------------
American General Life and Accident
Investment yield 8.36% 8.78% 8.97%
Average crediting rate 6.62 6.82 6.78
Investment spread 1.74 1.96 2.19
- --------------------------------------------------------------------------------
Franklin Life
Investment yield 8.53% 8.57%
Average crediting rate 6.46 6.65
Investment spread 2.07 1.92
- --------------------------------------------------------------------------------
</TABLE>
Investment spread has declined but is still within product pricing
assumptions. Some large blocks of traditional in force business have crediting
rates that cannot be adjusted when investment yields fluctuate. At December 31,
1996, approximately 61% of the segment's insurance and annuity liabilities were
subject to interest crediting rate adjustments.
MORTALITY. Death claims, included in insurance and annuity benefits,
increased 10% in 1996 and 24% in 1995 due to the acquisitions of Independent
Life and Franklin Life. Death claims per $1,000 of in force were $4.20, $3.98,
and $4.66 in 1996, 1995, and 1994, respectively. Overall, mortality experience
was within pricing assumptions.
OPERATING EXPENSES. The ratio of operating expenses to direct premiums and
deposits was 16.6%, 13.3%, and 13.8% in 1996, 1995, and 1994, respectively. The
increase in 1996 results from lower annuity deposits and Independent Life's
higher overall expense ratio,
1996 ANNUAL REPORT 19
<PAGE> 5
which does not completely reflect anticipated savings from consolidation of
operations. Lower sales resulted in a reduction in the deferral of acquisition
costs in 1996 compared to 1995.
OUTLOOK. The company plans to complete the acquisitions of USLIFE and Home
Beneficial Life and the integration of Independent Life's operations in 1997.
Additionally, product and distribution system initiatives started during 1996
and the planned introduction of new variable and indexed products in 1997 are
expected to improve sales. Together, these activities are expected to result in
increased segment earnings.
INVESTMENTS
At year-end 1996, the company's $66 billion of assets included $44 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
An increase in interest rates and resulting decreases in bond values in
1996 caused a $1.4 billion decrease in the fair value adjustment to fixed
maturity securities and a related $527 million decrease in shareholders'
equity. The components of the adjustment to report fixed maturity and equity
securities at fair value at December 31, and the 1996 change, were as follows:
In millions 1996 1995 Change
- --------------------------------------------------------------------------------
Fair value adjustment to fixed
maturity securities* $ 1,355 $ 2,716 $(1,361)
Increase (decrease) in deferred
policy acquisition costs and
cost of insurance purchased (512) (1,061) 549
Decrease (increase) in deferred
income taxes (301) (586) 285
- --------------------------------------------------------------------------------
Net unrealized gains (losses)
Fixed maturity securities 542 1,069 (527)
Equity securities 17 31 (14)
Net unrealized gains (losses)
on securities $ 559 $ 1,100 $ (541)
- --------------------------------------------------------------------------------
* Includes $59 million and $93 million related to Western National for 1996
and 1995, respectively.
In contrast, the fair value adjustment at year-end 1995 resulted in a $4.1
billion increase in fixed maturity securities and a $2.0 billion increase in
shareholders' equity from year-end 1994.
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 1996, fixed maturity securities included $26.0 billion of
corporate bonds, $10.6 billion of mortgage-backed securities (MBSs), $1.8
billion of bonds issued by governmental agencies, and $98 million of preferred
stocks with mandatory redemption provisions.
The average credit rating of the fixed maturity securities was AA- at
year-end 1996, 1995, and 1994. Average ratings by category at December 31, 1996
were as follows:
<TABLE>
<CAPTION>
Average
In millions 1996 Rating
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment grade $26,370 68% A
Mortgage-backed 10,642 28 AAA
Below investment grade 1,478 4 BB-
- --------------------------------------------------------------------------------
Total fixed maturity
securities $38,490 100% AA-
- --------------------------------------------------------------------------------
</TABLE>
INVESTMENT GRADE. Investment grade securities include bonds and preferred
stocks with mandatory redemption features that have credit ratings of BBB- or
higher.
MORTGAGE-BACKED SECURITIES. MBSs at December 31 were invested as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CMOs $ 9,330 $10,466 $ 9,180
Pass-through securities 1,053 1,061 784
Commercial MBSs 259 136 68
- --------------------------------------------------------------------------------
Total MBSs $10,642 $11,663 $10,032
- --------------------------------------------------------------------------------
</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
20 AMERICAN GENERAL CORPORATION
<PAGE> 6
reduction of future investment income. Proceeds from repayments of MBSs
decreased from $1.8 billion in 1994 to $686 million in 1995 and $885 million in
1996. At current interest rate levels, repayments are expected to decrease
slightly in 1997.
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 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Planned Amortization Class $ 5,172 $ 5,579 $ 4,546
Sequential 2,967 3,268 3,144
Z (Accrual) 692 973 823
Target Amortization Class 493 638 656
Other 6 8 11
- --------------------------------------------------------------------------------
Total CMOs $ 9,330 $10,466 $ 9,180
- --------------------------------------------------------------------------------
</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 PACs if the
PACs' actual cash flows are received later than originally anticipated. PACs
accounted for 49% of total MBSs at December 31, 1996.
Sequentials allocate all principal payments to tranches based on maturity,
retiring the shortest maturity tranches first. The prepayment and extension
risk associated with a 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 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 were 3% of invested assets at
year-end 1996, 1995, and 1994. This percentage compares to the life insurance
industry average of 4% at December 31, 1995, the latest date for which
information is available. Investment income from below investment grade
securities was $136 million, $138 million, and $75 million in 1996, 1995, and
1994, respectively. Realized investment gains (losses) were immaterial.
NON-PERFORMING. 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 less than 0.2% of total fixed maturity securities at
year-end 1996, 1995, and 1994.
MORTGAGE LOANS
Mortgage loans on real estate represented 7% of invested assets at
year-end 1996 and 1995, compared to 8% at year-end 1994. Total mortgage loans
increased during 1995 as a result of the Franklin Life acquisition. Mortgage
loan statistics at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 3,050 $ 3,060 $ 2,656
Residential -- 68 84
Allowance for losses (80) (87) (89)
- --------------------------------------------------------------------------------
Total mortgage loans $ 2,970 $ 3,041 $ 2,651
- --------------------------------------------------------------------------------
Foreclosures during the year $ 21 $ 73 $ 17
- --------------------------------------------------------------------------------
Allowance for losses 2.6% 2.8% 3.2%
- --------------------------------------------------------------------------------
Non-performing
Delinquent (60+ days) .7% 2.6% 3.0%
Restructured 4.5 2.9 2.7
- --------------------------------------------------------------------------------
Total non-performing 5.2% 5.5% 5.7%
- --------------------------------------------------------------------------------
Yield on restructured loans 8.2% 8.1% 7.9%
- --------------------------------------------------------------------------------
</TABLE>
NON-PERFORMING. Non-performing mortgage loans include loans delinquent 60
days or more and commercial loans that have been restructured and are currently
performing under the modified terms. Non-performing mortgage loans totaled $159
million at year-end 1996, compared to $172 million and $157 million at year-end
1995 and 1994, respectively. The company's portfolio continues to outperform
the life insurance industry averages for non-performing commercial mortgage
loans. The industry average was 10% at September 30, 1996, the latest date for
which information is available.
WATCH LIST. 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
1996, $282 million of commercial mortgage loans were on the company's watch
list, compared to $263 million at year-end 1995 and $239 million at year-end
1994. The 1996 increase was primarily due to a single borrower in bankruptcy.
The 1995 increase reflected additions of potentially undercollateralized loans
and certain loans acquired in the Franklin Life acquisition. While the watch
list loans may be predictive of higher non-performing loans in the future, the
company does not anticipate a significant effect on operations, liquidity, or
capital from these loans.
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
1996 ANNUAL REPORT 21
<PAGE> 7
complex in Houston. These assets represented less than 2% of invested assets at
year-end 1996, 1995, and 1994. Income-producing real estate increased $21
million in 1996, primarily due to the addition of Independent Life's home
office building. No other significant investments in real estate were made,
except for commitments on existing land development projects and foreclosures.
The company's principal exposure to environmental regulation arises from
its ownership of investment real estate. Probable costs related to
environmental cleanup are immaterial.
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
consideration of investment timing and tax consequences. Realized investment
gains (losses) also result from changes in write-downs and reserves. Realized
gains (losses) were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and calls
Fixed maturity securities $ 9 $ 18 $(121)
Equity securities 51 19 9
Write-downs/reserve increases (4) (54) (123)
Other 11 29 63
- --------------------------------------------------------------------------------
Total realized investment
gains (losses) $ 67 $ 12 $(172)
- --------------------------------------------------------------------------------
</TABLE>
During 1994, the company initiated a program to realize capital losses for
tax purposes to offset prior period capital gains. In 1995, the company
received a tax refund of $46 million, generated by $126 million in net capital
losses realized in 1994 primarily through the sale of fixed maturity
securities. No additional capital losses have been realized under this program.
The majority of the 1995 write-down and reserve increases related to
mortgage loans. Write-downs and reserve increases in 1994 primarily related to
investment real estate.
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.
RETIREMENT SERVICES AND LIFE INSURANCE
The asset/liability management program of the Retirement Services and Life
Insurance segments is designed to maximize long-term profitability, subject to
pre-established risk constraints. These risk constraints include minimizing
exposure of the company's surplus to fluctuations in interest rates and
ensuring adequate liquidity to meet liability cash flow requirements.
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. Despite declining yields due to
lower interest rates, management of interest crediting rates has maintained
overall margins on interest-sensitive products within product pricing
assumptions.
The company's ability to manage interest crediting rates is largely due to
the nature of its insurance and annuity products. At December 31, 1996,
approximately 81% of the insurance and annuity liabilities were subject to
interest crediting rate adjustments. Insurance and annuity liabilities at
December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement annuities $21,067 $20,147 $18,656
Traditional and participating life 8,473 7,679 4,334
Interest-sensitive life 3,623 3,253 2,933
Other annuities 5,670 5,578 3,029
Other 1,399 1,326 671
- --------------------------------------------------------------------------------
Total insurance and
annuity liabilities $40,232 $37,983 $29,623
- --------------------------------------------------------------------------------
</TABLE>
LIQUIDITY. 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
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 5.2 years.
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, 1996 indicated that the company's
insurance subsidiaries would have sufficient cash flows to meet their insurance
obligations.
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.
22 AMERICAN GENERAL CORPORATION
<PAGE> 8
DERIVATIVE FINANCIAL INSTRUMENTS
The company's use of derivative financial instruments is generally limited
to interest rate and currency swap agreements. The company is neither a dealer
nor a trader in derivative financial instruments.
INVESTMENTS. Interest rate swap agreements are occasionally used 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 security purchases. Currency swap agreements are infrequently
used 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 security
purchases.
DEBT. Interest rate swap agreements on debt are used to effectively convert
a portion of floating-rate borrowings to a fixed rate and to hedge against the
risk of rising interest rates on anticipated debt issuances, primarily in the
Consumer Finance segment.
RISKS. 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 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.
CAPITAL RESOURCES
The company's overall financial strength is based on total equity of $6.8
billion and is confirmed by strong ratings for both debt-paying and
claims-paying ability. To facilitate analysis of capital resources, corporate
capital and the business segments are discussed separately below.
CORPORATE CAPITAL
Total capital of the parent company is referred to as "corporate capital."
Since American General 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.
American General's target capital structure consists of 25% corporate
debt, a maximum 15% redeemable equity, and a minimum 60% shareholders' equity.
At year-end 1996, corporate capital totaling $7.8 billion, excluding the fair
value adjustment on securities, was comprised of $1.5 billion of corporate debt
(20%), $1.2 billion of redeemable equity (15%), and $5.1 billion of
shareholders' equity (65%).
DEBT. American General's corporate debt ratings on February 14, 1997 were
as follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard & Poor's A-1+ (Highest) AA- (Strong)
Duff & Phelps D-1+ (Highest) AA- (Strong)
Moody's P-1 (Highest) A1 (Strong)
- --------------------------------------------------------------------------------
</TABLE>
REDEEMABLE EQUITY. In the last two years, the company issued redeemable
equity totaling $1.2 billion through two wholly owned subsidiaries and a
subsidiary trust. These securities are recorded on the consolidated balance
sheet as preferred securities within redeemable equity. In 1996, the company
issued $500 million of 7.57% Capital Securities, Series A. Net proceeds of $495
million were used to reduce short-term debt. During 1995, the company completed
public offerings of three issues of Monthly Income Preferred Securities
totaling $752 million, with net proceeds of $729 million. Two of the issues,
with net proceeds of $485 million, were used to refinance a portion of the
short-term debt related to the Franklin Life acquisition. The third issue, with
net proceeds of $244 million, was used to refinance short-term real
estate-related debt. This issue is convertible into American General common
stock.
The company receives a tax deduction for an amount equal to dividends paid
on preferred securities. A proposal is currently pending in Congress that could
eliminate this tax benefit for future issuances. This proposal, however, is not
expected to impact the tax status of previously issued preferred securities.
PREFERRED STOCK. In connection with the 1996 acquisition of Independent
Life, the company issued 2.3 million shares of American General 7% Convertible
Preferred Stock. This new issue of preferred stock increased shareholders'
equity by $85 million. The preferred stock is non-callable for four years, and
each share is mandatorily convertible during the fifth year into one share of
American General common stock.
PENDING ACQUISITIONS. American General plans to issue up to 14 million
shares of common stock for the stock portion of the Home Beneficial Life
purchase price. The cash portion, which will be between $166 million and $333
million, will be financed through short-term borrowings.
To complete the merger with USLIFE, American General expects to issue 39
million to 47 million shares of common stock. Additionally, the company will
assume USLIFE's debt of approximately $600 million. As a result of the planned
merger with USLIFE, American General's corporate debt ratings and the
claims-paying ability ratings of the company's principal life insurance
companies are under review by rating agencies.
1996 ANNUAL REPORT 23
<PAGE> 9
RETIREMENT SERVICES AND LIFE INSURANCE SEGMENTS
RISK-BASED CAPITAL. The amount of statutory equity required to support the
business of the company's life insurance companies is principally a function of
four factors: (1) the quality of the assets invested to support insurance and
annuity reserves, (2) the mortality and other insurance-related risks, (3) the
interest-rate risk resulting from potential mismatching of asset and liability
durations, and (4) general business risks. 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.
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 RBC ratio is determined by dividing a life
insurance company's total adjusted capital by its Authorized Control Level RBC.
The RBC requirements provide for four different levels of regulatory
attention depending on an insurance company's RBC ratio, the least severe of
which is the Company Action Level. 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.
American General's target statutory equity for each of its life insurance
companies is 2.5 times the Company Action Level RBC. At December 31, 1996, all
of American General's life insurance companies had statutory equity equal to or
in excess of 2.8 times the Company Action Level RBC (or 5.6 times the
Authorized Control Level RBC). The company believes that its statutory equity
is more than adequate to satisfy its foreseeable financial obligations.
RATINGS. Rating agencies use the NAIC approach as one of the factors in
determining an insurance company's claims-paying ability rating. The
claims-paying ability ratings of the company's principal life insurance
companies on February 14, 1997 were 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++
(Highest) (Highest) (Highest) (Highest)
Standard & AAA AAA AAA AA+
Poor's (Highest) (Highest) (Highest) (Excellent)
Duff & AAA AAA AAA AA+
Phelps (Highest) (Highest) (Highest) (Strong)
Moody's Aa2 Aa3 Aa3
(Excellent) (Excellent) (Excellent)
- --------------------------------------------------------------------------------
</TABLE>
CONSUMER FINANCE SEGMENT
The Consumer Finance segment's capital 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.
Consumer finance capital of $8.8 billion at year-end 1996 included $7.6
billion of consumer finance debt, which was not guaranteed by the parent
company, and $1.2 billion of equity. The ratio of debt to tangible net worth, a
key measure of financial risk in the consumer finance industry, was 8.4 to 1
for the Consumer Finance segment at year-end 1996, compared to 7.5 to 1 for
year-end 1995 and 1994. The 1996 ratio exceeded the target of 7.5 to 1 due to
the $93 million aftertax loss on assets held for sale reported as of December
31, 1996. The segment plans to return its debt to tangible net worth ratio to
7.5 to 1 in first quarter 1997.
RATINGS. The consumer finance debt ratings on February 14, 1997 were as
follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard & Poor's A-1 (Strong) A+ (Strong)
Duff & Phelps D-1+ (Highest) A+ (Strong)
Moody's P-1 (Highest) A1 (Strong)
- --------------------------------------------------------------------------------
</TABLE>
LIQUIDITY
The company's overall liquidity is based on cash flows from the business
segments and its ability to borrow in both the long-term and short-term markets
at competitive rates. The company 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 17.1,
these restrictions are not expected to affect the ability of American General
to meet its cash obligations in 1997.
During 1996, $429 million of operating cash flow was used to pay dividends
to shareholders, pay interest on corporate debt, and to repurchase common
stock. American General repurchased 4.9 million shares of its common stock at a
cost of $178 million in 1996, compared to 1.2 million shares ($40 million) and
9.5 million shares ($262 million) in 1995 and 1994, respectively.
Since inception of the share buyback program in 1987, 103 million American
General common shares have been repurchased for an aggregate cost of $2.1
billion. To meet pooling of interests accounting requirements in connection
with the merger with USLIFE, American General
24 AMERICAN GENERAL CORPORATION
<PAGE> 10
plans to rescind its share buyback program prior to consummating the merger and
may be limited in its future repurchase of common shares.
RETIREMENT SERVICES AND LIFE INSURANCE SEGMENTS
Principal sources of cash for the Retirement Services and Life Insurance
segments were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities $1,719 $1,773 $1,219
Fixed policyholder account
deposits, net of withdrawals 162 1,094 1,238
Variable account deposits,
net of withdrawals 1,767 1,194 837
- --------------------------------------------------------------------------------
</TABLE>
Cash provided by operating activities increased in 1995 due to the
Franklin Life acquisition. In both 1996 and 1995, the decrease in net fixed
policyholder account deposits and the increase in net variable account deposits
were the result of policyholders seeking higher returns in equity-based
investments, including the company's Separate Accounts. Because the investment
risk on variable accounts lies solely with the policyholder, deposits and
withdrawals related to Separate Accounts are not included in the company's
consolidated statement of cash flows.
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 of $320 million in 1996,
compared to $323 million in 1995 and $367 million in 1994. In addition,
Franklin Life loaned $116 million to a subsidiary of American General in 1995,
which was used to pay down short-term debt.
CONSUMER FINANCE SEGMENT
Principal sources of cash for the Consumer Finance segment were as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities $ 590 $ 658 $ 511
Increase in borrowings 155 376 1,243
- --------------------------------------------------------------------------------
</TABLE>
Cash provided by operating activities decreased in 1996 primarily as a
result of lower finance charge revenues and higher operating expenses. Cash
provided by increased borrowings decreased in 1996 and 1995 due to lower growth
in receivables.
The major uses of cash were to fund finance receivables and dividends paid
to the parent company. Net cash used to fund finance receivables was $453
million in 1996, down from $859 million in 1995 and $1.5 billion in 1994.
Dividends paid to the parent company totaled $139 million in 1996, compared to
$33 million in 1995 and $140 million in 1994. Dividend levels are adjusted to
maintain the ratio of debt to tangible net worth at a level that supports
cost-effective funding.
Operating cash flow and access to money and capital markets, resulting
from strong long-term debt and commercial paper ratings, are expected to
satisfy 1997 cash requirements, including long-term debt maturities.
CREDIT FACILITIES
At December 31, 1996, committed and unused credit facilities totaled $3.5
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.
LEGAL AND OTHER FACTORS
TAXATION
Tax laws affect not only the way the company is taxed but also the design
of many of its products. Changes in tax laws or regulations could adversely
affect operating results.
REGULATION
Insurance regulators monitor market conduct, such as sales and advertising
practices, agent licensing and compensation, policyholder service, complaint
handling, underwriting, and claims practices. The company is not aware of any
existing or pending regulatory actions concerning market conduct that would
materially affect its operations. However, as a result of increased regulatory
scrutiny, market conduct compliance costs may increase for American General's
insurance and annuity subsidiaries.
LITIGATION
The company is party to various lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings arise in
jurisdictions, such as Alabama, that permit damage awards disproportionate to
the actual economic damages incurred. Based upon information presently
available, the company believes that the total amounts that will ultimately be
paid, if any, arising from these lawsuits and proceedings will have no material
adverse effect on the company's consolidated results of operations and
financial position. However, it should be noted that the frequency of large
damage awards, including large punitive damage awards, that bear little or no
relation to actual economic damages incurred by plaintiffs in jurisdictions
like Alabama continues to increase and creates the potential for an
unpredictable judgment in any given suit.
Two of American General's subsidiaries, Franklin Life and American General
Life Insurance Company, are defendants in lawsuits filed as purported class
actions asserting claims related to sales practices of certain life insurance
products. Because these cases are in the early stages of litigation, it is
premature to address their materiality. The claims are being defended
vigorously by the subsidiaries.
See Note 17.2 for specific legal proceedings involving the company.
1996 ANNUAL REPORT 25
<PAGE> 11
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
For the years ended December 31
In millions, except per share data 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES Premiums and other considerations $ 1,968 $ 1,753 $ 1,210
Net investment income 3,271 3,095 2,493
Finance charges 1,450 1,492 1,248
Realized investment gains (losses) 67 12 (172)
Equity in earnings of Western National Corporation 40 43 --
Other 91 100 62
---------------------------------------------------------------------------------------
Total revenues 6,887 6,495 4,841
- -----------------------------------------------------------------------------------------------------------
BENEFITS AND Insurance and annuity benefits 3,156 3,047 2,224
EXPENSES Operating costs and expenses 1,123 1,007 801
Commissions 540 511 400
Change in deferred policy acquisition costs and
cost of insurance purchased (74) (168) (126)
Provision for finance receivable losses 417 574 214
Loss on assets held for sale 145 -- --
Interest expense
Corporate 123 156 110
Consumer Finance 493 518 416
---------------------------------------------------------------------------------------
Total benefits and expenses 5,923 5,645 4,039
- -----------------------------------------------------------------------------------------------------------
EARNINGS Income before income tax expense 964 850 802
Income tax expense 347 286 289
---------------------------------------------------------------------------------------
Income before net dividends on preferred securities
of subsidiaries 617 564 513
Net dividends on preferred securities of subsidiaries 40 19 --
---------------------------------------------------------------------------------------
Net income $ 577 $ 545 $ 513
- -----------------------------------------------------------------------------------------------------------
SHARE DATA Net income per share $ 2.75 $ 2.64 $ 2.45
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26 AMERICAN GENERAL CORPORATION
<PAGE> 12
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
At December 31
In millions, except share data 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS Investments
Fixed maturity securities (amortized cost: $37,194;
$34,590; $27,087) $ 38,490 $37,213 $25,700
Mortgage loans on real estate 2,970 3,041 2,651
Equity securities (cost: $107; $138; $202) 133 186 224
Policy loans 1,728 1,605 1,197
Investment real estate 598 577 564
Other long-term investments 191 179 152
Short-term investments 160 103 209
---------------------------------------------------------------------------------------
Total investments 44,270 42,904 30,697
---------------------------------------------------------------------------------------
Cash 149 161 45
Finance receivables, net 7,230 7,918 7,694
Investment in Western National Corporation 535 407 274
Deferred policy acquisition costs 2,169 1,625 2,563
Cost of insurance purchased 755 504 168
Acquisition-related goodwill 557 577 597
Assets held for sale 667 -- --
Other assets 2,059 1,887 1,356
Assets held in Separate Accounts 7,863 5,170 2,901
---------------------------------------------------------------------------------------
Total assets $ 66,254 $61,153 $46,295
- -----------------------------------------------------------------------------------------------------------
LIABILITIES Insurance and annuity liabilities $ 40,232 $37,983 $29,623
Debt (short-term)
Corporate ($362; $553; $1,000) 1,533 1,723 1,836
Consumer Finance ($3,131; $2,490; $2,777) 7,630 7,470 7,090
Income tax liabilities 1,020 1,268 721
Other liabilities 1,128 1,009 620
Liabilities related to Separate Accounts 7,863 5,170 2,901
---------------------------------------------------------------------------------------
Total liabilities 59,406 54,623 42,791
- -----------------------------------------------------------------------------------------------------------
REDEEMABLE Company-obligated mandatorily redeemable
EQUITY preferred securities of subsidiaries holding solely
company subordinated notes
Non-convertible 982 485 --
Convertible 245 244 --
Common stock subject to put contracts -- -- 47
---------------------------------------------------------------------------------------
Total redeemable equity 1,227 729 47
- -----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Convertible preferred stock (shares issued and
EQUITY outstanding: 2,317,701) 85 -- --
Common stock (shares issued: 220,122,120;
outstanding: 203,090,677; 203,948,246; 203,051,907) 398 364 364
Net unrealized gains (losses) on securities 559 1,100 (935)
Retained earnings 5,093 4,787 4,495
Cost of treasury stock (514) (450) (467)
---------------------------------------------------------------------------------------
Total shareholders' equity 5,621 5,801 3,457
---------------------------------------------------------------------------------------
Total liabilities and equity $ 66,254 $61,153 $46,295
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
1996 ANNUAL REPORT 27
<PAGE> 13
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
For the years ended December 31
In millions, except per share data 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE Balance at beginning of year $ -- $ -- $ --
PREFERRED Issuance for acquisition 85 -- --
STOCK ---------------------------------------------------------------------------------------
Balance at end of year 85 -- --
- -----------------------------------------------------------------------------------------------------------
COMMON Balance at beginning of year 364 364 365
STOCK Treasury shares issued for acquisition and other 34 -- (1)
---------------------------------------------------------------------------------------
Balance at end of year 398 364 364
- -----------------------------------------------------------------------------------------------------------
NET UNREALIZED Balance at beginning of year 1,100 (935) 709
GAINS (LOSSES) Change during year (541) 2,035 (1,644)
ON SECURITIES ---------------------------------------------------------------------------------------
Balance at end of year 559 1,100 (935)
- -----------------------------------------------------------------------------------------------------------
RETAINED Balance at beginning of year 4,787 4,495 4,229
EARNINGS Net income 577 545 513
Cash dividends (per share)
Preferred ($1.94) (5) -- --
Common ($1.30; $1.24; $1.16) (266) (254) (243)
Other -- 1 (4)
---------------------------------------------------------------------------------------
Balance at end of year 5,093 4,787 4,495
- -----------------------------------------------------------------------------------------------------------
COST OF Balance at beginning of year (450) (467) (166)
TREASURY Share repurchases (178) (40) (262)
STOCK Issuance for acquisition 104 -- --
Expiration (issuance) of put contracts -- 47 (43)
Issuance under employee benefit plans 10 10 4
---------------------------------------------------------------------------------------
Balance at end of year (514) (450) (467)
- -----------------------------------------------------------------------------------------------------------
SHAREHOLDERS'
EQUITY Balance at end of year $ 5,621 $ 5,801 $ 3,457
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
CONSOLIDATED STATEMENT OF COMMON STOCK ACTIVITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
For the years ended December 31
In thousands of shares 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES ISSUED Balance at beginning and end of year 220,122 220,122 220,122
TREASURY Balance at beginning of year (16,174) (17,070) (5,964)
SHARES Share repurchases (4,909) (1,187) (9,536)
Issuance for acquisition 3,740 -- --
Expiration (issuance) of put contracts -- 1,700 (1,700)
Issuance under employee benefit plans 312 383 130
---------------------------------------------------------------------------------------
Balance at end of year (17,031) (16,174) (17,070)
- -----------------------------------------------------------------------------------------------------------
OUTSTANDING
SHARES Balance at end of year 203,091 203,948 203,052
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
28 AMERICAN GENERAL CORPORATION
<PAGE> 14
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
For the years ended December 31
In millions 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Net income $ 577 $ 545 $ 513
ACTIVITIES Reconciling adjustments
Insurance and annuity liabilities 1,191 1,347 1,007
Deferred policy acquisition costs and
cost of insurance purchased (74) (168) (126)
Provision for finance receivable losses 417 574 214
Loss on assets held for sale 145 -- --
Realized investment (gains) losses (69) (66) 49
Investment write-downs and reserves 2 54 123
Other, net (142) (77) (280)
---------------------------------------------------------------------------------------
Net cash provided by operating activities 2,047 2,209 1,500
- -----------------------------------------------------------------------------------------------------------
INVESTING Investment purchases (9,635) (7,734) (7,239)
ACTIVITIES Investment dispositions and repayments 8,327 5,601 5,566
Finance receivable originations and purchases (5,339) (5,786) (5,827)
Finance receivable principal payments received 4,886 4,927 4,323
Acquisitions (106) (920) --
Investment in Western National Corporation (126) -- (274)
Other, net (256) 16 (110)
---------------------------------------------------------------------------------------
Net cash used for investing activities (2,249) (3,896) (3,561)
- -----------------------------------------------------------------------------------------------------------
FINANCING Retirement Services and Life Insurance
ACTIVITIES Policyholder account deposits 2,595 2,932 2,583
Policyholder account withdrawals (2,433) (1,838) (1,345)
---------------------------------------------------------------------------------------
Total Retirement Services and Life Insurance 162 1,094 1,238
---------------------------------------------------------------------------------------
Consumer Finance
Net increase (decrease) in short-term debt 641 (287) 953
Long-term debt issuances 124 1,577 1,136
Long-term debt redemptions (610) (914) (846)
---------------------------------------------------------------------------------------
Total Consumer Finance 155 376 1,243
---------------------------------------------------------------------------------------
Corporate
Net increase (decrease) in short-term debt (191) (447) 272
Long-term debt issuances -- 433 100
Long-term debt redemptions -- (100) (247)
Issuance of preferred securities of subsidiaries 495 729 --
Dividends on common and preferred stock (271) (254) (243)
Common stock repurchases (181) (35) (264)
Other, net 21 7 1
---------------------------------------------------------------------------------------
Total Corporate (127) 333 (381)
---------------------------------------------------------------------------------------
Net cash provided by financing activities 190 1,803 2,100
- -----------------------------------------------------------------------------------------------------------
NET CHANGE Net increase (decrease) in cash (12) 116 39
IN CASH Cash at beginning of year 161 45 6
---------------------------------------------------------------------------------------
Cash at end of year $ 149 $ 161 $ 45
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
1996 ANNUAL REPORT 29
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1
SIGNIFICANT ACCOUNTING POLICIES
1.1 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 Corporation (American General) and its subsidiaries
(collectively, the company). All material intercompany transactions have been
eliminated in consolidation. Certain items in the prior years' financial
statements have been reclassified to conform with the 1996 presentation.
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and disclosures of contingent assets and liabilities. Ultimate
results could differ from these estimates.
1.2 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES. All fixed maturity and equity
securities are 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
and loans for which management has a concern based on its 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.
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 LOANS. Policy loans are reported at unpaid principal balance.
INVESTMENT REAL ESTATE. Investment real estate is classified as held for
investment or available for sale, depending on management's intent and the
property's stage of completion.
Real estate held for investment is carried at cost, less accumulated
depreciation and impairment write-downs. Impairment losses are recorded
whenever circumstances indicate that a property might be impaired and the
estimated undiscounted future cash flows of the property are less than its
carrying amount. In such event, the property is written down to fair value,
determined by 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.
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 and
restructured mortgage loans is recorded as income when earned and is adjusted
for any amortization of premium or discount. Interest on delinquent mortgage
loans is recorded as income when received. Dividends are recorded as income on
ex-dividend dates.
REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses) are
recognized using the specific identification method.
1.3 FINANCE RECEIVABLES
FINANCE CHARGES. Finance charges on discounted receivables and interest on
interest-bearing receivables are recognized as revenue 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 receivables. Extension fees and late charges
are recognized as revenue when received.
Direct costs incurred to originate loans, net of non-refundable points and
fees, are deferred and included in the carrying amount of the related loans.
The amount deferred is recognized as an adjustment to finance charge revenues,
using the interest method over the lesser of the contractual term or the
expected life based on prepayment experience. If loans are prepaid before all
related deferred amounts are recognized, any remaining deferral is recognized
at the date of prepayment.
LOSSES ON FINANCE RECEIVABLES. The company's policy is to charge off
finance receivables, except those
30 AMERICAN GENERAL CORPORATION
<PAGE> 16
secured by real estate, for which minimal or no collections have been made for
six months. For loans secured by real estate, foreclosure proceedings are
initiated 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 economic conditions, portfolio
composition, and loss and delinquency experience in its periodic evaluations of
the portfolio.
1.4 DEFERRED POLICY ACQUISITION COSTS (DPAC)
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
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.
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. Management considers estimated future gross profits or future premiums,
expected mortality, interest earned and credited rates, persistency, and
expenses in determining whether the carrying amount is recoverable.
1.5 COST OF INSURANCE PURCHASED (CIP)
The cost assigned to certain acquired subsidiaries' insurance contracts in
force at the acquisition date is reported as CIP. Interest is accreted on the
unamortized balance of CIP at rates of 6.0% 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.
1.6 ACQUISITION-RELATED GOODWILL
Acquisition-related goodwill is charged to expense in equal amounts,
generally over 20 to 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. The company determines the subsidiary's fair
value based on an independent appraisal. 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.
1.7 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain
contracts, principally annuities, for which the investment risk lies solely
with the contract holder. Therefore, the company'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.
1.8 INSURANCE AND ANNUITY LIABILITIES
Substantially all of the company's insurance and annuity liabilities relate to
long-duration contracts. The contracts normally cannot be changed or canceled
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 contracts are based on estimates of the cost of future
policy benefits. Reserves are determined using the net level premium method.
Interest assumptions used to compute reserves ranged from 2.0% to 13.5% at
December 31, 1996.
1.9 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 mortality, expense, and surrender charges. Policy charges that
compensate the company for future services are deferred and recognized 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 a constant relationship to insurance in force. For
all other contracts, premiums are recognized when due.
1996 ANNUAL REPORT 31
<PAGE> 17
1.10 PARTICIPATING LIFE INSURANCE
Participating life insurance accounted for 12% of life insurance in force
at December 31, 1996 and 1995, and 17% of premiums and other considerations in
1996 and 1995. The company's participating life insurance business was not
significant prior to 1995.
The portion of earnings allocated to participating policyholders which
cannot be expected to inure to shareholders is excluded from net income and
shareholders' equity.
Dividends to be paid on participating life insurance contracts are
determined annually based on estimates of the contracts' earnings. Policyholder
dividends were $89 million for 1996 and $91 million for 1995.
1.11 REINSURANCE
The company limits its exposure to loss on any single insured to $1.5
million by ceding additional risks through reinsurance contracts with other
insurers. If the reinsurer could not meet its obligations, the company would
reassume the liability. The company diversifies its risk of reinsurance loss by
using a number of reinsurers that have strong claims-paying ability ratings.
The likelihood of a material reinsurance liability being reassumed by the
company is considered to be remote.
A receivable is recorded for benefits paid and insurance liabilities
related to contracts that have been reinsured. Reinsurance recoveries on ceded
reinsurance contracts were $111 million, $113 million, and $74 million during
1996, 1995, and 1994, respectively. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.
Reinsurance premiums included in premiums and other considerations were as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums and other
considerations $ 2,109 $ 1,848 $ 1,254
Reinsurance assumed 68 104 52
Reinsurance ceded (209) (199) (96)
- --------------------------------------------------------------------------------
Premiums and other
considerations $ 1,968 $ 1,753 $ 1,210
- --------------------------------------------------------------------------------
</TABLE>
1.12 DERIVATIVES RELATED TO INVESTMENTS AND DEBT
The company's use of derivative financial instruments is generally limited
to interest rate and currency swap agreements. 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 investments carried at fair value or if they hedge
anticipated purchases of such investments. 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
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.
Swap agreements generally have terms of two to ten years. 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. If the
underlying debt or investment is extinguished or sold, any related gain or loss
on swap agreements is recognized in income.
1.13 INTEREST CAPITALIZED OR PAID
Essentially all interest incurred on land development projects is
capitalized until the property is substantially complete and ready for its
intended use. Interest capitalized was $12 million, $17 million, and $18
million in 1996, 1995, and 1994, respectively.
Interest paid, excluding interest capitalized, was as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate $123 $148 $115
Consumer Finance 497 502 407
- --------------------------------------------------------------------------------
</TABLE>
1.14 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 excess of the
market price of the stock at the measurement date over the exercise price. 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 market price
equals the exercise price at the measurement date.
32 AMERICAN GENERAL CORPORATION
<PAGE> 18
Under an alternative accounting method, compensation expense arising from
stock-based compensation plans would be measured at the estimated fair value of
the stock-based award at the date of grant. Use of this method would not have a
material impact on net income or earnings per share.
1.15 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 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.
1.16 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 of subsidiaries. Average common
shares outstanding includes common share equivalents from the assumed
conversion or exercise of convertible preferred securities, stock options, and
shares subject to put contracts.
Average common shares outstanding, including common share equivalents,
used in computing earnings per share were 213,613,211 in 1996; 208,871,505 in
1995; and 209,420,486 in 1994.
2
ACQUISITIONS
2.1 INDEPENDENT LIFE
On February 29, 1996, American General acquired Independent Insurance
Group, Inc., the holding company of The Independent Life and Accident Insurance
Company (Independent Life) for $362 million. The purchase price consisted of
$139 million cash, 3.7 million shares of American General common stock, and 2.3
million shares of American General 7% Convertible Preferred Stock. The
acquisition was accounted for using the purchase method, and the results of
operations of Independent Life are included in the consolidated statement of
income from the date of acquisition.
Non-cash activities related to the acquisition of Independent Life that
are not reflected in the consolidated statement of cash flows for the year
ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
In millions
- --------------------------------------------------------------------------------
<S> <C>
Fair value of assets acquired, excluding
$33 million cash $ 1,358
Liabilities assumed (1,029)
Issuance of treasury shares (138)
Issuance of preferred stock (85)
- --------------------------------------------------------------------------------
Net cash paid $ 106
- --------------------------------------------------------------------------------
</TABLE>
2.2 FRANKLIN LIFE
On January 31, 1995, American General 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 cash 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.
2.3 WESTERN NATIONAL
On December 23, 1994, American General acquired a 40% investment in
Western National Corporation (Western National), the holding company of Western
National Life Insurance Company, through the acquisition of 24.9 million shares
of common stock for $274 million cash. On September 17, 1996, American General
increased its equity ownership to 46.2% on a fully diluted basis through the
purchase of 7.3 million shares of participating convertible preferred stock for
$126 million cash. The acquisitions were recorded on an equity basis, using the
purchase method. The total purchase price was approximately $162 million
greater than the underlying net assets of Western National. Substantially all
of this difference is attributed to goodwill, which will be amortized over 20
years. At December 31, 1996, the market value of the shares held by American
General was $620 million.
2.4 HOME BENEFICIAL LIFE
On December 23, 1996, American General announced a definitive agreement to
acquire Home
1996 ANNUAL REPORT 33
<PAGE> 19
Beneficial Corporation, the holding company of Home Beneficial Life Insurance
Company (Home Beneficial Life), for total consideration of $665 million, or $39
per share, in cash or American General common stock. The amount of cash will be
limited to a minimum of 25% and a maximum of 50% of the total consideration.
This acquisition will be accounted for using the purchase method. The
transaction, which is subject to approval by Home Beneficial Corporation
shareholders and to requisite regulatory approvals, is expected to close by
March 31, 1997.
2.5 USLIFE
On February 13, 1997, American General announced a definitive agreement
under which USLIFE Corporation (USLIFE) will merge into American General in a
transaction valued at $1.8 billion. Under the agreement, USLIFE shareholders
will exchange each share of USLIFE common stock for American General common
stock valued at $49. The exchange ratio will be based on an average trading
price of American General common stock prior to closing, subject to a minimum
of 1.09 shares and a maximum of 1.29 shares of American General common stock.
The transaction, which is subject to approval by American General and USLIFE
shareholders and to requisite regulatory approvals, is expected to close by
June 30, 1997.
This merger is expected to be accounted for using the pooling of interests
method. After closing, information included in American General's consolidated
financial statements will be restated to present the combined operations of the
company and USLIFE as if the merger had been in effect for all periods
presented.
3
INVESTMENTS
3.1 FIXED MATURITY AND EQUITY SECURITIES
VALUATION. Amortized cost and fair value of fixed maturity and equity
securities at December 31 were as follows:
<TABLE>
<CAPTION>
Gross
Amortized Cost Unrealized Gains
--------------------------- ---------------------------
In millions 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities
Corporate bonds
Investment grade $23,646 $20,634 $13,996 $ 1,003 $ 1,759 $ 154
Below investment grade 1,422 1,349 904 49 67 15
Mortgage-backed 10,401 11,019 10,774 315 650 64
Foreign governments 674 648 604 68 83 3
U.S. government 652 537 306 54 87 10
States/political subdivisions 304 271 336 13 19 14
Redeemable preferred stocks 95 132 167 4 6 2
- ------------------------------------------------------------------------------------------
Total fixed maturity
securities $37,194 $34,590 $27,087 $ 1,506 $ 2,671 $ 262
- ------------------------------------------------------------------------------------------
Equity securities $ 107 $ 138 $ 202 $ 27 $ 50 $ 29
- ------------------------------------------------------------------------------------------
<CAPTION>
Gross
Unrealized Losses Fair Value
----------------------------- ---------------------------
In millions 1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities
Corporate bonds
Investment grade $ (123) $ (32) $ (718) $24,526 $22,361 $13,432
Below investment grade (9) (8) (60) 1,462 1,408 859
Mortgage-backed (74) (6) (806) 10,642 11,663 10,032
Foreign governments -- (1) (40) 742 730 567
U.S. government (2) -- (4) 704 624 312
States/political subdivisions (1) -- (8) 316 290 342
Redeemable preferred stocks (1) (1) (13) 98 137 156
- ---------------------------------------------------------------------------------------------
Total fixed maturity
securities $ (210) $ (48) $(1,649) $38,490 $37,213 $25,700
- ---------------------------------------------------------------------------------------------
Equity securities $ (1) $ (2) $ (7) $ 133 $ 186 $ 224
- ---------------------------------------------------------------------------------------------
</TABLE>
NET UNREALIZED GAINS (LOSSES). Net unrealized gains (losses) on fixed
maturity and equity securities included in shareholders' equity at December 31
were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized gains $ 1,533 $ 2,721 $ 291
Gross unrealized losses (211) (50) (1,656)
DPAC and CIP fair value
adjustments (512) (1,061) 401
Deferred income taxes (310) (603) 29
Equity in Western National's
net unrealized gains 59 93 --
- --------------------------------------------------------------------------------
Net unrealized gains (losses)
on securities $ 559 $ 1,100 $ (935)
- --------------------------------------------------------------------------------
</TABLE>
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1996 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 $ 584 $ 589
In years two through five 4,582 4,761
In years six through ten 12,752 13,178
After ten years 8,875 9,320
Mortgage-backed securities 10,401 10,642
- --------------------------------------------------------------------------------
Total fixed maturity securities $37,194 $38,490
- --------------------------------------------------------------------------------
</TABLE>
34 AMERICAN GENERAL CORPORATION
<PAGE> 20
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.
3.2 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 generally 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 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Geographic distribution
Atlantic $ 1,285 $ 1,251 $ 1,086
Pacific and Mountain 899 889 844
Central 866 988 810
Allowance for losses (80) (87) (89)
- -------------------------------------------------------------------------------
Total mortgage loans $ 2,970 $ 3,041 $ 2,651
- -------------------------------------------------------------------------------
Property type
Retail $ 1,042 $ 1,057 $ 890
Office 993 1,008 925
Industrial 487 478 444
Apartments 349 377 298
Other 179 208 183
Allowance for losses (80) (87) (89)
- -------------------------------------------------------------------------------
Total mortgage loans $ 2,970 $ 3,041 $ 2,651
- -------------------------------------------------------------------------------
</TABLE>
ALLOWANCE. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 87 $ 89 $ 98
Net additions 2 28 11
Deductions (9) (30) (20)
- -------------------------------------------------------------------------------
Balance at December 31 $ 80 $ 87 $ 89
- -------------------------------------------------------------------------------
</TABLE>
IMPAIRED LOANS. Impaired mortgage loans on real estate and related interest
income were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans
With allowance* $100 $ 97 $137
Without allowance 6 22 4
- --------------------------------------------------------------------------------
Total impaired loans $106 $119 $141
- --------------------------------------------------------------------------------
Average investment $113 $130 $119
- --------------------------------------------------------------------------------
Interest income
Accrual basis loans $ 9 $ 3 $ 4
Cash basis loans -- 7 3
- --------------------------------------------------------------------------------
Total interest income $ 9 $ 10 $ 7
- --------------------------------------------------------------------------------
</TABLE>
* Represents gross amounts before allowance for losses of $16 million, $26
million, and $36 million, respectively.
3.3 INVESTMENT REAL ESTATE
The allowance for investment real estate losses was as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 35 $ 321 $ 253
Net additions -- 18 110
Deductions (12) (304)* (42)
- -------------------------------------------------------------------------------
Balance at December 31 $ 23 $ 35 $ 321
- -------------------------------------------------------------------------------
</TABLE>
* Includes $243 million reclassification to reduce cost basis.
3.4 INVESTMENT INCOME
Investment income was as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $2,826 $2,660 $2,099
Mortgage loans on real estate 312 314 296
Other 225 192 185
- --------------------------------------------------------------------------------
Gross investment income 3,363 3,166 2,580
- --------------------------------------------------------------------------------
Investment expense - real estate 64 46 65
Investment expense - other 28 25 22
- --------------------------------------------------------------------------------
Total investment expense 92 71 87
- --------------------------------------------------------------------------------
Net investment income $3,271 $3,095 $2,493
- --------------------------------------------------------------------------------
</TABLE>
The carrying amount of investments that produced no investment income
during 1996 was less than 1% of total invested assets. The ultimate disposition
of these investments is not expected to have a material effect on the company's
consolidated results of operations and financial position.
Derivative financial instruments related to investment securities did not have
a material effect on net investment income in any of the three years ended
December 31, 1996.
3.5 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Gross gains $ 96 $ 74 $ 46
Gross losses (89) (56) (175)
- -------------------------------------------------------------------------------
Total fixed maturity securities 7 18 (129)
- -------------------------------------------------------------------------------
Equity securities
Gross gains 53 21 14
Gross losses (2) (2) (6)
- -------------------------------------------------------------------------------
Total equity securities 51 19 8
- -------------------------------------------------------------------------------
Mortgage loans on real estate -- (37) (5)
Investment real estate 5 (9) (88)
Other 4 21 42
- -------------------------------------------------------------------------------
Realized investment
gains (losses) $ 67 $ 12 $(172)
- -------------------------------------------------------------------------------
</TABLE>
1996 ANNUAL REPORT 35
<PAGE> 21
3.6 CASH FLOWS FROM INVESTING ACTIVITIES
Uses of cash for investment purchases were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $9,111 $7,155 $7,009
Other 524 579 230
- --------------------------------------------------------------------------------
Total $9,635 $7,734 $7,239
- --------------------------------------------------------------------------------
</TABLE>
Sources of cash from investment dispositions and repayments were as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Sales $5,448 $2,466 $1,886
Repayments of mortgage-
backed securities 885 686 1,833
Maturities 571 481 303
Calls 553 980 794
Mortgage loans 544 352 421
Equity securities 166 176 98
Other 160 460 231
- --------------------------------------------------------------------------------
Total $8,327 $5,601 $5,566
- --------------------------------------------------------------------------------
</TABLE>
4
FINANCE RECEIVABLES
4.1 DETAIL OF FINANCE RECEIVABLES
Finance receivables, which are reported net of unearned finance charges,
at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer loans
Real estate $ 3,734 $ 2,904 $ 2,705
Other 2,516 2,765 2,661
- --------------------------------------------------------------------------------
Total consumer loans 6,250 5,669 5,366
Retail sales finance
Retail sales contracts 998 1,240 1,174
Private label 377 943 901
- --------------------------------------------------------------------------------
Total retail sales finance 1,375 2,183 2,075
Credit cards -- 558 479
- --------------------------------------------------------------------------------
Total finance receivables 7,625 8,410 7,920
Allowance for losses (395) (492) (226)
- --------------------------------------------------------------------------------
Finance receivables, net $ 7,230 $ 7,918 $ 7,694
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 49% of finance receivables were secured by real
estate.
4.2 CONTRACTUAL MATURITIES AND COLLECTIONS
Contractual maturities of finance receivables at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
After
In millions 1997 1998 1999 2000 2001 2001
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maturities $2,406 $1,441 $ 892 $ 498 $ 312 $2,076
- --------------------------------------------------------------------------------
</TABLE>
Contractual maturities are not a forecast of future cash collections. A
substantial portion of finance receivables may be renewed, converted, or repaid
prior to maturity.
Cash collections of principal and collections as a percentage of average
finance receivable balances were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer loans
Cash collections $2,653 $2,588 $2,437
% of average balances 47% 46% 48%
Retail sales finance
Cash collections $1,777 $1,885 $1,454
% of average balances 93% 86% 92%
Credit cards
Cash collections $ 456 $ 454 $ 432
% of average balances 86% 90% 103%
- --------------------------------------------------------------------------------
</TABLE>
4.3 GEOGRAPHIC CONCENTRATION
The geographic concentration of finance receivables at December 31 was as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
California $ 698 $ 887 $ 811
North Carolina 672 738 639
Florida 535 627 574
Ohio 454 440 401
Illinois 453 490 458
Indiana 398 455 410
Virginia 350 392 355
Georgia 312 373 347
Other 3,753 4,008 3,925
- --------------------------------------------------------------------------------
Total finance receivables $7,625 $8,410 $7,920
- --------------------------------------------------------------------------------
</TABLE>
4.4 ASSETS HELD FOR SALE
In fourth quarter 1996, the company reached a decision to offer for sale
$875 million of non-strategic, underperforming finance receivable portfolios,
consisting of $520 million of bank credit card receivables and $355 million of
private label loans issued in prior years to finance purchases of home
satellite dishes. Accordingly, these receivables and an associated allowance
for losses were reclassified to assets held for sale at December 31, 1996.
The company has hired an outside advisor to market the portfolios. Based
on negotiations with prospective purchasers subsequent to year end, the company
determined that a write-down of $145 million ($93 million aftertax) was
necessary to reduce the carrying amount of the assets held for sale to net
realizable value, after considering related expenses.
36 AMERICAN GENERAL CORPORATION
<PAGE> 22
4.5 ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
The allowance for finance receivable losses was as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 492 $ 226 $ 184
Provision for finance
receivable losses 417 574 214
Charge offs, net of recoveries (444) (308) (172)
Reclassified to assets held
for sale (70) -- --
- --------------------------------------------------------------------------------
Balance at December 31 $ 395 $ 492 $ 226
- --------------------------------------------------------------------------------
</TABLE>
5
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 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 1,625 $ 2,563 $ 1,451
Deferrals 384 417 339
Accretion of interest 93 157 149
Amortization (315) (360) (344)
Effect of net unrealized gains
(losses) on securities 407 (1,160) 954
Other (25) 8 14
- --------------------------------------------------------------------------------
Balance at December 31 $ 2,169 $ 1,625 $ 2,563
- --------------------------------------------------------------------------------
</TABLE>
6
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 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 504 $ 168 $ 186
Additions from acquisitions 233 658 --
Accretion of interest 76 54 16
Amortization (178) (100) (34)
Effect of net unrealized gains
(losses) on securities 109 (270) --
Other 11 (6) --
- --------------------------------------------------------------------------------
Balance at December 31 $ 755 $ 504 $ 168
- --------------------------------------------------------------------------------
</TABLE>
CIP amortization, net of accretion, expected to be recorded in each of the
next five years is $82 million, $74 million, $67 million, $61 million, and $56
million.
7
DEBT
7.1 LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate
6.3% - 10%, through 2025 $1,171 $1,170 $ 836
- --------------------------------------------------------------------------------
Consumer Finance
4.7% - 10%, through 2009 $4,499 $4,980 $4,313
- --------------------------------------------------------------------------------
</TABLE>
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, 1996.
7.2 LONG-TERM DEBT MATURITIES
Scheduled maturities of long-term debt and sinking fund requirements for
each of the next five years are as follows:
<TABLE>
<CAPTION>
In millions 1997 1998 1999 2000 2001
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate $ 133 $ 68 $ 100 $ 200 $ 5
Consumer Finance 1,220 825 594 938 42
- --------------------------------------------------------------------------------
</TABLE>
Current maturities of long-term debt expected to be refinanced with
short-term debt are included in short-term debt.
One $150 million debt issue of the Consumer Finance segment that is
scheduled to mature after 2001 is redeemable in 1999 at par, at the option of
the holders.
7.3 SHORT-TERM DEBT
The weighted-average interest rates on short-term borrowings at December
31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate 5.8% 5.8% 6.0%
Consumer Finance 5.6 5.8 5.9
- --------------------------------------------------------------------------------
</TABLE>
7.4 CREDIT FACILITIES
American General and certain subsidiaries use commercial paper to meet
short-term funding requirements. Unsecured bank credit facilities are used to
support commercial paper borrowings.
At December 31, 1996, American General and certain of its subsidiaries
maintained unsecured committed credit facilities of $3.5 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 five to nine basis points. There
were no borrowings under these facilities at December 31, 1996.
1996 ANNUAL REPORT 37
<PAGE> 23
8
GUARANTY FUND ASSESSMENTS
Information about state guaranty fund assessments at December 31, and
related activity for the years then ended, were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense, included in operating
costs and expenses $ 9 $28 $14
Liability for anticipated
assessments 47 51 30
Receivable for expected recoveries
against future premium taxes 46 44 24
- --------------------------------------------------------------------------------
</TABLE>
The 1996 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 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.
9
INCOME TAXES
9.1 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 373 $ 304 $ 261
State 8 6 19
Total current 381 310 280
Deferred (34) (24) 9
- --------------------------------------------------------------------------------
Income tax expense* $ 347 $ 286 $ 289
- --------------------------------------------------------------------------------
</TABLE>
* Excludes tax benefit of $21 million in 1996 and $11 million in 1995
related to preferred securities of subsidiaries.
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Tax-exempt investment income (2) (2) (2)
State taxes, net 1 -- 2
Acquisition-related goodwill 1 1 1
Other, net 1 -- --
- --------------------------------------------------------------------------------
Effective tax rate 36% 34% 36%
- --------------------------------------------------------------------------------
</TABLE>
9.2 TAX LIABILITIES
Income tax liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax receivable $ (8) $ (53) $ (67)
- --------------------------------------------------------------------------------
Deferred, applicable to
Net income 718 718 817
Net unrealized gains (losses)
on securities 310 603 (29)
- --------------------------------------------------------------------------------
Net deferred tax liabilities 1,028 1,321 788
- --------------------------------------------------------------------------------
Income tax liabilities $ 1,020 $ 1,268 $ 721
- --------------------------------------------------------------------------------
</TABLE>
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities,
applicable to
Basis differential of
investments $ 470 $ 911 $ --
DPAC and CIP 757 583 850
Prepaid pension expense 81 73 60
Other 515 498 365
- --------------------------------------------------------------------------------
Total deferred tax liabilities 1,823 2,065 1,275
- --------------------------------------------------------------------------------
Deferred tax assets,
applicable to
Policy reserves (392) (392) (132)
Finance receivables (183) (138) (64)
Basis differential of
investments -- -- (464)
Other (250) (240) (142)
- --------------------------------------------------------------------------------
Gross deferred tax assets (825) (770) (802)
Valuation allowance 30 26 315
- --------------------------------------------------------------------------------
Total deferred tax assets, net (795) (744) (487)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 1,028 $ 1,321 $ 788
- --------------------------------------------------------------------------------
</TABLE>
The deferred tax asset valuation allowance at December 31, 1996 and 1995
was related to operating loss carryovers not expected to be utilized. The
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 $694
million at December 31, 1996. At current corporate rates, the maximum amount of
tax on such income is approximately $243 million. Deferred income taxes on
these accumulations have not been recorded because no distributions are
expected.
38 AMERICAN GENERAL CORPORATION
<PAGE> 24
9.3 TAX RETURN EXAMINATIONS
American General 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 1987. All issues, except the one
being litigated as described in Note 17.2, have been settled within the amounts
previously provided in the consolidated financial statements. The IRS is
currently examining the company's tax returns for 1988 through 1992.
9.4 TAXES PAID
Income taxes paid were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal $333 $269 $409
State 10 13 22
- --------------------------------------------------------------------------------
</TABLE>
10
REDEEMABLE EQUITY
10.1 PREFERRED SECURITIES OF SUBSIDIARIES
During 1996 and 1995, two wholly owned subsidiaries and a subsidiary trust
of American General (collectively, subsidiaries) were created for the purpose
of issuing preferred securities. The sole assets of these subsidiaries are
Junior Subordinated Debentures (Subordinated Debentures) issued by American
General and U.S. Treasury bonds. These subsidiaries have no independent
operations. The Subordinated Debentures are eliminated in the consolidated
financial statements.
The interest terms and other payment dates of the company's Subordinated
Debentures held by the subsidiaries correspond to those of the subsidiaries'
preferred securities. American General'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, 1996 was as follows:
<TABLE>
<CAPTION>
American General American General American General American General
In millions, except share data Institutional Capital A Capital, L.L.C. Capital, L.L.C. Delaware, L.L.C.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred securities
Securities issued and outstanding 500,000 8,600,000 11,500,000 5,000,000
Par value $ 500 $ 215 $ 287 $ 250
Dividends paid -- $ 17 $ 24 $ 15
Date issued 12/4/96 8/29/95 6/5/95 6/1/95
Earliest/mandatory redemption dates 2045/2045 2000/2025(a) 2000/2025(a) 2003(b)/2025
- --------------------------------------------------------------------------------------------------------------------
Assets of issuing subsidiary
Subordinated Debentures
Principal $ 516 $ 269 $ 360 $ 313
Interest rate 7.57% 8.125% 8.45% 6%
Mandatory redemption date 2045 2025(a) 2025(a) 2025
U.S. Treasury bonds -- $ 3 $ 4 $ 3
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Subject to possible extension to 2044.
(b) Under certain circumstances, may be redeemed in 2000.
The preferred securities issued by American General Delaware, L.L.C. are
each convertible into 1.2288 shares of American General common stock at any
time at the option of the holders. This conversion ratio is equivalent to a
conversion price of $40.69 per share of common stock. Beginning in 2000, the
company has the option to cause the conversion rights to expire, provided that
American General's common stock is trading above $49 per share and certain
other conditions are met.
10.2 COMMON STOCK SUBJECT TO PUT CONTRACTS
During 1994, American General entered into put option contracts giving the
holders the right, but not the obligation, to sell to American General a total
of 1.7 million 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.
1996 ANNUAL REPORT 39
<PAGE> 25
11
CAPITAL STOCK
11.1 CLASSES OF CAPITAL STOCK
American General has two classes of capital stock: preferred stock ($1.50
par value, 60 million shares authorized) that may be issued in series with
rights to be determined by the board of directors, and common stock ($.50 par
value, 300 million shares authorized). The only series of preferred stock
outstanding is the 7% Convertible Preferred Stock. Common stock was owned by
27,584 shareholders of record and approximately 54,000 beneficial owners at
February 14, 1997. At December 31, 1996, approximately 11.5 million shares of
common stock were reserved for issuance, related to the conversion of
convertible preferred securities and preferred stock and the exercise of stock
options.
11.2 CONVERTIBLE PREFERRED STOCK
During 1996, American General issued 2.3 million shares of 7% Convertible
Preferred Stock in connection with the acquisition of Independent Life. 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.
Each preferred share is convertible into .8264 share of American General
common stock at any time at the option of the holder. Beginning in 2000, the
company may, at its option, convert the preferred stock into a minimum of .8264
share of common stock. Each preferred share is mandatorily convertible into one
share of common stock in 2001.
11.3 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 American General. 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 in 1999 unless extended
or redeemed.
12
STOCK AND INCENTIVE PLANS
Shares issuable under outstanding stock options at December 31, and the
components of the change for the years then ended, were as follows:
<TABLE>
<CAPTION>
Average
Exercise
Shares in thousands 1996 Price 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1 2,552 $26.72 2,292 1,564
Granted 901 35.52(a) 691 852
Exercised(b) (319) 27.41 (359) (65)
Forfeited (200) 32.97 (68) (16)
Expired (1) 32.00 (4) (43)
- -------------------------------------------------------------------------------
Balance at
December 31 2,933 $28.92 2,552 2,292
- -------------------------------------------------------------------------------
Exercisable at
December 31 2,026 $26.52 1,802 1,691
- -------------------------------------------------------------------------------
</TABLE>
(a) Average fair value at grant date, estimated using the Black-Sholes option
valuation model, was $7.09.
(b) Average exercise price of options exercised in 1995 and 1994 was $21.58
and $19.65, respectively.
Options may not be exercised within six months of, nor after 10 years
from, the date of grant. At December 31, 1996, the exercise price of all
options outstanding ranged from $15.38 to $37.50. The average remaining
contractual life of options outstanding is seven years.
Shares available for issuance under American General's stock and incentive
plans at December 31, 1996, 1995, and 1994 totaled 3.3 million, 4.0 million,
and 4.7 million, respectively.
13
BENEFIT PLANS
13.1 PENSION PLANS
The company has 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 60% and 35%, respectively, of
the plans' assets at the plans' most recent balance sheet dates.
40 AMERICAN GENERAL CORPORATION
<PAGE> 26
The pension plans have purchased annuity contracts from American General
subsidiaries to provide benefits for certain retirees. During 1996, 1995, and
1994, these contracts provided $49 million, $42 million, and $38 million,
respectively, for retiree benefits.
The components of pension expense and underlying assumptions were as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned) $ 15 $ 11 $ 13
Interest cost 35 28 21
Actual return on plan assets (122) (126) (2)
Net amortization and deferral 55 62 (53)
- -------------------------------------------------------------------------------
Pension expense (income) $ (17) $ (25) $ (21)
- -------------------------------------------------------------------------------
Weighted-average discount
rate on benefit obligation 7.50% 7.25% 8.50%
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 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation* $ 467 $ 379 $ 245
Effect of increase in
compensation levels 38 36 30
- -------------------------------------------------------------------------------
Projected benefit obligation 505 415 275
Plan assets at fair value 871 698 532
- -------------------------------------------------------------------------------
Plan assets at fair value in excess
of projected benefit obligation 366 283 257
Other unrecognized items, net (153) (82) (91)
- -------------------------------------------------------------------------------
Prepaid pension expense $ 213 $ 201 $ 166
- -------------------------------------------------------------------------------
</TABLE>
* Over 85% vested.
13.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company has 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. The company has 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); 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.
Postretirement benefit expense in 1996, 1995, and 1994 was $7 million, $6
million, and $5 million, respectively.
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 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of
benefit obligation
Retirees $ 55 $40 $34
Active plan participants 31 27 22
- -------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) 86 67 56
Plan assets at fair value 3 2 3
- -------------------------------------------------------------------------------
APBO in excess of plan
assets at fair value 83 65 53
Unrecognized net gain 9 -- 1
- -------------------------------------------------------------------------------
Accrued benefit cost $92 $65 $54
- -------------------------------------------------------------------------------
Weighted-average discount
rate on benefit obligation 7.50% 7.25% 8.50%
- -------------------------------------------------------------------------------
</TABLE>
14
STATUTORY ACCOUNTING
State insurance laws and regulations prescribe accounting practices for
calculating statutory net income and equity of insurance companies. In
addition, state regulators may permit statutory accounting practices that
differ from prescribed practices. The use of such permitted practices by
American General's insurance subsidiaries did not have a material effect on
their statutory equity at December 31, 1996.
Statutory accounting practices differ from GAAP. Significant differences
for American General's insurance subsidiaries were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income $ 592 $ 412 $ 507
Change in DPAC and CIP 97 167 124
Investment valuation
differences 52 48 (89)
Policy reserve adjustments (57) (123) (122)
Other, net (11) 81 3
- -------------------------------------------------------------------------------
GAAP net income $ 673 $ 585 $ 423
- -------------------------------------------------------------------------------
Statutory equity $ 2,326 $ 1,965 $ 1,681
Asset valuation reserve 490 443 296
Investment valuation
differences* 1,029 2,305 (1,469)
DPAC and CIP 2,913 2,116 2,720
Deferred income taxes (1,043) (1,319) (775)
Policy reserve adjustments 303 264 570
Acquisition-related goodwill 286 297 308
Other, net 223 266 45
- -------------------------------------------------------------------------------
GAAP equity $ 6,527 $ 6,337 $ 3,376
- -------------------------------------------------------------------------------
</TABLE>
* Primarily GAAP unrealized gains (losses) on securities.
1996 ANNUAL REPORT 41
<PAGE> 27
15
DERIVATIVE FINANCIAL INSTRUMENTS
15.1 Related To Investment Securities
Derivative financial instruments related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements
to pay fixed rate
Notional amount $ 60 $ 45 --
Average receive rate 6.19% 5.82% --
Average pay rate 6.42 6.41 --
Interest rate swap agreements
to receive fixed rate
Notional amount $ 54 $ 24 $ 9
Average receive rate 7.00% 7.03% 6.92%
Average pay rate 5.91 6.82 6.96
- -------------------------------------------------------------------------------
Currency swap agreements
(receive U.S. $/pay Canadian $)
Notional amount (in U.S. $) $ 99 $ 72 --
Average exchange rate 1.57 1.62 --
- -------------------------------------------------------------------------------
</TABLE>
15.2 RELATED TO DEBT
Derivative financial instruments related to debt at December 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -------------------------------------------------------------------------------
<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 $ 540 $ 590 $ 390
Average receive rate 5.72% 6.10% 4.64%
Average pay rate 8.08 8.28 8.77
- -------------------------------------------------------------------------------
</TABLE>
During 1995, swap agreements hedging anticipated debt issuances were
terminated, and related settlement costs were deferred and are being recognized
as an increase to interest expense over the terms of the related debt. At
December 31, 1996, the remaining deferred costs were $12 million.
16
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>
1996 1995 1994
--------------------- -------------------- --------------------
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 $ 38,623 $ 38,623 $ 37,399 $ 37,399 $ 25,924 $ 25,924
Mortgage loans on real estate 3,025 2,970 3,148 3,041 2,668 2,651
Policy loans 1,703 1,728 1,610 1,605 1,078 1,197
Finance receivables, net 7,230 7,230 7,918 7,918 7,694 7,694
Assets held for sale 667 667 -- -- -- --
Liabilities
Insurance investment contracts 25,334 26,799 25,328 25,719 18,622 21,140
Short-term debt 3,493 3,493 3,043 3,043 3,777 3,777
Long-term debt
Corporate 1,239 1,171 1,291 1,170 851 836
Consumer Finance 4,608 4,499 5,225 4,980 4,208 4,313
- -------------------------------------------------------------------------------------------------------------
</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.
MORTGAGE LOANS ON REAL ESTATE. Fair value of mortgage loans was estimated
primarily using discounted cash flows, based on contractual maturities and
risk-adjusted discount rates.
POLICY LOANS. Fair value of policy loans was estimated using discounted
cash flows and actuarially determined assumptions, incorporating market rates.
42 AMERICAN GENERAL CORPORATION
<PAGE> 28
FINANCE RECEIVABLES, NET. Fair value of finance receivables, which
approximated carrying amount, was estimated using projected cash flows,
discounted at the weighted-average rates currently being offered for similar
finance receivables.
ASSETS HELD FOR SALE. Fair value of assets held for sale approximated the
carrying amount.
INSURANCE INVESTMENT CONTRACTS. Fair value of insurance investment
contracts was estimated using cash flows discounted at market interest rates.
DEBT. Fair value of short-term debt approximated 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. Had the company elected
to terminate its interest rate swap agreements related to debt at December 31,
1996, 1995, and 1994, it would have paid $30 million, $50 million, and $7
million, respectively. These fair values were based on estimates obtained from
the individual counterparties.
17
RESTRICTIONS AND CONTINGENCIES
17.1 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, 1996, the amount of
dividends available to American General from subsidiaries during 1997 not
limited by such restrictions is $703 million.
17.2 LEGAL PROCEEDINGS
Two real estate subsidiaries of American General 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 for $47 million in compensatory damages
and for $189 million in punitive damages. On September 17, 1993, a Texas state
district court reduced the previously awarded punitive damages by $60 million,
resulting in a reduced judgment in the amount of $176 million plus
post-judgment interest. On January 29, 1996, the Texas First Court of Appeals
rendered a decision that affirmed the trial court judgment and held both
companies liable to pay the punitive damages. The company intends to continue
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 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 representative 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, and a judgment was entered in
favor of the company on July 9, 1996, for the portion of the contingency
related to the representative case. The government has appealed this judgment;
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.
The company is party to various other lawsuits and proceedings arising in
the ordinary course of business. Many of these lawsuits and proceedings arise
in jurisdictions, such as Alabama, that permit damage awards disproportionate
to the actual economic damages incurred. Based upon information presently
available, the company believes that the total amounts that will ultimately be
paid, if any, arising from these lawsuits and proceedings will have no material
adverse effect on the company's consolidated results of operations and
financial position. However, it should be noted that the frequency of large
damage awards, including large punitive damage awards, that bear little or no
relation to actual economic damages incurred by plaintiffs in jurisdictions
like Alabama continues to increase and creates the potential for an
unpredictable judgment in any given suit.
18
BUSINESS SEGMENTS
18.1 NATURE OF OPERATIONS
The company reports the results of its business operations in three
segments.
RETIREMENT SERVICES. 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 other
not-for-profit organizations. VALIC markets products nationwide through
exclusive sales representatives. VALIC holds the strongest claims-paying
ability ratings available in the life insurance industry from three rating
agencies.
1996 ANNUAL REPORT 43
<PAGE> 29
CONSUMER FINANCE. American General Finance, Inc. and its subsidiaries (AGF)
provide consumer and home equity loans and other credit-related products
through branch offices in 41 states, Puerto Rico, and the U.S. Virgin Islands.
AGF also operates financing programs through 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 throughout the United States through both
employee agents and general agents. American General Life Insurance Company
serves the estate planning needs of middle- and upper-income households and the
insurance needs of small- to medium-size businesses. Franklin Life provides
life insurance to middle-income households. American General Life and Accident
Insurance Company concentrates on meeting the basic life insurance needs of
individuals with modest incomes. These companies hold claims-paying ability
ratings that are among the strongest in the life insurance industry.
18.2 SEGMENT RESULTS
Results of each segment include earnings from its business operations and
earnings on that amount of equity considered necessary to support its business.
Business segment information was as follows:
<TABLE>
<CAPTION>
Revenues Income before Taxes
-------------------------------- -----------------------------------------
In millions 1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Retirement Services $ 1,742 $ 1,655 $ 1,537 $ 341 $ 305 $ 282
Consumer Finance 1,726 1,790 1,491 55(a) 115(b) 392
Life Insurance 3,307 2,956 1,932 616 542 399
- ---------------------------------------------------------------------------------------------------------
Total business segments 6,775 6,401 4,960 1,012 962 1,073
- ---------------------------------------------------------------------------------------------------------
Corporate 110 131 105 (115)(c) (127)(c) (99)(c)
Realized investment gains
(losses) 67 12 (172) 67 12 (172)
Intersegment eliminations (65) (49) (52) -- 3 --
- ---------------------------------------------------------------------------------------------------------
Consolidated $ 6,887 $ 6,495 $ 4,841 $ 964(d) $ 850(d) $ 802
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Assets
---------------------------------
In millions 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Retirement Services $ 30,257 $ 27,084 $ 22,007
Consumer Finance 9,440 9,466 8,949
Life Insurance 25,078 23,592 14,156
- -------------------------------------------------------------
Total business segments 64,775 60,142 45,112
- -------------------------------------------------------------
Corporate 1,783 1,317 1,391
Realized investment gains
(losses) -- -- --
Intersegment eliminations (304) (306) (208)
- -------------------------------------------------------------
Consolidated $ 66,254 $ 61,153 $ 46,295
- -------------------------------------------------------------
</TABLE>
(a) Includes $145 million loss on assets held for sale.
(b) Includes $266 million increase in allowance for finance receivable losses.
(c) Primarily interest on corporate debt.
(d) Before dividends on preferred securities of subsidiaries.
19
QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- ----------------------------------------
In millions,
except per share data 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums and other
considerations $ 490 $ 502 $ 496 $ 480 $ 456 $ 455 $ 439 $ 403
Net investment income 834 817 820 800 804 797 772 722
Total revenues 1,730 1,725 1,721 1,711 1,677 1,673 1,627 1,518
Insurance and annuity
benefits 786 787 786 797 808 782 764 693
Operating costs and
expenses 293 278 288 264 281 250 242 234
Provision for finance
receivable losses 116 90 102 109 313(b) 114 75 72
Total benefits and expenses 1,609(a) 1,433 1,446 1,435 1,650 1,406 1,343 1,246
Net realized investment
gains (losses) 6 16 4 17 3 3 1 1
Net income 68(a) 172 168 169 9(b) 181 180 175
- -----------------------------------------------------------------------------------------------------------------
Per common share
Net income $ .33(a) $ .82 $ .79 $ .81 $ .05(b) $ .86 $ .88 $ .85
Dividends paid .32 .33 .32 .33 .31 .31 .31 .31
Market price
High 41 3/4 38 3/4 37 5/8 37 7/8 39 1/8 38 7/8 35 1/2 33 1/4
Low 35 3/4 34 32 7/8 33 1/4 31 33 5/8 31 1/8 27 1/2
Close 40 7/8 37 3/4 36 3/8 34 1/2 34 7/8 37 3/8 33 3/4 32 1/4
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
1994
-------------------------------------------
In millions,
except per share data 4th 3rd 2nd 1st
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)(c) 1 1
Net income 35 159 158 161
- -------------------------------------------------------------------------
Per common share
Net income $ .18 $ .77 $ .75 $ .75
Dividends paid .29 .29 .29 .29
Market price
High 28 7/8 30 1/2 29 3/8 29 5/8
Low 25 5/8 26 7/8 24 7/8 25 1/2
Close 28 1/4 27 1/8 27 5/8 27 7/8
- -------------------------------------------------------------------------
</TABLE>
(a) Includes $145 million pretax ($93 million aftertax or $.44 per share) loss
on assets held for sale.
(b) Includes $216 million pretax ($140 million aftertax or $.67 per share)
adjustment to the allowance for finance receivable losses.
(c) Results primarily from capital gains offset program.
44 AMERICAN GENERAL CORPORATION
<PAGE> 30
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, 1996, 1995, and 1994,
and the related consolidated statements of income, shareholders' equity, common
stock activity, and cash flows for each of the three years in the period ended
December 31, 1996. 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, 1996, 1995, and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 14, 1997
1996 ANNUAL REPORT 45
<PAGE> 1
- --------------------------------------------------------------------------------
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 February 28, 1997. Subsidiaries of subsidiaries
are indicated by indentations.
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation
- -----------------------------------------------------------------------------------------
<S> <C>
AGC Life Insurance Company.................................. Missouri
American General Life and Accident Insurance Company...... 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
VALIC Investment Services Company.................... Texas
VALIC Retirement Services Company.................... Texas
The Variable Annuity Marketing Company............... Texas
The Franklin Life Insurance Company....................... Illinois
The American Franklin Life Insurance Company........... Illinois
Franklin Financial Services Corporation................ Delaware
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
Yosemite Insurance Company............................. California
American General Finance, Inc. ........................... Alabama
American General Financial Center......................... Utah
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
American General Realty Investment Corporation.............. Texas
Bayou Property Company ..................................... Delaware
Financial Life Assurance Company of Canada.................. Canada
GPC Property Company........................................ Delaware
Knickerbocker Corporation................................... Texas
1996 FORM 10-K 23
</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 14, 1997,
included in the 1996 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>
333-13407................................................... S-8
33-39200.................................................... S-8
333-13401................................................... S-8
33-39201.................................................... S-8
333-13395................................................... S-8
33-39202.................................................... S-8
33-51973.................................................... S-8
2-98021..................................................... S-8
333-23275................................................... S-8
33-19075.................................................... S-3
33-30693.................................................... S-3
33-58317.................................................... S-3
33-58317-01................................................. S-3
33-58317-02................................................. S-3
33-51045.................................................... S-3
333-23551................................................... S-4
- -----------------------------------------------------------------------------------
</TABLE>
of our report dated February 14, 1997, 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 19, 1997
<PAGE> 1
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ J. EVANS ATTWELL
------------------------------------
J. Evans Attwell
<PAGE> 2
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ BRADY F. CARRUTH
------------------------------------
Brady F. Carruth
<PAGE> 3
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ JAMES S. D'AGOSTINO, JR.
------------------------------------
James S. D'Agostino, Jr.
<PAGE> 4
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ W. LIPSCOMB DAVIS, JR.
------------------------------------
W. Lipscomb Davis, Jr.
<PAGE> 5
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ HAROLD S. HOOK
------------------------------------
Harold S. Hook
<PAGE> 6
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ LARRY D. HORNER
------------------------------------
Larry D. Horner
<PAGE> 7
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ RICHARD J.V. JOHNSON
------------------------------------
Richard J.V. Johnson
<PAGE> 8
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/s/ ROBERT E. SMITTCAMP
------------------------------------
Robert E. Smittcamp
<PAGE> 9
EXHIBIT 24
AMERICAN GENERAL CORPORATION: BOARD OF DIRECTORS
Date: February 6, 1997
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 1996 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, 1996 (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/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, CARL J. SANTILLO, and JOHN A. ADKINS, and each of them, severally,
his/her 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/her
name, place, and stead, in his/her 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 sixth
day of February, 1997.
/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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 38,490<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 133
<MORTGAGE> 2,970
<REAL-ESTATE> 598
<TOTAL-INVEST> 44,270
<CASH> 149
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,924<F2>
<TOTAL-ASSETS> 66,254
<POLICY-LOSSES> 38,083<F3>
<UNEARNED-PREMIUMS> 217<F3>
<POLICY-OTHER> 182<F3>
<POLICY-HOLDER-FUNDS> 1,750<F3>
<NOTES-PAYABLE> 9,163
1,227<F4>
85<F5>
<COMMON> 398
<OTHER-SE> 5,138<F6>
<TOTAL-LIABILITY-AND-EQUITY> 66,254
1,968<F7>
<INVESTMENT-INCOME> 3,271
<INVESTMENT-GAINS> 67
<OTHER-INCOME> 1,581<F8>
<BENEFITS> 3,156
<UNDERWRITING-AMORTIZATION> 324<F9>
<UNDERWRITING-OTHER> (398)<F10>
<INCOME-PRETAX> 964<F11>
<INCOME-TAX> 347<F12>
<INCOME-CONTINUING> 577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 2.75
<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 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 CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; AND COST OF TREASURY STOCK.
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $61 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $21 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
