HOUSTON, Jan. 27 /PRNewswire/ -- American General Corporation (NYSE: AGC),
one of the nation's largest diversified financial services organizations with
assets of $81 billion and market capitalization of $14 billion, today reported
a 15% increase in 1997 operating earnings to a record $868 million or
$3.49 per share compared to $756 million or $3.04 per share in 1996.
Year Ended Quarter Ended
December 31, December 31,
Operating Earnings 1997 1996 Change 1997 1996 Change
In Millions $ 868 $ 756 + 15% $219 $185 + 18%
Per Share (diluted) $3.49 $3.04 + 15% $.88 $.75 + 17%
Net income, which includes net realized gains and other non-recurring
items, was $542 million in 1997 compared to $653 million for 1996. Net income
for 1997 includes a previously reported $353 million charge primarily
associated with the USLIFE acquisition, and net income for 1996 includes a
$143 million charge ($93 million in the fourth quarter) principally relating
to the company's decision to dispose of certain non-strategic assets.
Fourth quarter operating earnings increased 18% to $219 million compared
to $185 million in the 1996 period. Operating earnings per share for the
quarter increased 17% to $.88 compared to $.75 in the 1996 fourth quarter.
Net income for the quarter was $230 million or $.92 per share compared to
$95 million or $.39 per share in the 1996 period.
As a result of the pooling of interests method used to account for the
company's $1.8 billion acquisition of USLIFE Corporation, past financial
results for American General have been restated to present the combined
operations of American General and USLIFE for all periods.
Commenting on the results, Robert M. Devlin, chairman and chief executive
officer, said, "The past year was pivotal to the development and competitive
positioning of American General. Our strategy for growth, which includes
opportunistic acquisitions as well as internal expansion, is producing solid
near-term results and improved returns to shareholders. In 1997, operating
earnings per share increased 15%, operating return on shareholders' equity
increased to 14%, and total return to shareholders was 36%. We are committed
to achieving long-term objectives of 12-14% growth in earnings per share and
15% return on shareholders' equity.
"Our accomplishments for the year will produce benefits far beyond the
1997 operating results. We took bold steps to redefine the way our life
insurance organization operates. In addition to consolidation and integration
activities, we have developed a shared services environment which will set new
standards in the industry for product development, marketing, and operating
efficiency. In retirement services, our leading competitive position will be
enhanced by the Western National acquisition which will create additional
opportunities for sales and asset growth. Furthermore, the revitalization of
our consumer finance branch office network provides a solid foundation for
continuing loan growth and increasing profitability.
"American General is emerging as a company with distinct competitive
strengths, capable of delivering consistently solid growth and returns to
shareholders. We are enthusiastic about the outlook for American General, an
outlook that is being significantly enhanced by internal expansion,
organizational changes, and acquisitions. Our goal is to be the premier
provider of financial services in the markets we serve."
1997 Corporate Activities
Home Beneficial Acquisition. On April 16, 1997, American General
completed the $665 million acquisition of Home Beneficial Corporation for $283
million in cash and 9.5 million shares of American General common stock. The
operations of Home Beneficial are being consolidated into the career agency
division of the life insurance segment.
USLIFE Acquisition. On June 17, 1997, American General completed the $1.8
billion acquisition of USLIFE Corporation in an all-stock transaction through
the issuance of approximately 39 million shares. Following the acquisition,
the USLIFE holding company was eliminated and its operating companies
integrated into the independent producer division of the life insurance
segment.
Life Insurance Divisional Realignment. Following the completion of the
USLIFE acquisition, the company realigned its life insurance segment into two
divisions based on distribution system and market focus -- the independent
producer division and the career agency division. This structure is expected
to increase sales through improved product development and enhanced customer
service, and to improve profitability through increased operating
efficiencies.
Western National Acquisition. On September 12, 1997, American General
agreed to acquire, for approximately $1.2 billion, the remaining 55% of
Western National Corporation not currently owned by the company. Western
National is the nation's leading provider of fixed annuities sold through
financial institutions. This acquisition is expected to close on February 25,
1998. Upon completion of the transaction, Western National will become part
of American General's retirement services segment, with pro forma 1997 annuity
sales of more than $5 billion.
Strategic Venture in Mexico. American General entered the rapidly growing
Mexican retirement savings market through a strategic partnership enabling the
company to participate in the reforms to the country's social security system.
American General has a 40% interest in a new venture formed with Grupo
Nacional Provincial, S.A., one of Mexico's largest financial services
companies. This venture provides enrollment, administration, investment
services, and single premium immediate annuities for employees covered under
the Mexican social security system.
Acquisition of Annuity Business. On December 8, 1997, the company
announced a definitive agreement for the purchase of a block of individual and
tax-sheltered annuities from Provident Companies, Inc. for $58 million. The
transaction, which includes $2.4 billion of annuity reserves, is expected to
close by March 31, 1998.
Disposition of Non-strategic Assets. During 1997, the company completed
the disposition of certain non-strategic assets. These assets, with a book
value totaling $1.1 billion, included the company's land development business,
a small Canadian life insurance subsidiary, and certain finance receivables.
Proceeds from these sales were used for internal growth, debt reduction, and
acquisitions.
Share Buyback Activity. American General purchased 9.9 million of its
common shares for a total cost of $466 million during 1997, the largest year
in terms of share buyback in the company's history.
Additional Corporate Financial Highlights
-- Revenues and deposits increased to $14 billion, up 6% from 1996;
-- Assets increased $6.5 billion to $81 billion, up 9% from a year ago;
-- Operating return on shareholders' equity was 14%, up from 13% in 1996;
and,
-- Common stock price per share increased 32% in 1997 to $54.06.
Segment Reporting
American General reports its financial results in three business segments
and a category for corporate items.
Year Ended Quarter Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
In Millions:
Retirement Services $246 $225 + 9% $ 60 $ 50 + 19%
Life Insurance 576 536 + 7 152 137 + 11
Consumer Finance 156 128 + 21 36 26 + 39
Segment Earnings $978 $889 + 10% $248 $213 + 16%
The Retirement Services segment is a leading provider of retirement plans
and employer-sponsored retirement programs to employees of educational, health
care, public sector, and other not-for-profit organizations. With $35 billion
in assets, this segment has 1.7 million participant accounts serviced by a
sales force of 1,000 retirement planning specialists.
The Life Insurance segment is the second largest writer of new individual
life insurance premium in the United States. With assets of $35 billion, this
segment has life insurance in force of $325 billion, and serves over eight
million customers, through 32,000 agents.
The Consumer Finance segment is a leading provider of home equity loans,
consumer loans, and credit-related life insurance products. With finance
receivables of $8.0 billion and a nationwide network of 1,350 branch offices,
this segment serves 2.4 million customer accounts.
Retirement Services
1997 Performance Highlights.
-- Assets increased 16% to $35 billion;
-- Annualized premium sales increased 24% to $1.6 billion;
-- Segment earnings increased 9% to $246 million; and,
-- Return on equity increased to 16.3% from 15.7%.
Full-Year Results. The retirement services segment experienced strong
sales and asset growth in 1997 as a result of its leading competitive position
in the retirement savings market. Sales increased 24% in 1997 compared to
1998, and led to a 17% increase in premium deposits to $3.4 billion. The
segment achieved double-digit growth in sales and assets in each of its
markets, reflecting strong demand for its top-selling Portfolio Director
variable annuity product. Participant accounts increased 13% to 1.7 million
at year end.
The shift in customer preference for equity-based variable annuity
products continued throughout the year. As a result, variable premium
deposits increased 37% in 1997, and were 53% of total premium deposits for the
year compared to 45% in 1996. The growth in variable premium, combined with
market appreciation, led to a 48% increase in separate account assets to
$10.6 billion. Variable account reserves accounted for 32% of total reserves
at year end compared to 25% in 1996.
The 9% increase in segment earnings resulted from the growth in assets
combined with the shift toward variable products. The higher earnings, and
the lower capital required for variable products, led to an increase in return
on equity to 16.3% from 15.7% in the prior year. The surrender ratio remained
low at 4.7% compared to 4.4% in 1996. Operating expenses as a percentage of
average assets improved to .49% compared to .52% in the prior year.
Fourth Quarter Results. Fourth quarter segment earnings increased 19% to
$60 million compared to $50 million in the prior year period. Sales increased
19% compared to the year-ago quarter and contributed to a 14% increase in
total premium deposits. Variable premium deposits accounted for 55% of total
premium deposits compared to 49% a year ago. The Portfolio Director series of
products accounted for 78% of premium deposits in the fourth quarter compared
to 68% in the prior year period.
Life Insurance
1997 Performance Highlights
-- Annualized premium life sales increased 10% to $521 million;
-- Segment earnings increased 7% to $576 million;
-- Total deposits increased 9% to $1.7 billion; and,
-- Return on equity was unchanged at l0%.
Full-Year Results. The life insurance segment experienced a year of
dramatic expansion and change designed to further capitalize on the company's
position as a leading provider of life insurance products. In 1997, the
company completed the acquisition of Home Beneficial and USLIFE Corporation,
and realigned the segment into two divisions based upon distribution and
market focus. These acquisitions, combined with the realignment, have enabled
the life insurance segment to capitalize on efficiencies resulting from the
sharing of common products and services, and to improve the marketing of its
products through an expanded and more focused distribution network.
The life insurance segment continued to produce solid near-term operating
performance with earnings increasing 7% to $576 million compared to
$536 million in the prior year. In 1997, the life insurance segment
outperformed the industry with annualized life sales increasing 10%. The
growth in sales reflects expansion into the corporate executive benefits
market, strong performance from key producer groups, and the contribution from
acquired companies.
Consolidation and integration activities in the segment are progressing
according to plan. The implementation of the shared services platform in the
independent producer division is well underway. Annualized operating expense
savings totaling $50 million are scheduled to be realized beginning in the
first quarter of 1998. During the year, the career agency division completed
the consolidation of Independent Life, acquired in 1996, and the consolidation
of the operations of Home Beneficial is on schedule. The benefits achieved in
these consolidations led to the increase in earnings for the segment compared
to the prior year.
Fourth Quarter Results. Fourth quarter earnings for the life insurance
segment increased 11% to $152 million compared to $137 million in the
1996 period. The growth in earnings primarily reflects the benefits of the
company's acquisition and consolidation activities during 1997. Annualized
life sales increased 11% compared to the prior year, while life insurance in
force increased 5% to $325 billion.
Consumer Finance
1997 Performance Highlights.
-- Segment earnings increased 2l% to $156 million;
-- Delinquency ratio improved to 3.60% from 3.83%;
-- Charge-off ratio improved to 3.60% from 5.47%; and,
-- Return on equity increased to l3% from 10%.
Full-Year Results. The 21% increase in consumer finance segment earnings
during 1997 was primarily due to the decrease in charge offs resulting from
improved credit quality in the receivable portfolio. The improvements in
credit quality resulted from the higher percentage of real estate-secured
receivables, enhanced underwriting and risk scoring, and the sale of non-
strategic assets. The lower level of charge offs led to an improvement in
risk-adjusted spread to 6.41% from 5.50% in the prior year.
The receivables portfolio was $8.0 billion at year-end 1997, a 5% increase
from 1996. This increase primarily resulted from growth in loan volume
generated by the nationwide branch office network and a focus on key retail
merchant relationships. The receivables portfolio consisted of 52% real
estate-secured loans at year end, up from 40% a year ago.
The shift toward higher quality, real estate-secured loans combined with
higher underwriting standards led to the improvement in the delinquency ratio
compared to prior year end. At the end of 1997, the allowance for loan losses
was $373 million or 4.65% of finance receivables, and remained conservative
near the high end of the company's historic range of charge-off coverage.
Fourth Quarter Results. Consumer finance segment earnings were
$36 million in the quarter, a 39% increase over the prior year period. The
improvement in earnings was primarily due to the lower level of charge offs in
the current quarter resulting from improved credit quality. The charge-off
ratio in the quarter was 3.64%, down from 5.69% in the fourth quarter of
1996 and compares to 3.27% in the third quarter of 1997. Seasonal factors
typically lead to an increase in charge offs in the fourth quarter. The
consumer finance segment experienced strong loan growth in the quarter with
finance receivable activity increasing 11% over the comparable 1996 period.
Corporate Operations
Corporate operations include operating items such as cost of debt and
preferred capital, corporate expenses and earnings on assets not allocated to
segments, and non-operating items; such as realized investment gains and other
non-recurring items.
Year Ended Quarter Ended
December 31, December 31,
1997 1996
In Millions:
Interest on Corporate Debt $(107) $(114) $ (26) $ (27)
Dividends on Preferred Securities (84) (40) (22) (11)
Equity in Earnings of Western National 46 27 15 9
Other Corporate 35 (6) 4 1
Total Corporate Operations $(110) $(133) $ (29) $ (28)
Realized Investment Gains $ 27 $ 40 $ 11 $ 3
Non-recurring Items $(353) $(143) $ --- $ (93)
The increase in dividends on preferred securities resulted from the
additional capital required to complete acquisitions during the year, and the
higher level of capital retained at various subsidiaries. Equity in earnings
of Western National increased as a result of higher operating earnings at
Western National, the increased percentage of equity ownership, and a change
in the accounting treatment of taxes on such earnings following American
General's announcement to acquire the remaining portion of the company. The
higher level of excess capital led to an increase in earnings on assets not
allocated to segments and contributed to the improvement in the other
corporate category. The non-recurring items in the full-year 1997 period
include previously disclosed change-of-control costs for the USLIFE
acquisition, charges related to the disposition of non-strategic assets, costs
associated with the life segment divisional realignment, and settlement of
litigation. The 1996 nonrecurring items primarily relate to a charge
associated with assets held for sale in the fourth quarter and a charge taken
by the USLIFE group health operation.
American General Corporation is one of the nation's largest diversified
financial services organizations with assets of $81 billion and shareholders'
equity of $7.6 billion. Headquartered in Houston, it is a leading provider of
retirement services, life insurance, and consumer loans to 12 million
customers. American General common stock is listed on the New York, Pacific,
London, and Swiss stock exchanges.
Certain information included in this press release is forward looking and
involves risks and uncertainties, including general economic and competitive
conditions, that could significantly impact expected results. Investors also
are directed to other risks and uncertainties discussed in documents filed by
the company with the Securities and Exchange Commission.
SOURCE American General Corporation
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Related links:
http://www.agc.com
CONTACT:
Investors: Robert D. Mrlik, Vice
President-Investor Relations, 713-831-1137, or David W. Entrekin,
Vice President-Investor Relations, 212-446-3109, or Media: John
E. Pluhowski, Director-Corporate Communications, 713-831-1149,
all of American General Corporation
CNOC: http://www.prnewswire.com or fax, 800-758-5804, ext.
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