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American General Reports Higher Operating Earnings But Big Charge For Pru Break-Up

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NU Online News Service, July 27, 1:05 p.m. – American General Corp., Houston, is reporting a net loss of $312 million for the second quarter on $6.1 billion in revenue, compared with $94 million in net income on $5.7 billion in revenue for the second quarter of 2000.

Operating earnings increased to $360 million, from $325 million.

American General, company that sells life insurance, asset management products and consumer loans, backed out of an acquisition agreement with Prudential P.L.C., London, during the quarter, and agreed to be acquired by American International Group Inc., New York.

The net earnings figures include $425 million in charges related to the break-up with the British Prudential (which has no connection with Prudential Insurance Company of America) and $49 million in charges related to an accounting change, American General says.

The net figures also include $198 million in charges related to problems with bonds in the company investment portfolio, and efforts to optimize the company tax position in preparation for the AIG acquisition, American General says.

Despite the recent weakness in the U.S. economy, the asset management business increased operating earnings to $187 million on $1.8 billion in net annuity flows, up from $166 million on $1.2 billion in net annuity flows for to second quarter of 2000, and total annuity deposits increased 12%, to $2.7 billion.

Although cash continued to flow into American General annuities, the value of funds in separate accounts fell 14% as a result of the slump in the stock market, the company says.

On the life insurance side, earnings increased to $202 million on $1.4 billion in direct premiums and deposits, up from $190 million on $1.3 billion in premiums and deposits.

Sales of variable annuities and sales through career agents were weak, but sales of corporate products and sales of variable-universal life insurance through independent producers were strong, the company says.

American General is happy with its results for the quarter, given the market turmoil and the challenge of preparing for the AIG acquisition, according to American General Chairman Robert Devlin.

American General did not give any figures on the anticipated size of restructuring charges resulting from the pending AIG, or the anticipated number of layoffs, but it has filed a registration statement with the U.S. Securities and Exchange Commission that could allow it to borrow up to $3.5 billion.


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