Deferred Tax Assets

Here is a table of deferred tax assets by OIS, for those having more than 10% of surplus in DTAs. Deferred tax assets are only valuable to the degree that you can earn income adequate to use them. The column ?DTA payback? indicates the number of years of 2007 earnings (a relatively good year) that it would take to fully use the DTAs.

Now, it may no longer matter whether AIG ever pays taxes or not. It is largely ?in one pocket, out of the other? with the government. But it does have some solvency and profit implications for the subsidiaries.

Subsidiary	DTAs/ Surplus	2008YE Surplus	DTA payback
American General L&A IC	152%	488	6.24
Am Int LIC of NY	133%	371	13.22
AIG LIC	131%	360	11.91
AIG Annuity IC	117%	3,045	15.53
First SunAmerica LIC	85%	544	17.37
The Variable Annuity LIC	70%	2,841	7.08
UG Residential IC of NC	61%	200	NA
American General LIC	50%	5,185	6.66
American Life IC	43%	3,900	2.93
AIG Premier IC	37%	144	151.43
SunAmerica LIC	35%	4,653	4.94
Hartford Steam Boiler IAIC	29%	443	1.65
AIG Centennial IC	24%	305	NA
AIG Hawaii IC	23%	64	NA
AIG SunAmerica LAC	20%	1,271	4.26
United Guaranty IC	19%	52	2.60
American Home Assurance Co	19%	5,702	1.81
AIU IC	18%	726	3.66
AIG National IC	12%	17	NA
Merit LIC	12%	406	2.00

DTAs as assets earn no income, and there is nothing that can be tapped for cash in a crisis. In insolvency, they are not very useful, because acquirers can only use them in very limited ways. Therefore, having a long DTA payback period, or a high amount of DTAs as a fraction of surplus is a negative for profitability and solvency.

This will prove to be more of a difficulty if prior profitability levels are not regained, which could be particularly difficult for the equity-sensitive OISs, where fees from variable products will likely be down for a while. Also, consider that the OISs as a whole may find that 2007 was an exceptionally good year for investments and underwriting, and may not be achievable any time soon.