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.