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2005 ANNUAL REPORT
American International
Group, Inc.

Table of contents

  • Page 1
    2 0 0 5 A N N U A L R E P O R T American International Group, Inc.

  • Page 2
    ...G 45 Five Year Summary of Consolidated Operations 46 Five Year Summary of Selected Financial Information 47 Supplemental Financial Information 48 Board of Directors 49 Corporate Directory Annual Report on Form 10-K Inside Back Cover Shareholder Information Photographs of AIG colleagues from around...

  • Page 3
    ...sum of General Insurance net premiums earned, Life Insurance & Retirement Services GAAP premiums, net investment income, Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income from guaranteed investment contracts, and realized...

  • Page 4
    ...our business objectives, continuing to innovate with new products and services to meet our customers' needs around the world. No other insurance and financial services organization has the combination of depth of talented staff, entrepreneurial culture, leading worldwide market positions, extensive...

  • Page 5
    .... This performance was achieved after a $1.15 billion after-tax charge resulting from settlements with our regulators and a $1.19 billion after-tax charge in the fourth quarter related to an increase in the General Insurance net reserve for losses and loss expenses. AIG also reported a record $2.11...

  • Page 6
    ... and internal issues reï¬,ects the diversity and strength of our major busi- nesses - General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. All are global businesses, and all are well positioned in their domestic and overseas markets. AIG's franchise...

  • Page 7
    ... distribution into regional and national brokers. Our Domestic Personal Lines business had solid results in 2005, outperforming industry premium growth. The Private Client Group had strong results, and serves nearly one-third of the Forbes "400 Richest Americans." G eneral Insurance, one of AIG...

  • Page 8
    ...through proven distribution channels, innovative strategies and breadth of product. AIG American General has initiatives under way to increase accident and health sales through worksite and direct marketing, while remaining disciplined in underwriting and risk selection. Our overseas life network is...

  • Page 9
    ... AIG. United States, AIG companies constitute the largest foreign-owned life insurance operation and the fifth largest of all life insurers in the country based on total premiums. First year life premiums and annuities had good growth in China. We now have a 19.9 percent market share of total 2005...

  • Page 10
    ... life insurance investment portfolios. Over the past 10 years, AIG has also developed its outside client asset management business conducted through AIG Global Investment Group (AIGGIG). At year-end 2005, these client assets under management, including institutional accounts and retail mutual funds...

  • Page 11
    ... Financial Officer and most recently as Vice Chairman of the Board. He was also Deputy Commissioner of Legal Matters for the New York City Police Department, a Director of the New York Stock Exchange and Chairman of the National Association of Securities Dealers. In April, 2005, the Board announced...

  • Page 12
    ... Executive Officer March 16, 2006 under our new management team. This year, I have addressed how we have dealt with the challenges facing us, and how our major businesses are positioned to succeed in the future. We have made a number of important changes in our corporate governance, compliance...

  • Page 13
    AIG 97,000 people around the world making a difference. For their customers. For their communities. For our shareholders. AIG 2005 Annual Report â- 11

  • Page 14
    ... Tramel Regional Underwriting Manager Barbara T. Allen Claims Specialist Sandy Wolf Underwriting Technician Herman L. Bastian, Jr. Managing Attorney Dianne Coleman Underwriter AIG colleagues, including those pictured here, moved swiftly in Hurricane Katrina's aftermath to help customers recover...

  • Page 15
    ... and General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. U N P A R A L L E L E D R A N G E Our diversity in terms of products, markets and distribution contributes to our financial strength. Left to right: AIG businesses are well positioned to meet...

  • Page 16
    ... customers. â- â- For many years, the Domestic Brokerage Group companies have ranked as the leading U.S. underwriters of commercial and industrial insurance. â- â- ALICO is ranked as the largest life insurer in the Middle East. ILFC is a leading lessor of advanced technology jet aircraft...

  • Page 17
    AIG American General, the leading U.S. life insurer as measured by individual life insurance issued, is continuously looking for new ways to enhance service efficiency for its customers. At the company's office in Milwaukee, Wisconsin, the express underwriting team's focus is on issuing a high ...

  • Page 18
    ... thriving life insurance business since 2000. Pictured here are AIG General Insurance (Vietnam) Company Limited employees at Cua Nam Junction in Hanoi, not far from their new headquarters. Left to right: Nguyen Phuong Hang General Administrative Assistant Nguyen Nguyet Thanh Regional Manager Nguyen...

  • Page 19
    ... shareholder value, not only for today, but for future generations as well. known for entering new markets ahead of its peers. The company is constantly evaluating growth areas for possible expansion and developing innovative new products and services to meet evolving AIG 2005 Annual Report...

  • Page 20
    ...to best meet them. R E L A T I O N S H I P S We stay close to our customers and respond quickly to their changing needs. Left to right: AIG Retirement Services offers a wide array of products, including variable annuities, fixed annuities and mutual funds. The newly opened â- AIG Tower in Hong...

  • Page 21
    ... Spray Systems The AIG Private Client Group launched its Wildfire Protection Unit in 2005 to help high-net-worth customers living in specific at-risk regions reduce the threats that wildfires pose to their homes and personal property. In addition to preventative measure services, the program...

  • Page 22
    ..., American General Finance, Inc. uses cutting-edge technology to reach customers. In 2005, the company generated record consumer loan volume via the Internet. Left to right: Jose Tejada Branch Manager Zabe Ahmed Financial Representative Carlton Lowe Customer Account Specialist Making a Difference

  • Page 23
    ... developed accident and health products to customers in virtually every town in the world's largest country. AIG American General's Afï¬,uent Markets Group provides a full range of products and marketing services â- to leading life insurance producers and organizations serving the high-net-worth...

  • Page 24
    ... company with the best agents. Axel I. Freudmann, AIG Senior Vice â- â- President, Human Resources, meets with employees to discuss leadership building and developing competitive advantages. AIG American General â- handles more than 117,000 individual life insurance claims each year, totaling...

  • Page 25
    ... and market leadership throughout Southeast Asia are testaments to its strong commitment to agency development. First-class training programs provide these AIA Hong Kong managers with the tools they need to guide their local teams in delivering superior customer service and upholding the company...

  • Page 26
    ... Fujinami Senior Business Administrator Akihiro Sekiya Portfolio Manager Hiroshi Motoki Chief Investment Officer Akihito Yamanoi General Manager In Japan, AIG Global Investment Group (AIGGIG) has launched Socially Responsible Investment Funds that invest in companies with a "quality of life" focus...

  • Page 27
    .... AIG Global Real Estate Investment Corp. developed Atlantic Station â- in Atlanta, and with the early help of AIG Environmental, led one of the largest brownfield remediation efforts ever undertaken in the United States. AIG is among the world's largest investors in government securities and...

  • Page 28
    ... home run the New York Mets hit at Shea Stadium during the 2005 season. Working with Project Hope, AIU Shanghai funded the construction of a primary school in remote Jiangxi, â- China. AIG colleagues volunteer with New York Cares, an organization that provides hands-on services for New Yorkers...

  • Page 29
    ...: DeVon Henson Administrative Coordinator Judy Storey Associate Field Service Analyst Ray Sawicki Claims Director Background, left to right: Cheryl Howard New Business Associate Director Dianne Villareal Team Service Assistant Darrel John Research Coordinator On roof: Cecil Price Unit Leader 27

  • Page 30
    ... life insurer. Strategies for enhancing growth focus on developing new markets, expanding distribution channels and broadening product offerings. AIG has one of the premier Retirement Services businesses in the United States. It also has an extensive international retirement services network to meet...

  • Page 31
    ... and customized commodities, credit, currencies, energy, equities and rates. Clients include top-tier corporations, financial institutions, governments, agencies, institutional investors and high-net-worth individuals throughout the world. â- â- Domestic Life Insurance & Retirement Services In...

  • Page 32
    General Insurance AIG's General Insurance operations include the largest U.S. underwriters of commercial and industrial insurance, the most extensive international propertycasualty network, a personal lines business with an emphasis on auto insurance and high-net-worth clients and mortgage guaranty...

  • Page 33
    ...innovative coverage plan for hedge funds that bundles comprehensive D&O, partnership and professional liability insurance into a single package. National Union also launched new product packages for private companies with revenues up to $100 million and public companies with market capitalization up...

  • Page 34
    ... and mortgage investors, including mortgage fraud recovery services and private education loan default insurance. (in millions, except ratios) 2005 2004 Domestic Personal Lines The core businesses of AIG's Domestic Personal Lines are AIG Direct, Agency Auto, 21st Century Insurance Group and the AIG...

  • Page 35
    ... regions. In 2005, Foreign General reported net premiums written of nearly $10 billion, and a combined ratio of 85.56, which ranks among the best in the industry. A major area of growth was in the consumer segment, with strong production in accident and health, and record profits in personal lines...

  • Page 36
    ... of customers around the world, AIG's growing Life Insurance & Retirement Services businesses constitute the industry's most extensive network. (in millions) 2005 2004 Premiums, deposits and other considerations(a) GAAP premiums Net investment income Operating income before realized capital gains...

  • Page 37
    ..., ALICO reported strong results. ALICO Japan's good performance is attributable to increased sales of life products, continued growth in accident and health profits, and increased annuity assets under management. Both captive and independent agency sales channels grew at double-digit rates for the...

  • Page 38
    ... Management Division (GMD) is the primary distribution arm for AIG's international employee benefits, credit, and pension products and services. GMD continued its strong performance in 2005 by maintaining its leadership position as either the number one or two provider of group benefits in Hong...

  • Page 39
    ... lines of business, as well as newer ones designed for the worksite and accident and health markets. In the independent distribution network, 72 percent of 2005 paid sales were derived from products created or revised in the last 24 months. AIG American General's deferred annuity unit has...

  • Page 40
    ...'s Financial Services businesses specialize in aircraft and equipment leasing, capital markets, consumer finance and insurance premium finance. These businesses complement AIG's core insurance operations and achieve a competitive advantage by capitalizing on opportunities throughout AIG's global...

  • Page 41
    ... American General Finance, Inc. Steven Udvar-Hazy President International Lease Finance Corporation Financial Services AIG's Financial Services Group is global in scope, with diverse businesses that emphasize efficient use of capital and regularly generate above average returns in the markets...

  • Page 42
    ...Asset Management Group manages institutional, retail and private fund assets, in addition to AIG insurance company invested assets. Businesses in the Group also include retail mutual funds, broker-dealer services, private banking and guaranteed investment contracts. (in millions) 2005 2004 Revenues...

  • Page 43
    ...customer base by consistently delivering innovative product offerings, including new real estate, private equity and hedge funds. As a result, 60 percent of new assets raised in 2005 were from existing clients. In 2005, AIGGIG continued to grow its AIG-Huatai Fund Management Company Limited in China...

  • Page 44
    ... high yield, distressed and emerging market bonds; public and private equity securities; hedge funds; real estate and other investments having equity-like risks and expected returns. Non-U.S. Life Insurance & Retirement Services portfolios, other than those that are dollar-denominated, are generally...

  • Page 45
    ...maintain private market valuations. (in millions) December 31, 2005 General Insurance Life Insurance & Retirement Services Financial Services Asset Management Other Total Percent of Total Cash and Invested Assets: Fixed maturities Equity securities Mortgage loans on real estate, policy and...

  • Page 46
    ...charge General Insurance combined ratio, excluding catastrophe losses, change in estimate for asbestos and environmental exposures, and reserve charge Life Insurance & Retirement Services revenues: GAAP premiums Net investment income Realized capital gains (losses) Total Life Insurance & Retirement...

  • Page 47
    ...Year Summary of Consolidated Operations * (in millions) Years Ended December 31, 2005 2004 2003 2002 2001 Compound Annual Growth Rate 2001-2005 General Insurance operations: Gross premiums written Net premiums written Net premiums earned Underwriting profit (loss)(a) Net investment income...

  • Page 48
    ... by American General Corporation, which was acquired by AIG on August 29, 2001. (h) Market capitalization is based on the number of AIG shares outstanding multiplied by the closing price per share at December 31 on the New York Stock Exchange. 46 Five Year Summary of Selected Financial Information

  • Page 49
    ...981 1,629 39,866 $ 66,844 Life insurance Personal accident and health Group products Retirement services Individual fixed annuities Individual variable annuities Total foreign Total (a) Premiums, deposits and other considerations represent aggregate business activity during the respective periods...

  • Page 50
    ... Executive Officer Offit Hall Capital Management LLC Founder and Former Chief Executive Officer, OFFITBANK Michael H. Sutton Consultant Former Chief Accountant of the United States Securities and Exchange Commission Edmund S.W. Tse Senior Vice Chairman, Life Insurance American International Group...

  • Page 51
    ... Nottingham Executive Vice President Life Insurance Robert M. Sandler Executive Vice President Domestic Personal Lines Nicholas C. Walsh Executive Vice President Foreign General Insurance Jay S. Wintrob Executive Vice President Retirement Services Edward T. Cloonan Vice President Corporate Affairs...

  • Page 52
    ...I N C . Corporate Directory Continued Honorary Directors International Advisory Board LIFE INSURANCE & R E T I R E M E N T S E RV I C E S Bruce R. Abrams Senior Vice President Retirement Services Frank Chan Senior Vice President Life Insurance Robert W. Clyde Vice President Life Insurance Jose...

  • Page 53
    ... Street, New York, New York (Address of principal executive offices) Registrant's telephone number, including area code (212) 770-7000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, Par Value $2.50 Per Share...

  • Page 54
    ... Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant Fees and Services Exhibits and Financial Statement Schedules...

  • Page 55
    ... Life Insurance Company (SunAmerica Life) and AIG SunAmerica Life Assurance Company. AIG's Financial Services operations are conducted primarily through International Lease Finance Corporation (ILFC), AIG Financial Products Corp. and AIG Trading Group Inc. (AIGTG) and their respective subsidiaries...

  • Page 56
    ... sum of General Insurance net premiums earned, Life Insurance & Retirement Services GAAP premiums, net investment income, Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income from Guaranteed Investment Contracts (GICs), and...

  • Page 57
    ...); Personal Lines, including 21st Century Insurance Group (21st Century); and United Guaranty Corporation (UGC). AIG's primary domestic division is DBG. DBG's business in the United States and Canada is conducted through its General Insurance subsidiaries including American Home, National Union...

  • Page 58
    ... in terms of classes of business and geographic locations. In General Insurance, approximately 15 percent of net premiums written for the year ended December 31, 2005 represented workers compensation business. During 2005, of the direct General Insurance premiums written (gross premiums less return...

  • Page 59
    ...workers compensation, and D&O and related management liability classes of business. These classes in total produced approximately $4 billion of adverse development in 2005, primarily related to claims from accident years 2002 and prior. For most other classes, accident years 2002 and prior generally...

  • Page 60
    ...loss expense reserves and the development thereof including those with respect to asbestos and environmental claims. See also Management's Discussion and Analysis of Financial Condition and Results of Operations. (in millions) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Net Reserves Held...

  • Page 61
    ...loss expense reserves and the development thereof excluding those with respect to asbestos and environmental claims. See also Management's Discussion and Analysis of Financial Condition and Results of Operations. (in millions) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Net Reserves Held...

  • Page 62
    ... include AGLA, AIG American General, AIG Annuity, USLIFE, VALIC and SunAmerica Life. These companies utilize multiple distribution channels including independent producers, brokerage, career agents and banks to offer life insurance, annuity and accident and health products and services, as well...

  • Page 63
    ... in Southeast Asia, while a mixture of life insurance, accident and health and retirement services products are sold in Japan. In addition to the above, AIG also has subsidiary operations in Canada, Egypt, Mexico, Poland, Switzerland and Puerto Rico, and conducts life insurance business through...

  • Page 64
    .... AIG Global Investment Group manages invested assets on a global basis for third-party institutional, retail, private equity and real estate investment funds, provides securities lending and custodial services and organizes and manages the invested assets of institutional private 12 AIG Form 10...

  • Page 65
    .... See also Management's Discussion and Analysis of Financial Condition and Results of Operations - ''Capital Resources - Regulation and Supervision'' herein. AIG has taken various steps to enhance the capital positions of the Domestic General Insurance companies. AIG entered into capital maintenance...

  • Page 66
    ... a complete list of ratings of AIG and its subsidiaries. Competition AIG's Insurance, Financial Services and Asset Management businesses operate in a highly competitive environment, both domestically and overseas. Principal sources of competition are insurance companies, banks, investment banks and...

  • Page 67
    ... of the ratings to AIG's insurance company subsidiaries may be lessened accordingly. m As a result of the downgrades of AIG's long-term senior debt ratings, AIG was required to post approximately $1.16 billion of collateral with counterparties to municipal guaranteed investment contracts and...

  • Page 68
    ... and financial conditions. AIG provides insurance and investment products and services to both businesses and individuals in more than 130 countries and jurisdictions. A substantial portion of AIG's General Insurance business and a majority of its Life Insurance & Retirement Services businesses are...

  • Page 69
    ... in connection with the accounting, financial reporting and insurance brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments. The 2005 financial statements included in this Annual Report on...

  • Page 70
    ...responsibility for certain of its actions and those of its employees relating to these transactions and paying $25 million. Effective February 9, 2006, AIG entered into agreements with the NYAG and the DOI, settling claims under New York's Martin Act and insurance laws, among other provisions, which...

  • Page 71
    ... of New York adding allegations concerning AIG's accounting treatment for non-traditional insurance products. In September 2005, a second amended complaint was filed in the consolidated securities cases adding allegations concerning AIG's First Restatement. Also in September 2005, a new securities...

  • Page 72
    ... SICO is neither a control person nor an affiliate of AIG for the purposes of Schedule 13D under the Exchange Act, and Rule 144 under the Securities Act, respectively. AIG responded to the SICO claims on November 7, 2005. Effect on AIG In the opinion of AIG management, AIG's ultimate liability for...

  • Page 73
    ...a vote of security holders during the fourth quarter of 2005. Directors and Executive Officers of the Registrant Set forth below is information concerning the directors and executive officers of AIG. All directors are elected for one-year terms at the annual meeting of shareholders. All officers...

  • Page 74
    ... General Insurance Executive Vice President and Chief Investment Officer Executive Vice President - Life Insurance Executive Vice President - Domestic Personal Lines Executive Vice President - Foreign General Insurance Executive Vice President - Retirement Services Senior Vice President - Financial...

  • Page 75
    ... low closing sales prices per share of AIG's common stock on the New York Stock Exchange Composite Tape, for each quarter of 2005 and 2004. 2005 High First quarter Second quarter Third quarter Fourth quarter $73.46 58.94 63.73 64.40 See Note 11(a) of Notes to Financial Consolidated Statements for...

  • Page 76
    ...sum of General Insurance net premiums earned, Life Insurance & Retirement Services GAAP premiums, net investment income, Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income from guaranteed investment contracts, and realized...

  • Page 77
    ... and Off Balance Sheet Arrangements Derivatives Managing Market Risk Insurance Financial Services Recent Accounting Standards 56 57 57 58 58 61 62 62 62 62 63 64 65 65 65 66 67 Cautionary Statement Regarding Projections and Other Information About Future Events This Annual Report on Form 10-K and...

  • Page 78
    ... network. In the United States, AIG companies are the largest underwriters of commercial and industrial insurance and one of the largest life insurance and retirement services operations as well. AIG's Financial Services businesses include commercial aircraft and equipment leasing, capital markets...

  • Page 79
    ...to Consolidated Financial Statements. (in millions) 2005 2004 2003 Revenues : General Insurance(b) Life Insurance & Retirement Services(c) Financial Services(d) Asset Management(e) Other Total Operating Income(a)(f)(g): General Insurance Life Insurance & Retirement Services Financial Services Asset...

  • Page 80
    ... 2006, AIG announced plans to acquire a leading general insurance company in Taiwan. Asset Management AIG's Asset Management operations include institutional and retail asset management and broker dealer services and spreadbased investment business from the sale of GICs. These products and services...

  • Page 81
    ... American General competes with a variety of companies based on services and products, in addition to ratings. The recent rating actions appear to be having no negative long term effect on independent producer relationships or customer surrender activity. In the airline industry, changes in market...

  • Page 82
    ...investments less required interest, actual mortality and other expenses. DEFERRED POLICY ACQUISITION COSTS (LIFE I N S U R A N C E & R E T I R E M E N T S E RV I C E S ) : m General Insurance Operations AIG's General Insurance subsidiaries are multiple line companies writing substantially all lines...

  • Page 83
    ... million of accrued expenses in connection with certain workers compensation insurance policies written between 1985 and 1996. See Note 12(i) of Notes to Consolidated Financial Statements. (d) Includes the fourth quarter 2005 increase in net reserves of approximately $1.8 billion. (e) Includes the...

  • Page 84
    ... expansion of its international business in 2005. Continued Foreign General Insurance had strong results in 2005. Growth in net premiums written for 2005 was achieved from new business as well as new distribution channels. In Japan, the purchase in February 2005 of the insurance portfolio of the...

  • Page 85
    ... income increased when compared to 2003. See also the discussion under ''Liquidity'' herein and Note 8 of Notes to Consolidated Financial Statements. Realized capital gains and losses resulted from the ongoing investment management of the General Insurance portfolios within the overall objectives of...

  • Page 86
    ...reserves) by major lines of business on a statutory Annual Statement basis*: (in millions) Other liability occurrence Other liability claims made Workers compensation Auto liability Property International Reinsurance Medical malpractice Aircraft Products liability Commercial multiple peril Accident...

  • Page 87
    ... General insurance business. These reserves are carried on an undiscounted basis. Beginning in 1997, the Personal Lines division ceded a percentage of all business written by the companies participating in the personal lines pool to the American Home/National Union pool. As noted above, the total...

  • Page 88
    ... 2002 as a result of these issues. AIG has taken numerous actions in response to this development, including rate increases and policy form and coverage changes to better contain future loss costs in this class of business. AIG's 2005 year-end actuarial reserve analyses for DBG exposures reï¬,ected...

  • Page 89
    ..., workers compensation, general liability, products liability, and related classes. The other group is short-tail lines of business consisting principally of property lines, personal lines and certain classes of casualty lines. Short-Tail Reserves For operations writing short-tail coverages...

  • Page 90
    ...300 million change (either positively or negatively) to the net loss and loss expense reserve for such business. The effect of the loss trend assumption for the D&O class decreased in 2005 as a result of AIG's change in methodology, as described above, whereby claim projections through accident year...

  • Page 91
    ... able to use loss development projections for all but the most recent accident year's reserves, so there is limited need to rely on loss cost trend assumptions for workers compensation business. For casualty business other than the classes noted above, there is generally some potential for deviation...

  • Page 92
    ... around a report year projection of aggregate losses for both asbestos and environmental reserves. Additional tests such as market share analyses were also performed. Ground-up analyses such as those provided by Milliman take into account policyholder-specific and claim-specific information that...

  • Page 93
    ...ground-up analysis, which AIG now plans to update on an annual basis, as well as all of the above factors including the recent report year experience, AIG determined its best estimate was to recognize an increase of $843 million in its carried net asbestos reserves, and an increase of $30 million in...

  • Page 94
    ... Financial Condition and Results of Operations Continued A summary of reserve activity, including estimates for applicable IBNR, relating to asbestos and environmental claims separately and combined at December 31, 2005, 2004 and 2003 follows: 2005 (in millions) Gross Net 2004 Gross Net 2003 Gross...

  • Page 95
    ... life insurance, accident and health and annuity products sold through career agents. In addition, home service includes a small block of run-off property and casualty coverage. Retirement services include group retirement products, individual fixed and variable annuities sold through banks, broker...

  • Page 96
    ... 2003(a) Continued Foreign Life: Life insurance Personal accident & health Group products Intercompany adjustments Total Foreign Retirement Services: Individual fixed annuities Individual variable annuities Total Total Foreign Total net investment income Realized capital gains (losses): Domestic...

  • Page 97
    ... management. The combination of reduced sales and increased surrenders and withdrawals m The majority of the growth in Life Insurance & Retirement Services GAAP premiums in Foreign Life operations was attributable to the life insurance and personal accident & health lines of business. Globally, AIG...

  • Page 98
    ...fit reserves. The group currency exchange rates on the growth of Life Insurance & retirement products business recorded a modest increase in Retirement Services GAAP premiums. operating income due primarily to higher variable annuity fee income and growth in average reserves. Individual fixed 2005...

  • Page 99
    ... Notes to Consolidated Financial Statements. AIRCO acts primarily as an internal reinsurance company for AIG's foreign life operations. This facilitates insurance risk management (retention, volatility, concentrations) and capital planning locally (branch and subsidiary). It also allows AIG to pool...

  • Page 100
    ... variable annuity products. AIG manages its exposure resulting from these long-term guarantees through reinsurance or capital market hedging instruments. See Note 21 of Notes to Consolidated Financial Statements for a discussion of new accounting guidance for these benefits. DAC for Life Insurance...

  • Page 101
    ... for sale, at market value $ 50,870 Held to maturity, at amortized cost 21,528 Trading securities, at market value - Equity securities: Common stocks, at market value 4,930 Preferred stocks, at market value 1,632 Mortgage loans on real estate, policy and collateral loans 19 Short-term investments...

  • Page 102
    ... in market value for AIG's available for sale portfolio, which constitutes the vast majority of AIG's investments, were recorded in accumulated other comprehensive income as unrealized gains or losses, net of tax. At December 31, 2005, the fair value of AIG's fixed maturities and equity securities...

  • Page 103
    ... the equity method to record these investments. The changes in such net asset values are recorded in income. AIG obtains the fair value of its investments in limited partnerships and hedge funds from information provided by the general partner or manager of each of these investments, the accounts of...

  • Page 104
    ...Liquidity'' herein. ILFC sold two portfolios consisting of 34 and 37 aircraft in 2004 and 2003, respectively, to two trusts connected to securitization transactions. Certain of AIG's Life Insurance & 52 m Continued Retirement Services businesses purchased a large share of the securities issued in...

  • Page 105
    ... real estate generally having a maximum term of 360 months, and are considered non-conforming. These loans may be closed-end accounts or open-end home equity lines of credit and may be fixed-rate or adjustable rate products. The secured consumer loans are secured by consumer goods, automobiles...

  • Page 106
    ... of its finance receivables are real estate loans with adequate collateral and conservative loan-to-value ratios. Foreign Consumer Finance operations performed well, as the operations in Poland, Argentina and AIG Federal Savings Bank recorded strong earnings growth. The Hong Kong AIG Form 10-K

  • Page 107
    ... Unrealized gain on swaps, options and forward transactions Securities available for sale, at market value Trading securities, at market value Securities purchased under agreements to resell, at contract value Trading assets Spot commodities Other, including short-term investments Total $ 36,245 27...

  • Page 108
    ... 1, 2006. If its securities available for sale portfolio were to suffer significant default and the collateral held declined significantly in value with no replacement or the credit default swap counterparty failed to perform, AIGFP could have a liquidity strain. AIG guarantees AIGFP's payment...

  • Page 109
    ... as the base portfolio yield declined due to an increase in the cost of funds in the short-term ï¬,oating rate portion of the GIC portfolio, only partially offset by increased investment income from the ï¬,oating rate assets backing the portfolio. In September 2005, AIG launched a $10 billion...

  • Page 110
    ... Company (Taiwan) AIG Finance (Taiwan) Limited Total Loans and mortgages payable: AIGCFG AIG Finance (Hong Kong) Limited Total Other Subsidiaries Variable Interest Entity debt: AIG Global Investment Group AIG Global Real Estate Investment AIG SunAmerica Total Total borrowings not guaranteed by AIG...

  • Page 111
    ... short-term cash requirements of AIG and its subsidiaries. AIG Funding intends to continue to meet AIG's funding requirements through the issuance of commercial paper guaranteed by AIG. The issuance of AIG Funding's commercial paper is subject to the approval of AIG's Board of Directors. AIG and AIG...

  • Page 112
    ...''Operating Review - Financial Services Operations'' and ''Liquidity'' herein. AIG Credit Card Company (Taiwan) and AIG Finance (Taiwan) Limited, both consumer finance subsidiaries in Taiwan, have issued commercial paper for the funding of their own operations. AIG does not guarantee the commercial...

  • Page 113
    ... (a) Primarily AIG SunAmerica construction guarantees connected to affordable housing investments. (b) Represents reimbursement obligations under letters of credit issued by commercial banks. (c) Excludes commitments with respect to pension plans. The annual pension contribution for 2006 is expected...

  • Page 114
    ...General Insurance Stock Purchase During 2005, AIG purchased in the open market 2,477,100 shares of its common stock. AIG from time to time may buy shares of its common stock in the open market for general corporate purposes, including to satisfy its obligations under various employee benefit plans...

  • Page 115
    ... ï¬,ows of its General and Life Insurance & Retirement Services operations. Management believes that AIG's liquid assets, its net cash provided by operations, and access to short term funding through commercial paper and bank credit facilities will enable it to meet any anticipated cash requirements...

  • Page 116
    ... and marketable equity securities during 2005. AIG's major Financial Services operating subsidiaries consist of AIGFP, ILFC, AGF and AIGCFG. Sources of funds considered in meeting the liquidity needs of AIGFP's operations include guaranteed investment agreements, issuance of long-term and short-term...

  • Page 117
    ... relating to AIG's derivative activities, and Note 1(ee) of Notes to Consolidated Financial Statements for AIG's derivative accounting policies. Managing Market Risk Market risk is the risk of loss of fair value resulting from adverse ï¬,uctuations in interest rates, foreign currencies, equities...

  • Page 118
    ... in Combined and Interest Rate VaRs from 2004 to 2005 in the General Insurance division was caused by growth in this business. Financial Services AIG generally manages its market exposures within Financial Services by maintaining offsetting positions. Capital Markets seeks to minimize or set limits...

  • Page 119
    ...exchange rates and equity and commodity prices as well as implied volatilities thereon. AIG statistically measures the losses of fair value through the application of a VaR model across Capital Markets. Capital Markets asset and liability portfolios for which the VaR analyses were performed included...

  • Page 120
    ... 19, 2005, FASB issued Statement of Position 05-1, ''Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts.'' On February 16, 2006, FASB issued Statement No. 155, ''Accounting for Certain Hybrid Financial Instruments...

  • Page 121
    ... of Financial Condition and Results of Operations. ITEM 8. Financial Statements and Supplementary Data AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Page Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet at...

  • Page 122
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of American International Group, Inc.: We have completed integrated audits of American International Group, Inc.'s 2005 and 2004 consolidated financial statements and of its internal control over fi...

  • Page 123
    ...fied under GAAP for hedge accounting. As a result, net investment income, realized capital gains (losses), other revenues, accumulated other comprehensive income (loss) and related balance sheet accounts were misstated under GAAP. Controls over income tax accounting: AIG did not maintain effective...

  • Page 124
    ...gain on swaps, options and forward transactions Trading assets Securities purchased under agreements to resell, at contract value Finance receivables, net of allowance (2005 - $670; 2004 - $571) Securities lending collateral, at market value (which approximates cost) Other invested assets Short-term...

  • Page 125
    ... taxes Insurance balances payable Funds held by companies under reinsurance treaties Income taxes payable - deferred Financial services liabilities: Borrowings under obligations of guaranteed investment agreements Securities sold under agreements to repurchase, at contract value Trading liabilities...

  • Page 126
    ..., except per share data) 2005 2004 2003 Revenues: Premiums and other considerations Net investment income Realized capital gains (losses) Other revenues Total revenues Benefits and expenses: Incurred policy losses and benefits Insurance acquisition and other operating expenses Total benefits and...

  • Page 127
    ... at end of year Treasury stock, at cost: Balance at beginning of year Cost of shares acquired during year Issued under stock plans Other Balance at end of year Total shareholders' equity at end of year See Accompanying Notes to Consolidated Financial Statements. $ 6,878 - 6,878 2,094 (91) 336...

  • Page 128
    ...activities: Noncash revenues, expenses, gains and losses included in income: Change in: General and life insurance reserves Premiums and insurance balances receivable and payable - net Reinsurance assets Deferred policy acquisition costs Investment income due and accrued Funds held under reinsurance...

  • Page 129
    ...equipment Purchases of ï¬,ight equipment Change in securities lending collateral Net additions to real estate and other fixed assets Sales or distributions of other invested assets Investments in other invested assets Change in short-term investments Investments in partially owned companies Finance...

  • Page 130
    ... gains arising from cash ï¬,ow hedging activities Deferred income tax expense on above changes Retirement plan liabilities adjustment, net of tax Other comprehensive income (loss) Comprehensive income (loss) See Accompanying Notes to Consolidated Financial Statements. $10,477 (3,577) 1,599 (926...

  • Page 131
    ... account balances. Personal accident products are accounted for in a manner similar to general insurance products described above. Policy acquisition costs for life insurance products are generally deferred and amortized over the premium paying period of the policy Statement of Financial Accounting...

  • Page 132
    ... Finance, Inc. and its subsidiaries (AGF) as well as AIG Consumer Finance Group, Inc. (AIGCFG). AGF provides a wide variety of consumer finance products, including nonconforming real estate mortgages, consumer loans, retail sales finance and credit-related insurance to customers in the United...

  • Page 133
    ...or loss. (f) Financial Services - Securities Available for Sale, at market value: These securities are held to meet long-term investment objectives and are accounted for as available for sale, carried at current market values and recorded on a tradedate basis. This portfolio is hedged using interest...

  • Page 134
    ... equity prices are recorded in consolidated shareholders' equity while the unrealized gains and losses on the related economic hedges are reï¬,ected in operating income. (g) Financial Services - Trading Securities, at market value: Trading securities are held to meet short term investment objectives...

  • Page 135
    ... net investment income. AIG obtains the fair value of its investments in limited partnerships and hedge funds from information provided by the general partner or manager of each of these investments, the accounts of which are generally audited on an annual basis. (o) Short-term investments: Short...

  • Page 136
    ... Consolidated Financial Statements 1. Summary of Significant Accounting Policies Continued Continued business of AIG. The liabilities for these accounts are generally equal to the account assets. (v) Financial Services - Securities and Spot Commodities Sold but not yet Purchased, at market value...

  • Page 137
    ... documented, designated and is highly effective as a hedge of a net investment in a foreign operation is recorded in the foreign currency translation adjustments account within other comprehensive income. Changes in the fair value of derivatives used for other than hedging activities are reported in...

  • Page 138
    ...recorded by AIG in 2005, 2004 or 2003. On August 29, 2003, AIG acquired 100 percent of the outstanding common shares of GE Edison Life Insurance Company in Japan and the U.S.-based auto and home insurance business of General Electric Company (GE) for $2.1 billion. The acquisition expanded AIG's life...

  • Page 139
    ...is January 1, 2006. AIG is currently assessing the effect of implementing this guidance. On September 19, 2005, FASB issued Statement of Position 05-1, ''Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts.'' SOP 05...

  • Page 140
    ...'s Personal Lines operations provide automobile insurance through AIG Direct, the mass marketing operation of AIG, Agency Auto Division and 21st Century Insurance Group (21st Century), as well as a broad range of coverages for high net-worth individuals through the AIG Private Client Group. Mortgage...

  • Page 141
    ... real estate mortgages, consumer loans, retail sales finance and credit-related insurance to customers both domestically and overseas, particularly in emerging markets. Asset Management: AIG's Asset Management operations comprise a wide variety of investment-related services and investment products...

  • Page 142
    ..., Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income from guaranteed investment contracts, and realized capital gains (losses). (c) Includes settlement costs of $1.64 billion as described in Note 12(i). 90 AIG Form 10...

  • Page 143
    ...other premium balances, and $100 million of accrued expenses in connection with certain workers compensation insurance policies written between 1985 and 1996. (h) Income statement accounts expressed in non-functional currencies are translated into U.S. dollars using average exchange rates. AIG Form...

  • Page 144
    ...Assurance Company of New York. 2004 includes a $178 million charge related to a workers compensation quota share reinsurance agreement with Superior National Insurance Company. See Note 12(h) herein for additional information. In addition, in 2004, as part of the business review of Group life/health...

  • Page 145
    ...S 2. Segment Information Continued (d) The following table summarizes AIG's Financial Services operations by major internal reporting unit for the years ended December 31, 2005, 2004 and 2003: Financial Services Aircraft Finance Capital Markets(a) Consumer Finance Total Reportable Segment Reclassi...

  • Page 146
    ... investment contracts, and realized capital gains (losses). (c) Approximately 90 percent of ILFC's ï¬,eet is operated by foreign airlines. 3. Federal Income Taxes (a) AIG and its eligible domestic subsidiaries file a consolidated U.S. Federal income tax return. The AGC group of life insurance...

  • Page 147
    ... subsidiaries and joint ventures Adjustment to life policy reserves Accruals not currently deductible, cumulative translation adjustment and other Deferred tax liabilities: Deferred policy acquisition costs Depreciation of ï¬,ight equipment Unrealized appreciation of investments Other Net deferred...

  • Page 148
    ... Life Insurance & Retirement Services operations: Balance at beginning of year Value of business acquired Acquisition costs deferred Amortization charged to Income Change in net unrealized gains (losses) on securities Increase (decrease) due to foreign exchange Balance at end of year Total deferred...

  • Page 149
    ... global life catastrophe risks. AIG's domestic Life Insurance & Retirement Services operations utilize internal and third-party reinsurance relationships to manage insurance risks and to facilitate capital management strategies. Pools of highly-rated third-party reinsurers are utilized to manage net...

  • Page 150
    ...Participating life business represented approximately 22 percent of the gross insurance in force at December 31, 2005 and 36 percent of gross GAAP premiums in 2005. The amount of annual dividends to be paid is determined locally by the boards of directors. Provisions for future dividend payments are...

  • Page 151
    ..., net of tax of $660 million. AIG's insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices pre- Fixed maturities Equity securities Short-term investments Interest on mortgage, policy and collateral loans Other invested assets Total investment...

  • Page 152
    ... 31, 2005 and December 31, 2004 follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Market Value (in millions) Realized capital gains (losses) on investments: Fixed maturities Equity securities Other invested assets Realized capital gains (losses) Increase (decrease...

  • Page 153
    ... respectively. See Note 1(c) herein for AIG's other-than-temporary impairment accounting policy. The carrying value, which approximates market value, of other invested assets as of December 31, 2005 was $27.3 billion, consisting primarily of hedge funds and limited partnerships. Of the $27.3 billion...

  • Page 154
    ...to Consolidated Financial Statements 8. Investment Information Continued Continued The amortized cost and estimated market value of securities available for sale at December 31, 2005 and 2004 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Market Value (in...

  • Page 155
    ... and mortgages payable: AIGCFG(a) AIG AIG Finance (Hong Kong) Limited(a) Total Other subsidiaries (a) Liabilities connected to trust preferred stock Total $99,291 $31,504 (a) AIG does not guarantee these borrowings. (b) Reï¬,ects future minimum payment for ILFC's borrowing under the Export Credit...

  • Page 156
    ... equity-linked Medium Term Notes due May 15, 2007. These notes accrue interest at the rate of 0.50 percent and the total return on these notes is linked to the appreciation in market value of AIG's common stock. The notes may be redeemed, at the option of AIG, as a whole but not in part, at any time...

  • Page 157
    ... lease payments, although such hedges do not qualify for hedge accounting treatment under FAS 133. Notes issued under this program are included in Notes and Bonds Payable. ILFC had a $4.3 billion Export Credit Facility (ECA) for use in connection with the purchase of approximately 75 aircraft...

  • Page 158
    ...2029 at interest rates ranging up to 7.75 percent. As of November 2001, AIG guaranteed the notes and bonds of AGC. (in millions) AIG Finance (Hong Kong) Limited AIGCFG AIG Other subsidiaries Total $ 183 864 814 618 $2,479 - - - 309 $309 $ (f) Liabilities Connected to Trust Preferred Stock: AGC...

  • Page 159
    ...million in 2005, $59 million in 2004 and $52 million in 2003. Cash distributions on the preferred shareholders' equity in subsidiary companies of ILFC and liabilities connected to trust preferred stock of AGC subsidiaries are accounted for as interest expense in the consolidated statement of income...

  • Page 160
    ... of the purchase price of such equipment. (d) AIG and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims for punitive damages, in the normal course of their business. The recent trend of increasing jury awards and settlements makes it dif...

  • Page 161
    ... as claims relating to the underpayment of certain workers compensation premium taxes and other assessments. The 2005 financial statements include a fourth quarter after-tax charge of $1.15 billion to record the settlements. As a result of these settlements, AIG made payments totaling approximately...

  • Page 162
    ... of New York adding allegations concerning AIG's accounting treatment for non-traditional insurance products. In September 2005, a second amended complaint was filed in the consolidated securities cases adding allegations concerning AIG's First Restatement. Also in September 2005, a new securities...

  • Page 163
    ... market prices. For certain fixed maturity securities for which market prices were not readily available, fair values were estimated using values obtained from independent pricing services. Equity securities: Fair values were based upon quoted market prices. Mortgage loans on real estate, policy...

  • Page 164
    ... in nature, the contract values approximate fair values. Other invested assets: Consisting principally of hedge funds and limited partnerships. Fair values are provided by the general partner or manager of each investment. Policyholders' contract deposits: Fair values were estimated using discounted...

  • Page 165
    ... of AIG's financial instruments at December 31, 2005 and 2004 were as follows: 2005 (in millions) Carrying Value* Fair Value 2004 Carrying Value* Fair Value Assets: Fixed maturities Equity securities Mortgage loans on real estate, policy and collateral loans Securities available for sale Trading...

  • Page 166
    ... that options to purchase a maximum of 45,000,000 shares of common stock can be granted to certain key employees and members of the Board of Directors at prices not less than fair market value at the date of grant. The 1999 Plan limits the maximum number of shares as to which stock options may be...

  • Page 167
    ... obligations may be granted under the SAI plans. As of December 31, 2005, deferred share and share unit obligations with respect to 59,972 shares remained outstanding under the SAI plans. The AIG Board of Directors has construed the AIG stock option plans to allow, at the request of an optionee, the...

  • Page 168
    ... to Consolidated Financial Statements 14. Stock Compensation Plans Continued Continued In addition, at December 31, 2005, options to purchase 92,241 shares at a weighted average exercise price of $25.14 had been previously granted to AIG nonemployee directors and remained outstanding. Information...

  • Page 169
    ... any pension benefits accumulated to that time. Annual funding requirements are determined based on the ''projected unit credit'' cost method, which attributes a pro rata portion of the total projected benefit payable at normal retirement to each year of credited service. The HSB retirement plan...

  • Page 170
    ...respect to retirement, termination, disability or death. Projected benefit obligations for postretirement plans represent the present value of postretirement medical and life insurance benefits deemed earned as of December 31, 2005 projected for estimated salary and medical claim rate increases to...

  • Page 171
    ... to the nearest 25 basis points, namely 5.5 percent, and applied to all U.S. plans. Prior to using the Citigroup Pension Discount Curve in 2005, the discount rate assumptions were based on the yield of the Moody's Investor Service (Moody's) Aa long-term corporate bond index. Japan represents over 70...

  • Page 172
    ...: Pension (in millions) Non-U.S. Plans(a) U.S. Plans Total Postretirement(b) Non-U.S. Plans U.S. Plans Total 2005 Fair value of plan assets Less projected benefit obligations Funded status Amounts not yet recognized: Actuarial (gains)/losses(c) Prior service cost Transition obligations Net amount...

  • Page 173
    ... the change in plan assets as at December 31, 2005 and 2004: Pension (in millions) Non-U.S. Plans U.S. Plans Total Postretirement Non-U.S. Plans U.S. Plans Total 2005 Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets net of expenses AIG contributions...

  • Page 174
    ... in equity securities at December 31, 2005 and 2004 were 0.6 million and 1.2 million shares of AIG common stock, with values of $41.1 million and $79.3 million, respectively. The investment strategy with respect to AIG's pension plan assets is to preserve capital and to seek investment returns with...

  • Page 175
    ...Net periodic benefit cost $ 59 $ 151 $ 210 $ 2 $14 $16 * The reduction resulted from transferring to the Japanese government certain Japanese plan obligations approximating $50 million reduced by approximately $26 million loss incurred with respect to the settlement of those obligations. AIG Form...

  • Page 176
    ...and succeeding managements of all American International companies, including AIG. None of the costs of the various benefits provided under the SICO Plans has been paid by AIG, although AIG has recorded a charge to reported earnings for the deferred compensation amounts paid to AIG employees by SICO...

  • Page 177
    ... between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. In accordance with the transition provisions of FIN46R, AIG recorded a gain of $9 million ($14 million before tax) reported as a cumulative...

  • Page 178
    ... relates to assets and liabilities arising from AIG's real estate partnerships, principally affordable housing transactions involving AIG SunAmerica subsidiaries, and private equity partnerships managed by AIG Global Investment Group and AIG Capital Partners. SunAmerica Affordable Housing Partners...

  • Page 179
    ... of either market risk or credit risk and is not recorded on the consolidated balance sheet. Futures and forward contracts are contracts that obligate the holder to sell or purchase foreign currencies, commodities or financial indices in which the seller/purchaser agrees to make/ take delivery...

  • Page 180
    ...Consolidated Financial Statements 20. Derivatives Continued Continued options, AIGFP generally receives an option premium and then manages the risk of any unfavorable change in the value of the underlying commodity, currency or index by entering into offsetting transactions with third-party market...

  • Page 181
    ... that have been designated as hedges is insignificant for 2005 and 2004. 21. Variable Life and Annuity Contracts In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, ''Accounting and Reporting by Insurance Enterprises for Certain Nontraditional...

  • Page 182
    ... to Short-term investments; $4 billion to Equity securities - common stocks trading; $2 billion to Fixed maturities - bond trading securities; and $1 billion to various other asset captions. Except as noted above, AIG reports variable contracts through separate and variable accounts when investment...

  • Page 183
    ... the discount rate ranged from zero percent to seven percent. In addition to GMDB, AIG's contracts currently include to a lesser extent GMIB. The GMIB liability is determined each period end by estimating the expected value of the annuitization benefits in excess of the projected account balance at...

  • Page 184
    ..., except per share data) 2004 2005 2004 Revenues: Premiums and other considerations Net investment income Realized capital gains (losses) Other revenues Total revenues Benefits and expenses: Incurred policy losses and benefits Insurance acquisition & other operating expenses Total benefits...

  • Page 185
    ...CORPORATION (AGC): CONDENSED CONSOLIDATING BALANCE SHEET American International Group, Inc. Guarantor (in millions) AGC Issuer Other Subsidiaries Eliminations Consolidated AIG December 31, 2005 Assets: Invested assets Cash Carrying value of subsidiaries and partially owned companies, at equity...

  • Page 186
    ...Information Provided in Connection With Outstanding Debt Continued Continued CONDENSED CONSOLIDATING STATEMENT OF INCOME American International Group, Inc. Guarantor (in millions) AGC Issuer Other Subsidiaries Eliminations Consolidated AIG Year Ended December 31, 2005 Operating income Equity...

  • Page 187
    ...Connection With Outstanding Debt Continued CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW American International Group, Inc. Guarantor (in millions) AGC Issuer Other Subsidiaries Consolidated AIG Year Ended December 31, 2005 Net cash provided by operating activities Cash ï¬,ows from investing...

  • Page 188
    ... CONSOLIDATING BALANCE SHEET American International Group, Inc. Guarantor AIG Liquidity Corp. (in millions) Other Subsidiaries Eliminations Consolidated AIG December 31, 2005 Assets: Invested assets Cash Carrying value of subsidiaries and partially owned companies, at equity Other assets Total...

  • Page 189
    .... Information Provided in Connection With Outstanding Debt Continued CONDENSED CONSOLIDATING STATEMENT OF INCOME American International Group, Inc. Guarantor AIG Liquidity Corp. (in millions) Other Subsidiaries Eliminations Consolidated AIG Year Ended December 31, 2005 Operating Income Equity...

  • Page 190
    ... Financial Statements 23. Information Provided in Connection With Outstanding Debt Continued Continued CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW American International Group, Inc. Guarantor AIG Liquidity Corp. Other Subsidiaries Consolidated AIG (in millions) Year Ended December 31, 2005...

  • Page 191
    ... 31, 2005. income tax accounting. Subsequent to that announcement, and in connection with its ongoing remediation efforts, AIG identified certain additional errors principally relating to internal controls over reconciliation of certain balance sheet accounts in the Domestic Brokerage Group. Due...

  • Page 192
    ... LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K. Remediation of Material Weaknesses in Internal Control Over Financial Reporting Throughout 2005 and continuing in 2006, AIG has been actively...

  • Page 193
    ... of risk transfer, including developing a process for updating the risk transfer policy to reï¬,ect changes in accounting pronouncements, based upon the significant actions taken, as listed above, and the testing and evaluation of the effectiveness of the controls, AIG management has concluded that...

  • Page 194
    ... income tax accounting identified additional errors, contributing to the Second Restatement. Thus, AIG management believes that remediation has not yet been achieved. Changes in Internal Control Over Financial Reporting Changes in AIG's internal control over financial reporting during the quarter...

  • Page 195
    ... included in the Form 10-K filed with the Securities and Exchange Commission but have not been included herein. Copies may be obtained electronically through AIG's website at www.aigcorporate.com or from the Director of Investor Relations, American International Group, Inc. AIG Form 10-K m 143

  • Page 196
    ... this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 16th of March, 2006. AMERICAN INTERNATIONAL GROUP, INC. By /s / MARTIN J. SULLIVAN (Martin J. Sullivan, President and Chief Executive...

  • Page 197
    ...Miles, Jr.) Director /s / MORRIS W. OFFIT (Morris W. Offit) Director /s / MICHAEL H. SUTTON (Michael H. Sutton) Director /s / EDMUND S.W. TSE (Edmund S.W. Tse) Director /s / ROBERT B. WILLUMSTAD (Robert B. Willumstad) Director /s / FRANK G. ZARB (Frank G. Zarb) Director AIG Form 10...

  • Page 198
    ... SunAmerica Life Insurance Company and AIG Financial Products Corp. and its subsidiaries, respectively. The proceeds from GICs and GIAs are invested in a diversified portfolio of securities, primarily investment grade bonds. The assets acquired yield rates greater than the rates on the related...

  • Page 199
    ...(Hong Kong) Limited AIG Global Asset Management Holdings Corp. AIG Asset Management Services, Inc. Brazos Capital Management, L.P. AIG Capital Partners, Inc. AIG Equity Sales Corp. AIG Global Investment Corp. AIG Global Securities Lending Corp. International Lease Finance Corporation AIG Global Real...

  • Page 200
    Subsidiaries of Registrant Continued Percentage of Voting Securities Owned by its Immediate Parent(2) Jurisdiction of Incorporation or Organization AIG Retirement Services, Inc. SunAmerica Life Insurance Company SunAmerica Investments, Inc. AIG Advisor Group, Inc. Advantage Capital Corporation FSC...

  • Page 201
    Subsidiaries of Registrant Continued Percentage of Voting Securities Owned by its Immediate Parent(2) Jurisdiction of Incorporation or Organization The United States Life Insurance Company in the City of New York American General Finance, Inc. American General Auto Finance, Inc. American General ...

  • Page 202
    ... Limited The Boiler Inspection and Insurance Company of Canada The Insurance Company of the State of Pennsylvania Landmark Insurance Company Mt. Mansfield Company, Inc. National Union Fire Insurance Company of Pittsburgh, Pa. American International Specialty Lines Insurance Company Lexington...

  • Page 203
    ... Services, Inc. AIG Star Life Insurance Co., Ltd The Philippine American Life and General Insurance Company Pacific Union Assurance Company Philam Equitable Life Assurance Company, Inc. Philam Insurance Company, Inc. Risk Specialist Companies, Inc. United Guaranty Corporation A.I.G. Mortgage...

  • Page 204
    ... by National Union Fire Insurance Company of Pittsburgh, Pa., 16.95 percent by New Hampshire Insurance Company and 0.86 percent by The Insurance Company of the State of Pennsylvania. (22) Also owned 24.97 percent by United Guaranty Residential Insurance Company of North Carolina. 152 AIG Form 10...

  • Page 205
    ... Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. MARTIN J. SULLIVAN Martin J. Sullivan President and Chief Executive Officer Date: March 16, 2006 /s / AIG Form 10-K m 153

  • Page 206
    ... or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. STEVEN J. BENSINGER Steven J. Bensinger Executive Vice President and Chief Financial Officer Date: March 16, 2006 /s / 154 AIG Form 10-K m

  • Page 207
    ... In connection with this Annual Report on Form 10-K of American International Group, Inc. (the ''Company'') for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Martin J. Sullivan, President and Chief Executive Of...

  • Page 208
    ... with this Annual Report on Form 10-K of American International Group, Inc. (the ''Company'') for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Steven J. Bensinger, Executive Vice President and Chief Financial Officer...

  • Page 209
    Shareholder Information Corporate Headquarters American International Group, Inc. 70 Pine Street New York, New York 10270 (212) 770-7000 Stock Market Listings New York, London, Paris, Swiss and Tokyo Stock Exchanges NYSE trading symbol: AIG Annual Meeting of Shareholders The 2006 Annual Meeting of ...

  • Page 210
    American International Group, Inc. 70 Pine Street â- New York, NY 10270 www.aig.com AIG2005AR