AIG 2005 Annual Report Download - page 160

Notes to Consolidated Financial Statements Continued
11. Shareholders’ Equity
Continued
(c) The common share activity for the three years ended December 31, 2005 was as follows:
2005 2004 2003
Shares outstanding at beginning of year 2,596,423,190 2,608,447,046 2,609,600,831
Acquired during the year (2,654,272) (16,426,114) (3,899,991)
Issued pursuant to performance stock unit obligations 15,757 24,025 –
Issued under stock plans 2,625,227 4,310,733 2,699,584
Issued under contractual obligations 236,870 67,500 46,622
Shares outstanding at end of year 2,596,646,772 2,596,423,190 2,608,447,046
assurance that AIG’s ultimate loss reserves will not develop
12. Commitments and Contingent Liabilities
adversely and materially exceed AIG’s current loss reserves.
In the normal course of business, various commitments and Estimation of ultimate net losses, loss expenses and loss
contingent liabilities are entered into by AIG and certain of its reserves is a complex process for long-tail casualty lines of
subsidiaries. In addition, AIG guarantees various obligations of business, which include excess and umbrella liability, directors
certain subsidiaries. and officers liability (D&O), professional liability, medical
malpractice, workers compensation, general liability, products
(a) AIG and certain of its subsidiaries become parties to liability and related classes, as well as for asbestos and
derivative financial instruments with market risk resulting from environmental exposures. Generally, actual historical loss
both dealer and end user activities and to reduce currency, development factors are used to project future loss develop-
interest rate, equity, and commodity exposures. These instru- ment. However, there can be no assurance that future loss
ments are carried at their estimated fair values in the development patterns will be the same as in the past.
consolidated balance sheet. The vast majority of AIG’s Moreover, any deviation in loss cost trends or in loss
derivative activity is transacted by AIGFP. See also Note 20 development factors might not be discernible for an extended
herein. period of time subsequent to the recording of the initial loss
(b) Securities sold, but not yet purchased and spot commodi- reserve estimates for any accident year. Thus, there is the
ties sold but not yet purchased represent obligations of AIGFP potential for reserves with respect to a number of years to be
to deliver specified securities and spot commodities at their significantly affected by changes in loss cost trends or loss
contracted prices. AIGFP records a liability to repurchase the development factors that were relied upon in setting the
securities and spot commodities in the market at prevailing reserves. These changes in loss trends or loss development
prices. factors could be attributable to changes in inflation in labor
AIG has issued unconditional guarantees with respect to the and material costs or in the judicial environment, or in other
prompt payment, when due, of all present and future payment social or economic phenomena affecting claims.
obligations and liabilities of AIGFP arising from transactions (e) SAI Deferred Compensation Holdings, Inc., a wholly-
entered into by AIGFP. Net revenues for the twelve months owned subsidiary of AIG, has established a deferred compensa-
ended December 31, 2005, 2004 and 2003 from Capital tion plan for registered representatives of certain AIG subsidi-
Markets operations were $3.26 billion, $1.28 billion and aries, pursuant to which participants have the opportunity to
$595 million, respectively. invest deferred commissions and fees on a notional basis. The
(c) At December 31, 2005, ILFC had committed to purchase value of the deferred compensation fluctuates with the value of
338 new and used aircraft deliverable from 2006 through 2015 the deferred investment alternatives chosen. AIG has provided
at an estimated aggregate price of $23.3 billion and had a full and unconditional guarantee of the obligations of SAI
options to purchase 16 new aircraft at an estimated aggregate Deferred Compensation Holdings, Inc. to pay the deferred
purchase price of $1.5 billion. ILFC will be required to find compensation under the plan.
customers for any aircraft acquired, and it anticipates that it (f) On June 27, 2005, AIG entered into agreements pursuant
will be required to arrange financing for portions of the to which AIG agrees, subject to certain conditions, to (i) make
purchase price of such equipment. any payment that is not promptly paid with respect to the
(d) AIG and its subsidiaries, in common with the insurance benefits accrued by certain employees of AIG and its subsidiar-
industry in general, are subject to litigation, including claims ies under the SICO Plans (as defined in Note 16) and
for punitive damages, in the normal course of their business. (ii) make any payment to the extent not promptly paid by
The recent trend of increasing jury awards and settlements Starr with respect to amounts that become payable to certain
makes it difficult to assess the ultimate outcome of such employees of AIG and its subsidiaries who are also stockhold-
litigation. ers of Starr after the giving of a notice of repurchase or
Although AIG annually reviews the adequacy of the redemption under Starr’s organizational documents. In January
established reserve for losses and loss expenses, there can be no 2006, Starr announced that it had completed its tender offer to
108 AIG m Form 10-K