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AMERICAN INTERNATIONAL GROUP, INC.
2011 Annual Report
WE ARE MOVING AIG FORWARD

Table of contents

  • Page 1
    WE ARE MOVING A I G F O R WA R D A M E R I C A N IN T E R N AT I O N A L G R O U P, I N C . 2011 Annual Report

  • Page 2
    ...nancial strength, Chartis enables its commercial and personal insurance clients to manage virtually any risk with confidence. Q SunAmerica Financial Group SunAmerica Financial Group (SunAmerica) is one of the largest life insurance and retirement services organizations in the United States. With...

  • Page 3
    ... private mortgage insurance, which helps mortgage lenders remain competitive while generating a sound and responsible book of business. United Guaranty has operations in the United States, Hong Kong, Korea, Japan, Australia, United Kingdom, Spain, Italy, Hungary, and Mexico. Q International Lease...

  • Page 4
    ... AIG 2011 ANNUAL REPORT Robert S. Miller Non-Executive Chairman of the Board Chairman's Message Dear AIG Shareholder, I have said it many times over the past year, and, as Chairman of AIG, I believe it is worth repeating: Thank you. Thank you to the American taxpayers for giving the people of AIG...

  • Page 5
    ... the largest shareholders' equity of any insurance company in the world. 2011 started with a bang. In partnership with the U.S. government, we recapitalized the company, which included repaying the Federal Reserve Bank of New York in full and exchanging various forms of government support into AIG...

  • Page 6
    ... in 2011 has left us well positioned to achieve our goal of becoming the world's most valuable insurance company. Around the globe, dedicated employees at our market-leading insurance operations are passionate about proving that AIG delivers on its commitments - to its clients, its investors, and...

  • Page 7
    ... E L I NE Jan. 2011 AIG executes recapitalization plan to repay U.S. government. Feb. 2011 AIG sells AIG Star and Edison for $4.8 billion; approx. $2.2 billion of proceeds used to reduce AIA and ALICO special purpose vehicle (SPV) balances. AIG enters capital management agreement with Chartis.

  • Page 8
    ... be, committed to developing products and offering services to our clients that meet their needs. WE ARE TRULY GLOBAL 2 0 1 1 T I M E LI NE Chartis reorganizes global operations and management team. AIG enters capital management agreement with SunAmerica. Mar. 2011 AIG sells $9.6 billion of...

  • Page 9
    ...million AIG common equity offering raises approximately $8.7 billion; 200 million U.S. Treasury shares sold. June 2011 AIG completes active wind-down of AIG Financial Products Corp. derivatives portfolio. Aug. 2011 AIG sells Nan Shan for $2.2 billion; net proceeds used to reduce AIA SPV balance.

  • Page 10
    ...a client retention rate above 90 percent, even throughout the financial crisis. SunAmerica companies include market leaders in fixed and variable annuity sales, individual term and universal life insurance, and defined contribution retirement plans for educators. United Guaranty is the number one...

  • Page 11
    ... around the world. Nov. 2011 AIG applies approx. $918 million release from ALICO escrow and an additional $53 million to reduce AIA SPV balance. AIG Board authorizes repurchase of up to $1 billion of AIG common stock. Dec. 2011 AIG posts net income of $17 .8 billion for full year, the second...

  • Page 12
    ...Oak Street Management Co., LLC Former Chief Financial Officer, Head of the Life and Health Business Group, and Head of Financial Services Swiss Re From left, front row Laurette T. Koellner Former President Boeing International Former Executive Vice President The Boeing Company Robert H. Benmosche...

  • Page 13
    AIG 2011 ANNUAL REPORT 11 AMER ICA N INTER NATIONA L G R O U P, INC. FORM 10-K

  • Page 14
    12 AIG 2011 ANNUAL REPORT

  • Page 15
    ... FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 Commission file number 1-8787 29JUL201116480924 American International Group, Inc. (Exact name of registrant as specified in its charter) Delaware (State...

  • Page 16
    American International Group, Inc. Annual Report on Form 10-K For the Year Ended December 31, 2011 Table of Contents Form 10-K Item Number Description Page PART I Item 1. Item Item Item Item Item 1A. 1B. 2. 3. 4. Business Analysis of Consolidated Loss Reserve Development Locations of Certain ...

  • Page 17
    ... Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Exhibits, Financial Statement...

  • Page 18
    ... leading providers of life insurance and retirement services in the United States. AIG Common Stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange and the Tokyo Stock Exchange. Throughout this Annual Report on Form 10-K, the terms AIG, the Company, we, us and...

  • Page 19
    ... life, A&H, fixed and variable deferred annuities, fixed payout annuities, mutual funds and financial planning. SunAmerica offers its products and services through a diverse, multi-channel distribution network that includes banks, national, regional and independent broker-dealers, affiliated...

  • Page 20
    ... of AIG's revenues (in millions) for the year ended December 31, 2011: Chartis Other $1,480 2% Commercial Insurance $25,544 42% Chartis - 66% Consumer Insurance $13,678 22% Retirement Services $7,033 11% Life Insurance $8,282 14% International Lease Finance Corporation (ILFC) Aircraft Leasing...

  • Page 21
    ... Fuji Life Insurance Company Ltd. CHARTIS OTHER Chartis Other consists primarily of certain run-off lines of business, including excess workers' compensation and asbestos, certain Chartis expenses relating to global corporate initiatives, expense allocations from AIG Parent, net investment income...

  • Page 22
    ... Latin America). Based on net premiums written in 2010, Chartis is the largest U.S. commercial insurer and the largest U.S.-based insurer in Europe, Japan and China. In addition, Chartis was first to market in many developing nations and is well positioned to enhance its businesses in countries such...

  • Page 23
    ... life, A&H, fixed and variable deferred annuities, fixed payout annuities, mutual funds and financial planning. SunAmerica offers its products and services through a diverse, multi-channel distribution network that includes banks, national, regional and independent broker-dealers, affiliated...

  • Page 24
    ... term and universal life insurance solutions to middleincome and high-net-worth customers. Primary products include term, universal and whole life insurance, A&H, fixed and indexed deferred annuities, fixed payout annuities, private placement variable annuities, structured 10 AIG 2011 Form...

  • Page 25
    ...of equity and fixed income portfolios, guaranteed death benefits and a suite of guaranteed retirement income solutions. SARM distributes products through banks and national, regional and independent broker-dealer firms. Brokerage Services and Retail Mutual Funds includes the operations of SunAmerica...

  • Page 26
    ... aircraft which cannot be economically leased to customers. OTHER OPERATIONS AIG's Other operations include results from Mortgage Guaranty operations, Global Capital Markets operations, Direct Investment book, Retained Interests, Corporate & Other operations (after allocations to AIG's business...

  • Page 27
    ... liquidity from AIG Parent. Direct Investment book operating results are significantly affected by performance in the credit, equity, interest rate and foreign exchange markets. RETAINED INTERESTS Retained Interests represents the fair value gains or losses on the AIA Group Limited (AIA) ordinary...

  • Page 28
    ... the Consumer Finance Group in Poland, is now reported in AIG's Other operations category as part of Corporate & Other. See Note 4 to the Consolidated Financial Statements for additional information on discontinued operations. INSURANCE ACTIVITIES LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT...

  • Page 29
    ... One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Ten years later Remaining Reserves (Undiscounted) Remaining Discount Remaining Reserves 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $26...

  • Page 30
    ... liability recorded for each calendar year, and the reestimation of these amounts as of December 31, 2011(a): (in millions) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Net Liability, End of Year Reinsurance Recoverable, End of Year Gross Liability, End of Year Re-estimated Net Liability...

  • Page 31
    ... 2005 2006 2007 2008 2009 2010 2011 Net Reserves Held Discount (in Reserves Held) Net Reserves Held (Undiscounted) Undiscounted Liability as of: One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years...

  • Page 32
    ... in Net Reserves Held by Fuji, which was acquired in 2010. (b) The Liability for unpaid claims and claims adjustment expense as reported in AIG's Consolidated Balance Sheet at December 31, 2011 differs from the total reserve reported in the annual statements filed with state insurance departments...

  • Page 33
    ...fixed income securities of corporations, municipal bonds and government issuances in all of its portfolios, and, to a lesser extent, investments in high-yield bonds, common stocks, real estate, hedge funds and other alternative investments. The majority of assets backing insurance liabilities at AIG...

  • Page 34
    ...and 3 to the Consolidated Financial Statements. REGULATION AIG's operations around the world are subject to regulation by many different types of regulatory authorities, including insurance, securities, investment advisory, banking and thrift regulators in the United States and abroad. SUPERVISORY...

  • Page 35
    ... will affect the financial markets generally; impact AIG's businesses, results of operations, cash flows or financial condition; or require AIG to raise additional capital or result in a downgrade of AIG's credit ratings. On January 5, 2012, the Board of Governors of the Federal Reserve System (the...

  • Page 36
    ... of AIG Common Stock, AIG will become regulated by the FRB as a savings and loan holding company. • If AIG is designated as a SIFI the FRB could (i) limit AIG's ability to merge with, acquire, consolidate with, or become affiliated with another company, to offer specified financial products or...

  • Page 37
    ... to retail investors, such as certain of SunAmerica's operations. The staff report recommended to Congress a uniform fiduciary standard of conduct for broker-dealers and investment advisers. The SEC may also require broker-dealers selling proprietary or a limited range of products to make certain...

  • Page 38
    ... in which AIG's subsidiaries conduct business have already begun implementing legislative and regulatory changes consistent with these recommendations, including proposals governing consolidated regulation of insurance holdings companies by the Financial Services Agency in Japan, financial and...

  • Page 39
    ... of reports of financial condition required to be filed and reserves for unearned premiums, losses and other purposes. In general, such regulation is for the protection of policyholders rather than the equity owners of these companies. AIG has taken various steps to enhance the capital positions of...

  • Page 40
    ... and counterparties at historical levels. General insurance and life insurance companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Retirement services companies compete through crediting rates and the issuance of guaranteed benefits. For...

  • Page 41
    AIG's internet address for its corporate website is www.aig.com. AIG makes available free of charge, through the Investor Information section of AIG's corporate website, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements on Schedule 14A and ...

  • Page 42
    ... Key National Banking. Prior to KeyCorp, he served as Managing Director of Trinsum Group, Inc. Prior to that position, Mr. Hancock was at JP Morgan for 20 years, eventually serving as head of its fixed income division and ultimately Chief Financial Officer. Sid Sankaran joined AIG in December 2010...

  • Page 43
    ... in ILFC; • increased credit losses; • impairments of goodwill, aircraft and other long-lived assets; • additional statutory capital requirements; • limitations on our ability to recover deferred tax assets; • a decline in new business levels; • a decline in insured values caused by...

  • Page 44
    ... to sell assets relating to such particular groups of related assets may be limited if other market participants are seeking to sell at the same time. The value of our investment portfolio is exposed to the creditworthiness of state and municipal governments. We hold a large portfolio of state and...

  • Page 45
    ... lines of business, which include but are not limited to general liability, commercial automobile liability, environmental, workers' compensation, excess casualty and crisis management coverages, insurance and risk management programs for large corporate customers and other customized structured...

  • Page 46
    ... historical levels. General insurance and life insurance companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Retirement services companies compete through crediting rates and the issuance of guaranteed benefits. A decline in our position as...

  • Page 47
    ... to pay. In addition, downturns in equity markets, increased equity volatility or reduced interest rates could result in an increase in the valuation of the future policy benefits or policyholder account balances, increasing the liabilities associated with the guaranteed benefits and resulting in...

  • Page 48
    ... of operations, cash flows or financial condition, require us to raise additional capital or result in a downgrade of our credit ratings. Under Dodd-Frank, we may become subject to the examination, enforcement and supervisory authority of the FRB as a savings and loan holding company or a SIFI. AIG...

  • Page 49
    ... and results of operations. The Model Regulation entitled ''Valuation of Life Insurance Policies'', commonly known as ''Regulation XXX'', requires insurers to establish additional statutory reserves for term life insurance policies with long-term premium guarantees and universal life AIG 2011 Form...

  • Page 50
    ... pre-ownership change tax losses and credits carryforwards equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The annual limitation would be increased each year...

  • Page 51
    ... 9, 2011, AIG's Board of Directors adopted a Tax Asset Protection Plan (the Plan) to help protect our ability to recognize tax benefits from certain tax attributes in order to reduce our potential future income tax liability. At our 2011 Annual Meeting of Shareholders, shareholders ratified the Plan...

  • Page 52
    ... may decrease. This may result in declining lease rates, losses on sales, impairment charges or fair value adjustments and may adversely affect our business, consolidated financial condition, results of operations and cash flows. The residual value of our aircraft is subject to a number of risks and...

  • Page 53
    ... Our subsidiaries' investments in certain securities, including certain fixed income securities and certain structured securities, private equity securities, private equity funds and hedge funds, mortgage loans, flight equipment, finance receivables and real estate, which had a collective fair value...

  • Page 54
    ... to cause or prevent a change in control of AIG could also have an adverse effect on the market price of AIG Common Stock. The Department of the Treasury may also, subject to applicable securities laws, transfer all, or a portion of, the AIG Common Stock to another person or entity and, in the...

  • Page 55
    ... to perform necessary business functions, including providing insurance quotes, processing premium payments, making changes to existing policies, filing and paying claims, administering variable annuity products and mutual funds, providing customer support and managing our investment portfolios...

  • Page 56
    ... - Long-Term Aspirational Goals in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, AIG made significant assumptions that include, among other things, the general conditions of markets in which it operates, revenues and combined ratios of its subsidiaries, investment...

  • Page 57
    ... the SEC staff 180 days or more before the end of AIG's fiscal year relating to AIG's periodic or current reports under the Exchange Act. ITEM 2. PROPERTIES AIG and its subsidiaries operate from over 400 offices in the United States and approximately 700 offices in over 75 foreign countries. The...

  • Page 58
    ... Board of Directors, in its discretion, from funds legally available therefor. AIG's Board of Directors may consider AIG's financial position, the performance of its businesses, its consolidated financial condition, results of operations and liquidity, available capital, the existence of investment...

  • Page 59
    ... on AIG Common Stock to the return of a group of companies (the Old Peer Group) consisting of nine insurance companies to which AIG compared itself in its Annual Report on Form 10-K for the year ended December 31, 2010 ACE Limited Aflac Incorporated The Chubb Corporation Hartford Financial Services...

  • Page 60
    ...TOTAL SHAREHOLDER RETURNS Value of $100 Invested on December 31, 2006 $150 $100 $50 $0 2006 2007 2008 Years Ending S&P 500 INDEX 2009 2010 2011 AMERICAN INTERNATIONAL GROUP NEW PEER GROUP OLD PEER GROUP 18FEB201214433352 2010 2011 2006 2007 As of December 31, 2008 2009 AIG S&P 500 New...

  • Page 61
    ...Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) attributable to AIG Dividends declared per common share Year-end balance sheet data: Total investments Total assets Long-term debt Total liabilities Total AIG shareholders' equity Total equity Other...

  • Page 62
    ... ability to hold to recovery certain securities; and losses related to AIG's securities lending program. • In 2008, AIG also recognized unrealized market valuation losses representing the change in fair value of its super senior credit default swap portfolio, established a deferred tax valuation...

  • Page 63
    ... long-term aspirational goals; • AIG's strategy to grow net investment income, efficiently manage capital and reduce expenses; • AIG's strategy for customer retention, growth, product development, market position, financial results and reserves; and • The revenues and combined ratios of AIG...

  • Page 64
    ...Securities and Exchange Commission (SEC) rules and regulations. AIG analyzes the operating performance of Chartis using underwriting profit (loss). Operating income (loss), which is income (loss) before net realized capital gains (losses) and related deferred policy acquisition costs (DAC) and sales...

  • Page 65
    ... completion of the initial public offering and listing of AIA Group Limited (AIA) ordinary shares on the Hong Kong Stock Exchange on October 29, 2010, as well as a gain of $1.3 billion recognized in 2010 related to the sale of AIG's headquarters building in Tokyo in 2009 which gain had been deferred...

  • Page 66
    .... ILFC recorded losses of $61 million on the extinguishment of debt; See Capital Resources and Liquidity herein and Notes 1, 4, 15 and 17 to the Consolidated Financial Statements for additional information on these transactions. OUTLOOK Priorities for 2012 AIG remains committed to its long-term...

  • Page 67
    ... increase (decrease) to pre-tax income (loss) for the years ended December 31, 2011, 2010 and 2009 related to the retrospective adoption of the accounting standard for each business unit impacted: Years Ended December 31, (in millions) 2011 2010 2009 Chartis SunAmerica UGC Divested businesses Total...

  • Page 68
    ... to capital intensive long-tail lines, Chartis determined to cease writing excess workers' compensation business as a stand-alone product. In 2011, management took remedial actions related to certain Consumer Insurance programs that did not meet internal performance or operating targets. Accident...

  • Page 69
    ... return on equity by line of business and reduce exposure to businesses with inadequate pricing and increased loss trends. Investments Consistent with AIG's worldwide insurance investment policy, Chartis places primary emphasis on investments in fixed maturity securities issued by corporations...

  • Page 70
    ... on long-term investment returns, negatively affect future sales of interest rate-sensitive products and reduce future profits. Also, products such as payout annuities and traditional life insurance that are not rate-adjustable may require increases in reserves if future investment yields are...

  • Page 71
    ... fixed options within variable annuities sold in group retirement markets) to decline in 2012. Life Insurance SunAmerica's strategic focus includes disciplined underwriting, active expense management, product innovation, a high quality investment portfolio and a strong capital position. SunAmerica...

  • Page 72
    ... Accounting Estimates - Future Policy Benefits for Life and Accident and Health Insurance Contracts (SunAmerica Companies). Aircraft Leasing ILFC continues to execute on its strategy of managing its fleet of aircraft by ordering new aircraft with high customer demand and through potential sales...

  • Page 73
    ... and 2007 vintage books of business. These policy violations resulted in loan rescissions totaling $746 million of claims on first-lien business during 2011 compared to $781 million during 2010. Although rescissions will continue to have a positive effect on UGC's financial results, higher levels of...

  • Page 74
    ...Hong Kong dollar change in AIA's share price would result in an approximate $500 million change in AIG's pre-tax income. Corporate & Other In 2011, AIG completed the Recapitalization, executed transactions in the debt and equity capital markets and substantially completed its asset disposition plan...

  • Page 75
    ... Operations Consolidated Results Segment Results Chartis Operations Liability for Unpaid Claims and Claims Adjustment Expense SunAmerica Operations Aircraft Leasing Operations Other Operations Capital Resources and Liquidity Overview Liquidity Adequacy Management Analysis of Sources and Uses of Cash...

  • Page 76
    ... property-casualty and life insurance and retirement services network. Aircraft Leasing includes commercial aircraft and equipment leasing. AIG's Other operations category consists of businesses and items not allocated to AIG's reportable segments. CONSOLIDATED RESULTS During 2011, AIG experienced...

  • Page 77
    ... AIA in the fourth quarter of 2010): Years Ended December 31, (in millions) Percentage Change 2011 vs. 2010 2010 vs. 2009 2011 2010 2009 Revenues: Premiums Policy fees Net investment income Net realized capital gains (losses) Aircraft leasing revenue Other income Total revenues Benefits, claims...

  • Page 78
    ... of consolidated Net investment income: (in millions) Years Ended December 31, 2011 2010 2009 Percentage Change 2011 vs. 2010 2010 vs. 2009 Fixed maturity securities, including short-term investments Change in fair value of ML II Change in fair value of ML III Change in fair value of AIA securities...

  • Page 79
    ...) Years Ended December 31, 2011 2010 2009 Percentage Change 2011 vs. 2010 2010 vs. 2009 Sales of fixed maturity securities Sales of equity securities Other-than-temporary impairments: Severity Change in intent Foreign currency declines Issuer-specific credit events Adverse projected cash flows...

  • Page 80
    ... in the first quarter of 2010 related to the acquisition of Fuji, which is further discussed in Note 5 to the Consolidated Financial Statements. These declines were partially offset by significantly lower levels of real estate investment impairment charges in 2011. 2010 and 2009 Comparison The...

  • Page 81
    ... quarter of 2011; • the effect of Chartis' consolidation of Fuji; • increased claims and claims adjustment expenses for Mortgage Guaranty operations due to increased overturns of denied and rescinded claims; and • increased claims at SunAmerica due to enhanced death benefit reserving practices...

  • Page 82
    ... Leasing Expenses ILFC recorded impairment charges, fair value adjustments and lease-related charges of $1.7 billion in both 2011 and 2010 and charges of $51 million in 2009. See Segment Results - Aircraft Leasing Operations - Aircraft Leasing Results for additional information. 68 AIG 2011 Form...

  • Page 83
    ... Management business, including the effect of deconsolidation of certain portfolio investments and the sale of the Swiss bank; and • lower provisions for credit losses for consumer finance businesses not presented as discontinued operations. Income Taxes 2011 Effective Tax Rate For the year ended...

  • Page 84
    ...Asset herein and Note 22 to the Consolidated Financial Statements for additional information. Discontinued Operations Income (loss) from Discontinued Operations is comprised of the following: Years Ended December 31, (in millions) 2011 2010 2009 Foreign life insurance businesses AGF Net gain (loss...

  • Page 85
    ... Consolidated Financial Statements. Years Ended December 31, (in millions) 2011 2010 2009 Percentage Change 2011 vs. 2010 2010 vs. 2009 Total revenues: Chartis SunAmerica Aircraft Leasing Total reportable segments Other Operations Consolidation and eliminations Total Pre-tax income (loss): Chartis...

  • Page 86
    ...the premiums retained after purchasing reinsurance protection. Chartis, along with most property and casualty insurance companies, uses the loss ratio, the expense ratio and the combined ratio as measures of underwriting performance. The loss ratio is the sum of claims and claims adjustment expenses...

  • Page 87
    ... losses, was 99.8 in 2011, compared to 113.5 in 2010, a 13.7 point improvement. • Net realized capital gains on sales of fixed maturity securities increased in connection with Chartis' strategy to better align investment allocations with current overall performance and income tax planning...

  • Page 88
    ... Chartis net premiums written by major line of business: Years Ended December 31, (in millions) 2011 2010 2009 Percentage Change 2011 vs. 2010 2010 vs. 2009 Commercial Insurance: Casualty Property Specialty Financial lines Total Commercial Insurance Consumer Insurance: Accident & health Personal...

  • Page 89
    ... these actions decreased premiums in 2011 by approximately $0.6 billion. However, given the capital intensive nature of these classes of casualty business, Chartis expects that over time, these actions will improve its results. 2010 and 2009 Comparison Chartis' net premiums written increased in 2010...

  • Page 90
    ... environmental business lines, partially offset by the net favorable loss development in the financial lines and excess casualty lines. The loss ratio for Chartis increased in 2010 compared to 2009, primarily as a result of the net adverse loss development for prior accident years recorded in 2010...

  • Page 91
    ... relates to excess casualty, excess workers' compensation and the asbestos lines of business. Further, approximately 95 percent relates to accident years 2005 and prior. Writings in long-tail lines of business that were the drivers of the reserve charges in 2010 and 2009 have been reduced since 2006...

  • Page 92
    ... of cash and short term instruments into longer term, higher yield securities. In addition, 2011 reflects a full year of interest income related to Fuji, which has been consolidated by Chartis since July 1, 2010. Net realized capital gains (losses): Increases are due to gains on the sales of fixed...

  • Page 93
    ... currency exchange rates on the growth of Commercial Insurance net premiums written: Years Ended December 31, 2011 vs. 2010 2010 vs. 2009 Increase (decrease) in original currency* Foreign exchange effect Increase (decrease) as reported in U.S. dollars * Computed using a constant exchange rate for...

  • Page 94
    ... in 2010 compared to 2009 primarily due to: • risk management initiatives resulting in the reduction of aggregate exposures in certain Commercial Casualty, Property and Specialty lines of business; • lower workers' compensation net premiums written due to declining rates, lower employment levels...

  • Page 95
    ... of its financial systems. Further, during 2010, Chartis recorded increased expenses relating to long-term incentive programs that will continue to align employee performance incentive programs with profitability, capital management, risk management, and other performance measures AIG 2011 Form 10...

  • Page 96
    ... specialized personal lines products. • Life net premiums written increased primarily as a result of the full year effect of the Fuji acquisition and as a result of the execution of new business strategies at Fuji Life Insurance Company Ltd. 2010 and 2009 comparison Consumer Insurance net premiums...

  • Page 97
    ... in 2010. The increase in the loss ratio in 2010 compared to 2009 reflects the effect of Fuji in 2010 and increased claims in Japan and Europe. In 2010, Consumer Insurance recorded favorable net prior year loss development of $66 million primarily due to favorable development in the Asia Pacific...

  • Page 98
    ... ratios are not presented for Chartis Other. 2011 and 2010 Comparison For the year 2011 compared to 2010, the decrease in net premiums written and claims and claim adjustment expenses reflect the effects of the run-off activities associated with the excess workers' compensation business, 84 AIG...

  • Page 99
    ..., (in millions) 2011 2010 Other liability occurrence International Workers' compensation Other liability claims made Property Auto liability Mortgage guaranty credit Products liability Medical malpractice Accident and health Commercial multiple peril Aircraft Fidelity/surety Other Total * $ 22,526...

  • Page 100
    ... the components of net loss reserves by business unit: Years Ended December 31, (in millions) 2011 2010 Chartis: Commercial Insurance Consumer Insurance Other* Total Chartis Other operations - Mortgage Guaranty Net liability for unpaid claims and claims adjustment expense at end of * $ 58,625...

  • Page 101
    ... years (other than accretion of discount): Years Ended December 31, (in millions) 2011 2010 2009 Prior Accident Year Development by Operating Segment: Chartis: Commercial Insurance Consumer Insurance Other Total Chartis Other businesses: Mortgage Guaranty Other* Total Other businesses Prior years...

  • Page 102
    Years Ended December 31, (in millions) 2011 2010 2009 Prior Accident Year Development by Major Class of Business: Excess casualty D&O and related management liability Excess workers' compensation Healthcare Environmental Asbestos and environmental (1984 and prior) Commercial risk Primary (...

  • Page 103
    ... verdicts, which increased the value of severe tort claims. AIG increased its estimate for its year-end 2009 loss reserve for excess casualty liabilities by more than $1 billion, primarily relating to accident years 2006 and prior. The majority of the 2009 charge resulted from management's decision...

  • Page 104
    ... rate of inflation and other economic conditions in the United States; • changes in the legal, regulatory, judicial and social environment; • the expected impact of recently enacted health care reform on workers' compensation costs; • underlying policy pricing, terms and conditions; • claims...

  • Page 105
    ...-up claims projections by AIG claims staff as a benchmark to select the loss reserves for this business; these projections are updated annually. For the year-end 2011 loss reserve review, AIG's actuaries took into account the favorable development for accident years 2011, 2010 and 2003 through 2008...

  • Page 106
    ...comes from accident year 2010. In 2011, losses for accident year 2010 continued to emerge at higher levels than anticipated by the loss ratios established at prior year end. A key structural driver was the effect of high unemployment on the frequency of higher severity lost time claims. The economic...

  • Page 107
    ... business might be expected to approximate 20 percent of the latest year's earned premiums, and this level of reserve would generally be maintained regardless of the loss ratio emerging in the current quarter. The 20 percent factor would be adjusted to reflect changes in rate levels, loss reporting...

  • Page 108
    ...accident years. AIG records quarterly changes in loss reserves for each of its many Chartis classes of business. The overall change in AIG's loss reserves is based on the sum of these classes of business changes. For most long-tail classes of business, the process of recording quarterly loss reserve...

  • Page 109
    ... environment, changes in medical cost trends (inflation, intensity and utilization of medical services) underlying policy pricing, terms and conditions, and claims handling, as well as third-party actuarial reviews that are periodically performed for key classes of business. Loss reserve development...

  • Page 110
    ... the losses for the accident year. AIG's loss reserve reviews for long-tail classes typically utilize a combination of both loss development and expected loss ratio methods. Loss development methods are generally given more weight for accident years and classes of business where the loss experience...

  • Page 111
    ...ratios used for recent accident years are based on the projected ultimate loss ratios of prior years, adjusted for rate changes, estimated loss cost trends and all other changes that can be quantified. D&O and Related Management Liability Classes of Business AIG generally uses a combination of loss...

  • Page 112
    ... in the reported losses and increased reliance on expected loss ratio methods. Commercial Automobile Liability AIG generally uses loss development methods for all but the most recent accident year for commercial automobile classes of business. Healthcare AIG generally uses a combination of loss...

  • Page 113
    ... Casualty AIG uses expected loss ratio methods for all accident years for catastrophic casualty business. This class of business consists of casualty or financial lines coverage that attach in excess of very high attachment points; thus the claims experience is marked by very low frequency and high...

  • Page 114
    ... may re-default resulting in new losses for Mortgage Guaranty. Occurrences of fraudulent loans, underwriting violations, and other deviations from contractual terms, mostly related to the 2006 and 2007 blocks of business, have resulted in historically high levels of claim rescissions and...

  • Page 115
    ...-up claim analysis, loss evaluation reports from on-site field adjusters, and market share estimates. AIG generally determines reserves for adjuster loss adjustment expenses based on calendar year ratios of adjuster expenses paid to losses paid for the particular class of business. AIG generally...

  • Page 116
    ..., see Critical Accounting Estimates - Liability for Unpaid Claims and Claims Adjustment Expense (Chartis and Mortgage Guaranty) herein. Asbestos and Environmental Reserves The estimation of loss reserves relating to asbestos and environmental claims on insurance policies written many years ago is...

  • Page 117
    ... mentioned NICO transaction, effective January 1, 2011, NICO assumed responsibility for claims handling related to the majority of AIG's domestic asbestos liabilities. In the fourth quarter of 2010, management conducted its more in-depth comprehensive loss-reserve review with the assistance of its...

  • Page 118
    .... Environmental claims from future report years (i.e., IBNR) are projected out five years, i.e., through the year 2016. At year-end 2011, AIG considered a number of factors and recent experience in addition to the results of the respective top-down and ground-up analyses performed for asbestos...

  • Page 119
    ...applicable IBNR, relating to asbestos and environmental claims separately and combined: As of or for the Year Ended December 31, (in millions) 2011 Gross 2010 Gross 2009 Gross Net Net Net Asbestos: Liability for unpaid claims and claims adjustment expense at beginning of year Dispositions Losses...

  • Page 120
    ...life, A&H products, fixed and variable deferred annuities, fixed payout annuities, mutual funds and financial planning. SunAmerica offers its products and services through a diverse, multi-channel distribution network that includes banks, national, regional and independent broker-dealers, affiliated...

  • Page 121
    ... presents SunAmerica results: Years Ended December 31, (in millions) 2011 2010 2009 Percentage Change 2011 vs. 2010 2010 vs. 2009 Domestic Life Insurance: Revenue: Premiums Policy fees Net investment income Other income Operating expenses: Policyholder benefits and claims incurred Interest credited...

  • Page 122
    ... market conditions in 2010. In a weak equity market, SunAmerica increases policyholder benefit reserves to recognize the expected value of death benefits in excess of the projected account balance for certain guaranteed benefits features of variable annuities. The DAC asset related to these products...

  • Page 123
    ... by a $465 million increase in fair value losses of embedded derivatives, net of economic hedges, relating to variable annuity products with living benefit guarantees, compared to 2010, driven by declines in long - term interest rates. Due to statutory capital considerations, a significant portion...

  • Page 124
    ...by product*: Years Ended December 31, (in millions) Percentage Change 2011 vs. 2010 2010 vs. 2009 2011 2010 2009 Premiums, deposits and other considerations Individual fixed annuity deposits Group retirement product deposits Life insurance Individual variable annuity deposits Retail mutual funds...

  • Page 125
    ...) 2011 2010 2009 Group retirement products Balance, beginning of year Deposits - annuities Deposits - mutual funds Total deposits Surrenders and other withdrawals Death benefits Net inflows (outflows) Change in fair value of underlying investments, interest credited, net of fees Future policy...

  • Page 126
    ...in millions) 2011 2010 2009 Individual variable annuities Balance, beginning of year Deposits Surrenders and other withdrawals Death benefits Net outflows Change in fair value of underlying investments, interest credited, net of fees Balance, end of year Retail mutual funds Balance, beginning of...

  • Page 127
    ... Statements, in order to align financial reporting with changes made during 2011 to the manner in which AIG's chief operating decision makers review the businesses to assess performance and make decisions about resources to be allocated, beginning in the third quarter of 2011, Aircraft Leasing...

  • Page 128
    ...-of-production aircraft, or aircraft that have been impacted by new technology developments. 2010 and 2009 Comparison ILFC reported a pre-tax loss in 2010 compared to pre-tax income in 2009 primarily due to impairment charges, fair value adjustments and lease related charges recorded on aircraft in...

  • Page 129
    ... Financial Services reportable segment is now reported with AIG Markets, Inc. (AIG Markets) as Global Capital Markets in Other Operations. • AIG Global Real Estate Investment Corp. operations and Institutional Asset Management, previously reported as components of Direct Investment book and Asset...

  • Page 130
    ...AIG's Other operations: (in millions) 2011 2010 2009 Percentage Change 2011 vs. 2010 2010 vs. 2009 Mortgage Guaranty Global Capital Markets Direct Investment book Retained interests: Change in the fair value of the MetLife securities prior to their sale Change in fair value of AIA securities Change...

  • Page 131
    ... times of high loan origination activity. UGC believes it has adequately accrued for these losses at December 31, 2011. Pre-tax income for 2010 also includes gains of approximately $150 million from legal settlements and reinsurance commutations. 2010 and 2009 Comparison Mortgage Guaranty reported...

  • Page 132
    ... net gains on credit valuation adjustments on non-derivative assets and liabilities accounted for under the fair value option and lower interest income in the MIP due to approximately $4.9 billion in sales of investments during the fourth quarter of 2010 and the first quarter of 2011 to increase...

  • Page 133
    ...market conditions, from December 31, 2010 through the date of their sale in the first quarter of 2011. Change in Fair Value of AIA Securities AIG recognized a $1.3 billion gain in 2011, a 12 percent increase in the value of AIG's 33 percent interest in AIA, which is recorded in Other invested assets...

  • Page 134
    ... of investments Change in deferred acquisition costs adjustment and other Change in future policy benefits Change in foreign currency translation adjustments Change in net derivative gains (losses) arising from cash flow hedging activities Change in retirement plan liabilities adjustment Change...

  • Page 135
    ... income. This change in future policy benefits assumes the securities underlying certain traditional long-duration products had been sold at their stated aggregate fair value and reinvested at current yields. Change in Foreign Currency Translation Adjustments Increases in foreign currency...

  • Page 136
    ... effects of the AIA initial public offering, the ALICO disposition and changes in the estimated U.S. tax liability with respect to the potential sale of subsidiaries, including AIG Star and AIG Edison. For the year ended December 31, 2009, the effective tax rate on pre-tax Other Comprehensive Income...

  • Page 137
    ... data from AIG's Consolidated Statement of Cash Flows: Years Ended December 31, (in millions) 2011 2010 2009 Summary: Net cash Net cash Net cash Effect of provided by operating activities provided by (used in) investing activities used in financing activities exchange rate changes on cash $ 35...

  • Page 138
    ...2011. Net cash used in financing activities was significantly lower in 2010 than in 2009, primarily as a result of declines in policyholder contract withdrawals, reflecting improved conditions for the life insurance and retirement services businesses was partially offset by the issuance of long-term...

  • Page 139
    ... balance of the net proceeds for general corporate purposes. AIG issues debt securities in the public, private and non-U.S. markets from time to time to meet its financing needs and those of certain of its subsidiaries. AIG engages in secured and unsecured borrowings to support its capital structure...

  • Page 140
    ...on September 2, 2011, ILFC Holdings, an indirect, wholly-owned subsidiary of AIG, which is intended to become a holding company for ILFC, filed a registration statement on Form S-1 with the SEC for a proposed initial public offering. The number of shares to be offered, price range and timing for any...

  • Page 141
    ...subsidiaries maintain substantial liquidity in the form of cash and short-term investments, totaling $5.3 billion as of December 31, 2011. Further, Chartis businesses maintain significant levels of investment-grade fixed maturity securities, including substantial holdings in government and corporate...

  • Page 142
    ... profile by purchasing investment grade fixed maturity securities in order to reduce the levels of cash, cash equivalents and other short-term instruments that had been maintained during 2009 and 2010. In 2011, the SunAmerica life insurance companies paid dividends and surplus note interest totaling...

  • Page 143
    ...general corporate purposes. The senior secured term loan will be secured primarily by a first priority perfected lien on the equity of certain ILFC subsidiaries that directly or indirectly own a pool of aircraft and related leases. See Debt herein and Note 15 to the Consolidated Financial Statements...

  • Page 144
    ... trade positions that were transferred to Direct Investment book in 2010. Direct Investment Book As of December 31, 2011, management expects the DIB's investments to provide sufficient return to fund the DIB maturing liabilities. The DIB's investment portfolio consists primarily of cash, short term...

  • Page 145
    ... in the timing of cash inflows on the assets and outflows with respect to the liabilities may require assets to be sold or AIG to access the capital markets to satisfy maturing liabilities. Depending on market conditions and the ability to sell assets at that time, proceeds from sales may not...

  • Page 146
    ... of secured financings, of which $97 million are non-recourse to ILFC. Primarily represents debt assumed related to the acquisition of AeroTurbine. At December 31, 2011, includes debt of consolidated investments held through AIG Global Real Estate Investment Corp., AIG Credit Corp. and SunAmerica of...

  • Page 147
    ... time to time, and may use the proceeds for general corporate purposes. AIG's ability to borrow under these facilities is not contingent on its credit ratings. AIG's ability to borrow under these facilities is conditioned on the satisfaction of certain legal, operating, administrative and financial...

  • Page 148
    ...AIG guarantees all obligations of AIG Financial Products Corp. and AIG Funding, Inc. These credit ratings are current opinions of the rating agencies. As such, they may be changed, suspended or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of, information...

  • Page 149
    ... December 31, 2011 (in millions) Total Payments Payments due by Period 2013 - 2014 2015 - 2016 2012 Thereafter Loss reserves Insurance and investment contract liabilities Aircraft purchase commitments Borrowings Interest payments on borrowings Operating leases Other long-term obligations(a) Total...

  • Page 150
    ... Statements, and Capital Resources and Liquidity - Liquidity of Parent and Subsidiaries - Aircraft Leasing herein. Borrowings AIG's borrowings exclude those incurred by consolidated investments and include hybrid financial instrument liabilities recorded at fair value. The repayment of long-term...

  • Page 151
    ... 16 to the Consolidated Financial Statements. Includes commitments to invest in private equity, hedge funds and mutual funds and commitments to purchase and develop real estate in the United States and abroad. The commitments to invest in private equity funds, hedge funds and other funds are called...

  • Page 152
    ... States, the NAIC has developed Risk-Based Capital (RBC) Model Law requirements. RBC relates an individual insurance company's statutory surplus to the risk inherent in its overall operations. AIG's insurance subsidiaries file financial statements prepared in accordance with statutory accounting...

  • Page 153
    ...and cash flow characteristics, rating agency and regulatory capital considerations, legal investment limitations, tax optimization and diversification. The majority of assets backing insurance liabilities at AIG consist of intermediate and long duration fixed maturity securities. In the case of life...

  • Page 154
    ... of higher yielding fixed maturity securities during 2011. • Corporate debt (primarily high grade) represented approximately half of new purchases. Risk-weighted opportunistic investments in structured securities continued to be made to improve yields and increase net 140 AIG 2011 Form 10-K

  • Page 155
    ... the asset portfolio of the domestic property and casualty companies. • Base yields at Chartis were higher in 2011 compared to 2010 due to redeployment activities and the increase due to investments in structured securities. SunAmerica base yields were lower as new money rates were generally lower...

  • Page 156
    ...fair value: December 31, 2011 2010 Rating: AAA AA A BBB Below investment grade Non-rated Total 21% 20 22 25 10 2 100% 21% 25 20 23 7 4 100% The remainder of Investments is organized as follows: Index Page Investments by Segment Available for Sale Investments Commercial Mortgage Loans AIA Equity...

  • Page 157
    ... under operating leases, net of accumulated depreciation Other invested assets Short-term investments Total investments(a) Cash Total invested assets December 31, 2010 Fixed maturity securities: Bonds available for sale, at fair value Bond trading securities, at fair value Equity securities: Common...

  • Page 158
    ... annuity products. The fair value of these benefits is measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts. SunAmerica manages its exposure resulting from these long-term guarantees through reinsurance or capital market...

  • Page 159
    ... investments yielding greater returns than the related cost of funds. The DIB's investment portfolio, which has a carrying value on the Consolidated Balance Sheet of $27.5 billion, consists primarily of cash, short term investments, fixed maturity securities issued by U.S. government and government...

  • Page 160
    ... includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date. At December 31, 2011 and 2010, bonds available for sale held by AIG that were below investment grade or not rated totaled $24.2 billion and...

  • Page 161
    ...Category 2011 2010(a) Financial institutions: Money Center/Global Bank Groups Regional banks - other Life insurance Securities firms and other finance companies Insurance non-life Regional banks - North America Other financial institutions Utilities Communications Consumer noncyclical Capital goods...

  • Page 162
    ...Total RMBS Agency 2011 2010 2009 2008 2007 2006 and prior Total Agency Alt-A 2011 2010 2009 2008 2007 2006 and prior Total Alt-A Subprime 2011 2010 2009 2008 2007 2006 and prior Total Subprime Prime non-agency 2011 2010 2009 2008 2007 2006 and prior Total Prime non-agency Total Other Housing Related...

  • Page 163
    ... the second quarter of 2011, AIG purchased certain RMBS securities that had experienced deterioration in credit quality since their origination. See Note 7 to the Consolidated Financial Statements, Investments - Net Realized Capital Gains and Losses ǁ Purchased Credit Impaired (PCI) Securities, for...

  • Page 164
    ...CDO Agency Other Total The following table presents AIG's CMBS investments by year of vintage: December 31, 2011 December 31, 2010 Gross Gross Percent of Gross Gross Percent of Amortized Unrealized Unrealized Fair Amortized Amortized Unrealized Unrealized Fair Amortized Cost Gains Losses Value Cost...

  • Page 165
    ... percentage of AIG's CMBS investments by industry based on amortized cost: December 31, 2011 2010 Industry: Office Multi-family* Retail Lodging Industrial Other Total * Includes Agency-backed CMBS. 28% 26 25 8 6 7 100% 34% 17 27 8 6 8 100% Although the market value of CMBS holdings has remained...

  • Page 166
    ...of the loans were current. The following table presents the commercial mortgage loan exposure by state and class of loan: December 31, 2011 (dollars in millions) Number of Loans Apartments Class Retails Industrials Hotels Percent Total of Total Offices Others State: California New York New Jersey...

  • Page 167
    ...by type: Years Ended December 31, (in millions) 2011 2010 2009 Fixed maturities, available for sale Equity securities, available for sale Private equity funds and hedge funds Subtotal Life settlement contracts Aircraft Trusts(a) Real estate(b) Total (a) (b) Aircraft Trusts impairment is recorded in...

  • Page 168
    ... and type of impairment: Reportable Segment Chartis SunAmerica Other Operations (in millions) Total December 31, 2011 Impairment Type: Severity Change in intent Foreign currency declines Issuer-specific credit events Adverse projected cash flows Total December 31, 2010 Impairment Type: Severity...

  • Page 169
    ... of security and type of impairment: (in millions) RMBS CDO/ABS CMBS Other Fixed Maturity Equities/Other Invested Assets* Total December 31, 2011 Impairment Type: Severity Change in intent Foreign currency declines Issuer-specific credit events Adverse projected cash flows Total December 31, 2010...

  • Page 170
    ...hold to sell; • declines due to foreign exchange rates; • issuer-specific credit events; • certain structured securities; • other impairments, including equity securities, private equity funds, hedge funds, direct private equity investments, aircraft trusts and investments in life settlement...

  • Page 171
    ...For most security types supported by real estate-related assets, current market yields continue to be higher than the yields were at the respective issuance dates of the securities. This is largely due to investors demanding additional yield premium for securities whose performance is closely linked...

  • Page 172
    ...monitor these positions for potential credit impairments that could result from further deterioration in commercial and residential real estate fundamentals. See Note 7 to the Consolidated Financial Statements for further discussion of AIG's investment portfolio. ENTERPRISE RISK MANAGEMENT OVERVIEW...

  • Page 173
    ... financing), insurance portfolio optimization and providing oversight of economic capital models. Each major geographic region of the Chartis footprint maintains a local committee with a similar mandate that reports directly or indirectly to the CRCC. • SunAmerica Financial Group Risk & Capital...

  • Page 174
    ... to managing its direct and indirect credit exposures, such as those arising from fixed income investments, equity securities, deposits, reverse repurchase agreements and repurchase agreements, commercial paper, corporate and consumer loans, leases, reinsurance recoverables, counterparty risk...

  • Page 175
    ... for sale investments, trading securities, derivative exposures, insurance credit and any other counterparty credit exposures. AIG's single largest credit exposure, the U.S. Government, was 34 percent of Total equity at December 31, 2011 compared to 22 percent at December 31, 2010. The increase...

  • Page 176
    ... predominantly to the largest banks in these countries. The following table presents AIG's aggregate credit exposures to banks in the United Kingdom and Europe: December 31, 2011 (in millions) Fixed Maturity Securities(a) Cash and Short-Term Investments(b) Derivatives(c) Other(d) Total Euro-zone...

  • Page 177
    ... to widening credit spreads and difficult financing conditions. These credit exposures primarily included available-for-sale and trading securities (at fair value) issued by these governments. AIG had no direct or guaranteed credit exposure to the governments of Greece or Ireland. AIG 2011 Form 10...

  • Page 178
    ... concentrations: (in millions) December 31, 2011 December 31, 2010* Euro-zone countries: Germany France Netherlands Spain Austria Belgium Italy Finland Portugal Ireland Greece Other Euro-zone Total Euro-zone Other concentrations: Japan Canada United Kingdom Australia Norway Mexico Qatar Brazil...

  • Page 179
    ... - Fair Value Measurements of Certain Financial Assets and Liabilities - Level 3 Assets and Liabilities - Regulatory Capital Portfolio for a discussion of European related regulatory capital transactions. In addition, AIG had commercial real estate-related net equity investments in Europe totaling...

  • Page 180
    ... in the structure of certain variable annuity and variable life insurance products and from other equity-like investments, such as hedge funds and private equity funds, private equity investments, commercial real estate and real estate funds. • Foreign currency exchange rates. AIG is a globally...

  • Page 181
    ... securities, loans, finance receivables and short-term investments (excluding consolidated separate account assets). Exposures to equity and alternative investment prices include investments in common stocks, preferred stocks, mutual funds, hedge funds, private equity funds, commercial real estate...

  • Page 182
    ...in other equity investments ($1.0 billion) and common equity securities ($247 million). • Foreign currency exchange rates net exposure increased 73.5 percent or $2.5 billion compared to 2010, primarily due to: unrealized appreciation of $1.3 billion from certain foreign-denominated equity holdings...

  • Page 183
    ... business, product group, country, individual/group, correlation and catastrophic risk events); • compliance with financial reporting and capital and solvency targets; • extensive use of reinsurance, both internal and third-party; and • review and establishment of reserves. AIG closely manages...

  • Page 184
    ... underwriting practices and pricing procedures; limiting the financial impact of such increase in claims. Each line of business and many individual policyholders may have different exposures to the effects of climate change. A primary goal of AIG in managing its Chartis operations is to achieve...

  • Page 185
    ... return period losses, which have a one percent likelihood of being exceeded in any single year. Losses include loss adjustment expenses and the net values include reinstatement premiums. At December 31, 2011 (in millions) Net of 2012 Reinsurance Net of 2012 Reinsurance, After Tax Percent of Total...

  • Page 186
    ...takes corrective actions to limit its exposure with respect to particular geographic areas, companies, or perils. The Reinsurance Credit Department (RCD) conducts periodic detailed assessments of the financial strength and condition of current and potential reinsurers, both foreign and domestic. The...

  • Page 187
    ...348 1,119 905 The financial strength ratings reflect the ratings of the various reinsurance subsidiaries of the companies listed as of February 13, 2012. Excludes collateral held in excess of applicable treaty balances. Total Reinsurance Assets include general and life reinsurance recoverable. The...

  • Page 188
    ... assets to changes in interest rates; and • Equity market risk, which represents the potential exposure to higher claim costs for guaranteed benefits associated with variable annuities and the potential reduction in expected fee revenue. SunAmerica's businesses manage these risks through product...

  • Page 189
    ... additional losses on sales or record impairment charges and fair value adjustments. ILFC recognized asset impairment charges and fair value adjustments related to its fleet in 2011, 2010 and 2009 of $1.7 billion, $1.6 billion and $51 million, respectively. Other Operations Global Capital Markets...

  • Page 190
    ... trading and investment positions. Credit risk exists for a derivative contract when that contract has a positive fair value to AIG. The maximum potential exposure will increase or decrease during the life of the derivative commitments as a function of maturity and market conditions. To help manage...

  • Page 191
    ... Year Ended December 31, 2010 Average High Low (in millions) AIGFP trading market risk: Diversified Interest rate Currency Equity $ 1 1 - $ 1 1 - $ 1 1 - $ 1 1 - $ 1 1 - $ 2 2 - $ 3 3 1 2 $ 1 1 - See Critical Accounting Estimates - Fair Value Measurements of Certain Financial Assets...

  • Page 192
    ...evidence. As of December 31, 2011, the cumulative positive evidence outweighed the historical negative evidence regarding the likelihood that the deferred tax asset for AIG's U.S. consolidated income tax group (other than the life-insurance-business capital loss carryforwards) will be realized. This...

  • Page 193
    ... loss ratio generally reflects the projected loss ratio from prior accident years, adjusted for the loss trend (see above) and the effect of rate changes and other quantifiable factors on the loss ratio. For low-frequency, high-severity classes such as excess casualty, expected loss ratios generally...

  • Page 194
    ... AIG's estimates in the year-end loss reserve analyses in 2011. December 31, 2011 (in millions) Effect on Loss Reserves Effect on Loss Reserves Loss cost trends: Excess casualty: 10 percent increase 10 percent decrease D&O: 20 percent increase 15 percent decrease Excess workers' compensation...

  • Page 195
    ... year-end 2011 reserve review. The loss cost trend assumption is critical for the excess casualty class of business due to the long-tail nature of the claims and therefore is applied across many accident years. Thus, there is the potential for the reserves with respect to a number of accident years...

  • Page 196
    ... in the year-end 2011 loss reserve review. See Results of Operations - Segment Results - Chartis Operations - Liability for Unpaid Claims and Claims Adjustment Expense herein for additional information on AIG's reserve for unpaid claims and claims adjustment expenses. 182 AIG 2011 Form 10-K

  • Page 197
    ...balance sheet date, as if the securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. Significant unrealized appreciation on investments in a prolonged low interest rate environment may cause DAC to be adjusted and additional future policy benefit...

  • Page 198
    ... products, the annuity payments can continue beyond the guaranteed amount. The account value can also fluctuate with equity market returns on a daily basis resulting in increases or decreases in the excess of the guaranteed amount over account value. The net impact of the change in the fair value...

  • Page 199
    ... benefits reserve and unearned revenue liability and the related hypothetical impact on year-end 2011 balances. The effect of changes in the equity markets, volatility and interest rates primarily impacts individual variable annuities (SunAmerica Retirement Markets) and group retirement products...

  • Page 200
    ... the fair values of the Commercial Insurance and Consumer Insurance reporting units exceeded book value at both September 30, and December 31, 2011 and therefore the goodwill of these reporting units was considered not impaired. AIG will continue to monitor overall competitive, business and economic...

  • Page 201
    ...on internal sources Total fixed income and equity securities(b) (a) (b) Includes $20.9 billion for which the primary source is broker quotes. Includes available for sale and trading securities. $ 263 29 $ 292 90% 10 100% Level 3 Assets and Liabilities Assets and liabilities recorded at fair value...

  • Page 202
    ... credit default swaps written on mezzanine tranches of certain regulatory capital relief transactions, by asset class: Net Notional Amount December 31, 2010(a) 2011(a) Fair Value of Derivative (Asset) Liability at December 31, 2011(b)(c) 2010(b)(c) Unrealized Market Valuation Gain (Loss) Years Ended...

  • Page 203
    .... Relates primarily to fluctuations in the U.S. dollar/Euro exchange rate throughout the year. Multi-sector CDOs include $4.6 billion and $5.5 billion in net notional amount of credit default swaps written with cash settlement provisions at December 31, 2011 and December 31, 2010, respectively...

  • Page 204
    ...all of which related to certain super senior regulatory capital trades and made payments which approximated their values at the time of termination. The regulatory benefit of these transactions for AIGFP's financial institution counterparties was generally derived from Basel I. In December 2010, the...

  • Page 205
    ... written on portfolios of corporate obligations that were generally rated investment grade at the inception of the CDS. These CDS transactions require cash settlement. This portfolio also includes CDS with a net notional amount of $1.2 billion written on the senior part of the capital structure of...

  • Page 206
    ... based on current market conditions. For the purposes of estimating sensitivities for the super senior multi-sector CDO credit default swap portfolio, the change in valuation derived using the BET model is used to estimate the change in the fair value of the derivative liability. Out of the total...

  • Page 207
    ... credit default swap portfolio written on investment-grade corporate debt and the estimated increase (decrease) in fair value of derivative liability at December 31, 2011 corresponding to changes in these market credit inputs: Input Used at December 31, 2011 (in millions) Increase (Decrease) in Fair...

  • Page 208
    ... QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is set forth in the Enterprise Risk Management section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and is incorporated herein by reference. 194 AIG 2011 Form 10-K

  • Page 209
    ...American International Group, Inc. Index to Financial Statements and Schedules Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet at December 31, 2011 and 2010 Consolidated Statement of Operations for the years ended December 31, 2011, 2010 and 2009 Consolidated...

  • Page 210
    ... financial position of American International Group, Inc. and its subsidiaries (AIG) at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted...

  • Page 211
    ... under operating leases, net of accumulated depreciation Other invested assets (portion measured at fair value: 2011 - $20,876; 2010 - $21,356) Short-term investments (portion measured at fair value: 2011 - $5,913; 2010 - $23,860) Total investments Cash Accrued investment income Premiums and...

  • Page 212
    ...Liability for unpaid claims and claims adjustment expense Unearned premiums Future policy benefits for life and accident and health insurance contracts Policyholder contract deposits (portion measured at fair value: 2011 - $918; 2010 - $445) Other policyholder funds Current and deferred income taxes...

  • Page 213
    American International Group, Inc. Consolidated Statement of Operations (dollars in millions, except per share data) Revenues: Premiums Policy fees Net investment income Net realized capital gains (losses): Total other-than-temporary impairments on available for sale securities Portion of other-than...

  • Page 214
    American International Group, Inc. Consolidated Statement of Comprehensive Income (in millions) Years Ended December 31, 2011 2010 2009 Net income (loss) Other comprehensive income (loss), net of tax Change in unrealized appreciation (depreciation) of fixed maturity investments on which other-than-...

  • Page 215
    ... preferred interests to the Federal Reserve Bank of New York Other Balance, December 31, 2009 Series F drawdowns Common stock issued under stock plans Equity unit exchange Cumulative effect of change in accounting principle, net of tax Net income attributable to AIG or other noncontrolling interests...

  • Page 216
    ... of common stock Settlement of equity unit stock purchase contracts Net income attributable to AIG or other noncontrolling interests Net income attributable to noncontrolling nonvoting, callable, junior and senior preferred interests Other comprehensive loss(b) Deferred income taxes Acquisition of...

  • Page 217
    ... FRBNY Credit Facility Changes in operating assets and liabilities: General and life insurance reserves Premiums and other receivables and payables - net Reinsurance assets and funds held under reinsurance treaties Capitalization of deferred policy acquisition costs Other policyholder funds Current...

  • Page 218
    American International Group, Inc. Consolidated Statement of Cash Flows Years Ended December 31, (in millions) (Continued) 2011 2010 2009 Cash flows from investing activities: Proceeds from (payments for) Sales of available for sale investments Maturities of fixed maturity securities available ...

  • Page 219
    ... Fair Value Measurements Investments Lending Activities Reinsurance Deferred Policy Acquisition Costs Variable Interest Entities Derivatives and Hedge Accounting Liability for Unpaid Claims and Claims Adjustment Expense and Future Policy Benefits for Life and Accident and Health Insurance...

  • Page 220
    ... property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. Since September 2008, AIG has been working to protect and enhance the value of its key businesses, execute an orderly asset disposition plan...

  • Page 221
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • liabilities for legal contingencies; and • fair value measurements of certain financial assets and liabilities, including credit default swaps (CDS) and AIG's economic interest in Maiden Lane II LLC (ML II) and ...

  • Page 222
    ... repayment came from the net cash proceeds from AIG's sale of 67 percent of the ordinary shares of AIA in its initial public offering and from AIG's sale of American Life Insurance Company (ALICO) in 2010. These funds were loaned to AIG in the form of secured limited recourse debt from the special...

  • Page 223
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Issuance and Cancellation of AIG's Series G Preferred Stock At the Closing, AIG and the Department of the Treasury amended and restated the Series F SPA to provide for the issuance of 20,000 shares of Series G Preferred ...

  • Page 224
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and pricing of any offering in which it participates, including any primary offering by AIG. As a result, if AIG seeks to conduct an offering of its equity securities the Department of the Treasury may decide to ...

  • Page 225
    ...(losses) and $157 million is reflected in Net investment income in the Consolidated Statement of Operations. The remaining proceeds were placed in escrow to secure indemnities provided to MetLife under the original terms of the ALICO stock purchase agreement as described in Note 16 herein. AIG 2011...

  • Page 226
    ... CASH FLOW INFORMATION Years Ended December 31, (in millions) 2011 2010 2009 Cash paid during the period for: Interest* Taxes Non-cash financing/investing activities: Noncontrolling nonvoting callable, junior and senior preferred interests held by Federal Reserve Bank of New York Interest credited...

  • Page 227
    ... of fixed maturity securities and equity securities (except trading securities accounted for at fair value) and other invested assets for other-than-temporary impairments. • Changes in fair value of derivatives except for (1) those instruments at AIG Financial Products Corp. and AIG Trading Group...

  • Page 228
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other income from the operations of the Direct Investment book and AIG's Other Operations category consists of the following: • Change in fair value relating to financial assets and liabilities for which the fair value ...

  • Page 229
    ... (for insurance subsidiaries) or Other income (for Direct Investment book). Investments in fixed maturities and equity securities are recorded on a trade-date basis. Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield adjustments over their...

  • Page 230
    ... for policy loans because these loans serve to reduce the death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender value of the policy. Flight equipment primarily under operating leases - net: Flight equipment is stated at cost (adjusted...

  • Page 231
    ...33 percent interest in AIA are also included in Other invested assets. Hedge funds, private equity funds and other investment partnerships in which AIG's insurance operations hold in the aggregate less than a five percent interest are reported at fair value. The change in fair value is recognized as...

  • Page 232
    ... and brokers and insureds, trade receivables for Direct Investment book and Global Capital Markets and other receivables. Trade receivables for Global Capital Markets include cash collateral posted to derivative counterparties that are not eligible to be netted against derivative liabilities. The...

  • Page 233
    ... acquisition costs in 2012 due to the adoption of a new accounting standard that addresses the accounting for costs associated with acquiring or renewing insurance contracts. (h) Derivative assets and derivative liabilities, at fair value: Interest rate, currency, equity and commodity swaps, credit...

  • Page 234
    ... these assets is reported within Policyholder benefits and claims incurred in the Consolidated Statement of Operations. Such amortization expense totaled $201 million, $194 million and $215 million for the years ended December 31, 2011, 2010 and 2009, respectively. All commodities are recorded at...

  • Page 235
    ...units based upon an internal model. During the third quarter of 2011, Chartis finalized its reorganization, operating design and related segment reporting changes. In connection with this reorganization, total goodwill of $1.4 billion was allocated between Commercial Insurance and Consumer Insurance...

  • Page 236
    ...FINANCIAL STATEMENTS The following table presents the changes in goodwill by reportable segment: Aircraft Leasing (in millions) Chartis Other Total Balance at December 31, 2009: Goodwill - gross Accumulated impairments Net goodwill Increase (decrease) due to: Acquisition Sales of business units...

  • Page 237
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS exchange for fixed payments over a fixed determinable period of time with a life contingency feature. Structured settlement liabilities are presented on a discounted basis because the settled claims are fixed and ...

  • Page 238
    ...U.S. dollars generally using rates of exchange prevailing at the balance sheet date of each respective subsidiary and the related translation adjustments are recorded as a separate component of Accumulated other comprehensive income (loss), net of any related taxes, in Total AIG shareholders' equity...

  • Page 239
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other noncontrolling interests: Includes the equity interests of third-party shareholders in AIG's consolidated subsidiaries and includes the preferred shareholders' equity in outstanding preferred stock of ILFC, a wholly...

  • Page 240
    ... the accounting for day one gains and losses, measuring the fair value of alternative investments using net asset value and certain disclosure requirements. The standard's fair value guidance applies to all companies that measure assets, liabilities, or instruments classified in shareholders' equity...

  • Page 241
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounting Standards Adopted During 2011 Fair Value Measurements and Disclosures In January 2010, the FASB issued an accounting standard that requires fair value disclosures about significant transfers between Level 1 ...

  • Page 242
    ...) Total Assets: Bond trading securities, at fair value Mortgage and other loans receivable Other invested assets Other asset accounts Assets held for sale Total Assets Liabilities: FRBNY commercial paper funding facility Other long-term debt Other liability accounts Liabilities held for sale Total...

  • Page 243
    ... investment company or money market fund. The primary effect of this deferral for AIG is that AIG will continue to apply the consolidation rules in effect before the amended guidance discussed above for its interests in eligible entities, such as certain mutual funds. Accounting for Embedded Credit...

  • Page 244
    ... disclosures in interim and annual reporting periods for fixed maturity and equity securities. See Note 7 herein for the expanded disclosures. AIG adopted the standard on April 1, 2009 and recorded an after-tax cumulative effect adjustment to increase AIG shareholders' equity by $2.5 billion as of...

  • Page 245
    ... of available for sale fixed maturity securities Net effect of related DAC, SIA and other insurance balances Net effect on deferred income tax assets Net increase in AIG shareholders' equity $ 16.1 $ (1.8) (2.5) 11.8 $ (16.1) $ 1.8 5.0 (9.3) $ 2.5 2.5 $ Determining Fair Value When the Volume...

  • Page 246
    ... groups, including term life insurance, universal life insurance, accident and health (A&H) insurance, fixed and variable deferred annuities, fixed payout annuities, mutual funds and financial planning. SunAmerica offers its products and services through a diverse, multi-channel distribution network...

  • Page 247
    ...by reportable segment: Reportable Segments (in millions) Chartis SunAmerica Aircraft Other Leasing Operations Consolidation and Total Eliminations Consolidated 2011 Total revenues $ 40,702 $ Other-than-temporary impairment charges(a) 274 Net (gain) loss on sale of properties and divested businesses...

  • Page 248
    ...) Commercial Insurance Consumer Insurance Other Total Chartis 2011 Total revenues Claims and claims adjustment expenses incurred Underwriting expenses Pre-tax income (loss) from continuing operations 2010 Total revenues Net (gain) loss on sale of properties and divested businesses Claims and claims...

  • Page 249
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents SunAmerica operations by operating segment: Domestic Life Insurance Domestic Retirement Services Total Operating Segments Consolidation and Eliminations Total SunAmerica (in millions) 2011 ...

  • Page 250
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the components of AIG's Other operations: Mortgage Guaranty Global Direct Consolidation Total Capital Investment Retained Corporate Divested and Other Markets Book Interests & Other Businesses...

  • Page 251
    ... as a result of its 33 percent ownership and board representation, AIA is not being presented as a discontinued operation in the Consolidated Financial Statements at December 31, 2011 and 2010. AIG accounts for its investment in AIA under the fair value option with gains and losses recorded in Net...

  • Page 252
    ... of Delaware American Life Insurance Company by AIG to MetLife, for consideration then valued at approximately $15.5 billion, consisting of $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. The ALICO sale closed on November 1, 2010. AIG does not...

  • Page 253
    ... financial position or results of operations. The following table summarizes income (loss) from discontinued operations: Years Ended December 31, (in millions) 2011 2010 2009 Revenues: Premiums Net investment income Net realized capital gains (losses) Other income Total revenues Benefits, claims...

  • Page 254
    ...loans receivable, net Other invested assets Short-term investments Deferred policy acquisition costs and Other assets Separate account assets Assets of businesses held for sale Flight equipment* Total assets held for sale Liabilities: Future policy benefits for life and accident and health insurance...

  • Page 255
    ... data generally is obtained from exchange or dealer markets. AIG does not adjust the quoted price for such instruments. Assets and liabilities measured at fair value on a recurring basis and classified as Level 1 include certain government and agency securities, actively traded listed common stocks...

  • Page 256
    ... super senior credit default swap portfolio), certain hedge fund investments, private equity and real estate fund investments, direct private equity investments and policyholder contract deposits carried at fair value. AIG's non-financial instrument assets that are measured at fair value on a non...

  • Page 257
    ... assets at the balance sheet date to measure fixed maturity securities at fair value in its trading and available for sale portfolios. Market price data is generally obtained from dealer markets. Management is responsible for the determination of the value of the investments carried at fair value...

  • Page 258
    ... non-transferability, and such adjustments generally are based on available market evidence. When observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit spreads, yields or price levels of publicly-traded debt...

  • Page 259
    ... result in amounts that differ significantly from the amounts reported. Adjustments to the fair value of AIG's interest in ML II are recorded in the Consolidated Statement of Operations in Net investment income for SunAmerica's domestic life insurance companies. Adjustments to the fair value of AIG...

  • Page 260
    ... at the balance sheet date to measure at fair value marketable equity securities in its trading and available for sale portfolios or in Other invested assets. Market price data is generally obtained from exchange or dealer markets. Mortgage and Other Loans Receivable AIG estimates the fair value of...

  • Page 261
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are generally audited annually. AIG considers observable market data ...

  • Page 262
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Embedded Policy Derivatives Certain variable annuity and equity-indexed annuity and life contracts contain embedded policy derivatives that AIG bifurcates from the host contracts and accounts for separately at fair value...

  • Page 263
    ...2011, AIGFP terminated mezzanine tranches related to certain terminated super senior regulatory capital trades and made payments which approximated their fair values at the time of termination. The regulatory benefit of these transactions for AIGFP's financial institution counterparties is generally...

  • Page 264
    ... is recorded as Policyholder benefits and claims incurred in the Consolidated Statement of Operations. Other Long-Term Debt When fair value accounting has been elected, the fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer markets, when...

  • Page 265
    ... rate, yield curves and other relevant factors. Fair values for securities sold but not yet purchased are based on current market prices. Fair values of spot commodities sold but not yet purchased are based on current market prices of reference spot futures contracts traded on exchanges. AIG 2011...

  • Page 266
    ... Total equity securities available for sale Equity securities trading Mortgage and other loans receivable Other invested assets(c) Derivative assets: Interest rate contracts Foreign exchange contracts Equity contracts Commodity contracts Credit contracts Other contracts Counterparty netting and cash...

  • Page 267
    ... Total equity securities available for sale Equity securities trading Mortgage and other loans receivable Other invested assets(c) Derivative assets: Interest rate contracts Foreign exchange contracts Equity contracts Commodity contracts Credit contracts Other contracts Counterparty netting and cash...

  • Page 268
    ..., of AIA shares publicly traded on the Hong Kong Stock Exchange. Approximately 3 percent and 5 percent of the fair value of the assets recorded as Level 3 relates to various private equity, real estate, hedge fund and fund-of-funds investments that are consolidated by AIG at December 31, 2011 and...

  • Page 269
    ... (losses) recorded in the Consolidated Statement of Operations, during 2011 and 2010 related to the Level 3 assets and liabilities that remained in the Consolidated Balance Sheet at December 31, 2011 and 2010: Net Realized and Unrealized Fair value Gains (Losses) Beginning Included of Year(a) in...

  • Page 270
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net Realized and Unrealized Fair value Gains (Losses) Beginning Included of Year(a) in Income Changes in Unrealized Gains (Losses) Included Activity of Fair value in Income on Discontinued End Instruments Held Operations ...

  • Page 271
    ...and losses related to Level 3 items shown above are reported in the Consolidated Statement of Operations as follows: Net Investment Income Net Realized Capital Gains (Losses) Other Income Policyholder Benefits and Claims Incurred (in millions) Total December 31, 2011 Bonds available for sale Bond...

  • Page 272
    ...contracts Foreign exchange contracts Equity contracts Commodity contracts Credit contracts Other contracts Total derivative liabilities, net Other long-term debt(b) Total liabilities (a) (b) There were no issuances during year ended December 31, 2011. Includes GIAs, notes, bonds, loans and mortgages...

  • Page 273
    ...at fair value as the result of a change in the applicable accounting methodology, given changes in the nature and extent of AIG's ownership interest. During the year ended December 31, 2011, transfers out of Level 3 primarily related to investments in private placement corporate debt, investments in...

  • Page 274
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Transfers of Level 3 Liabilities During the year ended December 31, 2011, there were no significant transfers into Level 3 liabilities. As AIG presents carrying values of its derivative positions on a net basis in the ...

  • Page 275
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 Fair Value Using Net Unfunded Asset Value Commitments December 31, 2010 Fair Value Using Net Unfunded Asset Value Commitments (in millions) Investment Category Includes Hedge funds: Event-driven ...

  • Page 276
    ... projected lease payments for the period extending to the end of the aircraft's economic life in its highest and best use configuration, plus its disposition value based on expectations of a market participant. • Collateral Securing Foreclosed Loans on Real Estate and Other Fixed Assets: When AIG...

  • Page 277
    ... real estate, private equity investments and other long-lived assets. FAIR VALUE OPTION Under the fair value option, AIG may elect to measure at fair value financial assets and financial liabilities that are not otherwise required to be carried at fair value. Subsequent changes in fair value...

  • Page 278
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the gains or losses recorded related to the eligible instruments for which AIG elected the fair value option: Years Ended December 31, (in millions) Gain (Loss) 2010 2011 2009 Assets: ...

  • Page 279
    ... the rates that market participants would use. The fair values of policy loans are generally estimated based on unpaid principal amount as of each reporting date or, in some cases, based on the present value of the loans using a discounted cash flow model. No consideration is given to credit risk...

  • Page 280
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. INVESTMENTS SECURITIES AVAILABLE FOR SALE AND OTHER INVESTED ASSETS CARRIED AT FAIR VALUE The following table presents the amortized cost or cost and fair value of AIG's available for sale securities and other ...

  • Page 281
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (b) (c) (d) At December 31, 2011 and 2010, bonds available for sale held by AIG that were below investment grade or not rated totaled $24.2 billion and $18.6 billion, respectively. Represents private equity and hedge fund investments carried at fair value for...

  • Page 282
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Less than 12 Months Gross Fair Unrealized Value Losses 12 Months or More Gross Fair Unrealized Value Losses Total Fair Value Gross Unrealized Losses (in millions) December 31, 2010* Bonds available for sale: U.S. ...

  • Page 283
    ...(in millions) 2011 2010 Category: Alternative investments(a) Mutual funds Investment real estate(b) Aircraft asset investments(c) Life settlement contracts Retained interest in AIA All other investments Other invested assets (a) (b) (c) Includes hedge funds, private equity funds, affordable housing...

  • Page 284
    ... in Net investment income in the Consolidated Statement of Operations. AIG's life settlement contracts reported above are monitored for impairment on a contract-by-contract basis quarterly. Impairment charges on life settlement contracts included in net realized capital gains (losses) totaled $312...

  • Page 285
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summarized Financial Information of AIA The following is summarized financial information of AIA: Year Ended December 31, (in millions) 2011 Operating results: Total revenues Total expenses Net income (loss) At December...

  • Page 286
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NET INVESTMENT INCOME The following table presents the components of Net investment income: Years Ended December 31, (in millions) 2011 2010 2009 Fixed maturity securities, including short-term investments Change in ...

  • Page 287
    ...For the year ended December 31, 2011, 2010 and 2009 the aggregate fair value of available for sale securities sold was $44.0 billion, $56.0 billion and $33.7 billion, respectively. Evaluating Investments for Other-Than-Temporary Impairments On April 1, 2009, AIG adopted prospectively an accounting...

  • Page 288
    ... earnings for available for sale fixed maturity securities held by AIG(a): Year Ended December 31, 2011 Year Ended December 31, 2010 Nine Months Ended December 31, 2009 (in millions) Balance, beginning of year Increases due to: Credit losses remaining in accumulated deficit related to the adoption...

  • Page 289
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • loss severity and the timing of any recovery; and • expected prepayment speeds. For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the fair value ...

  • Page 290
    ...future net cash flows. This had the general effect of decreasing the projected net cash flows on a number of contracts. These changes resulted in an increase in the number of life settlement contracts identified as potentially impaired. AIG's aircraft asset investments and investments in real estate...

  • Page 291
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents activity for the accretable yield on PCI securities: Year Ended December 31, 2011 (in millions) Balance, beginning of year Newly purchased PCI securities Accretion Effect of changes in ...

  • Page 292
    ... credit losses on $110 million and $739 million of commercial mortgage loans as of December 31, 2011 and 2010, respectively. Included in Other loans were finance receivables, which were reported net of unearned finance charges, for both investment purposes and held for sale. 278 AIG 2011 Form...

  • Page 293
    ...: 2011 As Net of Reported Reinsurance 2010 As Net of Reported Reinsurance At December 31, (in millions) Liability for unpaid claims and claims adjustment expense(a) Future policy benefits for life and accident and health insurance contracts Reserve for unearned premiums Reinsurance assets...

  • Page 294
    ...assets. The following table presents premiums for AIG's long-duration insurance and retirement services operations: Years Ended December 31, (in millions) Gross premiums Ceded premiums Total * SunAmerica 2011 2010 Divested Businesses* Eliminations 2011 2010 2009 2011 2010 2009 Total 2010 2009 2011...

  • Page 295
    ... limits. SunAmerica's domestic long-duration insurance companies also cede excess, non-economic reserves carried on a statutory-basis on certain term and universal life insurance policies and certain fixed annuities to onshore and offshore affiliates. SunAmerica generally obtains letters of credit...

  • Page 296
    ... Amortization expense Change in net unrealized gains (losses) on securities(c) Increase due to foreign exchange Activity of discontinued operations Reclassified to Assets held for sale Other(d) Subtotal Consolidation and eliminations Balance, end of year(e) Total deferred policy acquisition costs...

  • Page 297
    ... amortization related to Net realized capital gains (losses), primarily in SunAmerica's domestic retirement services business. In 2011, 2010 and 2009, amortization expense (increased) decreased by $307 million, $101 million and $(113) million, respectively. As AIG operates in various global markets...

  • Page 298
    ... total assets of unconsolidated VIEs in which AIG holds a variable interest, as well as AIG's maximum exposure to loss associated with these VIEs: Maximum Exposure to Loss On-Balance Off-Balance Sheet Sheet Total (in billions) Total VIE Assets December 31, 2011 Real estate and investment funds...

  • Page 299
    ... liability company structure. The VIE's activities consist of the development or redevelopment of commercial and residential real estate. AIG's involvement varies from being a passive equity investor or finance provider to actively managing the activities of the VIE. AIG's insurance operations...

  • Page 300
    ... acts as servicer for the aircraft owned by these entities. Consumer Loans Vehicles AIG sponsors one VIE that has issued a variable funding note backed by a consumer loan collateralized by individual life insurance assets. As of December 31, 2011, total consolidated assets and liabilities for this...

  • Page 301
    ..., consolidates the assets of the SIV, which totaled over $1 billion as of December 31, 2011 in the Direct Investment book; related liabilities were not significant. FINANCING VEHICLES ILFC has created wholly-owned subsidiaries for the purpose of purchasing aircraft and obtaining financing secured...

  • Page 302
    ... volume of derivatives business of AIG. Notional amount is generally not a quantification of market risk or credit risk and is not recorded in the Consolidated Balance Sheet. Notional amounts generally represent those amounts used to calculate contractual cash flows to be exchanged and are not paid...

  • Page 303
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the fair values of derivative assets and liabilities in the Consolidated Balance Sheet: December 31, 2011 Derivative Assets Derivative Liabilities(a) Notional Fair Notional Fair Amount Value ...

  • Page 304
    ...loss related to the net investment hedge relationships. The following table presents the effect of AIG's derivative instruments in fair value hedging relationships in the Consolidated Statement of Operations: Years Ended December 31, (in millions) 2011 2010 Interest rate contracts(a)(b): Gain (loss...

  • Page 305
    ... of Operations: Years Ended December 31, (in millions) Gains (Losses) Recognized in Earnings 2011 2010 By Derivative Type: Interest rate contracts(a) Foreign exchange contracts Equity contracts(b) Commodity contracts Credit contracts Other contracts Total By Classification: Premiums Net investment...

  • Page 306
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS counterparty credit risk and may be exposed to loss, if counterparties default. Currency, commodity and equity swaps are similar to interest rate swaps but involve the exchange of specific currencies or cash flows based ...

  • Page 307
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the net notional amount, fair value of derivative (asset) liability and unrealized market valuation gain (loss) of the AIGFP super senior credit default swap portfolio, including credit ...

  • Page 308
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Given the current performance of the underlying portfolios, the level of subordination of the credit protection written by AIGFP and AIGFP's own assessment of the credit quality of the underlying portfolio, as well as the...

  • Page 309
    ...transactions, including those of AIGFP at that date, a one-notch downgrade of AIG's long-term senior debt ratings to BBB+ by Standard & Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. (S&P), would permit counterparties to make additional collateral calls and permit the...

  • Page 310
    ...-than-temporary impairment accounting as applicable. AIG's investments in these hybrid securities are reported as Bond trading securities in the Consolidated Balance Sheet. The fair value of these hybrid securities was $111 million at December 31, 2011. These securities have a current par amount of...

  • Page 311
    ... financial crisis in 2008) and a significant amount relates to accident 2005 and prior (accident years prior to the start of the managed reduction in these long-tail lines of business). The 2009 charge relates to excess casualty, excess workers' compensation and asbestos lines of business. AIG 2011...

  • Page 312
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Further, the charge relates to accident years 2005 and prior (accident years prior to the start of the managed reduction in these long-tail lines of business). In 2010 and 2009, the reserve charges were primarily due to ...

  • Page 313
    ... time is the sum of the current unit value of all investment units plus any liability for guaranteed minimum death or withdrawal benefits. Certain products are subject to experience adjustments. These include group life and group medical products, credit life contracts, accident and health insurance...

  • Page 314
    ... minimum guarantees are included in Policyholder benefits and claims incurred in the Consolidated Statement of Operations. Separate account net investment income, net investment gains and losses, and the related liability changes are offset within the same line item in the Consolidated Statement of...

  • Page 315
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following summarizes GMDB and GMIB liabilities for guarantees on variable contracts reflected in the general account: Years Ended December 31, (in millions) 2011 2010 Balance, beginning of year Reserve increase ...

  • Page 316
    ...hedge accounting valuation adjustments and fair value adjustments, when applicable), excluding $1.9 billion in borrowings of consolidated investments: December 31, 2011 (in millions) Total 2012 2013 Year Ending 2014 2015 2016 Thereafter AIG general borrowings AIG borrowings supported by assets ILFC...

  • Page 317
    ... Other long-term debt in the Consolidated Balance Sheet, which will be amortized as a reduction to future interest expense. In May 2008, as adjusted for the one-for-twenty reverse split of AIG's Common Stock effective June 30, 2009, AIG raised a total of approximately $20 billion through the sale of...

  • Page 318
    ...liquidation value of 7.57 percent preferred stock issued by American General Institutional Capital A in December 1996. AIG BORROWINGS SUPPORTED BY ASSETS The following table presents maturities of AIG's borrowings supported by assets: December 31, 2011 (in millions) Total 2012 2013 Year Ending 2014...

  • Page 319
    ... of U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties. Notes and Bonds Payable at Fair Value Direct Investment book notes and bonds also include structured debt instruments whose payment terms are linked to one or more financial or...

  • Page 320
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ILFC The following table presents maturities of ILFC: December 31, 2011 (in millions) Total 2012 2013 Year Ending 2014 2015 2016 Thereafter Notes and bonds payable Junior subordinated debt ECA Facility(a) Bank ...

  • Page 321
    ...accelerate debt related to the ten aircraft financed during 2010 if, among other things, ILFC were to sell aircraft with an aggregate net book value exceeding an agreed upon amount, currently approximately $10.1 billion, within a period starting from the date of the agreement until December 31, 2012...

  • Page 322
    ... were used to repay loans from AIG, and then used by AIG to reduce the principal amount outstanding under the FRBNY Credit Facility. On March 17, 2010, ILFC entered into a $750 million term loan agreement secured by 43 aircraft and all related equipment and leases. The loan matures on March 17...

  • Page 323
    ... in force at any time since 1992. The New York Directive generally requires a similar review and action although the time frame under review is different. AIG recorded an increase of $202 million in the estimated reserves for incurred but not reported death claims in 2011 in conjunction with the...

  • Page 324
    ...conduct of such business from time to time in the ordinary course. AIG's Subprime Exposure, AIGFP Credit Default Swap Portfolio and Related Matters AIG, AIGFP and certain directors and officers of AIG, AIGFP and other AIG subsidiaries have been named in various actions relating to AIG's exposure to...

  • Page 325
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AIG and certain directors and officers of AIG and AIGFP by the Kuwait Investment Office and various Oppenheimer Funds, respectively. On May 19, 2009, lead plaintiff in the Consolidated 2008 Securities Litigation filed a ...

  • Page 326
    ... 6, 2008, purported shareholder derivative actions were filed in the Southern District of New York naming as defendants directors and officers of AIG and its subsidiaries and asserting claims on behalf of nominal defendant AIG. The actions have been consolidated as In re American International Group...

  • Page 327
    ... directors and officers of AIG and its subsidiaries. On February 9, 2010, the case was stayed. Southern District of New York. On January 4, 2011, Wanda Mimms, a participant in the AIG Incentive Savings Plan (the Plan), filed a purported derivative action on behalf of the Plan in the United States...

  • Page 328
    ... credit default swaps under which AIG is a reference credit, which could affect the trading price of AIG securities. During the third quarter of 2011, beneficiaries of certain previously repaid AIGFP guaranteed investment agreements brought an action against AIG Parent and AIGFP making ''bankruptcy...

  • Page 329
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securities Lending Dispute with Transatlantic Holdings Inc. On May 24, 2010, Transatlantic Holdings, Inc. (Transatlantic) and two of its subsidiaries, Transatlantic Reinsurance Company and Trans Re Zurich Reinsurance ...

  • Page 330
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS claims unspecified amounts of carried interest on certain additional real estate assets of AIG and its affiliates. He also seeks punitive damages for the alleged breaches of fiduciary duties. Defendants assert that ...

  • Page 331
    ...and class-action liabilities related to workers' compensation premium reporting issues. Approximately $338 million of the $597 million of the current total workers' compensation related escrow amount was originally held in an account established as part of the 2006 New York regulatory settlement and...

  • Page 332
    ...reporting of workers' compensation premiums. In late 2007, the Settlement Review Working Group recommended that a multi-state targeted market conduct examination focusing on workers' compensation insurance be commenced under the direction of the NAIC's Market Analysis Working Group. AIG was informed...

  • Page 333
    ... nation against insurers and brokers, including AIG and a number of its subsidiaries, alleging that the insurers and brokers engaged in one or more broad conspiracies to allocate customers, steer business, and rig bids. These actions, including 24 complaints filed in different federal courts naming...

  • Page 334
    ... class plaintiffs to settle the claims asserted against them in the Commercial Complaint. As of May 20, 2011, the parties to the MOU and certain other defendants entered into a Stipulation of Settlement. Under the terms of the settlement, it is anticipated that AIG will pay $6.75 million of a total...

  • Page 335
    ... of losses, if any, from the Kansas action. Workers' Compensation Premium Reporting. On May 24, 2007, the National Council on Compensation Insurance (NCCI), on behalf of the participating members of the National Workers' Compensation Reinsurance Pool (the NWCRP), filed a lawsuit in the United States...

  • Page 336
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Northern District of Illinois) against AIG with respect to the underpayment by AIG of its residual market assessments for workers' compensation insurance. The complaint alleged claims for violations of RICO, breach of ...

  • Page 337
    ...in the Northern District of Illinois arising out of workers' compensation premium reporting, including the class action, other than claims that are brought by any class member that opts out of the settlement. On April 29, 2011, Liberty Mutual filed papers in opposition to preliminary approval of the...

  • Page 338
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Litigation Matters Relating to AIG's Insurance Operations Caremark. AIG and certain of its subsidiaries have been named defendants in two putative class actions in state court in Alabama that arise out of the 1999 ...

  • Page 339
    ... of business, AIG enters into commitments to invest in private equity funds, hedge funds and mutual funds and to purchase and develop real estate in the U.S. and abroad. These commitments totaled $2.8 billion at December 31, 2011. AIG is obligated, subject to certain conditions, to make any payment...

  • Page 340
    ... International Company, Inc. SICO has provided a series of two-year Deferred Compensation Profit Participation Plans (SICO Plans) to certain AIG employees. The SICO Plans were created in 1975 when the voting shareholders and Board of Directors of SICO, a private holding company whose principal asset...

  • Page 341
    ... no material liabilities related to these arrangements have been recorded in the Consolidated Balance Sheet. See Notes 1 and 4 herein for additional information on sales of businesses and asset dispositions. ALICO Sale Pursuant to the terms of the ALICO stock purchase agreement, AIG has agreed to...

  • Page 342
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Tax indemnifications related to insurance reserves that extend for taxable periods ending on or before December 31, 2013 and that are limited to an aggregate of $200 million, and certain other tax-related ...

  • Page 343
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. TOTAL EQUITY AND EARNINGS (LOSS) PER SHARE SHARES OUTSTANDING The following table presents a rollforward of outstanding shares: Preferred Stock AIG AIG Series F Series C Year Ended December 31, 2011 AIG Series E ...

  • Page 344
    ...) Exchange of Preferred Stock for Common Stock(c) Total Effect of Recapitalization Other assets Other liabilities Federal Reserve Bank of New York credit facility Redeemable noncontrolling nonvoting, callable, junior preferred interests held by Department of Treasury AIG shareholders' equity...

  • Page 345
    ...'s Board of Directors (the Board), in its discretion, from funds legally available therefor. The Board may consider AIG's financial position, the performance of its businesses, its consolidated financial condition, results of operations and liquidity, available capital, the existence of investment...

  • Page 346
    ... to sell, a variable number of shares of AIG Common Stock for $25 in cash. AIG was obligated to pay quarterly contract adjustment payments to the holders of the stock purchase contracts under the Equity Units, at an initial annual rate of 2.71 percent applied to the stated amount. The present value...

  • Page 347
    ... from Cash Flow Hedging Activities Change in Retirement Plan Liabilities Adjustment (in millions) Foreign Currency Translation Adjustments Total Balance, January 1, 2009, net of tax Adjustment on April 1, 2009(a) Change in unrealized appreciation of investments Change in deferred acquisition...

  • Page 348
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NONCONTROLLING INTERESTS In connection with the execution of its orderly asset disposition plan, as well as the repayment of the FRBNY Credit Facility, AIG transferred two of its wholly-owned businesses, AIA and ALICO, ...

  • Page 349
    ... loss, net of tax: Unrealized losses on investments Foreign currency translation adjustments Total accumulated other comprehensive loss, net of tax Total comprehensive income (loss) Other Balance, end of year Year Ended December 31, 2010 Balance, beginning of year Net contributions Consolidation...

  • Page 350
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EARNINGS (LOSS) PER SHARE (EPS) Basic and diluted earnings (loss) per share are based on the weighted average number of common shares outstanding, adjusted to reflect all stock dividends and stock splits. Diluted ...

  • Page 351
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the computation of basic and diluted EPS: Years Ended December 31, (dollars in millions, except per share data) 2011 2010 2009 Numerator for EPS: Income (loss) from continuing operations Net ...

  • Page 352
    ... net of reinsurance, policyholder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. At December 31, 2011, 2010 and 2009, statutory capital of AIG's insurance subsidiaries exceeded minimum company action level requirements. EFFECT OF NEW...

  • Page 353
    ...AIG insurance company is currently on any regulatory or similar ''watch list'' with regard to solvency. 19. SHARE-BASED COMPENSATION AND OTHER PLANS AIG's Consolidated Statement of Operations included share-based compensation expense as follows: Years Ended December 31, (in millions) 2011 2010 2009...

  • Page 354
    ... by SICO are settled by SICO. NON-EMPLOYEE PLANS AIG's non-employee directors received share-based compensation in the form of deferred stock units (DSUs) under the 2010 Plan with delivery deferred until retirement from the Board. In 2011 and 2010, AIG granted to directors 21,203 and 14,484 DSUs...

  • Page 355
    ... International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS most highly compensated employees and executive officers. The restricted stock generally becomes transferable in March of the second year following grant or on the second or third anniversary of grant in accordance with the terms...

  • Page 356
    ... settlement to certain of its most highly compensated employees and executive officers. Sharebased cash settled awards are recorded as liabilities until the final payout is made or the award is replaced with a stock-settled award. Unlike stock-settled awards, which have a fixed grant-date fair value...

  • Page 357
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2010, AIG adopted the Long-Term Performance Units Plan (LTPU) and awarded Stock Salary in the form of LTPUs. The units were fully vested on the date of grant and settlement terms are substantially the same as the 2009 ...

  • Page 358
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents a rollforward of SARs and cash-settled RSUs as well as the related expenses: Number of Units TARP RSUs Year Ended December 31, 2011 SARs RSUs(a) Unvested, beginning of year Granted(b) ...

  • Page 359
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. EMPLOYEE BENEFITS PENSION PLANS AIG, its subsidiaries and certain affiliated companies offer various defined benefit plans to eligible employees based on years of service. AIG's U.S. qualified retirement plan is a ...

  • Page 360
    ... Other Fair value of plan assets, end of year Funded status, end of year Amounts recognized in the consolidated balance sheet: Assets Liabilities Total amounts recognized Pre tax amounts recognized in Accumulated other comprehensive income (loss): Net gain (loss) Prior service (cost) credit Total...

  • Page 361
    ...-U.S. Plans U.S. Plans 2011 2010 2009 2011 2010 2009 (in millions) 2009 Components of net periodic benefit cost: Service cost Interest cost Expected return on assets Amortization of prior service (credit) cost Amortization of net (gain) loss Net curtailment (gain) loss Net settlement (gain) loss...

  • Page 362
    ... Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated net loss and prior service credit that will be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $130 million and $38 million, respectively, for AIG's combined...

  • Page 363
    ... 2010 based on the duration of the plans' liabilities. Plan Assets The investment strategy with respect to assets relating to AIG's U.S. and non-U.S. pension plans is designed to achieve investment returns that will (a) provide for the benefit obligations of the plans over the long term; (b) limit...

  • Page 364
    ...Target 2012 Actual 2011 Actual 2010 Asset class: Equity securities Fixed maturity securities Other investments Cash and cash equivalents Total 36% 41% 12% 11% 100% 38% 39% 6% 17% 57% 28% 10% 5% 100% 100% The expected weighted average long-term rates of return for the non-U.S. pension plans was...

  • Page 365
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS investment strategy or economic conditions may warrant such a change. The expected asset return and any contributions made by AIG together are expected to maintain the plan's ability to meet all required benefit ...

  • Page 366
    ... Balance at Held at Sales Issuances Settlements In Out End of year End of year 1 $ 39 40 $ - At December 31, 2011 (in millions) Non-U.S. Plan Assets: Other fixed income securities Insurance contracts Total U.S. Plan Assets: Fixed maturity U.S. investment grade U.S. and international high yield...

  • Page 367
    ... and Settlements-Net Transfers In (Out) Balance at End of year At December 31, 2010 Non-U.S. Plan Assets: Real estate Private equity Insurance contracts Total U.S. Plan Assets: Fixed maturity U.S. investment grade U.S. and international high yield Mortgage and other assetbacked securities Private...

  • Page 368
    ... of annual salary depending on the employees' years of service subject to certain compensation limits. Pre-tax expense associated with this plan was $99 million, $103 million and $100 million in 2011, 2010 and 2009, respectively. Effective January 1, 2012, the plan was amended to change the company...

  • Page 369
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the income tax expense (benefit) attributable to pre-tax income (loss) from continuing operations: Years Ended December 31, (in millions) 2011 2010 2009 Foreign and U.S. components of actual ...

  • Page 370
    ... foreign subsidiaries and joint ventures Loss reserve discount Loan loss and other reserves Unearned premium reserve reduction Employee benefits Total deferred tax assets Deferred tax liabilities: Adjustment to life policy reserves Deferred policy acquisition costs Flight equipment, fixed assets and...

  • Page 371
    ...evidence. As of December 31, 2011, the cumulative positive evidence outweighed the historical negative evidence regarding the likelihood that the deferred tax asset for AIG's U.S. consolidated income tax group (other than the life-insurance-business capital loss carryforwards) will be realized. This...

  • Page 372
    ...consolidated financial statements previously filed separate U.S. federal income tax returns and were not part of the AIG U.S. consolidated income tax group. Subsidiaries operating outside the U.S. are taxed, and income tax expense is recorded, based on applicable U.S. and foreign law. 358 AIG 2011...

  • Page 373
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The statute of limitations for all tax years prior to 2000 has expired for AIG's consolidated federal income tax return. AIG is currently under examination for the tax years 2000 through 2006. On March 20, 2008, AIG ...

  • Page 374
    .... Listed below are the tax years that remain subject to examination by major tax jurisdictions: At December 31, 2011 Open Tax Years Major Tax Jurisdiction United States France Hong Kong Japan Korea Malaysia Taiwan Thailand United Kingdom 2000 2008 2004 2006 2002 2007 2006 2008 - 2010 2010 2009...

  • Page 375
    ... fee asset Reserve strengthening charge Net gain (loss) on extinguishment of debt Aircraft Leasing impairment charges, fair value adjustments and leaserelated charges Change in fair value of AIA securities Change in fair value of Maiden Lane Interests $ 2011 17,436 $ (1,380) 1,653 473 2010 18...

  • Page 376
    ... 31, 2011 Assets: Short-term investments Other investments(a) Total investments Cash Loans to subsidiaries(b) Debt issuance costs Investment in consolidated subsidiaries(b) Other assets, including current and deferred income taxes Total assets Liabilities: Insurance liabilities Other long-term debt...

  • Page 377
    ... in consolidated subsidiaries(b) Other assets, including current and deferred income taxes Assets held for sale Total assets Liabilities: Insurance liabilities Federal Reserve Bank of New York credit facility Other long-term debt Other liabilities, including intercompany balances(a)(c) Loans from...

  • Page 378
    ... (LOSS) American International Group, Inc. (As Guarantor) Other Subsidiaries Reclassifications and Eliminations Consolidated AIG (in millions) Year Ended December 31, 2011 Revenues: Equity in earnings of consolidated subsidiaries(a) Change in fair value of ML III Other income(b) Total revenues...

  • Page 379
    ... TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS) American International Group, Inc. (As Guarantor) Other Subsidiaries (Continued) (in millions) Year Ended December 31, 2009 Revenues: Equity in earnings of consolidated subsidiaries(a) Change in fair value of...

  • Page 380
    American International Group, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS American International Group, Inc. (As Guarantor) Other Subsidiaries and Eliminations Consolidated AIG (in millions) SAFG, Inc. Year Ended December 31, 2011 Net cash (...

  • Page 381
    ...Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS American International Group, Inc. (As Guarantor) (Continued) (in millions) SAFG, Inc. Other Subsidiaries and Eliminations Consolidated AIG Year Ended December 31, 2010 Net cash (used in) provided...

  • Page 382
    ...Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS American International Group, Inc. (As Guarantor) (Continued) (in millions) SAFG, Inc. Other Subsidiaries and Eliminations Consolidated AIG Year Ended December 31, 2009 Net cash (used in) provided...

  • Page 383
    ... of 2011. American International Group, Inc. (As Guarantor) supplementary disclosure of non-cash activities: Year Ended December 31, (in millions) 2011 2010 2009 Intercompany non-cash financing and investing activities: Paydown of FRBNY Credit Facility by subsidiary Return of capital and dividend...

  • Page 384
    ... in reports filed or submitted under the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive...

  • Page 385
    ...''Directors and Executive Officers of AIG'', information required by Items 10, 11, 12, 13 and 14 of this Form 10-K are incorporated by reference from the definitive proxy statement for AIG's 2012 Annual Meeting of Shareholders, which will be filed with the SEC not later than 120 days after the close...

  • Page 386
    ... Statements. (b) Exhibits. See accompanying Exhibit Index. (c) Audited financial statements for AIA Group Limited as of November 30, 2011 and for the year then ended, required pursuant to Rule 3-09 of Regulation S-X, will be filed by amendment to this Annual Report on Form 10-K. 372 AIG 2011 Form...

  • Page 387
    ... 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd of February, 2012. AMERICAN INTERNATIONAL GROUP, INC. By /s/ ROBERT H. BENMOSCHE...

  • Page 388
    American International Group, Inc. Signature Title /s/ DONALD H. LAYTON (Donald H. Layton) Director /s/ CHRISTOPHER S. LYNCH (Christopher S. Lynch) Director /s/ ARTHUR C. MARTINEZ (Arthur C. Martinez) Director /s/ GEORGE L. MILES, JR. (George L. Miles, Jr.) Director /s/ HENRY S. MILLER (...

  • Page 389
    ...as of May 11, 2001, among AIG, Washington Acquisition Corporation and American General Corporation (b) Master Transaction Agreement, dated as of December 8, 2010, among AIG, ALICO Holdings LLC, AIA Aurora LLC, the Federal Reserve Bank of New York, the United States Department of the Treasury and the...

  • Page 390
    American International Group, Inc. Exhibit Number Description Location (3) Amendment No. 3, dated as of April 17, 2009, to the Credit Agreement dated as of September 22, 2008 between AIG and the Federal Reserve Bank of New York (4) Amendment No. 4, dated as of December 1, 2009, to the Credit ...

  • Page 391
    American International Group, Inc. Exhibit Number Description Location 10 Material contracts (1) AIG Amended and Restated 1996 Employee Stock Purchase Plan* (2) AIG 2003 Japan Employee Stock Purchase Plan* Filed as exhibit to AIG's Definitive Proxy Statement dated April 4, 2003 (File No. 1-8787...

  • Page 392
    ... American General Corporation's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-7981). (19) SunAmerica Executive Savings Plan* (20) American General Corporation 1994 Stock and Incentive Plan (February 1998)* (21) Amendment to American General Corporation 1994 Stock and...

  • Page 393
    American International Group, Inc. Exhibit Number Description Location (28) Amendment to American General Corporation 1999 Stock and Incentive Plan (January 1999)* Incorporated by reference to Exhibit 10.9 to American General Corporation's Annual Report on Form 10-K for the year ended December ...

  • Page 394
    ... Number Description Location (41) Assurance Agreement, by AIG in favor of eligible employees, dated as of June 27, 2005, relating to certain obligations of Starr International Company, Inc.* (42) AIG 2005 Senior Partners Plan (amended and restated effective December 31, 2008)* (43) 2005/2006...

  • Page 395
    ... I. Smith (67) Purchase Agreement, dated as of June 25, 2009, among AIG, American International Reinsurance Company, Limited and the Federal Reserve Bank of New York (68) Purchase Agreement, dated as of June 25, 2009, between AIG and the Federal Reserve Bank of New York AIG 2011 Form 10-K 381

  • Page 396
    American International Group, Inc. Exhibit Number Description Location (69) Fourth Amended and Restated Limited Liability Company Agreement of AIA Aurora LLC, dated as of December 1, 2009, among AIG, American International Reinsurance Company, Limited and the Federal Reserve Bank of New York (70...

  • Page 397
    ... States Department of the Treasury (86) Guarantee, Pledge and Proceeds Application Agreement, dated as of January 14, 2011, among AIG, AIG Capital Corporation, AIG Funding, Inc., AIG Life Holdings (International) LLC and AIA Aurora LLC and ALICO Holdings LLC (87) AIA Aurora LLC Intercompany Loan...

  • Page 398
    ... Group, Inc. Exhibit Number Description Location (93) AIG Long-Term Performance Units Plan* Incorporated by reference to Exhibit 10.1 to AIG's Current Report on Form 8-K filed with the SEC on May 28, 2010 (File No. 1-8787). Incorporated by reference to AIG's Definitive Proxy Statement, dated...

  • Page 399
    ... Life Insurance Company of Delaware (115) Unconditional Capital Maintenance Agreement, dated as of March 30, 2011, between American International Group, Inc. and American General Life Insurance Company Incorporated by reference to Exhibit 10.1 to AIG's Current Report on Form 8-K filed with the SEC...

  • Page 400
    ... Group, Inc. and The United States Life Insurance Company in the City of New York (118) Unconditional Capital Maintenance Agreement, dated as of February 17, 2012, among American International Group, Inc., Chartis Inc., AIU Insurance Company, American Home Assurance Company, Chartis Casualty Company...

  • Page 401
    ... Balance Sheet as of December 31, 2011 and December 31, 2010, (ii) the Consolidated Statement of Operations for the three years ended December 31, 2011, (iii) the Consolidated Statement of Shareholders' Equity for the three years ended December 31, 2011, (iv) the Consolidated Statement of Cash...

  • Page 402
    American International Group, Inc. Computation of Ratios of Earnings to Fixed Charges Exhibit 12 Years Ended December 31, (in millions, except ratios) 2011 2010 2009 2008 2007 Earnings: Pre-tax income (loss)(a): Add - Fixed charges Adjusted Pre-tax income (loss) Fixed charges: Interest expense ...

  • Page 403
    ...) Limited AIG Asset Management (U.S.), LLC AIG Global Real Estate Investment Corp. AIG Securities Lending Corp. International Lease Finance Corporation Fleet Solutions Holdings, Inc. AeroTurbine, Inc. AIG Federal Savings Bank AIG Financial Products Corp. AIG-FP Matched Funding Corp. AIG Matched...

  • Page 404
    ... Japan Capital Company, LLC The Fuji Fire and Marine Insurance Company, Limited American Fuji Fire & Marine Insurance Company Fuji International Insurance Company Limited Fuji Life Insurance Company Ltd. Chartis Kazakhstan Insurance Company Joint Stock Company Chartis Latin America Investments, LLC...

  • Page 405
    ...AIG Travel Insurance Agency, Inc. Livetravel, Inc. Travel Guard Group Canada, Inc. Travel Guard Group, Inc. WINGS International SAS Global Information Services Private Limited Chartis U.S., Inc. American Home Assurance Company American International Realty Corp. Pine Street Real Estate Holdings Corp...

  • Page 406
    ... Life Insurance Company AIG Enterprise Services, LLC American General Annuity Service Corporation American General Life Companies, LLC The Variable Annuity Life Insurance Company Valic Retirement Services Company The United States Life Insurance Company in the City of New York Western National Life...

  • Page 407
    ...Management Corporation American General Realty Investment Corporation Knickerbocker Corporation SunAmerica Life Reinsurance Company United Guaranty Corporation AIG United Guaranty Agenzia di Assicurazione S.R.L. AIG United Guaranty Insurance (Asia) Limited AIG United Guaranty Mexico, S.A. AIG United...

  • Page 408
    ... International Group, Inc. of our report dated February 23, 2012 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP New York, New York...

  • Page 409
    ...H. Benmosche, certify that: 1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the...

  • Page 410
    ... L. Herzog, certify that: 1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the...

  • Page 411
    ...connection with this Annual Report on Form 10-K of American International Group, Inc. (the ''Company'') for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Robert H. Benmosche, President and Chief Executive Officer of the...

  • Page 412
    ... Annual Report on Form 10-K of American International Group, Inc. (the ''Company'') for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, David L. Herzog, Executive Vice President and Chief Financial Officer of the Company...

  • Page 413
    ...% Series A-5 Junior Subordinated Debentures Stock Purchase Rights Name of Each Exchange on Which Registered New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange AIG 2011 Form 10-K 399

  • Page 414

  • Page 415
    ... Report to Shareholders and Annual Report on Form 10-K for the year ended December 31, 2011, should be directed to: Investor Relations American International Group, Inc. 180 Maiden Lane New York, New York 10038 (212) 770-6293 Transfer Agent and Registrar Wells Fargo Bank, N.A. Shareowner Services...

  • Page 416
    AMER ICAN INTER N ATI O N A L G R O U P, I N C . 180 Maiden Lane New York, NY 10038 www.aig.com