AIG 2011 Annual Report Download - page 341

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiaries
AIG has issued unconditional guarantees with respect to the prompt payment, when due, of all present and
future payment obligations and liabilities of AIGFP arising from transactions entered into by AIGFP.
In connection with AIGFP’s leasing business, AIGFP has issued, in a limited number of transactions, standby
letters of credit or similar facilities to equity investors in an amount equal to the termination value owing to the
equity investor by the lessee in the event of a lessee default (the equity termination value). The total amount
outstanding at December 31, 2011 was $437 million. In those transactions, AIGFP has agreed to pay such amount
if the lessee fails to pay. The amount payable by AIGFP is, in certain cases, partially offset by amounts payable
under other instruments typically equal to the present value of a scheduled payment to be made by AIGFP. In the
event that AIGFP is required to make a payment to the equity investor, the lessee is unconditionally obligated to
reimburse AIGFP. To the extent that the equity investor is paid the equity termination value from the standby
letter of credit and/or other sources, including payments by the lessee, AIGFP takes an assignment of the equity
investor’s rights under the lease of the underlying property. Because the obligations of the lessee under the lease
transactions are generally economically defeased, lessee bankruptcy is the most likely circumstance in which
AIGFP would be required to pay.
Asset Dispositions
General
AIG is subject to financial guarantees and indemnity arrangements in connection with the completed sales of
businesses pursuant to its asset disposition plan. The various arrangements may be triggered by, among other
things, declines in asset values, the occurrence of specified business contingencies, the realization of contingent
liabilities, developments in litigation or breaches of representations, warranties or covenants provided by AIG.
These arrangements are typically subject to various time limitations, defined by the contract or by operation of
law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual
limitations, while in other cases such limitations are not specified or are not applicable.
AIG is unable to develop a reasonable estimate of the maximum potential payout under certain of these
arrangements. Overall, AIG believes that it is unlikely it will have to make any material payments related to
completed sales under these arrangements, and 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 provide MetLife with
certain indemnities, the most significant of which include:
• Indemnification related to breaches of general representations and warranties with an aggregate deductible
of $125 million and a maximum payout of $2.25 billion. The indemnification extends for 21 months after
November 1, 2010.
• Indemnifications related to specific product, investment, litigation and other matters that are excluded from
the general representations and warranties indemnity. These indemnifications provide for various deductible
amounts, which in certain cases are zero, and maximum exposures, which in certain cases are unlimited, and
extend for various periods after the completion of the sale.
AIG 2011 Form 10-K 327
(D) GUARANTEES