AIG 2011 Annual Report Download - 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
representations and warranties that extend to the expiration of the statute of limitations and are subject to
an aggregate deductible of $50 million.
• Indemnification for taxes incurred by ALICO as a result of the proposed elections under Section 338 of the
Internal Revenue Code (the Code). Such elections have the effect of shifting the federal income tax liability
on the sale from the seller to ALICO. On March 8, 2011, AIG paid MetLife approximately $300 million
related to this indemnity.
In connection with the indemnity obligations described above, as of December 31, 2011, approximately
$1.6 billion of proceeds from the ALICO Sale were on deposit in an escrow arrangement. The amount required to
be held in escrow declines to zero in April 2013, with claims submitted related to the indemnifications reducing
the amount that can be released to AIG. Escrow releases to AIG are generally required to be applied towards the
reduction of the liquidation preference of the Department of the Treasury’s AIA SPV Preferred Interests. The
escrow arrangement, as of December 31, 2011, consists of $3.0 billion of initial cash proceeds from the sale of
MetLife securities received upon the completion of the ALICO Sale, less the following payments to MetLife from
the escrow account in connection with the indemnification for various claims under the terms of the ALICO Sale:
(i) approximately $300 million for taxes as described above and (ii) approximately $150 million during 2011 in
connection with the previously disclosed litigation relating to Italian internal fund suspensions, U.K. internal fund
suspensions, and various tax and other indemnity claims. On November 1, 2011, in accordance with the MetLife
escrow agreement from the ALICO Sale, approximately $918 million was released to AIG. These proceeds were
applied to pay down a portion of the liquidation preference of the Department of the Treasury’s AIA SPV
Preferred Interests pursuant to the Master Transaction Agreement, dated as of December 8, 2010, among AIG,
the SPVs, the FRBNY, the Department of the Treasury and the Trust.
AGF Sale
On November 30, 2010, AIG completed the sale of AGF. In accordance with the terms of the sale, AIG has
made certain customary representations, warranties and covenants in the stock purchase agreement in which AIG
agreed to provide the purchaser with certain indemnities.
AIG Star and AIG Edison Sale
Pursuant to the terms of the AIG Star and AIG Edison stock purchase agreement, AIG has agreed to provide
Prudential Financial, Inc. with certain indemnities, the most significant of which is indemnification related to
breaches of general representations and warranties that result in losses that exceed 4.1 billion Yen ($53 million at
the December 31, 2011 exchange rate), with a maximum payout of 102 billion Yen ($1.3 billion at the
December 31, 2011 exchange rate). Except for certain specified representations and warranties that may have a
longer survival period, the indemnification extends until November 1, 2012.
Other
• See Note 11 herein for commitments and guarantees associated with VIEs.
• See Note 12 herein for disclosures on derivatives, including AIGFP and MIP written credit default swaps
and other derivatives with credit risk-related contingent features.
• See Note 24 herein for additional disclosures on guarantees of outstanding debt.
328 AIG 2011 Form 10-K