AIG 2006 Annual Report Download - page 213

American International Group, Inc. and Subsidiaries
and do not have recourse to AIG, except where AIG has provided a
17. Ownership and Transactions With
guarantee to the VIE’s interest holders.
Related Parties
AIG determines whether an entity is a VIE, who the variable
Continued
interest holders are, and which party is the primary beneficiary of
voting stock of AIG. Although these reporting persons have made the VIE by performing an analysis of the design of the VIE that
filings under Section 16 of the Exchange Act, reporting sales of includes a review of, among other factors, its capital structure,
shares of common stock, no amendment to the Schedule 13D contractual relationships and terms, nature of the entity’s opera-
has been filed to report a change in ownership subsequent to tions and purpose, nature of the entity’s interests issued, AIG’s
November 20, 2006. interests in the entity which either create or absorb variability and
(b) Transactions with Related Parties: Prior to the termina- related party relationships. AIG consolidates a VIE in situations
tion of their agency relationships with Starr during 2006, AIG and where all of AIG’s interests in the VIE, when combined, absorb a
its subsidiaries paid commissions to Starr and its subsidiaries for majority of the expected losses or a majority of the expected
the production and management of insurance business in the residual returns of the VIE.
ordinary course of business. Payment for the production of In addition to the VIEs that are consolidated in accordance with
insurance business to Starr aggregated approximately $47 million FIN 46R, the Company has significant variable interests in certain
in 2006, $214 million in 2005, and $205 million in 2004. AIG other VIEs that are not consolidated because the Company is not
also received approximately $4 million in 2006, $23 million in the primary beneficiary. AIG applies quantitative and qualitative
2005, and $24 million in 2004 from Starr and paid none in 2006, measures in identifying significant variable interests.
approximately $20,000 in 2005, and $39,000 in 2004 to Starr in Entities for which AIG is the primary beneficiary and consoli-
rental fees and none in 2006 and 2005 and $262,000 in 2004 dates or where AIG has a significant variable interest are as
for services. AIG also received none in 2006, approximately follows:
$2 million in 2005, and $1 million in 2004, respectively, from
SICO and paid none in 2006 and approximately $1 million in each SunAmerica Affordable Housing Partnerships
of the years 2005 and 2004 to SICO as reimbursement for SunAmerica Affordable Housing Partners, Inc. (SAAHP) organizes
services rendered at cost. AIG also paid to SICO $2 million in limited partnerships (investment partnerships) that are considered
2006, $3 million in 2005, and $4 million in 2004 in rental fees. to be VIEs, and that are consolidated by AIG. The investment
There are no significant receivables from/payables to related partnerships invest as limited partners in operating partnerships
parties at December 31, 2006. that develop and operate affordable housing qualifying for federal
tax credits and a few market rate properties across the United
18. Variable Interest Entities States. The general partners in the operating partnerships are
FIN 46R clarifies the consolidation accounting for certain entities almost exclusively unaffiliated third-party developers. AIG does not
in which equity investors do not have the characteristics of a normally consolidate an operating partnership if the general
controlling financial interest or do not have sufficient equity that is partner is an unaffiliated person. Through approximately 1,150
at risk which would allow the entity to finance its activities without partnerships, SAAHP has invested in developments with approxi-
additional subordinated financial support. FIN 46R recognizes that mately 155,000 apartment units nationwide, and has syndicated
consolidation based on majority voting interest should not apply to over $6 billion in partnership equity since 1991 to other investors
certain types of entities that are defined as VIEs. A VIE is who will receive, among other benefits, tax credits under certain
consolidated by its primary beneficiary, which is the party that sections of the Internal Revenue Code. AIG Retirement Services,
absorbs a majority of the expected losses or a majority of the Inc. functions as the general partner in certain investment
expected residual returns of the VIE, or both. partnerships and acts both as a credit enhancer in certain
AIG, in the normal course of business, is involved with various transactions, through differing structures with respect to funding
VIEs. In some cases, AIG has participated to varying degrees in development costs for the operating partnerships, and as guaran-
the design of the entity. AIG’s involvement in VIEs varies from tor that investors will receive the tax benefits projected at the
being a passive investor to managing and structuring the activities time of syndication. AIG Retirement Services, Inc. consolidates
of the VIE. AIG engages in transactions with VIEs to manage its these investment partnerships as a result of the guarantee
investment needs, obtain funding as well as facilitate client needs provided to the investors. As part of their incentive compensation,
through AIGGIC and AIGFP. AIG purchases debt securities (rated certain key SAAHP employees have been awarded residual cash
and unrated) and equity interests issued by VIEs, makes loans flow interests in the partnerships, subject to certain vesting
and provides other credit support to VIEs, enters into insurance requirements. The operating income of SAAHP is reported, along
and reinsurance transactions with VIEs, enters into leasing with other SunAmerica partnership income, as a component of
arrangements with VIEs, enters into derivative transactions with AIG’s Asset Management segment.
VIEs through AIGFP and acts as the collateral manager of VIEs
through AIGGIC and AIGFP. Obligations to outside interest holders Asset Management
in VIEs consolidated by AIG are reported as liabilities in the In certain instances, AIGGIC acts as the collateral manager or
consolidated financial statements. These interest holders gener- general partner of an investment fund, collateralized debt obliga-
ally have recourse only to the assets and cash flows of the VIEs
Form 10-K 2006 AIG 163