AIG 2006 Annual Report Download - page 68

American International Group, Inc. and Subsidiaries
See also Management’s Discussion and Analysis of Financial stable, producing aircraft and related components which meet the
Condition and Results of Operations — Capital Resources and airlines’ demands, both in type and quantity, and fulfilling their
Liquidity — Liquidity. contractual obligations to ILFC. Competition between the manufac-
turers for market share is intense and may lead to instances of
deep discounting for certain aircraft types and may negatively
The Relationships Between AIG and
affect ILFC’s competitive pricing.
the Starr Entities
The relationships between AIG and the Starr entities may take Item 1B.
an extended period of time to unwind and/or resolve, and the Unresolved Staff Comments
consequences of such resolution are uncertain. During 2006,
AIG unwound and resolved its most significant relationships with There are no material unresolved written comments that were
C.V. Starr & Co, Inc. (Starr) and began unwinding and resolving received from the SEC staff 180 days or more before the end of
various relationships with Starr International Company, Inc. (SICO). AIG’s fiscal year relating to AIG’s periodic or current reports under
AIG cannot predict what its future relationship with Starr and SICO the Exchange Act.
will be.
The agency relationships between AIG subsidiaries and Starr Item 2.
have been terminated and litigation with Starr has been resolved, Properties
but there can be no assurance that AIG will compete successfully AIG and its subsidiaries operate from approximately 2,300 offices
for the business previously produced by the Starr agencies. In in the United States, 6 offices in Canada and numerous offices in
January 2006, Starr announced that it had completed its tender approximately 100 foreign countries. The offices in Greensboro
offers to purchase interests in Starr and that all eligible and Winston-Salem, North Carolina; Springfield, Illinois; Amarillo,
shareholders had tendered their shares. As a result of completion Ft. Worth and Houston, Texas; Wilmington, Delaware; San Juan,
of the tender offers, no AIG executive currently holds any Starr Puerto Rico; Tampa, Florida; Livingston, New Jersey; Evansville,
interest. Indiana; Nashville, Tennessee; 70 Pine Street, 72 Wall Street and
AIG has entered into agreements pursuant to which AIG 175 Water Street in New York, New York; and offices in more than
agrees, subject to certain conditions, to assure AIG’s current 30 foreign countries and jurisdictions including Bermuda, Chile,
employees that all payments are made under a series of two-year Hong Kong, the Philippines, Japan, United Kingdom, Singapore,
Deferred Compensation Profit Participation Plans provided by SICO Malaysia, Switzerland, Taiwan and Thailand are located in build-
(SICO Plans). For a further discussion of the SICO plans, see ings owned by AIG and its subsidiaries. The remainder of the
Note 16 of Notes to Consolidated Financial Statements. Neverthe- office space utilized by AIG subsidiaries is leased.
less, there can be no assurance that AIG will be able to
effectively address the consequences for its executives of the Item 3.
unwinding of their participation in the SICO plans and programs. Legal Proceedings
Finally, litigation between AIG and SICO remains pending, and the
timing, terms and effect on AIG of any resolution cannot currently General
be predicted. See also Item 3. Legal Proceedings. AIG and its subsidiaries, in common with the insurance industry in
general, are subject to litigation, including claims for punitive
Employee Error and Misconduct damages, in the normal course of their business. See also
Employee error and misconduct may be difficult to detect and Note 12(a) of Notes to Consolidated Financial Statements, as well
prevent and may result in significant losses. Losses may result as the discussion and analysis of Consolidated Net Losses and
from, among other things, fraud, errors, failure to document Loss Expense Reserve Development and Management’s Discus-
transactions properly or to obtain proper internal authorization or sion and Analysis of Financial Condition and Results of Operations
failure to comply with regulatory requirements. herein.
There have been a number of highly publicized cases involving
fraud or other misconduct by employees in the financial services 2006 Regulatory Settlements
industry in recent years, and AIG runs the risk that employee In February 2006, AIG reached a final settlement with the SEC,
misconduct could occur. It is not always possible to deter or the United States Department of Justice (DOJ), the Office of the
prevent employee misconduct and the precautions AIG takes to New York Attorney General (NYAG) and the New York State
prevent and detect this activity may not be effective in all cases. Department of Insurance (DOI). The settlements resolved investi-
gations conducted by the SEC, NYAG and DOI in connection with
Aircraft Suppliers the accounting, financial reporting and insurance brokerage prac-
There are limited suppliers of aircraft and engines. The supply of tices of AIG and its subsidiaries, as well as claims relating to the
jet transport aircraft, which ILFC purchases and leases, is underpayment of certain workers compensation premium taxes
dominated by two airframe manufacturers, Boeing and Airbus, and and other assessments. The 2005 financial statements included
a limited number of engine manufacturers. As a result, ILFC is in this Annual Report on Form 10-K include a fourth quarter after-
dependent on the manufacturers’ success in remaining financially tax charge of $1.15 billion relating to the settlements.
18 AIG 2006 Form 10-K