AIG 2008 Annual Report Download - page 14

equipment breakdown, directors and officers liability (D&O), difference-in-conditions, kidnap-ransom, export
credit and political risk, and various types of professional errors and omissions coverages. Also included in
Commercial Insurance are the operations of AIG Risk Management, which provides insurance and risk manage-
ment programs for large corporate customers and is a leading provider of customized structured insurance products,
and AIG Environmental, which focuses specifically on providing specialty products to clients with environmental
exposures. Lexington writes surplus lines for risks on which conventional insurance companies do not readily
provide insurance coverage, either because of complexity or because the coverage does not lend itself to
conventional contracts. The AIG Worldsource Division introduces and coordinates AIG’s products and services
to U.S.-based multinational clients and foreign corporations doing business in the U.S.
Transatlantic
Transatlantic Holdings, Inc. (Transatlantic) subsidiaries offer reinsurance capacity on both a treaty and
facultative basis both in the United States and abroad. Transatlantic structures programs for a full range of property
and casualty products with an emphasis on specialty risk. Transatlantic is a public company owned 58.9 percent by
AIG and therefore is included in AIG’s consolidated financial statements.
Personal Lines
AIG’s Personal Lines operations provide automobile insurance through 21st Century Insurance, its direct
marketing distribution channel, and the Agency Auto Division, its independent agent/broker distribution channel. It
also provides a broad range of coverages for high net worth individuals through the AIG Private Client Group
(Private Client Group). Coverages for the Personal Lines operations are written predominantly in the United States.
Mortgage Guaranty
The main business of the subsidiaries of United Guaranty Corporation (UGC) is the issuance of residential
mortgage guaranty insurance, both domestically and internationally, that covers the first loss for credit defaults on
high loan-to-value conventional first-lien mortgages for the purchase or refinance of one to four family residences.
On October 13, 2008, United Guaranty Residential Insurance Company (UGRIC) and United Guaranty
Mortgage Indemnity Company (UGMIC) were downgraded from A+ to A- and placed on CreditWatch negative by
S&P, and on February 13, 2009, UGRIC was downgraded from Aa3 to A3 and placed under review for possible
downgrade by Moody’s. All U.S-based mortgage insurers are currently subject to a Government Sponsored
Enterprise (GSE) remediation plan as a result of industry-wide rating agency downgrades. UGRIC and UGMIC
continue to write new domestic first-lien mortgage insurance and remain eligible mortgage insurers with Fannie
Mae and Freddie Mac.
Foreign General Insurance
AIG’s Foreign General Insurance group writes both commercial and consumer lines of insurance which is
primarily underwritten through American International Underwriters (AIU), a marketing unit consisting of wholly
owned agencies and insurance companies. The Foreign General Insurance group also includes business written by
AIG’s foreign-based insurance subsidiaries. The Foreign General Insurance group uses various marketing methods
and multiple distribution channels to write both commercial and consumer lines insurance with certain refinements
for local laws, customs and needs. AIU operates in Asia, the Pacific Rim, Europe, the U.K., Africa, the Middle East
and Latin America. During 2008, the Foreign General Insurance group accounted for 32 percent of AIG’s General
Insurance net premiums written.
Discussion and Analysis of Consolidated Net Losses and Loss Expense Reserve Development
The reserve for net losses and loss expenses represents the accumulation of estimates for reported losses (case
basis reserves) and provisions for losses incurred but not reported (IBNR), both reduced by applicable reinsurance
recoverable and the discount for future investment income, where permitted. Net losses and loss expenses are
charged to income as incurred.
8 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries