AIG 2008 Annual Report Download - page 27

Item 1A. Risk Factors
AIG has been significantly and adversely affected by recent events in the marketplace as well as in its
businesses, and is subject to significant risks, as discussed below. Many of these risks are interrelated and occur
under similar business and economic conditions, and the occurrence of certain of them may in turn cause the
emergence, or exacerbate the effect, of others. Such a combination could materially increase the severity of the
impact on AIG. As a result, should certain of these risks emerge, AIG may need additional support from the
U.S. government. Without additional support from the U.S. government, in the future there could exist substantial
doubt about AIG’s ability to continue as a going concern. See Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Consideration of AIG’s Ability to Continue as a Going Concern and Note 1
to the Consolidated Financial Statements for a further discussion.
Proposed Transactions with the NY Fed and the United States Department of the Treasury
No assurance can be given that the NY Fed and the United States Department of the Treasury will complete the
proposed transactions with AIG. AIG has entered into certain agreements in principle and announced intentions
to enter into transactions with the NY Fed and the United States Department of the Treasury described below and in
Note 23 to the Consolidated Financial Statements. These proposed transactions are designed to promote AIG’s
restructuring. Neither agreements in principle nor the intentions are legally binding, and neither the NY Fed nor the
United States Department of the Treasury is bound to proceed with the transactions or complete them on the terms
currently contemplated. AIG, however, expects to be able to complete these transactions and others necessary to
enable an orderly restructuring and understands that the NY Fed and the United States Department of the Treasury
remain committed to providing AIG with continued support. If AIG is unable to complete one or more of the
proposed transactions, AIG’s credit ratings may be downgraded and AIG may not be able to complete its
restructuring plan. See Credit and Financial Strength Ratings for a discussion of the impact of a downgrade in
AIG’s credit ratings.
The proposed repayment of outstanding amounts under the Fed Facility with subsidiary preferred equity in
holding companies for AIA and ALICO is complex and may need to be restructured. The NY Fed’s proposed
investment in two new holding companies for AIA and ALICO is unprecedented and it is possible that the terms of
the exchange may change, perhaps materially.
Business and Credit Environment
AIG’s businesses, results of operations and financial condition have been materially and adversely affected by
market conditions and will be materially affected by these conditions for the foreseeable future. During 2008,
worldwide economic conditions significantly deteriorated and the United States economy and most other major
economies entered into a recession. It is difficult to predict how long global recessionary conditions will exist or the
manner in which AIG’s markets, products, financial condition and businesses will be negatively affected in the
future.
The global financial crisis has resulted in a lack of liquidity, highly volatile markets, a steep depreciation in
asset values across all classes, an erosion of investor confidence, a widening of credit spreads, a lack of price
transparency in many markets and the collapse or merger of several prominent financial institutions. Difficult
economic conditions also resulted in increased unemployment and a severe decline in business activity across a
wide range of industries and regions. Global regulators, governments and central banks have taken a number of
unprecedented steps to address these issues but these steps have so far failed to prevent financial markets from
declining by a very substantial amount, both in percentage terms and in absolute terms. It is unclear whether these
measures will be effective or, if effective, when markets will stabilize.
AIG has been materially and adversely affected by these conditions and events in a number of ways, including:
• the need to enter into transactions with the NY Fed and the United States Department of the Treasury, and to
participate in generally available governmental programs addressing disruptions in financial markets;
• severe and continued declines in the valuation and performance of its investment portfolio across all asset
classes, leading to decreased investment income, material unrealized and realized losses, including other-
AIG 2008 Form 10-K 21
American International Group, Inc., and Subsidiaries