AIG 2008 Annual Report Download - page 335

Exhibit 12
Computation of Ratios of Earnings to Fixed Charges
2008 2007 2006 2005 2004
Years Ended December 31,
(In millions, except ratios)
Income (loss) before income taxes, minority interest
and cumulative effect of change in accounting
principles(a) ............................ $(108,761) $ 8,943 $21,687 $15,213 $14,845
Add — Fixed charges ....................... 20,456 11,470 9,062 7,663 6,049
Less — Capitalized interest ................... 27 37 59 64 59
Income (loss) before income taxes, minority
interest, cumulative effect of change in
accounting principles and fixed charges(a) ...... $ (88,332) $20,376 $30,690 $22,812 $20,835
Fixed charges:
Interest costs............................ $ 20,157 $11,213 $ 8,843 $ 7,464 $ 5,860
Rental expense(b) ........................ 299 257 219 199 189
Total fixed charges ......................... $ 20,456 $11,470 $ 9,062 $ 7,663 $ 6,049
Preferred stock dividend requirements ........... $ 400 ————
Total combined fixed charges and preferred stock
dividend requirements ..................... $ 20,856 11,470 9,062 7,663 6,049
Ratio of earnings to fixed charges .............. (c) 1.78 3.39 2.98 3.44
Ratio of earnings to fixed charges and preferred
stock dividends .......................... (c) 1.78 3.39 2.98 3.44
Secondary ratio of earnings to fixed charges
Interest credited to GIC and GIA policy and
contract holders ......................... $ (2,492) $ (6,660) $ (5,128) $ (4,760) $ (3,674)
Total fixed charges excluding interest credited to
GIC and GIA policy and contract holders ...... $ 17,964 $ 4,810 $ 3,934 $ 2,903 $ 2,375
Secondary ratio of earnings to fixed charges ...... (c) 2.85 6.50 6.22 7.23
Secondary ratio of earnings to fixed charges and
preferred stock dividend requirements ......... (c) 2.85 6.50 6.22 7.23
(a) Excludes undistributed earnings (loss) from equity method investments.
(b) The proportion considered representative of the interest factor.
(c) Earnings were insufficient to cover total fixed charges and total fixed charges and preferred stock dividends by
$108,788 million and $109,188 million, respectively, for 2008. The coverage deficiency for total fixed charges
and total fixed charges and preferred stock dividends excluding interest credited to GIC and GIA policy and
contract holders was $106,296 million and $106,696 million respectively, for 2008.
The secondary ratio is disclosed for the convenience of fixed income investors and the rating agencies that
serve them and is more comparable to the ratios disclosed by all issuers of fixed income securities. The secondary
ratio removes interest credited to guaranteed investment contract (GIC) policyholders and guaranteed investment
agreement (GIA) contractholders. Such interest expenses are also removed from earnings used in this calculation.
GICs and GIAs are entered into by AIG’s insurance subsidiaries, principally SunAmerica Life Insurance Company
and AIG Financial Products Corp. and its subsidiaries, respectively. The proceeds from GICs and GIAs are invested
in a diversified portfolio of securities, primarily investment grade bonds. The assets acquired yield rates greater than
the rates on the related policyholders obligation or contract, with the intent of earning a profit from the spread.
AIG 2008 Form 10-K 329
American International Group, Inc., and Subsidiaries