AIG 2008 Annual Report Download - page 38

Operational risks of asset dispositions. AIG is exposed to various operational risks associated with the
dispositions of subsidiaries and the resulting restructuring of AIG at the business and corporate levels. These risks
include the ability to deconsolidate systems and processes of divested operations without adversely affecting AIG,
the ability of AIG to fulfill its obligations under any transition separation agreements agreed upon with buyers, the
ability of AIG to downsize the corporation as dispositions are accomplished and the ability of AIG to continue to
provide services previously performed by divested entities.
AIGFP wind-down risks. An orderly and successful wind-down of AIGFP’s businesses and portfolios is
subject to numerous risks, including market conditions, counterparty willingness to transact, or terminate trans-
actions, with AIGFP and the retention of key personnel. An orderly and successful wind-down will also depend on
the stability of AIG’s credit ratings. Further downgrades of AIG’s credit ratings likely would have an adverse effect
on the wind-down of AIGFP’s businesses and portfolios.
Use of Estimates
If actual experience differs from management’s estimates used in the preparation of financial statements,
AIG’s consolidated results of operations or financial condition could be adversely affected. The preparation of
financial statements in conformity with accounting principles generally accepted in the United States requires the
application of accounting policies that often involve a significant degree of judgment. AIG considers that its
accounting policies that are most dependent on the application of estimates and assumptions, and therefore viewed
as critical accounting estimates, are those described in Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Critical Accounting Estimates. These accounting estimates require the use
of assumptions, some of which are highly uncertain at the time of estimation. For example, recent market volatility
and declines in liquidity have made it more difficult to value certain of AIG’s invested assets and the obligations and
collateral relating to certain financial instruments issued or held by AIG, such as AIGFP’s super senior credit default
swap portfolio. Additionally, the recoverability of deferred tax assets depends in large part on assumptions about
future profitability. These estimates, by their nature, are based on judgment and current facts and circumstances.
Therefore, actual results could differ from these estimates, possibly in the near term, and could have a material
effect on the consolidated financial statements.
Legal Proceedings
Significant legal proceedings may adversely affect AIG’s results of operations. AIG is party to numerous
legal proceedings, including securities class actions and regulatory or governmental investigations. Due to the
nature of the litigation, the lack of precise damage claims and the type of claims made against AIG, AIG cannot
currently quantify its ultimate liability for these actions. It is possible that developments in these unresolved matters
could have a material adverse effect on AIG’s consolidated financial condition or consolidated results of operations
for an individual reporting period. For a discussion of these unresolved matters, see Note 14 to the Consolidated
Financial Statements.
Aircraft Suppliers
There are limited suppliers of aircraft and engines. The supply of jet transport aircraft, which ILFC
purchases and leases, is dominated by two airframe manufacturers, Boeing and Airbus, and a limited number of
engine manufacturers. As a result, ILFC is dependent on the manufacturers’ success in remaining financially stable,
producing aircraft and related components which meet the airlines’ demands, both in type and quantity, and
fulfilling their contractual obligations to ILFC. Competition between the manufacturers for market share is intense
and may lead to instances of deep discounting for certain aircraft types that could negatively affect ILFC’s
competitive pricing.
Item 1B. Unresolved Staff Comments
There are no material unresolved written comments that were received from the SEC staff 180 days or more
before the end of AIG’s fiscal year relating to AIG’s periodic or current reports under the Exchange Act.
32 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries