AIG 2008 Annual Report Download - page 72

Net Investment Income
The components of consolidated net investment income were as follows:
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
Years Ended December 31, Percentage Increase/(Decrease)
(In millions)
Fixed maturities, including short-term
investments ......................... $20,839 $21,445 $19,773 (3)% 8%
Equity securities ....................... 592 575 277 3 108
Interest on mortgage and other loans ........ 1,516 1,423 1,253 7 14
Partnerships........................... (2,022) 1,986 1,596 — 24
Mutual funds .......................... (989) 535 948 — (44)
Trading account losses . . ................. (725) (150) — — —
Other investments* ..................... 1,002 959 1,241 4 (23)
Total investment income before policyholder
income and trading gains (losses) ......... 20,213 26,773 25,088 (25) 7
Policyholder investment income and trading
gains (losses) ........................ (6,984) 2,903 2,016 — 44
Total investment income ................. 13,229 29,676 27,104 (55) 9
Investment expenses . . . ................. 1,007 1,057 1,034 (5) 2
Net investment income . ................. $12,222 $28,619 $26,070 (57)% 10%
*Includes net investment income from securities lending activities, representing interest earned on securities
lending invested collateral offset by interest expense on securities lending payable.
2008 and 2007 Comparison
Net investment income decreased in 2008 compared to 2007 due to:
• losses from partnership and mutual fund investments reflecting significantly weaker market conditions in
2008 than in 2007;
• significant policyholder investment income and trading losses for Life Insurance & Retirement Services
(together, policyholder trading losses), which were $7.0 billion in 2008 compared to policyholder trading
gains of $2.9 billion for 2007, reflecting equity market declines. Policyholder trading gains (losses) are
offset by a change in incurred policy losses and benefits expense. Policyholder trading gains (losses)
generally reflect the trends in equity markets, principally in Japan and Asia;
• losses related to AIG’s economic interest in ML II and investment in ML III of approximately $1.1 billion in
2008; and
• the effect of increased levels of short-term investments, for liquidity purposes.
2007 and 2006 Comparison
Net investment income increased in 2007 compared to 2006 due to higher levels of interest income on fixed
maturity securities, an increase in income from partnerships as well as higher policyholder trading gains. Partially
offsetting these increases were trading account losses related to certain investment-oriented products in the U.K. for
Life Insurance & Retirement Services. The policyholder trading gains for 2007 generally reflected the trends in
equity markets, principally in Japan and Asia.
66 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries