AIG 2009 Annual Report Download - page 197

American International Group, Inc., and Subsidiaries
2009 of $51 million. ILFC has, in the past, been able to re-lease the aircraft without diminution in lease rates that
would result in an impairment and did not recognize any impairment charges in 2008 or 2007.
Consumer Finance
AIG’s Consumer Finance operations in North America are principally conducted through AGF. AGF derives most
of its revenues from finance charges assessed on real estate loans, secured and unsecured non-real estate loans and
retail sales finance receivables. In the second quarter of 2008, AGF ceased its wholesale origination activities
(originations through mortgage brokers).
AIG’s foreign consumer finance operations are principally conducted through AIGCFG. AIGCFG operates
primarily in emerging and developing markets. As of December 31, 2009, AIGCFG has operations in Argentina,
Poland, Taiwan, India and Colombia.
Many of AGF’s borrowers are non-prime or subprime. The real estate loans are comprised principally of first-lien
mortgages on residential real estate generally having a maximum term of 360 months, and are considered
non-conforming. The real estate loans are principally closed-end accounts and fixed rate products. AGF does not offer
mortgage products with borrower payment options that allow for negative amortization of the principal balance. The
majority of AGF’s non-real estate loans are secured by consumer goods, automobiles or other personal property. Both
secured and unsecured non-real estate loans and retail sales finance receivables generally have a maximum term of
60 months.
Current economic conditions, such as interest rate and employment levels, can have a direct effect on the
borrowers’ ability to repay these loans. AGF manages the credit risk inherent in its portfolio by using credit scoring
models at the time of credit applications, established underwriting criteria and review procedures. AGF systematically
monitors the quality of the finance receivables portfolio and determines the appropriate level of the allowance for
losses through its Credit Strategy and Policy Committee. This Committee bases its conclusions on quantitative
analyses, qualitative factors, current economic conditions and trends, and each Committee member’s experience in
the consumer finance industry.
The overall credit quality of AGF’s finance receivable portfolio deteriorated during 2009 due to negative economic
fundamentals, the aging of the real estate loan portfolio and portfolio sales and liquidations. Based upon anticipated
difficult economic conditions for the U.S. consumer, AGF expects credit quality to remain under pressure in 2010.
At December 31, 2009, the 60-day delinquency rate for the entire portfolio increased by 225 basis points to
7.24 percent compared to December 31, 2008, while the 60-day delinquency rate for real estate loans increased by 277
basis points to 7.88 percent. For 2009, AGF’s net charge-off rate increased to 3.92 percent compared to 2.08 percent
in 2008.
AGF’s allowance for finance receivable losses as a percentage of outstanding receivables was 8.11 percent at
December 31, 2009 compared to 4.61 percent at December 31, 2008.
AIGCFG monitors the quality of its finance receivable portfolio and determines the appropriate level of the
allowance for losses through several internal committees. These committees base their conclusions on quantitative
analysis, qualitative factors, current economic conditions and trends, political and regulatory implications, competition
and the judgment of the committees’ members.
AIG’s Consumer Finance operations are exposed to credit risk and risk of loss resulting from adverse fluctuations
in interest rates and payment defaults. Credit loss exposure is managed through a combination of underwriting
controls, mix of finance receivables, collateral and collection efficiency. Large product programs and exposures to
certain high risk products are subject to CRC approval.
Over half of the finance receivables are real estate loans which are collateralized by the related properties. With
respect to credit losses, the allowance for losses is maintained at a level considered adequate to absorb anticipated
credit losses existing in that portfolio as of the balance sheet date.
189 AIG 2009 Form 10-K