AIG 2009 Annual Report Download - page 47

American International Group, Inc., and Subsidiaries
periods. Management continues to assess value declines and the permanence of such declines. These market
conditions have also adversely affected the ability to pay or refinance maturing debt obligations in the private equity
and real estate portfolios.
On June 10, 2009, the Department of the Treasury issued regulations implementing the compensation limits of the
American Recovery and Reinvestment Act of 2009. These regulations restrict the amount of bonus and other
incentive compensation that a company receiving TARP funds may pay to certain employees. For AIG these limits
apply to the five executives named in AIG’s proxy statement and the next twenty highest paid employees of AIG (the
Top 25). The regulations also created the Office of Special Master for TARP Executive Compensation (Special
Master), which is responsible for interpreting and applying the compensation regulations. AIG is required to obtain
the Special Master’s approval of the compensation of the Top 25, and the compensation structure of AIG’s executive
officers and AIG’s next 26 to 100 most highly compensated employees and executive officers (the Top 100). The
Special Master has issued Determination Memoranda covering the Top 25 and Top 100. These Determination
Memoranda place significant new conditions on the compensation of these employees, and the conditions in the
Determination Memoranda may impair AIG’s ability to retain and motivate them. See Item 1A. Risk Factors —
Employees for a further discussion of this risk.
General Insurance
Given current insurance capital levels and the relatively benign 2009 catastrophe season, the overall expectation is
that both property and casualty market pricing will continue to decline in 2010. While rate change has become more
stable in recent quarters, Chartis does not expect this trend to continue in 2010. In addition, overall economic
conditions have decreased the volume of ratable exposures (i.e., asset values, payrolls and sales), which has had a
corresponding negative impact on overall market premium base. Given these factors, AIG expects organic modest
gross and net premium growth in 2010, driven by growth in Foreign General Insurance.
In 2010, Chartis expects to continue to execute capital management initiatives begun in 2009 by enhancing its
Enterprise Risk Management function; developing broad-based risk appetite guidelines for its operating units; and
executing underwriting and reinsurance strategies to improve capital ratios, increase return on equity by line of
business and reduce exposure to certain businesses where inadequate pricing and increased loss trends may exist.
Chartis U.S. expects overall gross written premiums to remain consistent with 2009 levels. However, its business mix
is expected to continue to change, reflecting capital management initiatives. Net written premiums may decline as
Chartis U.S. modifies its reinsurance program to be consistent with its capital management initiatives.
Gross written premiums for Chartis International are expected to grow more substantially in 2010, due in large part
to its existing presence in emerging markets and its anticipated increased stake in The Fuji Fire & Marine Insurance
Company Limited which would require consolidation of its operations into AIG.
Domestic Life Insurance & Retirement Services
AIG expects sales and deposits to gradually recover in 2010-2011 as market conditions improve, AIG ratings remain
stable, negative AIG publicity subsides, rebranding efforts take hold and distribution is reinstated at additional
financial institutions.
Domestic Life Insurance & Retirement Services companies maintained higher liquidity in 2008 and 2009 which
negatively affected net investment income results. As such cash balances are reinvested into longer term securities in
2010-2011, AIG expects investment yields to gradually improve.
Foreign Life Insurance & Retirement Services
AIG expects that sales of foreign life investment-oriented products will continue to be lower than historic levels due
to the lingering negative effects of AIG events on third party financial institution distribution networks, primarily in
Japan and the U.K. and that sales of risk-based insurance products will continue to improve, particularly in Asia.
39 AIG 2009 Form 10-K