AIG 2009 Annual Report Download - page 77

American International Group, Inc., and Subsidiaries
Policy Acquisition and Other Insurance Expenses
2009 and 2008 Comparison
Policy acquisition and other insurance expenses decreased in 2009 compared to 2008 primarily due to:
• a reduction of $2.4 billion from dispositions, primarily the sale of the Brazilian operations in 2008, sales of HSB,
21st Century and AIG Life Canada in 2009 and the deconsolidation of Transatlantic in 2009;
• a reduction of $3.3 billion due to goodwill impairment charges recorded in 2008 as discussed below; and
• the effects of lower production levels for General Insurance and both Domestic and Foreign Life Insurance &
Retirement Services.
2008 and 2007 Comparison
Policy acquisition and other insurance expenses increased in 2008 compared to 2007 due to:
• a $2.4 billion increase in General Insurance expenses primarily due to goodwill impairment charges of
$1.2 billion from Commercial Insurance primarily related to goodwill of HSB;
• a $174 million increase in Domestic Life Insurance & Retirement Services expenses primarily due to $1.2 billion
of goodwill impairment charges, partially offset by changes in deferred acquisition costs;
• an increase of $2.9 billion in Foreign Life Insurance & Retirement Services expenses as a result of the effect of
foreign exchange, growth in the business and the effect of the implementation of the new fair value option
accounting standard; and
• Goodwill impairment charges of $878 million in 2008 from Noncore insurance businesses.
Interest Expense
2009 and 2008 Comparison
Interest expense decreased in 2009 compared to 2008 primarily due to lower interest expense on the FRBNY Credit
Facility. Interest expense on the FRBNY Credit Facility was $10.4 billion in 2009 compared to $11.4 billion in 2008.
Interest expense in 2009 included $8.4 billion of amortization of the prepaid commitment fee asset, including
accelerated amortization of $5.2 billion in connection with the $25 billion reduction in the outstanding balance and
maximum lending commitment under the FRBNY Credit Facility. See Note 1 to the Consolidated Financial
Statements. Interest expense in 2008 included $9.3 billion of amortization of the prepaid commitment fee asset
associated with the FRBNY Credit Facility, including accelerated amortization of $6.6 billion in connection with the
November 25, 2008 restructuring of the FRBNY Credit Facility. During 2009, interest expense benefited from a
reduced interest rate on the FRBNY Credit Facility (weighted average rate of 4.5 percent in 2009 compared to
10.6 percent in 2008); however, because the facility was outstanding for the full year in 2009 compared to only
107 days in 2008, the favorable impact was largely offset.
2008 and 2007 Comparison
Interest expense increased in 2008 compared to 2007 on higher levels of borrowings primarily due to the interest
expense on the FRBNY Credit Facility, inclusive of the amortization of the prepaid commitment fee asset. Interest
expense in 2008 also included interest on the junior subordinated debt and Equity Units from the dates of issuance in
May 2008.
Restructuring Expenses and Related Asset Impairment and Other Expenses
In the fourth quarter of 2008, following receipt of federal government assistance, AIG commenced an
organization-wide restructuring plan, which AIG continued to develop and modify throughout 2009. In connection
with activities under this plan, AIG recorded restructuring and separation expenses of $1.4 billion in 2009, consisting
69 AIG 2009 Form 10-K