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American International Group, Inc.
2010 Annual Report

Table of contents

  • Page 1
    American International Group, Inc. 2010 Annual Report

  • Page 2
    ... and CEO Bob Benmosche 7 Board of Directors 12 Form 10-K 13 Shareholder Information Inside back cover About AIG American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional, and...

  • Page 3
    ... and services, deep claims expertise, and excellent financial strength, Chartis enables its commercial and personal insurance clients alike to manage virtually any risk with confidence. Chartis had in net 45 million $31.6 billion premiums written in 2010. SunAmerica Financial Group T he companies...

  • Page 4
    ... (IPO) of AIA and the sale of ALICO, as well as other asset sales, and we started to regain investor confidence, tapping the credit markets after more than a two-year absence. By any objective measure, AIG is now a stronger company. From my perspective, 2010 was as transformational a time as any in...

  • Page 5
    ... at Chartis and SunAmerica Financial Group. Also, United Guaranty Corporation (UGC), our mortgage insurance business, and International Lease Finance Corporation (ILFC), our aircraft leasing business, have both rebounded and are again self-supporting. Our restructuring did result in some asset sales...

  • Page 6
    ... market research indicated that, for a relatively new brand, Chartis has particularly high awareness, familiarity, and trust levels - especially among brokers but also among commercial decision makers. SunAmerica Financial Group made great progress in 2010 in reestablish- 4 AIG 2010 Annual Report

  • Page 7
    ... with producers. Improved sales from life insurance, payout annuities, group retirement products, and individual variable annuities offset the decline in individual fixed annuity deposits. Additionally, SunAmerica's Western National maintained its number one ranking for fixed annuity sales in...

  • Page 8
    ... charges and services. Moreover, we are of $4.6 billion well positioned to related to the sales of ALICO, take advantage of global growth AIG Star, and AIG Edison. trends - as well In 2010, we returned to the financial markets, raising more than $10 billion at the corporate and operating levels. We...

  • Page 9
    ... our businesses. I n January 2011, Robert H. Benmosche, AIG President and Chief Executive Officer, and Robert S. "Steve" Miller, Chairman of the AIG Board of Directors, sat down at AIG's new corporate headquarters at 180 Maiden Lane in Manhattan to answer questions about AIG's progress during 2010...

  • Page 10
    ...assets. Treasury Department is a major shareholder that will continue to oversee AIG, as you would expect any major shareholder to do. The key to their stepping away from day-to-day involvement will be our performance, and our ability to run the business the right way, provide good results, and make...

  • Page 11
    ...are coming back because they moved too fast, and the companies that they moved to can't support them. Customers tell me they stayed with or returned to AIG because our people have the ability to solve complex problems for them, and AIG will stand by them when it comes time to paying the claim. What...

  • Page 12
    ...at their innovative products on the variable annuity side. SunAmerica Financial Group continues to be the most innovative in selling fixed annuities in the banking system, which is why we're still number one, and we're still making sales in a market of historically low interest rates. We have always...

  • Page 13
    ... our already strong businesses domestically and around the world. We also need to focus on cost savings at the corporate center and in the businesses, risk and capital management, and strategic asset management. There will continue to be operational hiccups along the way, but those are key for us...

  • Page 14
    ... Executive Officer WQED Multimedia Douglas M. Steenland Former President and Chief Executive Officer Northwest Airlines Corporation Henry S. Miller Chairman and Managing Director Miller Buckfire & Co., LLC Chairman and Chief Executive Officer Marblegate Asset Management 12 AIG 2010 Annual Report

  • Page 15
    Form 10-K AIG AIG 2010 2010 Annual Annual Report Report 13 13

  • Page 16
    14 AIG 2010 Annual Report

  • Page 17
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 Commission file number 1-8787 16FEB201111041141 American International Group, Inc. (...

  • Page 18
    (This page intentionally left blank) 2 AIG 2010 Form 10-K

  • Page 19
    ... Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes...

  • Page 20
    ... career insurance agents, structured settlement brokers, benefit consultants and direct-to-consumer platforms. These operations were previously known as AIG Domestic Life Insurance & Retirement Services and were renamed SunAmerica in 2009. • Financial Services - AIG's financial services businesses...

  • Page 21
    ...Holdings Limited (Chartis UK) Chartis Europe, S.A. (Chartis Europe) Financial Services International Lease Finance Corporation (ILFC) AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries (AIGFP) SunAmerica American General Life Insurance Company (American General...

  • Page 22
    ... International Group, Inc., and Subsidiaries The following charts present the sources of AIG's revenues for the years ended December 31, 2010 and 2009: 2010 19% 7% 26% 4% Chartis 2009 6% 9% 19% 49% 15% SunAmerica Financial Group Financial Services 46% Divested businesses Other operations...

  • Page 23
    ... part of its commercial casualty unit, underwrite that account's board of directors through its executive liability business and insure the personal needs of its management through its Private Client Group as part of its Consumer segment. Client Approach Chartis clients benefit from its substantial...

  • Page 24
    American International Group, Inc., and Subsidiaries Chartis U.S. consumer insurance lines include: Accident & Health: Includes voluntary and sponsor-paid accidental and supplemental health products, including accidental death and disability and medical excess for employees, associations and other ...

  • Page 25
    American International Group, Inc., and Subsidiaries Chartis International net premiums written for 2010 are as follows: Chartis International NPW 10% 20% 16% Accident & Health Personal Lines 2% Casualty Property Specialty Life 24% 28% 19FEB201100403183 Discussion and Analysis of Consolidated ...

  • Page 26
    ... a sensitivity analysis of loss reserves held at December 31, 2010, see Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Liability for Unpaid Claims and Claims Adjustment Expense. Analysis of Consolidated Loss Reserve Development...

  • Page 27
    ... Holdings, Inc. (Transatlantic) was deconsolidated and 21st Century Insurance Group and Agency Auto Division (excluding AIG Private Client Group) (21st Century) and HSB Group, Inc. (HSB) were sold. The sales and deconsolidation are reflected in the table above as a reduction in December 31, 2009 net...

  • Page 28
    ... entities from the ending balance. The Liability for unpaid claims and claims adjustment expense as reported in AIG's Consolidated Balance Sheet at December 31, 2010 differs from the total reserve reported in the Annual Statements filed with state insurance departments and, where appropriate, with...

  • Page 29
    ... and independent broker-dealers, affiliated financial advisors, independent marketing organizations, independent and career insurance agents, structured settlement brokers, benefit consultants and direct-to-consumer platforms. The SunAmerica segment has two operating segments: Domestic Life, which...

  • Page 30
    ... benefits and a suite of guaranteed retirement income solutions. SunAmerica Retirement Markets distributes products through national, regional, bank and independent broker-dealer firms. Brokerage Services and Retail Mutual Funds includes the operations of SunAmerica Asset Management, which provides...

  • Page 31
    ... investments in high-yield bonds, common stocks, real estate, hedge funds and other alternative investments. The majority of assets backing insurance liabilities at AIG consist of intermediate and long duration fixed maturity securities. In the case of SunAmerica, the fundamental investment strategy...

  • Page 32
    ... and are included in Parent & Other operations. Mortgage Guaranty The main business of the subsidiaries of UGC is the issuance of residential mortgage guaranty insurance, both domestically and internationally, that covers mortgage lenders for the first loss for credit defaults on high loan-to-value...

  • Page 33
    ...International Group, Inc., and Subsidiaries UGC previously insured second-lien and private student loans, but ceased insuring new business in these products in 2008, although certain of the second-lien policies are subject to reinstatement. Mortgage Guaranty is seeking to take advantage of its risk...

  • Page 34
    American International Group, Inc., and Subsidiaries Locations of Certain Assets As of December 31, 2010, approximately 25 percent of the consolidated assets of AIG were located outside the U.S. and Canada, including $3.6 billion of cash and securities on deposit with regulatory authorities in ...

  • Page 35
    ... Insurance Corporation (FDIC) upon a coordinated determination by the Secretary of the Treasury, the director of the Federal Insurance Office and the Board of Governors of the Federal Reserve System, in consultation with the FDIC, that such a financial company is in default or in AIG 2010 Form...

  • Page 36
    ...) as an independent agency within the FRB to regulate consumer financial products and services offered primarily for personal, family or household purposes. Insurance products and services are not within the BCFP's general jurisdiction, and broker-dealers and investment advisers are not subject to...

  • Page 37
    ...a number of jurisdictions in which AIG's subsidiaries conduct business have already begun implementing legislative and regulatory changes consistent with these recommendations, including proposals governing consolidated regulation of insurance holdings companies by the Financial Services Agency (FSA...

  • Page 38
    ... of insurance companies, the form and content of reports of financial condition required to be filed and reserves for unearned premiums, losses and other purposes. In general, such regulation is for the protection of policyholders rather than the equity owners of these companies. AIG has taken...

  • Page 39
    ... international accounting and regulatory standards, reinsurance and corporate governance. AIG cannot predict the potential effect that any new regulations would have on AIG's insurance subsidiaries or on AIG's business, results of operations, cash flows or financial condition. Regulation of Domestic...

  • Page 40
    ... and counterparties at historical levels. General insurance and life insurance companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Retirement services companies compete through crediting rates and the issuance of guaranteed benefits. For...

  • Page 41
    American International Group, Inc., and Subsidiaries Charles S. Shamieh joined AIG in 2007 as Executive Director of Enterprise Risk management. In January 2011, Mr. Shamieh was elected to his current position of Senior Vice President and Corporate Chief Actuary. Prior to joining AIG, Mr. Shamieh ...

  • Page 42
    ...competitive position. Further downgrades of the IFS ratings of our insurance companies may prevent these companies from offering products and services or result in increased policy cancellations or termination of assumed reinsurance contracts. Moreover, a downgrade in AIG Parent's credit ratings may...

  • Page 43
    ... deferred tax assets; • a decline in new business levels; • increased liability associated with interest rate guarantees in life annuity products; • an increase in policy surrenders and cancellations; and • a writeoff of deferred policy acquisition costs (DAC). Investment Portfolio and...

  • Page 44
    ... AIG Parent's liquidity if AIG Parent then needed, or was required by its capital maintenance agreements, to provide additional capital support to the insurance subsidiaries holding the affected state and municipal bonds. As with our fixed income security portfolio generally, rising interest rates...

  • Page 45
    ... and counterparties at historical levels. General insurance and life insurance companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Retirement services companies compete through crediting rates and the issuance of guaranteed benefits...

  • Page 46
    American International Group, Inc., and Subsidiaries Adjustments to Deferred Policy Acquisition Costs for Life Insurance and Retirement Services Companies Interest rate fluctuations, increased surrenders, investment returns and other events may require our subsidiaries to accelerate the ...

  • Page 47
    ... our businesses, results of operations, cash flows, financial condition and credit ratings. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which effects comprehensive changes to the regulation of financial services in the United States, was signed into...

  • Page 48
    ...our financial strength and could potentially affect our financing costs or result in a ratings downgrade. We are subject to extensive regulation in the jurisdictions in which we conduct our businesses, including with respect to the pricing of policies that we write, and regulatory actions could make...

  • Page 49
    ... at any time during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax losses and credits carryforwards equal to the equity value of the corporation immediately before...

  • Page 50
    American International Group, Inc., and Subsidiaries Foreign Operations Our foreign operations expose us to risks that may affect our operations, liquidity and financial condition. We provide insurance, investment and other financial products and services to both businesses and individuals in more ...

  • Page 51
    ... financing on favorable terms, if at all. For a further discussion of liquidity, see Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity. AIG Parent's ability to access funds from our subsidiaries is limited. As a holding company...

  • Page 52
    ... the market price of AIG Common Stock. The Department of the Treasury may also, subject to applicable securities laws, transfer all, or a portion of, the AIG Common Stock to another person or entity and, in the event of such a transfer, that person or entity could become our controlling shareholder...

  • Page 53
    ...of AIG Common Stock, or the perception that such sales could occur, could adversely affect the market price of AIG Common Stock. Employees Mr. Benmosche may be unable to continue to provide services to AIG due to his health. Mr. Robert Benmosche, the President and Chief Executive Officer of AIG, has...

  • Page 54
    ...perform necessary business functions, including providing insurance quotes, processing premium payments, making changes to existing policies, filing and paying claims, administering variable annuity products and mutual funds, providing customer support and managing our investment portfolios. Systems...

  • Page 55
    ... by AIG and its subsidiaries: Greensboro and Winston-Salem, North Carolina Amarillo, Ft. Worth and Houston, Texas San Juan, Puerto Rico Livingston, New Jersey Nashville, Tennessee Stevens Point, Wisconsin 175 Water Street in New York, New York In addition, offices in more than 30 foreign countries...

  • Page 56
    American International Group, Inc., and Subsidiaries Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AIG's common stock is listed on the New York Stock Exchange, as well as on the stock exchanges in Ireland and Tokyo. The...

  • Page 57
    ..., Inc. Prudential Financial, Inc. The Travelers Companies, Inc., and XL Capital Ltd. FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURNS Value of $100 Invested on December 31, 2005 $250 $200 $150 $100 $50 $0 2005 2006 2007 2008 2009 2010 Years Ending AMERICAN INTERNATIONAL GROUP S&P 500 INDEX...

  • Page 58
    ... of change in accounting principles, net of tax Net income (loss) attributable to AIG Dividends declared per common share Year-end balance sheet data: Total investments Total assets Commercial paper and other short-term debt Long-term debt(c) Total AIG shareholders' equity Total equity Other data...

  • Page 59
    American International Group, Inc., and Subsidiaries Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Information This Annual Report on Form 10-K and other publicly available documents may include, and AIG...

  • Page 60
    American International Group, Inc., and Subsidiaries Underwriting profit (loss) is utilized to report results for Chartis operations. Operating income (loss), which is before net realized capital gains (losses) and related DAC and sales inducement asset (SIA) amortization and goodwill impairment ...

  • Page 61
    ... from the completion of the initial public offering and listing of AIA ordinary shares on the Stock Exchange of Hong Kong on October 29, 2010, as well as a gain of $1.3 billion recognized in 2010 related to the sale of AIG's headquarters building in Tokyo in 2009 which gain had been deferred until...

  • Page 62
    ... with risk tolerance, with the goal of meeting profitability and capital management objectives. Also, Chartis has initiated a number of steps to address historical experience with respect to adverse development. Changes include exiting certain classes of its excess workers' compensation business...

  • Page 63
    ... and product line basis and is intended to strengthen Chartis' position in the consolidating Japanese market, while enabling Fuji to benefit from Chartis' global operational resources and financial strength. Following completion of its annual comprehensive loss reserve review, Chartis recorded...

  • Page 64
    .... Spreads in the fixed annuity business are largely dependent upon three factors: base yields on the traditional fixed income investments (e.g., bonds, mortgage- and asset-backed securities, commercial mortgages), returns on alternative investments (hedge funds and private equity partnerships), and...

  • Page 65
    ..., the capacity for and cost of available solutions, such as letters of credit and securitization, have not returned to pre-2008 levels. Financial Services International Lease Finance Corporation In 2011, ILFC will focus on the following to improve its credit rating in 2011: • transition its focus...

  • Page 66
    ... Operations Consolidated Results Segment Results Chartis Operations SunAmerica Operations Financial Services Operations Other Operations Investments Investment Strategy Other-Than-Temporary Impairments Enterprise Risk Management Overview Credit Risk Management Market Risk Management Operational Risk...

  • Page 67
    ... primarily to support the capital needs of AIG's insurance company subsidiaries. However, at the closing of the Recapitalization, as described more fully above and in Note 1 to the Consolidated Financial Statements, AIG fully repaid and terminated the FRBNY Credit Facility, and the Department of the...

  • Page 68
    ... year Net cash provided by operating activities was positive for both 2010 and 2009 compared to negative in 2008, principally due to positive cash flows from AIG's life insurance subsidiaries. Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits...

  • Page 69
    ...500 2,000 - $38,333 $14,453(e) Includes total Cash and Short-term investments for AIG Parent. See Note 25 to the Consolidated Financial Statements. The Syndicated Credit Facility and the Series G Drawdown Right became effective January 14, 2011, the closing date of the Recapitalization. The FRBNY...

  • Page 70
    ...to transfer funds freely, either to or from its subsidiaries. Several Chartis U.S. insurance subsidiaries have deferred tax assets on a separate company basis, including those resulting from net operating losses incurred. Chartis intends to rely on prudent and feasible effective tax planning actions...

  • Page 71
    ... subsidiaries maintain substantial liquidity in the form of cash and short-term investments, totaling $12.4 billion as of December 31, 2010. Further, Chartis businesses maintain significant levels of investment-grade fixed income securities, including substantial holdings in government and corporate...

  • Page 72
    ... Services. International Lease Finance Corporation ILFC's sources of liquidity include collections of lease payments, borrowing in the public markets, and proceeds from asset sales. Uses of liquidity for ILFC primarily consist of aircraft purchases and debt repayments. In 2010, ILFC took a number...

  • Page 73
    American International Group, Inc., and Subsidiaries related to these assets and liabilities, primarily consisting of credit valuation adjustment gains and losses, are reported in AIG's Other operations category as part of Asset Management - Direct Investment business. During 2010, AIGFP continued ...

  • Page 74
    ... cash flows from operations, debt issuances and aircraft sales (subject to market and other conditions) (see Liquidity of Parent and Subsidiaries - Financial Services - ILFC). During 2010, ILFC significantly increased its liquidity position through a combination of new secured and unsecured debt...

  • Page 75
    ... debt attributable to equity units Loans and mortgages payable AIG Funding - FRBNY commercial paper funding facility SunAmerica Financial Group, Inc. (SAFG, Inc.) notes and bonds payable Liabilities connected to trust preferred stock Total general borrowings Borrowings supported by assets: MIP notes...

  • Page 76
    American International Group, Inc., and Subsidiaries AIG Parent AIG issues debt securities from time to time to meet its financing needs and those of certain of its subsidiaries, including general borrowing to support AIG's capital structure and corporate needs, borrowing supported by assets ...

  • Page 77
    ... of ILFC. See Note 15 to the Consolidated Financial Statements - Debt Outstanding for further details on ILFC's outstanding debt. Credit Facilities AIG relies on credit facilities as a potential source of liquidity for general corporate purposes. Currently, AIG, Chartis, Inc. and ILFC maintain...

  • Page 78
    ... of default and restrictive financial covenants that require ILFC to maintain a minimum fixed charge coverage ratio, a minimum consolidated tangible net worth, and a maximum ratio of consolidated debt to consolidated tangible net worth. Credit Ratings The cost and availability of unsecured financing...

  • Page 79
    ... make, depends on market conditions, the fair value of outstanding affected transactions and other factors prevailing at the time of the downgrade. For a discussion of the effects of downgrades in the financial strength ratings of AIG's insurance companies or AIG's credit ratings, see Item 1A. Risk...

  • Page 80
    ... subsidiaries maintain substantial liquidity in the form of cash and short-term investments. Further, these businesses maintain significant levels of investment-grade fixed income securities, including substantial holdings in government and corporate bonds (see Investments herein), which Chartis...

  • Page 81
    .... These subsidiaries maintain substantial liquidity in the form of cash and short-term investments. In addition, SunAmerica businesses maintain significant levels of investment-grade fixed income securities, including substantial holdings in government and corporate bonds (see Investments herein...

  • Page 82
    ... to indemnifications included in asset sales agreements. See Note 16 to the Consolidated Financial Statements. Includes commitments to invest in limited partnerships, private equity, hedge funds and mutual funds and commitments to purchase and develop real estate in the United States and abroad. The...

  • Page 83
    ... guarantee fund assessments net of credits recognized in 2010, 2009 and 2008, respectively, were $16 million, $18 million and $12 million. AIG is also required to participate in various involuntary pools (principally workers' compensation business and, internationally, personal automobile business...

  • Page 84
    ...In addition, certain foreign locations, notably Japan, have established regulations that can result in guarantee fund assessments. These have not had a material effect on AIG's financial condition or results of operations. See Note 18 to the Consolidated Financial Statements. 68 AIG 2010 Form 10-K

  • Page 85
    American International Group, Inc., and Subsidiaries Results of Operations AIG reports the results of its operations through three reportable segments: Chartis (formerly General Insurance), SunAmerica (formerly Domestic Life Insurance & Retirement Services), and Financial Services. Through these ...

  • Page 86
    ...) 2010 vs. 2009 2009 vs. 2008 Fixed maturities, including short-term investments ML II ML III Change in fair value of AIA securities* Change in fair value of MetLife securities Other equity securities Interest on mortgage and other loans Partnerships Mutual funds Real estate Other investments Total...

  • Page 87
    ... businesses in 2009, compared to 2008 and lower returns as a result of increased levels of short-term investments that were held for liquidity purposes. Net Realized Capital Gains (Losses) Years Ended December 31, 2010 2009 2008 (in millions) Sales of fixed maturity securities Sales of equity...

  • Page 88
    American International Group, Inc., and Subsidiaries management has the intent to sell such securities. See Note 7 to the Consolidated Financial Statements; and Investments - Other-Than-Temporary Impairments; and • foreign exchange transaction gains incurred in 2010 compared to losses in 2009 ...

  • Page 89
    American International Group, Inc., and Subsidiaries on Capital Markets super senior credit default swap portfolio, partially offset by reduced losses from AIGFP from lower unwind costs; and • a decline of $1.0 billion in credit valuation adjustments on Direct Investment business assets and ...

  • Page 90
    ...in 2008 were primarily related to hurricanes Ike and Gustav); and • the effects of lower production levels for Chartis and SunAmerica. These decreases were partially offset by: • higher incurred policy losses and benefits expenses for AIA due to policyholder trading gains of $2.3 billion in 2009...

  • Page 91
    ... lease-related charges with respect to aircraft sold, otherwise disposed of or held for sale. 2009 and 2008 Comparison Other expenses for 2009 decreased compared to 2008 primarily due to lower compensation-related costs for Parent and Other operations and the Institutional Asset Management business...

  • Page 92
    ...the Consolidated Financial Statements for additional information. Discontinued Operations Income (loss) from Discontinued Operations is comprised of the following: Years Ended December 31, (in millions) 2010 (a) 2009 2008 Foreign life insurance businesses AGF Net gain (loss) on sale Consolidation...

  • Page 93
    ... and consumer insurance products and services worldwide. Chartis regularly reviews its underlying domestic and international businesses in an effort to determine and ensure proper alignment of its risk profile to its risk tolerance, increase its focus on managing risk, improve results of operations...

  • Page 94
    ... the financial crisis in 2008) and 65 percent relates to accident 2005 and prior (accident years prior to the start of the managed reduction in these long-tail lines of business). Approximately 98 percent of the 2009 charge of $2.8 billion relates to excess casualty, excess workers' compensation and...

  • Page 95
    ... and discuss its financial information in a manner most meaningful to its financial statement users. AIG analyzes the operating performance of Chartis, using underwriting profit. Underwriting profit is derived by reducing net premiums earned by claims and claims adjustment expenses incurred and...

  • Page 96
    American International Group, Inc., and Subsidiaries The following table presents Chartis net premiums written by major line of business: Percentage Increase/ (Decrease) 2010 vs. 2009 2009 vs. 2008 Years Ended December 31, (in millions) 2010 2009 2008 Consumer lines: Accident & health Personal...

  • Page 97
    .... In 2009, Chartis also recorded $412 million of losses in its Commercial Specialty line of business for its exposure to credit and fraud claims relating to the financial crisis. While no additional losses were recorded in 2010 for these credit and fraud claims, these reserves continue to be closely...

  • Page 98
    ... the sale of the AIG Otemachi Building in Japan. On March 31, 2010, AIG, through a Chartis International subsidiary, purchased additional voting shares in Fuji. This acquisition resulted in a bargain purchase gain of $0.3 billion, which was included in the Consolidated Statement of Income (Loss) in...

  • Page 99
    ... Chartis U.S. net premiums written by line of business: Years Ended December 31, (in millions) Percentage Increase/ (Decrease) 2010 vs. 2009 2009 vs. 2008 2010 2009 2008 Consumer lines: Accident & health Personal lines Total Consumer lines Commercial lines: Casualty Property Specialty Total...

  • Page 100
    American International Group, Inc., and Subsidiaries adversely impacted general liability and commercial umbrella business in the Commercial Casualty and environmental classes in the Commercial Specialty lines of business. Additionally, 2010 reflects the effects of the Chartis U.S decision to ...

  • Page 101
    ... maturing Life Settlement policies.Net realized capital losses declined in 2010 compared to 2009 due to increased sales of fixed maturity and equity securities as market conditions improved and lower other-than-temporary-impairments on investments due to improved cash flow expectations on structured...

  • Page 102
    ... Chartis International net premiums written by line of business: Years Ended December 31, (in millions) Percentage Increase/ (Decrease) 2010 vs. 2009 2009 vs. 2008 2010 2009 2008 Consumer lines: Accident & health Personal lines Life insurance Total consumer lines Commercial lines: Casualty...

  • Page 103
    ... Chartis International net premiums written decreased in 2009 compared to 2008 primarily due to negative effects of changes in foreign exchange rates, general economic conditions which continued to negatively affect new business and the adverse effect of negative publicity regarding AIG in 2009. AIG...

  • Page 104
    ...results. Chartis International Net investment income decreased in 2009 compared to 2008 primarily due to losses from an equity method investment, and lower yields on the fixed income portfolios, partially offset by improving mutual fund income due to improved market conditions. 88 AIG 2010 Form 10...

  • Page 105
    ...unit collectively reported in AIG's Other operations category. The following table presents the components of the loss reserves by major lines of business on a statutory annual statement basis(a): At December 31, (in millions) 2010 2009 Other liability occurrence Workers' compensation International...

  • Page 106
    ... Group, Inc., and Subsidiaries The following table classifies the components of the net liability for unpaid claims and claims adjustment expense by business unit: Years Ended December 31, (in millions) 2010 2009 Chartis: Chartis U.S. Chartis International Total Chartis Mortgage Guaranty Net...

  • Page 107
    American International Group, Inc., and Subsidiaries The following table presents the rollforward of net loss reserves: Years Ended December 31, (in millions) 2010 2009 2008 Net liability for unpaid claims and claims adjustment expense at beginning of year Foreign exchange effect Acquisitions(a) ...

  • Page 108
    American International Group, Inc., and Subsidiaries Years Ended December 31, (in millions) 2010 2009 2008 Prior Accident Year Development by Major Class of Business: Excess casualty (Chartis U.S.) D&O and related management liability (Chartis U.S.) Excess workers' compensation (Chartis U.S.) ...

  • Page 109
    American International Group, Inc., and Subsidiaries activity on AIG's excess and umbrella policies. Many excess casualty policies were written on a multi-year basis in the late 1990s, which limited AIG's ability to respond to emerging market trends as rapidly as would otherwise be the case. In ...

  • Page 110
    ...other liability claims made line of business, as presented in the loss reserves by major lines of business table above. Excess Workers' Compensation: AIG experienced significant adverse development for this class during 2010 and 2009, following a year of immaterial development in 2008. This class of...

  • Page 111
    ... patterns emanating from the AIG claims staff projections of expected ultimate cost for each open claim. No significant changes in assumptions were made in the year-end 2008 loss reserve reviews. D&O and Related Management Liability Classes of Business: AIG experienced a significant favorable...

  • Page 112
    American International Group, Inc., and Subsidiaries For the year-end 2010 loss reserve review, AIG's actuaries took into account the favorable development from prior accident years, as well as the continuing favorable development observed in the ground-up claims projections by AIG claims staff ...

  • Page 113
    ... casualty classes. The other group is long-tail casualty classes of business which includes excess and umbrella liability, D&O, professional liability, medical malpractice, workers' compensation, general liability, products liability and related classes. Short-Tail Reserves For operations writing...

  • Page 114
    ...reflect the annual growth in loss costs from one accident year to the next. For the majority of long-tail casualty classes of business, net loss trend factors approximated five percent. Loss trend factors reflect many items including changes in claims handling, exposure and policy forms, current and...

  • Page 115
    ... as excess casualty exposures. Expected loss ratio methods are generally utilized by AIG where the reported loss data lacks sufficient credibility to utilize loss development methods, such as for new classes of business or for long-tail classes at early stages of loss development. AIG 2010 Form 10...

  • Page 116
    ..., for average severity to be predictable, the class of business must consist of homogeneous types of claims for which loss severity trends from one year to the next are reasonably consistent. Generally these methods work best for high frequency, low severity classes of 100 AIG 2010 Form 10-K

  • Page 117
    ... workers' compensation is an extremely long-tail class of business, with loss emergence extending for decades. Therefore there is limited credibility in the reported losses for many of the more recent accident years. For the mature accident years, AIG's actuaries utilize claims projections provided...

  • Page 118
    ... this business as well as for similar classes of business written above lower attachment points. The business is generally written on a claims made basis. AIG utilizes ground-up claim projections provided by AIG claims staff to assist in developing the appropriate reserve. 102 AIG 2010 Form 10-K

  • Page 119
    ..., AIG generally uses the same method as for short-tail classes. Mortgage Guaranty: AIG tests mortgage guaranty reserves using loss development methods, supplemented by an internal claim analysis by actuaries and staff who specialize in the mortgage guaranty business. The claim analysis projects...

  • Page 120
    ... amount. An important part of AIG's internal governance process over the establishment of loss reserves is the Reserve Review Committee. This multi-disciplinary committee is comprised of senior actuarial, finance, claims, risk management and business unit executives throughout the organization. The...

  • Page 121
    ..., including management judgment. Each claim is reviewed at least semi-annually utilizing the aforementioned approach and adjusted as necessary to reflect the current information. In both the specialized and dedicated asbestos and environmental claims units, AIG actively manages and pursues...

  • Page 122
    ... information including, for instance, policy limits, layers of coverage, ground-up attachment points, and self-insured retentions/deductibles. This policyholder-specific data provided the third-party actuary with an ability to refine its models to produce more account-specific 106 AIG 2010 Form...

  • Page 123
    American International Group, Inc., and Subsidiaries reserves and reduce the amount of standard-model assumptions (i.e., industry assumptions). This new information allowed the third-party actuary to consider certain policies for which assumed losses would not be allocated evenly across years ...

  • Page 124
    ..., relating to asbestos and environmental claims separately and combined: As of or for the Year Ended December 31, (in millions) 2010 Gross Net 2009 Gross Net 2008 Gross Net Asbestos: Liability for unpaid claims and claims adjustment expense at beginning of year Dispositions Losses and loss expenses...

  • Page 125
    American International Group, Inc., and Subsidiaries The following table presents the estimate of the gross and net IBNR included in the Liability for unpaid claims and claims adjustment expense, relating to asbestos and environmental claims separately and combined: At December 31, (in millions) ...

  • Page 126
    ..., national, regional and independent broker-dealers, affiliated financial advisors, independent marketing organizations, independent and career insurance agents, structured settlement brokers, benefit consultants and direct to-consumer platforms. In managing SunAmerica, AIG analyzes the operating...

  • Page 127
    American International Group, Inc., and Subsidiaries SunAmerica Results The following table presents SunAmerica results: Years Ended December 31, (in millions) Percentage Increase/(Decrease) 2010 vs. 2009 2009 vs. 2008 2010 2009 2008 Domestic Life Insurance: Premiums and other considerations ...

  • Page 128
    ... sales represent deposits from new and existing customers. Sales of group accident and health insurance represent annualized first-year premium from new policies. Includes fixed annuity deposits sold through independent life insurance distribution channels. (b) 2010 and 2009 Comparison Total sales...

  • Page 129
    ...lower financial strength ratings, the lingering effects of negative AIG publicity and the sale of AIG Life Canada. For individual variable annuities, the decrease in 2009 compared to 2008 is also attributable to a general decline in industry sales volumes. Individual fixed and variable annuity sales...

  • Page 130
    ... 2009 2008 Group retirement products Balance, beginning of year Deposits - annuities Deposits - mutual funds Total Deposits Surrenders and other withdrawals Death benefits Net inflows (outflows) Change in fair value of underlying investments, interest Balance, end of year Individual fixed annuities...

  • Page 131
    ...$24,637 12.1% $ Excludes mutual funds of $9.0 billion and $8.1 billion in 2010 and 2009, respectively. Financial Services Operations AIG's Financial Services subsidiaries engage in diversified activities including commercial aircraft leasing and the remaining Capital Markets portfolios, which are...

  • Page 132
    ..., reduce risk and hedge the currency, interest rate and other market risks associated with its affiliated businesses. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity of Parent and Subsidiaries - Financial Services - Capital Markets Wind-down...

  • Page 133
    ... Capital Markets reported lower pre-tax income in 2010 compared to 2009. Unrealized market valuation gains related to its super senior credit default swap portfolio amounted to $598 million and $1.4 billion in 2010 and 2009, respectively. The operating results in 2010 and 2009 include net losses of...

  • Page 134
    ... credit default swap contracts referencing single-name exposures written on corporate, index and asset-backed credits which are not included in the super senior credit default swap portfolio compared to a gain of $240 million in 2009; • incurred interest charges of $147 million for 2010, relating...

  • Page 135
    ... efforts to improve internal controls and the financial and operating platforms, corporate initiatives, certain compensation plan expenses, corporate-level net realized capital gains and losses, certain litigation-related charges and net gains and losses on sale of divested businesses which did not...

  • Page 136
    ... operations in consolidation. Parent & Other contributed its equity interest in ML III to an AIG subsidiary, reported above in Other businesses, during the second quarter of 2009. Represents change in fair value measured from the closing sale price on the October 29, 2010 initial date of trading...

  • Page 137
    ... insurance, both domestically and internationally, that covers mortgage lenders for the first loss for credit defaults on high loan-to-value conventional first-lien mortgages for the purchase or refinance of one- to four-family residences. 2010 and 2009 Comparison Mortgage Guaranty reported pre-tax...

  • Page 138
    ... of 2008 ceased insuring new private student loan business and suspended insuring new business throughout its European operations. All of these actions were in response to the worsening conditions in the global housing markets and resulted in a significant decline in new business written during...

  • Page 139
    ... The Direct Investment business includes results for the MIP, AIG Global Real Estate and the results of certain non-derivative assets and liabilities of Capital Markets now managed by the Asset Management Group. The revenues and pre-tax income (loss) for these operations are affected by the general...

  • Page 140
    ...asset management business and certain previously consolidated private equity investments. Also contributing to the operating loss is the negative impact of AIG's narrowing credit spreads on the valuation of derivative liabilities held through AIG Markets. 2009 and 2008 Comparison Institutional Asset...

  • Page 141
    ...primarily of laddered holdings of tax-exempt municipal bonds, which provided attractive after-tax returns and limited credit risk. In order to meet the current risk/return and tax objectives of Chartis U.S., the domestic property and casualty companies have begun to shift investment allocations away...

  • Page 142
    ... locations. AIG's Credit Risk Committee closely reviews the credit quality of the foreign portfolio's non-rated fixed maturity securities. At December 31, 2010, approximately 24 percent of the foreign fixed income investments were either rated AAA or, on the basis of AIG's internal analysis, were...

  • Page 143
    ... of AIA and sale of ALICO in 2010. Total invested assets of businesses held for sale amounted to $96.3 billion at December 31, 2010. See Note 4 to the Consolidated Financial Statements. (b) Chartis In AIG's general insurance business, the duration of liabilities for long-tail casualty lines is...

  • Page 144
    ... taken positions in certain derivative financial instruments in order to hedge the impact of changes in equity markets and interest rates on these benefit guarantees. SunAmerica executes listed futures and options contracts on equity indexes to hedge certain guarantees of variable annuity products...

  • Page 145
    ... of AIG Global Real Estate. MIP The MIP business was originally created to generate spread income from investments yielding returns greater than AIG's cost of funds. The invested assets are predominantly fixed maturity securities and include U.S. residential mortgage-backed securities, asset-backed...

  • Page 146
    ... stock Mutual funds Total equity securities available for sale Total(c) December 31, 2009 Bonds available for sale: U.S. government and government sponsored entities Obligations of states, municipalities and political subdivisions Non-U.S. governments Corporate debt Mortgage-backed, asset-backed...

  • Page 147
    ... service revenue bonds and high-quality tax-backed bonds with 99 percent of the portfolio rated A or higher. The following table presents the industry category distribution of AIG's corporate debt securities: December 31, Industry Category 2010(a) 2009 Financial institutions: Money Center/Global...

  • Page 148
    American International Group, Inc., and Subsidiaries Investments in Residential Mortgage-Backed Securities (RMBS) The following table presents AIG's RMBS investments by year of vintage: December 31, 2010 December 31, 2009 Gross Gross Percent of Gross Gross Percent of Amortized Unrealized Unrealized...

  • Page 149
    ..., other asset-backed securities and CDOs take into consideration the quality of the originator, the manager, the servicer, security credit ratings, underlying characteristics of the mortgages, borrower characteristics, and the level of credit enhancement in the transaction. AIG 2010 Form 10-K 133

  • Page 150
    American International Group, Inc., and Subsidiaries Investments in Commercial Mortgage-Backed Securities (CMBS) The following table presents the amortized cost, gross unrealized gains (losses) and fair value of AIG's CMBS investments: December 31, 2010 December 31, 2009 Gross Gross Percent of ...

  • Page 151
    ... of AIG's CMBS investments by industry: December 31, 2010 2009 Industry: Office Retail Multi-family Lodging Industrial Other Total 34% 27 17 8 6 8 100% 30% 30 15 7 7 11 100% There have been disruptions in the CMBS market due to weakness in underlying commercial real estate fundamentals and...

  • Page 152
    American International Group, Inc., and Subsidiaries Investments in CDOs The following table presents AIG's CDO investments by collateral type: December 31, 2010 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Percent of Fair Amortized Value Cost December 31, 2009 Gross Gross ...

  • Page 153
    American International Group, Inc., and Subsidiaries MetLife and AIA Equity Investments At December 31, 2010, AIG's equity method investments included a 33 percent interest in AIA with a total carrying value of $11.1 billion which is recorded in Other invested assets and accounted for under the ...

  • Page 154
    American International Group, Inc., and Subsidiaries The following table presents other-than-temporary impairment charges in earnings by segment: Domestic Life Insurance & Retirement Services (in millions) General Insurance Financial Services Other Total December 31, 2010 Impairment Type: ...

  • Page 155
    ...CMBS Other Fixed Income Equities/Other Invested Assets* Total December 31, 2010 Impairment Type: Severity Change in intent Foreign currency declines Issuer-specific credit events Adverse projected cash flows on structured securities Total December 31, 2009 Impairment Type: Severity Change in intent...

  • Page 156
    American International Group, Inc., and Subsidiaries The following table presents other-than-temporary impairment charges in earnings by type of security and credit rating: (in millions) RMBS CDO/ABS CMBS Other Fixed Income Equities/Other Invested Assets* Total December 31, 2010 Rating: AAA AA A ...

  • Page 157
    American International Group, Inc., and Subsidiaries With the adoption of the new other-than-temporary impairments accounting standard on April 1, 2009, severity loss charges subsequent to that date exclusively related to equity securities and other invested assets. In all prior periods, these ...

  • Page 158
    ...by CUSIP by subsidiary. For 2010, net unrealized gains related to fixed maturity and equity securities increased by $9.1 billion primarily resulting from the narrowing of credit spreads. As of December 31, 2010, the majority of AIG's fixed maturity investments in an unrealized loss position of more...

  • Page 159
    ...its Enterprise Risk Management (ERM) Department in conjunction with the Company's business units, Asset Management Group and Treasury Department. Ultimate oversight of risk management is conducted by the Board of Directors (the Board). AIG's Chief Risk Officer (AIG CRO) provides reports to the Board...

  • Page 160
    ... - Finance, Risk & Investments Transactional & Policy Setting • Credit Risk, Cross-Border and Country Rating Committees • CSFT Committee • GRE & AIG FP Steering Committees • Global Pricing Committee • Global Yield & Currency Committee • Derivatives Committee Business Unit Chartis Risk...

  • Page 161
    ... business unit levels, including hiring additional risk management professionals. During 2010, AIG hired CROs for Chartis, SunAmerica and Investments & Financial Services, all of whom report to the AIG CRO and their respective business unit chief executive officer. The risk management framework...

  • Page 162
    ... to provide foreign exchange to service a credit or equity exposure incurred by another AIG business unit located outside that country. AIG's credit risks are managed at the corporate level by the AIG Credit Risk Management (CRM) department whose primary role is to support and supplement the work of...

  • Page 163
    ... credit exposures to unrelated third parties, its cross-border investments in its own international subsidiaries and operating aircraft leases. Eight countries have cross-border exposures in excess of 10 percent of Total equity at December 31, 2010. Based on AIG's internal risk ratings, as of AIG...

  • Page 164
    ... of AIA and sale of ALICO. AIG's exposure to its five largest money center/global bank group institutions was 21.4 percent of Total equity at December 31, 2010 compared to 33.5 percent of Total equity at December 31, 2009. AIG also has a risk concentration through the investment portfolios...

  • Page 165
    ... default-free instrument. • Equity and alternative investment prices. AIG's exposure to equity and alternative investment prices arises from direct investments in common stocks and mutual funds, from minimum benefit guarantees embedded in the structure of certain variable annuity and variable life...

  • Page 166
    ...to yield curve movements, such as fixed maturity securities, loans, finance receivables and short-term investments (excluding consolidated separate account assets). Exposures to equity and alternative investment prices include investments in common stocks, preferred stocks, mutual funds, hedge funds...

  • Page 167
    ...) process. The RCSA process is used to identify key operational risks and evaluate the effectiveness of existing controls to mitigate those risks. Corrective action plans are developed to address any identified issues. In 2010, business units continued to enhance their RCSA processes to perform more...

  • Page 168
    ..., both internal and third-party; and • review and establishment of reserves. AIG closely manages insurance risk by overseeing and controlling the nature and geographic location of the risks in each line of business underwritten, the terms and conditions of the underwriting and the premiums charged...

  • Page 169
    ... exposures were modeled with data as of September 2010. All reinsurance program structures, domestic and international, reflect the reinsurance programs in place as of January 1, 2011. The values provided were based on 100-year return period losses, which have a one percent AIG 2010 Form 10-K 153

  • Page 170
    ... table. Single-event modeled property and workers' compensation losses to AIG's worldwide portfolio of risk for key geographic areas are set forth below. Gross values represent AIG's liability after the application of policy limits and deductibles and net values represent losses after reinsurance is...

  • Page 171
    American International Group, Inc., and Subsidiaries Terrorism Exposure to loss from terrorist attack is controlled by limiting the aggregate accumulation of workers' compensation and property insurance that is underwritten within defined target locations. Modeling is used to provide projections of...

  • Page 172
    .... AIG manages the credit risk in its reinsurance relationships by transacting with reinsurers that it considers financially sound, providing for appropriate credit limits and diversification and, when necessary, AIG requires reinsurers to post collateral in the form of funds withheld, securities in...

  • Page 173
    ... to higher claim costs for guaranteed benefits associated with variable annuities and the potential reduction in expected fee revenue. AIG businesses manage these risks through product design, exposure limitations and the active management of the asset-liability relationship in their operations. The...

  • Page 174
    ..., reduce risk and hedge the currency, interest rate and other market risks associated with its affiliated businesses. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity of Parent and Subsidiaries - Financial Services - Capital Markets Wind-down...

  • Page 175
    ... or credit default, are not included in AIGFP's VaR calculation. Because the market risk with respect to securities available for sale, at market, is substantially hedged, segregation of the financial instruments into trading and other than trading was not considered necessary. AIGFP operates under...

  • Page 176
    ... Leasing operations also include gains and losses that result from the re-marketing of commercial jet aircraft for ILFC's own account and re-marketing and fleet management services for airlines and financial institutions. Risks inherent in this business, which are managed at the business unit level...

  • Page 177
    ... general insurance unpaid claims and claims adjustment expenses and future policy benefits for life and accident and health contracts; • recoverability of assets, including deferred policy acquisition costs (DAC) and flight equipment; • estimated gross profits for investment-oriented products...

  • Page 178
    ...(b) Loss cost trend assumption is not material for this line of business. Not applicable due to extremely long-tailed nature of workers' compensation. The sensitivity analysis presented above addresses each major class of business for which a material deviation to AIG's overall reserve position is...

  • Page 179
    ...reasonably likely that actual loss development factors will range from approximately 3 percent lower to 7 percent higher than those factors actually utilized in the year-end 2010 loss reserve review for these classes. D&O and Related Management Liability Classes of Business AIG 2010 Form 10-K 163

  • Page 180
    ...for additional information on AIG's reserve for unpaid claims and claims adjustment expenses. Future Policy Benefits for Life and Accident and Health Contracts (life insurance and retirement services companies): • Investment returns: which vary by geographical region, year of issuance and products...

  • Page 181
    ... Markets) and group retirement products (VALIC). The effect of changes in mortality primarily impacts the universal life insurance business. December 31, 2010 (in millions) Guaranteed Benefits Reserve(a) Unearned Revenue Liability Net pre-tax Earnings DAC/SIA Assumptions: Equity Return(b) Effect...

  • Page 182
    ...: At each balance sheet date, AIG evaluates its available for sale securities holdings with unrealized losses. Prior to April 1, 2009, these reviews were conducted pursuant to accounting standards that were amended on that date. See Note 7 to the Consolidated Financial Statements for a discussion...

  • Page 183
    ... the Consolidated Financial Statements for additional information on the methodology and significant inputs, by security type, that AIG uses to determine the amount of a credit loss on fixed maturity securities. Equity Securities AIG evaluates its available for sale equity securities, equity method...

  • Page 184
    ...• the nature, frequency, and severity of cumulative financial reporting losses in recent years; • the carryforward periods for the net operating loss, capital loss and foreign tax credit carryforwards; • predictability of future operating profitability of the character necessary to realize the...

  • Page 185
    ...other loans receivable; • derivative assets and liabilities; • securities purchased/sold under agreements to resell/repurchase; • non-traded equity investments and certain private limited partnerships and certain hedge funds included in other invested assets; • certain short-term investments...

  • Page 186
    ... which the primary source is broker quotes. Includes available for sale and trading securities. $238 28 $266 89% 11 100% See Note 6 to the Consolidated Financial Statements for more detailed information about AIG's accounting policy for the incorporation of credit risk in fair value measurements...

  • Page 187
    ...Markets' super senior credit default swap portfolio), policyholder contract deposits carried at fair value, private equity and real estate fund investments, and direct private equity investments. AIG's non-financial instrument assets that are measured at fair value on a non-recurring basis generally...

  • Page 188
    ... class: Net Notional Amount December 31, 2010(a) 2009(a) Fair Value of Derivative (Asset) Liability at December 31, 2010(b)(c) 2009(b)(c) Unrealized Market Valuation Gain (Loss) Year Ended December 31, 2010(c) 2009(c) (in millions) Regulatory Capital: Corporate loans Prime residential mortgages...

  • Page 189
    American International Group, Inc., and Subsidiaries The following table presents changes in the net notional amount of the Capital Markets super senior credit default swap portfolio, including credit default swaps written on mezzanine tranches of certain regulatory capital relief transactions: Net...

  • Page 190
    American International Group, Inc., and Subsidiaries General Contractual Terms AIGFP entered into CDS transactions in the ordinary course of its business. In the majority of AIGFP's credit derivative transactions, AIGFP sold credit protection on a designated portfolio of loans or debt securities. ...

  • Page 191
    ... tranches were hedged by AIGFP with other third-party CDS transactions. In October 2008, following a credit ratings agency downgrade of AIG, AIGFP entered into a CSA to the agreements governing the transactions with this counterparty that requires AIGFP to post collateral. The CSA provides that one...

  • Page 192
    American International Group, Inc., and Subsidiaries The following table presents for each of the regulatory capital CDS transactions in the corporate loan portfolio, the gross transaction notional amount, net notional amount, attachment points, inception to date realized losses and percent non-...

  • Page 193
    American International Group, Inc., and Subsidiaries All of the regulatory capital CDS transactions directly or indirectly reference tranched pools of large numbers of whole loans that were originated by the financial institution (or its affiliates) receiving the credit protection, rather than ...

  • Page 194
    ... This analysis includes a review of changes in pool balances, subordination levels, delinquencies, realized losses and expected performance under more adverse credit conditions. Using data provided by the Report Providers, and information available from rating agencies, governments, and other public...

  • Page 195
    ... the percentage of net notional amount where there exists a rated tranche immediately junior to AIGFP's super senior tranche. Arbitrage Portfolio A portion of the Capital Markets super senior credit default swaps as of December 31, 2010 are arbitragemotivated transactions written on multi-sector...

  • Page 196
    ... multi-sector CDO credit default swap portfolio: Years Ended December 31, (in millions) 2010 2009 Fair value of derivative liability, beginning of year Unrealized market valuation (gain) loss Purchases of underlying CDO securities Other terminations and realized losses Fair value of derivative...

  • Page 197
    ... point may not always be computed by dividing net notional amount by gross notional amount. AIGFP began making payments on realized losses in excess of the attachment point on this trade in 2010. In a number of instances, the level of subordination with respect to individual CDOs has increased...

  • Page 198
    American International Group, Inc., and Subsidiaries The following table summarizes the gross transaction notional amount, percentage of the total CDO collateral pools and ratings and vintage breakdown of collateral securities in the multi-sector CDOs, by asset-backed securities (ABS) category: At ...

  • Page 199
    ... to securities and loans) rather than a single reference obligation as in the case of the physically settled transactions described below. Under these credit default swap transactions: • Each time a ''triggering event'' occurs a ''loss amount'' is calculated. A triggering event is generally...

  • Page 200
    ... transactions subject to physical settlement, ''Failure to Pay'' is specified as a Credit Event and is generally triggered if there is a failure by the issuer under the related CDO to make a payment under the reference obligation (after the expiration of any applicable grace period and, in certain...

  • Page 201
    ..., 2010, include triggers that require certain actions to be taken by AIG once AIG's rating level falls to certain levels, which, if not taken, give rise to a right of the counterparties to terminate the CDS. Such actions include posting collateral, transferring the swap or providing a guarantee from...

  • Page 202
    ... of a security interest (in the case of a CSA governed by New York law) or the outright transfer of title (in the case of a CSA governed by English law) in the collateral that is posted, the calculation of the amount of collateral required, the valuation of the collateral provided, the timing of any...

  • Page 203
    American International Group, Inc., and Subsidiaries Expected Loss Models - Under this mechanism, the amount of collateral to be posted is determined based on the amount of expected credit losses, generally determined using a rating-agency model. Negotiated Amount - Under this mechanism, the amount...

  • Page 204
    ... values its credit default swaps written on the super senior risk layers of designated pools of debt securities or loans using internal valuation models, third-party price estimates and market indices. The principal market was determined to be the market in which super senior credit default swaps of...

  • Page 205
    ...model are generally observable; and • it can easily be modified to use probabilities of default and expected losses derived from the underlying collateral securities market prices instead of using rating-based historical probabilities of default. The BET model has certain limitations. A well known...

  • Page 206
    ... referenced in the credit default swaps using its internal model, AIGFP also considers the price estimates for the super senior CDO securities provided by third parties, including counterparties to these transactions, to validate the results of the model and to determine the best available estimate...

  • Page 207
    ... 2009, AIGFP enhanced its valuation methodology for credit default swaps written on portfolios of investment-grade corporate debt. This new methodology uses a mathematical model that produces results that are more closely aligned with prices received from third parties, rather than relying on market...

  • Page 208
    American International Group, Inc., and Subsidiaries Moreover, a decline in the fair value of this portfolio could have a material adverse effect on AIG's consolidated results of operations for an individual reporting period or to AIG's consolidated financial condition. Key Assumptions Used in the ...

  • Page 209
    ...-sector CDO credit default swap portfolio, the change in valuation derived using the BET model is used to estimate the change in the fair value of the derivative liability. Out of the total $6.7 billion net notional amount of CDS written on multi-sector CDOs outstanding at December 31, 2010, a BET...

  • Page 210
    American International Group, Inc., and Subsidiaries Corporate Debt The following table represents the relevant market credit inputs used to estimate the sensitivity for the credit default swap portfolio written on investment-grade corporate debt and the estimated increase (decrease) in fair value ...

  • Page 211
    ... Financial Statements and Supplementary Data American International Group, Inc. and Subsidiaries Index to Financial Statements and Schedules Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet at December 31, 2010 and 2009 Consolidated Statement of Income (Loss...

  • Page 212
    American International Group, Inc., and Subsidiaries Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of American International Group, Inc.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in ...

  • Page 213
    American International Group, Inc., and Subsidiaries As described in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A in the 2010 Form 10-K, management has excluded Fuji Fire & Marine Insurance Company, from its assessment of internal control over financial ...

  • Page 214
    American International Group, Inc., and Subsidiaries Consolidated Balance Sheet (in millions) December 31, 2010 December 31, 2009 Assets: Investments: Fixed maturity securities: Bonds available for sale, at fair value (amortized cost: 2010 - $220,669; 2009 - $364,491) Bond trading securities, at ...

  • Page 215
    American International Group, Inc., and Subsidiaries Consolidated Balance Sheet (in millions, except share data) (Continued) December 31, 2010 December 31, 2009 Liabilities: Liability for unpaid claims and claims adjustment expense Unearned premiums Future policy benefits for life and accident ...

  • Page 216
    ... on available for sale securities recognized in net income (loss) Other realized capital gains (losses) Total net realized capital losses Unrealized market valuation gains (losses) on Capital Markets super senior credit default swap portfolio Other income Total revenues Benefits, claims and expenses...

  • Page 217
    American International Group, Inc., and Subsidiaries Consolidated Statement of Comprehensive Income (Loss) (in millions) Years Ended December 31, 2010 2009 2008 Net income (loss) Other comprehensive income (loss): Cumulative effect of change in accounting principle Income tax benefit (expense) on ...

  • Page 218
    ... D issuance Common stock issued Common stock issued under stock plans Shares purchased Present value of future contract adjustment payments related to issuance of equity units Payments advanced Cumulative effect of change in accounting principle, net of tax Net loss attributable to AIG or other...

  • Page 219
    American International Group, Inc., and Subsidiaries Consolidated Statement of Equity (Continued) Payments Retained Accumulated Total AIG Additional Advanced Earnings/ Other ShareNonPaid-in to Purchase (Accumulated Comprehensive holders' controlling Capital Shares Deficit) Income (Loss) Equity ...

  • Page 220
    American International Group, Inc., and Subsidiaries Consolidated Statement of Cash Flows Years Ended December 31, (in millions) 2010 2009 2008 Summary: Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities Net cash used in financing activities ...

  • Page 221
    ...Finance receivables held for investment - originations and purchases Net additions to real estate, fixed assets, and other assets Net change in restricted cash Net change in short-term investments Net change in derivative assets and liabilities other than Capital Markets Other, net Net cash provided...

  • Page 222
    ... Life and Annuity Contracts Debt Outstanding Commitments, Contingencies and Guarantees Total Equity and Earnings (Loss) Per Share Statutory Financial Data and Restrictions Share-based Compensation and Other Plans Employee Benefits Ownership Income Taxes Restructuring Quarterly Financial Information...

  • Page 223
    ... International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Recent Events American International Group, Inc. (AIG) is a leading international insurance organization with operations in more than 130 countries. AIG companies serve commercial...

  • Page 224
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • fair value measurements of certain financial assets and liabilities, including credit default swaps (CDS) and AIG's economic interest in Maiden Lane II LLC (ML II) and equity interest in Maiden Lane ...

  • Page 225
    ... was terminated. The funds for the repayment came from the net cash proceeds from AIG's sale of 67 percent of the ordinary shares of AIA Group, Limited (AIA) in its initial public offering and from AIG's sale of American Life Insurance Company (ALICO). These funds were loaned to AIG, in the form of...

  • Page 226
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS funds drawn down by AIG under the Series G Drawdown Right from the Closing until March 31, 2012 (or the earlier termination of the Series G Drawdown Right). Dividends on the Series G Preferred Stock are ...

  • Page 227
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • subject to certain exceptions, the right to approve the terms, conditions and pricing of any registered offering in which it participates until its ownership falls below 33 percent of AIG's voting ...

  • Page 228
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On December 23, 2010, AIG entered into 364-day and three-year bank credit facilities totaling $3 billion and Chartis entered into a one-year $1.3 billion letter of credit facility. During 2010, ILFC ...

  • Page 229
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net investment income: Net investment income represents income primarily from the following sources in AIG's insurance operations and AIG Parent: • Interest income and related expenses, including ...

  • Page 230
    ... the cost basis of securities available for sale for other-than-temporary impairments. • Earnings from hedge funds and limited partnership investments accounted for under the equity method. Policyholder benefits and claims incurred: Incurred claims and claims adjustment expenses for short duration...

  • Page 231
    ... long-term investment objectives and are accounted for as available for sale, carried at fair values and recorded on a trade-date basis. For AIG Parent and its insurance subsidiaries, unrealized gains and losses on investments in trading securities are reported in Net investment income. Unrealized...

  • Page 232
    ... death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender value of the policy. Finance receivables - net: Finance receivables, which are reported net of unearned finance charges, are held for both investment purposes and for sale. Finance...

  • Page 233
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS When assets are retired or disposed of, the cost and associated accumulated depreciation are removed from the related accounts and the difference, net of proceeds, is recorded as a gain or loss in Other ...

  • Page 234
    ... net unrealized gains/losses on fixed maturity and equity securities available for sale that is credited or charged directly to Accumulated other comprehensive income (loss). Value of Business Acquired (VOBA) is determined at the time of acquisition and is reported in the Consolidated Balance Sheet...

  • Page 235
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For contracts accounted for at fair value, policy acquisition costs are expensed as incurred and not deferred or amortized. (i) Real estate and other fixed assets - net: The cost of buildings and ...

  • Page 236
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In connection with the announced sale of ALICO on March 7, 2010 and management's decision that ALICO met the held-for-sale criteria on March 31, 2010, total goodwill of $4.6 billion associated with the ...

  • Page 237
    ... changes in goodwill by reportable segment: SunAmerica Financial Group Financial Services (in millions) Chartis Other Total Balance at December 31, 2008: Goodwill - gross Accumulated impairments Net goodwill Increase (decrease) due to: Goodwill impairments Sales of business units Consolidation...

  • Page 238
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recoverability. Deferred advertising costs totaled $200 million and $207 million at December 31, 2010 and 2009, respectively. The amount of expense amortized into income was $40 million, $173 million and...

  • Page 239
    ...or premiums. See Note 15 herein for additional information. Long-term debt also includes liabilities connected to trust preferred stock principally related to outstanding securities issued by SunAmerica Financial Group, Inc. (SAFG, Inc.), a wholly owned subsidiary of AIG, (formerly AIG Life Holdings...

  • Page 240
    ... standard on January 1, 2011. AIG does not expect the adoption of this new standard to have a material effect on its consolidated financial condition, results of operations or cash flows. Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts In October 2010, the FASB issued...

  • Page 241
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounting Standards Adopted During 2010 Accounting for Transfers of Financial Assets In June 2009, the Financial Accounting Standards Board (FASB) issued an accounting standard addressing transfers of ...

  • Page 242
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the excess of amounts previously recorded upon the consolidation of previously unconsolidated VIEs, as a result of the adoption of the new standard on January 1, 2010: (in ...

  • Page 243
    ... related hedged items affect AIG's consolidated financial condition, results of operations, and cash flows. AIG adopted the new standard on January 1, 2009. See Note 12 herein for related disclosures. Accounting for Transfers of Financial Assets and Repurchase Financing Transactions In February 2008...

  • Page 244
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock In June 2008, the FASB issued an accounting standard that addresses how to determine whether a financial ...

  • Page 245
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the components of the change in AIG shareholders' equity at April 1, 2009 due to the adoption of the new accounting standard for other-than-temporary impairments: Accumulated...

  • Page 246
    ... give rise to a new basis of accounting for that instrument. AIG adopted the standard on January 1, 2008, its required effective date. The adoption of the standard with respect to elections made for its domestic and foreign life insurance businesses resulted in an after-tax decrease to 2008 opening...

  • Page 247
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS earnings of $448 million. Included in this amount are net unrealized gains of $105 million that were reclassified to retained earnings from accumulated other comprehensive income (loss) related to ...

  • Page 248
    ... on AIG's consolidated financial condition, results of operations and cash flows were not material. 3. Segment Information AIG reports the results of its operations through three reportable segments: Chartis, SunAmerica and Financial Services. AIG evaluates performance based on pre-tax income (loss...

  • Page 249
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The reportable segments and their respective operations are as follows: Chartis: AIG's General Insurance subsidiaries, branded as Chartis, are multi-line companies writing substantially all lines of ...

  • Page 250
    ... and 2009. The following table presents AIG's operations by reportable segment: Reportable Segments Financial Chartis SunAmerica Services Consolidation and Total Eliminations Consolidated (in millions) Other 2010 Total revenues Other-than-temporary impairment charges(a) Net (gain) loss on sale of...

  • Page 251
    ...FINANCIAL STATEMENTS The following table presents Chartis operations by operating segment: Chartis U.S. Chartis International Total Operating Segments Consolidation and Eliminations Total Chartis (in millions) 2010 Total revenues Net (gain) loss on sale of properties and divested businesses Claims...

  • Page 252
    ... Domestic Retirement Services Total Operating Segment Consolidation and Eliminations SunAmerica Financial Group (in millions) 2010 Total revenues: Insurance-oriented products Retirement savings products Asset management revenues Total revenues Depreciation and amortization Pre-tax income (loss...

  • Page 253
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents AIG's Financial Services operations by operating segment: Aircraft Leasing Capital Markets Total Consolidation Total Operating and Financial Other Segments Eliminations ...

  • Page 254
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents components of AIG's Other operations: Asset Management Operations Direct Institutional Consolidation Total Parent Mortgage Investment Asset Divested Change in and Other & ...

  • Page 255
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents AIG's operations and long-lived assets by major geographic area: Geographic Area Other Asia Foreign (in millions) United States Consolidated 2010 Total revenues(a) Real ...

  • Page 256
    ... life of approximately three years. The stock purchase contracts obligate the holder of an equity unit to purchase, and obligate MetLife to sell, a number of shares of MetLife common stock that will be determined based on the market price of MetLife common stock at the scheduled settlement dates...

  • Page 257
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AGF Sale On August 10, 2010, AIG entered into a definitive agreement to sell an 80 percent economic interest (84 percent voting interest) in American General Finance, Inc. (AGF) for $125 million. The AGF...

  • Page 258
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes income (loss) from discontinued operations: Years Ended December 31, (in millions) 2010 2009 2008 Revenues: Premiums and other considerations Net investment income Net ...

  • Page 259
    ... and liabilities held for sale: December 31, (in millions) 2010 2009 Assets: Fixed maturity securities Deferred policy acquisition costs Mortgage and other loans receivable, net Equity securities Other invested assets Short-term investments Separate account assets Other assets Assets of businesses...

  • Page 260
    ...of business acquired Real estate and other fixed assets Other assets Liability for unpaid claims and claims adjustment expense Unearned premiums Future policy benefits for life and accident and health insurance contracts Policyholder contract deposits Other policyholder funds Other liabilities Total...

  • Page 261
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS loss was recorded in Other realized capital gains (losses) in the Consolidated Statement of Income (Loss). The fair values of AIG's previously-held equity interest and the noncontrolling interest were ...

  • Page 262
    ...Markets' super senior credit default swap portfolio), policyholder contract deposits carried at fair value, private equity and real estate fund investments, and direct private equity investments. AIG's non-financial instrument assets that are measured at fair value on a non-recurring basis generally...

  • Page 263
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AIG's own credit risk by determining the explicit cost for each counterparty to protect against its net credit exposure to AIG at the balance sheet date by reference to observable AIG credit default swap...

  • Page 264
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted valuation models, provide a ...

  • Page 265
    ... in Net investment income for SunAmerica's domestic life insurance companies. Adjustments to the fair value of AIG's interest in ML III are recorded on the Consolidated Statement of Income (Loss) in Net investment income and, beginning in the second quarter of 2009, were included in Other operations...

  • Page 266
    ... assets at the balance sheet date to measure at fair value marketable equity securities in its trading and available for sale portfolios or in Other invested assets. Market price data is generally obtained from exchange or dealer markets. Direct Private Equity Investments - Other Invested Assets AIG...

  • Page 267
    ... securities purchased (sold) under agreements to resell (repurchase) using dealer quotations, discounted cash flow analyses and/or internal valuation models. This methodology considers such factors as the coupon rate, yield curves, prepayment rates and other relevant factors. Short-term Investments...

  • Page 268
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Embedded Policy Derivatives The fair value of embedded policy derivatives contained in certain variable annuity and equity-indexed annuity and life contracts is measured based on actuarial and capital ...

  • Page 269
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Regulatory capital portfolio: In the case of credit default swaps written to facilitate regulatory capital relief, AIG estimates the fair value of these derivatives by considering observable market ...

  • Page 270
    ... a market return and the uncertainty inherent in the model inputs. The change in fair value of these policyholder contract deposits is recorded as Policyholder benefits and claims incurred in the Consolidated Statement of Income (Loss). Securities and Spot Commodities Sold But Not Yet Purchased Fair...

  • Page 271
    ... Equity contracts Commodity contracts Credit contracts Other contracts Counterparty netting and cash collateral Total unrealized gain on swaps, options and forward transactions Securities purchased under agreements to resell Short-term investments Separate account assets Other assets Total Level...

  • Page 272
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2010 (in millions) Liabilities: Policyholder contract deposits Securities sold under agreements to repurchase Securities and spot commodities sold but not yet purchased Unrealized loss on...

  • Page 273
    ... stock Mutual funds Total equity securities trading Mortgage and other loans receivable Other invested assets(c) Unrealized gain on swaps, options and forward transactions Securities purchased under agreements to resell Short-term investments Separate account assets Other assets Total Liabilities...

  • Page 274
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (c) Approximately 5 percent and 6 percent of the fair value of the total assets recorded as Level 3 relates to various private equity, real estate, hedge fund and fund-of-funds investments that are ...

  • Page 275
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income (Loss), during 2010 and 2009 related to the Level 3 assets and liabilities that remained on the Consolidated Balance Sheet at December 31, 2010 and 2009: Net Realized and Unrealized Accumulated ...

  • Page 276
    ...Common stock Mutual funds Total equity securities trading Other invested assets Short-term investments Other assets Separate account assets Total Liabilities: Policyholder contract deposits Securities sold under agreements to repurchase Unrealized loss on swaps, options and forward transactions, net...

  • Page 277
    ... (b) Net realized and unrealized gains and losses related to Level 3 items shown above are reported in the Consolidated Statement of Income (Loss) primarily as follows: Major Category of Assets/Liabilities Bonds available for sale Bond trading securities Other invested assets Policyholder contract...

  • Page 278
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides the components of the transfers of Level 3 assets and liabilities on a gross basis: December 31, 2010 (in millions) Gross Transfers in Gross Transfers (out) Net transfers In ...

  • Page 279
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS providers that were reflective of market activity, where previously an internally adjusted price had been used. Similarly, transfers out of Level 3 for CMBS and CDO investments backed by corporate credits were primarily the result of AIG using observable...

  • Page 280
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS its equivalent). For these investments, which are measured at fair value on a recurring or non-recurring basis, AIG uses the net asset value per share as a practical expedient for fair value. December 31...

  • Page 281
    ... may not be recoverable. These assets include cost and equity-method investments, life settlement contracts, flight equipment primarily under operating leases, collateral securing foreclosed loans and real estate and other fixed assets, goodwill and other intangible assets. AIG uses a variety of...

  • Page 282
    ... projected based on contractual payment terms, adjusted for delinquencies and estimates of prepayments and credit-related losses. • Businesses Held for Sale: When AIG determines that a business qualifies as held for sale and AIG's carrying amount is greater than the expected sale price less cost...

  • Page 283
    ... from the closing sale price on the October 29, 2010 initial date of trading. AIG elected to apply the fair value option to a certain investment-linked life insurance product sold principally in Asia, classified within policyholder contract deposits in the Consolidated Balance Sheet. AIG elected the...

  • Page 284
    ... average interest rates offered for similar finance receivables at the balance sheet date. Cash flows were projected based on contractual payment terms adjusted for delinquencies and estimates of losses. The fair value estimates do not reflect the underlying customer relationships or the related...

  • Page 285
    ... maturities Equity securities Mortgage and other loans receivable Finance receivables, net of allowance Other invested assets* Securities purchased under agreements to resell Short-term investments Cash Unrealized gain on swaps, options and forward transactions Liabilities: Policyholder contract...

  • Page 286
    ... stock Mutual funds Total equity securities available for sale Total(c) December 31, 2009 Bonds available for sale: U.S. government and government sponsored entities Obligations of states, municipalities and political subdivisions Non-U.S. governments Corporate debt Mortgage-backed, asset-backed...

  • Page 287
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unrealized losses on Securities Available for Sale The following table summarizes the fair value and gross unrealized losses on AIG's available for sale securities, aggregated by major investment ...

  • Page 288
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS periods of broad market declines. For fixed maturity securities with significant declines, management performed fundamental credit analysis on a security-by-security basis, which included consideration ...

  • Page 289
    ... (in millions) 2010 2009 Category: Alternative funds(a) Mutual funds Investment real estate(b) Aircraft asset investments(c) Life settlement contracts Consolidated managed partnerships and funds Direct private equity investments Retained interest in AIA All other investments Other invested assets...

  • Page 290
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Invested Assets - Available for Sale Investments At December 31, 2010 and 2009, $6.5 billion and $6.1 billion of Other invested assets related to available for sale investments carried at fair ...

  • Page 291
    ...) 2010 2009 2008 Fixed maturities, including short-term investments ML II ML III Change in fair value of AIA securities* Change in fair value of MetLife securities Other equity securities Interest on mortgage and other loans Partnerships Mutual funds Real estate Other investments Total investment...

  • Page 292
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net unrealized gains (losses) included in the Consolidated Statement of Income from investment securities classified as trading securities in 2010, 2009 and 2008 were $3.5 billion, $3.7 billion and ...

  • Page 293
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS relevant facts and circumstances including, but not limited to, decisions to reposition AIG's investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage ...

  • Page 294
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS security. In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs, which vary by asset class: • Current delinquency rates; • Expected ...

  • Page 295
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AIG's investments in life settlement contracts are monitored for impairment based on the underlying life insurance policies, with cash flows reported periodically. An investment in a life settlement ...

  • Page 296
    ... Loans Receivable 2010 2009 2008 Finance Receivables 2010 2009 2008 Allowance, beginning of year Loans charged off Recoveries of loans previously charged off Net charge-offs Provision for loan losses Other Activity of discontinued operations Reclassified to Assets of businesses held for sale Sales...

  • Page 297
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Reinsurance In the ordinary course of business, AIG's general insurance and life insurance companies place reinsurance with other insurance companies in order to provide greater diversification of AIG...

  • Page 298
    ... policy benefits and are presented as a component of Reinsurance assets. The following table presents premiums for AIG's life insurance and retirement services operations: Years Ended December 31, (in millions) SunAmerica 2010 2009 2008 Divested Businesses* Eliminations 2010 2009 2008 2010 2009 2008...

  • Page 299
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reinsurance Security AIG's third-party reinsurance arrangements do not relieve AIG from its direct obligation to its insureds. Thus, a credit exposure exists with respect to both general and life ...

  • Page 300
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (b) (c) (d) For 2010, includes AIA which was deconsolidated and ALICO which was sold in 2010, AIG Life Canada was sold in 2009 and the Brazil operations were sold in 2008. In 2009, includes an increase ...

  • Page 301
    ... in consolidated VIEs: At December 31, (in billions) VIE Assets(a) 2010 2009 VIE Liabilities 2010 2009 Off-Balance Sheet Exposure 2010 2009 AIA/ALICO SPVs(b) Real estate and investment funds Commercial paper conduit CDOs Affordable housing partnerships Other VIEs of businesses held for sale Total...

  • Page 302
    ... 2010 2009 Unconsolidated VIEs 2010 2009 Assets: Available for sale securities Trading securities Mortgage and other loans receivable Other invested assets Cash Other asset accounts Assets held for sale Total Liabilities: Future policy benefits for life and accident and health insurance contracts...

  • Page 303
    ... Estate and Investment Funds AIG's Direct Investment business, through AIG Global Real Estate, is an investor in various real estate investments, some of which are VIEs. These investments are typically with unaffiliated third-party developers via a partnership or limited liability company structure...

  • Page 304
    ... and obtaining financing secured by such aircraft. A portion of the secured debt has been guaranteed by the European Export Credit Agencies. These entities meet the definition of a VIE because they do not have sufficient equity to operate without ILFC's subordinated financial support in the form of...

  • Page 305
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included these entities in the above table as they are wholly owned and there are no other variable interests in the entities other than those of ILFC. Structured Investment Vehicle The Direct Investment...

  • Page 306
    ... the effects of counterparty netting adjustments and offsetting cash collateral. Includes cross currency swaps. The following table presents the fair values of derivative assets and liabilities on the Consolidated Balance Sheet: December 31, 2010 Derivative Derivative Assets Liabilities(a) Notional...

  • Page 307
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS exchange rates. AIG records the change in the carrying amount of these investments in the foreign currency translation adjustment within Accumulated other comprehensive income (loss). Simultaneously, the...

  • Page 308
    ...not hedge its exposures related to the credit default swaps it had written. As a dealer, AIGFP structured and entered into derivative transactions to meet the needs of counterparties who may be seeking to hedge certain aspects of such counterparties' operations or obtain a desired financial exposure...

  • Page 309
    ... intention of earning revenue on credit exposure. In the majority of Capital Markets' credit default swap transactions, AIGFP sold credit protection on a designated portfolio of loans or debt securities. Generally, AIGFP provides such credit protection on a ''second loss'' basis, meaning that AIGFP...

  • Page 310
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the net notional amount, fair value of derivative (asset) liability and unrealized market valuation gain (loss) of the Capital Markets super senior credit default swap ...

  • Page 311
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The expected weighted average maturity of AIGFP's super senior credit derivative portfolios as of December 31, 2010 was 1.2 years for the regulatory capital corporate loan portfolio, 3.5 years for the ...

  • Page 312
    ... capital structure of CLOs, which require physical settlement. Certain of the super senior credit default swaps provide the counterparties with an additional termination right if AIG's rating level falls to BBB or Baa2. At that level, counterparties to the CDS transactions with a net notional amount...

  • Page 313
    ... into credit default swap contracts referencing single-name exposures written on corporate, index and asset-backed credits, with the intention of earning spread income on credit exposure. Some of these transactions were entered into as part of a long-short strategy allowing AIGFP to earn the net...

  • Page 314
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition to hedging activities, AIG also uses derivative instruments with respect to investment operations, which include, among other things, credit default swaps and purchasing investments with ...

  • Page 315
    ... at other companies. Management's estimates are also based on the assumption that counterparties will terminate based on their net exposure to AIG. The actual termination payments could significantly differ from management's estimates given market conditions at the time of downgrade and the level of...

  • Page 316
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Liability for Unpaid Claims and Claims Adjustment Expense and Future Policy Benefits for Life and Accident and Health Insurance Contracts and Policyholder Contract Deposits The following table ...

  • Page 317
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Certain asbestos business that was written by Chartis is discounted based on the investment yields of the companies and the payout pattern for this business. The discount comprises the following: $...

  • Page 318
    ... liability account of the general account. Amounts assessed against the contract holders for mortality, administrative, and other services are included in revenue and changes in liabilities for minimum guarantees are included in Policyholder benefits and claims incurred in the 302 AIG 2010 Form...

  • Page 319
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Income. Separate account net investment income, net investment gains and losses, and the related liability changes are offset within the same line item in the Consolidated ...

  • Page 320
    ... disclosures. 15. Debt Outstanding The following table summarizes AIG's total debt outstanding: At December 31, (in millions) 2010 2009 FRBNY Credit Facility (secured) Other long-term debt Federal Reserve Bank of New York commercial paper funding facility Total debt $ 20,985 85,476 $106,461 $ 23...

  • Page 321
    ... December 31, 2010 (in millions) Total 2011 2012 Year Ending 2013 2014 2015 Thereafter AIG general borrowings: FRBNY Credit Facility(a) Notes and bonds payable Junior subordinated debt Junior subordinated debt attributable to equity units Loans and mortgages payable SunAmerica Financial Group, Inc...

  • Page 322
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2010, a total of $21.0 billion was outstanding under the FRBNY Credit Facility, a net decrease of $2.5 billion from December 31, 2009. The amount outstanding at December 31, 2010 included...

  • Page 323
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In November 2010, AIG exchanged 49,474,600 of its Equity Units for 4,881,667 shares of AIG Common Stock plus $162 million in cash. Each Equity Unit was exchanged for 0.09867 shares of AIG Common Stock ...

  • Page 324
    ...in private placements. The notes are due in full on their scheduled maturity dates. In 2009, ILFC entered into term loan agreements (the Term Loans) with AIG Funding in the amount of $3.9 billion. The Term Loans were secured by a portfolio of aircraft and all related equipment and leases. These Term...

  • Page 325
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AIG Funding through the FRBNY Credit Facility. ILFC prepaid the principal balance and an accrued interest amount of approximately $4.0 billion due under the Term Loans on August 20, 2010. In addition, ...

  • Page 326
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS aircraft. Segregated rental payments are used to pay scheduled principal and interest on the 2004 ECA Facility as they become due. During 2010, ILFC entered into agreements to cross-collateralize the two...

  • Page 327
    ... Act) or claims under the Securities Act of 1933 (the Securities Act). On March 20, 2009, the Court consolidated all eight of the purported securities class actions as In re American International Group, Inc. 2008 Securities Litigation (the Consolidated 2008 Securities Litigation). AIG 2010 Form 10...

  • Page 328
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On May 19, 2009, lead plaintiff in the Consolidated 2008 Securities Litigation filed a consolidated complaint on behalf of purchasers of AIG stock during the alleged class period of March 16, 2006 ...

  • Page 329
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On March 30, 2010, the Court dismissed the action due to plaintiff's failure to make a pre-suit demand on AIG's Board of Directors. On March 31, 2010, judgment was entered. On April 29, 2010, plaintiff ...

  • Page 330
    ... derivative agreements or other contracts between third parties, such as credit default swaps under which AIG is a reference credit, which could affect the trading price of AIG securities. On December 17, 2009 defendants filed a motion to dismiss. On September 28, 2010, the Court issued a decision...

  • Page 331
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS denying liability with respect to AIG's claim on September 13, 2010. The arbitration hearing is scheduled for December 2011. Because of the stage of the proceeding and the wide difference in damages ...

  • Page 332
    ... claims asserted against AIG by investors, including the securities class action and shareholder lawsuits described below. Amounts held in escrow totaling approximately $338 million, including interest thereon, (The Workers' Compensation Fund), are included in Other assets at December 31, 2010...

  • Page 333
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Attorney General's claim concerning producer compensation and insurance placement practices. AIG paid the Ohio Attorney General $9 million as part of that settlement. NAIC Examination of Workers' ...

  • Page 334
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for violations of Sections 11 and 15 of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and Sections 20(a) and Section 20A of the Exchange Act. In October ...

  • Page 335
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS make it commercially reasonable to proceed with such an offering will be within AIG's unilateral discretion. In the event that AIG effects a registered secondary offering of common stock on behalf of the...

  • Page 336
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Court of New York Derivative Action submitted a stipulation and proposed order dismissing the case with prejudice. The Delaware 2004/2005 Derivative Litigation. From October 2004 to April 2005, AIG ...

  • Page 337
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Court en banc. On December 29, 2010, the Delaware Supreme Court affirmed the Chancery Court's decision dismissing claims against AIG, General Re, Marsh, and ACE. On February 5, 2010, a stipulation of ...

  • Page 338
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Multi-District Litigation. Commencing in 2004, policyholders brought multiple federal antitrust and RICO class actions in jurisdictions across the nation against insurers and brokers, including AIG ...

  • Page 339
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On October 1, 2010, defendants in the Commercial Complaint filed motions to dismiss the remaining remanded claims in the District Court of New Jersey. As of February 16, 2011, plaintiffs have not ...

  • Page 340
    ... accounting and an action on an open, mutual, and current account. The Court denied the NWCRP's motion for reconsideration on September 16, 2010. The plaintiffs filed a motion for class certification on July 16, 2010. AIG opposed the motion. On January 5, 2011, AIG executed a term sheet with a group...

  • Page 341
    ... assets at December 31, 2010, and are specifically designated to satisfy liabilities related to workers' compensation premium reporting issues. Litigation Matters Relating to AIG's Insurance Operations Caremark. AIG and certain of its subsidiaries have been named defendants in two putative class...

  • Page 342
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 2009, established a schedule for class action discovery that was to lead to a hearing on class certification in March 2010. The Court has since appointed a special master to oversee class action ...

  • Page 343
    ... claims. Benefits Provided by Starr International Company, Inc. SICO has provided a series of two-year Deferred Compensation Profit Participation Plans (SICO Plans) to certain AIG employees. The SICO Plans were created in 1975 when the voting shareholders and Board of Directors of SICO, a private...

  • Page 344
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS portion of the capital value of SICO should be used to provide an incentive plan for the current and succeeding managements of all American International companies, including AIG. None of the costs of ...

  • Page 345
    ..., and no material liabilities related to these arrangements have been recorded in the Consolidated Balance Sheet. See Note 1 herein for additional information on sales of businesses and asset dispositions. ALICO Sale Pursuant to the terms of the ALICO stock purchase agreement, AIG has agreed to...

  • Page 346
    ..., including Capital Markets and MIP written credit default swaps and other derivatives with credit risk-related contingent features. • See Note 25 herein for additional disclosures on guarantees of outstanding debt. 17. Total Equity and Earnings (Loss) Per Share Shares Outstanding The following...

  • Page 347
    ... F Preferred Stock, at AIG's 2010 Annual Meeting of Shareholders and held office as Preferred Directors until the closing of the Recapitalization, at which time the Board determined that it was advisable and in the best interests of AIG and its shareholders to provide for the continued service of...

  • Page 348
    ...-term debt in the Consolidated Balance Sheet. Equity Units In May 2008, AIG sold 78.4 million equity units (the Equity Units) at a price per unit of $75 for gross proceeds of $5.88 billion. Each Equity Unit has an initial stated amount of $75 and consists of a stock purchase contract issued by AIG...

  • Page 349
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Equity Units and settled the respective stock purchase contract at its final stock purchase date with the proceeds from subordinated debentures. The execution of the Exchange Offer resulted in a loss on ...

  • Page 350
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Noncontrolling interests In connection with the ongoing execution of its orderly asset disposition plan, as well as plans to timely repay the FRBNY Credit Facility, AIG transferred two of its wholly ...

  • Page 351
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS capital structure includes either two or more classes of common stock or common stock and participating securities. This method determines EPS based on dividends declared on common stock and ...

  • Page 352
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. Statutory Financial Data and Restrictions The following table presents statutory surplus and net income (loss) for AIG's general insurance and life insurance and retirement services operations in ...

  • Page 353
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS requires formal notice to the insurance department in which the particular insurance subsidiary is domiciled. For example, unless permitted by the New York Superintendent of Insurance, general insurance ...

  • Page 354
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Non-Employee Plans AIG's non-employee directors received share- based compensation in the form of deferred stock units (DSUs) under the 2010 Plan and the 2007 Plan with delivery deferred until retirement...

  • Page 355
    ...-vested shares of non-transferable AIG Common Stock (restricted stock) were granted to certain of AIG's most highly compensated employees and executive officers under the 2007 Plan totaling 118,605 and 351,259, in 2010 and 2009, respectively. The restricted stock generally becomes transferable on...

  • Page 356
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The AIG DCPPP provides that a fixed number of time-vested RSUs would be allocated to each participant if AIG's cumulative adjusted earnings per share in 2005 and 2006 exceeded that of 2003 and 2004 as ...

  • Page 357
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The total unrecognized compensation cost (net of expected forfeitures) related to unvested share-settled compensation awards and the weighted-average periods over which those costs are expected to be ...

  • Page 358
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS converted into AIG Common Stock based on the values of such securities and AIG Common Stock at the time of the conversion. Restricted Stock Units TARP RSUs TARP RSUs awarded require the achievement of ...

  • Page 359
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The total unrecognized compensation cost (net of expected forfeitures) related to unvested SARs and cash-settled RSUs and the weighted-average periods over which those costs are expected to be recognized...

  • Page 360
    ... 100 employees of AIG. The impact to AIG's financial statements was not significant. Postretirement Plans AIG and its subsidiaries also provide postretirement medical care and life insurance benefits in the U.S. and in certain non-U.S. countries. Eligibility in the various plans is generally based...

  • Page 361
    ... recognized in the consolidated balance sheet: Assets Liabilities Total amounts recognized Pre tax amounts recognized in Accumulated other comprehensive income (loss): Net income (loss) Prior service (cost) credit Total amounts recognized (a) (b) $ Pension Non-U.S. Plans 2010 2009 $ 2,313 $ 137 59...

  • Page 362
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2010, the funded status for the Non-U.S. pension plans was reduced by $536 million from December 31, 2009 primarily due to the divestitures of ALICO and AIA, which are included in ...

  • Page 363
    ... 2010 2009 2008 (in millions) 2008 Components of net periodic benefit cost: Service cost Interest cost Expected return on assets Amortization of prior service (credit) cost Amortization of net (gain) loss Net curtailment (gain) loss Net settlement (gain) loss Other Net periodic benefit cost Total...

  • Page 364
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Curtailments, Remeasurement and Settlements In connection with the asset sales in 2010 and the designation of AGF as held for sale at September 30, 2010, AIG remeasured the AIG Retirement Plan. The ...

  • Page 365
    ...net periodic benefit costs: At December 31, Pension Non-U.S. Plans(a) Postretirement Non-U.S. Plans(a) U.S. Plans U.S. Plans 2010 Discount rate Rate of compensation increase Expected return on assets 2009 Discount rate Rate of compensation increase Expected return on assets 2008 Discount rate Rate...

  • Page 366
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plan Assets The investment strategy with respect to assets relating to AIG's U.S. and non-U.S. pension plans is designed to achieve investment returns that will (a) provide for the benefit obligations of...

  • Page 367
    ...U.S.(a) International(b) Fixed maturity securities: U.S. investment grade(c) International investment grade(c) U.S. and international high yield(d) Mortgage and other asset-backed securities(e) Other investment types: Hedge funds(f) Commodities Real estate Private equity(g) Insurance contracts Total...

  • Page 368
    ... Assets: Real estate Private equity Insurance contracts Total U.S. Plan Assets: Fixed maturity U.S. investment grade U.S. and international high yield Mortgage and other asset-backed securities Equities - U.S. Private equity Total At December 31, 2009 Non-U.S. Plan Assets: Real estate Private equity...

  • Page 369
    ... on the employees' years of service subject to certain compensation limits. Pre-tax expense associated with this plan was $103 million, $100 million and $115 million in 2010, 2009 and 2008, respectively. 21. Ownership (a) According to the Schedule 13D as amended through January 19, 2011 filed by...

  • Page 370
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22. Income Taxes The following table presents income (loss) from continuing operations before income tax expense (benefit) by U.S. and foreign location in which such pretax income (loss) was earned or ...

  • Page 371
    ... premium reserve reduction Employee benefits Total deferred tax assets Deferred tax liabilities: Deferred policy acquisition costs Flight equipment, fixed assets and intangible assets Unrealized gains related to available for sale debt securities Other Total deferred tax liabilities Net deferred tax...

  • Page 372
    ... CONSOLIDATED FINANCIAL STATEMENTS The following table presents AIG's U.S. consolidated income tax group tax losses and credits carryforwards as of December 31, 2010 on a tax return basis. December 31, 2010 (in millions) Gross Tax Effected Expiration Periods Net operating loss carryforwards Capital...

  • Page 373
    ... was supported by gains expected to be realized from the planned divestitures of businesses and assets, principally AIA and ALICO. All of these divestitures were completed in 2010. At December 31, 2010, and December 31, 2009, AIG's U.S. consolidated income tax group had net deferred tax liability...

  • Page 374
    ... consolidated financial statements file separate U.S. federal income tax returns and are not part of the AIG U.S. consolidated income tax group. Subsidiaries operating outside the U.S. are taxed, and income tax expense is recorded, based on applicable U.S. and foreign law. The statute of limitations...

  • Page 375
    ... International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2005 restatement of its consolidated financial statements. AIG has also paid additional taxes, interest, and penalties assessed for 1998 and 1999, and filed an administrative refund claim on September 9, 2010...

  • Page 376
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AIG regularly evaluates adjustments proposed by taxing authorities. At December 31, 2010, such proposed adjustments would not have resulted in a material change to AIG's consolidated financial condition,...

  • Page 377
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restructuring expenses and related asset impairment and other expenses by reportable segment consisted of the following: SunAmerica Financial Group Financial Services(a) (in millions) Chartis Other(b)...

  • Page 378
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A rollforward of the restructuring liability, reported in Other liabilities on AIG's Consolidated Balance Sheet, for the years ended December 31, 2010 and 2009, the cumulative amounts incurred since ...

  • Page 379
    ... and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24. Quarterly Financial Information (Unaudited) Consolidated Statements of Income (Loss) Three Months Ended March 31, (dollars in millions, except per share data) Total revenues $ Income (loss) from continuing operations before income tax...

  • Page 380
    ...), a holding company and a wholly owned subsidiary of AIG. AIG provides a full and unconditional guarantee of all outstanding debt of SAFG, Inc. Condensed Consolidating Balance Sheet American International Group, Inc. (As Guarantor) (in millions) December 31, 2010 Assets: Short-term investments...

  • Page 381
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS American International Group, Inc. (As Guarantor) Reclassifications and Eliminations (in millions) December 31, 2009 Assets: Short-term investments(a) Other investments Total investments Cash Loans to subsidiaries(b) Debt issuance costs, including prepaid...

  • Page 382
    ...International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Income (Loss) American International Group, Inc. (As Guarantor) (in millions) Year Ended December 31, 2010 Revenues: Equity in undistributed net income (loss) of consolidated...

  • Page 383
    ... FINANCIAL STATEMENTS American International Group, Inc. (As Guarantor) Reclassifications and Eliminations (in millions) Year Ended December 31, 2009 Revenues: Equity in undistributed net income (loss) of consolidated subsidiaries(a) Dividend income from consolidated subsidiaries(a) Change...

  • Page 384
    ... FINANCIAL STATEMENTS American International Group, Inc. (As Guarantor) Reclassifications and Eliminations (in millions) Year Ended December 31, 2008 Revenues: Equity in undistributed net income (loss) of consolidated subsidiaries(a) Dividend income from consolidated subsidiaries(a) Change...

  • Page 385
    ...Reserve Bank of New York credit facility repayments Issuance of other long-term debt Repayments on other long-term debt Drawdown on the Department of the Treasury Commitment Intercompany loans - net Other, net Net cash (used in) provided by financing activities - continuing operations Net cash (used...

  • Page 386
    ...Reserve Bank of New York credit facility repayments Issuance of other long-term debt Repayments on other long-term debt Drawdown on the Department of the Treasury Commitment Intercompany loans - net Other, net Net cash (used in) provided by financing activities - continuing operations Net cash (used...

  • Page 387
    ...other long-term debt Issuance of common stock Proceeds from issuance of AIG Series D preferred stock Intercompany loans - net Payments advanced to purchase shares Cash dividends paid to shareholders Other, net Net cash (used in) provided by financing activities - continuing operations Net cash (used...

  • Page 388
    ... American International Group, Inc. (As Guarantor) supplementary disclosure of non-cash activities: Year Ended December 31, (in millions) 2010 2009 2008 Intercompany non-cash financing and investing activities: Paydown of FRBNY Credit Facility by subsidiary Capital contributions to subsidiaries...

  • Page 389
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SAFG, Inc. supplementary disclosure of non-cash activities: Year Ended December 31, (in millions) 2010 2009 2008 Intercompany non-cash financing/investing activities: Loans receivable forgiven through ...

  • Page 390
    American International Group, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Repayment and Termination of the FRBNY Credit Facility - Represents net cash proceeds from the AIA IPO and the ALICO sale used to repay the FRBNY Credit Facility. The net proceeds were held in an escrow ...

  • Page 391
    ... the Securities Exchange Act of 1934 (Exchange Act)) as of December 31, 2010. Based on this evaluation, AIG's Chief Executive Officer and Chief Financial Officer concluded that AIG's disclosure controls and procedures were effective as of December 31, 2010. Management's Report on Internal Control...

  • Page 392
    American International Group, Inc., and Subsidiaries AIG management recognizes that the importance of continued attention to improving its internal controls, in particular those related to the period-end financial reporting and consolidation process, income taxes and accounting for non-standard ...

  • Page 393
    ...the information provided in Part I under the heading ''Directors and Executive Officers of AIG'', information required by Items 10, 11, 12, 13 and 14 of this Form 10-K are incorporated by reference from the definitive proxy statement for AIG's 2011 Annual Meeting of Shareholders, which will be filed...

  • Page 394
    American International Group, Inc., and Subsidiaries Part IV Item 15. Exhibits, Financial Statement Schedules (a) Financial Statements and Schedules. See accompanying Index to Financial Statements. (b) Exhibits. See accompanying Exhibit Index. 378 AIG 2010 Form 10-K

  • Page 395
    ... duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th of February, 2011. AMERICAN INTERNATIONAL GROUP, INC. By /s/ ROBERT H. BENMOSCHE (Robert H. Benmosche, President and Chief Executive Officer) KNOW ALL PERSONS BY THESE...

  • Page 396
    American International Group, Inc., and Subsidiaries Signature Title /s/ ARTHUR C. MARTINEZ (Arthur C. Martinez) Director /s/ GEORGE L. MILES, JR. (George L. Miles, Jr.) Director /s/ HENRY S. MILLER (Henry S. Miller) Director /s/ ROBERT S. MILLER (Robert S. Miller) Director /s/ SUZANNE NORA...

  • Page 397
    ...) 2010 2009 2008 2007 2006 Earnings: Pre-tax income (loss)(a): Add - Fixed charges Adjusted Pre-tax income Fixed charges: Interest expense Portion of rent expense representing interest Interest credited to policy and contract holders Total fixed charges Preferred stock dividend requirements Total...

  • Page 398
    ...Inc...AIG Global Asset Management Holdings Corp...AIG Asset Management (Asia) Limited ...AIG Asset Management (U.S.), LLC ...AIG Asset Management Services, Inc...AIG Global Real Estate Investment Corp...AIG Securities Lending Corp...International Lease Finance Corporation ...AIG Federal Savings Bank...

  • Page 399
    ... Voting Securities held by Immediate Parent(1) Chartis Claims, Inc...Health Direct, Inc...Chartis Global Services, Inc...Chartis International, LLC ...AIG Global Trade & Political Risk Insurance Company ...AIU Insurance Company ...Chartis Insurance Company China Limited ...Chartis Taiwan Insurance...

  • Page 400
    ...Guard Group Canada, Inc...Travel Guard Group, Inc...WINGS International (World Insurance Network Global System) SA Chartis Azerbaijan Insurance Company Open Joint Stock Company ...Global Information Services Private Limited ...Chartis Egypt Insurance Company S.A.E...Chartis U.S., Inc...American Home...

  • Page 401
    ... Parent(1) Fuji International Insurance Company Limited ...Fuji Life Insurance Company Ltd...Pine Street Real Estate Holdings Corp...Chartis Aerospace Insurance Services, Inc...Chartis Insurance Agency, Inc...Chartis Insurance Company of Canada ...Chartis Property Casualty Company ...Commerce...

  • Page 402
    ... Subsidiaries As of December 31, 2010 Jurisdiction of Incorporation or Organization Percentage of Voting Securities held by Immediate Parent(1) SunAmerica Annuity and Life Assurance Company ...SunAmerica Asset Management Corp...SunAmerica Capital Services, Inc...SunAmerica Investments, Inc...AIG...

  • Page 403
    ... by Chartis UK Holdings Limited. Also owned 9 percent by Chartis International, LLC. Also owned 0.01 percent by Chartis Latin America Investments, LLC. Also owned 51 percent by American International Group, Inc. Also owned 27.1 percent by New Hampshire Insurance Company, 22 percent by National Union...

  • Page 404
    ... American International Group, Inc. of our report dated February 24, 2011 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP New York...

  • Page 405
    ... fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2011 /s/ ROBERT H. BENMOSCHE Robert H. Benmosche President and Chief Executive Officer AIG 2010 Form 10-K 389

  • Page 406
    ..., whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2011 /s/ DAVID L. HERZOG David L. Herzog Executive Vice President and Chief Financial Officer 390 AIG 2010 Form 10-K

  • Page 407
    ...connection with this Annual Report on Form 10-K of American International Group, Inc. (the ''Company'') for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Robert H. Benmosche, President and Chief Executive Officer of the...

  • Page 408
    ... Annual Report on Form 10-K of American International Group, Inc. (the ''Company'') for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, David L. Herzog, Executive Vice President and Chief Financial Officer of the Company...

  • Page 409
    American International Group, Inc., and Subsidiaries Exhibit 99.02 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, Par Value $2.50 Per Share Warrants (expiring January 19, 2021) 5.75% Series A-2 Junior Subordinated Debentures 4.875% Series A-3 Junior ...

  • Page 410
    ... Report to Shareholders and Annual Report on Form 10-K for the year ended December 31, 2010, should be directed to: Listings and Certifications Stock Market Listings New York, Irish and Tokyo Stock Exchanges NYSE common stock trading symbol: AIG Investor Relations American International Group...

  • Page 411
    American International Group, Inc. 180 Maiden Lane New York, NY 10038 www.aig.com